The False Claims Act Definitions Were Just Sharpened; Who Is This Benefiting?

It’s rare for the US Supreme Court to hand down a unanimous ruling on anything these days — particularly now that their ranks have been winnowed to eight by the passing of the controversial Antonin Scalia.

On June 16^th, however, the Court turned in an 8-0 ruling in a case called United Health Services v. US. The case — and the outcome — is full of jargon that sounds as though it will have little bearing on the lives of average Americans.

So why the fuss, and why such a decisive ruling? Let’s dig into the details.

What Is the False Claims Act?

The Court’s ruling concerns the False Claims Act (FCA), which describes the penalties brought against government contractors who are found to have made fraudulent payment claims.

The penalty for fraud of this kind is three times the fraudulent amount.

To be clear: The term “government contractor” refers to any private entity — whether it’s a non-profit or a for-profit — that enters into a contract with the federal government to provide goods or services. This law essentially says: Don’t try to cheat us, or we’ll make you pay.

That’s all perfectly fine — monetary fraud is the very definition of avarice.

How Does the SCOTUS Ruling Change the FCA?

The Supreme Court sharpened the language of the False Claims Act because certain language within it was vague enough to cast some doubt on whether, in certain circumstances, exchanging an invoice bound contractors to material regulations.

All eight current Justices voted in favor of expanding this type of contractor liability. In other words, the so-called implied certification is now a little less implied. Tempering the move somewhat, the ruling also raised the bar for what, precisely, qualifies as a “material violation.” In other words, they made the law both more punishing and more forgiving.

Yes, it’s a bit confusing, but will this ruling change your life? Almost certainly not. So why was this a priority for the highest court in the land, and who stands to benefit from the ruling?

Who Exactly Benefits From This?

In the United Health Services v. US case, UHS appealed a fraud case brought against them, arguing that they (the contractor) made use of clinicians who weren’t legally bound by the current language of the False Claims Act.

The Court determined that such a situation did indeed represent fraudulent behavior. At the same time, they were quick to point out that the FCA was never intended as a blank check for punishing “garden-variety breaches of contract or regulatory violations.” This is the Court doing what it does best: interpreting existing laws based on new data.

It’s now more difficult for a contractor to be found to have violated the FCA, but also much more likely that bad behavior will result in legal action. Again, it’s a little confusing, and the question remains: Is anybody really benefiting from this?

On the contractor side of things, the acceptance of implied certification means that companies doing business with the government need to be more careful than ever about how they conduct themselves. Over the last few years, there has been a rise in instances of False Claims Act cases, even though these cases are a tiny minority compared with the total volume of business conducted between the government and third parties.

In practical terms, contractors will need to conduct much more careful reviews of the language they use in their invoices. The law requires that contractors were knowingly in violation of the laws in question at the time the fraud took place. It’s a key distinction — one that draws a line between ignorance of the law, and the decision to look the other way if some of the numbers were fudged.

The American people might be thought of as the chief beneficiaries of this ruling, even if the end result is not a thing they can measure or observe in a direct way. Reducing waste, fraud and corruption at every level of government is a worthy goal, and broadening the FCA in this way is a small but meaningful plank in that agenda.

The Lincoln Law

The False Claims Act is pretty old — older than you might expect. It was signed into law in 1863 under the Lincoln administration. It also happens to have some of the strongest whistleblower protections of any law in the US, which is a great thing to have at a time when whistleblowers frequently need to defend themselves in court merely for doing the right thing. Just ask Edward Snowden.