What is a qui tam whistleblower lawsuit?

The False Claims Act authorizes whistleblowers, also known as qui tam "relators," to bring suits on behalf of the United States against the false claimant and obtain a portion of the recovery, otherwise known as a relator share. The phrase “qui tam ” is short for qui tam pro domino rege quam pro se ipso in hac parte sequitur, meaning “who [qui ] sues in this matter for the king as well as [tam ] for himself.” U.S. ex rel. Bogina v. Medline Indus., Inc., 809 F.3d 365, 368 (7th Cir. 2016).

False Claims Act whistleblowers (also known as relators) are eligible to receive 10% to 30% of the recovery. In an intervened case, the relator can obtain 15% to 25% of the recovery, depending upon the extent to which the person substantially contributed to the prosecution of the action.

In a non-intervened case, the relator can obtain between 25% to 30% of the recovery. Additionally, a qui tam relator (whistleblower) who prevails in an FCA action—regardless of whether the government intervenes—is entitled to "reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs." 31 U.S.C. § 3730(d). Qui tam whistleblower lawsuits have enabled the government to recover more than $60 billion.

In 2022, a qui tam relator obtained $266.4 million in whistleblower awards from a $900 million settlement with Biogen Inc. Mr. Bawduniak alleged that Biogen, to prevent its multiple sclerosis drugs from losing market share to newer drugs, knowingly paid its largest prescribers for services Biogen did not need and never intended to use, and which payments served no legitimate business purpose.

False Claims Act Qui Tam Whistleblower Lawyers

If you are seeking representation in a False Claims Act qui tam action, call our whistleblower lawyers today at 202-262-8959. We also represent whistleblowers in False Claims Act retaliation and NDAA retaliation actions.

2022 Qui Tam False Claims Act Settlements

Examples of Successful Qui Tam Actions

Examples of the type of fraud that can qualify for a qui tam whistleblower award or bounty include:

• Paying kickbacks to refer patients for services that will be reimbursed by Medicare;
• Fraudulently inducing a contract, i.e., making false representations to induce the government to enter into a contract;
• Bid rigging;
• Violating good manufacturing practices;
• Double-billing Medicare;
• Defective pricing, including noncompliance with the requirement to submit current, accurate and complete certified cost and pricing data under the Truth in Negotiations Act;
• Inaccurate disclosure of pricing information and practices, such as Hewlett-Packard's $55 million settlement for providing incomplete commercial sales practices information to GSA contracting officers during contract negotiations and Informatica LLC's $21.57 million settlement to resolve allegations that it provided false information concerning its commercial discounting practices for its products and services to resellers, who then used that false information in negotiations with GSA for government-wide contracts.
• Billing Medicaid for unnecessary medical services;
• Overbilling for services performed, such as Northrop Grumman’s $27.45 million settlement for overstating the number of labor hours its employees worked on two Air Force contracts by individuals stationed in the Middle East.
• Providing defective products, such as Sapa Profiles Inc.’s $34.6 million settlement to resolve claims that it falsified thousands of certifications after altering the results of tensile tests designed to ensure the consistency and reliability of aluminum.

• Falsifying admission criteria and regularly diagnosing patients with “disuse myopathy,” an invented medical term meaning generalized weakness, in order to qualify for higher levels of reimbursement as an Independent Rehabilitation Facility (IRF). Encompass Health paid $48 million to resolve allegations that some of its IRFs provided inaccurate information to Medicare to maintain their status as an IRF and to earn a higher rate of reimbursement and that some admissions to its IRFs were not medically necessary;
• Creating a fraudulent joint venture to secure government contracts that are set aside for businesses that participate in the Service-Disabled Veteran-Owned Small Business program. In 2019, A&D General Contracting agreed to pay approximately $3.2 million for fraudulently obtaining over $11 million in government contracts that had been set aside for service-disabled veteran-owned small businesses.

