The term “qui tam” may not be widely known outside legal circles, but it represents one of the most powerful legal tools available to combat fraud against the government. Derived from the Latin phrase “n” which translates to “he who sues in this matter for the king as well as for himself,” the term defines a legal mechanism that allows private individuals, often referred to as whistleblowers or “relators,” to sue on behalf of the government when fraud is suspected. Importantly, qui tam actions often result in significant financial rewards for whistleblowers, which makes this legal framework not only a deterrent to fraud but also a motivating factor for individuals to report fraudulent activities.
This article will explore in detail the concept of qui tam, its roots, the process involved in bringing a qui tam case, and the significance of this legal mechanism in modern whistleblower law.
The Origins of Qui Tam
Qui tam lawsuits have ancient roots. The concept can be traced back to the English Common Law, where individuals were encouraged to report on law violations in exchange for a portion of the penalties imposed. Over time, this legal framework evolved, and it was introduced into American law in the form of the False Claims Act (FCA) of 1863.
The FCA was enacted during the Civil War to combat fraudulent suppliers who were selling faulty equipment and supplies to the Union Army. The qui tam provision of the FCA was designed to encourage private citizens to expose this fraud by offering a reward—a percentage of the amount recovered from the wrongdoer. Since its inception, the False Claims Act, often referred to as the “Lincoln Law,” has evolved to become a powerful tool in fighting fraud, particularly in areas such as healthcare, defense contracting, and other government-funded programs.
Why is Qui Tam italicized?
Qui tam is often italicized because it is a Latin phrase. In English writing, foreign words and phrases, especially those from Latin, are commonly italicized to distinguish them from the surrounding text and to indicate that they originate from another language.
How Does Qui Tam Work?
In essence, a qui tam lawsuit is a type of civil action brought by a whistleblower on behalf of the government. The unique aspect of qui tam is that it allows individuals who are not directly harmed by the fraud to file a lawsuit. The government can then decide whether to intervene in the case or allow the whistleblower to proceed independently.
1. Identifying Fraud Against the Government
For a qui tam action to proceed, the fraud in question must involve the misuse or misappropriation of government funds. This often occurs in industries like healthcare, where Medicare or Medicaid billing fraud is common, or in defense contracting, where contractors may inflate costs or deliver substandard products.
2. Filing a Qui Tam Complaint
Once a whistleblower identifies fraudulent activity, they can file a qui tam lawsuit under seal, meaning it is kept confidential and not publicly accessible. This gives the government time to investigate the claim without alerting the alleged wrongdoer. The whistleblower must provide detailed information about the fraud, and often, working with an experienced qui tam attorney is essential to ensure the case is filed properly.
3. The Government’s Decision
The government, typically through the Department of Justice (DOJ), will investigate the claim to determine whether it wants to intervene. If the government decides to intervene, it takes over the case, and the whistleblower continues to assist, but the DOJ will lead the prosecution. If the government declines to intervene, the whistleblower still has the right to pursue the case on their own, though this is often more challenging.
4. Rewards for Whistleblowers
One of the most notable aspects of qui tam is the financial reward for whistleblowers. If the case is successful and the government recovers funds, the whistleblower can receive a portion of the recovery, typically between 15% and 30%, depending on whether the government intervened in the case. This incentive is crucial in encouraging individuals to come forward, especially when they may face retaliation from their employer or industry for doing so.
5. The Role of the Whistleblower’s Attorney
Qui tam cases are complex and often involve large corporations or entities. As such, having a knowledgeable whistleblower attorney is essential. A whistleblower attorney helps guide the relator through the filing process, assists in gathering evidence, and works alongside the government to ensure the case is strong.
Why Qui Tam Matters
Qui tam provisions are a critical part of the U.S. legal system, particularly in rooting out fraud against government programs. Billions of dollars are recovered annually through the False Claims Act, largely thanks to the brave efforts of whistleblowers.
1. Deterring Fraud
By allowing private citizens to bring attention to fraudulent practices, qui tam lawsuits deter companies and individuals from engaging in fraudulent behavior. The risk of getting caught and facing significant penalties provides a powerful disincentive for bad actors.
2. Recovering Lost Funds
Fraudulent activities can cost the government, and ultimately taxpayers, billions of dollars. Qui tam lawsuits help recover these funds, which can be redirected into critical services such as healthcare and education. In the 2023 fiscal year alone, the Department of Justice recovered over $2 billion in settlements and judgments related to the False Claims Act, much of which can be attributed to whistleblower-led cases.
3. Empowering Whistleblowers
Qui tam lawsuits empower individuals to stand up against fraud, particularly when they witness corruption within their own organizations. The financial reward and legal protections afforded to whistleblowers help level the playing field, ensuring that private citizens can take action without fear of retaliation.
4. Encouraging Ethical Practices
Qui tam provisions incentivize ethical behavior within industries that rely on government funding. Companies that comply with laws and regulations are less likely to engage in fraudulent practices, knowing that whistleblowers are watching and could take legal action.
What are examples of qui tam cases?
