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Northern District of Illinois Judge Finds That the False Claims Act Does Not Apply Retroactively in United States ex rel. Stone v. OmniCare, Inc.

In a previous blog post, we explained the concept of “qui tam.” The private individuals who file qui tam actions — “relators” — usually work for federal contractors. A qui tam action is only used to assert fraud against the government. People who file qui tam actions do so under the False Claims Act, which aims to stop fraudulent billings to the government. If their action is successful, relators stand to benefit personally by collecting 15 to 25% of any money amount awarded by the jury, as well as attorney’s fees. So if you are in Illinois and believe that your employer (a federal contractor) is committing fraud against the government, find an Illinois qui tam lawyer to help you file a qui tam action as soon as possible.

In United States ex rel. Stone v. OmniCare, Inc., Relator John Stone charged Defendant OmniCare with submitting false claims not only to the federal government, but also to several states. OmniCare was the nation’s largest provider of pharmaceuticals to long-term health care institutions, including assisted living facilities, retirement centers, and hospices. The company also provided related services such as respiration therapy and nutritional products. As a result, in 2008, 60% of defendant’s revenue came from Medicare and Medicaid.

Relator worked as Vice President for Internal Audit and conducted two key audits of OmniCare’s Medicare and Medicaid claims. The first set was submitted between 2000 and 2005, and consisted of 39 claims from 18 facilities per year. The second set took place in 2008, from newly acquired pharmacies only, and consisted of 30 claims from 15 facilities. Relator’s intent was to inform OmniCare of systematic problems that might exist regarding the claims and to prompt further claims-level investigation if needed. Both audits showed systematic problems, which relator relayed to OmniCare. Instead of inquiring further, OmniCare merely provided a limited repayment to Medicare that did not reflect the extent of overpayments and falsely claimed that the problem had been resolved. OmniCare also stockpiled certain medications in an effort to gain greater Medicare reimbursement. After relator presented these “deficiencies” in a formal document, OmniCare’s CEO allegedly told him to “begin looking for other employment.” Relator believed that his discharge was retaliation for lawful conduct under the FCA.

Judge James Zagel of the Northern District of Illinois noted that under the amended FCA, an overpayment must be reported and returned within 60 days of when the overpayment was identified. The question was whether relator’s discoveries of overpayment qualified because the statute could not be applied retroactively. Relator claimed that liability could be pinned to May 22, 2010, and thus all of the false claims from 2000 through 2005 and 2008 automatically attached. Judge Zagel disagreed. He felt that relator’s was too loose an interpretation of the FCA, permitting any overpayments — no matter what the year — to be subject to liability as long as some money from that claim is still in the company’s coffers. Therefore, the judge dismissed relator’s qui tam claim.

However, Judge Zagel did not dismiss relator’s retaliatory discharge claim. Retaliatory discharge under the FCA was met when 1) the relator’s actions were taken in furtherance of an FCA enforcement action; 2) the defendant “knew” that relator was engaged in the protected conduct; and 3) the discharge was at least partly motivated by the protected conduct. A fraud-alert employee such as the relator would need to put the defendant on notice of fraud by stating “magic words” such as “fraud,” “illegal,” or “improper.” Relator claimed that he spoke of “fraud” to the company, which Judge Zagel determined was enough to suggest retaliatory discharge. The judge allowed the retaliatory discharge claim to move forward.

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