Will Your State Have a State False Claims Act?

Finch McCranie, LLP has recently learned that many state government officials, including Governor Perdue of Georgia, have received a proposed State False Claims Act for consideration to be enacted in 2007. Even though the Bill has been drafted and is on his desk, at present, the Bill has not been submitted to the Legislature for consideration. Obviously, this raises a serious question as to why it is that the Governor is delaying action on this important piece of legislation.

Section 1909 of the Deficit Reduction Act of 2005 creates a financial incentive for states to enact legislation that establishes liability to the state for individuals or entities that submit false or fraudulent claims to a state Medicaid program. This incentive takes the form of an increase in the state’s share of any amounts recovered from a state action brought under a “qualifying law.” In order for a state to qualify for this incentive, the state law must meet certain enumerated requirements as determined by the Inspector General of the Department of Health and Human Services in consultation with the Attorney General. The Office of Inspector General has already ruled in several different cases that certain states have not enacted “qualified laws” and therefore do not qualify for the increase share of fraud recoveries which can amount to a ten (10%) percent increase over amounts currently being received by the states. Thus, if the Governor is to act, it is imperative that he submit a “qualified law” to the Legislature for its consideration. In essence, a “qualified law” is one that is as strong and effective in its qui tam whistleblower provisions, and other features, as the Federal False Claims Act.

As we see it, there is no good reason for the Governor not to submit this proposed legislation for consideration. If he is to do so, however, he should first submit the proposed legislation to the Office of Inspector General as the Office of Inspector General will advise the State whether it “qualifies” for the increased share of fraud recoveries. Indeed, the OIG is required to consider whether the state law is, at least, as effective in rewarding and facilitating Qui Tam actions when compared to the provisions of the Federal False Claims Act. In order to request a OIG review of the state law, the Governor should submit a complete copy of the proposed legislation to the Office of Inspector General Department of Health and Human Services, Cohen Building, Mail Stop 5527, 330 Independence Avenue, S. W., Washington, DC 20201, Attn: Roderick Chen, Office of Counsel to the Inspector General.

There is a huge incentive for every state to act now without further delay. In order to encourage states to pursue Medicaid fraud, specifically Congress added Section 1909 to the Deficit Reduction Act, effective January 1, 2007. Under this section, if a state has in effect a state False Claims Act that meets enumerated requirements, the Federal Medicaid Assistance percentage will be decreased by ten (10%) percentage points with respect to any amount recovered under a state action brought under such a law. Therefore, the state’s share of any recovery in an action under such a law will be increased by ten (10%) percentage points. For example, if a state has a qualifying State False Claims Act and the state’s Medicaid share is fifty (50%) percent, the state would be entitled to sixty (60%) percent of the amount of the recovery while the Federal Government would receive the remaining forty (40%) percent. This could result in a huge windfall for the taxpayers of the State of Georgia and because this law is effective January 1, 2007, literally, time is wasting.

Some have suggested that the reason the Governor may have delayed in submitting this legislation is because of concerns of the business community with respect to whether they might be subject to litigation under a state False Claims Act. Query how any legitimate business could have any concern over this? By definition, a state False Claims Act could only be directed at fraudulent claims presented to the state government for reimbursement of taxpayer sponsored programs such as Medicaid. How could any legitimate business be concerned about a law that is specifically designed to combat fraud and abuse? Indeed, a legitimate business would have no concerns whatsoever about the existence of such laws and one would hope that the business community would embrace any legislation designed to combat fraud schemes which abuse taxpayers. We continue to hope that the Governor with act without further delay on this important piece of legislation so that the taxpayers of the State of Georgia–and every state–not only will be protected from such fraudulent schemes but also might reap the financial benefits offered by Congress to all fifty states to enact laws like this..

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