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Why Fighting Government Contract Fraud Makes a Difference

As the fate of a government shutdown last week was teetering over budget cuts of between $20-$40 billion, I could not help remind myself that only last year the Deputy Attorney General of the United States estimated that Medicare-Medicaid fraud alone costs the government up to $60 billion.

Of course, this figure does not even account for precious healthcare dollars spent to treat injuries caused by misbranded drugs and defective medical devices. Taking into account over-billing by defense contractors in Iraq and Afghanistan, the for profit colleges whose degrees are not worth the tuition financed with government grants, the construction contracts designed to create good paying jobs but whose workers are not being paid prevailing wages, or the large scale procurements made under the Buy American Act where the goods are actually manufactured abroad, and the government has either wasted a massive amount of money or the money has been spent in ways that will not bring anticipated returns. Worse yet, as in the case of misbranded drugs, taxpayers may also face physical injury or illness.

Unfortunately, instead of jail time or debarment, fraudsters are often rewarded with more government business. Even when they pay fines, the fines are so disproportionally small that they amount to a fee for the license to break the law. Consider the government’s $2.3 billion dollar settlement with Pfizer in 2009, which encompassed a pattern of alleged wrongdoing including misbranding of a drug for pediatric use. The combined civil and criminal penalty seemed large but actually paled in comparison to the $171 billion that the drug giant pulled in from sales of the pharmaceuticals encompassed by the complaint during the damage period.

Now it seems that a business model bent on paying a small fee for the right to break the law is not enough for big corporations. Recently, the Supreme Court heard oral arguments in a case known as Schindler Elevator where the Court is being asked to opine on whether a False Claims Act (FCA) lawsuit can in part be based on information secured from a Freedom of Information Act (FOIA) request. The FCA expands upon the compliance enforcement abilities of the government by allowing private citizens who have independent knowledge of government contract fraud to bring suit, on behalf of the government, to recover damages. In the Schindler case, a Vietnam veteran, who alleged that his employer was not according proper affirmative action consideration to veterans, used information from such a FOIA request to confirm what he believed were violations of government contract requirements.

Concerned about the potential for expanded compliance enforcement, the Chamber of Commerce, the American Hospital Association and the American Pharmaceutical Association have argued that suits predicated on information secured through FOIA requests should be barred. By their lights, it makes no difference that the whistleblower knew enough to ask for the information in the first place.

Though not technically an issue before the Court, the Chamber and its allies argue that providing a remedy for a contractor that fails to comply with “legal technicalities” like the Buy American Act, veterans preferences, affirmative action requirements or environmental regulations, is a bit much. They question the audacity of a law – the False Claims Act – which would actually allow taxpayers to penalize contractors that dishonor their commitments.

Perhaps the next time lawmakers work through the weekend searching for change under sofa cushions in hopes of balancing the budget, they should read the Chamber’s brief in Schindler and remind themselves where at least some of the money went.

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