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How helping whistle-blowers could cut health-care costs

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Whistle-blowers have already helped the US government recover nearly $20 billion from health-care companies engaged in fraud. Some say encouraging even more whistle-blowing can help build a culture of integrity in the health-care industry.

A GlaxoSmithKline logo is seen outside one of its buildings in west London.
Toby Melville/Reuters/File
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Elin Baklid-Kunz never wanted to be a whistle-blower.

But working as the compliance officer at a Florida hospital, she was charged with identifying and correcting potential violations of US health-care laws.

Through conducting audits and studying regulations, she uncovered billing and other discrepancies. Each time she presented her findings to senior managers, however, they ignored her.

“I just thought if I worked harder they would see how bad this was and do something about it,” says Ms. Baklid-Kunz in an interview. “But as long as it cost them money [in reduced revenue and profits], they wouldn’t make any changes.”

As Republicans in Congress work to establish a replacement for former President Barack Obama’s Affordable Care Act, lawmakers are searching for ways to cut down on the exploding cost of health care. Fighting health-care fraud is one way to do that. In that fight, whistle-blowers have become an essential source of inside information that is helping federal agents lift a veil of corporate secrecy that has long facilitated billions of dollars in illicit profits from inflated billing and other scams against the US government.

Baklid-Kunz was among an increasing number of American workers struggling to decide whether to “blow the whistle” on their employer.

Many such workers stay silent, hoping that their jobs, incomes, and careers in the health-care industry remain secure. Others, like Baklid-Kunz, decide to speak out.

These whistle-blowers aren’t just motivated by their personal sense of honesty and ethics, or by their fear of being caught up in a criminal investigation.

There is a federal law specifically designed to incentivize citizens to come forward and expose fraud.

The False Claims Act authorizes any person to sue a company on behalf of the government and to receive 15 to 30 percent of a resulting financial recovery in a fraud case.

As a result of that incentive, “blowing the whistle” has become a growth industry. One measure of that growth is the amount of money paid out to whistle-blowers. In the past 16 years, annual payments to whistle-blowers in health-care fraud cases increased from $90 million in 2000 to nearly $527 million in 2016.

“Our biggest cases almost always include or require a whistle-blower, an informant – a human who can tell us what is happening [behind closed doors at a firm],” says Gary Cantrell, deputy inspector general for investigations at the Department of Health and Human Services in Washington.

Among major whistle-blower cases:

  • In April 2016, the pharmaceutical companies Wyeth and Pfizer agreed to pay $784.6 million to resolve charges of overbilling in a lawsuit initially filed by two whistle-blowers, a former hospital sales representative for a competing drug company and a New Orleans physician. The share of the settlement for the whistle-blowers and their lawyers topped $98 million.
  • In November 2013, Johnson & Johnson and its subsidiaries agreed to pay $2.2 billion to resolve allegations made by whistle-blowers that the companies marketed various drugs for off-label uses not approved by the Food and Drug Administration. The whistle-blowers and their lawyers were in three states. Those in Pennsylvania received $112 million, those in Massachusetts received $27.7 million, and a whistle-blower in California received $28 million.
  • In July 2012, GlaxoSmithKline agreed to pay $3 billion to settle criminal and civil cases alleging that the company marketed several prescription drugs for off-label uses not approved by the FDA. The whistle-blowers who uncovered the activity included two Glaxo sales representatives, a marketing development manager, and a regional vice president. The lead whistle-blower eventually received $7.7 million after his lawyers were paid.
  • In January, Shire Pharmaceuticals agreed to pay $350 million to resolve allegations that the company violated federal kickback laws when it provided free medical supplies, sports tickets, vacations, and other gifts to physicians and clinic staff to induce them to use a bioengineered bandage developed and sold by the company. The federal government intervened in the case after six whistle-blower lawsuits were filed. The share of the recovery for the whistle-blowers and their lawyers has not yet been set.

Since January 2009, whistle-blower lawsuits under the False Claims Act have helped the government recover $19.6 billion, according to the Justice Department.

Thou shalt not commit fraud

Patrick Burns, executive director of Taxpayers Against Fraud, says he believes that encouraging even more whistle-blowing can help build a culture of integrity in the health-care industry.

“Most places are fairly honest. Most people were raised up believing that the Ten Commandments weren’t the Ten Suggestions,” Mr. Burns says. “But you do find companies that have a deeply entrenched culture of fraud.”

