False Claims Act and Qui Tam Litigation the Government Giveth and the Government Taketh Away (and Then Some)
| Publication year | 1999 |
| Pages | 20 |
68 J. Kan. Bar Assn. November/December, 20 (1999). FALSE CLAIMS ACT AND QUI TAM LITIGATION THE GOVERNMENT GIVETH AND THE GOVERNMENT TAKETH AWAY (AND THEN SOME)
November/December, 1999
Jenny Brannon [FNaa1]
Copyright (c) 1999 by the Kansas Bar Association; Martie Ross, Jenny Brannon
The False Claims Act, [FN1] originally enacted in 1863, authorizes lawsuits against government contractors to recover monies received as a result of the submission of false claims to the federal government. The act provides for the recovery of damages and for the imposition of significant penalties for such misconduct. [FN2]
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An action may be initiated pursuant to the FCA by the government or by a private plaintiff on behalf of the government pursuant to the qui tam provisions of the act. [FN3] The term "qui tam" refers to the Latin expression "qui tam pro domino rege quam pro se ipso in hac parte sequitur," which means "who sues on behalf of the King as well as for himself." [FN4] A qui tam plaintiff, referred to as a "relator," retains a percentage of the monies recovered from the defendant contractor as a reward for bringing the fraudulent conduct to light and for prosecuting the action on behalf of the government. [FN5] Often, relators are disgruntled employees who "blow the whistle" on their employers even if they personally participated in the alleged fraudulent conduct. [FN6]
Immediately following the 1986 amendments, most FCA lawsuits were filed against defense contractors. [FN7] More recently, the government's commitment to combating fraud and abuse in federal health care programs has resulted in the filing of a significant number of FCA actions against health care providers. [FN8] In fact, cases involving allegations of health care fraud accounted for more than 60 percent of the new qui tam cases filed in 1998. [FN9]
The typical FCA action in the health care arena involves allegations that providers used false diagnostic codes, [FN10] ordered unnecessary tests, [FN11] sought payment for services not rendered, [FN12] or falsely characterized nonreimbursable routine examinations as reimbursable consultations. [FN13] Counsel who represent hospitals, physician practice groups, skilled nursing facilities, clinical laboratories, suppliers of durable medical equipment, pharmaceutical companies and home health agencies should be aware of their clients' potential liability under the act, and should advise clients to take appropriate action to minimize potential legal exposure.
I. History of the act
A. The original enactment
Some familiarity with the "tortuous, wending history" of the act is "critical to an understanding" of the act. [FN14] The original False Claims Act was adopted in 1863 during the Civil War "to assist in ferreting out unscrupulous defense contractors who committed fraud against the Union army by delivering bullets loaded with sawdust." [FN15] Viewed as a necessary weapon against increasing fraud, the original statute made it illegal to knowingly cheat on government contracts by misrepresenting the costs of producing a product or by charging the government more than the product's reasonable value. [FN16]
Along with the flood of government procurement and contracting during the New Deal and World War II eras came a deluge of qui tam lawsuits under the act. Many of these lawsuits were purely parasitic in nature; the relators' claims often were based exclusively on information contained in government files or indictments. [FN17] The Supreme Court found this practice permissible in United States ex rel. Marcus v. Hess, holding that the 1863 act did not require the relator to bring any original information to the lawsuit. [FN18]
B. The 1943 amendments
Less than a year after the Hess decision, Congress acted to prevent "parasitic" lawsuits by giving the government more control over qui tam actions and by creating exceptions to the FCA's general grant of subject matter jurisdiction in the federal courts. [FN19] First, the 1943 amendments eliminated any guarantee of recovery for the relator. Instead, the matter was left to the sound discretion of the trial court within certain limits. [FN20] If the government intervened, the relator could recover up to 10 percent of the amount recovered by the government. [FN21] If there was no intervention, the qui tam plaintiff could receive up to 25 percent of the amount recovered on behalf of the government. [FN22]
Also, the amendments required a relator to provide the United States attorney general with a copy of the complaint and a "disclosure in writing of substantially all evidence and information in his possession material to the effective prosecution of such suit." [FN23] The government had 60 days from the service of the disclosure statement to decide
