UC Berkeley

Fraud against the federal government can be extremely costly, as the Department of Health and Human Services estimated it made $70 billion in improper payments in 2010 under Medicare and Medicaid. Combating fraud is a similarly costly affair, and the federal government has revitalized a Civil War statute to help in the fight. Under the False Claims Act, the government pays private enforcers a bounty to file cases against defendants committing fraud. These private enforcers, typically whistleblowers, have helped the government recover over $18 billion as of 2010.

Private enforcement has a long history under the common law tradition, but its role in a the modern, public enforcement state is less certain. The False Claims Act's private enforcement system, known as its qui tam provisions, specifies government review of private actions in an attempt to curtail past abuses.

In the first part of this dissertation, I evaluate the role of private enforcers and their attorneys in this qui tam system. The government review process allows a standardized reference point for comparing private performance. I argue that it also provides private actors the opportunity to slack by pursuing a “filing mill” strategy. From the data available, however, I do not find law firms aggressively submitting cases under such a high volume, low effort strategy. Rather, law firms and the government appear to be cooperating as intended under the statutory design.

In the second piece of this dissertation, I address the question of the optimal bounty percentage for a finder's fee in the False Claims Act. The statute current specifies a minimum 15% bounty for information leading to a successful prosecution of fraud. I consider the responsiveness of private enforcers to variation in the bounty percentage. Using variation from a 2004 change in the tax code, I find evidence that private enforcers are more willing to bring new cases valued under $440,000 given an approximate 23% increase in bounty.

For the final piece of this dissertation, I consider the bounty percentage for private litigation in the qui tam process. Unlike the finder's fee bounty, I suggest that a 100% litigation bounty may be useful for both compensatory and deterrence purposes. Although a government agency concerned about compensation for fraud losses might initially be concerned about granting a 100% litigation bounty, I argue that the threat of such a litigation bounty may result in additional compensation. The Department of Justice should have the discretionary power to grant high litigation bounties.