New Compliance and Education Reforms Take Effect

In February, 2006, President Bush signed into law the Deficit Reduction Act of 2005 (DRA). An obscure provision within this Act mandates that entities receiving greater than $5 million per year in Medicaid payments must educate their employees about “whistleblower” claims under the Federal False Claims Act. Under the DRA, effective January 1, 2007, as a requirement of continued eligibility for the receipt of Medicaid payments, any entity receiving annual payments of $5 million or more in Medicaid funds must have mandatory compliance and education programs in place for its employees to provide detailed information about the Federal False Claims Act. This education must include information provided to employees about administrative remedies, state laws pertaining to civil or criminal penalties, whistleblower protections, and the role of such laws in preventing and detecting fraud, waste, and abuse in federally funded healthcare programs.
Congress has clearly recognized that the government has a strong need to contain costs through increased fraud and abuse enforcement. Medicaid spending, like Medicare spending, is exponentially increasing. Medicaid enrollment increased from ten (10) million beneficiaries in 1967 to over 44.7 million beneficiaries in 2006 according to statistics published by the United States Department of Health and Human Services. Along with this increase in beneficiaries, Medicaid expenditures have also dramatically increased. In fiscal year 2005 Medicaid expenditures approximated twenty percent (20%) of total federal outlays.

The Centers for Medicare and Medicaid Services (CMS) in its fiscal year report for 2005 documented that $484.3 billion had been spent in the fiscal year 2005. Given this staggering amount of money, and because the percentage of the total federal outlay was expected to exceed twenty percent (20%) of the total federal budget, Congress enacted the mandatory employee education provisions about false claims recovery to encourage whistleblower lawsuits and, hopefully, thereby decrease fraud and abuse.

In addition to providing written policies for all employees, the mandatory policies and compliance programs must include detailed provisions regarding the employer’s policies and procedures for detecting and preventing fraud, waste and abuse. The written policies must include a specific discussion of federal and applicable state False Claims Acts, and the rights of employees to be protected from retaliation as whistleblowers. Ironically, as of the effective date of this provision, there is no state False Claims Act in Georgia. This is very discouraging. Nonetheless, this too may change depending upon the actions of the Georgia Legislature when it meets in 2007.

Section 6031 of the Deficit Reduction Act encouraged the enactment of state False Claims Acts by providing financial incentives for states to enact laws dealing with false or fraudulent claims (specifically including Medicaid claims) that parallel the federal False Claims Act. All states that enact state False Claims Acts are eligible for a ten percent (10%) increase in their share of Medicaid fraud recoveries. Many states have already availed themselves of this opportunity to participate in an increase share of Medicaid fraud recoveries but Georgia has yet to pass such legislation. Whether it will do so, of course, depends upon Governor Perdue and the Republican controlled State House and Senate.

To qualify for the ten percent (10%) increase in its share of Medicaid fraud recoveries, a state’s false claims statute must establish liability to the state for false or fraudulent claims described in the False Claims Act with respect to any expenditure described in the Medicaid program and must contain provisions that are at least effective in rewarding and facilitating whistleblower actions for false or fraudulent claims. In short, if a state wishes to participate in an increased share of Medicaid fraud recoveries, it must enact legislation that is as effective as the Federal False Claims Act itself.

All legal practitioners know that the False Claims Act, 31 U.S.C. § 3729 – 3733 was enacted more than 140 years ago to address fraud and abuse during the Civil War by greedy contractors. After numerous amendments over the course of time, particularly in 1986, the Federal False Claims Act is now recognized as the federal government’s most effective tool for combating waste and fraud in federal government programs. This is primarily because liability to defendants in False Claims Act cases can be enormous. First, the Act provides for treble damages or three times the amount of damages which the government sustains because of the fraudulent claim. Second, the Act also provides for civil penalties of five to ten thousand dollars for each false claim submitted as well as a share of the recovery and attorney’s fees for the whistleblower and his attorney. Such whistleblower actions were responsible for $3.1 billion in settlements and judgments for fraud and false claims according to the Justice Department in the fiscal year 2006. Of this record $3.1 billion in recoveries, seventy-two percent (72%) came from the healthcare related fraud, twenty-two percent (22%) from defense fraud claims and eight percent (8%) from other sources.

For any healthcare providers receiving Medicaid funds in excess of $5 million, if it failed to implement the mandatory compliance and employee education programs as of January 1, 2007, then, in that event, it is not eligible to receive Medicaid benefits and should they seek the same, will be subject to a “Qui Tam” whistleblower action for failing to do so. In short, any attempt to receive Medicaid funds after January 1, 2007 by any entity that has not established an employee education and compliance program is itself actionable as a false claim by any employee who blows the whistle on the non-compliant employer. This is a good beginning for taxpayers. The hope, of course, is that the State Legislatures that have not yet enacted State false claims statutes will do its part by enacting a state False Claims Act at the earliest opportunity.