[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                            FALSE CLAIMS ACT

=======================================================================

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON THE CONSTITUTION 
                           AND CIVIL JUSTICE

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 30, 2014

                               __________

                           Serial No. 113-93

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov


                                 ______

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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
HOWARD COBLE, North Carolina         ROBERT C. ``BOBBY'' SCOTT, 
LAMAR SMITH, Texas                       Virginia
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
SPENCER BACHUS, Alabama              SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
MARK AMODEI, Nevada                  JOE GARCIA, Florida
RAUL LABRADOR, Idaho                 HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas              DAVID N. CICILLINE, Rhode Island
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 ------                                

           Subcommittee on the Constitution and Civil Justice

                    TRENT FRANKS, Arizona, Chairman

                    JIM JORDAN, Ohio, Vice-Chairman

STEVE CHABOT, Ohio                   STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            JERROLD NADLER, New York
STEVE KING, Iowa                     ROBERT C. ``BOBBY'' SCOTT, 
LOUIE GOHMERT, Texas                 Virginia
RON DeSANTIS, Florida                HENRY C. ``HANK'' JOHNSON, Jr.,
JASON T. SMITH, Missouri               Georgia
                                     TED DEUTCH, Florida

                     Paul B. Taylor, Chief Counsel

                    James J. Park, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             JULY 30, 2014

                                                                   Page

                           OPENING STATEMENTS

The Honorable Trent Franks, a Representative in Congress from the 
  State of Arizona, and Chairman, Subcommittee on the 
  Constitution and Civil Justice.................................     1
The Honorable John Conyers, a Representative in Congress from the 
  State of Michigan, and Ranking Member, Committee on the 
  Judiciary......................................................     3

                               WITNESSES

The Honorable Chuck Grassley, a U.S. Senator from the State of 
  Iowa
  Oral Testimony.................................................     7
  Prepared Statement.............................................    10
Rachakonda D. Prabhu, M.D., Red Rock Medical Group
  Oral Testimony.................................................    15
  Prepared Statement.............................................    17
Patricia J. Harned, Ph.D., President, Ethics Resource Center
  Oral Testimony.................................................    45
  Prepared Statement.............................................    47
John E. Clark, Of Counsel, Goode Casseb Jones Riklin Choate & 
  Watson, Taxpayers Against Fraud
  Oral Testimony.................................................    56
  Prepared Statement.............................................    58
David W. Ogden, Partner, Wilmerhale, U.S. Chamber Institute for 
  Legal Reform
  Oral Testimony.................................................    77
  Prepared Statement.............................................    79

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................     4
Prepared Statement of the Honorable Steve Cohen, a Representative 
  in Congress from the State of Tennessee, and Ranking Member, 
  Subcommittee on the Constitution and Civil Justice.............    99

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Questions for the Record from John E. Clark, Of 
  Counsel, Goode Casseb Jones Riklin Choate & Watson, Taxpayers 
  Against Fraud..................................................   110
Prepared Statement of Stephen M. Kohn, Executive Director, 
  National Whistleblower Center..................................   117
                        OFFICIAL HEARING RECORD
      Material Submitted for the Hearing Record but not Reprinted

Report by the National Whistleblowers Center (NWC) entitled ``Saving 
    America's `Most Important Tool to Uncover and Punish Fraud' '' This 
    report is available at the Subcommittee and can also be accessed 
    at:

    http://www.whistleblowers.org/storage/whistleblowers/RebuttalDocs/
final%20fca
    %20report.pdf


                            FALSE CLAIMS ACT

                              ----------                              


                        WEDNESDAY, JULY 30, 2014

                        House of Representatives

                   Subcommittee on the Constitution 
                           and Civil Justice

                       Committee on the Judiciary

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 1:05 p.m., in 
room 2237, Rayburn Office Building, the Honorable Trent Franks 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Franks, Goodlatte, DeSantis, 
Cohen, Conyers, and Johnson.
    Staff present:(Majority) Zachary Somers, Counsel; Tricia 
White, Clerk; (Minority) James Park Minority Counsel; and 
Veronica Eligan, Professional Staff Member.
    Mr. Franks. The Subcommittee on the Constitution and Civil 
Justice will come to order.
    Without objection, the Chair is authorized to declare 
recesses of the Committee at any time.
    I will begin by recognizing myself for an opening 
statement.
    We welcome all of you to the Committee hearing today.
    Because protecting taxpayer dollars from waste, fraud and 
abuse is a critical responsibility with which Congress is 
entrusted, it is important that from time to time we examine 
how the False Claims Act is working.
    It has been 6 years since the Judiciary Committee has held 
a hearing on the FCA, and in that time three major legislative 
changes to the FCA have been enacted. So we have called today's 
hearing to examine areas in which the Act has been effective 
and potential areas in which reforms could be made to detect 
and prevent false claims in the future.
    The False Claims Act is the Federal Government's primary 
tool for combatting fraud in federally funded programs, and the 
Act has proved to be a very successful tool. In each of the 
last 4 years the government has recovered over $3 billion under 
the FCA, and since the significant 1986 amendments to the FCA 
the Federal Government has recovered over $38 billion using the 
Act.
    The FCA has been used to combat false claims in several 
economic sectors including defense, health care, 
pharmaceuticals, and finance. However, despite its success, as 
it is currently structured and enforced, the FCA still fails to 
prevent massive losses of taxpayer dollars to waste, fraud and 
abuse.
    According to a recent study by the General Accountability 
Office, over $100 billion in taxpayer money is lost each year 
to improper payments by the Federal Government. Thus, the 
government recovers only a fraction of what it loses to false 
claims every year. This is especially troubling considering 
Congress has amended the FCA three times in the past 5 years to 
expand its coverage and enhance the ability of the 
whistleblowers to bring suit.
    So the question occurs, how do we get more recoveries of 
taxpayer dollars out of the False Claims Act? Some experts who 
have studied the Act suggest that the answer is all about 
incentives and encouraging those best able to detect and 
prevent false claims--government contractors and government 
program beneficiaries themselves--to self-police and self-
report potential FCA violations. The advice of these experts 
seems to make a great deal of common sense to me.
    However, as currently structured, the FCA provides very few 
incentives for Federal Government contractors and businesses 
that participate in Federal Government programs to come forward 
and disclose their own violations. In other words, those with 
the best knowledge of waste, fraud and abuse are not encouraged 
to self-police for violations and self-disclose violations if 
they, in fact, occur.
    This is because there is no economic advantage or incentive 
to do so. FCA violators who self-report generally receive the 
same exact penalties and face the same damages as those who are 
caught violating the Act and settle out of court with the 
government.
    This would seem to make little sense. Shouldn't those that 
come forward and self-disclose violations get better terms than 
violators who are caught essentially red-handed? The FCA has 
been as successful as it has because it has provided 
whistleblowers with tremendous financial incentives for 
uncovering and disclosing false claims. It seems very 
appropriate and logical that to complement the current 
incentives for whistleblowers in the Act with financial 
incentives for self-disclosure will uncover even more waste, 
fraud and abuse of Federal taxpayer money. We need to examine 
ways to give those who do business with the government 
meaningful incentives to detect wrongdoing and to self-report 
it to government, and thus return to taxpayers more money than 
is currently recovered under the FCA.
    The Justice Department itself has acknowledged the 
limitations of the Act as it is currently written. According to 
the head of the division at DOJ charged with enforcing the FCA, 
the Justice Department is ``well aware of the fact that 
litigation can only plausibly reach a fraction of the fraud 
committed against U.S. Government programs, which likewise 
makes the prevention of fraud a more potent tool for protecting 
the interests of the United States than efforts to undo the 
damage of completed schemes. Litigation to recover the costs of 
fraud is a far inferior option to preventing the fraud in the 
first place.''
    Now, I hope through this hearing we can begin to discuss 
ways to prevent violations of the False Claims Act from 
occurring in the first place. The Federal Government has 
benefitted greatly from the increased accountability that has 
resulted from the False Claims Act and the invaluable help it 
has received from False Claims Act whistleblowers. We must make 
sure, however, that we are doing everything that we can to 
detect and prevent even more false claims against our nation's 
hard-earned financial resources, and I look forward to the 
witnesses' testimony.
    And I would yield--I see the Ranking Member is not here, so 
I am not going to yield to him. How does that sound? And I look 
forward to hearing, then, from our witnesses. We will now just 
thank the Committee for being here.
    We have two very distinguished panels of witnesses today, 
and I will begin by introducing the first panel witness.
    Our first witness is Senator Chuck Grassley, the Ranking 
Member on the Senate Judiciary Committee. Senator Grassley has 
served in the Iowa Legislature and the U.S. House of 
Representatives before being elected to the Senate in 1980. In 
1986, Senator Grassley authored significant amendments to the 
False Claims Act to empower whistleblowers to file suit on 
behalf of the Federal Government against those who falsely 
obtain taxpayer dollars. Senator Grassley has been a leader in 
combatting waste, fraud and abuse in Federal Government 
programs and protecting the rights of whistleblowers.
    I am wondering now at this point if we might ask the 
Ranking Member of the full Committee if he has any opening 
statement or any comments.
    Mr. Conyers. Thank you, Chairman. I do, and I thank you for 
your generosity.
    Senator Grassley, welcome, and to the Members of our 
Committee.
    I merely wanted to read a page or two of my remarks and put 
them in the record so that we don't detain the distinguished 
witness that we have today.
    The False Claims Act is a longstanding and vital tool for 
ferreting out fraud against the government and ultimately 
protecting taxpayer dollars, and since its enactment and in 
1986 amendments to this law almost $39 billion have been 
recovered from those that defrauded the American people, 
including some large pharmaceutical companies, hospitals, and 
defense contractors. In fact, more than $3.8 billion was 
recovered in the Fiscal Year 2013 alone.
    While no system is perfect, this Act has worked well, 
particularly in light of the amendments which were spearheaded 
by our distinguished witness who is with us today. These 
amendments revitalize the Act's qui tam provisions. The Act was 
further strengthened with clarifications to its liability 
provisions that were made in 2009. Thus, as we consider the 
state of the False Claims Act, we should keep the following 
points in mind.
    To begin with, qui tam actions are a critical component of 
the False Claims enforcement scheme, and I think for the 
interest of brevity I will ask permission to include the rest 
of my statement into the record and yield back the balance of 
my time, and thank the Chairman.
    [The prepared statement of Mr. Conyers follows:]

