False Claims Act

The False Claims Act authorizes whistleblowers, also known as qui tam “relators,” to bring suits on behalf of the United States against the false claimant and obtain a portion of the recovery, otherwise known as a relator share. The phrase “qui tam” is short for qui tam pro domino rege quam pro se ipso in hac parte sequitur, meaning “who [qui] sues in this matter for the king as well as [tam] for himself.” U.S. ex rel. Bogina v. Medline Indus., Inc., 809 F.3d 365, 368 (7th Cir. 2016).

The False Claims Act penalizes those who submit or cause to be submitted false or fraudulent claims to the government for payment. It also penalizes those who make or use false statements to get a false or fraudulent claim paid.

False Claims Act relators are eligible to receive 10% to 30% of the recovery. In an intervened case, the relator can obtain 15% to 25% of the recovery, depending upon the extent to which the person substantially contributed to the prosecution of the action.

In a non-intervened case, the relator can obtain between 25% to 30% of the recovery. Additionally, a relator who prevails in an FCA action—regardless of whether the government intervenes—is entitled to “reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs.” 31 U.S.C. § 3730(d). Qui tam whistleblower lawsuits have enabled the government to recover more than $40 billion.

The qui tam provisions of the False Claims Act have been enormously effective in enlisting private citizens to combat fraud against the government. Qui tam whistleblowers, also known as relators, have enabled the government to recover more than $60 billion. In fiscal year 2017 alone, qui tam actions brought by whistleblowers resulted in $3.4 billion in settlements and judgments, and the government paid $392 million in whistleblower awards to False Claims Act whistleblowers.

A qui tam whistleblower can be eligible for a large recovery. But there are many pitfalls and obstacles to proving liability, and there are unique rules and procedures that govern qui tam whistleblower cases. Therefore, it is critical to retain an experienced False Claims Act whistleblower lawyer to maximize your recovery.

Types of False Claims Prohibited by the False Claims Act

The False Claims Act prohibits “(A) knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval; [and] (B) knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3279(a)(1)(A)–(B).

To prevail, a qui tam whistleblower must prove that:

1. the defendant submitted a claim to the government;
2. the claim was false; and
3. the defendant knew the claim was false.”

Express Legal Falsity (Factually False Claim)

A claim of express falsity arises where a contractor fails to comply with the requirements for the goods or services that it agreed to provide the federal government. A factually false claim is one that “is untrue on its face,” for example if it “include[s] ‘an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided.’” United States v. Kellogg Brown & Root Servs., Inc., 800 F. Supp. 2d 143, 154 (D.D.C. 2011) (citing United States v. Sci. Applications Int’l Corp. (SAIC II), 626 F.3d 1257, 1266 (D.C. Cir.2010)). Examples include billing for services that were never provided or charging the government for an armored vehicle but providing a vehicle that is not armored.

The FCA defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4). Escobar held that to properly plead materiality, a plaintiff must show that the effect or likely behavior of the government—if it knew that the defendant had made false statements in seeking payment—would be to refuse payment. Id. at 2002. “The materiality standard is demanding” because the FCA “is not an all-purpose antifraud statute or a vehicle for punishing garden-variety breaches of contract or regulatory violations.” Id. at 2003

Legal Falsity (False Certification)

A false certification may be either express or implied:

• Express false certification occurs when a claimant explicitly represents that he or she has complied with a statute, regulation, or contractual term, but in fact has not complied.
• Implied false certification occurs when “the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory, or contractual requirement,” and that “omission renders those representations misleading.” Escobar, 136 S. Ct. at 1995.

