[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
FALSE CLAIMS ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON THE CONSTITUTION
AND CIVIL JUSTICE
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
JULY 30, 2014
__________
Serial No. 113-93
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
______
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio ZOE LOFGREN, California
SPENCER BACHUS, Alabama SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas JUDY CHU, California
JIM JORDAN, Ohio TED DEUTCH, Florida
TED POE, Texas LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina SUZAN DelBENE, Washington
MARK AMODEI, Nevada JOE GARCIA, Florida
RAUL LABRADOR, Idaho HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas DAVID N. CICILLINE, Rhode Island
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
------
Subcommittee on the Constitution and Civil Justice
TRENT FRANKS, Arizona, Chairman
JIM JORDAN, Ohio, Vice-Chairman
STEVE CHABOT, Ohio STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia JERROLD NADLER, New York
STEVE KING, Iowa ROBERT C. ``BOBBY'' SCOTT,
LOUIE GOHMERT, Texas Virginia
RON DeSANTIS, Florida HENRY C. ``HANK'' JOHNSON, Jr.,
JASON T. SMITH, Missouri Georgia
TED DEUTCH, Florida
Paul B. Taylor, Chief Counsel
James J. Park, Minority Counsel
C O N T E N T S
----------
JULY 30, 2014
Page
OPENING STATEMENTS
The Honorable Trent Franks, a Representative in Congress from the
State of Arizona, and Chairman, Subcommittee on the
Constitution and Civil Justice................................. 1
The Honorable John Conyers, a Representative in Congress from the
State of Michigan, and Ranking Member, Committee on the
Judiciary...................................................... 3
WITNESSES
The Honorable Chuck Grassley, a U.S. Senator from the State of
Iowa
Oral Testimony................................................. 7
Prepared Statement............................................. 10
Rachakonda D. Prabhu, M.D., Red Rock Medical Group
Oral Testimony................................................. 15
Prepared Statement............................................. 17
Patricia J. Harned, Ph.D., President, Ethics Resource Center
Oral Testimony................................................. 45
Prepared Statement............................................. 47
John E. Clark, Of Counsel, Goode Casseb Jones Riklin Choate &
Watson, Taxpayers Against Fraud
Oral Testimony................................................. 56
Prepared Statement............................................. 58
David W. Ogden, Partner, Wilmerhale, U.S. Chamber Institute for
Legal Reform
Oral Testimony................................................. 77
Prepared Statement............................................. 79
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable John Conyers, a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 4
Prepared Statement of the Honorable Steve Cohen, a Representative
in Congress from the State of Tennessee, and Ranking Member,
Subcommittee on the Constitution and Civil Justice............. 99
APPENDIX
Material Submitted for the Hearing Record
Response to Questions for the Record from John E. Clark, Of
Counsel, Goode Casseb Jones Riklin Choate & Watson, Taxpayers
Against Fraud.................................................. 110
Prepared Statement of Stephen M. Kohn, Executive Director,
National Whistleblower Center.................................. 117
OFFICIAL HEARING RECORD
Material Submitted for the Hearing Record but not Reprinted
Report by the National Whistleblowers Center (NWC) entitled ``Saving
America's `Most Important Tool to Uncover and Punish Fraud' '' This
report is available at the Subcommittee and can also be accessed
at:
http://www.whistleblowers.org/storage/whistleblowers/RebuttalDocs/
final%20fca
%20report.pdf
FALSE CLAIMS ACT
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WEDNESDAY, JULY 30, 2014
House of Representatives
Subcommittee on the Constitution
and Civil Justice
Committee on the Judiciary
Washington, DC.
The Subcommittee met, pursuant to call, at 1:05 p.m., in
room 2237, Rayburn Office Building, the Honorable Trent Franks
(Chairman of the Subcommittee) presiding.
Present: Representatives Franks, Goodlatte, DeSantis,
Cohen, Conyers, and Johnson.
Staff present:(Majority) Zachary Somers, Counsel; Tricia
White, Clerk; (Minority) James Park Minority Counsel; and
Veronica Eligan, Professional Staff Member.
Mr. Franks. The Subcommittee on the Constitution and Civil
Justice will come to order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time.
I will begin by recognizing myself for an opening
statement.
We welcome all of you to the Committee hearing today.
Because protecting taxpayer dollars from waste, fraud and
abuse is a critical responsibility with which Congress is
entrusted, it is important that from time to time we examine
how the False Claims Act is working.
It has been 6 years since the Judiciary Committee has held
a hearing on the FCA, and in that time three major legislative
changes to the FCA have been enacted. So we have called today's
hearing to examine areas in which the Act has been effective
and potential areas in which reforms could be made to detect
and prevent false claims in the future.
The False Claims Act is the Federal Government's primary
tool for combatting fraud in federally funded programs, and the
Act has proved to be a very successful tool. In each of the
last 4 years the government has recovered over $3 billion under
the FCA, and since the significant 1986 amendments to the FCA
the Federal Government has recovered over $38 billion using the
Act.
The FCA has been used to combat false claims in several
economic sectors including defense, health care,
pharmaceuticals, and finance. However, despite its success, as
it is currently structured and enforced, the FCA still fails to
prevent massive losses of taxpayer dollars to waste, fraud and
abuse.
According to a recent study by the General Accountability
Office, over $100 billion in taxpayer money is lost each year
to improper payments by the Federal Government. Thus, the
government recovers only a fraction of what it loses to false
claims every year. This is especially troubling considering
Congress has amended the FCA three times in the past 5 years to
expand its coverage and enhance the ability of the
whistleblowers to bring suit.
So the question occurs, how do we get more recoveries of
taxpayer dollars out of the False Claims Act? Some experts who
have studied the Act suggest that the answer is all about
incentives and encouraging those best able to detect and
prevent false claims--government contractors and government
program beneficiaries themselves--to self-police and self-
report potential FCA violations. The advice of these experts
seems to make a great deal of common sense to me.
However, as currently structured, the FCA provides very few
incentives for Federal Government contractors and businesses
that participate in Federal Government programs to come forward
and disclose their own violations. In other words, those with
the best knowledge of waste, fraud and abuse are not encouraged
to self-police for violations and self-disclose violations if
they, in fact, occur.
This is because there is no economic advantage or incentive
to do so. FCA violators who self-report generally receive the
same exact penalties and face the same damages as those who are
caught violating the Act and settle out of court with the
government.
This would seem to make little sense. Shouldn't those that
come forward and self-disclose violations get better terms than
violators who are caught essentially red-handed? The FCA has
been as successful as it has because it has provided
whistleblowers with tremendous financial incentives for
uncovering and disclosing false claims. It seems very
appropriate and logical that to complement the current
incentives for whistleblowers in the Act with financial
incentives for self-disclosure will uncover even more waste,
fraud and abuse of Federal taxpayer money. We need to examine
ways to give those who do business with the government
meaningful incentives to detect wrongdoing and to self-report
it to government, and thus return to taxpayers more money than
is currently recovered under the FCA.
The Justice Department itself has acknowledged the
limitations of the Act as it is currently written. According to
the head of the division at DOJ charged with enforcing the FCA,
the Justice Department is ``well aware of the fact that
litigation can only plausibly reach a fraction of the fraud
committed against U.S. Government programs, which likewise
makes the prevention of fraud a more potent tool for protecting
the interests of the United States than efforts to undo the
damage of completed schemes. Litigation to recover the costs of
fraud is a far inferior option to preventing the fraud in the
first place.''
