Federal Coronavirus Spending and the False Claims Act: A Gathering Storm

Federal Coronavirus Spending and the False Claims Act: A Gathering Storm

Apr 10, 2020

Client Alert

Brownstein Client Alert, April 10, 2020

We are “at war” with the coronavirus, and the country has increasingly adopted a quasi-wartime crisis footing. While people are doing everything they can to save their businesses, it’s important to make sure they are setting themselves up for success by thinking about how their current actions may be viewed post-pandemic. Both individuals and businesses should assume that the actions taken in the midst of the current pressure cooker will later be scrutinized by whistleblowers and plaintiff’s lawyers with the luxury of time and hindsight. As always, applicants for federal funds or participants in sales to federal programs must carefully navigate issues that could arise later, including any and all representations they make about their eligibility for such programs, or, for providers of goods or services, the potential for claims around appropriateness of reimbursements, including price gouging.

Notably, the False Claims Act (“FCA”) was enacted during the Civil War to combat the problem of rampant war profiteering undercutting the Union’s procurement efforts. The law prohibited making false claims for payment to the government, and included a right for private citizens to bring claims if they suspected violations. To incentivize these whistleblowers to come forward, the FCA allowed for them to receive a sizeable share of any monetary award. If history proves to be prologue, the generous recoveries afforded whistleblowers under the FCA will spawn a multitude of cases against those receiving CARES Act and other federal relief, whether there is evidence to support those claims or not.

Under the FCA, it is illegal to knowingly submit claims for payment from federal government programs that are false or fraudulent.1 While the list of federal government programs prominently includes Medicare and Medicaid, any government program falls under the FCA, including the Small Business Administration’s Paycheck Protection Program and other new federal programs and purchases related to the coronavirus pandemic response. In light of the vast amounts of money being deployed to desperate parties in a tremendous rush to provide relief under these programs, and with the years following the Great Recession’s Troubled Asset Relief Program (TARP) as precedent, it is logical to anticipate that fraud and abuse enforcement will be a priority for both federal Offices of Inspectors General (OIGs) and the Department of Justice in the months and years ahead. Indeed, the CARES Act included significant budget increases for several of the most relevant OIGs, and the creation of a new Special Inspector General for Pandemic Recovery. We can assume that these OIGs will aggressively seek to root out waste, fraud and abuse wherever they can find it in the billions of new government spending.

As referenced earlier, the FCA includes a “qui tam” provision, which creates an incentive for whistleblowers to report, or relate, false claims.2 The unique aspect of the law allows a whistleblower—business partner, employee, patient or competitor—to file a private claim alleging a false claim. Such a person, known as a “relator,” may be entitled to a percentage of the amount recovered from the suit. A relator must first make a qui tam claim by filing a civil complaint under seal in a proper court, and then must serve a copy of the complaint on both the Attorney General and the U.S. Attorney in whose district the complaint was filed. The government must then decide whether to take over the case as its own, or leave it to the relator to litigate.

Penalties for violations of the FCA can be significant, and include per-claim penalty, damages of up to three times the amount that the government program lost on the claims, plus attorney’s fees.3 On Aug. 1, 2016, a DOJ rule went into effect that doubled the per-claim penalties for false claims. Now, penalties for each false claim range from $10,781 to $21,563.4 These per-claim penalties can be particularly onerous for health care providers because of the high number of claims submitted. Additionally, penalties for violating the criminal FCA5 may include fines and imprisonment. The incentive for relators to investigate and bring such claims lies in the fact that the law grants them between 15% and 25% of any award or settlement, even if DOJ litigates the case. The relator’s fee can be up to 30% if DOJ takes a pass, but the case is nevertheless successfully litigated to verdict or is settled by the relator. In addition, as noted above, attorney’s fees are also recoverable. In the past few years, several relators have reaped huge fee awards for their part in bringing evidence of false claims to the United States government. Because companies will often settle FCA cases due to the significant financial exposure involved, plaintiff’s lawyers may bring FCA cases with little evidentiary support in the hopes of a quick payout.

With this backdrop, applicants for federal funds or participants in sales to federal programs must proceed with caution, and consider preparing now for the inevitable whistleblower allegations and fraud and abuse investigations under the FCA. Effective training and compliance programs are a great way to minimize the chances of ending up on the wrong side of an FCA claim. Engaging experts and being proactive will be critical should the storm clouds of fraud allegations and investigations gather.

Information is changing daily and some of the content included in this alert may have changed or been updated since publication.

Click here to read more Brownstein alerts on the legal issues the coronavirus threat raises for businesses.

This document is intended to provide you with general information regarding the Paycheck Protection Program, the False Claims Act and potential legal and policy implications. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.


1 31 U.S.C. § 3729(a).

2 31 U.S.C. § 3730.

3 31 U.S.C. § 3729(a).

4 Civil Monetary Penalties Inflation Adjustment, 81 Fed. Reg. 42,491, 42,501 (June 30, 2016).

5 18 U.S.C. § 287.

Meet The Team

Erin M. Eiselein Shareholder T 303.223.1251 eeiselein@bhfs.com
Alissa H. Gardenswartz Shareholder T 303.223.1207 agardenswartz@bhfs.com
Stanley L. Garnett Shareholder T 303.223.1286 sgarnett@bhfs.com
Michael W. King Shareholder T 303.223.1130 mking@bhfs.com