False Claims Act

The False Claims Act was signed into law by President Lincoln during the Civil War.  It was enacted to provide a means for the federal government to sue duplicitous merchants that sold substandard and defective goods to the Union Army. The False Claims Act has been amended at various times since its enactment; most significantly in 1986, when it was amended to allow the government to seek treble damages for violations.  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 money lost due to fraud or other 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 the qui tam action, he or she is entitled receive a percentage of the recovered proceeds.

In Fiscal Year 2019, the Department of Justice (DOJ) recovered over $3 billion from civil settlements and judgments in False Claims Act cases.  Out of the $3 billion recovered, $2.1 billion was attributable to lawsuits filed under the qui tam provisions of the False Claims Act. During that same period, the federal government paid $265 million to whistleblowers who came forward to expose fraud, corruption and false claims.

If you have evidence of fraud against the government, contact one of McEldrew Young Purtell Merritt’s False Claims Act attorneys for a free, no obligation consultation. 

Filing a Complaint Under the False Claims Act

 The process begins when a complaint is filed under seal in federal district court. “Filing under seal” means the complaint does not become a matter of public record unlike complaints in most civil lawsuits. By maintaining a cloak of confidentiality, the DOJ can investigate the allegations of fraud without alerting the defendant(s) of the investigation. 

Upon expiration of the seal, 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.  If the DOJ declines to intervene, the relator is entitled to prosecute the case on behalf of the United States government.  In certain situations, a relator is not permitted to file a qui tam action. An attorney at McEldrew Young Purtell Merritt can help determine whether one of the following exclusions applies to your case:

  • Criminal Conduct – A relator is barred from bringing suit under the False Claims Act if he or she has been criminally convicted 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 for 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

The False Claims Act offers protection from employer retaliation for a whistleblower who files a qui tam lawsuit against his or her employer.  The anti-retaliation provisions of the False Claims Act prohibit adverse changes to the terms and conditions of a whistleblower’s employment as a result of lawful activities intended to stop a violation of the False Claims Act.  

If an employee is subjected to discriminatory action as a result of their whistleblower status, he or she is entitled to bring a cause of action in federal district court 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 seal period, the identity of the whistleblower is known only to government investigators and, in certain cases, the court. During this time, the whistleblower is required to maintain strict confidentiality regarding all aspects the lawsuit.  Once the government has completed its investigation and notified 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 and would like to report any of the following, contact our team of lawyers at McEldrew Young Purtell Merritt:

Health Care Fraud

Although the federal government actively investigates and prosecutes health care fraud on its own initiative, it lacks the resources to identify all cases of fraud.  Whistleblowers therefore play a critical role in reporting fraud when they see it happen.

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Government Contracts and Procurement Fraud

The False Claims Act allows the federal government to recoup payments made to contractors as a result of false statements in the acquisition or performance of a government contract. Whistleblowers are instrumental in pointing the Department of Justice in the right direction.

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Mortgage Fraud

There are three different federal laws that can apply to fraud in housing and mortgage industry.  Each of the laws offer a financial incentive to eligible whistleblowers who provide information that results in a monetary recovery: the False Claims Act, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), and the Financial Institutions Anti-Fraud Enforcement Act (FIAFEA).

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Customs Fraud

The imposition of higher tariffs on goods produced in China has increased the incentives for importers and businesses to evade or fraudulently reduce the amount of duties they must pay.  Companies and individuals engaged in such misconduct circumvent the protections intended to help level the playing field for domestic manufacturers. 

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Small Business Contract Fraud

The Small Business Administration offers a number of programs that provide opportunities for small businesses to participate in government contracts when the services of a large company are not required.  Some unscrupulous companies not eligible for such opportunities nonetheless fraudulently take advantage of them.  The government is unable to verify the eligibility of every business that participates in a government set-aside program, and relies on whistleblowers to report such fraud.

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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 Act. 

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Education Fraud

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 engage in various types of fraudulent conduct or intentionally misuse these funds for unauthorized purposes. 

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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 succeeds in a qui tam action is entitled to a percentage of the recovery of the monetary recovery as a reward for exposing the fraud and recovering fraudulently-obtained government monies

What is a Relator?

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

Do I have to be represented by an attorney?

Yes, a whistleblower (or relator) must be represented by an attorney to file a qui tam action under the False Claims Act.  In order to fully protect your interests in this specialized and complex area of the law, it is critical to select an attorney who has a breadth and depth of experience with the False Claims Act and qui tam lawsuits.

What is a Disclosure Statement?

A Disclosure Statement is a document that contains substantially all the evidence the relator has in his or her possession related to the allegations the qui tam complaint.  Although the disclosure statement is not filed in any court, it must be served on the Department of Justice in addition to the qui tam complaint.

