What is the False Claims Act?
The Federal False Claims Act (“FCA”) is the primary weapon in combating fraud against the United States federal government. The FCA covers fraudulent claims made against any federal agency, program, contract, or grant. Many states have similar laws to protect themselves against the fraud. Under the False Claims Act, whistleblowers are permitted to bring a case on behalf of the federal government to recover damages on its behalf.
- Qui Tam Provision of the False Claims Act
- False Claims Act Penalties
- When Was the False Claims Act Enacted?
- What the False Claims Act Does Not Do
- Why is a Qui Tam Lawyer Important in Federal False Claims Act Lawsuits?
Qui Tam Provision of the False Claims Act
The False Claims Act includes within it a “qui tam” provision, allowing those people not affiliated with the government to file lawsuits on the government’s behalf. The FCA’s success is due, in large part, to lawsuits that were brought by private citizens, known as “whistleblowers” or “relators.” Recognizing they lacked the ability and resources to uncover every instance of fraud, the federal government enacted the qui tam provisions, allowing a private citizen to sue an individual or company who knowingly submits false claims to the federal government.
The basis of every False Claims Act case is that the federal government was defrauded in one form or another. This fraud, or “false claim,” can come in many forms. A few examples of false claims are:
- Inflating the price or overcharging for a product;
- Underpaying money owed to the federal government;
- Failing to provide or perform a service;
- Producing or delivering less than the agreed upon number/amount of goods and services;
- Charging for one product and delivering another; and
- Obtaining federal funds to which one may not be entitled, then using false statements or documentation to retain the money.
Elements of a Whistleblower Claim
Potential whistleblowers must generally be aware of the following information before coming forward:
- Whistleblowers should have knowledge of the fraud, not just suspicion.
- Evidence of fraud cannot come from public sources. Examples of public sources include newspapers, TV, magazines, radio, court records, etc.
- Federal money must be involved or, for those states with a False Claims Act, state money.
- The person/people/company that submitted fraudulent claims to the federal government must have done so knowingly and willingly.
- Each case generally must be filed within six years of the violation.
False Claims Act Retaliation
The FCA also includes a provision to protect whistleblowers from workplace retaliation. Known as the Anti-Retaliation Provision, it prohibits an employer from retaliating against an employee “because of lawful acts done by the employee…in furtherance of an action.”
For example, if you file a qui tam lawsuit against your current employer, the provision protects you against forms of retaliation including termination, suspension, demotion, harassment, or any other type of discrimination in the terms and conditions of employment.
False Claims Act Whistleblower Awards
The Federal False Claims Act incentivizes whistleblowers to report fraud by offering a percentage of any reward recovered from an ensuing lawsuit, generally in the range of 15-25%. In every qui tam action, the government has the option to either step in and litigate, or decline the case. If the government declines to proceed, the relator may continue on behalf of the government. If the relator succeeds, they are entitled to a larger percentage of the recovery (25-30%).
False Claims Act Penalties
If someone violates the False Claims Act, the repercussions are extensive and severe. They include civil monetary penalties, damages, expenses, permanent exclusion from the Medicare and Medicaid programs, and, under the Anti-Kickback Statute, criminal penalties.
False Claims Act Civil Monetary Penalties
With civil monetary penalties, the government assesses a penalty on a per-claim basis. This means that each individual false claim carries its own penalty. Thus, for a court to impose a civil penalty, it must first determine how many distinct violations occurred.
For example, a single Medicare reimbursement form (CMS Form 1500) may include several distinct claims for payment. Even though each individual claim on the form may be a false claim (i.e., that service was never performed), most courts consider the entire form submitted to the government to be a single false claim. The current minimum penalty per claim is $10,957, and the current maximum penalty per claim is $21,916.
These per claim amounts are adjusted annually by comparing the cost of living adjustment for each of the two preceding Octobers, rounded to the nearest dollar. The Supreme Court has held that a district court has discretion in determining the amount awarded as civil penalties.
False Claims Act Damages
Damages are calculated by taking the amount of money the False Claims Act violator received from the federal government and multiplying that amount by three. This is referred to as “treble damages.”
