The False Claims Act (FCA) is a federal law which imposes liability on individuals and companies who defraud the federal government. The fraudulent acts committed under the FCA can take the following forms:
- falsely billing the government
- over-representing the amount of a delivered product
- under-representing the amount of an obligation to the government
Such acts are often committed by individuals or companies who have federal contracts, or are participating in federal programs like Medicare. The FCA sets out the criminal and civil penalties for those who defraud the government under the act.
The False Claims Act is also referred to as “the Lincoln Act”. This is because it was passed in 1863, during the presidency of Abraham Lincoln. The FCA was actually passed during the American Civil War. Its primary goal was to combat fraud by suppliers to the Union Army.
Since its enactment, the FCA has become one of the major tools used for combating fraud against the government. The law has been used against all types of frauds including those arising from defense contracts, health care programs and other government spending programs.
The FCA spells out the actions which can tantamount to fraud. Such actions are prohibited under the Act, and include the following:
- presenting false claims for payment or approval by the government
- falsely certifying the value of a property to be used by the government
- making a false record in order to avoid or decrease an obligation to pay to the government
- knowingly buying government property from an unauthorized officer
- using false records to make claims from the government
- certifying the receipt of property without ascertaining whether the information is true
Any person who commits, or participates committing the above actions has defrauded the government. He or she is liable to the civil and criminal penalties which are proportional to the loss they have caused the government.
However, there are two exemptions to the law. First of all, the FCA bars actions made against members of the armed forces, congress or the judiciary. Secondly, the law doesn’t cover claims made under the Internal Revenue Code of 1986. This means it doesn’t cover tax fraud.
The FCA has a Qui Tam provision which allows private individuals to file actions on behalf of the government. The Qui Tam is often referred to as the “whistleblowers” provision. This is because it is often filed by whistleblowers.
Under the Qui Tam provision, a private individual is allowed to file a lawsuit against an entity it suspects of defrauding the government. The FCA describes the person who brings the suit as a “relator”. In the case, the relator isn’t the plaintiff. The government is the plaintiff.
A relator can file suit under the False Claims Act in any federal District Court. The suit is filed under seal, which means that only the relator and the government know about it. Upon the suit being filed, the Department of Justice (in liaison with the District Attorney) investigates the case, and decides whether or not to proceed.
If the government decides to pursue the case, the relator is entitled to between 15% and 25% of any financial settlement in case the case is won. The real percentage depends on the contribution the relator makes towards the case.
In case the government chooses not to pursue the case, then the relator can choose to pursue it on their own. In case they win, they are entitled to a maximum of 30% of any financial settlement imposed on the defendant.
Qui Tam Cases
The majority of lawsuits filed under the FCA are brought by relators. Federal statistics reveal that close to 70% of all cases pursued by the government are brought by relators. In fact, the most high profile cases are often brought by relators.
A case in point is the Pfizer healthcare fraud suit of 2009. In the case, whistleblowers revealed that the drug giant was marketing drugs for uses which weren’t covered by government health programs. The drug giant ended up paying a settlement of $2.3 billion, and the relators bagged $102 million.
Most relators are usually either employees or former employees who inform on the internal operations of a company. In the Pfizer case, the whistleblowers were employees. Another famous case in 2010 involving GlaxoSmithKline PLC was filed by a former employee. The drug giant paid a $750 million settlement, and the relator earned $96 million. (http://blogs.wsj.com/briefly/2014/07/23/what-is-the-false-claims-act-the-short-answer/)
State False Claims Acts
Most states have their own False Claims Acts. These acts are typically designed to impose liability on individuals or companies who defraud state governments. These acts enable states to pursue frauds committed at state, county or municipal level.
State False Claims Acts are usually patterned after the federal FCA. Most of them have their own Qui Tam provisions under which private individuals can bring lawsuits. The Qui Tam provisions typically mirror the one in the federal FCA.
What separates most sates FCAs from the federal FCA (as well as the FCAs of other states) is the types of fraudulent acts which they cover. Most state FCAs only cover frauds committed under Medicaid. This means that other fraud committed under pensions, construction tax, utility, and escheatment aren’t covered. This leaves the states vulnerable to being exploited under those types of fraud.
Some states have FCAs which the U.S. Department of Health & Human Services deems as strong as the Federal FCA when it comes to Medicaid fraud. In such states, it is possible to file a Medicaid fraud lawsuit under the state FCA. In case of any financial settlements, the state is entitled to a 20 to 35% increase in their share.
The States which have False Claims Acts are the following:
California, Colorado, Connecticut, Delaware, Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Virginia and Washington.
A Rise In FCA Suits
There has been a steady rise in the number of lawsuits brought under the FCA over the last few years. The majority of those lawsuits are brought under Qui Tam. According to the Wall Street Journal, there were 500 Qui Tam lawsuits filed in 2013. This is about twice the number filed in 2008, click here for more.
The WSJ attributes the spike to the increased media coverage of whistle blowers getting a huge payday. For companies this increase in FCA cases means that they need to be vigilant to avoid getting dragged to court.