The Act provides a legal tool to counteract fraudulent billings turned in to the Federal Government. Claims under the law have been filed by persons with insider knowledge of false claims which have typically involved health care, military, or other government spending programs.
The American Civil War (1861–1865) was marked by fraud on all levels in the Union north and the Confederate south. Some say the False Claims Act came about because of bad mules. During the Civil War, unscrupulous early day defense 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. The False Claims Act, passed by Congress on March 2, 1863, was an effort by the USA to respond to entrenched fraud where the official Justice Department was reticent to prosecute fraud cases. 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. In a qui tam action, the citizen filing suit is called a "relator".
The Act establishes liability when any person or entity improperly receives from or avoids payment to the Federal government--tax fraud excepted. In summary, the Act prohibits:
The most commonly used of these provisions are the first and second, prohibiting the presentation of false claims to the government and making false records to get a false claim paid. By far the most frequent cases involve situations in which a defendant--usually a corporation but on occasion an individual--overcharges the federal government for goods or services. Other typical cases entail failure to test a product as required by the rigorous government specifications or selling defective products.
The False Claims Act was amended in 1943 to, most notably, reduce the relator's share of the recovered proceeds. * The law was again amended in 1986. By that time, there was great concern that the national deficit had risen dangerously and President Ronald Reagan had declared that a vast amount of government spending was being misused through waste and fraud.
After the 1986 amendments strengthening the Act were passed (see below), the Act was used primarily against defense contractors. By the late 1990s, however, the focus had shifted to health care fraud, which now accounts for the majority of cases filed by whistleblowers and by the government.
Under the False Claims Act, the Department of Justice is authorized to pay rewards to those who report fraud against the federal government in an amount of between 15 and 30 percent of what it recovers based upon the whistleblower's report.
Certain claims are not actionable, including:
There are unique procedural requirements in False Claims Act cases. For example:
(False Claims Act Amendments of 1986 ()
If the case is pursued, the amount of the reward is less than if the Department of Justice decides 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:
In practice, there are two other options for the Department of Justice:
This usually, but not always, results in dismissal of the qui tam action. 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.
Several states have also created False Claims Act statutes to protect their state against fraud by including qui tam provisions, enabling them to recover money at the state level. Many of these laws mirror the federal False Claims Act and simply apply it to the state's jurisdiction. Michigan and Tennessee have specifically limited their False Claims Acts to merely protect their Medicaid systems
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. Recent developments in the California False Claims Act reduce the defenses contractors have to false claim prosecutions, by stripping away immunities that were believed to apply to certain classes of statements and claims. As a result, contractors can expect to see their payment claims answered by false claims accusations with increasing frequency.