ABA Health eSource
 January 2007 Volume 3 Number 5

Money Talks: Congress Spurs States to Implement Their Own False Claims Acts
by Lezlie B. Willis, Fish & Richardson PC, Dallas, TX

Lezlie Willis

Last year, Congress encouraged individual states to enact their own false claims legislation or improve existing legislation to meet or exceed federal standards by enacting Section 6031 of the Deficit Reduction Act of 2005 (the "DRA") on February 1, 2006. 1 Section 6031 provides that if a state has qualifying false claims legislation in effect on January 1, 2007, then the state will get ten percent more of any amount recovered in a false claims case brought under the state's act. 2

If Congress's incentives under the DRA work as intended, the individual states will have their own false claims acts, which will likely increase the amount of enforcement resources applied to health care program fraud and abuse. Furthermore, if states enact legislation tracking the federal False Claims Act 3 (the "FFCA")as the DRA contemplates, qui tam plaintiffs will have an easier time bringing their cases and convincing some governmental entity—state or federal—to accept their cases. Assuming that most states will not want to leave this money behind, practitioners should watch for new state false claims legislation. Practitioners and their clients should also expect to notice states beginning false claims investigations and instituting civil cases in the very near future.

False claims act litigation is certainly big business for the federal government. Recently, the Department of Justice announced that it recouped $3.1 billion in false claims recoveries in fiscal year 2006 alone. 4 The overwhelming majority—over 70%—of those recoveries were in health care cases. 5 Almost half of the recoveries, $1.3 billion, were instigated by whistleblowers in qui tam cases. 6 Notably, these numbers are only likely to grow once Medicaid providers implement the mandatory false claims act education for their employees as required by Section 6035 of the DRA. 7

Now, health care providers and legal professionals representing them will see another front develop in the Government's battle against health care fraud and abuse: state false claims act actions being pursued by the individual states. Through the DRA, Congress has made false claims legislation, investigations, and litigation worth the states' time and money. But to qualify for the additional ten percent of recoveries, a state's false claims legislation must meet four minimum thresholds. Basically, Congress appears to want the states to enact the heart and soul of theFFCA at the states' level. These four thresholds outlined in Section 6031 relate to what creates false claims liability, how it will be punished, and how private-plaintiff cases can be instituted. On August 21, 2006, the Office of the Inspector General of the Department of Health and Human Services issued guidance for how the OIG and the Attorney General will evaluate whether a state's legislation meets the requirements of the DRA. 8

The law must establish liability to the state for false or fraudulent Medicaid claims as described in 31 U.S.C. § 3729. 9

The FFCA establishes liability for seven general kinds of impermissible acts. Some of the FFCA's proscriptions are intuitive: a person cannot present a false claim to the Government; 10 make or use a false record to get a claim approved; 11 or conspire to do so. 12 Other of the FFCA's proscriptions--such as the prohibition on delivering less property than the Government is entitled to, 13 providing false receipts of property, 14 and purchasing Government property from a Government employee who is not authorized to sell the property 15 —are less well-known simply because they are infrequently alleged. The last impermissible act is sometimes called a "reverse false claim," which prohibits a person from making false statements to decrease an obligation to the Government. 16 Under Section 6031 of the DRA, a state's false claims act must create liability for all seven kinds of conduct to qualify for the extra 10 percent of recoveries.

The law must reward and facilitate qui tam whistleblower actions for false or fraudulent Medicaid claims as the FFCA provides in 31 U.S.C. §§ 3730-3732. 17

As the recent statistics discussed above show, false claims litigation is driven in significant measure by private plaintiffs who file qui tam actions. Sections 3730 through 3732 of the FFCA describe the ground rules governing these actions, and the DRA plainly expresses Congress's desire for states to permit qui tam actions as well. It is unclear precisely which provisions "reward and facilitate" qui tam plaintiffs, but the OIG has issued some guidance about what provisions are necessary. The OIG has identified eight provisions that a state false claims act must contain.

First, the state law must permit a private person to bring a civil action for a violation of 31 U.S.C. § 3729. 18 Second, the state law must require a copy of the complaint and the evidence to be served on the state Attorney General. 19 Third, the state law must provide that once a private plaintiff brings a qui tam action, no other private plaintiff can intervene or bring an action about the same underlying facts. 20 Fourth, the state law must plainly outlinethe rights of the Government and private plaintiffs in a qui tam case. 21 Fifth, and most importantly, the state law must provide that whistleblowers who bring a false claim act case can be rewarded with a percentage of the recovery, which can vary depending on the circumstances, and payment of attorneys' fees. 22

Sixth, the OIG has required that state qui tam plaintiffs enjoy the same lengthy statute of limitations under state law as they do under the FFCA. 23 The statute of limitations for bringing an action under the FFCA is generally six years. 24 But under certain circumstances, the statute can be extended to three years after the date that material facts were known or should have been known by the governmental official "charged with responsibility to act" but no more than 10 years after the violation is committed. 25

Seventh, the state law must establish a burden of proof that is no higher than a preponderance of the evidence. 26 Eighth, the state law must provide a cause of action for plaintiffs who suffer retribution from employers as a result of the plaintiffs' involvement in whistleblower activities. 27

Of course, Sections 3730 through 3732 of the FFCA contain many other provisions that can have the effect of restraining qui tam actions. The OIG has stated that qualifying state laws can also contain these restrictions, but they cannot be more restrictive than those contained in the FFCA. If a state's law is more restrictive, the OIG and the Attorney General may conclude that it is not effective in rewarding and facilitating qui tam actions as the DRA requires. Therefore, to avoid this risk, states may simply decide to enact a nearly identical state version of the FFCA.

