History of the False Claims Act
The False Claims Act has been helping uphold the integrity of the federal fisc for the past 150 years. The first 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. This was attributed, in part, to war profiteers who were defrauding the Union by, for example, selling the army crates filled with sawdust instead of muskets, and selling it the same cavalry horses two and three times. 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 was born.
Under the original Act, citizens were deputized to be private attorneys general and were compensated for their work by receiving 50% of the money their lawsuits recovered for the Treasury. The Act provided for the assessment of double damages against defendants as well as 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 system of government inspectors 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 that is translated as “He who pursues this action on our Lord the King’s behalf as well as his own.” This concept was carried over to the American colonies, when the First Continental Congress enacted several statutes containing qui tam provisions.
Lincoln’s law was successful at helping combat fraud against the federal government into the 20th century. Its qui tam provisions, however, underwent drastic amendment by Congress in 1943. The guaranteed 50% share was eliminated. Instead, the amended law 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 litigation became virtually nonexistent after the 1943 amendments.
While use of qui tam declined after 1943, fraud against the federal fisc grew exponentially. The United States Department of Justice estimated that fraud was draining up to 10% of the entire federal budget. 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. For instance, 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.
The widespread reports that the United States Treasury was being repeatedly bilked and federal prosecutors alone could not keep up with the tide, led to a second round of Congressional amendments to the False Claims Act in 1986. 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 is now guaranteed, subject to a public disclosure and first-to-file legal bar, at least 15%, and could receive as much as 30%, of the total recovery. And a special section was added to the Act which provides protection for employees from retaliation and wrongful termination. The 1986 Amendments to the False Claims Act also increased penalties for the defrauding the Treasury — treble damages.
On May 20, 2009, President Obama signed the Fraud Enforcement and Recovery Act of 2009, which included amendments to the False Claims Act – the first time since 1986. The Act closed a number of liability loopholes, making it easier for qui tam relators to bring and maintain False Claims Act lawsuits on behalf of the federal government and it also, inter alia, provided for more workable and simplified investigative tools to investigate qui tam lawsuits.
Since enactment of the 1986 Amendments to the False Claims Act, civil fraud recoveries have replenished nearly $40 billion to the United States Treasury, with most of the cases including Medicare Fraud. It is estimated that approximately $27 billion of this amount has been returned thanks to the qui tam provisions. For their part, qui tam relators who acted with the courage of their moral convictions and made these recoveries possible have received, on average, about 16% of the recoveries their cases produced. Total qui tam rewards to private whistleblowers under this federal whistleblower law total approximately $4.3 billion during this period.
REAL PEOPLE making real change Meet Some of our Heroes
- Dignity Health
- $37 million
Kathleen Hawkins, RN MSN, had been employed by Defendant, Catholic Healthcare West (CHW) for approximately 6 years when she decided she had had enough of trying to change the hospital system from within.
CHW, a California not-for-profit corporation that operated hospitals in California, Arizona, and Nevada, was at the time the eighth largest hospital system in the nation and the largest not-for-profit hospital provider in California.
- Johnson & Johnson
- $184 Million
Joe Strom contacted us in 2005. We were very grateful that he did. We immediately formed an all-star legal team and a process to stop a very harmful pharmaceutical marketing strategy. It was this process we set into motion that ultimately returned hundreds of millions of dollars to the U.S. Treasury, and a portion of that, very well-deserved, into Joe’s bank account.
Joe told us a very troubling story about the off-label promotion of a pharmaceutical drug for patients who already suffered from chronic heart failure.
Bruce A. Moilan Sr.
- $27 Million
Bruce Moilan was a seasoned hospital systems expert by the time he contacted our Firm. At the time he decided to file his qui tam lawsuit, he was employed by South Texas Health System as a System Director for Materials Management. In this position, he oversaw $24 million in annual purchases of supplies and equipment and helped determine budget, reduction and cost analysis throughout the contract bidding and negotiations process. His job was to insure proper implementation for purchasing, receiving and management of inventory, for McAllen Hospitals, L.P.
“I collaborated with Nolan, Auerbach and White on a broad variety of cases where whistleblowers stepped forward to disclose tactics employed by large companies to influence physicians' medical decision-making in patient care. They provide ample resources to not only optimize their client cases, but in doing so consistently leverage best medical evidence to further patient safety and resource utilization.” — Fred Polsky M.D., Former Medical Director, CMS Zone 7 Integrity Contractor
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