The False Claims Act allows private citizens to sue those that commit fraud against government programs. The Act provides for up to treble damages and also provides awards of 15 to 30 percent of recoveries for those bringing cases.
The False Claims Act is the single most important tool U.S. taxpayers have to recover the billions of dollars stolen through fraud by U.S. government contractors every year.
The False Claims Act contains qui tam, or whistleblower, provisions. Qui tam is a unique mechanism in the law that allows citizens with evidence of fraud against government contracts and programs to sue, on behalf of the government, in order to recover the stolen funds. In compensation for the risk and effort of filing a qui tam case, the whistleblower or "relator" may be awarded a portion of the funds recovered, typically between 15 and 25 percent. A qui tam suit initially remains under seal for at least 60 days during which time the U.S. Department of Justice can investigate and decide whether to join the action. Most seals are extended at least once, and it is not uncommon for a case to remain under seal for several years.
Congress has long recognized that the government, with limited resources, is overmatched in the fight against fraud. In 1986, in response to widespread reports that the U.S. Treasury was being repeatedly bilked by contractors, Congress rejuvenated a Civil War-era law — the False Claims Act. The 1986 amendments strengthened the False Claims Act’s qui tam provisions, creating incentives for private citizens with evidence of fraud to commit time and resources to supplement the government’s efforts. By doing so, Congress put into play a powerful public-private partnership for uncovering fraud and obtaining the maximum recovery for American taxpayers.
Changing the Culture of Fraud
The False Claims Act is about more than money. It is also about discouraging fraud and changing the culture of corporate America. As Sen. Charles Grassley (R-IA) and Rep. Howard Berman (D-CA) have noted:
"Studies estimate the fraud deterred thus far by the qui tam provisions runs into the hundreds of billions of dollars. Instead of encouraging or rewarding a culture of deceit, corporations now spend substantial sums on sophisticated and meaningful compliance programs. That change in the corporate culture -- and in the values-based decisions that ordinary Americans make daily in the workplace -- may be the law's most durable legacy."
Who the Law Applies To
The federal False Claims Act covers fraud involving any federally funded contract or program, with the exception of tax fraud. A separate IRS whistleblower program covers federal tax fraud.
While many qui tam actions in the late 1980s and early 1990s involved Department of Defense contracts, in recent years the majority of qui tam actions have been in the Medicare and Medicaid arenas.
While it is impossible to list succinctly all of the fraud schemes that have been prosecuted under the False Claims Act, the following list gives some idea of the scope of the frauds that have been uncovered to date:
Billing for goods and services that were never delivered or rendered
Double billing - charging more than once for the same goods or service
Billing for marketing, lobbying or other non-contract related corporate activities
Submitting false service records or samples in order to show better-than-actual performance
Presenting broken or untested equipment as operational and tested
Shifting expenses from one fixed-price contract to another
Illegal marketing of prescription drugs and devices through kickbacks
Billing for non-FDA approved drugs or devices
Performing inappropriate or unnecessary medical procedures in order to increase Medicare reimbursement
Billing for work or tests not performed
Billing for premium equipment but actually providing inferior equipment
Automatically running a lab test whenever the results of some other test fall within a certain range, even though the second test was not specifically requested
Defective testing - certifying that something has passed a test, when in fact it has not
"Lick and stick" prescription rebate fraud and "marketing the spread" prescription fraud, both of which involve lying to the government about the true wholesale price of prescription drugs
Unbundling - Submitting multiple billing codes instead of one billing code for a drug panel test in order to increase remuneration
Bundling -- billing more for a panel of tests when a single test was asked for
Upcoding - Inflating bills by using diagnosis billing codes that suggest a more expensive illness or treatment
Billing for brand -- billing for brand-named drugs when generic drugs are actually provided
Phantom employees and doctored time slips: charging for employees that were not actually on the job, or billing for made-up hours in order to maximize reimbursements
Upcoding employee work: billing at doctor rates for work that was actually conducted by a nurse or resident intern
Falsifying natural resource production records -- pumping, mining or harvesting more natural resources from public lands that is actually reported to the government
Being over-paid by the government for sale of a good or service, and then not reporting that overpayment
Misrepresenting the value of imported goods or their country of origin for tariff purposes
False certification that a contract falls within certain guidelines (i.e. the contractor is a minority or veteran)
Billing in order to increase revenue instead of billing to reflect actual work performed
Failing to report known product defects in order to be able to continue to sell or bill the government for the product
Billing for research that was never conducted and/or falsifying research data that was paid for by the U.S. government
Winning a contract through kickbacks or bribes
Prescribing a medicine or recommending a type of treatment or diagnosis regimen in order to win kickbacks from hospitals, labs, or pharmaceutical companies
Billing for unlicensed or unapproved drugs
Forging physician signatures when such signatures are required for reimbursement from Medicare or Medicaid
Limits of the False Claims Act
Though the False Claims Act is a powerful tool to combat fraud, it is a tool that is sharply constrained by both the law and economics of litigation.
For a civil case to be filed, the fraud has to reach a certain size, otherwise it is generally not worth it for the whistleblower to risk his or her career to file suit, nor is it worth it for a law firm to take on the case and risk the loss of the enormous time and expense that developing a False Claims Act case can represent.
A defendant in a False Claims Act has to have relatively deep pockets. Some of the smaller companies that may be defrauding the government are liable to declare bankruptcy if faced with the triple damages that can be levied under the False Claims Act.
A whistleblower and his or her lawyer must believe they have a very strong case in order to proceed. Not only can a law firm be out time and money if a case fails, but if the government does not take the case and the whistleblower proceeds, he or she can be forced to pay the defendant’s attorney's fees if the court finds that the claim was frivolous, or brought primarily for purposes of harassment.
Unlike a government hot line, a False Claims Act, SEC, IRS, or CFTC whistleblower case must be investigated; they cannot be ignored. https://www.taf.org/
: “We take calculated risks that align our interests with those of our clients,” Boies says. In October, for example, the firm won a jury verdict in a contingency-fee False Claims Act case in Texas, which, if upheld on appeal, could be worth $575 million or more. BS&F represents Joshua Harman, a Virginia highway guardrail manufacturer who accused a larger rival, Dallas-based Trinity Industries, of misleading federal regulators about product changes that allegedly contributed to crash-victim fatalities. Led by partner Nicholas Gravante Jr., a former Cravath associate, the plaintiffs’ team adroitly combined evidence showing that Trinity failed to submit product-change data to federal overseers with riveting photos of the bloody results of highway crashes. Trinity countered—unsuccessfully—that the undisclosed data weren’t material and that the photos shouldn’t have been relevant to a False Claims Act complaint.
In addition to providing for the confidentiality of information, the Act allows whistleblowers to report fraud anonymously. However, when a person seeks to blow the whistle anonymously, the Act requires the whistleblower to “be represented by counsel.” So strong is the Dodd-Frank Act’s confidentiality provision that in some cases, the whistleblower’s identity may remain unknown even to the SEC until the time comes for the payment of a reward. http://www.bernlieb.com/whistleblowers/Whistleblower-Confidentiality/index.html
Unlike a government hot line, a False Claims Act, SEC, IRS, or CFTC whistleblower case must be investigated; they cannot be ignored.