Brian Mahany 2019 Mensa Keynote – Mahany Law

The Dark Side of Fraud

transcript:

Brian Mahany: Thank you for that great introduction. And this morning, I hope to share some of the passion and enthusiasm I have for what I do, I’m a whistleblower lawyer. Obviously, you heard that from the introduction, and today we are going to talk about fraud. And the title of this presentation is The Dark Side of Fraud, and some of you are thinking, “Wait, is there a bright side of fraud?”

[applause]

There isn’t. This is a Mensa audience. I was going to call it 50 Shades of Black, but then I knew I’d get an argument saying, “Hey, black is the absence of color or the absence of light.” So, I just figured I will call it The Dark Side of Fraud, and as I get into this, you’ll understand what I mean.

When we think of fraud, like some of the big fraud cases that you read in the paper or see on TV, you think of money. And the dollar signs of what we are going to discuss are  huge. These are economic crimes, and when someone rips off the government, everyone is a victim. We all suffer as taxpayers. For example, all suffer when our insurance rates go up, but there’s also a human side to many of these stories, and that’s what I’m going to share with you today.

So, before I begin, just two matters of housekeeping. First, we have a common understanding on what I mean by “whistleblower”. Whistleblowers take many different shapes.

You have the people like Julian Assange and Chelsea Manning. They take information from the government and publish it or leak it. Some people say that’s great, some people say that’s bad.

That’s not what we’re talking about here today when we talk about whistleblowers. We’re talking about people, mostly ordinary workers, that report fraud in their workplace.

They wake up one day and say, “Hey, I’m tired of watching this greed. I’m tired of watching the corruption,” and they report it. Now, there’s different ways of reporting, and we’ll talk a little bit about that today.

That brings up our second matter of housekeeping. The United States is unique in its whistleblower laws. So I’m going to give you a thousand years of history in five minutes. The primary whistleblower law in the United States is called the False Claims Act. It’s often called “qui  tam” or the Lincoln Law. It’s origination goes all the way back to Medieval times when England was ruled by a monarch and didn’t have many laws back then. Like today, people would steal from the king, either they wouldn’t pay taxes, or they wouldn’t pay customs or they would steal something.

Assuming you weren’t beheaded back in those times, there was a law passed in England that said a private citizen, that’s you or me or anyone in this room, could bring an action on behalf of the king or on behalf of the queen. And if you were successful, the crown would reward you.

You’d get a piece of the pie, a piece of that recovery. Let’s fast forward. Yesterday was Fourth of July. When the United States was 12 years old, 1789, and we’d just had our 12th birthday, two sailors that came forward and approached the Continental Congress. That’s when individuals could go petition Congress, obviously we can’t do that today very easily. They went to Congress and said, “Hey, we know fraud going on in the Navy, but we’re afraid to report it.”

The Continental Congress passed a private legislation that authorized those two sailors to bring an action to report the fraud and promised that they would get no retribution. And that was the first time that the United States had a whistleblower, law although it was just for two people.

Let’s fast-forward again, this time to the Civil War. We’re in the 1860s, and the United States government is broke, a lot like today. The nation was busy fighting the Civil War. Back then, the federal government had a very tiny Justice Department.

All the government’s money was going to the Union Army. But much of that money was lost to fraud. The Union Army was getting gunpowder laced with sawdust. It was receiving mules that were lame. Wagons so rickety that the wheels fall off. It was getting wool uniforms that had mothball holes in them. And while all of this fraud was going on, the government didn’t have nearly enough prosecutors. There just wasn’t anybody to prosecute crime.

Abraham Lincoln proposed to Congress a law that said that individuals could be private attorney generals and bring claims and lawsuits in the name of the United States government.

So, if you knew of fraud or somebody defrauding the Union Army, you could file a lawsuit in the name of the government and on behalf of the government. Instead of that lawsuit being Brian Mahany versus Bank of America, that lawsuit would be the United States of America versus Bank of America or any other wrongdoer. The law allowed you to become a private attorney general. You could file a lawsuit in the name of the government, and you could prosecute that lawsuit. And if you won, you got to keep a part of the recovery.

That law has been on the books since 1867. It’s still on the books today. Over the years, and depending on who’s politically in power, the law was amended. It almost died during World War II, and now we’re up to current times.

In 1987, Congress revitalized the law and added some real teeth into that law, and that’s the law that we have today.

Since then, the IRS came forward with their own whistleblower program. The SEC came forward with their whistleblower program as part of the Dodd Frank Wall Street reform package.

There is another  whistleblower law for bank fraud called FIRREA. That’s the acronym for the Financial Institutions Reform Recovery and Enforcement Act of 1989. I don’t know why Congress uses such complicated titles, but that allows people in the banking industry to get a reward if they report banking misconduct.

And just two years ago, we passed a motor vehicle safety whistleblower law that says somebody that works for an automaker or an auto supplier that knows of dangerous defects can get an award.

Let’s talk about how the False Claims Act works, and I know that this slide appears as small print for folks in the back. The False Claims Act is a federal statute that imposes civil liability on anybody that defrauds the government. It allows the government to get triple damages.

Let’s say that you’re defrauding Medicare and that fraud costs Medicare $2 million. The government can collect $6 million, triple damages. It also allows a fine of up to $22,957 per incident, so the fines are very, very steep. Each false invoice or patient bill is a separate offense. The whistleblower who came forward with that case can receive a reward of between 15% and 30%. If the government prosecutes that case, it’s on the lower end; if the government doesn’t prosecute and says, “Hey, whistleblower, let your lawyer prosecute,” it’s on the higher end.