Now, I hope through this hearing we can begin to discuss
ways to prevent violations of the False Claims Act from
occurring in the first place. The Federal Government has
benefitted greatly from the increased accountability that has
resulted from the False Claims Act and the invaluable help it
has received from False Claims Act whistleblowers. We must make
sure, however, that we are doing everything that we can to
detect and prevent even more false claims against our nation's
hard-earned financial resources, and I look forward to the
witnesses' testimony.
And I would yield--I see the Ranking Member is not here, so
I am not going to yield to him. How does that sound? And I look
forward to hearing, then, from our witnesses. We will now just
thank the Committee for being here.
We have two very distinguished panels of witnesses today,
and I will begin by introducing the first panel witness.
Our first witness is Senator Chuck Grassley, the Ranking
Member on the Senate Judiciary Committee. Senator Grassley has
served in the Iowa Legislature and the U.S. House of
Representatives before being elected to the Senate in 1980. In
1986, Senator Grassley authored significant amendments to the
False Claims Act to empower whistleblowers to file suit on
behalf of the Federal Government against those who falsely
obtain taxpayer dollars. Senator Grassley has been a leader in
combatting waste, fraud and abuse in Federal Government
programs and protecting the rights of whistleblowers.
I am wondering now at this point if we might ask the
Ranking Member of the full Committee if he has any opening
statement or any comments.
Mr. Conyers. Thank you, Chairman. I do, and I thank you for
your generosity.
Senator Grassley, welcome, and to the Members of our
Committee.
I merely wanted to read a page or two of my remarks and put
them in the record so that we don't detain the distinguished
witness that we have today.
The False Claims Act is a longstanding and vital tool for
ferreting out fraud against the government and ultimately
protecting taxpayer dollars, and since its enactment and in
1986 amendments to this law almost $39 billion have been
recovered from those that defrauded the American people,
including some large pharmaceutical companies, hospitals, and
defense contractors. In fact, more than $3.8 billion was
recovered in the Fiscal Year 2013 alone.
While no system is perfect, this Act has worked well,
particularly in light of the amendments which were spearheaded
by our distinguished witness who is with us today. These
amendments revitalize the Act's qui tam provisions. The Act was
further strengthened with clarifications to its liability
provisions that were made in 2009. Thus, as we consider the
state of the False Claims Act, we should keep the following
points in mind.
To begin with, qui tam actions are a critical component of
the False Claims enforcement scheme, and I think for the
interest of brevity I will ask permission to include the rest
of my statement into the record and yield back the balance of
my time, and thank the Chairman.
[The prepared statement of Mr. Conyers follows:]
__________
Mr. Franks. And I thank the gentleman.
I would now like to recognize Senator Grassley.
Senator Grassley, thank you for your gallant service to the
country, and we are pleased to have you here today.
I want to make sure that microphone is on so we can hear
you, sir.
TESTIMONY OF THE HONORABLE CHUCK GRASSLEY,
A U.S. SENATOR FROM THE STATE OF IOWA
Senator Grassley. The green light is on.
Before I read my 5-minute statement, I would like to, first
of all--I thought the green light was on. I would like to thank
you for responding to my request to come and testify. Thank you
for doing that.
The second thing I would like to say, you gave a nice
introduction of me. Thank you for that.
Thirdly, I often speak about whistleblowers as being
welcome within an organization kind of like a skunk at a
picnic. Now, I kind of feel that there is a lot of special
interests in this town who are going to consider me a skunk at
this picnic.
Thank you for allowing me to come here today to testify.
Today happens to be National Whistleblower Appreciation Day.
Whistleblower groups are meeting as we speak to honor some of
our colleagues on the Hill for their support of whistleblowers
who report waste and fraud.
I am wary when I hear the biggest violators of a fraud law
hire people to talk about strengthening that law. Last fall,
the Chamber of Commerce released a report on the False Claims
Act. It claims the Act ``plainly is not getting the job done
since the government has recovered only $35 billion since
1987.'' Now that figure, as you folks have said, is $39
billion, and some people use the term $42 billion. Anyway, this
amount of money is nothing to sneeze at where I come from in
rural Iowa.
The fact is that since 1986, no other law has been more
effective in battling fraud, and you said that, Mr. Chairman,
in your opening statement. Before the 1986 amendments, it only
brought in about $40 million a year, not billions of dollars.
At that rate, it would have recovered only $1 billion in the
past 25 years. Thanks to these '86 amendments, it has brought
in 39, 40 times that amount of money.
Clearly, the False Claims Act is working, and it is working
fantastically. The report that I previously referred to says
that the law is ``ineffective in preventing fraud.'' Yet, my
staff have met with some of the authors of that report, and
they don't have any concrete proposal for preventing fraud more
effectively. They talk about ``a gold standard compliance
certification program,'' but that just happens to be a pie-in-
the-sky idea with no specifics. As they said, ``We had to come
up with something, so we just put that in.'' The Chamber
clarified to my staff that they were talking about their
proposal for internal reporting 180 days before any
whistleblower can file a False Claims suit. Yet they also said
of the overall certification program, ``We deliberately left
this vague.''
Now, that is a very serious problem. They lack details on
who would create the program, who would enforce the program.
Basically everything about it lacks detail, but they want you
to believe that once this pipe dream is in place, it will
magically increase the amount of taxpayer dollars the
government recovers. In exchange, the report proposes hefty
concessions for its big corporate sponsors.
For starters, they want to eliminate the use of exclusion
or debarment, some of the government's strongest tools on
deterring fraud. They would require whistleblowers to report
internally, which just puts a huge target on the back of a
whistleblower. Internal reporting and a 6-month head-start on
retaliation before a whistleblower gets the chance to be heard
in court is a recipe guaranteed to reduce disclosures of fraud.
Even when a corporation does come forward, the company line is
never going to be the complete picture.
That is why the False Claims Act incentivizes
whistleblowers, and you see how it has worked. While I believe
companies should have strong internal compliance programs,
nothing is worth the get-out-of-jail-free pass that this report
asks in exchange. Many corporate giants already spend large
amounts on compliance but still routinely bilk the government
out of millions of taxpayer dollars.
This report's recommendations contradict its assertion that
the False Claims Act has failed by not recovering enough money.
The report proposes to limit government recoveries across the
board regardless of the participation in any compliance
certification program. That just makes no sense.
In the last 5 years, the Federal Government has grown
larger and larger, and spending has gotten more and more out of
control. Whistleblowers using the False Claims Act have played
a key role in checking fraud and wasteful spending. Annual
recoveries under the False Claims Act have increased
dramatically in the last 5 years. State Attorneys General
around the country have used state False Claims Act to
successfully recover billions of dollars for their states.
For example, last October, then-Virginia Attorney General
Ken Cuccinelli recovered $37 million for the State of Virginia
from a drug company that was inflating its prices to scam
taxpayer dollars from Medicare. The next month, Cuccinelli
recovered $21 million in two healthcare fraud settlements with
multi-national pharmaceutical giant Johnson & Johnson, which
was paying millions of dollars in kickbacks to the nation's
largest pharmacy.
