False Claims Act

Qui tam laws have history dating back to the Middle Ages in England. In 1318, King Edward II offered one third of the penalty to the relator when the relator successfully sued government officials who moonlighted as wine merchants.^[6] The Maintenance and Embracery Act 1540 of Henry VIII provided that common informers could sue for certain forms of interference with the course of justice in legal proceedings that were concerned with the title to land.^[7] This act is still in force today in the Republic of Ireland, although in 1967 it was extinguished in England. The idea of a common informer bringing suit for damages to the Commonwealth was later brought to Massachusetts, where "penalties for fraud in the sale of bread [are] to be distributed one third to inspector who discovered the fraud and the remainder for the benefit of the town where the offense occurred."^[6] Other statutes can be found on the colonial law books of Connecticut, New York, Virginia and South Carolina.^[6]

The American Civil War (1861–1865) was marked by fraud on all levels, both in the Union north and the Confederate south. During the war, unscrupulous contractors sold the Union Army decrepit horses and mules in ill health, faulty rifles and ammunition, and rancid rations and provisions, among other unscrupulous actions.^[8] In response, Congress passed the False Claims Act on March 2, 1863, 12 Stat. 696.^[9] Because it was passed under the administration of President Abraham Lincoln, the False Claims Act is often referred to as the "Lincoln Law".^[10]

Importantly, a reward was offered in what is called the qui tam provision, which permits citizens to sue on behalf of the government and be paid a percentage of the recovery. Qui tam is an abbreviated form of the Latin legal phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur ("he who brings a case on behalf of our lord the King, as well as for himself")^[11] In a qui tam action, the citizen filing suit is called a "relator".^[12][13] As an exception to the general legal rule of standing, courts have held that qui tam relators are "partially assigned" a portion of the government's legal injury, thereby allowing relators to proceed with their suits.^[14]

U.S. Senator Jacob M. Howard, who sponsored the legislation, justified giving rewards to whistle blowers, many of whom had engaged in unethical activities themselves. He said, "I have based the [qui tam provision] upon the old-fashioned idea of holding out a temptation, and ‘setting a rogue to catch a rogue,’ which is the safest and most expeditious way I have ever discovered of bringing rogues to justice."^[15]

In the massive military spending leading up to and during World War II, the US Attorney General relied on criminal provisions of the law to deal with fraud, rather than using the FCA. As a result, attorneys would wait for the Department of Justice to file criminal cases and then immediately file civil suits under the FCA, a practice decried as "parasitic" at the time. Congress moved to abolish the FCA but at the last minute decided instead to reduce the relator's share of the recovered proceeds.^{[16]: 1267–1271 [17]: 6}

The law was again amended in 1986, again due to issues with military spending. Under President Ronald Reagan's military buildup, reports of massive fraud among military contractors had become major news, and Congress acted to strengthen the FCA.^{[16]: 1271–77}

The first qui tam case under the amended False Claims Act was filed in 1987 by an eye surgeon against an eye clinic and one of its doctors, alleging unnecessary surgeries and other procedures were being performed.^[18] The case settled in 1988 for a total of $605,000. However, the law was primarily used in the beginning against defense contractors. By the late 1990s, health care fraud began to receive more focus, accounting for approximately 40% of recoveries by 2008^[16]: 1271 Franklin v. Parke-Davis, filed in 1996, was the first case to apply the FCA to fraud committed by a pharma company against the government, due to bills submitted for payment by Medicaid/Medicare for treatments that those programs do not pay for as they are not FDA-approved or otherwise listed on a government formulary. FCA cases against pharma companies are often related to off-label marketing of drugs by drug companies, which is illegal under a different law, the Federal Food, Drug, and Cosmetic Act; the intersection occurs when off-label marketing leads to prescriptions being filled and bills for those prescriptions being submitted to Medicare/Medicaid.^[19]

As of 2019, over 72% of all federal FCA actions were initiated by whistleblowers.^{[4][20]: 229} The government recovered $62.1 billion under the False Claims Act between 1987 and 2019 and of this amount, over $44.7 billion or 72% was from qui tam cases brought by relators.^[4] In 2014, whistleblowers filed over 700 False Claims Act lawsuits.^[21] In 2014, the Department of Justice had its highest annual recovery in False Claims Act history, obtaining more than $6.1 billion in settlements and judgments from civil cases involving fraud and false claims against the government.^[4] In fiscal year 2019, the Department of Justice recovered over $3 billion under the False Claims Act, $2.2 billion of which were generated by whistleblowers. Since 2010, the federal government has recovered over $37.6 billion in False Claims Act settlements and judgments.^[4] In 2020, the DOJ recovered $2.2 billion from FCA cases: $1.6 billion of that total was from cases filed under the FCA.^[22] Qui tam whistleblowers received a total of $309 million in whistleblower rewards in 2020.^[22]

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Qui tam

Qui tam

In common law, a writ of qui tam is a writ through which private individuals who assist a prosecution can receive for themselves all or part of the damages or financial penalties recovered by the government as a result of the prosecution. Its name is an abbreviation of the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, meaning "[he] who sues in this matter for the king as well as for himself."

Middle Ages

Middle Ages

In the history of Europe, the Middle Ages or medieval period lasted approximately from the late 5th to the late 15th centuries, similar to the post-classical period of global history. It began with the fall of the Western Roman Empire and transitioned into the Renaissance and the Age of Discovery. The Middle Ages is the middle period of the three traditional divisions of Western history: classical antiquity, the medieval period, and the modern period. The medieval period is itself subdivided into the Early, High, and Late Middle Ages.

England

England

England is a country that is part of the United Kingdom. It shares land borders with Wales to its west and Scotland to its north. The Irish Sea lies northwest and the Celtic Sea area of the Atlantic Ocean to the southwest. It is separated from continental Europe by the North Sea to the east and the English Channel to the south. The country covers five-eighths of the island of Great Britain, which lies in the North Atlantic, and includes over 100 smaller islands, such as the Isles of Scilly and the Isle of Wight.

