Knowledge base

False Claims Act History

The False Claims Act has been helping to uphold the integrity of the federal fisc for over 150 years. This federal Whistleblower Statute was passed in 1863 at the urging of President Abraham Lincoln, whose Union Army was being routed by the Confederate Army, despite its inferior size and resources. War profiteers were defrauding the Union by selling crates filled with sawdust instead of muskets, selling sick mules, selling substandard uniforms, and selling rotten food supplies. President Lincoln pushed for passage of a law that created incentives for private individuals to combat fraud against the Union and gave the Government an effective remedy against fraud. Thus, the False Claims Act of 1863 (the “Original FCA”) was born.

Under the original FCA, citizens were deputized as private attorney generals, and they were compensated for their work by receiving 50% of the money their lawsuits recovered for the Treasury. The original FCA provided for the assessment of double damages and a $2,000 civil penalty for every false claim submitted.

Lincoln adopted the qui tam concept from contemporary American statutes that, in turn, had incorporated the notion from Anglo-Saxon jurisprudence. Qui tam laws were common in the Middle Ages because there was no organized police force or other law enforcement to maintain law and order. Instead, the public was enlisted through monetary incentives to police wrongdoing. The term “qui tam” stands for a longer Latin phrase, translated as “He who pursues this action on our Lord the King’s behalf as well as his own.”

The original FCA was successful at helping combat fraud against the federal government into the 20th century, but its qui tam provisions underwent drastic amendment by Congress in 1943 at the height of World War II. The guaranteed 50% share was eliminated, and the amended law instead gave the court discretion to award as little as nothing and at most 25% of the funds recovered. Further, a qui tam case was not permitted “whenever it shall be made to appear that such suit was based upon evidence or information in the possession” of the federal government. As a result, even when the federal government possessed the requisite information but was not acting on it, a qui tam case could not go forward. Thus, qui tam cases became virtually nonexistent after 1943.

While use of the FCA declined in the years after 1943, fraud against the federal fisc grew exponentially. In 1985, 45 of the 100 largest defense contractors, including 9 of the top 10, were under investigation for multiple fraud offenses. Moreover, several of the largest defense contractors were convicted of criminal offenses. Misconduct was not limited to defense contractors, however. The United States Department of Health and Human Services nearly tripled the number of entitlement program fraud cases referred for prosecution in the mid-1980s. Yet, despite the increased government resources directed at the problem, Department of Justice records indicated that most fraud referrals were not prosecuted. As a result, public funds lost to fraud remained largely un-retrieved. At the time, the United States Department of Justice estimated that fraud was draining up to 10% of the entire federal budget.

The widespread reports that the United States Treasury was being repeatedly bilked and that federal prosecutors alone could not keep up with the tide, led to amendments to the False Claims Act in 1986 (the “Modern FCA”). These amendments rejuvenated qui tam actions in several ways. For example, the automatic bar against cases about which the federal government possessed information was removed from the statute. The successful qui tam plaintiff became guaranteed, subject to a public disclosure and first-to-file legal bar, to at least 15% of the total recovery and could receive as much as 30%. A special section was added to the Modern FCA that provided protection for employees from retaliation and wrongful termination. The Modern FCA also increased penalties for defrauding the Treasury, known as treble damages.

Further legislative amendments occurred in 2009,and Nolan, Auerbach & White partner Jeb White, then-Executive Director of Taxpayers Against Fraud, heavily contributed to their success. As a result, on May 20, 2009, President Obama signed the Fraud Enforcement and Recovery Act of 2009, which included amendments to the Modern FCA – the first update since 1986. The legislation closed several liability loopholes, making it easier for qui tam relators to bring and maintain False Claims Act lawsuits on behalf of the federal government. The legislation also provided for more workable and simplified investigative tools to investigate qui tam lawsuits.

False Claims Act recoveries, since the enactment of the Modern FCA, now total more than $60 billion, and the majority involve Medicare Fraud. These healthcare enforcement efforts not only recover money for the federal healthcare programs, but they also deter fraud schemes that endanger patients and help drive up healthcare costs.

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