[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE FALSE CLAIMS ACT
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HEARING
BEFORE THE
SUBCOMMITTEE ON THE CONSTITUTION
AND CIVIL JUSTICE
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
APRIL 28, 2016
__________
Serial No. 114-72
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Printed for the use of the Committee on the Judiciary
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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
LAMAR S. SMITH, Texas ZOE LOFGREN, California
STEVE CHABOT, Ohio 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
RAUL LABRADOR, Idaho HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
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Subcommittee on the Constitution and Civil Justice
TRENT FRANKS, Arizona, Chairman
RON DeSANTIS, Florida, Vice-Chairman
STEVE KING, Iowa STEVE COHEN, Tennessee
LOUIE GOHMERT, Texas JERROLD NADLER, New York
JIM JORDAN, Ohio TED DEUTCH, Florida
Paul B. Taylor, Chief Counsel
James J. Park, Minority Counsel
C O N T E N T S
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APRIL 28, 2016
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 Steve Cohen, a Representative in Congress from the
State of Tennessee, and Ranking Member, Subcommittee on the
Constitution and Civil Justice................................. 2
WITNESSES
Dennis E. Burke, President & CEO, Good Shepherd Health Care
System
Oral Testimony................................................. 17
Prepared Statement............................................. 20
Larry D. Thompson, Professor in Corporate and Business Law,
University of Georgia School of Law
Oral Testimony................................................. 26
Prepared Statement............................................. 28
Neil V. Getnick, Partner, Chairman, Taxpayers Against Fraud
Education Fund
Oral Testimony................................................. 40
Prepared Statement............................................. 42
Jonathan L. Diesenhaus, Partner, Hogan Lovells US LLP
Oral Testimony................................................. 50
Prepared Statement............................................. 52
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 5
Prepared statement of the Honorable Chuck Grassley, a U.S.
Senator from the State of Iowa, and Chairman, Senate Committee
on the Judiciary............................................... 11
Material submitted by the Honorable Steve Cohen, a Representative
in Congress from the State of Tennessee, and Ranking Member,
Subcommittee on the Constitution and Civil Justice............. 69
APPENDIX
Material Submitted for the Hearing Record
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............. 76
Addendum to the testimony of Dennis E. Burke, President & CEO,
Good Shepherd Health Care System............................... 83
Fraud Statistics from the U.S. Department of Justice............. 87
Office of Inspector General (OIG) Updated Criteria for Section
1128(b)(7) Exclusion Authority................................. 95
Prepared statement of Matthew Solomson, Chief Legal Officer,
Federal Government Services of Anthem, Inc..................... 102
OFFICIAL HEARING RECORD
Unprinted Material Submitted for the Hearing Record
Material from the Urban Institute. This material is available at the
Subcommittee and can also be accessed at:
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=104871
OVERSIGHT OF THE FALSE CLAIMS ACT
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THURSDAY, APRIL 28, 2016
House of Representatives
Subcommittee on the Constitution
and Civil Justice
Committee on the Judiciary
Washington, DC.
The Subcommittee met, pursuant to call, at 4:34 p.m., in
room 2141, Rayburn House Office Building, the Honorable Trent
Franks (Chairman of the Subcommittee) presiding.
Present: Representatives Franks, King, Jordan, Cohen, and
Conyers.
Staff Present: (Majority) John Coleman, Counsel; Tricia
White, Clerk; (Minority) James J. Park, Minority Counsel;
Veronica Eligan, Professional Staff Member; and Matthew Morgan,
Professional Staff Member.
Mr. Franks. The Subcommittee on the Constitution and Civil
Justice will come to order.
And, without objection, the Chair is authorized to declare
recesses of the Committee at any time.
I want to welcome you all for being here. The False Claims
Act is the Federal Government's primary tool for combatting
fraud in federally funded programs. In each of the last 6
years, the government has recovered over $3 billion under the
FCA and over 3.5 billion for their fourth consecutive year.
Since the significant 1986 amendments to the FCA, the
Federal Government has recovered over $45 billion under the
act. These numbers show that the FCA has been successful
legislation. However, despite its success, the act still fails
to prevent massive losses of taxpayer dollars. According to a
2015 study by the General Accountability Office, over $120
billion in taxpayer money was lost in 2014 to improper payments
by the Federal Government, which indicates the government is
recovering only a fraction of what it loses to false claims
every year.
This requires examination, considering Congress has amended
the FCA three times in the past 7 years to expand its coverage,
and enhance the ability of whistleblowers to bring suit.
Today's hearing will, in part, address what could more be done.
Some experts who have studied the act, for example, suggest
that the answer is providing incentives and encouraging those
best able to detect and prevent false claims--government
contractors and government program beneficiaries--to self-
police and self-report potential FCA violations. Indeed, FCA
violations or violators who self-report generally receive the
same penalties and face the same damages as those who are
caught violating the act and settle out of court with
government.
I think this makes very little sense. The FCA has been
successful because it's provided whistleblowers with a
tremendous financial incentive for uncovering and disclosing
false claims. It should be possible to complement the current
incentives for whistleblowers in the act with financial
incentives for self-disclosure to uncover even more waste,
fraud, and abuse of Federal taxpayer money.
We need to examine ways to give those that do business with
the government meaningful incentives to detect wrongdoing and
self-report it to the government and thereby return to the
taxpayers more money than is currently recovered under the FCA.
The Justice Department itself has acknowledged the
limitations of the act as currently written. According to the
head of the division at DOJ in charge of enforcing the FCA, the
Justice Department is, quote, 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 interest of the United States in efforts to undo the damage
of completed schemes. Litigation to recover the cost of fraud
is far inferior as an option to prevent fraud in the first
place.
