How does the False Claims Act apply to the transportation industry?
How the False Claims Act Applies to the Transportation Industry
The False Claims Act is a powerful tool used by the government to go after companies that try to defraud federal programs. It allows the government to recover treble damages and penalties from companies that knowingly submit false claims. The transportation industry is not immune from False Claims Act liability. Let’s take a look at how this law can apply to transportation companies.
The False Claims Act makes it illegal to knowingly submit false claims to the government in order to get paid. For instance, if a trucking company bills the government for more miles than it actually drove, that’s a false claim. Or if a shipping company bills the government for a more expensive service than it actually provided, that’s a false claim too.
There are a few ways transportation companies often run afoul of the False Claims Act:
- Overcharging – Billing for services that weren’t provided, billing at a higher rate than is allowed under the contract, or billing for more time, mileage, weight, etc. than was actually used
- Double billing – Charging more than once for the same service
- Upcharging – Charging for a more expensive service than what was actually provided
- Billing for inadequate or improper service – Charging the government full freight for a late delivery, for example
- Misrepresenting services – Falsely claiming something was done to specification when it wasn’t
A lot of times, false claims arise when contractors try to cut corners or boost profits. They may think they can get away with padding their bills just a little bit. But the False Claims Act imposes pretty harsh penalties precisely to deter that kind of behavior.
Real World Examples
To understand how this plays out in real life, let’s look at a few actual False Claims Act cases in the transportation industry:
YRC Freight – Overcharging for Shipping
In 2022, YRC Freight and two related companies agreed to pay $6.85 million to settle False Claims Act allegations. The government accused YRC of systematically overcharging the Department of Defense for shipping services over an eight year period.
Specifically, the government alleged that YRC weighed shipments both at origin and destination but billed the government based on the higher weight rather than the actual lower weight. So they essentially got paid for transporting more weight than they really did. This is a classic example of overcharging.
Medical Transport Company – Double Billing
In another recent case, a medical transport company called Air Methods agreed to pay $1 million to settle False Claims Act allegations. The government accused Air Methods of double billing for more than 100 flights.
Air Methods provides emergency air ambulance services. The government alleged that for certain flights where there were multiple patients, Air Methods double billed by submitting separate claims for each patient instead of a single claim for the flight. This resulted in significantly inflated charges to federal healthcare programs.
New York Speed Cameras – Misrepresentation
Here’s an example outside the delivery/logistics sphere. A contractor hired to install speed cameras for the New York City Department of Transportation agreed to pay $1.3 million to settle a False Claims Act case. The whistleblower alleged the contractor misrepresented its work.
Apparently the contractor cut corners and failed to install the cameras to DOT specifications and electrical codes but certified that the work was done properly. So it promised one thing but delivered another while still charging the full rate. That’s a misrepresentation that gives rise to False Claims Act liability.
Penalties Can be Steep
As you can see, the False Claims Act casts a wide net. Even relatively minor or unintentional billing errors can trigger an investigation. Penalties can quickly add up for violators.
Under the law, the government can recover treble damages – that’s three times the amount of the false claim. So if a company submits $100,000 in false claims, its liability is $300,000 right off the bat.
On top of that, the False Claims Act imposes penalties of $5,500 to $11,000 per false claim. So for that same $100,000, the company would face penalties of up to $1.1 million on top of treble damages. You can see how the numbers add up.
For a large company submitting hundreds or thousands of false claims over years, the potential liability is massive. That’s why False Claims Act cases often settle for millions of dollars, like the examples cited earlier. Companies do the math and realize it’s better to settle than risk an astronomical judgment.
How Cases Get Started
There are two main ways False Claims Act cases get started in the transportation industry:
Whistleblowers
The False Claims Act allows private citizens to file fraud lawsuits on behalf of the government through a process called qui tam. These whistleblowers can receive 15-30% of any recovery. Nearly all False Claims Act cases originate from whistleblowers.
For transportation companies, whistleblowers are often current or former employees who have direct knowledge of wrongdoing. For example, a former dispatcher might come forward with evidence their employer was billing for extra miles not driven. Or a former billing clerk might produce documents showing upcharging.
When a whistleblower files a qui tam case, the government investigates and often intervenes. But a whistleblower can pursue the case even without government intervention. Either way, qui tam cases are a major risk for transportation companies.
Government Audits & Investigations
False Claims Act cases also arise from routine government contract audits and investigations. Sometimes inspectors detect irregularities that warrant a closer look. Or patterns in billing data might raise red flags.
For instance, in the YRC Freight case, it was a routine DOD audit that first uncovered discrepancies between origin and destination weights for shipments. That triggered a broader investigation that uncovered the systemic overcharging scheme.
So government oversight alone can lead to False Claims Act allegations, even without an insider blowing the whistle.
Avoiding Liability
The False Claims Act creates major compliance obligations for transportation companies that do business with the government. Here are some best practices to avoid liability:
- Have rigorous billing procedures to ensure accuracy and completeness
- Conduct regular internal audits to identify any mistaken or fraudulent charges
- Train employees on proper billing and have them certify compliance
- Perform due diligence on any subcontractors also billing the government
- Have a whistleblower policy to encourage internal reporting of any suspected fraud
- Cooperate fully with any government audits and investigations
That’s just a starting point. Compliance takes continuous effort. But it’s essential to avoid the huge liability that can come with False Claims Act violations. For companies that rely heavily on government business, the False Claims Act is a constant risk that must be managed.
The transportation industry keeps our economy moving. But companies must follow the rules and bill honestly for services rendered. When it comes to the False Claims Act, an ounce of prevention is worth millions in avoided penalties down the road.