Introduction

Whistleblowing is a major issue in the pharmaceutical and healthcare industries. A whistleblower is an individual who goes to an organization (usually, the DOJ or another government body) and tells them: “I think there’s a law being broken and that you should investigate it further.”

In the healthcare field, the primary law that gets used is the False Claims Act, which says that anyone who knowingly presents a false or fraudulent claim to the government for payment or approval, or knowingly makes or uses a false record or statement material to a false or fraudulent claim, is civilly liable to the federal government.

Background

On June 30, 2016, the DOJ increased the minimum amount of penalties for False Claims Act violations from $5,500 to $10,781; and the maximum amount from $11,000 to $21,563. It’s important to keep in mind that pharmaceutical penalties are often multi-billion dollar fines. Eight of the top ten fines paid in the False Claims Act area were pharma fines, which totaled anywhere from $1 billion to $3 billion.

But Why Whistleblow?

Under the False Claims Act, whistleblowers can receive 15-20% of the total amount recovered in action if the government chooses to intervene; or 25-30% of the proceeds if the government does not intervene.

If you own a pharmacy, whistleblowers are a major concern. What are your options for dealing with whistleblowers? (1) You could fire the employee because they are going to whistleblow; or (2) let the employee go and pay him not to tell; but those options are often inadvisable.

Inadvisable Actions

Rule 21F” stipulates that no person may take any action to impede an individual from communicating directly with the SEC about a possible securities law violation, including enforcing or threatening to enforce a confidentiality agreement. If an employment agreement includes a component that basically says, “I’m not going to tell the government about the bad, bad things you do,” that may be problematic.

Some companies have opted to use severance agreements to combat whistleblowing, which is highlighted in an SEC settlement reached on August 10, 2016.

Blue Linx

For example, here was a cease and desist order against Blue Linx, a company that used severance agreements that required outgoing employees to waive their rights to monetary rewards; which essentially means that as an employee, you can talk to whoever you want, but you can’t get those 25% penalties that you otherwise could have received.

The agreements also stipulated that the employee agrees not to disclose confidential information. If the employee had a question regarding which information would be considered confidential, he would be obligated to contact the Blue Linx legal department. In doing so, if an employee was going to whistleblow, he would essentially be giving Blue Links a heads up. The SEC decided that this was not okay and the parties settled in August 2016.

Health Net, Inc.

Another settlement was reached with health insurance provider Health Net, Inc., which used severance agreements expressly requiring employees to waive their ability to obtain SEC whistleblower rewards. Both companies agreed that their waiver and release claims would be changed and updated.

Impact

So how should whistleblowing be handled? Having an open-door policy is essential – but the question is: what happens afterwards? How many employees want to come and tell you that you’re violating the law if they know either that you’re going to ignore it, or even worse, take it out on them? It’s very common to “shoot the messenger” in such instances.

In the healthcare industry, whistleblowing is a massive issue that companies need to consider and actively take steps to manage such repercussions.