Remarks by Ambassador Phillips at Sixth Salone della Giustizia

Panel on Public Health – Resources, Defensive Medicine, and Corruption
Rome, April 19, 2016


Remarks by Ambassador Phillips at Sixth Salone della Giustizia
Remarks by Ambassador Phillips at Sixth Salone della Giustizia

Good afternoon and thank you very much for the opportunity to be part of the sixth “Salone della Giustizia.”

Last year, I had the privilege to speak at the Salone della Giustizia and talk about the intersection of law and business.  Part of that speech focused on civil justice reform.  Just this week, I had dinner with lawyers and judges to discuss the progress Italy has made, and is continuing to make, in this area.  On Thursday, I will speak with students at Bocconi University in Milan about the link between civil justice reform and Italy’s ability to continue to attract foreign direct investment.

Today, I want to talk about another subject near and dear to my heart:  the tools the U.S. has used to fight corruption in public sector health care.  I’d like to share my personal experiences and the impact they have had.   Maybe there will be some ideas or lessons learned that might be useful in Italy’s ongoing efforts to combat corruption in this area.


While our systems of delivering health care in the United States and Italy are quite different, like Italy, the United States has a very large public health care system.  We care for our military veterans, and our retirees, and our poorest citizens through public health care spending.  How big is this system?  Big.  In 2014, the United States spent about $600 billion on Medicare, the system that provides medical benefits to our retirees, approximately $300 billion on Medicaid, the system that provides medical benefits to people with limited resources, and another $60 billion on health care through the U.S. Department of Veteran’s Affairs.

In the United States, these public health programs account for just over 5 percent of GDP, with total public and private health care spending accounting for 18 percent of GDP.  In Italy, I understand, it is a bit over 9 percent.  So despite the challenges, one could argue that Italy is achieving better health care results than in America, spending less money. America needs to do better, and Italy could be doing even better, too.  As all of you know, Transparency International Italy reported two weeks ago that corruption in Italy’s health care sector takes away six billion euros a year from patient care.

Tools to Fight Corruption

In addition to various investigative agencies of the United States Government, including the U.S. Department of Justice, Congress in 1986 passed a unique law that has now become United States primary tool to fight fraud against the U.S. Government.  The law empowers any person who has knowledge of fraud against the government to initiate a law suit in federal court on behalf of the government.  The law provides for three times the actual damages suffered by the government and allows the person initiating the case to keep on average 17% of the total recovery to the U.S. Treasury.

I know a lot about this law because I provided a draft to the United States Congress which ultimately became a law when President Ronald Reagan signed it into law in October 1986.

Following the laws adoption, I left my public interest law firm to form a private firm bringing exclusively these law suits on behalf of the United States Government.  As of last year, my law firm returned $12 billion to the U.S. Treasury.  The U.S. Government has recorded approximately $70 billion in total since the law was enacted.

85 percent of all the money the U.S. Treasury has recovered from government contracting fraud, much of it in the health care sector, came from giving ordinary citizens the means – and the protection–to bring civil cases against the companies defrauding the U.S. government.  The government just doesn’t have the resources to fight this kind of corruption on its own.  The overall savings, however, are far greater than the $70 billion I mentioned previously.  By making fraud and corruption unbearably expensive for companies, we believe more than half a trillion dollars of fraud has been avoided – half a trillion dollars.  Before the False Claims Act – the U.S. “whistleblower” law — the cost of corruption for companies was simply too low.  Large companies had nothing to lose by defrauding the U.S. government.  And whistleblowers had too much to lose by doing the right thing and calling attention to the corruption they witnessed.


Let me provide some examples of successful cases brought under this law in the health care area.

HCA was a very large, for-profit hospital chain headquartered in Nashville, Tennessee.  In the 1970s and 1980s, this chain owned or managed over 400 hospitals across the country.

HCA’s fraud originated in the 1980s at the hospitals.  They kept what were essentially a secret set of books that detailed reimbursement claims made on cost reports that the companies knew were improper but still filed with Medicare, according to the whistleblowers’ lawsuits.   The secret books often were stamped, “confidential.” Employees were instructed not to disclose their existence to Medicare auditors.

As it turned out, HCA was also engaged in systematic and serious fraud against the federal government.  They sent fraudulent bills to Medicare and other health programs by inflating the seriousness of diagnoses.  They also gave doctors partnerships in company hospitals as a kickback, a reward if you will, for the doctors referring patients to the company’s hospitals. But that wasn’t all.  They also filed false cost reports, fraudulently billed Medicare for home health care workers, and paid kickbacks in the sale of home health agencies, and to doctors to refer patients.  There’s more: They also gave doctors “loans” they never intended the doctors to repay, free rent, free office furniture, and free drugs from hospital pharmacies, all for referring patients to their hospitals.

More than 70 private attorneys from my firm and others put in over 75,000 hours and spent close to $30 million in legal and accounting resources to bring the case to a successful end on behalf of the government.

What was HCA’s strategy?  They spent hundreds of millions of dollars and had an army of lawyers working against us.  They tried to outspend us, but I wasn’t going to let that happen.

