Cracking down on government fraud

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When Ross Wright looked out for Uncle Sam’s wallet, Uncle Sam looked out for him.
In the late 1990s, Wright was an administrator at a residential treatment center for at-risk youth in Colorado Springs. When he discovered that his organization was knowingly taking government money for services it wasn’t providing, he found himself in an awkward predicament.
He asked management about the matter and then received a voice-mail message telling him that he was fired.
That was all it took for Wright to become a whistle blower.
With the help of the government and the Federal Bureau of Investigation, Wright became an agent of the American taxpayers and sued his former employer under the provisions of the federal False Claims Act.
Originally created during the Civil War and reinstituted in 1986, the False Claims Act allows whistle-blowing citizens to sue on behalf of the government to recover stolen money.
Not only could a guilty party be responsible for up to three times the government’s damages, the whistle blower can be awarded between 15 percent and 25 percent of the recovered money as compensation for his or her risk.
Wright’s whistle blowing assistance won him $65,000.
“It caused that organization massive damages and major losses,” Wright said. “But what they were doing was illegal and wrong.”
Stories like Wright’s could become more common, because Congress is encouraging states to adopt their own versions of the False Claims Act.
Nearly 80 percent of the False Claims Act cases pursued today are health care or Medicaid related, and most of those are initiated by whistle blowers, according to the U.S. Department of Justice.
A section of the Deficit Reduction Omnibus Reconciliation Act of 2005 increases state awards from False Claims Act litigation by 10 percentage points if the state adopts a law as strict as the federal version.
Only 15 states have False Claims Act laws, but Congress’ action prompted Rep. Liane McFadyen to introduce HB 1359, which would create a False Claims Act provision for Colorado.
But the legislation may have a tough road ahead of it.
“Many states have introduced these types of legislation, and many times they’ve failed,” said Jim Moorman, a lawyer and president of the national anti-fraud advocacy group, Taxpayers Against Fraud.
Moorman said most government contracting agencies and beneficiaries – especially medical companies – that could be affected by the legislation have powerful lobbyists who work to defeat the measures.
Moorman said that medical companies argue that the legislation will punish them for mistakes and not necessarily fraud.
Since 1986, $17 billion has been recovered because of False Claims Act cases. Because of recent judgments, fiscal year 2006 could be a record year for fraud recovery, with $1 billion collected during the first quarter.
The first case of FY ’06 resulted in a $704-million settlement with Serono Inc. for illegally marketing an anti-AIDS wasting drug called Serostim.
Other large False Claims Act cases resolved this year include a $124-million settlement with King Pharmaceuticals, a $40 million settlement with Erlanger Medical Center in Tennessee and a $62.5-million settlement with Tenet Healthcare.
During the first two weeks of January, an additional $42 million was recovered from ABN AMRO Mortgage Group, and a $25 million settlement was announced involving four national accounting firms that had been pocketing travel rebates that should have been returned to the federal government.
“I’ve seen them all,” Moorman said. “From unnecessary eye surgery to unnecessary heart surgery to drugs that don’t work.”
Six cases that have been scheduled for trial this year each allege billions or hundreds of millions in fraud.
“If the states care about protecting tax money at all and recovering it, they’ll pass their own false claims act legislation,” Moorman said.
Colorado’s bill is awaiting consideration by the House Judiciary Committee.
Rob.Larimer@csbj.com