Typical cases that we see on a day-to-day basis, Medicaid and Medicare fraud, that’s rampant in this country. The FBI says approximately 10 cents of every dollar that we spend on healthcare goes to waste and fraud. That means if your doctor visit costs 120 bucks, 12 bucks of that is for fraud. Not that your doctor’s committing the fraud, it’s just inherent in the system.

Defense contractor fraud. My new friend in the audience Joe I met 30 minutes ago. He was talking to me before we began about Northrop Grumman and fraud there. And I shared with him that Northrop Grumman is probably one of the biggest serial fraudsters in the US. The other one is Boeing, by the way.

Mortgage fraud, and you’re going to think, “What does mortgages have to do with the federal government?” Most residential mortgages in this country are insured by Fannie Mae, Freddie Mac, the VA, the FHA. After the meltdown in 2008,  the government took over Fannie and Freddie in 2009. So now the government insures 90% of the residential mortgages out there. When a mortgage company commits fraud, issues bad mortgages, bad appraisals, whatever they may do, that behavior hurts everyone in here. It hurts taxpayers. That was one of the cases that was mentioned in the introduction, the Bank of America case which recovered $17 billion, and we’ll start there.

One of the many bad things that Bank of America was doing was forcing, or we’ll use a better word, “persuading” appraisers to increase the value on appraisals. Why is that bad? Because banks don’t hold mortgages anymore, they make a commission when they write and flip. They are sold immediately after they are funded.They just keep using that same money over and over and over again.

0:09:10.0  Audience: Does that include Countrywide?

0:09:11.7 Brian Mahany: Yes, Countrywide was probably one of the worst, and Bank of America ultimately bought Countrywide after the crisis in 2007, 2008. Let’s use an example of what Bank of America was doing. You buy a house worth $400,000. But you aren’t that familiar with the neighborhood and think it’s a steal for $500,000.

In order to get a loan insured by Fannie or whomever, the bank is required to have an appraisal. The appraiser would say, “It’s not a $500,000 house, it’s $400,000.”

Bank of America was saying, “Hey, you want to keep doing appraisal business with us, Jane, you better get that number up to $500,000.” Then the meltdown occurred, and you could only get $300,000 for the house. That’s a case where it wasn’t just taxpayers that suffered. There was some human suffering in there, a lot of people were wiped out.

That’s a good segue to start talking about the dark side of fraud. We’re going to talk about suffering, true suffering. So we’ll start with Medicare fraud; I call this profits before patients. And this is where we’re going to get into actual cases. Operation Spinal Cap, this case is brand new. It is still breaking news because the story just unfolded last month.

The government says that this particular fraud cost taxpayers $950 million, and the fraud was huge. This wasn’t one or two people. This was hospitals, this was doctors, this was medical equipment suppliers, there was even a politician involved, we’ll talk about that in a second, and it was patient recruiters.

The way this scam worked is hospitals figured out that under Medi-Cal, that’s the California Medicaid, they could receive between $350,000 and $425,000 overall for certain types of spinal surgery. It brought a lot of money into the hospitals. It brought a lot of money into the doctors who did these surgeries, so they wanted to do more of them.

A few bad apples among hospitals tried to convince doctors, “Hey, let’s do more of these serious surgeries.” To grease the skids, they would pay the doctors kickbacks, and it’s not like it’s a bag full of money. You don’t get a bag full of cash. They tell the doctor, “If you do 50 of these surgeries this quarter, we’ll give you free office space, or we’ll give you free staff or we’ll make you a Medical Director.” Some of these hospitals, every doctor in the place was a director. They had no one to supervise other than themselves.

There’s a federal law that’s been on the books, however, it’s actually a criminal law called the Anti-Kickback Statute, that says you can’t pay people to influence their healthcare decisions. Healthcare decisions should be based on what’s best for you, the patient, not who’s giving the biggest bribe or the biggest kickback to the doctor or the hospital. S

The hospitals were in on this scheme for paying kickbacks to doctors; the doctors were in on this scheme because they were getting huge fees for these surgeries, and in many cases, the people getting these surgeries didn’t need them. That’s the crime, and very painful for the patients, some of whom suffered permanent disabilities as the result of medically unnecessary surgery.

But it’s even worse. They were using patient recruiters. Patient recruiters are the absolute bottom of the barrel. You talk about bottom feeders, these are typically people that get paid to drive around in a van, drive through homeless neighborhoods, drive around shelters and pick up people.

And the doctor will say, “Hey, I’ll give you $1000 cash for every patient you can find for me. The recruiters would pay the patients in booze, meth, heroin. Sometimes it was just a carton of cigarettes. Sometimes it was cash.  The doctors didn’t want to know as long as the patient recruiters brought in warm bodies. So they’re preying on people that are mentally incapacitated. They’re preying on people that are homeless. They’re preying on people that are at the very edge of society to bring them in and get surgery that they don’t even need.

Worse yet are some of the suppliers of the medical equipment. When you get spinal surgery you want the best hardware possible. This is supposed to be titanium screws, titanium pieces that they put it in your body. But the unethical participants in this scheme figured out, “Well, titanium devices costs us $30,000. We can just use hardware-grade stainless steel and get away with it.”