Yet, just days before Cuccinelli's announcement of the
settlement, Health and Human Services Secretary Kathleen
Sibelius also made an announcement. She revealed that this
Administration did not intend to treat the Affordable Care Act
as a Federal healthcare program, then exempting it from anti-
kickback laws. Precisely because of the fraud opportunities
under the Affordable Care Act, one provision that Congress
added to the law made a violation of the anti-kickback law an
automatic violation of the False Claims Act. This
Administration has chosen to ignore that part of the law.
Congress must step forward and we must reiterate that the
Affordable Care Act is no less subject to the anti-kickback law
and the False Claims Act than any other Federal healthcare
programs. Additionally, this Subcommittee should strongly
consider strengthening the False Claims Act's connection with
suspension and debarment. That would keep repeat offenders away
from taxpayer dollars.
A couple of years ago, the nonpartisan Government
Accountability Office discovered serious weaknesses in the
suspension and debarment program of numerous government
agencies. Chairman Issa and Ranking Member Cummings of the
House Oversight Committee have joined together with some
proposals on this issue. Chairman Issa stated last fall, ``The
current process of keeping taxpayer dollars out of the hands of
criminals, tax evaders, and the chronically incompetent is
stove-piped, fractured and inadequate.''
This issue is really about law and order. If we really want
to improve the False Claims Act, we should make a judgment or
settlement under the law result in an automatic review for
suspension or debarment. That would capitalize on the success
of the law while increasing its deterrent effect. The False
Claims Act has already provided a crucial check during a time
of growing government and out-of-control spending. No matter
what we do to deter waste and fraud, whistleblowers are the key
to the government finding out when that act happens.
Today, on National Whistleblower Appreciation Day, I hope
we can honor whistleblowers for the patriotic service that they
provide to the taxpayers.
Thank you very much.
[The prepared statement of Senator Grassley follows:]
__________
Mr. Franks. Well, thank you, Senator Grassley. And again,
we want to express our gratitude for you making the trip over
here and the cogency of your remarks. Thank you very much, sir.
I would now like to turn to the second group of witnesses,
if you would like to take your seats.
Our first witness on this panel is Dr. Rachakonda Prabhu. I
am going to try that again, sir. Rachakonda Prabhu. I know
nobody ever has any trouble with that name, do they?
Dr. Prabhu is a Board-certified pulmonologist--boy, I am
having trouble today--pulmonologist and the Founder of Red Rock
Medical Group, the largest specialty medical group, multi-
specialty medical group in the State of Nevada. He is also a
Clinical Associate Professor of Medicine at the University of
Nevada School of Medicine. Dr. Prabhu was twice sued under the
False Claims Act and both times, at great personal expense,
prevailed in the litigation. In one of the cases against him,
the court determined that the case brought by the government
was without substantial justification.
Our second witness is Patricia Harned--I got that one--
President of the Ethics Resource Center, the nation's oldest
non-profit organization devoted to the advancement of high
ethical standards and practices in public and private
institutions. She serves as Consultant to the New York Stock
Exchange and is a member in good standing of the Advisory Group
of the Public Company Accounting Oversight Board. Dr. Harned
has testified before Congress and the Federal Sentencing
Commission and has been featured in media outlets including the
Wall Street Journal, Washington Post, and USA Today.
Our third witness is John Clark. John, thank you for having
a simple name. [Laughter.]
An attorney specializing in False Claims Act litigation.
Mr. Clark is testifying today on behalf of Taxpayers Against
Fraud. He served as an attorney in the Justice Department's
Criminal Division as an Assistant U.S. Attorney and as the U.S.
Attorney for the Western District of Texas. Mr. Clark has been
a member of legal teams representing whistleblowers in cases
that have resulted in recoveries totaling more than $3 billion
for the United States and state Medicaid programs.
Our final witness is David Ogden, a partner at WilmerHale.
He is testifying on behalf of the Chamber of Commerce's
Institute for Legal Reform. Mr. Ogden has held several
positions at the Justice Department, including serving as the
Deputy Attorney General of the United States from 2009 to 2010,
and as Assistant Attorney General for the Civil Division from
1999 to 2001. As head of the Civil Division, he directed the
Justice Department's False Claims Act enforcement.
Now, each of the witnesses' written testimony will be
entered into the record in its entirety, and I would ask each
witness to summarize his or her testimony in 5 minutes or less,
and to help you stay within that time there is a timing light
in front of you. The light will switch from green to yellow,
indicating that you have 1 minute to conclude your testimony.
When the light turns red, it indicates that the witness' 5
minutes have expired.
And before I recognize the witnesses, it is the tradition
of the Subcommittee that they be sworn. So if you would please
stand to be sworn.
[Witnesses sworn.]
Mr. Franks. Let the record reflect that the witnesses
answered in the affirmative.
I will now recognize our first witness. Dr. Prabhu, please
turn on your microphone, sir, before you begin.
TESTIMONY OF RACHAKONDA D. PRABHU, M.D.,
RED ROCK MEDICAL GROUP
Dr. Prabhu. Thank you, Chairman Franks, for inviting me to
testify, and Honorable Congressman Mr. Conyers, Honorable Mr.
DeSantis. I am a doctor who has been practicing medicine in
Nevada since 1979. I have been sued twice under the False
Claims Act. Both times the actions were dismissed and I was
exonerated. But the lawsuits were ordeals that had a terrible
effect on my medical practice, my finances, my health, my
family, on my reputation.
Over 10 years, my wife and I had built a good medical
practice with several doctors and employees. In the 1990's,
three former employees made a false accusation against me in a
qui tam lawsuit. Then they persuaded the Department of Justice
to join the lawsuit in 1999, and my life turned upside-down.
They fabricated charges that I had performed unnecessary
medical tests and used the wrong billing codes. These
allegations were not true, but that did not stop the press from
printing them. I was a doctor with a tremendous reputation, a
teacher, a humanitarian, and the next day my reputation was
tarnished. My medical practice went down. My wife and I had to
work without taking any salary. The doctors left and we had to
let employees go. I was also emotionally distraught. It was
hard for me to get up in the morning, to face people giving you
dirty looks in the hospitals. The stress took a toll on me
physically and I developed medical problems.
Worst of all, my kids were little, and because of the
press, other kids would tease them and make them cry. They
would tell me, ``Dad, we don't want to go to school.'' But I
never considered giving up or settling even though the
government was asking me for millions of dollars for things I
had not done. I also knew the government could kick me out of
Medicare and Medicaid.
After many years I was finally proven right. The government
dropped all of the qui tam lawsuit because it found the
allegations were untrue. Eventually, the judge dismissed the
entire lawsuit. Although I was vindicated, the financial cost
to defend myself was incredible. The total expense was between
$4 to $5 million. Almost all of the money we had made was gone.
After the lawsuit ended, I tried to gain my reputation back
and build my medical practice. After several years we had grown
to 30 doctors and over 100 employees. One of the services I had
been providing to my patients with advanced lung disease is
known as pulmonary rehabilitation service. Patients would come
to our office and we would exercise them under supervision.
When I first started providing this service, there was no
Medicare code, so I was doing it for free. Later, I was told
that it was improper under Medicare rules to do anything for
free. So we asked Medicare what should we do, and Medicare
representative came to our office and told us the billing code
that we have to use, and we used that code for 20 years, and a
Medicare carrier assured us it was the right code to use.
Then in 2004, we learned the U.S. Attorney's Office was
investigating our use of this code. I met with the U.S.
