Section 1909 of the Social Security Act provides a financial incentive for states to enact their own false claims acts. Those states with qualifying acts, as determined by the Department of Justice ("DOJ") in consultation with the Department of Health and Human Services ("HHS"), will receive a 10-percentage-point increase in their share of any amounts recovered under their statute. To qualify, a state statute must meet four requirements, among them that it establish liability of a similar breadth as the federal FCA and that the state statute contain provisions at least as effective as its federal counterpart's for rewarding and facilitating qui tam actions. During the past several years, the DOJ and HHS had approved the respective false claims acts of 14 states – California, Georgia, Hawaii, Illinois, Indiana, Massachusetts, Michigan, Nevada, New York, Rhode Island, Tennessee, Texas, Virginia, and Wisconsin.

Earlier this year, however, the DOJ and HHS issued letters to those 14 states, advising that in light of recent amendments to the FCA, their statutes no longer qualified for the Section 1909 incentive and that approval of their statutes would be withdrawn. Ten other states – Colorado, Connecticut, Delaware, Florida, Iowa, Louisiana, Montana, New Jersey, North Carolina, and Oklahoma – were informed that their statutes failed to meet the requirements of Section 1909 and would not be approved.

The DOJ and HHS pointed out that the FCA had been amended on three separate occasions in the last two years – by the Fraud Enforcement and Recovery Act in 2009, and by both the Patient Protection and Affordable Care Act and the Dodd- Frank Wall Street Reform and Consumer Protection Act in 2010. These amendments, among other things, expanded the scope of liability imposed for falsely avoiding or decreasing an obligation to pay money to the federal government, and provided additional protections to employees, contractors, and agents who suffer retaliation for steps taken in furtherance of an action under the FCA. The DOJ and HHS determined that the statutes of all 24 states mentioned above failed to meet the expanded requirements of the FCA and, thus, did not qualify for the Section 1909 incentives.

The DOJ and HHS granted the 14 states whose false claims acts previously qualified for the Section 1909 incentive a "grace period" until March 31, 2013, to amend their statutes and resubmit them for approval. Until the end of that grace period, those 14 states will continue to receive the Section 1909 incentive – but failing amendment and approval, as of April 1, 2013, the incentive will be lost. It is anticipated that the next 18 months will see many of these states amend their false claims acts in order to re-qualify.