Types of Fraud

The Federal False Claims Act reaches to any false or fraudulent claim for payment made, either directly or indirectly, to the United States government. Similarly, many of the growing number of state false claims acts apply to any claim for payment made, directly or indirectly, to the state government. The Federal False Claim Act has proven effective in combating many different types of fraud against the federal and state governments.

Types of Fraud

Medicare & Medicaid Fraud

The federal False Claims Act broadly prohibits anyone who does business with the federal government from engaging in fraudulent behavior. Accordingly, there are innumerable circumstances where such fraud may occur, and in which a Whistleblower may bring an action to expose the fraud and recover appropriate damages. An example of such fraud includes:


In the United States, Medicare fraud is a general term that refers to an individual or corporation that seeks to collect Medicare health care reimbursement under false pretenses. There are many different types of Medicare fraud, all of which have the same goal: to collect money from the Medicare program illegitimately. If you have information showing that a healthcare provider has committed fraud on a government healthcare program, such as Medicare or Medicaid, then you may be able to bring a qui tam lawsuit under the federal False Claims Act or similar state laws. Through the qui tam lawsuit, you would help the government recover money that has been paid as a result of fraudulent claims. Federal and state governments have recovered billions of dollars as a result of information provided by qui tam whistleblowers about fraud committed by hospitals, nursing homes, pharmaceutical companies, medical equipment/device suppliers, and physician practices.

Healthcare providers who submit claims to the Medicare or Medicaid system must provide various types of information and maintain certain specified records, in order to legally claim reimbursement. If a provider submits a claim for payment to which it is not entitled, or falsifies the documentation supporting the claim, then the provider may be violating the False Claims Act. Some common forms of Medicare and Medicaid fraud include the following:

Charging For Services Or Supplies Not Provided

The most basic form of fraud that a provider can commit is to submit claims to the Medicare or Medicaid system for services or supplies that the provider did not deliver to a patient or beneficiary.

Upcoding and Unbundling

Many medical procedures and supplies are billed to Medicare or Medicaid based upon “codes.” For example, office visits and medical procedures are often billed based upon what are known as CPT Codes. A common form of fraud is for a Physician’s practice, hospital, or other provider to render a particular service to a patient, and use a more expensive code in order to receive a higher monetary payment when billing for these services. This is known as “upcoding,” and is a form of fraud. Similarly, under the governing regulations, certain groups of related services or supplies must be “bundled” and billed under a single code. However, a provider may unlawfully obtain higher reimbursement by “unbundling” the services, and bill under multiple codes.

Falsifying or Failing to Maintain Records

Generally, Medicare and Medicaid will only reimburse a provider for services or supplies if those services or supplies are medically necessary. Applicable regulations require providers to maintain (or in the case of medical device suppliers), to obtain various forms of documentation, such as doctors’ orders or notes demonstrating medical necessity. If a provider or supplier either falsifies those records, or fails to maintain them as required by the regulations, then the provider or supplier may be committing fraud when it submits claims for payment to the Medicare or Medicaid system.

Off-Label Marketing By Pharmaceutical Or Medical Device Companies

Pharmaceuticals and certain medical devices must be approved by the Food and Drug Administration (FDA) before they can be sold to the public. Medicare and Medicaid regulations provide reimbursement for pharmaceuticals and medical devices when those pharmaceuticals or devices are used in the manner approved by the FDA. Companies that sell pharmaceuticals or devices, however, often unlawfully promote the use of their products for unapproved, or “off-label” uses, to increase profits. This off-label marketing leads to the submission of improper claims to the Medicare and Medicaid systems. Some of the largest healthcare fraud cases, including some cases that have settled for more than one (1) billion dollars, arose out of such off-label marketing schemes.

Unlawful Kickbacks or Financial Arrangements

A number of laws, including the Stark Law and anti-kickback laws, generally prohibit the payment of money or other financial incentives to doctors or hospitals in exchange for referrals, or for the prescription of particular pharmaceuticals or supplies. These rules are intended to assure that doctors and other healthcare providers make decisions for their patients based solely upon medical necessity, and not because of some unlawful financial gain. Violations of the Stark Act and anti-kickback laws can result in false claims when a provider submits a claim to Medicare or Medicaid, and the provider certifies that it has not violated these laws. Thus, if a healthcare provider is receiving kickbacks or is involved in an unlawful financial arrangement, the provider is often violating the False Claims Act, and could be subject to a qui tam lawsuit.

