Setting a Rogue to Catch a Rogue: The Far Reaching Impact of the False Claims Act

By Nadia Ahmed, Esq. and Crane Pomerantz, Esq.

Summary: The False Claims Act was enacted during the Civil War to combat defrauding the government and has evolved over time to serve as a versatile and important tool to identify, go after, and recover damages from fraudsters across a multitude of government settings. Integral to its successful implementation has been the reliance upon qui tam suits led by private citizen “whistleblowers.”

History and purpose of the FCA

Between 1861 and 1863, in desperate need of supplies, the Union Army bought rations, horses, mules, and weapons from anyone who could procure them, and paid the price both in dollars and in quality. Desperation, greed, and opportunity set against the backdrop of the Civil War had converged to create a pervasive internal enemy for the United States – in a word: fraudsters. So incensed by their conduct, President Lincoln reportedly declared “worse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the nation while patriotic blood is crimsoning the plains of the south and their countrymen are moldering in the dust.” To combat this fraud, Congress enacted the False Claims Act (FCA), 31 U.S.C. § 3729 et seq., on March 2, 1863.

The FCA initially provided that any person who knowingly submitted false claims to the government was liable for double the government’s damages plus a penalty of $2,000 for each false claim. Amended multiple times over the years, the FCA now provides that violators are liable for treble damages plus a penalty adjusted for inflation. Chief among the FCA’s features making it an attractive enforcement tool for the government is its lower burden of proof as a civil statute —preponderance of the evidence — contrasted with the higher “beyond a reasonable doubt” standard in criminal matters, and that it only requires general intent, rather than specific intent to defraud.

Additionally, from inception to the present, at the heart of the FCA is its leverage of the qui tam suit. The FCA, seeking to root out fraud schemes about which the government might otherwise never learn, empowered private citizens acting as “relators” to file suits on behalf of the government against parties allegedly defrauding the government. A suit filed by a relator is initially filed under seal and the government is then given sixty days to investigate and determine whether it will join in the suit or leave it to the relator to litigate. Relators who prevail in qui tam actions receive a portion of the government’s recovery ranging between 15 and 30 percent.

In proposing the qui tam mechanism for inclusion in the FCA in 1863, Senator Jacob Howard explained that he based this provision “upon the old-fashioned idea of holding out a temptation, and ‘setting a rogue to catch a rogue,’ which is the safest and most expeditious way I have ever discovered of bringing rogues to justice.” Over a hundred and fifty years later, the FCA remains the federal government’s primary civil enforcement mechanism for uncovering, combating, and recouping fraudulent claims for federal funds and property across a multitude of government operations and functions, ranging from defense procurement to health care fraud to small business loans and beyond. And the qui tam cases responsible for bringing this fraud to account have been a mixed bag of true whistleblowers and the “rogues” Senator Howard envisioned.

Modern day application

Relator actions have proven tremendously successful for the federal government, as evidenced by the statistics released by the Department of Justice (DOJ) regarding FCA actions in fiscal year ending September 30, 2020. The pandemic notwithstanding, DOJ obtained more than $2.2 billion in settlements and judgments from civil cases involving fraud and false claims against the government. Whistleblowers filed 672 qui tam suits in fiscal 2020 and led to over $1.6 billion recovered in this same time frame.

The recovery amounts alone demonstrate that the FCA has managed to stay true to its purpose and continues to motivate relators to serve as boots on the ground in combating fraud whether brought by concerned citizens or rogues. The recognition by the drafters that opportunity would always unearth opportunists has held true with respect to both the relators and the defendants in qui tam actions, as demonstrated by the robust world of professional qui tam litigants who have learned to use data analytics to identify fraudsters and bring suits against them. As always, the contours of the FCA, in light of emerging trends such as this, are often shaped in case law, as circuits across the country scrutinize the sufficiency of such evidence to support professional relators bringing suit under the FCA. Whether sufficient, alone, to bring such claims, the use of data analytics has once again pushed FCA enforcement forward, particularly in the field of healthcare fraud.

What the monetary recoveries and emerging trends reflect as a whole is that the FCA, enacted in response to a specific wartime scenario, remains relevant, robust, and far-reaching today. Indeed use of the FCA has proved an important tool in countering the nationwide opioid epidemic. This includes an October 2020 global resolution with Purdue Pharma LP, which included a payment of $2.8 billion for Purdue’s alleged FCA violations arising from its unlawful promotion of its opioid drugs for improper uses and related kickback schemes to induce prescriptions of its opioids. The global resolution also required Purdue’s owners to pay $225 million to resolve their individual FCA liability—the DOJ’s largest FCA settlement with a noncorporate entity to date. The FCA was also used to combat fraudulent schemes contributing to the rising costs of prescription drugs and schemes taking advantage of the vulnerable elderly population in relation to inadequate or unnecessary care and misleading marketing of drugs for off-label uses such as to treat dementia.

In sum, the FCA is uniquely adaptable to a multitude of scenarios, and has translated well from efforts to combat defense fraud to efforts to combat healthcare fraud in all its facets. So long as there are those who would “feast and fatten on the misfortunes of the nation,” the FCA and relator-led lawsuits, will continue to be an important and effective tool to combat unlawful schemes to defraud the government.

About the authors

Nadia Ahmed and Crane Pomerantz are attorneys at Sklar Williams PLLC, a firm specializing in healthcare litigation, transaction and regulatory work. Both authors previously served as Assistant United States Attorneys where they prosecuted healthcare and opioid diversion cases.

About this article: This article was originally published in the “Torts Law” issue of Communiqué, the official publication of the Clark County Bar Association, (August 2021). See https://clarkcountybar.org/about/member-benefits/communique-2021/communique-august-2021/.

© 2021 Clark County Bar Association (CCBA). All rights reserved. No reproduction of any portion of this issue is allowed without written permission from the publisher. Editorial policy available upon request.

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