Georgia Bar Journal
GSB Vol. 13, NO. 2, Pg. 12.
A False Claims Act Is Finally Enactedin Georgia: What Georgia Lawyers Should Know About the State False Medicaid Claims Act
GSB JournalVol. 13, NO. 2October 2007A "False Claims Act" Is Finally Enactedin Georgia: What Georgia Lawyers Should Know About the "State False Medicaid Claims Act"Michael A. SullivanIn April 2007, the Georgia Legislature enacted a state version of an important-but commonly misunderstood-federal law, the False Claims Act.(fn1) The new "State False Medicaid Claims Act"(fn2) mirrors the federal False Claims Act in important respects, but differs in some significant ways.
Georgia lawyers, especially those whose practices touch on health care, will quickly need to understand at least the basics of the new Georgia statute, as well as the federal False Claims Act on which it is based.
Both the Georgia and federal Acts create civil liability for treble damages and potentially huge penalties for fraud and false claims submitted to the government. Both authorize "qui tam"(fn3) or "whistleblower" lawsuits by private persons, who may share in the government's recovery. Both have unique procedural requirements that are foreign to most lawyers. One principal difference is the narrower reach of the Georgia Act, which applies only to fraud or false claims affecting the Georgia Medicaid Program, rather than all state programs.
This article explains how the new Georgia State False Medicaid Claims Act will work, which itself requires an explanation of the unique and sometimes perplexing federal False Claims Act on which the Georgia Act is based. This article summarizes the background of the federal False Claims Act, outlines how it operates, and discusses the Act's increasing use to combat fraud directed at public funds. This article also highlights the important differences between the Georgia and federal Acts. Finally, this article also compares other states' False Claims Acts and discusses some of the recoveries that other states have obtained to date.
Why a "False Claims Act"?
Fraud is perhaps so pervasive and, therefore, costly to the government due to a lack of deterrence. The General Accounting Office concluded in its 1981 study that most fraud goes undetected due to the failure of governmental agencies to effectively ensure accountability on the part of program recipients and government contractors. The study states:
For those who are caught committing fraud, the chances of being prosecuted and eventually going to jail are slim. . . . The sad truth is that crime against the [g]overnment often does pay.(fn4)
Fraud-and allegations of fraud-plague government spending at every level. Today, as the federal and state governments struggle to fund the billions of dollars spent annually on health care through Medicare and Medicaid; national security and local security efforts; Hurricane Katrina and other disaster relief; and government grants and programs of every description, there is no shortage of opportunities for fraud against the public fisc.
The federal False Claims Act has been the federal government's "primary" weapon to recover losses from those who defraud it.(fn5) The Act not only authorizes the government to pursue actions for treble damages and penalties, but also empowers and provides incentives to private citizens to file suit on the government's behalf as "qui tam relators." Over the past 20 years, recoveries for the federal government have grown dramatically since Congress amended the Act in 1986 to encourage greater use of the qui tam provisions, as part of a "coordinated effort of both the [g]overnment and the citizenry [to] decrease this wave of defrauding public funds."(fn6)
The federal False Claims Act has been successful in recovering billions of dollars, increasingly through qui tam lawsuits brought by private citizens. In light of the federal Act's successes, Congress, in the Deficit Reduction Act of 2005,(fn7) created a large financial "carrot" for states that adopt state versions of the False Claims Act. Any state that passes its own "False Claims" statute with qui tam or whistleblower provisions that are at least as effective as those of the federal Act becomes eligible for a 10 percent increase in its share of Medicaid fraud recoveries.(fn8)
Thus, Georgia's impetus in enacting its new "State False Medicaid Claims Act" in April 2007 was this incentive of more dollars. In 2007 to date, Georgia, New York and Oklahoma have joined the 16 other states that have enacted some version of a "False Claims" statute.(fn9) At least a dozen other states(fn10) are considering enacting similar statutes of their own so that they, too, qualify for increased funds under the Deficit Reduction Act.
Background of the Federal False Claims Act
Although the False Claims Act may be the best-known qui tam statute, it is far from being the first. Qui tam actions date back to English law in the 13th and 14th centuries. This tradition took root in the American colonies and, by 1789, states and the new federal government had authorized qui tam actions in various contexts.(fn11)
According to one writer:
In the early years of the Nation, the qui tam mechanism served a need at a time when federal and state governments were fairly small and unable to devote significant resources to law enforcement. As the role of the Government expanded, the utility of private assistance in law enforcement did not diminish. If anything, changes in the role and size of Government created a greater role for this method of law enforcement.(fn12)
Birth of the False Claims Act
The Civil War prompted Congress to enact the original False Claims Act in 1863. As government spending on war materials increased, dishonest government contractors took advantage of opportunities to defraud the United States government. "Through haste, carelessness, or criminal collusion, the state and federal officers accepted almost every offer and paid almost any price for the commodities, regardless of character, quality, or quantity."(fn13)
One senator explained how the qui tam provisions of the Act were intended to work:
The effect of the [qui tam provisions] is simply to hold out to a confederate a strong temptation to betray his co-conspirator, and bring him to justice. The bill offers, in short, a reward to the informer who comes into court and betrays his co-conspirator, if he be such; but it is not confined to that class. . . . In short, sir, I have based the [qui tam provision] upon the old fashioned idea of holding out a temptation and setting a rogue to catch a rogue, which is the safest and most expeditious way I have ever discovered of bringing rogues to justice.(fn14)
The original Act provided for double damages, plus a $2,000 forfeiture for each claim submitted.(fn15) If a private citizen or "relator" used the qui tam provision to file suit, the government had no right to intervene or control the litigation. A successful "relator" was entitled to one-half of the government's recovery.(fn16)
The Act survived substantially in its original form until World War II.(fn17) In a classic and oft-quoted 1885 passage, one court rejected the argument that courts should limit the statute's reach on the grounds that qui tam actions were poor public policy:
The statute is a remedial one. It is intended to protect the treasury against the hungry and unscrupulous host that encompasses it on every side, and should be construed accordingly. It was passed upon the theory, based on experience as old as modern civilization, that one of the least expensive and most effective means of preventing frauds on the treasury is to make the perpetrators of them liable to actions by private persons acting, if you please, under the strong stimulus of personal ill will or the hope of gain. Prosecutions conducted by such means compare with the ordinary methods as the enterprising privateer does to the slow-going public vessel.(fn18)
"Over-Correction" of the False Claims Act
Until World War II, perhaps because of the relatively small amount of government spending compared to the modern era, the Act did not attract much attention.(fn19) World War II then spawned various qui tam actions over defense procurement fraud. Some relators sought to exploit what was effectively an unintended "loophole" in the Act that permitted them to file "parasitic" lawsuits. These relators simply copied the information contained in criminal indictments, when the relator had no information to bring to the government's attention independently.(fn20)
In 1943 the Supreme Court in United States ex rel. Marcus v. Hess(fn21) held that it was up to Congress to make any desired changes in the Act to eliminate "parasitic" lawsuits.(fn22) Congress amended the Act that same year to do so. The 1943 Amendments eliminated jurisdiction over qui tam actions that were based on evidence or information in the government's possession, even if the relator had provided the information to the government.(fn23)
Congress in 1943 also gave the government the right to intervene and litigate cases filed by qui tam relators. The 1943 amendments also dramatically reduced incentives for qui tam suits to be filed, by reducing to 10 percent the maximum amount of the recovery that a relator could receive if the government intervened, with a 25 percent maximum award if the government did not intervene and the private citizen alone obtained a judgment or settlement.(fn24)
The 1986 Amendments Establish the Modern False...