Joel Klein served as the chancellor of the New York City Department of Education for eight years. In a new book called "Lessons of Hope: How to Fix Our Schools," he recounts his experience as head of the nation's largest school district and explains his vision for how to solve the problems plaguing our education system.
The House of Representatives recently voted to greatly expand protections for whistle-blowers. The new measure would make it easier to punish supervisors who try to retaliate against federal employees who expose fraud, waste and abuse. An earlier law, the False Claims Act, stops corporations and others from cheating government programs like Medicare. While these laws often reward those who come forward, the price paid by employees may not be worth it. Diane and her guests discuss the risks, rewards, and protections for whistle-blowers.
- Patrick Burns director of communications, Taxpayers Against Fraud.
- John Phillips attorney, Phillips & Cohen, LLP.
- Peter Hutt attorney in private practice, Akin Gump Strauss Hauer & Feld LLP.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. The House of Representatives recently moved to help protect federal employees who report misconduct in their agencies. Joining me to talk about who benefits from whistleblower laws and whether they do help root out fraud, John Phillips who represents whistleblowers, Patrick Burns with Taxpayers Against Fraud and Peter Hutt who defends business interests in whistleblower cases.
MS. DIANE REHMDo join us, questions, comments, 800-433-8850. Send us your email to firstname.lastname@example.org. Follow us on Facebook or Twitter. Good morning, gentlemen, good to have you here.
MR. JOHN PHILLIPSGood morning.
MR. PATRICK BURNSGood morning.
MR. PETER HUTTGood morning.
REHMJohn Phillips, if I could start with you. Talk about the protections that whistleblowers have today.
PHILLIPSWell, whistleblowers always pay a price for whistle-blowing and there's always an attempt to try to rectify the problem. And I think the first Bill you're talking about that Congress is considering is how do you protect federal whistleblowers, those working for the federal government who are often retaliated against when they expose some serious problem within the government.
PHILLIPSBut the other law, the one that we spent our time on, is called the False Claims Act that was amended in 1986. It's actually a law passed in the administration of Abraham Lincoln, but it had fallen largely into disuse.
PHILLIPSBut it's designed to help people who work within companies who see fraud being committed against the government or the government loses money, to give them power to initiate a lawsuit on behalf of the government, a private attorney general, if you will, to pursue the case on the government's behalf, oftentimes with the Department of Justice. And if successful at the end, share in the recovery to give them some compensation for that long effort that it often takes.
REHMAnd that compensation may be pretty substantial?
PHILLIPSWell, on average, these cases that have been brought since 1986, the average recovery for the Treasury is about $2 million.
PHILLIPSOn average, and that boils down to about $150,000 for the whistleblower when you net out taxes and all costs associated with it.
REHMAnd the rest of it?
PHILLIPSGoes to the Treasury, it goes back to the United States Treasury.
PHILLIPSAnd it's based on treble damages, too. That's to compensate the whistleblower that is really being paid by the defendant, the wrongdoer and not out of the government proceeds.
REHMAnd Peter Hutt, give me an example of the kind of fraud we're talking about.
HUTTYeah, the kind of fraud that is the subject of the federal False Claims Act runs a very broad gamut. Any kind of fraud perpetrated against the federal Treasury is prohibited by the federal False Claims Act. A couple of examples, classic defense contractor fraud where, for example, a defense contractor will over-bill for services or provide a part for a jet that does not work properly.
HUTTOther examples would be in the health care arena, where doctors don’t provide appropriate services, but nonetheless seek reimbursement from Medicare or perhaps, you know, bill for the wrong code to seek additional compensation. Really, the statute is designed to ferret out any kind of fraudulent conduct from those who seek payment from the federal Treasury.
HUTTAnd it is enforced, as John mentioned, in large part by whistleblowers. The way the statute works and has worked for quite a while now is that it can be enforced either directly by the Department of Justice to vindicate the government's interests directly or actions can be instituted by whistleblowers called qui tam plaintiffs with the hope of securing a financial recovery frankly.
REHMSo Patrick Burns, this House law, the new Whistleblower Protection Act, was voted on last month, September 28th. What's in that new law and why is it needed?
BURNSThe new law basically protects federal whistleblowers so that there is less blowback for them if they report problems within the government, whatever kinds of problems there are. One of the things we see regardless of who the employer is, whether it's a hospital, whether it's a pharmaceutical company, whether it's a defense contractor or whether it's the federal government is that a whistleblower is typically humiliated, isolated and then terminated.
