The Senate Judiciary Committee is scheduled to consider S. 2428, the “False Claims Amendments Act of 2021,” sponsored by Sen. Chuck Grassley (R-Iowa).
This bill raises serious constitutional issues. It would also encourage the filing of frivolous claims, enriching trial lawyers and forcing defendants to incur legal costs that, in the end, would be paid for by taxpayers and healthcare consumers.
The Big Picture
The False Claims Act (FCA), enacted in 1863 to combat fraud in sales of supplies to the Union Army, prohibits the submission of false claims to the federal government. In addition to cases brought by the government, private citizens–”qui tam relators”–may sue on behalf of the government. If the case is successful, relators receive from 15 to 30 percent of the amount recovered. This potential financial windfall encourages some relators to bring cases without merit, hoping to reach a nuisance settlement with the defendant.
About 600 qui tam suits have been filed each year over the last 10 years–the vast majority against healthcare companies. Violations are subject to treble damages plus statutory penalties ranging from $11,000 – $23,000 per claim. Violations may also result in exclusion from participation in Medicare, Medicaid, and other federal healthcare programs–the bulk of many healthcare providers’ revenues. Therefore, defending against an FCA suit is risky, not to mention costly–and many defendants minimize that risk by settling even if they have strong defenses to the claim.
The U.S. Department of Justice (DOJ) may join a suit filed by a relator–or ask the court to dismiss the suit. As recently as 2018, DOJ expressed concern in an internal memo that many qui tam complaints lack merit and encouraged DOJ to pursue dismissal. Yet DOJ seeks to dismiss less than three percent of these cases each year–and this legislation will make it even more difficult for DOJ to dismiss meritless cases, further enriching the trial bar at the expense of consumers.
Despite the fact that DOJ seeks to dismiss only a tiny number of cases each year, the legislation limits DOJ’s authority to dismiss qui tam suits at will but instead requires the Department to specify its reasons for dismissal, which a court can reject. This undercuts Executive Branch authority to execute the laws, making the FCA vulnerable to constitutional challenge. Since FCA suits are brought on behalf of the government, the government must have the authority to control the cases. Moreover, giving greater control over FCA suits to qui tam relators–and trial lawyers–with a financial stake in the outcome imperils due process, not to mention fundamental fairness. It’s akin to providing prosecutors a monetary bonus for every criminal conviction they secure.
The legislation’s “burden-shifting” provision is confusing and creates legal ambiguity where none currently exists. Once the government or relator provides evidence that the false claim was “material” to the government’s decision to pay the claim, the defendant would then have to rebut the showing with “clear and convincing” evidence. But under current law, defendants already have to rebut the evidence against them, so it is unclear when the burden-shifting would apply and why a higher evidentiary standard would apply to defendants. This undercuts a fundamental tenet of our laws: that defendants are innocent until proven guilty.
The legislation would expand the FCA’s protections against retaliation to include post-employment retaliation–and apply the protections retroactively. This means that someone can be punished for an act that was not illegal when it was committed. This violates the core of the due process protections our Constitution provides.
Finally, the legislation would allow the government or relator to force the defendant to pay the costs to comply with the defendant’s discovery requests. This is simply unfair, particularly if the defendant has to meet the higher “clear and convincing evidence” standard the legislation proposes. The higher cost of obtaining the materials needed to defend itself–coupled with litigation and the severe impact to the defendant’s business of losing the case–increases pressure on defendants to settle cases, even those without merit.
Why It Matters
Prosecuting and deterring fraud against the government is critical, and the government has used the False Claims Act with great success for more than 150 years.
In prosecuting alleged false claims, it is equally critical that the constitutional rights of defendants are protected and that there are safeguards to prevent qui tam relators and trial lawyers from pursuing “jackpot justice”: filing frivolous claims in hopes of securing a settlement. These meritless claims enrich a few at the expense of all taxpayers by driving up medical costs.
The legislation has not been the subject of any hearings to ascertain the necessity for, and potential impact of, these changes to the FCA. Such potentially far-reaching changes–particularly those that may infringe on constitutional protections and drive up healthcare costs–should be thoroughly considered before they are enacted.
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