OT: Blowing the Whistle, Many Times

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November 18, 2007

 

Blowing the Whistle, Many Times

 

By MARY WILLIAMS WALSH

 

WHEN Cynthia Fitzgerald started out in pharmaceutical sales 20 years

ago, she received ample training on the right and wrong ways to sell

medical products. Right was selling on the merits. Wrong was luring

customers with perks and freebies. It was O.K. to buy doctors lunch or

dinner, for example, but tempting them with lavish gifts was taboo.

 

" There were pretty stringent rules back then, " recalls Ms. Fitzgerald,

now 50 and a grandmother living in Dallas. " It was really clinically

driven. "

 

But she says those early lessons didn't serve her so well when she

went to work on the other side of the table in 1998, in health care

purchasing. Going by the book, and expecting her colleagues and

employer to do the same, cost her a job, most of her friendships and

several years of her life, she says.

 

Eventually, Ms. Fitzgerald decided to file what could become one of

the largest whistle-blower lawsuits on record. And her case, which

names more than a dozen companies as defendants — some with well-known

names like Johnson & Johnson, Becton Dickinson and Merck — offers a

window onto a little-known world, where billions of dollars' worth of

medical products are sold each year to institutional buyers like

hospitals.

 

The suit, filed in 2003 in federal court in Dallas, and unsealed this

year, argues that improper sales practices, together with erroneous

accounting, are invisibly draining millions of dollars out of vital

public programs like Medicare through overcharges or unauthorized

uses. While whistle-blower cases typically involve, at most, a handful

of companies, Ms. Fitzgerald's alleges systemic fraud across a whole

network of companies and more than 7,000 health care institutions.

 

Her contentions are set against a complex backdrop: spiraling health

care costs and debates about Medicare. State and federal authorities

in Texas are investigating Ms. Fitzgerald's allegations, and any

decision by them to join her case may give the suit momentum in the

courts. But her corporate adversaries dispute her accusations.

 

" Cynthia Fitzgerald is rehashing old rumors and suspicions, " said Jody

Hatcher, senior vice president of Novation, the company in Irving,

Tex., at the heart of her lawsuit. " These allegations have been

examined in depth by a variety of different authorities, and no one

has proven any of them to be true. The simple fact is that Ms.

Fitzgerald's allegations are false. "

 

For her part, Ms. Fitzgerald bristles at the idea that her lawsuit is

without merit or, in response to common critiques of whistle-blower

cases, about easy money. " I thought they were really nice people, " she

says. " I was so grateful and thankful to have a steady income again. I

wouldn't have rocked the boat for any small thing to save my life. "

 

So why did she rock the boat?

 

" It was wrong, " she says of the behavior she asserts she has

witnessed. " And I knew it was wrong. "

 

NINE years ago, while still recovering from a financially ruinous

divorce, Ms. Fitzgerald decided to move to Dallas from her native

Omaha. She knew almost no one in her new city. She graduated from the

University of Nebraska 13 years earlier with a communications degree,

then worked in sales and marketing in the food, pharmaceutical and

insurance industries.

 

When she moved to Texas, she says, " It was pretty bleak. " She adds, " I

went from having Thanksgiving dinners in a house with my family to

living in an apartment that was so small that every time I turned

around I ran into myself. "

 

More than anything, she said, she wanted stability — a steady job at a

company where she could climb the ladder and work until she retired.

After months of looking, she joined Novation. The company helped

thousands of hospitals, rehabilitation centers, home health agencies

and doctors' offices nationwide negotiate prices for medical supplies

— a wide range of items as diverse as saline solution and huge imaging

machines.

 

Novation assigned her a portfolio of medical and surgical products for

which its member hospitals were spending an estimated $240 million a

year: rubber gloves, surgical tools and so forth. The company sent her

to a training class where, among other things, she says she learned

once again about ethical purchasing procedures.

 

" I cannot overemphasize in the beginning how excited I was and really

feeling blessed, " she says. " I felt like I got a second chance. Even

though it was on the other side of sales, it was still sales. "

 

But as she settled in, she says, not everything in her new workplace

squared with what she had been told in training, a situation that came

to a head one day in 1998, when she was still just a few months into

the job. According to her complaint, she and her boss met with a

Johnson & Johnson sales team that was vying for an exclusive,

three-year contract to sell $130 million worth of IV equipment to

Novation's clients. It was a valuable contract, and Ms. Fitzgerald had

the power to decide who would get it.

 

The bids were already in. Ms. Fitzgerald understood this to be a

mandatory " silent period, " when she was not supposed to meet privately

with any of the bidding companies. All communications with vendors

were supposed to be in writing, and if Ms. Fitzgerald disclosed any

information to any bidder, she was required to tell them all.