In the end, the hospitals settled for almost $2 billion with the government, making it at the time the biggest fraud settlement in the history of the United States.  Our client was a certified public accountant for one of HCA’s hospitals.

Here are some examples of Whistleblowers exposed the following using the False Claims Act which not only defrauded the government, but actually endangered patients lives.

1. A Detroit cancer doctor, Dr. Farid Fata, gave chemotherapy and other painful cancer treatments to more than 500 patients who didn’t need treatment or didn’t even have any cancer. He billed Medicare $34 million for the unnecessary treatment. The whistleblower was the office business manager. Dr. Fata was sentenced to 45 years in prison.

2. A California neurosurgeon allegedly performed unnecessary spinal surgeries to implant devices produced by a company that he partially owned, which boosted his profits. At least one person who didn’t need the surgery died on the operating table. The doctor surrendered his medical license, but the qui tam lawsuit continues.

3. A pharma company, Cephalon, was pushing doctors to prescribe a dangerous and addictive opioid (brand name Actiq) for all patients who were dealing with manageable pain rather than just cancer patients suffering from extreme pain. A Cephalon salesperson blew the whistle. Cephalon paid $425 million in civil and criminal penalties and pleaded guilty to a criminal charge.

4. Dialysis patients were put at risk by faulty diagnostic test kits used to determine whether certain treatment was needed. Because the tests gave the wrong results, some dialysis patients underwent unnecessary surgery and were administered unnecessary treatment that can cause a painful, deadly disease. A businessman blew the whistle on the faulty test kits, which were manufactured and distributed by a subsidiary of Quest Diagnostics. Production of the test kits was halted, and Quest paid $302 million in civil and criminal fines and its subsidiary pleaded guilty to a felony charge.

5. Two Doctors in a for profit hospital chain routinely did unnecessary open heart surgeries on patients who did not need it to be done based upon their medical condition. They did it for the money they made in performing the surgery. The hospital chain paid 250 million dollars to settle the government’s claim


Another company knowingly sold defective devices that monitored patient’s health to the government and failed to investigate or correct the problems once they were reported to them.  The settlement was nowhere near as big as the one with the hospital company or the dialysis test kits, but was just as important.

The case came to light when an engineer and production manager complained to his bosses at the company that the equipment wasn’t doing what it was supposed to.  When his superiors and the company did not take action, he reported the defects to the Food and Drug Administration, which regulates the devices for the federal government.  The company then harassed him, shunted him aside in the workplace, and eventually fired him.  The whistleblower suit and eventual settlement followed.

Italy’s Whistleblowing Bill

I am pleased to see that Italy has taken some steps towards adopting whistleblowing laws like the bill approved in January in the Chamber of Deputies.

This bill, co-sponsored by the Five-Star Movement and the PD, is not a qui tam law, like the False Claims Act I worked with, but has some useful elements, including extending modest whistleblower protections to private employees (which do not exist in Italy today).  However, the bill that was passed removed monetary incentives for whistleblowers, which were a part of an earlier version and a critical part of the Claims Act.

It’s a positive sign that the bill protects public and private employees who report corruption on public administration to Mr. Cantone’s agency, the National Anti-Corruption Authority (ANAC), by preventing the employee from being punished, dismissed, or subjected to discrimination measures at work, and allows ANAC to fine the employer up to €30,000 for discrimination against the whistleblower.

This bill is a positive first step. The Five-Star Movement and the PD stuck together in supporting the law – surely a good sign for future whistleblower reforms.  And, the law takes the important step to establish the concept of the private sector whistleblower and the principle of private sector whistleblower protections,

But, the bill does little to provide incentives to report corruption.  This law, like many in Italy and in the United States, represents political compromise.  It is a start but I encourage Italy to continue its work on anti-corruption legislation.

U.S.-Italian Cooperation to Fight Corruption – Example

I’d also like to take the opportunity to highlight an excellent example of how the United States and Italy have cooperated to fight health care corruption in Italy.  In February of this year, U.S. Marshals in Miami arrested an Italian citizen, Stefano Lorusso. Back here in Italy, the Italian authorities charged him with laundering the illicit bribery proceeds of a vast public corruption scheme involving the Health Commission of the Region of Lombardy.  He allegedly laundered bribery payments from an entrepreneur who had been awarded over €50 million in dentistry contracts, to the head of the Commission, and a high-ranking official, in the Lega Nord.  Prosecutors said he did this by issuing false invoices from his Miami company to the entrepreneur, who then transferred payments to the head of the commission, Rizzi.  This scheme, similar to the ones I have seen in my private career, deprived the Italian government of the use of taxpayer money, your money, to provide services to Italian citizens.  About six weeks ago, Lorusso told the court that he would not fight being brought back to Italy and waived extradition from the Southern District of Florida to Italy.  I’ll be watching for more news as his case moves forward.

It’s been a great pleasure to share my experience with you, and to talk about tools we have in the United States to fight corruption in health care.  Thank you very much for having me here today.  Again, I wish you all the best for a great conference.