On July 26, 2021, a bipartisan group of legislators led by Iowa Senator Chuck Grassley introduced a pair of bills that would represent the most significant changes to the FCA in more than a decade. In broad strokes, the legislation would make it more difficult for defendants to argue that certain regulatory violations are not material, make it more difficult for DOJ to dismiss qui tam cases, and strengthen the government’s ability to collect on smaller claims.

The impetus for the new legislation can be traced back to 2016, when the Supreme Court held in Universal Health Services v. Escobar that the FCA’s “materiality standard is demanding.” In Escobar, the Court invited defendants to show that the government regularly pays claims despite knowing about the regulatory violations at issue, calling such a showing “very strong evidence that those requirements are not material.” After Escobar, defendants now often seek information about the government’s payment practices.

In Senator Grassley’s view, Escobar’s reasoning “fails to take into account that government bureaucrats are highly segmented and often unable to make key decisions for their monolithic organizations” and that government officials are not “highly motivated to stop fraud.”

The first of the bills he introduced in response would not overrule Escobar, but it would reduce its significance. Among other things, the bill would shift the burden of proof to the defendant to prove by clear and convincing evidence that violations are not material. It would also require courts to award attorney’s fees and costs to the government in response to “irrelevant, disproportional, or unduly burdensome” discovery in declined qui tam cases.

The first bill would also restrict DOJ’s authority to dismiss qui tam cases under section 3730(c)(2)(A). It would place on the government “the burden of demonstrating reasons for dismissal” and give relators the right to “show that the reasons are fraudulent, arbitrary and capricious, or contrary to law.”

The second bill would expand what many have called the “mini-False Claims Act” to allow for recovery of payments up to $1 million (up from $150,000) and expand the number of DOJ officials who can review these claims.

This new legislation would expand the FCA’s footprint and breathe oxygen into many qui tam cases that under current law would likely be dismissed at an early phase of the proceedings as meritless. With the double threat of mandatory attorney’s fees and costs along with a tougher standard of review, defendants would be less likely to argue materiality. At the same time, the new hurdles to the exercise of DOJ’s dismissal authority would encourage the filing of more creative or questionable qui tam cases.

For more information on this and other FCA developments, visit King & Spalding’s blog produced in partnership with the U.S. Chamber of Commerce, available here.