Attorney, but he didn't listen. One afternoon a reporter called
and said, ``Dr. Prabhu, do you know the government filed a
False Claims lawsuit against you?'' The nightmare started all
over again. My medical practice collapsed. Doctors started to
leave. We had to let our employees go. We even had to close a
clinic in a nearby town that badly needed our doctors. I was so
depressed.
This time the government told me that under the False
Claims Act I would have to pay $22 million. They said I had
billed Medicare for 2,000 tests over 6 years, and they wanted a
penalty of $11,000 for every test, which came to $22 million.
But we only charged $50 for one test, and we had charged only a
few hundred thousand dollars for all the tests. In the process,
we even lost money. It just made no sense.
But I knew the government could kick me out of Medicare and
Medicaid and I would lose my livelihood. I know that in many
cases doctors simply settle when they have to go through what I
have gone through. Some lose their patients, their spouses,
their children, their houses, their health, and some even
commit suicide. But I refused to give in.
Once again, I hired a team of lawyers and experts. In the
end, the government's case fell apart and they just dismissed
the case. The lawsuit was so unjustified that we filed a motion
to recover legal costs. The judge awarded me $500,000 in
attorney's fees. But I still spent over $2 million to defend
myself.
In conclusion, I went through this ordeal twice. I spent
more than $6 million to defend myself. I twice lost my
practice, my friends, my partners, my dreams, and my
reputation. The False Claims Act should be more fair so that it
cannot be used to bankrupt people when they have done nothing
wrong. I don't want what happened to me to happen to other
citizens of this great country. Thank you.
[The prepared statement of Dr. Prabhu follows:]
ATTACHMENTS
__________
Mr. Franks. Thank you, Dr. Prabhu.
I now recognize our second witness, Dr. Harned, and please
turn on your microphone, if you would, Dr. Harned.
TESTIMONY OF PATRICIA J. HARNED, Ph.D., PRESIDENT, ETHICS
RESOURCE CENTER
Ms. Harned. Good afternoon, Chairman Franks, Ranking Member
Cohen, and Members of the Subcommittee. Thank you for the
opportunity to testify today.
I am President of the Ethics Resource Center, America's
oldest non-profit dedicated to independent research on
workplace ethics. Our center generates the U.S. benchmark on
business ethics known as the National Business Ethics Survey.
We also consult with companies to assess their ethics and
compliance programs and cultures. And finally, ERC educates
public officials on new insights coming from our research. For
example, very recently we shared our work with the OIG from the
Department of Justice, the Department of Housing and Urban
Development, and also the Interagency Suspension and Debarment
Committee.
It is important to note that while ERC's research was cited
in the report that has been the impetus for today's hearing,
our center was not involved in the writing of the report
itself. Neither am I an expert on the False Claims Act. The
views I express today are based on the objective findings from
ERC's research.
A central focus in today's discussion is the proposal for
accrediting rigorous compliance programs, so I would like to
address a few questions that are fundamental to that proposal.
For example, if a company has invested in an ethics and
compliance program that actually works, can we expect that the
number of instances of fraud will go down? When fraud does
occur, will the reporting of violations go up? And finally, if
standards are established to define state-of-the-art programs,
is there evidence that industry practices will improve?
First and foremost, ERC has found that when an ethics and
compliance program is well implemented within a corporation,
there is demonstrable impact on the conduct of its employees.
Employees and companies with well-implemented ethics and
compliance programs are more likely to say that they work in
strong ethics cultures. And when a strong program and a strong
culture are in place, misconduct decreases by more than half.
Similarly, in organizations with strong programs and
cultures, the potential for wrongdoing is lessened. Forty-four
percent fewer employees and companies with strong programs say
they feel pressure to break the law in order to do their jobs.
And in the same vein, 90 percent of employees in those kinds of
organizations with strong programs and cultures say they know
how to appropriately handle wrongdoing if it were to arise. And
importantly, when wrongdoing does occur, the rate at which
employees step forward to report increases by 94 percent.
In 2013, more than 1 in 5 U.S. business employees said that
they observed at least one incident that might be considered a
False Claims Act violation. That percentage dropped by 71
percent when employees said they worked in a strong ethics
culture. Yet you could ask, if ethics and compliance programs
have such a significant impact on business conduct, why does
fraud continue to occur?
Part of the reason is that misconduct is a reality in every
corporation, and in every organization for that matter. But it
is also the case that as of 2011, only one-quarter of U.S.
employees said that their company had a compliance program that
was well implemented, meaning that it had all of the elements
in place that we know improve and encourage ethical conduct,
and that is where a certification process has the potential to
play an important role.
Standards for certification or the like do shift corporate
behavior provided the entity establishing the standards is
trustworthy and free from conflicts of interest; standards are
established with significant input from industry leaders and
enforcement officials; the criteria take into account
differences in organizational size, industry, and the context
in which an organization is operating; and the standards are
living and breathing, meaning they evolve with new insights
from research and practice.
Finally and perhaps most importantly, it is imperative that
any definition of an effective program focus on compliance but
also ethics. Companies that merely comply with the law check
the box when they have met expectations and move on to other
priorities, and that is the danger of a certification standard
without the dimension of ethics. It is the commitment to ethics
and culture that perpetuates right conduct in a company and
diminishes the need for enforcement due to violations of the
False Claims Act.
Thank you again for the opportunity to address you today. I
welcome your questions.
[The prepared statement of Ms. Harned follows:]
__________
Mr. Franks. Thank you, Ms. Harned.
Mr. Ogden, we will get back to you.
I now recognize our third witness, Mr. Clark. And if you
would turn on your microphone, sir.
TESTIMONY OF JOHN E. CLARK, OF COUNSEL, GOODE CASSEB JONES
RIKLIN CHOATE & WATSON, TAXPAYERS AGAINST FRAUD
Mr. Clark. Thank you, Mr. Chairman. I appreciate the
opportunity to express my views on this important law. It has
enjoyed overwhelming bipartisan support for 28 years now.
I come from a small firm of nine lawyers. Two of us
represent whistleblowers. The other seven are busy with things
like real estate transactions and municipal law and insurance
defense litigation.
Representing whistleblowers is the most professionally
satisfying thing I have done since I was the U.S. Attorney in
Texas, investigating and prosecuting corrupt public officials
in an historically corrupt Texas county. We live in an era of
ever-growing government and ever-proliferating programs that
spend mind-boggling sums of taxpayer money. Big industry groups
love big government programs because they have all that money
to spend, and we have a resulting phenomenon that I call the
Washington merry-go-round. Others call it crony capitalism.
Bright, able people get on the merry-go-round and they enter
government service, most as administrators or lawyers. They
make policy, administer programs, deal with legal issues. They
are regulators, and they learn how the government works from
the inside.
Later, the same government officials get off the merry-go-
round and they are eagerly recruited by industry groups as
counsel or as lobbyists, or both. They become part of a
community that they used to regulate, and now the regulated
industry group's interests are their interests to protect.
One of their goals is to undermine incentives for
whistleblowers who take risks when exposing fraud. The goal of
the former regulator, now an industry lobbyist, is to make it
more difficult for the government to succeed in making False
Claims Act cases against their clients' interests.