Does it matter if the DOJ intervenes in the case?

The success rate of qui tam actions where the DOJ elected to intervene has historically been higher than in cases where there was no government intervention.  However, the government’s decision against intervention does not mean the qui tam action is destined for failure.   Indeed, the government declines to intervene in the vast majority of cases. Furthermore, some of the largest civil settlements in qui tam actions have occurred in cases where the government declined to intervene.  

Will the government take my information seriously and investigate?

Yes, the False Claims Act requires that the Attorney General or an Assistant United States Attorney to investigate allegations of False Claims Act violations.  The investigation usually involves one or more law enforcement agencies.  In cases where a state agency is also the victim of fraud, that state’s attorney general’s office will work closely with the federal agencies by participating in the investigation.

What happens at the conclusion of the investigation?

There are several possible scenarios. The DOJ will (1) intervene in one or more counts of the qui tam complaint; (2) advise the relator 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 intervention.

How much money could I receive?

If the DOJ intervenes and makes a successful monetary recovery through a trial or settlement, a 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 assistance of the government, the reward increases to 25 to 30% of the 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 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.  In some cases, a false claim involves charging the government full price for the delivery of a lesser quality or quantity of goods or services.  Some fraudsters brazenly submit false claims for payment even when they don’t deliver any goods or services.

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 stolen by miscreants is a dollar not available for important government expenditures, such as education, health care or infrastructure.

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

How successful are False Claim Act cases?

For the fiscal year ending September 30, 2019, the U.S. Department of Justice recovered over $3 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 United States government has recovered more than $62 billion.

Although the False Claim Act allows relators to file and prosecute an action even when the government declines to actively participate in the litigation, a relator must be represented by an attorney.  In order to avoid the numerous pitfalls and have the best chance of success, it is critical to choose an attorney who not only has experience in this highly specialized area of the law, but also has an established track record of proven results in False Claims Act cases.

What are the three major categories of False Claim Act cases?

  1. Health Care Providers & Pharmaceutical Manufacturers– Fraud in the health care sector unquestionably accounts for the largest share of recoveries in False Claims Act cases. Fiscal Year 2019 was the tenth consecutive year that recoveries from the health care industry exceeded $2 billion. In FY 2019, $2.6 billion of the more than $3 billion recovered by the Department of Justice involved the health care industry, including drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians. The pharmaceutical industry often ranks as the largest single contributor to amounts recovered through False Claims Act settlements and judgements.
  2. Defense Contractors– Procurement fraud involving the Department of Defense is another of the largest types of False Claims Act cases. In Fiscal Year 2019, the federal government spent over $693 billion on defense-related acquisitions, approximately $685 billion of which was discretionary, and about $8 billion mandatory. Much of the defense budget is spent on weapons systems, facilities, vehicles, equipment, supplies and technical services. There are numerous opportunities for unscrupulous contractors to defraud the government in their quest for higher profits. Some of the most common violations include bribery and kickbacks, bid rigging, improper substitution of products or services, and billing for unallowable costs. In FY 2019, settlements and judgments of False Claims Act cases involving fraud against the Department of Defense totaled approximately $252 million.
  3. GSA Contractors– Much like the Department of Defense, virtually every other federal agency is vulnerable to procurement and contract fraud by corrupt contractors. The General Services Administration (“GSA”) provides a centralized program through which federal agencies procure products and services from a large number of commercial vendors. Procurement fraud occurs when a government contractor knowingly fails to deliver the quality or quantity of goods or services specified in its GSA contract.

In addition to the schemes mentioned above, a contractor can face liability under the False Claims Act for violating a statute or trade agreement if, for example, it purchases components or materials from a prohibited source.  The Buy American Act requires that contractors only use domestically-produced products and materials, absent an exemption. If a contractor falsely certifies compliance with the Buy American Act in bidding on or performing under a GSA contract, those deliberate misrepresentations can constitute violations of the False Claims Act.

What are some examples of a violation of the False Claims Act?

In the health care industry, False Claims Act violations often include improper billing for medical services, such as:

  • Upcoding – Submitting a claim for payment to the government using a billing code(s) for a more expensive service or procedure than what was actually performed on the patient.
  • Unbundling – Billing for a number of separate medical procedures that comprise a single procedure that is normally billed as a single charge.
  • Not Medically Necessary/Not Delivered – Submitting a claim for health care services, diagnostic tests, medical devices or drugs that were either provided to a patient without any legitimate medical purpose or not provided at all.
  • The Stark Law – Prohibits physicians from referring their 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 Stark Law also known as the Physician Self-Referral Law.
  •  The Anti-Kickback Statute – A criminal law that prohibits incentives or payments designed to induce or reward patient referrals for any medical service paid by federally-funded health care programs such as Medicare and Medicaid. Both the offeror of the incentive and the recipient can be held liable. A claim for payment submitted to the government based on a violation of the Anti-Kickback Statute can create liability under the False Claims Act.

