False Claims Act
The False Claims Act was signed into law by President Abraham Lincoln during the Civil War. It was enacted so that the federal government had a means to sue unscrupulous merchants that sold substandard and defective goods to the Union Army. The False Claims Act has been amended several times since its enactment. The most significant amendments occurred in 1986 which allowed the government to seek treble damages for violations of the Act. The 1986 amendments also significantly increased the monetary incentives for whistleblowers.
The False Claims Act authorizes a private individual, known as a “relator,” to bring a cause of action on behalf of the United States government to recover monies lost due to fraud or related misconduct. A lawsuit filed under the False Claims Act is known as a qui tam action, a legal concept that first originated in England. If a relator is successful in a qui tam action, they are entitled receive a percentage of the recovered proceeds.
In Fiscal Year (FY) 2021, the Department of Justice (DOJ) recovered over $5.6 billion from civil settlements and judgments in False Claims Act cases. This represents the second largest annual total in the history of the False Claims Act. Out of the more than $5.6 billion recovered, over $1.6 billion was recovered in lawsuits filed by whistleblowers under the qui tam provisions of the False Claims Act. During FY 2021, the federal government paid $237 million to whistleblowers who came forward to expose fraud and corruption.
Filing a Complaint Under the False Claims Act
The process begins when a qui tam complaint is filed under seal in federal district court. Unlike most complaints in civil lawsuits, a complaint filed “under seal” means that it does not become a matter of public record. Only the relator, the relator’s attorneys, and DOJ attorneys have knowledge of the existence of the complaint. By maintaining such confidentiality, DOJ staff can investigate the allegations in the complaint without the defendant’s knowledge.
A qui tam complaint is initially sealed for 60 days; however, experience has shown that the government rarely completes its investigation within the 60 day period allotted by the False Claims Act. The government can therefore petition the Court to extend the seal period so that it can continue its investigation and gather evidence.
Once the government’s investigation is complete, the DOJ notifies the Court as to whether it will intervene in the case. If the DOJ elects to intervene, it will prepare and file its own complaint in intervention. If the DOJ declines to intervene, the relator can proceed with prosecution of the case on behalf of the United States government.
There are certain situations where a relator is not permitted to file a qui tam action. A YLG attorney can help determine whether one of the following exclusions may be applicable to your case:
- Criminal Conduct – a relator is barred from bringing suit under the False Claims Act if they have been convicted of a crime for their role in the misconduct that is the subject of the lawsuit.
- First to File Bar – a relator cannot proceed with a qui tam action if another relator has already filed a complaint based on the same operative facts. In addition, a relator cannot bring an action if the defendant has already been subject to a civil or administrative monetary proceeding by the government based on the same misconduct.
- Public Disclosure Bar – a lawsuit filed under the False Claims Act cannot be based upon information already disclosed to the public, or in the public domain, unless the relator is the original source of that information.
Retaliation Protections Under the False Claims Act
When a whistleblower files a qui tam lawsuit against their employer, the False Claims Act can provide protection from employer retaliation. The anti-retaliation provisions of the False Claims Act prohibit adverse changes to the terms and conditions of a whistleblower’s employment because of lawful activities undertaken by the whistleblower to prevent a violation of the False Claims Act.
If an employee is subjected to discriminatory action as a result of their status as a whistleblower, that employee is entitled to bring a cause of action for damages, including double back pay, interest, and compensation for special damages (e.g., litigation costs, attorneys’ fees, and certain non-economic injuries). The anti-retaliation provisions of the False Claims Act protect whistleblowers for three years from the date of retaliation. Other laws, such as state and municipal false claims act statutes, may provide additional protections from employer retaliation.
Confidentiality Under the False Claims Act
While the DOJ covertly investigates allegations of fraud during the period when the complaint is under seal, the identity of the whistleblower is known only to government investigators and, in certain cases, the Court. During this seal period, the whistleblower must maintain strict confidentiality regarding all aspects the qui tam lawsuit. After the government completes its investigation and notifies the court of its decision to intervene in the case, the complaint is unsealed, and the identity of the whistleblower becomes public knowledge in most cases.
If you have evidence of fraud involving any of the following areas, contact our team of experienced attorneys for a free, no obligation consultation:
- Health Care Fraud (including COVID 19 fraud)
- Government Contracts & Procurement Fraud
- Government-Backed Mortgage Fraud
- Customs Fraud
- Small Business Fraud (including PPP fraud)
- Education Fraud
- Davis Bacon Act violations
Health Care Fraud
The health care industry typically ranks first in the Department of Justice’s annual report of largest recoveries of settlements and judgments in False Claims Act cases. While the government actively investigates and prosecutes health care fraud on its own, it lacks the resources to identify every case of fraud involving drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians. Whistleblowers play a critical role in identifying and reporting fraud when they discover it.
