The False Claims Act, 31 U.S. C. § 3729, et seq., is the federal government’s most important and most effective tool for fighting fraud. This post provides a high-level overview of the False Claims Act and highlights key aspects of this statute.
History of the False Claims Act
The False Claims Act is a Civil War-era statute passed in response to concerns that contractors and suppliers were regularly defrauding the Union Army by selling items such as moth-eaten blankets, injured cavalry horses and boxes of sawdust instead of guns. In 1863, at President Lincoln’s urging, Congress passed the False Claims Act, known as “Lincoln’s Law” since its passage.
Despite its important beginnings, the False Claims Act remained a little utilized tool until recently. The False Claims Act’s period of dormancy ended in 1986 when Congress passed amendments to the False Claims Act that expanded its scope significantly and breathed new life into what has now become the government’s primary enforcement tool against fraud. Amendments in 2009 and 2010 further strengthened this statute.
As it presently stands, the reach of the False Claims Act generally extends to individuals and entities who seek payment or reimbursement from the government. Those most likely to find themselves dealing with False Claims Act-related issues include healthcare providers seeking reimbursement from federal healthcare programs or government contractors who are paid to provide goods and services to the government. As its name suggests, when those individuals or entities submit “false claims” to the government for payment, the False Claims Act may be implicated.
The False Claims Act authorizes the United States to initiate False Claims Act actions independently. More frequently, however, False Claims Act lawsuits are initiated by private parties under the statute’s qui tam provision (derived from the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, meaning “he who sues in this matter for the king as well as for himself”), which permits those private parties—known as whistleblowers or relators—to stand in the shoes of the government and bring suit on its behalf.
A relator can be either a person or an entity. It is common for relators to be current or former employees—from corporate executives down to lower-level staff—as well as consultants, auditors or vendors who may have worked with the company and had access to company documents and information. Company outsiders have filed an increasing number of False Claims Act actions in recent years. These include competitors, industry experts, data miners, and public interest organizations.
False Claims Act Process
By statute, a qui tam lawsuit under the False Claims Act must be filed under seal and remains under seal for at least 60 days. The complaint is served only on the U.S. Attorney General and U.S. Attorney for the district in which it is filed. In contrast, the defendant is not served with the complaint as would occur in any other civil litigation or otherwise formally made aware of the lawsuit’s filing. Instead, the government is obligated under the False Claims Act to investigate the allegations in the complaint.
The government typically interviews the relator and other relevant witnesses during its investigation. The government may also serve interrogatories and compel the production of documents by the defendant and other third parties through Civil Investigative Demands or administrative subpoenas. Extensions of the seal period have become common and often lead to multi-year government investigations.
After its investigation, and assuming it has not negotiated a resolution with the defendant, the government must decide whether to intervene in the lawsuit. If the government decides to intervene, it takes over primary responsibility for litigating the matter from the relator. If the government does not intervene, the relator may litigate the action on the government’s behalf unless the government seeks a voluntary dismissal of the suit. If the case goes forward, the district court unseals the complaint, and the lawsuit proceeds before the district court like any other civil matter, with motion practice, discovery, and, ultimately, a trial.
Liability under the False Claims Act
Generally speaking, an individual or entity violates the False Claims Act if that individual or entity knowingly presents, or causes to be presented, a false or fraudulent claim to the government for payment or approval or knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim. In addition, a defendant may face liability for a “reverse” false claim if the defendant knowingly fails to repay the money or return the property to the government that it should not have received. The False Claims Act also reaches defendants who conspire to commit any of these violations.
Violations of the False Claims Act are punishable by treble (3x) damages, plus civil penalties per each false claim (which presently stand between $11,665 and $23,331 and are adjusted annually for inflation). Under the False Claims Act, a successful relator can receive a portion of any recovery from a defendant, whether secured at trial or through settlement. If the government intervenes in the qui tam action, the relator is entitled to 15% to 25% of any recovery the government secures. If the government declines to intervene and the relator successfully secures a settlement or judgment, the relator is entitled to 25% to 30% of any recovery. In addition, a successful relator is entitled to recover reasonable attorneys’ fees and expenses.
During the last 10 years, there have been nearly 6,700 qui tam lawsuits filed under the False Claims Act. In recent years, there has been a significant increase in the number of proactive False Claims Act matters opened by the U.S. Department of Justice (DOJ). These proactive matters reflect cases in which DOJ has identified suspected false claims in the absence of the filing of a qui tam lawsuit and has initiated an investigation on its own.
Since 1986, when Congress substantially strengthened the False Claims Act, the government has recovered more than $70 billion stemming from civil fraud settlements and judgments. DOJ recently announced that it secured $5.6 billion in total False Claims Act settlements and judgments during the fiscal year ending September 30, 2021. Given the massive amount of government dollars funding federal healthcare programs, the healthcare industry has traditionally been a significant source of False Claims Act recoveries. Over the last 10 years, the government has recovered more than $25 billion in civil fraud settlements and judgments involving the healthcare industry, including $5 billion in FY2021.
If you have any questions about the False Claims Act, please contact a member of Bass, Berry & Sims’ Healthcare Fraud & Abuse Task Force. Please also check out other posts on this blog where we dive deeper into specific aspects of the False Claims Act.