And some of the doctors knew too. To me, they look alike, but the doctors that I spoke to said, “Oh, no, you can tell the difference.” But nobody cared. So we have people that are walking around today, and for the next 10 years, that are going to have problems. Ten years from now, we could be here at Mensa, and somebody is suffering because that stainless steel screw disintegrated or came loose or something like that. You can’t recall people and say, “Hey, we’re going to cut you open again and take all the hardware out and put new hardware in.” The patients are stuck.

Many people went to jail and are still going to jail over this scam. There was even a politician in California that was sent to 42 months in prison for taking kickbacks to keep this loophole in the law alive so that the doctors and hospitals could keep billing this ridiculous amount for these surgeries. That’s how pervasive and deeply rooted this fraud was.

When you hear these Medicare fraud stories, you may think it’s just an economic crime where some doc is trying to overbill. It’s not. There are a lot of homeless people that have now had surgeries that they didn’t need. There are a lot of legitimate patients that needed surgeries that have received bad parts. You can’t make this up. And it’s all greed. It’s all just for getting a couple of dollars more.

0:15:18.8 Audience: So how is the homeless person paying for that surgery? How does that get paid for?

0:15:22.1 Brian Mahany: Medicaid. You and I paid for it.

[pause]

0:15:39.8 Brian Mahany: So the person on this slide should be a familiar name for many people. This is America’s youngest female billionaire. She goes to trial.

0:15:52.1 Audience: Billionaire?

0:15:54.7 Brian Mahany: Yes,  America’s youngest female billionaire. By next summer, she may be an inmate number. She goes to trial next summer.

How many know the story about Elizabeth Holmes and her company? Okay, I see that just about everybody here does.

We all know about the legendary lies that come out of Silicon Valley. She took it to a new level. She said, “Hey, look at my miracle machine, I’m a Stanford dropout, and at 19 years old, I invented this machine that from one drop of blood can do over a thousand blood tests.”

How anybody believed this, I don’t know, but she was successful in building a multi-billion dollar empire. There were over 8 million tests done with her wonder machine. In fairness, her wonder machine actually could do a couple of blood tests. It couldn’t do a 1000, not from one drop of blood. So there are literally 8 million people where doctors were relying on those blood tests to prescribe medications or to order surgery, or whatever the case may be. And those blood tests were meaningless.

It was crazy. It was crazy that she got away with it for as many years as she did. And I remember this, I remember her being on the cover of Fortune. I remember her being on the cover of Forbes. She was probably on the cover of a lot of women’s magazines that I don’t read, but I wouldn’t be surprised if she was on the cover of a lot of other magazines. And we all said, “What a wonderful person this is. She’s a great inventor.”

And now she’s going to trial next summer, and could spend the rest of her life in prison. And that case came to light, by the way, because of whistleblowers, and that’s the positive message to this presentation. Most of the cases that you read about in the press don’t come to light because the government figures it out. They come to light because somebody blew the whistle and reported the fraud.

AmerisourceBergen, how many people know this company? Only a few.

So AmerisourceBergen has annual revenues of $153 billion a year. It’s a big company. They’re a drug wholesaler. They’re one of the biggest drug wholesalers in the United States. When your local pharmacy runs out of, I don’t know, penicillin, they don’t call some generic manufacturer or 20 generic manufacturers in India and China trying to get the best price, they call up a wholesaler, a company like AmerisourceBergen. And they have warehouses throughout the United States, and literally they can deliver it to hospitals or nursing homes or pharmacies overnight.

We are not shipping drugs from China to your local pharmacy on the corner. AmerisourceBergen saw how much money pharmaceutical companies were making, and they got this brilliant idea a few years ago that, “Hey, let’s get into the pharmaceutical business ourselves,” except they weren’t licensed to do that. They were taking vials of cancer medication and breaking it up into single-dose syringes, so the sterility would become compromised because you’re opening a vial and now you’re filling all these little syringes.

They created a separate subsidiary called Medical Initiatives to do it, because they didn’t want their name on it, but they owned the subsidiary. And they sold 9 million single doses, mostly of cancer medication that they made in very un-sterile conditions. They literally had people in a warehouse just opening vials and filling syringes.

How many times did they test these 9 million doses? Three. Over a couple of years, they tested it three times and guess what, they failed in two of those three times.

Did they tell anybody? No. Did they recall? No, they couldn’t recall, they were afraid to recall, because they didn’t even have any authority to be selling this stuff in the first place.

Again, another whistleblower case, so they paid $625 million under the False Claims Act, that’s the whistleblower statue that we were talking about, they also had to pay another $260 million in criminal fines, so they paid almost a billion dollars and again, very recent, that was October of last year.

0:20:27.3 Audience: Did they also go out of business, or was that just a cost of doing business?

0:20:31.3 Brian Mahany That was a cost of doing business, they’re still in business. They had to enter into a corporate integrity agreement now, and there’s a monitor there to make sure that they don’t do it again.

0:20:45.7 Audience: How is someone not going to do it…

0:20:48.0 Brian Mahany: I don’t know, I don’t know.

In the savings and loan crisis, we prosecuted… When I say we, the Justice Department prosecuted almost a thousand bankers. After the 2007-2008 meltdown, not a single banker. More recently we finally prosecuted a few low level traders with the Forex and the LIBOR schemes but nobody after the big meltdown got prosecuted.

