Good news may be in sight for businesses and health care providers.

On April 28, 2016, the House Judiciary Committee's Subcommittee on the Constitution and Civil Justice once again considered potential updates to the federal False Claims Act. Those in favor of reform touted the hearing as a first step toward commonsense changes and improvements targeted at promoting compliance and rooting out and preventing fraud in the first instance.

The Subcommittee, which last took up the issue of FCA reform in July 2014, heard testimony from two health care lawyers, a health care system CEO, and former deputy United States Attorney General, Larry Thompson. The testimony focused principally on two proposed reforms:

• Reduced awards for corporations that adopt gold standard corporate compliance programs

• Requirement that corporate whistleblowers report frauds internally before filing qui tams

Both proposals drew sharp criticism from the relators’ bar and other opponents of FCA reform.

Proponent Testimony

With respect to the first proposal, Mr. Thompson observed that while the FCA remains a critical tool in combating fraud, it has become unduly adversarial, giving the government enormous leverage against private companies and individuals. The government's reliance on post-hoc enforcement, he told the Subcommittee, results in significant, often unfair and arbitrary, penalties, even where a company has invested considerable resources in compliance and prevention on the front-end.

Citing a 2013 report by the U.S. Chamber Institute for Legal Reform, Mr. Thompson suggested that a better and more even-handed approach would be to incentivize compliance in a real and meaningful way by allowing companies that achieve and maintain superior compliance programs to obtain reductions in penalties or other consequences "when inevitable wrongdoing does occur."

Part of any reform would also have to include a requirement that relators demonstrate that they have brought their concerns to the attention of the target organization before filing a qui tam complaint, said Dennis Burke, President and CEO of a not-for profit-hospital system, in his testimony. This requirement would prevent organizations from being subjected to costly and protracted investigations, not to mention unquantifiable and often irreparable reputational harm, as a result of relators being allowed to "throw everything on the wall to see if anything might stick." If nothing does, he said, relators can simply "walk away and say 'oops, I guess we were (I was) wrong.'"

Echoing Mr. Burke's sentiments, Jonathan Diesenhaus, health care attorney and former Senior Trial Counsel in DOJ's Civil Fraud Section, noted that FCA defendants are left without a remedy when investigations, or more often declined qui tam litigation, come up empty. He pointed out that the FCA's bounty and attorneys' fees provisions shield whistleblowers and their attorneys from the risk-reward proposition that governs other litigation in federal courts. The normal rules of litigation, he said, simply do not constrain whistleblowers and their attorneys in the same way that other plaintiffs and their attorneys are constrained. He suggested that Congress can "reset [the] balance" by creating greater incentives for compliance and self-disclosure, subjecting frivolous whistleblower claims to the same scrutiny as other plaintiffs under the federal rules of civil procedure, and requiring DOJ to evaluate declined qui tams for merit and exercise its statutory authority to dismiss cases that would unjustifiably burden the courts, federal agencies, innovators, small businesses and health care providers.

Opponent Testimony

Opponents warned that requiring corporate whistleblowers to make internal reports to their employers before filing qui tams would result in more widespread retaliation against whistleblowers, making them more reluctant to come forward, and rejected the idea that a so-called gold standard, or certified, corporate compliance program was a silver bullet against fraud. Relator's attorney Neil Getnick argued in his testimony that permitting companies to escape or face reduced liability because they have "checked the boxes" on how to establish a compliance program would merely encourage companies to game the new compliance regime, thus enabling, not eradicating, fraud.

Relief Could be in Sight

Whatever the legislative consequences of these Congressional hearings, the proposed updates to the FCA underscore the significant leverage wielded by the Department of Justice against businesses and health care providers under the current version of the FCA. That leverage has only continued to grow in recent years, in part as a result of the government's and relators' increasingly frequent and aggressive use of the "implied certification" doctrine, which allows relators to bring suits based on mere technical regulatory violations and without proof of actual false claims submitted to the government. Unless and until reforms are legislatively enacted, the FCA's treble damages and civil penalty provisions remain the most potent and prolific means of obtaining mammoth settlements against health care providers and other entities that do business with the government.