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The Maryland False Health Claims Act of 2010 – Why Would The Maryland Chamber of Commerce Oppose This Pro-Taxpayer, Pro-Business Law?

The Maryland General Assembly is considering a bill, known as the Maryland False Health Claims Act of 2010 (the “False Health Claims Act”), that would strengthen the State’s ability to fight fraud in the healthcare system, and that would both incentivize whistleblowers to disclose fraud and protect them when they do.  The False Health Claims Act is being opposed by the Maryland Chamber of Commerce and by at least some segments of the healthcare industry.  That opposition focuses on the qui tam provisions of the legislation, which not only encourage whistleblowers to report fraud to the government, but also provide financial rewards to whistleblowers who are able to recover money on behalf of the State.  That opposition, I believe, is misguided.

The False Health Claims Act clearly would be good for the State, because it would help combat the truly massive amount of fraud currently being perpetrated on Maryland’s Medicaid system, and would likely save tens if not hundreds of millions of dollars in taxpayer money every year.   The Act also would also help combat healthcare fraud on private insurance plans, thereby helping to control the spiraling cost of health insurance premiums now borne primarily by the State’s small and mid-size businesses.  In other words, the False Health Claims Act would help make Maryland a more business-friendly state, with lower taxes and lower health insurance premiums.

The starting point in analyzing the False Health Claims Act is to identify the problem it attempts to redress: the staggering amount of fraud that is being committed on Maryland’s Medicaid system.  Medicaid is a system of government-funded health insurance that primarily covers  low-income citizens, and that is funded 50% by the State and 50% by the federal government.  In Maryland, the state-funded healthcare program includes Maryland Medical Assistance and the Maryland Children’s Health Program (an SCHIP program).  The State spends approximately $6 billion annually on its Medicaid system.  And here is the shocking number:  the State’s health department estimates that approximately 5% of that amount – or $300 million – is lost to fraud each year.  While the State currently has regulatory authority to seek recovery of amounts obtained by fraud – and indeed has an entire office, the Medicaid Fraud Control Unit of the Attorney General’s Office, devoted to this pursuit – it has recovered less than $80 million over the past four years.  This means that, over the past four years, more than $1 billion of taxpayer money has been lost to Medicaid fraud.  That is the equivalent of $175 stolen from each man, woman and child in Maryland  just over that short time-frame.  Particularly in this time of tight budgets, Medicaid fraud is, at least indirectly, compromising almost every aspect of government service.

The False Health Claims Act adds a potent weapon to the State’s arsenal against this highway robbery.  That weapon is known as a qui tam lawsuit.  A qui tam lawsuit is a legal proceeding brought by a private citizen – typically a whistleblower with inside information – to recover money on behalf of the government. The reality is that most healthcare fraud is impossible to detect unless someone with insider knowledge comes forward.  It is precisely because this type of fraud is so easy to get away with – and so difficult for the government to police – that it has become so prevalent and massive in scope.  Indeed, in recent years, organized crime has become involved in setting up healthcare businesses specifically for the purpose of committing fraud on Medicaid and Medicare.  It is a criminal’s dream:  easy to do, very hard to detect, low risk of being caught.

Under the False Health Claims Act, a qui tam whistleblower who succeeds in recovering money for the State would be entitled to a reward equal to somewhere between 15% and 30% of the amount recovered, depending on a number of different factors.  The Act also protects whistleblowers by making it illegal for a business to retaliate against an employee who blows the whistle on fraud against state healthcare programs.

The goal of these provisions is obvious.  They create an incentive for citizens to come forward with information that the State otherwise would never learn about.  Some people will blow the whistle on their employer even without a financial incentive or legal protection.  But few people are willing to put their jobs – and thus the financial well-being of their families – at risk for purely altruistic reasons.  The qui tam provisions of the False Health Claims Act provide a necessary legal framework by giving some degree of financial reward and legal protection to whistleblowers.

This is by no means a novel idea.  The concept of qui tam lawsuits goes back to even before the founding of our Nation.  Indeed, Supreme Court Justice Scalia, in one of his opinions, once noted “the long tradition of qui tam action in England and the American Colonies.” At the federal level, the False Claims Act – which protects all federal government programs – has included a nearly identical qui tam provision for many years, and the federal government has recovered billions of dollars through qui tam lawsuits.   Approximately half the states have enacted false claims laws with qui tam provisions.  Maryland would be doing nothing novel or untested by enacting the False Health Claims Act; rather, the State would simply be bringing itself into line with a long and successful tradition.

Although the Maryland Chamber of Commerce – purporting to speak for the “business community” – opposes the False Health Claims Act, the legislation is actually quite pro-business.  The False Health Claims Act does not create any new regulations or restrictions.  Committing fraud on the Medicaid system is already against the law.  The Act merely creates new and better enforcement mechanisms.  And combating fraud on the Medicaid system helps everyone because it reduces the tax burden within the State.  In addition, the same schemes that defraud Medicaid also defraud private insurance plans, and drive up insurance premiums.  Fighting this type of fraud not only reduces taxes, but also reduces health insurance premiums, and thus helps small and medium size businesses that often pay those premiums for their employees.

The only real argument made against the False Health Claims Act is that it would somehow lead to “frivolous lawsuits.”  That has become the knee-jerk mantra that the Chamber of Commerce rolls out to oppose any legislation that even hints of access to the court system.  As a practicing litigator, however, I am certain that the False Health Claims Act will not lead to a spate of meritless lawsuits, for at least the following major reasons:

  • Under the False Health Claims Act, the State has the absolute right to investigate the whistleblower’s claims before the whistleblower is permitted to actively pursue those claims in court.  And the State has the absolute right to settle or dismiss those claims if the State believes that is the best course of action.  In addition, the State has the right to “intervene” in the lawsuit at any time, which means – as a practical matter – that the State takes over the case.  And, under an amendment to the Act recently adopted by the State Senate, the State would need to give permission to the whistleblower before he or she could pursue the case independently.  Thus, the State retains significant control over the lawsuit at all times.
  • The courts have the power to stop truly “frivolous” lawsuits in their tracks.  A meritless lawsuit can be dismissed by a judge at numerous different phases of the litigation.  In my experience, truly meritless cases simply do not make it to trial.  This is particularly true in the realm of qui tam litigation, as the courts have built up a body of case law under the federal False Claims Act that is specifically designed to separate the wheat from the chaff, and that case law would certainly guide the courts in interpreting Maryland’s False Health Claims Act.
  • Qui tam lawsuits are among the most complex, difficult, expensive and time-consuming lawsuits with which a lawyer can become involved.  No lawyer in his or her right mind would take on a qui tam lawsuit unless that lawyer was convinced that it had a good chance of success.  And the attorneys that handle qui tam lawsuit as a regular part of their practice are among the best litigators in the country.  They often worked at the Department of Justice or at local prosecutor’s offices before going into private practice, or they come from a background of complex commercial litigation.  This is not a “bottom feeder” or ideologically driven segment of the bar.  This is a group, on average, of highly sophisticated attorneys who know good cases from bad.

But, at the end of the day, there is no denying that the False Health Claims Act will result in the filing of more lawsuits.  After all, that is what it is explicitly designed to do.  It just so happens that these are the good kind of lawsuits.  The kind that deter fraud, that save taxpayers billions of dollars, that keep down health insurance premiums, and that protect the often brave and patriotic men and women who risk their own livelihoods by blowing the whistle on illegal and unscrupulous conduct.  The Maryland Chamber of Commerce ought to reconsider its position on this legislation.  And the Maryland General Assembly should pass it now.

Jonathan K. Tycko, Tycko & Zavareei LLP

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