So I don’t know, I think if you saw a corporate CEOs doing the perp walk on the 5 o’clock news in an orange jumpsuit, it would probably stop things very quickly. Question in the back?

0:21:24.4 Audience: Was this drug company left with profit after the time?

0:21:28.2 Brian Mahany Were they left with profit?

0:21:30.2 Audience?: Yeah, did they have any… Did they make more…

0:21:33.5 Brian Mahany: No, I don’t think so. I don’t think so. I think that was reflected in the $625 million that they paid, but they still… They make over $150 billion a year in revenue, not profit, so I’m sure it was a small cost of doing business for them. Another question.

0:21:53.2 Audience: So if we saw the CEOs doing a perp walk, why don’t we?

0:21:57.8 Brian Mahany: I don’t know, and we didn’t under… I don’t want to get political, but we didn’t see it under the Obama administration, we haven’t seen it under the Bush administration, we haven’t seen it under the Trump administration. I don’t know why.

0:22:09.0 Audience: Because ????? not illegal.

0:22:14.9 Brian Mahany: I need think part of it is there’s a revolving door now between big pharma and big banks and mortgage companies and the government, you seem to see people just cycle in and out, and that may be part of it, but… I’m with you, I’d like to see a couple of CEOs go to the prison, that would end this. Elizabeth Holmes will probably go to prison if she’s found guilty. We’ll see what happens in that trial.

0:22:43.2 Audience: What you just said?

0:22:43.3 Brian Mahany: I said, I would like to… I think you might see Elizabeth Holmes go to prison if she’s found guilty.

0:22:50.2 Audience: Yeah, ’cause she’s a woman. But all her investors lost everything.

0:22:53.3 Brian Mahany: They did. The investors did lose everything. Yeah, the company is out of business and her $5 billion in stock is now worth zero. She’s no longer a billionaire.

Baxter Healthcare. Baxter got a huge black eye in, I believe it was 2007, in the big heparin scandal, I don’t know if anybody remembers that one. One person here, two people. Back in 2007, Baxter was making heparin, they were buying the API or the active pharmaceutical ingredient from a US company that was based in China, that company was buying it from God knows where, but they had a bad dose, a bad batch of heparin that was never tested. And between 81 and 149 people died, and rather horrible deaths, too. So heparin was being used by people on dialysis, they’d be hooked up to the dialysis machine, and many of those people didn’t make it and the rest of them still suffer today. Horrible, horrible.

Did they learn? No. 2018 or 2017, we’ll fast forward. This is another whistleblower case, and thank goodness, we have concerned workers that step forward. A worker at a Baxter facility in North Carolina where they were making sterile IV products. Sterile IV products are required to be made in a clean room. I’ve actually toured some of these facilities before, you have to wear the full gown and they have positive air pressure, so that there’s nothing in those rooms. In the Baxter there was an air conditioning vent. It was filled with disgusting mold. One of the workers there was just inspecting the vents and pulled them down and said, went to his boss and said, “Hey, there’s mold and it’s right above the filling station where we’re filling these sterile, making these sterile IV products.”

And the boss basically said, “That’s going to cost too much to fix. We’ll just… When the FDA is going to do an investigation then we’ll clean it all up.” TI think the company didn’t want to stop the production line, test products that had already been released and possibly do a massive recall. Thankfully the whistleblower stepped forward, so obviously, they were caught.

Unfortunately, they only paid $18 million. I would have liked to have seen them pay more. There was also no criminal prosecution.

0:25:34.0 Audience: And did the employee get fired for having…

0:25:36.9 Brian Mahany: I don’t know, that wasn’t ou case. I don’t know whether the employee got fired or not.

Typically with big business, let’s take a quick minute to discuss retaliation. It’s against the law.

Congress passed the False Claims Act in the Civil War, but when they revitalized it in 1987, they passed a very strict anti-retaliation provision.

Typically now, what big corporations do, not little mom and pops, but big corporations, they find out who the whistleblower is, they put him on paid administrative leave, they tell him to go home, collect their paycheck, and then when the case is over, they’ll buy the worker out, they’ll say, here’s two years’ pay, three years’ pay, just go away. We don’t want you back. And most of those employees don’t want to come back. How are you going to come back?

0:26:19.7 Audience: So there’s no anonymity. There’s no option to be anonymous or…

0:26:20.1 Brian Mahany: Well, so that’s an excellent question. When you file one of these cases, it’s secret, it’s filed under seal, and unless it involves national security, it’s going to get unsealed at some point in time. So typically it takes the government a couple of years to investigate. While it’s being investigated your name is safe, but at some point in time, it’s going to get unsealed.

0:26:49.8 Audience: Are they going to be able to get a job…

0:26:50.1 Brian Mahany: It depends on the industry you’re in. The financial industry, it’s next to impossible to get a job. If you’re a physician and you blow the whistle, you probably won’t get credentialed in any hospitals nearby. So I had a physician that I represented in Georgia who blew the whistle on Emory University. He wound up practicing in Montana, not because he wanted to go to Montana, although he said it was beautiful when he got there. He wasn’t his first choice of where to go. If you’re a nurse or a billing clerk, you’re going to easily get another job.

0:27:18.7 Audience: It was Emory?

0:27:20.9 Brian Mahany: Yes.

0:27:21.1 Audience: My sister-in-law went there for med school. Her daughter’s there now. Uh-oh.

