Fraud, waste, and abuse continue to challenge federal and federally funded healthcare programs. While it is difficult to quantify the extent of the cost of healthcare fraud, the U.S. Government Accountability Office estimates that the Centers for Medicare & Medicaid Services (CMS) annually makes $50 billion in improper payments through Medicare alone.

As the federal government employs increasingly high-tech means of combating healthcare fraud, one of its most effective tools for recovery and deterrence remains the civil False Claims Act. A law with roots in medieval England, the FCA’s greatest strength is not found in technology or the power of the state, but rather in the willingness of private citizens to bring fraudulent activity to light—whether they be motivated by conscience, a sense of justice, or the significant cash sums which can be realized through successful prosecution of FCA cases.

Earlier this year, Acting Assistant Attorney General Brian M. Boynton of the Civil Division of Department of Justice (DOJ) observed that, “The False Claims Act is one of the most important tools available to the department both to deter and to hold accountable those who seek to misuse public funds.”

Background

The current iteration of the FCA can be traced to the Act of March 2, 1863, which was passed as Congress sought to address widespread profiteering and fraud in defense procurement during the Civil War.

In prohibiting the presentation of false claims, false vouchers, and other fraud against the Union Army, the Act provided for penalties double the damages incurred by the U.S. Government, as well as a fine of $2,000 for each offense—a significant amount at the time. Importantly, the Act also specified that private parties—known as relators—could initiate claims on behalf of the government and were entitled to half of any damages recovered.

The Act’s sponsor, Senator Jacob Howard of Michigan, characterized this as a way to “reward to the informer who comes into court and betrays his coconspirator.”[1] It was also an example of “qui tam,” a legal concept dating to seventh century England and frequently represented by the Latin phrase “qui tam pro domino rege, &c, quam pro seipso in hac parte sequitur,” or “he who brings an action for the king as well as for himself.”

Qui tam laws incentivize private citizens to bring legal actions on behalf of the state by apportioning them a percentage of any funds recovered. This deputization of a populace can be an effective means of expanding the enforcement of laws when governments do not have sufficient resources to identify, investigate, or prosecute wrongdoing themselves. But the qui tam model has also been criticized by some as “legalized blackmail ” and largely fell out of favor in the middle of the twentieth century.

Restricted by court decisions after the Civil War and deliberately weakened by Congress in 1943, the FCA was rarely employed in subsequent decades.

It wasn’t until the 1980’s that the potential of the FCA in combatting fraud was recognized again. As the federal government confronted instances of overbilling by military contractors and kickbacks to physicians billing Medicare, the public and Congress joined in calls for redress.

In a decade some said was defined by greed and excess, Senator Chuck Grassley (R-IA) and Representative Howard Berman (D-CA) led a bipartisan effort that resurrected  the 19th century “Lincoln Law” as a means of fighting “cost overruns, fraud, and mis-expenditures of money.”

Today’s FCA

Under its current iteration, the FCA provides that:

Any person who (1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval; (2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government; (3) conspires to defraud the Government by getting a false or fraudulent claim paid or approved by the Government;. . . or (7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government…is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person.[2]

Penalties

The FCA can impose both civil and criminal penalties for violations. These penalties can be significant, and may even result in imprisonment for individuals found criminally liable.[3] Civil FCA claims do not need to meet the higher standards of criminal prosecution requiring proof of a defendant’s guilt beyond a reasonable doubt. Conversely, successful prosecution of a civil FCA claim only requires proof of a defendant’s guilt by a preponderance of the evidence, i.e., that the defendant’s guilt is more likely than not.

Notably, the FCA does not require a showing that a defendant acted with specific intent to commit fraud. Instead, it is sufficient to show that a defendant was aware of information, acted “in deliberate ignorance of the truth or falsity of the information; or act(ed) in reckless disregard of the truth or falsity of the information.”[4] Further, claims submitted for payment pursuant to a violation under the Anti-Kickback Statute may also give rise to liability under the FCA.[5]

Whistleblower protections

The FCA has always specified what rewards a relator stands to gain through successful prosecution of a claim. However, until 2009, it was less direct in addressing what a relator stood to lose.

Whistleblowers commonly endure retaliation, which may include the loss of employment, demotion, defamation, and isolation. And the possibility of monetary gain has not always been enough to offset these threats.

As amended by the Fraud Enforcement and Recovery Act of 2009, the FCA now provides protections for relators who are “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment” as a result of voicing concerns over fraud either internally or externally.

Employers found liable for retaliation can be ordered to pay double lost earnings and a relator’s expenses, attorneys’ fees, and costs. In addition, they may be held responsible for “compensation for special damages sustained as a consequence” of the retaliation. These damages can be significant.

Recent recoveries under the FCA

In the fiscal year ending Sept. 30, 2021, the U.S. Department of Justice (DOJ) recovered more than $5.6 billion in settlements and judgments from civil cases involving fraud and false claims.  A startling ninety percent of these were associated with the healthcare sector, ranging from marketing contributing to the opioid epidemic to alleged kickback violations in home health[6] to fraudulent billing for durable medical equipment.

In addition, a New York Times investigation into Medicare Advantage programs published earlier this year found that four of the five largest companies participating in the program had been accused of fraud by whistleblowers. And earlier this month, Modernizing Medicine Inc. (ModMed), an electronic health record (EHR) technology vendor agreed to pay $45 million to settle allegations that it accepted and paid illegal kickbacks and caused false claims.

In announcing the ModMed settlement, the DOJ referred to the FCA as “one of the most powerful tools” in its efforts to combat healthcare fraud. A key reason for its was acknowledged elsewhere in the DOJ statement. The whistleblower in the case—the company’s former vice president of product management—will receive approximately $9 million for initiating the case.

[1] CONG. GLOBE, 37TH CONG., 3D SESS. 955–56 (1863)

[2] 31 U.S.C. § 3729

[3] 18 U.S.C. § 287

[4] 31 U.S.C. § 3729(b).

[5] 42 U.S.C. § 1320a-7b(g)

[6] There has been no determination of liability and claims resolved by the settlement are allegations only.