How the False Claims Act Helps Recover Misspent Taxpayer Dollars

How the False Claims Act Helps Recover Misspent Taxpayer Dollars

The False Claims Act is a really important law that lets the government get back money from people who cheat taxpayers. It was originally passed during the Civil War to stop defense contractors from ripping off the Union Army! Can you believe that? Fraudsters have been trying to scam the government since way back then.

Nowadays the False Claims Act lets the federal government, and states too, sue anybody who tries to get money from the government by lying. So like if a company bills Medicare for medical services it never actually provided, that’s fraud the government can recover under the False Claims Act. Or if a contractor bills the Defense Department for parts it never actually delivered, bam, False Claims Act.

The great thing is the law lets whistleblowers and regular people file lawsuits on behalf of the government to expose fraud. If the lawsuit is successful, the whistleblower gets a cut of whatever the government recovers. So it incentives people to uncover and report on wrongdoing that costs taxpayers.

How the False Claims Act Works

The False Claims Act makes somebody liable if they:

• Knowingly submit a false claim for payment to the federal government
• Knowingly make a false record or statement to get a false claim paid
• Conspire to violate the False Claims Act
• Knowingly avoid paying money owed to the government

The law covers false claims submitted to federal agencies, federal programs paid for by the government like Medicare and Medicaid, and claims made under federal contracts. The penalties can be huge – violating the False Claims Act can lead to civil penalties of $5,500 to $11,000 per false claim, plus triple damages to make the government whole.

Here’s how False Claims Act cases typically work:

1. Somebody discovers that a person or company has defrauded the federal government and files a lawsuit under the False Claims Act.
2. The lawsuit remains sealed for 60 days while the Department of Justice investigates the allegations.
3. DOJ can decide to take over the lawsuit itself or let the original person (called the “relator”) pursue it. Either way, the relator gets 15-25% of whatever the government recovers.
4. The defendant has a chance to settle the lawsuit or fight it out in court.
5. If the relator wins, the defendant pays triple damages plus huge penalties.

Without the False Claims Act, there would be way less accountability. Fraudsters would have an open invitation to rip off taxpayers if whistleblowers couldn’t file lawsuits to expose wrongdoing. The False Claims Act empowers people to do something when they see the government being defrauded.

Big False Claims Act Recoveries

Since it was amended in 1986, the False Claims Act has recovered more than $62 billion for taxpayers! Here are some of the biggest cases over the past 10 years:

• GlaxoSmithKline paid $3 billion for illegally marketing drugs and providing kickbacks to doctors. A whistleblower sales rep reported their misconduct. [1]
• Pfizer paid $2.3 billion for illegally marketing drugs and paying kickbacks to doctors. Six whistleblowers came forward from Pfizer and its subsidiary Pharmacia. [2]
• Bank of America paid $1.2 billion for fraudulently selling toxic mortgages to Fannie Mae and Freddie Mac. A whistleblower exposed their misconduct. [3]
• Wells Fargo paid $1 billion for improperly certifying mortgages for FHA insurance. A whistleblower revealed their fraud. [4]
• JPMorgan Chase paid $614 million for fraudulent mortgage practices during the 2008 housing crisis. A whistleblower exposed them. [5]

As you can see, huge companies have paid out billions of dollars for ripping off taxpayers and the government. The False Claims Act has been super effective at recovering money when people commit fraud.

State False Claims Acts

A bunch of states have passed their own false claims acts modeled on the federal law. This lets state governments recover lost funds too. For example, New York has the New York False Claims Act allowing the state to sue over fraud.

State laws are really important because a ton of Medicaid spending is joint state/federal funding. So if a healthcare provider rips off a state Medicaid program, the state can sue under its own False Claims Act to recover its portion of lost funds. This protects taxpayers at both the state and federal level.

Criticisms of the False Claims Act

While the False Claims Act has done a lot of good, it also has some downsides critics point out:

• It can punish honest mistakes or minor recordkeeping violations.
• Whistleblowers are motivated by big rewards, not justice.
• It pressures companies to settle lawsuits instead of fighting in court.
• It adds legal costs for businesses working with the government.

These are reasonable concerns. The government does need to watch out for opportunistic lawsuits that don’t serve the public interest. However, the DOJ has gotten better over time at screening out frivolous claims.

On the whole, the False Claims Act is a valuable tool for protecting taxpayer dollars. The billions recovered more than justify the costs. But there’s always room for improvement, like tightening requirements and penalties to target truly egregious fraud.

The Future of the False Claims Act

The False Claims Act will continue to be an important tool for fighting fraud against the government. Some emerging trends will shape the future:

• More advanced data analytics to detect fraud patterns
• Growing whistleblower rewards to incentivize insiders
• Rising penalties and enforcement in healthcare fraud
• Protecting whistleblowers from employer retaliation
• Expanding liability for individuals, not just corporations

Technology can make it easier to spot false claims buried in huge datasets. The government is investing more in fraud detection software and advanced analytics. This can uncover suspicious billing patterns that may indicate fraud.

To encourage whistleblowing, rewards for relators have increased over time. The average reward is around $7 million now. Some advocates think rewards should be even higher to motivate more insiders to come forward.

The DOJ has ramped up False Claims Act enforcement against healthcare companies defrauding Medicare and Medicaid. Some critics argue penalties aren’t high enough yet to truly deter healthcare fraud. So expect growing civil settlements and penalties in the coming years.

There are also efforts to enact more protections for whistleblowers who face retaliation. Getting fired or demoted for reporting fraud discourages people from becoming relators. Better shielding whistleblowers would improve accountability.

Finally, instead of just going after corporations, DOJ may start using the False Claims Act to charge individuals involved in fraud schemes. This would target the actual people responsible instead of just fining companies.

The False Claims Act still has room to evolve. But the core idea – empowering insiders to report on fraudsters stealing taxpayer money – will remain as relevant as ever. No matter what changes, this 150-year-old law will continue serving justice and protecting the public treasury.