Three years ago, our whistleblower lawyer blog presented an in-depth article discussing the nation’s major whistleblower law, the False Claims Act, and the wave of new state False Claims Acts.

Since then in 2009-2010, Congress has amended the False Claims Act three times to remove obstacles created by courts, which had limited the law’s effectiveness. To reflect those important and needed changes in the law, I have updated this article to present at the 2010 Fraud and Compliance Forum sponsored by the American Health Lawyers Association and Health Care Compliance Association.

That detailed article is excerpted here to explain the False Claims Act, with its 2009-2010 amendments. For ease of reading, it is divided into six parts:

Part 1: Introduction: What You Should Know About the False Claims Act And New State False Claims Acts After the 2009-2010 Amendments

Part 2: The False Claims Act and the Increasing Number of State False Claims Acts

Part 3: The False Claims Act: Background & History

Part 4: How the False Claims Act Works After the 2009-2010 Amendments (with Comparisons to Some State False Claims Acts)

Part 5: The Trend of Recoveries Under the False Claims Act

Part 6: States’ Experiences With Their Own False Claims Acts

If you have any questions about a potential False Claims Act case, please feel free to contact us at 800-228-9159, or send an email through the link here.
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This is Part 1 of an updated explanation of the major qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. This Part 1 provides an introduction to the False Claims Act.

In 2010, more than ever, it is essential for lawyers to understand their clients’ potential liabilities under the federal False Claims Act (“FCA”). The health care industry increasingly has become the major focus of the federal government’s enforcement efforts, and usually pays at least two-thirds of the money recovered each year under this anti-fraud statute.

Adding to the health care lawyer’s challenges, since 2009 Congress has amended the False Claims Act three times, primarily to overturn judicial decisions that once created obstacles to FCA actions. Those amendments also have created an important new basis of FCA liability – retention of overpayments – which has great significance to health care providers. These 2009-2010 amendments make the FCA a far more effective enforcement tool for the government, and thus a much greater problem for defendants accused of health care fraud.

Further, a wave of new “whistleblower” statutes continues, inspired by the successes of the False Claims Act. These new laws include (1) an increasing number of state versions of the federal False Claims Act; (2) the new IRS Whistleblower Rewards Program; and (3) new “SEC Whistleblower” and “CFTC Whistleblower” programs, authorized in July 2010 as part of the Dodd-Frank Financial Reform Act. By encouraging employees, contractors, and others to report allegations of fraud, these new whistleblower provisions create substantial concerns for health care organizations and other defendants alleged to be liable.

This article provides an overview of what health care lawyers should know about the federal False Claims Act and the new state False Claims Acts. As discussed below, the state Acts mirror the federal False Claims Act in important respects, but can differ in some significant ways.
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This is Part 2 of an explanation the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. This Part 2 discusses the sound policy reasons underlying the False Claims Act.

I. Why Have A “False Claims Act”?

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

For those who are caught committing fraud, the chances of being prosecuted and eventually going to jail are slim. . . . The sad truth is that crime against the Government often does pay.(Quoted from legislative history of 1986 amendments to False Claims Act).

Fraud – and allegations of fraud – plagues government spending at every level. Today, as the federal government struggles to fund the hundreds of billions of dollars spent annually on health care through Medicare, Medicaid, and other programs; the Iraq and Afghanistan wars; the financial “bailout” measures enacted after the 2008 financial collapse; disaster relief efforts; and government grants and programs of every description, there is no shortage of opportunities for fraud against the public fisc.

The federal False Claims Act has been the federal government’s “primary” weapon to recover losses from those who defraud it. The Act not only authorizes the government to pursue actions for treble damages and penalties, but also empowers and provides incentives to private citizens to file suit on the government’s behalf as “qui tam relators.” Over the past two decades, recoveries for the federal government have grown dramatically since Congress amended the Act in 1986 to encourage greater use of the qui tam provisions, as part of a “coordinated effort of both the [g]overnment and the citizenry [to] decrease this wave of defrauding public funds.”

The federal False Claims Act since 1986 has been successful in recovering more than $27 billion, increasingly through qui tam lawsuits brought by private citizens. In light of the federal Act’s successes, Congress in the Deficit Reduction Act of 2005 created a large financial “carrot” for states that adopt state versions of the False Claims Act. Any state that passes its own “False Claims” statute with qui tam or whistleblower provisions that are at least as effective as those of the federal Act becomes eligible for a 10% increase in its share of Medicaid fraud recoveries.
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This is Part 3 of an updated explanation of the major qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. This Part 3 explains the history of the False Claims Act and why effective whistleblower laws are important.

II. Background of the Federal False Claims Act

Although the False Claims Act may be the best known qui tam statute, it is far from being the first. Qui tam actions date back to English law in the 13th and 14th Centuries. This tradition took root in the American colonies and, by 1789, states and the new federal government had authorized qui tam actions in various contexts.

