State False Claims Acts Must Be Updated to Include New False Claims Act Changes, Grassley Warns

Senator Chuck Grassley is making sure that the States take advantage of important, recent improvements to the federal False Claims Act–with the help of financial incentives. In doing so, Grassley highlighted a defect in Oklahoma’s False Claims Act that should disqualify any state with a similar defect from these financial incentives.

As we have discussed at length, in the Deficit Reduction Act of 2005, Congress recognized how effective the False Claims has been in recovering money for fraud against the government, by creating financial incentives for states that enact equally effective versions of the federal False Claims Act.

“Weaker” state versions of the False Claims Act do not qualify for the incentives, however. The Inspector General for the Department of Health and Human Services must approve a state’s False Claims Act before the incentives are available. So far, the IG has approved fourteen state FCAs, while disapproving six other state acts.

Since then, Congress has closed loopholes in the False Claims Act exploited by those who steal taxpayer funds. The 2009 Fraud Enforcement Recovery Act made significant improvements to strengthen the nation’s major whistleblower law, as we have summarized before. In March 2010, Congress modified the False Claims Act’s “public disclosure” and “original source” provisions as part of the major health care overhaul, the Patient Protection and Affordable Care Act.

This week, Grassley asked the Inspector General and Attorney General to review existing state False Claims Acts to ensure that they comply with these recent improvements to the federal False Claims Act.

“Updated information will help states fine tune existing state laws and state-level proposals, in order to be eligible for the federal incentive and beef up fraud-fighting efforts,” Grassley said. “This kind of effort at the state and federal level is more important than ever as Medicaid programs are expanded and face new burdens and growing fiscal challenges. Every dollar lost to fraud is one less dollar for those who depend on the program and harms the sustainability of the Medicaid program.”

“The federal False Claims Act has become the federal government’s most effective tool against health care fraud, and a major factor in its success is the way that it empowers whistleblowers who know about wrongdoing. They are the watchdogs that taxpayers and beneficiaries need working on their behalf, and the more states that recognize the value of whistleblowers in fighting fraud, the better,” Grassley said.

Grassley singled out for special scrutiny proposed state laws that include a “first-to-file” bar that is more restrictive than the federal Act. This provision would preclude whistleblowers (“qui tam relators”) from filing suit under a state FCA if a similar suit is filed under another state FCA. Grassley warned that such rules would not be considered “at least as effective in rewarding and facilitating qui tam actions”:

I am particularly interested in the examination of the “first to file” bar provisions in state FCAs. These provisions will severely limit qui tam actions brought by relators in States where the language is adopted. Such a provision is included in the Oklahoma Medicaid False Claims Act codified at Okla. Stat. tit. 63 § 5053.2(B)(5) (20 I0). While HHS/OIG ultimately concluded the Oklahoma statute was not as effective as the federal FCA in a letter dated July 24, 2008, the “first to file” bar was not addressed as part of HHS/OIG’s analysis of Oklahoma’s statute. Similar language is currently being debated as other States consider enacting state FCAs; thus, guidance from HHS/OIG and the Attorney General on this provision would help clarify if the inclusion of this provision would deem a statute ineligible for the incentive under section 6031.

Grassley, the co-author of the modern False Claims Act’s 1986 amendments that made it the government’s chief tool for combating fraud, has warned states that they cannot adopt this weaker version of the Act if they desire the financial incentives. That is sound advice, as there is no principled basis for this watering down of an important law enforcement tool.

The full text of Sen. Grassley’s April 28 letter is reprinted below:

WASHINGTON, DC 20510 April 28, 2010 The Honorable Daniel R. Levinson Inspector General Department of Health and Human Services 330 Independence Ave, SW Washington, D.C. 20201
The Honorable Eric H. Holder, Jr.
Attorney General U.S. Department of Justice 950 Pennsylvania Avenue, N.W.
Washington, D.C. 20535
Dear Inspector General Levinson and Attorney General Holder:

On February 8, 2006, President Bush signed the Deficit Reduction Act of 2005 (ORA) into law. (Pub. L. No. 109- I 71). Section 6031 of the ORA, codified at 42 U.S.C.
§ 1396(h), provides a financial incentive for States to enact state False Claims Acts (FCAs) that “contain provisions that are at least as effective in rewarding and facilitating qui tam actions for false claims as those described in the federal False Claims Act.” The ORA requires that the Office of the Inspector General at the Department of Health and Human Services (HHS/OIG) work in consultation with the Department of Justice (DOJ)
to determine if a state FCA meets the qualifications outlined in section 6031. I write today regarding your responsibilities under section 6031 and the need to update compliance guidance to States to reflect recent changes to the federal False Claims Act (31 U.S.C. § 3729 et seq.) that were included in the Fraud Enforcement Recovery Act (Pub. L. No. 111-21) and the Patient Protection and Affordable Care Act (Pub. L. No.
111-148).