The Department of Justice does a lot with limited
resources. They work hard to enforce the False Claims Act and
recover America's stolen billions. One way the False Claims Act
might be amended to help the Department of Justice, and it
could be accomplished without cost, is to embrace a provision
that we now find in 15 of the 29 state False Claims Acts. Under
those 15 state False Claims Acts, the state can recover its
attorney's fees in a successful case. The United States should
have the same right, but that is a right that is now lacking
under the Federal False Claims Act. Those fees and a percentage
of all False Claims Act recoveries should be specifically
allocated to funding False Claims Act enforcement.
I suggest we should also add tax fraud enforcement to the
False Claims Act. The IRS now has a whistleblower incentive
program, but that program is not working. But again, the states
provide a working model that the Federal Government might copy.
New York has added taxes to its False Claims Act, and it is
already recovering millions of dollars.
And one more thing. Just as no company should be too big to
fail, no individual should be too important to incur personal
consequences for fraud against the government. Personal
consequences are a strong deterrent to fraud.
Let me conclude by saying I am struck by the wisdom of
Senator Grassley's skepticism and caution about buying into a
fanciful, untested, gold-plated, certified compliance program.
The key to compliance is integrity. It is not just a matter of
paperwork, as evidenced by the multiple offenders under the
False Claims Act. Justice Oliver Wendell Holmes said it best
for all of us, and in just 11 words. When he wrote for the
Court in U.S. v. Rock Island Central Railroad in 1920 he said,
``Men must turn square corners when they deal with the
government.''
Thank you, Mr. Chairman.
[The prepared statement of Mr. Clark follows:]
__________
Mr. Franks. Thank you, Mr. Clark.
And now we will recognize our fourth witness, Mr. Ogden.
Sir, if you will make sure that microphone is on.
TESTIMONY OF DAVID W. OGDEN, PARTNER, WILMERHALE, U.S. CHAMBER
INSTITUTE FOR LEGAL REFORM
Mr. Ogden. Thank you, Mr. Chairman. Thank you, Chairman
Franks, Ranking Member Cohen, and Members of the Committee. I
appreciate the opportunity to appear before the Subcommittee
today to testify on this important issue.
The False Claims Act has been a focus of both my government
service and my private practice for over 15 years now, and so I
know from direct experience in both places that its unique
provisions play a catalytic role in unearthing evidence of
fraud and in recovering monies lost to fraud. But there is no
doubt, and we have heard some of them today from Dr. Prabhu,
that there are costs, and harmful and counter-productive
effects of the law as well.
I believe in the False Claims Act. Indeed, as Assistant
Attorney General, I personally defended the constitutionality
of its critical qui tam provisions before an en banc court of
appeals; and as Deputy Attorney General, I helped implement and
design the HEAT program which has effectively addressed hard-
core fraud in the healthcare industry. But I also believe that
we have a real opportunity to enhance the Act's effectiveness
and fairness while using it more effectively to prevent fraud
before it occurs, as you, Mr. Chairman, identified, as a goal,
an important goal.
I start with four basic points. First, the FCA helps
uncover fraud against the United States and helps return ill-
gotten gains to the Federal Government. Those functions should
be preserved and enhanced, and nobody is suggesting otherwise.
Second, encouraging whistleblowers with valid concerns to
come forward is critical to the Act, and that is a very good
thing. Indeed, I believe the Act can do much more to encourage
and protect legitimate internal whistleblowers by incentivizing
companies to do more of that themselves.
I heard and understand Senator Grassley's concerns and, to
be clear, we strongly support the function of whistleblowers
and the role the FCA has played in incentivizing them to come
forward.
Third, however, at the present time, the Act is generating
a stampede of weak and frivolous claims--we heard about a
couple of them earlier--that unproductively burden the
government, the courts, private businesses, and individuals
alike.
And fourth, the Act as construed by the courts often
mandates punishments so far in excess of any real-world harm
that defendants are often deprived of meaningful access to the
courts to test the most aggressive theories of liability
because settlement for many businesses in that situation is
effectively the only option. Dr. Prabhu identified some of the
ways in which that works where the potential penalties so far
exceed the consequences at issue.
I discuss in my written testimony the way these virtues and
vices are caused by the FCA's unique features that make it
entirely different from other enforcement schemes and call for,
I think, some intelligent adjustments.
As outlined in my testimony, I believe there is a sensible
way forward, one that aligns government and business alike to
prioritize preventing fraud before it diverts Federal dollars
from their intended uses, truly making compliance the first
line of defense.
First and foremost, we should be encouraging and
incentivizing all companies to implement and maintain state-of-
the-art compliance programs, programs that promote the highest
levels of corporate ethics and legal compliance, encourage and
protect internal whistleblowers, and voluntarily report any
violation promptly to government authorities. Dr. Harned has
talked about how that works.
Under reforms I helped develop for the U.S. Chamber of
Commerce and its Institute for Legal Reform, certain rules
would apply differently to entities that have been
independently certified as maintaining state-of-the-art
compliance programs, including the strongest protections for
whistleblowers consistent with standards approved by the
government. These proposed reforms were the product of my years
of work thinking about the Act and the good ideas of my co-
authors.
We put pen to paper after months of discussion and
consideration, eventually producing the white paper ``Fixing
the False Claims Act.'' Our compliance-based approach is not,
with all due respect, pie in the sky. Dr. Harned's research
shows that state-of-the-art compliance systems work. They
reduce fraud, they encourage and protect whistleblowers, and
they result in prompt self-disclosure of violations to the
government.
So what we propose are incentives for companies and
whistleblowers to do these things. The proposed adjustments
would by no means remove deterrence and jeopardy associated
with civil False Claims Act liability. They would do nothing to
change the criminal penalties for individual accountability
that were talked about earlier. But they would create
differences sufficient to incentivize the adoption of first-
rate compliance programs by recognizing their significance in
assessing any entity's culpability and recidivism risk.
These reforms are designed to incentivize individual
employees to report wrongdoing internally and companies to act
quickly to identify and halt wrongdoing and report it to the
authorities. They are also designed to make the potential
consequences more proportionate to the circumstances, including
taking into account whether an entity has programs in place to
prevent fraud. There is every reason to believe that the
increased self-policing and voluntary disclosure that these
reforms would encourage will mean less fraud, less harm, and
less need for lawsuits.
There is more detail in my written statement, Mr. Chairman.
I appreciate the time and welcome your questions.
[The prepared statement of Mr. Ogden follows:]
__________
Mr. Franks. Well, I thank all the witnesses.
We are told that they may call votes any moment, and that
will give us a short period of time to respond. But if we
proceed with questions quickly, we might actually get past this
and not have to hold all of you over here. If we can do that,
we will.
So, Dr. Harned, I will begin with you. It seems sort of
counter-intuitive that we should attempt to rely on the
perpetrators of False Claims Act violations to self-report when
they violate the Act. Can you explain to me how it would be
reasonable to expect businesses to detect and report their own
violations of the FCA to the Federal Government?
Ms. Harned. Thank you, Mr. Chairman. One of the things that
we have seen in our research as we have looked at different
kinds of organizations and what motivates them to implement
ethics and compliance programs, it is the case that the
majority of companies want to implement very good programs
because it is a preventive measure for themselves. The majority
of companies that have good programs and strong cultures in
place have leaders that are very committed to ethical conduct.
They want to avoid overstepping the law, and that is why those
programs are very effective.