Cost Report Fraud

Hospitals and certain other types of healthcare institutions are required to submit cost reports to Medicare. These reports are used to calculate reimbursement rates under the Medicare programs. Accordingly, if a hospital manipulates its cost reports or falsifies the data in the reports, it can fraudulently obtain additional compensation in violation of the law.

Pharmaceutical Fraud

The federal False Claims Act broadly prohibits anyone who does business with the federal government from engaging in fraudulent behavior. Accordingly, there are innumerable circumstances where such fraud may occur, and in which a Whistleblower may bring an action to expose the fraud and recover appropriate damages. An example of such fraud includes:



Pharmaceutical fraud may apply to a variety of occurrences as specified below:
- Charging for drugs not used and returned to pharmacy providers;
- Marketing, promoting, and selling drugs for uses other than those approved by the FDA;
- Marketing drugs to Physicians through illegal means, such as providing financial remuneration or other benefits, expense-paid consulting trips for Doctors and Providers who participate in drug marketing promotional meetings; and Charging prices to the Government that are higher than allowable by law.

The two most prevalent illegal schemes employed by the pharmaceutical industry are “off-label marketing,” and the use of “kickbacks.” Off label marketing involves marketing the drug for purposes beyond the Food & Drug Administration’s approved “indication.” The term kickbacks is in reference to providing a benefit, monetary or other, as a bribe, or quid pro quo.

When a company engages in any of the following conduct, it may be evidence of “off-label marketing:”

- Paying bonuses to Representatives for sales that involve the “off-label” use of the drug;
- Encouraging Representatives to solicit or convince Doctors to “convert” patients from a drug that may have a different indication;
- Guiding Doctors to studies that demonstrate “off-label” uses;
- Using studies or parts of studies to hint that a drug may have “off-label” uses;
- Using Speakers to promote the idea that a drug can be used for “off-label” purposes;
- Requesting Doctors to ask for information from the company where the information may hint at, or encourage “off-label” uses; and
- Selecting materials that are “on label” or written to comply with FDA requirements for the purpose of encouraging “off-label” uses.

Evidence of illegal “kickback” schemes may include the following:

Speaker programs, where the choice of the speaker is influenced by the marketing or sales department;

Selecting a speaker, absent any investigation of the speaker’s professional qualifications including ascertaining:

(a) Medical license;
(b) Published in the area, or an expert for the topic;
(c) Under investigation by any regulatory bodies, or has been sanctioned, reprimanded, or suspended by any regulatory bodies.

Grants to universities, doctors, or medical establishments for research or work where the marketing department of the company had an influence over the grant or funding;
Any type of rebate program based on drug utilization;
Any type of monetary benefit given to universities, hospitals, doctors, or medical establishments based on drug utilization

Financial Services Fraud

The federal False Claims Act broadly prohibits anyone who does business with the federal government from engaging in fraudulent behavior. Accordingly, there are innumerable circumstances where such fraud may occur, and in which a Whistleblower may bring an action to expose the fraud and recover appropriate damages. An example of such fraud includes:

Securities Whistleblowers are provided incentives and protection by the Dodd–Frank Wall Street Reform and Consumer Protection Act (2010). The Dodd-Frank Act offers Whistleblowers significant incentives, and increases protection for Whistleblowers in the Securities & Exchange Commission (SEC) whistleblower program. This legislation authorizes the SEC to reward those who provide information concerning violations of the federal securities laws at companies that are required to report to the SEC.

Further, the Dodd-Frank Act strengthens the whistleblower protection provisions of the False Claims Act, and contains one of the strongest confidentiality provisions for Whistleblowers ever enacted. For the first time, Whistleblowers will be allowed to initially report fraud anonymously by filing a claim through an attorney.

