Bipartisan Amendments Introduced to Further Strengthen the False Claims Act

Kohn, Kohn & Colapinto LLP

On July 25, 2023, Senator Chuck Grassley (R-Iowa) and Senator Dick Durbin (D-IL.) introduced amendments to the False Claims Act (FCA), a law that protects the federal government from fraud, saving taxpayers billions. The FCA allows the government to recover funds from anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval,” or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.”

The FCA has been extraordinarily successful in deterring fraud and returning money to taxpayers, but in recent years, fraudsters have found ways to avoid accountability. The False Claims Amendments Act of 2023, which has received broad bipartisan support, hopes to change that.

Senator Grassley explained that “The False Claims Act continues to be the single greatest tool in the fight against fraud, returning $72 billion to the taxpayer since my update to the statute in 1986. Unfortunately, flawed court interpretations have created loopholes for fraudsters to avoid accountability even when their fraud is obvious and undisputed. Taxpayers deserve better than this sort of legal gymnastics. Our bipartisan bill clarifies our original intent to hold those accountable when they bill the taxpayer.”

Similar to the FCA amendments introduced – but never passed – in 2021, these amendments seek to clarify the materiality standard and better protect whistleblowers from retaliation. They also require the Government Accountability Office (GAO) to study the benefits and challenges of FCA enforcement efforts.

Qui tam: the “safest and most expeditious… of bringing rogues to justice.”

The False Claims Act was first introduced during the Civil War to stop deceitful contractors from overcharging the government and selling the military faulty weapons. The Act included a qui tam provision, meaning that those who reported fraud would receive a portion of the funds recovered. Senator Jacob Howard, who introduced the original bill, defendended qui tam on the premise that offering a reward is the “safest and most expeditious way I have ever discovered of bringing rogues to justice.”

However, in 1943, Congress made amendments to the FCA that essentially stripped the act of its power: reducing the maximum reward and creating procedural hurdles to qualify for compensation. Over 100 attempts to use the law to hold contractors accountable failed in the courts, and in the subsequent years, fraud against the federal government escalated.

In 1985, Senator Grassley led the charge to increase oversight and accountability for federal spending by resurrecting the False Claims Act. The modernizations reinvigorated qui tam lawsuits by encouraging whistleblower rewards. Qui tam has proven itself a success. Of the $72 billion in funds recovered to taxpayers since 1986, about 80% were initiated by whistleblower tips.

Despite the success of the “Modern FCA” in fighting fraud, a couple flawed court interpretations have created loopholes that fraudsters exploit to avoid accountability. Luckily, the amendments on the floor right now can resolve these loopholes and strengthen the FCA in two critical ways.

Eliminating the “Materiality Standard” Loophole

For a person engaging in fraud to be held liable under the FCA, that fraud must be considered “material.” 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 more simple terms, material fraud is a form of fraud substantive enough to change the government’s willingness to use or pay for something. Presumably, if the government had known the truth, they would not have paid for or used that good or service.

Non-material fraud is still fraud, meaning it still involves the sale of a good/service using false information about the quality or cost. However, non-material fraud presumably is not substantive enough to change the government’s willingness to use or pay for the good or service.

The Supreme Court’s ruling in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) created the infamous “materiality loophole.” In the decision, the Court determined “[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.”

This dangerous precedent created the phenomenon of “fishing expeditions” in which those who committed clear and obvious fraud against the government at the expense of everyday citizens search for knowledge that the government was aware of the fraud. In the wake of Escobar, FCA defense attorneys have successfully argued that if potential fraud was brought to the attention of the government and the government did not refuse to pay the claim, the government cannot later bring an FCA case.

The post-Escobar interpretation of materiality forces the government to cease payment anytime fraud is alleged if they hope to later prosecute that fraud. This loophole paralyzes the government’s ability to prosecute fraud when that fraud takes place within contractors of essential services. The government would either have to suspend that essential service (think healthcare, education, defense, etc.) and prosecute; or, they would have to continue with the service without an ability to penalize them for their fraudulent behavior. Both options risk the physical and financial security of the American public.

The logic of the Escobar interpretation of materiality is flawed because it suggests that the only reason the government would proceed with a payment despite knowledge of potential fraud is immateriality. In reality, there are many reasons the government would continue with such payments, including national security concerns or potential harm to the public, which could arise if the payment for a particularly scarce and vital good or service was suspended.

Taxpayers Against Fraud provides the example of government payments during the COVID-19 pandemic: “the government might have made the decision to continue paying Medicare payments to a dishonest hospital that is the only available healthcare facility for a rural population.” The government, in this case, would be continuing with a payment because they believe that public health is a priority, not because they believe that healthcare fraud is immaterial. The materiality definition was not created to help fraudulent actors exploit these crisis situations to escape accountability.

The 2023 FCA Amendments will close the materiality loophole by settling the dispute over how to interpret the definition of materiality. The amendments do not change the current materiality standard in the FCA, but rather clarify that the government’s continued payment on a fraudulent claim is not dispositive evidence that the fraud was not material. In doing so, the government can return more money into the pockets of taxpayers and deter fraud more effectively.

Protecting Whistleblowers from Retaliation

Fraudulent employers often turn to retaliation against whistleblowers to deter accountability, rather than doing the right thing. Currently, the protections found in 31 U.S.C. § 3730(h) apply only to “employees,” allowing retaliatory employers to successfully argue that former employees (i.e. employees they have fired or who have resigned) are not protected under the FCA. The 2023 Amendments would change this language to “current or former employee” to eliminate any legal justification for retaliatory behavior against whistleblowers.

As it stands right now, the U.S. Court of Appeals for the 10th Circuit interpreted the FCA’s anti-retaliation provision to apply only to current employees, meaning that employers may be legally allowed to retaliate against former employees who blow the whistle against them. This interpretation contradicts judicial interpretations of “employee” in other anti-retaliation laws, including SCOTUS’s unanimous decision that “employee” in Title VII includes former employees.

By explicitly including “former employees” in the FCA, courts will no longer be able to debate the basic rights of former-employees who lost their jobs and have faced extreme retaliation for their brave efforts to hold their employers accountable to the law. These people have sacrificed job security, and often physical safety, to simply do the right thing and help the government do its job. They deserve to be protected by the full weight of the law, and specifying their inclusion in the anti-retaliation provision of the FCA will accomplish that.


It is paramount that Congress pass these amendments to ensure that the FCA remains the government’s most effective anti-fraud tool. Taxpayers want to be sure that when Congress is spending their money, they are not being cheated into paying higher prices or purchasing a dysfunctional good or service. By clarifying the materiality standard and protecting all whistleblowers – the very people who help the government do its job – Congress will save billions more and better defend the public from conning contractors who want to get rich at the expense of the American people.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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