Edward II of England

Edward II of England

Edward II, also called Edward of Caernarfon, was King of England from 1307 until he was deposed in January 1327. The fourth son of Edward I, Edward became the heir to the throne following the death of his older brother Alphonso. Beginning in 1300, Edward accompanied his father on campaigns to pacify Scotland, and in 1307 he was knighted in a grand ceremony at Westminster Abbey. Edward succeeded to the throne later that year, following his father's death. In 1308, he married Isabella of France, the daughter of the powerful King Philip IV, as part of a long-running effort to resolve the tensions between the English and French crowns.

Maintenance and Embracery Act 1540

Maintenance and Embracery Act 1540

The Maintenance and Embracery Act 1540 was an Act of the Parliament of England.

Henry VIII

Henry VIII

Henry VIII was King of England from 22 April 1509 until his death in 1547. Henry is best known for his six marriages, and for his efforts to have his first marriage annulled. His disagreement with Pope Clement VII about such an annulment led Henry to initiate the English Reformation, separating the Church of England from papal authority. He appointed himself Supreme Head of the Church of England and dissolved convents and monasteries, for which he was excommunicated by the pope. Henry is also known as the "father of the Royal Navy" as he invested heavily in the English fleet, establishing a standing navy which he expanded from seven to some fifty ships over his lifetime, and developed its command structure.

Massachusetts

Massachusetts

Massachusetts, officially the Commonwealth of Massachusetts, is the most populous state in the New England region of the Northeastern United States, exceeding 7 million residents at the 2020 United States census, its highest decennial count ever. The state borders the Atlantic Ocean and Gulf of Maine to its east, Connecticut and Rhode Island to its south, New Hampshire and Vermont to its north, and New York to its west. Massachusetts is the 6th smallest state by land area but is the 15th most populous state and the 3rd most densely populated, after New Jersey and Rhode Island. The state's capital and most populous city, as well as its cultural and financial center, is Boston. Massachusetts is also home to the urban core of Greater Boston, the largest metropolitan area in New England and a region profoundly influential upon American history, academia, and the research economy. Originally dependent on agriculture, fishing, and trade, Massachusetts was transformed into a manufacturing center during the Industrial Revolution. During the 20th century, Massachusetts's economy shifted from manufacturing to services. Modern Massachusetts is a global leader in biotechnology, engineering, higher education, finance, and maritime trade.

Connecticut

Connecticut

Connecticut is the southernmost state in the New England region of the Northeastern United States. As of the 2020 United States census, Connecticut was home to over 3.6 million residents, its highest decennial count count ever, growing every decade since 1790. The state is bordered by Rhode Island to its east, Massachusetts to its north, New York to its west, and Long Island Sound to its south. Its capital is Hartford, and its most populous city is Bridgeport. Historically, the state is part of New England as well as the tri-state area with New York and New Jersey. The state is named for the Connecticut River which approximately bisects the state. The word "Connecticut" is derived from various anglicized spellings of "Quinnetuket”, a Mohegan-Pequot word for "long tidal river".

New York (state)

New York (state)

New York, often called New York state to distinguish it from its largest city, New York City, is a state in the Northeastern United States. With 20.2 million people enumerated at the 2020 United States census, its highest decennial count ever, it is the fourth-most populous state in the United States as of 2021, approximately 44% of the state's population lives in New York City, including 25% in the boroughs of Brooklyn and Queens; and 15% of the state's population is on the remainder of Long Island, the most populous island in the United States. With a total area of 54,556 square miles (141,300 km2), New York is the 27th-largest U.S. state by area. The state is bordered by New Jersey and Pennsylvania to its south, and Connecticut, Massachusetts, and Vermont to its east; it shares a maritime border with Rhode Island, east of Long Island; and an international border with the Canadian provinces of Quebec to its north and Ontario to its northwest.

American Civil War

American Civil War

The American Civil War was a civil war in the United States. It was fought between the Union and the Confederacy, the latter formed by states that had seceded. The central cause of the war was the dispute over whether slavery would be permitted to expand into the western territories, leading to more slave states, or be prevented from doing so, which was widely believed would place slavery on a course of ultimate extinction.

Confederate States of America

Confederate States of America

The Confederate States of America (CSA), commonly referred to as the Confederate States or the Confederacy, was an unrecognized breakaway herrenvolk republic in the Southern United States that existed from February 8, 1861, to May 9, 1865. The Confederacy comprised U.S. states that declared secession and warred against the United States during the American Civil War: South Carolina, Mississippi, Florida, Alabama, Georgia, Louisiana, Texas, Virginia, Arkansas, Tennessee, and North Carolina.

Abraham Lincoln

Abraham Lincoln

Abraham Lincoln was an American lawyer, politician, and statesman who served as the 16th president of the United States from 1861 until his assassination in 1865. Lincoln led the Union through the American Civil War to defend the nation as a constitutional union and succeeded in abolishing slavery, bolstering the federal government, and modernizing the U.S. economy.

