The False Claims Act stands as one of the most powerful tools for combating fraud against the federal government. Originally enacted during the Civil War to address defense contractor fraud, this law has been strengthened over the decades and now allows private citizens to file lawsuits on behalf of the government and share in any recovery. Qui tam lawsuits under the False Claims Act have recovered more than $70 billion since 1986, with whistleblowers receiving a significant portion of these recoveries as rewards for exposing fraud.
The False Claims Act Explained
The False Claims Act imposes liability on any person or company that knowingly submits false or fraudulent claims for payment to the federal government. This includes submitting inflated invoices, billing for goods or services not provided, making false statements to obtain payment, or concealing obligations to pay money to the government. The law applies broadly across industries that receive federal funds, including healthcare, defense contracting, education, housing, and numerous other sectors.
Violations of the False Claims Act carry substantial penalties. For each false claim submitted, the defendant faces civil penalties that have been adjusted for inflation and currently exceed $11,000 per claim. More significantly, the law imposes treble damages, meaning violators must pay three times the amount of the government's actual loss. When fraud schemes involve thousands of false claims over extended periods, the total liability can reach into the hundreds of millions or even billions of dollars.
Understanding Qui Tam Actions
The term qui tam comes from a Latin phrase meaning one who sues on behalf of the king as well as for himself. Under the False Claims Act's qui tam provisions, private citizens with knowledge of fraud can file lawsuits in federal court on the government's behalf. These individuals, known as relators or whistleblowers, effectively step into the government's shoes to prosecute fraud that might otherwise go undetected.
The qui tam mechanism serves multiple purposes. It provides a financial incentive for insiders with knowledge of fraud to come forward, as they can receive between 15 and 30 percent of any recovery. It also extends the government's enforcement reach by enlisting private citizens who have access to information about fraud that investigators might never discover. This partnership between private whistleblowers and federal prosecutors has proven remarkably effective at uncovering and punishing fraud.
The Qui Tam Process
Filing a qui tam lawsuit involves specific procedures designed to protect both the whistleblower and the integrity of any government investigation. The complaint must be filed under seal, meaning it remains confidential and is not served on the defendant immediately. The whistleblower must also provide the government with a written disclosure of all material evidence and information in their possession.
After filing, the government has at least 60 days to investigate and decide whether to intervene in the case. In practice, investigations often take much longer, and courts routinely grant extensions while the government evaluates the allegations. Government intervention significantly increases the likelihood of a successful outcome, as the government brings additional investigative resources and prosecutorial expertise to the case. However, whistleblowers retain the right to proceed with the lawsuit even if the government declines to intervene.
The seal period is critical, and whistleblowers must maintain confidentiality about the case during this time. Disclosing the existence or contents of the lawsuit before the seal is lifted can jeopardize the investigation and potentially result in dismissal of the case or reduction of the whistleblower's award. This is one reason why working with an experienced qui tam attorney from the outset is so important.
Whistleblower Rewards
The financial rewards available to successful qui tam relators depend on several factors, including whether the government intervenes in the case. If the government takes over the lawsuit and it results in a recovery, the whistleblower is entitled to receive between 15 and 25 percent of the proceeds. The exact percentage within this range depends on the significance of the information provided and the whistleblower's contribution to the case.
When the government declines to intervene and the whistleblower proceeds independently, the potential award increases to between 25 and 30 percent of any recovery. This higher range recognizes the additional risk and effort required when the whistleblower must prosecute the case without government assistance. However, cases where the government declines to intervene are more difficult to pursue and less likely to succeed.
Given the substantial penalties and damages under the False Claims Act, whistleblower awards in major cases can be enormous. Awards exceeding $100 million are not unheard of in cases involving large-scale healthcare fraud or defense contractor misconduct. Even in smaller cases, awards of several million dollars are common when the fraud involved was significant.
Common Types of Fraud
Healthcare fraud represents the largest category of False Claims Act recoveries. This includes Medicare and Medicaid billing fraud, such as billing for services not rendered, upcoding to obtain higher reimbursements, unbundling services that should be billed together, and providing medically unnecessary treatments. Pharmaceutical companies have paid billions to settle allegations of promoting drugs for off-label uses and paying kickbacks to physicians.
Defense contractor fraud remains significant, encompassing false claims related to product quality, cost overruns, and contract compliance. Government contractors in all sectors can face liability for misrepresenting their qualifications, failing to meet contract specifications, or falsely certifying compliance with various requirements. Grant fraud affects education, research, and other sectors that receive federal funding.
Eligibility and Restrictions
Not everyone with knowledge of fraud can successfully bring a qui tam lawsuit. The False Claims Act contains a first-to-file rule that bars subsequent lawsuits based on the same facts. Only the original whistleblower who files first can pursue the case. Additionally, the law contains a public disclosure bar that may prevent lawsuits based on information that has already been publicly disclosed, although whistleblowers who are original sources of that information may still qualify.
Government employees face certain restrictions on bringing qui tam actions, though they are not completely barred. Convicted criminals may have their awards reduced. These and other technical requirements make consultation with an experienced qui tam attorney essential before filing. The right legal guidance ensures you meet all requirements and maximize your potential recovery while avoiding pitfalls that could undermine your case.