Part 6: States’ Experiences With Their Own False Claims Acts

This Part 6 is the final installment of an article explaining why the major qui tam whistleblower statute, the federal False Claims Act, has led to a wave of new state False Claims Acts. It is an updated version of part of a previously published article by whistleblower lawyer blog author Michael A. Sullivan.

V. States’ Experiences With Their Own False Claims Acts

As noted, at least twenty-eight states now have a False Claims statute, and many other states are considering similar laws. The financial incentives of the Deficit Reduction Act of 2005 have not only prompted states that lacked False Claims statutes to enact them, but also have caused many states wishing to qualify for the additional funds to amend their existing False Claims statutes.

In essence, while states may enact “tougher” or more comprehensive laws than the federal False Claims Act, states with “weaker” or less effective laws-as judged by the standards of the Deficit Reduction Act-will not qualify for the additional funds.

Seven of the first ten states whose statutes were scrutinized by the Office of Inspector General (OIG) quickly learned this lesson when OIG disapproved their state statutes. These included California (which lacked a minimum penalty), Florida (which omitted “fraudulent” from its definition of claims), Indiana (which did not make defendants liable for “deliberate ignorance” and “reckless 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 “reverse 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.

In sum, the Deficit Reduction Act has set minimum standards for state False Claims Acts for states wishing to receive these additional funds. In plain English, the state laws must protect at least Medicaid funds, and they must be at least as effective as the federal False Claims Act, especially in rewarding and facilitating qui tam actions for false or fraudulent claims, with damages and penalties no less than those under the federal Act.

Many state False Claims laws have been in transition since 2006. States whose laws have been “disapproved” by OIG have begun to amend their statutes to meet the requirements for obtaining the additional funds under the Deficit Reduction Act, as Florida and Texas accomplished in 2007. While these laws are in flux, some significant differences from the “Medicaid-only” laws such as Georgia’s new State False Medicaid Claims Act are likely to remain.

First, the majority of state False Claims statutes protect the state’s funds generally, rather than protecting only state Medicaid funds, as Georgia’s new State False Medicaid Claims Act is limited. Just as the federal False Claims Act is not limited to health care fraud, but encompasses fraud against the government generally (except for Internal Revenue violations, which are now covered by the new IRS Whistleblower program), many states have used these statutes to protect public funds in general from fraud. Those states include California, Delaware, Florida, Hawaii, Illinois, Indiana, Massachusetts, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Virginia, and Tennessee.

Because states have this leeway under the Deficit Reduction Act to pass laws that may be “tougher” or more “effective” than the federal Act, some states have set the statutory penalties higher than the federal level of $5,500 to $11,000 per claim. For instance, under the New York FCA enacted in 2007 and amended in 2010, penalties range from $6,000 to $12,000 for each false or fraudulent claim.

Some other states authorize a higher percentage of the state’s recovery that a relator (whistleblower) may receive, instead of the percentages that the federal False Claims Act authorizes: 15-25% of the recovery in cases in which the government intervenes, and 25-30% in cases in which the government does not intervene. For example, Nevada’s percentages are 15-33% in intervened cases, and 25-50% in non-intervened cases; Tennessee’s are 25-33% in intervened cases and 35-50% in non-intervened cases; and Montana’s range from 15-50%.

Most qui tam cases filed under the state False Claims statutes have related to health care. Many are “global” Medicaid cases that were first developed in federal courts as Medicare and Medicaid fraud cases and that concerned a nationwide fraud which had been investigated by multiple federal and state jurisdictions.

Most of the state settlements have come from “piggy backing” on federal law enforcement efforts and from joining in global settlements. Experience with some of the newer state statutes is too recent to evaluate, but many states have reported the desire for more resources to develop such cases.

We do not know with any precision the dollar amount of fraud that affects state government spending, or how much of that fraud can be prevented through effective use of a state False Claims Act. For now, the states that have passed False Claims Acts will see how much of their fraud losses can be recovered through these laws.

VI. Conclusion

The heath care industry faces ever-increasing federal and state enforcement efforts through use of the newly amended False Claims Act, and the increasing number of state False Claims Acts. These statutes are profoundly important to any lawyer who practices in health care and who wishes to advise clients on the potentially huge damages and penalties that can result from violations of the federal and state False Claims Acts.