The False Claims Act – Qui Tam Claims and Rewards

The False Claims Act

The False Claims Act has proven to be one of the most effective tools in fighting Medicare and Medicaid fraud, defense contractor fraud, and other types of fraud perpetrated against the federal government. The qui tam provisions, which allow whistleblowers to file False Claims Act lawsuits against companies and individuals that defraud the government, have been key to the False Claims Act’s success. The government has recovered more than $8.4 billion as a result of qui tam lawsuits since the False Claims Act was amended in 1986. Whistleblowers’ rewards have totaled more than $1.4 billion.

Twenty-four states – Arkansas, California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Rhode Island, Tennessee, Texas, Virginia, and Wisconsin, as well as the District of Columbia, have their own versions of the False Claims Act. In these states, whistleblowers can recover money from defendants who commit fraud against state and/or local governments.

How the Law Works

The False Claims Act allows people to file “qui tam” lawsuits against individuals or companies that have directly or indirectly defrauded the federal government. Through qui tam lawsuits, whistleblowers may recover the government’s losses on the government’s behalf. Tax fraud cases are handled differently and covered under a separate law.

Many people who file qui tam lawsuits (called the “relators”) are employees or former employees of companies that commit fraud, but anyone who knows of an instance where the government has paid false claims can file a qui tam lawsuit. That could be, for example, a competitor, a customer, a subcontractor, or even a patient.

Whistleblowers’ Rewards

The False Claims Act stipulates that whistleblowers (known as “relators”) be rewarded with a percentage of the money that the government recovers as a result of their qui tam lawsuits. The amount varies, depending on whether the government intervenes in the qui tam case and other factors. Under the False Claims Act, the relator is entitled to a reward of 15 to 25 percent of what the government recovers, if the government joins the qui tam case.

If the government declines to join the qui tam lawsuit and the whistleblower proceeds against the defendant anyway, the relator is entitled to a reward of 25 to 30 percent. Congress decided to give whistleblowers a share of the recoveries that result from qui tam lawsuits in order to give a strong incentive to people to step forward and take the personal and professional risks involved in reporting fraud. It also aimed to encourage private law firms to risk their resources in litigating cases on the public’s behalf.

To date, whistleblowers’ rewards for bringing successful qui tam lawsuits total more than $1.4 billion. Under the False Claims Act, the government may recover up to three times the amount of money it lost as a result of the defendant’s fraud. In cases that settle before trial, the settlement is typically less than three times the loss. The reward for the relator, or whistleblower, is calculated based upon the amount the government recovers, not the actual gains or losses. Whistleblowers’ rewards are determined by the contributions to the qui tam case made by the whistleblowers and their attorneys.

Filing a False Claims Act Lawsuit

False Claims Act cases and procedures are unique, and a specialized knowledge of the law can be very helpful in getting a successful outcome for a qui tam lawsuit. The relator files the lawsuit in federal court “under seal,” meaning it is not available to the public and cannot be discussed with anyone except the government officials investigating the case. Even the defendants – the individual or organization charged with committing fraud – are not told about the lawsuit. This gives the government time to investigate the fraud allegations without alerting the defendant.

The seal initially lasts for 60 days. But seals on qui tam cases are routinely extended for one or two years or even longer while the government investigates. At the end of the sealed investigative period, the government decides whether to join, or intervene, in the qui tam lawsuit. If the government joins the case, the litigation is conducted jointly by the government and the whistleblower’s attorney, with the government as lead counsel. If the government declines to intervene, the relator may go forward with the lawsuit and assumes primary responsibility for running the case.

The timing of a lawsuit can be critical. The first person to file a case under the False Claims Act for a particular fraud preempts all other cases. So if you plan to bring a case, it is important to do so before another whistleblower beats you to the courthouse. Potential whistleblowers also should keep in mind that the False Claims Act has a statute of limitations that may be as short as six years.

Damages and Fines

The law stipulates that a liable defendant pay three times the government’s losses plus a fine for each false claim. When settling a case, the government often agrees to forego the civil penalties and accepts two to three times the amount of damages suffered by the government. The defendant also must pay the fees and the case-related expenses of the whistleblower’s attorney.