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Attorneys who bring cases under the federal False Claims Act see a new era in whistleblower litigation as many of the biggest states have adopted so-called qui tam laws and are pouring resources into litigating Medicaid fraud claims. Encouraged by federal legislation, Michigan, New Jersey and New York have passed whistleblower laws since 2005, while Florida and Texas have amended their laws to conform with the federal False Claims Act. In all, 23 states and the District of Columbia — fueled by an increase in their share of fraud recoveries — are pooling resources to investigate and litigate Medicaid fraud suits. The new laws include automatic treble damages, hefty fines and the risk of exclusion from Medicaid — the state and federal partnership that pays for indigent medical care — for companies that lose at trial on fraud allegations. The growth in states with laws modeled on the False Claims Act has been triggered by the 2005 Deficit Reduction Act (DRA), which increases the share of fraud recoveries to 60% for states with whistleblower laws that mirror the federal statute. States without the law receive 50% of recoveries. ‘A sea change’ Whistleblower — or qui tam — suits are filed by individuals on behalf of the government, but remain sealed until the government joins the case. Qui tam attorneys, noting a backlog of 1,000 cases awaiting review at the U.S. Department of Justice, say that states with whistleblower laws create a route through state courts to speed cases along, as well as dramatic increases in government investigators, auditors and attorneys to pursue litigation. “There are limited resources and the Department of Justice can’t accept all the worthwhile cases,” said James J. Breen of the Breen Law Firm in Alpharetta, Ga., who has won several multimillion-dollar settlements of pharmaceutical fraud allegations brought by Ven-a-Care, a small pharmacy in Key West, Fla. “What you see now is 23 attorneys general pursuing these cases,” he said. “It is a sea change.” Florida Attorney General Bill McCollum in the past year has formed a Complex Civil Enforcement Unit with 16 attorneys, plus paralegals, auditors and investigators, specifically to work on Medicaid fraud cases, said Rick Lober, director of the state’s Medicaid Fraud Control Unit. “We have a responsibility to move forward on these cases proactively and not just piggyback on the federal government,” Lober said. “More states are adopting qui tam statutes because we are all addressing the same issues. There are so many viable cases that states cannot expect the feds to do all the heavy lifting.” No state is pursuing Medicaid fraud more zealously than Texas. The Legislature, encouraged by Attorney General Greg Abbott, amended the state version of the False Claims Act in 2007 to meet federal standards for a 60% share of future recoveries and added 27 attorneys, investigators and auditors to its Medicaid Fraud Control Unit. “We had nine lawyers and saw great results, but we knew we had not maximized our recoveries,” said Kent C. Sullivan, first assistant attorney general of Texas. “The dollars involved are very substantial and we did not want to leave money on the table.” John Clark of Goode Casseb Jones Riklin Choate & Watson in San Antonio, a former U.S. attorney and appellate judge who has specialized in qui tam suits during the past 15 years, said health care fraud is most of his practice. “Texas is focused on Medicaid fraud and has committed the resources to pursue these claims vigorously,” Clark said. “The number of states adopting a False Claims Act is growing quickly and there is no reason to think that trend won’t continue.” Qui tam attorney Steve H. Cohen of the Cohen Law Group in Chicago said promising whistleblower suits often languished until the recent increased involvement of states. “I can’t tell you the number of times a [federal] government lawyer has told me they would love to take the case but they know they will never get an investigator assigned to it, and that is where the states will make a huge difference,” said Cohen. The prime example of the new dynamic in qui tam litigation is a whistleblower case Cohen brought in 2000 against Merck & Co., alleging that the pharmaceutical giant defrauded Medicaid programs by paying kickbacks to doctors and hospitals and not reporting steeply discounted sales of Zocor, Vioxx and Pepcid to hospitals as the “best price,” which the law requires that it set for Medicaid. Merck argued that the discounted price was “merely nominal” as defined by the law and exempt from reporting. Federal attorneys focused on the kickback allegations, but lawyers from the various agencies involved could not reach a consensus on the pricing theory, Cohen said. Instead, the Nevada attorney general, armed with