What is the False Claims Act?
The False Claims Act is a really important law that allows the government to go after people and companies who try to defraud the government programs and get money they shouldn’t. It was originally passed back during the Civil War to stop defense contractors from ripping off the Union Army with shoddy equipment and stuff. But it’s still a big deal today and the government uses it all the time to recover billions of dollars stolen from Medicare, defense contracts, disaster relief funds, and all kinds of other programs.
The basic idea is that the law makes it illegal to knowingly submit false claims to the government to get money you aren’t entitled to. For example, maybe a defense contractor bills the Pentagon for missile parts it never actually delivered. Or a healthcare provider bills Medicare for medical procedures the patients didn’t really need. Things like that. If you get caught doing it, you can be in big trouble!
Here’s a quick rundown of how it works:
- You can be liable under the False Claims Act if you:
- Knowingly submit a false claim for payment
- Knowingly make a false record or statement to get a false claim paid
- Conspire to violate the False Claims Act
- Knowingly avoid paying money owed to the government
- Damages can be up to 3 times what the government lost plus huge fines. So if you rip off the government for $10 million, you could end up owing $30 million plus penalties!
- Whistleblowers who report fraud can file a lawsuit on behalf of the government and get a cut of what’s recovered. These are called qui tam lawsuits.
- The Department of Justice takes these cases very seriously and has recovered over $62 billion under the False Claims Act since 1986!
As you can see, this law packs a serious punch. The penalties are designed to deter fraud and false claims. Nobody wants to risk triple damages and massive fines if they get caught!
Major Types of False Claims
Some of the biggest areas where we see False Claims Act cases are:
- Healthcare Fraud – This is a huge area of False Claims Act enforcement. Prosecutors are constantly cracking down on healthcare providers for ripping off Medicare and Medicaid through phony billing, kickbacks, and prescribing unnecessary procedures. Some examples are billing for services that were never performed, or illegally paying kickbacks to recruit patients for expensive treatments. Healthcare fraud costs taxpayers tens of billions per year. See more on DOJ healthcare fraud cases here.
- Defense Contractor Fraud – With hundreds of billions in defense contracts, there are always some unscrupulous contractors trying to overcharge the military or send faulty equipment into combat. False Claims Act cases help recover money and deter fraud. For example, a company might falsely test missile components to cover up defects. Or bill for maintenance on vehicles that were never actually serviced. See an example case here.
- Grant/Disaster Relief Fraud – After major disasters like hurricanes, billions in FEMA aid pours out. And you know what else comes out? Fraudsters trying to get money they don’t deserve! False Claims Act cases help recover funds stolen from disaster programs. See an example case here.
You get the idea – wherever big money flows from the government, people try to steal some of it through false claims. Billions per year are recovered under the False Claims Act. It’s a flexible tool to fight fraud in many areas.
How Qui Tam Lawsuits Work
An interesting feature of the False Claims Act is it allows whistleblowers to file fraud lawsuits on behalf of the government. These are called “qui tam” lawsuits. (Pronounced “kee-tam” – it’s Latin for “he who sues for the king and himself.”)
Here’s how qui tam cases work:
- A whistleblower (called a “relator”) with inside knowledge of fraud files a lawsuit under seal for violations of the False Claims Act. This allows the government time to investigate.
- The government investigates and decides whether to “intervene” in the case and take it over. If they decline, the relator can proceed alone.
- If the lawsuit succeeds, the whistleblower can get 15-30% of the recovery as a reward for bringing the fraud to light. (The government recovers the rest.)
So qui tam lawsuits are a win-win – the government recovers stolen funds, and whistleblowers have a strong incentive to report fraud. No wonder nearly 75% of recoveries arise from qui tam cases. Whistleblowers are crucial to uncovering complex fraud schemes.
Some famous False Claims Act qui tam cases include:
- A sales rep who blew the whistle on a pharma company illegally marketing drugs for unapproved uses. Recovery: $3.3 billion
- A quality manager who exposed kickbacks and unsterile conditions at a medical device maker. Recovery: $350 million
- A recruiter who revealed fraud in National Guard reenlistment bonuses. Recovery: $16 million
Without insiders blowing the whistle, many fraud schemes would go undetected. Qui tam lawsuits are a powerful tool for fraud enforcement.
Defenses and Limitations
There are some defenses that defendants have asserted in False Claims Act cases. For example:
- Lack of intent – A defendant must knowingly submit false claims. Gross negligence or honest mistakes don’t count. But proving intent can be tough for prosecutors.
- Statute of limitations – Charges must be brought within 6-10 years. Old claims are barred. But violations may go undetected for years.
- Government knowledge – If the government knows about alleged fraud but keeps paying claims anyway, that can weaken the case. Defendants argue the government wasn’t really “deceived.”
There are also some limitations built into the law itself:
- The public disclosure bar – Qui tam lawsuits are blocked if the fraud has already been publicly disclosed through government reports, the news media, etc. (Unless the relator is an “original source” of the information.)
- No false claims against foreign governments – The law only applies to false claims made against the U.S. government.
- “Tax bar” – Claims seeking federal tax relief are not actionable under the False Claims Act.
So those are some of the key defenses and limitations to be aware of. Despite these restrictions, the False Claims Act remains a sweeping and potent tool for fraud enforcement. Billions are recovered annually across many sectors of government spending.
Looking Ahead
The False Claims Act has come a long way since its Civil War origins. Back then it was about stopping crooked Army contractors. These days, healthcare fraud is the 800-pound gorilla – most recoveries arise from dodgy healthcare providers. But defense, disaster relief, small business loans, and many other programs are enforced under the law.
Some emerging areas to watch:
- Cybersecurity – As government databases become more digitized, cyber fraud is growing risk. Expect more cyber false claims cases in the future.
- Opioid crisis – With billions in healthcare costs related to opioids, fraudulent marketing and prescribing is under scrutiny.
- Cryptocurrency and blockchain – As government adopts new fintech like Bitcoin, it also opens new risks of fraud in digital payments.
No doubt about it, fighting fraud is an ongoing battle. As government programs and technology evolve, so do the tactics of swindlers and profiteers. The False Claims Act will continue to be amended and sharpened to meet new challenges. Whistleblowers and fraud investigators will need to stay vigilant. Trillions in taxpayer dollars are at stake.
The bottom line? Don’t even think about trying to rip off Uncle Sam. With the False Claims Act watching, fraudsters are likely to get caught and pay a hefty price. The law has recovered over $62 billion since 1986. And with whistleblowers and prosecutors on the case, many more billions will be recovered in the years ahead.
References
[1] – The False Claims Act – Civil Division – Department of Justice
[2] – A Primer The False Claims Act (FCA), 31 U.S.C. §§ 3729 – 3733 was enacted in 1863 by a Congress concerne – Department of Justice
[3] – 31 U.S. Code § 3729 – False claims – Law.Cornell.Edu
[4] – 31 U.S. Code § 3730 – Civil actions for false claims – Law.Cornell.Edu
[5] – NEW YORK FALSE CLAIMS ACT