BURNSAnd so the...
REHMAnd what happens to the perpetrator?
BURNSWell, that's an interesting question. When whistleblowers call me up, I can offer them two general premises. The first is that most of the time they're going to lose their job if they become a whistleblower. And the second thing that I can promise them, I might be wrong, but I'm generally not, is that the person who designed and operationalized and green-lit this fraud will not only not be fired. They won't go to jail and they may be promoted.
REHMSo what you're telling our listeners is you're probably better off not to be a whistleblower?
BURNSNo, the real question is that you have to do the calculations behind the calculated risk. And so what John was saying is that the average whistleblower after the end of a two, three or four-year journey in which he's been isolated and humiliated and then ultimately terminated, he'll be unemployed and probably unemployable.
BURNSBut he'll get back, he or she will get back maybe $150,000, $200,000 cash. And what I advise them coming through the door is, let's think this through just you and I quietly talking. You make $130,000 a year. You're a middle manager with this company. You'll never work again. Is this something you want to do?
BURNSSo one of the questions here and being a whistleblower is to evaluate the case, how big is the case? How do you want to proceed? There are different things that you can do. Part of the frustration on our end is that when somebody comes with a one or two or $3 million fraud, it may actually be not a good idea for them to blow the whistle and lose their job.
BURNSSo what's the next option for them? Well, they can call a tip-line or they can to the agency itself that's being defrauded. The problem there, and this is why the False Claims Act is different, is if you go to the government with a tip or you explain the fraud to them, 95 times out of a 100 they're going to do nothing.
BURNSThe absolute intransigence of government when presented with problems and fraud, now why is the False Claims Act different? It's because it requires the government to investigate and it requires the government to act.
BURNSIt has to affirmatively make a decision. The second thing is because lawyers are involved, private lawyers, they can package the cases and present the evidence and so a better case is presented when it's done through a lawyer.
REHMOkay, so if you got this brand new Whistleblower Protection Act, John Phillips, how is that going to change that conversation that takes place initially between the potential whistleblower and Patrick Burns?
PHILLIPSWell, that's a totally different law. What Pat was describing is the person who works within a company that's defrauding the company where there's an opportunity to get some compensation, if successful, the law that they're considering now is merely a provision that will protect against retaliation within the federal government. It's very limited in scope.
REHMAnd that is just for federal government employees?
PHILLIPSYes, just for federal employees, that's correct.
REHMSo for other individuals working in other companies that decide to blow the whistle, your advice stands, is that right?
REHMThat's pretty sad.
PHILLIPSWell, but it's not always the case. Let me give you, like, one real-life example of a case.
PHILLIPSAnd this began, a CPA in a hospital in Whitefish, Montana saw a situation where he was asked basically to keep two sets of books for submitting to the Medicare program for reimbursement. He said that would be fraud. He wouldn't do it. He was terminated.
PHILLIPSHe learned about this law. He did file the lawsuit. He lost his job. He was unemployable for a long time, but he now began a ten-year ordeal. But at the end of the ten years, we marshaled legal resources. As lawyers, we had five law firms. We had 70 lawyers working on the case with the government and at the end of the case, he was vindicated and the government did collect hundreds of millions of dollars back to the Treasury and he did get compensated for that long ten-year effort.
PHILLIPSSo when he did the calculation, initially he didn't realize the fraud was so pervasive and so massive, but that's a good news/bad news story. He paid a heavy price for a decade of his life and his family. But at the end, he came out at the end of the case very successful and having vindicated the taxpayer interest there.
REHMPeter Hutt, what's the view from the other side of that?
HUTTWell, let me try to start off perhaps by distinguishing between two kinds of whistleblowers. And I'll divide them in simple terms into good whistleblowers and bad whistleblowers.
HUTTNow the good whistleblower is the kind of individual that John Phillips has just discussed. That kind of individual comes forward to the U.S. government with accurate, new information about a fraud being perpetrated on the federal government. And here these individuals add a lot of value by providing this information to the government and clearly deserve to be rewarded for the information they provide.
HUTTSome of them, in fact, do face the kinds of retaliation that's been described here. And in fact, they are often very significantly rewarded. We've heard about the average recovery perhaps returning $150,000 to an individual whistleblower. In cases where the size of the fraud is substantial, whistleblowers have recovered tens or even close to a $100 million in some cases.
