False Claims Act: What It Prohibits and What It Pays

What the statute prohibits

The core prohibition is knowingly presenting a false or fraudulent claim for payment or approval. The statute also reaches false records used to get a claim paid, conspiracies to violate the act, and what is known as a reverse false claim, which is avoiding an obligation to pay money to the government.

Knowingly is defined broadly. It covers actual knowledge, deliberate ignorance, and reckless disregard for the truth. A company cannot avoid liability by choosing not to look.

Falsity is usually about certification

Most modern False Claims Act cases do not involve an invented invoice. They involve a claim that was accurate on its face but was submitted by a party that was not entitled to payment because it had not met a condition it certified it had met.

• Express false certification, where a party states it complied with a requirement it did not meet
• Implied false certification, where submitting the claim itself represents compliance
• Worthless services, where care was billed but was so deficient it had no value
• Fraudulent inducement, where the underlying contract was obtained by fraud

Materiality and the Escobar standard

The Supreme Court held in Universal Health Services v. United States ex rel. Escobar that a misrepresentation must be material to the government payment decision. Materiality asks whether the government would have paid had it known the truth.

This is where many cases are won or lost, and the circuits have not applied it uniformly. Our attorneys have written on the circuit split over the materiality standard in The Legal Intelligencer.

What a violation costs

Damages are three times the amount the government lost. On top of that, each individual false claim carries a civil penalty, adjusted annually for inflation. In a billing case with thousands of claims, the penalties alone can exceed the actual loss.

That arithmetic is why False Claims Act cases settle, and why the recoveries can be large relative to the underlying conduct.

Consider a provider that overbills by 40 dollars on each of 100,000 claims. The actual loss is 4 million dollars. Trebled, that is 12 million. Add a per-claim penalty across 100,000 claims and the theoretical exposure runs into the billions, which no defendant will take to a jury. This is why the statute produces settlements out of conduct that looked minor claim by claim.

Courts have moderated the extremes. Where penalties would be grossly disproportionate to the harm, defendants have raised Excessive Fines Clause arguments under the Eighth Amendment with some success. That is a limit on the outer edge rather than a defense, and it does not change the settlement dynamic.

Knowledge does not mean intent to defraud

The statute defines knowingly as actual knowledge, deliberate ignorance of the truth, or reckless disregard for the truth. It states explicitly that no proof of specific intent to defraud is required.

That definition does substantial work. A company that never checked whether its billing complied, despite obvious reason to check, can meet the standard. So can a company that structured itself so nobody looked. Deliberate ignorance was written into the statute precisely to defeat the argument that senior management stayed uninformed.

The Supreme Court addressed this in United States ex rel. Schutte v. SuperValu, holding that what matters is what the defendant actually believed at the time, not whether some objectively reasonable interpretation of an ambiguous rule might have justified the conduct after the fact. A defendant who believed its claims were false cannot escape by pointing to a post hoc reading of the regulation.

The public disclosure bar and the original source exception

A case can be barred if substantially the same allegations were already publicly disclosed in a federal hearing, a government report, audit, or investigation, or in the news media. The purpose is to reward genuine insiders rather than people repackaging public information.

The exception is the original source: someone with knowledge that is independent of and materially adds to the public disclosure, or who voluntarily disclosed to the government before the public disclosure occurred.

This matters practically because industry-wide problems often generate press coverage, agency reports, or congressional attention before any case is filed. Your specific, internal knowledge of what your employer did usually clears the bar even where the general problem is public. It is worth assessing early, because the analysis shapes how the complaint is pleaded.

The False Claims Act in Pennsylvania and the Third Circuit

A Pennsylvania False Claims Act case is filed in federal court, which for the Philadelphia region means the Eastern District of Pennsylvania, with appeals to the United States Court of Appeals for the Third Circuit.

Third Circuit law shapes how these cases are pleaded here. The court applies Rule 9(b) particularity to fraud allegations, and its decisions on what a relator must plead about actual submission of claims, as opposed to a scheme likely to have produced them, affect whether a complaint survives a motion to dismiss. The circuit has also addressed the materiality standard after Escobar in ways that differ from other circuits, which is one reason forum matters.

Our attorneys have written on these questions in The Legal Intelligencer, including on the circuit split over the materiality standard and on fighting healthcare fraud through the False Claims Act in the Third Circuit.

Pennsylvania has no state false claims act

Roughly thirty states have enacted their own false claims acts covering state money. Pennsylvania is not among them, which has a concrete effect on Pennsylvania cases.

Medicaid is jointly funded. In a state with its own statute, a Medicaid fraud case recovers both the federal and the state share, and the relator is paid on both. In Pennsylvania only the federal share is recoverable, which reduces the total recovery on the same underlying conduct.

New Jersey, by contrast, has the New Jersey False Claims Act. For providers operating across the Delaware Valley, a case is frequently filed under the federal statute and the New Jersey statute together. Our attorney Ross Wolfe has publicly advocated for Pennsylvania to adopt a state false claims act.