So it is not so much a case of the perpetrators monitoring
themselves so much as it is the case that most companies that
are implementing these good programs are doing it for all the
right reasons.
Mr. Franks. Mr. Clark, I might ask you, do you think that
the efforts that have been discussed related to trying to get
self-compliance by these companies could bring harm to the
existing protocol?
Mr. Clark. Mr. Chairman, compliance programs are fine. I
certainly have no quarrel with compliance programs. But we have
seen that quite a number of entities that have resolved False
Claims Act cases, which means that they entered into a
corporate integrity agreement, and that required a strong
compliance program, went right back to the same bowl and were
lapping at it again. I think compliance programs certainly can
help, but if a company plastered Justice Holmes' admonition
over their entrance as their motto and lived up to it, that
would help.
Integrity is the key, and law enforcement, which is my
background, is what enforces that.
Mr. Franks. Mr. Ogden, you had suggested that there was
clear evidence that these compliance programs could work, and I
know that you have authored some programs in that vein. Can you
tell us what would be the top anecdotal or clear evidence that
you would report that would indicate that these programs do
work and don't harm the private whistleblower enforcement?
Mr. Ogden. Absolutely, Mr. Chairman. I think Dr. Harned's
work for the Ethics Resource Center is extremely strong support
for the proposition that these programs work. As she says, no
program can entirely eliminate wrongdoing in any institution.
The key is to have measures in place--and as Dr. Harned says,
we know what these measures are that are working well--have
measures in place at a company that make clear that Justice
Holmes' admonition is the rule of the day there, that empower
employees to come forward, encourage them to, make clear to
them they are going to be protected, make clear that when they
report wrongdoing it will be taken seriously, investigated and,
where valid, reported, and that there is prompt reporting.
We know these systems work, and where they are in place----
Mr. Franks. You say we know these systems work. What
evidence would you cite, just briefly?
Mr. Ogden. I would rely first on the evidence that Dr.
Harned has put forward, the research of the Ethics Resource
Council.
Mr. Franks. All right.
Well, listen, I am going to yield to the Ranking Member of
the Committee for 5 minutes. We might actually beat the vote
here.
Mr. Cohen. Thank you, Mr. Chair. I apologize for coming in
a little late. Sorry I missed Senator Grassley. I have read his
testimony, and it was certainly compelling, and I commend him
for the work he has done on this issue.
The False Claims Act has been responsible since 1987 for
bringing in $39 billion in recoveries from corporations that
cheated the American taxpayer, according to the Justice
Department, and $27 billion came from qui tam plaintiffs. So it
seems like a lot of money we are talking about, and if we are
talking about concern for the budget deficit, we would be
giving up a lot of money that is involved, and money is an
effective way of seeing that people do comply with the law, and
Senator Grassley is to be commended for his work in bringing
this to the fore.
I would like to ask Mr. Clark--and I appreciate your
testimony. Mr. Ogden suggests that his reforms are sufficient
to correct the injustices that he sees and yet keep the program
strong. Do you believe if we adopt the amendments that have
been proposed here and that Mr. Ogden endorses, and I presume
Dr. Harned does as well, that the qui tam law and the False
Claims Act will remain as strong a deterrent to government
fraud?
Mr. Clark. Sir, I do not think so. I think it would have
two effects, or maybe one effect and one non-effect. I am
skeptical about the degree of help that some kind of reliance
on a compliance program would bring. But I am also cognizant
that whistleblowers and the counsel who represent them have to
make tremendous investments of time. The whistleblower has to
take a big risk to come forward, a big risk of retaliation, and
some of these proposals would increase the whistleblower's risk
and diminish the whistleblower's incentive to go forward.
These cases can take--I spend months and months and months
sometimes after I interview a client deciding whether the
client is a reliable and trustworthy and straightforward
person, investigating for myself as best I can to find out what
the facts are. I invest--any qui tam lawyer does--months of
time often, and lots of money to investigate these cases. To
diminish the incentives, which some of these things would do, I
think would be a step backward.
Mr. Cohen. I missed most of the testimony of the doctor,
even though I read some of it, and I just wonder, Mr. Clark, if
there were oversteps or improprieties by the attorneys in an
action against an individual, as I guess the doctor suggests
there might have been in his case, does not Rule 11 bring an
adequate and appropriate sanction against an attorney for
pursuing a claim that is not appropriate?
Mr. Clark. There are several rules and several entities
that hold sanctions for things like that. A lawyer who files a
frivolous case first of all is going to be in trouble with the
judge in whose court the case was filed. Federal judges have no
patience with frivolous lawsuits.
The statute allows the defendant, like the doctor, to
recover his attorney's fees, and Rule 11 applies, and the
attorney would also be in trouble with his bar association. He
might lose his license over something like that.
Mr. Cohen. Thank you, sir.
Dr. Harned, your group is--what is the name of your group?
The Ethics----
Ms. Harned. The Ethics Resource Center.
Mr. Cohen. Who are the major funders of the Ethics Resource
Center?
Ms. Harned. About 95 percent of our funding comes from the
private sector, not for lack of trying to see if we can get
public support for our work. The companies that invest in us,
they tend to do it for one of three reasons. They ask for our
help in assessing their ethics and compliance programs, or they
are a part of a fellows program that we have for chief ethics
and compliance officers, along with academics and government
officials, and then a portion of our funding comes from
research to do the work that we do through the National
Business Ethics Survey and other studies.
Mr. Cohen. And you are an attorney, or are you not?
Ms. Harned. No, I am not.
Mr. Cohen. You are not. I see.
Mr. Ogden, you are, I know, and you have a distinguished
career. Have you ever brought any actions on behalf of
whistleblowers?
Mr. Ogden. I have not brought actions as a private lawyer
on behalf of whistleblowers, Congressman Cohen. I have brought
any number of actions as a public official, intervening in
actions brought by whistleblowers on behalf of the United
States in pursuing their claims. And as I mentioned, as
Assistant Attorney General I defended the constitutionality of
the Act that gives whistleblowers the right to bring these
claims.
Mr. Cohen. Senator Grassley said that your proposal for
gold standard compliance certification program was ``pie in the
sky ideas with no specifics,'' and that it is a ``pipedream''
to suggest such a program would magically increase the amount
of taxpayer dollars the government recovers. The Senator also
said that his staff was told by the Chamber regarding the
proposal for compliance certification program that ``we had to
come up with something, so we just put it in.''
How do you respond to Senator Grassley on those assertions?
Mr. Ogden. Thank you, Congressman. I have the highest
respect for Senator Grassley and what he has done with this
statute. What we are trying to do is build on that statute.
With respect to the ``pie in the sky idea,'' as I said,
effective compliance programs that protect and encourage
internal whistleblowers, companies that have fine ethics
cultures and report violations to the government, that is not
pie in the sky, as the work that Dr. Harned and her group has
done shows.
The fact is good companies do try very hard to comply with
the law, and we can encourage them. We can set standards. We
can encourage more companies to perform that way.
As far as Senator Grassley's report of his staff's comment,
I wasn't present for the meeting that was had with his staff,
but I can tell you we didn't just put this forward and just
come up with something. I have spent a lot of time on this
statute. I have a great belief in it. I believe in
whistleblowers. I believe in the incentives of the Act. But I
think it does a lot of harm, and it does harm in the ways we
have described.