0:27:26.3 Brian Mahany Well, this was years ago. This was a few years ago, but they were… I can’t even remember the facts of that case anymore, but I don’t know whether they were abusing government grants or what they were doing, but they were tagged.

0:27:39.1 Audience: What happens  ____ classified projects?

0:27:45.3 Brian Mahany: What do you mean, classified?

0:27:46.8 Audience: Well, say you’ve got a classified project that’s worth billions of dollars. How is the whistleblower blowing the whistle on something that’s classified?

0:27:55.8 Brian Mahany: Well, he’s blowing the whistle by coming to the government, so you can always do that.

0:28:00.6 Audience: Oh, I thought you went to jail for being a spy.

0:28:04.5 Brian Mahany: No, no, no, no, there is… And again, I don’t want to get too technical. I actually teach this for lawyers. There is the Defend Trade Secrets Act which says you can’t divulge the secret formula for Coca-Cola in a court pleading, but these cases are filed under seal, so no one sees it. The public can’t walk into the court clerk’s office… A reporter can’t walk into the court clerk’s office and say, I want a copy of the complaint, and if it’s national security, it’ll stay under seal.

0:28:35.4 Audience: These corporations make you sign all these forms when you get hired that you are… You won’t do this, you won’t do that, all these clauses. Is there anything that they can try to do to prevent these…

0:28:52.9 Brian Mahany: So there’s a raging court battle going on about that, the courts have universally held it’s against public policy to tell somebody they can’t report a crime. Let’s say if I commit a bank robbery and you see me, I can’t pay you $500 and have you sign a contract saying, “I’m giving you $500, you won’t call the cops.” This is the same thing, but white collar.

So they can’t prevent you from reporting it, and if they do, actually, there are some agencies like the SEC will go after the company for even trying to stifle or thwart whistleblowers. What they can do is they can have you sign something that says you won’t profit from this, so you won’t get the award.

0:29:32.7 Audience: They can actually do that?

0:29:35.5 Brian Mahany: Yeah. Some courts have said yes and some courts have said no. All courts say that you can report it. No matter what you sign, you can report a crime. Some courts say that yes, you can contract away your rights to get an award. I’m going to take one more question and I’m going to jump back into this, so I’ll just go over this side of the room.

0:29:52.5 Audience: Is the government exempted from this? In other words, if a government worker sees other government workers misbehaving, are they protected as whistleblowers?

0:30:03.6 Brian Mahany: They’re protected by federal civil service rules. There’s a raging debate right now about… It’s not even a debate. I think the federal government does a horrible job of protecting its own whistleblowers, although those laws are on the books. There is a debate right now as to whether a government employee can get a whistleblower award. The courts have said they can, unless they’re law enforcement, an auditor or a contracting officer in charge of a specific contract. So if your job is to look for fraud, you can’t get an award, that’s your job. If you’re an FBI agent, you can’t get an award, if you’re a nurse at a VA hospital, you can. That’s not your job. Your job is taking care of patients.

0:30:47.8 Audience: But are they protected if they…

0:30:50.3 Brian Mahany: By law they’re protected, although a lot of employment lawyers tell me that it takes years and years and years. The government is one of the worst offenders, so I’ve been told by employment lawyers, when it comes to retaliation. At least in the private sector, companies like Baxter or Bank of America or Wells Fargo, will just put you on a paid administrative leave and keep paying you, and then buy you out. The government does not have a good track record.

So let me go back into this and I want to just… I’m going to have to speed up a little bit. I could talk about this for hours, I have lots and lots of slides. We’re going to get out of healthcare in a second, and just fast-forward.

This is an interesting scheme, this one is in Detroit. Detroit is the number two healthcare fraud capital of the United States, Miami is number one. Detroit is a close second. Although Detroit is trying to get the number one spot, they’re not quite there yet.

This was actually a doctor who was operating this company, and he was a doctor, but all the other doctors he employed, they either were doctors who had lost their licenses, one lost his license for narcotics trafficking, or they weren’t even doctors, they were just physicians assistants, but they were doing these house calls. The patients said, “Hey, you know, a doctor came to my house.” Nah. It wasn’t really a doctor. It was a doctor who lost his license.

The doctor that was running this, he billed 172 house calls when he wasn’t even in the United States. Another doctor, we figured out, billed for over 24 hours in a day, if he was billing for an hour house call, you can’t bill 26 in one calendar day. And he goes to prison.

And these non-doctors are actually writing narcotics prescriptions too. And if you know Detroit, Detroit has a huge opioid problem and allowing non-physicians or allowing a physician that lost his license for narcotics trafficking to write a prescription for narcotics is a scary thing.

There’s just two more I want to do before I jump topics here, and we’ll go to non-healthcare fraud because we’re just running out of time.

This next case was one of the worst I have seen in the United States, and this was a couple of years ago. It’s actually, unfortunately, still dragging on. The Justice Department said that Dr. Fata was the worst fraudster in United States history in terms of human suffering. That’s a big statement to make from the Justice Department because they see a lot of fraud cases.

But what Dr. Fata was doing, he started out as a great oncologist, and he went to school at Sloan Kettering. By all means, he was one of the top oncologists in Detroit. And then one day, I guess greed got to him, he decided that he wanted to buy a castle in Lebanon, and he started prescribing chemotherapy, huge doses of chemotherapy, to people that didn’t have cancer.

