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Protecting Whistleblowers: The New York City False Claims Act

Bracha Graber, a social worker in the city for almost three decades, say she was appalled by the way the city's child welfare agency was falsifying records for foster care services, recording visits to children that never occurred in order to bilk the federal government out of millions of dollars. She sent an anonymous letter to the Commissioner of the Human Resources Administration - anonymous, because she feared that otherwise she might lose her job. Then, she met with officials from the office of both the state and the city comptroller. But her allegations, she says, were ignored. And so she sued, under a law called the Federal False Claims Act.

When the city and state settled the case in 1998, she received $4.9 million of the $49 million (the rest went to the federal government.) "The amount was important to the lawyers," she says. "I never did it for the money."

Now some city officials want to see the city enact a local version of the same law that enabled Graber to come forward. The New York City False Claims Act, passed by the City Council but so far neither vetoed nor signed by Mayor Michael Bloomberg, would allow whistleblowers who report fraud to file a civil suit on behalf of the government, earning up to 30 percent of any settlement. The law would focus on fraud among contractors working for the city.

The bill's proponents predict an influx of cash to city coffers. It could also mean more scrutiny of the city's vast network of human services contractors, where fraud can not only lead to cost overruns, but inadequate care for those who need it most. The bill's critics say that the cash incentive could lead to nuisance suits that are indistinguishable from extortion. Graber says that the best thing the law would do would be to protect whistleblowers from getting fired.

Widespread Fraud

Though Graber's lawsuit helped to correct the deficiencies of the city's system of foster care, two recent investigations make it clear that this kind of troubling fraud persists.

In January, the Department of Investigation announced the results of its investigation into foster care provider St. Christopher's Inc., a non-profit based in Dobbs Ferry, which resulted in the cancellation of a three-year, $86 million contract(In PDF Format).

The investigation began when whistleblowers tipped off the department that the child care agency was falsifying child records to fare better at an annual audit done by the city. Now, another foster care agency is reportedlyunder investigation for a similar falsification of records.

The New York Timesrecently ran a lengthy, three-part series scrutinizing Prison Health Services, a private health care agency with a three-year, $300 million contract from the city to care for inmates at city jails. The agency comes under fire from ex-employees and state investigators for poor quality of care, including understaffing practices such as having doctors sign in at certain jails to meet staffing quotas, but work at another jail, or having administrators sign in as doctors without seeing any patients. "The practice is clearly fraudulent," one anonymous ex-employee told the paper, and The New York Times reported whistleblower lawsuits against Prison Health Services elsewhere.

It is in just such cases that the Federal False Claims Act has come in handy. In 2003, a federal official speaking about nursing home regulation testified before Congress(In PDF Format) that, "If resident care is so poor that it effectively represents a failure to provide care, the Federal False Claims Act can be invoked," citing 20 settlements in nursing home cases since 1996, one of which involved criminal charges related to falsifying records in an attempt by a nurse to cover up wrongdoing.

Protecting Whistleblowers

The city already has city employee whistleblower law, but some say it does not go far enough When Graber asked a colleague to contact the Department of Investigation to ask about whether her name would leak out if she came forward, she was told 'Honestly, we'll try to keep it in confidence, but it will probably come out.' City law today requires the Department of Investigation to make "reasonable efforts" to keep city employee whistleblowers' names confidential if they request anonymity.

But for Graber, the lawsuit under the Federal False Claims Act seemed to be the best alternative because "the important thing about that law is it protects you from losing your job."

The current city employee whistleblower law today makes retaliatory action illegal, but some say it does not provide enough protection to prevent an employee from being fired.

A New York False Claims Act, say its supporters, would make it easy for the whistleblower to sue and collect damages, the threat of which keeps most employers from firing whistleblowers. "We have to make sure that their bravery doesn't end up with them losing their livelihood or being subject to some mistreatment," said Evan Thies, communications director for the author of the New York City False Claims Act, Councilmember David Yassky.

Pros And Cons Of The NY False Claims Act

Proponents of the bill cite the city's massive contracts budget(In PDF Format) and predict that the city would gain more than $30 million every year, as more whistleblowers come forward to report false claims.

But the bill, and the federal law on which it is modeled, make some critics cringe. Greed can easily overwhelm any sense of justice, critics argue. A Forbes magazine cover storyin its March 14th issue criticized whistleblowers who spend their time documenting fraud rather than trying to stop it.

The dollars involved are astronomical at the federal level, with the federal government recovering over $12 billion in civil fraud cases since the legislation was passed in 1986. Medicare and Medicaid fraud make up the majority of winning and settled cases filed under the Federal False Claims Act. In 2003, $1.7 out of $2.1 billion recovered was related to health care fraud.

More than half of all cases involving a whistleblower also involve alleged fraud against the Department of Health and Human Services, according to the non-profit group Taxpayers Against Fraud.

In New York, Thies said that the law recognizes the difficulty the Department of Investigation has in investigating every lead on a false claim. In a 2002 report, "The DOI Must Do More To Protect Whistleblowers and City Employees" (in pdf format) an official from the Department of Investigation testified that the agency received an average of 8,500 complaints a year, many from whistleblowers. "It's just that they don't have the staff, or the time," said Thies. The new law would not overburden city lawyers, either, Thies said. While would-be whistleblowers must report their complaint to the city, "the idea here is that the city and taxpayers reap the benefits, but an independent party does all the work."

However, the bill includes language requiring the city to "diligently investigate" all complaints, and then allows city officials to decide case by case how many resources to devote. If the city decides to let outside parties do the investigative work, the success of a case might depend on the industriousness of the whistleblower and the willingness of the whistleblower's lawyer to devote resources to the case.

D.C. lawyer John Boese, a critic of the bill whose client roster includes construction agencies, universities and other government contractors who have been sued under the federal version of the law, spoke before the City Council last year, warning that the law will wind up costing the city, thanks to the cost of investigating claims. Boese also warned that the law, with stiff penalties for contractors, could lead to enough lawsuits to make honest contractors leery of doing business with the city. "To a whistleblower, it's a lot like a lottery ticket," Boese said, "whether you have a good case or a bad case."

Several states have enacted their own statutes. New York State Attorney General Elliott Spitzer has called for a state law.

If the New York City version is signed into law, the city would join Chicago as the only other city giving whistleblowers a chance to sue. 

























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