• Violating the federal Anti-Kickback Statute and the FCA by billing millions of dollars for unlawfully forcing patients to endure 72-hour hospital stays for observation and mental illness treatment against their will. Pacific Health Corp. paid $16.5 million to settle claims that it doled out kickbacks for referrals of homeless patients and provided them with unnecessary treatments.
• Making improper payments to doctors to get them to write prescriptions for two Teva products. In 2020, Teva agreed to pay $54M to settle a qui tam case alleging that it paid doctors speaker fees and pricey to prescribe multiple sclerosis drug Copaxone and Parkinson's disease drug Azilect.
• Paying doctors and kickbacks or financial incentives to get patient referrals. In 2020, Agnesian HealthCare paid $10M to settle a qui tam case alleging that its compensation plan for doctors violated the Stark Law, the Anti-Kickback Statute, the federal False Claims Act and the Wisconsin False Claims by rewarding and offering incentives to its network of affiliated doctors to refer Medicare and Medicaid patients exclusively to Agnesian doctors and facilities.
• Upcoding in the form of billing for 14,000-level tissue transfers, which should have been billed as lower-level wound repairs.
• Making misrepresentations regarding certified cost or pricing data in violation of federal procurement laws and regulations. See 10 U.S.C. 2306a; 41 U.S.C. Chapter 35; FAR 15.403-4 and 15.403-5.
• Submitting to Medicare claims for medically unnecessary treatment. United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 376 (5th Cir. 2004). Medicare will only pay for inpatient hospital services if "a physician certifies that such services are required to be given on an inpatient basis for such individual's medical treatment, or that inpatient diagnostic study is medically required and such services are necessary for such purpose." 42 U.S.C. § 1395f(a)(3).
• Billing federal healthcare programs for unnecessary medical testing. In April 2022, Physician Partners of America LLC agreed to pay $24.5 million to resolve allegations that they violated the FCA by billing federal healthcare programs for unnecessary medical testing and services, paying unlawful remuneration to its physician employees and making a false statement in connection with a loan obtained through the Paycheck Protection Program. DOJ alleged that PPOA caused the submission of claims for medically unnecessary urine drug testing by requiring its physician employees to order multiple tests at the same time without determining whether any testing was reasonable and necessary, or even reviewing the results of initial testing to determine whether additional testing was warranted.

False Claims Act Qui Tam Whistleblower Lawyers' Answers to Frequently Asked Questions

A qui tam whistleblower can be eligible for a large recovery. But there are many pitfalls and obstacles to proving liability, and there are unique rules and procedures that govern qui tam whistleblower cases. Therefore, it is critical to retain an experienced False Claims Act whistleblower lawyer to maximize your recovery. This FAQ provides an overview of some of the key aspects of False Claims Act claims.

• knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval; and
• knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim.

1. the defendant submitted a claim to the government;
2. the claim was false; and
3. the defendant knew the claim was false.

The first-to-file bar prohibits a whistleblower from bringing suit based on a fraud already disclosed through identified public channels, unless the whistleblower is “an original source of the information.” Pursuant to the first-to-file bar, “[w]hen a person brings an action under [the False Claims Act], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). The first-to-file bar encourages prompt filing.

• Where two complaints allege “all the essential facts” of the underlying fraud, then the first complaint will typically preclude the later complaint, even if the later-in-time complaint incorporates different details.
• Where a second complaint provides additional information that suggests a broader scope of fraud than the initial complaint, the second complaint might be barred where the government knows the essential facts of a fraudulent scheme because it has sufficient information to discover related frauds.
• To bar later-filed qui tam actions, the allegedly first-filed qui tam complaint must not itself be jurisdictionally or otherwise barred, e.g., if the first-filed complaint fails to plead fraud with particularity, as required by Rule 9(b).
• The Fourth Circuit Court of Appeals recently held that the appropriate reference point for a first-to-file analysis is the set of facts in existence at the time that the FCA action under review is commenced. Facts that may arise after the commencement of a relator’s action, such as the dismissals of earlier-filed, related actions pending at the time the relator brought his or her action, do not factor into this analysis.

The first-to-file bar underscores the importance of reporting fraud promptly and seeking counsel to evaluate potential claims.

The False Claims Act requires that a qui tam action must be filed under seal and remain sealed for at least 60 days. This procedure enables the government to investigate the matter, so that it may decide whether to take over the relator’s action or to instead allow the relator to litigate the action in the government’s place. The purpose of the seal provision is to avoid alerting defendants to a pending federal criminal investigation. State Farm Fire and Cas. Co. v. US, 137 S. Ct. 436 (2016).

Failure to file under seal could potentially jeopardize a relator’s ability to recover a whistleblower bounty, but the False Claims Act does not require automatic dismissal for a seal violation

The “sealing period, in conjunction with the requirement that the government, but not the defendants, be served, was ‘intended to allow the Government an adequate opportunity to fully evaluate the private enforcement suit and determine both if that suit involves matters the Government is already investigating and whether it is in the Government’s interest to intervene and take over the civil action.” United States ex rel. Pilon v. Martin Marietta Corporation , 60 F.3d 995, 998-99 (quoting S. Rep. No. 345, 99th Cong., 2d Sess. 24, reprinted in 1986 U.S.C.C.A.N. 5266, 5289).

