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Incentivising State False Claims Acts

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False Claims Act Resources HHS OIG Guidelines NCSL Document "Incentivising Passage of State False Claims Acts" Taxpayer Against Fraud (TAF) Education Fund Senate Hearing: "Bolstering the Safety Net: Eliminating Medicaid Fraud" Title 31, Subchapter III of the U.S. Code 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]

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, Nevada, New Hampshire, New Mexico, New York, Oklahoma, Rhode Island, Tennessee, Texas, and Virginia.[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.

Health and Human Services (HHS) Office of Inspector General (OIG) Guidelines

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

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.

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.   

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.

Link to parent document

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