    
    
    
    
    
    
                               __________

    Mr. Franks. And I thank the gentleman.
    I would now like to recognize Senator Grassley.
    Senator Grassley, thank you for your gallant service to the 
country, and we are pleased to have you here today.
    I want to make sure that microphone is on so we can hear 
you, sir.

          TESTIMONY OF THE HONORABLE CHUCK GRASSLEY, 
             A U.S. SENATOR FROM THE STATE OF IOWA

    Senator Grassley. The green light is on.
    Before I read my 5-minute statement, I would like to, first 
of all--I thought the green light was on. I would like to thank 
you for responding to my request to come and testify. Thank you 
for doing that.
    The second thing I would like to say, you gave a nice 
introduction of me. Thank you for that.
    Thirdly, I often speak about whistleblowers as being 
welcome within an organization kind of like a skunk at a 
picnic. Now, I kind of feel that there is a lot of special 
interests in this town who are going to consider me a skunk at 
this picnic.
    Thank you for allowing me to come here today to testify. 
Today happens to be National Whistleblower Appreciation Day. 
Whistleblower groups are meeting as we speak to honor some of 
our colleagues on the Hill for their support of whistleblowers 
who report waste and fraud.
    I am wary when I hear the biggest violators of a fraud law 
hire people to talk about strengthening that law. Last fall, 
the Chamber of Commerce released a report on the False Claims 
Act. It claims the Act ``plainly is not getting the job done 
since the government has recovered only $35 billion since 
1987.'' Now that figure, as you folks have said, is $39 
billion, and some people use the term $42 billion. Anyway, this 
amount of money is nothing to sneeze at where I come from in 
rural Iowa.
    The fact is that since 1986, no other law has been more 
effective in battling fraud, and you said that, Mr. Chairman, 
in your opening statement. Before the 1986 amendments, it only 
brought in about $40 million a year, not billions of dollars. 
At that rate, it would have recovered only $1 billion in the 
past 25 years. Thanks to these '86 amendments, it has brought 
in 39, 40 times that amount of money.
    Clearly, the False Claims Act is working, and it is working 
fantastically. The report that I previously referred to says 
that the law is ``ineffective in preventing fraud.'' Yet, my 
staff have met with some of the authors of that report, and 
they don't have any concrete proposal for preventing fraud more 
effectively. They talk about ``a gold standard compliance 
certification program,'' but that just happens to be a pie-in-
the-sky idea with no specifics. As they said, ``We had to come 
up with something, so we just put that in.'' The Chamber 
clarified to my staff that they were talking about their 
proposal for internal reporting 180 days before any 
whistleblower can file a False Claims suit. Yet they also said 
of the overall certification program, ``We deliberately left 
this vague.''
    Now, that is a very serious problem. They lack details on 
who would create the program, who would enforce the program. 
Basically everything about it lacks detail, but they want you 
to believe that once this pipe dream is in place, it will 
magically increase the amount of taxpayer dollars the 
government recovers. In exchange, the report proposes hefty 
concessions for its big corporate sponsors.
    For starters, they want to eliminate the use of exclusion 
or debarment, some of the government's strongest tools on 
deterring fraud. They would require whistleblowers to report 
internally, which just puts a huge target on the back of a 
whistleblower. Internal reporting and a 6-month head-start on 
retaliation before a whistleblower gets the chance to be heard 
in court is a recipe guaranteed to reduce disclosures of fraud. 
Even when a corporation does come forward, the company line is 
never going to be the complete picture.
    That is why the False Claims Act incentivizes 
whistleblowers, and you see how it has worked. While I believe 
companies should have strong internal compliance programs, 
nothing is worth the get-out-of-jail-free pass that this report 
asks in exchange. Many corporate giants already spend large 
amounts on compliance but still routinely bilk the government 
out of millions of taxpayer dollars.
    This report's recommendations contradict its assertion that 
the False Claims Act has failed by not recovering enough money. 
The report proposes to limit government recoveries across the 
board regardless of the participation in any compliance 
certification program. That just makes no sense.
    In the last 5 years, the Federal Government has grown 
larger and larger, and spending has gotten more and more out of 
control. Whistleblowers using the False Claims Act have played 
a key role in checking fraud and wasteful spending. Annual 
recoveries under the False Claims Act have increased 
dramatically in the last 5 years. State Attorneys General 
around the country have used state False Claims Act to 
successfully recover billions of dollars for their states.
    For example, last October, then-Virginia Attorney General 
Ken Cuccinelli recovered $37 million for the State of Virginia 
from a drug company that was inflating its prices to scam 
taxpayer dollars from Medicare. The next month, Cuccinelli 
recovered $21 million in two healthcare fraud settlements with 
multi-national pharmaceutical giant Johnson & Johnson, which 
was paying millions of dollars in kickbacks to the nation's 
largest pharmacy.
    Yet, just days before Cuccinelli's announcement of the 
settlement, Health and Human Services Secretary Kathleen 
Sibelius also made an announcement. She revealed that this 
Administration did not intend to treat the Affordable Care Act 
as a Federal healthcare program, then exempting it from anti-
kickback laws. Precisely because of the fraud opportunities 
under the Affordable Care Act, one provision that Congress 
added to the law made a violation of the anti-kickback law an 
automatic violation of the False Claims Act. This 
Administration has chosen to ignore that part of the law.
    Congress must step forward and we must reiterate that the 
Affordable Care Act is no less subject to the anti-kickback law 
and the False Claims Act than any other Federal healthcare 
programs. Additionally, this Subcommittee should strongly 
consider strengthening the False Claims Act's connection with 
suspension and debarment. That would keep repeat offenders away 
from taxpayer dollars.
    A couple of years ago, the nonpartisan Government 
Accountability Office discovered serious weaknesses in the 
suspension and debarment program of numerous government 
agencies. Chairman Issa and Ranking Member Cummings of the 
House Oversight Committee have joined together with some 
proposals on this issue. Chairman Issa stated last fall, ``The 
current process of keeping taxpayer dollars out of the hands of 
criminals, tax evaders, and the chronically incompetent is 
stove-piped, fractured and inadequate.''
    This issue is really about law and order. If we really want 
to improve the False Claims Act, we should make a judgment or 
settlement under the law result in an automatic review for 
suspension or debarment. That would capitalize on the success 
of the law while increasing its deterrent effect. The False 
Claims Act has already provided a crucial check during a time 
of growing government and out-of-control spending. No matter 
what we do to deter waste and fraud, whistleblowers are the key 
to the government finding out when that act happens.
    Today, on National Whistleblower Appreciation Day, I hope 
we can honor whistleblowers for the patriotic service that they 
provide to the taxpayers.
    Thank you very much.
    [The prepared statement of Senator Grassley follows:]