Section 6031 specifically outlines four requirements for determining if a state FCA is eligible for the incentive, specifically:

(1) The law establishes liability to the State for false or fraudulent claims described in section 3729 of title 31 with respect to any expenditure described in [the Medicaid Program];

(2) The law contains provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims as those described in sections 3730 through 3732 of title 31;

(3) The law contains a requirement for filing an action under seal for 60 days with review by the State Attorney General;

(4) The law contains a civil penalty that is not less than the amount of the civil penalty authorized under section 3729 of title 31.

To implement this section, the OIG published guidelines for evaluating state FCAs in the Federal Register on August 21, 2006. Those guidelines outline the basic requirements a state FCA must contain in order to be deemed compliant with the requirements of section 6031. The guidelines expressly state that the OIG will consider whether the state FCA liability provisions include language mirroring section 3729 of the federal False Claims Act. further, the guidelines also describe the procedural requirements and whistleblower protections that a state FC/ must have in order to be compliant. To date, the OIG has deemed fourteen state FCAs compliant with section 6031 and eligible for the incentive.
However, the OIG has determined that six other state FCAs fail to meet the requirements outlined in section 6031 and are not eligible for the incentive. While the requirements of section 6031 and the guidance issued in the Federal Register are clear, some States have continued to seek qualification for the incentive, despite their failure to pass robust legislation modeled after the federal FCA.

On May 20,2009, President Obama signed into law the Fraud Enforcement Recovery Act (FERA) which included, among other things, substantive changes to the federal FCA’s liability provisions located at 31 U.S.c. § 3729. Further, on March 23, 2010,
President Obama signed into law the Patient Protection and Affordable Care Act (Pub. L.
No. 111-148), which included substantive changes to the federal FCA by modifying the public disclosure bar and original source exceptions codified at 31 U.S.C. § 3730. Taken together, these changes represent the most substantial modifications to the federal FCA since I authored the 1986 amendments to revive the FCA.

These changes to the federal FCA removed liability loopholes and statutory confusion that were used to undermine the original intent of the federal FCA. As a result, in order to ensure that state FCA’s that are currently qualified under section 6031, your offices should: (I) conduct a thorough review of state FCA’s to determine if they remain in compliance with the requirements of section 6031 including the requirement to be “as effective as” the federal FCA as revised; (2) review the August 21, 2006, guidance to States that was published in the Federal Register to determine if the changes to the federal FCA impact your advice to States; (3) examine whether proposed state laws that include a “first-to-file” bar that would preclude qui lam relators from filing suit under a state FCA if a similar suit is filed under another state FCA, would be considered “at least as effective in rewarding and facilitating qui tam actions” under section 6031.

I am particularly interested in the examination of the “first to file” bar provisions in state FCAs. Thesc provisions will severely limit qui lam actions brought by relators in States where the language is adopted. Such a provision is included in the Oklahoma Medicaid False Claims Act codified at Okla. Stat. tit. 63 § 5053.2(B)(5) (20 I0). While HHS/OIG ultimately concluded the Oklahoma statute was not as effective as the federal FCA in a letter dated July 24, 2008, the “first to file” bar was not addressed as part of HHS/OIG’s analysis of Oklahoma’s statute. Similar language is currently being debated as other States consider enacting state FCAs; thus, guidance from HHS/OIG and the Attorney General on this provision would help clarify if the inclusion of this provision would deem a statute ineligible for the incentive under section 6031.

I request that you conduct this review expeditiously and provide my office with a briefing to discuss the results of the review upon completion. Should you or your staff have any questions regarding this request please contact Nick Podsiadly of my Judiciary Committee staff at 202-224-9032.

Attachment
Sincerely,

Charles E. Grassley United States Senator