Support the Washington Medicaid Fraud False Claims Act
(Senate Bill 5978) (House Bill 2246)
By
Daniel D. DeLue and Mark D. Walters
Washington Governor Chris Gregoire has stated that the state of Washington is in serious financial trouble. In a recent message from the Governor:
I wish I could say that things have improved for the 2011–13 budget period. Unfortunately, they have worsened. It continues to get more expensive for the state to provide the same level of services. Demand for state services is at its greatest when the economy is at its worst. The fact is that it will cost us more than $2 billion more to provide the same services in 2011–13 as we did in 2009–11. We simply have more people we must serve, and that costs more money.
While our costs continue to rise, revenue growth is stagnant. Our most recent state forecasts were jolting. In September the state lost $1.4 billion, and in November the state lost an additional $1.2 billion. As we plan our 2011–13 budget, we face a $4.6 billion shortfall. On top of the cuts we’ve already made, our options are limited. [1]
As we as a State experience tough financial times together, some of the worst feelings arise when we hear of fraudulent conduct which in part created this dire situation, or when we learn of additional fraudulent conduct that threatens to further exacerbate our stressed economy. Of course, news headlines about fraudulent conduct are always bad and many wish they could do something about it. For example, a recent Puget Sound Business Journal edition front-page headline reads, “Financial fraud against elderly hits record levels[2]”. This same Puget Sound Business Journal edition included a Law and Litigation section with a lead story, “White collar crime serge”. With all of this attention to our state’s serious financial woes and an increased awareness of fraud in general, now is the time for Washington State to enact a civil False Claims Act so that citizens can step in and help stop the fraud. The State False Claims Act would include a citizen suit, or qui tam provision, to incentivize whistleblowers to come forward and help the state fight fraud against Washington taxpayers.
Whistleblowers are Needed to Help Fight Fraud
A major obstacle to detecting fraud is that perpetrators do so in private and the fraud goes undetected. Therefore, internal whistleblowers are needed in the fight against fraud. A survey conducted in 2011 by the Association of Certified Fraud Examiners found that nearly half of occupational fraud cases were uncovered by a tip or complaint from an employee, customer, vendor, or other source.[3] An academic study from the University of Toronto in 2011 that looked at 216 reported fraud cases against U.S. companies with 750 million in assets between 1996 and 2004 confirmed that whistleblowers play a bigger role in detecting fraud than external auditors, government regulators, self-regulatory organizations, or the media in detecting fraud.[4] Indeed it is well established that whistleblowers are integral to the fight against fraud.
The rationale for giving a whistleblower a portion of the recovery is not only to reward the good actor, but also to offset the ADVERSE impacts in being a whistleblower. These cases require courage because oftentimes a whistleblower loses his or her job. These risks require protection from the legal system which help redress the impacts of doing the right thing against a fraudulent actor.
The Federal False Claims Act - A Successful Tool in the Fight Against Government Fraud
Often called Lincoln’s Law, the federal False Claims Act is a strong tool for fighting fraud against the federal government. This statute provides for liability for triple damages and a penalty from $5,500 to $11,000 per claim for anyone who knowingly submits or causes the submission of a false or fraudulent claim to the United States. The statute, first passed during the Civil War to fight war profiteering, includes an ancient citizen suit legal device called a “qui tam” provision (a Latin phrase meaning “he who brings a case on behalf of our lord the King, as well as for himself”). This citizen suit provision allows a private person (referred to as the “relator” under the False Claims Act), to file a lawsuit on behalf of the United States, where the private person has information that the named defendant has knowingly submitted or caused the submission of false or fraudulent claims to the United States for payment. In addition, as an incentive to encourage persons with knowledge of fraud against the government to come forward and report the fraud, this qui tam provision allows the relator to share in the government’s recovery by affording the relator an award totaling 15% to 25% of the amount recovered.
