Deal with the government? Take care with submissions

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The average person likely has never heard of the Federal False Claims Act (31 U.S.C. §§ 3729 — 3733). Yet, it probably will touch the lives of most Americans directly or indirectly at some point.

The FCA, which imposes liability on individuals and companies who defraud governmental programs, is widely used in the context of health care, military and other spending programs. It is estimated that our government has recovered in excess of $33 billion since the FCA’s amendments in 1986.

Congress enacted the FCA during the Civil War to combat fraud against the federal government by suppliers to the Union Army. Corrupt contractors sold the Union Army lame or sick horses and mules, defective rifles and ammunition, and spoiled provisions. To curtail such actions, Congress enacted the FCA. Because it was passed during the Lincoln administration, it is also known as the Lincoln Law. For its first 100 years, the FCA was used sparingly as an enforcement tool, but was called upon with more frequency, albeit ineffectively, during World War II. Not until the FCA was dramatically revamped in 1986 did the federal government begin to reap the benefits of large FCA recoveries.

The 1986 amendments came on the heels of highly publicized accounts of abuses by defense contractors, with the government allegedly being overcharged by thousands of dollars for items such as hammers and toilet seats. The amendments significantly expanded the role of whistle-blowers (called relators), increased financial incentives for relators, increased penalties paid to the government per fraudulent submission/occurrence, and reduced roadblocks that had prevented successful outcomes.

Since 1986, the FCA has become government’s most effective and successful tool in combating fraud, waste, and abuse in federal spending. Relators now play a crucial role in FCA litigation. Because the government lacks resources and information to identify all potential violations, it relies on the relator to be its eyes and ears. The relator can receive from 15 to 25 percent of the amount recovered. It is estimated that relators have collected upwards of $2 billion in statutory rewards since 1986.

In the late 1990s, the FCA’s focus shifted to health care fraud. Close to half of all recoveries since 1986 and the majority of the largest settlements (some with pharmaceutical companies) have come from health care-related cases. As the health care industry expands to meet the needs of the aging Baby Boomer population, one can expect to see even more FCA litigation.

Currently, the civil penalty, per violation, ranges from $5,000 to $10,000, plus treble damages that the government sustains. There can be numerous violations in one invoice or submission to the government for payment. Indeed, the average Medicare submission contains numerous line items, and the average defense contractor submission can contain hundreds of line items, each of which could be deemed individual violations. Penalties add up quickly, making for large recoveries.

The FCA was amended in 2009 to further reduce any hurdles to a successful recovery, expanding the scope of liability and broadening the definition of the term “claim,” and increasing the protection for relators to include not only employees, but also contractors and agents.

The FCA expanded again in 2010 with the enactment of the Patient Protection and Affordable Care Act. Prior to PPACA, a relator’s claims could be dismissed or barred if cases were based on a public disclosure from public hearings or news reports. Now the public disclosure bar no longer applies. Additionally, the PPACA broadened the definition of an “original source” from “direct and independent knowledge of the information on which the allegations are based” to “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”

With these amendments, any overpayment, accidental or otherwise, that is not returned could be viewed as an FCA violation, subjecting a person to substantial penalties. Additionally, these amendments now open the door for any violation under the federal Anti-Kickback Statute to also be viewed as an FCA violation.

Because of the ever-expanding Federal False Claims Act, those persons or businesses dealing directly with the federal government should take necessary steps to verify all submissions to the government for payment or approval — before the submission is made.

Jacqueline Gaithe is a partner at the law offices of Stinar & Zendejas, LLC, 121 E. Vermijo Ave., Suite 200. Gaithe has a varied practice that includes commercial litigation.