Last month, Iron Mountain, an information storage company based in Boston, agreed to pay a staggering $44.5 million to settle claims that it fraudulently over-billed the federal government for record storage. The courageous plaintiffs in the whistleblower case, Patrick McKillop and Brent Stanley, will personally share in $8 million of the settlement.
The settlement resolves allegations that Iron Mountain defrauded the government by entering into government contracts for record storage but failing to provide the government with accurate information during contract negotiations, not offering lower prices to government customers as required by law, and charging the government for storage that did not meet federal National Archives and Records Administration requirements. In essence, Iron Mountain knowingly misled the federal government into overpaying.
This settlement was made possible by a little-known federal statute called the False Claims Act. The False Claims Act (also called the “Lincoln Law”) was passed in 1863, a century before the Civil Rights Act of 1964 and even before the passage of the 14th and 15th Amendments. Congress enacted the law in the midst of the Civil War in attempt to stem the tide of fraudulent wartime contracts, in which contractors ripped off the federal government by selling the Union Army faulty rifles and ammunition, spoiled provisions, and sick horses.
A century and a half later, the False Claims Act is still the primary tool for fighting fraud against the federal government, although today’s fraudulent contracts rarely involve spoiled food or sick livestock. Instead, the False Claims Act is often used today to target health care fraud. In a common scenario, pharmaceutical companies engage in off-label marketing of drugs for non-FDA-approved uses, and yet health care providers charge Medicare/Medicaid for the drugs as if they were used in an FDA-approved manner. But the False Claims Act is not limited to pharmaceutical companies and health care providers. Another example of a false claim under the Act is when a government contractor on a public works or federal construction project cuts corners to pocket the difference in cash. The False Claims Act applies to any company or organization that enters into contracts with the federal government and fraudulently overcharges for the products or services it agreed to provide the government. (The Act itself applies only to fraud on the federal government, not state governments. Many states have “mini” False Claims Acts that target fraudulent claims to state governments, but so far Maine has not enacted such a law).
Over the last 25 years, the federal government has recovered almost $40 billion under the False Claims Act, saving billions in taxpayer money. How does the Act work to thwart fraud? Primarily, the law deters fraud because it allows the federal government to recover up to three times the amount actually defrauded, and incentivizes individuals to come forward and report suspected fraud by rewarding those whistleblowers with 15 to 25% of any recovery. In large cases, like the recent Iron Mountain settlement, that can mean millions awarded to whistleblowers for doing the right thing.
Of course, not all awards are this big. But if you think your employer is defrauding Uncle Sam, whether it is in the form of submitting improper Medicare claims, cutting corners on a government-funded construction project, or selling spoiled provisions and sick horses to the government, you might want to remember this little-known yet powerful law.