Today, the Office of the Inspector General of the Health and Human Services Department publicly disclosed letters sent to the Attorneys General of ten states showing the results of its review of state false claims statutes under guidelines issued in response to the Deficit Reduction Act of 2005 ("DRA"). Effective January 1, 2007, under Section 6031 of the DRA, states enacting false claims laws that are "at least as effective" as the federal FCA are given a financial incentive to do so. The OIG stated that it applied guidelines published in August 2006 to determine whether the ten states qualified for the financial incentive under the DRA.

According to the letters released by the OIG today, of the ten state statutes reviewed, only three—Illinois, Massachusetts, and Tennessee—meet the requirements of the DRA and therefore qualify for the financial incentive. States informed that their state FCA laws were found inadequate were California, Florida, Louisiana, Indiana, Michigan, Nevada, and Texas—ironically, states that have been the most successful in state FCA recoveries.

The letters, posted on HHS OIG's website ( falseclaimsact.html), point out the particular state law provisions that are not in compliance with the guidelines. They also describe the changes needed to bring the provisions into compliance. The letters indicate that states are required to match the federal statute in key respects, including elements of liability, damages, penalties, relator's share, and statute of limitations.

According to the OIG, particular deficiencies in the state false claims laws reviewed include the following (among other deficiencies):

  • California's penalty of "up to $10,000" for each false claim does not set a floor for penalties as in the federal statute, where the penalty must be not less than $5,500.
  • Florida's statute of limitations permits actions brought no more than five years after the date of the violation, or no more than two years after the material facts are known or reasonably should have been known, and, in any event, no more than seven years after the violation was committed. This provision is less effective than the federal statute, under which the corresponding periods are six, three, and ten years, respectively.
  • Indiana does not define "knowing" and "knowingly" to include deliberate ignorance and reckless disregard.
  • Louisiana's relator's share provisions allow a lesser percentage to be recovered than the federal law.
  • Michigan's statute does not allow for the recovery of a penalty for each false claim, and does not create liability for a reverse false claim.
  • Nevada's civil penalty of not less than $2,000 sets a lower floor than the federal law.
  • Texas does not permit relators to bring qui tam actions if the Texas Attorney General declines to intervene.

FraudMail Alert has been closely following state FCA developments under the DRA and has previously noted that, under our system of federalism, states must be permitted to enact laws which their legislatures deem workable and fair. The OIG's evaluation of the "effectiveness" of these state laws, noting that they did not match the federal law, is inconsistent with the principles underlying federalism. This is particularly true since those state FCA laws most successful in FCA recoveries were found "inadequate." Of particular importance, however, is the Texas FCA, where the state legislature has decided to preclude qui tam suits if the state Attorney General declines to intervene. FCA statistics recently released by the DOJ show that government participation in FCA suits is an overwhelmingly important element in FCA recoveries, and thus support the finding that the Texas false claims law, which requires government intervention, is an effective method—perhaps the most effective and economical method—of recovering Medicaid funds lost to fraud.