New State A False Claims Acts:
An Executive Summary for Health Care Compliance Professionals
By Michael A. Sullivan, Esq.
Editor=s Note: Mr. Sullivan is an attorney who has worked with the False Claims Act since the late 1980s, and has represented both defendants and Awhistleblowers@ in cases under the False Claims Act. He is the co-author of www.whistleblowerlawyerblog.com. A former federal prosecutor, he is a partner in Finch McCranie, LLP in Atlanta. At the request of legislators, Mr. Sullivan provided input in the drafting of the new Georgia AState False Medicaid Claims Act@ and testified at each of those legislative hearings in 2007 to explain the False Claims Act. Contact Mr. Sullivan by telephone at 404/658-9070 or by email at msullivan@finchmccranie.com.
In a scene being repeated across the country, health care professionals listened quietly as state legislators held hearings this Spring on the new state AFalse Claims Act@ they were about to approve in Georgia.
These lawmakers wanted to know from the state=s Inspector General and from me, a Awhistleblower@ lawyer, how the new state law would work, and how the similar federal False Claims Act has been so successful in recovering billions of dollars since 1986Cmore than 70% of which now comes from defendants in health care cases.
This legislature voted overwhelmingly to pass the new state False Claims Act in Georgia, just as New York and Oklahoma have passed their own False Claims Acts in early 2007. Overall, nineteen states and the District of Columbia now have similar laws that protect at least state Medicaid funds, and new state False Claims Acts have been proposed in more than a dozen other states.
More and more state False Claims Acts will follow, as other states seek to qualify for the financial incentives that Congress has created to encourage states to pass such laws, as part of the Deficit Reduction Act of 2005.
For compliance professionals, understanding the essentials of the federal False Claims Act--and what these new state False Claims Acts will addCis a necessity. This Article provides an Executive Summary of what compliance professionals need to know about (1) the federal False Claims Act and (2) the wave of new state False Claims Acts, all of which will increasingly affect health care professionals nationwide.
The False Claims Act:
The Essentials
For compliance purposes, here are some essential points for understanding the federal False Claims Act, most of which also apply to the new state False Claims Acts.
First, the federal government uses the False Claims Act as its “primary” weapon (short of indictment) to recover government funds when it believes it has been defrauded. The Justice Department takes these cases seriously and is always looking to recover money that it believes was wrongfully obtained.
Second, the definitions of Afraud@ and Afalse claims@ in the False Claims Act are broad enough that almost any violation of a government regulation, rule, or contract involving government money may lead to a False Claims Act case.
Third, the False Claims Act largely depends on private citizen Awhistleblowers@ to reveal suspected wrongdoing. The Act authorizes and encourages whistleblowersCalso known as Arelators@Cto file Aqui tam@ lawsuits on the government’s behalf to recover damages for the government. If successful, the whistleblower may share in up to 25-30% of the money recovered by the government. While the private sector sometimes frowns on Awhistleblowing,@ the government depends on itCand rewards it--in these cases.
Fourth, the Act also protects from retaliation employees who assist in the investigation and prosecution of False Claims Act claims. Retaliation can make the defendant liable to the employee for monetary damages, in addition to the other damages and penalties that a defendant can face under the Act.
Fifth, a defendant=s exposure for damages and penalties from violating the False Claims Act can be enormous. The Act creates liability for Atreble damages@ (actual amount of money at issue, multiplied by three), as well as civil penalties of $5,500 to $11,000 for each Aclaim@ submitted that was false or fraudulent. The definition of Aclaim@ is broad enough that, in health care cases, liability for penalties alone can be huge.
Sixth, since 1986, the False Claims Act has been dramatically successful in recovering an increasing amount of money each year for the federal government, especially from defendants in health care. As health care expenditures have grown each year, both in dollars and as a percentage of the federal budget, the government has focused increasingly on health care cases.
For example, government recoveries in health care cases have grown from less than $2 million in 1988, to more than $1.8 billion in 2003. In 2006, a record year in which the government recovered $3.1 billion overall, 72% came from the health care field; 20% from defense; and 8% from other sources. Health care alone accounted for more than $2 billion in settlements and judgments in 2006, which included a $920 million settlement with Tenet Healthcare Corporation, the country’s second largest hospital chain.
Examples of allegations in health care cases under the False Claims Act include over-billing or up-coding, fraudulent cost reporting, billing for services not provided, kickbacks and inducements for referrals, and failure to furnish the required “quality of care.” In recent years, pharmaceutical companies have paid some of the larger settlements in False Claims Act cases, over allegations of overcharging government entities for drugs, or illegal marketing practices, including Aoff-label@ marketing. Hospitals, medical providers, joint ventures involving hospitals and physicians, providers of durable medical equipment and supplies, and many other entities in health care have faced liability as well.
Although the amounts recovered vary each year, from 2001-2006 federal government recoveries from health care cases exceeded $1 billion in all but one year. The trend continues in 2007, as the Office of Inspector General of the Department of Health and Human Services recently announced that it expects $2.9 billion in recoveries for Medicare, Medicaid, and other federal health and human services programs for the first half of fiscal year 2007.
The State False Claims Acts:
Why the Recent Wave of New State Laws?
For a working understanding of what compliance professionals should know about this trend of new state False Claims Acts, it is important first to understand why the new laws are appearing.