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 aid it has received from
current whistleblowers. My hope is that today's hearing
provides additional insight into how we can detect and prevent
even more false claims that deplete the vital resources that
taxpayers have entrusted to this Nation.
And I certainly look forward to the witnesses' testimony
and yield to the Ranking Member now for 5 minutes for his
opening statement.
Mr. Cohen. Thank you, Mr. Chair.
The False Claims Act is one of the most potent weapons in
the fight against fraud and is a vital means of protecting
taxpayer dollars.
According to the Justice Department, from '87 through 2015,
False Claims Act has been responsible for over $48 billion in
recoveries from corporations that cheated the American
taxpayer--$48 billion from corporations that cheated the
American taxpayers who we are now thinking are going to just
self-report and give themselves up and give them some incentive
to do that. You know, it wasn't a great idea to tell Jesse
James to tell us what you're going to do, and we'll give you
some money and go back to St. Joseph, Missouri. You catch the
crooks. That's what you do.
Of that number, more than $33 billion resulted from
litigation initiated by qui tam plaintiffs, many of whom are
employees of corporate wrongdoers who are in the best position
to know of fraudulent activity and to bring it to light.
In 2009, Congress adopted amendments that further
strengthened the act. These amendments sponsored by my former
colleague, the beloved and congressionally late Representative
Howard Berman of blessed memory, and championed by noted qui
tam lawyer John Phillips, now residing, I think, in Italy,
where he takes care of our interests there, resulted in
recoveries since 2009 of almost $27 billion for taxpayers, with
more than 19.5 billion resulting from qui tam complaints.
The fact that almost 70 percent of recoveries since '87 and
more than 70 percent since 2009 stem from qui tam suits,
highlights the central role that the qui tam plaintiffs play in
the False Claims Act's enforcement regime in the fight against
fraud.
Whistleblower-initiated action was responsible for the
government's $2 billion recovery from GlaxoSmithKline for
paying kickbacks, doctoring scientific research, and illegally
promoting certain prescription drugs. Last month, Olympus
Corporation agreed to pay $646 million, including 310.8 million
in various False Claims Act claims. Olympus put profits before
people, among other things, refusing to disclose to U.S.
regulators potential contamination from its duodenoscopes,
despite doing so to European regulators, given that the U.S.
was its largest market for duodenoscopes.
And just yesterday, Pfizer settled whistleblower-initiated
cases for $784 million for overcharging Medicaid in a matter
that the government had initially declined to intervene in.
These private attorney generals, qui tam lawyers do a great
deal of good for the United States in seeking out fraud and
bringing in moneys to our Treasury that was ungainfully
garnered. We need only look at the state of the False Claims
Act prior to 1987 to get a sense of how weak qui tam-related
progressions can undermine False Claim Act's purposes.
Before '86, the act contained strong disincentives for
whistleblowers to pursue litigation on behalf of the government
and bring fraud to light. As a result, the number of false
claim qui tam suits declined dramatically and fraud against the
government ran rampant.
The 1986 amendments to the act, spearheaded by Senator
Charles Grassley and Representative Berman, dramatically
strengthened incentives for the pursuit of qui tam actions and
greatly enhanced the act's effectiveness.
It is perhaps no surprise then that those who are the
target of fraud allegations are now seeking to undermine what
Grassley and Berman did with the False Claims Act and,
particularly, its qui tam and penalty provisions.
In 2013, the U.S. Chamber of Commerce recommended changes
to the act that were solutions in search of a problem, unless
one defines the problem as an effective False Claims Act
regime, which gets at fraud and abuse.
For instance, it proposed limiting the share of damages
that qui tam plaintiffs are able to recover in False Claims Act
cases, weakening a major incentive for whistleblowers to come
forward. Further weakening the incentives for whistleblowers
are proposals to bar qui tam actions under several
circumstances. One proposal would bar those actions by an
employee of a corporate wrongdoer if the employee did not
report the fraud internally to his or her employer within 180
days prior to filing suit.
This proposal almost invites the corporate wrongdoer to
intimidate or retaliate against the potential whistleblower
employee, gives the company the opportunity to further hide the
fraud. Great idea. You got to go tell your boss that he's a
crook, and he's going to be caught and exposed, and if you do
it, you're going to false retaliation, and who knows what's
going to happen to you. Well, that's a great way to inhibit the
people from coming forward, quieting the whistle.
Another proposed change would reduce the availability of
treble damages based on so-called gold standard certifications
of a company's compliance program done by third parties in a
process where it would be in the interests of the certifying
entity, itself a profit-making business, to give the necessary
certification with no way of verifying the accuracy of said
certification.
Finally, corporate wrongdoers have proposed making it
substantially harder for any plaintiff, whether a qui tam
relator or the government, to prevail in a False Claims Act
case by amending the act to impose the very high clear and
convincing standard of proof to demonstrate any violation of
the act, rather than current preponderance of the evidence
standard.
We should be very wary of any attempts to undermine the
effectiveness of the False Claims Act. And of--the idea that
we're going to be able to successfully do it by asking the
wrongdoers to self-report, that hadn't worked, and many other
things--I don't know that it ever works. As the old saying
goes: If it ain't broke, don't fix it.
I yield back the balance of my time.
Mr. Franks. And I thank the gentleman. It seems like, in
Congress vernacular: If it ain't broke, break it.
I want to thank the Ranking Member, and without objection,
other Members' opening statements will be made part of the
record. And before I--okay. Before I introduce the witnesses, I
would first like to submit for the record the statement of the
Honorable John Conyers, the Ranking Member of the full
Committee.
