Pro-business conservatives push to scale back whistle-blower rewards

Opponents say U.S. law limits health care fraud

August 29, 2005|By LOS ANGELES TIMES

WASHINGTON -- A federal law established at Abraham Lincoln's urging to punish vendors who sold shoddy goods to the Union army has become the government's most formidable weapon against health care fraud.

But the success of the law, which has recovered almost $8 billion in such fraud since 1987, has prompted an attack by pro-business conservatives who want to cut back a critical provision: the authority to pay hefty rewards to whistle-blowers who provide inside information about improper activities by medical groups, drug companies and other health care providers.

Grover Norquist, a prominent conservative leading the campaign, called on Congress this summer to scale back the size of the rewards.

The Justice Department has not taken a position on his proposal.

The move to rein in the False Claims Act -- as the whistle-blower law is known -- is part of conservatives' larger effort to limit corporations' exposure to legal challenges that they consider unwarranted. The effort has generally taken the form of seeking to place limits on access to the courts, as in the successful drive to curb class action lawsuits and the continuing push for "tort reform."

Under current law, whistle-blowers can receive up to 30 percent of civil court settlements and judgments awarded to the government. In practice, just under 17 percent of the money recovered by the government goes to whistle-blowers.

Still, because some cases involve such huge dollar amounts, the average whistle-blower's share works out to about $1.6 million a case.

Defenders of the law say that it is working as intended -- and that reducing whistle-blower awards would amount to a government surrender on health care fraud, which skims an estimated $60 billion a year from Medicare and Medicaid.

In recent years, the list of companies that have settled fraud cases with the government includes Pfizer/Warner-Lambert, Schering-Plough, AstraZeneca, Bayer Corp., TAP Pharmaceutical Products Inc. and Glaxo- SmithKline.

Since the mid-1990s, health care companies have replaced defense contractors as the main targets of federal fraud prosecutors. Lawyers who follow the issue estimate the Justice Department is currently investigating about 150 allegations of drug-pricing fraud.

One common scheme, called "marketing the spread," involves boosting sales by offering pharmacies and health care providers discounts from the published prices used to calculate federal payments. Another involves selling medications for "off-label" uses that are not medically accepted.

In 2003, AstraZeneca agreed to pay $280 million to resolve civil allegations that it had conspired with providers to charge Medicare and Medicaid for free samples of Zoladex, a prostate cancer drug. The whistle-blower's share of the settlement totaled nearly $48 million.

Under the False Claims Act, a whistle-blower can file a sealed civil suit on behalf of the government in federal court. Government prosecutors review the complaint and decide whether to take over the case.

Critics of the law say the prospect of riches leads employees to delay blowing the whistle so that the fraud -- and therefore prospective court damages -- can grow.

A Justice Department spokesman said the law contains a provision to prevent someone engaged in fraud from being rewarded as a whistle-blower. Another section provides that any reward go to the whistle-blower who first files a complaint.

Norquist is asking Congress to cap whistle-blower awards at $1 million. He also wants to require whistle-blowers to make documented efforts to fix problems from within before suing.

"The pendulum has swung too far and is now actually encouraging wrongdoing," Norquist, president of Americans for Tax Reform, wrote in a memo to lawmakers this year. "For sure it is providing incentive not to report bad acts to employers. Instead, those witnessing these acts have the lucrative financial incentive to let them fester. "

Norquist is one of Washington's best-known political operatives. His organization, which advocates limits on taxation, is active in political campaigns. Americans for Tax Reform lobbies on general-interest issues and specific business concerns.

Americans for Tax Reform lobbyist Daniel Clifton, who is handling the group's whistle-blower campaign, said the drug industry was not involved in the effort and had provided no funding for it.

Clifton said the proposal to rein in the whistle-blower law was part of a broader effort against abuses of the legal system. Conservatives, emboldened by the success of such campaigns as the drive to limit lawsuits against gun makers and to make it harder to pursue class action cases, are looking for new ways to discourage specific kinds of lawsuits.

"It took eight years to pass class action [limits] and we finally broke through," he said. "Over time, it will build up and rise to the top of the agenda."

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