The violator is also liable for the costs to the federal government for bringing the civil action.
In addition, a successful relator is entitled to the reimbursement of attorneys’ fees, costs, and expenses, whether the government intervenes in the case or declines and the relator litigated the matter to a successful conclusion herself.
Permanent Exclusion From the Medicare and Medicaid Programs
A violator may be permanently excluded from the Medicare and Medicaid programs. This means that the provider who violated the FCA could not treat the more than 55 million Medicare and Medicaid beneficiaries. The Office of Inspector General (“OIG”) publishes the names of excluded individuals on its website.
Rather than being excluded from Medicare and Medicaid, the violator can be forced to sign a Corporate Integrity Agreement (“CIA”) with the government. CIAs have many common elements, but each one addresses the specific facts at issue and often attempts to accommodate and recognize many of the elements of preexisting voluntary compliance programs. A comprehensive CIA typically lasts five years and includes requirements to:
- Hire a compliance officer/appoint a compliance committee;
- Develop written standards and policies;
- Implement a comprehensive employee training program;
- Retain an independent review organization to conduct annual reviews;
- Establish a confidential disclosure program;
- Restrict employment of ineligible persons;
- Report overpayments, reportable events, and ongoing investigations/legal proceedings; and
- Provide an implementation report and annual reports to OIG on the status of the entity’s compliance activities.
The Anti-Kickback Statute and Criminal Penalties
The federal Anti-Kickback Statute (“AKS”) is a criminal statute that prohibits the exchange (or offer to exchange), of anything of value in an effort to induce (or reward) the referral of federal healthcare program business.
The AKS is broadly drafted and establishes penalties for individuals and entities on both sides of the prohibited transaction. Conviction for a single violation under the Anti-Kickback Statute may result in a fine of up to $25,000 and imprisonment for up to five years. Individuals who violate the AKS, such as the CEO, CFO, or Medical Director of a healthcare entity, may be subject to these criminal penalties.
When Was the False Claims Act Enacted?
Congress enacted the False Claims Act in 1863 during President Abraham Lincoln’s administration to combat fraud against the government by empowering private citizens to assist in this fight. The FCA has often been referred to as the “Lincoln Law.”
In the FCA’s early years, during the Civil War, fraudulent practices exposed under the law included companies selling rancid food, ailing mules, and defective weapons to the Union Army. However, the False Claims Act was never limited to the military sphere, but rather was intended as a broad and flexible tool for eradicating fraud throughout all aspects of government.
In more recent times, the FCA has been used to root out fraud involving a great variety of government agencies including the Department of Education, the Food and Drug Administration, and the Centers for Medicare and Medicaid Services. In particular, the False Claims Act has been instrumental in addressing healthcare fraud, which is responsible for many billions of dollars in federal spending annually.
The FCA’s history reveals two longstanding aims: strongly encouraging private parties (relators) to play a significant role in fraud enforcement as a necessary supplement to the government’s finite resources, and widely reaching all types of fraud that cause financial loss to the government.
1943 Amendments to the False Claims Act
In 1943, amid criticism that qui tam actions were providing recoveries to undeserving relators and impeding federal law enforcement, Congress amended the FCA to effectively curtail the ability of relators to prosecute claims and reduce a relator’s share in the event of a successful suit. While the 1943 amendments may have been intended to reform the FCA, they did not have the desired effect.
From 1943 until 1986, the False Claims Act contained an insurmountable jurisdictional bar, which effectively foreclosed fraud detection and enforcement under the act. During this time, the FCA barred jurisdiction over any claim “whenever it shall be made to appear that such suit was based upon evidence or information in the possession of the United States, or any agency, officer, or employee thereof, at the time such suit was brought.” 31 U.S.C. § 232(C) (1976).
Courts broadly construed this language as categorically prohibiting any qui tam relator from bringing a case in which the government was already aware of the allegations of fraud. Courts enforced this absolute bar even when it was the relator himself who first reported the fraud to the government, as relators were legally required to do under the False Claims Act. Because of this perverse catch-22 for potential relators, during this time, fraud against the government went largely unidentified and unprosecuted. Predictably, government fraud skyrocketed.