A False Claims Act retaliation claim can also be filed under seal (in conjunction with a qui tam action).

To initiate a False Claims Act qui tam action, the relator (whistleblower) must serve a copy of the qui tam complaint along with a “written disclosure of substantially all material evidence and information the [relator] possesses” on the Government. 31 U.S.C. § 3730(b)(2). The complaint remains under seal for at least 60 days, and shall not be served on the defendant. During this 60-day period, the Government is charged with investigating the allegations and “may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal.” 31 U.S.C. §§ 3730(b)(2), (3).

Before the 60-day period (or any extensions obtained) expire, the Government shall either “(A) proceed with the action, in which case the action shall be conducted by the Government; or (B) notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action.” 31 U.S.C. § 3730(b)(4).

Yes: the False Claims Act (“FCA”) protects employees, contractors, and agents who engage in protected activity from retaliation in the form of their being “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment.” 31 U.S.C. § 3730(h)(1).

Reverse false claims liability arises where an entity or individual avoids the payment of money due to the government, e.g., failing to pay royalties owed to the government for mining on public lands.

Section 3729(a)(1)(G) creates liability for a person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government,” or who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G).

To establish reverse false claim liability, a qui tam relator must show:

1. proof that the defendant made a false record or statement
2. at a time that the defendant had a presently-existing obligation to the government — a definite and clear obligation to pay money or property at the time of the allegedly false statements.

Reverse FCA liability can be supported by “`proof that the defendant made a false record or statement at a time that the defendant owed to the government an obligation’ . . . to pay money or property.” Chesbrough v. VPA, P.C., 655 F.3d 461, 473 (6th Cir. 2011)).

The term “obligation,” as it is used in the FCA’s reverse false claims provision, expressly includes any “established duty, whether or not fixed, arising from. . . . the retention of any overpayment. 31 U.S.C.A. § 3729(b)(3). By statute, Medicare requires that “[a]n overpayment must be reported and returned” to the program no later than “the date which is 60 days after the date on which the overpayment was identified.” 42 U.S.C. § 1320a-7k(d)(2). CMS has provided the following guidance regarding what it means to have “identified” an overpayment:

A person has identified an overpayment when the person has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment. A person should have determined that the person received an overpayment and quantified the amount of the overpayment if the person fails to exercise reasonable diligence and the person in fact received an overpayment.

42 C.F.R. § 401.305(a)(2). Internal audits can provide evidence that a provider knew about overpayments and chose not to return the overpayments to CMS.

The statute of limitations for a qui tam action is the longer of 1) six years from when the fraud is committed, or 2) three years after the United States knows or should know about the material facts, but not more than 10 years after the violation. Under § 3731(b)(2), the Government may bring an FCA action within up to 10 years of an FCA violation, provided that the suit was commenced within three years of the date that “the official of the United States charged with responsibility to act in the circumstances” knew or reasonably should have known of the facts material to the right of action.

In Cochise Consultancy Inc. v. United States, ex rel. Hunt, the Supreme Court held that both Government-initiated suits under § 3730(a) and relator-initiated suits (qui tam actions) under § 3730(b) are civil actions under section 3730 and therefore the longer limitations period applies in non-intervened qui tam actions.

The relevant “official” whose knowledge triggers the three-year limitations period of § 3731(b)(2) is the Attorney General or his or her designees within the Department of Justice.

The statute of limitations for a False Claims Act whistleblower retaliation case is three years.

The public disclosure bar prohibits a qui tam relator from bringing a False Claims Act lawsuit based on a fraud that has already been disclosed through certain public channels, unless the relator is an “original source” of the information. 31 U.S.C. § 3730(e)(4)(A).

An original source is “an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing [suit].” § 3730(e)(4)(B).

The public disclosure bar asks whether the relator’s allegations are “substantially similar” to publicly available information. United States ex rel. Davis v. District of Columbia, 679 F.3d 832, 836 (D.C. Cir. 2012). “Where a public disclosure has occurred, [the government] is already in a position to vindicate society’s interests, and a qui tam action would serve no purpose.” United States ex rel. Feingold v. AdminaStar Federal, Inc., 324 F.3d 492, 495 (7th Cir. 2003).

