Grassley Paves Way To Close FCA “Materiality” Loophole

On March 22, Senator Chuck Grassley (R-IA) delivered remarks on the floor of the Senate highlighting the importance of the False Claims Act (FCA) and pointing out how to close a central loophole in the law that has allowed multiple large corporations to allegedly get away with contracting fraud. He used his remarks to build support for a bipartisan bill that he says is in “the final stages of negotiation.”

Grassley began by describing the FCA’s successes and faults since it was amended in 1986. “Since then, we’ve recovered more than $64 billion in taxpayer money lost to fraud.” The FCA has been the gold standard anti-fraud law in the U.S. since 1986, and it includes a successful reward program that allows individuals (whistleblowers, or relators as they are legally known) to sue on behalf of the federal government. This aspect of the program effectively reduces the U.S. Department of Justice’s (DOJ) workload and enables the facilitation of more successful settlements and prosecutions each year. After acknowledging the FCA’s past success, Grassley identified its most significant current flaw. 

Proving materiality is an essential requirement for an FCA case to move forward. The FCA defines materiality as “having a natural tendency to influence or be capable of influencing the payment or receipt of money or property.” In other words, the whistleblower’s side must prove that the alleged fraudsters influenced or were capable of influencing the government to falsely pay them. While this might sound easy, court decisions in recent years have made this harder for whistleblowers to do by allowing the alleged fraudsters to disprove materiality simply by proving that the government knew in any way that some of the requirements of the contract were not met. 

Grassley outlined how the so-called “materiality” loophole works: 

“However, based on a 2016 Supreme Court opinion, the federal courts are trying to reshape the [FCA’s] materiality requirement. In the Supreme Court’s opinion in the Escobar case: ‘[I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.’ Citing this language, courts have made the government’s payment decision in these cases a deciding factor. Now, the Justice Department shies away from prosecuting them. Even when the fraud is obvious, and obviously material.”

He continued on to say that although it is often hard to determine why the government continues to pay out contracts that are sometimes obviously fraudulent, this frequently occurs because bureaucrats are not motivated to actively go after fraud “because the money doesn’t come out of their own pocket.” Since the Supreme Court’s 2016 case Universal Health Services v. United States, ex rel. Escobar, the FCA has been hamstrung by bureaucratic oversight and lack of attention to detail. Grassley finished by stating:“[T]he courts’ narrow interpretation of materiality fails to take into account how the government really works.” He pledged to have a finished bill to put forward to the Senate “in the coming weeks.”

Read the full text of Grassley’s address here.

Read more about how the Escobar decision affected the FCA here.

Read more False Claims Act news on WNN.

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