Legal Definitions - False Claims Act

The False Claims Act is a federal law in the United States designed to combat fraud against the government. It establishes both criminal and civil penalties for individuals or companies that knowingly submit false claims to the federal government for payment, overcharge for goods or services, or fail to pay money owed to the government.

A key feature of the False Claims Act is that it allows private citizens, known as "relators" or whistleblowers, to file lawsuits on behalf of the government. This type of lawsuit is called a qui tam action. If the lawsuit is successful, the private citizen who initiated the action may receive a percentage of the money recovered by the government.

Here are some examples of situations where the False Claims Act might apply:

• Healthcare Fraud: A large pharmaceutical company knowingly promotes and sells a drug for uses not approved by the Food and Drug Administration (FDA), and then encourages doctors to prescribe it for these off-label uses, which are subsequently billed to government healthcare programs like Medicare or Medicaid. An employee within the company discovers this practice and realizes that the government is paying for treatments based on misleading information. This employee could file a qui tam lawsuit under the False Claims Act, alleging that the company is submitting false claims to the government by billing for unapproved uses of the drug.

• Government Contracting Misrepresentation: A technology firm wins a contract with the Department of Defense to supply specialized computer components. The contract specifies that these components must be manufactured in the United States using specific high-grade materials. However, to cut costs, the company secretly imports cheaper, lower-quality components from overseas and then falsely certifies to the government that they meet all contractual requirements and origin specifications. An engineer working for the firm uncovers this deception. The engineer could bring a False Claims Act suit, as the company is over-representing the quality and origin of the product delivered while billing the government for the higher-grade, domestically produced items.

• Understating Financial Obligations: A research institution receives a significant federal grant to conduct scientific studies, with the agreement that if any commercially viable products result from the research, a percentage of the future profits must be repaid to the government. After developing a highly successful product based on the grant-funded research, the institution intentionally manipulates its financial records to report lower profits, thereby reducing the amount it owes back to the federal government. A financial officer at the institution, aware of the true profit figures, could initiate a False Claims Act action, as the institution is deliberately understating its financial obligation to the government.