I can’t think of what’s worse than walking into a doctor’s office and being told you have cancer when you don’t. The horror of that alone is terrible, but then to get chemo that you don’t even need, one woman lost all of her teeth because the chemo dose was so high. Another one had so many brittle bones that was confined to a wheelchair, never was able to go back to work. One patient died. There was an argument whether they could charge him with a homicide or not. Ultimately, they didn’t charge him with homicide, but he went to prison for 45 years.

Now, with Sarbanes-Oxley and Dodd-Frank, larger businesses now are supposed to have reporting hotlines or business and they’re supposed to be confidential. As was just mentioned by Joe in the audience, a lot of those internal reporting lines are anything but confidential. And unfortunately, the 800 numbers that the government operate, they’re confidential, but they just get tens of thousands of reports.

So Dr. Fata, who is now in prison and who caused harm to so many people, the Justice Department thinks 550 people were given high doses of chemo that didn’t need it. That’s how extensive this was. And some of those people, unfortunately, are no longer with us today.

But there was a woman who went to work for him, she quit the same day she went to work. She went to work in the morning, said, “Oh, my God, I can’t work at this place.” Didn’t come back from lunch and called the state hotline. The state hotline was for all licensed professionals. It wasn’t just for doctors. So you could be reporting a pet groomer on the same hotline that you’re reporting a bad doctor. And her complaint just sat there. I didn’t go anywhere.

Then a second person, a physician, actually filed a complaint under the Federal False Claims Act and went to the FBI, and they were able to shut him down within a week. But that’s why you have to be careful about some of the 800 numbers. You think you’re doing the right thing and it makes you feel better, but it doesn’t always work.

0:36:23.7 Audience: Because the government doesn’t exist all in one building somewhere. And we’re getting to this later, who do you call?

0:36:31.3 Brian Mahany: If it’s fraud against a private company, there’s not a whole heck of a lot you can do. Just realize that if you call the company’s own internal reporting line, it may not be confidential, even though it’s supposed to be. If it’s a fraud against the government, if you file a False Claims Act case… And I’m not saying that because I’m trying to generate business.

Those go to the top of the pile. They have to be investigated. So at least you know that it will get investigated. And often, I see cases as a lawyer that I say, there’s no loss here, but I know enough people in the FDA, for example, or in Health and Human Services, that I have enough friends now that I can call and say, “Hey, this really isn’t a case for us, but you should do something about XYZ company, because they’re doing something terrible.”

Unfortunately, the government will tell you, call 1-800 Medicare. That’s their toll-free number. Really easy to remember. They get tens of thousands of calls a year. I wish I could look you in the eye and say every one of those calls gets investigated immediately. I don’t think they do.

And I think the state ones, it’s hit or miss by the state. Unfortunately, Michigan had one 800 number for all professions. And you have a call taker that is, as I said, doing a pet groomer one minute and then a physician the next. I just don’t think they have the sophistication to say, “This one needs to go to the top of the pile.”

0:37:55.5 Audience: But in general, you’re saying call the regulating agency?

0:38:00.6 Brian Mahany: I would call the regulating agency… If I thought that there was a loss involving the government, I would file a False Claims Act case. I’d find a False Claims Act lawyer to do that, because I know if that’s filed… It doesn’t have to be me, either. If that’s filed, that has to get investigated. I know at least something will happen with it.

0:38:20.7 Audience: Is it typical in cases like this for someone to actually purchase those expensive drugs and commit assault and battery with fraud as your goal? It makes no sense to me that you wouldn’t say, “You have cancer. Well, we have to do chemo,” and hook them up to a D5W drip and leave them there, rather than actually assault them with those drugs.

0:38:44.0 Brian Mahany: I think there are unfortunately people that are so greedy, because he was… I’m sure he was selling the drugs that he was dispensing.

0:38:51.8 Audience: I mean, it’s fraud anyway. Why would you buy the drugs yourself?

0:38:54.7 Another member of audience: Right, just get more.

0:38:57.4 Brian Mahany: Because by selling the drugs you dispense you can make even more money.

0:39:00.2 Audience: Not if you sell them without buying them.

0:39:03.5 Brian Mahany: Well, yeah, I don’t… Fortunately, I’m not a sociopath, so I don’t know how to think like one, although I have to try to think like one often. So, we’re going to share one more sociopath story. I’m just going to bounce ahead and then get out of healthcare. I am sorry that I am jumping ahead.

Sacred Heart Hospital. This is one of my favorite stories because there’s so many story lines that went on at Sacred Heart. It looks like the slide got cut off.

I call this hospital Our Lady of the Bottom Line. It started out as a community hospital, a true community hospital, a true non-profit, and then it was bought in the 1990s by a gentleman by the name of Edward Novak.

Mr. Novak went to prison too, although he is like Dr. Fata, who’s still appealing and now blaming his lawyers and blaming everybody but himself for his problems.

Novak will tell you, “I didn’t do anything wrong. It was the other doctors, it was the patient recruiters. It was everyone’s fault but mine.”

Here you had a hospital that was trying to get as many doctors as they could to perform tracheotomies, because they figured out that they could keep somebody for 27 days on Medicaid for a tracheotomy, so they could make a lot of money. It didn’t matter whether you needed a tracheotomy or not, so we’re running the same patient recruiter scams, we’re running the same schemes where people are going to homeless shelters and going around poor neighborhoods trying to recruit patients.

