Under the 2005 Deficit Reduction Act, states that enact laws that closely mirror the federal False Claims Act may retain an increased proportion of the proceeds recovered from Medicaid fraud actions. In order for a state to qualify for this incentive, the state law must meet certain enumerated requirements as determined by the HHS Office of Inspector General. As a result, Medicaid providers in Ohio may have to contend with private anti-fraud enforcement actions brought by whistleblowers if the Ohio False Claims Act ("FCA") initiative, House Bill 355, introduced by State Representative Jim Hughes (R-Columbus), becomes law.
As proposed, the Ohio FCA initiative creates significant civil liability for persons who knowingly make or conspire to make false claims for payment under Ohio's Medicaid program. A "person" is broadly defined as "any natural person, any partnership or corporation, any business trust, any business firm or entity, any organization or association, any estate, and any trust." House Bill 355 is not intended to punish merely negligent conduct that results in a false claim. It does, however, punish even indirect beneficiaries of false claims – i.e., anyone who may receive a Medicaid payment as a result of a false claim submitted by someone else.
Proof of intent to defraud is not required to prove any claim made under the proposed Ohio FCA. The standard of proof for Ohio FCA claims is by a preponderance of the evidence. This, of course, is lower than the reasonable doubt standard applied in criminal Medicaid fraud enforcement actions.
Under the proposed law, private litigants, also known as whistleblowers, may bring civil enforcement actions and receive a portion of any money they recover on the state's behalf. The Ohio Hospital Association and various other Medicaid provider associations oppose the measure.
Private Enforcement and Cooperation with the Ohio Attorney General
House Bill 355 is procedurally similar to the federal False Claims Act. It requires whistleblowers to file a FCA claim under seal, notify the Ohio attorney general, provide the attorney general with substantive support for the claim, and cooperate with the attorney general in investigating and prosecuting the claim. The case must remain under seal for 60 days to allow the attorney general to investigate and decide whether to prosecute. If the attorney general refuses to prosecute the claim, a whistleblower may proceed independently. The attorney general retains the right to enter the lawsuit at any time, however, if he chooses.
The attorney general currently has expansive powers to investigate criminal Medicaid fraud through his Medicaid Fraud Control Unit (MFCU). The Ohio version of the FCA extends and expands those investigative powers in the civil context. The attorney general may issue subpoenas and investigative demands, serve written interrogatories and require oral deposition testimony – all before a court unseals a whistleblower's complaint. If the target of an FCA investigation fails to respond to pre-suit inquiries, the attorney general may seek a court order to compel compliance.
Self-Reporting, Damages and Penalties
The proposed Ohio FCA contains significant damages and civil penalty provisions. It authorizes recovery of three times the actual damages sustained by the state as a result of false claims. It also authorizes a civil penalty of not less than $5,000 and not more than $10,000 per violation and recovery of all costs related to the investigation and litigation.
The new law may require mandatory self-reporting if a person learns that a false claim has been made. It is unclear in the current draft whether self-reporting is a stand-alone obligation or merely a prerequisite to mitigating damages under certain defined circumstances. If a court finds that a person has self-reported a violation of the Ohio FCA within 30 days after the date they first obtain information about the violation; has "fully cooperated" with any investigation into the violation; there are no other related pending civil, criminal or administrative actions; and they had no knowledge of a related pending investigation of the violation, damages may be reduced to two times the Medicaid program's loss plus reasonable attorney fees and costs – but no civil penalty.
There is no standard for "full cooperation" under the proposed law. Prosecutors will have tremendous discretion to argue whether a person has fully cooperated. Consequently, they will have considerable leverage in resolving FCA cases short of full scale litigation, particularly where there are large damages and penalties involved.
