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Qui Tam Lawsuits – Good or Bad Policy

By Ronald Chapman

The False Claims Act (FCA) 31 U.S.C. § 3729 and Qui Tam litigation provide a valuable service to our society, especially with the broad expansion of government programs. The FCA’s origins trace back to the Civil War; when Congress passed legislation to curb abuses in armament sales to the Union Army. This legislation grants individuals who would otherwise remain silent, the promise of a monetary reward. Citizens are turned into bounty hunters, sniffing out government fraud, waste, and abuse in exchange for a portion of the recovery. This trend has continued with substantial Congressional amendments in 1986 and 2009. Once a law designed to prevent war time abuse, the FCA became a powerful tool in combatting health care fraud and resulted in the recovery of billions of dollars of taxpayer money. As a public policy measure, the FCA also acts as a powerful deterrent. With the increased use of Qui Tam litigation, “fraudsters” now know their employees may be silently preparing to disclose their fraudulent acts in exchange for a reward. It is so effective, that states soon enacted their own FCA statutes to sniff out fraud occurring in state programs.

Under the FCA, if a person knowingly presents or causes to be presented a false or fraudulent claim, or knowingly makes, uses, or causes to be made or used a false record or statement to get a false or fraudulent claim paid or approved, or conspires to defraud the government by getting a false or fraudulent claim allowed or paid, the person may be subject to civil and/or criminal penalties.  The general elements of a false claim are: 1) existence of a false claim 2) knowledge 3) materiality and 4) causation.  The civil penalties are severe. They are: damages three times the amount claimed,  plus penalties of $5,500 to %11,000 per claim.  Proving “knowledge” is not easy. Therefore, proof can be in the form of actual knowledge, reckless disregard, or deliberate ignorance of the truth or falsity of the claim.

Identifying fraudulent activity can be very difficult.  Therefore the government relies in large part, on Qui Tam Relators to find and bring claims to the government’s knowledge. This private right of enforcement, is codified in 31 U.S.C. § 3730.  Under this section a person familiar with the facts may bring an action against the entity (person or corporation making the false claim) under the name of United States Government.  The person bringing the action is called the Relator and the action is called a Qui Tam action.   In 2012, through the assistance of Qui Tam Relator’s, HHS recovered 3.086 billion dollars in fraud and abuse.  In 2014 the total recovery was 2.4 billion dollars. As a direct result of Qui Tam relators and their knowledge of the false claims, the government as recovered 29.15 billion dollars in fraud, since 1987. [i]

Each Relator is paid a share of the recovery depending on whether or not the government intervenes.  This is how the act works.  The Relator drafts a complaint in the name of the U.S. Government.  The relator files it under seal and notifies the government that the action was filed.  The government has 60 days to decide if they want to prosecute the action or allow the Relator to prosecute the action.  For good cause, the government can extend the 60 days almost indefinitely.  Some cases have remained under seal for eight (8) years or more.  If the government intervenes and takes over the case, the Relator will be paid between 15% and 25% of the recovery plus attorney fees from the defendant.  If the government does not intervene and the Realtor goes forward, he/she will be paid between 25% and 30% of the recovery plus attorney fees from the defendant.  Note, if the Relator loses he/she may be obligated to pay the defendants attorney fees.

Some of these awards may be very large.  In 2014, the government paid out $352,499,790 to Relators as a result of settlements/judgements in the same year.  These very large payouts do come under scrutiny. [ii]  One might ask, why the government should pay such large sums to people for doing their civic duty.  There are several reasons why Qui Tam actions are good public policy.

 

First, without the benefit of private parties assisting the government in policing the trillion dollar health care industry, many of the fraudulent claims, which go on every year, would not be disclosed.  Through the Qui Tam action, the government is incentivizing private parties to come forward and expose fraudulent activity.

Second, Qui Tam Relators are actually whistle blowers of a different sort.  Whistle blowers are: often terminated from employment; ostracized from their friends and co-workers; hindered from obtaining employment; and viewed as pariahs in professional circles.  There must be a reward for these people or they would not risk coming forward.

Third, the Relator must have specifics in order to bring the claim.  Under the Qui Tam statute, the court does not have subject matter jurisdiction if the allegation is based upon public disclosure of allegations or transactions, when the realtor was not the original source.

Fourth, under Federal Rules of Civil Procedure 9(b), the Realtor must have sufficient facts to plead all the elements of the offense with “particularity.”  This means the Relator must have some very detailed knowledge about the case, often as an insider.  This knowledge is very helpful to the government. Generally, but for this knowledge, the government would not have had the necessary facts to bring the case.

Fifth, these claims go on for several years.  Often, it is (5) five to (8) eight years before the case is settled or brought to court.  In the process, the Relator usually suffers significant financial hardship.  The statute does state that the Relator cannot be discriminated against or wrongfully terminated by the defendant. However, the/she generally is and the courts are very slow to provide a remedy.

While public policy favors Qui Tam litigations, Qui Tam defendants such as large health care corporations, are obviously concerned about the increased use of Qui Tam litigation. In a world where the FCA did not exist, employees identifying fraud would not rush to an attorney in secrecy, to file a sealed complaint. They may choose to report the fraud to a corporate compliance officer or supervisor. This way, the corporation can appropriately redress the issues. Some may argue that Qui Tam litigation needlessly increases health care costs, by requiring corporations to deal with years of protracted Qui Tam litigation. However, these concerns are mitigated by legislation requiring that Qui Tam complaints remain sealed until the government investigates the fraud and, in most cases, engages in pre-trial settlement negotiations. While public policy favors the FCA and Qui Tam litigation, courts should continue to closely tailor its’ applicability. Courts should promptly dismiss cases where fraud is not plead with particularity or pleading standards are not properly met.

In the end, exposing fraud and abuse in an industry that is being consumed by price increases and raising costs, is a good thing. If a few unjust claims are filed, then so be it.  In this case it really does seem, “the ends justify the means.”  Sometimes it is good public policy to incentivize the plaintiff to expose wrong doing with a reward.

 


[i] See attached Fraud Statistics- Overview Civil Division, U. S. department of Justice.
[ii] See attached Fraud Statistics- Overview Civil Division, U. S. department of Justice.