But the public disclosure bar does not dictate that a relator must “possess direct and independent knowledge of all of the vital ingredients to a fraudulent transaction.” United States ex rel. Springfield Terminal Railway Co. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994). Rather, “direct and independent knowledge of any essential element of the underlying fraud transaction” is sufficient to give the relator original-source status under the Act. Id. at 657.

In Springfield Terminal, the D.C. Circuit set forth specific criteria to evaluate whether the public disclosures bars a qui tam action:

1. The government has “enough information to investigate the case” either when the allegation of fraud itself has been publicly disclosed, or when both of its underlying factual elements—the misrepresentation and the truth of the matter—are already in the public domain.
2. “[I]f X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent transaction publicly, the combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed.” Id. at 654. Because the publicly disclosed pay vouchers reflected only the false statement (the arbitrator’s claim for payment) and not the true facts (the services actually rendered), we held that the public disclosure bar did not apply. Id. at 655-56. That said, we stressed that a qui tam action cannot be sustained where both elements of the fraudulent transaction—X and Y—are already public, even if the relator “comes forward with additional evidence incriminating the defendant.”

A September 2018 Third Circuit decision in Pharamerica clarifies that the FCA’s public disclosure bar is not triggered when a relator relies upon non-public information to make sense of publicly available information, where the public information — standing alone — could not have reasonably or plausibly supported an inference that the fraud was in fact occurring. Similarly, the D.C. Circuit has held that the public disclosure bar is not triggered where the relator “supplied the missing link between the public information and the alleged fraud” by “rel[ying] on nonpublic information to interpret each [publicly disclosed] contract,” and where “[w]ithout [relator’s] nonpublic sources . . . there was insufficient [public] information to conclude” that the defendant actually engaged in the alleged fraud. United States ex rel. Shea v. Cellco P’ship, 863 F.3d 923, 935 (D.C. Cir. 2017).

Courts in the Fifth Circuit apply a three-part test to determine whether the public disclosure bar applies, asking: “(1) whether there has been a `public disclosure’ of allegations or transactions, (2) whether the qui tam action is `based upon’ such publicly disclosed allegations, and (3) if so, whether the relator is the `original source’ of the information.” U.S. ex rel. Reagan v. E. Tex. Med. Ctr. Reg’l Healthcare Sys., 384 F.3d 168, 173 (5th Cir. 2004) (quotations omitted). The Court is not required to rigidly follow the three steps. U.S. ex rel. Jamison v. McKesson Corp., 649 F.3d 322, 327 (5th Cir. 2011). Indeed, the Fifth Circuit has recognized that “combining the first two steps can be useful, because it allows the scope of the relators’ action in step two to define the `allegations or transactions’ that must be publicly disclosed in step one.” Id.; see also U.S. ex rel. Fried v. W. Indep. Sch. Dist., 527 F.3d 439, 442 (5th Cir. 2008) (combining the first two steps).

The public disclosure bar prohibits a relator from bringing a False Claims Act lawsuit based on a fraud that has already been disclosed through certain public channels, unless the relator is an “original source” of the information. 31 U.S.C. § 3730(e)(4)(A).

An “original source” is “an individual who either (1) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntary provided the information to the Government before filing an action.” § 3730(e)(4)(B).

If you have original information about fraud, it is important to retain counsel promptly. For example, if a government investigator interviews you before you have voluntarily come forward to disclose the fraud, your disclosure to the investigator will likely not qualify for any whistleblower award. See City of Chicago ex rel. Rosenberg v. Redflex Traffic Systems, 884 F.3d 798, 805 (7th Cir. 2018), citing United States ex rel. Paranich v. Sorgnard, 396 F.3d 326 (3d Cir. 2005) (voluntary requirement of federal False Claims Act “is designed to reward those who come forward with useful information and not those who provide information in response to a governmental inquiry”); Barth v. Ridgedale Electric, Inc., 44 F.3d 699, 704 (8th Cir. 1994) (qui tam relator did not “voluntarily provide” information to the government where government began its investigation first and investigator initiated interview with relator; “rewarding [relator] for merely complying with the government’s investigation is outside the intent of the Act.”)

The False Claims Act (FCA) defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4). In United States ex rel. Escobar v. Universal Health Servs., Inc., the Supreme Court held that FCA liability can attach for violating statutory or regulatory requirements, whether or not those requirements were designated in the statute or regulation as conditions of payment.

