The False Claims Act (Explained Simply): The Whistleblower's Guide To The Lincoln Law and How It's Used To Fight Fraud Against The Government

Introduction to the False Claims Act

(The Secret Weapon Used To Fight Waste, Abuse and Fraud Against The Government)

The False Claims Act (FCA) is important legislation that provides robust protection to relators (whistleblowers). The FCA allows these private individuals to file lawsuits in the name of the govt. against people or businesses that defraud the Federal Government.

Qui tam bounties for people who come forward can be significant. The penalties for filing a fraudulent claim can be severe. Consulting a False Claims Act attorney for whistleblowers before a qui tam action is strongly recommended.

Reviewing the following guide will give persons with knowledge of a pattern to defraud the government a better understanding of available protections, risks and rewards of blowing the whistle.

"Over $56 billion has been recovered as a result of cases filed under the False Claims Act since the 1986 amendments were passed..."
qui tam lawsuits

 

 

Have Knowledge of Fraud?

Keep reading to learn how whistleblowers are rewarded to help fight fraud against the government.

 

 

The Federal False Claims Act (Brief Story of FCA)

Beginning of False Claims Act (Lincoln Law)

  • The False Claims Act was enacted by Congress on March 2nd, 1863 (12 Stat. 696). Commonly known as the “Lincoln Law” because of the history. During the Civil War people were defrauding the Union Army through dishonest business dealings (U.S.C. §§ 3729 - 3733).
  • The FCA became a powerful tool because of a “Qui-Tam” provision that awarded “whistleblowers” for protecting the Union Army from these unscrupulous people.
  • The FCA allows the Federal Government to administer severe civil penalties on those responsible for defrauding the government.
FCA financial recovery statistic

Expansion of FCA (Important Changes)

  • The FCA was primarily used against defense contractors until amendments expanded it 1986. Since then “amendments have led the Government to recover over $20 billion...of which $12.6 billion has been the result of qui tam actions” (GOV)
  • In the 1990s Act started being applied to healthcare fraud. Recovery of fraud against Medicaid/Medicare increased.
  • Rewards for the whistleblowers responsible for disclosing the fraudulent also increased. In 2009 the FCA was amended again by the Fraud Enforcement and Recovery Act (FERA). This has significant impact on healthcare providers and expanded the “reverse false claims” provision.

Major importance to U.S. and State Governments

  • The False Claims Act is of major importance because it empowers private citizens to report fraud and take civil action on behalf of the Government. These private individuals (whistleblowers/relators) have insider's knowledge and are incentivized to come forward and expose abuse with financial bounties. They are in the best position to report violations and expose fraud perpetrated upon govt. spending. This enables State and Federal agencies to recover billions of dollars in losses obtained through illegal activities. In turn the Federal Government rewards and protects the whistleblowers for their lawful and civic duty.

Violations of FCA (Liability Requirements)

Violations of the False Claims Act are most commonly encountered in the healthcare industry (including drug companies, hospitals, pharmacies, laboratories, and physicians). It is also used for civil remedy to redress government contract abuses and procurement related spending. This section will quickly outline what is considered a violation of the Federal False Claims Act.

Key Elements for an FCA Violation (Two Factors Needed)

Two Key elements for liability in an FCA violation are that the act is against the Government and it is knowingly perpetrated. (Examples included)

  • The First Element: The fraud needs to be perpetrated against the Federal government, State government or government agency. An example would be a defense contractor presenting a statement for payment of supplies they knew to be defective to the US Army.
  • The Second Element: The perpetrator must knowingly or deliberately show ignorance of the fraudulent action. A good example is a Doctor’s office knowingly providing unnecessary procedures to patients and intentionally over-billing Medicare. More commonly known as Medicare Fraud.
Types of Violations (Receipt of Payments, Avoidance of Payments, Conspiring with others and Submission of False Claim)
  • Receipt of Payment: The most prevalent type of FCA violation is payment to a person, company or other entity that is directly or indirectly responsible for defrauding the Government.
  • Avoidance of Payment: Also known as reverse false claims. Instead of getting paid by the Government these persons or businesses are intentionally not paying or providing services or property owed to the Government.
  • Conspiring with Others: This portion of the FCA allows liability to be placed on any person or entity who intentionally conspires with others to defraud the government.
  • Submission of False Claim Constitutes Liability: For an FCA violation to exist payment or avoidance of payment is not necessary. Submitting to the government false statements or false records for payment is enough to establish liability.

To summarize, False Claims Act violations require two things. First, the false claim needs to be perpetrated against a Federal, State or Government agency. Secondly, the culprit needs to knowingly attempt to defraud the government. Once these are proven severe civil penalties will be enforced.