The federal False Claims Act has been a major success. At a December 13, 2011 cabinet meeting that included Vice President Joe Biden, the Department of Justice announced that it has recovered more than $5.6 billion in fraud proceeds in 2011 – the largest amount for any single year in the history of the department.[5] This represents an increase of more than 167% since 2008, and includes nearly $3.4 billion in civil fraud, as well as $2.2 billion in criminal fraud. Taxpayers Against Fraud reports that the total Federal and State False Claims Act Recoveries since 1986 total over $28 billion, and in the healthcare arena, the U.S. Government is recovering $15 for every $1 invested in False Claims Act healthcare investigations and prosecutions.[6]
Over Twenty-Five States Have Enacted State False Claims Acts
Over twenty-five states[7] along with Washington D.C., New York City the city of Chicago, and Allegheny County, Pennsylvania, have enacted False Claims Act legislation, and these state and local governments and these states and local governments are recovering tens of millions dollars. The state of Washington should follow these states and local governments and enact its own state False Claims Act.
Washington Senate Bill 5978: The Medicaid Fraud False Claims Act
On December 7, 2011, Washington State senators Cheryl Pflug, Karen Keiser, David Frockt, Steve Conway, and Jeanne Kohl-Welles introduced Senate Bill 5978—the Medicaid Fraud False Claims Act.[8] According to the Senate Bill Report, Washington state spent $6.6 billion on Medicaid in 2009, and the Washington General Accounting Office estimates that 10% of Washington government heath dollars are lost to fraud, translating to $660 million wasted in Washington each year. This bi-partisan bill should be enacted into law.
Senate Bill 5978 is similar to the federal False Claims Act. It includes a qui tam provision that allows a person to file suit against a state contractor on behalf of the Washington state agency seeking to recover Medicaid funds improperly paid as a result of false claims. Senate Bill 5978 allows for civil penalties between $5,000 and $11,000, and treble damages to be paid to the state. In addition, like the federal False Claims Act, Senate Bill 5978, requires these qui tam lawsuits to be filed under seal and presented to the Washington Attorney General, who is given an opportunity to review and intervene in the lawsuit. And, as an incentive to motivate people with inside information about fraud against the state of Washington, the relator can be awarded between 15% and 25% if the Washington AG intervenes, and 25% to 30% if the Washington AG does not intervene in the lawsuit. In addition, Senate Bill 5978 includes a strong anti-retaliation whistleblower protection provision to protect employees from employer reprisal, which often occurs in whistleblower cases.
The state of Washington, like many states, is facing tough economic times. Senate Bill 5978, the Medicaid Fraud False Claims Act, if enacted, will provide Washington state with a strong tool to help recover the estimated $660 million wasted in Washington each year. Senate Bill 5978 should be passed into law when Washington’s legislature reconvenes in 2012. The Act would enable each citizen of this state to help protect Washington’s economy from the businesses and people who are engaging in fraud. By passing this Act, the people of Washington will have a stronger voice to protect their society.
Footnotes:
[1] Message from the Governor, (http://www.ofm.wa.gov/budget11/highlights/governor_message.pdf), (Downloaded December 17, 2011).
[2] Julia Anderson, Puget Sound Business Journal, (http://www.bizjournals.com/seattle/print-edition/2011/12/09/financial-fraud-against-elderly-hits.html), (December 17, 2011).
[3] Association of Certified Fraud Examiners, 2008 Report to the Nation on Occupational Fraud &Abuse , 2008, pp.18-23, (http://www.acfe.com/uploadedFiles/ACFE_Website/Content/documents/2008-rttn.pdf),(Downloaded December 1, 2011)
[4] Alexander Dyck, Adair Morse, and Luigi Zingales, “Who Blows the Whistle on Corporate Fraud?” (http://www.afajof.org/afa/forthcoming/4820p.pdf), (Downloaded December 16, 2011).
[5] A Record: Fraud Recoveries Top $5.6 Billion, (http://blogs.usdoj.gov/blog/archives/1782), (last checked on December 16, 2011).
[6] Taxpayers Against Fraud, Statistics (http://www.taf.org/statistics.htm), (last checked on December 16, 2011).
[7] California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Virginia and Wisconsin.
