Washington State False Claims Act Mirrors the Federal Act
But Limited to Medicaid Fraud
The federal False Claims Act has had a long history of government service. Not only does it reward whistleblowers (better known as “sentinels”), it also protects them from retaliation. Past attempts to pass a state version in Washington met with stiff opposition. Even the Attorney General opposed it, arguing that there was plenty of whistleblowing going on and there was no need to encourage more. On March 30, 2012, Washington finally joined the 29 other states that have False Claims Act (FCA) by passing the Medicaid Fraud False Claims Act (MFFCA). Like 10 of the 30 states that have a FCA, it is limited only to Medicaid. Washington’s MFFCLA has been reviewed by the U.S. Office of Inspector General (OIG) and has been approved for a 10 percentage-point increase in Washington State’s share of federal Medicaid FCA cases.
History of Qui Tam
The traditional name for cases which attempt to recover money defrauded from the government (i.e. the king) is “Qui Tam” litigation. Qui Tam is pronounced “kee tam” or “kway tam”) and is an abbreviation from the Latin “qui tam pro domino rege quam pro sic ipso in hoc parte sequitur” meaning “who as well for the king as for himself sues in this matter”.
Qui tam legal actions can be traced back as far as 13th Century England where they were used by private citizens to gain access to the king’s court. The U.S. legal system, derived from the British system, allowed qui tam actions since the nation’s founding in 1776. They were rare.
During the Civil War, Congressional hearings investigated widespread instances of military contractor fraud including defective products, substitution of inferior material, and illegal price gouging. At the urging of Abraham Lincoln, a former practicing lawyer, Congress enacted the Civil False Claims Act in 1863 as a weapon to fight procurement fraud. This law has also been known as the “Lincoln Law” and the “Informer’s Act”.
The False Claims Act was designed to entice whistleblowers to come forward by offering them a share of the money recovered. Even though this Act was enacted to combat military contractor fraud, it was applicable to all government contractors, federal programs and any other instances involving the use of federal revenue. The Act allowed any person to act as a “private attorney general” and sue for recovery of the money taken. The named plaintiff on the action is the United States Government. The one filing the case is known as the “relator”. Because of legal obstacles, the 1863 Act was not very successful in combating fraud on the government.
During World War II, the law was amended to add even greater restrictions. In 1943, Congress amended the Act to eliminate cases where the Government had prior knowledge of the allegations. The award to the relator was reduced from 50% to a maximum of 25% if the government did not take over the case and a maximum of 10% if it did.
In 1986 during “Star Wars” military buildup, Congress became alarmed over rampant procurement fraud, inadequate efforts of regular law enforcement to control the fraud, and the obstacles making it difficult for whistleblowers to bring qui tam actions. Congress passed amendments to the Act increasing the whistleblower’s share of the recovery to a maximum of 30%, increasing the powers of relators in bringing qui tam lawsuits and increasing the damages and penalties that can be imposed on defendants. Even if the Government joined the lawsuit and has primary responsibility for prosecuting the action, the relator has the right to continue as a party to the action. Prior Government knowledge of the allegations does not prevent a relator from filing a qui tam action.
Qui tam actions increased dramatically as a result of the 1986 amendments and have been very beneficial to the government. The initial successes of the revitalized False Claims Act were against defense contractors, more and more actions are being filed that involve fraud on other governmental agencies such as Health and Human Services, Environment, Energy, Education, NASA, Agriculture and Transportation. U.S. recoveries for qui tam cases, as of the end of 2003, have totaled $7.8 billion. During the same period, relator payments have totaled $1.3 billion.
President Obama had worked on a FCA case and had a favorable opinion of the law. He backed “sentinel-friendly” amendments include in the 2009 Fraud Enforcement and Recovery Act (FERA). These changes reversed some of the court cases that had ruled against relators and modernized the act to match current government procurement practices. In 2010, the Patient Protection and Affordable Care Act made it easier for relators by limiting the definition of “public disclosure” and expanding the definition of “original source”. The Dodd-Frank Wall Street Reform and Consumer Protection Act extended the statute of limitations for whistleblowers to file FCA wrongful discharge claims to three years and expanded the list of those who are prohibited from retaliation. It also enacted a parallel reward regime for sentinels which is not limited to fraud on the government and does not require the whistleblower to file a legal action.
In fiscal 2012, federal and state FCA cases recovered over $9 billion for the governments.
The Battle in the Washington Legislature
The MFFCA bill drew the normal adversaries. Business generally sees false claim laws as a source of frivolous litigation. The lawyers associations defended the bill as making money for government. The basic argument that combating fraud is necessary in a civilized society received little support. There was also not enough support for a full false claims act. Although the American Medical Association did not object to the bill, it was opposed by Washington medical lobbyists. They claimed even one frivolous case against a doctor could cause her business to be ruined. The lawyer lobby asked for one example, anywhere in the country, where a doctor was ruined because of false accusation of Medicare fraud. None were found. The medical lobby asked that a Missouri-like reward based whistle-blowing reporting system without private litigation be passed instead. Missouri is the only state in the country where reporting has worked because it does not audit Medicare payments and has allowed a very high level of fraud. Washington State has an audit system and a much lower level of Medicare fraud.
In the end, the Medicare-only false claim act won because it was required by the OIG for Washington to obtain an increased share in Federal False Claims Act cases. The language of the MFFCA is almost exactly the same as the FCA for the same reason. The OIG guidelines provide:
1. The law must establish liability to the State for false or fraudulent claims described in 31 U.S.C. 3729 with respect to any expenditure described in section 1903(a) of the Act.
2. The law must contain provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims as those described in 31 U.S.C. 3730-3732.
3. The law must contain a requirement for filing an action under seal for 60 days with review by the State Attorney General.
4. The law must contain a civil penalty that is not less than the amount of the civil penalty authorized under 31 U.S.C. 3729.
For those of us who believe Medicare is not the only type of fraud on the State of Washington and that whistleblowers should be protected hope that the legislature will overcome the lobbyists and approve a full-scale false claims act. The objection that such a law only benefits lawyers misstates the reality. It takes hundreds of thousands of dollars to undertake a false claims act case. Lawyers would only do so if the case is well proven and the defendant has deep pockets. If Washington passed a full FCA it would be rarely used, much like the “Baby RICO” statute but it should be available in those rare situations it can help root out fraud on Washington State.