Taxpayers Against Fraud

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© Taxpayers Against Fraud 2019

THE FALSE CLAIMS ACT

What is the False Claims Act?

President Abraham Lincoln signed the False Claims Act into law to combat fraud against the government during the Civil War. Today, the False Claims Act or “Lincoln Law” has become 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 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.
 

  • Whistleblower Awards: 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.
     

  • Public-Private Partnership: 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 False Claims Act (“FCA”) provides, in pertinent part, that: any person who (1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval; (2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government; (3) conspires to defraud the Government by getting a false or fraudulent claim paid or approved by the Government; (4) 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; (5) 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; (6) 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 (7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person.

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The terms “knowing” and “knowingly” mean that a person, with respect to information (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required. While the False Claims Act imposes liability only when the claimant acts “knowingly,” it does not require that the person submitting the claim have actual knowledge that the claim is false. A person who acts in reckless disregard or in deliberate ignorance of the truth or falsity of the information, also can be found liable.

False Claims Act Case Examples

In sum, the False Claims Act imposes liability on any person who submits a claim to the federal government that he or she knows (or should know) is false. An example may be a physician who submits a bill to Medicare for medical services she knows she has not provided. The False Claims Act also imposes liability on an individual who may knowingly submit a false record in order to obtain payment from the government. An example of this may include a government contractor who submits records that he knows (or should know) is false and that indicate compliance with certain contractual or regulatory requirements. The third area of liability includes those instances in which someone may obtain money from the federal government to which he may not be entitled, and then uses false statements or records in order to retain the money. An example of this so-called “reverse false claim” may include a hospital who obtains interim payments from Medicare throughout the year, and then knowingly files a false cost report at the end of the year in order to avoid making a refund to the Medicare program.
 

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.
     

  • More information on recurring issues/policy in False Claims Act Litigation can be found on our legislative comments page here.