 

Healthcare Fraud

Example #1: Medicare and Medicaid Fraud
  • Medicare & Medicaid Fraud
  • Entities that receive reimbursements from Medicare or Medicaid funds who defraud, misrepresent or submit false claims may be in violation. Hospitals, hospices, physicians, pharmacies, nursing homes and laboratories are considered government contractors and subject to the law and may be liable.

    Common violations include practices such as billing schemes, upcoding, knowingly providing expired or defective products to patients, kickback schemes, and false reporting of services or treatments to name a few.

Example #2: Pharmaceutical Fraud
  • Pharmaceutical Fraud:
  • Taking a variety of forms, pharmaceutical fraud can include conduct such as providing or selling drugs not approved by the FDA, knowingly providing expired medications, charging for unused or returned drugs, or charging higher prices to the Govt. than allowed by law.

    Additionally, a number of kickback schemes, unlawful marketing, promotion and use of pharmaceuticals beyond the indications approved by the FDA may be in violation.

Civil Penalties (Cost of Violating FCA)

When FCA violations occur the people or businesses responsible are held accountable by the Federal Government. There are two penalties and these are costly. The two penalties are fines per violation and a multiplier of damages.

The Cost of Violating the Law
"Whistleblowers are critical to help root out those who exploit government programs."

Fines per Violation

  • Responsible parties will incur civil penalties between $5,000-$10,000 for each false claim.
  • In 2016 the Act began allowing inflammatory adjustments to these fines. Fines can now be $10,781 to just over $21,563 per claim.

Multiplier of Damages

  • The defendant will be fined three times (3x) the total amount the government is defrauded.

False Claims Act - Largest Fines

  • 2012 - Glaxosmithkline, LLC paid $1.5 billion in FCA recovery. Part of a settlement fine for promoting drugs for non-FDA approved use, making false claims and misleading statements about the safety of drugs and paying kickbacks to Doctors. Relators (Whistleblowers) received $131 million for their portion of the settlement.
  • 2009 - Pfizer, Inc paid $692 million (including interest) in Federal recoverables under the FCA. This was part of a settlement for illegally marketing drug brands that caused federal healthcare programs like Medicare and Medicaid to charge for medications not covered. Whistleblowers received $106 million for their part of the settlement.

The Federal Government penalizes corporations for violating the False Claims Act. These fines are significant, and whistleblowers share in the settlement.

Who can file a FCA Claim? (The Anatomy of a Qui-Tam Action)

This section will review that FCA lawsuits are not always filed by the Federal Government.

The False Claims Act has a “Qui-Tam” provision allowing private individuals to sue on the Government’s behalf.

Who can file FCA Claims?

Any entity or person can file a claim under the False Claims Act. Three factors plaintiffs should know before filing a claim.

  • Evidence - Plaintiffs need evidence of fraud committed against the Government to pursue a claim under FCA.
  • First to File - Taking quick action is important. The FCA has a “first to file” clause. Only one lawsuit can be filed under the FCA based on the same evidence or related action based on the facts. After that only the Government can intervene on behalf of the plaintiff.
  • Legal Representation - Any person or entity considering action under the False Claims Act should receive counsel from a qualified FCA Attorney. The outcomes in FCA cases allows qualified lawyers to work on retention.

Can a Second False Claim be filed against a company?

  • Possibly. FCA Cases follow the first-to-file rule. This rule is specific to “related actions based on the facts”. Companies doing business with the Government can be involved in multiple transactions which can have a variety of contexts. While the defendant has a pending FCA case it may be based on different circumstances. Consulting a lawyer is important in cases of this type.

What is Qui Tam?

  • A writ of Qui-Tam is when a private individual who aids in the prosecution of a defendant can receive all or some of the monetary fines and penalties imposed.

Anyone can file an FCA Claim. The plaintiff needs to file first and have evidence of fraud perpetrated against the government. An lawyers that specializes in the False Claims Act should be consulted and typically works on retainer. A properly handled FCA Claim can result in rewards for the whistleblower who is responsible for the qui-tam action.

financial legal bounty

Whistleblower Rewards (Relator Bounties)

Rewards for whistleblowers are clearly outlined in the False Claims Act. To qualify for a relator bounty you must file a qui-tam lawsuit. Simply informing the government of fraud is not enough. Once the case is settled the Government awards a percentage of the recovered funds to the plaintiff. This reward is 15%-30% of the recovery.

Rewards with Government Assistance

  • The Federal Government has the right to intervene in FCA Claims cases. They will provide assistance or even take-over the case. This does not revoke the plaintiffs right to an award for originally filing the lawsuit. However, it has good and bad repercussions.
    • The Good: The Government typically only gets involved in large cases or cases it believes it can win. Also, the Government is on your side which brings an enormous amount of resources to the case.
    • The Bad: The False Claims Act diminishes the total percentage of the awarded recovery. The plaintiff receives 15%-25%.

