Last year, the Department of Justice (DOJ) collected $2.7 billion (yes, “b” for billion—cue Dr. Evil pinky) under its main civil fraud statute, the False Claims Act (FCA). Of that, $2.7 billion and $2.3 billion in fraud claims originated with a whistleblower complaint, often filed by a current or former employee. Unfortunately, the healthcare sector leads all industries in the fraud category, accounting for two-thirds, or $1.8 billion, of the $2.7 billion of the total fraud recovery amount.
While DOJ’s 2023 haul represents the third lowest recovery amount since the FCA was overhauled in 2009, 2023 also marked a record year for the total number of new cases filed (1,212). Most of these cases were filed by whistleblowers, who can receive an award of up to 30% of any recovery. Since the FCA took its modern form in 1986, the government has paid over $8.9 billion to whistleblowers, and the financial incentive to blow the whistle is a serious motivation.
While the numbers are alarming to healthcare providers, essential strategies are available for companies and individuals to simultaneously (1) meaningfully address whistleblower complaints and (2) protect against government investigations, accusations, and fines/penalties. The following is not an exhaustive “to-do” list but a collection of observations from 16 years of filing, defending, or prosecuting whistleblower claims under the FCA and various state analog fraud statutes.
1. Fraud is not a four-letter word. Forget what you think the word “fraud” means. Do not dismiss the risk posed by fraud allegations because your organization has a strong culture of compliance or because you look around you and do not see anyone as a likely “fraudster” in your midst. Companies and individuals often miss red flags because they cannot envision a world where anyone in their organization violates the law. Newsflash: nearly every action, inaction, or reaction can be (mis)interpreted to create liability under civil (or criminal) fraud statutes like the FCA. Often, the only knowledge required is knowledge or intent to complete or omit performing certain acts—usually, the actor need not even know if the act is unlawful. If you want to learn more about how fraud investigations and prosecutions work (without having to endure one), pick up a copy of Harvey Silverglate’s Three Felonies a Day: How the Feds Target the Innocent. Bottom line: understand what fraud is and do not ignore the reality that fraud allegations (even false or half-baked ones) can be levied against any individual or institution.
2. Open the dialogue. Most larger organizations have a system designed to field anonymous employee complaints, concerns, or comments. Unfortunately, providing an outlet for reporting information is not enough. Institutions must open a dialogue about the reported issues, whether the problem is real or just perceived. I cannot count the number of times a whistleblower has (at least in their own mind) reported problematic conduct repeatedly with no response or with a dismissive “we are looking into it.” Your first line of defense with a potential whistleblower is to address concerns meaningfully (and create a robust record of the interactions), however ridiculous or off-base they seem. Consider designating certain managerial-level employees as responsible for fielding complaints and cross-assigning managers so there is less risk of perceived retaliation (e.g., do not permit a direct supervisor to evaluate a subordinate employee complaint). Bottom line: create a reporting system, document everything, and ensure a putative whistleblower can report outside their chain of command.
3. Communicate Effectively. Once you have a system to field complaints, the institution must communicate effectively. What do I mean by effective communication in this context? First, an employee needs to feel heard – and by management. Rarely does a whistleblower pursue a formal complaint when they feel like the institution/management listened and acted appropriately. Once an employee has been heard, the institution must respond —one-way communications do not work. Often, potential whistleblowers possess only a sliver of the relevant information, so don’t let them marinate in their ignorance; educate, inform, and share what you are doing to address their concerns. That is effective communication in this context. It is much more cost and time-effective to indulge an employee at an early stage, even if it seems like a waste of time. Bottom line: effective communication is not a one-way street.
4. Create a Contemporaneous Record. Assume that every step you take is monitored, documented, recorded, and reported by the potential whistleblower to an attorney or the government. Create a record that benefits the company, and should things go south, you have created contemporaneous evidence of intent and attempts to address concerns. Companies that genuinely address potential fraud concerns from whistleblowers generally avoid costly, lengthy investigations. Bottom line: document, document, and document some more.
5. Inertia is the Enemy. The Rolling Stones, Kai Winding, and Irma Thomas were all wrong: Time is not on your side. At the first indicia that there may be concerns, investigate. Reach out to trusted counsel to help ferret out any possible allegations. No one ever wants to be accused of fraud, but the only thing worse than an accusation is the decision to ostrich away the problem and hope it goes away. If there is a problem, self-disclosure can be a viable strategy (in the right circumstances and only after seeking experienced counsel from an investigations attorney). These are big decisions, and the longer an institution sits idly by, the more time a whistleblower (or the government) has to build their case. Bottom line: get busy and get good outside advice.
In the best of situations, a whistleblower claim serves as a positive catalyst for overdue change and institutional reform. In the worst cases, whistleblower claims destroy companies and put people behind bars. Creating internal mechanisms for early reporting leads to early recognition of problems, which permits prompt action and early engagement of outside counsel. And while no organization can ever be immune from whistleblower complaints, the right strategy and counsel can help reduce the noise.
Justin Lugar
Justin Lugar is a Roanoke, Virginia-based attorney with Woods Rogers. As a former Assistant U.S. Attorney, Justin led the Affirmative Civil Enforcement team in managing active fraud investigations under the False Claims Act. He may be reached at [email protected].
