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Clarifying Requirements For A State False Claims A

magnifying glassIncentivising State False Claims Acts

Updated March 7, 2013

 

False Claims Act Resources

HHS OIG Guidelines
 

NCSL Document
"Incentivising Passage of State False Claims Acts"
 

Taxpayer Against Fraud (TAF) Education Fund
 

CMS Letter to State Health Officials: Refunding of the Federal Share of Medicaid Overpayments, Damages, Fines, Penalties, and Other State Recoveries (SHO #08-004) 

 

The Deficit Reduction Act of 2005 (DRA) which was enacted on February 8, 2006 contained provisions which create incentives for states to enact anti-fraud legislation modeled after the federal False Claims Act (FCA).  Many states have civil false claims acts focusing on Medicaid fraud, but few have modeled their statutes on the federal FCA.  The FCA as amended in 1986 provides for penalties and triple damages for anyone who knowingly submits or causes the submission of false or fraudulent claims to the United States for government funds or property.[1]  Under the FCA’s qui tam provisions, a person with evidence of fraud, also known as a whistle blower or relator, is authorized to file a case in federal court and sue, on behalf of the government, persons engaged in the fraud and to share in any money the government may recover.[2]  Since that time the government has won recoveries of over $15 billion from fiscal years 1987 through 2005. [3]

As Medicaid program administrators, states have a daunting responsibility to ensure the integrity of the activities conducted within the Medicaid programs. Oversight by state administrators is the first line of prevention against Medicaid fraud and abuse.  In their role as administrators states are required to address provider enrollment, claims review and case referrals.  Specifically federal statute or the Center for Medicare and Medicaid Services (CMS) Regulation require states to:

1. collect and verify basic information on potential providers, including whether the providers meet state licensure requirements and are not prohibited from participating in federal health care programs,
2. have an automated claims payment and information retrieval system–intended to verify the accuracy of claims, the correct use of payment codes, and patients’ Medicaid eligibility–and a claims review system intended to develop statistical profiles on services, providers, and beneficiaries to identify potential improper payments, and
3. refer suspect overpayments or over utilization cases to other units in the Medicaid agency for corrective action, and potential fraud cases to law enforcement–generally to the state’s Medicaid Fraud Control Unit for investigation and prosecution.[5]

ALERT! Two Year Grace Period to Bring State False Claims Laws Into Compliance with Federal Law
Ends in 2013


Since the DRA created incentives for states to enact anti-fraud legislation modeled after the FCA, 28 states have enacted legislation which the HHS Office of the Inspector General (OIG) has deemed to have qualified to receive the 10-percentage-point increase in their share of any amounts recovered under these laws.  Since 2006, the FCA has been amended by the Fraud Enforcement and Recovery Act of 2009 (FERA), the ACA, and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The three acts amended several provisions of the FCA requiring approved state laws to be revised in order to retain their deemed status. As a result of these amendments to the FCA, OIG: (1) began analyzing compliance with the FCA as amended; and (2) provided a two-year grace period, ending March 31, 2013, during which OIG approved state acts would continue to be deemed compliant pending state amendment for resubmission. After March 31, 2013 state laws that have not been amended and submitted for approval based on their amendments will no longer qualify for the financial incentive. On March 21, 2011, letters were sent to each attorney general of a deemed state describing what actions would be required to bring them into full compliance. In some of those letters OIG failed to mention that the Dodd-Frank Wall Street Reform and Consumer Protection Act amendment that requires the inclusion of a three-year statute of limitations for retaliation actions. OIG is providing an additional grace period, Aug. 31, 2013, for state laws where this discrepancy exists. The letters and memorandums providing the discrepancy in each state statute have been posted on the OIG web page.
 

A Background of State False Claims Acts

State agencies are required to conduct preliminary investigations when they identify questionable practices or receive complaints of suspected Medicaid fraud or abuse.[6]  CMS’s role has been largely one of support to the states.  In most states the function of investigating and prosecuting providers for fraud falls to the state Medicaid Fraud Control Unit (MFCU) typically located within the state attorney general’s office.  Forty-eight states and the District of Columbia have established MFCUs.[7]

In 2003, the U.S. Government Accountability Office (GAO) added Medicaid to its list of high-risk programs, owing to the program’s size, growth, diversity, and fiscal management weaknesses.  They estimated that a nationwide rate of improper payment as low as three percent in FY2004 would have resulted in a loss of about five billion in federal funds.[8]  Senator Chuck Grassley, chairman of the Committee on Finance drafted the new provisions in the DRA which will provide states with an additional tool to fight fraud and abuse in the Medicaid system.  The FCA has been one of the federal government’s primary weapons to fight fraud against the government for years.  “This represents a new partnership between the states and the federal government in fighting Medicaid fraud,” Grassley said.  “It gives states an increased share of any money recovered for Medicaid fraud, if the state chooses to pass a state False Claims Act.” 