The Act establishes liability when any person or entity improperly receives from or avoids payment to the Federal government. The Act prohibits:

1. Knowingly presenting, or causing to be presented a false claim for payment or approval;
2. Knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim;
3. Conspiring to commit any violation of the False Claims Act;
4. Falsely certifying the type or amount of property to be used by the Government;
5. Certifying receipt of property on a document without completely knowing that the information is true;
6. Knowingly buying Government property from an unauthorized officer of the Government, and;
7. Knowingly making, using, or causing to be made or used a false record to avoid, or decrease an obligation to pay or transmit property to the Government.
8. The False Claims act does not apply to IRS Tax matters. ^[23]

The statute provides that anyone who violates the law "is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990,^[24] plus 3 times the amount of damages which the Government sustains because of the act of that person."^[25] The False Claims Act requires a separate penalty for each violation of the statute.^[26] Under the Civil Penalties Inflation Adjustment Act,^[24] False Claims Act penalties are periodically adjusted for inflation.^[26] In 2020, the penalties range from $11,665 to $23,331 per violation.^[27]

Certain claims are not actionable, including:

1. certain actions against armed forces members, members of the United States Congress, members of the judiciary, or senior executive branch officials;^[28]
2. claims, records, or statements made under the Internal Revenue Code of 1986 which would include tax fraud;^[29]

There are unique procedural requirements in False Claims Act cases. For example:

1. a complaint under the False Claims Act must be filed under seal;^[30][31]
2. the complaint must be served on the government but must not be served on the defendant;^[30]
3. the complaint must be buttressed by a comprehensive memorandum, not filed in court, but served on the government detailing the factual underpinnings of the complaint.^[32]

In addition, the FCA contains an anti-retaliation provision, which allows a relator to recover, in addition to his award for reporting fraud, double damages plus attorney fees for any acts of retaliation for reporting fraud against the Government.^[33] This provision specifically provides relators with a personal claim of double damages for harm suffered and reinstatement.^[34]

Under the False Claims Act, the Department of Justice is authorized to pay rewards to those who report fraud against the federal government and are not convicted of a crime related to the fraud, in an amount of between 15 and 25 (but up to 30% in some cases) of what it recovers based upon the whistleblower's report.^[20]: 219 The relator's share is determined based on the FCA itself, legislative history, Department of Justice guidelines released in 1997, and court decisions.^[35]

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United States Congress

United States Congress

The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washington, D.C. Senators and representatives are chosen through direct election, though vacancies in the Senate may be filled by a governor's appointment. Congress has 535 voting members: 100 senators and 435 representatives. The U.S. vice president has a vote in the Senate only when senators are evenly divided. The House of Representatives has six non-voting members.

Judiciary

Judiciary

The judiciary is the system of courts that adjudicates legal disputes/disagreements and interprets, defends, and applies the law in legal cases.

United States Department of Justice

United States Department of Justice

The United States Department of Justice (DOJ), also known as the Justice Department, is a federal executive department of the United States government tasked with the enforcement of federal law and administration of justice in the United States. It is equivalent to the justice or interior ministries of other countries. The department is headed by the U.S. attorney general, who reports directly to the president of the United States and is a member of the president's Cabinet. The current attorney general is Merrick Garland, who was sworn in on March 11, 2021.

(False Claims Act Amendments (Pub. L. 99–562, 100 Stat. 3153, enacted October 27, 1986)

1. The elimination of the "government possession of information" bar against qui tam lawsuits;
2. The establishment of defendant liability for "deliberate ignorance" and "reckless disregard" of the truth;
3. Restoration of the "preponderance of the evidence" standard for all elements of the claim including damages;
4. Imposition of treble damages and civil fines of $5,000 to $10,000 per false claim;
5. Increased rewards for qui tam plaintiffs of between 15–30% of the funds recovered from the defendant;
6. Defendant payment of the successful plaintiff's expenses and attorney's fees, and;
7. Employment protection for whistleblowers including reinstatement with seniority status, special damages, and double back pay.

On May 20, 2009, the Fraud Enforcement and Recovery Act of 2009 (FERA) was signed into law. It includes the most significant amendments to the FCA since the 1986 amendments. FERA enacted the following changes:

1. Expanded the scope of potential FCA liability by eliminating the "presentment" requirement (effectively overruling the Supreme Court's opinion in Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008));
2. Redefined "claim" under the FCA to mean "any request or demand, whether under a contract or otherwise for money or property and whether or not the United States has title to the money or property" that is (1) presented directly to the United States, or (2) "to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government's behalf or to advance a Government program or interest" and the government provides or reimburses any portion of the requested funds;
3. Amended the FCA's intent requirement, and now requiring only that a false statement be "material to" a false claim;
4. Expanded conspiracy liability for any violation of the provisions of the FCA;
5. Amended the "reverse false claims" provisions to expand liability to "knowingly and improperly avoid[ing] or decreas[ing] an obligation to pay or transmit money or property to the Government;"
6. Increased protection for qui tam plaintiffs/relators beyond employees, to include contractors and agents;
7. Procedurally, the government's complaint will now relate back to the qui tam plaintiff/relator's filing;
8. Provided that whenever a state or local government is named as a co-plaintiff in an action, the government or the relator "shall not [be] preclude[d]... from serving the complaint, any other pleadings, or the written disclosure of substantially all material evidence;"
9. Increased the Attorney General's power to delegate authority to conduct Civil Investigative Demands prior to intervening in an FCA action.

With this revision, the FCA now prohibits knowingly (changes are in bold):

1. Submitting for payment or reimbursement a claim known to be false or fraudulent.
2. Making or using a false record or statement material to a false or fraudulent claim or to an ‘obligation’ to pay money to the government.
3. Engaging in a conspiracy to defraud by the improper submission of a false claim.
4. Concealing, improperly avoiding or decreasing an ‘obligation’ to pay money to the government.

On March 23, 2010, the Patient Protection and Affordable Care Act (also referred to as the health reform bill or PPACA) was signed into law by President Barack Obama. The Affordable Care Act made further amendments to the False Claims Act, including:

