Billions of dollars are lost each year nationally to fraudulent Medicare and Medicaid claims. If only legitimate claims were paid, the savings could help pay for health care reform. The federal government has been unable to effectively police against such fraud - but private citizens can make a difference.

A federal law known as the False Claims Act (FCA) has been on the books since the Civil War era. Originally designed to combat false claims submitted to the Union Army, the FCA applies to false or fraudulent medical claims submitted to the federal government for payment.

What's not widely known is that the FCA authorizes private citizens to sue on behalf of the government to recover funds paid for false or fraudulent claims. This could include such activity as billing for services or medical equipment neither needed nor received by the patient. It could further involve overcharging, miscoding of diagnostic reimbursement codes, pricing schemes, off-label marketing, kickbacks and failure to return overpayments.

Any person who is aware of false or fraudulent conduct can qualify to bring suit as a whistle-blower. Typically, this is a current or former employee of an organization or corporation such as a medical practice, pharmacy, nursing home, hospital, clinical laboratory, health insurance company, durable medical equipment company, drug company or medical device manufacturer. Some employees may be afraid to come forward due to a fear of retaliation. It can easily be imagined that a vindictive employer might be inclined to fire a whistle-blowing employee. The FCA addresses this legitimate concern.

If an employer unwisely resorts to a retaliatory firing, relief is available in the form of reinstatement with double back pay, together with interest and reasonable attorneys' fees. Physicians, perhaps more than any group, can play a vital role in blowing the whistle, yet they may not have the legal status of "employee." To deal with this, the FCA extends protection against retaliation to agents and contractors. This protects such groups as medical staff physicians who may not be employees of a hospital or medical facility yet could be subjected to retaliation for whistle-blowing in the guise of negative peer reviews.

Unlike the typical civil lawsuit, an FCA lawsuit must first be filed under seal, which means it is not a public record. This is designed to give the government time to investigate and decide whether it will take primary responsibility for the case. If it is taken over by the Justice Department, the whistle-blower continues to play a vital role in cooperating and providing evidence necessary to prove the case. If the lawsuit is successful, the whistle-blower may be entitled to a sizable portion of the recovery. When the government takes a case, the whistle-blower can get up to 25 percent of damages, which can be trebled, and the civil penalty of $5,500 to $11,000 per violation. If the government does not take the case, the whistle-blower is still allowed to go forward. Under these circumstances, the whistle-blower gets 25 percent to 30 percent of the award.

A big limitation on an FCA lawsuit is that it must be based on "original source" information. This means the whistle-blower must have "direct and independent knowledge." If the basis of the lawsuit has already been publicly disclosed, the case will be barred, unless the person bringing suit is an original source of the information. Thus, it is important to be the first to come forward and file suit. Generally, the case must be brought within six years of the violation.

The FCA also provides an important deterrent to overzealous pursuit of marginal or baseless lawsuits. The unsuccessful whistle-blower could be ordered to pay the defendant's attorney's fees and expenses if the action was frivolous.

Wider use of FCA lawsuits would increase the amount of funds returned to the Treasury and, through deterrence, decrease the incidence of fraud. The billions of dollars saved or recovered each year could go a long way toward financing health care reform.

Daniel W. Whitney is an attorney in Towson. His e-mail is dwhitney@whitney bogris.com.