And I'd also like to introduce, for the record, the
prepared statement of the Chairman of the Senate Judiciary
Committee, Senator Grassley. Senator Grassley was the lead
Senate author of the 1986 amendments to the False Claims Act
and has been a tireless advocate for whistleblowers and
eliminating false claims for taxpayer money.
I appreciate his dedication to the False Claims Act and his
input on the issues raised in today's hearing.
Without objection, his statement will also be entered into
the record.
[The prepared statement of Mr. Conyers follows:]
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[The prepared statement of Senator Grassley follows:]
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Mr. Franks. So now let me introduce our witnesses.
First of all, thank you all for being here. Our first
witness is Dennis Burke. Mr. Burke is president and CEO of the
Good Shepherd Health Care System in Hermiston, Oregon.
Our second witness is Larry Thompson. Mr. Thompson is the
John A. Sibley Professor in Corporate and Business Law at the
University of Georgia School of Law.
Our third witness is Neil Getnick. Mr. Getnick is the
managing partner at Getnick & Getnick, LLP, in New York City.
Our fourth and final witness is Jonathan Diesenhaus. Did I
get that pretty close?
Mr. Diesenhaus. Got it.
Mr. Franks. Yes, sir. Mr. Diesenhaus is a partner at the
D.C. office of Hogan Lovells.
Each of the witnesses' written statements will be entered
into the record in its entirety, and I ask that each witness
summarize his or her testimony in 5 minutes or less.
To help you stay within that time, there's 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 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'd please
stand to be sworn.
Do you solemnly swear that the testimony that you're about
to give will be the truth, the whole truth, and nothing but the
truth so help you God?
You may be seated, and let the record reflect that the
witnesses answered in the affirmative.
And, again, I want to recognize all of you in the audience,
and I would now recognize our first witness, Mr. Burke. And if
you will turn your microphone on before beginning. Get closer.
Thank you, sir.
TESTIMONY OF DENNIS E. BURKE, PRESIDENT & CEO,
GOOD SHEPHERD HEALTH CARE SYSTEM
Mr. Burke. Thank you. Good afternoon, Mr. Chairman, Members
of the Constitution and Civil Justice Subcommittee. As
introduced, my name is Dennis Burke. I am president and CEO of
Good Shepherd Health Care System in Hermiston, Oregon, where I
have had the pleasure of serving for the past 27 years.
I appreciate this opportunity to share our experience with
the False Claims Act. It is my hope that in some small way our
experience will shed light on some of the consequences of the
False Claims Act that I am sure were never intended by Members
of Congress.
First, I would like to make it clear that my board and I
strongly support antifraud statutes, active government programs
that seek to identify and eliminate fraudulent activity, and
whistleblowers who have legitimate allegations. Fraud harms all
of us, reduces limited resources for bona fide healthcare
purposes. I will be brief today, but it's my hope that you'll
find an opportunity to read the more detailed written account
of our experience as outlined in the letter attached to my
statement addressed to Senator Ron Wyden, dated August 23 of
2006.
We were victims of a disgruntled former employee who
returned relator. Having said that, we could just as easily
have been the victims of a rogue employee who intentionally
violated our policies and procedures. The process would have
been the same.
Sadly, the FCA makes no distinction between organizations
that are victims of false allegations and those that have
proper antifraud measures in place but fall victim to rogue
employees, just as it makes no distinction between
organizations that are doing everything they can and should do
to prevent fraud and those organizations that take minimum
precautions.
What happened to us is what I would call an overreaction,
an overreaction that cost us dearly in terms of both
reputation, dollars, and cents. In the end, it was determined
that we had not defrauded the government, and the Department of
Justice dropped its investigation. This is what happened.
In 2003, agents from the FBI and the Oregon Medicaid Fraud
Unit visited our hospital asking questions about our billing
practices. A few weeks later, we were raided by a team of
agents who came to the hospital at night, took records.
Our hospital counsel was openly able to ascertain that a
qui tam case had been filed against us, but we were--but was
sealed so that we were unaware of the nature of the
investigation.
A Federal court in Portland, Oregon, made the FBI affidavit
for the raid public. Our local newspaper and The Oregonian
featured all the allegations of the complaint. These stories
were extremely damaging to our hospital's reputation. We even
had a visiting physician clinic threaten to discontinue the
relationship with the hospital.
The qui tam relator's allegation included every fraud hot
button at the time. This included lab unbundling, physician
kickbacks, 3-day window billing violations, upcoding, billing
for services not rendered, and others.
Due to the nature and scope of the allegations, the
investigation was heightened from a criminal--from a civil to a
criminal investigation. At the time of the raid, I was told by
an agent that if even part of these allegations were true,
someone was going to jail.
During the course of the investigation, the government
began to discover significant differences between the relator's
allegations and actual hospital practice. In a matter of weeks,
the government scaled the investigation back to a civil
investigation.
Over the course of 2\1/2\ years, the majority of the
allegations were dismissed outright. However, the investigation
did reveal that we had some irregularities associated with our
emergency room billings. We had installed a new computer
system, and the department manager had inadvertently programmed
the billing system such that the emergency room medical
director's name appeared on all of our billing forms as the
treating physician and the treating physician's name appeared
as the consulting physician.
Because of this error, the Department of Justice requested
that we perform an extensive audit, at our expense, through an
independent third-party reviewer recommended by the Department
of Justice. The results of the audit showed that all services
were provided by qualified physicians and that services were
appropriately coded. In fact, the audit revealed that Medicare
and Medicaid was actually slightly underbilled vis-a-vis the
level of coding that could have been supported by the
documentation. Following the results of this audit, the State
Medicaid Fraud Unit and the Department of Justice dropped their
investigation.