1. Changes to the Public Disclosure Bar. Under the previous version of the FCA, cases filed by private individuals or "relators" could be barred if it was determined that such cases were based on a public disclosure of information arising from certain proceedings, such as civil, criminal or administrative hearings, or news media reports. As a result, defendants frequently used the public disclosure bar as a defense to a plaintiff's claims and grounds for dismissal of the same. PPACA amended the language of the FCA to allow the federal government to have the final word on whether a court may dismiss a case based on a public disclosure. The language now provides that "the court shall dismiss an action unless opposed by the Government, if substantially the same allegations or transaction alleged in the action or claim were publicly disclosed." See 31 U.S.C. 3730(e)(4)(A).
2. Original Source Requirement. A plaintiff may overcome the public disclosure bar outlined above if they qualify as an "original source," the definition of which has also been revised by PPACA. Previously, an original source must have had "direct and independent knowledge of the information on which the allegations are based." Under PPACA, an original source is now someone who has "knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions." See 31 U.S.C. 3730(e)(4)(B).
3. Overpayments. FERA redefined "obligation" under the FCA to include "retention of any overpayments." Accordingly, such language imposed FCA liability on any provider who received Medicare/Medicaid overpayments (accidentally or otherwise) and fails to return the money to the government. However, FERA also raised questions as to what exactly is involved in the "retention of overpayments" – for example, how long a provider had to return monies after discovering an overpayment. PPACA clarified the changes to the FCA made by FERA. Under PPACA, overpayments under Medicare and Medicaid must be reported and returned within 60 days of discovery, or the date a corresponding hospital report is due. Failure to timely report and return an overpayment exposes a provider to liability under the FCA.
4. Statutory Anti-Kickback Liability. The federal Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b) (AKS) is a criminal statute which makes it improper for anyone to solicit, receive, offer or pay remuneration (monetary or otherwise) in exchange for referring patients to receive certain services that are paid for by the government. Previously, many courts had interpreted the FCA to mean that claims submitted as a result of AKS violations were false claims and therefore gave rise to FCA liability (in addition to AKS penalties). However, although this was the "majority rule" among courts, there were always opportunities for courts to hold otherwise. Importantly, PPACA changed the language of the AKS to provide that claims submitted in violation of the AKS automatically constitute false claims for purposes of the FCA. Further, the new language of the AKS provides that "a person need not have actual knowledge … or specific intent to commit a violation" of the AKS. Accordingly, providers will not be able to successfully argue that they did not know they were violating the FCA because they were not aware the AKS existed.

The False Claims Act has a detailed process for making a claim under the Act. Mere complaints to the government agency are insufficient to bring claims under the Act. A complaint (lawsuit) must be filed in a U.S. District Court (Federal court) in camera (under seal). The Department of Justice (DOJ) must thence investigate within 60 days, but it often enjoys several months' worth of extensions by the Court. In this time, the Department decides whether it will pursue the case.

If the case is pursued by DOJ, the amount of the reward is less than if the Department of Justice had decided not to pursue the case and the plaintiff/relator continues the lawsuit himself. However, the success rate is higher in cases that the Department of Justice decides to pursue.

Technically, the government has several options in handing cases. These include:

1. intervene in one or more counts of the pending qui tam action. This intervention expresses the Government's intention to participate as a plaintiff in prosecuting that count of the complaint. The Department intervenes in fewer than 25% of filed qui tam actions.
2. decline to intervene in one or all counts of the pending qui tam action. If the United States declines to intervene, the relator (i.e., plaintiff) may prosecute the action alone and thus on behalf of the United States, but the United States is not a party to the proceedings apart from its right to any recovery. This option is frequently used by relators and their attorneys.
3. move to dismiss the relator's complaint, either because there is no case, or the case conflicts with significant statutory or policy interests of the United States.

In practice, there are two other options for the Department of Justice:

1. settle the pending qui tam action with the defendant prior to the intervention decision. This usually, but not always, results in a simultaneous intervention and settlement with the Department of Justice (and is included in the 25% intervention rate).
2. advise the relator that the Department of Justice intends to decline intervention. This usually, but not always, results in dismissal of the qui tam action, according to the U.S. Attorney's Office of the Eastern District of Pennsylvania.^[36]

There is case law where claims may be prejudiced if disclosure of the alleged unlawful act has been reported in the press, if complaints were filed to an agency instead of filing a lawsuit, or if the person filing a claim under the act is not the first person to do so. Individual states in the U.S. have different laws regarding whistleblowing involving state governments.

Federal income taxation of awards under FCA in the United States

The U.S. Internal Revenue Service (IRS) takes the position that, for Federal income tax purposes, qui tam payments to a relator under FCA are ordinary income and not capital gains. The IRS position was challenged by a relator in the case of Alderson v. United States;^[37] and, in 2012, the U.S. Court of Appeals for the Ninth Circuit upheld the IRS' stance. As of 2013, this remained the only circuit court decision on tax treatment of these payments.^[38]

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United States Department of Justice

United States Department of Justice

The United States Department of Justice (DOJ), also known as the Justice Department, is a federal executive department of the United States government tasked with the enforcement of federal law and administration of justice in the United States. It is equivalent to the justice or interior ministries of other countries. The department is headed by the U.S. attorney general, who reports directly to the president of the United States and is a member of the president's Cabinet. The current attorney general is Merrick Garland, who was sworn in on March 11, 2021.

Internal Revenue Service

Internal Revenue Service

The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax law. It is an agency of the Department of the Treasury and led by the Commissioner of Internal Revenue, who is appointed to a five-year term by the President of the United States. The duties of the IRS include providing tax assistance to taxpayers; pursuing and resolving instances of erroneous or fraudulent tax filings; and overseeing various benefits programs, including the Affordable Care Act.

Ordinary income

Ordinary income

Under the United States Internal Revenue Code, the type of income is defined by its character. Ordinary income is usually characterized as income other than long-term capital gains. Ordinary income can consist of income from wages, salaries, tips, commissions, bonuses, and other types of compensation from employment, interest, dividends, or net income from a sole proprietorship, partnership or LLC. Rents and royalties, after certain deductions, depreciation or depletion allowances, and gambling winnings are also treated as ordinary income. A "short term capital gain", or gain on the sale of an asset held for less than one year of the capital gains holding period, is taxed as ordinary income.

Capital gain

Capital gain

Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares.

