Corporate Governance

From the Pages of The Pomerantz Monitor

By Carolyn Moskowitz

As Pomerantz Partner Michael Buchman reported recently in The Pomerantz Monitor, The State of New York has one of the largest Medicaid programs in the country, spending approximately $50 billion per year. Up to now, Medicaid fraud has been pursued under the Federal False Claims Act (the "FCA"). Now, there?s an alternative.

The FCA was enacted after the Civil War, to target corrupt "carpetbaggers" seeking to capitalize on reconstruction. It provides that any person who presents a fraudulent claim for payment to the federal government may be held liable for three times the amount of the loss and a further civil penalty of not less than $5,000 and not more than $10,000. The FCA also contains "qui tam" provisions which permit a private person to bring suit on behalf of the government. If the action is pursued successfully, the defendant(s) must pay back three times the amount they fraudulently obtained and pay civil penalties. The private plaintiff receives a portion of the recovery, while the majority is returned to the government.

The FCA is a significant mechanism for rooting out and deterring fraud. Indeed, studies estimate the fraud deterred thus far by the qui tam provisions runs into the hundreds of billions of dollars.

The Federal Deficit Reduction Act of 2005 encouraged states to adopt similar false claims acts by permitting them to retain a portion of any verdict or settlement recovered under the new law in an amount equal to the percentage they contribute to the Medicaid program and an additional ten percent of any amount recovered. Currently, twenty states have either enacted qualifying false claims legislation or are considering such legislation.

According to a series of articles that appeared in the New York Times in 2005, Medicaid fraud in New York State results in losses of about $18 billion annually. In 2005/2006, the New York State Legislature introduced five bills offering a false claims act, but each died before reaching the Governor's desk, largely due to Republicans senators? objections to the qui tam provision, which they claimed might inure to the benefit of trial lawyers.

After considerable wrangling, Governor Eliot Spitzer signed legislation that includes the New York False Claims Act, with a qui tam provision. Effective immediately, persons contracting with New York's Medicaid programs are subject to enforcement under the statute. The law allows enforcement by the State of New York, local New York governments and private citizens. It contains seven liability grounds which duplicate the grounds under the FCA, each involving an intentional or reckless falsity in obtaining payment from, or avoiding payment to, the New Yorkstate government. Each claim that provides a basis for liability to N.Y. State is subject to a civil penalty of $6,000 to $12,000, plus treble damages to New York state and local governments. Qui tam plaintiffs may be entitled to a share of the proceeds collected ranging from 15% to 30%.

The NYFCA is an important new law which will be used in the future by the State, local governments and private citizens to aggressively pursue Medicaid fraud claims.

Full post as published by PomTalk on December 11, 2007 (boomark / email).