    
    
    
    
    
    
    
    
                               __________
    Mr. Franks. Well, thank you, Senator Grassley. And again, 
we want to express our gratitude for you making the trip over 
here and the cogency of your remarks. Thank you very much, sir.
    I would now like to turn to the second group of witnesses, 
if you would like to take your seats.
    Our first witness on this panel is Dr. Rachakonda Prabhu. I 
am going to try that again, sir. Rachakonda Prabhu. I know 
nobody ever has any trouble with that name, do they?
    Dr. Prabhu is a Board-certified pulmonologist--boy, I am 
having trouble today--pulmonologist and the Founder of Red Rock 
Medical Group, the largest specialty medical group, multi-
specialty medical group in the State of Nevada. He is also a 
Clinical Associate Professor of Medicine at the University of 
Nevada School of Medicine. Dr. Prabhu was twice sued under the 
False Claims Act and both times, at great personal expense, 
prevailed in the litigation. In one of the cases against him, 
the court determined that the case brought by the government 
was without substantial justification.
    Our second witness is Patricia Harned--I got that one--
President of the Ethics Resource Center, the nation's oldest 
non-profit organization devoted to the advancement of high 
ethical standards and practices in public and private 
institutions. She serves as Consultant to the New York Stock 
Exchange and is a member in good standing of the Advisory Group 
of the Public Company Accounting Oversight Board. Dr. Harned 
has testified before Congress and the Federal Sentencing 
Commission and has been featured in media outlets including the 
Wall Street Journal, Washington Post, and USA Today.
    Our third witness is John Clark. John, thank you for having 
a simple name. [Laughter.]
    An attorney specializing in False Claims Act litigation. 
Mr. Clark is testifying today on behalf of Taxpayers Against 
Fraud. He served as an attorney in the Justice Department's 
Criminal Division as an Assistant U.S. Attorney and as the U.S. 
Attorney for the Western District of Texas. Mr. Clark has been 
a member of legal teams representing whistleblowers in cases 
that have resulted in recoveries totaling more than $3 billion 
for the United States and state Medicaid programs.
    Our final witness is David Ogden, a partner at WilmerHale. 
He is testifying on behalf of the Chamber of Commerce's 
Institute for Legal Reform. Mr. Ogden has held several 
positions at the Justice Department, including serving as the 
Deputy Attorney General of the United States from 2009 to 2010, 
and as Assistant Attorney General for the Civil Division from 
1999 to 2001. As head of the Civil Division, he directed the 
Justice Department's False Claims Act enforcement.
    Now, each of the witnesses' written testimony will be 
entered into the record in its entirety, and I would ask each 
witness to summarize his or her testimony in 5 minutes or less, 
and to help you stay within that time there is a timing light 
in front of you. The light will switch from green to yellow, 
indicating that you have 1 minute to conclude your testimony. 
When the light turns red, it indicates that the witness' 5 
minutes have expired.
    And before I recognize the witnesses, it is the tradition 
of the Subcommittee that they be sworn. So if you would please 
stand to be sworn.
    [Witnesses sworn.]
    Mr. Franks. Let the record reflect that the witnesses 
answered in the affirmative.
    I will now recognize our first witness. Dr. Prabhu, please 
turn on your microphone, sir, before you begin.

           TESTIMONY OF RACHAKONDA D. PRABHU, M.D., 
                     RED ROCK MEDICAL GROUP

    Dr. Prabhu. Thank you, Chairman Franks, for inviting me to 
testify, and Honorable Congressman Mr. Conyers, Honorable Mr. 
DeSantis. I am a doctor who has been practicing medicine in 
Nevada since 1979. I have been sued twice under the False 
Claims Act. Both times the actions were dismissed and I was 
exonerated. But the lawsuits were ordeals that had a terrible 
effect on my medical practice, my finances, my health, my 
family, on my reputation.
    Over 10 years, my wife and I had built a good medical 
practice with several doctors and employees. In the 1990's, 
three former employees made a false accusation against me in a 
qui tam lawsuit. Then they persuaded the Department of Justice 
to join the lawsuit in 1999, and my life turned upside-down.
    They fabricated charges that I had performed unnecessary 
medical tests and used the wrong billing codes. These 
allegations were not true, but that did not stop the press from 
printing them. I was a doctor with a tremendous reputation, a 
teacher, a humanitarian, and the next day my reputation was 
tarnished. My medical practice went down. My wife and I had to 
work without taking any salary. The doctors left and we had to 
let employees go. I was also emotionally distraught. It was 
hard for me to get up in the morning, to face people giving you 
dirty looks in the hospitals. The stress took a toll on me 
physically and I developed medical problems.
    Worst of all, my kids were little, and because of the 
press, other kids would tease them and make them cry. They 
would tell me, ``Dad, we don't want to go to school.'' But I 
never considered giving up or settling even though the 
government was asking me for millions of dollars for things I 
had not done. I also knew the government could kick me out of 
Medicare and Medicaid.
    After many years I was finally proven right. The government 
dropped all of the qui tam lawsuit because it found the 
allegations were untrue. Eventually, the judge dismissed the 
entire lawsuit. Although I was vindicated, the financial cost 
to defend myself was incredible. The total expense was between 
$4 to $5 million. Almost all of the money we had made was gone.
    After the lawsuit ended, I tried to gain my reputation back 
and build my medical practice. After several years we had grown 
to 30 doctors and over 100 employees. One of the services I had 
been providing to my patients with advanced lung disease is 
known as pulmonary rehabilitation service. Patients would come 
to our office and we would exercise them under supervision.
    When I first started providing this service, there was no 
Medicare code, so I was doing it for free. Later, I was told 
that it was improper under Medicare rules to do anything for 
free. So we asked Medicare what should we do, and Medicare 
representative came to our office and told us the billing code 
that we have to use, and we used that code for 20 years, and a 
Medicare carrier assured us it was the right code to use.
    Then in 2004, we learned the U.S. Attorney's Office was 
investigating our use of this code. I met with the U.S. 
Attorney, but he didn't listen. One afternoon a reporter called 
and said, ``Dr. Prabhu, do you know the government filed a 
False Claims lawsuit against you?'' The nightmare started all 
over again. My medical practice collapsed. Doctors started to 
leave. We had to let our employees go. We even had to close a 
clinic in a nearby town that badly needed our doctors. I was so 
depressed.
    This time the government told me that under the False 
Claims Act I would have to pay $22 million. They said I had 
billed Medicare for 2,000 tests over 6 years, and they wanted a 
penalty of $11,000 for every test, which came to $22 million. 
But we only charged $50 for one test, and we had charged only a 
few hundred thousand dollars for all the tests. In the process, 
we even lost money. It just made no sense.
    But I knew the government could kick me out of Medicare and 
Medicaid and I would lose my livelihood. I know that in many 
cases doctors simply settle when they have to go through what I 
have gone through. Some lose their patients, their spouses, 
their children, their houses, their health, and some even 
commit suicide. But I refused to give in.
    Once again, I hired a team of lawyers and experts. In the 
end, the government's case fell apart and they just dismissed 
the case. The lawsuit was so unjustified that we filed a motion 
to recover legal costs. The judge awarded me $500,000 in 
attorney's fees. But I still spent over $2 million to defend 
myself.
    In conclusion, I went through this ordeal twice. I spent 
more than $6 million to defend myself. I twice lost my 
practice, my friends, my partners, my dreams, and my 
reputation. The False Claims Act should be more fair so that it 
cannot be used to bankrupt people when they have done nothing 
wrong. I don't want what happened to me to happen to other 
citizens of this great country. Thank you.
    [The prepared statement of Dr. Prabhu follows:]