The successes of the federal False Claims Act prompted Congress to encourage states to pass similar laws through financial incentives that are part of the Deficit Reduction Act of 2005. The financial Acarrot@ works this way: as of January 1, 2007, states that have enacted their own False Claims Acts which meet certain criteria qualify for a greater shareCan additional ten percentage points--of any Medicaid dollars recovered under that law.
In plain English, the statutory criteria that the state laws must meet boil down to being at least as effective as the federal False Claims ActCespecially in Arewarding and facilitating qui tam actions for false or fraudulent claims@Cwith penalties no less than those under the federal Act.
What the New State False Claims Acts Typically Do:
Each new state False Claims Act applies to fraud and false claims affecting that state=s Medicaid program; some go further to cover other state funds. Of the three newest Acts passed in 2007 to date, Georgia=s new Act is limited to Medicaid funds, while New York=s and Oklahoma=s new laws apply to state funds without limitation to Medicaid.
These state laws create liability for the same types of conduct that are already prohibited under the federal Act, although the state laws may be broader. Using New York=s new False Claims Act as an example, health care compliance professionals should know about these four provisions that create liability for any company or person who:
(a) knowingly presents, or causes to be presented, to any employee, officer or agent of the state or a local government, a false or fraudulent claim for payment or approval;
(b) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the state or a local government;
(c) conspires to defraud the state or a local government by getting a false or fraudulent claim allowed or paid; [or]
* * * *
(g) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the state or a local government . . . .
In short, any Aclaims@ (including billings by a health care provider) that are Afalse or fraudulent@Cor that involve a false record or false statement--submitted to obtain state funds from the Medicaid program (and perhaps from other sources in states with broad statutes) may subject a health care provider or company to liability under the state False Claims Acts.
Most surprising to those unfamiliar with the False Claims Act, these new state lawsClike the federal Act Cdo not require that a defendant specifically Aintend@ to commit fraud before the defendant can be liable. Nor does the defendant need to have Aactual knowledge@ of the fraud to be at risk.
Instead, a person or company may be liable not only when acting with “actual knowledge” of the wrongdoing, but also when acting in “deliberate ignorance” or “reckless disregard” of the truth or falsity of the information in question. The Acts also make explicit that no “specific intent to defraud” need be shown to impose liability. Thus, a defendant can be held liable when the defendant merely should have known of wrongdoing that was occurring.
Also starkly different about these new state laws, no amount of legislative Alobbying@ can make these state laws Aweaker@ or less effective than the federal False Claims ActCthat is, if the state wishes to qualify to receive the additional funds under the Deficit Reduction Act.
Seven of the first ten states whose statutes were scrutinized by the Office of Inspector General (OIG) quickly learned this lesson, when OIG Adisapproved@ their state statutes. These included California (which lacked a minimum penalty), Florida (which omitted Afraudulent@ from its definition of Aclaims@), Indiana (which did not make defendants liable for Adeliberate ignorance@ and Areckless disregard@), Louisiana (which did not permit the state to intervene in cases, set too low a percentage for whistleblowers to recover, and set no minimum penalty), Michigan (which omitted penalties and liability for decreasing or avoiding an obligation to pay the government, i.e., a Areverse false claim@), Nevada (which had a statute of limitations too short and a minimum penalty too low), and Texas (which did not permit the whistleblower to litigate the case if the state did not, and which provided for lower percentage shares to whistleblowers and lower penalties). Most of these states have gone back to the drawing board to correct these deficiencies.
On the other hand, the states are free under the Deficit Reduction Act to pass laws Atougher@ than the federal Act. For example, New York has set its penalties higher, at $6,000 to $12,000, for each false or fraudulent claim. Similarly, the new Georgia law deviates from (and represents an improvement on) the federal Act because it was drafted to remove a technical issue that has sometimes interfered with the federal Act=s effectiveness.
From a compliance perspective, the most workable approach may be to gain an understanding not only of the federal Act, but also of at least any provisions of the state Acts that are Atougher@ than those of the federal False Claims Act. With nineteen state Acts already on the books, with at least twelve more being proposed, and with other states sure to consider similar laws in order to qualify for the financial incentives, it will be a challenge to keep up with them all.
Conclusion:
Lessons for Health Care Compliance Professionals
One final point will serve health care compliance professionals. The False Claims Act, as well as the state Acts that are appearing across the country, are Aflexible@ in their application. The government prefers to have Aanti-fraud@ provisions that can be adjusted to fit each new alleged Ascheme@ to defraud that it may encounter.
The flexibility of these laws has encouraged creative uses of them by both government lawyers and Awhistleblower@ lawyersCin situations in which these laws may never have been used before. As an example, read about some of the earliest Aoff-label@ marketing cases against pharmaceutical companies. The relator’s lawyers applied the False Claims Act in a way that even the government apparently questioned would succeedCand it did.
The moral of this story is do not assume that something that strikes you as Aawry,” or “questionable” in the business of providing health care will not give rise to False Claims Act liability, simply because it has never done so before. As I advised my Adefense@ clients who sought to avoid liability to the government (before I began representing only whistleblowers), if it seems wrong, it probably is--and probably should be avoided. Any arguable violation of a government rule, regulation, or contract could evolve into a False Claims Act caseCespecially if the dollars involved are large enough.
Health care professionals who understand these essentials of the False Claims Act and the new state Acts, and who follow this approach, should fare well in compliance.