In its entirety, we were subjected to a humiliating raid
and an investigation by the Federal Government due to a
disgruntled former employee. The relator took advantage of the
law's protections to, in essence, throw everything on the wall
to see if anything might stick.
We experienced a 3-year investigation, which consumed
hundreds of internal man hours and well over $1 million in
attorney fees, consultation fees, and undeserved settlement
costs, not to mention the significant harm to our reputation.
Having experienced what we considered to be a frivolous
complaint of false allegations and an expensive investigation,
here are our observations.
Relators should be required to demonstrate that they have
brought their concerns to the attention of the targeted
organization before they bring the matter to the government.
Without being required to make specific allegations, it is not
fair that targeted organizations like ours are subject to over
$1 million expenses, and in the end, the accuser is able to
just walk away and say: Oops, I guess we were wrong.
The penalty provisions of the False Claims Act are
astronomical. As such, the financial risks posed by the law, in
most cases, cause a hospital like ours to avoid the uncertainty
of a trial and instead choose the safer, more predictable route
of settlement.
The Department of Justice offered a 750,000 rough justice
settlement that was very tempting to my board, but we knew the
claims were unjustified and decided to take a stand.
Unfortunately, not everyone is in the position to take the same
leap of faith due to the risks they face for doing so. That is
our experience in an abridged telling.
[The prepared statement of Mr. Burke follows:]
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__________
Mr. Franks. Well, thank you, Mr. Thompson.
And I would now recognize our second witness. I'm sorry. I
got that wrong, didn't I, Mr. Burke?
I now recognize our second witness, Mr. Thompson, please.
TESTIMONY OF LARRY D. THOMPSON, PROFESSOR IN CORPORATE AND
BUSINESS LAW, UNIVERSITY OF GEORGIA SCHOOL OF LAW
Mr. Thompson. Chairman Franks, Ranking Member Cohen,
Members of the Subcommittee, I am Larry Thompson.
Mr. Franks. I forgot to ask you to pull that microphone
toward you.
Mr. Thompson. Oh, I'm sorry.
Mr. Franks. There we go.
Mr. Thompson. May I just repeat?
Mr. Franks. Yes, sir.
Mr. Thompson. Chairman Franks, Ranking Member Cohen, and
Members of the Subcommittee, I am Larry Thompson. I appreciate
the opportunity to testify before you this afternoon on the
False Claims Act and how we can possibly continue to prevent
fraud, which is so harmful to the public, consumers, the
government, and shareholders of public companies.
I practiced law for 42 years, and during this time period,
I have handled scores of fraud cases and investigations, both
as a Federal prosecutor and as a defense counsel. I've also
served as a general counsel of a large public company, where I
was responsible for implementing and administering what we
strive to have as a world-class high-quality ethics and
compliance program.
The False Claims Act is probably the most important
antifraud tool the government has but, I think, perhaps, when
coupled with more focused informed enhancements, can play an
even more important and effective role in preventing fraud, as
the Chairman mentioned.
I really believe we can do an even better job of focusing
on prevention, which allows the government to use its limited
resources more in dealing with the very bad actors that are out
there. My written testimony focuses on the work of the Ethics &
Compliance Initiatives' blue ribbon panel.
Mr. Chairman, when I was asked to participate in the panel,
I was delighted to do so because a great deal of my career in
both the public and private sectors has been spent on ethics
and compliance issues. The panel brought together a group of
super people and experts who set out to determine what really
are the perimeters of a high-quality ethics and compliance
program. I am very pleased with our work product as set forth
in my written testimony.
To be clear, Mr. Chairman, I recognize that the widespread
development and implementation of high-quality compliance and
ethics programs is not going to happen overnight. These
programs need adequate resources, dedication of time and effort
to training and retraining, a commitment to consistent and
transparent discipline, a commitment to investigate all reports
of wrongdoing. In sum, a commitment to make ethics and
compliance, doing the right thing, a core business strategy.
Simply put, in my experience, I found that high-integrity
companies perform better in the marketplace than companies who
do not put a premium on ethics and compliance. And I believe,
quite frankly, that what the panel has recommended is very
important today, especially when we see many shortsighted and
short-term investors push for deeper and deeper unthinking cuts
in corporate budgets.
As I said, the widespread development and implementation of
a high-quality ethics and compliance program will be a marathon
and not a sprint, but I do believe that their reality can be
greatly accelerated by providing concrete incentives for
businesses to develop authentic bona fide high-quality ethics
and compliance programs. These programs will focus on
prevention and self-disclosure and provide a--and provide a
measure of certainty and predictability for doing so.
The public and government clearly benefit from increased
self-disclosure. Of course, I'll be pleased to answer any
questions you or the Members of the Committee may have, and
thank you.
[The prepared statement of Mr. Thompson follows:]
Prepared Statement of Larry D. Thompson, Professor in Corporate and
Business Law, University of Georgia School of Law*
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*Supplemental material submitted by this witness is not printed in
this hearing record but is available at the Subcommittee and is
included in the witness's statement at:
http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=104871
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__________
Mr. Franks. And thank you, Mr. Thompson.
And I now recognize our third witness, Mr. Getnick. And
please turn that microphone on.
TESTIMONY OF NEIL V. GETNICK, PARTNER, CHAIRMAN, TAXPAYERS
AGAINST FRAUD EDUCATION FUND
Mr. Getnick. Thank you.
