At 9:00am Eastern Time on October 28, the Senate Judiciary Committee voted to advance a bipartisan False Claims Act amendments bill onto the floor of the U.S. Senate. The bill passed with 15 yes votes and 7 votes of no. Senator Chuck Grassley (R-IA), a co-sponsor of the bill, took the lead on making the case for what he said were “essential fixes” to the False Claims Act, calling it “a well-oiled machine” that “just needed some tuning.” Watch the full Committee meeting here.
The amendments would tweak a number of issues with current use of the False Claims Act, mostly stemming from recent court interpretations of Act. The central current issue is a misunderstanding of the concept of materiality. As Grassley explained during the meeting, materiality boils down to whether the government had any knowledge of the fraud while it continued, and whether or not the government decided to stop payment on the contract. Recently, lower court interpretations of the 2015 U.S. Supreme Court case United Health Services v. United States ex rel. Escobar resulted in defendants who were subject to extremely strong cases having those cases dropped.
The Committee previously held a mark-up of the bill on October 21, but did not proceed to a vote, allegedly because of intense pressure and lobbying by the American Hospital Association.
While not all lower courts have followed the particular interpretation featured in the United Health Services case, enough lower courts have to significantly change the landscape of the False Claims Act. These changes have discouraged others from taking cases out of fear of the case being dropped due to this materiality defense. If the defendant corporation can prove that someone, somewhere in the government, had knowledge that some aspect of the contract was fraudulent, and the government did not make the decision to halt payment of the contract, the defendant can argue for the case to be thrown out.
Grassley said during the meeting that due to this current defense, the fate of many current False Claims Act cases now counts on unknown bureaucrats in many branches of the federal government to report fraud as soon as they see it, something that most federal workers are not incentivized to do. He framed this discrepancy as fundamentally hurting the American taxpayers, asking “Why should taxpayers suffer for bureaucrats failing to expose fraud inside the government?”
Grassley also justified his amendments by making the point that many of the contracts in question exist on a massive scale and are essential to the wellbeing and health of millions of Americans. He brought up the example of the many healthcare-related contracts that the federal government currently funds to help with the COVID-19 pandemic, questioning why a fraudulent multi-million (or billion) dollar contract should be entirely safe from after-the-fact prosecution if even a single person in the government knew that a small part of the contract was fraudulent and decided to continue paying the contract so that a majority of Americans could continue to receive essential care.
After laying out the essential characteristics of the bill, the floor was opened up to comments and proposed amendments to the bill from other senators on the Committee. Senators Cotton (R-AR) and Tillis (R-NC) both introduced amendments to the proposed bill. Both amendments were argued and rejected. Cotton’s amendment would have scrapped the entire bill and instead commissioned a U.S. Government Accountability Office (GAO) study to report on the effects of the proposed changes. Grassley responded in no uncertain terms that this would allow more fraudsters to get away through the materiality argument, costing American taxpayers millions more. Cotton elaborated, saying that he believed the amendments could raise healthcare costs for Americans and concluding that more information was needed for a decision to be made.
Grassley responded by saying, “Yesterday was the 35th anniversary of this legislation…We don’t need a study for a law that works. I mean, are you going to find any fault with bringing in $64 billion dollars of taxpayers’ money? I guess I’d say I don’t understand your position based on what we know about [the bill].”
Stephen M. Kohn, a leading whistleblower lawyer at Kohn, Kohn & Colapinto, weighed in on the Cotton and Tillis amendments. “The arguments raised by Senators Cotton and Tillis in opposition to the bill are dangerous and would encourage collusion between special interests that profit from government contracts and government officials seeking jobs and benefits from these contractors. The Cotton and Tillis amendments would have immunized from liability government contractors who cultivate ‘friends’ in government willing to continue to pay on claims once whistleblowers report fraud. They would have opened the door to collusion, kickbacks and favoritism. The Cotton and Tillis amendments would reward government officials and their contractor friends who were complicit in misconduct.”
“Fraud is fraud. Fraud does not become legitimate because a contractor has a friend in the government willing to turn his or her back on the violations. The Committee wisely rejected the amendments offered by Cotton and Tillis,” Kohn stated.
Before the vote, Kohn published an article making the case for the passage of Grassley’s amendments in the National Law Review. The article further breaks down the issues with the current interpretation of materiality and dives into other important changes that the amendments would make, such as expanding protections from retaliation to past employees of a company. The changes in Grassley’s amendment would make it harder for powerful companies to retaliate against whistleblowers. As of now, all they have to do to end legal protections for a whistleblower that works for them is fire the employee in question.
Kohn continued to say that this was an extremely encouraging sign for future False Claims Act whistleblowers, and the continued success of the law in general. “This is a major victory for accountability and a blow to the efforts of special interests led by the Chamber of Commerce and American Hospital Association to undermine whistleblower rights. The AHA and Chamber fought hard to defeat this bill. Today they lost. Now the fight moves to the full Senate. A good day for whistleblowers.” The amendments will now move to the Senate floor, where the bill will be voted on.