Congressional Hearing Explores FCA Oversight and Reform

By on May 3, 2016

On April 28, 2016, the House Judiciary Committee’s Subcommittee on the Constitution and Civil Justice (Subcommittee) held a hearing on the False Claims Act (FCA). According to a statement of the Subcommittee chair, the hearing was called to examine FCA oversight and “what more can be done to prevent, detect, and eliminate false claims costing taxpayer dollars, while ensuring fair and just results.” The Subcommittee invited two health care lawyers, a professor and a hospital CEO to testify during the hearing. Several other individuals also submitted written statements to the Subcommittee, most notably Senator Chuck Grassley (R-IA), chairman of the Senate Judiciary Committee and long-time FCA proponent.

While the Subcommittee heard a variety of unique perspectives during the hearing, the oral testimonies generally spoke to two primary proposals. The first proposal would require corporate whistleblowers to report frauds internally before filing FCA actions. The second would eliminate or narrow FCA liability for corporations that adopt a so-called “gold standard” corporate compliance program. Both proposals appear to stem from a 2013 US Chamber of Commerce report, which asserted that the FCA as currently written and implemented “incentivize[s] the filing of frivolous lawsuits and impose[s] irrationally excessive penalties for technical violations that occur despite businesses’ good faith efforts to comply . . . .”

Neil Getnick, chairman of the qui tam nonprofit organization Taxpayers Against Fraud Education Fund, testified that that the qui tam provisions were a “backstop” of the FCA and that an internal reporting requirement would only fuel increased backlash against employees who speak up. Others at the hearing, however, said the provisions can be used to wreak havoc on providers, forcing them to choose between paying out large settlements against non-meritorious claims or defending costly suits, even in cases where the government had declined to intervene and/or in cases where no fraud had actually occurred. They also pointed out the especially devastating impact FCA investigations and litigation could have on smaller or nonprofit providers. One participant called qui tam litigation a “blunt instrument” that was far too damaging to be wielded as freely as it currently is. Congressman Trent Franks (R-AZ), the Subcommittee’s chairman, also said that providers should be incentivized to self-report false claims. Senator Grassley’s statement, however, did not support curtailing or restraining qui tam actions: “[f]or every allegation of a potentially overzealous plaintiff,” he wrote, “there is a whistleblower threatened with severe retaliation for raising concerns.” Senator Grassley described whistleblowers as “the indisputable key to protecting taxpayer money against fraud” and as individuals who must be protected; he noted such protection would be impossible if Congress required internal reporting.

The hearing also explored a proposal to create a “gold standard” for compliance programs and an avenue to soften the FCA’s harshest provisions (like the damages multiplier and exclusion and debarment powers) for entities meeting such a standard. Law Professor Larry D. Thompson asserted that the FCA could dramatically increase its role in preventing fraud before it occurs, and that a pathway incentivizing quality compliance programs was the best and most efficient way to do so. He added that prevention-based initiatives benefit everyone involved, from taxpayers to corporations. Others expressed skepticism at the proposal, with Mr. Getnick calling it a way for corporations to check boxes and “game the machine” and Chairman Franks questioning the feasibility of identifying truly high-quality, effective programs. Senator Grassley also expressed skepticism, calling the proposal a bid for a “free pass” that would in practice “reduce accountability to a paperwork exercise.”

As neither of these proposals are clear candidates for future legislation, it remains to be seen whether proponents of reform will use them in crafting potential proposals. Even so, this hearing and Congress’ focus on ways to improve the FCA may signal the possibility for reform in the near future.

Written testimony presented to the Subcommittee can be found here.

Senator Grassley’s written statement to the Subcommittee can be found here.

Chelsea M. Rutherford
Chelsea M. Rutherford focuses her practice on corporate, transactional and regulatory matters affecting a wide range of clients in the health care and life sciences industries. Read Chelsea M. Rutherford's full bio.