Good afternoon, Mr. Chairman, Mr. Ranking Member,
distinguished Members of the Subcommittee. I am Neil Getnick. I
am the managing partner of the law firm of Getnick & Getnick,
based in Manhattan, and I'm testifying today in my capacity as
the chairman of the Taxpayers Against Fraud Education Fund.
The TAF Education Fund is a nonprofit public interest
organization dedicated to combatting fraud against the
government and protecting public resources through public-
private partnerships.
This year is the 30th anniversary of the seminal 1986
amendments to the False Claims Act. When it comes to the FCA,
my dad would say, ``Nothing succeeds like success,'' because
the 1986 amendments have been and are a fantastic success.
Prior to 1986, the Department of Justice recovered less than
$50 million a year under the FCA. Last year alone, DOJ
recovered more than $3.5 billion, and for every dollar that the
government spends on Federal FCA healthcare enforcement, it
recovers $20 in return.
Does anyone know of any other government program that can
boast those results? But these numbers are incomplete. They are
an incomplete measure of the FCA's success, which has generated
cases that have reformed corrupt industries, stopped
unconscionable and illegal practices, and saved lives.
The main change of the 1986 amendments was to loosen
certain restrictions on qui tam suits. This change created a
new paradigm of public-private partnerships between the Justice
Department, qui tam whistleblowers, and their counsel. And
under this new paradigm, a backstop was created that let both
the government and the fraudsters know that cases could be
pursued and won by whistleblowers even when the government
declined to intervene or pursue the fraud.
This is crucial because this private right of action is the
action-forcing mechanism that ensures that fraud on the
government will be exposed and dealt with. Pleas by industry
lobbyists to weaken or eliminate the private right of action
are misguided, and those are often accompanied with misleading
statistics purporting to demonstrate that only a small
percentage of non-intervened cases result in recovery. Yet a
significant number of successful cases only come about because
the relator pursued the case after an initial decision of non-
intervention.
Furthermore, the FCA provides more safeguards and oversight
to protect against frivolous or ill-advised lawsuits than just
about any other civil enforcement statute in the Federal code.
Most FCA defendants are very big companies that participate in
large government-funded programs or compete for big government
contracts, and a handful are repeat offenders.
Among other things, this hearing addresses the so-called
unintended consequences of the FCA. But industry lobbyists for
large government contractors have intended consequences. Their
intended consequences are to use the occasional story of a
defense verdict or an investigation that negatively impacted on
a small business as a pretext--a pretext--to gut the FCA that
has resulted time after time in them paying restitution to the
government for repeated fraudulent harmful schemes, and this
posturing is transparent, and it should be rejected.
The main proposal advanced by these lobbyists is to require
corporate whistleblowers to report frauds internally before
filing qui tams. And repeatedly, they seek to eliminate or
narrow FCA liability if they adopt a so-called gold standard or
certified corporate compliance programs.
But allowing companies to face reduced liability from FCA
action because they checked the boxes on how to establish a
compliance program will merely encourage them to game this new
compliance regime. That doesn't reduce fraud; it enables fraud.
In fact, and this is very important, the FCA already
contains a provision that allows corporations to reduce their
liability by one-third if they self-report a fraud within 30
days of becoming aware of it.
So the FCA 1986 amendments have revealed unexpected
benefits. The ever-increasing recoveries have exceeded all
expectations. The provision allowing relators to pursue
declined cases has resulted in billions of dollars of
recoveries that would otherwise have been lost and has led to
reforms in critical industries.
Yes, my dad would say, ``Nothing succeeds by success,'' and
to that, I now add, ``Don't tamper with success.''
[The prepared statement of Mr. Getnick follows:]
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__________
Mr. Franks. Thank you, Mr. Getnick.
And we'll now proceed to our fourth witness and final
witness, Mr. Diesenhaus.
And if you turn that microphone on. Yes, sir.
TESTIMONY OF JONATHAN L. DIESENHAUS, PARTNER,
HOGAN LOVELLS US LLP
Mr. Diesenhaus. Certainly. I made it work.
Mr. Chairman, Ranking Member, distinguished Members of the
Subcommittee, as you heard earlier, my name is Jonathan
Diesenhaus. I'm a practitioner. I do investigations and
litigation under the False Claims Act and have been doing it
for 25 years. I am not the chairman in my firm, haven't had the
privilege of being a general counsel or a high-ranking spot at
the Justice Department, but I did have the privilege of working
for Mr. Thompson as senior trial counsel in the Civil Fraud
Section enforcing the False Claims Act from 1998 to 2005.
I am here today, and I appreciate the invitation, but my
message is one about how we handle these cases, how they are
litigated, and improving on a statute that already seems to
work pretty darn well. And that's where Mr. Getnick and I
disagree is that I think there can be improvements to better
protect some of the defendants who get caught up in the False
Claims Act food mill.
As I explained in my written testimony, over the course of
my career, I've become more and more concerned about the impact
of qui tam investigations and litigation on small businesses,
small providers, all of whom we rely on for, on the one hand,
employment; on the other, care. These entities operate in a
complex regulatory environment, an environment often made even
more complex by perhaps unintentionally vague and ambiguous
terminology and regulations.
It could even be that one man's heartfelt belief that his
interpretation of a regulation is correct--let's say a
whistleblower's belief--happens to be incorrect. And more often
than not, in healthcare cases, these types of disagreements or
allegations of regulatory fraud arise when everyone agrees that
high-quality care and high-quality products have been delivered
to sick patients.
