Corporate Heroes for Uncle Sam

by Neil V. Getnick & Lesley Ann Skillen

Published in the New York Times, December 3, 1995

Corporate America has generally seen itself as being at the wrong end of whistle-blower lawsuits brought under the Federal False Claims Act, and views the statute as a weapon to be used against it. But a recent Federal case, Wells v. Huntleigh Technology, shows that corporations themselves can blow the whistle on rivals, make money for themselves and be seen as heroes that clean up their industries and recoup taxpayer dollars.

The whistle-blower — or qui tam — provisions of the Federal False Claims Act (qui tam being Latin shorthand for “he who acts as much for the king as for himself”) and state equivalents in California, Florida, Tennessee and Illinois, allow a private citizen, whether corporate or individual, with unique knowledge of fraud against the Government to bring a lawsuit in the name of the Government and to receive a percentage of the recoveries.

The Wells case shows that the qui tam law, like the civil RICO statute, can be used by companies to act effectively against what they see as fraud in their own industry and potentially turn a profit at the same time. The settlement of the case for nearly $5 million is a wake-up call to the business community.

Ron Wells of Florida was a self-employed dealer in medical equipment for more than a decade when he hired our law firm to file his qui tam case against Huntleigh. He contended that Huntleigh was defrauding the Medicare system, and he gave these details:

He was approached in 1991 by a Huntleigh sales manager with a “new” lymphedema pump, which is used by patients at home to treat swelling of the limbs. Huntleigh was selling the pump to dealers for less than $500 but asserted that the pump had design features making it eligible for Medicare reimbursement at the highest rate — $4,000. Mr. Wells examined the pump, named the Flowplus, and concluded that it was the same as Huntleigh’s low-grade pump in virtually every respect but color. He told this to Huntleigh and to Medicare officials.

Meanwhile, Flowplus sales through other dealers soared — as did Medicare reimbursements for the device. After Mr. Wells went to trade shows displaying the pump with a sign “Medicare rip-off,” Huntleigh threatened to sue him.

In early 1993, Medicare downgraded the reimbursement for the Flowplus from the highest to the lowest payment (about $475), but Mr. Wells felt that was not enough. After 18 months, he became discouraged that Huntleigh and the dealers who sold the Flowplus had not been compelled to repay their earlier gains, and he acted to file the qui tam case. Huntleigh settled the suit in July for $4.9 million. Mr. Wells’s share was $882,000, with the Government getting the rest.

MR. WELLS’S decision to blow the whistle, beyond being public-spirited, was also a business decision intended to benefit the company he owned and his industry. Mr. Wells believed that Huntleigh was not only committing a fraud on the Government, but that it was also ruining the market by forcing other manufacturers to bring out substandard pumps in order to compete. His decision to refuse to participate in what he saw as rampant profiteering, and finally to avail himself of the qui tam provisions of the False Claims Act, protected his own business interests as well as those of United States taxpayers.

Had Metpath and Metwest made a similar decision to blow the whistle on industry practices described to them by Jack Dowden, their fortunes might have taken a strikingly different turn than they did. Mr. Dowden was a sales manager for Metwest in the late 1980’s when he reported to company executives that a rival diagnostic testing group, National Health Laboratories, was engaging in Medicare billing practices involving the “unbundling” of blood test packages that he — and later the Federal Government — characterized as fraudulent. Metwest’s response, Mr. Dowden said, was to ignore his warning not to follow National Health’s example.

Believing that National Health was damaging his sales in his region, and in order to prevent his employer from also engaging in such practices, Mr. Dowden went to the authorities. Ultimately, he filed a qui tam suit against National Health as well as the Metpath unit of Corning Inc. and Metwest, which had adopted National Health’s billing practices. The three settled with the Government for $150 million, of which Mr. Dowden received around $23 million. Had Metpath and Metwest joined Mr. Dowden in his lawsuit instead of copying National Health’s billing practices, they would have likewise been awarded millions of dollars rather than having to pay $40 million in the settlement.

These cases demonstrate a simple truth: “anti-fraud” is not “anti-business.” Like RICO, the False Claims Act can be a powerful weapon in the service of the business community. Indeed, in an era in which corporate compliance and self-policing are necessitated by the Federal Corporate Sentencing Guidelines, law-abiding companies need to take action to protect their ability to compete honestly in an honest market.

Companies routinely do so now under the antitrust laws when confronted with anti-competitive practices by rivals. The False Claims Act permits companies that adhere to the law to level the playing field by exposing questionable practices of competitors for Federal dollars and offsetting the business losses incurred as a result of them. It does so not only with an eye to bottom-line profitability, but also to the greater public good.