In a 2000 case, Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765 (2000),^[11] the United States Supreme Court held that a private individual may not bring suit in federal court on behalf of the United States against a State (or state agency) under the FCA. In Stevens, the Supreme Court also endorsed the "partial assignment" approach to qui tam relator standing to sue, which had previously been articulated by the Ninth Circuit Federal Court of Appeals and is an exception to the general legal rule for standing.^[11][14][39]

In a 2007 case, Rockwell International Corp. v. United States, the United States Supreme Court considered several issues relating to the "original source" exception to the FCA's public-disclosure bar. The Court held that (1) the original source requirement of the FCA provision setting for the original-source exception to the public-disclosure bar on federal-court jurisdiction is jurisdictional; (2) the statutory phrase "information on which the allegations are based" refers to the relator's allegations and not the publicly disclosed allegations; the terms "allegations" is not limited to the allegations in the original complaint, but includes, at a minimum, the allegations in the original complaint as amended; (3) relator's knowledge with respect to the pondcrete fell short of the direct and independent knowledge of the information on which the allegations are based required for him to qualify as an original source; and (4) the government's intervention did not provide an independent basis of jurisdiction with respect to the relator.

In a 2008 case, Allison Engine Co. v. United States ex rel. Sanders, the United States Supreme Court considered whether a false claim had to be presented directly to the Federal government, or if it merely needed to be paid with government money, such as a false claim by a subcontractor to a prime contractor. The Court found that the claim need not be presented directly to the government, but that the false statement must be made with the intention that it will be relied upon by the government in paying, or approving payment of, a claim.^[40] The Fraud Enforcement and Recovery Act of 2009 reversed the Court's decision and made the types of fraud to which the False Claims Act applies more explicit.^[41]

In a 2009 case, United States ex rel. Eisenstein v. City of New York,^[42] the United States Supreme Court considered whether, when the government declines to intervene or otherwise actively participate in a qui tam action under the False Claims Act, the United States is a "party" to the suit for purposes of Federal Rule of Appellate Procedure 4(a)(1)(A) (which requires that a notice of appeal in a federal civil action generally be filed within 30 days after entry of a judgment or order from which the appeal is taken). The Court held that when the United States has declined to intervene in a privately initiated FCA action, it is not a "party" for FRAP 4 purposes, and therefore, petitioner's appeal filed after 30 days was untimely.

In a 2016 case, Universal Health Services, Inc. v. United States ex rel. Escobar,^[43] the United States Supreme Court sought to clarify the standard for materiality under the FCA. The court unanimously upheld the implied certification theory of FCA liability and strengthened the FCA's materiality requirement.

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Supreme Court of the United States

Supreme Court of the United States

The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all federal court cases, and over state court cases that involve a point of U.S. Constitutional or federal law. It also has original jurisdiction over a narrow range of cases, specifically "all Cases affecting Ambassadors, other public Ministers and Consuls, and those in which a State shall be Party." The court holds the power of judicial review, the ability to invalidate a statute for violating a provision of the Constitution. It is also able to strike down presidential directives for violating either the Constitution or statutory law. However, it may act only within the context of a case in an area of law over which it has jurisdiction. The court may decide cases having political overtones, but has ruled that it does not have power to decide non-justiciable political questions.

Standing (law)

Standing (law)

In law, standing or locus standi is a condition that a party seeking a legal remedy must show they have, by demonstrating to the court, sufficient connection to and harm from the law or action challenged to support that party's participation in the case. A party has standing in the following situations:The party is directly subject to an adverse effect by the statute or action in question, and the harm suffered will continue unless the court grants relief in the form of damages or a finding that the law either does not apply to the party or that the law is void or can be nullified. This is called the "something to lose" doctrine, in which the party has standing because they will be directly harmed by the conditions for which they are asking the court for relief. The party is not directly harmed by the conditions by which they are petitioning the court for relief but asks for it because the harm involved has some reasonable relation to their situation, and the continued existence of the harm may affect others who might not be able to ask a court for relief. In the United States, this is the grounds for asking for a law to be struck down as violating the First Amendment to the Constitution of the United States, because while the plaintiff might not be directly affected, the law might so adversely affect others that one might never know what was not done or created by those who fear they would become subject to the law. This is known as the "chilling effects" doctrine. The party is granted automatic standing by act of law. Under some environmental laws in the United States, a party may sue someone causing pollution to certain waterways without a federal permit, even if the party suing is not harmed by the pollution being generated. The law allows the plaintiff to receive attorney's fees if they substantially prevail in the action. In some U.S. states, a person who believes a book, film or other work of art is obscene may sue in their own name to have the work banned directly without having to ask a District Attorney to do so.

Rockwell International Corp. v. United States

Rockwell International Corp. v. United States

Rockwell International Corp. v. United States, 549 U.S. 457 (2007), is a United States Supreme Court case in which the Court examined the "original source" exception to the "public-disclosure" bar of the False Claims Act. The Court held that (1) the original source requirement of the FCA provision setting for the original-source exception to the public-disclosure bar on federal-court jurisdiction is jurisdictional; (2) the statutory phrase "information on which the allegations are based" refers to the relator's allegations and not the publicly disclosed allegations; the terms "allegations" is not limited to the allegations in the original complaint, but includes, at a minimum, the allegations in the original complaint as amended; (3) relator's knowledge with respect to the pondcrete fell short of the direct and independent knowledge of the information on which the allegations are based required for him to qualify as an original source; and (4) the government's intervention did not provide an independent basis of jurisdiction with respect to the relator.

Allison Engine Co. v. United States ex rel. Sanders

Allison Engine Co. v. United States ex rel. Sanders

Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (2008), was a decision by the Supreme Court of the United States holding that plaintiffs under the False Claims Act must prove that the false claim was made with the specific intent of inducing the government to pay or approve payment of a false or fraudulent claim, rather than merely defrauding a contractor. Congress overruled this decision with the Fraud Enforcement and Recovery Act of 2009.

Subcontractor

Subcontractor

A subcontractor is an individual or a business that signs a contract to perform part or all of the obligations of another's contract.

