by Gordon Schnell and Max Voldman
As the saying goes, Mountaineers are always free in West Virginia. Unfortunately, the cost of fraud is not. And as evidenced by the eye-popping $50 million fraud settlement the federal government just secured from Wheeling Hospital, there is a lot of fraud going around these days. The problem for the Mountain State is it does not have the proper tools to deal with it. Luckily for Charleston, there is an easy legislative fix. Simply enact a state false claims act.
That is what more than 30 states have done in one form or another. They are all modeled after the federal False Claims Act, which deputizes individuals to act as private attorneys general and sue companies defrauding the government, rewarding whistleblower(s) with up to 30% of any recovery. Much like West Virginia, the law was born out of the Civil War. It was in response to profiteers trying to dupe the Union Army with lame mules and faulty munitions.
This kind of whistleblower rewards law is not new to West Virginia. The state previously considered false claims act legislation in 2014. The bill made it out of committee but the House ultimately rejected it in a 55-42 vote, driven largely by concerns it would be bad for business. What that vote ignored, and the Legislature still ignores, is the proven track record of whistleblowers stepping up to root out fraud that otherwise goes undeterred and undetected.
Look no further than the federal experience — especially since 1986, when the False Claims Act was amended to increase the protections and financial incentives for whistleblowers bringing suit. The federal government has recovered more than $62 billion, with roughly three-quarters of that (or $45 billion) coming from cases filed by whistleblowers.
The SEC has seen similar results since it implemented its whistleblower rewards program in 2012 under Dodd-Frank. The program has spawned thousands of whistleblower tips a year. The SEC recently passed the half-billion dollar mark in rewards to whistleblowers for exposing what has amounted to several billion dollars in securities fraud in the past few years alone.
What has happened in West Virginia is a very different story. There is the freshly-inked Wheeling Hospital settlement, but a whistleblower originated that action under the federal False Claims Act, and the state will share none of the recovery. There was also a $17 million settlement last year against Acadia Healthcare, again under the federal statute, with the state receiving only a small portion of the recovery. Other than that, there have been no major fraud cases of any real consequence brought in West Virginia.
This is a far cry from the billions in federal recoveries and the tens of millions in recoveries in states with active False Claims Act regimes. New York, for example, has recovered more than $800 million since it passed its False Claims Act 15 years ago, virtually all of it from actions originated by whistleblowers.
All of which brings us back to what is really behind West Virginia’s resistance to including whistleblowers in its fraud enforcement regime. Some have pointed to a supposed risk of baseless suits, a burden on the government to wade through them and the small percentage of whistleblower actions that result in any recovery for the government. All arguments commonly raised against encouraging and rewarding whistleblowers.
None of them hold up. We know that from the success of the federal whistleblower program and from the dozens of states that have followed suit. Whistleblower programs work. They lead to stronger fraud enforcement, more fraud recoveries and a government better able to safeguard the health and safety of those within its charge.
Whatever is holding West Virginia back, lawmakers should see through it and recognize what a False Claims Act could do for the state and its people. With a pandemic still on the prowl, West Virginia — like most states these days — could use all the help it can get.
Gordon Schnell and Max Voldman are attorneys with the law firm Constantine Cannon, specializing in the representation of whistleblowers.