A claim of implied certification arises where the claim for payment to the Government implicitly constitutes certification of compliance with certain applicable regulations. A government contractor’s non-compliance with a government regulation can violate the False Claims Act where there is a relevant connection to the contract at issue. In 2016, the Supreme Court held in Escobar that an FCA complaint premised on implied certification must satisfy “two conditions”: “first, the claim . . . makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose non-compliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”

Escobar also provides important guidance on materiality:

• Materiality turns on the “effect on the likely or actual behavior of the recipient of the alleged misrepresentation.” Universal Health, 136 S. Ct. 1989 at 2002.
• To plead materiality with the requisite particularity, a relator may draw inferences from various sources, including the Government’s history of declining to pay claims for failure to comply with the applicable regulation. See Universal Health, 136 S. Ct. at 2003 (noting that materiality may be premised on “evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement[s]”).
• Materiality is absent at the pleading stage when the relator’s chronology suggests that the Government knew of the alleged fraud, yet paid the contractor anyway. See Universal Health, 136 S. Ct. at 2003-04 (“[I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.”).

The difference between express certification and implied certification is whether the entity seeking payment must certify that it has complied with the applicable law, rule, or regulation each time a claim is made, or if that certification is made initially and later implied with each subsequent claim.

Fraud-In-The-Inducement or Promissory Fraud

The False Claims Act also prohibits fraud-in-the-inducement, i.e., where the contract or extension of government benefit was originally obtained through false statements or fraudulent conduct.

The Supreme Court recognized a fraud-in-the-inducement theory when it held in U.S. ex. rel. Marcus v. Hess, 317 U.S. 537 (1943) that contracts obtained under a collusive bidding scheme violated the FCA by defrauding the government and compelling it to pay more “than it would have been required to pay had there been free competition in the open market.”

To establish fraudulent inducement under the FCA, a relator must show that a false statement, omission, or misrepresentation “`caused’ or `induced’ the government to enter into a contract, such that but for the misrepresentations, the government would not have awarded the contract and would not have paid the claim.” United States ex rel. Thomas v. Siemens AG, 991 F. Supp. 2d 540, 569 (E.D. Pa. 2014).

A Grant Assurance is a Claim

A grant assurance in an application for federal funds or a grant progress report is a “claim” under the False Claims Act since representations made in the progress report trigger the payment of grant funds. See United States ex rel. Bauchwitz v. Holloman, 671 F.Supp.2d 674, 689 (E.D.Pa.2009).

Reverse False Claims Liability

Reverse false claims liability arises where an entity or individual avoids the payment of money due to the government, e.g., failing to pay royalties owed to the government for mining on public lands.

Section 3729(a)(1)(G) creates liability for a person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government,” or who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G).

To establish reverse false claim liability, a qui tam relator must show:

1. proof that the defendant made a false record or statement
2. at a time that the defendant had a presently-existing obligation to the government — a definite and clear obligation to pay money or property at the time of the allegedly false statements.

False Claims Act First-to-File Bar

The first-to-file bar prohibits a whistleblower from bringing suit based on a fraud already disclosed through identified public channels, unless the whistleblower is “an original source of the information.” Pursuant to the first-to-file bar, “[w]hen a person brings an action under [the False Claims Act], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). The first-to-file bar encourages prompt filing.

• Where two complaints allege “all the essential facts” of the underlying fraud, then the first complaint will typically preclude the later complaint, even if the later-in-time complaint incorporates different details.
• Where a second complaint provides additional information that suggests a broader scope of fraud than the initial complaint, the second complaint might be barred where the government knows the essential facts of a fraudulent scheme because it has sufficient information to discover related frauds.
• To bar later-filed qui tam actions, the allegedly first-filed qui tam complaint must not itself be jurisdictionally or otherwise barred, e.g., if the first-filed complaint fails to plead fraud with particularity, as required by Rule 9(b).
• The Fourth Circuit Court of Appeals recently held that the appropriate reference point for a first-to-file analysis is the set of facts in existence at the time that the FCA action under review is commenced. Facts that may arise after the commencement of a relator’s action, such as the dismissals of earlier-filed, related actions pending at the time the relator brought his or her action, do not factor into this analysis.