Here are examples of hypothetical qui tam cases for various types of whistleblowers:
- SEC Whistleblower: A financial analyst at a large investment bank discovers that the bank has been inflating asset values to mislead investors, artificially boosting the stock price. The analyst reports this fraud to the SEC under the Dodd-Frank Act. In another scenario, a corporate insider learns that their company is engaged in insider trading, profiting from non-public information regarding a merger, and blows the whistle.
- PPP Fraud Whistleblower: An employee at a small business notices that their employer inflated payroll numbers to qualify for a larger PPP loan during the COVID-19 pandemic and then used the funds for personal expenses. The employee reports the fraud. In a different case, a whistleblower in an accounting firm uncovers a client creating multiple shell companies to falsely claim PPP loans they weren’t entitled to.
- PBM Whistleblower: A pharmacist employed by a Pharmacy Benefit Manager (PBM) learns that the company has been inflating drug prices billed to Medicaid while negotiating lower prices with pharmacies, pocketing the difference. The pharmacist files a whistleblower lawsuit. Another example involves a sales executive who discovers that the PBM is accepting illegal kickbacks from a drug manufacturer in exchange for prioritizing certain medications on insurance formularies, defrauding Medicare.
- Healthcare Whistleblower: A hospital billing manager discovers that their employer is submitting false claims to Medicare for unnecessary procedures, such as multiple MRIs that were never conducted. The manager reports the fraud. In another instance, a nurse observes fraudulent billing practices where the healthcare facility charges Medicare for higher-level services than were actually provided to patients.
- Defense Contractor Whistleblower: A defense contractor employee finds out that their company is delivering substandard materials to the U.S. military under a contract but charging for higher-quality products, risking national security. The employee blows the whistle on the fraud. Another example is an engineer who learns that the contractor is overbilling the government by inflating the number of hours worked on a defense project, costing taxpayers millions.
- IRS Whistleblower: A tax accountant for a large corporation uncovers a tax evasion scheme where the company is hiding foreign income through offshore accounts, avoiding millions in U.S. taxes. The accountant reports this under the IRS whistleblower program. Another example is a financial advisor who discovers that a client, a wealthy individual, is falsely reporting charitable deductions to reduce their tax liability.
- Environmental Fraud Whistleblower: An employee at a chemical manufacturing plant realizes that the company has been illegally dumping hazardous waste into nearby rivers while falsifying environmental compliance reports. They report this to the EPA. In another case, a whistleblower in an energy company finds out that the firm is emitting pollutants far in excess of legal limits but manipulating emission tests to avoid penalties.
- Education Fraud Whistleblower: An admissions officer at a for-profit college learns that the institution is falsifying student records and submitting fraudulent claims for federal financial aid by enrolling students who don’t attend classes. The officer files a qui tam suit. In another example, a teacher discovers that their school is inflating test scores to secure performance-based government funding.
- Pharmaceutical Fraud Whistleblower: A sales rep for a pharmaceutical company finds that their employer is illegally promoting off-label use of a drug to doctors, leading to false claims submitted to Medicare and Medicaid. The sales rep reports this fraudulent activity. In a separate case, a research scientist learns that the company is falsifying clinical trial data to fast-track a drug’s approval and market it prematurely.
- Procurement Fraud Whistleblower: A government contractor responsible for procuring materials for public infrastructure projects submits invoices for higher-priced materials but uses lower-quality products, defrauding the government. A whistleblower in the procurement department files a lawsuit. Another example involves a supplier falsely claiming small business or minority-owned business status to gain preferential government contracts.
- Customs and Import Duty Fraud Whistleblower: A customs broker finds that a company is misclassifying imported goods to pay lower duties than required, defrauding the U.S. Customs and Border Protection. The broker reports the scheme. Similarly, an employee of an importer discovers that the company is undervaluing goods on invoices to avoid paying full customs duties, leading to a whistleblower claim.
- Cybersecurity Fraud Whistleblower: An IT contractor working with a federal agency realizes that their employer is providing inadequate cybersecurity measures despite claiming compliance with government standards. This puts sensitive data at risk, and the contractor files a qui tam lawsuit. In another example, a cybersecurity officer at a private firm finds that their company is knowingly ignoring software vulnerabilities while continuing to bill the government for cybersecurity services, leading to a whistleblower case.
- Public Health Whistleblower: A public health official discovers that a healthcare provider is falsifying vaccination records to claim government incentives while putting public health at risk. They blow the whistle on the fraud. Another example involves a food safety inspector who reports that a food company is mislabeling products to avoid costly recalls, putting consumers at risk of illness and committing fraud against the FDA.
These examples illustrate how whistleblowers from various sectors can use qui tam provisions to expose and seek accountability for fraud against the government.
Conclusion
Qui tam lawsuits serve as a vital mechanism in the fight against fraud, allowing private individuals to hold corporations accountable for defrauding the government. By offering substantial financial rewards, the False Claims Act incentivizes whistleblowers to step forward, often at great personal risk, to expose fraudulent activities that might otherwise go unchecked.
For whistleblowers considering coming forward with information about fraud, working with an experienced whistleblower attorney is essential. With the complexities of qui tam cases, legal expertise is crucial in ensuring that the case is filed correctly and that the whistleblower is fully protected.