Dr. Prabhu is not the only one. The Act can be improved,
and we are suggesting some very structured ways. They are not
going to interfere with the Act's effectiveness, but they are
going to ameliorate some of these effects.
Mr. Cohen. I want to thank you and everybody else. This is
an outstanding panel.
I would like to ask for unanimous consent to allow my
opening, which has become my midterm, statement to be put in
the record.
Mr. Franks. Without objection.
[The prepared statement of Mr. Cohen follows:]
__________
Mr. Cohen. Thank you.
Mr. Franks. Mr. DeSantis?
Mr. DeSantis. Thank you, Mr. Chairman.
Dr. Prabhu, what happened to your patients when you had
these False Claims Act filed against you?
Dr. Prabhu. Well, my patients were very sick. They had a
lung transplant and a lung volume reduction surgery, after
which they would come back to our office for specialized,
structured rehab program. After I was forced to shut down, I
had to send my patients to outside facilities which are just
not as good. As a matter of fact, two of my patients died. I
also had to stop going to a clinic we had in the Town of Parum,
which was very under-staffed and they needed us to help them
out.
Mr. DeSantis. Now, are you against--are you just against--
you are not against whistleblowers generally. You just think
that this statute can lead to bad consequences for innocent
people. Is that your correct position?
Dr. Prabhu. I am not--I am basically here to tell you my
story and what happened to me.
Mr. DeSantis. Right.
Dr. Prabhu. Just based on my experience, if those three
people, my employees, came to me and told me what problems they
detected, I would have addressed it right away and the
government wouldn't have lost so many millions of dollars, and
I wouldn't have lost millions of dollars.
Mr. DeSantis. Now, do you--what were your litigation costs
in dealing with these two claims?
Dr. Prabhu. Six million dollars.
Mr. DeSantis. Okay. And were you able to recover any of
those costs?
Dr. Prabhu. Well, the second case was so unjustified. So we
were able to file a motion to recover attorney costs, but the
judge only gave us $500,000 out of $6 million I spent.
Mr. DeSantis. So you got a judgment for $500,000. Have you
actually been able to collect that money?
Dr. Prabhu. Yes. The government paid us a check.
Mr. DeSantis. Okay, so they have given it to you?
Dr. Prabhu. Yes.
Mr. DeSantis. Okay. So you actually won your cases,
basically, but it doesn't seem like those were victories.
Dr. Prabhu. Well, I wouldn't call it victory. My life is
ruined. I can't get all the time back that I have lost in the
last 20 years, one case after the other. My reputation is
damaged. A lot of things I wanted to do in life. I was doing
medical research, working with lung volume reduction surgery. I
was advancing in my profession while taking care of a large
number of patients, and I had some political ambitions, and
nothing was possible.
Mr. DeSantis. So basically, this detracted from your
ability to help sick people?
Dr. Prabhu. Yes.
Mr. DeSantis. How did the civil penalties and damages the
government sought from you compare to the actual amount of
money you received that allegedly violated the False Claims
Act?
Dr. Prabhu. That is so absurd. They basically said every
time I submitted an invoice and got paid--I got $50, they
wanted me to pay them back $11,000. They calculated that over 6
years I submitted the code 2,000 times. They said I had to pay
them $22 million.
Mr. DeSantis. Wow.
Mr. Clark, I guess the criticism I have heard about how
this operates in practice is that 90 percent of the cases in
which the U.S. doesn't ultimately intervene when individuals
are bringing the qui tam cases, that they are just abandoned or
dismissed. So how would you address--is that a misallocation of
resources, that cases that, once the government makes a
decision, are going to kind of wither on the vine? Or do you
think that everything should continue to go the way it is
going?
Mr. Clark. Well, I think there are a number of reasons why,
in the first place, why the Department of Justice declines
cases. Part of it is lack of resources. They have to prioritize
what they are going to do because of the resources they have to
do it with. I am sure that they concentrate first on the
larger, the cases that look like they are going to be the
biggest to intervene in. And whenever they decline one, they
write a letter to the court and to everybody concerned not to
take this as an indication of the merit of the case. They have
declined it and they don't have to state their reasons.
Mr. DeSantis. But is that, in fact, happening, though,
given the statistics that it is over 90 percent?
Mr. Clark. I would say it probably is. I don't know. I
don't have the statistics on that. I don't know that they are
published any place. A lot of them are declined. Probably three
out of four, anyway, are. But why they don't go forward could
be for any one of a number of reasons.
The Department of Justice may have discovered something in
doing its due diligence survey of the case after it is filed
during the period it is under seal that makes it clear that the
case is not going to succeed for one reason or another, and
that may be apparent to the attorney who filed the case after
Justice declines it.
Second, going forward with a False Claims Act case against
a Fortune 500 company when you are a 9-man law firm that has
two lawyers who do False Claims Act work is not an enticing
prospect, and the client has to be apprised of that, and the
client has to make a decision, do you want to continue to fight
this thing, here is what it is going to entail, because it
takes years to get one of these cases litigated.
Mr. DeSantis. Great.
I am out of time. I thank the witnesses. I appreciate your
comments.
I yield back.
Mr. Franks. And I thank the gentleman.
And I would now recognize Mr. Conyers, the distinguished
Ranking Member of the full Committee.
Mr. Conyers. Thank you, Chairman Franks, and I thank the
witnesses.
I would like to have someone explain why the False Claims
Act penalties that allow for treble damages and additional
penalties for each violation is important. Let me just start
with you, Mr. John Clark, and then I will ask the others, at
least two of the witnesses the same question.
Please.
Mr. Clark. Thank you, Mr. Conyers.
Mr. Conyers. Is your mic on? It is? Pull it up closer,
then.
Mr. Clark. Thank you, sir. Both damages and penalties are
important as deterrents. Penalties are not sought in all cases.
Penalties are sought in some cases, the egregious cases, and
there are constitutional limits on the amounts that can be
assessed in a False Claims Act case. The Eighth Amendment
protects someone from excessive penalties. But they are
important because they can be invoked. And when they are
invoked, then they are a powerful deterrent.
They are not invoked in all cases, but they are there. That
is a tool that the government can use if it chooses and if the
court agrees with it, but they are not assessed in all cases.
Mr. Conyers. So it isn't that they are identified at the
beginning of the case. It is after a determination and a
conviction has been arrived at. Is that the case?
Mr. Clark. That is correct.
Mr. Conyers. So do you think that they are excessive or
that they are used in a way that is not beneficial for us
protecting the government against false claims and fraud?
Mr. Clark. Sir, I think penalties should remain as a
deterrent, and as I say, they are not always imposed.
Particularly if a case is settled, they are not going to be
imposed, typically.
Mr. Conyers. Mr. Ogden, do you share approximately the same
view?
Mr. Ogden. I don't, Ranking Member Conyers, and thank you
for asking. First of all, it is required under the statute that
in a case that goes to judgment these civil monetary penalties
be imposed in addition to treble damages. So we have not only
the treble damages required under the statute, as under
antitrust law, for example, but in addition to that there is a
requirement that for every so-called claim, between $5,500 and
$11,000 be assessed. That is what is required if you go to
judgment. It is simply not true that they are not applied in
every case. They are applied in every case that goes to
judgment.
