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:
- the defendant submitted a claim to the government;
- the claim was false; and
- 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 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:
- proof that the defendant made a false record or statement
- 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
- 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.
Kickback Whistleblower Need Not Prove “but for” Causation
Recently the Third Circuit rejected a provider’s contention that a kickback is actionable under the FCA only where the relator provides that the kickback actually influenced a patient’s or medical professional’s decision to use a particular provider. In Steve Greenfield v. Medco Health Solutions Inc., the Third Circuit held that a kickback qui tam can be proven by showing that a claim was submitted for reimbursement for medical care that was provided in violation of the Anti-Kickback Statute (as a kickback renders a subsequent claim ineligible for payment). But the court noted that “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.”
In June 2019, Rialto Capital Management LLC (Rialto) and its former affiliate RL BB-IN KRE LLC (RL BB) agreed to pay $3.6 million to resolve allegations that Rialto and the Kentuckiana Medical Center (KMC), an Indiana-based hospital owned by RL BB, violated the Anti-Kickback Statute, the Stark Law, and the False Claims Act by engaging in illegal financial arrangements with two doctors who referred patients to KMC. According to the DOJ’s press release, “KMC, under the direction of Rialto, provided personal loans to two referring doctors and then repeatedly forbore from requiring repayment of those loans” and “the hospital’s failure to collect on loans to key referral sources constituted a form of remuneration prohibited by both the AKS and the Stark Law.”
Fraudulent Inducement of a Contract and False Claims Act Liability
Where a contract was “procured by fraud,” False Claims Act liability flows from fraudulent inducement. Examples of fraudulent inducement include:
- the contractor knowingly provides the government with price lists and discounts containing false information in order to induce it to enter into the contract;
- the contractor makes an initial misrepresentation about its capability to perform the contract in order to induce the government to enter into the contract; or
- a party makes promises at the time of contracting that it intends to break.
Where a defendant causes a contract to be procured by fraud, all claims for payment made under that contract are deemed false for purposes of the False Claims Act, even if the claims do not themselves contain a false statement. U.S. ex rel. Marcus v. Hess, 63 S. Ct. 379, 384 (1943)(holding the initial act of fraud to induce government contract “tainted” every subsequent claim for payment); see also U.S. ex rel. Main v. Oakland City Univ., 426 F.3d 914, 917 (7th Cir. 2005). The core issue is whether the defendant entered into a government contract with the intent not to perform or with the knowledge that it could not perform as promised.” U.S. ex rel. Blaum v. Triad Isotopes, Inc., 104 F. Supp. 3d 901, 914 (N.D. Ill. 2015).
Materiality and the False Claims Act
The False Claims Act (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). In United States ex rel. Escobar v. Universal Health Servs., Inc., the Supreme Court held that FCA liability can attach for violating statutory or regulatory requirements, whether or not those requirements were designated in the statute or regulation as conditions of payment.
In particular, the Escobar Court held that “liability can attach 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. In these circumstances, liability may attach if the omission renders those representations misleading.” 136 S. Ct. 1989, 1995 (2016). The Court articulated the following factors governing the materiality analysis, with no one factor being necessarily dispositive:
- whether compliance with a statute is a condition of payment;
- whether the violation goes to “the essence of the bargain” or is “minor or insubstantial”;
- whether the government consistently pays or refuses to pay claims when it has knowledge of similar violations; and
- whether the government would likely refuse payment had it known of the regulatory violations.
As Escobar addresses only an implied certification theory, Escobar’s materiality requirement should not extend to all types of FCA claims. For example, an express misrepresentation, e.g., a health insurer expressly agreeing to comply with Medicare rules and regulations when it does not, would violate the FCA. See, e.g., U.S. ex rel. McCarthy v. Marathon Techs., Inc., No. 11 C 7071, 2014 WL 4924445 (N.D. Ill. Sept. 30, 2014).
Examples of Material False Claims
Examples of material false claims include:
- A drug company Seeking and obtaining payment for off-label uses of certain drugs. See U.S. ex rel. Brown v. Celgene Corp., 226 F. Supp. 3d 1032 (C.D. Cal. 2016).
- A private security company submitting false weapons qualifications for the services of protective services personnel who had not fulfilled the required weapons training. United States ex rel. Beauchamp v. Academi Training Center, Inc., 220 F. Supp. 3d 676 (E.D. Va. 2016).
