Congress considers sweeping changes to False Claims Act

August 1, 2008

The civil False Claims Act is the principal weapon in the government's arsenal to combat healthcare fraud. The Senate and the House are considering bills that would further expand the scope of liability under the Act and eliminate two of the key defenses to meritless lawsuits filed by qui tam plaintiffs.

• First, the bills would expand liability to situations where companies submit claims for payment to private entities that have received government funds, such as universities and laboratories that have received federal grants. These situations are currently governed by state tort and contract laws, not the False Claims Act. This expansion would threaten to transform the Act into an all-purpose anti-fraud statute.

• The bills would expand liability to situations where companies knowingly retain government overpayments. As drafted, the bills are very unclear and could impose liability for overpayments that are retained pending a routine reconciliation process.

• Both bills would virtually eliminate the Act's "public disclosure" bar that safeguards against parasitic qui tam lawsuits based on public information. The bills would narrow the scope of the public disclosure bar, and would provide that only the Department of Justice (DOJ), not defendants, could raise this defense. Because the DOJ has neither the resources nor incentive to raise the defense, the practical effect would be a flood of new qui tam lawsuits based on public information.

• The bills would extend the six-year statute of limitations to 10 years. This would increase the potential liability in many actions, and it would also encourage relators to delay filing their claims in order to maximize the government's financial loss and thereby increase their own recovery. It would also impose increased record-keeping costs on every entity doing business with the government, since most records would need to be retained for at least 10 years.

• Finally, both bills would permit current and former government employees to file qui tam actions and thereby use information learned in government service for their own personal gain. The DOJ vehemently opposes this provision, on the ground that it would create conflicts of interest within the federal workforce and undermine public trust in government. For example, government auditors or other personnel that receive a voluntary disclosure would have an incentive to file a qui tam lawsuit based on the information they receive.

The net effect of these proposed changes would not be to assist the DOJ in its fight against fraud on the federal Treasury, but to assist qui tam plaintiffs in bringing unfounded actions to benefit themselves and their lawyers. There is bipartisan support for both bills, and there is a real possibility that many or all of the provisions in the current bills will eventually become law.

Peter B. Hutt, II, is a partner in the Washington, D.C., office of law firm Akin Gump Strauss Hauer & Feld LLP.

This column is written for informational purposes only and should not be construed as legal advice.