Allison Engine, The False Claims Act, and Healthcare Fraud

Scott R. Ebner, Cleveland Marshall College of Law

Abstract

The article focuses on possible amendments to the False Claims Act, the primary law used to prosecute fraud against the government. The amendments would expand the scope of fraudulent action encompassed by the Act. Although it may seem beneficial to allow the government more power to prosecute fraud, my position is that the costs imposed by the Act would be much greater than any benefit derived.

Over the past few decades, the Federal Courts have handed down decisions limiting the scope of the False Claims Act. Such decisions were made largely for policy reasons—for instance, when a subcontractor submits a false claim to a contractor who is working directly on behalf of a government agency, the Supreme Court has ruled that liability may only attach if the subcontractor operated with intent to defraud the government agency. This is to avoid situations in which the subcontractor may not have known that the Federal Government was even involved in the project. The amendments to the Act would attach liability without any mens rea test.

The difficulty with such an approach is primarily economic. In order to stop fraud, the Act allows the government to impose enormous financial penalties upon defendants, often three times the amount of the contract. Since the Act is largely used in Medicare and Medicaid cases, these contract may routinely be in the millions. The effect of an increased scope for the Act would be to bankrupt small contractors, or force them to settle in order to avoid the large penalties. Contractors would also be forced to either raise their prices or exit the market. This would be detrimental to the consumer, especially in the healthcare area.

The Act is primarily used against healthcare providers—either Medicare or Medicaid. With healthcare prices already out of control, consumers may not be able to tolerate the kind of disruption in the market as would be caused by such a change in the way healthcare fraud is handled. This article seeks to make the case that attempts to amend the False Claims Act should be resisted.