FCA Update
A Legal Moment

False Claims Act Update

   In 2018, total judgments and settlements under the federal False Claims Act amounted to more than $2.8 billion dollars with health care fraud accounting for more than 85% of the recoveries.  This month’s article revisits “Lincoln’s Law.”

   According to a report issued by the Justice Department in December, total judgments and settlements the Department recovered under the False Claims Act (“FCA”) topped $2.8 billion. Notably, 2018 statistics show that health care remains the top driver of FCA activity, both in the number of cases filed and total dollars recovered.  More than 85% of all 2018 recoveries were healthcare related.

   While reviewing the 2018 False Claims press release it struck me that it has been five years since I offered a primer to our readers regarding false claims litigation and whistleblower protection.
   The first remarkable fact to know about the FCA is just how old it is!  In an attempt to curb a rash of fraud against the federal government during the Civil War, Congress passed the initial version of the FCA 156 years ago!  It was signed into law on March 2, 1863 by President Abraham Lincoln ‒ hence it was also known as “Lincoln’s Law” ‒ for the purpose of creating incentives for private individuals to report federal contractors engaged in fraud against the government during the Civil War.  It subjected violators to both civil and criminal penalties.
   Now codified at 31 U.S.C. §§ 3729 – 3733 and commonly referred to as the FCA, the law’s Qui Tam provisions authorize persons and entities in the private sector with evidence of fraud against federal programs or federal contracts to sue the wrongdoer on behalf of the United States Government.  A Qui Tam complaint must be filed with the court “under seal,” or secretly. The complaint, together with a written disclosure of all the relevant information known to the private plaintiff (called the “relator”), must be served on the U.S. Attorney for the judicial district where the complaint is filed, and on the Attorney General of the United States.  The government is required to investigate the allegations in the complaint within 60 days, but extensions of that time limitation are not uncommon.  Once it completes its investigation, the government must then notify the court either that it is electing to prosecute the action itself (generally referred to as “intervening” in the action), or that it is declining to intervene in the action, in which case the relator can proceed with the action.
   If the government intervenes in the Qui Tam action it has the primary responsibility for prosecuting the action. It is then empowered to settle or dismiss the action ‒ even over the objection of the relator, so long as the court gives the relator an opportunity to be heard and, in the case of settlements, the court determines that the settlement is fair.  (By contrast, a relator cannot settle or dismiss a Qui Tam action without the consent of the government.)
    The “incentives” embodied in the FCA are substantial.  Upon government intervention in the Qui Tam action, the relator is entitled to receive between 15 and 25 percent of whatever single damages the government recovers. If the government declines to intervene in the action, and the relator successfully prosecutes the action alone, the relator’s share is increased to 25 to 30 percent plus the relator’s legal fees and other expenses in bringing the action.
   The FCA also provides that if the government chooses to obtain a recovery from the defendant by an alternative remedy ‒ for example, by “recoupment” of health care expenses from the violator’s future revenues ‒ the relator is entitled to the same share of the recovery as if the recovery was obtained through the relator’s FCA suit.
   To be eligible to recover money under the Act, a relator must actually file a Qui Tam lawsuit ‒ simply notifying the government about the alleged fraud does not merit an award.  A relator only receives an award if the government recovers money from the violators as a result of the lawsuit.
   To protect those who are brave enough to expose fraud against the United States, the FCA also provides “whistleblower” protection.  Under § 3730(h), any employee who is discharged, demoted, harassed, or otherwise discriminated against because of lawful acts by the employee in furtherance of an action under the Act is entitled to all relief necessary to make the employee whole. Such relief may include, reinstatement, double back pay and additional compensation for special damages including litigation costs and reasonable attorneys' fees.
    To be found guilty of violating the FCA a person must have submitted, or caused the submission of, the false claim (or made a false statement or record) with knowledge of the falsity.    In § 3729(b)(1) of the FCA, knowledge of false information is defined as being (1) actual knowledge, (2) deliberate ignorance of the truth or falsity of the information, or (3) reckless disregard of the truth or falsity of the information.
   Violators of the False Claims Act themselves are liable for three times the dollar amount of the “single damages” of which the government is defrauded, as well as civil penalties for each false claim.  Currently, the civil penalty ranges between $5,500 and $11,000 for each false claim (those amounts are adjusted from time to time).  The numbers of “claims” can be huge; for example, a health care provider who knowingly submits false billing records regarding medical treatments for each of its patients may be liable for civil penalties regarding many thousands of “claims.”
   The FCA also defines a “claim” as any demand for money or property made directly to the Federal Government or to a contractor, grantee, or other recipient if the money is to be spent on the government’s behalf and if the Federal Government provides any of the money demanded.
   Many states, including North Carolina, have enacted similar false claims act provisions.  North Carolina's False Claims Act allows whistleblowers to bring suit in the name of the State of North Carolina where a wrongdoer engages in conduct that defrauds the state or local governments of taxpayer dollars.  The NC False Claims Act provisions are expansive in their scope and are designed to parallel the Federal False Claims Act’s procedures and remedies. It also includes a whistleblower protection provision. 
   The Justice Department’s 2018 Report and an associated Press Release are both available online.


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Clifford C. ("Kip") Marshall is a trial attorney with, and President of, Marshall, Roth & Gregory, PC.  Recognized as a "Best Lawyer"™ (Government Relations Practice) for the past six years -- most recently in 2017 -- Kip's practice encompasses all forms of land and title litigation, commercial litigation and catastrophic injury.
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