False Claims Act

Qui tam is abbreviated from the Latin phrase, qui tam pro domino rege quam pro sic ipso in hoc parte sequitur, which means “who as well for the king as for himself sues in this matter.” A qui tam action allows a private citizen to file a lawsuit on behalf of the United States government.  A whistleblower who brings a qui tam action that results in a judgment or settlement in is entitled to a percentage of the monetary recovery as a reward for exposing the fraud.

“Relator” is the term that refers to a whistleblower or qui tam plaintiff in an action brought under the False Claims Act.

Yes, a whistleblower must be represented by an attorney to file a qui tam action under the False Claims Act.  To fully protect your interests in this specialized and complex area of the law, it is critical to select an established law firm with significant experience in False Claims Act litigation.

A Disclosure Statement is a document that contains substantially all the evidence in the relator’s possession supporting the allegations in the qui tam complaint.  Although the disclosure statement is not filed with the Court, it must be served on the Department of Justice along with a copy of the qui tam complaint.

The success rate of qui tam actions where the government has intervened has historically been higher than in cases where the government has declined intervention. However, the government’s nonintervention doesn’t mean a qui tam action is destined for failure. The reality is that the government declines to intervene in most cases. Nevertheless, some of the largest civil settlements in qui tam actions have occurred in cases where the government did not intervene.

Yes, the False Claims Act requires that the Department of Justice investigate allegations of False Claims Act violations. The government’s investigation often involves one or more law enforcement agencies.  In cases where a state agency is also the victim of fraud, the attorney general’s office from that state will often participate in the investigation and work closely with the federal agencies.

There are several possible scenarios. The DOJ can: (1) intervene in one or more counts of the qui tam complaint; (2) advise the relator and the court of its intention to decline intervention; (3) move to dismiss the relator’s complaint; (4) or settle the qui tam action with the defendant prior to intervention, or in conjunction with its intervention.

If the DOJ intervenes and obtains a monetary recovery through judgment or settlement, an eligible relator is entitled to receive 15% to 25% of the recovery.  If the government declines to intervene, and the relator prosecutes the case without the government’s assistance, the range of the reward increases to 25% to 30% of the monetary recovery.

A false claim is a fraudulent request submitted to the United States government for payment of goods or services that were provided to, or on behalf of, the government. A “reverse” false claim is where an entity fails to pay, or otherwise satisfy, a financial obligation to the government.

A false claim can be made by one or more people, or most non-public entities or organizations, including corporations, educational institutions, and health care providers.  Example of false claims include charging the government full price for a lesser quality or quantity of a contracted good or service, or submitting a claim for payment without delivering any good or service.

The False Claims Act protects the United States government. Since the treasury is directly funded by taxpayers, it is American taxpayers who are ultimately protected by the False Claims Act. Every dollar misappropriated by fraudsters is a dollar that isn’t available for important government expenditures, such as health care, education, or infrastructure.

In a larger sense, the False Claims Act protects every American who relies on goods and services for their welfare and protection. From lifesaving drugs and medical devices to ammunition and fighter planes, countless lives depend on the honesty and integrity of the companies and their employees who produce, repair, and maintain critical goods and services.

In Fiscal Year 2021, the Department of Justice recovered over $5.6 billion in settlements and judgments from civil cases brought under the False Claims Act. Since 1986, when the damages and penalties for False Claims Act violations were significantly increased, the federal government has recovered more than $70 billion.

Although the False Claim Act allows relators to file and prosecute a qui tam action, even after the government declines to intervene in the case, a relator must be represented by an attorney. To ensure the greatest chance of success, it is critical to choose an experienced law firm with an established track record of proven results in litigating False Claims Act cases.

Health Care and Pharmaceutical Manufacturing – fraud in the healthcare sector unquestionably accounts for the largest share of recoveries in False Claims Act cases. In FY 2022, over $1.7 billion of the more than $2.2 billion recovered by the Department of Justice involved the healthcare industry, including pharmaceutical and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians. Within the category of healthcare fraud, the pharmaceutical industry often ranks as the largest single contributor to amounts recovered through False Claims Act settlements and judgements. In FY 2022, settlements with prescription opioid manufacturers were a major contributor to the total amounts recovered.

Government Contracting and Procurement – procurement fraud involving the Department of Defense and other federal agencies ranks behind healthcare fraud as the second largest category of False Claim Act recoveries. In FY 2022, the federal government spent over $789 billion on national defense. The Department of Defense estimated that it paid over $2 billion in improper and unknown payments during the fiscal year. There are numerous opportunities for dishonest contractors to defraud the government in their quest for higher profits. Some of the most common schemes include bribery and kickbacks, bid rigging, improper substitution of products or services, and billing for unallowable costs. In FY 2022, DOJ reported that settlements and judgments in qui tam cases involving the Department of Defense totaled nearly $59 million.

Other Fraud (Non-HHS or DoD) – since healthcare and procurement fraud typically account for the largest percentage of annual False Claims Act recoveries, DOJ created a catch-all “other” category comprised of recoveries that does not include the Department of Health and Human Services and the Department of Defense. The “other” category includes fraud recoveries involving government-backed mortgages; imports and customs; research grants; student loans; and economic relief for COVID-19. In FY 2022, the government recovered over $251 million in Non-HHS/Non-DoD qui tam cases.

In the health care industry, False Claims Act violations often involve improper or fraudulent billing for medical services.

