WASHINGTON, DC — A U.S. district judge in Florida has awarded a whistleblower, represented by Phillips & Cohen, 24 percent of an $85.7 million Medicare fraud settlement, noting that “only his dogged resolution, eventually supported by competent professionals and an occasionally reluctant government,” achieved the settlement.

U.S. District Judge Steven D. Merryday issued his landmark ruling late Tuesday in favor of James Alderson, whose “qui tam” (whistleblower) lawsuit brought under the False Claims Act resulted in Quorum Health Group Inc. agreeing last October to pay $85.7 million to the federal government to settle allegations of filing fraudulent Medicare “cost reports.”

Alderson spent more than 10 years on the case, which he began to put together after he was fired in 1990 from his job as chief financial officer at a Quorum-managed hospital in Whitefish, Montana. He lost his job after refusing to go along with the cost report scheme. Alderson over the years assembled a team of experts and lawyers, who spent substantial sums of money and many thousands of hours of legal work on the case.

Merryday described the work by the Justice Department and Alderson’s team as a “collaboration of a group of impressive professionals acting skillfully in concert.”

“The judge recognized that this is how Congress intended the False Claims Act to work: whistleblowers and their attorneys and experts working closely with the Justice Department to ferret out fraud and recover taxpayers’ money,” said Peter W. Chatfield, a Washington, D.C., attorney with Phillips & Cohen LLP, which represented Alderson. “That partnership is key to the law’s success.”

Merryday made his ruling on Alderson’s share after thoroughly evaluating the contributions made to the case by Alderson, his attorneys at Phillips & Cohen LLP, government attorneys and others. Under both the False Claims Act and Justice Department guidelines, the effort and resources that whistleblowers and their attorneys contribute to a case are key factors in determining the reward a whistleblower should receive.

Whistleblowers who file “qui tam” lawsuits against companies defrauding the government are entitled to 15 percent to 25 percent of whatever funds the government recovers in cases where the government joins the lawsuit. However, in larger cases, the whistleblower awards tend to be close to the minimum. Alderson’s 24 percent is the largest share of a settlement that a court has awarded to a whistleblower in a False Claims Act case the government has joined.

In the Quorum case, the judge said, “The record establishes that Alderson’s counsel contributed significantly (in both quality and quantity) and at certain moments crucially to this case. That contribution deserves manifest and telling weight in determining the proper relator’s award.”

The judge said that at two different junctures the Justice Department was about to decline to intervene in Alderson’s lawsuit, thinking it was a weak case that wasn’t worth pursuing. In each instance, he said, Phillips & Cohen persuaded the government to continue. “Notably, the case settled for over eight times the $10 million estimate assigned to the case by the United States in late 1995,” he said.

Quorum was once the nation’s largest hospital management company. It was acquired by Triad Hospitals Inc. last year.

The court opinion recounts in detail Alderson’s story: After being fired from his job, he filed a qui tam lawsuit on his own in 1993 to stop the fraud and recover the government’s money. When it looked like the Justice Department was going to decline to pursue his lawsuit, he hired Phillips & Cohen because of the law firm’s expertise in qui tam cases. He devoted years of his life to the case.

Alderson’s work on the case included analyzing 11,000 documents from 197 hospitals at the Justice Department’s request and preparing a spread sheet summarizing the relevant information. He did this while working a full-time job during the day, devoting his nights and weekends to the task.

Merryday observed that “although often acting nearly in isolation and wrestling both lingering doubt and a hesitant but demanding governmental ally, Alderson simply refused to relent.”

Merryday called the Justice Department’s “adversarial position” toward relators when determining their awards “somewhat troubling.” Some see whistleblowers’ awards in cases where there are big settlements as excessive, he said. However, he said, “Congress has chosen a mechanism calculated to encourage potential relators to undertake the risk and enervating hardship often attendant to FCA litigation.”

“Under the circumstances,” Merryday concluded, “a relator’s share of twenty-four percent is equitable, just, and consistent with both the letter and the spirit of the governing statute.”

Alderson is extremely happy about the judge’s decision, said attorney Chatfield.

“Relators and their counsel make the decision to accept the risks inherent in ‘doing the right thing’ long before there is certainty of any award at all,” Chatfield said. “It’s heartening for whistleblowers and their counsel that a court agrees awards should be commensurate with the effort put into a case.”

Meanwhile, Alderson’s qui tam case against HCA – the Healthcare Corp., which once owned Quorum, continues. The government also has joined that lawsuit, which alleges the same type of Medicare fraud as in Quorum’s case.

“Alderson’s extraordinary commitment described by the court extends to his work on his larger case against HCA,” said Stephen L. Meagher, a San Francisco attorney with Phillips & Cohen. In that case, HCA is accused of defrauding the government of nearly 10 times the amount at issue in the Quorum case.

Because the False Claims Act provides treble damages, HCA’s liability may exceed $1 billion, Meagher said.

Cases referred to above are:

  • U.S. ex rel. James F. Alderson v. Quorum Health Group Inc. et al. 8:99-cv-413-T-23TGW.
  • U.S. ex rel. James F. Alderson v. Columbia/HCA, case no. 99-3290 (RCL), part of 01-MS-50 (RCL) (District of Columbia).

Cite opinion as U.S. ex rel Alderson v. Quorum Health Group, 171 F. Supp. 2d
1323 (M.D. Fla. 2001).

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