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How does the False Claims Act apply to stimulus funds and COVID relief?


How the False Claims Act Applies to Stimulus Funds and COVID Relief

The COVID-19 pandemic has led too so much fraud related to stimulus funds and relief programs. The government has tried to crack down on this fraud using the powerful False Claims Act. But what excatly is the False Claims Act and how does it work? This article will explain.

The False Claims Act is a law that prohibits defrauding the federal government. It allows both the government and whistleblowers to file lawsuits against individuals or companies that knowingly submit false claims to get money or property from the government.

Some key things to know about the False Claims Act:

  • It covers fraud against any federal program or contract, which includes COVID stimulus funds and relief programs.
  • Lawsuits can recover 3 times the damages the government suffered, plus penalties of $11,000 – $22,000 per false claim.
  • Whistleblowers who report fraud can receive 15-30% of the money recovered.
  • The Department of Justice has recovered over $62 billion under the False Claims Act since it was amended in 1986.

So how has the False Claims Act been used for COVID fraud cases? The government has filed many lawsuits under the False Claims Act to go after fraudulent applications for relief programs like the Paycheck Protection Program and unemployment insurance. There have also been lots of whistleblower lawsuits under the False Claims Act alleging COVID fraud by healthcare providers, government contractors, and others.

Some examples of COVID-related False Claims Act cases:

  • A medical testing company in Texas allegedly billed for unnecessary COVID-19 tests, leading to a $42 million settlement.
  • A hospital system in Florida agreed to pay over $100 million to resolve allegations it overcharged federal healthcare programs for COVID-19 antibody treatments.
  • Dozens of healthcare providers have settled False Claims Act cases related to allegedly fraudulent telehealth and genetic testing claims tied to COVID-19.
  • Many companies have settled cases alleging they improperly obtained Paycheck Protection Program loans or misused the funds.

The government has recovered billions of dollars so far in COVID-related False Claims Act cases, and many more cases are underway. COVID brought unprecedented amounts of federal spending on stimulus and relief programs. With so much taxpayer money going out the door quickly, fraudsters saw an opportunity. The False Claims Act has become one of the main tools for recovering these stolen funds.

Paycheck Protection Program Fraud

One major COVID relief program that has seen widespread False Claims Act cases is the Paycheck Protection Program (PPP). The PPP was created by the CARES Act in March 2020 to provide small businesses with loans to cover payroll, rent, utilities and other expenses during COVID shutdowns. Over $800 billion was allocated to the PPP in several rounds of funding.

With so much money flowing rapidly into a new program, there was lots of fraud. The Justice Department has pursued many False Claims Act cases related to companies that improperly applied for and received PPP loans. Some common fraudulent schemes included:

  • Applying for PPP loans for shell companies or inactive businesses.
  • Claiming more employees or higher payroll expenses than actually existed to get bigger loans.
  • Using PPP funds for personal expenses rather than approved business expenses.
  • Getting multiple PPP loans by applying through multiple lenders.

The government has recovered hundreds of millions in these PPP fraud cases so far. For example:

  • Two businessmen in New Hampshire paid $3.6 million to settle claims they obtained several PPP loans for businesses that had no operations or employees.
  • A Texas man pleaded guilty to getting over $24 million in PPP loans using fake payrolls and employee information. He was sentenced to over 9 years in prison.
  • An engineering firm in Ohio paid $1.5 million to resolve allegations it falsified records to obtain larger PPP loans and misspent the money on unapproved costs.

In addition to the Justice Department, the Small Business Administration has its own enforcement powers to review PPP loans for fraud and seek repayments or penalties. The SBA’s inspector general also pursues PPP fraud cases. So multiple agencies can bring False Claims Act cases and other enforcement actions against PPP fraudsters.

Unemployment Insurance Fraud

Another major COVID relief program plagued by fraud is unemployment insurance (UI). Congress created several new temporary UI programs starting in March 2020 to expand unemployment benefits for workers impacted by the pandemic. But these hastily set up programs were ripe targets for fraudsters.

The Labor Department inspector general estimates that at least $87 billion in fraudulent UI payments were made during the pandemic. Common UI fraud schemes included:

  • Using stolen identities to file for bogus claims.
  • Filing UI claims for workers who refused to return to jobs or did not qualify.
  • Fake employer accounts filing mass claims for non-existent employees.
  • Criminals recruiting people to file false claims in exchange for a cut of the money.

States administer their own UI programs with federal funding, so both state and federal False Claims Act cases have targeted pandemic UI fraud:

  • A staffing company in Georgia paid $550,000 to resolve claims it helped employees file for UI benefits they did not qualify for.
  • A Florida man was charged criminally and under the False Claims Act for using stolen IDs to file hundreds of fake UI claims.
  • A group of defendants in California face False Claims Act lawsuits for allegedly recruiting people to file fraudulent UI claims in exchange for payments.