Fraud Enforcement and Recovery Act of 2009

Fraud Enforcement and Recovery Act of 2009

The Fraud Enforcement and Recovery Act of 2009, or FERA, Pub.L. 111–21 (text) (PDF), S. 386, 123 Stat. 1617, enacted May 20, 2009, is a public law in the United States enacted in 2009. The law enhanced criminal enforcement of federal fraud laws, especially regarding financial institutions, mortgage fraud, and securities fraud or commodities fraud.

United States ex rel. Eisenstein v. City of New York

United States ex rel. Eisenstein v. City of New York

United States ex rel. Eisenstein v. City of New York, 556 U.S. 928 (2009), is a United States Supreme Court decision holding that where the Government has not intervened or actively participated, private plaintiffs under the False Claims Act must file an appeal within 30 days of the judgment or order being appealed, according to the Federal Rules of Appellate Procedure.

Universal Health Services, Inc. v. United States ex rel. Escobar

Universal Health Services, Inc. v. United States ex rel. Escobar

Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. ___ (2016), was a United States Supreme Court case in which the Court held that "the implied false certification theory can be a basis for False Claims Act liability when a defendant submitting a claim makes specific representations about the goods or services provided, but fails to disclose noncompliance with material statutory, regulatory, or contractual requirements that make those representations misleading with respect to those goods or services."

As of 2020, 29 states and the District of Columbia have false-claims laws modeled on the federal statute to protect their publicly funded programs from fraud by including qui tam provisions, which enables them to recover money at state level.^[44][45] Some of these state False Claims Act statutes provide similar protections to those of the federal law, while others limit recovery to claims of fraud related to the Medicaid program.^[44]

The California False Claims Act was enacted in 1987, but lay relatively dormant until the early 1990s, when public entities, frustrated by what they viewed as a barrage of unjustified and unmeritorious claims, began to employ the False Claims Act as a defensive measure.^[46]

In 1995, the State of Texas passed the Texas Medicaid Fraud Prevention Act (TMFPA), which specifically aims at combating fraud against the Texas Medicaid Program, which provides healthcare and prescription drug coverage to low-income individuals.^[47] The Texas law enacts state qui tam provisions that allow individuals to report fraud and initiate action against violations of the TMFPA, imposes consequences for noncompliance and includes whistleblower protections.^[48]

In Australia, The Treasury Laws Amendment (Enhancing Whistleblower Protections) Act,^[49] was passed in December 2018 and went into effect in 2019. The law expanded protections for whistleblowers, allowing them to report misconduct anonymously, as well as applying anti-retaliation protections to additional kinds of whistleblowers. Importantly, the law does not provide for rewards for whistleblowers. There have been calls since 2011 for legislation modeled on the False Claims Act and for their application to the tobacco industry and carbon pricing schemes.^[50][51]

In October 2013, the UK Government announced that it is considering the case for financially incentivising individuals reporting fraud in economic crime cases by private sector organisations, in an approach much like the US False Claims Act.^[52] The 'Serious and Organised Crime Strategy' paper released by the UK's Secretary of State for the Home Department sets out how that government plans to take action to prevent serious and organised crime and strengthen protections against and responses to it. The paper asserts that serious and organised crime costs the UK more than £24 billion a year. In the context of anti-corruption, the paper acknowledges that there is a need to not only target serious and organised criminals but also support those who seek to help identify and disrupt serious and organised criminality. Three UK agencies, the Department for Business, Innovation & Skills, the Ministry of Justice and the Home Office were tasked with considering the case for a US-style False Claims Act in the UK.^[52] In July 2014, the Financial Conduct Authority and the Bank of England Prudential Regulation Authority recommended Parliament enact strong measure to encourage and protect whistleblowers, but without offering whistleblower rewards – rejecting the US model.^[53]

Under Rule 9(b) of the Federal Rules of Civil Procedure, allegations of fraud or mistake must be pleaded with particularity.^[54] All appeals courts to have addressed the issue of whether Rule 9(b) pleading standards apply to qui tam actions have held that the heightened standard applies.^[55] The Fifth Circuit,^[56] the Sixth Circuit,^[57] the Seventh Circuit,^[58] the Eighth Circuit,^[59] the Tenth Circuit,^[60] and the Eleventh Circuit^[61] have all found that plaintiffs must allege specific false claims.

In 2010, the First Circuit decision in U.S. ex rel. Duxbury v. Ortho Biotech Prods., L.P.(2009) and the Eleventh Circuit ruling in U.S. ex rel. Hopper v. Solvay Pharms., Inc.(2009) were both appealed to the U.S. Supreme Court. The Court denied certiorari for both cases, however, declining to resolve the divergent appeals court decisions.^[62]

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Federal Rules of Civil Procedure

Federal Rules of Civil Procedure

The Federal Rules of Civil Procedure govern civil procedure in United States district courts. The FRCP are promulgated by the United States Supreme Court pursuant to the Rules Enabling Act, and then the United States Congress has seven months to veto the rules promulgated or they become part of the FRCP. The Court's modifications to the rules are usually based upon recommendations from the Judicial Conference of the United States, the federal judiciary's internal policy-making body.

