The consequences of making false claims for government funds could become far more costly if a new amendment to the False Claims Act becomes law. The False Claims Act exacts civil money penalties and damages up to three times the erroneous payment from anyone who knowingly submits or causes submission of false claims for government funds.[1] Through the False Claims Act, the U.S. Department of Justice (DOJ) has collected over 15 billion dollars in the past two decades.[2] The vast majority of False Claims suits involve healthcare or procurement fraud.[3] Cases often arise under the Act's "qui tam" provisions, which allow private citizens with knowledge of fraud to file a case as a whistleblower on behalf of the government.[4] For their efforts, whistleblowers get a profitable share of any recovery.[5] In 2007, a startling seventy-five percent of recoveries under the False Claims Act were obtained from health care providers. A new amendment, called the False Claims Act Correction Act ("Correction Act"), would vastly expand the False Claims Act and increase the risk of liability for health care providers. If the Correction Act becomes law, here are some of the potential changes:

  • The DOJ could broaden its use of the False Claims Act against healthcare providers for quality of care failures;
  • New suits could be brought for the submission of false claims to any recipient of federal dollars, treating such submissions as if sent directly to the government;
  • Whistleblowers could bring claims based on less knowledge;
  • DOJ could recover damage for false claims even if the government did not suffer a loss;
  • Federal employees could act as whistleblowers; and
  • The government could retroactively apply the False Claims Act.[6]

The Correction Act could also expand the unsettling trend of using suits under the False Claims Act as a tool to address quality of care issues. The legal theory is that substandard care creates a false certification that amounts to fraud under the False Claims Act. Under current law, many federal courts have rejected such false certification arguments and held that a claim is not false simply because the service provided failed to comply with a statute, regulation, or contractual term.[7] Instead, a false claim must originate from some noncompliance related to the government's disbursement decisions.[8] The new law would run contrary to those decisions. It is unlikely that Congress will adopt all of the proposed Correction Act amendments. In addition to widespread opposition from the health care industry, the DOJ has also repeatedly criticized a number of Correction Act provisions, specifically any incentives for "whistleblowers" with no first-hand knowledge of fraud to bring claims .[9] A June 2008 U.S. Supreme Court decision also cuts against any significant expansion of the current False Claims Act. The Supreme Court narrowed the statute's application in Allison Engine Co. Inc. v. United States by rejecting an argument that False Claims Act liability can follow any false statement that results in the use of government funds.[10] The Court held that False Claims liability exists only when plaintiffs show that a defendant intended to defraud the government. The Correction Act was scheduled for debate and placed on the legislative calendar this summer.[11] When Congress reconvenes this fall, it could take action. Dinsmore & Shohl LLP will continue to monitor the proposed changes in coming months.