Deeper Than the Headlines: State False Claims Acts

Last week, I blogged about State Inspectors General in an attempt to draw attention to the efforts states are taking to combat fraud, waste and abuse in healthcare. This week, I’d like to talk about the State False Claims Acts and why it’s important to you as a compliance professional.

Many of us are well-aware of the Federal False Claims Act. It has been a powerful tool in the government’s arsenal in fighting healthcare fraud. One of the key provisions in the Federal False Claims Act is the whistleblower, or qui tam, provision. What many people don’t know, however, is that states are incentivized to pass state false claims acts. And many states have done so. In fact, 30 states have some form of a state false claims act.

Incentives exist for states to pass a state false claims act that is at least as strong as the federal Act when it comes to recovering Medicaid money. States that have done so are eligible for a 20-35% increase in their share of any and all Medicaid recoveries made under the federal Act. The Federal OIG is involved in reviewing states’ false claims acts to determine if this standard is met. You can read more about the OIG’s review process on their web page here.

One of the largest settlements based on a state false claims act can be found in California. In 2011, The state of California settled with Quest Diagnostics, which was the the state's biggest provider of medical laboratory testing. The settlement resolved allegations that Quest had overcharged the state’s Medicaid program, Medi-Cal for more than 15 years and gave illegal kickbacks in the form of discounted or free testing to doctors, hospitals and clinics that referred Medi-Cal patients and other business to the labs.

California law states that 'no provider shall charge [Medi-Cal] for any service more than would have been charged for the same service to other purchasers of comparable services under comparable circumstance.’ The complaint alleged Quest charged Medi-Cal up to six times as much as it charged some other customers for the same tests. For example, Quest charged Medi-Cal $8.59 to perform a complete blood count test, while it charged some of its other customers $1.43.

The complaint also alleged Quest systematically offered doctors, hospitals and clinics low prices for lab tests in return for referrals to Quest of patients, including Medi-Cal patients. Quest then allegedly charged Medi-Cal a higher price to make up the difference–resulting in the loss of millions of dollars to the Medi-Cal program.

The allegations were first brought by a whistleblower whose company, Hunter Laboratories, found it could not compete in a significant segment of the marketplace where major medical laboratories such as Quest offered doctors, hospitals and clinics far lower rates than they were charging Medi-Cal.

Regarding this case, the California Attorney General at the time gave all California providers this warning, 'Medi-Cal providers and others who try to cheat the state through false claims and illegal kickbacks should know that my office is watching and will prosecute.' The full legal complaint initially filed in this case can be read here. And the full settlement agreement can be read here.

This is just one example of many successful cases brought under a state’s false claims act. From a compliance officer’s perspective, it’s important for you to understand both the federal False Claims Act as well as any states’ false claims act that could affect your organization. To see if your state has a false claims act, visit the Taxpayers Against Fraud Education Fund’s website.