the state’s recently enacted whistleblower law, urged Cohen to file suit in Nevada under state law. “We had an interest in the case but it became evident it was going nowhere, so we suggested they might want to file in here,” said Nevada Chief Deputy Attorney General Timothy Terry. “The old idea was the feds do everything and they tell the states when they need to sign off. Here, we took the lead,” Terry added. The case was quickly moved from state to federal court, where Merck lost a motion to dismiss. The company settled the claim in February for $650 million. State of Nevada ex rel. H. Dean Steinke v. Merck & Co. Inc., No. 3:05-CV-00322-HDM-RA. (D. Nev.). “I doubt we would have got this result if the states had not taken the lead. We’d still be waiting for the federal government to decide,” Cohen said. Patrick Meehan, the U.S. attorney for the Eastern District of Pennsylvania who was the federal government’s lead attorney on the Merck case, said his office agreed with Cohen that filing suit in Nevada was a good method to explore the merits of the price-reporting allegation. “Nominal pricing was one piece of the case and there was a lot of give and take about how people might approach the issue on a statewide basis,” Meehan said. “It was advantageous to have Nevada try this under their statute.” Merck declined to comment on the case or make available their defense counsel. “For national companies, the concern with the new laws is they will they be hit with suits in more than one state simultaneously, making the suits more difficult to defend,” said Sandy Teplitzky, chairman of the health care practice group at Ober Kaler in Baltimore who has defended a number of qui tam cases. “States may become more aggressive as they view this as a revenue source.” Qui tam suits alleging fraud by pharmaceutical companies are often filed in all the states with whistleblower laws, putting the states on equal footing with federal attorneys, said Dan Miller, an assistant attorney general in Delaware and vice president of the National Association of Medicaid Fraud Control Units. “These cases used to be investigated and prosecuted almost exclusively by the feds under federal law, but now, typically, when a case is filed, 23 cases are filed,” Miller said. “States now get the documents at the same time the feds do. We are out front in a bunch of cases.” Rick Robinson of Fulbright & Jaworski’s Washington office, who recently represented Walgreen Co. in negotiations on a $37 million settlement of whistleblower drug-switching claims, said state involvement in qui tam cases has not changed the landscape for defense attorneys. “I don’t know that [states adopting whistleblower laws] creates a whole new world out there,” Robinson said. “I don’t think these cases are that much different substantially than when the states didn’t have qui tam. The [federal] government never ignored these cases.” Robinson declined to discuss the Walgreen case but said it, like nearly all qui tam cases, are settled because losing at trial means automatic treble damages and potentially crushing fines. U.S. ex rel. Bernard Lisitza v. Walgreen Co., No. 03C00744 (N.D. Ill.). “Almost every company has to negotiate the best settlement it can because losing at trial can be staggering, including exclusion from government medical programs,” he said. The risks of trial One company that went to trial, and lost, is Amerigroup Corp., a health maintenance organization under contract with Illinois to provide medical care to low-income families. The jury award of $48 million mushroomed to $334 million with treble damages and fines. U.S. ex rel. Cleveland Tyson v. Amerigroup Illinois Inc., No. 02 C 6074 (N.D. Ill.). Dan Voelker of Freeborn & Peters in Chicago, who defended Amerigroup, said the case is on appeal. “There are significant risks with qui tam cases but you go to trial when you believe you are right,” he said. “There might be compelling reasons to go to trial or perhaps the relator’s settlement expectations might be exorbitant.” Amerigroup declined to comment on the case. Despite the growing partnership with states, few qui tam lawyers believe a great many attorneys will join the practice. They note that only about one in five cases wins government support, and settlements are rarely reached in less than five years. Cases dragging on for a decade or more are common. “This is not for everyone,” said Michael Behn of Behn & Wyetzner, a Chicago firm specializing in whistleblower suits. Behn brought the recently settled whistleblower case against Walgreen. “I had one case that didn’t settle for 16 years,” said Behn, a former U.S. attorney. “That is a long time between paychecks, but I’m a prosecutor at heart. I couldn’t be happy just moving money around a big firm.”

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