Corporate America has a gentler term whistleblowers but maybe just as much to fear from insiders who threaten to tell all about company scandals involving government contracts.
Thanks to a Civil War era law that offers potentially huge rewards to people who expose fraud against the government, federal prosecutors have won a series of multimillion dollar settlements with the help of insiders willing to turn the tables on their bosses in exchange for a big payout.
The biggest impact has come in the health care industry, where almost every doctor, hospital and pharmaceutical company has some dealing with federal health programs.
The drug-maker Schering-Plough Corp. agreed in July to pay $346 million to settle charges that it paid a kickback to a health insurer in an attempt to evade a law requiring it to give its lowest prices to Medicaid, the government health program for the poor.
The U.S. Attorney in Philadelphia began investigating the case after three disgruntled employees of a Schering-Plough subsidiary filed a civil lawsuit on the government’s behalf, claiming their employers were committing a fraud.
Their reward for risking their careers will be rich the trio will split $31.7 million as part of the settlement.
That case came on the heels of a government suit against drug giant Pfizer Inc., which agreed in May to plead guilty to criminal charges and pay $430 million in fines to settle charges that a company it owns illegally promoted non-approved uses for a drug by flying doctors to lavish resorts.
The man who blew the whistle, a scientist, was awarded $26.6 million.
Federal prosecutors in Philadelphia are pursuing a claim against Medco Health Solutions Inc., a pharmacy benefits company that three whistleblowers claim engaged in a variety of improper practices, including sending patients fewer pills than they paid for and improperly accepting payments from drug companies in exchange for promoting their medications.
The case is expected to go to trial in 2005.
The suits are based in a law enacted during the Civil War to prevent fraud by profiteering military supply companies. The False Claims Act allows people who file the suits on behalf of the government to keep as much as 25 percent of the total recovered.
The statute largely fell out of use until 1986, when it was strengthened with the intent that it would be used against defense contractors.
Since then, its use has been on the rise.
Lawsuits filed by private-sector whistleblowers paved the way for a government investigation that ultimately recovered $1.7 billion in fines and damages from HCA Inc., the nation’s largest for-profit hospital company. Prosecutors said the company had paid kickbacks to physicians and overbilled government health programs.
TAP Pharmaceutical Products Inc. agreed to pay $875 million in 2001 to resolve criminal and civil charges in connection with its pricing and marketing of the cancer drug.
The number of whistleblower cases has surged, from 82 in 1990, to more than 300 a year.
In fiscal 2003, the Department of Justice said it recovered a record $2.1 billion under the False Claims Act. About $1.48 billion of that total came directly from suits initiated by private citizens, who in return reaped $319 million in rewards.
Marilyn May, an assistant U.S. attorney who was involved in the case against Schering-Plough, said corporate canaries are worth the money.
“In the absence of direction from an insider, whether that person has filed a complaint, or come to us with information, it is difficult to find information about fraud being committed by companies,” she said. “We’ll still do it, but it is certainly easier when you are pointed in the right direction.”
The rise in the number of cases has been of some concern to corporate attorneys, who worry that their client companies could find themselves the victim of overzealous prosecutors.
Companies that decide to fight, rather than settle, can face triple damages, plus a ban from doing business with the government.
“The government has a very big stick in the health care and government contracting arena, and the penalties and the damages can be so large that fighting these kinds of charges in court, it is a huge risk that no company wants to take,” said Michael Waldman, a Washington, D.C., attorney who defends companies against False Claims Act suits.