HUTTSo whistleblowers can be very, very well taken care of if they happen to blow the whistle on a significant fraud. Now that's what I referred to as the good kind of whistleblower. Unfortunately, under the statute, there is a bad kind of whistleblower as well and this represents approximately 75 percent of all whistleblower actions that are filed.
REHMAnd what I want you to do is hold on to that example until after we take a short break. We've already got lots of callers. We'll try to get to as many as we can when we come back. Stay with us.
REHMAnd welcome back. We're talking about whistleblower laws that's already in place, new laws, Whistleblower Protection Act that works in behalf of strictly federal employees that was voted by the House of Representatives last month. Just before the break, Peter Hutt, you were talking about an example of a bad whistle-blowing situation. Spell that out for us.
HUTTSure. And as I said, this represents approximately 75 percent of all the whistle-blowing actions filed under the False Claims Act.
REHMYou're saying 75 percent of them are not good.
HUTTWell, it's not that they smell bad, I'm not making any judgment about whether the individual is a morally good person or bad. But the problem is, these lawsuits, what I call the bad whistleblower lawsuits are ones that do not provide any new real information about fraud to the government.
HUTTThese are actions that by and large are filed by whistleblowers hoping to get rich. The statute provides such financial incentives that whistleblowers are willing to file lawsuits, along with their attorneys, hoping to get Powerball-type recoveries because people are so aware of the fact that some whistleblowers have been successful in recovering tens of millions of dollars or more.
HUTTAnd the --just to finish off one last thought, the problem for the corporations is dealing with these lawsuits is a horrendously complicated and expensive proposition. It can sometimes cost hundreds of thousands or even millions of dollars to get rid of these meritless whistleblower lawsuits. And I believe, this is the single biggest problem with the statute as it exists today.
BURNSWell, I have to say, I fundamentally disagree with Peter. The first point is is that declined lawsuits are not in fact invested in by the companies. They're declined and most of them go away. Most of these lawsuits are, in fact, tossed out very, very quickly by the Department of Justice because, in fact, they're filed pro se, without a lawyer. These are people who are, for a variety of reasons, had brought cases that are not by False Claims Act lawyers and they're often not by lawyers at all.
BURNSSo that's the first point. The second is, is that when a case is declined, that doesn't mean necessarily that the case has no merit. There are over $3 billion in recoveries to the federal government in cases that were declined by the federal government. And it's not hard to understand why. The people who are looking at these cases initially are mostly lawyers. Fraud is, by definition, complicated and complex.
BURNSAnd so you look at the fraud, you don't quite understand it and the part -- the beauty of the False Claims Act is, if a case is declined, the lawyer and the whistleblower can then decide whether they want to pursue that case or not. Now, here's the interesting part, they have skin in the game. The lawyer is going to have to spend millions of dollars invested in this case and he or she will not get paid unless they win.
BURNSThe reality, however, is they win often enough that people who represent the Chamber of Commerce and the large fraudsters in the pharmaceutical industry, in the defense industry, military defense industry are absolutely apoplectic because they're not able to continue the business of fraud. And this business of fraud is huge. It affects our mortgages. It affects consumers. It affects our pharmacies.
BURNSOur oldest, sickest and poorest are being drugged in nursing homes by companies that are essentially poisoning for profit. Those are real cases. And those are cases that are being declined by the United States government.
REHMPeter Hutt, do you want to comment?
HUTTYeah. While I thoroughly disagree with the proposition that there is any organized business of fraud or any organized fraud lobby or pro-fraud component within corporate America. It is just absolutely not the case. Almost every corporation other than a very, very small number of outliers has adopted very extensive corporate compliance programs and makes extensive efforts to comply with all elements of law.
HUTTOne of the other problems with the statute, which is unrelated to whistleblowers is that it does not impose liability on companies only for committing fraud. It also imposes liability on companies who submit false claims recklessly. And that has been interpreted by the courts very, very broadly. In other words, if you're a corporation and one of your employees happens to make a mistake and doesn't comply with the provision of law, all of a sudden, a corporation is at risk of being subjected to a suit under the False Claims Act and being held liable.
HUTTThere's very little justification for that, and it's another example of how the law, unfortunately, is drafted a bit over broadly.
PHILLIPSWell, we've been bringing these cases for over 26 years. We carefully screen -- we're typical of lawyers in this field -- carefully screen these cases and would not bring a case unless it was not well grounded. We'll be wasting our time and our resources to do that. And the government does join most of the cases that we bring. And my experience, most of the government resources that go in to pursue these cases are in the really meritorious cases.