The incentives in the DRA entitle any state that has a law relating to false or fraudulent claims that meets federal standards outlined in the act to a enhanced federal medical assistance percentage (FMAP) for claims settlements reached through their state FCA. The Congressional Budget Office (CBO) has estimated that the provisions would reduce Medicaid spending by a combined $252 million over the 2006-2010 periods and by $1.1 billion over the 2006-2015 periods.  States with False Claims Acts include: California, Delaware, the District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Rhode Island, Tennessee, Texas, Virginia, and Wisconsin.[4]

On October 28, 2008, The Centers for Medicare and Medicaid Services sent letters to state health officials reminding them of their obligations to refund the Federal share of Medicaid overpayments, damages, fines, penalties, and any other component of a legal judgement or settlement when a state recovers pursuant to legal action under its State False Claims Act (SFCA). The letter makes clear that states are responsible for returning the FMAP percentage on state recoveries based on actions brought against third parties which allege inappropriate Medicaid expenditures. It also esplains that in the case of state false claim legal actions neither the relator's chare, nor legal expenses (whether borne by the state or the relator) or any other administratiev costs related to the litigation may be deucted from the federal portion of the entire proceeds of the action. States are required to return the federal share within 60 days, beginning at the date of discovery, for the federal share to be returned. CMS explains that "discovery" does not occur until final written notification is sent to the provider.


HHS OIG Guidelines

The HHS OIG published guidelines August 21, 2006 in the Federal Register which establish four requirements for state False Claim Acts. The DRA amended the Social Security Act by adding Section 1909 which gives authority to the HHS OIG in consultation with the Attorney General to determine if state FCAs meet requirements outlined in the act.  

The incentives created in the provide a state with a qualifying law with an increased 10 percent of the recovery by reducing the federal share by 10 percent. In order for a state to qualify for this additional share of a recovery their FCA must meet certain criteria established by the HHS OIG. The state laws must contain provisions that are at least as effective in rewarding and facilitating qui tam or whistleblower actions for false claims as those described in federal law. The OIG is not requiring any specific language to be included in the state law but the guidelines describe the provisions relevant to the OIG's review. The OIG will consider whether the laws provide:

Liability for False or Fraudulent Claims

  1. Liability to the state for false or fraudulent claims with respect to Medicaid program expenditures, including:
    • Knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the Medicaid program;
    •  Knowingly making, using or causing to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Medicaid program;
    • Conspiring to defraud the Medicaid program by getting a false or fraudulent claim allowed or paid;
    • Knowingly making, using, or causing to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Medicaid program.
  2. Definitions for the terms ‘‘knowing’’ and ‘‘knowingly’’ meaning that a person, with respect to information: (a) Has actual knowledge of the information; (b) acts in deliberate ignorance of the truth or falsity of the information; or (c) acts in reckless
    disregard of the truth or falsity of the information. In addition, no proof of specific intent to defraud should be required.

Qui Tam Provisions

  1. person (relator) to bring a civil action for a violation of the state false claims act for the person and for the state, which
    will be brought in the name of the state.
  2. A provision that requires a copy of complaint and written disclosure of material evidence and information to be served on the state Attorney General in accordance with State Rules of Civil Procedure.
  3. A provision that provides that when a relator brings a qui tam action, no person other than the state may intervene or bring a related action based on the facts underlying the pending action.
  4. Provisions that set forth rights of parties to qui tam actions, including:
    • If the state proceeds with the action, the state has primary responsibility in the action, but the relator shall have the right to continue as a party to the action; and
    • If the state elects not to proceed with the action, the relator may conduct the action but the state may intervene at a later date upon a showing of good cause.
  5. Provisions that reward a relator with a share of the proceeds of the action or settlement of the claim, including:
    • If the state proceeds with an action brought by the qui tam relator, the relator receives at least 15 percent of the
      proceeds of the action or settlement of the claim, and may receive a higher percentage depending on the relator’s
      contribution to the prosecution of the action;
    • If the state does not proceed with an action, the relator receives at least 25 percent of the proceeds of the action or
      settlement, and may receive a higher percentage depending on the relator’s contribution to the prosecution of the action; and 
    • The court is authorized to award the relator an amount for reasonable expenses, including attorneys’ fees and costs, to be awarded against the defendant.
  6. A statute of limitations period not shorter than 6 years after the date of the violation is committed, or 3 years after
    the date when facts material to the right of action are known or reasonably should have been known by the state official charged with the responsibility to act in the circumstances, whichever occurs last.
  7. A provision that establishes the burden of proof, for each of the elements of the cause of action including damages, no greater than a preponderance of the evidence.
  8. A provision that provides a cause of action for relators who suffer retribution from employers for whistleblower activities related to the state false claims act.

