Edward Kang and Kandis Kovalsky of Kang Haggerty

House Committee on Veterans’ Affairs Ranking Member Mark Takano of California.

Kang Haggerty was invited for its pivotal role in a landmark False Claims Act (FCA) whistleblower case against Insys Therapeutics, a pharmaceutical company known for its unlawful marketing of Subsys, a fentanyl-based painkiller. Edward and Kandis shared insights on the power of the FCA to combat healthcare fraud and protect public health.

The roundtable featured prominent voices from Harvard, Brown, Penn, and the University of Chicago, and included Pennsylvania Senator Amanda Cappelletti and Congressman Chris Deluzio. The discussion underscored the urgent need for transparency and accountability in veteran healthcare systems. The roundtable was convened by the House Committee on Veterans’ Affairs, led by Ranking Member Mark Takano of California.

Watch the full roundtable program

Read Edward and Kandis’s column in The Legal Intelligencer: Lincoln’s Law, One of the Most Powerful Tools to Combat Fraud on the Government, Is Under Attack

In the October 23, 2025 edition of The Legal Intelligencer, Edward T. Kang and Kandis L. Kovalsky co-authored, “The False Claims Act (FCA) can be a powerful tool to protect veteran health care in the wake of an uptick in private equity’s participation in the sector, in that it is now well-established that private equity companies and their principals can be held liable under the FCA.”

On Sept. 9, 2025, we had the great honor, along with our colleague Jacklyn DeMar, the chief executive officer of The Antifraud Coalition (TAF), of participating in a roundtable meeting at the U.S. House of Representatives Committee on Veterans’ Affairs at the invitation of the Honorable Mark Takano, the Ranking Member of the Committee. The roundtable, titled “Profit Over Quality: Examining the Effects of Private Equity on Veteran Healthcare,” was specifically focused on private equity’s role in the demise of health care for veterans. We discussed with Reps. Mark Takano and Jullia Brownley how the False Claims Act (FCA) can be a powerful tool to protect veteran health care in the wake of an uptick in private equity’s participation in the sector, in that it is now well-established that private equity companies and their principals can be held liable under the FCA.

Under the FCA, a whistleblower, called a “relator,” can file an action for violations of the FCA in federal court on behalf of the U.S. government; this is known as a qui tam action. The FCA requires that the action must be filed under seal and remain sealed for 60 days, during which time the government can investigate the reported fraud and misconduct. The reality is that the seal period in qui tam actions is usually extended many times, and it is not uncommon for the investigations to take several years. Oftentimes, litigation follows the investigation, which can take another few years, and sometimes more. The recent monumental case of Penelow v. Janssen Products, out of the U.S. District Court for the District of New Jersey, which resulted in a $1.64 billion judgment, is a good example. This case was filed in 2012, yet a judgment was not obtained until 2025—13 years later.

We explained to Ranking Member Takano and other members of Congress that to disincentivize private equity companies from participating in fraud on the government, the investigations in qui tam actions must move much quicker than they do now. The speed of the investigation regarding any private equity defendant is critical. This is because, generally, private equity companies exit their portfolio companies within three to seven years, to align with the life cycle of their investment funds. Private equity firms do not typically have a large pot of money sitting in an operating account like other types of companies may. To be able to collect damages under the FCA against a private equity firm, there needs to be liquidity in the specific fund formed for the acquisition of the portfolio company at issue. In situations where qui tam actions, through investigation and litigation, are taking a case to a point where settlement or obtaining a judgment is occurring seven to 10 years after the private equity firm’s acquisition of the portfolio company, it can make it difficult to have any chance of collecting, unless individual liability can also be established. Even so, settlements based on individual liability will almost always be on an ability-to-pay basis (especially when the mandatory trebling of damages and statutory penalties are accounted for).

DeMar explained to Takano that one solution to this predicament is to increase resources and staffing to the civil departments within the Department of Justice that are responsible for investigating and prosecuting qui tam cases. Rep. Takano responded: “I am wondering if some of the members here, we might write a letter to DOJ about the staffing challenges. If we are looking for government efficiency and rooting out fraud, waste, and abuse, I think we have hit a pretty big vein here, and if we could redirect DOGE into things like this, I would hazard to guess what that amount of money would be.”

