The history of the False Claims Act dates back to the English monarchy. Today, this distinctly American law is the most powerful anti-fraud enforcement tool available. The False Claims Act allows whistleblowers to collect rewards for reporting instances of fraud and misappropriation of taxpayer funds.
Learn more about the False Claims Act below and how a whistleblower lawyer can help you file a whistleblower lawsuit under it.
The False Claims Act was originally known as the Lincoln Law, as it was signed into effect by President Abraham Lincoln during the Civil War. Before the False Claims Act was enacted at the federal level, qui tam provisions were part of some colonial legislatures in Connecticut, New York, and Virginia.
Qui tam is derived from English monarchic law. Qui tam is derived from the Latin phrase, “qui tam pro domino rege quam pro se ipso in hac parte sequitur.” Qui tam roughly translates to “on behalf of the king,” as a part of the longer phrase of “he who brings an action for the king as well as for himself.”
In America, False Claims Act history dates back to 1863. The Civil War was underway, and the Union Army reported being sold sick horses and mules, faulty rifles and ammunition, and spoiled food. Disease was rampant, as was the risk of starvation. To address the problem, President Lincoln passed the False Claims Act. This law made it illegal to make false claims to the federal government. Doing so can result in a qui tam lawsuit and the imposition of fines.
Federal False Claims Act history has its roots in addressing defense contractor fraud, but today its scope is much broader. While defense contractor fraud is still an important area of financial recovery, the False Claims Act now also covers healthcare fraud, education fraud, banking and mortgage fraud, government contractor fraud, and any other knowing attempt to misappropriate federal funds through making false certifications and claims. The primary purpose of the False Claims Act is to protect taxpayer dollars, while holding scam artists accountable and protecting whistleblowers who expose them.
In Fiscal Year 2022, the Department of Justice recovered over $2.2 billion in False Claims Act settlements. Of that amount, over $1.7 billion was from healthcare fraud settlements, including from pharmaceutical companies, drug and medical device manufacturers, durable medical equipment manufacturers, home health and managed care providers, hospitals, hospice organizations, laboratories, and physicians.
The False Claims Act has undergone a series of amendments throughout the years in response to rising fraud rates, employer retaliation, financial crises, and shifting socio-political factors. Recently, efforts are underway to address newfound false claims connected to the COVID-19 pandemic and government stimulus funding. Previously, the False Claims Act has seen important changes in 1943, 1986, and the 2010s.
In response to financial concerns about World War II, the 1943 False Claims Act amendments greatly weakened the whistleblower relator’s share. It also limited opportunities for whistleblower engagement in cases with government intervention. The 1943 amendments enacted the following changes to the False Claims Act:
- The Department of Justice was authorized to take over the entirety of the qui tam relator’s concerns. Qui tam relators (also known as whistleblowers) were ordered to submit all of their supporting evidence to the Department of Justice at the time of filing their complaint. The Department of Justice was given 60 days to decide whether or not they would intervene. Relators had no recourse to follow up on the suit if federal investigators decided to take on the case.
- Relators’ shares were reduced to only 10% of the total settlement with government intervention, and they had the possibility of receiving nothing at all.
- In the event that the DOJ did not intervene, relators could receive no more than 25% of the total recovered funds.
In 1986, Senator Charles Grassley and Representative Howard Berman spearheaded Congressional efforts to amend the False Claims Act in the wake of rampant government contractor fraud. The financial crisis of the 1980s savings and loan system, ongoing defense contractor fraud, and outright theft of as much as 10% of the total federal budget according to Government Accountability Office estimates led to a tipping point for lawmakers.
The 1986 amendments created the False Claims Act as we know it today, with powerful new enforcement options as well as whistleblower protections and incentives. The 1986 FCA amendments implemented the following changes:
- Cases about which the federal government already possessed information could now be brought by whistleblowers. Previously, they were barred from the statute.
- Successful qui tam plaintiffs became guaranteed a relator’s share, as long as they were the first to share non-public information contributing to the recovery.
- The relator’s share was increased to up to 15 to 30% of the total recovery.
- Whistleblower protections were added to protect relators against retaliation by their employers. Whistleblowers could now sue for damages as well as reinstatement if they were fired, demoted, harassed, or otherwise retaliated against because of their protected disclosures.