PHILLIPSAnd these ones that Patrick mentioned are washed out very efficiently from the system. So, it's quite an overstatement to suggest that there's a lot of frivolous cases that are wasting a lot of resources here. This has become the driving law that goes after fraud that's committed against the government. Eighty-five percent of the recoveries that the government now obtains are initiated by whistleblowers.
BURNSThere's $50 billion that has been collected by the government in the resolution of these whistleblower cases. And the deterrence is measured in many multiples of that. So it's been a huge success. It's been the most effective tool by far in the arsenal of combating fraud against the government.
REHMAnd has the number of whistleblower cases gone up during this particular administration?
PHILLIPSNo, they have not. They've stabilized to about 600 cases or so a year across the country. And that's, you know, given the size of the government and the budget, that's not all that many. About 150 each year are resolved in favor of the government against a company that has defrauded the case. And this is a fraud statute, it's not some negligence case. It's when they knowingly set out to either deliver a product that's defective and charged for it as though it was a proper product or they overcharge the Medicare or Medicaid program by using multiple techniques that are exposed by insiders.
PHILLIPSThis is a clarion call by the government for people on the inside who see fraud being committed. Bring the information forward, bring it to the surface and we'll work together to go after the companies.
REHMBut, at same times, and apparently confidentiality cannot be assured and that individual who blows the whistle is likely not only to lose his or her job but never to work again. Where is the confidentiality that one would hope would be assigned to that individual who blows the whistle?
BURNSThere is confidentiality initially. So cases are filed under seal. And they may say under seal for a year, two years, three years, four years, I've known cases to stay under seal for a dozen years. That's not the way it's supposed to work. But normally, they stay under seal two or three or four years. At the end of it, however, when the case is resolved, one way or the other, the seal is generally lifted and the name of the whistleblower is known.
BURNSThat's a bad thing if the whistleblower loses. It's not necessarily a good thing if the whistleblower wins. If I might go back to one point that Peter said. He says there isn't a fraud lobby. I'm going to disagree a little bit on that. And let me explain what I mean by that, is that the business of business is business. And so what we have in so many of what we do in America today is essentially a system in which billing the government is seen as you just milk the cash cow.
BURNSAnd so when you look at companies like Pfizer, $2.3 billion settlement, GlaxoSmithKline paid a $3 billion settlement this year. Anson Pharmaceutical, Johnson & Johnson subsidiary, is about to pay $2.2 billion settlement for a single drug. We're looking at drugs in which -- drugs like Depakote who are poisoning for profit and huge percentage of their market sales are off-label.
BURNSThey know what they're doing but they're making the decision. Let's look at GlaxoSmithKline. Whistleblower went to that company 10 years ago and said, internally, and said: You're committing fraud. Here's how you're doing it. It's wrong. I think we should stop it. The compliance industry -- the compliance department at GlaxoSmithKline investigated. And you know what they reported back? Yes, we're doing the fraud.
BURNSWe're lying, we're stealing and we're cheating. What say you corporate headquarters? And corporate headquarters said, we're going to continue to lie, steal and cheat, and they did for the next 10 years. So if the fraud is not caught, it goes on the back of taxpayers. If the fraud is caught, it goes on the back of stockholders. But the people in the company making the decision always privatize the profit.
BURNSThey get their beach house, they get their promotion. And that's why I think the American people are asking a simple question: Why aren't more people going to jail?
HUTTWell, I'm not going to comment on the specific case that was just discussed because I'm not familiar with the details of it. Look, there's no question that the False Claims Act has become a very powerful tool. It is the government's principal anti-fraud tool. And, yes, there are companies that had been found liable and have paid very significant penalties under the statute. I don't think that there is any corporation in America that would try to rollback the statute or say that you don't need an anti-fraud statute for America.
HUTTWe all need it as citizens. I think there's no question about that. But there is a debate right now and many corporations are concerned that the statute has gone too far and it has been interpreted as going too far. Now...
REHMHow going too far?
HUTTWell, first of all, it's been interpreted very broadly to encompass activity, which is not true fraud. Now we've heard a couple of examples of real fraud, but there are many instances where quite literally there is an ambiguous regulation or contract provision, a contractor or a hospital or doctor is trying to figure out how do I comply and gets it wrong and may have messed up. That, right now, it's very difficult as a defendant to just go to court...
