If you do business with the government (e.g. defense industry or health care), your greatest risk is the False Claims Act. 

The United States government is the world’s largest purchaser of goods and services.  The government spends money in all sectors of industries and services.  In addition to purchasing goods and services, the government, through various entitlement and guarantor programs, reimburses industries for providing services to eligible recipients and participants (i.e. food stamps, food services, housing subsidies and loans, Medicaid and Medicare and education).

In the last twenty years, the government has collected over $30 billion in false claims act fines and penalties.  This amount is expected to grow annually at an even faster rate. 

The False Claims Act

The federal civil False Claims Act, 31 U.S.C. §§ 3729, authorizes the United States to recover monetary damages from parties who file fraudulent claims for payment by the federal government. Criminal penalties for false claims are also available pursuant to 18 U.S.C. § 287, which allows for punishment of up to five years in prison and a fine calculated under the United States Sentencing Guidelines.

The false claims statute creates seven specific categories of false claims: (1) knowing presentation of a false or fraudulent claim to the federal government (31 U.S.C. § 3729(a)(1)); (2) knowing use or creation of a false record or statement to get a false or fraudulent claim paid by the federal government ((a)(2));  (3) conspiring to defraud the federal government to get a false or fraudulent claim paid ((a)(3)); (4) intentional failure to return all federal government money or property ((a)(4)); (5) intentional making and issuance of a receipt for more than what the federal government actually received ((a)(5)); (6) knowing purchase or receipt of property from a federal official who is not authorized to sell or deliver the property ((a)(6)); and  (7) knowing creation or use of a false record or statement to decrease a monetary obligation to the government ((a)(7)).

Most cases brought under the FCA fall under either sections 3729(a)(1) or (2). The plaintiff’s burden on intent is relatively low — the defendant either had actual knowledge of the claim’s falsity or acted in reckless disregard of the claim’s validity. Because the FCA specifically creates liability for parties who not only directly submit claims to the government, but for parties who cause such submissions to be made as well, it is not necessary for the plaintiff to show that the person actually presenting the claim knew it to be false.

If the government prevails, it is entitled to treble damages and civil penalties of up to $11,000 per claim.  Further, the potential collateral consequences of a FCA matter include program suspension, debarment and exclusion.  For some companies, the collateral consequences amount to potentially hundreds of millions of dollars.

False Claims Act Amendments

The FCA was amended in 2009 and 2010: The Fraud Enforcement and Recovery Act of 2009 (“FERA”) and the Patient Protection and Affordable Care Act (also referred to as the ACA or “PPACA”).  Many of these changes to the FCA were lrequested by federal prosecutors to give them new powers and reverse specific court rulings.  They were the most significant changes since FCA amendments passed in 1986. 

The six most significant amendments:

1.  Anti-Kickback Liability. The federal Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b) (“AKS”) is a criminal statute which makes it improper for anyone to solicit, receive, offer or pay remuneration (monetary or otherwise) in exchange for referring patients to receive certain services that are paid for by the government. Previously, many courts had interpreted the FCA to mean that claims submitted as a result of AKS violations were false claims and therefore gave rise to FCA liability (in addition to AKS penalties). The PPACA changed the language of the AKS to provide that claims submitted in violation of the AKS automatically constitute false claims for purposes of the FCA. Further, the new language of the AKS provides that “a person need not have actual knowledge … or specific intent to commit a violation” of the AKS.

2.  Public Disclosure and Original Source Requirement. The PPACA amended the language of the FCA to allow the federal government to have the final word on whether a court may dismiss a case based on a public disclosure. See 31 U.S.C. 3730(e)(4)(A).A plaintiff may overcome the public disclosure bar outlined above if they qualify as an “original source,” the definition of which was revised by the ACA.  See 31 U.S.C. 3730(e)(4)(B).

3.  Expansion of Liability for Possession of Overpayments — The PPACA clarified that overpayments under Medicare and Medicaid must be reported and returned within 60 days of discovery, or the date a corresponding hospital report is due. Failure to timely report and return an overpayment exposes a provider to liability under the FCA.

4.  Reverse False Claims – The FERA amended the “reverse false claims” provisions to expand liability to “knowingly and improperly avoid[ing] or decreas[ing] an obligation to pay or transmit money or property to the Government;”

5.  Elimination of Presentment Requirement – The FERA expanded FCA liability by eliminating the “presentment” requirement (effectively overruling the Supreme Court’s opinion in Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008));

6. Expansion of “Claim” – The FERA expanded the term “claim” under the FCA to include “money or property spent or used on the Government’s behalf or to advance a Government program or interest” and where the government provides or reimburses any portion of the requested funds.