United States Court of Appeals for the Fifth Circuit

United States Court of Appeals for the Fifth Circuit

The United States Court of Appeals for the Fifth Circuit is a federal court with appellate jurisdiction over the district courts in the following federal judicial districts:Eastern District of Louisiana Middle District of Louisiana Western District of Louisiana Northern District of Mississippi Southern District of Mississippi Eastern District of Texas Northern District of Texas Southern District of Texas Western District of Texas

United States Court of Appeals for the Sixth Circuit

United States Court of Appeals for the Sixth Circuit

The United States Court of Appeals for the Sixth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:Eastern District of Kentucky Western District of Kentucky Eastern District of Michigan Western District of Michigan Northern District of Ohio Southern District of Ohio Eastern District of Tennessee Middle District of Tennessee Western District of Tennessee

United States Court of Appeals for the Seventh Circuit

United States Court of Appeals for the Seventh Circuit

The United States Court of Appeals for the Seventh Circuit is the U.S. federal court with appellate jurisdiction over the courts in the following districts:Central District of Illinois Northern District of Illinois Southern District of Illinois Northern District of Indiana Southern District of Indiana Eastern District of Wisconsin Western District of Wisconsin

United States Court of Appeals for the Eighth Circuit

United States Court of Appeals for the Eighth Circuit

The United States Court of Appeals for the Eighth Circuit is a United States federal court with appellate jurisdiction over the following United States district courts:Eastern District of Arkansas Western District of Arkansas Northern District of Iowa Southern District of Iowa District of Minnesota Eastern District of Missouri Western District of Missouri District of Nebraska District of North Dakota District of South Dakota

United States Court of Appeals for the Tenth Circuit

United States Court of Appeals for the Tenth Circuit

The United States Court of Appeals for the Tenth Circuit is a federal court with appellate jurisdiction over the district courts in the following districts:District of Colorado District of Kansas District of New Mexico Eastern District of Oklahoma Northern District of Oklahoma Western District of Oklahoma District of Utah District of Wyoming

United States Court of Appeals for the Eleventh Circuit

United States Court of Appeals for the Eleventh Circuit

The United States Court of Appeals for the Eleventh Circuit is a federal court with appellate jurisdiction over the following U.S. district courts:Middle District of Alabama Northern District of Alabama Southern District of Alabama Middle District of Florida Northern District of Florida Southern District of Florida Middle District of Georgia Northern District of Georgia Southern District of Georgia

Supreme Court of the United States

Supreme Court of the United States

The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all federal court cases, and over state court cases that involve a point of U.S. Constitutional or federal law. It also has original jurisdiction over a narrow range of cases, specifically "all Cases affecting Ambassadors, other public Ministers and Consuls, and those in which a State shall be Party." The court holds the power of judicial review, the ability to invalidate a statute for violating a provision of the Constitution. It is also able to strike down presidential directives for violating either the Constitution or statutory law. However, it may act only within the context of a case in an area of law over which it has jurisdiction. The court may decide cases having political overtones, but has ruled that it does not have power to decide non-justiciable political questions.

Certiorari

Certiorari

In law, certiorari is a court process to seek judicial review of a decision of a lower court or government agency. Certiorari comes from the name of an English prerogative writ, issued by a superior court to direct that the record of the lower court be sent to the superior court for review. The term is Latin for "to be made certain", and comes from the opening line of such writs, which traditionally began with the Latin words "Certiorari volumus...".

In 2009, the American Civil Liberties Union (ACLU), Government Accountability Project (GAP) and OMB Watch filed suit against the Department of Justice challenging the constitutionality of the "seal provisions" of the FCA that require the whistleblower and the court to keep lawsuits confidential for at least 60 days. The plaintiffs argued that the requirements infringe the First Amendment rights of the public and the whistleblower, and that they violate the division of powers, since courts are not free to release the documents until the executive branch acts.^[63] The government moved for dismissal, and the district court granted that motion in 2009.^[64] The plaintiffs appealed, and in 2011 their appeal was denied.^[65]

In 2004, the billing groups associated with the University of Washington agreed to pay $35 million to resolve civil claims brought by whistleblower Mark Erickson, a former compliance officer, under the False Claims Act. The settlement, approved by the UW Board of Regents, resolved claims that they systematically overbilled Medicaid and Medicare and that employees destroyed documents to hide the practice. The fraud settlement, the largest against a teaching hospital since the University of Pennsylvania agreed to pay $30 million in 1995, ended a five-year investigation that resulted in guilty pleas from two prominent doctors. The whistleblower was awarded $7.25M.^[66]

In 2010, a subsidiary of Johnson & Johnson agreed to pay over $81 million in civil and criminal penalties to resolve allegations in a FCA suit filed by two whistleblowers.^[67] The suit alleged that Ortho-McNeil-Janssen Pharmaceuticals, Inc. (OMJPI) acted improperly concerning the marketing, promotion and sale of the anti-convulsant drug Topamax. Specifically, the suit alleged that OMJPI "illegally marketed Topamax by, among other things, promoting the sale and use of Topamax for a variety of psychiatric conditions other than those for which its use was approved by the Food and Drug Administration, (i.e., "off-label" uses)." It also states that "certain of these uses were not medically accepted indications for which State Medicaid programs provided coverage" and that as a result "OMJPI knowingly caused false or fraudulent claims for Topamax to be submitted to, or caused purchase by, certain federally funded healthcare programs.^[67]

In response to a complaint from whistleblower Jerry H. Brown II, the US Government filed suit against Maersk for overcharging for shipments to US forces fighting in Iraq and Afghanistan. In a settlement announced on 3 January 2012, the company agreed to pay $31.9 million in fines and interest, but made no admission of wrongdoing. Brown was entitled to $3.6 million of the settlement.^[68][69]

The largest healthcare fraud settlement in history was made by GlaxoSmithKline in 2012 when it paid a total of $3 billion to resolve four qui tam lawsuits brought under the False Claims Act and related criminal charges.^[70] The claims include allegations Glaxo engaged in off-label marketing and paid kickbacks to doctors to prescribe certain drugs, including Paxil, Wellbutrin and Advair.^[70]

In 2013, Wyeth Pharmaceuticals Inc., a pharmaceutical company acquired by Pfizer, Inc. in 2009, paid $490.9 million to resolve its criminal and civil liability arising from the unlawful marketing of its drug Rapamune for uses that were not FDA-approved and potentially harmful.^[71] The case, U.S. ex rel. Sandler and Paris v. Wyeth Pharmaceuticals and Pfizer, Inc. was brought by multiple whistleblowers and culminated in one of the largest False Claims Act recoveries for a single drug.^[72]