    
    
    
    
    
    
    
    
    
    
    
    
                              ATTACHMENTS













































                               __________
    Mr. Franks. Thank you, Dr. Prabhu.
    I now recognize our second witness, Dr. Harned, and please 
turn on your microphone, if you would, Dr. Harned.

   TESTIMONY OF PATRICIA J. HARNED, Ph.D., PRESIDENT, ETHICS 
                        RESOURCE CENTER

    Ms. Harned. Good afternoon, Chairman Franks, Ranking Member 
Cohen, and Members of the Subcommittee. Thank you for the 
opportunity to testify today.
    I am President of the Ethics Resource Center, America's 
oldest non-profit dedicated to independent research on 
workplace ethics. Our center generates the U.S. benchmark on 
business ethics known as the National Business Ethics Survey. 
We also consult with companies to assess their ethics and 
compliance programs and cultures. And finally, ERC educates 
public officials on new insights coming from our research. For 
example, very recently we shared our work with the OIG from the 
Department of Justice, the Department of Housing and Urban 
Development, and also the Interagency Suspension and Debarment 
Committee.
    It is important to note that while ERC's research was cited 
in the report that has been the impetus for today's hearing, 
our center was not involved in the writing of the report 
itself. Neither am I an expert on the False Claims Act. The 
views I express today are based on the objective findings from 
ERC's research.
    A central focus in today's discussion is the proposal for 
accrediting rigorous compliance programs, so I would like to 
address a few questions that are fundamental to that proposal. 
For example, if a company has invested in an ethics and 
compliance program that actually works, can we expect that the 
number of instances of fraud will go down? When fraud does 
occur, will the reporting of violations go up? And finally, if 
standards are established to define state-of-the-art programs, 
is there evidence that industry practices will improve?
    First and foremost, ERC has found that when an ethics and 
compliance program is well implemented within a corporation, 
there is demonstrable impact on the conduct of its employees. 
Employees and companies with well-implemented ethics and 
compliance programs are more likely to say that they work in 
strong ethics cultures. And when a strong program and a strong 
culture are in place, misconduct decreases by more than half.
    Similarly, in organizations with strong programs and 
cultures, the potential for wrongdoing is lessened. Forty-four 
percent fewer employees and companies with strong programs say 
they feel pressure to break the law in order to do their jobs. 
And in the same vein, 90 percent of employees in those kinds of 
organizations with strong programs and cultures say they know 
how to appropriately handle wrongdoing if it were to arise. And 
importantly, when wrongdoing does occur, the rate at which 
employees step forward to report increases by 94 percent.
    In 2013, more than 1 in 5 U.S. business employees said that 
they observed at least one incident that might be considered a 
False Claims Act violation. That percentage dropped by 71 
percent when employees said they worked in a strong ethics 
culture. Yet you could ask, if ethics and compliance programs 
have such a significant impact on business conduct, why does 
fraud continue to occur?
    Part of the reason is that misconduct is a reality in every 
corporation, and in every organization for that matter. But it 
is also the case that as of 2011, only one-quarter of U.S. 
employees said that their company had a compliance program that 
was well implemented, meaning that it had all of the elements 
in place that we know improve and encourage ethical conduct, 
and that is where a certification process has the potential to 
play an important role.
    Standards for certification or the like do shift corporate 
behavior provided the entity establishing the standards is 
trustworthy and free from conflicts of interest; standards are 
established with significant input from industry leaders and 
enforcement officials; the criteria take into account 
differences in organizational size, industry, and the context 
in which an organization is operating; and the standards are 
living and breathing, meaning they evolve with new insights 
from research and practice.
    Finally and perhaps most importantly, it is imperative that 
any definition of an effective program focus on compliance but 
also ethics. Companies that merely comply with the law check 
the box when they have met expectations and move on to other 
priorities, and that is the danger of a certification standard 
without the dimension of ethics. It is the commitment to ethics 
and culture that perpetuates right conduct in a company and 
diminishes the need for enforcement due to violations of the 
False Claims Act.
    Thank you again for the opportunity to address you today. I 
welcome your questions.
    [The prepared statement of Ms. Harned follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________
    Mr. Franks. Thank you, Ms. Harned.
    Mr. Ogden, we will get back to you.
    I now recognize our third witness, Mr. Clark. And if you 
would turn on your microphone, sir.

  TESTIMONY OF JOHN E. CLARK, OF COUNSEL, GOODE CASSEB JONES 
        RIKLIN CHOATE & WATSON, TAXPAYERS AGAINST FRAUD

    Mr. Clark. Thank you, Mr. Chairman. I appreciate the 
opportunity to express my views on this important law. It has 
enjoyed overwhelming bipartisan support for 28 years now.
    I come from a small firm of nine lawyers. Two of us 
represent whistleblowers. The other seven are busy with things 
like real estate transactions and municipal law and insurance 
defense litigation.
    Representing whistleblowers is the most professionally 
satisfying thing I have done since I was the U.S. Attorney in 
Texas, investigating and prosecuting corrupt public officials 
in an historically corrupt Texas county. We live in an era of 
ever-growing government and ever-proliferating programs that 
spend mind-boggling sums of taxpayer money. Big industry groups 
love big government programs because they have all that money 
to spend, and we have a resulting phenomenon that I call the 
Washington merry-go-round. Others call it crony capitalism. 
Bright, able people get on the merry-go-round and they enter 
government service, most as administrators or lawyers. They 
make policy, administer programs, deal with legal issues. They 
are regulators, and they learn how the government works from 
the inside.
    Later, the same government officials get off the merry-go-
round and they are eagerly recruited by industry groups as 
counsel or as lobbyists, or both. They become part of a 
community that they used to regulate, and now the regulated 
industry group's interests are their interests to protect.
    One of their goals is to undermine incentives for 
whistleblowers who take risks when exposing fraud. The goal of 
the former regulator, now an industry lobbyist, is to make it 
more difficult for the government to succeed in making False 
Claims Act cases against their clients' interests.
    The Department of Justice does a lot with limited 
resources. They work hard to enforce the False Claims Act and 
recover America's stolen billions. One way the False Claims Act 
might be amended to help the Department of Justice, and it 
could be accomplished without cost, is to embrace a provision 
that we now find in 15 of the 29 state False Claims Acts. Under 
those 15 state False Claims Acts, the state can recover its 
attorney's fees in a successful case. The United States should 
have the same right, but that is a right that is now lacking 
under the Federal False Claims Act. Those fees and a percentage 
of all False Claims Act recoveries should be specifically 
allocated to funding False Claims Act enforcement.
    I suggest we should also add tax fraud enforcement to the 
False Claims Act. The IRS now has a whistleblower incentive 
program, but that program is not working. But again, the states 
provide a working model that the Federal Government might copy. 
New York has added taxes to its False Claims Act, and it is 
already recovering millions of dollars.
    And one more thing. Just as no company should be too big to 
fail, no individual should be too important to incur personal 
consequences for fraud against the government. Personal 
consequences are a strong deterrent to fraud.
    Let me conclude by saying I am struck by the wisdom of 
Senator Grassley's skepticism and caution about buying into a 
fanciful, untested, gold-plated, certified compliance program. 
The key to compliance is integrity. It is not just a matter of 
paperwork, as evidenced by the multiple offenders under the 
False Claims Act. Justice Oliver Wendell Holmes said it best 
for all of us, and in just 11 words. When he wrote for the 
Court in U.S. v. Rock Island Central Railroad in 1920 he said, 
``Men must turn square corners when they deal with the 
government.''
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Clark follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________
    Mr. Franks. Thank you, Mr. Clark.
    And now we will recognize our fourth witness, Mr. Ogden.
    Sir, if you will make sure that microphone is on.