Rewards without Government Assistance

  • If the Federal Government does not intervene in an False Claims Act case the rewards for the plaintiff are higher.
  • A plaintiff will receive no less than 25% of the amount recovered by the Government and no more than 30% of the recovered amount.

Additional Reimbursements

  • Regardless of whether or not the Government intervenes, plaintiffs in a winning case will be entitled to additional reimbursements.
    • Reasonable expenses incurred during the case
    • Legal fees and costs.

Defendant Pays

  • The FCA stipulates that all awards and additional reimbursements will be paid by the defendant.

Plaintiffs filing “qui-tam” actions against wrongdoers under the False Claims Act are rewarded between 15%-30% of the recovered settlement. Proper legal representation in a Qui-Tam suit case is highly recommended.

window for qui tam legal actions

False Claims Act Statute of Limitations

The False Claims Act has a variety of Statute of Limitation rules. The following is a brief synopsis.

  • The False Claims Act requires qui-tam lawsuits be filed no later than 6 six years after the violations occurred...
  • Or no more than three years after the Government knows about the violations...
  • Or in either case it can be no longer than 10 years after the violations occurred
  • Or the Statute of Limitations can be interpreted differently from one circuit court to another.

The correct timing and accounting for the Statute of Limitations on FCA whistleblower claims in very important. This timeline should be reviewed with experienced FCA counsel quickly to ensure no opportunity is missed.

Where and How to file FCA Claims

Filing a False Claims Act lawsuit requires specific procedures. Whistleblower’s must follow these procedures correctly of risk dismissal of the claim. Reviewing the steps for filing qui-tam FCA lawsuit is highly recommended.

Statutory Rewards:
Stepping forward to expose unlawful actions to defraud the government pays. To date over 5.3 Billion has been awarded to whistleblower in relator bounties resulting from cases brought under the Federal False Claims Act.

Where to file FCA Claims?

  • Relators (whistleblowers) must file FCA complaints under seal in United States District court.
  • A copy of the complaint must also be filed with the US District Attorney and with the office of the Attorney General of the United States.

What is needed in the complaint?

  • An official written statement of allegations against the defendant.
  • An accounting of all physical and material evidence supporting the plaintiff's accusations.

What does filing under seal mean?

  • By filing “under seal” means no one is aware the case has been filed against the defendant. Not even the defendant.

How long can it be sealed?

  • The Government has 60 days to review the claim and investigate the relator's accusations. The Government can prolong its investigations. This can cause the case to remain sealed for months or years. Prolonged sealed cases are not subject to the Statute of Limitations because the case has been filed within the necessary time limit.

Unsealing and Informing

  • Once the US Attorney and Federal Government are ready to proceed they will notify the plaintiff before unsealing the case and making it public. The Federal Government will also inform the plaintiff of their role in the prosecution of the case.

State Government’s False Claims Act

A number of States have begun adopting and codifying the Federal False Claims Act to fit their needs. This is because of the tremendous success of the FCA providing civil remedy to redress fraud against the Federal Government. 32 States now have their own version of the False Claims Act.

* The following 32 states have enacted False Claims Act legislation:
Arkansas, Delaware, Hawaii, Louisiana, Minnesota, New Jersey, Oklahoma, Utah, California, District of Columbia, Illinois, Maryland, Montana, New Mexico, Rhode Island, Vermont, Colorado, Florida, Indiana, Massachusetts, Nevada, New York, Tennessee, Virginia, Connecticut, Georgia, Iowa, Michigan, New Hampshire, North Carolina, Texas, Washington.

Following the model of the federal legislation, statutes provide incentives to persons who alert the government of fraudulent actions. These new FCA enactments allow whistleblowers who file a qui tam claim on behalf of the State a percentage of the recovery received by local and State government following action. In addition, municipalities have begun enacting their own false claims acts to fight abuses on the municipal level.

Bottom Line

The Federal False Claims Act is a remarkable piece of legislation. Enacted over 155 years ago and amended throughout the years, it continues providing a civil path and reward for people who have knowledge of fraudulent actions and who are willing to step up and do the right thing.

When considering a lawsuit under the qui tam provision, whistleblowers should seek counsel from a experienced False Claims Act attorney. While this guide provides a comprehensive overview, your FCA lawyer will be able to review the unique details of your claim. Speak to a legal professional to help you determine if you have a valid claim, the potential rewards, and the protections provided by the law if you blow the whistle as well as the actions necessary to protect your rights in this complex matter.

 

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