[8] Senate Bill Report SB 5978 (http://apps.leg.wa.gov/documents/billdocs/2011-12/Pdf/Bill%20Reports/Senate/5978%20SBA%20HEA%2011%20E2.pdf), Downloaded December 16, 2011).
I wish I could say that things have improved for the 2011–13 budget period. Unfortunately, they have worsened. It continues to get more expensive for the state to provide the same level of services. Demand for state services is at its greatest when the economy is at its worst. The fact is that it will cost us more than $2 billion more to provide the same services in 2011–13 as we did in 2009–11. We simply have more people we must serve, and that costs more money.
While our costs continue to rise, revenue growth is stagnant. Our most recent state forecasts were jolting. In September the state lost $1.4 billion, and in November the state lost an additional $1.2 billion. As we plan our 2011–13 budget, we face a $4.6 billion shortfall. On top of the cuts we’ve already made, our options are limited. [1]
As we as a State experience tough financial times together, some of the worst feelings arise when we hear of fraudulent conduct which in part created this dire situation, or when we learn of additional fraudulent conduct that threatens to further exacerbate our stressed economy. Of course, news headlines about fraudulent conduct are always bad and many wish they could do something about it. For example, a recent Puget Sound Business Journal edition front-page headline reads, “Financial fraud against elderly hits record levels[2]”. This same Puget Sound Business Journal edition included a Law and Litigation section with a lead story, “White collar crime serge”. With all of this attention to our state’s serious financial woes and an increased awareness of fraud in general, now is the time for Washington State to enact a civil False Claims Act so that citizens can step in and help stop the fraud. The State False Claims Act would include a citizen suit, or qui tam provision, to incentivize whistleblowers to come forward and help the state fight fraud against Washington taxpayers.
Whistleblowers are Needed to Help Fight Fraud
A major obstacle to detecting fraud is that perpetrators do so in private and the fraud goes undetected. Therefore, internal whistleblowers are needed in the fight against fraud. A survey conducted in 2011 by the Association of Certified Fraud Examiners found that nearly half of occupational fraud cases were uncovered by a tip or complaint from an employee, customer, vendor, or other source.[3] An academic study from the University of Toronto in 2011 that looked at 216 reported fraud cases against U.S. companies with 750 million in assets between 1996 and 2004 confirmed that whistleblowers play a bigger role in detecting fraud than external auditors, government regulators, self-regulatory organizations, or the media in detecting fraud.[4] Indeed it is well established that whistleblowers are integral to the fight against fraud.
The rationale for giving a whistleblower a portion of the recovery is not only to reward the good actor, but also to offset the ADVERSE impacts in being a whistleblower. These cases require courage because oftentimes a whistleblower loses his or her job. These risks require protection from the legal system which help redress the impacts of doing the right thing against a fraudulent actor.
The Federal False Claims Act - A Successful Tool in the Fight Against Government Fraud
Often called Lincoln’s Law, the federal False Claims Act is a strong tool for fighting fraud against the federal government. This statute provides for liability for triple damages and a penalty from $5,500 to $11,000 per claim for anyone who knowingly submits or causes the submission of a false or fraudulent claim to the United States. The statute, first passed during the Civil War to fight war profiteering, includes an ancient citizen suit legal device called a “qui tam” provision (a Latin phrase meaning “he who brings a case on behalf of our lord the King, as well as for himself”). This citizen suit provision allows a private person (referred to as the “relator” under the False Claims Act), to file a lawsuit on behalf of the United States, where the private person has information that the named defendant has knowingly submitted or caused the submission of false or fraudulent claims to the United States for payment. In addition, as an incentive to encourage persons with knowledge of fraud against the government to come forward and report the fraud, this qui tam provision allows the relator to share in the government’s recovery by affording the relator an award totaling 15% to 25% of the amount recovered.