TESTIMONY OF DAVID W. OGDEN, PARTNER, WILMERHALE, U.S. CHAMBER 
                   INSTITUTE FOR LEGAL REFORM

    Mr. Ogden. Thank you, Mr. Chairman. Thank you, Chairman 
Franks, Ranking Member Cohen, and Members of the Committee. I 
appreciate the opportunity to appear before the Subcommittee 
today to testify on this important issue.
    The False Claims Act has been a focus of both my government 
service and my private practice for over 15 years now, and so I 
know from direct experience in both places that its unique 
provisions play a catalytic role in unearthing evidence of 
fraud and in recovering monies lost to fraud. But there is no 
doubt, and we have heard some of them today from Dr. Prabhu, 
that there are costs, and harmful and counter-productive 
effects of the law as well.
    I believe in the False Claims Act. Indeed, as Assistant 
Attorney General, I personally defended the constitutionality 
of its critical qui tam provisions before an en banc court of 
appeals; and as Deputy Attorney General, I helped implement and 
design the HEAT program which has effectively addressed hard-
core fraud in the healthcare industry. But I also believe that 
we have a real opportunity to enhance the Act's effectiveness 
and fairness while using it more effectively to prevent fraud 
before it occurs, as you, Mr. Chairman, identified, as a goal, 
an important goal.
    I start with four basic points. First, the FCA helps 
uncover fraud against the United States and helps return ill-
gotten gains to the Federal Government. Those functions should 
be preserved and enhanced, and nobody is suggesting otherwise.
    Second, encouraging whistleblowers with valid concerns to 
come forward is critical to the Act, and that is a very good 
thing. Indeed, I believe the Act can do much more to encourage 
and protect legitimate internal whistleblowers by incentivizing 
companies to do more of that themselves.
    I heard and understand Senator Grassley's concerns and, to 
be clear, we strongly support the function of whistleblowers 
and the role the FCA has played in incentivizing them to come 
forward.
    Third, however, at the present time, the Act is generating 
a stampede of weak and frivolous claims--we heard about a 
couple of them earlier--that unproductively burden the 
government, the courts, private businesses, and individuals 
alike.
    And fourth, the Act as construed by the courts often 
mandates punishments so far in excess of any real-world harm 
that defendants are often deprived of meaningful access to the 
courts to test the most aggressive theories of liability 
because settlement for many businesses in that situation is 
effectively the only option. Dr. Prabhu identified some of the 
ways in which that works where the potential penalties so far 
exceed the consequences at issue.
    I discuss in my written testimony the way these virtues and 
vices are caused by the FCA's unique features that make it 
entirely different from other enforcement schemes and call for, 
I think, some intelligent adjustments.
    As outlined in my testimony, I believe there is a sensible 
way forward, one that aligns government and business alike to 
prioritize preventing fraud before it diverts Federal dollars 
from their intended uses, truly making compliance the first 
line of defense.
    First and foremost, we should be encouraging and 
incentivizing all companies to implement and maintain state-of-
the-art compliance programs, programs that promote the highest 
levels of corporate ethics and legal compliance, encourage and 
protect internal whistleblowers, and voluntarily report any 
violation promptly to government authorities. Dr. Harned has 
talked about how that works.
    Under reforms I helped develop for the U.S. Chamber of 
Commerce and its Institute for Legal Reform, certain rules 
would apply differently to entities that have been 
independently certified as maintaining state-of-the-art 
compliance programs, including the strongest protections for 
whistleblowers consistent with standards approved by the 
government. These proposed reforms were the product of my years 
of work thinking about the Act and the good ideas of my co-
authors.
    We put pen to paper after months of discussion and 
consideration, eventually producing the white paper ``Fixing 
the False Claims Act.'' Our compliance-based approach is not, 
with all due respect, pie in the sky. Dr. Harned's research 
shows that state-of-the-art compliance systems work. They 
reduce fraud, they encourage and protect whistleblowers, and 
they result in prompt self-disclosure of violations to the 
government.
    So what we propose are incentives for companies and 
whistleblowers to do these things. The proposed adjustments 
would by no means remove deterrence and jeopardy associated 
with civil False Claims Act liability. They would do nothing to 
change the criminal penalties for individual accountability 
that were talked about earlier. But they would create 
differences sufficient to incentivize the adoption of first-
rate compliance programs by recognizing their significance in 
assessing any entity's culpability and recidivism risk.
    These reforms are designed to incentivize individual 
employees to report wrongdoing internally and companies to act 
quickly to identify and halt wrongdoing and report it to the 
authorities. They are also designed to make the potential 
consequences more proportionate to the circumstances, including 
taking into account whether an entity has programs in place to 
prevent fraud. There is every reason to believe that the 
increased self-policing and voluntary disclosure that these 
reforms would encourage will mean less fraud, less harm, and 
less need for lawsuits.
    There is more detail in my written statement, Mr. Chairman. 
I appreciate the time and welcome your questions.
    [The prepared statement of Mr. Ogden follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________
    Mr. Franks. Well, I thank all the witnesses.
    We are told that they may call votes any moment, and that 
will give us a short period of time to respond. But if we 
proceed with questions quickly, we might actually get past this 
and not have to hold all of you over here. If we can do that, 
we will.
    So, Dr. Harned, I will begin with you. It seems sort of 
counter-intuitive that we should attempt to rely on the 
perpetrators of False Claims Act violations to self-report when 
they violate the Act. Can you explain to me how it would be 
reasonable to expect businesses to detect and report their own 
violations of the FCA to the Federal Government?
    Ms. Harned. Thank you, Mr. Chairman. One of the things that 
we have seen in our research as we have looked at different 
kinds of organizations and what motivates them to implement 
ethics and compliance programs, it is the case that the 
majority of companies want to implement very good programs 
because it is a preventive measure for themselves. The majority 
of companies that have good programs and strong cultures in 
place have leaders that are very committed to ethical conduct. 
They want to avoid overstepping the law, and that is why those 
programs are very effective.
    So it is not so much a case of the perpetrators monitoring 
themselves so much as it is the case that most companies that 
are implementing these good programs are doing it for all the 
right reasons.
    Mr. Franks. Mr. Clark, I might ask you, do you think that 
the efforts that have been discussed related to trying to get 
self-compliance by these companies could bring harm to the 
existing protocol?
    Mr. Clark. Mr. Chairman, compliance programs are fine. I 
certainly have no quarrel with compliance programs. But we have 
seen that quite a number of entities that have resolved False 
Claims Act cases, which means that they entered into a 
corporate integrity agreement, and that required a strong 
compliance program, went right back to the same bowl and were 
lapping at it again. I think compliance programs certainly can 
help, but if a company plastered Justice Holmes' admonition 
over their entrance as their motto and lived up to it, that 
would help.
    Integrity is the key, and law enforcement, which is my 
background, is what enforces that.
    Mr. Franks. Mr. Ogden, you had suggested that there was 