Filing a False Claims Act Qui Tam Case Under Seal

The False Claims Act requires that a qui tam action must be filed under seal and remain seal for at least 60 days. This procedure enables the government to investigate the matter, so that it may decide whether to take over the relator’s action or to instead allow the relator to litigate the action in the government’s place. The purpose of the seal provision is to avoid alerting defendants to a pending federal criminal investigation. State Farm Fire and Cas. Co. v. US, 137 S. Ct. 436 (2016).

The “sealing period, in conjunction with the requirement that the government, but not the defendants, be served, was ‘intended to allow the Government an adequate opportunity to fully evaluate the private enforcement suit and determine both if that suit involves matters the Government is already investigating and whether it is in the Government’s interest to intervene and take over the civil action.” United States ex rel. Pilon v. Martin Marietta Corporation, 60 F.3d 995, 998-99 (quoting S. Rep. No. 345, 99th Cong., 2d Sess. 24, reprinted in 1986 U.S.C.C.A.N. 5266, 5289).

Failure to file under seal could potentially jeopardize a relator’s ability recover a whistleblower bounty, but the False Claims Act does not require automatic dismissal for a seal violation.

A False Claims Act retaliation claim can also be filed under seal (in conjunction with a qui tam action).

To initiate a False Claims Act qui tam action, the relator (whistleblower) must serve a copy of the qui tam complaint along with a “written disclosure of substantially all material evidence and information the [relator] possesses” on the Government. 31 U.S.C. § 3730(b)(2). The complaint remains under seal for at least 60 days, and shall not be served on the defendant. During this 60-day period, the Government is charged with investigating the allegations and “may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal.” 31 U.S.C. §§ 3730(b)(2), (3).

Before the 60-day period (or any extensions obtained) expire, the Government shall either “(A) proceed with the action, in which case the action shall be conducted by the Government; or (B) notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action.” 31 U.S.C. § 3730(b)(4).

False Claims Act Fraud Violations

Examples of the type of fraud that can qualify for a qui tam whistleblower award or bounty include:

• Paying kickbacks to refer patients for services that will be reimbursed by Medicare
• Fraudulently inducing a contract, i.e., making false representations to induce the government to enter into a contract
• Bid rigging
• [-practices-give-rise-false-claims-act-liability/ Violating good manufacturing practices]
• Double-billing Medicare
• Defective pricing, including noncompliance with the requirement to submit current, accurate and complete certified cost and pricing data under the Truth in Negotiations Act
• Inaccurate disclosure of pricing information and practices, such as:
  • Hewlett-Packard’s $55 million settlement for providing incomplete commercial sales practices information to GSA contracting officers during contract negotiations.
  • Informatica LLC’s $21.57 million settlement to resolve allegations that it provided false information concerning its commercial discounting practices for its products and services to resellers, who then used that false information in negotiations with GSA for government-wide contracts.
• Billing Medicaid for unnecessary medical services
• Overbilling for services performed, such as:
  • Northrop Grumman’s $27.45 million settlement for overstating the number of labor hours its employees worked on two Air Force contracts by individuals stationed in the Middle East.
• Providing defective products, such as:
  • Sapa Profiles Inc.’s $34.6 million settlement to resolve claims that it falsified thousands of certifications after altering the results of tensile tests designed to ensure the consistency and reliability of aluminum.
• Falsifying admission criteria and regularly diagnosing patients with “disuse myopathy,” an invented medical term meaning generalized weakness, in order to qualify for higher levels of reimbursement as an Independent Rehabilitation Facility (IRF).
  • Encompass Health paid $48 million to resolve allegations that some of its IRFs provided inaccurate information to Medicare to maintain their status as an IRF and to earn a higher rate of reimbursement and that some admissions to its IRFs were not medically necessary.
• Creating a fraudulent joint venture to secure government contracts that are set aside for businesses that participate in the Service-Disabled Veteran-Owned Small Business program.
  • In 2019, A&D General Contracting agreed to pay approximately $3.2 million for fraudulently obtaining over $11 million in government contracts which had been set aside for service-disabled veteran-owned small businesses.
• Violating the federal Anti-Kickback Statute and the FCA by billing millions of dollars for unlawfully forcing patients to endure 72-hour hospital stays for observation and mental illness treatment against their will.
  • Pacific Health Corp. paid $16.5 million to settle claims that it doled out kickbacks for referrals of homeless patients and provided them with unnecessary treatments.
• Making improper payments to doctors to get them to write prescriptions for two Teva products.
  • In 2020, Teva agreed to pay $54M to settle a qui tam case alleging that it paid doctors speaker fees and pricey to prescribe multiple sclerosis drug Copaxone and Parkinson’s disease drug Azilect.
• Paying doctors and kickbacks or financial incentives to get patient referrals.
  • In 2020, Agnesian HealthCare paid $10M to settle a qui tam case alleging that its compensation plan for doctors violated the Stark Law, the Anti-Kickback Statute, the federal False Claims Act and the Wisconsin False Claims by rewarding and offering incentives to its network of affiliated doctors to refer Medicare and Medicaid patients exclusively to Agnesian doctors and facilities.
• Upcoding in the form of billing for 14,000-level tissue transfers, which should have been billed as lower-level wound repairs.
• Making misrepresentations regarding certified cost or pricing data in violation of federal procurement laws and regulations. See 10 U.S.C. 2306a; 41 U.S.C. Chapter 35; FAR 15.403-4 and 15.403-5.

