False Claims Act

False Claims ActThe False Claims Act is the foundation of the U.S. whistleblower system, and by far the most widely used statute by whistleblowers to report corporate fraud and misconduct. It is the basis for other federal and state whistleblower provisions.

Often referred to as the Lincoln Law, the statute was enacted in 1863 to fight widespread fraud by companies selling rotten food, sickly mules, and defective weapons to the Union Army during the Civil War. The law allows private citizens, known as relators, to bring a lawsuit on the government’s behalf, rewarding them with a significant portion of the government’s recovery (between 15% and 30%). The law is rooted in thirteenth-century England’s tradition of the qui tam, derived from a Latin phrase meaning “he who sues on our Lord the King’s behalf as well as his own.”

The cornerstone of a whistleblower claim under the False Claims Act is proof that fraud or misconduct caused the government to suffer a financial loss, such as the government overpaying for a product or service, paying for a product or service it did not receive, or paying for a product or service that is substandard or otherwise different from what the government agreed to purchase.

Various examples of the type of fraud or misconduct that is subject to the False Claims Act are listed below. Remember that wherever government money is involved, there may be a claim under the False Claims Act:

  • Charging the government for products or services not provided, not requested, unnecessary, defective, mislabeled or misrepresented
  • Falsely certifying compliance with specific government guidelines or requirements
  • Falsifying or misreporting test results or research data on product quality, safety or efficacy
  • Securing a government contract through kickbacks or bribes, violations of the law, or any kind of misrepresentation
  • Selling or marketing drugs outside of FDA approved uses
  • Billing generic products as brand name, “upcoding”, using multiple billing codes when only one billing code is appropriate, or billing for unlicensed, unapproved or expired drugs
  • Failing to comply with requirements for Medicare or Medicaid reimbursement

The qui tam whistleblower provisions of the False Claims Act were largely ignored until the Reagan Administration’s increased military spending in the 1980s. In 1986, there were widespread reports of shocking abuses by government contractors, including billing $400 for hammers, $1,000 for bolts, and $7,000 for coffee pots. Iowa’s Republican Senator Charles Grassley helped to amend the law to impose fines of up to $10,000 for each false claim and triple damages on wrongdoers, reward whistleblowers with up to 30% of the government’s recovery, and include significant anti-retaliation protections. In 2009 and 2010, the law was revised to provide greater protections and incentives for whistleblowers.

By the mid-1990s, the government had recovered hundreds of millions of dollars, with tens of millions of dollars going to the whistleblowers who helped facilitate the investigations. By 2000, these annual recoveries crossed into billions of dollars as the law’s reach expanded beyond corrupt defense contractors to include fraud in other industries, such as healthcare, pharmaceuticals, and natural resources. In 2011 alone, the government reclaimed more than $3 billion, with roughly $530 million of that provided to reward the whistleblowers who exposed the misconduct. Over half of the states, and several cities including Washington D.C., New York, Philadelphia, and Chicago now have their own versions of the False Claims Act for whistleblowers reporting fraud on the state or local level.