Institute for Legal Reform Considers Changes to the False Claims Act, Part IV

Over the past several posts, we have discussed a number of proposed changes offered by the Institute for Legal Reform at its recent summit over the federal False Claims Act. The FCA is a piece of legislation, introduced during the Civil War, which works to recoup money taken from the government through fraud. The majority of FCA cases involve healthcare and defense contracting fraud, however, any misconduct against taxpayers is within the purview of this statute.

The FCA incentivizes private citizens to come forward with original information of fraud by offering up to 30 percent of whatever amount is recovered as a result of the lawsuit. The ILR, which is an affiliate of the U.S. Chamber of Commerce, has offered a number of changes it believes will strength the FCA. However, as we discussed earlier, most of the propositions tend to favor the business or contractor by requiring whistleblowers to report internally and wait 180 days before filing a lawsuit. The ILR also believes that any organization choosing to self-report fraud to the government should be subject to reduced fines and penalties, particularly if that organization had a certified compliance mechanism in place.

ILR Seeks to Limit Threats of Disbarment and Exclusion

Government contracts are hard to come by, and many businesses make bids for years before finally winning a lucrative deal. Under the current FCA standards, the DOJ is within its rights to include as a provision of a settlement agreement language which thereafter excludes a fraudulent company from further receiving government contract payouts or reimbursement under government healthcare programs.

In addition, the DOJ may threaten to exclude other businesses found to be engaged in commerce with an excluded company. According to the ILR, over 3,300 companies were excluded from government contracts in 2011 alone as a result of “increased contract monitoring by federal agencies.”

According to its report, the ILR thinks this is unfair. It believes that only those companies with a heightened risk of recidivism should be subject to suspension, exclusion or even threats of exclusion. It points to an uncorroborated assertion that many companies depend on government contracts in order to sustain and exclusion would essentially “threaten their very existence.” The ILR further opines that threats of exclusion give the DOJ and other agencies undue leverage when negotiating settlements, resulting in the many billion-dollar settlements highlighted on this very blog.

Our suggestion? Don’t engage in conduct that could result in exclusion in the first place.

ILR asserts that certified internal compliance programs are the best way to combat fraud, as opposed to investigations by groups like the HHS and DOJ. More specifically, the ILR states:

The legislation proposed here aims to reduce the unfairness and inefficiencies caused by the use of exclusion and debarment as settlement leverage. At the same time, the proposed legislation is aimed directly at the heart of the problem that the FCA is designed address—reducing fraud in government programs.

Some debarment regulations already take into account considerations such as “[w]hether the contractor had effective standards of conduct and internal control systems in place at the time of the activity which constitutes cause for debarment.” (citation?) This legislation would create a front-end incentive to adopt such controls, while eliminating the counterproductive and unjustified possibility that a company with such a program may be subject to the threat of exclusion or debarment. (citation needed)

Problems With This Suggestion Reveal Further Need to Maintain Whistleblower Statute

The suggested change leaves a big question unanswered. How will the change address the problem of widespread fraud pervading a company from top to bottom? If a company’s business policies are fraudulent to begin with, implementing a compliance procedure could become one more way for the organization to defraud the government.