Small Smiles and the False Claims Act


On March 30, 2010, the US Supreme Court limited the way the federal False Claims Act (FCA) may be used by whistle-blowers. In Graham County Soil and Water Conservation District v. United States, ex rel. Wilson, Wilson, a former official of the District, uncovered fraud in connection with the District's use of money received from a federal disaster relief program. She found the fraud by examining state reports and audits.

The issue in the case was whether Wilson was barred from filing the lawsuit in the first place. Under the FCA, suits like Wilson's, called "qui tam" suits, can't be based on "administrative" reports or audits. The question: Does that ban cover only federal reports or audits, or state ones as well, such as those relied on by Wilson?

The Court ruled "administrative" reports covered state and local audits, too.

That's not the end, though. Days before the Court's decision, the Health Care Reform Law was passed. As part of that law, the FCA was changed so that the ban applies only to federal "administrative" reports.

The question now, to be answered some time in the future, is whether the change in the FCA applies to cases - like Wilson's - that were filed before the law was changed. If so, Wilson may be able to get a portion of any money the US gets because of the District's fraud.

Original Article

It sounds like a story from a horror film. A company having 68 dental clinics across 21 states performed teeth extractions and root canals on hundreds of children. These expensive procedures were either unnecessary or failed to meet professional standards. The good news is that the company was caught with the help of a federal law called the False Claims Act.

Operation Bite Back

"Operation Bite Back," a federal investigation against these companies, began with suits in Maryland, Virginia and South Carolina under the federal False Claims Act. Twenty-three state attorneys general and the US government sued the company managing Small Smiles dental clinics nationwide. The company agreed to pay $24 million to settle this multistate lawsuit.

What Is the False Claims Act?

Congress recognized that the government alone is unable to fight fraudulent activities that exist everywhere. So, in 1986 Congress revised the Act and created incentives for private citizens with evidence of fraud to help the government.

The False Claims Act is one of the most important protections American citizens have to recover the billions of dollars stolen through fraud from US government programs every year.

Under the Act, anyone who submits or causes another to submit false claims for government funds will have to pay high penalties. The penalties are up to three times the government's damages plus $5,500 to $11,000 per false claim.

How Does the Law Work?

In general, the False Claims Act covers fraud involving any federally funded contract or program. Most actions in the late 1980s and early 1990s involved Department of Defense contracts. Recently, as is the case with Small Smiles, most actions have been used to fight Medicare fraud and fraud against other federally funded health care programs.

Types of Fraud Prosecuted

Most false claims related to healthcare involved requesting payments for unnecessary procedures, for example:

  • Billing for goods and services that were never delivered
  • Performing inappropriate or unnecessary medical procedures in order to increase Medicare reimbursement
  • Billing for medical work never performed
  • Automatically running a lab test whenever the results of some other test fall within a certain range, even though the second test wasn't requested
  • Billing more for several tests when only a single test was asked for
  • Charging more than once for the same test or service
  • Billing for brand-name drugs when generic drugs are actually provided
  • Billing at doctor rates for work that was actually conducted by a nurse or resident intern

Limits on the False Claims Act

While it can be a powerful tool to combat fraud, there are some limits. For instance:

  • Tax fraudis not covered by the False Claims Act
  • A False Claims Act lawsuit is often expensive and time consuming. The amount of fraud has to be pretty large or else it won't be worth it to take on such a case
  • A defendant in a False Claims Act suit has to have a lot of money; many small companies defrauding the government will end up going bankrupt if they have to pay the triple damages under the False Claims Act

How Can You File A Claim?

  • The False Claims Act contains what is called a "whistleblower" provision. This allows any citizen with evidence of fraud against government contracts or programs to sue on behalf of the government to recover the stolen funds
  • Once you initiate the lawsuit, it remains under seal for at least 60 days. During this time, the Department of Justice will investigate and decide if they want to join the lawsuit
  • As compensation for this risk and effort, you're rewarded with a portion of the money recovered, usually between 15 and 25 percent
  • With this lawsuit, the three whistleblowers who filed the claims against Small Smiles will receive more than $2.4 million from the federal government's share of the settlement

State False Claims Acts

In addition to the Federal False Claims Act, some states have their own versions of a False Claims Act to discourage fraud carried out against state governments. California, Delaware, the District of Columbia, Florida, Hawaii, Illinois, Louisiana, Massachusetts, Nevada, New Mexico, Tennessee, Texas and Virginia all have their own versions of the law.

Questions for Your Attorney

  • If I win a suit under the Federal Act, can I still sue under a state's version of the Act?
  • How do I join an existing False Claims Act suit if I think I was defrauded?
  • Is a False Claims Act suit the same as a Class Action suit?
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