Part of the problem, he says, is that there is no credible threat to the corporate officials and managers who preside over companies that engage in overbilling, illegal marketing, and other health-care scams.

Under the current system, companies can buy their way out of trouble, Burns says. In many cases, large settlements are paid but few corporate officials lose their jobs or are otherwise held personally accountable.

When a major settlement is announced, members of the public see the amount of the payment and believe it is a significant punishment for the company. Burns and others say that is not so.

“The people who pay the costs are nameless, faceless stockholders,” he says. “If the fraud isn’t caught, it is nameless, faceless taxpayers.”

Regardless, Burns says, “the people who designed and operationalized the fraud inside [the company], they got their personal bonuses, their promotions, their stock options. Those are never clawed back,” he says.

“It is not complicated,” Burns adds. “We need to recover America’s stolen billions. I’m all for fines, but if all you do is fine a company and don’t force a change in management, if nobody goes to jail, nobody loses their job, then you have failed.”

Burns notes that there is one important exception to the rule about job loss.

“The only person who is guaranteed to lose their job in a massive health-care fraud is the whistle-blower,” he says. “They may lose their job, their marriage, their house; they will certainly lose their sense of confidence and trust. And they will be whipsawed and beaten by the process for anywhere from two to 12 years.”

Burns adds, “Some whistle-blowers come out of this with post-traumatic stress disorder.”

Bounty hunters

Not everyone is a fan of creating more incentives for whistle-blowing.

Although whistle-blowers have helped make major cases, some federal agents complain that the promise of a potential multimillion-dollar bounty has triggered a gold-rush mentality among whistle-blowers and their lawyers who are trying to parlay some piece of information into a major payout. It falls to federal agents to evaluate the various allegations.

“Most of the potential whistle-blower cases are [worthless],” says Mike Cohen, a longtime health-care fraud investigator with the Department of Health and Human Services’ Inspector General’s Office. “What we look for is the cream.” 

Gabriel Imperato, a lawyer who defends corporations from whistle-blower lawsuits, agrees with critics who say it has become too easy to file a whistle-blower lawsuit. He is managing partner in the Fort Lauderdale office of the law firm Broad and Cassel. He is also a current board member and past president of the Health Care Compliance Association.

“What I see happening as I defend these cases one after the other, I see 30 to 40 percent of the allegations have some merit. I see almost 60 percent of the allegations have no merit,” Mr. Imperato says, “yet the organization ends up having to address all the allegations in the context of a third-party lawsuit involving not only the whistle-blower but the Department of Justice.”

That legal process – regardless of the merit of the allegations – is expensive and time-consuming, Imperato says.

He suggests that one way corporations can help insulate themselves from whistle-blower lawsuits is by promoting an open and ethical workplace.

“If the organization has a culture that welcomes internal reporting of noncompliant activity and employees have confidence that such reports will be addressed, employees are less likely to go external with their whistle-blowing,” he says.

A good citizen

Not all would-be whistle-blowing crime fighters are looking for a big payout.

Last year, health care fraud investigators in Miami got a call from a woman who had seen something suspicious at work. “I think there is something wrong here and I think you should do something about it,” she told a federal agent.

It was a tip that quickly developed into a solid investigative lead.

“We will end up getting multimillions of dollars back,” says Brian Martens, assistant special agent in charge of the Department of Health and Human Services Inspector General’s office in Miami Lakes, Fla.

Eventually the case was reported in a local newspaper. The woman saw the story and called the agent back to thank him.

“She was just a good citizen,” Mr. Martens says. “Had this woman actually taken this to a law firm and [filed a whistle-blower lawsuit], she’d probably be looking at $300,000 to $1 million maybe.”

The $50 million sweet spot

For whistle-blowers looking for a jackpot, Burns of Taxpayers Against Fraud has some bad news.

“If you come to me with a $5 million fraud it is going to be hard for me to find a lawyer for you because there is not enough money in it,” he says.

Eighty percent of False Claims Act cases are declined by lawyers, he says.

“The sweet spot starts at $50 million and up,” Burns says.

“If you take 100 False Claims Act cases that settle, half of them will settle for less than $3 million, which means the whistle-blower will make around $200,000,” he says.

“Only the top ten cases really bring in huge amounts of money,” Burns adds.