This is correct. Government fraud is rampant. According to the Government Accountability Office (GAO), the federal government loses between $233 billion and $521 billion annually to fraud, waste and improper payments. Since 2003, federal agencies have reported about $2.8 trillion in improper payments. In 2024, 16 agencies reported improper payment estimates that totaled $162 billion. Specific high-problem areas include government health care programs (Medicare, Medicaid, TRICARE) and government defense contracts. All these statistics directly correlate to taxpayers’ hard-earned money being effectively stolen. According to The Heritage Foundation, this pattern continues to contribute to a taxpayer burden that already exceeds more than $270,000 per household due to the $36 trillion in taxpayer debt.

In 2024, $2.9 billion was recovered under the FCA, 83% of which is attributable to qui tam suits. Since the enactment of Sen. Chuck Grassley’s 1986 reforms to the FCA, FCA actions have returned $78 billion to the taxpayers, with more than 70% of this amount being because of qui tam actions (and the remainder being from FCA actions filed directly by the government). These cases also have a strong deterrent on future fraud, estimated to be in the many billions.

While we were at the U.S. House of Representatives, discussing how to better use FCA to fight fraud, others sought to dismantle its very existence.

On Sept. 10, 2025, an article was published here in The Legal Intelligencer titled “Historical Patterns Cannot Justify Contemporary Violations of Constitutional Guarantees—Renewed Constitutional Attacks on FCA Qui Tam Provisions.” The authors of this article argued that “this is a pivotal moment for defendants to raise and preserve constitutional challenges to qui tam actions.” The article summarizes two court opinions from Judge Kathryn Kimball Mizelle, from the U.S. District Court for the Middle District of Florida, and one concurrence from Judge Stuart Kyle Duncan, from the U.S. Court of Appeals for the Fifth Circuit, in which these judges held that the FCA’s qui tam allowance violates Article II of the Constitution.

The FCA, also known as “Lincoln’s Law, was passed in 1863, during the Civil War. It was passed in response to war profiteers who defrauded the Union Army. The FCA has been good law for 162 years. So, why is there a push to change the law now? More importantly, why is this something defense lawyers would want and celebrate? If the FCA is ruled unconstitutional, the taxpayers will be saddled with billions more in debt each year while fraudsters profit from them, and the government will be left much more powerless to do anything about it. Further, holding the qui tam mechanism of the FCA statute as unconstitutional would not preserve or advance the interests of the Constitution; in fact, it would do the opposite and undermine many decades of precedent.

The constitutionality of the qui tam mechanism has been challenged many times before, and every circuit to consider the issue, including the Second, Fifth, Sixth, Seventh, Ninth, and Tenth Circuits, has held, in decisions ranging from 1993 to 2002, that the qui tam provision is in accordance with the Constitutional separation of powers. This aspiration to dismantle the FCA began with a 2023 dissent by Justice Clarence Thomas, who has authored many FCA opinions since his tenure on the high court began in 1991 without raising this issue, including the infamous Escobar decision in 2016.

In 2023, in the case of Polansky v. Executive Health Resources, Thomas disagreed with the eight-Justice majority, which held that the government has broad discretion to seek dismissal of relators’ qui tam actions. Justice Thomas went further, though, in arguing that the qui tam function of the FCA violates Article II of the Constitution. In his flawed opinion, representation of the United States’ interests is an executive function conferred only to the president and individuals appointed as officers of the United States under Article 2, the appointments clause.

Shortly thereafter, Judge Mizelle, who clerked for Justice Thomas in 2018 and 2019, reached the same flawed conclusion in Zafirov v. Florida Medical Associates. The Eleventh Circuit’s decision in this case will be a defining moment for the FCA. If the court rules in favor of the appellants, it will be the seventh circuit to join the majority view that qui tam actions are constitutional. Suppose it rules in favor of the appellees. In that case, it will create a circuit split on the issue, and with not only Justice Thomas, but also Justices Brett Kavanaugh and Amy Coney Barrett itching to revisit this issue, it is somewhat unclear what the outcome would be.