The federal False Claims Act has been a major success. At a December 13, 2011 cabinet meeting that included Vice President Joe Biden, the Department of Justice announced that it has recovered more than $5.6 billion in fraud proceeds in 2011 – the largest amount for any single year in the history of the department.[5] This represents an increase of more than 167% since 2008, and includes nearly $3.4 billion in civil fraud, as well as $2.2 billion in criminal fraud. Taxpayers Against Fraud reports that the total Federal and State False Claims Act Recoveries since 1986 total over $28 billion, and in the healthcare arena, the U.S. Government is recovering $15 for every $1 invested in False Claims Act healthcare investigations and prosecutions.[6]
Over Twenty-Five States Have Enacted State False Claims Acts
Over twenty-five states[7] along with Washington D.C., New York City the city of Chicago, and Allegheny County, Pennsylvania, have enacted False Claims Act legislation, and these state and local governments and these states and local governments are recovering tens of millions dollars. The state of Washington should follow these states and local governments and enact its own state False Claims Act.
Washington Senate Bill 5978: The Medicaid Fraud False Claims Act
On December 7, 2011, Washington State senators Cheryl Pflug, Karen Keiser, David Frockt, Steve Conway, and Jeanne Kohl-Welles introduced Senate Bill 5978—the Medicaid Fraud False Claims Act.[8] According to the Senate Bill Report, Washington state spent $6.6 billion on Medicaid in 2009, and the Washington General Accounting Office estimates that 10% of Washington government heath dollars are lost to fraud, translating to $660 million wasted in Washington each year. This bi-partisan bill should be enacted into law.
Senate Bill 5978 is similar to the federal False Claims Act. It includes a qui tam provision that allows a person to file suit against a state contractor on behalf of the Washington state agency seeking to recover Medicaid funds improperly paid as a result of false claims. Senate Bill 5978 allows for civil penalties between $5,000 and $11,000, and treble damages to be paid to the state. In addition, like the federal False Claims Act, Senate Bill 5978, requires these qui tam lawsuits to be filed under seal and presented to the Washington Attorney General, who is given an opportunity to review and intervene in the lawsuit. And, as an incentive to motivate people with inside information about fraud against the state of Washington, the relator can be awarded between 15% and 25% if the Washington AG intervenes, and 25% to 30% if the Washington AG does not intervene in the lawsuit. In addition, Senate Bill 5978 includes a strong anti-retaliation whistleblower protection provision to protect employees from employer reprisal, which often occurs in whistleblower cases.
The state of Washington, like many states, is facing tough economic times. Senate Bill 5978, the Medicaid Fraud False Claims Act, if enacted, will provide Washington state with a strong tool to help recover the estimated $660 million wasted in Washington each year. Senate Bill 5978 should be passed into law when Washington’s legislature reconvenes in 2012. The Act would enable each citizen of this state to help protect Washington’s economy from the businesses and people who are engaging in fraud. By passing this Act, the people of Washington will have a stronger voice to protect their society.
Footnotes:
[1] Message from the Governor, (http://www.ofm.wa.gov/budget11/highlights/governor_message.pdf), (Downloaded December 17, 2011).
[2] Julia Anderson, Puget Sound Business Journal, (http://www.bizjournals.com/seattle/print-edition/2011/12/09/financial-fraud-against-elderly-hits.html), (December 17, 2011).
[3] Association of Certified Fraud Examiners, 2008 Report to the Nation on Occupational Fraud &Abuse , 2008, pp.18-23, (http://www.acfe.com/uploadedFiles/ACFE_Website/Content/documents/2008-rttn.pdf),(Downloaded December 1, 2011)
[4] Alexander Dyck, Adair Morse, and Luigi Zingales, “Who Blows the Whistle on Corporate Fraud?” (http://www.afajof.org/afa/forthcoming/4820p.pdf), (Downloaded December 16, 2011).
[5] A Record: Fraud Recoveries Top $5.6 Billion, (http://blogs.usdoj.gov/blog/archives/1782), (last checked on December 16, 2011).
[6] Taxpayers Against Fraud, Statistics (http://www.taf.org/statistics.htm), (last checked on December 16, 2011).
[7] California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Virginia and Wisconsin.
[8] Senate Bill Report SB 5978 (http://apps.leg.wa.gov/documents/billdocs/2011-12/Pdf/Bill%20Reports/Senate/5978%20SBA%20HEA%2011%20E2.pdf), Downloaded December 16, 2011).