The Department of Justice has set up unemployment fraud “strike force teams” in over a dozen states to pursue UI fraud cases. These teams have already recovered over $150 million. So False Claims Act cases will likely remain an important tool for recovering stolen UI funds.

Healthcare Fraud

Healthcare fraud is another major area for False Claims Act cases related to COVID-19. With billions in federal funds flowing to healthcare providers fighting the pandemic, some saw opportunities for fraud.

Some common COVID healthcare fraud allegations include:

  • Billing for fake COVID-19 tests or treatments.
  • Upcharging for COVID services covered by federal programs like Medicare.
  • Falsely diagnosing patients with COVID to get higher reimbursements.
  • Misusing COVID relief funds received through the CARES Act.

Major False Claims Act settlements for COVID healthcare fraud include:

  • A Texas lab company settled for $42 million over allegations it billed federal programs for unnecessary COVID-19 tests.
  • A Florida hospital chain agreed to pay over $100 million to resolve claims it overcharged Medicare for COVID antibody treatments.
  • A network of urgent care centers paid $21 million to settle claims it falsely billed for COVID testing of ineligible patients.

Healthcare is always a hot area for False Claims Act cases, so it’s no surprise providers would take advantage of COVID funds. The Justice Department’s COVID Fraud Enforcement Task Force has made prosecuting pandemic healthcare fraud a priority. So we can expect many more big False Claims Act cases in this area.

State and Local Government Funding

In addition to federal relief funds, the False Claims Act also applies to fraud against state and local governments. Under the Act’s “reverse false claims” provision, anyone who conceals or avoids an obligation to pay money to the government can face False Claims Act liability.

This means recipients of state or local COVID aid funds could be liable under the False Claims Act if they:

  • Misreport information to avoid paying back amounts owed to a state or local program.
  • Knowingly fail to return an overpayment or erroneous payment.
  • Use COVID funds for unauthorized purposes instead of repaying amounts owed.

For example, a transportation agency in California paid $5.5 million to settle reverse false claim allegations that it failed to repay COVID aid funds that it could not properly use due to budget restrictions. So the False Claims Act’s reach extends beyond just federal COVID dollars.

Whistleblower Lawsuits

A unique aspect of the False Claims Act is that it allows whistleblowers to file fraud lawsuits on behalf of the government and collect a reward. These qui tam lawsuits have become an important tool for uncovering COVID fraud, including by company insiders.

Some examples of recent whistleblower False Claims Act cases related to COVID:

  • A mortgage company insider exposed an alleged scheme to obtain PPP loans using falsified documents, leading to a $10 million settlement.
  • A testing lab employee alleged the company billed federal programs for unnecessary COVID-19 tests, resulting in a $42 million settlement.
  • A hospital executive claimed the hospital system upcharged Medicare for COVID antibody treatments in violation of price caps.

Whistleblowers can receive between 15-30% of the settlement amount for False Claims Act cases they bring. This provides a significant financial incentive for insiders to come forward with allegations of COVID fraud. The Justice Department often relies heavily on whistleblowers to uncover complex fraud schemes.

But whistleblowers also face major risks, including getting fired for reporting fraud. The False Claims Act prohibits retaliating against whistleblowers, but it still happens. Whistleblowers should consult an experienced attorney to assess the risks and benefits before filing a case. But their insider knowledge has proven crucial for holding many COVID fraudsters accountable.

Challenges in COVID Fraud Enforcement

While the False Claims Act has been a key tool for combating COVID fraud, there are still major challenges on the enforcement side:

  • With so much COVID funding going out so quickly, investigators have been overwhelmed trying to keep up.
  • Short-staffed agencies like the SBA and state workforce agencies struggled to vet applications and detect bogus claims.
  • Weak controls and oversight combined with new programs created a perfect storm for fraudsters.
  • Complex fraud schemes take significant time and resources to untangle.

Government watchdogs universally agree that COVID fraud will continue to substantially outpace enforcement efforts. But False Claims Act cases and investigations are starting to bear fruit. Expect many more major settlements and judgements as these complex cases wind their way through the system.

The government has also tried to improve controls and oversight for COVID programs to prevent fraud up front. But with hundreds of billions spent quickly, there is no doubt billions more were lost to fraudsters. The False Claims Act will be the main avenue to recover those stolen funds.

Looking Ahead

The False Claims Act was already a major tool for combating healthcare fraud, defense contractor fraud, and other schemes that drain taxpayer dollars. But the COVID pandemic brought an unprecedented expansion of government spending, and with it an unprecedented level of fraud.

The Justice Department is just starting to work through the backlog of COVID fraud cases. We can expect many more major False Claims Act judgements and settlements in the coming years as these cases take time to develop and conclude.

Whistleblowers will continue playing a crucial role in uncovering fraud against COVID relief programs. And the lure of big rewards under the False Claims Act will provide incentives for insiders to come forward if they see fraud.

The government is also implementing more robust controls and technology solutions to better detect fraud and improper payments on the front end. Lessons learned from COVID fraud will hopefully

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