In particular, the Escobar Court held that “liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory or contractual requirement. In these circumstances, liability may attach if the omission renders those representations misleading.” 136 S. Ct. 1989, 1995 (2016). A Fifth Circuit decision summarizes the core holding of Escobar:

A violation is material if a reasonable person “would attach importance to [it] in determining his choice of action in the transaction” or “if the defendant knew or had reason to know that the recipient of the representation attaches importance to the specific matter `in determining his choice of action,’ even though a reasonable person would not.”

United States ex rel. Lemon v. Nurses To Go, Inc., 924 F.3d 155, 163 (5th Cir. 2019) (quoting Escobar I, 136 S. Ct. at 2002-03 (alteration in original) (quoting Restatement (Second) of Torts § 538 (1976))).

In Escobar, the Court articulated the following factors governing the materiality analysis, with no one factor being necessarily dispositive:

• whether compliance with a statute is a condition of payment;
• whether the violation goes to “the essence of the bargain” or is “minor or insubstantial”;
• whether the government consistently pays or refuses to pay claims when it has knowledge of similar violations; and
• whether the government would likely refuse payment had it known of the regulatory violations.

As Escobar addresses only an implied certification theory, Escobar’s materiality requirement should not extend to all types of FCA claims. For example, an express misrepresentation, e.g., a health insurer expressly agreeing to comply with Medicare rules and regulations when it does not, would violate the FCA. See, e.g., U.S. ex rel. McCarthy v. Marathon Techs., Inc., No. 11 C 7071, 2014 WL 4924445 (N.D. Ill. Sept. 30, 2014).

Examples of Material False Claims

Examples of material false claims include:

• A drug company Seeking and obtaining payment for off-label uses of certain drugs. See U.S. ex rel. Brown v. Celgene Corp.,226 F. Supp. 3d 1032 (C.D. Cal. 2016).
• A private security company submitting false weapons qualifications for the services of protective services personnel who had not fulfilled the required weapons training. United States ex rel. Beauchamp v. Academi Training Center, Inc., 220 F. Supp. 3d 676 (E.D. Va. 2016).
• Submitting a false hospice certification. See, e.g.,Druding v. Care Alternatives, Inc., 164 F. Supp. 3d 621, 629 (D.N.J. 2016); United States ex rel. Fowler v. Evercare Hospice, Inc., No. 11-CV-00642-PAB-NYW, 2015 WL 5568614, at *7 (D. Colo. Sept. 21, 2015) (“the requirement that physicians’ certifications are accompanied by clinical information and other documentation that support a patient’s prognosis is a condition of payment under applicable Medicare statutes and regulations.”); see also, e.g., United States ex rel. Hinkle v. Caris Healthcare, L.P., No. 3:14-CV-212-TAV-HBG, 2017 WL 3670652, at *9 (E.D. Tenn. May 30, 2017) (“the government’s complaint alleges that defendants’ written certifications were false, in that the documentation for certain patients did not support a prognosis of terminal illness.”).
• A contractor engaged to provide security for Al Asad Airbase in Iraq violated the FCA by falsifying certifications of marksmanship and knowingly billing the Government the full contract price for guards who failed to meet the contractually specified marksmanship qualification. United States v. Triple Canopy, Inc., 857 F.3d 174, 177 (4th Cir. 2017). The court held that such misrepresentations were material because the Government’s decision to pay “would be influenced by knowledge that the guards could not … shoot straight.” Id. at 176.

The federal government’s payment of a claim after it learns of untruthful certifications or attestations about compliance with regulatory or contractual duties is not a shield from liability. See Campie v. Gilead Sciences, Inc., 862 F.3d 890, 906 (9th Cir. 2017).

Scienter Under the False Claims Act Does Not Require Proof of Specific Intent

An ordinary breach of a government contract caused by an honest mistake ordinarily does not give rise to False Claims Act liability. To prevail in a qui tam action, a relator must prove the defendant acted knowingly, i.e., that the defendant “(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b). But proof of specific intent to defraud is not required. Therefore, a person who acts in deliberate ignorance or reckless disregard of a false or fraudulent claim can be liable under the False Claims Act.

As amended by the Fraud Enforcement and Recovery Act of 2009, a person is liable under the False Claims Act if he “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” There is no requirement to prove that a false statement was made with the intent that it would result in the federal government paying the claim.

