The pro bono team at Kohn, Kohn and Colapinto has helped lead the fight to pass amendments which would strengthen the False Claims Act (FCA). Our firm has worked directly with Congressional offices to ensure that legislation gets passed which closes loopholes that have diminished the efficacy of the FCA in recent years.
The FCA is one of the United States’ premier whistleblower and anti-fraud laws. Since the law was modernized in 1986 by legislation introduced by Senator Chuck Grassley (R-IA), the FCA’s qui tam provisions have allowed the government to recover over $64 billion from fraudsters. The FCA has been described by the U.S. Assistant Attorney General as “the most powerful tool the American people have to protect the government from fraud.”
However, certain court rulings in recent years have undermined some of the efficacy of the FCA. The issue at hand relates to the definition of the FCA’s “materiality” requirement. The FCA “makes liable anyone who ‘knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval,’ or ‘knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.’” The elements required to show a violation of the FCA are “(1) a false statement or fraudulent course of conduct, (2) made with the scienter, (3) that was material, causing (4) the government to pay out money or forfeit moneys due.”
A 2016 Supreme Court case, Universal Health Services v. U.S. ex rel. Escobar, has led some courts to follow a new definition of what makes a fraud “material.” Escobar states that “if 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.” This has led some courts to dismiss cases merely because the government paid claims in full.
This has created a “materiality” loophole in the False Claims Act. Companies who defraud the government are often able to escape liability if they can show that one person somewhere in the government was aware of the fraud and yet the government still paid the claims. There are many instances where the government may pay a claim despite knowing it is fraudulent including national security concerns and potential harm to the public if payment was suspended for a scarce drug or health service.
With the input of Kohn, Kohn & Colapinto, Senator Grassley and a bipartisan group of Senators introduced the False Claims Amendments Act of 2021 in July 2021. The bill first and foremost seeks to fix this materiality loophole, among other more minor technical fixes to the FCA. The Amendment fixes this loophole by adding the language
“[i]n determining materiality, the decision of the Government to forego a refund or to pay a claim despite actual knowledge of fraud or falsity shall not be considered dispositive if other reasons exist for the decision of the Government with respect to such refund or payment.”
This language does not make any substantive changes to the law but only provides clarification for courts on the definition of materiality that has been muddled in the courts since the Escobar decision.
While widely supported by whistleblower advocacy groups, the bill has faced heavy opposition from pharmaceutical companies who have aggressively lobbied against it. Large pharmaceutical companies have commonly been charged with False Claims Act violations; the definition of “materiality” offered by Escobar can allow these companies to avoid liability in instances where they commit healthcare fraud. Whistleblower Network News reports that the American Hospital Association successfully lobbied to have the bill removed from the 2021 Infrastructure Act. The Intercept further reports that Pfizer, Amgen, AstraZeneca, Merck, and Genentech have all lobbied against the bill.
Despite the lobbying efforts of pharmaceutical giants, on October 28, the Senate Judiciary Committee voted to advance the False Claims Amendments Act of 2021 onto the floor of the U.S. Senate. The bill awaits a vote by the full Senate.