Government Contract and Procurement Fraud
The False Claims Act allows the federal government to recoup payments made to contractors that submit false claims in obtaining or performing under a government contract. Whistleblowers have been instrumental in reporting contract-related misconduct such as bid rigging; disadvantaged business fraud; bribery; unauthorized product substitutions; falsified quality control testing; and overcharging for labor and materials.
Government-Backed Mortgage Fraud
The Department of Justice utilizes three different federal statutes to prosecute fraud in the housing and mortgage industry: the False Claims Act, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), and the Financial Institutions Anti-Fraud Enforcement Act (FIAFEA). Each statute offers a financial incentive to eligible whistleblowers who provide information that results in a monetary recovery.
As the government imposes higher tariffs on goods imported from certain foreign countries, it correspondingly increases incentives for unscrupulous manufacturers and importers to evade or fraudulently reduce the amount they must pay in import duties. Businesses and individuals engaged in such misconduct circumvent the protections intended to safeguard domestic manufacturers and employees from foreign countries that subsidize companies in certain industries and lack effective environmental protection laws.
Small Business Contract Fraud
The Small Business Administration offers a variety of programs that provide opportunities for small businesses to participate in government contracts. Some companies make fraudulent misrepresentations to take advantage of such programs despite their ineligible status. The government relies on whistleblowers because it lacks the resources to verify the eligibility of every business that participates in a small business set-aside or falsely presents itself as a Disadvantaged Business Enterprise. The SBA’s Presumed Loss Rule provides that a company can be liable under the False Claims Act for three times the amount it received from a contract for which it falsely claimed eligibility.
The Department of Education annually provides billions of dollars in the form of grants and loans to eligible students and institutions of higher learning. Dishonest school administrators and students have engaged in various types of fraudulent conduct or intentionally misused student loan funds for unauthorized purposes.
Davis Bacon Act
The Davis Bacon Act requires contractors and subcontractors to pay prevailing local wages to covered employees who work on federally funded construction contracts involving public buildings or public works projects. Construction or improvements on highways, airports, railways, subways, streets, and power lines are all covered under the Davis Bacon Act.
False Claims Act FAQs
What is Qui Tam?
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.
What is a Relator?
“Relator” is the term that refers to a whistleblower or qui tam plaintiff in an action brought under the False Claims Act.
Do I have to be represented by an attorney?
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.
What is a Disclosure Statement?
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.
Does it matter if the DOJ intervenes in the case?
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.
Will the government take my information seriously and investigate?
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.
What happens at the conclusion of the investigation?
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.
How much could I receive as a reward for being a whistleblower?
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.
Additional False Claim Act FAQs
What is considered a false claim?
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.
Who does the False Claims Act protect?
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.
How successful are False Claim Act cases?
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.
What are the three major categories of False Claim Act cases?
Health Care and Pharmaceutical Manufacturing – fraud in the health care sector unquestionably accounts for the largest share of recoveries in False Claims Act cases. In FY 2021, over $5 billion of the more than $5.6 billion recovered by the Department of Justice involved the health care industry, including pharmaceutical and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians. Within the category of health care fraud, the pharmaceutical industry often ranks as the largest single contributor to amounts recovered through False Claims Act settlements and judgements. In FY 2021, 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 health care fraud as the second largest category of False Claim Act recoveries. In FY 2021, the federal government spent over $754 billion on national defense. The Department of Defense estimated that it paid about $2.5 billion in improper and unknown payments in FY 2021. 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 2021, the DOJ reported that the eight largest settlements of False Claims Act cases involving government procurement fraud totaled more than $165 million.
Other Fraud (Non-HHS or DoD) – since health care and procurement fraud typically account for the largest percentage of annual False Claims Act recoveries, DOJ created a catch-all category “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.
What are some examples of a violation of the False Claims Act?
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.
What are the penalties for violating the False Claims Act?
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 $12,537 and $25,076, as adjusted for inflation in 2022.
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.”
Does the False Claims Act protect whistleblowers?
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.
What is a false claim under the False Claims Act?
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).
Does a violation of the False Claims Act require intent?
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.
Why is the False Claims Act important?
In FY 2021, the United States government spent $6.82 trillion. The largest expenditures were on:
- Income Security (COVID-19 stimulus) – $1.6 trillion (24%)
- Social Security – $1.1 trillion (17%)
- Health – $796.8 billion (12%)
- National Defense – $754.8 billion (11%)
- Medicare – $696.5 billion (10%)
- Net Interest from Debt – $352.3 billion (5%)
- Other Spending (4% or less by category) – $1.43 trillion (21%)
The government doesn’t have the capacity or resources to audit every contract or review every suspicious transaction. 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.