Justice Thomas said last month that he does not view the high court’s prior rulings as “the gospel” and that any precedent that does not respect the U.S. Constitution or the country’s legal traditions is ripe for reconsideration. Justice Thomas’ attack on the constitutionality of qui tam actions seems to be a part of his larger philosophy to upend any precedent, no matter how longstanding, that he believes is violative of the Constitution. This approach undermines the public’s faith in the judiciary, which is already at an all-time low. In the case of the FCA, there appears to be no upside. More than 75% of the recoveries in FCA actions are from cases filed by whistleblowers. Simply put, the government does not have the resources to achieve what whistleblowers can in the FCA space. To dismantle qui tam actions would be bad for the public. And, for the reasons outlined in all the briefs filed on behalf of the appellants in the Zafirov appeal, particularly the amicus brief filed on behalf of Sen. Grassley, Justice Thomas, and Judges Mizelle and Duncan are wrong in their analysis.

For the sake of this country, let’s hope that the Eleventh Circuit does the right thing in the Zafirov appeal, that more resources can be allocated to the DOJ to fight fraud on the government, and that there can be a bipartisan approach in doing so under the FCA so that the government can recoup more of the billions of dollars that are siphoned off by fraudsters each year.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Kandis L. Kovalsky, a member with the firm, focuses her practice on a broad range of high stakes business-related civil litigation in Pennsylvania, New Jersey, and New York state and federal courts and arbitral tribunals, and representing relators in high stakes qui tam actions filed under the federal and state False Claims Acts.

Reprinted with permission from the October 23, 2025 edition of “The Legal Intelligencer” © 2025 ALM Global, LLC. All rights reserved. Further duplication without permission is prohibited. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.

Furman asked Kang Haggerty member Kandis L. Kovalsky for her perspective on pursuing claims declined by the U.S. government.Kovalsky explained “This case really shows […]\ that lawyers can make a difference through aggressively handling declined litigation.” Kovalsky also clarified that while the government is more likely to intervene in cases against pharmacies than those against private equity firms, she expects the government to increase its presence in cases against private equity firms in the future. Kovalsky described the potential lasting effect, saying, the settlement with Belhealth Investment Partners serves as a warning to private equity firms in healthcare not to place financial returns above patient well-being.

You can read the Press Release on the settlement here. If you have questions about the False Claims Act, contact the attorneys at Kang Haggerty for more information.

The program will provide varied perspectives from government, relator, and defense counsel on Touhy subpoena practice in declined False Claims Act cases. The conversation will cover the process and procedural elements of Touhy subpoenas, negotiations with the Government, and use of that information in litigation.

Joining Kandis on the panel will be moderator Zachary Arbitman, Feldman Shepherd; Paul Kaufman, United States Attorney’s Office for the Eastern District of Pennsylvania; and Amanda B. Robinson, Morgan Lewis.

The Qui Tam Section of the Federal Bar Association was started in 2015. It provides education, training, and networking opportunities for attorneys involved with the False Claims Act and other whistleblower statutes. Their award-winning Annual Qui Tam Conference is the section’s premier event. It rallies noteworthy leaders and eminent keynote speakers to foster deep analysis and discussion on contemporary whistleblower-related issues.

In the November 10, 2022 edition of The Legal Intelligencer, Edward T. Kang wrote “Circuit Split on Materiality Standard in FCA Cases and Choosing the Right Venue“

In battles throughout history, the consensus is that the best place to station an army is on the “high ground.” While there are no swords or horses in the courtroom, plaintiffs still seek the “high ground” venue for their cases. A smart choice of venue has favorable precedent, established standards for issues of law pivotal to the claim, and a good history of allowing actions to reach trial. In False Claims Act (FCA) actions, this choice of venue can mean the difference between winning or losing a case. A central aspect of any FCA claim is whether the misrepresentation or fraudulent action taken by the party receiving government money is “material” to the receipt of the money. Therefore, in FCA actions, materiality can make a venue either a sunlight hilltop that vaunts a plaintiff (relator) to success, or a muddy bog that forces a relator to succumb and withdrawal from the fight.