My concern isn't for the types of cases Mr. Getnick and
others on the relators' side always point to, successes like
Mr. Cohen pointed to in his opening statement. During my time
at DOJ, I handled cases like those, big ones. I helped to
advance new theories of law. I helped to uncover frauds. I'm
proud of that time.
My concern, though, is that qui tam litigation itself is
too blunt an instrument to be wielded as freely as it is.
Today, the Justice Department leaves it to defendants to fight
to dismiss unfounded qui tam lawsuits. Eight out of 10 cases--
even after the 1986 amendments, even after the 2009
amendments--8 out of 10 cases are cases the victim of the fraud
does not pick up.
There are a handful of examples, to which Mr. Getnick and
his colleagues refer, which are cases where the government has
continued an investigation alongside a piece of declined qui
tam litigation, and those cases often result in significant
recoveries. But that's where the partnership continues.
My main concern is for companies like the companies I've
outlined in my written testimony, employers who get caught up
in investigations and litigation and can't fund the defense
because of how expensive litigation has become today; not for
Pfizer, not for the big companies that can defend themselves,
but for the small companies. The Justice Department has, as a
matter of practical policy, decided not to take on those
whistleblower cases but to leave it to the defendant to fight
them to move to dismiss.
Those are--those are defendants. Those are targets for whom
I would ask that the Subcommittee take a second look at the
statute, take a second look at enforcement practices, and take
a look at disclosure policies or disclosure programs like Mr.
Thompson has discussed.
Before my time runs out, I want to comment on the
disclosure regime. What we've heard from today and what we
often hear from the relator's bar is that there's a presumption
that inside cheating companies, it's always the boss who's the
head cheat. The presumption isn't that the boss would like to
weed it out. The presumption isn't--isn't that a disclosure
program would help the boss to convince others to weed it out.
That's not my experience. My experience is different.
The Federal Government has a number of self-report
programs, none of which dovetail well with the False Claims
Act. Today, the Justice Department has recently announced,
under the Foreign Corrupt Practices Act, that companies who are
investigated or companies who have--who find problems under the
Foreign Corrupt Practices Act, should come forward, make
disclosures, and there are significant incentives to bring
those companies forward--or to bring problems forward to the
government and to cooperate in investigations.
That's just one example. There are many more where there
are clear incentives and the programs are working. The False
Claims Act doesn't have such an incentive, and it should.
[The prepared statement of Mr. Diesenhaus follows:]
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__________
Mr. Franks. And I thank you, Mr. Diesenhaus.
And we will now begin questions, and I will begin by
recognizing myself for 5 minutes.
Mr. Burke, you had mentioned in your testimony that you had
been offered a settlement from the Department of Justice, and I
guess the first question is, what was the process that caused
you to answer that question ``no''? I mean, why did you reject
that settlement? And in the end, wouldn't it have been--you
know, the question occurs, would it have been cheaper for you
to accept the offer, given the man hours used in the
investigation and the overall legal costs?
Mr. Burke. Well, thank you for that question. Yes, we were
offered a settlement, and it came probably sort of mid in the
investigation where some of the--I think there was a
understanding of generally what was involved, but the fine
details had not really been arrived at. We were offered a
$750,000--and their term--rough justice settlement.
Our decision was a hard one. In fact, it was very tempting.
We had board members that felt that this was the way to go
and--but we had others that, as we looked at what we did, we
thought, you know: This is not right, because there is a stigma
that goes with a settlement. And, frankly, if we had settled, I
wouldn't be here testifying today. We would be another check in
the success column of the FCA and with no ability to really
tell our story and what the issue was.
And so we chose not to. We chose to go forward, even though
it probably cost us an extra $250,000 in legal fees in order to
continue the process to get to the point where both the
Department of Justice and the State Medicaid Fraud Unit
dismissed the claim.
Mr. Franks. Thank you, Mr. Burke.
Mr. Thompson, if organizations are given some type of
benefit or incentive for having a high-quality ethics and
compliance program in place, when an FCA violation is
identified, how then would DOJ distinguish between those that
simply implement a program and those who seek to make the
program an ongoing priority?
Mr. Thompson. I'll turn this on this time.
Thank you, Mr. Chairman. I want to compliment the
Department of Justice. The Criminal Division has recognized
that having an effective compliance program can play an
important role in making a prosecuting decision, and they have
brought in a person who is an expert in compliance programs,
and to look at whether or not, from the collateral consequence
standpoint, or even from the standpoint of making a decision,
if a company has a bona fide terrific gold-plated compliance
program, then it shouldn't be excessively punished because of
the acts of one bad employee. The Criminal Division recognizes
this.
And I--what I want to focus on is prevention. If you have a
bona fide high-quality compliance program--and that was the
purpose of the blue ribbon panel--you can make a terrific
difference in prevention, and prevention should be something,
whatever side of the aisle you're on, everyone would benefit
from prevention: the public, the government, consumers, and
shareholders. And I think that's the kind of incentive,
especially when you get to matters like self-disclosure.
I'm concerned about the collateral consequences more than
the damages. It's the collateral consequences which turn a very
good compliance program that, as our panel found, is business-
specific, and I think we all would recognize that a business-
specific program is better than a program that the government
or some agency can come in and impose upon a company after the
fact.
So I think this is a very good incentive for this Committee
to look at, and it will do more to prevent fraud than anything
else.
Mr. Franks. Well, thank you, sir.
Mr. Diesenhaus, I wonder if you could explain how the
current penalty structure in the False Claims Act might coerce
certain defendants to settle even those nonmeritorious FCA
cases that are brought against them.
