In recent years, enforcement and litigation of the False Claims Act (“FCA”) by the government and private plaintiffs has risen to levels not previously seen in the nearly 150-year history of the FCA. The magnitude and volume of FCA claims show no signs of abating in the near future and are likely to intensify. Companies that contract with the government or operate under government authorizations need to be more vigilant than ever to avoid an FCA claim.
In the last year alone, over 700 FCA matters were filed by the government and private plaintiffs. Over the past two years, the government has recovered almost $7 billion from companies that allegedly overcharged or underpaid the government and from companies it believed to be engaged in unauthorized practices pursuant to previously obtained government approval. Large FCA settlements are the result of the government’s commitment over the last decade to zealously enforce the FCA, particularly with respect to the healthcare industry. Over 75 percent of the money recovered by the government in recent years has been from healthcare providers and pharmaceutical companies.
The overwhelming majority of FCA filings are made by qui tam plaintiffs—private citizens, often “whistle blowing” employees of companies doing business with the government, who file suits on behalf of the government and are awarded between 15 and 30 percent of any FCA settlement or judgment. Over 80 percent of FCA claims are filed by qui tam plaintiffs.
Recent changes to the FCA have expanded its scope and further empowered the government and private plaintiffs. Since May 2009, the FCA has been amended three times—under the Fraud Enforcement and Recovery Act of 2009, under the Patient Protection and Affordable Care Act of 2010 and under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The most significant changes to the FCA include the expansion of protections provided to whistle blowing employees who file qui tam suits against their employers, expansion of the definition of false claims, the narrowing of the definition of publicly disclosed information for purposes of the FCA’s “public disclosure bar,” expansion of the “original source” exception and authorization for the government to determine whether certain information is subject to the public disclosure bar. The recent FCA amendments also give the government greater access to information held by private companies.
Changes in state false claims laws have also fueled the growth of FCA claims. Fourteen states have their own False Claims acts, some of which have been amended during the last year to expand whistleblower protections and false claims causes of action. New York has expanded its FCA to allow qui tam plaintiffs to bring actions for tax fraud by some companies doing business with the state and has lowered the necessary degree of intent for tax fraud claims brought under the New York FCA. In contrast, the federal FCA continues to prohibit tax fraud claims.
Meanwhile, federal courts continue to wrestle with aggressive new legal arguments advanced by plaintiffs. In some instances, courts have attempted to limit the scope of the FCA, by, for example, rejecting implied false certification and collective knowledge claims made by the government. However, as additional legislative amendments are made to the FCA to override court decisions that limit the bounds of the FCA, companies will need to stay abreast of legislative and judicial developments.
Companies that directly or indirectly conduct business with the government, or whose products or services are sold subject to government approval, should ensure that their employees are informed about the FCA and establish internal procedures by which employees can address FCA-related concerns within the company before they file complaints with the government. Companies doing businesses with the government should also ensure that they have procedures in place for company management to respond to FCA-related concerns. In addition, companies should confirm that all representations made in the course of business are as accurate as possible and in compliance with both state and federal false claims acts.
FCA complaints filed by qui tam plaintiffs are sealed for at least 60 days—and can remain sealed for years—while the government investigates the claim and determines whether to intervene in a qui tam suit. Thus, it is critical for companies to take proactive measures to stay ahead of potential FCA claims, including obtaining partial seal lifts. This allows companies to investigate claims for themselves, negotiate settlements without unwanted publicity and avoid violating seal provisions in order to comply with disclosure requirements of the securities laws. Lastly, any company that may become subject to an FCA claim should avoid any retaliatory measures against employees who have filed claims and immediately seek counsel to determine its rights under the FCA and minimize the likelihood of government intervention.