1986 Amendments to the False Claims Act
In 1986, recognizing that the FCA was “in desperate need of reform” and that “the Government need[ed] help and, in fact, need[ed] lots of help to adequately protect the Treasury against growing and increasingly sophisticated fraud[,]” Senator Charles “Chuck” Grassley (R-IA) spearheaded “much needed amendments to the False Claims Act.”
Among other things, the 1986 amendments:
- Created an explicit cause of action for reverse false claims (i.e., false statements made to reduce an obligation to pay the United States);
- Created an explicit cause of action for retaliation against whistleblowers;
- Increased sanctions from a penalty of not more than $2,000 and double damages to a penalty of not less than $5,000 nor more than $10,000 and treble damages;
- Increased the maximum award available to qui tam relators from 25% to 30%;
- Added an express definition of the knowledge required for a violation, declaring that a specific intent was unnecessary;
- Provided a specific preponderance-of-the-evidence burden of proof standard;
- Added a declaration that states may act as qui tam relators;
- Added a revised jurisdictional bar for qui tam suits based on matters of public knowledge;
- Expanded the applicable statute of limitations; and
- Created an authorization for government use of civil investigative demands.
The 1986 amendments have clearly succeeded in many respects. While FCA claims reportedly recovered about $40 million a year prior to 1986, the government has since recovered more than $44 billion in False Claims Act settlements and judgments. Moreover, whistleblowers have initiated 80% of these cases.
What the False Claims Act Does Not Do
Although the FCA is an extremely powerful tool for combating fraud, it is also a tool that is sharply constrained by both the law and economics of litigation.
Understanding what the False Claims Act cannot do is vital when considering a qui tam lawsuit. The FCA does not:
Cover Tax Fraud
The False Claims Act specifically exempts tax fraud from the types of fraud that it seeks to address. The IRS has its own whistleblower program, so long as the tax fraud exceeds $2 million.
Guarantee the Government Will Intervene
A qui tam complaint must be filed under seal, and copies of the complaint are only provided to the Department of Justice (“DOJ”) and the court. While under seal, the DOJ may investigate the claim. After the investigation, the government will notify the court that it is either intervening in the case or declining to act. If the government declines, the whistleblower can choose to proceed with the claim on his or her own.
Guarantee the Whistleblower a Reward
To receive the monetary incentives provided under the False Claims Act, a whistleblower must be successful in proving his or her qui tam lawsuit in court. Only the whistleblower who initiates a successful qui tam lawsuit will be eligible to receive a percentage of the penalties and damages recovered.
Allow a Second Qui Tam Suit to be Filed in Relation to the Same Instance of Fraud
The False Claims Act provides whistleblowers with an incentive to file a case quickly. The first whistleblower to file a qui tam lawsuit is generally the only plaintiff allowed to pursue a monetary recovery in relation to that specific fraudulent scheme. This is known as the “first-to-file” rule.
Allow a Qui Tam Action to be Filed if it is Based on Publicly Disclosed Information
Whistleblowers must have firsthand knowledge of government fraud in order to file a False Claims Act suit. Claims cannot be filed based solely on information gathered from: criminal, civil, or administrative hearings in which the government is a party; public government hearings, reports, and investigations; or through information provided by the news media. This is known as the “public disclosure bar.”
Why is a Qui Tam Lawyer Important in Federal False Claims Act Lawsuits?
The FCA is a very complex area of the law with several unique provisions that an inexperienced attorney may overlook or misinterpret. It is important to find a whistleblower qui tam law firm with extensive knowledge and experience litigating federal False Claims Act qui tam cases.
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 U.S. Senate, Subcommittee on Administrative Practice and Procedure of the Committee on the Judiciary, S. 1562, Hearing, pg. 2, Sept. 17, 1985 (S. Hrg. 99-452). Washington: Government Printing Office, 1986; The Grassley Amendments, Pub.L. No. 99-562, 100 Stat. 3153 (Oct. 27, 1986).