Whistleblower cases brought under the False Claims Act often revolve around several types of alleged fraudulent activity, including the following, without limitation:
- Making false statements in grant applications for research funding, such as from the National Institutes of Health;
- Selling defective or improper goods to the government;
- Billing for goods or services never provided;
- Billing for unnecessary services; and
- Billing schemes that increase payment without adding value.
The federal and state governments enter into contracts in nearly every area in which public funds are expended. These areas include, without limitation, defense contracting, infrastructure, information technology, building construction and maintenance, and purchases of all manner of tangible goods. Fraud is common in civil engineering and construction contracts awarded by the federal government, such as the following, without limitation:
- Bid-rigging, bribery, or other misconduct to obtain a government contract;
- Providing non-compliant or substandard goods or services (or failing to provide the required goods or services at all);
- Unauthorized substitution of parts or equipment—for example, using cheaper, inferior items when a contract requires specific, high-quality parts;
- Failing to properly test for defects or safety flaws (lack of quality control);
- Making false certifications as to the quality or attributes of the goods or services provided (or the manner in which they were provided); or
- Fraud in connection with government set-aside programs for minorities, women, and the disabled.
Defense Contractor Fraud
Defense contracts with the federal government amount to billions of dollars each year. For example, fraudulent activity in the aerospace and defense industries typically involves the following, without limitation:
- Intentionally inflating prices on government contracts;
- Unlawful billing schemes (for example, charging the Department of Defense for high-quality parts or equipment while providing cheaper replacements);
- Supplying defective parts; or
- Failure to meet the specifications of a contract.
Motor Vehicle Safety
In 2015, in the wake of serious motor vehicle safety scandals, Congress passed the “Fixing America’s Surface Transportation Act” (49 U.S.C § 5310), which established a Motor Vehicle Safety Whistleblower Act and Motor Vehicle Safety Whistleblower Reward Program at the Department of Transportation. Under the Motor Vehicle Safety Whistleblower Act, any employee or contractor of a motor vehicle manufacturer, part supplier, or dealership may submit information to the government regarding serious violations of federal safety laws. Serious safety violations include the following, without limitation:
- Defects that cause the driver to lose control of the vehicle;
- Failure of safety measures such as airbags or brakes;
- Ineffective crash safety mechanisms; or
- Spontaneous fires or explosions.
In addition, as the motor vehicle industry continues its trend toward self-driving cars and other automated control features, the range of potential safety violations will only increase.
Whistleblowers whose information results in the government’s collection of over $1 million in monetary sanctions may be eligible for a financial reward equal to 10 to 30 percent of the amount recovered. The Department of Transportation takes all reasonable measures to protect the anonymity of whistleblowers.
Healthcare (Medicare/Medicaid) Fraud
Healthcare fraud is one of the most common types of fraud perpetrated on the federal government. This type of fraud arises when a medical professional or healthcare entity—for example, a hospital, lab, or pharmacy—submits fraudulent claims to Medicare or Medicaid, including the following, without limitation:
- Billing for services not provided;
- Administering unnecessary services;
- Billing for a more costly service than what was provided (upcoding);
- Billing each stage of a procedure as separate procedures (unbundling);
- Payments (kickbacks) to physicians, physician practices, or hospitals by pharmaceutical companies or others in return for drug promotion or purchases (a violation of the Anti-Kickback Statute);
- Pharmacies improperly billing Medicare or Medicaid for drugs not prescribed;
- Medical device companies not securing proper approvals by the U.S. Food and Drug Administration for selling medical devices or using them for off-label purposes;
- A physician referring certain services to an entity in which they have a financial stake (a violation of the Physician Self-Referral Law, also known as the Stark Act); or
- The use of invalid drug patents to block generic entry.
This category also includes fraud related to the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES) (15 U.S.C. Ch. 116).
Pharmacy Benefit Manager Fraud
Pharmacy benefit managers (“PBMs”) are companies that manage prescription drug benefits on behalf of government-funded programs. In exercising this role, PBMs routinely negotiate with drug manufacturers and pharmacies. Although the contractual relationships between PBMs and the numerous parties with whom they conduct business are generally not made public, a PBM is as a general matter obligated to pass along the cost savings that it negotiates on behalf of the program it represents. To the extent that it conceals this benefit and pockets it for itself, the PBM is opening itself up to liability under the False Claims Act for causing false claims to be submitted to the government.