They were even paying kickbacks to some nursing homes, nursing home administrators, and walking through the nursing homes and saying, “Hey, does Sally have any people that visit her?” “Sally’s all alone, she’s been here for three months. No family.” “Send her in, we’ll give you a kickback.”

0:41:06.9 Audience: Oh, my God.

0:41:08.0 Brian Mahany: And Sally can get a tracheotomy or whatever, whatever their procedure of the day was, because they had all these different doctors. If you were a bad doctor, somehow you gravitated towards Sacred Heart.

0:41:21.6 Audience: Where was this?

0:41:23.8 Brian Mahany: Chicago.

0:41:23.8 Audience: Chicago?

0:41:25.2 Brian Mahany: And that’s… Chicago is Chicago. There is a lot of corruption there. You couldn’t get away with this in a lot of cities, you can in Chicago. So you had the patient recruiters, you had the doctors paying kickbacks, you had nursing home administrators that were receiving kickbacks. But there is more.

One of their other scams was ambulance drivers. If I need an ambulance and I’m at home, I know exactly what hospital I want to go to, I want to go to the hospital where my doctor practices, and as long as I’m conscious, I’ll tell the ambulance driver, “I want to go to Boerne Methodist Hospital.” But they were going… Paying ambulance drivers a couple hundred bucks, apparently. On the poorer side of Chicago, if you had a shooting victim or a person in a poor neighborhood and they were unconscious, you bring them to our hospital, it doesn’t matter that they’re bleeding to death, and there are four hospitals that are closer, you bring them to Sacred Heart and we’ll give you cash, ambulance driver, to bring them here.

And there are some Medicare rules about that, and the state has some rules, so they would say it was a patient request on the form. Patient requested to come here. The people are suffering and they’re going to a horrible hospital. I believe it was US News that called it “one of the filthiest hospitals in America,” they called it “maggot infested.” It was so bad that during the trial, one of the nurses said they were spraying patients on the operating table with OFF! The insect spray to keep flies off the open surgical sites.

0:42:53.8 Audience: Oh, my goodness.

0:42:55.5 Brian Mahany: That’s how bad this hospital was. We need to have some funny story in here, so I’m going to give you a funny story.

One of the doctors, his specialty was doing penile implants, and apparently that’s a cosmetic procedure, insurance doesn’t pay for that, especially Medicare or Medicaid. He figured out a way to make it medically necessary. And during the course of the trial, the Justice Department figured out that there were more medically necessary penile implants on the north side of Chicago then the rest of the United States combined! So you decide, Either there is something really bad water in Chicago, or just maybe it might have been a corrupt doctor.

Ultimately, everybody in the scheme pled guilty. Everybody but a defiant Ed Novak. He continued to say, “It’s bad doctors, patient recruiters, I had no control over this.”

His first defense was, “I’m just running a community hospital, I’m trying to benefit the members of the community.” But there was a recorded conversation. When the employees realized the ship was sinking, his own hospital administrator recorded him. And if you can’t read it, I’ll just read part of it. It says, ” F*** the community. Who gives a shit! You own the place, you do what the F ***( you… You do what you want to do with it. F*** them! What are they going to say about it.” And it goes on and on.

That’s the kind of thing that defense attorneys hate to see during a trial, because your client says, “Hey, I’m doing a good thing for the community,” and then the prosecutor just smiles and plays the tape.

He also blamed all the doctors. That didn’t work either. This was another recorded conversation where Dr. Novak is saying, “Anyway, I’m trying to get some more docs on staff here.” His chief of staff says, “I spoke with Dr. G yesterday, he told me that there is a doctor that he knows. He says you know him also.” Novak says. “Dr. R.” And Novak then says, “He’s about 90 years old, he likes to go out with 16-year-old girls, he’s an f***ing pig, but he knows how to produce patients, he’s a scum bucket, but he’s got patients. So what the hell, you know?”

It didn’t take long for the jury to convict Mr. Novak. He is in jail. So we’re going to fast forward. There’s so many of these schemes. How many people recognize that picture?

0:45:42.1 Audience: Yep.

0:45:42.7 Brian Mahany: I’ll give a gold star to anybody who names that person. It’s David Dao, he was the poor doctor that got dragged off that United Flight. So, what does that have to do with whistleblowing? Nothing directly. There is a backstory that never made the press, the media never picked it up.

How many people know that Huey Lewis song about the news and wanting to see the bodies and whatnot, that’s what the media goes for these days. So, dragging Dr. Dao off that plane, all bloody and banged up, that was newsworthy, but United… What was going on with a whistleblower complaint wasn’t newsworthy.

United has a contract to maintain the C-130 Globemaster military transport aircraft, at least they had it, I don’t know whether today they  do. This was two years ago.

A mechanic stepped forward, a whistleblower, and filed a False Claims Act case, claiming, we’re doing terrible things here (at United). We are supposed to maintain these jet engines for these Globemaster transport planes, and tolerances in engines are… Apparently, jet engines operate at hundreds or thousands of RPMs, the tolerances have to be within a millionth of an inch on some of these engines, or else you get these catastrophic results like that Southwest plane where the engine blew up.

They had staff replacing engine parts and throwing them in the trash, and then a United supervisor was telling the employees, that’s not garbage, that’s gold, having them engage in dumpster diving, taking those parts out of the trash, cleaning them up, putting them back on the plane and billing the United States government, taxpayers, you and I, for a brand new part. And engine parts for military aircraft are not cheap. United got dinged for almost the same thing in 2008 and paid millions of dollars, but again, they didn’t learn.