Additionally, the law prohibits employers from retaliating against Whistleblowers. Employers may not fire, demote, suspend, threaten, harass, or discriminate against a Whistleblower. The Dodd-Frank Act expands the reach of whistleblower protections provided under the Sarbanes-Oxley Act of 2002 to include employees of public companies, as well as employees of its private subsidiaries and affiliates. Whistleblowers who suffer from employment retaliation may sue for reinstatement, back pay, and any other damages incurred.

Educational Fraud

The federal False Claims Act broadly prohibits anyone who does business with the federal government from engaging in fraudulent behavior. Accordingly, there are innumerable circumstances where such fraud may occur, and in which a Whistleblower may bring an action to expose the fraud and recover appropriate damages. An example of such fraud includes:

Every year the Department of Education makes billions of dollars of loans available to students to help them pay for higher education at public, private non-profit, and private for-profit (also known as proprietary) schools. In order to qualify for these funds however, both students and schools must satisfy certain eligibility requirements. Cases of student loan fraud often involve institutions of higher learning making false statements to the Department of Education in order to meet these requirements.

Common fraudulent schemes employed by schools to enable otherwise ineligible students to qualify for federal student loans:

- Falsifying student financial information on the Free Application for Federal Student Aid (FAFSA);
- Students without a high-school diploma or GED can qualify for federal loans, grants, and campus-based aid if they pass an “ability to benefit” test, which is an independently administered test of basic Math and English skills. Giving out the answers to, or falsifying the result of such tests can result in False Claims Act violations;
- Violating regulations governing the administration of ability-to-benefit tests, such as school officials administering the test instead of independent test administrators, or failing to follow rules governing when students can retake the test on the same form; and
- Assisting students to obtain invalid high-school diplomas from diploma mills.

Educational institutions may also commit fraud by failing to abide by certain Department of Education regulations for which compliance is required in order to qualify and maintain eligibility for receipt of federal student loan funds. Examples of such fraud include:

- Compensating employees based on their success in securing student enrollments;
- Falsely reporting student loan default rates; and
- Falsely reporting of student enrollment and graduation data.

Defense Contractor Fraud

The federal False Claims Act broadly prohibits anyone who does business with the federal government from engaging in fraudulent behavior. Accordingly, there are innumerable circumstances where such fraud may occur, and in which a Whistleblower may bring an action to expose the fraud and recover appropriate damages. An example of such fraud includes:

When it comes to defense contracts, it is important for Whistleblowers to point out fraudulent claims to help protect the government and taxpayers from unnecessary expenses. Defense contractor fraud remains one of the biggest areas for False Claims Act litigation. Persons who choose to bring a lawsuit against a defense contractor who is collecting money on the basis of false or fraudulent claims are given freedom to do so under the False Claims Act.

Types of Defense Contract Fraud

Defense contract fraud can come in many different forms, and the government relies heavily on Whistleblowers to help expose new schemes and fraudulent actions. Defense contract fraud may include:

Cross-Charging/Upcharging

Cross-charging has been one of the most common types of defense procurement fraud. Cross-charging occurs when a defense contractor improperly shifts costs and expenses from one defense contract to another in order to boost its profits.

The United States typically awards one of two types of contracts in defense procurement: (1) the “fixed-price” contract; and (2) the “cost-plus contract.” In a “fixed-price” contract, the government pays the contractor a set price for the delivery of a weapons system or other product, no matter how much it costs the contractor to produce. In a “cost-plus” contract, the government pays the contractor a set price plus a percentage of the contractor’s costs for producing the weapons system or other product. Defense contractors that have both of these types of contracts have a strong financial incentive to shift costs from the “fixed-price” contract to the “cost-plus” contract, and thereby maximize the contractor’s profits. This illegal cross-charging is frequently accomplished by altering records to shift employee hours and equipment costs from the “fixed-price” contract to the “cost-plus” contract.

Overcharging/Overbilling

Overcharging can occur in various formats. The Government utilizes contracts with various agencies and companies to provide products and services. Oftentimes the Government ends up paying more than it should for those products and services due to the billing a company performs.

Defense contractors who provide products and services to the United States military also sell those products, in some form or another, to foreign governments and private businesses around the world. One way that some defense contractors have attempted to secure lucrative contracts from private businesses or foreign governments, is to improperly allocate or shift costs from those contracts onto the “cost-plus” contracts they have with the United States government. As a result of this scheme, the United States ends up paying for the costs that should be paid by these private businesses or foreign governments.