Typically, the fraud perpetrated involves misappropriation of funds from government programs or government contracts. The relator files suit against the fraudster on the basis that the person receiving government funds submitted false claims to obtain those funds. Parceled inside the “explicitly certified” FCA liability theory—i.e., the defendant explicitly committed fraud in their application for funds—is the idea that a person may be liable for an FCA violation if they have violated any obligation imposed through participation in the government reimbursement or payment program, otherwise known as the “implied certification” theory. For example, under the “implied certification” theory, a doctor who has received reimbursement from Medicaid could be in violation of the FCA if she has not acted in accordance with, say, the tax obligations of the Medicaid program, even though her specific reimbursement request did not contain false claims (e.g., she submitted a request for payment to Medicaid for a medical procedure that was medically necessary). In determining whether a defendant has in fact violated the FCA, courts look to the materiality of the broken obligation to ascertain whether the defendant made a misrepresentation that constitutes a fraudulent claim.

In 2016, the U.S. Supreme Court issued an opinion in Universal Health Services v. Escobar that has significantly impacted FCA litigation by providing a number of nonexclusive considerations to guide lower courts in assessing whether an alleged misrepresentation was “material.” In Escobar, the court laid out four central considerations for lower courts to look to when assessing materiality: whether the government has expressly identified compliance with a specific statutory, regulatory or contractual requirement as a condition of payment; whether the government generally refuses to pay claims that fail to meet the specific statutory, regulatory, or contractual requirement; whether the government has continued to pay claims despite actual knowledge of noncompliance with the requirement; and whether the alleged noncompliance is considered minor or insignificant.

The U.S. courts of appeals have reached inconsistent results in analyzing and applying the materiality considerations posited in the court’s opinion in Escobar, resulting in a split among the circuits. The inconsistencies primarily arise from “false certification” cases, in which an entity, expressly or impliedly, falsely certifies its compliance with a law, rule, or regulation in submitting a claim for payment. See Rose v. Stephens Institute, 909 F.3d 1012 (9th Cir. 2018). In such cases, the defendants often argue that violation of the law, rule, or regulation at issue is not material, and point to the government’s continued payment of requested funds, despite the violation, as evidence of a lack of materiality.

Circuits have reached differing conclusions on materiality, with stricter courts requiring that the relator prove the government’s payment decision has been affected by the violation of the obligation, or would have been affected by the violation, to be considered a material violation. Other courts have adopted a more lenient standard, necessitating solely that the relator show that the government would have the option to decline to pay if it had known of the violation. Fittingly, the courts following the more lenient standard are also more likely to find a government organizations explicitly conditioning payment on compliance with a law, rule, or regulation is strong evidence of materiality, while the courts following the stricter standard are more likely to find such conditioning unpersuasive. See, e.g., Petratos v. Genentech, 855 F.3d 481 (3d Cir. 2017); Miller v. Weston Educational, 840 F.3d 494, (8th Cir. 2016).

Given the differing materiality standards adopted by the circuit courts, FCA relators should choose their venue carefully if they have the option to choose. The “high ground” of U.S. circuit court is the Ninth Circuit. The Ninth Circuit, encompassing the majority of the western United States, is favorable for relators’ bringing claims under the FCA where materiality may be ambiguous. The Ninth Circuit has treated the ruling in Escobar as “creating a ‘gloss’ on the analysis of materiality.” See Rose v. Stephens Institute, 909 F.3d 1012, 1016 (9th Cir. 2018). For example, in Campie v. Gilead Sciences, 862 F.3d 890 (9th Cir. 2017, the relator alleged that drug manufacturer Gilead bought a key ingredient for three of its HIV drugs from an unapproved Chinese supplier while telling the Food & Drug Administration that the substance came from an approved South Korean manufacturer. Gilead moved to dismiss the suit, arguing that because the government continued paying for the drugs even after learning of the company’s use of the Chinese ingredients, the alleged violations were not “material” to the government’s decision to pay the claims and therefore not subject to an FCA claim. The Ninth Circuit found that the relators had raised “more than a mere possibility” that the government would be entitled to refuse payment if it were aware of Gilead’s alleged violations, even though the FDA had continued payments. In the Ninth Circuit, a government organization’s continued payment through a program or a contract will typically not preclude a claim from alleging that the defendant’s fraudulent actions were material.

