[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


                   OVERSIGHT OF THE FALSE CLAIMS ACT

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

                                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

                               __________

         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
                                 ------                                

           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

                              ----------                              

                             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

                              ----------                              


                        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:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
          
                               __________
        
    [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*
---------------------------------------------------------------------------
    *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
      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
      
                               __________
                               
    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.
    [The material referred to follows:]
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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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