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The False Claims Act is the single most important tool U.S. taxpayers have to recover the billions of dollars stolen through fraud by U.S. government contractors every year.
Under the False Claims Act, 31 U.S.C. §§ 3729-3733, those who knowingly submit, or cause another person or entity to submit, false claims for payment of government funds are liable for three times the government's damages plus civil penalties of $5,500 to $11,000 per false claim.
The False Claims Act explicitly excludes tax fraud. Section 3729(e) states that the Act "does not apply to claims, records, or statements made under the Internal Revenue Code." That said, there is a newIRS Whistleblower law, separate from the Federal False Claims Act, which provides for up to triple damages and whistleblower awards of 15 to 30 percent of the amount recovered. To file under this section of the law, however, the tax, penalties, interest, and additions in dispute must total a sum in excess of $2,000,000. To report tax fraud for sums less than this amount, call the IRS Fraud Hotline at 1-800-366-4484 or see the IRS web site form.
Qui Tam Whistleblower Provisions
The False Claims Act contains qui tam, or whistleblower, provisions. Qui tam is a unique mechanism in the law that allows citizens with evidence of fraud against government contracts and programs to sue, on behalf of the government, in order to recover the stolen funds. In compensation for the risk and effort of filing aqui tam case, the citizen whistleblower or "relator" may be awarded a portion of the funds recovered, typically between 15 and 25 percent. A qui tamsuit initially remains under seal for at least 60 days during which the Department of Justice can investigate and decide whether to join the action
A Public-Private Partnership
Congress recognized that the Government alone, with its limited resources, was overmatched in the fight against rampant fraud. In response to widespread reports that the U.S. Treasury was being repeatedly bilked, in 1986 Congress rejuvenated a Civil War-era law-the False Claims Act. The 1986 amendments strengthened the False Claims Act's qui tam provisions, creating incentives for private citizens with evidence of fraud to commit their time and resources to supplement the Government's efforts. By doing so, Congress put into play a powerful public-private partnership for uncovering fraud against the federal fisc and obtaining the maximum recovery for American taxpayers.
Changing the Culture of Fraud
The False Claims Act is about more than money. It is also about discouraging fraud and changing the culture of corporate America. As Sen. Charles Grassley (R-IA) and Rep. Howard Berman (D-CA) have noted:
"Studies estimate the fraud deterred thus far by the qui tam provisions runs into the hundreds of billions of dollars. Instead of encouraging or rewarding a culture of deceit, corporations now spend substantial sums on sophisticated and meaningful compliance programs. That change in the corporate culture -- and in the values-based decisions that ordinary Americans make daily in the workplace -- may be the law's most durable legacy."
Who the Law Applies To
In general, the False Claims Act covers fraud involving any federally funded contract or program, with the exception of tax fraud.
While many qui tam actions in the late 1980s and early 1990s involved Department of Defense contracts, in recent years most qui tam actions have been used to fight Medicare fraud and fraud against other federally funded health care programs. A broad array of scenarios can constitute FCA violations. Some examples include the following:
- A contractor falsifies test results or other information regarding the quality or cost of products it sells to the Government;
- A health care provider bills Medicare for services that were not performed or were unnecessary, or;
- A grant recipient charges the Government for costs not related to the grant.
Types of Fraud Prosecuted Under the FCA
It is impossible to list all of the frauds that have been prosecuted under the False Claims Act, but the following list gives some idea of the scope of the false claims on the Government that have been uncovered to date:
- Billing for goods and services that were never delivered or rendered.
- Billing for marketing, lobbying or other non-contract related corporate activities.
- Submitting false service records or samples in order to show better-than-actual performance.
- Presenting broken or untested equipment as operational and tested.
- Performing inappropriate or unnecessary medical procedures in order to increase Medicare reimbursement.
- Billing for work or tests not performed.
- Billing for premium equipment but actually providing inferior equipment.
- Automatically running a lab test whenever the results of some other test fall within a certain range, even though the second test was not specifically requested.
- Defective testing - Certifying that something has passed a test, when in fact it has not.
- "Lick and stick" prescription rebate fraud and "marketing the spread" prescription fraud, both of which involve lying to the government about the true wholesale price of prescription drugs.
- Unbundling - Using multiple billing codes instead of one billing code for a drug panel test in order to increase remuneration.
- Bundling -- Billing more for a panel of tests when a single test was asked for.
- Double billing - Charging more than once for the same goods or service.
- Upcoding - Inflating bills by using diagnosis billing codes that suggest a more expensive illness or treatment.
- Billing for brand -- Billing for brand-named drugs when generic drugs are actually provided.
- Phantom employees and doctored time slips: Charging for employees that were not actually on the job, or billing for made-up hours in order to maximize reimbursements.
- Upcoding employee work: Billing at doctor rates for work that was actually conducted by a nurse or resident intern.
- Yield burning -- skimming off the profits from the sale of municipal bonds.
- Falsifying natural resource production records -- Pumping, mining or harvesting more natural resources from public lands that is actually reported to the government.
- Being over-paid by the government for sale of a good or service, and then not reporting that overpayment.
- Misrepresenting the value of imported goods or their country of origin for tariff purposes.
- False certification that a contract falls within certain guidelines (i.e. the contractor is a minority or veteran).
- Billing in order to increase revenue instead of billing to reflect actual work performed.
- Failing to report known product defects in order to be able to continue to sell or bill the government for the product.
- Billing for research that was never conducted; falsifying research data that was paid for by the U.S. government.
- Winning a contract through kickbacks or bribes.
- Prescribing a medicine or recommending a type of treatment or diagnosis regimen in order to win kickbacks from hospitals, labs or pharmaceutical companies.
- Billing for unlicensed or unapproved drugs.
- Forging physician signatures when such signatures are required for reimbursement from Medicare or Medicaid.
Limits on the False Claims Act
Though the False Claims Act is a powerful tool to combat fraud, it is a tool that is sharply constrained by both the law and economics of litigation.
- Tax issues are not covered by the False Claims Act.
- For a civil case to be filed, the fraud has to reach a certain size, otherwise it is generally not worth it for the relator to risk his or her career to file suit, nor is it worth it for a law firm to take on the case and risk the loss of the enormous time and expense that a False Claims Act represents.
- A defendant in a False Claims Act has to have relatively deep pockets. Many of the smaller companies that may be defrauding the government are liable to declare bankruptcy if faced with the triple damages that can be levied under the False Claims Act.
- A law firm that take on a False Claims Act case must believe it has a very strong case in order to proceed. Not only can a firm be out time and money, but if the government does not take the case and the whistleblower proceeds, he or she can be forced to pay the defendants attorney's fees if the court finds that the claim was frivolous or brought primarily for purposes of harassment.