ARTICLE
13 January 2025

Ringing In 2025 With A Revitalized Agency Mechanism For Enforcing Civil Fraud

Enforcement of civil fraud at the agency level received an under-the-radar boost at the end of 2024, with the inclusion of the long-contemplated Administrative False Claims Act ("AFCA")...
United States Criminal Law

New Administrative False Claims Act, Buried within the NDAA, Gives Agencies Heightened Authority to Pursue False Claims and Statements

Enforcement of civil fraud at the agency level received an under-the-radar boost at the end of 2024, with the inclusion of the long-contemplated Administrative False Claims Act ("AFCA") as part of the National Defense Authorization Act ("NDAA"), signed into law by President Biden on December 23.

The AFCA is a somewhat surprising inclusion in an authorization act focused on defense spending—and therefore netted scant attention as the calendar turned from 2024 to 2025. That said, all federal grantees and contractors should be aware of the AFCA and what it means in terms of risk assessment and mitigation.

In sum, the AFCA empowers various federal administrative agencies to pursue alleged civil fraud by revitalizing the Program Fraud Civil Remedies Act of 1986 ("PFCRA"), 31 U.S.C. § 3801, et seq. Most notably, the AFCA allows fraud and false claims enforcement actions for up to $1 million to be pursued administratively—meaning that federal agencies will have expanded authority to pursue smaller False Claims Act cases through expanded administrative powers. This is a substantial increase from the PFCRA, or "baby False Claims Act," which only applied to false claims of $150,000 or less.

The AFCA has long been championed by U.S. Sen. Chuck Grassley of Iowa, who has taken an active role in preserving and strengthening the False Claims Act ("FCA") as a whole. We anticipate that the Offices of Inspector General ("OIG") at various federal agencies will use the AFCA as another tool in their arsenal to root out civil fraud, but the extent and level of AFCA activity may vary by individual agency.

Replacing the Ineffective PFCRA

The False Claims Act, 31 U.S.C. § 3729, et seq., provides that any person who knowingly submits, or causes to submit, false claims to the government can be liable for treble damages, which can lead to a recovery of up to three times the amount of actual damages. In addition to cases brought by the government, the FCA permits private citizens, referred to as whistleblowers or relators, to bring lawsuits on behalf of the United States (referred to as qui tam litigation) against those who have submitted false or fraudulent claims for payment to the government. The Department of Justice annually recovers billions of dollars under the FCA.

But for smaller and mid-size cases—where government agencies or whistleblowers may not be inclined to pursue recoveries in federal court—agencies have relied on other authorities to prosecute civil fraud. In addition to the PFCRA and the False Claims Act, federal agencies have relied on suspension and debarment processes, and statutes such as the U.S. Department of Health and Human Services' Civil Monetary Penalties Law, initially enacted to address Medicaid and Medicare false claims and fraudulent activity through the Social Security Act, and amended and expanded since.

The PFCRA, (codified at 31 U.S.C. § 3801, et seq.), allowed agencies to impose civil penalties and assessments on federal contractors or grantees for false claims or statements. Agencies litigate PFCRA cases in front of administrative law judges (ALJs), which is a far different process—with different rules of evidence and appellate rights—than federal court litigation.

Many agencies have adopted the PFCRA, including the U.S. Department of Health and Human Services Office of Inspector General ("HHS-OIG") at 45 C.F.R. Part 79. The PFCRA provided for penalties up to $5,000 per claim (adjusted upward annually for inflation, for a total amount of more than $13,000 per claim), and authorized the additional "double damages" penalty of up to two times the amount of the fraudulent claim. However, agencies found the PFCRA to be unwieldy to use—especially because it mandated an involved process for going after such lower-dollar false claims recoveries, and the $150,000 cap was viewed as too small. A GAO Report from 2011, for example, found that from 2006 to 2010, only five agencies referred 141 cases to the U.S. Department of Justice under the PFCRA, and of those 141 cases, 135 were referred by one agency (the U.S. Department of Housing and Urban Development).

As a result of its limited use, Sen. Grassley and other lawmakers have pushed to replace the PFCRA with a stronger administrative recoupment mechanism. In April 2023, the AFCA previously unanimously passed the Senate as a standalone bill, but it died there, without support in the House of Representatives, until it was revitalized within the NDAA.

Important AFCA Changes

The AFCA is expected to serve as a far more effective device for administrative agencies to pursue false claims and statements than the underutilized PFCRA.

Like the FCA, the AFCA creates liability on any person who submits a claim to the federal government that he or she knows (or should know) is false. An example may be a physician who submits a bill to Medicare for medical services, with knowledge that he has failed to provide those services. Unlike the FCA, the AFCA also extends to false statements in the absence of any claim. This means that it covers a wider swath of conduct—including "any false, fictitious, or fraudulent written representation, certification, affirmation, document, record, or accounting or bookkeeping entry which is made with respect to a claim, contract, bid or proposal for a contract, grant, loan, or benefit and which is accompanied by an express certification or affirmation of the truthfulness and accuracy of its contents." The AFCA imposes a statutory ceiling on such false claims or false statements of up to $1 million. As compared to the PFCRA, considerably higher cap is expected to prompt more agencies to pursue small-to-midsize false claims through AFCA mechanisms.

The AFCA has also improved on the PFCRA by expanding the number of DOJ officials who can review the claims, and permitting the government to recoup costs for investigating and enforcing such claims. This recoupment provision will allow federal agencies to reimburse themselves for the costs of the investigation before depositing recovered funds into the U.S. Treasury—a potential incentive for agencies to use AFCA to pursue enforcement actions.

Finally, although groups representing whistleblowers have long advocated for an enhanced PFCRA, the AFCA does not include a qui tam provision allowing for relators or whistleblowers to bring actions through the administrative process on behalf of the federal government. The exclusion of a whistleblower mechanism is good news for contractors and grantees.

Next Steps for Grantees and Contractors

The enactment of the AFCA means that contractors and grantees are advised to develop an enhanced awareness of the ALJ process. If an administrative agency pursues its claims before an ALJ—as more will be apt to do under the AFCA—the process is dissimilar in many ways from federal court litigation. Importantly, if a grantee or contractor loses their case before an ALJ, it can only appeal that outcome to a federal court if it has exhausted all administrative remedies. A federal court will often give deference to the ALJ's findings on factual issues in the record.

Plainly, when an ALJ is involved, a grantee or contractor often faces an uphill climb.

Although we cannot predict how quickly each agency will implement regulations to adopt the AFCA—and whether agencies like HHS will continue to favor tried and true mechanisms such as the CMPL—the enactment of the AFCA is a notable development that potentially offers greater authority to agencies to pursue smaller fraud cases through their administrative powers.

Enforcement Insider will continue to monitor how each agency implements the AFCA and how this new enforcement mechanism is used. At minimum, we expect increased agency enforcement efforts under this recharged instrument for fighting civil fraud.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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