 

In a deposition in a separate lawsuit filed against Novation by a

medical supplier, a former Novation executive, John M. Burks, did not

dispute that the Johnson & Johnson meeting took place. But he said

that Ms. Fitzgerald misunderstood the rules, and that Novation

permitted such meetings at that point. (When reached for comment, Mr.

Burks said his views haven't changed since his deposition.)

 

Ms. Fitzgerald says she had a very different understanding of the

meeting. Discussions behind closed doors, tipping off a company on how

to structure a winning bid, naming her price — this could be a felony,

she recalls thinking :bid-rigging.

 

" How much will it take to get the contract? " she says one of the

salesmen asked her, according to her complaint. " Others before you

have done it. "

 

She says she chose not to do so. " Oh, no! " she recalls blurting out,

bringing the meeting to a halt. " This is illegal, and I don't look

good in orange. "

 

A spokesman for Johnson & Johnson, Marc Monseau, said, " We vigorously

deny the allegations and will defend ourselves against them in court. "

 

Ms. Fitzgerald did not stop there. After the salesmen left, she says,

she confronted her boss in the women's room. Shouldn't they report the

incident to the legal department? Hadn't they just been told that

someone at Novation had taken a bribe?

 

Her boss offered no satisfaction, Ms. Fitzgerald says in her

complaint. Concerned about the integrity of a bidding process she was

responsible for, she began pursuing the matter herself.

 

OVER the following weeks, she says, she scoured her portfolio for

contracting anomalies. She told colleagues about what had happened;

some confided that similar things had happened to them. Others left

anonymous notes on her desk. She began to think that Johnson & Johnson

should be excluded from the bidding as a penalty for what she

considered a serious ethical breach.

 

She says she took her concerns to Novation's legal department, human

resources and even the company's president. In his deposition, Mr.

Burks confirmed her activities, but called her " an employee who

doesn't simply understand that when a supplier asks an inappropriate

question, you simply say no and move on. "

 

Ms. Fitzgerald says she passed over Johnson & Johnson for the IV

contract, awarding it instead to Becton Dickinson. She said Becton had

a superior bid, which provided a number of opportunities for Novation

and member hospitals to be rewarded with rebates and other payments.

 

Becton said it believes that Ms. Fitzgerald's accusations of

improprieties in how contracts were awarded are baseless and that her

complaint is " without merit. "

 

She turned to the next contract, for trash bags — and the same thing

started to happen, according to her complaint. When Ms. Fitzgerald

told representatives of one vendor, Heritage Bag, that she was

planning to put that contract up for bid, she says, one representative

told her at dinner with several people that he would " take care of "

her. Heritage Bag did not respond to repeated requests for an

interview.

 

Ms. Fitzgerald asked her supervisor if she could be taken off the

trash-bag contract. Her supervisor agreed, but then gave her a

negative performance review. It said that among other things, she was

rude, unable to meet deadlines and kept trying to " overhaul " parts of

Novation that were outside her job description, according to a copy of

the review. Ms. Fitzgerald refused to sign it. Relations deteriorated,

and 15 days later, she was fired for " nonperformance of duties that

were clearly identified as part of her job description, " according to

Mr. Burks's deposition.

 

Ms. Fitzgerald says she believes she was shown the door because she

had stumbled onto illegal behavior involving hundreds of millions of

dollars and had refused to look the other way.

 

" It's hilarious how stupid I was, " she says. " I knew that it was

wrong, but I thought that if I just went to the right people, they

would correct it. I was very naïve. I didn't realize that it was

systemic. "

 

The False Claims Act is a federal law that allows private individuals

to sue on behalf of the United States if they believe that they have

inside knowledge of a fraud. Their lawsuits stay under court seal at

first, to give federal and state investigators time to look into the

accusations quietly and to decide whether to join the case. If the

government recovers money, the whistle-blower gets 15 to 30 percent of

the amount.

 

Though enacted to fight war profiteering, the False Claims Act has

become a potent weapon in the battle against escalating health care

costs. Of the 20 largest False Claims Act recoveries listed on the Web

site of Taxpayers Against Fraud, a group that supports whistle-blowers

and their lawyers, 19 involved health care companies. (The other

involved municipal bonds.)

 

The size of recoveries has soared in recent years. All told, the

government has recovered more than $20 billion since 1986, when the

False Claims Act was last amended, with $5 billion of it in the last

two years.