REHMAnd you're saying that those...
HUTT...and argue that that is not going to lead to liability under the statute.
REHMYou're saying that's an innocent mistake rather than an effort to defraud?
HUTTYeah, it's very -- the line that the statute draws is reckless disregard which has been interpreted by the courts as gross negligence. It is very difficult to draw that line between making a mistake and something which is worse than making a mistake. And the presumption of a quick plaintiff's lawyer in particular is that nothing is a mistake, everything must be at least reckless, and therefore actionable under the statute. But let me, Diane, just...
REHMWait a minute, wait a minute, let me...
PHILLIPSWell, that's simple not our experience for 25 years. This is a fraud statute. Reckless gross negligence, reckless disregard is a fraud stand. It's not some simple negligent mistake or air. These companies aren't paying billions of dollars back because they made a simple mistake. They're paying it back because they knew they were doing it and they did it anyway because it was profitable for them.
PHILLIPSAnd they're being caught now and they are being deterred from doing it in the future. And the idea that this is simple turning negligent conduct into fraud is simply not the case. These are difficult cases to prove and bring.
REHMI bet. But give me -- tell me about this fellow who is going to jail but receiving compensation out of the whistleblower situation in which he was involved, Patrick.
BURNSSure. That's an IRS whistleblower case. And let me just start off saying there is the False Claims Act. And the False Claims Act, this marvelous law, it's been so successful we now have 29 state False Claims Act and we have the IRS whistleblower law which was just passed, and we have the SEC whistleblower law to go after people like Bernie Madoff, and we have Commodities Future Trading Commission whistleblower law.
BURNSSo these whistleblower laws are so successful, every time we incentivize integrity, the system works. We start to find more fraud. It's great. We are trying to basically drain the swamp of fraud. This particular person got $104 million.
BURNSA reward. And why did he get so much money? Because he brought to the government $5 billion in tax evasion and not only did he return $5 billion back to Uncle Sam, there's another part to it. He changed our relationship with Switzerland and overseas banking. So now, more fraudsters are coming forward.
REHMSo why does he go to jail?
BURNSHe went to jail, quite frankly, because he had a single client who he tried to protect. And for trying to protect that single client out of the 5,000 he told about, they said you've made a mistake, you lied to us.
REHMAll right, and you're listening to "The Diane Rehm Show." We're going to open the phones now. There are lots of callers waiting, 800-433-8850. First to Springfield, IL. Good morning, Will, you're on the air. Will, are you there?
WILLYes, I'm here.
REHMGo right ahead, sir. Yes.
WILLOh. I'm a whistleblower myself and I was directed by the office of Senator Roy Blunt to provide a full report concerning the activities of a vital 123 organization that has been defrauding the federal government for a considerable length of time. The investigation centers around activities in St. Louis with a women's advocacy group, legal advocates for abused women, which supposedly provides legal services to battered women.
WILLThat's what they're getting the money for. Actually, they've been involved in various of schemes of bankruptcy fraud involving residents of other states. And I would like to go into the witness intimidation statute of the federal witness intimidation statute. I spoke with the FBI for an hour and forty five minutes I think in February 13th. I've been in contact with the FBI.
REHMOkay. Now, Will, I'm afraid we're not going to be able to go into all the details of your situation. Let's give you some general comments from Patrick Burns.
BURNSWell, the first point, I guess, is this goes to one of the reasons that we're looking for insiders in companies that people outside may think they see a fraud, maybe there is a fraud. But ultimately, you have to prove it. You have to actually -- this is not the we-said-so law, it's the prove it. So, if you're going to make a False Claims Act case and win it and have the Department of Justice join it or win it in court on your own after DOJ declines.
BURNSYou really need boxes of physical, visible evidence. It's -- you can't just say something and allege it. The government does not pay a reward from your tip. It's not going to -- well, we're going to -- I'll tell them what's wrong and then they can investigate. Nope. You've got to bring the physical, visible evidence of the problem. You have to make certain thresholds. Once you do that, then you become eligible for an award. And the government will go after the fraud. It's the general rule.
HUTTYeah, Diane, let me go back to one thing that I wanted to say. You asked, you know, why did a certain whistleblower go to jail when he received $100 million recovery. It's often the case that some of the whistleblowers who end up recovering, in fact, played some part in the underlying fraud. As was stated back when the original False Claims Act was enacted in the 1860s, sometimes it takes a rogue to catch a rogue. And that is one feature that one does see played out with some whistleblowers, certainly not all.