False Claims Act violations involving drug manufacturers includes misconduct relating to price reporting, manufacturing, and sales, including:

  • 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.  Some of the largest PBMs have been sued for unjust enrichment based on undisclosed rebates and kickbacks; misrepresentations to patients, health care providers, and health care plans; and charging copays higher than the full cost of a drug (known as clawbacks).
  • Price Reporting Fraud – Drug companies must agree to pay rebates to the states for each covered drug in order to have their drugs covered under Medicaid.  A formula that is based primarily on the prices reported by drug companies to the government is used to determine the amount of the rebate.  By knowingly providing false pricing information, a drug company can significantly reduce the amount it pays in the form of a rebate for a given drug.
  • Compounding Drug Fraud – When a particular combination of active ingredients is not available for sale, pharmacists are permitted to create new mixtures of drugs, known as compounds. Compounding pharmacies have engaged in misconduct involving drug formulations designed to ensure the highest possible reimbursement; targeting patients without regard to their actual needs; and producing compounded drugs in excess of 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. In order to cut costs, certain foreign (and some domestic) manufacturing facilities fail to meet cGMP requirements. Noncompliant facilities are much more likely to produce substandard, contaminated or ineffective drug products.

Procurement fraud against the Department of Defense and GSA can occur during all phases of contracting, from pre-award to final completion. Some examples include:

  • 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 a higher price for goods and services.
  • PRC Violations – Most GSA contracts contain a Price Reduction Clause which is triggered whenever a government contractor revises its commercial price list or offers more favorable pricing, discounts, or terms to another commercial customer. Whenever that occurs, the contractor must offer the same reduced price, discount, or terms to the government.  A contractor that intentionally fails to disclose a PRC disturbance to the government can create liability under the False Claims Act.
  • Bribery & Kickbacks – Anything of value offered to a public official to influence that official’s actions is considered a bribe. A kickback is very similar to a bribe, except that federal regulations apply a specific meaning as it relates to government contracts. The Federal Acquisition Regulation defines a kickback as an “any item of value, or compensation of any kind that is provided, directly or indirectly, to any prime contractor, subcontractor or employee of either for the purpose of improperly obtaining or rewarding favorable treatment in connection with a prime contractor in connection with a subcontract relating to a prime contract.”

What are the penalties for violating the False Claims Act?

The civil penalties and damages for False Claims Act violations can be quite onerous. Each violation can result in a penalty of between $11,665 and $23,331, as adjusted for inflation in 2020.  In addition to civil penalties, the government is entitled to recover treble damages, or triple the amount it lost, or might have lost, as a result of a false claim. The False Claims Act also permits 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 False Claims 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 to, the United States government through fraudulent or deceptive means. The False Claims Act lists the specific types of conduct that are considered false claims.  The False Claims Act 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).

What happens if a person files a false claim?

If a potential whistleblower chooses to look the other way, and the government fails to detect the fraud, then the perpetrator will remain free to steal from the Treasury. The False Claims Act was specifically designed to provide a monetary incentive for those in the best position to observe misconduct and collect evidence documenting the fraud – typically employees, contractors, consultants and business competitors.  Some violations of the False Claims Act can also expose the perpetrator to criminal liability.

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” in order to be liable under the False Claims Act. “Knowingly” means that a person had actual knowledge of specific information, but acted either (a) in deliberate ignorance of whether the information was true or false or (b) in reckless disregard of whether the information was true or false. Importantly, the False Claims Act does not require proof to demonstrate that the person acted with specific intent to defraud the government.

Why is the False Claims Act important?

The United States government spent $4.45 trillion in Fiscal Year 2019. The largest expenditures were on Social Security, Medicare, and Medicaid ($2.09 trillion combined); Department of Defense – Military ($654 billion); and Interest on the Public Debt ($423 billion). The government simply doesn’t have the capacity or resources to audit every contract or review every suspicious transaction.  Whistleblowers are therefore vital to reporting evidence of misconduct involving fraud against the government.

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 federal government.  In 1986, the False Claims Act was amended to significantly increase the damages and penalties for violations. Since that time, the federal government has recovered more than $62 billion in judgments and settlements. More than half of that $62 billion came from False Claims Act lawsuits filed by whistleblowers. Since 1986, the federal government has paid over $7 billion in statutory rewards to whistleblowers who filed lawsuits under the False Claims Act on behalf of the government.

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