Overbilling the United States government can incur in any number of ways, including:

- Billing for services or products that were not provided;
- Shifting the costs of a fixed price contract to the costs of a cost-plus contract that the contractor may also maintain with the Department of Defense (DOD) or a DOD prime contractor; and
- Inflating the cost absent of any justification.

Use of cheap or inferior products on the project or provide defective parts not manufactured in accordance with specification.

The United States government frequently specifies that its defense contractors build products using a certain grade or quality of parts. Further, the government requires that the parts be purchased from American companies. Substitution or deviation for any of the specifications of the contract must be approved by the government contracting officer.

Failure to follow contract specifications/failure to disclose product defect

The Defense Department requires its contractors to build those systems in accordance with very detailed product specifications. These specifications dictate not only the type of materials to be used for the contract, but also appropriate quality assurance steps that the company must follow to ensure the quality of the product.

If a company starts to overrun its budget on a contract, or falls behind in its delivery schedule, it may cut corners by omitting required testing, quality procedures, or other steps in the production process. This may lead the company to send the government products with defects, therefore fraud against the government will exist.

Failure to complete the project to government requirements

The government is very specific as to how the project should be carried out with specific environmental compliance that needs to be met. The labor standards for the health and safety protections for the workers should not be compromised during the project. Any attempt to cut corners, or alter these requirements knowingly may form the basis for a False Claim Act case.

Failure to Disclose all relevant information about its costs

When the government wants to buy some extra stealth bombers, it cannot simply solicit the best bid from a number of different companies. Highly specialized weapons systems often must be purchased from the single company that already makes them, known as a “sole-source supplier.”

The problem for the government is to ensure that it pays a fair price, since it cannot put out the contract for competitive bids. The Truth In Negotiations Act (TINA) requires the contractor to truthfully disclose all relevant information about its costs to the government in “sole-source” contract negotiations.

Fraudulent Loans & Grants

The federal False Claims Act broadly prohibits anyone who does business with the federal government from engaging in fraudulent behavior. Accordingly, there are innumerable circumstances where such fraud may occur, and in which a Whistleblower may bring an action to expose the fraud and recover appropriate damages. An example of such fraud includes:

Universities, non-profit organizations, and hospitals often depend on government issued grants to conduct important research, and continue to perform much needed public services. Applicants for federal grants are often required to disclose how funds will be used, and what the intended research projects will do. False statements made to secure a grant or statements made to continue to receive funding under a grant can be a source of liability as can any violation of a condition of the grant.

Fraudulent grant claims may include:

- Failure to disclose all funding sources;
- Falsifying application information;
- Making false statements when administering grant money;
- Overstating success of research to qualify for more funding; and
- Misrepresenting program details like income, use of funds, how they are to be used, and other statements

Tax Fraud

The federal False Claims Act broadly prohibits anyone who does business with the federal government from engaging in fraudulent behavior. Accordingly, there are innumerable circumstances where such fraud may occur, and in which a Whistleblower may bring an action to expose the fraud and recover appropriate damages. An example of such fraud includes:

The Internal Revenue Service rewards Whistleblowers with a percentage of the tax money and penalties recovered with the information provided. In September 2012, Brad Birkenfeld received a $104 million prize for revealing a scheme by wealthy taxpayers who utilized secret Swiss bank accounts to avoid taxation.

Tax fraud is not considered to be a part of the False Claims Act. Persons who reveal serious tax fraud do not need to file a qui tam lawsuit. The fraud is typically reported directly to the Internal Revenue Service (IRS) and the claim will be investigated and pursued by that department. The tax fraud Whistleblower’s identity will be kept secret during the investigation and legal action. Any rewards will be issued following the completion of an investigation, and the recovery of money owed to the government.

Common Types of Tax Fraud:

- Companies or individuals omitting income from foreign stock exchanges;
- Companies or individuals transferring assets outside the United States;
- Overstating the amount of tax deductions;
- Falsifying financial documents or ledgers;
- Claiming false tax deductions;
- Under-reporting employee income;
- Paying employees in cash; and
- Keeping two sets of financial records.