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Kapiolani Case Raises Interest In Whistleblower Aid


HONOLULU – The settlement of insurance fraud allegations involving Kapiolani Health has some local officials and attorneys urging the state to adopt broader whistleblowing statutes.

It was whistleblower – an employee of Kapiolani Health – who initiated a lawsuit of behalf of the U.S. government against her employer alleging two Kapiolani subsidiaries filed fraudulent claims with the government’s Medicare and Medicaid health-care programs.

Both programs, in spite of heaving regulations and stiff penalties concerning fraud and abuse, continue to experience huge related losses. Medicare, which serves almost 40 million Americans at a yearly cost of over $180 billion, is defrauded by almost $27 million annually, according to Justice Department statistics.

The department estimates that as much as $100 billion – or 10 percent of the country’s health-care costs, now close to $1 trillion – may be lost annually due to fraud and abuse in the health-care industry.

Recent fraud settlements, such as the Kapiolani Health case, which involved allegations that two of the organization’s subsidiaries filed false Medicare and Medicaid claims worth millions of dollars, resulted in large payouts by providers to settle claims. A percentage of the settlement – some $630,000 – was also awarded to the whistleblower as compensation for filing the original complaint. The whistleblower, a former employee, has asked to remain anonymous.

Dewey Kim, supervising attorney general for the Medicaid Investigations Division, who was actively involved in the Kapiolani case, which was settled last month, says the number of people now willing to report and pursue cases of possible fraud and abuse is rising.

“In terms of ongoing cases, there’s a good number, ” he confirms.

Kim said his office has also received an increase in phone calls about potential fraud and abuse since the highly publicized Kapiolani settlement.

Under federal law, citizens can initiate a fraud action on behalf of the United States against government supplier of contractors. But, in Hawaii, the law does not provide for residents to file an action on behalf of the state. That limits the kinds of cases that can be successfully pursued by private individuals.

Currently, Hawaii’s whistleblower law does not include the so-called “qui tam” statute, which would allow citizens to file suits on behalf of the state. It allows compensation only in cases of employer retaliation, according to Tom Grande, the attorney who represented the whistleblower in the Kapiolani cases.

That investigation was a joint effort by state and federal officials because both federal and state funds were involved. The original complaint had to be filed in federal court and compensation was awarded by the federal government.

According to Grande, until the Kapiolani case, many in Hawaii didn’t realize it was possible for a private citizen to initiate a fraud suit on behalf of the federal government – much less be compensated for their efforts.

Those who do step forward generally do so out of a sense of outrage, he says. But there can be unintended consequences for the whistleblower.

“The process can take a long time. In the Kapiolani case it took two years to complete.

there is also the possibility or retribution on the job if the whistleblower remains employed with the same company.

“It’s a real possibility you may be targeted,” confirms Grande. “Some people get fired,” he says.

Grande said he admires those who come forward. “It’s not easy – that’s one of the reasons I referred to her [the whistleblower] as a hero. These cases are not something to be lightly filed or pursued,” says Grande.

But if the qui tam statute were added to Hawaii law, more private citizens might be encouraged to pursue a fraud action on behalf of the state government, say both Kim and Grande. The addition of the statue would likely open the door to uncovering not only more cases of fraud and abuse, but also new types of cases that involve only state funds, according to Grande.

“Adding a qui tam statue would encourage people to pursue those cases,” he says. “Right now, there’s no inducement for people to come forward – and [a state statute] would provide another tool by which fraud could be eliminated.”

According to Kim the possibility is already being considered by his department.

“We’ve been thinking about introducing a qui tam companion at the Legislature next year,” he said.

Escalating health-care costs are part of the reason government programs such as Medicare and Medicaid have become so vulnerable to fraud and abuse, both men say.

“In 1985, federal dollars began shifting from defense contracts to medical services. Health care is now where the money is,” observes Grande.

In 1986, increasing congressional concern over cases of rampant fraud that plagued the defense industry spurred an amendment to the False Claims Act. Even though the law had been on the books since the Civil War, the 1986 amendment gave private citizens the tools to pursue cases of fraud and abuse even if the government declined to intervene in a case.

The act also guaranteed the so-called “relator,” or person who reported the abuse, a share of the proceeds of the action. It also increased the civil penalties for violation and clarified the issue of intent to defraud.

Prior to 1986, it had to be proven that there was specific intent to defraud the government. Under the amendment, the standard was reduced to allow recovery where the organization or entity defrauding the government acted in deliberate ignorance of the truth or acted in reckless disregard of the truth.

Today, if the federal government intervenes and takes over a case and it is successfully brought to judgment or settlement, the whistleblower is entitled to receive 15 percent to 25 percent of the settlement or judgment. Penalties for fraud and abuse include treble damages plus civil penalties or $5,000 to $10,000 for each false claim.

If the government declines to intervene in a case, the whistleblower may continue on their own, although the government retains the right to intervene at a later stage in the case. Where the government doesn’t intervene, the whistleblower may receive 25 percent to 30 percent of the settlement.

this change in the federal law and greater public willingness to report an instance of fraud and abuse had led to an increasing number of investigations, judgments and settlements. That’s a trend both Grande and Kim hope will continue in Hawaii.

“With this statute, one person can make a dramatic difference,” says Grande. “There are not many opportunities in life to do that.”