Certain plaintiffs may be precluded from heading west due to factual barriers in their claim. When plaintiffs are forced instead to file their case in of the circuits in the northeast (the First, the Second or the Third), it is important to understand the landscape and find the right spot to set up camp. The Second Circuit is slightly stricter than the Ninth Circuit on the issue of materiality, but has still frequently found that materiality exists in the context of FCA claims. By contrast, the First and Third Circuits adopt a strict view of materiality that is not favorable to relators.

In the Second Circuit, United States v. Strock, 982 F.3d 51 (2d Cir. 2020), provides a good summation of the court’s position. In Strock, the government alleged that the defendants fraudulently induced the government into awarding a contract reserved for service-disabled veteran-operated small businesses (SDVOSB) by misrepresenting their status as a SDVOSB. Despite its continued payments to the defendants, the government argued that the relevant “payment decision” was the government’s initial decision to enter into the contract, not the ultimate decision to pay claims, and the defendants’ misrepresentation was material to that initial award decision. The Second Circuit interpreted the Supreme Court’s ruling in Escobar to contemplate liability for “misrepresenting compliance with a condition of eligibility to … participate in a federal program and held that both the initial decision to enter into the contract and the later decisions to ultimately pay claims under it must be considered in assessing materiality.” In the Second Circuit, a misrepresentation at the outset of a government contract is likely material, which is favorable for relators bringing claims of fraud related to government contracts.

Plaintiffs seeking to file claims based on a misrepresentation to a government agency should be wary of filing in the First or the Third Circuit. The First Circuit has held that the government’s continued payment of claims despite knowledge that certain requirements were violated is “very strong evidence that those requirements are not material.” See Nargol v. Depuy Orthopaedics, 865 F.3d 29 (1st Cir. 2017). The Third Circuit can be equally unfavorable for plaintiffs. The Third Circuit has maintained that a misrepresentation alone is not sufficient to establish materiality in an FCA action. In Petratos v. Genentech, 855 F.3d 481 (3d Cir. 2017), the court found that the relator could not establish materiality under Escobar, reasoning that a misrepresentation is not material “merely because the government designates compliance with particular statutory, regulatory, or contractual requirements as a condition of payment … or because the government would have the option to decline to pay if it knew of the defendants’ noncompliance.” Instead, materiality lies where “the government consistently refuses to pay claims” based on such noncompliance.

Given the high importance of the materiality standard, the relator should strongly consider which venue to file his claim following an assessment of his options. The various circuit courts have adopted differing standards of materiality following Escobar, and until the Supreme Court decides to set a national standard, plaintiffs still have the ability to gain the “high ground” in their legal battles. A smart and tactical choice of venue can set the stage for victory, and in a False Claims Act case, that choice may make all the difference.

Edward T. Kang is the managing member of Kang Haggerty. He devotes the majority of his practice to business litigation and other litigation involving business entities. Contact him at ekang@kanghaggerty.com.

Reprinted with permission from the November 10, 2022 edition of “The Legal Intelligencer” © 2022 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.

Reversing the Fourth Circuit Court’s decision to extend the WSLA to civil offenses, the Supreme Court unanimously held in that the WSLA only applies to criminal offenses, meaning the WSLA does not suspend the statute of limitation for an individual action brought under the FCA.  The Supreme Court further held that the False Claim’s Act’s first-to-file bar applies only while related claims are active.  Once the first filed case is settled or dismissed, the bar does not apply.

In 2005, the whistleblower, Carter, filed a qui tam complaint alleging that his former employer fraudulently charged the U.S. government for water purification services inadequately or fraudulently performed during the Iraq War.  Nearing trial, the complaint (Carter I) was dismissed under the first-to-file rule based on an earlier filing with similar claims in United States ex rel. Thorpe v. Halliburton Co., No. 05-cv-08924 (C.D. Cal., filed Dec. 23, 2005).

