The Federal False Claims Act Explained

What is the Federal False Claims Act?

July 20, 2015 — The False Claims Act (31 U.S.C. §§ 3729–3733, also called the "Lincoln Law") is a federal law that imposes liability on persons and companies who defraud governmental programs. It is one of the federal government's primary tools used to combat fraud. Importantly, the Act has qui tam provisions, which allow a private citizen to sue an individual or company that is committing fraud against the government. The Act provides for up to treble damages and also provides awards of 15 to 30 percent of recovery for those bringing cases.

To Whom Does the Act Apply?

The False Claims Act applies to fraud involving any federally funded contract or program, with the exception of tax fraud. There have been actions brought against Department of Defense contractors, healthcare providers, and pharmaceutical companies. It is impossible to list all of the fraud schemes that have been prosecuted under the False Claims Act, however, the following list gives a general idea of the scope of the frauds prosecuted to date:  

• Billing for goods and services not delivered or rendered
• Double billing
• Upcoding bills by using a different billing code that is for a more expensive treatment
• Illegal marketing of prescription drugs and devices
• Kickbacks provided in exchange for the referral of beneficiaries of a federally funded healthcare program such as Medicare, Medicaid, or TRICARE
• Billing for non-FDA approved drugs or devices
• Obtaining a contract through kickbacks or bribes
• Shifting expenses from one fixed-price contract to another
• Providing inferior products to the government
• Defective testing of products
• Billing for tests not performed

History of the Act

Over 150 years ago, the False Claims Act was passed into law. During the Civil War, the Union army relied heavily on private contractors for necessities like uniforms, shoes, guns, gunpowder, and horses. Unfortunately, seeing an opportunity to get rich quickly, some of these contractors often cut corners. “Soldiers complained about shoddy uniforms that would dissolve in rain. They would get horses that were withered, that were weak and in some cases blind." said Mark Greenbaum, an attorney who studies the Civil War era. Some contractors even mixed sawdust with gunpowder.

Unfortunately, all of the government’s resources were being put towards the war effort, and they did not have enough inspectors to ferret out the fraud. So Congress created a law where it would provide an incentive for individuals to turn in companies and individuals who were defrauding the government. In return for providing this information, the government agreed to give whistleblowers a portion of any fine it collected based on their allegations. This is what was known as the False Claims Act.

After the Civil War ended, the law was weakened and mostly forgotten until the 1980’s, when stories about military spending, including $400 hammers and $600 toilet seats, began to surface. During this time, the False Claims Act got whistleblowers in the defense industry to come forward, and eventually it worked well in ferreting out fraud in the pharmaceutical and healthcare industries. 

Importance of Whistleblowers Today

The False Claims Act is alive and well today. In the current economic climate, with a large federal deficit, it is more important than ever that the government find and fight against fraud. However, the False Claims Act is useless without whistleblowers. The government needs the help of everyday men and women to assist in uncovering and prosecuting fraud. If you have knowledge of fraudulent activity or violations governed by the federal False Claims Act, it is important to report it. If you have knowledge of such fraud occurring, and choose to report it, the attorneys at Waters and Kraus, LLP can assist you in every step of the way. Please contact us by email or call our qui tam attorneys at 800.226.9880 to learn more about our practice and how we can work together to notify the government about fraud.