clear evidence that these compliance programs could work, and I 
know that you have authored some programs in that vein. Can you 
tell us what would be the top anecdotal or clear evidence that 
you would report that would indicate that these programs do 
work and don't harm the private whistleblower enforcement?
    Mr. Ogden. Absolutely, Mr. Chairman. I think Dr. Harned's 
work for the Ethics Resource Center is extremely strong support 
for the proposition that these programs work. As she says, no 
program can entirely eliminate wrongdoing in any institution. 
The key is to have measures in place--and as Dr. Harned says, 
we know what these measures are that are working well--have 
measures in place at a company that make clear that Justice 
Holmes' admonition is the rule of the day there, that empower 
employees to come forward, encourage them to, make clear to 
them they are going to be protected, make clear that when they 
report wrongdoing it will be taken seriously, investigated and, 
where valid, reported, and that there is prompt reporting.
    We know these systems work, and where they are in place----
    Mr. Franks. You say we know these systems work. What 
evidence would you cite, just briefly?
    Mr. Ogden. I would rely first on the evidence that Dr. 
Harned has put forward, the research of the Ethics Resource 
Council.
    Mr. Franks. All right.
    Well, listen, I am going to yield to the Ranking Member of 
the Committee for 5 minutes. We might actually beat the vote 
here.
    Mr. Cohen. Thank you, Mr. Chair. I apologize for coming in 
a little late. Sorry I missed Senator Grassley. I have read his 
testimony, and it was certainly compelling, and I commend him 
for the work he has done on this issue.
    The False Claims Act has been responsible since 1987 for 
bringing in $39 billion in recoveries from corporations that 
cheated the American taxpayer, according to the Justice 
Department, and $27 billion came from qui tam plaintiffs. So it 
seems like a lot of money we are talking about, and if we are 
talking about concern for the budget deficit, we would be 
giving up a lot of money that is involved, and money is an 
effective way of seeing that people do comply with the law, and 
Senator Grassley is to be commended for his work in bringing 
this to the fore.
    I would like to ask Mr. Clark--and I appreciate your 
testimony. Mr. Ogden suggests that his reforms are sufficient 
to correct the injustices that he sees and yet keep the program 
strong. Do you believe if we adopt the amendments that have 
been proposed here and that Mr. Ogden endorses, and I presume 
Dr. Harned does as well, that the qui tam law and the False 
Claims Act will remain as strong a deterrent to government 
fraud?
    Mr. Clark. Sir, I do not think so. I think it would have 
two effects, or maybe one effect and one non-effect. I am 
skeptical about the degree of help that some kind of reliance 
on a compliance program would bring. But I am also cognizant 
that whistleblowers and the counsel who represent them have to 
make tremendous investments of time. The whistleblower has to 
take a big risk to come forward, a big risk of retaliation, and 
some of these proposals would increase the whistleblower's risk 
and diminish the whistleblower's incentive to go forward.
    These cases can take--I spend months and months and months 
sometimes after I interview a client deciding whether the 
client is a reliable and trustworthy and straightforward 
person, investigating for myself as best I can to find out what 
the facts are. I invest--any qui tam lawyer does--months of 
time often, and lots of money to investigate these cases. To 
diminish the incentives, which some of these things would do, I 
think would be a step backward.
    Mr. Cohen. I missed most of the testimony of the doctor, 
even though I read some of it, and I just wonder, Mr. Clark, if 
there were oversteps or improprieties by the attorneys in an 
action against an individual, as I guess the doctor suggests 
there might have been in his case, does not Rule 11 bring an 
adequate and appropriate sanction against an attorney for 
pursuing a claim that is not appropriate?
    Mr. Clark. There are several rules and several entities 
that hold sanctions for things like that. A lawyer who files a 
frivolous case first of all is going to be in trouble with the 
judge in whose court the case was filed. Federal judges have no 
patience with frivolous lawsuits.
    The statute allows the defendant, like the doctor, to 
recover his attorney's fees, and Rule 11 applies, and the 
attorney would also be in trouble with his bar association. He 
might lose his license over something like that.
    Mr. Cohen. Thank you, sir.
    Dr. Harned, your group is--what is the name of your group? 
The Ethics----
    Ms. Harned. The Ethics Resource Center.
    Mr. Cohen. Who are the major funders of the Ethics Resource 
Center?
    Ms. Harned. About 95 percent of our funding comes from the 
private sector, not for lack of trying to see if we can get 
public support for our work. The companies that invest in us, 
they tend to do it for one of three reasons. They ask for our 
help in assessing their ethics and compliance programs, or they 
are a part of a fellows program that we have for chief ethics 
and compliance officers, along with academics and government 
officials, and then a portion of our funding comes from 
research to do the work that we do through the National 
Business Ethics Survey and other studies.
    Mr. Cohen. And you are an attorney, or are you not?
    Ms. Harned. No, I am not.
    Mr. Cohen. You are not. I see.
    Mr. Ogden, you are, I know, and you have a distinguished 
career. Have you ever brought any actions on behalf of 
whistleblowers?
    Mr. Ogden. I have not brought actions as a private lawyer 
on behalf of whistleblowers, Congressman Cohen. I have brought 
any number of actions as a public official, intervening in 
actions brought by whistleblowers on behalf of the United 
States in pursuing their claims. And as I mentioned, as 
Assistant Attorney General I defended the constitutionality of 
the Act that gives whistleblowers the right to bring these 
claims.
    Mr. Cohen. Senator Grassley said that your proposal for 
gold standard compliance certification program was ``pie in the 
sky ideas with no specifics,'' and that it is a ``pipedream'' 
to suggest such a program would magically increase the amount 
of taxpayer dollars the government recovers. The Senator also 
said that his staff was told by the Chamber regarding the 
proposal for compliance certification program that ``we had to 
come up with something, so we just put it in.''
    How do you respond to Senator Grassley on those assertions?
    Mr. Ogden. Thank you, Congressman. I have the highest 
respect for Senator Grassley and what he has done with this 
statute. What we are trying to do is build on that statute. 
With respect to the ``pie in the sky idea,'' as I said, 
effective compliance programs that protect and encourage 
internal whistleblowers, companies that have fine ethics 
cultures and report violations to the government, that is not 
pie in the sky, as the work that Dr. Harned and her group has 
done shows.
    The fact is good companies do try very hard to comply with 
the law, and we can encourage them. We can set standards. We 
can encourage more companies to perform that way.
    As far as Senator Grassley's report of his staff's comment, 
I wasn't present for the meeting that was had with his staff, 
but I can tell you we didn't just put this forward and just 
come up with something. I have spent a lot of time on this 
statute. I have a great belief in it. I believe in 
whistleblowers. I believe in the incentives of the Act. But I 
think it does a lot of harm, and it does harm in the ways we 
have described.
    Dr. Prabhu is not the only one. The Act can be improved, 
and we are suggesting some very structured ways. They are not 
going to interfere with the Act's effectiveness, but they are 
going to ameliorate some of these effects.
    Mr. Cohen. I want to thank you and everybody else. This is 
an outstanding panel.
    I would like to ask for unanimous consent to allow my 
opening, which has become my midterm, statement to be put in 
the record.
    Mr. Franks. Without objection.
    [The prepared statement of Mr. Cohen follows:]