As Dr. Prabhu said, it is for that reason possible for you
to have merely a couple of hundred thousand dollars, in his
case, of business with the government. The total possible
damage the government would have suffered in his case if he had
done anything wrong, which he did not, would have been a couple
of hundred thousand dollars. And yet the penalties, because
they are assessed at $5,500 to $11,000 per invoice, per
prescription, can amount to $22 million in a case of $200,000
in business. For a corporation with $50 per prescription, for
example, a total amount of business around $10 million can
result literally in penalties of over $1 billion. That is
completely irrational.
A similar offense, no different, that has a single invoice
issued to the government for the same amount of money would be
$11,000, in this other case $1 billion. It is irrational and it
drives companies to settle frivolous, weak cases, and it should
be changed. It doesn't make any sense. There is no other law
like it that I am aware of.
Mr. Conyers. Well, Attorney Ogden, are there cases that we
can name in which this kind of extreme result has happened?
Mr. Ogden. There are cases, and I mentioned a couple of
them in my testimony. But the very important function is
connected to what Mr. Clark correctly said. Frequently what
happens is that these penalties are threatened and a company
that actually took a case to trial would suffer them if it
lost, but the government settles the case without them. So that
you face a billion dollars of liability if you take it to trial
and lose. But you can settle it for $20 million. Companies do
that even if they think the claim is worth nothing, as would be
rational. Dr. Prabhu bravely fought it and won, but many
companies don't, and that is not good for the country.
Mr. Conyers. Dr. Harned, where do you stand on this
subject?
Ms. Harned. Congressman, my center is a research
organization. Our task and our mission is to better understand
how to improve workplace conduct. So in many ways, the
specifics of the legislation and enforcement of it is beyond
the scope of what our center's expertise is.
Mr. Conyers. I see. Do you have any further comments,
Attorney Clark?
Mr. Clark. Just one matter. Thank you, sir. Penalties, if a
case goes to trial, and I have seen this happen, a judgment can
be structured so that if the penalties would amount to more
than the Constitution would allow, I have seen judges and
attorneys on both sides work those things out so it does not
happen that way. But the penalties are important as a
deterrent. They are there, and if it is proper to invoke them,
they can be invoked.
Mr. Conyers. Thank you, gentlemen and lady.
My time has expired, and I yield back, Mr. Chairman.
Mr. Franks. Well, I want to thank--I am sorry, Mr. Johnson.
I didn't mean to look past you, sir.
Mr. Johnson?
Mr. Johnson. I am sorry. I am just getting to the hearing,
just getting a little acclimated here.
I would ask Mr. Clark--well, I would ask Dr. Prabhu, do you
consider yourself to be a free market economic adherent?
Dr. Prabhu. No, sir. I am just a physician. I am not a
policy expert. I just came here to share my experience with
you.
Mr. Johnson. Well, you know the difference between a free
market and a regulated market? Economics? Perhaps not.
Let me move on to Dr. Harned. Do you consider yourself to
be a free market person, or do you believe in government
regulations on the economic sector?
Ms. Harned. Certainly I do what I do because I am
interested in trying to promote productive and effective and
ethical business and government and non-profit organizations.
It is the case that for many organizations misconduct is a
reality, and there should be regulation so that we are able to
promote better practice.
Mr. Johnson. How about you, Mr. Ogden?
Mr. Ogden. I am certainly a believer in government
regulation. I think it is critical in a free-market economy.
Mr. Johnson. And Mr. Clark?
Mr. Clark. Sir, I am a believer in as big a government as
is necessary, but no bigger than necessary. Government has to
regulate some things for our safety and to protect itself, but
I am not an advocate of over-reaching government regulation.
Mr. Johnson. Well, let me ask this question. When we are
cutting government in the name of establishing a free market
economy and we are cutting out the ability of government to
ferret out fraud, doesn't it follow that private whistleblowers
would be consistent with a free market approach to the economy?
Mr. Clark. Sir, I think whistleblowers are the essence of
preserving the free market economy. They look for the things or
they encounter the things that distort a free market. They look
for things that happen, they find things that happen to them,
for example, things that they experience on the job that are
just not right, cheating the government, and that employer, if
it is cheating the government, is probably cheating its
competitors as well and distorting the market.
Mr. Johnson. So, thank you, Mr. Clark.
Mr. Ogden?
Mr. Ogden. On behalf of the Chamber and our proposals here,
we support whistleblowers, and I totally agree that their
function is essential. What we are proposing----
Mr. Johnson. But you want to cut down on the economic
incentive for whistleblowers to come forward.
Mr. Ogden. We want to preserve the economic incentive for
them to come forward. We want to create along with that an
incentive for their companies to implement state-of-the-art
compliance that will protect them when they do report
internally to create increased compliance and self-reporting in
addition to the enforcement regime and incentives we have for
whistleblowers.
Mr. Johnson. So you would want to limit the whistleblowers
and put the fox in charge of securing the chicken coop.
Mr. Ogden. What we would like to do is to ensure that the
way entities are operated encourages whistleblowers, protects
them to come forward, and we see that compliance programs, here
they would be certified by independent authorities under
standards approved by the government. We know that they work to
protect internal whistleblowing. When an internal whistleblower
comes forward to the company, the company can stop anything
wrong that is happening right away.
Mr. Johnson. Without firing the employee?
Mr. Ogden. Absolutely without firing the employee.
Mr. Johnson. I will tell you, the U.S. Chamber of Commerce
now is in favor of cutting government. They are in favor of
cutting off access to the courts. And I am sure that you would
agree with me that those are the things that the U.S. Chamber
holds dear. So when we start cutting the ability of a private
citizen or cutting the incentive for a person to put their
livelihood on the line to ferret out fraud in a private sector
that would create financial disincentives for every other
stakeholder involved, I don't see where that--I see
whistleblowing as being consistent with free market principles,
and I find that if there is some inconsistency in terms of--you
can't have it one way. You can't have it all.
The Chamber is going to have to have some kind of a check
and balance. It is going to have to have either government with
the ability, the financial resources to investigate and ferret
our fraud, or there is a need for the private whistleblower to
come along. If you don't have either one of those and you put
the fox in charge of the henhouse, then we know exactly what is
going to happen there. There won't be any fraud ferreted out,
and the free market will be distorted. Competition will be
eliminated, and that is just not good for our economy.
Mr. Franks. The gentleman's time has expired. The witness
will be allowed to answer the question.
Mr. Ogden. Thank you. Thank you, Congressman. Thank you,
Mr. Chairman.
I hope that, Congressman, you will take a very hard look. I
know you already looked at it, but I hope you will look hard at
these proposals. Our goal here really is not to disincentivize
whistleblowers. Our goal is to remove fear of retaliation, to
ensure that companies protect and encourage whistleblowers to
come forward, and to preserve these incentives for them to
bring claims where the company hasn't self-reported. That is
really the spirit of these changes, and to make the Act a
little more rational, so things don't happen like what happened
to Dr. Prabhu.
Mr. Johnson. Thank you, sir.
Mr. Franks. Well, this concludes today's hearing, and I
want to thank all of the witnesses for attending. I know you
folks have many things that you have to do, and we appreciate
you coming here today.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the witnesses or
additional materials for the record.
And again, I thank the witnesses. I thank the Members and
the audience.
This hearing is adjourned.
[Whereupon, at 2:22 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Response to Questions for the Record from John E. Clark, Of Counsel,
Goode Casseb Jones Riklin Choate & Watson, Taxpayers Against Fraud