REHMBut why would they be rewarded and sent to jail and allowed to keep that $100 or so million?
HUTTWell, it's very rare for a whistleblower to go to jail. That is highly unusual, I think it's fair to say. And under the False Claims Act that we've been discussing, if you're indicted or convicted, then you cannot receive any recovery. However, it is the case that occasionally whistleblowers who come forward know about the fraud because they participated in it.
REHMPeter Hutt, he's an attorney with Akin Gump Strauss Hauer and Feld. He defends business interest in whistleblower cases. Short break and we'll be right back.
REHMAnd welcome back. We're talking about whistleblower laws in place. New whistleblower laws that may affect the outcome and the involvement of individuals who choose to blow the whistle on an employer, on a supervisor. John Phillips, you wanted to add something to what Phillip (sic) Hutt said.
PHILLIPSYes, it's the question of the government's motive here. They want information of fraud being committed against the government. And when you have a pharmaceutical company that has a lot of employees participating or aware of it -- they don't like it. They're somehow forced to play and be part of that system. It's designed to encourage them to come forward and bring the information to the surface so it could be acted upon. That's what the law is all about. Now, if you are the one who planned it and you somehow personally profit from it, you're not entitled to receive any benefit if you're successful. But you want the information to the surface to be acted upon.
REHMAll right. To Bertie in O'Fallon, Ill, good morning.
BERTIEGood morning, Diane.
REHMHi, go right ahead, sir.
BERTIEYes, I want to thank you for having such an interesting panel group put together.
BERTIEI, too, am a former whistleblower and certainly going through all the struggles that they have been talking about. I do find the law as written to be rather short sighted, however, because it seems to protect federal employees, but not state and local level employees who are also reporting on abuse and fraud involving federal grants to state and territories.
BERTIEAnd I say this because I look back at the worst tragedy in American Samoa's history that claimed 34 lives in which we had a very high government official who abused and misused federal funds and ended up in losing key federal support for security projects and warning systems. In addition to that there was an attempt by that same individual to deflect the blame onto others. But the eventual result was the layoff of the entire office.
REHMAll right, let's talk about how these laws that do apply to federal employees do not apply to state and local employees.
BURNSThat's often the case, though, basically federal law covers federal contracts and federal workers. However, that doesn't say that state and local governments don't have whistleblower protection laws. They vary from state to state. You need to consult a lawyer to see what they are. So whether it's wrongful termination or contracts, these may apply. Another thing that needs to be said is there are 29 state false claims acts out there. And so hundreds of millions of dollars are collected every year under the state false claims acts. Texas, in fact, has recovered over a billion dollars under its state false claims act.
REHMHere's an email from Deland, Fla. from Virginia who says, "I'm a retired federal personnel specialist who was responsible for adverse actions for different agencies. My experience with the whistleblower defense to adverse actions was only invoked by employees who were already in trouble for misconduct. They blew the whistle as the smokescreen for their own bad behavior." Have you seen that happen, Peter?
HUTTYes, that certainly does. Whistleblowers are often, and once again, I'm going to draw a distinction between the good whistleblower and the bad whistleblower. Part of the bad whistleblower behavior is when an individual is motivated to come forward and blow the whistle in the hopes of insulating him or herself from adverse employment action.
HUTTIt certainly does happen.
REHMTo Columbia, Md., good morning Alene.
REHMGo right ahead please.
ALENEWell, my husband's a whistleblower. I went with him to our congressman to say there was problems with his agency. And the whistleblower -- the congressman said well, if you have the goods, go ahead and the whistleblower law will protect you. I just want to say one thing first. This new law, as I believe, is about federal whistle-blowing. And we're getting -- we spent a whole lot of time this morning talking about corporations and things like that. And I don't think that's the topic.
ALENESo his case lasted 13 years. He spent almost a million dollars in lawyers. At one point -- we're newly married and I got into this before I was married. And I knew what I was getting into. I loaned him $60,000 at one point for a lawyer. After five years the lawyer said if I had known what this case was like with the government I would never have taken it. But the agency -- as soon as he reported fraud and it turned out there was a massive fraud, possibly as much as a third of the agency's budget in 1998. They went after him and they diverted the case from the fraud to his being a threat the workplace. And that's what he was defending basically for 13 years.
REHMJohn Phillips, do you want to comment?
