Scope of FCA Liability Illustrated In Recent Actions Against Higher Education Institutions

By Brett W. Johnson and Ian Joyce

In the past five years, the Federal Government and “Qui Tam” Relators have ramped up False Claims Act (“FCA”) actions against higher education institutions. These actions highlight the scope and breadth of potential FCA liability and hammer home the importance of instituting strong compliance policies — in any industry. 

The FCA was enacted during the Civil War to combat defense contractor fraud.¹ Among other things, the FCA generally prohibits a person or business from: (1) requesting money from the government for goods that were not actually delivered or for services that were not actually rendered; (2) making false statements in certifications that are prerequisites for receiving federal funding; or (3) avoiding paying money that is owed to the government.² If found guilty, a person faces significant civil penalties plus “3 times the amount of damages that the government sustains.”³ In addition to actions brought by the Department of Justice (“DOJ”), FCA claims may also be filed by “qui tam” whistleblowers — who are oftentimes individuals that previously worked for the company facing FCA liability.⁴

Because higher education institutions receive significant federal funds — from contracting work to research grants to Title IV funds to Medicare/Medicaid payments — they are particularly at risk of FCA liability. Yet, although many educational institutions are likely aware of “typical” FCA danger areas — like submitting false health care reimbursement claims or falsifying information on grant applications — they may not fully appreciate the sheer scope of potential liability. This scope has been brought to the forefront by numerous recent FCA lawsuits. 

For instance, certain federal regulations require contractors and grant recipients to implement stringent cybersecurity requirements. In October 2022, a qui tam whistleblower — who had formerly been hired by the university to advise the school on cybersecurity requirements⁵ — filed an FCA action against The Pennsylvania State University, alleging that the university had submitted false and/or inaccurate cybersecurity records and certifications in connection with government contracts.⁶  

The DOJ has also recently brought several FCA enforcement actions against universities that failed to disclose that professors working on grant-funded projects had affiliations with foreign governments. In September 2023, Stanford agreed to pay a $1.9 million settlement with the DOJ after it failed to disclose in its application for grants from the Army, Navy, Air Force, NASA, and National Science Foundation that one of the principle investigators had previously received funding at a Chinese public university.⁷ Ohio State University similarly agreed to pay $875,689 to resolve similar claims in November 2022.⁸ 

Outside of these categories, within the past five years, the DOJ has pursued FCA enforcement actions against institutes of higher education based on wide-ranging theories of liability, including: (1) improperly using incentive-based compensation for student recruiters in violation of Title IV;⁹ (2) failing to share patent royalties with the government;¹⁰ (3) improperly using grant monies;¹¹ (4) submitting progress reports containing falsified research;¹² and (5) failing to properly account for rebates and credits allocable to grants and awards.¹³ Some of these actions have resulted in settlements exceeding $100 million. 

As the foregoing makes clear, institutions of higher education (and those companies that are involved as subcontractors or licensees of intellectual property) should ensure that they have strong compliance programs in place. In addition, as principal investigators are appointed, training and auditing should regularly occur to avoid conflicts of interest and potential FCA claims.

Footnotes

1. The False Claims Act, U.S. Dep’t. of Justice, Civil Division (Apr. 4, 2023), https://www.justice.gov/civil/false-claims-act [BACK]
2. 31 U.S.C. § 3729(a)(1)(A)-(G). [BACK]
3. 31 U.S.C. § 3729 (a)(1). [BACK]
4. See 31 U.S.C. § 3730(b). [BACK]
5. See e.g., DFARS § 252.204-7012. [BACK]
6. See United States ex. rel. Decker v. Pennsylvania State University, Case No. 2:22-cv-03895-PD (E.D. Pa.). [BACK]
7. Press Release, Stanford University Agrees to Pay $1.9 million to Resolve Allegations that it Failed to Disclose Foreign Research Support in Federal Grant Proposals, U.S. Dep’t of Justice (Oct. 2, 2023),https://www.justice.gov/opa/pr/stanford-university-agrees-pay-19-million-resolve-allegations-it-failed-disclose-foreign [BACK]
8. Press Release, Ohio State University Pays Over $875,000 to Resolve Allegations that It Failed to Disclose Professor’s Foreign Government Support, https://www.justice.gov/opa/pr/ohio-state-university-pays-over-875000-resolve-allegations-it-failed-disclose-professor-s [BACK] 
9. E.g., Press Release, Oral Roberts University to Pay over $300,000 for Allegedly Violating an on Incentive Compensation, U.S. Dep’t of Justice (June 5, 2019), https://www.justice.gov/opa/pr/oral-roberts-university-pay-over-300000-allegedly-violating-ban-incentive-compensation; Press Release, University of Phoenix Settles False Claims Act Lawsuit for $67.5 Million, U.S. Dep’t of Justice (Dec. 15, 2009), https://www.justice.gov/opa/pr/university-phoenix-settles-false-claims-act-lawsuit-675-million [BACK]
10. Press Release, Yale University and Its Professor Agree to Pay $1.5 Million for Failure to Share Patent Royalties with VA., U.S. Dep’t of Justice (Sept. 21, 2023), https://www.justice.gov/opa/pr/yale-university-and-its-professor-agree-pay-15-million-failure-share-patent-royalties-va [BACK]
11. Press Release, Drexel University to Pay $189,062 to Resolve Potential False Claims Liability, U.S. Attorney’s Office, E.D. Pa. (Oct. 7, 2019), https://www.justice.gov/usao-edpa/pr/drexel-university-pay-189062-resolve-potential-false-claims-liability. [BACK]
12. Press Release, Duke University Agrees to Pay U.S. $112.5 Million to Settle False Claims Act Allegations Related to Scientific Research Misconduct, (Mar. 25, 2019), https://www.justice.gov/opa/pr/duke-university-agrees-pay-us-1125-million-settle-false-claims-act-allegations-related#:~:text=Duke%20University%20has%20agreed%20to,Environmental%20Protection%20Agency%20(EPA)%2C. [BACK]  
13. Press Release, University to Pay $1.5 Million to Settle False Claims Act Allegations, U.S. Attorney’s Office, W.D. Wis. (Mar. 21, 2019), https://www.justice.gov/usao-wdwi/pr/university-pay-15-million-settle-false-claims-act-allegations. [BACK]