False Claims Act and COVID-19
The False Claims Act (FCA) is a law that creates civil liability for people or companies who defraud the federal government. The FCA allows private individuals to become “whistleblowers” and file civil fraud suits on behalf of the federal government. If the fraud lawsuit is successful, the whistleblower receives as much as 30% of any money awarded to the government.
The current coronavirus pandemic will likely result in a sharp increase in the volume of FCA whistleblower litigation over the next few years. There are several reasons for this. First, whenever government spending rapidly increases it also increases the amount of fraud and profiteering. The COVID-19 shutdown has prompted unprecedented levels of federal government spending. Government spending on this massive scale will invariably lead to an increase in fraud.
Federal Government Is Aggressively Pursuing COVID-19 Fraud
The federal government has made it very clear that they are going to be very aggressive in pursuing COVID-19 fraud. In March, the Depart of Justice sent a memorandum to U.S. Attorneys around the country instructing them to “prioritize” the investigation and prosecution of fraud and wrongdoing related to the coronavirus pandemic. The Attorney General even issued a press release strongly encouraging citizens to become whistleblowers and report any suspected COVID-19 fraud schemes. The DOJ seems particularly focused on exposing fraudulent medical billing schemes related to COVID-19 testing and procedures.
The DOJ has also authorized U.S. Attorneys for every state to appoint “Coronavirus Fraud Coordinators” to spearhead enforcement efforts and increase public awareness and outreach on the subject of COVID-19 fraud. These efforts by the DOJ will be bolstered by the newly created Pandemic Response and Accountability Committee (“PRAC”). PRAC’s sole mandate is to detect and stop coronavirus “fraud, waste, abuse and mismanagement.”
Types Of COVID-19 Fraud
The increased efforts to stomp out coronavirus fraud will directly lead to a major increase in the number of whistleblower cases under the FCA. Whistleblower lawsuits have always been a critical part of combating government fraud. Now more than ever the DOJ is encouraging people to blow the whistle. Below are some of the potential schemes and areas of new government spending that are likely to attract fraud that could lead to whistleblower lawsuits.
CARES Act Fraud
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (later supplemented by the Families First Coronavirus Response Act) is the 2 trillion dollar stimulus program passed by the federal government at the start of the pandemic. The CARES implemented a number of major spending programs, including:
- Paycheck Protection Program (“PPP”): this enables small businesses to obtain subsidized loans to continue paying employees instead of laying them off. The PPP loan program was administered by private banks who charge fees to the federal government.
- Economic Stabilization Fund (“ESF”): provides billions in funding for guarantees, loans, and investments to businesses (and state or local governments) that meet certain criteria.
- Economic Injury Disaster Loans (“EIDL”): creates special SBA loans and Emergency Grants to provide operating capital to small businesses.
- PPE Funding: the CARES Act sets aside $100 billion in federal government funding to obtain personal protective equipment and testing for healthcare workers. The money can be obtained by hospitals and community health clinics based on certain guidelines.
- Agricultural Aid: the CARES Act earmarked $24 billion in aid for agricultural producers impacted by the COVID-19 shutdown.
- Education Aid: the Elementary and Secondary School Emergency Relief Fund and the Higher Education Emergency Relief Fund allocate billions in funding for states to award in subgrants to schools and educational programs.
- Defense Production Act: the CARES Act allocates $3 billion to the Department of Defense for use in purchasing medical supplies and protective equipment under the Defense Production Act.
With these new spending programs, the opportunities for fraud and misappropriation of government funds under the CARES Act are almost limitless. The list below names some of the potential types of CARES Act fraud that we can expect to see going forward:
- Obtaining a CARES Act loan or loan guarantee based on false information or misrepresentations. Loan fraud is not limited to fraud in the application process, it can also include misappropriation of funds after receiving a loan.
- False certification that PPP or other CARES Act funds will be used to pay employee salaries or other necessary expenses such as office rent or utility bills.
- Larger companies misrepresenting themselves as a “small business” to qualify for CARES Act loans. Common methods of doing this may include misrepresenting the number of employees or hiding corporate affiliations with larger companies.
- Private banks or lenders who knowingly make CARES Act loans to businesses that are not eligible.
- Companies using CARES Act funds for stock buy backs and other unauthorized or fraudulent purposes.
- Hospitals misappropriating CARES Act relief funds to cover losses or expenses that are not related to COVID-19.
- Fraudulent sale of defective COVID-19 testing products, PPE, medical supplies or other items purchased by hospitals or health clinics with CARES Act pandemic funding.
- Kickback schemes in which unlawful payments are made in exchange for awarding of funding, loans, contracts or other benefits under the CARES Act.
If you have direct knowledge or evidence of any of these types of CARES Act fraud, you may be able to file a whistleblower lawsuit and receive financial compensation.
COVID-19 Medicare And Medicaid Fraud
The Department of Health and Human Services, along with state Medicaid agencies have rolled out new reimbursement policies in response to the coronavirus pandemic. These new policies are intended to facilitate treatment of patients with COVID-19 and alleviate financial pressures on hospitals and other health care facilities. However, these new rules are expected to lead to increases in Medicare/Medicaid fraud.
The new Medicare rule changes are primarily aimed at increasing the level of Medicare reimbursement for COVID-19 treatments and making sure hospitals get those reimbursement payments faster. Medicare payments for all COVID-19 related treatment is automatically increased by 20%. This means that hospitals and healthcare providers will get paid 20% more from Medicare for any services that are categorized as COVID-19 treatment. This creates a very obvious opportunity for widescale billing fraud. Some likely fraudulent Medicare billing schemes include:
- Fraudulently billing Medicare for COVID-19 treatments that were not medically necessary.
- Performing medically unnecessary COVID-19 testing in order to bill Medicare at increased rate.
- False billing for telehealth consultations (billing for a “telehealth visit” when it was actually an “e-visit” or phone call).
If you have personal, direct knowled
ge of any types of Medicare billing fraud related to COVID-19, you may be eligible to file a whistleblower lawsuit on behalf of the government. If your whistleblower lawsuit is successful, you would receive up to 30% of any money awarded.
COVID-19 Finance and Investment Fraud
As part of the effort to stimulate the economy in response to the COVID-19 shutdown, the federal government has enacted new laws and regulations aimed at maintaining liquidity in the financial markets. Many of these new regulatory changes have loosened oversight and restrictions which may open the door to fraud. Below are some potential finance and investment schemes that might give rise to lawsuits under the SEC Whistleblower Program:
- Reporting Fraud: certain regulatory and reporting requirements have been eased or even suspended in response to the coronavirus pandemic. Specifically banks are being permitted to engage in debt restructuring in good faith response to COVID-19. For those banks that are publicly traded, this can create the temptation to manipulate stock prices by misrepresenting their balance sheets and quarterly reports.
- Mortgage Fraud: many of the strict appraisal and income verification requirements for federally backed mortgage loans have been temporarily relaxed in response to the coronavirus pandemic. This may lead to fraudulent mortgage lending practices resulting in federally insured loans being made to unqualified borrowers on undervalued properties.
- Tax Fraud: the CARES Act made major changes to the tax code including corporate tax credits for businesses that retain their employees and expansion of the AMT credits. Fraud and underreporting involving these tax law changes and programs can be pursued through the IRS Whistleblower Program.
Contact Miller & Zois About COVID-19 Whistleblower Actions
If you have knowledge and evidence of COVID-19 related corporate fraud, contact the lawyers at Miller & Zois to see if you qualify to file a whistleblower lawsuit under the False Claims Act.