Stark Act Violations or Kickbacks Can Violate the False Claims Act

• Both the Stark Act and the Anti-Kickback Act prohibit a health care provider from submitting claims to Medicare based upon referrals from physicians who have a “financial relationship” with the health care entity, unless a statutory or regulatory exception or safe harbor applies. 42 U.S.C. §§ 1395nn(a)(1); 1320a-7b(b). In particular, the Stark Act prohibits “knowingly and willfully” offering or paying “any remuneration . . . to any person to induce such person . . . to refer an individual to a person for the furnishing . . . of any item or service for which payment may be made in whole or in part under a Federal health care program.” 42 U.S.C. § 1320a-7b(b)(2)(A). And it prohibits “knowingly and willfully solicit[ing] or receiv[ing]” kickbacks “in return” for such conduct. Id. § 1320a-7b(b)(1)(A).
• The Stark Act expressly prohibits Medicare from paying claims that do not satisfy each of its requirements, including every element of any applicable exception. 42 U.S.C. §§1395nn(a)(1), (g)(1).
• “Falsely certifying compliance with the Stark or Anti-Kickback Acts in connection with a claim submitted to a federally funded insurance program is actionable under the FCA.” United States ex rel. Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 95 (3d Cir. 2009) (citing United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir. 2004) (other citations omitted)). Typically submission of a claim to Medicare requires the provider to certify compliance with the Anti-Kickback Law on CMS Form 855s, which states in relevant part “I understand that payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with [Medicare] laws, regulations, and program instructions (including, but not limited to, the Federal [A]nti-[K]ickback [S]tatute . . . ), and on the supplier’s compliance with all applicable conditions of participation in Medicare.”
• In other words, a claim for payment made pursuant to an illegal kickback is false under the FCA. United States ex rel. Quinn v. Omnicare, Inc., 382 F.3d 432, 439 (3d Cir. 2004). It is well-settled that “claims for payment made pursuant to illegal kickbacks are false under the [FCA].” United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89, 95 (3d Cir. 2018) (quoting United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39, 52 (D. Mass. 2011)). When a claim is tainted by an AKS violation, it is automatically legally “false” under the FCA. Greenfield, 880 F.3d at 95. Therefore, once a violation of the AKS has been established, the first element of the FCA, falsity, has been met.
• A defendant can avoid liability under the Stark Act by demonstrating that either a statutory or regulatory exception (or safe harbor) applies. The safe harbor exceptions recognize that financial arrangements between physicians and health care entities may exist for legitimate reasons independent of referrals.

Note that opposing kickbacks or raising concerns about kickbacks is protected conduct under the False Claims Act anti-retaliation provision. For more information about False Claims Act whistleblower protection, click here.

For more information about the False Claims Act, Anti-Kickback Statute, Physician Self-Referral Law, and Exclusion Statute, see the HHS OIG’s roadmap for physicians about fraud and abuse laws.

As explained in a recent DOJ press release, “The Anti-Kickback Statute prohibits offering, paying, soliciting, or receiving remuneration to induce referrals of items or services covered by Medicare, Medicaid, and other federally funded programs. The Physician Self-Referral Law, commonly known as the Stark Law, prohibits a hospital from billing Medicare for certain services referred by physicians with whom the hospital has an improper financial arrangement, including the payment of compensation that exceeds the fair market value of the services actually provided by the physician. Both the Anti-Kickback Statute and the Stark Law are intended to ensure that physicians’ medical judgments are not compromised by improper financial incentives and instead are based on the best interests of their patients. Claims submitted under the Anti-Kickback Statute and the Stark Law violate the False Claims Act.”

Bid rigging can violate the False Claims Act (FCA) under a fraudulent inducement theory. In a seminal FCA case, electrical contractors entered into a collusive bidding scheme in which they averaged the price of the prospective bids and then chose from among the contractors one who would submit a bid for the averaged amount, while the others submitted higher bids. U. S. ex rel. Marcus v. Hess, 317 U.S. 537 (1943). The Court found that this type of collusive bidding qualified as a false claims violation.

Recently Concept Schools, a charter school management company, paid $4.5M to settle a False Claims Act case alleging that it rigged the bidding for E-Rate contracts between 2009 and 2012 in favor of chosen technology vendors so that its network of charter schools located in several states selected the chosen vendors without a meaningful, fair and open bidding process. Additionally, the government alleged that Concept Schools’ chosen vendors provided equipment at higher prices than those approved by the FCC for equipment with the same functionality.