- Submitting a false hospice certification. See, e.g., Druding v. Care Alternatives, Inc., 164 F. Supp. 3d 621, 629 (D.N.J. 2016); United States ex rel. Fowler v. Evercare Hospice, Inc., No. 11-CV-00642-PAB-NYW, 2015 WL 5568614, at *7 (D. Colo. Sept. 21, 2015) (“the requirement that physicians’ certifications are accompanied by clinical information and other documentation that support a patient’s prognosis is a condition of payment under applicable Medicare statutes and regulations.”); see also, e.g., United States ex rel. Hinkle v. Caris Healthcare, L.P., No. 3:14-CV-212-TAV-HBG, 2017 WL 3670652, at *9 (E.D. Tenn. May 30, 2017) (“the government’s complaint alleges that defendants’ written certifications were false, in that the documentation for certain patients did not support a prognosis of terminal illness.”).
The federal government’s payment of a claim after it learns of untruthful certifications or attestations about compliance with regulatory or contractual duties is not a shield from liability. See Campie v. Gilead Sciences, Inc., 862 F.3d 890, 906 (9th Cir. 2017).
False Claims Act Statute of Limitations
The statute of limitations for a qui tam action is the longer of 1) six years from when the fraud is committed; or 2) three years after the United States knows or should know about the material facts, but not more than 10 years after the violation. In Cochise Consultancy Inc. v. United States, ex rel. Hunt, the Supreme Court held that both Government-initiated suits under § 3730(a) and relator-initiated suits (qui tam actions) under § 3730(b) are civil actions under section 3730 and therefore the longer limitations period applies in non-intervened qui tam actions.
The statute of limitations for a False Claims Act whistleblower retaliation case is three years.
Pleading Qui Tam False Claims Act Case in Detail
False Claims Act qui tam actions must meet the heightened pleading requirement set forth in Federal Rule of Civil Procedure 9(b). In other words, a qui tam relator must “state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). The complaint must “identify ‘the who, what, when, where, and how of the misconduct charged,’ as well as ‘what is false or misleading about [the purportedly fraudulent] statement, and why it is false.’” Cafasso ex rel. United States v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1055 (9th Cir. 2011)
Note though that in the Ninth Circuit, the relator need not “identify representative examples of false claims to support every allegation.” Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010). Similarly, in the Eleventh Circuit, there is no requirement for a qui tam relator to provide exact billing data. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1312 & n.21 (11th Cir. 2002). Rather, a complaint must contain “some indicia of reliability” that a false claim was actually submitted. Clausen, 290 F.3d at 1311. “For instance, a relator with first-hand knowledge of the defendant’s billing practices may possess a sufficient basis for alleging that the defendant submitted false claims.” United States ex rel Patel v. GE Healthcare, Inc., No. 8:14-cv-120-T-33TGW, 2017 WL 4310263, at *6 (M.D. Fla. Sept. 28, 2017).
“An FCA claimant is not required to show `the exact content of the false claims in question’ to survive a motion to dismiss, as `requiring this sort of detail at the pleading stage would be one small step shy of requiring production of actual documentation with the complaint, a level of proof not demanded to win at trial and significantly more than any federal pleading rule contemplates.'” United States v. Executive Health Resources, Inc., 196 F.Supp.3d 477, 492 (E.D.Pa. 2016) (citing Foglia, 754 F.3d at 156); Gohil, 96 F.Supp.3d at 519 (“[A relator] is not required to plead the details of any false claim submitted for payment[.]”)
But it is critical to connect the fraud scheme to the submission of false claims. In United States ex rel. Booker v. Pfizer, Inc., 847 F.3d 52, 58 (1st Cir. 2017), the First Circuit held that “aggregate [information] reflecting the amount of money expended by Medicaid” on off-label prescriptions was “insufficient on its own to support a [False Claims Act] claim” because it did not show “an actual false claim made to the [G]overnment.”
To satisfy Rule 9(b), the whistleblower “must provide ‘particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted’”; “[d]escribing a mere opportunity for fraud will not suffice.” See Foglia v. Renal Ventures Mgmt., 754 F.3d 153, 157-58 (3d Cir. 2014).
