Workers who blew the whistle on their employers split millions
It all started with an honest citizen finding out about a scam and making a phone call.
When Craig Patrick raised questions about some of the sales practices at Kyphon Inc., the medical device company where he worked, some of his co-workers called him a complainer and a squealer.
Patrick is now a multimillionaire, and the insults don’t bother him so much anymore.
His concerns about the company led to a “whistle-blower” lawsuit in Buffalo’s federal court. The suit, which accused Kyphon of inflating the cost of spinal procedures in Buffalo and throughout the nation, was recently settled when the corporate successor to Kyphon agreed to pay $75 million.
As part of that settlement, Patrick and Chuck Bates, another former Kyphon executive, are splitting more than $15 million that was awarded to them in the case.
The whistle-blower lawsuit is a little-publicized, little-understood procedure that allows citizens to sue businesses that cheat the federal government. In recent years, companies have paid billions of dollars to settle such lawsuits, and many whistle-blowers have received millions.
In another Buffalo whistle-blower case, National Air Cargo of Orchard Park paid $28 million to settle allegations that it overcharged the U. S. military for air deliveries. In that case, a former NAC employee, Mark Oehm of Cheektowaga, received $3.3 million for alerting the feds.
Oehm was guided through the complicated lawsuit process by two Buffalo attorneys, Daniel C. Oliverio, a former federal prosecutor, and Joseph V. Sedita.
“It’s a win-win situation when one of these cases is successful,” said U. S. Attorney Terrance P. Flynn. “The whistle-blower receives some money, the taxpayer benefits because the company reimburses the government for millions of dollars, and we are able to bring an end to a pattern of fraud.”
According to Mary Louise Cohen, a Washington, D. C., attorney who represented Patrick in his case, federal prosecutors in Buffalo have built up a national reputation for their willingness to pursue such cases. While Patrick and Bates work in California, the company does business in Buffalo.
But Cohen warns that anyone who expects to make easy money by filing a whistle-blower case should think again. Only about 25 percent of cases filed wind up being successful.
“If you’re going to file a case, steel yourself for a three-or four-year ride that can be very uncomfortable at times,” Cohen said. “After they file a complaint, some people get fired. I’ve had clients who had to go onto food stamps while their case was working its way through the system.”
Patrick said that his experience wasn’t easy, either.
“It’s a very stressful process, from beginning to end,” said the 43-year-old, now living in Hudson, Wis. “While the lawsuit is pending, you’re not supposed to tell anyone about it. You’re wondering if your work friends will ever speak to you again, and some won’t.”
Patrick said he brought his suspicions to his bosses before he ever considered filing a lawsuit.
“Over a period of months, I reported that fraudulent things were going on,” Patrick said. “I was told by [a company official], ‘It’s not your job to police the sales staff.’ ”
In Patrick’s case, he and federal prosecutors from Buffalo accused Kyphon executives of vastly inflating the profits for selling medical equipment for a spinal procedure called kyphoplasty.
Cohen said the procedure can be done in about an hour on an outpatient basis, but Kyphon officials persuaded doctors and hospitals — in Buffalo and other cities — to keep patients overnight. That allowed medical providers to charge the Medicare system up to $10,000 per procedure.
In May, officials of the corporate successor to Kyphon — Medtronic Spine LLC of Fridley, Minn. — agreed to pay the federal government $75 million to settle the case. But Medtronic officials did not admit to defrauding the government.
“I think the admission is inherent in the fact that they’re paying,” Patrick said.
Flynn said he believes the lawsuit put a stop to fraudulent activity and will save taxpayers millions of dollars annually.