- The cost of defrauding the government was increased to treble damages, with penalty rates linked to inflation.
In the wake of the 2008-9 financial crisis, the government was once more faced with urgency to act to address fraud. The Fraud Enforcement and Recovery Act of 2009 (FERA) was signed into law by President Obama. The FERA amendments strengthened the False Claims Act by expanding upon the following areas:
- Reverse false claims: Overpayments from the government have been an area of concern for some time. Many people and companies operate under the misconception that when it comes to overpayments and reimbursements from the government, the rules are “finders keepers.” The FERA amendments sought to address this by clarifying that making false certifications with an effort to avoid repaying the federal government is also a crime.
- Expanding liability: In 2008 the Supreme Court in Allison Engine Co., Inc. v. United States ex rel. Sanders held that the False Claims Act “is not an all-purpose antifraud statute.” This decision limited the enforcement potential for the False Claims Act unless whistleblowers could illustrate that false claims were made with the specific intent to defraud the federal government. The 2009 amendments removed the “intent to defraud” idea, undoing the specificity of Allison Engine. Instead, Section 3729(a)(1)(B) makes liable any person or entity who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.”
- Materiality: The 2009 amendments included one area that has been a hotbed of debate. The materiality clause in 2009’s FERA amendments specified that not all false statements and claims give rise to FCA liability, just those that are “material” (or have the capacity to influence) the government’s decision to pay or reimburse a claim.
- Expanded whistleblower protections: The ability to sue for reinstatement as well as double back pay for whistleblowers who have been retaliated against by their employers was expanded to apply to contractors and agents as well under FERA.
Even after the 2009 FERA amendments, more work was conducted to improve the FCA in 2010 with a new series of amendments to the False Claims Act. The Affordable Care Act (ACA) False Claims Act Amendments closed perceived loopholes to enforcement, and expanded what kind of information could be used to bring a successful claim.
The ACA amendments to False Claims Act enforcement include:
- Original source exception: Previously, a relator had to be considered the original source for information they disclosed in order to report fraud and claim their reward. Now, a relator must only have “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions” in order to qualify.
- Public disclosure bar: Historically, qui tam whistleblowers could not bring a lawsuit based on information that was publicly available. With the 2010 amendments, the government has the power to waive the public disclosure bar, even in cases where it would obviously apply.
- Overpayments: Reverse false claims were already a significant area of focus in the FERA amendments to the FCA, but they were further qualified in 2010. According to Section 6402 of the ACA, overpayments that are not reported and returned within 60 days can be considered an “obligation” under the FCA and are subject to civil monetary penalties.
In 2021 Senator Chuck Grassley, co-architect of the 1986 amendments to the FCA, introduced new language around the bill that would seek to clarify the materiality standard, allow former employees to qualify for whistleblower protections if they had been retaliated against by their employers, as well as allow relators the chance to show that dismissal of a qui tam action by the federal government may be “fraudulent, arbitrary and capricious, or contrary to law.” If passed, these amendments would close a common loophole defendants use to avoid liability and give whistleblowers a valuable check on federal investigators’ authority to dismiss their claims.
The most recent update from Senator Grassley’s office in 2023 has passed the Senate, and awaits a vote from the House of Representatives. The Administrative False Claims Act of 2023 raises the maximum amount of a fraud claim that may be handled administratively from $150,000 to $1 million. It also introduces the potential for the government to recoup its costs for the investigation and prosecution of the fraud, raising the potential for recoveries and whistleblower rewards.
The False Claims Act offers a financial incentive to speak up. Qui tam relators who contribute to the recovery of defrauded funds can receive up to 30% of the total settlement. Because the FCA imposes treble liability per individual violation, settlements regularly reach into the hundreds of thousands or million dollar range. Whistleblowers can walk away with a substantial reward just for sharing what they know with a whistleblower lawyer who brings the case to investigators.
In the event that federal investigators do not elect to pursue the claim, whistleblowers have the option to follow up on the case themselves through their qui tam law firm, earning them a possible 30% maximum recovery percentage in the event of a successful case.