As summarized in United States of America ex rel. Donna Rauch v. Oaktree Medical Centre, P.C., No. 6:15-cv-01589 (D.SC March 5, 2020), the Fourth Circuit applies the following Rule 9(b) standard:
“To satisfy Rule 9(b), a plaintiff asserting a claim under the [FCA] `must, at a minimum, describe the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.'” Nathan, 707 F.3d at 455-56 (quoting United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008)). The Fourth Circuit has held that “allegations of a fraudulent scheme, in the absence of an assertion that a specific false claim was presented to the government for payment” are insufficient to meet Rule 9(b)’s heightened pleading standard. Id. at 456. “Instead, the critical question is whether the defendant caused a false claim to be presented to the government, because liability under the [FCA] attaches only to a claim actually presented to the government for payment, not the underlying fraudulent scheme.” Id. (citing Harrison, 176 F.3d at 785). In the event a relator does not plead with particularity that specific false claims actually were presented to the government for payment, a relator’s complaint may still survive a Rule 9(b) challenge only if it “allege[s] a pattern of conduct that would `necessarily have led[ ] to submission of false claims’ to the government for payment.” Grant, 912 F.3d at 197 (quoting Nathan, 707 F.3d at 457) (alteration and emphasis in original).
A good example of meeting the Rule 9(b) requirement without pleading actual submission of invoices to the government is United States ex rel. Saldivar v. Fresenius Med. Care Holdings, Inc., 906 F. Supp. 2d 1264, 1269 (N.D. Ga. 2012), a case in which the relator worked for a dialysis service provider and managed the facility’s inventory of two drugs. Based upon the relator’s observations of the inventory, he believed the facility submitted “fraudulent reimbursement claims” by “bill[ing] the government for doses of [drugs] that it received for free.” Id. Although the relator did not work in the billing department, the court found the relator satisfied Rule 9(b) because his belief was based upon his observation of the facility’s inventory documents and a conversation with “his clinical manager inform[ing] him that those documents were used as the basis upon which [the facility] billed for reimbursement.” Id. at 1277.
Elements of a False Claims Act Qui Tam Case
A qui tam relator must plead:
- a false statement or fraudulent course of conduct;
- made with scienter (intent);
- that was material;
- causing the government to pay out money or forfeit moneys due.
False Claims Act Public Disclosure Bar
The public disclosure bar prohibits a relator from bringing a False Claims Act lawsuit based on a fraud that has already been disclosed through certain public channels, unless the relator is an “original source” of the information. 31 U.S.C. § 3730(e)(4)(A). An original source is “an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing [suit].” § 3730(e)(4)(B).
The public disclosure bar asks whether the relator’s allegations are “substantially similar” to publicly available information. United States ex rel. Davis v. District of Columbia, 679 F.3d 832, 836 (D.C. Cir. 2012). “Where a public disclosure has occurred, [the government] is already in a position to vindicate society’s interests, and a qui tam action would serve no purpose.” United States ex rel. Feingold v. AdminaStar Federal, Inc., 324 F.3d 492, 495 (7th Cir. 2003).
But the public disclosure bar does not dictate that a relator must “possess direct and independent knowledge of all of the vital ingredients to a fraudulent transaction.” United States ex rel. Springfield Terminal Railway Co. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994). Rather, “direct and independent knowledge of any essential element of the underlying fraud transaction” is sufficient to give the relator original-source status under the Act. Id. at 657.
In Springfield Terminal, the D.C. Circuit set forth specific criteria to evaluate whether the public disclosures bars a qui tam action:
- The government has “enough information to investigate the case” either when the allegation of fraud itself has been publicly disclosed, or when both of its underlying factual elements—the misrepresentation and the truth of the matter—are already in the public domain.
- “[I]f X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent transaction publicly, the combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed.” Id. at 654. Because the publicly disclosed pay vouchers reflected only the false statement (the arbitrator’s claim for payment) and not the true facts (the services actually rendered), we held that the public disclosure bar did not apply. Id. at 655-56. That said, we stressed that a qui tam action cannot be sustained where both elements of the fraudulent transaction—X and Y—are already public, even if the relator “comes forward with additional evidence incriminating the defendant.”
