Subcontractors and non-governmental entities who knowingly submit false claims to a general contractor—including contractors with federally funded health programs—will be subject to sanctions under the federal False Claims Act under provisions included in the Fraud Enforcement and Recovery Act of 2009 (FERA) (PubLNo 111-21), signed into law by President Obama on May 20, 2009. FERA amends the False Claims Act (FCA) to correct erroneous interpretations of the law which have allowed subcontractors and non-governmental entities to escape responsibility. The amendments specifically provide that the FCA reaches all false claims submitted to state administered Medicaid programs.
According to the Senate Judiciary Committee report on the legislation, the effectiveness of the FCA has been undermined by court decisions limiting the scope of the law and allowing subcontractors and non-governmental entities to escape responsibility for proven frauds. FERA amends the FCA to clarify and correct these erroneous interpretations of the law that have required the government to prove that “a defendant must intend that the government itself pay the claim,” for there to be a violation. Under this line of court decisions, even when a subcontractor in a large government contract knowingly submits a false claim to a general contractor and gets paid with government funds, there can be no liability unless the subcontractor intended to defraud the federal government, not just their general contractor. This reasoning creates a new element in a FCA claim and a new defense for any subcontractor that are inconsistent with the purpose and language of the statute.
One court held that liability under the FCA can only attach if the claim is “presented to an officer or employee of the government before liability can attach.” Referred to as the “presentment clause,” the court interpreted this clause to limit recovery for frauds committed by a government contractor when the funds are expended by a government grantee. This reasoning runs contrary to the clear language and congressional intent of the FCA by exempting subcontractors who knowingly submit false claims to general contractors and are paid with government funds.
FERA clarifies that liability under the FCA attaches whenever a person knowingly makes a false claim to obtain money or property, any part of which is provided by the government without regard to whether the wrongdoer deals directly with the federal government; with an agent acting on the government’s behalf; or with a third party contractor, grantee, or other recipient of such money or property. As some defendants have argued that these recent court decisions restrict FCA liability from attaching to Medicaid claims, the bill clarifies that the FCA reaches all false claims submitted to state administered Medicaid programs. By removing the offending language, which requires a false claim be presented to “an officer or employee of the government,” the bill clarifies that direct presentment is not required for liability to attach.
The legislation also amends the major fraud statute (18 U.S.C. §1031) to protect funds expended under the Troubled Asset Relief Program (TARP) and the American Recovery and Reinvestment Act (ARRA) (PubLNo 111-5). FERA also provides needed resources to help the Department of Justice investigate and prosecute those who engage in fraudulent schemes. The legislation authorizes up to $165 million in new resources for fiscal year (FY) 2010 and 2011 to hire fraud prosecutors and investigators. The legislation also authorizes $140 million for the FBI; $50 million for U.S. Attorney’s Offices, $20 million for the Criminal Division, $15 million for the Civil Division, $5 million for the Tax Division; $30 million for the US Postal Inspection Service; $30 million for the Inspector General at the Department of Housing and Urban Development; $20 million for the Secret Service, and $21 million for the Securities and Exchange Commission.
CCH Chicago Bureau, May 28, 2009.
For more information on this and related topics, consult the CCH® Medicare and Medicaid Guide.
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