Part 2: The False Claims Act and the Increasing Number of State False Claims Acts

This is Part 2 of an explanation the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. This Part 2 discusses the sound policy reasons underlying the False Claims Act.

I. Why Have A “False Claims Act”?

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

For those who are caught committing fraud, the chances of being prosecuted and eventually going to jail are slim. . . . The sad truth is that crime against the Government often does pay.(Quoted from legislative history of 1986 amendments to False Claims Act).

Fraud – and allegations of fraud – plagues government spending at every level. Today, as the federal government struggles to fund the hundreds of billions of dollars spent annually on health care through Medicare, Medicaid, and other programs; the Iraq and Afghanistan wars; the financial “bailout” measures enacted after the 2008 financial collapse; disaster relief efforts; and government grants and programs of every description, there is no shortage of opportunities for fraud against the public fisc.

The federal False Claims Act has been the federal government’s “primary” weapon to recover losses from those who defraud it. The Act not only authorizes the government to pursue actions for treble damages and penalties, but also empowers and provides incentives to private citizens to file suit on the government’s behalf as “qui tam relators.” Over the past two decades, recoveries for the federal government have grown dramatically since Congress amended the Act in 1986 to encourage greater use of the qui tam provisions, as part of a “coordinated effort of both the [g]overnment and the citizenry [to] decrease this wave of defrauding public funds.”

The federal False Claims Act since 1986 has been successful in recovering more than $27 billion, increasingly through qui tam lawsuits brought by private citizens. In light of the federal Act’s successes, Congress in the Deficit Reduction Act of 2005 created a large financial “carrot” for states that adopt state versions of the False Claims Act. Any state that passes its own “False Claims” statute with qui tam or whistleblower provisions that are at least as effective as those of the federal Act becomes eligible for a 10% increase in its share of Medicaid fraud recoveries.

Thus, the impetus for states to enact a False Claims Act is this incentive of more dollars. Since 2006, the number of states with a state version of the False Claims Act covering at least Medicaid has grown to at least twenty-eight. Many other states are considering enacting similar statutes of their own so that they, too, qualify for increased funds under the Deficit Reduction Act.