U.S. Health Care Reform Legislation Significantly Expands the False Claims Act

April 2, 2010

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (PPACA).  Media coverage and public scrutiny of this legislation has been extensive, but falling largely outside the spotlight are several provisions extending the reach of the False Claims Act, 31 U.S.C. §§ 3729-33 (FCA).  This expansion is not limited to the health care industry and increases the liability exposure of every company that does business with the federal government or supplies goods or services that are reimbursed by federal dollars.  This Alert provides an overview of the changes, which reverse the recent judicial trend toward limiting FCA qui tam actions and will likely increase both the number and type of whistleblower suits.

Weakening the Public Disclosure Bar

As reported in our previous FCA alerts and updates (available here) federal courts have construed the "public disclosure bar" broadly to dismiss numerous qui tam actions where the allegations are based on public disclosures and the relator is not an original source.  Section 10104 of the PPACA lowers the disclosure bar by amending the FCA to reverse this trend.

Let Justice Decide

The PPACA eliminates what was an absolute jurisdictional bar in favor of providing the Department of Justice with discretion over public disclosure dismissals.  As amended, the FCA now states that "the Court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions alleged in the action or claim were publicly disclosed."  31 U.S.C. 3730(e)(4)(A) (emphasis added).  This expansion of prosecutorial power will likely breathe new life into lawsuits that would previously have died, increasing the threat to potential FCA defendants.

Only Federal Disclosures Count

Broadening the realm of potential liability even further, the new law effectively preempted what would have been an important victory for FCA defendants in the Supreme Court.  Just one week after the PPACA’s enactment, the Court decided Graham County Soil and Water Conservation District v. U.S. ex rel. Wilson.  No. 08-304, slip op. (March 30, 2010).  The 7-2 Graham majority resolved a circuit-split by holding that whistleblowers cannot file lawsuits based upon information that is publicly available in state and local administrative reports, audits, and investigations.  However, as Justice Stevens noted for the Court, what would have been a landmark case will in fact have little impact going forward. The PPACA legislatively overrules Graham for all new cases by specifically amending the FCA to bar only those actions based on disclosures from federal sources or the news media.  Reversing what was the law in several circuits and would have been the law of the land, the PPACA grants qui tam relators the power to initiate lawsuits based on information in state and local government publications. 

Graham is not entirely impotent, as it will apply to cases pending at the time the PPACA was enacted.  Unlike the FCA Amendments enacted as part of the Fraud Enforcement and Recovery Act of 2009 (FERA), which spawned a litany of litigation over retroactive application, the PPACA makes no mention of retroactivity.  Defendants currently facing qui tam allegations derived from state or local administrative sources therefore have a means of contesting the action against them.  This does nothing, however, to offset the increased likelihood going forward of "parasitic" or opportunistic lawsuits rooted in state or local government disclosures that would otherwise have been barred.

Expanding the Original Source Exception

The PPACA also bucks the judicial consensus on the "original source" exemption, which allowed whistleblowers to bring qui tam actions based upon public disclosures only if the relator had "direct and independent knowledge" of the information and provided it to the government before filing suit.  Further diluting the public disclosure bar, the amended FCA eliminates the direct knowledge requirement in favor of "knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions…"  31 U.S.C. § 3730(e)(4)(B).  This implies that companies interacting with the federal government now face the threat of lawsuits if a relator can add anything material to publicly available information, substantially increasing the pool of potential plaintiffs qualifying as an "original source."

Additional FCA-Related Risks

In addition to strengthening the FCA directly, the PPACA further expands the range of future FCA suits by applying the FCA to specific aspects of the new legislation.

Exchange Payments

The PPACA creates state-run "exchanges" intended to increase competition among health insurance providers by supplying a mechanism for individuals to shop different policies.  Section 1313 specifies that any payments made "by, through, or in connection with" an exchange are subject to the FCA if they include any federal funds.  As FCA violations are subject to treble damages, this creates significant incentives for participants to closely monitor any exchange-related activities.


As noted in our 2009 Year-End False Claims Act Update, FERA redefined "obligation" under the FCA to include "the retention of any overpayment."  This amendment opened potentially new avenues of exposure for federal contractors or grantees who knowingly retain government funds exceeding what they are owed.  Section 6402 of the PPACA amends the Social Security Act (SSA) to require the report and return of any Medicare or Medicaid overpayments within 60 days of identification or when any corresponding cost report is due.  Retention of any overpayment past these deadlines creates a risk of FCA liability.


Section 6402 of the PPACA also amends the SSA to provide that any claim submitted in violation of the Anti-Kickback Statute constitutes a false and fraudulent claim for purposes of the FCA.  As we reported when this provision was initially proposed, cosponsor Senator Ted Kaufman (D-DE) declared that it applies to all payments stemming from an illegal kickback, defining such claims as false "even when the claims are not submitted directly by the wrongdoers themselves."  The amendment, according to Kaufman, "leverages the private sector to help detect and recover money paid pursuant to these illegal claims."


Together, these PPACA provisions reverse judicial precedent and trends by broadening the scope of potential FCA liability and expanding the class of private individuals empowered to bring an action on the government’s behalf.  The likely result is an increase in both the number and type of FCA claims.  Gibson Dunn will continue to monitor this legislation closely.

Gibson, Dunn & Crutcher LLP

Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues.  Our attorneys have handled more than 100 FCA investigations and have a long track record of litigation success.  The firm has more than 30 attorneys with substantive FCA expertise and 20 former Assistant U.S. Attorneys and DOJ attorneys.  Please contact the Gibson Dunn attorney with whom you work, or any of the following: 

Washington, D.C.
F. Joseph Warin ( 202-887-3609  202-887-3609 , [email protected])
Andrew Tulumello ( 202-955-8657  202-955-8657 , [email protected])
Joseph D. West ( 202-955-8658  202-955-8658 , [email protected])
Karen Manos ( 202-955-8536  202-955-8536 , [email protected])

New York
Randy Mastro ( 212-351-3825  212-351-3825 , [email protected]
Jim Walden ( 212-351-2300  212-351-2300 , [email protected])

Robert C. Blume ( 303-298-5758  303-298-5758 , [email protected])
Jessica H. Sanderson ( 303-298-5928  303-298-5928 , [email protected])
Laura Sturges ( 303-298-5929  303-298-5929 , [email protected])

Robert B. Krakow (214-698-3124, [email protected])
Evan S. Tilton ( 214-698-3156  214-698-3156 , [email protected])

Orange County
Nick Hanna ( 949-451-4270  949-451-4270 , [email protected])

Los Angeles
Timothy Hatch ( 213-229-7368  213-229-7368 , [email protected])  

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