Additionally, PBMs sometimes wear several hats while operating within the complicated matrix of the pharmaceutical distribution chain. This means that there may well be situations in which the PBM has financial interests that conflict, and it thus may be incentivized to negotiate for something less than the best deal possible for the government program. Should this happen, the False Claims Act has potentially been violated.
Durable Medical Equipment Fraud
Durable medical equipment is medical equipment that can be used again and again, such as beds, wheelchairs, and back braces. This realm of health care is subject to less regulation and has fallen victim to some of the most egregious examples of billing the government for items that were induced by kickbacks, were unnecessary, were never provided, or (as has occurred with items such as back braces, hearing aids, and glucose monitors) were never prescribed by a provider.
Electronic Health Records Fraud
Electronic health records (“EHR”) are electronic versions of the information contained in paper charts in your doctor’s or other healthcare provider’s office. EHRs may include your medical history, notes, and other information about your health, including your symptoms, diagnoses, medications, lab results, vital signs, immunizations, and reports from diagnostic tests, such as x-rays. The federal government has long recognized that EHRs have great potential to improve health care but can also cause harm to the provision of safe and effective health care if they do not function properly.
To encourage hospitals to invest the millions of dollars needed to purchase and use a foundationally sound EHR system, in 2010, the government established programs under Medicare and Medicaid to pay significant incentive payments to hospitals and physicians for owning and using EHRs certified against a federal standard. This goal created the potential for fraud in at least two respects. First, to qualify for incentive payments, the EHR software must be “certified,” meaning that it was tested by a government-approved body and found to be capable of performing a set of specific criteria. If the software manufacturer cheats during the testing, the software will falsely receive certification and cause hospitals and other providers to unwittingly apply for incentive payments using unqualified software. Second, to receive incentive payments, providers must demonstrate that they are using the software in a “meaningful manner” by satisfying certain objectives. If the provider falsely represents that these objectives have been satisfied, when they have not, False Claims Act liability will attach.
Prior to the COVID pandemic, the Medicare and Medicaid programs had been repeated targets of telefraud, as had unsuspecting patients in their homes. But during the COVID pandemic, Congress acted quickly to ease restrictions on telemedicine through the CARES Act of 2020. This greatly expanded the circumstances under which healthcare providers could bill Medicare and Medicaid for seeing patients and providing services remotely. The law also allowed providers to charge for seeing patients in other states for the first time. This has led to an explosion of telemedicine fraud.
For instance, in September 2021, the Office of the Inspector General (“OIG”) for the U.S. Department of Health and Human Services issued a report on telemedicine in the context of Medicaid and behavioral health. The OIG concluded that increased monitoring by states to detect Medicaid telemedicine fraud is urgently needed. More generally, the DOJ has responded to the uptick in telemedicine fraud by making it a primary target.
Tax fraud and illegal tax avoidance cost the federal and state governments billions of dollars each year. In 2020 alone, the IRS’ criminal enforcement arm identified over $2 billion in federal tax fraud. There are countless ways in which a business can improperly avoid its tax obligations. Some of the most common include the following, without limitation:
- Failure to report all sources of taxable income;
- Claiming improper deductions or credits;
- Engaging in illegal tax shelters;
- Failure to forward withheld employee taxes to the IRS;
- Failure to pay appropriate taxes on investment activity or cryptocurrency transactions;
- Failure to properly account for intercompany transfers; or
- Failure to identify income that is attributable to U.S. business activity.
The primary manner through which whistleblowers can report tax fraud in New York is through the IRS Whistleblower Reward Program, which covers underpayments of federal taxes and related penalties and proceeds. Certain states, like New York, allow whistleblowers to pursue state tax-related claims through their false claims act statutes or other statutory or administrative mechanisms.
In 2006, the IRS Whistleblower Program was established to administer a system that encourages individuals to come forward with information regarding the underpayment of federal taxes by offering financial awards when that information leads to successful government recovery. Since its creation, the IRS Whistleblower Program has led to the collection of over $6 billion in underpaid taxes and has made over $1 billion in awards to whistleblowers.
Individuals who follow the procedures of the IRS Whistleblower Program and whose information leads to the recovery of over $2 million in proceeds may be eligible for financial awards equal to 15 to 30 percent of the proceeds collected. The IRS will take all appropriate measures to protect the anonymity of whistleblowers and does not personally identify whistleblowers even when making and announcing its whistleblower awards.