Therefore, under the FFCA, qui tam relators have significant financial incentives to bring false claims cases, a lengthy statute of limitations, alow burden of proof, and protections from employer retribution. The OIG and the Attorney General will expect qualifying state laws to mirror these incentives.

The law must contain a requirement for filing an action under seal for 60 days with review by the State Attorney General. 28

This provision is vital to permit a state Attorney General to review a false claims act case brought by a private plaintiff. The FFCA provides for this kind of review procedure at the federal level at 31 U.S.C. § 3730(b)(2), which requires the complaint to be filed under seal and gives the Attorney General 60 days to determine whether it will intervene in the action.

The law must contain civil penalties that are not less than the amount of the civil penalty authorized under 31 U.S.C. § 3729. 29

Violating the FFCA is an expensive problem, considering the penalties described in Section 3729 of the FFCA. For each violation of the FFCA, a civil penalty of at least $5,000 but no more than $10,000 plus three times the damages the Government sustains because of the conduct in question will be assessed. 30 A defendant who is found to have violated the FFCA will also be liable for the costs of the action. 31

Certain defendants who meet stringent requirements are eligible for only double damages. For the reduction from treble to double damages to apply, the defendant must have (a) given the information about its violation within 30 days of first obtaining the information; 32 and (b) cooperated fully with any Government investigation regarding the violation. 33 In addition, the disclosure must have been made before the Government instituted any investigation, prosecution, or lawsuit. 34 These requirements are exacting and few defendants will be able to take advantage of them, making the civil monetary penalty per claim and treble damages the ordinary measure.

Considering that only a fraction of the states even have false claim acts that provide for private rights of action, most state legislatures will need to implement a qualifying state law provision to obtain the 10 percent bonus payment enacted by the DRA. Many of the states that have false claims acts already will need to amend their laws to meet the stringent requirements of the DRA in order to qualify for the additional recoveries. Given Congress's incentive, practitioners and their clients should be on alert for changes to their state's laws regarding false claims and for an increase in state actions—including investigations, civil actions, and criminal prosecutions—in the false claims area.

1 Deficit Reduction Act of 2005 § 6031, Pub. L. No. 109-171 (2006) (to be codified at 42 U.S.C. § 1909).
2 Id.
3 31 U.S.C. §§ 3729 et seq.
4 Health Care Cases Comprise Bulk of DOJ's Record Amount of Recoveries in Fiscal 2006, 10 Health Care Fraud Rep. (BNA), No. 24, at 870 (Dec. 6, 2006).
5 Id.
6 Id.
7 See Lezlie B. Willis, Mandatory False Claims Act Education Under the Deficit Reduction Act of 2005, 3 ABA Health eSource, No. 2 (Oct. 2006) (discussing mandatory employee education under the DRA for recipients of $5 million or more of Medicaid funds annually).
8 Publication of OIG's Guidelines for Evaluating State False Claims Acts, 71 Fed. Reg. 48552 (Aug. 21, 2006).
9 Deficit Reduction Act of 2005 § 6031(a), Pub. L. No. 109-171 (2006) (to be codified at 42 U.S.C. § 1909(b)(1)).
10 31 U.S.C. § 3729(a)(1).
11 Id. § 3729(a)(2).
12 Id. § 3729(a)(3).
13 Id. § 3729(a)(4).
14 Id. § 3729(a)(5).
15 Id. § 3729(a)(6).
16 Id. § 3729(a)(7).
17 Deficit Reduction Act of 2005 § 6031(a), Pub. L. No. 109-171 (2006) (to be codified at 42 U.S.C. § 1909(b)(2)).
18 71 Fed. Reg. 48552, 48554; see 31 U.S.C. § 3730(b)(1).
19 71 Fed. Reg. 48552, 48554; see 31 U.S.C. § 3730(b)(2).
20 71 Fed. Reg. 48552, 48554; see 31 U.S.C. § 3730(b)(5).
21 71 Fed. Reg. 48552, 48554; see 31 §§ 3730(c)(1)-(5).
220 71 Fed. Reg. 48552, 48554; see 31 U.S.C. §§ 3730(d)(1)-(2). Under the FFCA, the maximum recovery for a qui tam plaintiff is at least 25 percent but not more than 30 percent if the Government does not intervene, but if the Government intervenes, the potential recovery is reduced to at least 15 percent but not more than 25 percent. Id. §§ 3730(d)(1), (2).
23 71 Fed. Reg. 48552, 48554.
24 Id. § 3731(b)(1).
25 Id. § 3731(b)(2).
26 71 Fed. Reg. 48552, 48554; see 31 U.S.C. § 3731(c).
27 71 Fed. Reg. 48552, 48554; see 31 U.S.C. § 3730(h).
28 Deficit Reduction Act of 2005 § 6031(a), Pub. L. No. 109-171 (2006) (to be codified at 42 U.S.C. § 1909(b)(3)).
29 Id. § 6031 (to be codified at 42 U.S.C. § 1909(b)(4)).
30 Id.§ 3739(a)(7).
31 Id. § 3729(a)(7)(C).
32 Id. § 3729(a)(7)(A).
33 Id. § 3729(a)(7)(B).
34 Id. § 3729(a)(7)(C).