The Federal False Claims Act Explained

The law empowers whistleblowers because it is those brave individuals who have the information the government needs to successfully fight the battle against rampant and costly fraud. By providing a private right of action, financial incentives, and the legal basis to sue for retaliation, the False Claims Act makes it possible for individuals to stand up against anyone who commits fraud against the government. These rights enable individuals to stand against the largest corporations in the world when those companies commit fraud.

A Law with Civil War Roots

The original version of the False Claims Act was created under the Lincoln Administration in 1863. Congress saw the need to provide incentives for whistleblowers due to the epidemic of fraud committed against the Union Army during the Civil War. Even today, 150 years after Congress created the law, it remains the best way to fight fraud committed by defense contractors. For a more comprehensive look at the FCA’s full 150-year history, from the Civil War until now, please visit this page.

Whistleblowing: a modern day resurgence

It is not always popular, to say the least, to fight those who would take an easy route to loot the U.S. Treasury. As a result, the initial version of the False Claims Act was attacked legislatively, and it was rendered ineffective by congressional amendments for much of its history. However, in 1986, new legislative amendments revitalized the law and we have witnessed a new era of successful False Claims Act cases as a result. Since the 1986 amendments went into effect, the government has recovered billions of dollars from False Claims Act cases. Two additional amendments have strengthened the Act. The Fraud Enforcement Recovery Act (FERA) of 2009 and portions of the Affordable Care Act have both benefited whistleblowers. You can view a pdf copy of FERA here.

Obviously the Affordable Care Act has a controversial legislative history, having nothing to do with its affect on whistleblower law. It is therefore, worth noting that FERA passed with an overwhelming, bipartisan congressional majority. The FERA may be the most important advance in False Claims Act law since the 1986 amendments. This legislation reversed many problematic holdings and clarified terms which had previously limited the scope of liability under the False Claims Act.

The FERA clarified technical terms including “claim” and “obligation” providing new and important definitions of these terms. It dealt with the limiting so called “presentment requirement” which had been invoked in difficult decisions. The overall effect of the FERA included the fact that it would now be clearly possible to hold sub-contractors liable, and to expand the reach of the False Claims Act generally. Now it would possible to file a case when federal money was at stake in almost any fraudulent scheme.

The Affordable Care Act also included provisions which strengthened the False Claims Act. The False Claims Act has a provision called a “public disclosure bar,” which prevented individuals from filing a case based on information which had been publicly disclosed. The idea was to prevent individuals from profiting based on information the government already knew. The exception to the public disclosure bar is that if an individual can show he or she is an “original source” of the information that individual can still file a False Claims Act case. This area of the law was, up until 2010, one of, if not the most litigated issue under the False Claims Act. The public disclosure bar was jurisdictional, which meant that any party could raise the issue at any time and have the individual’s case dismissed. The Affordable Care Act changed that. The public disclosure bar still exists, but the requirements for material to be considered at disclosure are more narrowly and specifically stated. Those requirements have not been litigated yet, however, so no one can say for certain how they will work. In addition, the government now has the option to oppose any invocation of the public disclosure bar and can therefore save the Relator’s position in the case if it so chooses. We will have to wait and see under which circumstances the government may decide to invoke this right.

We do know that, according to the U.S. Department of Health and Human Services and the DOJ, the Affordable Care Act has made great strides toward combating health care fraud, waste and abuse. The two federal agencies note that as of this writing the government has recovered a “record-breaking $10.7 billion in recoveries of health care fraud in the last three years.” You can read more about that here.

Among the tools used by the ACA to fight fraud are tough new rules and sentences for those convicted of health care fraud, enhanced screening for those thought to pose a higher risk of fraud, predictive modeling technology and a $350 million boost to anti-fraud investigations and efforts.

In the meantime, these improvements and additions to the law are unlikely to change the fact that successful cases overall almost always rely upon information provided by whistleblowers; this is the kind of information the government most likely would have no other way to obtain.

Whistleblowers, the people who find out exactly how a company is stealing government funds, are the key to the system. Fraudulent activity or a false claim is itself usually a relatively simple matter. At some point it boils down to somebody fudging the books or falsifying contracts or documents in order to get paid or pocket extra money.