Executive Summary of “Georgia Taxpayer Protection False Claims Act”

Recently, I was asked to explain the newly enacted “Georgia Taxpayer Protection False Claims Act” to some 200 city and county attorneys in Georgia. Although our firm has qui tam False Claims Act cases pending around the country, I take particular interest in making successful this law that I helped draft.

Since then, I have had many calls from attorneys about the new state False Claims Act, which includes qui tam provisions allowing whistleblowers to file suit and share in the recovery. Thus, I am summarizing here some major points about the law:

The Georgia Taxpayer Protection False Claims Act is a state version of the extremely successful federal False Claims Act (FCA). The FCA is the federal government’s primary civil tool for combating fraud directed at taxpayer funds. The majority of states already have such a law designed to stop and deter fraud against state government.

Background: The FCA originally was enacted during the Civil War. In 1986, President Ronald Reagan signed into law an amended version of the FCA, which has since generated more than $30 billion in recoveries from those who have defrauded the government. The FCA also helps deter fraud by those who do business with the government.

State False Claims Acts: As noted, based on the federal FCA’s great successes since 1986, Sen. Charles Grassley has helped lead efforts to encourage states to pass their own versions of the FCA. Congress established financial incentives for states that enact their own versions of the FCA that closely follow the FCA’s terms, through the Deficit Reduction Act of 2005. (Those states receive an extra 10% of Medicaid fraud recoveries.) Congress amended the federal FCA in 2009-2010 to increase the FCA’s effectiveness.

At least twenty-eight other states now have enacted their own False Claims Acts, which are also based on the federal FCA. The majority of these states’ laws protect all state spending of any nature.

On May 24, 2007, Georgia’s “State False Medicaid Claims Act” became law. It is based on the 2007 federal FCA, but protects only Medicaid spending. The new 2012 Georgia Taxpayer Protection False Claims Act now protects all state and local government spending.

In sum, the new Georgia Taxpayer Protection False Claims Act (1) protects all state and local government spending from fraud, and not simply Medicaid spending; and (2) amends the State False Medicaid Claims Act to conform to the 2009-2010 federal FCA amendments. All states are required to conform to those amendments by 2013, or lose the federal incentive of an additional 10% of Medicaid fraud recoveries.

The Act authorizes the state to recover from those who defraud it “treble” damages (three times the state’s economic losses) and civil penalties of $5,500 – $11,000 per false or fraudulent claim, just as the federal FCA provides.

Cases may be instituted in the following ways:

1. The Attorney General’s Office may bring an action against any person or entity alleged to have engaged in fraud or false claims directed at state funds.

2. The Attorney General is authorized to delegate authority to District Attorneys or local government attorneys to pursue cases filed concerning fraud directed at county or local government funds.

3. Private citizens (“relators”) with knowledge of fraud may bring an action under the Act. These are known as qui tam cases, which have made the federal FCA so successful. More than 80% of federal FCA recoveries now are in cases of fraud brought by private citizen “relators” (or “whistleblowers”). This law requires advance approval of the Attorney General to file a qui tam action.

Control by Attorney General: The Attorney General retains control over these cases. The Attorney General can withdraw any authority used to delegate a case. As noted, the Attorney General also can essentially stop any case brought by a private citizen that is not deemed meritorious.

Like the federal FCA, the Attorney General’s Office (or his designee) investigates the allegations, while the case remains under seal. Cases are under seal for at least 60 days, but that period is typically extended for more than a year to allow for an investigation to be completed.

How Cases Proceed: The Attorney General or other local government attorney to whom authority has been delegated may elect to “intervene” in any case brought by a private citizen, and thus will control the litigation as it moves forward. The relator’s counsel also participates in the litigation.

If the Attorney General or his designee elects not to intervene in the case, the relator is authorized to pursue the case. It is not unusual for the government initially to decline intervention, only to intervene later after the relator has advanced the case and developed further evidence that leads to a recovery by the state.

If the action is successful and produces a recovery for the state or local government involved, like the federal FCA, the Act authorizes the relator to receive 15-25% of the recovery in cases in which the state or local government has intervened; and 25-30% of any recovery if the state or local government has not intervened. The Act also provides for attorney’s fees and expenses in the event of a successful recovery. Fees and expenses are not paid by the state or local government, but by the defendants.

The Act mirrors other provisions of the federal FCA as well, provisions that are also found in other state False Claims Acts. The Act provides procedures for the state or local government to investigate claims, similar to the federal FCA. It also incorporates the federal law’s anti-retaliation provisions.

State and Local Governments May Recover Their Attorney’s Fees, Costs, and Expenses: Significantly, the state and any local government can recover from the defendant “all costs, reasonable expenses, and reasonable attorney’s fees incurred by the state or local government in prosecuting a civil action brought to recover the damages and penalties provided under this article.”

Other States’ Experiences: Other states have found their false claims laws to be very effective in addressing fraud directed at taxpayer funds. For example, in 2011 Texas obtained a $170 million judgment in a single case involving fraud against the Medicaid program. As another example, Toshiba had to repay California $30 million for knowingly selling defective computer equipment in 2000. Florida, North Carolina and Virginia are among the states that have enacted similar laws and are using them to seek recovery of substantial damages caused by fraud.

Return on Investment: The FCA is very efficient: it usually results in recovery of multiples of the money invested in it. For example, studies have reported that, under the FCA, for every dollar spent to investigate and prosecute health care fraud in civil cases, the federal government receives $15 back in return. Realizing the high return on investment, Texas added significantly to its resources devoted to pursuing health care fraud several years ago.

Corresponding Amendments to State False Medicaid Claims Act: Finally, the Act updates the State False Medicare Claims Act, to make it consistent with the 2009-2010 amendments to the federal FCA, so that the state continues to be eligible for the financial incentives established by Congress.

Cases involving Medicaid fraud will continue to be brought under the State False Medicaid Claims Act. Cases involving other Georgia or local government spending will be pursued under the new Georgia Taxpayer Protection False Claims Act.