This next slide tells another tragic story. Second Chance.

I’m a former police officer, so I know about the importance of good body armor, Second Chance was one of the body armor manufacturers, one of the big ones, and beginning in 1998, they realized that their body armor stops working if you’re in high heat or high humidity. If you’ve ever worn body armor, you sweat, because those things aren’t breathable. I don’t care what the climate is, it’s… You’re sweating under those.

Second Chance had to know that their body armor wasn’t any good, it degraded very quickly, but they didn’t tell anybody. They didn’t tell anybody for seven years. A police officer in… I believe he was from Pennsylvania

0:48:40.5 Audience: San Diego.

0:48:41.1 Brian Mahany: Is it San Diego? It may have been two lawsuits. A police officer I know in Pennsylvania died in one, this gentleman died in California when they were shot with a low velocity round that that vest clearly should have stopped and it didn’t.

Ultimately as the story unraveled, Second Chance went out of business. They went after the owner of the company but he didn’t have much money, and they went after the foreign supplier of the fibers. But the problem is that it, once again, it’s where greed cost lives.

They knew in 1998 their vests didn’t work. If they were an honorable company, they would have recalled them all and, yeah, they would have still gone out of business, but we wouldn’t have lost any lives.

Here is another one, Armet Armored Vehicles. They were selling us vehicles for use in Iraq, they’re supposed to have run flat tires, they’re supposed to stop enemy gunfire. The ones that were being tested had run flat tires and would stop bullets and IEDS, but the rest of them they shipped, you could shoot it with a rifle and it would go through the vehicle body like it was butter, apparently.

How many soldiers died? We don’t know. The president of that company was a former Marine, he was the one who blew the whistle. He said, look, I told the owner of the company, you can’t ship vehicles, you have… The vehicle that you’re giving the Army for testing and then you have the vehicle you’re shipping. The owner was prosecuted. He went to jail, he doesn’t take responsibility either.

This is my favorite story. And now I’m running out of time here. I have five minutes. So I’m going to open up to questions. This will be the last story I do, this is an entertaining one.

Hurricane Maria pretty much devastated Puerto Rico, left everybody without power for months and months and months, it left many people homeless. So FEMA said we need 30 million meals, self-heating meals, and they needed them immediately. A woman named Tiffany Brown got the contract. Tiffany was pretty politically connected, perhaps that is how she got the contract. How many employees did Tiffany Brown have?

Audience: Zero?

Brian Mahany: One, herself. She sub-contracted out the work to the local wedding caterer, who apparently came up with some sort of wild rice mushroom dish, which apparently was pretty tasty, but they could only deliver 50,000 meals, not 30 million, Just 50000 out of 3 million and it took them weeks to deliver that and they weren’t self-heating. Meanwhile, all these poor folks in Puerto Rico are starving, they’re homeless, they’re outside, and we can’t even get them meals. This was… Contract was for just hundreds of millions of dollars and we…

0:51:45.1 Audience: Who awarded the contract?

0:51:47.4 Brian Mahany: FEMA.

0:51:48.7 Audience: And somebody in FEMA should have gotten prosecuted.

0:51:52.5 Brian Mahany: Yeah, I don’t know whether anybody in FEMA got prosecuted or not.

I’m going to do one more and then I’m going to stop. Tetra Tech, because we have a gentleman in the front here who worked at a shipyard. This was the Hunters Point Shipyard in San Francisco, it’s now been decommissioned. Hunter’s Point is where they would decommission nuclear vessels, so there was a lot of radioactivity, radioactive contamination.

Tetra Tech got a contract to clean it up, and the Navy was going to give the property to the City of San Francisco so they could build a kids’ playground and subsidized housing. I’m not sure that you should ever do that on a site that’s contaminated with nuclear waste, but that was the plan.

So Tetra Tech got this brilliant idea, we’ll just clean up this little area right here, and then we can keep coming up with samples, and we’ll say we’re cleaning the whole yard, and we’ll just keep taking samples from the one place that we know is clean, and then all the samples will pass. There’ll be no radiation.

Now, there was supposed to be a Navy person that was overseeing this, so they had a sister company hire that Navy person’s mother and put her on the payroll for some huge amount of money so that he would just look the other way.

It was either the mother… Either the mother worked and they hired the son or the son worked and they hired the mother. But one of the things that they were required to do under their contract for radioactive remediation was having a specialist that was experienced in nuclear remediation. The company said, of we know what we’re doing, we have this person, she has nine years of highly technical nuclear decontamination experience.

Her real experience? Prosecutors said her experience consisted of working in a barbecue and sandwich establishment, that’s who we had in charge of the clean-up operations. Unfortunately, I have run out of time.

0:53:45.4  Staff: You have 15 minutes left.

0:53:47.9 Brian Mahany: Let’s use that time for questions.

In summary, most of these cases, with few exceptions, came forward because of whistleblowers. And most of the fraud cases that you see and read about today have come forward because of whistleblowers, even situations like Bernie Madoff. Although nobody listened to Harry Markopolos, the whistleblower in that case.

Whistleblowers are the new American heroes; these are the folks that first alerted the government to the scam or fraud.  It wasn’t government auditors, it wasn’t investigators, although they have a role, it was ordinary citizens, like everyone here in this audience.

Okay, let’s answer your questions.

[This transcript may not be verbatim. A third party service provided the transcription.]

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