According to one writer:

In the early years of the Nation, the qui tam mechanism served a need at a time when federal and state governments were fairly small and unable to devote significant resources to law enforcement. As the role of the Government expanded, the utility of private assistance in law enforcement did not diminish. If anything, changes in the role and size of Government created a greater role for this method of law enforcement.

A. Birth of the False Claims Act:

The Civil War prompted Congress to enact the original False Claims Act in 1863. As government spending on war materials increased, dishonest government contractors took advantage of opportunities to defraud the United States government. “Through haste, carelessness, or criminal collusion, the state and federal officers accepted almost every offer and paid almost any price for the commodities, regardless of character, quality, or quantity.”

One senator explained how the qui tam provisions of the Act were intended to work:
The effect of the [qui tam provisions] is simply to hold out to a confederate a strong temptation to betray his co-conspirator, and bring him to justice. The bill offers, in short, a reward to the informer who comes into court and betrays his co-conspirator, if he be such; but it is not confined to that class. . . . In short, sir, I have based the [qui tam provision] upon the old fashioned idea of holding out a temptation and setting a rogue to catch a rogue, which is the safest and most expeditious way I have ever discovered of bringing rogues to justice.

The original Act provided for double damages, plus a $2,000 forfeiture for each claim submitted. If a private citizen or “relator” used the qui tam provision to file suit, the government had no right to intervene or control the litigation. A successful “relator” was entitled to one-half of the government’s recovery.

The Act survived in substantially its original form until World War II. In a classic and oft-quoted 1885 passage, one court rejected the argument that courts should limit the statute’s reach on the grounds that qui tam actions were poor public policy:

The statute is a remedial one. It is intended to protect the treasury against the hungry and unscrupulous host that encompasses it on every side, and should be construed accordingly. It was passed upon the theory, based on experience as old as modern civilization that one of the least expensive and most effective means of preventing frauds on the treasury is to make the perpetrators of them liable to actions by private persons acting, if you please, under the strong stimulus of personal ill will or the hope of gain. Prosecutions conducted by such means compare with the ordinary methods as the enterprising privateer does to the slow-going public vessel.
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This is Part 5 of 6 of a recently updated article about the qui tam whistleblower statutes, the federal False Claims Act and the new state False Claims Acts. This is an updated version of a previously published article by whistleblower lawyer blog author Michael A. Sulliva.

This Part 5 discusses the striking success of the False Claims Act since its 1986 Amendments, as it has recovered more than $27 billion in taxpayers’ money wrongfully obtained by fraud and false claims.

IV. The Trend of Recent Recoveries Under the False Claims Act

Over the past twenty-four years since the modern False Claims Act was established through the 1986 Amendments, the federal government’s recoveries of dollars have grown astronomically, especially in health care cases. The Department of Justice (“DOJ”) statistics tell the story:

In 1987, the government’s recoveries in qui tam cases totaled zero, presumably because the 1986 Amendments had just taken effect; and total recoveries under the False Claims Act were just $86 million. The following year, qui tam and other False Claims Act settlements and judgments began a steady climb upward, exceeding $200 million by 1989, and $300 million by 1991. By 1994, the government’s recoveries broke the $1 billion mark for the first time, with $380 million of that amount attributable to qui tam case recoveries alone.

In 2000, the government recovered more than $1.5 billion, of which $1.2 billion was derived from qui tam actions. In 2001, the government recovered more than $1.7 billion, with almost $1.2 billion of that amount from qui tam cases. With the exception of 2004, in each year since 2000 the government has recovered more than a billion dollars per year under the False Claims Act, and qui tam actions were responsible for the lion’s share of those recoveries. For example, in 2003, government recoveries exceeded $2.2 billion, of which $1.4 billion came from qui tam cases. Similarly, in 2005, of the government’s total recovery of $1.4 billion, $1.1 billion of that amount came from qui tam cases.

In 2006, the Justice Department recovered a record of more than $3.1 billion in settlements and judgments for fraud and false claims. Of this record $3.1 billion in recoveries, 72% came from the health care field; 20% from defense; and 8% from other sources. In that record year, health care alone accounted for $2.2 billion in settlements and judgments, which included a $920 million settlement with Tenet Healthcare Corporation, the country’s second-largest hospital chain. Defense procurement fraud amounted to $609 million in recoveries, which included a $565 million settlement with the Boeing Company.

In 2010, DOJ set a record for health care fraud recoveries of $2.5 billion, out of a total of $3 billion recovered from civil fraud claims. $2.3 billion of that $3 billion resulted from qui tam cases. DOJ also set a two-year record for recoveries of $5.4 billion in 2009-2010, most as a result of qui tam cases.
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