Mr. Diesenhaus. Thank you, Mr. Chairman. False Claims Act
provides for treble damages plus per-claim penalties of 5,500
to 11,000 per claim. That's likely to go up by--there's an--
there's a provision that provides for--excuse me--statute
provides for an inflation increase, and I think it's due to
reset within the next year.
In addition, in the Medicaid case, many States have False
Claims Acts as well, so that would double the amount of the
penalty. So you'd be looking at, in the Medicaid case, for each
$100 dentist bill, you'd be looking at a $300 damage recovery
for the government and 11,000 to 22,000 per claim.
For an entity the size of Mr. Burke's hospital or some of
my smaller clients, that risk, especially when you've incurred
cost and spent the money to deliver the healthcare services,
it's too great to take, and often the Department will
compromise to a much smaller number than you'd be exposed to at
trial.
Mr. Franks. Well, thank you all.
My 5 minutes have expired, and I will now recognize the
Ranking Member for his questions, 5 minutes.
Mr. Cohen. Thank you, sir.
Mr. Burke, I don't know about your case, and I do notice in
your testimony you say, in the end, you know, you were found
not to have--the Justice Department surrendered, gave up, and
didn't go further.
Do you know if there was a rule 11 filed for sanctions? The
attorney files a rule 11 saying the other counsel had no basis
for the action. Do you know if your attorneys filed a rule 11
request?
Mr. Burke. I don't believe that they did.
Mr. Cohen. Do you know if they filed a motion to dismiss
for failure to state a claim of action?
Mr. Burke. I don't believe that they did.
Mr. Cohen. Mr. Getnick, wouldn't that have been the
appropriate thing for an attorney representing his company to
have done if it was not a claim that had any basis?
Mr. Getnick. I can't speak to the specific case, but I
think, as a general rule, what you're pointing out is that the
False Claims Act is replete with protective mechanisms, and you
have mentioned two.
Rule 11 is a rule that applies generally that if a matter
is not well thought through, if it's not subject to proper due
diligence, both the party and the lawyer are subject to
sanction.
Then, in addition to that, rule 9 provides an even higher
standard because these cases are found in fraud and require
specificity and particularity, which would give rise to, as you
point out, a potential motion to dismiss.
But there are even greater protections under this statute
because the Department of Justice has the ability to move to
dismiss a case if it believes it is not one that has
appropriate validity.
And, finally, the defendant, under 31 U.S.C. 2730 can seek
further penalties from the relator if the matter is found to be
clearly frivolous, vexatious, or primarily for the purpose of
harassment. So this multifaceted regime is a tremendous bulwark
against abuse.
Mr. Cohen. So while you don't know the facts of this case,
and as I don't either, the fact in Mr. Burke's statement, he
says, ``In the end, it was determined we had not defrauded the
government,'' could it then determine that there wasn't
sufficient proof to rise to the level necessary, that the
government felt they couldn't get to the degree of proof they
needed, that it may be some proof was missing, a witness was
missing, or that just the standard was not sufficient, but that
there was probable cause?
Mr. Getnick. There could be any number of reasons why the
case did not proceed. And, you know, I have heard what Mr.
Burke has to say today. And, frankly, it concerns me that he
and his company had that experience, and I think it's something
worth taking into consideration, and it's worth being concerned
about. I'm concerned about it.
Mr. Cohen. And I am, too. And Mr. Diesenhaus mentions that
sometimes the powerful parties got so much money and that the
other side can't afford go forward, and that happens a lot with
usually corporations having to be on the power side and not
necessarily the government.
Is there something where Mr. Diesenhaus talks--he talks
about the smaller corporations who can't afford the litigation;
they might have to settle--is there a place that you all could
come to a meeting of the minds to find some way to improve the
statute?
Mr. Getnick. What concerns me is hearing that there are
only a handful of examples of declined cases that go on to be
successful. And while I'm concerned about what I've heard from
Mr. Burke, I also recognize that that's a case that took place
10 years ago. And so if we need to reach back 10 years to find
that type of situation, that should tell us that this is not a
matter of great frequency.
On the other hand, we only have to reach back to yesterday
to see how declined cases play a very specific and important
role. One of cases you pointed out in your opening remarks was
the Wyeth/Pfizer/Protonix case. That case settled yesterday for
$750 million after an initial Department of Justice declination
and 14 years of work. It's very important to realize that.
The Department of Justice, at some point, declined, but
because this action-forcing mechanism took place, the relator
and the relator's counsel were able to continue investigating
the case, continue to advance the case and prove it up. Then
the Department of Justice said, ``Wait a moment. This is a case
we have to become involved in,'' and then we see that yesterday
that Wyeth/Pfizer is going to pay $413 million to the United
States; the participating States, $371 million. And those
companies are not denying the government's allegations of
alleged illegal bundling and pricing violations.
So that case was successfully defended on a motion to
dismiss, and zero dollars would have come out without the
whistleblowers and their lawyers pursuing that case after DOJ
declined.
Mr. Cohen. Thank you. Let me ask one last question. Is the
Getnick in Getnick & Getnick your father, your brother, your
wife, your son?
Mr. Getnick. Well, that's an interesting question. It's
very much my father, who I spoke about.
Mr. Cohen. Okay.
Mr. Getnick. But my brother, Michael Getnick, is counsel to
the firm, and my wife, Margaret Finerty, is also a partner in
the law firm.
Mr. Cohen. Family affair.
Mr. Franks. That keeps it in the family, yes, sir.
I now recognize the Ranking Member of the full Committee,
Mr. Conyers, for 5 minutes.
Mr. Conyers. Thank you, Mr. Chairman.
I appreciate the witnesses here. Let me start off with Mr.
