The False Claims Act was enacted in 1863 in an effort to root out fraud and corruption during the Civil War. Since then, it has become a vital tool for the U.S. Department of Justice (DOJ) to recover taxpayer money from companies and individuals who defraud the government.
In the 2021 fiscal year, the DOJ recovered more than $1.6 billion from qui tam whistleblower lawsuits that were filed under the False Claims Act. The qui tam provisions of the False Claims Act enable private citizens to file lawsuits on behalf of the U.S. government if they have knowledge of an individual or company defrauding the government. Under these provisions, qui tam whistleblowers can be eligible for 15-30% of the amount the government recovers in a settlement. Additionally, there are no caps on rewards for qui tam whistleblowers: according to whistleblower law firm Kohn, Kohn and Colapinto, “the value of the information the whistleblower provides serves as the basis for the amount of the award.”
At the end of January 2022, the DOJ announced two False Claims Act settlements, both of which stemmed from qui tam whistleblower suits. Read more about the cases below.
Hayat Pharmacy
On January 28, U.S. Attorney Richard G. Frohling announced that Hayat Pharmacy, an operator of “23 pharmacy locations in the greater Milwaukee area,” will pay $2,050,000 to resolve allegations “that it submitted false claims to Medicare and Medicaid for prescription medications.” Allegedly, Hayat Pharmacy “submitted false claims to Medicare and Medicaid in 2019 for two prescription medications.” The medications were “a topical cream consisting of iodoquinol, hydrocortisone, and aloe, and a multivitamin with the trade name Azesco.” The federal medical programs were paying “thousands of dollars per prescription” for the cream and “hundreds of dollars per prescription for Azesco.” However, the government alleges that Hayat Pharmacy “switched Medicaid and Medicare patients from lower cost medications” to the cream and Azesco “without any medical need and/or without a valid prescription.”
Hayat Pharmacy will pay the $2,050,000 to settle the allegations; it also “agreed to conduct annual training concerning waste, fraud and abuse, and compliance with rules concerning medication switches.”
This case stemmed from a qui tam whistleblower’s complaint; thus, the whistleblower will receive a share of the settlement. The press release did not release the amount of the whistleblower’s reward.
Cardinal Health, Inc.
In another healthcare-related settlement, Cardinal Health, Inc. will pay $13,125,000 to resolve allegations that it violated the False Claims Act’s Anti-Kickback Statute. The Anti-Kickback Statute “prohibits pharmaceutical distributors from offering or paying any compensation to induce physicians to purchase drugs for use on Medicare patients.” Allegedly, Ohio-based Cardinal Health provided “upfront discounts” to customers, and the discounts “were not attributable to identifiable sales or were purported rebates which Cardinal Health’s customers had not actually earned.”
The press release explains that a pharmaceutical distributor can “legally offer commercially available discounts to its customers under certain circumstances permitted” by the Department of Health and Human Services’ Office of Inspector General; however, the agency “has advised that upfront discount arrangements present significant kickback concerns” unless they meet specific requirements.
In the press release, U.S. Attorney Rachael S. Rollins explains that Cardinal Health “recruited new customers by offering and paying cash bonuses.” Rollins states that kickback schemes “have the potential to pervert clinical decision-making and are detrimental to our federal health care system and taxpayers.” Special Agent in Charge of the FBI’s Boston Division Joseph R. Bonavolonta said that Cardinal Health “thought it hit upon a surefire moneymaker by paying kickbacks to doctors.”
The False Claims Act in 2021
The DOJ’s recently released data from FY 2021 about the False Claims Act described healthcare fraud as “once again the leading source of the department’s False Claims Act settlements and judgements.” Indeed, several of the qui tam whistleblower cases from 2021 originated from the healthcare field: read a breakdown of notable False Claims Act cases from 2021 here.
In FY 2021, whistleblowers helped the DOJ recover over $1.6 billion in settlements; however, “the DOJ only paid out $237 million to whistleblowers, the lowest single-year total since FY 2008,” WNN reports. Whistleblower attorney Stephen M. Kohn said that the FY 2021 totals “reflect a troubling trend in recent years…The DOJ has begun to treat whistleblowers like second-class citizens. It routinely throws out strong whistleblower cases without just cause. While the SEC and CFTC are making great strides forward with their whistleblower programs, the Justice Department is in reverse.” Read the full article about the False Claims Act in FY 2021 here.