Numerous settlements under the False Claims Act have hit the billion dollar mark and beyond, and many of them are in the pharmaceutical industry. Currently, the largest settlement under the False Claims Act is the $3 billion settlement from GlaxoSmithKline, a pharmaceutical manufacturer. Criminal allegations made up $1 billion of the settlement, and the company was ordered to pay an additional $2 billion to resolve further liability involving their drugs Paxil, Wellbutrin, and Avadia. Some of the fraud counts involved in the settlement included promoting the drugs for non-FDA confirmed, non-covered uses while offering kickbacks to physicians who prescribed them for these additional purposes.
Many whistleblowers hesitate to speak up out of fear of retaliation. They may worry about losing their job, missing chances for advancement, or being pushed out of an inner circle at work if they speak honestly about fraud taking place.
Because of this, the False Claims Act allows whistleblowers who have been discriminated against the opportunity to sue for reinstatement at the same seniority level as well as up to double back pay with interest. In cases where reinstatement is not possible (for instance, if the company has gone under) front pay is another option from legal action. Attorneys fees and damages may also be awarded by the court.
Some examples of discrimination that are covered under FCA protection include:
- Harassment, whether verbal or physical
- Demotion
- Suspension
- Reduction of hours
- Reduction of pay
- Blacklisting
- Threatening
- Firing
The following are some frequently asked questions about the legislative history of the False Claims Act as well as its current applications today.
When was the last time the False Claims Act was amended?
The legislative history of the False Claims Act involves several rounds of revisions. The most recent amendment was passed in 2010, but others are currently up for debate in the Senate and House of Representatives.
Is the False Claims Act a federal or state law?
The False Claims Act is a federal law. However, many states have their own False Claims Acts. These laws often address attempts to defraud state Medicare and Medicaid funds, and may also cover other kinds of false claims to state, local, or municipal government entities. Some of them also offer whistleblower protections, and many offer similar reward percentages to qui tam relators.
Who enforces the federal False Claims Act?
The federal False Claims Act is enforced by the Department of Justice. The DOJ is in charge of investigating, prosecuting, and reporting on false claims. At times, other agencies may become involved when they have jurisdiction over areas of the claim. For instance, the Department of Defense might be involved in a claim about military contractor fraud. The Environmental Protection Agency might have a say in an environmental fraud case involving false certifications made about water pollution or violations to the Clean Air Act.
How many states have their own False Claims Act?
Currently, 32 states have their own version of the False Claims Act. The states without False Claims Acts are Alabama, Alaska, Arizona, Idaho, Kentucky, Maine, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, Vermont, West Virginia, and Wyoming. However, even in the absence of a state-level False Claims Act, all of these states still offer pathways to recover misappropriated state funds, including the possibility of criminal liability for fraud. Some of them also offer whistleblower protections for those who come forward with information.
What is the original source rule for the False Claims Act?
The original source rule was weakened by the 2009-10 amendments to the False Claims Act in the wake of the 2008 financial crisis. Prior to these amendments, a qui tam relator had to be considered the original source for the information that they reported in their claim if it was disclosed at any point to the public. Original source is defined as “an individual who has direct and independent knowledge of the information on which the allegations are based.”
Today, whistleblowers can qualify for rewards and protections if they are the original source for information or if they can substantially and independently contribute to an investigation about publicly disclosed allegations. This allows whistleblowers who contribute to an investigation that is already underway the ability to qualify for a qui tam award from the settlement.
Understanding the history of the federal False Claims Act, as well as any state variations, is an important part of what the qui tam attorneys at Tycko & Zavareei LLP bring to the table with every case we take on. Our attorneys include top graduates of the nation’s premier law schools and former officials with the Department of Justice. Our team understands the full context and scope of qui tam law today, allowing us to take full advantage of every area we can to maximize our clients’ whistleblower rewards.
There have been numerous expansions to the False Claims Act in order to further protect whistleblowers and incentivize them to share what they know. At Tycko & Zavareei LLP, we use every aspect of this powerful law in order to support our clients’ disclosures and build their claims. If you have questions about filing a lawsuit under the False Claims Act, or want to learn more about how to protect yourself from retaliation after speaking up, contact our experienced whistleblower lawyers today.