Seal Provisions

A state law must contain a requirement for filing an action under seal for 60 days with review by the state Attorney General. When evaluating whether a state law meets the requirements of section 1909(b)(3) of the act, OIG will consider whether the law provides a provision that requires the complaint to be filed in camera and to remain under seal for at least 60 days. In addition, OIG will consider whether the state law’s seal provisions operate in a way that conflict with the federal seal in a pendant FCA case.

Civil Penalty Provisions

The State law must contain a civil penalty that is not less than the amount of the civil penalty authorized under 31 U.S.C. 3729. OIG will review a State law to determine if these provisions include a provision that sets at least treble damages (or double damages in instances of timely self-disclosure and full cooperation) and civil penalties at amounts of at least $5,000 to $10,000 per false claim.

The effective date of the new provisions is January 1, 2007. States with laws in effect on that date which meet all requirements will be deemed in compliance. In order to request an OIG review of a state law, the state Attorney General’s office should submit a complete copy of the state law, or any other relevant information, to the following address:
 
Office of Inspector General,
Department of Health and Human Services,
Cohen Building, Mail Stop 5527,
330 Independence Avenue, SW.,
Washington, DC 20201,
 
Attention: Roderick Chen, Office of Counsel to the Inspector General.   
Submissions by electronic means will not be accepted. The OIG will review the state law in consultation with DOJ, and inform the State Attorney General’s office in
writing whether the state law is in compliance. 

Senator Grassley has emphasized that the importance of meeting each element of the qui tam requirement cannot be understated; the FCA works to detect and prevent fraud and abuse because of the qui tam provisions.[9]  States having laws in effect prior to the January 1, 2007 effective date will be deemed in compliance as long as the law continues to meet compliance.

Related provisions in the act require that providers who receive or make annual Medicaid payments under the state plan of at least five million must provide federal FCA education to their employees as a condition of receiving Medicaid payments.  They must also meet certain criteria which include establishing written policies, procedures and protocols for training all employees.  The DRA also establishes a Medicaid Integrity Program under the authority of CMS designed to improve state program oversight and technical assistance.

As the principle author of the provisions in the DRA, U.S. Senator Charles Grassley (R-Iowa) has expressed concerns that some states drafting state FCAs have deviated from the requirements outlined in section 6032 of the DRA. His April 26th letter to HHS Inspector General Daniel R. Levinsons and the U.S. Attorney General Alberto Gonzales asks them to pay particular attention to the qui tam provisions in each state law as they determine if each state FCA meets the qualification outlined in the act to receive the enhanced share of Medicaid recoveries. His concern focuses on the ability of whistleblowers to file qui tam  complaints on behalf of the government. He feels strongly that modifications and deviations may ultimately undermine the intent of the provisions to pursue these actions. “If states want to collect a greater share of the recoveries, then states need to let whistleblowers be part of the process as specified in the Medicaid legislation just passed by Congress,” Grassley said.  “Whistleblowers have proven to be the key to the success of the federal False Claims Act over the last 20 years.  They stick their necks out and put themselves in very risky situations to do the right thing on behalf of taxpayers, and their courage and sacrifice deserves to be recognized and rewarded.”

Congress specifically stated in the DRA that in order for a state FCA to qualify under section 6032, the state FCA must contain provisions rewarding and facilitating qui tam actions that mirror those in the United States Code.



[1] The False Claims Act, as amended, is codified at 31 U.S.C. §§3729-33.

[2] GAO-06-320R, False Claims Act.

[3] GAO-06-320R, False Claims Act.

[4] Taxpayers Against Fraud, The False Claims Act Legal Center, "What is the False Claims Act and Why is it Important," Washington, D.C. (http://www.taf.org/whyfca.htm). (Internet document.)

HHS Office of the Inspector General.

[5] GAO, Medicaid Integrity: Implementation of New Program Provides Opportunities for Federal Leadership to Combat Fraud and Abuse, GAO-06-578T (Washington, D.C.: March 28, 2006).

[6] 42CFR§455.14.

[7] North Dakota and Idaho have not established MFCUs, and, in these two states, the state agency is responsible for conducting investigations and referring cases to state or local prosecutors.

[8] GAO, Medicaid Integrity: Implementation of New Program Provides Opportunities for Federal Leadership to Combat Fraud and Abuse, GAO-06-578T (Washington, D.C.: March 28, 2006).

[9] U.S. Senate Committee on Finance, “Grassley Works to Implement New Incentives for States to Fight Medicaid Fraud,” Washington, D.C. (http://finance.senate.gov/press/Gpress/2005/prg032106.pdf) (Internet Document, 03/21/06).


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NCSL Contacts:
Joy Johnson Wilson, Federal Affairs Counsel and Senior Committee Director--Health Cmte,  (202) 624-8689
Rachel Morgan RN, BSN, Health Committee Director, State-Federal Affairs, (202) 624-3569

 


 

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