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According to the Congressional Research Service, the United States has spent to date over $437 billion on the Iraq War. An additional $100 billion is estimated to be spent this year. While much of the money, obviously, goes for troops, a great deal of these amounts has gone to civilian contractors involved in reconstruction efforts in Iraq. But where has the money gone and who is accounting for its proper use?

According to Senator Patrick Leahy of Vermont, “Eventually we’re going to have a bill for about $1 trillion dollars and people are not going to be able to account for a very, very large part of it.” It is shocking to us that the Justice Department has done so little to address ever increasing reports of contractor fraud and abuse in Iraq. After three and a half (3 ½) years of war, to the best of our knowledge, not a single criminal case has been filed against any large corporation doing work in Iraq. While a few qui tam actions are beginning to emerge publicly, given that the war effort is taking place in a foreign country which obviously creates evidentiary issues, it may be some time before the full extent of contractor fraud and abuse becomes publicly known. Nonetheless, given the amount of no-bid contracts, this proves to be a major problem.

We support any effort to increase criminal penalties for those who exploit the war effort and obviously would encourage greater, not fewer, False Claims Act cases directed at such fraud and abuse. Billions of tax dollars are being spent on the war effort and most agree that billions are probably being lost to contractor waste, fraud and abuse. If contractor fraud continues to go unchecked in Iraq, the Government only invites more fraud. Accordingly, the whistleblower plaintiff’s bar should step up its efforts and utilize where applicable the government’s most effective tool in combating waste fraud and abuse in government programs: the False Claims Act.

The salutary intent of the Deficit Reduction Act was to require that employers educate employees about the Federal False Claims Act and, hopefully, address fraud and abuse by employer entities receiving $5 million dollars or more in federal funds under the Medicaid program. When the Deficit Reduction Act was passed in 2005, a debate emerged about whether the DRA education provisions mandating employee education about the Federal False Claims Act applied directly to healthcare providers and/or whether states receiving Medicaid had to pass implementing legislation to make the provision effective. In December of 2006, the Centers for Medicare and Medicaid Services (CMS) set the record straight. An “entity” includes a government agency, organization, unit, corporation, partnership or other business arrangement (including any Medicaid managed care organization, irrespective of the form of business structural or arrangement by which it exists) whether for profit or not for profit, which receives or makes payments under a state plan approved under Title XIX or under any waiver of such plan, totaling at least $5 million annually. In short, states do not have to implement legislation to make the provision effective and any entity receiving $5 million or more annually in Medicaid benefits must implement the mandatory education provision.
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Just before Christmas I read an article about a case in Texas where a doctor was sentenced to a lengthy prison term for a scheme to defraud Medicare and Medicaid in excess of $25 million. The doctor had been approached by individuals offering to pay him a kickback for supplying Certificates of Medical Necessity (CMN) approving a beneficiary to receive a motorized wheelchair. I have been watching TV and seeing these adds for sometime about scooters for disabled individuals and I was wondering how so many people could be approved by Medicare and Medicaid to receive these products. At least in this one case in Texas, the doctor was being paid money by the suppliers of these motorized wheelchairs to certify that the people needed them.

In the case in Texas, according to the government, the doctor involved not only got a kickback for signing the CMN but told the disabled patient that unless that patient utilized his services for even more fraudulent billing of Medicare and Medicaid claims that he would not sign their CMN and help them get their wheelchairs. According to prosecutors, the supply companies who provided the wheelchairs in many cases provided less expensive scooters to the patients or nothing at all. The cost to the government, over $25 million in claims.

This case is a classic example of where the government’s pocketbook is opened for looting by those who have no compunction to do so. Given the large amounts of money going to this doctor one would think that the government’s computerized system would have picked up that something was amiss. Before the scheme was uncovered, $25 million in taxpayer money was paid out to those involved in the conspiracy to defraud the government. Because of the lack of oversight, these people operated for several years with impunity. While the articles I read did not say how it is that the scheme was finally brought to the attention of the government (I would suspect an informant), at least these people were caught and prosecuted. One would hope that the informant had filed a qui tam action under seal and that he and his attorneys were paid for bring this outrageous fraud to the attention of the government.

This is the second part of my article explaining the False Claims Act–it addresses the history of the Act:

II. Background of the False Claims Act
While the False Claims Act may be the best known qui tam statute, it is far from being the first. Qui tam actions date back to English law in the 13th and 14th Centuries. This tradition took root in the American colonies and, by 1789, states and the new federal government had authorized qui tam actions in various contexts.7
According to one writer, “[i]n the early years of the Nation, the qui tam mechanism served a need at a time when federal and state governments were fairly small and unable to devote significant resources to law enforcement. As the role of the Government expanded, the utility of private assistance in law enforcement did not diminish. If anything, changes in the role and size of Government created a greater role for this method of law enforcement.” 8

A. Birth of the False Claims Act
The Civil War prompted Congress to enact the original False Claims Act in 1863. As government spending on war materials increased, dishonest government contractors took advantage of opportunities to defraud the United States government. “Through haste, carelessness, or criminal collusion, the state and federal officers accepted almost every offer and paid almost any price for the commodities, regardless of character, quality, or quantity.”9 The original legislative proposal would have made contractors subject to martial law. A substitute bill provided for both civil and criminal penalties, and it authorized private individuals to sue on behalf of the United States. One senator explained how the qui tam provision of the Act was intended to work:

The effect of the [qui tam provision] is simply to hold out to a confederate a strong temptation to betray his co-conspirator, and bring him to justice. The bill offers, in short, a reward to the informer who comes into court and betrays his co-conspirator, if he be such; but it is not confined that class. . . . In short, sir, 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.10
The original Act provided for civil penalties of double the amount of damages sustained by the United States as a result of the false claim, plus a $2,000 forfeiture for each claim submitted.11 In the original Act, if a private citizen used the qui tam provision to file suit, the government had no right to intervene or control the litigation. The “relator” who was successful was entitled to receive one-half the amount of the final judgment in forfeiture and damages, with the United States receiving the other half.12 Continue reading →