WASHINGTON (Legal Newsline) - More than 75 percent of the False Claims Act cases brought by qui tam plaintiffs fail to entice government intervention or result in any recovery for the U.S. Treasury, contends Peter Hutt, a partner at Akin Gump in Washington, D.C., who represents defendant companies in False Claims Act and fraud litigation.
"They are dismissed, they are thrown out on summary judgment, or there is judgment at trial, but they don't succeed," he said. "In other words, I would claim that all of those cases are meritless cases. They are a big drag on the system."
The False Claims Act operates as the primary weapon for combatting fraud against the federal government, but in recent years, many business and legal experts have condemned the increasing use of its qui tam provision. They say the provision, which allows private individuals to bring lawsuits on behalf of the United States and share a portion of any recovery, promotes abuse of the statute and needs to be reconsidered by Congress.
Hutt explains that the Federal Claims Act traces its origin back to the Civil War, when it was enacted to combat fraud committed against the Union Army. However, he says, between the war and the mid-1980s, the statute was little known and rarely used by the government.
In 1986, Congress refocused on the False Claims Act and made substantial changes to the law, including enforcement. Initially, the Department of Justice brought most of the actions, because even though whistleblowers could file suits as qui tam plaintiffs, various provisions made it difficult for them. But now, Congress offered additional, concrete incentives for individuals to ferret out fraud.
"The thought was, you want them to come forward, because individuals have better information about fraud or false claims than the United States government does," Hutt said. "You want people to come forward and break the conspiracy of silence. That is exactly what has happened."
According to the Department of Justice, Congress' efforts to amend the False Claims Act in 1986, as well as in 2009 and 2010, provided more support for whistleblowers and made other significant improvements to the statute.
"Whistleblower lawsuits were in the range of three to four hundred per year from 2000 to 2009, when they began their climb from 433 lawsuits in fiscal year 2009 to 752 lawsuits in fiscal year 2013," the department announced in December.
The department adds that of the $3.8 billion recovered in 2013, $2.9 billion came from lawsuits filed under the qui tam provision of the False Claims Act. During the same period, the department paid more than $345 million to whistleblowers who filed qui tam complaints.
"These recoveries would not have been possible without the brave contributions made by ordinary men and women who made extraordinary sacrifices to expose fraud and corruption in government programs," Assistant Attorney General for the Civil Division Stuart Delery said in a statement.
Hutt argues that while the federal government gains vital information about fraud through the False Claims Act, more and more companies encounter meritless cases and their inherent problems as a result of the law's qui tam provision.
"It still costs a lot of money in legal fees and costs to get rid of something that has no merit and is not going to lead to any recovery for the government," he said.
Richard Samp, chief counsel of the Washington Legal Foundation, a nonprofit public interest law firm in Washington, D.C., agrees that there should be more controls placed on the False Claims Act's qui tam provision. He says he sees its abuse most often in the healthcare field, where companies are held liable for false claims without any evidence that the government ever received false information.
In a typical case, Samp explains that a pharmacy requests reimbursement for a drug that was provided to a patient based on a prescription from a doctor, who believed that drug was the best way to treat the patient. He says that while neither the pharmacy's request nor the doctor's prescription could be classified as fraudulent conduct, the pharmaceutical company that makes the drug often becomes the target of a lawsuit.
Most of the time, Samp adds, it's because the company allegedly promoted off-label uses of its drugs.
"Drug companies are being hit for demands for billion-dollar-and-more settlements in these False Claims Act cases based on claims that somehow their promotional activity causes prescriptions to be written and pharmacies to put in reimbursements for those prescriptions," he said. "You've got now the law being twisted into uses that clearly were never intended."
In October, Hutt and former U.S. Deputy Attorney General David Ogden proposed their own series of reforms that would require Congress to step in and change the law. Their paper, "Fixing the False Claims Act: The Case for Compliance-Focused Reforms," primarily provides corporations with additional incentives to not only deter, but also self-disclose, fraudulent conduct.
Hutt points out that while they don't want to discourage qui tam litigation, they believe it should be the "second line of defense" against fraud.
"Corporations would have much better compliance programs internally to guard against any kind of fraudulent conduct or false claims conduct, and if anything did occur, the corporations would come forward and report it," Hutt said. "You wouldn't need to rely upon qui tam plaintiffs to file lawsuits, many of which turn out to be meritless, and siphon off a portion of the government's recovery."
Samp explains that federal courts could also crack down on the Department of Justice for misinterpreting the False Claims Act. However, he says, since that hasn't occurred, the best move would be to persuade the next Republican-controlled Congress to revisit the law.
"It won't happen so long as the Democrats control at least one of the two houses," he said. "The people who have most to gain from the current interpretation of the law are plaintiffs' lawyers, and plaintiffs' lawyers are a major part of the Democratic constituency."
Samp adds that in order to effect changes in the False Claims Act, the public should be more outraged by the statute's support of individuals who appoint themselves as "private attorney generals" to enforce federal law.
"If you explain it that way, there are a lot of people who think this is a crazy law, and you would conceivably get a public backlash that would cause the False Claims Act to be cut back," he said.