ANTI-FRAUD FER­VOR

STATES STEP UP FALSE CLAIMS AC­TIONS TO RE­COVER MED­I­CAID DOL­LARS

Modern Healthcare - - NEWS - By Lisa Schencker

Jaws dropped at news this sum­mer that the fed­eral gov­ern­ment was seek­ing as much as $3.3 bil­lion from drug­maker No­var­tis for al­legedly pay­ing kick­backs to phar­ma­cies.

But the feds aren’t the only ones try­ing to make No­var­tis pay up on false claims al­le­ga­tions, and it’s not just Medi­care dol­lars at stake. Eleven states are also par­ties to the law­suit un­der the au­thor­ity of their own false claims laws. They’re seek­ing to re­cover money paid out by their state Med­i­caid pro­grams.

The No­var­tis case is the latest ex­am­ple of states us­ing their own false claims laws to pur­sue ques­tion­able Med­i­caid billings by drug­mak­ers, healthcare providers and sup­pli­ers. Lured by the po­ten­tial for big pay­days, sev­eral states, in­clud­ing Mary­land and Ver­mont, passed or ex­panded their false claims laws this year, bring­ing the num­ber of states with their own false claims statutes to nearly 30, ac­cord­ing to the Taxpayers Against Fraud Ed­u­ca­tion Fund.

Many state false claims laws are sim­i­lar to the fed­eral law, fi­nan­cially pe­nal­iz­ing those who know­ingly sub­mit false claims to state pro­grams such as Med­i­caid. Many of the state laws also al­low whis­tle-blow­ers to ini­ti­ate law­suits on be­half of the state.

A fac­tor be­hind the grow­ing num­ber of states that have adopted and more ag­gres­sively used their own false claims laws is the fed­eral Deficit Re­duc­tion Act of 2005, which gave them a strong fi­nan­cial in­cen­tive to es­tab­lish their own statutes. Prior to that law, only about half as many states had their own false claims laws, said Pa­trick Burns, co-di­rec­tor of the Taxpayers Against Fraud Ed­u­ca­tion Fund, a not-for-profit funded by whis­tle-blow­ers and law firms that rep­re­sent them.

Un­der that fed­eral law, if a state’s false claims law meets cer­tain re­quire­ments, the state is not only en­ti­tled to its share of the re­cov­ered Med­i­caid funds but also to a por­tion of the fed­eral gov­ern­ment’s share.

It’s a trend that could mean more le­gal tan­gles for providers and man­u­fac­tur­ers. The No­var­tis case is “go­ing to be­come more of the com­mon type of case you’re go­ing to see in False Claims Act cases,” said John Kelly, a for­mer as­sis­tant chief for healthcare fraud at the U.S. Jus­tice Depart­ment. “It’s not go­ing to get any eas­ier out there for com­pa­nies sub­ject to this.”

But some state Repub­li­can lead­ers and busi­ness groups op­pose state false claims laws, ar­gu­ing that they hurt busi­ness. Ear­lier this month, Repub­li­can-led Wis­con­sin re­pealed its false claims statute, a move ap­plauded by the U.S. Cham­ber In­sti­tute for Le­gal Re­form.

Lisa Rickard, the in­sti­tute’s pres­i­dent, said in a writ­ten state-

ment that the money Wis­con­sin had spent in­ves­ti­gat­ing false claims cases would be bet­ter spent else­where. “This flawed law in­cen­tivized pri­vate bounty hunter plain­tiffs to sue com­pa­nies sus­pected of de­fraud­ing the state’s med­i­cal as­sis­tance pro­gram, and de­spite its good in­ten­tions, proved in­ef­fec­tive and costly,” she said.

Un­der the fed­eral False Claims Act, the fed­eral gov­ern­ment may file cases against those it al­leges sub­mit­ted false claims to pro­grams such as Medi­care and Med­i­caid, or the gov­ern­ment may join cases brought by pri­vate whistle­blow­ers. Fed­eral False Claims Act cases al­low triple dam­ages plus thou­sands of dol­lars in penal­ties for each false claim. Be­cause of the mas­sive po­ten­tial penal­ties and other pos­si­ble con­se­quences, such as ex­clu­sion from fed­eral healthcare pro­grams, most False Claims Act cases that are joined by the fed­eral gov­ern­ment end up set­tling. Whistle­blow­ers in suc­cess­ful cases are en­ti­tled to a per­cent­age of any money re­cov­ered.

For its fis­cal 2014, the fed­eral gov­ern­ment col­lected $2.3 bil­lion in False Claims Act set­tle­ments and judg- ments in­volv­ing fed­eral health pro­grams such as Medi­care, Med­i­caid and Tri­care. That kind of cash is hard for states fac­ing bud­get crunches to ig­nore, and it’s lead­ing many of them to in­creas­ingly make use of their own false claims laws, ex­perts say.

State false claims act cases of­ten tar­get big re­cip­i­ents of Med­i­caid dol­lars such as nurs­ing homes, home healthcare com­pa­nies, hos­pices and durable med­i­cal equip­ment sup­pli­ers, whereas fed­eral false claims cases might in­clude more al­le­ga­tions of doc­tor billing fraud and up­cod­ing for hos­pi­tal stays, Burns said. Phar­ma­ceu­ti­cal com­pa­nies have been tar­geted in a num­ber of state cases, though hos­pi­tals and other providers have also been at the cen­ter of state cases.

