The False Claims Act (FCA) is the primary means to fight fraudperpetrated against the federal government. The FCA imposes civiland criminal liability for knowingly making a false or fraudulentclaim to the United States for money or property; or to avoid anobligation to pay money (reverse false claim). Due to the emphasison enforcement of the FCA, the U.S. Department of Justice (DOJ)reported that it recovered more than $3.5 billion in settlementsand judgments from claims arising under the FCA during fiscal year2015. Since January 2009, the DOJ has recovered more than $26.4billion.

Whistleblowers alone filed 638 qui tamsuits in 2015 and were awarded $597 million during the sameperiod. FCA claims have been on the rise as the DOJ, incollaboration with other governmental agencies, such as the Centersfor Medicare & Medicaid Services and the Health Care FraudPrevention and Enforcement Action Team, continues to crack down onfraud, waste and abuse in order to protect taxpayers' dollars.Thus, the key is to be proactive in managing the risk before an FCAclaim is made.

Under the FCA, the government may bring its own action or mayintervene in the existing qui tam complaint, a privateright of action brought by a whistleblower (relator) against anindividual or company accused of engaging in fraudulent activitiesagainst the government. A qui tam lawsuit remains underseal for 60 days, giving the DOJ an opportunity to investigate theallegations and decide whether it will join in the case. Aftercompleting its investigation, if the government does not pursue thecase, the whistleblower with knowledge of the fraudulent activitycan proceed with the case on the government's behalf.

Where a defendant is found liable under the FCA, treble damagesand penalties of $5,500 to $11,000 per false claim are generallyawarded by the court. Effective August 1, a fine per “false claim”submitted increases from $11,000 per claim to $21,563(adjusted for inflation). These damages are intended to compensatethe government for its investigation and litigation costs, as wellas punish the defendant for its wrongdoing. The relator, in a quitam action, receives a share of the recovery, ranging from 15% to30%. However, only the “first-filed” relator is entitled to a shareof the recovery. 

Targeted companies and individuals, including beneficiaries,hospitals, pharmacies, clinical laboratories, plan sponsors,employees, employer groups, and brokers and agents, can be subjectto both criminal and civil fraud investigations. More specifically,any person who knowingly submits a false claim to the government;causes another to submit a false claim to the government; orknowingly makes a false record or statement to get a false claimpaid by the government is subject to FCA liability. In thiscontext, “knowingly” means actual knowledge that the information isfalse; deliberate ignorance of the truth or falsity; recklessdisregard of the truth or falsity. No specific intent to defraud isrequired.

Many civil and criminal fraud cases arise when inappropriatelybilling the government. Some schemes involve billing for anon-covered service as a covered item, providing medicallyunnecessary treatments or incorrect reporting of diagnosis orprocedure.

Directors & officers, errors & omissions andemployment practices liability insurance may pay for the defense ofan FCA lawsuit. (Photo: Shutterstock)

Insurance protection against FCA

FCA investigations and actions can be expensive to defend andeven more costly when factoring in the potential for largesettlements and judgments. Address any possible risks resultingfrom violation of the FCA through an insurance program. Insurancecoverage, such as employment practices liability, directors &officers and errors & omissions, may pay for the defense of FCAclaims and possibly pay for the settlement or judgment as well.Know and re-evaluate all company insurance policies in theirentirety with attention to some of these areas:

• Notice provision.

• Definition of a claim to include regulatory wrongful act andsubpoena, as well as the definition of loss to encompass civilfines, multiple damages and penalties against an Insured forRegulatory Wrongful Acts to the maximum permissible under thelaw.

• The conduct exclusions wording should specify that theadjudication must also be non-appealable. Otherwise the trial courtjudgment may be sufficient to bar coverage.

• Ability to pick up prior acts by the removal of any pending orprior date(s).

• Obtain pre-claim assistance for government inquiries, inclusiveof interviews and meetings.

It would also be prudent to have third parties add the companyas an additional insured on their policies.

Components of an effective compliance program

Next, a compliance program should be in place in an effort toprevent fraud and mitigate risk. Per the Office of InspectorGeneral, an effective compliance program should include thefollowing key components:

1. Formulate internal written policies, procedures, and standardsof conduct that define the organization's commitment to compliancewith all applicable state and federal rules.

2. Launch a compliance committee with a designated complianceofficer.

3. Provide proper education and training on FCA and otherregulatory compliance measures.

4. Develop good lines of communication by encouraging internalreporting, including an anonymous hotline.

5. Promote an organizational culture that does not tolerateretaliatory actions against whistleblowing employees (such asharassment, discharge or adverse employment action taken asprohibited by the FCA).

6. Set up procedures for effective internal monitoring and auditingto detect any fraud, waste or abuse.

7. Have a plan of action for responding to identified offenses.

8. Establish a disciplinary system.

Katherine C. Tower, JD, MBA, RPLU, is assistant vicepresident of the Management Liability Claims Unit with OneBeaconInsurance Group. This article does not reflect the statements orviews of OneBeacon Insurance Group, or any of itsaffiliates. OneBeacon is not responsible for itscontent.