 

The biggest single whistle-blower settlement to date was the $900

million that Tenet Healthcare, a hospital company, paid last year to

settle accusations of overbilling the Medicare program. That

settlement is dwarfed by the $1.7 billion that HCA, another big

hospital chain, paid between 2000 and 2003 to settle a number of fraud

suits.

 

Companies and their lawyers say the growing caseload is a sign that

the False Claims Act, with its promise of a payout for

whistle-blowers, is motivating disgruntled employees to file nuisance

suits that can tie up law-abiding companies for years.

 

Proponents of the law say that $20 billion of recoveries is proof that

contracting fraud is real, and that offering whistle-blowers a

percentage is a good way to compensate them for the near-certainty

that they will be fired.

 

" Protection for people who are willing to risk their lives and

livelihoods, their careers and reputations, is critical, " said Richard

Blumenthal, the attorney general of Connecticut, in Senate hearings

last year.

 

As Ms. Fitzgerald sees it, Medicare's losses grow out of the way that

Novation and the vendor companies negotiate contracts.

 

When companies submitted bids to Novation, she recalled, they did not

typically quote a simple price. Rather, they proposed package deals

with opportunities for rebates, frequent-buyer discounts, " loyalty "

rewards and baskets of products tied together. They might throw in

free training for hospital staff, chances to participate in clinical

trials, shares of stock, project sponsorships, sometimes even cash.

The vendors also paid Novation for administering their contracts and

for other services.

 

Ms. Fitzgerald says her compensation rewarded her for closing deals

that maximized these payments — not for simply finding the lowest bid.

Vendors preferred to combine higher upfront prices with rebates or

other cash-back rewards, she says, because that obscured the net unit

price of their products, making it harder for hospitals to

comparison-shop.

 

But this also allowed millions of dollars to become " lost " in the

system, she says. Novation passed on many of the payments to

hospitals, she says, but not in a way that hospitals could accurately

report them to the government. Thus they ended up overstating their

supply costs, she says, and getting larger Medicare reimbursements

than they were entitled to. The lawsuit does not contend that the

hospitals did this deliberately, but that Novation knew it was

happening.

 

A 2005 audit by Daniel R. Levinson, the inspector general of the

federal Department of Health and Human Services, appears to bear her

out. After studying the finances of three unnamed purchasing

consortiums in response to repeated questions from Congress, federal

agencies and the news media about their business practices, Mr.

Levinson reported that their member hospitals " did not fully account "

for such flows of money. In just five years, the discrepancies ran

into the hundreds of millions of dollars.

 

Novation said that there was no evidence that any underreporting was

intentional. It cited the complexity of how hospitals are required to

report costs and said it believed that hospitals met all legal

requirements in how they reported Novation's distributions to them.

 

In the past, a prosecutor's decision whether or not to join a

whistle-blower lawsuit could be a make-or-break moment. If the

government became involved, defendants often settled right away. The

announcement usually coincided with the unsealing of the

whistle-blower's complaint.

 

But now that the lawsuits have become so complex, and investigations

so slow, judges have become impatient with sealed lawsuits moldering

in their courts. Some are ordering the complaints unsealed before

investigators finish examining the claims.

 

That is what happened in Ms. Fitzgerald's case. Last May, a federal

judge in Dallas unsealed her suit, which had languished for four

years. The assistant United States attorney for the Northern District

of Texas , Sean R. McKenna, and the Texas attorney general, Greg

Abbott, notified the court that they were still investigating and

would decide later whether to join the case.

 

THAT leaves Ms. Fitzgerald on her own for now. After Novation fired

her, she was contractually forbidden from disclosing information about

the company or filing lawsuits against it for three years, she says.

Once that period lapsed, she gradually became aware she was eligible

to file a suit under the False Claims Act. That led her to Phillips &

Cohen, a law firm involved in whistle-blower cases.

 

Her firing, meanwhile, left her unable to get another job in her

field; word of her demise at Novation seemed to precede her wherever

she went. Former colleagues stopped speaking to her. " I was probably

at one of the lowest points in my life, " she says.

 

She eventually founded her own business, Dimension Medical Supply. But

she regrets the contentious departure from Novation, a company that

made her feel as if she " was coming home " when it hired her. Deciding

to speak out about the company's dealings was difficult, she says.

 

" I warred with myself, " she says. " There weren't any blacks in upper

management. I knew that there were opportunities there, and I could

rise to those opportunities. "

 

She was tempted, she says, to follow the status quo at Novation. And a

little voice in her head kept saying, " Why can't you just take the

money and run? Buck up, girl, this is the system. You can take it and

go places. "

 

In the end, the place she decided to go was court.

 

Copyright 2007 The New York Times Company