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whether to take over the prosecution of the lawsuit. [FN24] If the government did not act, the relator was permitted to proceed, unless the claims were "based upon evidence or information [already] in the possession of the United States, or any agency, officer or employee thereof, at the time such suit was brought." [FN25]
The courts interpreted the 1943 amendments to the act's jurisdictional provisions narrowly and, as a result, significantly fewer qui tam lawsuits were filed. One example of this restrictive approach is the Seventh Circuit's 1984 opinion in United States ex rel. State of Wisconsin v. Dean. [FN26] In Dean, the Wisconsin learned through an extensive investigation of Medicare fraud occurring within the state that the defendant had requested reimbursement for psychiatric services not performed. [FN27] As a condition of its participation in the Medicare program, the state was required to report the results of its investigation to the federal government. [FN28] After complying with this reporting requirement, the state filed a qui tam action against the defendant. [FN29]
The defendant moved to dismiss for lack of subject matter jurisdiction. [FN30] Interpreting the language of the 1943 amendments to the act, the Seventh Circuit ruled the state could not bring a qui tam action because the information on which the action was based was in the government's possession at the time the lawsuit was filed. [FN31] Relying on the literal language of the 1943 amendments, the court rejected the state's argument that it should be permitted to pursue the claim because it was the party who had placed the information in the government's hands. [FN32]
C. The 1986 amendments
The decision in Dean prompted congressional action to ease the restrictions on qui tam lawsuits. In 1986, Congress enacted extensive amendments to the act to encourage legitimate private enforcement actions, [FN33] and to make the act applicable in more situations. The most significant changes apply to the qui tam provisions of the act, creating incentives, financial and otherwise, for employees and competitors to "blow the whistle."
First, the 1986 amendments significantly increase the potential financial recovery available to qui tam relators. If the government intervenes, the relator will receive between 15 and 25 percent of the amount recovered. [FN34] If the relator prosecutes the action alone, he will receive between 25 and 30 percent of the amount recovered on behalf of the government. [FN35] There now exists a federal cause of action available to any employee discharged or retaliated against for aiding in a FCA prosecution. [FN36]
Second, the 1986 amendments afford whistleblowers protections they previously did not enjoy.
Third, the passage of the 1986 amendments significantly increased the penalties and damages levied against defendants. To deter violations of the act and encourage qui tam relators, the statute now provides for treble rather than double damages, and for a mandatory civil forfeiture between $5,000 to $10,000 per violation. [FN37] The only exception to the imposition of treble damages involves the voluntary disclosure of all information relating to a violation to the government within 30 days of obtaining the information as well as full cooperation with the government. [FN38] In such a case, the court has discretion to award no less than twice the damages sustained by the government. [FN39]
Fourth, the 1986 amendments facilitate the establishment of a false claim. Now, allegations of false claims need be proved only by a preponderance of the evidence. [FN40] Similarly, no longer is proof of specific intent to defraud required. [FN41] Instead, the amended act requires only that the defendant had actual knowledge of the information, acted in deliberate ignorance of the information, or acted in reckless disregard of the information. [FN42]
Finally, the amendments lengthen the statute of limitations under the act. Prior to the 1986 amendments, an action under the act had to be brought within six years of the date on which the alleged violation was committed [FN43] and the statute of limitations could not be tolled by the government's lack of knowledge of the violation. [FN44] Now, the government, or the qui tam relator acting on its behalf, must bring its action within six years of the submission of the false claim, or within three years after the government should have learned the facts underlying the claim, but in no event longer than 10 years. [FN45]
Not surprisingly, the 1986 amendments have resulted in a dramatic increase in the number of qui tam actions filed and the amounts recovered on behalf of defrauded government programs. In 1987, only 33 qui tam suits were filed nationwide; in 1996, approximately 360 suits were filed;
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and more than 530 suits were filed in 1997. According to recent government...
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