The False Claims Act (FCA), 31 U.S.C. §§ 3729 – 3733 was enacted in 1863 by a Congress concerned that suppliers of goods to the Union Army during the Civil War were defrauding the Army. The Act provided that anyone who knowingly submitted a false or fraudulent claim to the government was responsible for twice the government’s damages, plus a fine. Over the last 150 years, the FCA has been expanded and extended by virtually every administration, republican or democrat, because it efficiently promotes the active recovery of claims fraudulently submitted to the government. Many states, including Montana, have enacted similar laws for claims submitted to the state. The success of the FCA is in large part due to the incentive it provides those with knowledge of fraudulent billing practices involving the government.
The False Claims Act
The FCA is unique in that it provides a private right of action (the right to file a lawsuit) to recover false or fraudulent claims submitted to the government. Typically, individuals do not have any right of action against a party that harms the United States, but the FCA contains an ancient legal device called a “qui tam” provision (from a Latin phrase meaning “he who brings a case on behalf of our lord the King, as well as for himself”). This provision allows a private person, known as a “relator,” to bring a lawsuit on behalf of the United States, where the private person has information that the named defendant has knowingly submitted or caused the submission of false or fraudulent claims to the United States. The relator need not have been personally harmed by the defendant’s conduct.
The relator who comes forward with unique knowledge of the fraud can file a complaint on behalf of the United States Government and shares in the recovery of the funds fraudulently billed. The FCA then provides the government with the opportunity to pursue the fraud and attempt to recover it, or decline to take any action. Depending on whether the government decides to intervene or not, a relator is entitled to anywhere from 15% to 30% of the total amount recovered. Depending on the circumstances, this could mean that the relator is entitled to several million dollars for assisting the government in recovering fraudulently obtained funds.
Liability
The statute begins, in § 3729(a), by explaining the conduct that creates FCA liability. In very general terms, §§ 3729(a)(1)(A) and (B) set forth FCA liability for any person who knowingly submits a false claim to the government or causes another to submit a false claim to the government or knowingly makes a false record or statement to get a false claim paid by the government. Section 3729(a)(1)(G) is known as the reverse false claims section; it provides liability where one acts improperly – not to get money from the government, but to avoid having to pay money to the government. Section 3729(a)(1)(C) creates liability for those who conspire to violate the FCA.
Damages and Penalties
After listing the seven types of conduct that result in FCA liability, the statute provides that one who is liable must pay a civil penalty of between $5,000 and $10,000 for each false claim (those amounts are adjusted from time to time; the current amounts were $5,500 to $11,000, but have recently increased dramatically) and treble the amount of the government’s damages. Where a person who has violated the FCA reports the violation to the government under certain conditions, the FCA provides that the person shall be liable for not less than double damages.
On February 3, 2017, the Department of Justice (DOJ) announced that False Claims Act (FCA) penalties will once again be increasing, effective immediately. Pursuant to the 2015 budget bill, which requires annual re-indexing of FCA penalties for inflation, the minimum per-claim penalty will increase to $10,957 (it jumped from $5,500 to $10,781 last year). The maximum per claim penalty will increase to $21,916 (after jumping from $11,000 to $21,563 last year). The penalties will continue to be adjusted each year to reflect changes in the inflation rate, required to be done no later than January 15th of every year. Each agency is to publish regulations in the Federal Register that note the adjustment of civil monetary penalties (CMP) within its jurisdiction.
These penalties are assessed per claim submitted to the federal government, meaning that any one case can result to countless instances of false claims being submitted. For example, one of the most common types of FCA cases is in the healthcare industry. It is no surprise that the federal government spends enormous amounts of money on health care in the form of Medicare and related programs. Employees of hospitals, nursing homes, or other health care providers often have access to documents and information that could show overcharging of patients, or charging for services never provided, which are often then submitted by the hospital to Medicare or Medicaid for payment. Each time one of these claims is submitted (even if it overcharged the government $1, gives rise to a separate penalty of anywhere between the minimum of $10,957 and the maximum of $21,916. Considering the number of patients treated each day at any given institution, the fines alone can total tens of millions of dollars.
Although the healthcare industry is particularly susceptible to FCA claims, it is only one example of how the FCA is applied. The Act would also apply to military defense contractors or anyone contracted by the federal government to provide a good or service. Wherever someone is being paid by the government, the possibility for a claim under the FCA exists. The Act also applies where an individual or entity avoids an obligation to pay (or repay) the federal government. So, if an entity such as a hospital submits a claim it believes to be legitimate and is paid by the federal government, the entity can still be liable under the FCA if it subsequently determines it is not entitled to the payment.
Conclusion
Committing fraud in order to obtain money or benefits from the government, whether it is the state or the federal government, is a huge risk. Not only is it a crime that has sent many people to prison with long sentences, it also exposes companies and individuals to incredibly severe financial penalties. Because the FCA allows individuals with unique knowledge of the fraudulent practices to sue on behalf of the government and keep a portion of whatever the government is able to recover, there is an incredible incentive for employees, agents and officers of corporations to expose fraud. This incentive has created one of the most efficient ways for the government to recover wasted funds. Not only is exposing fraudulent practices beneficial to society at large, it can lead to enormous recoveries for those brave enough to stand up to illegal fraudulent practices that hurt all taxpayers.