THE FEDERAL FALSE CLAIMS ACT

Under the Federal False Claims Act, private citizens who know of people or companies that are defrauding the government may sue on the government's behalf and share in the proceeds of the suit. Citizens who bring these lawsuits are called qui tam relators or whistleblowers.

The False Claims Act imposes civil liability on any person or entity who submits a false or fraudulent claim for payment to the United States government. The False Claims Act also prohibits:

making a false record or statement to get a false or fraudulent claim paid by the government;

conspiring to have a false or fraudulent claim paid by the government;

withholding property of the government with the intent to defraud the government or to willfully conceal it from the government;

making or delivering a receipt for the government's property which is false or fraudulent;

buying property belonging to the government from someone who is not authorized to sell the property; or,

making a false statement to avoid or deceive an obligation to pay money or property to the government.

The False Claims Act applies to all claims made to the government. Most qui tam cases focus on two areas of government expenditures, healthcare and defense. Some whistleblowers have branched into other arenas, including Housing and Urban Development, Transportation, Research Grants, Environmental Protection and the Department of Agriculture. There is, however, room for much more expansion. As awareness of the qui tam provisions spreads, whistleblowers will undoubtedly uncover fraud schemes being perpetrated against numerous other government programs and agencies.

DAMAGES UNDER THE FALSE CLAIMS ACT

Damages under the False Claims Act are severe. A person who violates the act must repay three times the amount of damages suffered by the government plus a mandatory civil penalty of at least $5,000 and no more than $10,000 per claim.

This means that, for example, a person who submits fifty false claims for fifty dollars each is liable for between $257,500 [($2,500 x 3) (50 x $5,000)] and $507,500 [($2,500 x 3) (50 x $10,000)] in damages under the False Claims Act.

The stiff penalties have made the False Claims Act one of the government's favorite tools to combat fraud and abuse in government-funded programs.

1986 AMENDMENTS TO THE ACT

In 1986 Congress significantly amended the False Claims Act to increase its reach and to reestablish the qui tam relator as a potent anti-fraud force. The most important changes brought by the 1986 amendments include:

a. Statutorily defining the level of mens rea (or intent) needed to be liable for submitting a false claim to include submitting claims with deliberate ignorance or reckless disregard as to the truth of the information contained on the claim;

b. Requiring the government or qui tam relator to adduce proof of the submission of a false claim by a preponderance of the evidence standard instead of the higher standards that had been imposed by courts;

c. Enlarging the time within which a False Claims Act lawsuit may be brought;

d. Providing for treble damages;

e. Enhancing the qui tam relator's role in the litigation and enlarging his or her share to between 15 to 25% where the government participates in the litigation, or 25 to 30% where the government declines to participate in the litigation;

f. Mandating that the defendant pay a successful qui tam relator's attorney's fees; and

g. Protecting relators from retaliation from their employers.

HEALTHCARE FRAUD CASES

Approximately one of every three dollars recovered through false claims cases relate to healthcare fraud. Some noteworthy qui tam cases concerning healthcare fraud are briefly described below:

SmithKline Beecham

SmithKline Beecham Clinical Laboratories, Inc. paid the government more than $325 million to settle allegations that its clinical laboratory division defrauded Medicare, Medicaid, and other federally funded health insurance programs. This historic settlement was the result of a joint effort between the government and three qui tam relators. The SmithKline settlement is one of the largest whistleblower assisted recoveries in the history of the United States.

Mr. Merena, was the first of three private citizens whose whistleblower claims led to the SmithKline settlement. Mr. Merena filed his suit "under seal" on November 12, 1993, in the United States District Court for the Eastern District of Pennsylvania. For nine years, Mr. Merena worked for SmithKline's National Billing System, which was responsible for approximately three-fourths of SmithKline's clinical laboratory billings nationwide. In the course of his job, Mr. Merena became aware of a number of questionable billing practices at SmithKline. The qui tam relators were awarded $52 million for the information they provided.

National Health Laboratories

In 1992 National Health Laboratories agreed to pay over $100 million as a result of a variety of schemes it employed to overcharge the government for clinical laboratory testing services it provided to Medicare and Medicaid beneficiaries. The relator was awarded in excess of $15 million for the information he provided.

Blue Cross/Blue Shield of Michigan

The government hired Blue Cross/Blue Shield of Michigan ("BC/BS of Michigan") to administer a portion of the Medicare program. The government agreed to pay BC/BS of Michigan based on its costs of handling the Medicare claims. BC/BS of Michigan was obligated to charge to the Medicare program only those costs expended administrating the program and to see to it that its books and records were accurate. Based on information provided by a qui tam relator, the government uncovered that BC/BS of Michigan had improperly charged unrelated costs to the Medicare program and submitted false documentation to support those improper charges. BC/BS of Michigan paid the government $27.6 million as a result of these practices. The qui tam relator was awarded $5.5 million for her information.

Medline Industries

In April 1996, Medline Industries agreed to pay the government $6.4 million to settle a qui tam suit alleging that Medline sold the Department of Veterans Affairs cheaper, foreign supplies and equipment even though it told the VA that the supplies and equipment were domestically manufactured. The qui tam relator was awarded $1 million for his information.

Advanced Care Associates In June 1996, Advanced Care Associates, Inc. agreed to pay the government $4.03 million to settle a qui tam case alleging that it falsified documents related to lymphedema pumps and sleeves provided to Medicare beneficiaries. Without the falsified documents, the government would not have paid for the pumps and sleeves. The qui tam relator was awarded over $600,000 for his information.

Allied Clinical Laboratories

In March 1995, Allied Clinical Laboratories agreed to pay the government $4.9 million to settle a qui tam case alleging that it had billed the Medicare system for clinical laboratory testing that was not medically necessary. The qui tam relators, former billing clerks for Allied, were awarded over $800,000 for their information and assistance.

Biotrax/Fresenius

On May 17, 1999, Fresenius National Medical Care Holdings, Inc., N.M.C. Diagnostic Services, Inc., Biotrax International, Inc., and National Medical Care, Inc. agreed to pay the government $16.5 million to settle alleged violations of the False Claims Act brought by several qui tam relators. These whistleblowers filed a complaint in the Eastern District of Pennsylvania against the defendants in 1995, in which the government intervened. The government did not file a complaint of its own. The settlement agreement resolves only civil liabilities, and does not address any criminal liabilities on the part of the defendants, their company officers, or their current or former directors.

The defendants, who engaged in the multi-billion dollar business of providing dialysis services for severely debilitated patients with end stage renal disease (ESRD), also provide testing services for patients suffering from ESRD. The complaint alleges that the defendants aggressively marketed nationwide a battery of diagnostic tests, and "sold" these tests to the referring physicians, who then billed Medicare at a higher rate than what was authorized for such tests. As a result of the defendants' marketing strategies, physicians were induced to order many unnecessary tests, which had no medical justification and offered no benefit to the patients. The relators learned of these improper billing procedures and informed government investigators of the defendants' wrongdoing. The relators assisted in the government's investigation for the four year period between the filing of the complaint, and the signing of the settlement agreement. The qui tam relators were awarded nearly $3.3 million.

This information is offered only for general informational and educational purposes. It is not offered and does not constitute legal advice or legal opinions. You should not act or rely upon this information without seeking the advice of an attorney.