The employee, Lorraine Notorfransesco, had worked for her employer, SMA, for three years before being terminated in 2008.  In 2008, she had been promoted to the position of billing manager and, at this point, signed a confidentiality agreement with the company.  Later in the year, however, SMA management learned that Notorfransesco had communicated to other employees that she was planning on disseminating confidential information to competitors. SMA eventually fired Notorfransesco, and in a separate action in the Delaware County Court of Common Pleas, won a preliminary injunction to restrict her ability to communicate with other employees, patients, businesses, or contractors.

A year after her termination in April of 2009, Notorfransesco brought a qui tam suit against SMA. In March of 2014, nearly five years later, the U.S. Government declined to intervene in the action. On April 3, 2014, Notorfransesco filed an amended complaint, and at this time, the documents included with the amended complaint became open to the public.

Upon the unsealing of this case, SMA filed counterclaims against Notorfransesco for “breach of contract, implied contract, and promissory estoppel” for the alleged sharing of confidential materials by filing the complaint, amended complaint, and by sharing information with her attorneys.

Although Notorfransesco had filed a motion to dismiss the counterclaim, as it would counteract the purpose of the False Claims Act and many of the “confidential” information were not confidential, her motion was denied. The court disagreed with her arguments, as the confidentiality agreement that Notorfransesco had signed in 2008 provided a clear and adequate explanation and description of what types of documents and information were confidential. Because the documents filed by Notorfransesco were therefore confidential, the disclosure of these materials were deemed a contractual breach.  Concurrently, the documents that been revealed were now open for competitors and third parties to damage SMA, and even seek out SMA’s customers, thereby placing SMA at a competitive disadvantage.

While the Third Circuit or higher courts have rejected other types of counterclaims in qui tam suits, the question of whether counterclaim for breach of confidentiality agreement should be barred remains open.  The SMA court, following the decision made by the Ninth Circuit in a 1993 opinion United States ex rel. Madden v. General Dynamics, determined that “counterclaims for ‘independent damages’ are permissible.” Similarly in this action, the SMA’s counterclaims were for independent damages. The court continued, citing another Ninth Circuit decision in Cafasso, U.S. ex rel. v. General Dynamics C4 Systems, Inc., that SMA’s request for injunctive relief could be improper if materials removed by Notorfransesco were “reasonably necessary” for pursuing her qui tam claim.

The court has made clearer an interpretation of how counterclaims can survive in respect to existing confidentiality agreements. What was made clearer, however, was that if documents were removed and used with the reasonable necessity to pursue a qui tam action, counterclaims for breach of confidentiality would not survive.

Thus, individuals who intend to bring a whistleblower action should be very careful and talk to her attorney about any potential counterclaim by the target for using the target’s confidential information.  Read more about the False Claims Act here.  If you believe you have a potential claim under the False Claims Act, please contact your attorney.

2013 Proves Great for Whistleblowers

One interesting change in 2013 from past years is the government’s decrease in its quantity of cases it takes on.  While the numbers continue to be high for amounts recovered, the government has its eyes set on the biggest mishaps, raking in as much as $664 million in one case involving the Air Force and a government contractor.  Some experts point to this as a way of sending a message that no one can wrong the government through false claims without paying a price, while others believe that it may make smaller entities feel that their potential fraudulent activity will go unnoticed or unaddressed.  Regardless of the varying opinions on the details, the facts remain that the government is doing its part in making False Claims Act litigation a common and profitable occurrence.

Modern day application of the False Claims Act falls into a variety of fields and categories which all merit usage under their respective terms when applicable.  One specific claim that seems to be having its usage expanded is a reverse false claim.  Unlike typical false claims where a person can incur liability by receiving a payment…

Introduction

The False Claims Act remains one of the United States’ most powerful tools in bringing justice to those who seek to avoid “playing by the rules” set forth by financial regulatory commissions and the like.  Allowing “whistleblowers” to file claims on behalf of the federal government, (as well as some states) the 150 year old law has brought in $33 billion since it was slightly amended in 1986, with $21 billion resulting from whistleblower, or qui tam, actions.