Fraudulent Inducement of a Contract and False Claims Act Liability

Where a contract is “procured by fraud,” False Claims Act liability flows from fraudulent inducement. Examples of fraudulent inducement include:

• the contractor knowingly provides the government with price lists and discounts containing false information in order to induce it to enter into the contract;
• the contractor makes an initial misrepresentation about its capability to perform the contract in order to induce the government to enter into the contract; or
• a party makes promises at the time of contracting that it intends to break.

Where a defendant causes a contract to be procured by fraud, all claims for payment made under that contract are deemed false for purposes of the False Claims Act, even if the claims do not themselves contain a false statement. U.S. ex rel. Marcus v. Hess, 63 S. Ct. 379, 384 (1943)(holding the initial act of fraud to induce government contract “tainted” every subsequent claim for payment); see also U.S. ex rel. Main v. Oakland City Univ., 426 F.3d 914, 917 (7th Cir. 2005). The core issue is whether the defendant entered into a government contract with the intent not to perform or with the knowledge that it could not perform as promised.” U.S. ex rel. Blaum v. Triad Isotopes, Inc., 104 F. Supp. 3d 901, 914 (N.D. Ill. 2015).

Good Manufacturing Practices and False Claims Act Liability

Yes, and indeed drug manufacturer Ranbaxy pleaded guilty to seven felonies related to Good Manufacturing Practices violations at facilities in India and paid $500 million in penalties. Good Manufacturing Practices (“GMPs”) are the standards for quality control and product testing set forth at 21 C.F.R. pt. 211.

A GMP violation can be sufficient to give rise to FCA liability if the drug’s strength materially differed from, or the purity or quality fell below, the strength, purity or quality specified in the drug’s FDA-approved New Drug Application, the drug’s labeling, and/or the standards set forth in an official compendium. Similarly, manufacturing deficiencies affecting the strength, purity and/or quality of the affected drug such that the drug is essentially “worthless” and not eligible for payment by the government can give rise to FCA liability. The defect must be so significant that what was provided was “understood to be different” from the approved drug.

But there are limitations:

• A minor or trivial departure from GMPs might not be actionable.
• In the Fourth Circuit, when a new drug has been approved by the FDA and thus qualifies for reimbursement, a claim for reimbursement is not a false claim merely due to adulteration. See Barry Rostholder v. Omnicare, Inc., 745 F.3d 694 (4th Cir. 2014).

False Claims Act qui tam actions must meet the heightened pleading requirement set forth in Federal Rule of Civil Procedure 9(b). In other words, a quit tam relator must “state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). The complaint must “identify ‘the who, what, when, where, and how of the misconduct charged,’ as well as ‘what is false or misleading about [the purportedly fraudulent] statement, and why it is false.’” Cafasso ex rel. United States v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1055 (9th Cir. 2011)

Note though that in the Ninth Circuit, the relator need not “identify representative examples of false claims to support every allegation.” Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010). Similarly, in the Eleventh Circuit, there is no requirement for a qui tam relator to provide exact billing data. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1312 & n.21 (11th Cir. 2002). Rather, a complaint must contain “some indicia of reliability” that a false claim was actually submitted. Clausen, 290 F.3d at 1311. “For instance, a relator with first-hand knowledge of the defendant’s billing practices may possess a sufficient basis for alleging that the defendant submitted false claims.” United States ex rel Patel v. GE Healthcare, Inc., No. 8:14-cv-120-T-33TGW, 2017 WL 4310263, at *6 (M.D. Fla. Sept. 28, 2017).

“An FCA claimant is not required to show `the exact content of the false claims in question’ to survive a motion to dismiss, as `requiring this sort of detail at the pleading stage would be one small step shy of requiring production of actual documentation with the complaint, a level of proof not demanded to win at trial and significantly more than any federal pleading rule contemplates.'” United States v. Executive Health Resources, Inc., 196 F.Supp.3d 477, 492 (E.D.Pa. 2016) (citing Foglia, 754 F.3d at 156); Gohil, 96 F.Supp.3d at 519 (“[A relator] is not required to plead the details of any false claim submitted for payment[.]”)

But it is critical to connect the fraud scheme to the submission of false claims. In United States ex rel. Booker v. Pfizer, Inc., 847 F.3d 52, 58 (1st Cir. 2017), the First Circuit held that “aggregate [information] reflecting the amount of money expended by Medicaid” on off-label prescriptions was “insufficient on its own to support a[] [False Claims Act] claim” because it did not show “an actual false claim made to the [G]overnment.”