• Upcoding – submitting claims to government-funded health care programs using billing codes for more expensive services or procedures than what were actually rendered to the patient.
• Unbundling – billing for separate medical procedures or services that should have been billed as a single charge.
• Not Medically Necessary/Not Delivered – submitting claims for health care services, diagnostic tests, medical devices, or drugs that either lacked any legitimate medical purpose or were never provided to the patient.
• Stark Law Violations – physicians are prohibited from referring patients to a medical service provider, such as a laboratory or diagnostic test facility, where the physician, or an immediate family member, has a financial relationship.
• The Anti-Kickback Statute – a criminal law that prohibits physicians from receiving incentives to induce or reward them for referring patients for medical services paid by a federally funded health care program, such as Medicare or Medicaid. The statute imposes liability on those who offer such illegal incentives, as well as those who accept them. A claim submitted to the government involving a violation of the Anti-Kickback Statute can create liability under the False Claims Act.

False Claims Act violations involving drug manufacturers, pharmacy benefit managers, and pharmacies include misconduct relating to sales and marketing, price reporting, manufacturing, and billing.

• PBM Fraud – employers and health plan sponsors contract with Pharmacy Benefit Managers (PBMs) to design and administer prescription drug plans for their employees and members.  PBMs have been sued for failing to accurately report pharmacy expenditures and discounts; not disclosing rebates and kickbacks; misrepresentations to patients, providers, and health care plans to obtain business; and charging copays that exceed the full cost of a drug.
• Price Reporting Fraud – in order to have their drugs covered by Medicaid, drug companies must agree to pay rebates to the states for each covered drug. The government uses a formula, based primarily on the prices reported by drug companies, to determine the amount of the rebate.  By knowingly providing false pricing information, drug companies can significantly reduce the amount they pay as a rebate for a particular drug.
• Compounding Drug Fraud – when a particular combination of active ingredients is not available as a manufactured drug, pharmacists are permitted to create new mixtures of drugs, known as compounds. Compounding pharmacies have been found liable for misconduct involving drug formulations designed to ensure the highest possible reimbursement; targeting patients without regard to their actual needs; and producing compounded drugs that exceed allowable quantities.
• cGMP Fraud – Current Good Manufacturing Practice (“cGMP”) regulations impose minimum standards for the methods, facilities, and controls used to manufacture, process and package prescription drugs. To reduce costs, some drug manufacturing facilities cut corners in violation of cGMP requirements. Noncompliant facilities are much more likely to produce substandard, contaminated, or ineffective drug products.

Government contracting and procurement fraud involving the Department of Defense and other federal agencies can occur at any point in the process, from the pre-award phase through final completion of the contact.

• Bid Rigging – any conduct that interferes with the competitive bidding process. In its simplest form, bid rigging is a conspiracy among bidders to decide which company will submit the winning bid.  Bid rigging schemes restrict competition and cause the government to unknowingly pay higher prices for goods and services.
• PRC Violations – most GSA contracts contain a Price Reduction Clause that is triggered whenever a government supplier revises its commercial price list or offers more favorable pricing, discounts, or terms to a commercial customer. In such instances, the government supplier must offer the same reduced price, discount, or terms to the government.  A company that intentionally fails to disclose a PRC disturbance to the government can face liability under the False Claims Act.
• Bribery & Kickbacks – a bribe is anything of value offered to a public official to influence that official’s actions. A kickback is similar to a bribe, but the Anti-Kickback Act of 1986 requires that the kickback must be for the purpose of improperly obtaining or rewarding favorable treatment. Kickbacks to prime contractors and their employees, as well as subcontractors and their employees, is prohibited.

Civil penalties and damages for False Claims Act violations can be extremely onerous. The government is entitled to recover treble damages (triple the amount of its actual loss) as a result of a false claim. In addition to treble damages, each separate False Claims Act violation can result in a penalty of between $13,508 and $27,018, as adjusted for inflation in 2023.

The False Claims Act also allows a successful whistleblower to “receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.”

Yes, the False Claims Act contains provisions that specifically protect whistleblowers from retaliation by their employers. Retaliation is broadly defined to include any employee, contractor, or agent that has been “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment . . . because of lawful acts done . . . to stop 1 or more violations of the Act.”

A retaliation claim brought under the False Claims Act must be filed within 3 years of the date when the retaliation occurred. An employee who prevails in a retaliation action can receive: (i) reinstatement with the same seniority status; (ii) two times the amount of back pay, with interest; and (iii) compensation for special damages, including litigation costs, reasonable attorneys’ fees, emotional distress, and other non-economic damages caused by the retaliation.

In its simplest terms, a false claim is any attempt to receive payment from, or withhold payment to, the United States government through fraudulent or deceptive means. The False Claims Act specifies the conduct and circumstances that constitute false claims.  The statute imposes liability for any person who:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;

(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;

(C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G);

(D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;

(E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;

(F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or

(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government[.]

31 U.S.C. § 3729 (a)(1)(A)-(G).

Intent is a critical consideration when analyzing liability under the False Claims Act.  A person must act “knowingly” to be liable under the False Claims Act. “Knowingly” means that a person had actual knowledge of specific information and acted in deliberate ignorance of whether the information was true or false, or acted in reckless disregard of whether the information was true or false. Importantly, there is no requirement to prove that a person acted with specific intent to defraud the government.

In FY 2022, the United States government spent $6.27 trillion.  The largest expenditures were on:

The table below shows the amount spent by each federal agency in FY 2022.

The government lacks the capacity or resources to audit every contract or review every suspicious Medicare payment request.  Whistleblowers are an essential element in identifying misconduct and reclaiming a percentage of the billions lost annually to fraudsters and criminals.

The qui tam provisions of the False Claim Act allow a private individual or entity, known as a relator, to file a lawsuit on behalf of the United States government.  In 1986, the False Claims Act was amended to significantly increase the damages and penalties for violations.  From 1986 through 2021, the federal government has recovered more than $70 billion in judgments and settlements — more than 72% of that amount came from qui tam lawsuits filed by whistleblowers. Since 1986, the federal government has paid over $7.8 billion in statutory rewards to successful whistleblowers.