    
    
    
    
    
    

                               __________
    Mr. Cohen. Thank you.
    Mr. Franks. Mr. DeSantis?
    Mr. DeSantis. Thank you, Mr. Chairman.
    Dr. Prabhu, what happened to your patients when you had 
these False Claims Act filed against you?
    Dr. Prabhu. Well, my patients were very sick. They had a 
lung transplant and a lung volume reduction surgery, after 
which they would come back to our office for specialized, 
structured rehab program. After I was forced to shut down, I 
had to send my patients to outside facilities which are just 
not as good. As a matter of fact, two of my patients died. I 
also had to stop going to a clinic we had in the Town of Parum, 
which was very under-staffed and they needed us to help them 
out.
    Mr. DeSantis. Now, are you against--are you just against--
you are not against whistleblowers generally. You just think 
that this statute can lead to bad consequences for innocent 
people. Is that your correct position?
    Dr. Prabhu. I am not--I am basically here to tell you my 
story and what happened to me.
    Mr. DeSantis. Right.
    Dr. Prabhu. Just based on my experience, if those three 
people, my employees, came to me and told me what problems they 
detected, I would have addressed it right away and the 
government wouldn't have lost so many millions of dollars, and 
I wouldn't have lost millions of dollars.
    Mr. DeSantis. Now, do you--what were your litigation costs 
in dealing with these two claims?
    Dr. Prabhu. Six million dollars.
    Mr. DeSantis. Okay. And were you able to recover any of 
those costs?
    Dr. Prabhu. Well, the second case was so unjustified. So we 
were able to file a motion to recover attorney costs, but the 
judge only gave us $500,000 out of $6 million I spent.
    Mr. DeSantis. So you got a judgment for $500,000. Have you 
actually been able to collect that money?
    Dr. Prabhu. Yes. The government paid us a check.
    Mr. DeSantis. Okay, so they have given it to you?
    Dr. Prabhu. Yes.
    Mr. DeSantis. Okay. So you actually won your cases, 
basically, but it doesn't seem like those were victories.
    Dr. Prabhu. Well, I wouldn't call it victory. My life is 
ruined. I can't get all the time back that I have lost in the 
last 20 years, one case after the other. My reputation is 
damaged. A lot of things I wanted to do in life. I was doing 
medical research, working with lung volume reduction surgery. I 
was advancing in my profession while taking care of a large 
number of patients, and I had some political ambitions, and 
nothing was possible.
    Mr. DeSantis. So basically, this detracted from your 
ability to help sick people?
    Dr. Prabhu. Yes.
    Mr. DeSantis. How did the civil penalties and damages the 
government sought from you compare to the actual amount of 
money you received that allegedly violated the False Claims 
Act?
    Dr. Prabhu. That is so absurd. They basically said every 
time I submitted an invoice and got paid--I got $50, they 
wanted me to pay them back $11,000. They calculated that over 6 
years I submitted the code 2,000 times. They said I had to pay 
them $22 million.
    Mr. DeSantis. Wow.
    Mr. Clark, I guess the criticism I have heard about how 
this operates in practice is that 90 percent of the cases in 
which the U.S. doesn't ultimately intervene when individuals 
are bringing the qui tam cases, that they are just abandoned or 
dismissed. So how would you address--is that a misallocation of 
resources, that cases that, once the government makes a 
decision, are going to kind of wither on the vine? Or do you 
think that everything should continue to go the way it is 
going?
    Mr. Clark. Well, I think there are a number of reasons why, 
in the first place, why the Department of Justice declines 
cases. Part of it is lack of resources. They have to prioritize 
what they are going to do because of the resources they have to 
do it with. I am sure that they concentrate first on the 
larger, the cases that look like they are going to be the 
biggest to intervene in. And whenever they decline one, they 
write a letter to the court and to everybody concerned not to 
take this as an indication of the merit of the case. They have 
declined it and they don't have to state their reasons.
    Mr. DeSantis. But is that, in fact, happening, though, 
given the statistics that it is over 90 percent?
    Mr. Clark. I would say it probably is. I don't know. I 
don't have the statistics on that. I don't know that they are 
published any place. A lot of them are declined. Probably three 
out of four, anyway, are. But why they don't go forward could 
be for any one of a number of reasons.
    The Department of Justice may have discovered something in 
doing its due diligence survey of the case after it is filed 
during the period it is under seal that makes it clear that the 
case is not going to succeed for one reason or another, and 
that may be apparent to the attorney who filed the case after 
Justice declines it.
    Second, going forward with a False Claims Act case against 
a Fortune 500 company when you are a 9-man law firm that has 
two lawyers who do False Claims Act work is not an enticing 
prospect, and the client has to be apprised of that, and the 
client has to make a decision, do you want to continue to fight 
this thing, here is what it is going to entail, because it 
takes years to get one of these cases litigated.
    Mr. DeSantis. Great.
    I am out of time. I thank the witnesses. I appreciate your 
comments.
    I yield back.
    Mr. Franks. And I thank the gentleman.
    And I would now recognize Mr. Conyers, the distinguished 
Ranking Member of the full Committee.
    Mr. Conyers. Thank you, Chairman Franks, and I thank the 
witnesses.
    I would like to have someone explain why the False Claims 
Act penalties that allow for treble damages and additional 
penalties for each violation is important. Let me just start 
with you, Mr. John Clark, and then I will ask the others, at 
least two of the witnesses the same question.
    Please.
    Mr. Clark. Thank you, Mr. Conyers.
    Mr. Conyers. Is your mic on? It is? Pull it up closer, 
then.
    Mr. Clark. Thank you, sir. Both damages and penalties are 
important as deterrents. Penalties are not sought in all cases. 
Penalties are sought in some cases, the egregious cases, and 
there are constitutional limits on the amounts that can be 
assessed in a False Claims Act case. The Eighth Amendment 
protects someone from excessive penalties. But they are 
important because they can be invoked. And when they are 
invoked, then they are a powerful deterrent.
    They are not invoked in all cases, but they are there. That 
is a tool that the government can use if it chooses and if the 
court agrees with it, but they are not assessed in all cases.
    Mr. Conyers. So it isn't that they are identified at the 
beginning of the case. It is after a determination and a 
conviction has been arrived at. Is that the case?
    Mr. Clark. That is correct.
    Mr. Conyers. So do you think that they are excessive or 
that they are used in a way that is not beneficial for us 
protecting the government against false claims and fraud?
    Mr. Clark. Sir, I think penalties should remain as a 
deterrent, and as I say, they are not always imposed. 
Particularly if a case is settled, they are not going to be 
imposed, typically.
    Mr. Conyers. Mr. Ogden, do you share approximately the same 
view?
    Mr. Ogden. I don't, Ranking Member Conyers, and thank you 
for asking. First of all, it is required under the statute that 
in a case that goes to judgment these civil monetary penalties 
be imposed in addition to treble damages. So we have not only 
the treble damages required under the statute, as under 
antitrust law, for example, but in addition to that there is a 
requirement that for every so-called claim, between $5,500 and 
$11,000 be assessed. That is what is required if you go to 
judgment. It is simply not true that they are not applied in 
every case. They are applied in every case that goes to 
judgment.
    As Dr. Prabhu said, it is for that reason possible for you 
to have merely a couple of hundred thousand dollars, in his 
case, of business with the government. The total possible 
damage the government would have suffered in his case if he had 
done anything wrong, which he did not, would have been a couple 
of hundred thousand dollars. And yet the penalties, because 
they are assessed at $5,500 to $11,000 per invoice, per 
prescription, can amount to $22 million in a case of $200,000 
in business. For a corporation with $50 per prescription, for 
example, a total amount of business around $10 million can 
result literally in penalties of over $1 billion. That is 
completely irrational.
