The whistleblower provisions of the False Claims Act have lead to several newsworthy cases in recent years. Just a few days ago, the Justice Department announced that KMART Corporation (Kmart) will pay $1.4 Million to resolve False Claims Act allegations for knowingly providing coupons to Medicare beneficiaries to waive or reduce co-pays for purchasing more expensive drugs. Federal law prohibits this type of remuneration due to the potential influence on a beneficiary’s choice and subsequently increasing the government’s costs. In addition to the problematic coupons, Medicare beneficiaries were also enticed with gas rewards and discounts based on the number of prescriptions filled at Kmart. A former Kmart pharmacist filed suit under the whistleblower provisions of the False Claims Act.
The False Claims Act (FCA) is nothing new, dating back to the Civil War, also known as Lincoln Law. This law was initially passed to protect the Union Army from being provided poor quality or cheaply made items. During the war, the government could not afford to regularly inspect the army’s clothing, horses, weapons or gunpowder. Unfortunately, the contractors did not always have the best interests of the soldiers in mind. Fraud was rampant. As a cost-effective measure to combat fraud, the government offered any employee of a contractor or company half of the fine imposed if they became a whistleblower. At this time, the FCA provided that any person who knowingly submitted false claims to the government was liable for double the damages plus $2000 for each false claim. In 1986, changes to the FCA included increasing to treble damages and penalties up to $11,000 per claim.
A qui tam suit is brought on by a private citizen (relator) against a person or company who is believed to have violated the law in the performance of a contract with the government or in violation of a government regulation. Qui tam is a shortened Latin phrase meaning “who as well for the king as for himself sues in this matter.” The relator or whistleblower is awarded 15-25% of the total proceeds recouped by the government, and these qui tam awards are taxed as the relator’s ordinary income (recent 7th Circuit Court ruling).
Interestingly, most whistleblowers claim they simply wanted to work in an ethical environment and did not want to bring an action against their employer. However, when the potential fraud was brought to the attention of the employer, these employees were either ignored or concerned about subsequent retaliation. As part of an effective compliance program, employees should have access to an anonymous reporting method to report any fraud, waste or abuse without fear of retribution. Thorough investigation and corrective action, if necessary, may avoid a potential qui tam action.