The False Claims Act and the mechanism that incentivizes integrity by rewarding whistleblowers who come forward with information about fraud on the government, is a great investment.
How good is the rate of return on investment?
According to a study conducted by Jack A. Mayer, prepared for Taxpayers Against Fraud Education Fund in 2013 that measured the federal government’s return on investment in False Claims Act cases against Medicare and Medicaid fraud (the largest bucket of government spending, we’ll be analyzing these programs in the coming days!), the benefit-cost ratio of False Claims Act enforcement is roughly 20:1.
The study examined data from the Health Care Fraud and Abuse Control Program, a joint partnership between the DOJ and HHS which aims to combat health care fraud. The study determined that, between FY 2008 and FY 2012, the federal government spent $574.6 million in prosecuting health care fraud in order to recover $9.38 billion, thus yielding a 16.33:1 benefit-cost ratio.
The $574.6 million the government expends includes the cost of lawyers to prosecute the alleged fraud and paying out the relator share.
In other words, for every $1 the federal government spends on FCA enforcement, they recover $16.33. Even this is a conservative estimate once you account for other government recoveries associated with False Claims Act cases and whistleblower cases in particular. For example, upon factoring in the criminal fines paid to the federal government and the financial penalties paid to state governments, the benefit-cost ratio increases to 20:1.
Even the 20:1 does not account for taxes the whistleblower must pay on their share of the recovery.
Nor can this take into account the effect that FCA cases have on the amount of fraud committed. The possibility of legal repercussions has a tremendous role in deterring companies from committing fraud. Thus, the benefit-cost ratio is most definitely even greater than 20:1.
In short, dollars spent on FCA enforcement yield tremendous benefits for taxpayers.
Imagine if more whistleblowers could be incentivized to come forward. The facts support whistleblowing as a low-cost-high-reward way for the government to recover taxpayers dollars lost to fraud.