The False Claims Act (FCA)—sometimes referred to as the Lincoln Law, Qui Tam Statute, or Whistleblower Act—is a federal law that grants a whistleblower the ability to file a lawsuit on behalf of the United States Government in regard to fraudulent activity committed against the federal government. The law is the basis for qui tam lawsuits, and accounts for approximately $3 billion in whistleblower settlements and court judgements each year. Of that total, whistleblowers are typically awarded 15% – 30% of the damages.

Types of fraud classified under the False Claims Act

The FCA specifically addresses four types of fraud against the United States Government:

  • Knowingly using a falsified statement or record to avoid, conceal, or lower an obligation to pay money or transmit property to the US Government
  • Conspiring with others to have a fraudulent or falsified claim paid by the US Government
  • Knowingly submitting a fraudulent or falsified claim for payment to the US Government
  • Knowingly using a falsified statement or record to have a claim paid by the US Government

If you’re thinking that these provisions are a little vague, you’re right—the FCA’s mandate is intentionally broad. The goal is to provide the legal basis for any whistleblower lawsuits outside of tax fraud (which falls under the IRS) and securities fraud (the SEC’s jurisdiction). While this allows for a diverse array of qui tam lawsuits, there are four categories that tend to be the most common:

  • Healthcare fraud
  • Defense contractor fraud
  • Financial industry fraud
  • Grant fraud

Healthcare fraud

Healthcare fraud is easily the most common topic for qui tam lawsuits. The government pays hundreds of billions of dollars in claims every year through Medicaid, Medicare, and other healthcare assistance programs, and the massive size of the programs make them easy targets for fraudsters. Following are a handful of fraudulent actions by doctors, hospitals, pharmaceutical companies, medical device companies, and other healthcare providers, that may result in a qui tam lawsuit:

  • Billing for unnecessary procedures – when a doctor or hospital orders more expensive services when a simpler, more cost-effective service would suffice (e.g. ordering an MRI when a basic X-Ray would work)
  • Defective devices – unknown or undetected malfunctions in a medical device are to be expected from time to time, but it’s considered fraud against the government when a company knows about a defect and proceeds to bill and receive payment for the defective device
  • Kickbacks – generally speaking, nobody in the healthcare industry—including patients—should be receiving items of value (meals, trips, gifts, money, etc.) in exchange for business or referrals, even if it’s as simple as waiving a Medicare patient’s standard co-pay
  • Off-label marketing – when a pharmaceutical company attempts to market their drug for uses that are not approved by the Federal Drug Administration (FDA)
  • Phantom billing – when a doctor or hospital bills for a service that was never actually provided
  • Price fraud – when a pharmaceutical company receives a discount from Medicare that’s intended to transfer to program participants, but the company conceals the discount from customers and pockets the price difference
  • Stark violations – to avoid a conflict of interest, a doctor should not refer patients to a business with which he or she has a financial relationship (unless a safe harbor rule applies)
  • Up-coding – this happens when a doctor or hospital performs a procedure and attempts to bill the government for a higher amount than is prescribed by the government’s codes (agencies like Medicare and Medicaid have codes that determine how much a provider is paid by the agency

Defense contractor fraud

The United States has the highest national defense budget on the planet, and a large part of the military’s annual expenditures goes to defense contractors. Fraudulent defense contracts are especially problematic overseas where there is minimal government oversight. Some common defense contractor qui tam lawsuits under the FCA include:

  • Fraudulent sourcing – representing that parts and products are purchased from American companies when they’re in fact sourced from blacklisted countries
  • Breach of contract – when a defense contractor fails to comply with contract specifications
  • Fictitious resumes – when a defense contractor misrepresents their qualifications and experience
  • Overbilling – when a defense contractor overcharges for products and/or services
  • Phantom billing – when a defense contractor bills the government for products and/or services that were not provided
  • Substandard goods – when a defense contractor utilizes subpar parts or products
  • Violating TINA – when a defense contractor violates the Truth-in-Negotiations Act (TINA), which requires contractors to provide the government access to all cost or pricing data used in making a bid for government contracts

Financial industry fraud

While securities fraud generally falls under the purview of the SEC rather than the DOJ, there are a handful of situations that may warrant a qui tam lawsuit. Following are several examples of defrauding the government in banking, accounting, and lending/borrowing:

  • FEMA fraud – when an entity receives funds to serve the Federal Emergency Management Agency (FEMA) and willfully fails to provide the contracted services
  • Financial assistance fraud – when an entity submits falsified or fraudulent information in conjunction with a request for financial assistance under the Capital Purchase Program (CPP) and/or Troubled Asset Relief Program (TARP), or when an entity uses CPP/TARP assets for unqualified purposes (e.g. using CPP/TARP funds for acquisitions)
  • Mortgage fraud – when an entity submits falsified or fraudulent information in the process of securing mortgage insurance, loan guarantees, Housing and Urban Development (HUD) funds, or Federal Housing Administration (FHA) funds
  • Securities pricing fraud – while securities fraud generally falls under the domain of the SEC, the False Claims Act does cover the fraudulent pricing of financial products and securities when a government entity or public pension fund is involved
  • TALF fraud – when an entity violates the Federal Reserve’s Term-Asset-Backed Securities Loan Program (TALF), such as the illicit use of off-shore financial vehicles by hedge funds

Grant fraud

The government invests millions of dollars each year into research projects that are intended to benefit the public. The value of these federal grants pales in comparison to healthcare, financial, and defense contractor claims, but grants still represent a fair amount of qui tam lawsuits. Whistleblower cases regarding grants usually involve researchers who use government funds inappropriately, whether it’s to fund for-profit business ventures or separate research projects. Grant fraud can also include submitting a fraudulent or falsified grant proposal, or inflating project-related costs.

 

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