PHILLIPSWell, I don't know the circumstances of that case, but that's what this new law is designed to deal with. I assume what she's talking about is exposing fraud being committed within a government agency. And that's not what we've been talking about. We've been talking about corporate fraud largely against the United States Treasury. And that's a very different law.
REHMAll right, to Four Oaks, N.C., good morning, Jean.
JEANHi, I just wanted to make a comment. I am a small Medicaid provider. I'm an independent practitioner for the State of North Carolina. And companies like ours are collateral damage, I believe, because of these laws. You know, we just went through an audit about two months. It was a big audit and we did very well. But the two circumstances that they basically dinged us on was because the therapist had not documented enough medical necessity.
JEANAnd when we get letters, we get letters basically saying because of your fraudulent practices you're going to repay this back. So they're using very offensive terms because this documentation did not meet their medical necessity. And not only that, but now they have put us on pre-payment review, OK. So I only bill -- we bill the state typically five or six hundred dollars a week only. It's really not very much.
JEANWe're a very small company. We're a mom and pop company. And they'll cut us off at the knees. We can't pay the people to go out and do the services. We have to wait for 30 days for them to decide if they're going to pass it to that. And I feel like we're collateral damage and I'm not the only one. There's a lot of other providers going through the same thing.
HUTTWell, the caller's story here is all too familiar. There are just tens of thousands or more small businesses out there which have very similar experiences. What they see is the federal government coming in, doing an audit, saying you did something wrong. And saying, you know, we can use the federal False Claims Act and make you pay up to treble damages. It's very terrifying for a lot of small businesses and causes all sorts of problems. And that's an example of the kind of overreaching that we do see, unfortunately, under the statute.
BURNSI just have to call nonsense on that when we have about 100 to 150 False Claims Act cases that are settled every year. That's it. This is a massive country. We have 314 million people. We spend trillions of dollars. We are bringing 100 and 150 cases a year under the False Claims Act. You're more likely to be killed by a dairy cow than to actually have a False Claims Act case go to trial or to be settled.
BURNSThe truth of the matter is if you're in the business of billing the federal government, it's very clear what it is you have to do to get paid. One of those things is you have to document medical necessity. I'm sorry that this company appears to do it so poorly that they are now under a pre-payment review. But that's a warning shot that they need to clean up and fly right.
PHILLIPSYes, and I think that's the case here. I have to give credit to the Obama Administration and their crackdown on Medicare fraud. They used to call it -- they used to have what they called pay and chase where you just pay all the bills that come in. You never look at it at all and then you go after them when you find out that fraud's been committed.
PHILLIPSAnd that was resulting in all sorts of organized crime, getting into this business of billing the government. And now they're doing this screening to make sure they catch before they pay some of these outfits that are out there over billing the Medicare program. And that's very good. That's saving the taxpayer a lot of money. And if you follow the rules and, as Pat said, you're not going to get into trouble.
REHMAll right, to Bluff City, Tenn., good morning, Gary.
GARYWell, good morning and thank you very much. I'll be brief. I wanted to ask specifically about the Columbia HCA event. I'm a hospital administrator. Now, they paid $1.6 billion for a Medicare fraud fine. The CEO of that company was fired with a $300 million parachute. And now he is governor of one of the biggest states in the country. What -- where's the justice?
PHILLIPSWell, that was our case we brought over a ten-year period. And they're referring to Governor Rick Scott who's now the governor of Florida. Well, that's a question you have to ask the criminal prosecutors and, you know, reasons why they decide to go after somebody or not to go after them. I think in the case of HCA it was a systematic attempt to defraud the Medicare, Medicaid program.
PHILLIPSIt was going on for many years. And it was proven with all the documents. That's why they paid so much money back. And the idea that there's no accountability of the CEO's and the people who are overseeing this corporation is really a scandal, I think.
BURNSEugene O'Neill said it best. In The Emperor Jones the emperor says, "For the little stealing you go to jail, but for the big stealing they make you emperor. If there's one thing I learned on them Pullman cars it's that fact." And that's why the American people are so frustrated. They don't just want our stolen billions recovered. They want to see some of these people at least be fired if not go to jail. The call in America isn't for limits on whistleblowers. It's how can we find more whistleblowers. And why are we sending more of these crooks to jail. Good question.
REHMInstead we're electing them to various high positions. I mean how do you get that?