To satisfy Rule 9(b), the whistleblower “must provide ‘particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted’”; “[d]escribing a mere opportunity for fraud will not suffice.” See Foglia v. Renal Ventures Mgmt., 754 F.3d 153, 157-58 (3d Cir. 2014).

As summarized in United States of America ex rel. Donna Rauch v. Oaktree Medical Centre, P.C., No. 6:15-cv-01589 (D.SC March 5, 2020), the Fourth Circuit applies the following Rule 9(b) standard:

“To satisfy Rule 9(b), a plaintiff asserting a claim under the [FCA] `must, at a minimum, describe the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.'” Nathan, 707 F.3d at 455-56 (quoting United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008)). The Fourth Circuit has held that “allegations of a fraudulent scheme, in the absence of an assertion that a specific false claim was presented to the government for payment” are insufficient to meet Rule 9(b)’s heightened pleading standard. Id. at 456. “Instead, the critical question is whether the defendant caused a false claim to be presented to the government, because liability under the [FCA] attaches only to a claim actually presented to the government for payment, not the underlying fraudulent scheme.” Id. (citing Harrison, 176 F.3d at 785). In the event a relator does not plead with particularity that specific false claims actually were presented to the government for payment, a relator’s complaint may still survive a Rule 9(b) challenge only if it “allege[s] a pattern of conduct that would `necessarily have led[ ] to submission of false claims’ to the government for payment.” Grant, 912 F.3d at 197 (quoting Nathan, 707 F.3d at 457) (alteration and emphasis in original).

A good example of meeting the Rule 9(b) requirement without pleading actual submission of invoices to the government is United States ex rel. Saldivar v. Fresenius Med. Care Holdings, Inc. , 906 F. Supp. 2d 1264, 1269 (N.D. Ga. 2012), a case in which the relator worked for a dialysis service provider and managed the facility’s inventory of two drugs. Based upon the relator’s observations of the inventory, he believed the facility submitted “fraudulent reimbursement claims” by “bill[ing] the government for doses of [drugs] that it received for free.” Id. Although the relator did not work in the billing department, the court found the relator satisfied Rule 9(b) because his belief was based upon his observation of the facility’s inventory documents and a conversation with “his clinical manager inform[ing] him that those documents were used as the basis upon which [the facility] billed for reimbursement.” Id. at 1277.

The False Claims Act provides that any entity violating 31 U.S.C. § 3729(a)(1) is liable for three times the amount of damages that the Government sustains because of the fraud.

In addition, the False Claims Act imposes a penalty for each violation or each false claim. As of January 30, 2023, the minimum False Claims Act penalty is $13,508 per claim and the maximum penalty is $27,018 per claim.

Generally, the qui tam relator (the whistleblower) need not have firsthand knowledge of every aspect of the fraud scheme. The First, Third, Fifth, and Ninth Circuits have taken a more nuanced reading of the Rule 9(b) heightened pleading requirement, holding that it is sufficient for a plaintiff to allege “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that [false] claims were actually submitted.”

Recently the First Circuit held that “nothing in the statutory text limits ‘direct knowledge’ to knowledge gained from participation in or observation of the fraud. The statute requires only that the person have ‘direct and independent knowledge of the information on which the allegations are based ,’ not direct and independent knowledge of the fraudulent acts themselves.” United States ex rel. Banigan v. PharMerica, Inc., 2020 WL 813258 (1st Cir. Feb 19, 2020).

In U.S. ex rel. Galmines v. Novartis Pharm. Corp., 88 F.Supp.3d 447, 456 (E.D.Pa. 2015). the court indicated “that Third Circuit appellate precedent does not require [relator] to have firsthand knowledge of `all the relevant information’ on which his allegations are based, and that “a relator’s allegations need not be strictly limited to the information as to which she has direct and independent knowledge, provided that the relator has direct and independent knowledge of the critical elements of the alleged fraudulent scheme.” The court in Galmines found that it should “allow original-source relators to pursue the entire fraudulent scheme for which they have direct and independent knowledge of the operative substantive facts, and not to limit relators to the specific time periods for which they have direct and independent knowledge, particularly where the relator has alleged the scheme was `continuing’ as of the day they lost their direct and independent knowledge by reason of a cessation of employment or equivalent development.” An “original source” is “an individual who has direct and independent knowledge of the information on which the allegations are based.” 31 U.S.C. §3730(e)(4)(B).