In 2014, CareFusion paid $40.1 million to settle allegations of violating the False Claims Act by promoting off label use of its products in the case United States ex rel. Kirk v. CareFusion et al., No. 10-2492. The government alleged that CareFusion promoted the sale of its drug ChloraPrep for uses that were not approved by the FDA.^[73] ChloraPrep is the commercial name under which CareFusion produced the drug chlorhexidine, used to clean the skin before surgery. In 2017, this case was called into question and was under review by the DOJ because the lead attorney for the DOJ serving as Assistant Attorney General in the case, Jeffery Wertkin, was arrested by the FBI on January 31, 2017 for allegedly attempting to sell a copy of a complaint in a secret whistleblower suit that was under seal.^[74][75]

In 2017, bio-pharmaceutical giant Celgene Corporation paid $240 million to settle allegations it sold and marketed its drugs Thalomid and Revlimid off-label in U.S. ex rel. Brown v. Celgene, CV 10-03165 (RK) (C.D. Cal.).^[76] The case, brought by former Celgene sales representative, Beverly Brown,^[72] alleged violations under the False Claims Act including promoting Thalomid and Revlimid off-label for uses that were not FDA-approved and, in many cases, unsafe and not medically necessary, offered illegal kickbacks to influence healthcare providers to select its products, and concealed potential adverse events related to use of its drugs.^[72]

In 2021, A South Carolina pain management company was ordered to pay $140 million under the False Claims Act after a judge in U.S. district court found it in default after fraud schemes.^[77][78][79]

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Johnson & Johnson

Johnson & Johnson

Johnson & Johnson (J&J) is an American multinational corporation founded in 1886 that develops medical devices, pharmaceuticals, and consumer packaged goods. Its common stock is a component of the Dow Jones Industrial Average and the company is ranked No. 36 on the 2021 Fortune 500 list of the largest United States corporations by total revenue. Johnson & Johnson is one of the world's most valuable companies, and is one of only two U.S.-based companies that has a prime credit rating of AAA, higher than that of the United States government.

Maersk

Maersk

A.P. Møller – Mærsk A/S, also known simply as Maersk, is a Danish shipping company, active in ocean and inland freight transportation and associated services, such as supply chain management and port operation. Maersk was the largest container shipping line and vessel operator in the world from 1996 until 2022. The company is based in Copenhagen, Denmark, with subsidiaries and offices across 130 countries and around 83,000 employees worldwide in 2020.

Pfizer

Pfizer

Pfizer Inc. is an American multinational pharmaceutical and biotechnology corporation headquartered on 42nd Street in Manhattan, New York City. The company was established in 1849 in New York by two German entrepreneurs, Charles Pfizer (1824–1906) and his cousin Charles F. Erhart (1821–1891).

Sirolimus

Sirolimus

Sirolimus, also known as rapamycin and sold under the brand name Rapamune among others, is a macrolide compound that is used to coat coronary stents, prevent organ transplant rejection, treat a rare lung disease called lymphangioleiomyomatosis, and treat perivascular epithelioid cell tumor (PEComa). It has immunosuppressant functions in humans and is especially useful in preventing the rejection of kidney transplants. It is a mechanistic target of rapamycin kinase (mTOR) inhibitor that inhibits activation of T cells and B cells by reducing their sensitivity to interleukin-2 (IL-2).

CareFusion

CareFusion

CareFusion was a medical company specializing in two areas: reducing medication errors and prevention of health care-associated infections.

Chlorhexidine

Chlorhexidine

Chlorhexidine (CHX) (commonly known by the salt forms chlorhexidine gluconate and chlorhexidine digluconate (CHG) or chlorhexidine acetate) is a disinfectant and antiseptic with the molecular formula C22H30Cl2N10, which is used for skin disinfection before surgery and to sterilize surgical instruments. It may be used both to disinfect the skin of the patient and the hands of the healthcare providers. It is also used for cleaning wounds, preventing dental plaque, treating yeast infections of the mouth, and to keep urinary catheters from blocking. It is used as a liquid or powder.

Celgene

Celgene

Celgene Corporation is a pharmaceutical company that makes cancer and immunology drugs. Its major product is Revlimid (lenalidomide), which is used in the treatment of multiple myeloma, and also in certain anemias. The company is incorporated in Delaware, headquartered in Summit, New Jersey, and a subsidiary of Bristol Myers Squibb (BMS).

Thalidomide

Thalidomide

Thalidomide, sold under the brand names Contergan and Thalomid among others, is an oral medication used to treat a number of cancers, graft-versus-host disease, and a number of skin conditions including complications of leprosy. While thalidomide has been used in a number of HIV-associated conditions, such use is associated with increased levels of the virus.

Lenalidomide

Lenalidomide

Lenalidomide, sold under the trade name Revlimid among others, is a medication used to treat multiple myeloma, smoldering myeloma, and myelodysplastic syndromes (MDS). For multiple myeloma, it is used after at least one other treatment and generally with dexamethasone. It is taken by mouth.

Medical necessity

Medical necessity

Medical necessity is a legal doctrine in the United States related to activities that may be justified as reasonable, necessary, and/or appropriate based on evidence-based clinical standards of care. In contrast, unnecessary health care lacks such justification.

Kickback (bribery)

Kickback (bribery)

A kickback is a form of negotiated bribery in which a commission is paid to the bribe-taker in exchange for services rendered. Generally speaking, the remuneration is negotiated ahead of time. The kickback varies from other kinds of bribes in that there is implied collusion between agents of the two parties, rather than one party extorting the bribe from the other. The purpose of the kickback is usually to encourage the other party to cooperate in the scheme.

Adverse event

Adverse event

An adverse event (AE) is any untoward medical occurrence in a patient or clinical investigation subject administered a pharmaceutical product and which does not necessarily have a causal relationship with this treatment. An adverse event can therefore be any unfavourable and unintended sign, symptom, or disease temporally associated with the use of a medicinal (investigational) product, whether or not related to the medicinal (investigational) product.