In some cases someone who exposes a $100 million fraud may end up making less money than if she had remained silent and kept her job and her steady salary. That’s because the amount of recovery can be reduced based on how much value the government places on a person’s contribution to the case and the number of other whistle-blowers sharing in an award.

In addition, lawyers receive their fees from the same award pool as the whistle-blower. Finally, whatever is left for the whistle-blower is subject to taxes.

“What the big print giveth, the little print taketh away,” Burns says. “And there is a lot of little print between taxes and lawyers and multiple whistle-blowers.”

The making of a whistle-blower 

Baklid-Kunz, the hospital compliance officer, spent months resisting hiring a lawyer to file a lawsuit against her employer, Halifax Hospital Medical Center.

She had worked for the Daytona Beach-based hospital system for 15 years and loved her job. She simply wanted the company to comply with Medicare and Medicaid laws and regulations.

Rather than take action to resolve the problems Baklid-Kunz uncovered as the company’s compliance officer, she says she was given a promotion and moved to a different area of management in the hospital.

But in her new role she discovered that the problems she’d identified had not been addressed. She confronted the new compliance officer. “How do you sleep at night?” she asked. “He looked at me and said, ‘Your loyalty is to this hospital and not to the government, and if you even think about becoming a whistle-blower you should resign.’ ”

After multiple failed attempts to convince managers to bring the company into compliance, Baklid-Kunz reluctantly filed a civil lawsuit in 2009, charging the hospital system with engaging in a series of frauds against the US government. Two years later, the federal government joined her lawsuit against the hospital system.

The case focused on an incentive pay arrangement that rewarded certain doctors with larger financial bonuses if they referred more of their patients to the hospital for various services. Baklid-Kunz maintained that the arrangement created a financial conflict that might interfere with a doctor’s obligation to act solely in the best interests of his patients.

The federal judge in the case agreed with Baklid-Kunz and government lawyers, ruling in a pre-trial decision that the arrangement violated a federal law that makes it illegal to grant added compensation to a doctor based on his or her patient referrals.

The issue was one of an array of problems raised in Baklid-Kunz’s lawsuit, and was the main issue argued by the government.

After nearly five years of litigation, the company agreed to settle the case for $85 million. Of that amount, Baklid-Kunz and her lawyers were awarded $20.8 million.

As part of the settlement, Halifax Hospital was not required to admit any wrongdoing, and the company has not made any such admission.

But also as part of its settlement, Halifax executives signed a five-year corporate integrity agreement that requires company officials to certify each year that they are “in compliance with all applicable Federal health care program requirements.”

A cost of doing business 

Baklid-Kunz says the $85 million settlement was merely a cost of doing business for Halifax Hospital.

“If Halifax had gone to trial and lost at trial – we weren’t talking $85 million, it could have been $1 billion,” she says, referring to the full range of allegations in her lawsuit.

“This is a small cost of doing business when you think about all the overpayments that were made,” she says.

A Halifax board member and a company lawyer voluntarily resigned as a result the litigation, she says. But that was all.

“No one went to jail, they all had their jobs, it didn’t really turn out that bad for them,” she says.

To the disbelief of Halifax managers, after the settlement Baklid-Kunz showed up for work. Under the law, they could not fire her for acting as a whistle-blower. But they did make her life in the workplace as difficult as possible, she says, stripping her of all responsibilities. 

“The chief financial officer one time told my friend that he didn’t know if he should line my office with gold or dog [excrement],” she says.

Undeterred, she spent her days at work studying health-care regulations. “I didn’t want to leave because I hadn’t done anything wrong,” she says. “But my attorney advised me that it is not good to be in such a hostile environment.”

Today, she works as a consultant and expert on health-care regulatory issues. In addition, she often talks to students about ethics and honesty in the workplace.

“You don’t really need to know all the laws, but you need to know what your values are and to decide in advance what is okay for you and what is not,” she says she tells them.

“If you go out in the workplace and you don’t have your values straightened out, at some point [in your career] you are going to be in a room where people will try to talk you into doing something you don’t want to do.”

She tells students they need to set their own moral compass prior to any such meeting.

After the many years of frustration and litigation, Baklid-Kunz says one of her greatest achievements is that she sleeps soundly at night.

“I know I’m not going to change the world, but I’m certainly going to try,” she says. “I would want someone to do what I did – not for the money but because it is the right thing to do.”

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