Part 2: The False Claims Act and the Growing Number of State False Claims Acts With Qui Tam Whistleblower Provisions–the Basics

This is Part 2 by whistleblower lawyer blog of a detailed overview of the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. It is based on an article by whistleblower lawyer blog author Michael A. Sullivan, and is reprinted with permission of the Georgia Bar Journal.

This Part 2 discusses the sound policy reasons underlying the False Claims Act.

I. Why A “False Claims Act”?

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

For those who are caught committing fraud, the chances of being prosecuted and eventually going to jail are slim. . . . The sad truth is that crime against the Government often does pay. [5]

Fraud-and allegations of fraud-plague government spending at every level. Today, as the federal and state governments struggle to fund the billions of dollars spent annually on health care through Medicare and Medicaid; national security and local security efforts; Hurricane Katrina and other disaster relief; and government grants and programs of every description, there is no shortage of opportunities for fraud against the public fisc.

The federal False Claims Act has been the federal government’s “primary” weapon to recover losses from those who defraud it. [6] The Act not only authorizes the government to pursue actions for treble damages and penalties, but also empowers and provides incentives to private citizens to file suit on the government’s behalf as “qui tam relators.” Over the past 20 years, recoveries for the federal government have grown dramatically since Congress amended the Act in 1986 to encourage greater use of the qui tam provisions, as part of a “coordinated effort of both the [g]overnment and the citizenry [to] decrease this wave of defrauding public funds.” [7]

The federal False Claims Act has been successful in recovering billions of dollars, increasingly through qui tam lawsuits brought by private citizens. In light of the federal Act’s successes, Congress in the Deficit Reduction Act of 2005 [8] created a large financial “carrot” for states that adopt state versions of the False Claims Act. Any state that passes its own “False Claims” statute with qui tam or whistleblower provisions that are at least as effective as those of the federal Act becomes eligible for a 10% increase in its share of Medicaid fraud recoveries. [9]

Thus, Georgia’s and other states’ impetus in enacting these new state False Claims Acts in 2007 was this incentive of more dollars. In 2007 to date, Georgia, New York, and Oklahoma have joined the 16 other states that have enacted some version of a “False Claims” statute. [10] At least a dozen other states [11] are considering enacting similar statutes of their own so that they, too, qualify for increased funds under the Deficit Reduction Act.

Footnotes:

5 S. REP. No. 99-345, at 3 (1986), as reprinted in 1986 U.S.C.C.A.N. 5266, 5268 [hereinafter “Legislative History”] (quoting 1981 GAO Report to Congress, “Fraud in Government Programs: How Extensive Is It? How Can It Be Controlled?”).

6 Id. at 2.

7 Id.

8 See Deficit Reduction Act of 2005, Pub. L. No. 109-171, 120 Stat. 4.

9 Id. § 6031. In the legislative hearings that led to passage of the new Georgia Act (all attended by this writer, and at which this writer also testified), Inspector General Doug Colburn of the Georgia Department of Community Health testified that Georgia currently pays approximately 38 cents of every dollar spent in the Georgia Medicaid program, and thus Georgia currently receives 38% of Medicaid fraud recoveries. This ten point increase to 48% in Georgia’s share of Medicaid fraud recoveries would thus effectively increase Georgia’s share of these recoveries by more than 26% in actual dollars (i.e., by the fraction 10/38).

10 As of July 2007, the states that have enacted “False Claims” statutes are California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Mexico, New York, Oklahoma, Tennessee, Texas, Virginia and the District of Columbia. See CAL. GOV’T CODE §§ 12650-12656; DEL. CODE ANN. tit. 6, §§ 1201-1209; FLA. STAT. §§ 68.081-68.09; O.C.G.A. §§ 49-4-168 to 49-4-168.6; HAW. REV. STAT. §§ 661-21 to 661-29; 740 ILL. COMP. STAT. §§ 175/1 to 175/8; IND. CODE §§ 5-11-5.5-1 to 5-11-5.5-18; LA. REV. STAT. ANN. §§ 46:437.1-440.3; MASS. GEN. LAWS 12 §§ 5A; MICH. COMP. LAWS §§ 400.601-400.613; MONT. CODE ANN. §§ 17-8-401 to 17-8-412; NEV. REV. STAT. §§ 357.010 to 357.250; N.H. REV. STAT. ANN. §§ 167:61 to 167:61-e; N.M. STAT. §§ 27-14-1 to 27-14-15; N.Y. STATE FIN. LAW §§ 187-194 (McKinney); OKLA. STAT. tit. 63, §§ 5053-5053.7 (effective Nov. 1, 2007); TENN. CODE ANN. §§ 71-5-181 to 71-5-185; TEX. HUM. RES. CODE ANN. §§ 36.001 to 36.132; VA. CODE ANN. §§ 8.01-216.1 to 8.01-216.19; and D.C. CODE §§ 2-308.13-2.308.21. A regularly updated list of state False Claims Acts appears at www.taf.org/statefca.htm. For an excellent 2005 article on state False Claims Acts, see James F. Barger, Jr., Pamela H. Bucy, Melinda M. Eubanks, and Marc S. Raspanti, States, Statutes, and Fraud: An Empirical Study of Emerging State False Claims Acts, 80 TUL. L. REV. 465 (2005) [hereinafter State False Claims Act Study].

11 State False Claims Acts have been proposed to date at least in Arkansas, Colorado, Connecticut, Iowa, Kansas, Minnesota, Mississippi, Missouri, New Jersey, North Carolina, North Dakota, Pennsylvania, and South Carolina. See John T. Boese, FraudMail Alert, http://www.friedfrank.com/wcc/pdf/fm070314.pdf.

Copyright © 2007 by Finch McCranie, LLP