    A similar offense, no different, that has a single invoice 
issued to the government for the same amount of money would be 
$11,000, in this other case $1 billion. It is irrational and it 
drives companies to settle frivolous, weak cases, and it should 
be changed. It doesn't make any sense. There is no other law 
like it that I am aware of.
    Mr. Conyers. Well, Attorney Ogden, are there cases that we 
can name in which this kind of extreme result has happened?
    Mr. Ogden. There are cases, and I mentioned a couple of 
them in my testimony. But the very important function is 
connected to what Mr. Clark correctly said. Frequently what 
happens is that these penalties are threatened and a company 
that actually took a case to trial would suffer them if it 
lost, but the government settles the case without them. So that 
you face a billion dollars of liability if you take it to trial 
and lose. But you can settle it for $20 million. Companies do 
that even if they think the claim is worth nothing, as would be 
rational. Dr. Prabhu bravely fought it and won, but many 
companies don't, and that is not good for the country.
    Mr. Conyers. Dr. Harned, where do you stand on this 
subject?
    Ms. Harned. Congressman, my center is a research 
organization. Our task and our mission is to better understand 
how to improve workplace conduct. So in many ways, the 
specifics of the legislation and enforcement of it is beyond 
the scope of what our center's expertise is.
    Mr. Conyers. I see. Do you have any further comments, 
Attorney Clark?
    Mr. Clark. Just one matter. Thank you, sir. Penalties, if a 
case goes to trial, and I have seen this happen, a judgment can 
be structured so that if the penalties would amount to more 
than the Constitution would allow, I have seen judges and 
attorneys on both sides work those things out so it does not 
happen that way. But the penalties are important as a 
deterrent. They are there, and if it is proper to invoke them, 
they can be invoked.
    Mr. Conyers. Thank you, gentlemen and lady.
    My time has expired, and I yield back, Mr. Chairman.
    Mr. Franks. Well, I want to thank--I am sorry, Mr. Johnson. 
I didn't mean to look past you, sir.
    Mr. Johnson?
    Mr. Johnson. I am sorry. I am just getting to the hearing, 
just getting a little acclimated here.
    I would ask Mr. Clark--well, I would ask Dr. Prabhu, do you 
consider yourself to be a free market economic adherent?
    Dr. Prabhu. No, sir. I am just a physician. I am not a 
policy expert. I just came here to share my experience with 
you.
    Mr. Johnson. Well, you know the difference between a free 
market and a regulated market? Economics? Perhaps not.
    Let me move on to Dr. Harned. Do you consider yourself to 
be a free market person, or do you believe in government 
regulations on the economic sector?
    Ms. Harned. Certainly I do what I do because I am 
interested in trying to promote productive and effective and 
ethical business and government and non-profit organizations. 
It is the case that for many organizations misconduct is a 
reality, and there should be regulation so that we are able to 
promote better practice.
    Mr. Johnson. How about you, Mr. Ogden?
    Mr. Ogden. I am certainly a believer in government 
regulation. I think it is critical in a free-market economy.
    Mr. Johnson. And Mr. Clark?
    Mr. Clark. Sir, I am a believer in as big a government as 
is necessary, but no bigger than necessary. Government has to 
regulate some things for our safety and to protect itself, but 
I am not an advocate of over-reaching government regulation.
    Mr. Johnson. Well, let me ask this question. When we are 
cutting government in the name of establishing a free market 
economy and we are cutting out the ability of government to 
ferret out fraud, doesn't it follow that private whistleblowers 
would be consistent with a free market approach to the economy?
    Mr. Clark. Sir, I think whistleblowers are the essence of 
preserving the free market economy. They look for the things or 
they encounter the things that distort a free market. They look 
for things that happen, they find things that happen to them, 
for example, things that they experience on the job that are 
just not right, cheating the government, and that employer, if 
it is cheating the government, is probably cheating its 
competitors as well and distorting the market.
    Mr. Johnson. So, thank you, Mr. Clark.
    Mr. Ogden?
    Mr. Ogden. On behalf of the Chamber and our proposals here, 
we support whistleblowers, and I totally agree that their 
function is essential. What we are proposing----
    Mr. Johnson. But you want to cut down on the economic 
incentive for whistleblowers to come forward.
    Mr. Ogden. We want to preserve the economic incentive for 
them to come forward. We want to create along with that an 
incentive for their companies to implement state-of-the-art 
compliance that will protect them when they do report 
internally to create increased compliance and self-reporting in 
addition to the enforcement regime and incentives we have for 
whistleblowers.
    Mr. Johnson. So you would want to limit the whistleblowers 
and put the fox in charge of securing the chicken coop.
    Mr. Ogden. What we would like to do is to ensure that the 
way entities are operated encourages whistleblowers, protects 
them to come forward, and we see that compliance programs, here 
they would be certified by independent authorities under 
standards approved by the government. We know that they work to 
protect internal whistleblowing. When an internal whistleblower 
comes forward to the company, the company can stop anything 
wrong that is happening right away.
    Mr. Johnson. Without firing the employee?
    Mr. Ogden. Absolutely without firing the employee.
    Mr. Johnson. I will tell you, the U.S. Chamber of Commerce 
now is in favor of cutting government. They are in favor of 
cutting off access to the courts. And I am sure that you would 
agree with me that those are the things that the U.S. Chamber 
holds dear. So when we start cutting the ability of a private 
citizen or cutting the incentive for a person to put their 
livelihood on the line to ferret out fraud in a private sector 
that would create financial disincentives for every other 
stakeholder involved, I don't see where that--I see 
whistleblowing as being consistent with free market principles, 
and I find that if there is some inconsistency in terms of--you 
can't have it one way. You can't have it all.
    The Chamber is going to have to have some kind of a check 
and balance. It is going to have to have either government with 
the ability, the financial resources to investigate and ferret 
our fraud, or there is a need for the private whistleblower to 
come along. If you don't have either one of those and you put 
the fox in charge of the henhouse, then we know exactly what is 
going to happen there. There won't be any fraud ferreted out, 
and the free market will be distorted. Competition will be 
eliminated, and that is just not good for our economy.
    Mr. Franks. The gentleman's time has expired. The witness 
will be allowed to answer the question.
    Mr. Ogden. Thank you. Thank you, Congressman. Thank you, 
Mr. Chairman.
    I hope that, Congressman, you will take a very hard look. I 
know you already looked at it, but I hope you will look hard at 
these proposals. Our goal here really is not to disincentivize 
whistleblowers. Our goal is to remove fear of retaliation, to 
ensure that companies protect and encourage whistleblowers to 
come forward, and to preserve these incentives for them to 
bring claims where the company hasn't self-reported. That is 
really the spirit of these changes, and to make the Act a 
little more rational, so things don't happen like what happened 
to Dr. Prabhu.
    Mr. Johnson. Thank you, sir.
    Mr. Franks. Well, this concludes today's hearing, and I 
want to thank all of the witnesses for attending. I know you 
folks have many things that you have to do, and we appreciate 
you coming here today.
    Without objection, all Members will have 5 legislative days 
to submit additional written questions for the witnesses or 
additional materials for the record.
    And again, I thank the witnesses. I thank the Members and 
the audience.
    This hearing is adjourned.
    [Whereupon, at 2:22 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

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               Material Submitted for the Hearing Record

 Response to Questions for the Record from John E. Clark, Of Counsel, 
   Goode Casseb Jones Riklin Choate & Watson, Taxpayers Against Fraud















                                








                                 
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