A September 2018 Third Circuit decision in Pharamerica clarifies that the FCA’s public disclosure bar is not triggered when a relator relies upon non-public information to make sense of publicly available information, where the public information — standing alone — could not have reasonably or plausibly supported an inference that the fraud was in fact occurring. Similarly, the D.C. Circuit has held that the public disclosure bar is not triggered where the relator “supplied the missing link between the public information and the alleged fraud” by “rel[ying] on nonpublic information to interpret each [publicly disclosed] contract,” and where “[w]ithout [relator’s] nonpublic sources . . . there was insufficient [public] information to conclude” that the defendant actually engaged in the alleged fraud. United States ex rel. Shea v. Cellco P’ship, 863 F.3d 923, 935 (D.C. Cir. 2017).
Scienter Under the FCA Does Not Require Proof of Specific Intent
An ordinary breach of a government contract caused by an honest mistake ordinarily does not give rise to False Claims Act liability. To prevail in a qui tam action, a relator must prove the defendant acted knowingly, i.e., that the defendant “(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b). But proof of specific intent to defraud is not required. Therefore, a person who acts in deliberate ignorance or reckless disregard of a false or fraudulent claim can be liable under the False Claims Act.
As amended by the Fraud Enforcement and Recovery Act of 2009, a person is liable under the False Claims Act if he “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” There is no requirement to prove that a false statement was made with the intent that it would result in the federal government paying the claim.
False Claims Act Qui Tam Relators Need Not Demonstrate Intent
The Department of Justice takes the position that qui tam relators need not prove intent. In a Statement of Interest filed on September 19, 2017 in United States ex rel. Daniel Hamilton, Plaintiff, v. Yavapai Community College District, et al., CV-12-08193-PCT-GMS, the Department argued:
Despite defendants’ endorsement of an intent requirement, no such requirement exists. Instead, the FCA provides an action for “knowing” violations and defines “the terms ‘knowing’ and ‘knowingly’ [to] mean that a person, with respect to information has actual knowledge of this information; acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information; and require no proof of specific intent to defraud[.]” 31 U.S.C. § 3729(b)(1) (emphasis added). This is made clear not only by the FCA itself, but also by several Ninth Circuit cases. See Hooper v. Lockheed Martin Corp., 688 F.3d 1037, 1049 (9th Cir. 2012) (district court applied the wrong standard in requiring relator to show defendant acted with “the intent to deceive”); see also U.S. v. Bourseau, 531 F.3d 1159, 1167 (9th Cir. 2008); U.S. ex rel. Plumbers and Steamfitters Local Union No. 38 v. C.W. Roen Const. Co., 183 F.3d 1088, 1092-93 (9th Cir. 1999); U.S. ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991).
The False Claims Act Protects Whistleblowers from Retaliation
The False Claims Act (“FCA”) protects employees, contractors, and agents who engage in protected activity from retaliation in the form of their being “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment.” 31 U.S.C. § 3730(h)(1).
False Claims Act whistleblower protection extends not only to employees and contractors, but also to partners. See U.S. ex rel. Kraemer v. United Dairies, L.L.P., 2019 WL 2233053 (D. Minn. May 23, 2019); Munson Hardisty, LLC v. Legacy Point Apartments, LLC, 359 F. Supp. 3d 546, 558 (E.D. Tenn. 2019) (LLC that was general contractor on defendant’s construction project was proper FCA plaintiff). In addition, the False Claims Act whistleblower protection law extends to physicians with staff privileges at a hospital. Powers v. Peoples Cmty. Hosp. Auth., 455 N.W.2d 371, 374 (Mich. Ct. App. 1990); El-Khalil v. Oakwood Healthcare, Inc., No. 19-12822, E.D. Mich. April 20, 2020.
Prohibited Acts of Retaliation by the False Claims Act Anti-Retaliation Provision
The False Claims Act prohibits an employer from discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower. Prohibited retaliation includes:
- oral or written reprimands;
- reassignment of duties;
- constructive discharge; and
- retaliatory lawsuits against whistleblowers.
Remedies or Damages Under the Anti-Retaliation Provision of FCA
A whistleblower who prevails in a False Claims Act retaliation action under the FCA may recover:
- double back pay, plus interest;
- special damages, which include litigation costs, reasonable attorney’s fees, emotional distress, and other noneconomic harm from the retaliation. 31 U.S.C. § 3730(h)(2).