PHILLIPSWell, you know, Rick Scott did walk away with a lot of money. And I think he spent $65 million of his own money to get elected. And it just wasn't as big an issue in the State of Florida. We did get inquiries asking about it. So I said, well, look the record's there. Go look at it and see how much money he got for walking away from a company that paid $1.7 billion back to the Medicare program.
REHMAll right, to Tom who's here in Washington, D.C. You're on the air.
TOMThank you. This has been a great program.
TOMAbout the people who are the human factor, that's the Achilles heel of bureaucratic corruption. I work at the Government Accountability Project, the whistleblowers support group. And this program has been excellent in focusing on how we got even with the crooks, got the money back from them that they've defrauded. But I think it's worth everyone knowing that there's been a real legal revolution in the free speech rights to protect against retaliation for those who are trying to prevent fraud or public tragedies that should be avoided if they have the freedom to challenge them on it -- was timely.
TOMIn the last decade we've had a legal revolution in corporate free speech rights covering almost the entire private sector starting with Sarbanes-Oxley. In this last month the House passed a law to extend those rights by overhauling the Whistleblower Protection Enhancement Act for government employees in the civil service.
TOMAnd just yesterday President Obama signed an executive action and presidential policy directive further extending those rights to employees of the national security fields like the CIA or the National Security Agency. So this is one of the most dynamic phenomena in the legal landscape -- whistleblower protection. And I commend you for having this program.
REHMThank you, Peter Hutt.
HUTTYeah, I'd just make one additional comment. I think the caller's exactly right. There's been a dramatic trend towards whistleblower protection. And it really began, I think, with the 1986 amendments to the False Claims Act. One thing that we haven't talked about yet is that the existing statute includes fairly robust whistleblower protection protections for individuals who file lawsuits under the False Claims Act. And the whistleblower protections were just substantial amended and probably strengthened in the last two years.
REHMAnd you're listening to "The Diane Rehm Show." Do you want to comment on that?
PHILLIPSOne thing I want to emphasize. This was signed into law by President Reagan. It was -- principle sponsor was Senator Charles Grassley from Iowa, a very conservative republican. The argument was, look, we want to use the marketplace approach, marketplace incentives. We don't want to add to the bureaucracy. We want to encourage individuals to become part of the effort to wipe out fraud against the government with a public/private partnership. We want to encourage private resources to be brought to bear to pursue government claims. And that's exactly what this law has done.
REHMHere's an email from Ann who says, "I was a whistleblower for a large hospital chain. My case was accepted under the False Claims Act. I was retaliated against by the company. This affected me for many years. The administrators that created the fraud were actually promoted, never suffered. I received substantial compensation through this case, but not enough to cover for my lost wages over the years. Even though we did win, I had to pay for four attorneys and had really no protection from this retaliation," Patrick.
BURNSThis is the kind of story that we hear too often. And I think it really goes to the issue of having to do, if you will, the calculations behind the calculated risk on the front end. First of all thanks to the whistleblower. And thanks for standing up and suiting up and speaking up because the fraud that's put down is fraud that won't continue into the future.
REHMBut is it worth it? That's what it comes down to.
BURNSIt really depends on the case. And I think is one of the reasons you need to not leap in. You need to be slow, talk to an attorney. But also talk to people like Taxpayers Against Fraud. We're in Washington. We represent whistleblowers. We talk to whistleblowers. We're going to go through the case with you. Not about the facts of the case or the law of the case, but we want you to go in eyes wide open so that you know what it is to expect.
BURNSOne of the things that happens to whistleblowers is a violence is done to them. And it's a violence to their conscience. Most people who are raised up believe that if you do good you'll get good. And if you do bad, you'll get bad. And what whistleblowers discover is that if you do good, you'll get hammered. And if you do bad, you'll get rich. And that is a horrible thing to have to internalize because it makes the entire voyage of your life seem unbound.
REHMI certainly recall the whistleblower in the tobacco case and the manner in which he was retaliated against. The individuals representing the companies who stood before Congress and told them that nicotine was not habit forming. We've had some pretty bad cases out there of whistleblowers. Some have come out on top, as you've said. But, boy, you really have to think hard before you put your life on the line. I thank you all for being here and for talking very rationally about the proposition.
REHMJohn Phillips, he is a founding principle at Phillips & Cohen. He represents whistleblowers. Patrick Burns is director of communications at Taxpayers Against Fraud. Peter Hutt is with Akin Gump Strauss Hauer & Feld. He defends business interests in whistleblower cases. Thanks for listening all. I'm Diane Rehm.
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