“The con­duct which pro­vides the ba­sis for a fed­eral False Claims Act case will of­ten­times also pro­vide a ba­sis for a vi­o­la­tion of the state false claims act,” said Mark Sil­ber­man, a for­mer spe­cial as­sis­tant U.S. at­tor­ney.

Suc­cess among pi­o­neer­ing states pushed the cur­rent growth in the use of state false claims laws. Texas was one of the first to ex­pe­ri­ence a big pay­day. In the late 1990s, it was the first state to join whis­tle-blower Vena-A-Care of the Florida Keys in a False Claims suit against a num­ber of phar­ma­ceu­ti­cal com­pa­nies. Phar­macy Ven-A-Care and Texas ac­cused the drug com­pa­nies of mis­re­port­ing their pric­ing to the state, lead­ing the state to over­pay phar­ma­cists.

The com­pa­nies set­tled, and the state’s share—af­ter the whis­tle-blow­ers, at­tor­neys and the fed­eral gov­ern­ment were paid—was $182 mil­lion, ac­cord­ing to the Texas at­tor­ney gen­eral’s civil Med­i­caid fraud di­vi­sion.

“More and more whis­tle-blow­ers ended up fil­ing suit un­der the fraud statute,” said Pa­trick O’Con­nell, the first chief of Texas’ civil Med­i­caid fraud sec­tion. “We were bring­ing back a lot of money to the state.” Texas’ suc­cess helped in­spire the Deficit Re­duc­tion Act of 2005, he said.

Cal­i­for­nia, New York and Vir­ginia also have be­come lead­ers in us­ing their false claims laws, Burns said. “Other states woke up and smelled the cof­fee.”

Mary­land passed a false claims law in 2011, and re­cov­ered $39.8 mil­lion in fis­cal 2014, up from $1.2 mil­lion in fis­cal 2012. That prompted the state to ex­pand its false claims law this year to in­clude ar­eas be­yond healthcare. “We’ve been very pleased with the re­sults,” said David Nitkin, a spokesman for the Mary­land at­tor­ney gen­eral’s of­fice.

IT’S A TREND THAT COULD MEAN MORE LE­GAL TAN­GLES FOR PROVIDERS AND MAN­U­FAC­TUR­ERS.

Since 2009, In­di­ana has re­cov­ered more than $165 mil­lion as a re­sult of whistle­blower cases filed un­der its false claims act.

Both In­di­ana and Mary­land have used their false claims laws to join fed­er­ally led suits as well as to lead their own false claims suits.

Some states have false claims laws but don’t pur­sue their own cases. Just hav­ing the laws on the books al­lows those states to col­lect ex­tra money in fed­er­ally led False Claims Act cases, Burns said. He called such states “par­a­sitic.”

Some other states ei­ther do not have false claims laws, or else their laws aren’t con­sid­ered strong enough by the fed­eral gov­ern­ment to al­low them to col­lect the ex­tra cash from fed­eral suits. Ohio and Penn­syl­va­nia are among the larger states with­out their own laws.

Po­lit­i­cal and busi­ness op­po­si­tion helps ex­plain why the laws haven’t got­ten off the ground in some states. “It’s a shame be­cause this is not an anti-busi­ness statute, it’s an anti-fraud statute,” O’Con­nell said. “Good doc­tors and phar­ma­cies and hos­pi­tal chains should want us to go af­ter the bad guys be­cause they’re com­pet­ing at a disad­van­tage.”

The Mary­land Cham­ber of Com­merce and the U.S. Cham­ber in­sti­tute wrote to Mary­land law­mak­ers last year op­pos­ing ex­pan­sion of the state’s law.

On its web­site, the U.S. Cham­ber In­sti­tute for Le­gal Re­form says the fed­eral False Claims Act is overzeal­ously en­forced, “turn­ing what should be sim­ple con­trac­tual dis­agree­ments and pa­per­work mis­takes into claims for fraud.” It says that “although well-in­ten­tioned, the law has been trans­formed into a lu­cra­tive money ma­chine for plain­tiffs’ lawyers and their clients—while hurt­ing Amer­i­can busi­nesses and taxpayers.”

Many parts of state false claims laws don’t work well and cre­ate a dis­in­cen­tive to do­ing busi­ness with fed­eral and state gov­ern­ment pro­grams, said Peter Hutt, a part­ner at Akin Gump in Washington who works with the U.S. Cham­ber’s in­sti­tute. Small states, for ex­am­ple, might not be able to re­coup much money af­ter whis­tle-blow­ers are paid their shares, he said. States would do bet­ter to fo­cus on com­pli­ance pro­grams.

Sil­ber­man, who rep­re­sents providers in state false claims cases, said providers should be­ware of states look­ing for big pay­days from the laws. Any time a provider re­ceives a re­quest for in­for­ma­tion, there is the po­ten­tial that it could lead to a false claims ac­tion, he cau­tioned.

Burns said the in­crease in state false claims ac­tiv­ity will add pres­sure for de­fen­dants to set­tle in such cases. “Even if you could dance out of the way of a bullet com­ing from New York or Texas or Cal­i­for­nia or the big cannon com­ing from the fed­eral gov­ern­ment, at some point you’re done,” he said. “The best thing you can do is run, not walk to the set­tle­ment ta­ble.”

PO­LIT­I­CAL AND BUSI­NESS OP­PO­SI­TION HELPS EX­PLAIN WHY THE LAWS HAVEN’T GOT­TEN OFF THE GROUND IN SOME STATES.

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