The proposed Ohio FCA expressly authorizes the attorney general to share information gathered in an FCA investigation with criminal investigators and prosecutors, raising the real threat that parallel proceedings may emerge from any whistleblower action. Parallel proceedings potentially create significant civil and criminal exposure, and therefore must be managed very carefully and deliberately. The exposure risk must be determined and mitigated as soon as a target receives notice of a false claim through the compliance process, a government investigation or a lawsuit. Targets of false claims litigation must manage any civil action to avoid, minimize or globally resolve any criminal exposure.
Financial Incentives for Whistleblowers
The financial incentives for whistleblowers, and their counsel, are potentially immense. If the attorney general accepts a case and litigates it to resolution, a whistleblower may obtain between 15 to 25% of the recovery plus reasonable attorney fees and costs. Courts will have discretion to reduce an award below the 15% minimum threshold under certain limited circumstances. If the attorney general declines to prosecute a case filed by a whistleblower and the whistleblower proceeds with it, a court may award between 25 to 30% percent of any recovery plus reasonable attorney fees and costs. In cases where a whistleblower brings a case predicated primarily upon public information, a court may award no more than 10% of the amount recovered plus reasonable attorney fees and costs.
Under certain limited circumstances, targets of Ohio FCA actions may attempt to recover attorney fees and costs from whistleblowers. Targets must prove that a whistleblower has asserted a claim that is clearly frivolous, clearly vexatious or primarily intended to harass the target. This opportunity is only available in cases where the attorney general has declined prosecution.
The proposed Ohio FCA grants whistleblowers considerable protections against employer retaliation. If the target of an Ohio FCA claim takes adverse employment action against a whistleblower, the whistleblower may recover all relief to make her whole; reinstatement to the same seniority status; two times the amount of back pay owed; special or non-economic damages; and reasonable attorney fees and costs. There is a three-year statute of limitations for whistleblower retaliation claims.
Retroactivity and Statute of Limitations
The proposed Ohio FCA, as written, will be retroactive. As such, claims under the proposed Ohio FCA can be asserted for violations that occurred before its enactment. The only bar is the generous statute of limitations.
The limitations period for asserting claims under the proposed Ohio FCA is lengthy. A claim must be filed within six years after a violation or within three years after the date when facts material to a cause of action under the Ohio FCA become known or reasonably should be known to the attorney general, but no later than ten years after the date on which the violation is committed, whichever occurs later.
Impact of the Proposed Ohio FCA on Medicaid Enforcement
The proposed Ohio FCA will enhance the Ohio attorney general's Medicaid fraud enforcement authority. It will allow the attorney general's Medicaid Fraud Control Unit (MFCU) to participate in more national false claims cases where whistleblowers assert claims under both federal and state false claims acts. Currently, states without their own false claims acts have to be invited to participate by federal prosecutors or other participating states. Whistleblowers may not directly notify states that do not have a false claims act of their suit while it is under seal. Twenty-two states currently have false claims acts.
Ohio's MFCU participates in many national cases already. In 2007, the Ohio MFCU recovered more than $28 million for Ohio's Medicaid system. This largely is a result of national settlements with major pharmaceutical companies like Merck and Bristol Myers Squib. The Ohio FCA should enhance the Ohio MFCU's participation in national false claims cases. It also should allow it to generate more significant home-grown investigative leads for both civil and criminal prosecution.
The proposed Ohio FCA contains a significant revenue enhancement provision that will increase the amount the state Medicaid program recovers as a result of enforcement actions. Because Medicaid is a joint federal-state program largely funded with federal dollars, a large portion of Medicaid fraud recoveries revert to the federal government. The Ohio FCA would allow the state Medicaid fund to receive an additional 10% of all Medicaid recoveries (from both civil and criminal enforcement actions). In 2007, the Ohio MFCU recovered more than $28 million for Ohio's Medicaid system, which is about average over the last ten years. If the Ohio FCA becomes law, it could add $2 million to $3 million in additional annual revenue to the state Medicaid program.
House Bill 355 has had six hearings before the House Civil and Commercial Law Committee. A stakeholders' meeting has been scheduled for later this month.