February 13, 2018
Interpreting the False Claims Act
Floor Statement by Senator Chuck Grassley of Iowa
Senate Judiciary Committee
the False Claims Act
I want to talk about some troubling developments in the courts’ interpretation
of the False Claims Act. To understand these developments, we need to review a
1943, Congress gutted the Lincoln-era law known as the False Claims Act. At the
time, the Department of Justice said that it needed no help from whistleblowers
to fight fraud. The Department said that if the government already knows about
the fraud, no court should even hear a whistleblower’s case. So, Congress
amended the False Claims Act to bar any whistleblower from bringing a claim if
the government knows about the fraud.
was a mistake.
bar led to absurd results that only hurt the taxpayer. It basically meant that
all whistleblower cases were blocked, even cases where the government only knew
about the fraud because of the whistleblower.
1984 the Seventh Circuit barred the State of Wisconsin from a whistleblower
action against Medicaid fraud. Wisconsin had already told the federal
government about the fraud—because it was required to under federal law. So,
because of the so-called “government knowledge bar,” whistleblower cases went
nowhere and neither did prosecution of wrongdoers.
1986 I worked with my colleagues to make it possible for whistleblowers to be
heard again. That included eliminating this so-called “government knowledge”
bar. Since then, what the government knows about a fraud has still been used by
defendants in False Claims Act cases, as a defense against their own state of
have found that what the government knows about fraud can undercut allegations
that defendants knowingly submitted false claims.
theory goes something like this: If the government knows about the defendant’s
bad behavior, and the defendant knows the government knows, then the defendant
did not knowingly commit fraud. Once you wrap your head around that logic
puzzle, I’ve got another one for you.
2016, the question of what the government knows about fraud in False Claims Act
cases began to take center stage once again. In Escobar, the Supreme
Court rightly affirmed that a contractor can be liable under the “implied false
certification” theory. That just means a contractor can be in trouble when it
doesn’t make good on its bargain. And it doesn’t matter whether the contractor
outright lies. A misleading omission of its failures is enough.
parts of the Court’s ruling are getting some defendants, and judges, tied in
Thomas wrote that the false or misleading aspect of the claim has to be
material to the government’s decision whether to pay it. Thomas said that one
of several ways you can tell whether something misleading is also material is
if the government knows what the contractor is up to and pays the claim anyway.
first glance, I suppose that makes sense. If someone gives you something
substantially different in value or quality than what you asked for, why would
you pay for it? But if the difference really isn’t that important, you might
still accept it.
if that is true, the problem here is that courts are reacting the way they
always have. They are trying to outdo each other in applying Thomas’ analysis
inappropriately or as strictly as possible – to the point of absurdity. In
doing so, they are starting to resurrect elements of that old “government
knowledge” bar I worked so hard to get rid of.
is what the Justice actually wrote:
“[I]f the Government pays a particular
claim in full despite its actual knowledge that certain requirements were
violated, that is very strong evidence that those requirements are not
material. Or, if the Government regularly pays a particular type of claim in
full despite actual knowledge that certain requirements were violated, and has
signaled no change in position, that is strong evidence that the requirements
are not material.”
did not say that in every case, if the government pays a claim despite the fact
that someone, somewhere in the bowels of the bureaucracy might have heard about
allegations that the contractor may have done something wrong, the contractor
is automatically off the hook.
about it. Why should the taxpayer pay the price for bureaucrats who fail to
expose fraud against the government?
why the False Claims Act exists, to protect taxpayers by rewarding
whistleblowers for exposing fraud.
Thomas said that the government’s actions when it has actual knowledge that
certain requirements were violated are evidence of whether those requirements
are material—or not.
does it mean for the government to have actual knowledge? Would it include one
bureaucrat who suspected a violation but looked the other way? Would that prove
the requirement was material?
need to be careful here.
this statement about government knowledge is not the standard for materiality.
The standard for materiality is actually the same as it has always been. The
Court did not change it in Escobar.
means “having a natural tendency to influence, or being capable of influencing,
the payment or receipt of money or property.”
question of the government’s behavior in response to fraud is one of multiple
factors for courts to weigh in applying the standard.
courts and defendants should be mindful that Justice Thomas limited the
relevance here to actual knowledge of things that actually happened. There are
all sorts of situations where the government could have doubts—but no actual
knowledge of fraud.
the government has only heard vague allegations, but has no facts. Maybe the
rumors are about something that may be happening in an industry, but nothing
about particular false claims by a particular defendant. Maybe an agency has
started an inquiry, but still has a long way to go before it’s finished. Maybe
someone with real agency authority or responsibility hasn’t learned of it yet.
are a lot of situations where the government might not have actual knowledge of
even if the government does pay a false claim, that is not the end of the
matter. Courts have long recognized there are a lot of reasons why the
government might not intervene in a whistleblower case.
there are a lot of reasons why the government might still pay a false claim.
Maybe declining to pay the claim would leave patients without prescriptions or
life-saving medical care.
the claims in that case does not mean the fraud is unimportant. It means that,
in that moment, the government wants to ensure access to critical care. That
payment cannot, and does not, deprive the government of the right to recover
the payment obtained through fraud.
you imagine if that were the rule, though? Can you imagine if providers could
avoid all accountability because the government decided not to let someone
suffer? Then fraudsters could hold the government hostage.
could submit bogus claims all the time with no consequences because they know
the government is not going to deny treatment to the sick and vulnerable.
is just not what the False Claims Act says. Courts should not read such a
ridiculous rule into the statute.
courts should take care in reading into the Act a requirement for the
government to immediately stop paying claims or first pursue some other remedy.
There could be many important reasons to pay a claim that have nothing to do
with whether the fraud is material.
there is no exhaustion requirement. The False Claims Act does not require the
government to jump through administrative hoops or give up its rights. And that
would be an unreasonable burden on the government in any event.
have decades of data showing that the government cannot stop fraud by itself. I
also know from many years of oversight that purely administrative remedies are
very time consuming and often toothless.
government should be able to decide how best to protect the taxpayers from
fraud. The FCA is the most effective tool the government has. The government
should be able to use it, without the courts piling on bogus restrictions that
are just not in the law.