Even MedTech Whistleblowers Get Taxed by Uncle SamEven MedTech Whistleblowers Get Taxed by Uncle Sam

They may have saved the U.S. government tens of millions of dollars. But medical device company whistleblowers still have to treat the rewards they receive from the government as ordinary income that is taxable, a U.S. Tax Court judge ruled this week.Judge Diane Kroupa ruled Monday that former Kyphon Inc. reimbursement manager Craig Patrick needs to pay the federal government an extra $811,597 in income taxes for 2008 and 2009 because he should have treated his $6.8 million "qui tam" reward from the government as regular income, versus capital gains.In 2008 and 2009, the capital gains tax rate was 15%, while the top income tax bracket was 35%. It is worth noting, though, that Kyphon settled with the government for $75 million after Patrick and another Kyphon employee, Charles Bates, alerted the government to the spinal device maker's potentially fraudulent marketing practices. (Kyphon was in the midst of being acquired by Medtronic during the whistleblower suit.)Patrick and Bates claimed that Kyphon had its sales reps market procedures using equipment as inpatient so that health provider could charge Medicare and other payers more money, even though the minimally invasive equipment could be used on an outpatient basis.Kroupa in her ruling said Patrick's efforts "helped bring to light systematic fraud, causing the recovery of tens of millions of dollars.""Those efforts are to be applauded and were rewarded. Rewards, however, are treated as ordinary income, and the qui tam reward is subject to tax as such," Kroupa said.

Chris Newmarker is senior editor of MPMN and Qmed. Follow him on Twitter at @newmarker.