Modern day application of the False Claims Act falls into a variety of fields and categories which all merit usage under their respective terms when applicable.  One specific claim that seems to be having its usage expanded is a reverse false claim.  Unlike typical false claims where a person can incur liability by receiving a payment from the government when no payment is due to the person by submitting a false claim for payment to the government, reverse false claim liability arises when a person knowingly avoids its payment obligations owed to the government by falsifying its records.  A reverse false claim can be filed under the False Claims Act against a person “who knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.”  In real world practice, reverse false claims are most commonly filed by whistleblowers in fields such as defense and health care but as industries have evolved, so has the application of the reverse false claim action.

Reverse False Claims in Context

Throughout the last few decades, companies have come under fire from a plethora of reverse false claims related to environmental areas.  Some pundits and analysts view this more recent application as an excellent opportunity to enforce compliance with environmental protection set forth by the federal government.  Companies’ refusal to adhere to standards could lead to severe monetary penalties for falsely reporting environmentally hazardous activity.  The thought is that if a fine would be incurred as a result of the improper disposal of hazardous waste, then a false report might be submitted by a company in order to claim less dumping than is actually taking place.  The illegal benefit here would be the avoidance of large fines levied by the federal government.  Such a false claim would “decrease an obligation to pay…money…to the government”, thus being classified as a reverse false claim.  It is vital, however, to realize that the simple failure to report a violation is not, in itself, classified under the reverse claims portion of the False Claims Act.  Only in instances where a false report or statement was submitted to the government does there exist the possibility for a reverse false claims suit.

In better understanding how reverse false claims work and when they could be applied, it helps to look at a widely known example, and in this case, also one that applies in the environmental field to go along with the new modern application mentioned earlier.  The 1996 case of Pickens v. Kanawha River Towing is one such case that delineates a reverse false claim.  The incident boils down to a vessel owned by Kanawha River Towing (916 F. Supp. 702 (S.D. Ohio 1996)) tampering with its vessel logs in order to avoid penalties under the Clean Water Act.  The government uses those logs to assess any potential environmental violations, and because the ship knowingly committed fraud in providing the government with false information to avoid appropriate penalties, this falls under the category of a reverse false claim.  The court ruled against Kanawha River Towing and the company was not only forced to pay the dues it originally should have been charged, but also faced severe retribution for the fraud it committed under the False Claims Act.  Here, it is easy enough to see that Kanawha River Towing faced a reverse false claim due to its falsified submission to the government that would result in the government failing to receive all the money it should have been owed under the Clean Water Act.

The healthcare field still stands as the largest arena for reverse false claim action much as it does in financial regulation related suits under the False Claims Act.  While False Claims Act suits in healthcare more commonly stem from falsifying services that were not actually performed in order to receive unwarranted payments, reverse false claims have become more and more commonplace as companies fail to report overpayment by the government, thus not paying the government back what it is owed.  Any instance in which the government is not paid its due, even if it comes from an overpayment by the government in the first place, would classify as a reverse false claim.  The Fifth Circuit Court of Appeals also ruled in the February. 2011 case, United States v. Caremark (634 F.3d 808), that a reverse false claim exists in instances where private insurance companies deny policyholders because they are also covered by Medicaid, as it is the private company’s responsibility to cover the costs in this scenario.

Conclusion

While the False Claims Act has been applied on a common basis in many different capacities since its inception in 1863, the scope by which whistleblowers who file reverse claim suits has broadened vastly in the last few decades.  With defense contractors and healthcare professionals still standing as the primary targets of a large part of reverse claim action, companies seeking to avoid environmental penalties have come under fire of late for their false submissions to the federal government with respect to the extent of their hazardous disposal techniques.  Reverse false claims brought about under the false claims act not only assist in ensuring that the government is not cheated out of money it is owed but may also, in the case of the environment, go quite a long way in financially forcing companies to “clean up” their act.