Stark Act Violations or Kickbacks Can Violate the False Claims Act

• Both the Stark Act and the Anti-Kickback Act prohibit a health care provider from submitting claims to Medicare based upon referrals from physicians who have a “financial relationship” with the health care entity, unless a statutory or regulatory exception or safe harbor applies. 42 U.S.C. §§ 1395nn(a)(1); 1320a-7b(b). In particular, the Stark Act prohibits “knowingly and willfully” offering or paying “any remuneration . . . to any person to induce such person . . . to refer an individual to a person for the furnishing . . . of any item or service for which payment may be made in whole or in part under a Federal health care program.” 42 U.S.C. § 1320a-7b(b)(2)(A). And it prohibits “knowingly and willfully solicit[ing] or receiv[ing]” kickbacks “in return” for such conduct. Id. § 1320a-7b(b)(1)(A).
• The Stark Act expressly prohibits Medicare from paying claims that do not satisfy each of its requirements, including every element of any applicable exception. 42 U.S.C. §§1395nn(a)(1), (g)(1).
• “Falsely certifying compliance with the Stark or Anti-Kickback Acts in connection with a claim submitted to a federally funded insurance program is actionable under the FCA.” United States ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 95 (3d Cir. 2009) (citing United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir. 2004) (other citations omitted)). Typically submission of a claim to Medicare requires the provider to certify compliance with the Anti-Kickback Law on CMS Form 855s, which states in relevant part “I understand that payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with [Medicare] laws, regulations, and program instructions (including, but not limited to, the Federal [A]nti-[K]ickback [S]tatute . . . ), and on the supplier’s compliance with all applicable conditions of participation in Medicare.”
• In other words, a claim for payment made pursuant to an illegal kickback is false under the FCA. United States ex rel. Quinn v. Omnicare, Inc., 382 F.3d 432, 439 (3d Cir. 2004).
• A defendant can avoid liability under the Stark Act by demonstrating that either a statutory or regulatory exception (or safe harbor) applies. The safe harbor exceptions recognize that financial arrangements between physicians and health care entities may exist for legitimate reasons independent of referrals.

Note that opposing kickbacks or raising concerns about kickbacks is protected conduct under the False Claims Act anti-retaliation provision. For more information about False Claims Act whistleblower protection, click here.

For more information about the False Claims Act, Anti-Kickback Statute, Physician Self-Referral Law, and Exclusion Statute, see the HHS OIG’s roadmap for physicians about fraud and abuse laws.