State Law Whistleblower Laws Analogous to the False Claims Act – Mechanisms and Rewards
Federal False Claims Act and its Rewards System
The Federal False Claims Act is one of the most successful statutes in the last decade or so and a few states have caught on and tried to enact statutes that mirror components of it to fight insurance and tax fraud, recover monies and incentivize whistleblowers along the way. The model False Claims Act (“FCA”) statute enables insiders from companies who have knowledge of systemic fraud against the government to report it in the correct manner and in turn potentially receive a False Claims Act whistleblower award up to 30% of what the government recovers. The FCA has recovered billions upon billions and individuals have received False Claims Act whistleblower rewards in aggregate in the hundreds of millions, if not billions.
The Need for State Whistleblower Laws to Combat Private Insurance Fraud
What many people find surprising is that despite their being a federal statute to combat systemic Medicare Fraud, Medicaid Fraud and the like, there is no federal whistleblower statute to combat systemic insurance fraud. So, for argument’s sake, if someone is aware of a health care facility upcoding $10 million to Medicare, it may result in a $30 million dollar False Claims Act settlement (treble damages) and up to a $9 million dollar whistleblower reward (30%), however, if someone is aware of a $100 million dollar private insurance scheme, there’s no whistleblower award to report it under the federal system. Illinois and California, however, have state whistleblower laws that enable the reporting of private insurance fraud, and similar to the False Claims Act whistleblower program, incentivize whistleblowers.
The Illinois Private Insurance Whistleblower Statute
The Illinois Private Insurance Whistleblower Statute, also known as the Insurance Claims Fraud Prevention Act (“ICFPA”), aims to prevent insurance fraud in the State of Illinois. Insurance fraud whistleblowers who report systemic fraudulent activities that result in a successful prosecution are entitled to up to 30% if the state intervenes and 40% if it does not, plus attorneys fees and costs and strident protections against retaliation.
Under this law, any person who provides information regarding a fraudulent insurance claim to the insurance company or to the Illinois Department of Insurance can file a qui tam lawsuit. Qui tam refers to a provision in the law that allows individuals to sue on behalf of the government (as well as oneself).
The California Private Insurance Whistleblower Statute
Similarly, the California Whistleblower Statute for private insurance, also known as the Insurance Frauds Prevention Act, provides protection for whistleblowers who report fraudulent activities in the private insurance industry. The law allows for whistleblowers to receive a percentage of any funds recovered as a result of their information.
The California Insurance Frauds Prevention Act (CIFPA) is a law that aims to prevent insurance fraud by providing legal protections and financial incentives for insurance fraud whistleblowers who report fraudulent activities related to insurance claims. Under the CIFPA, whistleblowers, also known as relators, who bring successful qui tam lawsuits can receive a percentage of the damages awarded to the state as a reward.
The exact percentage of the reward is either agreed upon with the government or determined by the court based on factors such as the significance of the information provided by the whistleblower, the level of the whistleblower’s involvement in the fraudulent activity, and the extent of the damages recovered by the state. Under the CIFPA, the insurance fraud whistleblower can receive between 15% and 50% of the damages awarded to the state.
Examples of Successful Prosecution Under State Whistleblower Laws
One successful prosecution under the CIFPA was the case of Blue Cross of California (Anthem Blue Cross) and WellPoint Health Networks Inc. In 2011, Anthem Blue Cross and WellPoint agreed to pay $13.375 million to settle allegations that they violated California’s Insurance Frauds Prevention Act by denying or delaying payment of valid insurance claims.
The settlement resulted from a whistleblower lawsuit brought under the CIFPA by a former employee of WellPoint who alleged that the company had engaged in fraudulent billing practices. The whistleblower provided information to the government regarding the denial or delay of payment of valid insurance claims, which resulted in the underpayment or nonpayment of claims by the company.
The lawsuit alleged that WellPoint and Anthem Blue Cross had violated CIFPA by failing to pay valid insurance claims, by making misrepresentations to policyholders and medical providers, and by engaging in unfair business practices. The settlement included $2.6 million to be paid to the relator as a whistleblower reward for bringing the lawsuit under the CIFPA.
Other Federal Whistleblower Statutes
There’s many other federal whistleblower statutes that differ from the FCA, such as the SEC Whistleblower Statute, CFTC Whistleblower Statute, AML Whistleblower Statute, NHTSA Whistleblower Statute and the IRS Whistleblower Statute.
The IRS Whistleblower Program
The IRS Whistleblower Program is a law that encourages individuals to report information regarding tax fraud and underpayment of taxes to the Internal Revenue Service (IRS). Under the program, whistleblowers may be eligible for a monetary reward if their information leads to the collection of taxes, penalties, and interest, however, the case must be presented in a very surgical fashion showing deep insight into the tax cheat in order to succeed.
The whistleblower reward for a successful tip can range from 15% to 30% of the collected proceeds, with the exact amount of the reward determined by the IRS based on the significance of the information provided by the whistleblower, the extent of the whistleblower’s assistance in the case, and the amount of money collected by the IRS as a result of the whistleblower’s tip.
Example of Successful Prosecution Under the IRS Whistleblower Program
One very successful example under the IRS whistleblower program is the case of a former banker at UBS who provided information to the IRS about UBS’s illegal offshore banking practices. The information led to the collection of $780 million in back taxes, fines, and penalties from UBS, making it the largest tax evasion whistleblower settlement in U.S. history at the time.
A whistleblower reward of $104 million was given to the insider along with an additional $5 million settlement from UBS for his role in exposing the bank’s illegal activities. This was one of the largest whistleblower awards of the time, and shows how insiders with information about extensive expensive schemes can potentially profit handsomely from doing the right thing.
The New York Tax Whistleblower Statute
Echoing the success of the IRS whistleblower statute, The NY State Whistleblower law encourages whistleblowers to report tax fraud in the state of New York. The law provides financial incentives and legal protections for individuals who provide credible information regarding tax fraud or underpayment of taxes to the New York State Department of Taxation and Finance.
Under the NY State Whistleblower law, whistleblowers may receive a reward of up to 30% of the total amount of taxes, penalties, and interest collected as a result of the information they provided. The amount of the reward is determined by the Commissioner of Taxation and Finance and depends on various factors, such as the quality and usefulness of the information provided by the whistleblower.
Example of Successful Prosecution Under the New York Tax Whistleblower Statute
One example of a large settlement under the NY State Whistleblower law involved the case of Sprint Nextel Corp. In 2019, Sprint Nextel agreed to pay $330 million to settle allegations that it failed to collect and remit sales taxes owed to the state of New York.
The settlement resulted from a whistleblower lawsuit brought under the New York Tax Whistleblower Statute by a former Sprint employee who alleged that the company had intentionally underpaid state and local sales taxes. The whistleblower provided information to the government regarding the company’s failure to collect and remit sales taxes owed to the state, which resulted in the underpayment of taxes by the company. The settlement included a reward of $62.7 million whistleblower award.
Once can see, where there’s a scam, there’s an antidote, and that antidote is often incentivizing insiders to come forward and blow the whistle the right way. With billions of dollars in whistleblower settlements under the federal statutes it was inevitable that certain states would adopt components under their state whistleblower statutes which help fight fraud, recover money for the taxpayers and reward those who do the right thing.