Recently, a jury awarded more than $2.5 million to a whistleblower in an FCA retaliation case. As there is no cap on compensatory damages, FCA retaliation plaintiffs can potentially recover substantial damages for the retaliation that they have suffered.
And in 2020, two cardiologists formerly employed by Tenet Healthcare Corporation recovered $11 million in compensatory damages in an arbitration of claims of FCA retaliation, tortious interference with business expectancies, false light, and breach of contract.
Protected Whistleblowing or Protected Conduct under the FCA Retaliation Law
The FCA protects:
- “lawful acts . . . in furtherance of an action under [the FCA]”; and
- “other efforts to stop 1 or more [FCA] violations.” 31 U.S.C. § 3730(h)(1).
Recent cases have interpreted this protected activity to include:
- internal reporting of fraudulent activity to a supervisor;
- steps taken in furtherance of a potential or actual qui tam action; or
- efforts to remedy fraudulent activity or to stop an FCA violation.
FCA whistleblower protection attaches regardless of whether the whistleblower mentions the words “fraud” or “illegal.” The employer need only be put on notice that litigation is a “reasonable possibility.” A reasonableness standard is inherently flexible and dependent on the circumstances; thus, “no magic words—such as illegal or unlawful—are necessary to place the employer on notice of protected activity.” Jamison v. Fluor Fed. Sols., LLC, 2017 WL 3215289, at *9 (N.D. Tex. July 28, 2017).
An FCA retaliation claim does not require proof of a viable underlying FCA claim. The FCA anti-retaliation provisions “do not require the plaintiff to have developed a winning qui tam action”; they “only require  that the plaintiff engage in acts [made] in furtherance of an [FCA] action.” Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 187 (3d Cir. 2001).
And because the Supreme Court has held that the FCA “is intended to reach all types of fraud, without qualification, that might result in financial loss to the Government” and “reaches beyond ‘claims’ which might be legally enforced, to all fraudulent attempts to cause the Government to pay out sums of money,” the term “false or fraudulent claim” should be construed broadly. U.S. ex rel. Drescher v. Highmark, Inc., 305 F. Supp. 2d 451, 457 (E.D. Pa. 2004).
FCA Anti-Retaliation Law Protects Efforts to Stop a Government Contractor from Defrauding the Government
The FCA anti-retaliation law protects whistleblowers who try to prevent one or more violations of the FCA, as long as they have an objectively reasonable belief that their employer is violating, or will soon violate, the FCA. Case law has clarified that efforts to stop an FCA violation are protected even if they are not meant to further a qui tam claim. For example, refusing to falsify documentation that will be submitted to Medicare is protected.
Similarly, a South Carolina district judge held that a relator engaged in protected conduct when she refused her employer’s directive to obtain patient signatures and back-date the signatures, which the relator perceived as an attempt to create fraudulent forms used to secure reimbursement from US health insurance programs.
The second prong (“other efforts to stop FCA violation”) is subject to an “objective reasonableness” standard, which requires only that an employee’s actions be “motivated by an objectively reasonable belief that the employer is violating, or soon will violate, the FCA.” United States ex rel. Grant v. United Airlines Inc., 912 F.3d 190, 200 (4th Cir. 2018).
FCA Whistleblower Protection Not Limited to Disclosures About the Whistleblower’s Employer
As the Fourth Circuit held in O’Hara v. Nika Technologies, Inc., 2017— F.3d —-2017 WL 6542675 (4th Cir. Dec. 22, 2017), an FCA retaliation plaintiff need not demonstrate their protected disclosure concerns fraud committed by their employer:
The plain language of § 3730(h) reveals that the statute does not condition protection on the employment relationship between a whistleblower and the subject of his disclosures. Section 3730(h) protects a whistleblower from retaliation for “lawful acts done … in furtherance of an action under this section.” 31U.S.C. § 3730(h)(1). The phrase “an action under this section” refers to a lawsuit under §3730(b), which in turn states that “[a] person may bring a civil action for a violation of [the FCA].” Id. § 3730(b)(1). Therefore, § 3730(h) protects lawful acts in furtherance of an FCA action. This language indicates that protection under the statute depends on the type of conduct that the whistleblower discloses— i.e., a violation of the FCA—rather than the whistleblower’s relationship to the subject of his disclosures.