Blowing the Whistle on Jackpot Justice

Article excerpt

Byline: Stephen Moore and Phil Kerpen, SPECIAL TO THE WASHINGTON TIMES

It is urgent we fight financial mismanagement and fraud throughout federal agencies if we ever hope to rebalance the budget.

The Office of Management and Budget recently found Medicare made $21.7 billion in improper payments to doctors, hospitals and insurers in 2004. Medicaid, with its overlapping state and federal roles, also has rampant fraudulent claims. Unfortunately, government efforts at combating erroneous payments are pitifully ineffective, thus encouraging more fraud, fueling medical inflation, and ripping off tens of billions of dollars from taxpayers.

The primary vehicle for attacking fraud in government contracting is the False Claims Act, dating back to the Civil War when it prevented defense contractors from selling the government bad gunpowder. Substantially beefed up in 1986, the law authorizes workers ("whistle-blowers") to sue their employers on the government's behalf. The Justice Department may join in the lawsuit and initiate a fraud investigation.

This is all well and good except that the 1986 law allows whistle-blowers to reap windfall rewards of 15 percent to 30 percent of the eventual financial penalty or settlement.

This allows whistle-blowers to enrich themselves with tens of millions of reward money. Two of the most famous jackpot award winners in recent years were David Franklin, paid $24.6 million for blowing the whistle on Pfizer, and Doug Durand, recently profiled in Forbes, who got a whopping $173 million for whistle-blowing against two different medical companies.

In this compulsive get-rich-quick society, whistle-blowing has become a rapid-growth industry, with employees enticed by the quick route to fabulous wealth becoming parasitic on-site snoopers against their employers.

The theory behind rewards to whistle-blowers makes sense: Without the conscientious employee exposing wrongdoing, taxpayers may never have recovered a dime of the fraudulent payments in these cases. But these super-jackpot rewards dangling in front of employees in many cases have exactly opposite the hoped for effect. They prevent companies' early detection and correction of erroneous billing practices.

Here's why: There's a powerful incentive for an employee who uncovers improprieties, which may be inadvertent or unknown to upper management, to secretly collect evidence and go to a lawyer, rather than stopping the fraud early and inside the company. Whistle-blowers often quietly collect evidence for months while fraud continues. …