Fraud is Not a Cost of Doing Business: Deterring Fraud Through the False Claims Act’s Trebling Provision
When businesses and individuals defraud the government, they do it to make money. Because fraud by its nature involves deceit, it is hard to detect. Fraudsters often believe the risk of getting caught (ever) is relatively low, while the amount to be immediately gained is high. To counteract this rationale and successfully deter fraud, the price of getting caught must significantly outweigh the potential upside.
This commonsense principle is embedded in the federal False Claims Act, which provides (with limited exception) that violators must pay three times the damages the Government sustains because of the fraud, plus penalties. As courts have recognized, this “treble damages” provision is not only acceptable—it is crucial to preserving the False Claims Act’s efficacy. For example, in affirming a treble damages award against a medical practice for submitting false claims for Medicare reimbursement, the Eleventh Circuit explained that the “very idea of treble damages reveals an intent to punish past, and to deter future, unlawful conduct, not to ameliorate the liability of wrongdoers.”[1] In holding that treble damages were not excessive, the Ninth Circuit similarly reasoned that in light of “the need to deter difficult-to-detect fraudulent claims,” among other justifications, “Congress’s decision to impose a penalty that may sometimes substantially exceed actual damages is not unreasonable.”[2]
Treble damages also ensure that the Government is adequately made whole for the harm it incurs from fraud. As noted in a leading False Claims Act treatise:
Fraud results not only in the government paying money it might not otherwise have paid, but also causes the government to incur substantial costs to monitor, investigate, and prosecute fraud. In addition, the government suffers a number of harms from fraud that are difficult to quantify, including the undermining of the integrity of the procurement process, and harm to government programs and operations from defective or faulty goods or services. The device of treble damages . . . serves to compensate the government for these harms, even when they cannot accurately be quantified in a particular case. [3]
The False Claims Act is frequently employed against large corporations with enormous revenues. Two recent examples are the $337.45 million settlement with Booz Allen Holding Corporation in 2023 for improperly billing certain costs to its government contracts; and the $900 million settlement with Biogen, Inc. in 2022 for paying kickbacks to physicians so they would prescribe Biogen drugs. Booz Allen is a global government and military contractor with over 32,000 employees and over 80 locations worldwide. Its annual revenue for fiscal year 2023 was $9.26 billion. Biogen is a leading biotechnology company with over 7,500 employees and over 40 locations. Its annual revenue for fiscal year 2022 was $10.17 billion.
When fraud contributes to companies generating billions in a single year, the only way for the False Claims Act to deter these entities is for the consequences to be severe. Treble damages attempt to do just that and ensure that fraud does not become merely a cost of doing business. Unfortunately, when the full power of the treble damages provisions are not used, and a large company is permitted to pay back the American taxpayer for only part of the harm to the Government, fraud can become just that. Big companies that make billions off of Government coffers sometimes engage in big fraud. Strong enforcement of the treble damages provision of the False Claims Act is important to ensure that companies are adequately disincentivized from cheating the Government.
By Courtney Finerty-Stelzner. This post originally appeared on The Anti-Fraud Coalition Blog.
[1] Yates v. Pinellas Hematology & Oncology, P.A., 21 F.4th 1288, 1308 (11th Cir. 2021) (quoting Vermont Agency of Natural Resources v. United States ex rel. Stevens,529 U.S. 765, 786 (2000)) (emphasis added).
[2] United States ex rel. Shutt v. Community Home & Health Care Servs., Inc., 305 Fed. App’x 358, 361 (9th Cir. 2008).
[3] Claire M. Sylvia, The False Claims Act: Fraud Against the Government § 6:1 (Aug. 2023 Update).