Thompson. Shouldn't Congress preserve strong qui tam provisions
as a core feature of the False Claims Act because it
incentivizes uncovering fraud?
Mr. Thompson. Good afternoon, Congressman.
Mr. Conyers. Greetings.
Mr. Thompson. It's good to be here, and it's been a
pleasure working with you all these many years.
I think that Congress should make certain that the False
Claims Act remains a strong Act. As I said in my--as I said in
my opening statement, the False Claims Act is a very important
antifraud tool. But what we talked about with Mr. Cohen's
questions about the protective mechanisms and Mr. Getnick's
responses, the concern that I have when we're dealing with
collateral consequences to business--businesses, present
responsibility determinations, corporate integrity agreements,
there is absolutely no protective measures for companies who
are mistreated or run roughshod over by the government. These
decisions are made ad hoc.
All the leverage is with the government. There is--it's
virtually impossible for a business to challenge a collateral
consequence determination by a government agency, so we need
these protections. I think we can--Congressman, I think we can
have those protections, and I think the False Claims Act can
remain a very effective and important antifraud tool.
Mr. Conyers. Okay.
Mr. Getnick, let me throw the same consideration to you.
What do you think about preserving strong qui tam provisions?
Mr. Getnick. Thank you, Congressman.
I don't think that there is any mutual exclusivity, if you
will, between encouraging business-driven integrity and a
strong False Claims Act. In fact, if business-driven integrity
is creating compliance within companies, then there won't be
False Claims Act violations leading to liability and damages.
I don't think the problem is with companies that have
serious business-driven integrity programs of the type that Mr.
Thompson is talking about today. The problem is companies that
have what I would describe as law-driven compliance programs,
which are meeting certain predefined benchmarks, but they're
adopted to avoid punishment, and they're only grudgingly
tolerated by executives and employees. And if the company
doesn't develop a deeply rooted culture of integrity, then it
results in corporate lawyers telling corporate executives how
to design a compliance program that meets some set of objective
tests so that they can enjoy the benefits of reduced liability.
But what Mr. Thompson and I think what Mr. Diesenhaus is
talking about, frankly, is a potentially better world where we
have business-driven integrity programs that are much likely to
prove more effective. And I probably should take a moment and
say I identified myself as testifying in the capacity as
chairman of Taxpayers Against Fraud Education Fund, but I'm
also the managing partner of Getnick & Getnick, and our firm
has a dedicated business-integrity counseling side in addition
to our antifraud litigation side.
So this is very near and dear to me, because if you can
encourage business driven integrity, then you have something
that may prove more effective because business people from the
top down, not just the legal department, I'm talking the C
suite, the chairman, they embrace and promote that program as
essential to the long-term success of the enterprise, and then
it can be viewed throughout the company as a profit center and
a competitive advantage.
Mr. Conyers. Mr. Getnick, let me just ask you: If the
Federal legislature were to weaken qui tam provisions in the
False Claims Act, what do you think--what kind of result would
we have there?
Mr. Getnick. Look, it would be awful. It's just that
simple. Because a program that is producing violations has to
be judged on its results, not that some list of checkmarks took
place where somebody says: Hey, I met the standard.
In the end, the standard is: Are you defrauding the
government, or are you not defrauding the government? And if
you're defrauding the government, you need a powerful False
Claims Act that does it best.
Mr. Conyers. Do you agree, Mr. Thompson?
Mr. Thompson. Yes. As I said, I think we should have a
powerful and effective False Claims Act, but we need to focus
on predictability and certainty when it comes to these
collateral consequences that businesses come into play when
there's a False Claims Act issue. This is completely--
completely, in a way, different than the False Claims Act in
the sense that it follows the False Claims Act and it needs to
be addressed because we need to do a better job at prevention,
Congressman.
Mr. Getnick. May I just add one thing to that? So I teach a
whistleblower law class at Cornell, and this Monday was the
session on compliance. And, actually, I was hoping that Mr.
Thompson would have been our guest lecturer. Due to a conflict,
the students had to have the weak substitute of my speaking to
them instead.
And I completely concur with this approach of encouraging
companies to get it right because the alternative is to have
the government come in with a deferred prosecution agreement
and a monitoring program that is a nightmare. And, in fact,
when we teach the class, we start out and say: Look at what a
monitoring agreement looks like and be lawyers who are ready to
show that to your client and to convince them they don't want a
monitoring agreement. What they want is a business-driven
integrity program that gets it right coming from a culture of
integrity and understands that, by doing good, you can do well
and that good conduct is good business.
And if you read the testimony of Mr. Thompson, you will see
that is precisely the conclusions that he and his colleagues
have come to and which I share.
Mr. Conyers. Thank you, Mr. Chairman.
Thanks to the witnesses very much.
Mr. Franks. Let me also add my thanks to the witnesses and
to the audience for being here. This is always one of the more
enlightening venues because you have people on different sides
that really know what they're talking about, so it's been very
enlightening testimony, and I appreciate it.
And this concludes today's hearing.
Mr. Cohen. Mr. Chair, before you finish.
Mr. Franks. Please.
Mr. Cohen. Can I ask, without objection, that we have some
hearing oversight on the False Claims Act testimony by Mr.
Stephen Kohn, K-o-h-n, executive director of National
Whistleblowers Center, into the record?
Mr. Franks. Without objection.
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__________
Mr. Franks. So now this concludes today's hearing, and I
want to again, thank you all for attending.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
I thank the witnesses. I thank the Members, and I thank the
audience. And this hearing is adjourned.
[Whereupon, at 5:28 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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