Article Summary

Zuckerman

This article by former principal Jason Zuckerman was published by Maryland State Bar Association Section of Labor and Employment Law Newsletter on December 1, 2010.

By Jason Zuckerman, Principal at The Employment Law Group®

In April 2010, the Maryland False Health Care Claims Act of 2010 (SB 279) (MD FCA), ¹was signed by Governor O’Malley. The Act prohibits a person from knowingly presenting or causing to be presented a false or fraudulent claim for payment or approval to a State health plan or program. Violators of the Act may be liable for treble damages and fined $10,000 per violation. Similar to the Federal False Claims Act,² an individual, known as a relator, may file a civil action under seal against an alleged violator on behalf of the State. The State is then given an opportunity to intervene in the action. If the action is successful, the relator may be awarded between 15 and 25 percent of the amount recouped.

Prohibited False Claims

The Act applies to State health plans and programs including “[t]he State Medical Assistance Plan established in accordance with the federal Social Security Act of 1939,” any medical assistance plan established by the state, the Medical Assistance Program, and any other program or plan, ³provided the State provides a portion of the money or property requested or will reimburse another party for any portion of the money or property requested in the false claim.⁴ The Act prohibits both direct false claims and reverse false claims.⁵ A reverse false claim is made when a person has “possession, custody, or control of money or other property used by or on behalf of the State under a State health plan [or program] and knowingly deliver[s] or cause[s] to be delivered to the State less than all of that money or other property.”⁶ The Act does not have a presentiment requirement and claims made to a contractor, grantee, or other recipient are actionable.⁷

Violators of the act are subject to a civil fine of up to $10,000 per violation and up to three times the damages sustained by the state, as well as the relator’s attorneys’ fees and costs.⁸ The factors that a court will consider in determining the appropriate fines and damages include:

• “The number, nature, and severity of the violations” and the “[t]he number, nature, and severity of any previous violations;”
• “Whether the person has a compliance program in place;”
• Remedial steps taken since the defendant learned of the violation;
• “[H]arm or detriment to patents or consumers of the State health plan or State health program;” and
• “Whether the person self-reported the violation, the timeliness of the self-reporting, the extent to which the person otherwise cooperat[ed]” and any “prior knowledge of an investigation or other action relating to the violation.”⁹

Limited Qui Tam Provision

Similar to the Federal False Claims Act¹⁰, a private person, known as a relator, may file a civil action on behalf of themselves and the State against “a person who has acted or is action in violation of section § 2-602(a).”¹¹ Such a complaint must be filed in camera and remains under seal for 60 days.¹² The complaint should be accompanied with “a written disclosure of substantially all material evidence and information the person posses.¹³ The defendant is not served until the court unseals the complaint and orders service.¹⁴ Within 60 days, the State will investigate the claim and must decide whether to intervene.¹⁵ If the State believes that “the act, transaction, or occurrence that gave rise to the alleged violation . . . is likely to be continuing, the State shall notify the defendant as soon as possible without jeopardizing the course and conduct of the State’s or federal government’s investigation.”¹⁶

If the State elects to intervene in a case, it takes on the primary responsibility for prosecuting the claim and is not bound by any actions of the relator.¹⁷ The State may elect to pursue alternative remedies¹⁸ or settle the claims notwithstanding any objections by the relator.¹⁹ Both the State and defendant may seek to limit the relator’s involvement in the proceedings if it is shown that the relator’s unrestricted participation would interfere with the State’s case or “harass the defendant or cause the defendant undue burden or unnecessary expense.” ²⁰If at any time the state withdraws as a party to the action, the court must dismiss the action.²¹ In contrast to the Federal False Claims Act, a relator cannot pursue an action under the Act without government intervention.

Public Disclosure Bar and Original Source Rule

The Act contains several limitations on who may bring and action and when. A relator may not bring an action that is based on “allegations or transactions” that are the basis of another proceeding to which the state is a party.²² Similar to the Federal False Claims Act,²³ the Act contains a public disclosure bar prohibiting courts from exercising jurisdiction over any action “based on the public disclosure of allegations” in: 1) a criminal, civil, or administrative hearing; 2) a legislative or administrative hearing, audit, or investigation; or 3) the news media, ²⁴unless the relator is an “original source” of the information

A relator is an original source of information if she has “direct and independent knowledge” of the information on which the allegations are based and has voluntarily provided such information to the State before commencing the action.²⁵ There has been substantial litigation about the definition of an original source under the federal False Claims Act, and Maryland courts will likely look to this body of law to define an original source. Federal case law holds that an original source must have “direct and independent knowledge” of the information underlying the allegations in the lawsuit, rather than information that was the basis for prior public disclosure.²⁶ In other words, the relator must have gained the information through his own experience or investigation.²⁷ For example, a relator cannot pursue a qui tam action against a hospital for an alleged “kickback scheme” based on information obtained from patient complaints and informal discussions in lounges and staff meetings. ²⁸

The Act prohibits public employees from filing an action if the information that the action is based upon was obtained through the performance of that employee’s duties, or if that employee had a duty to investigate the conduct of the defendant.²⁹

Relator’s Reward

If the State prevails in an action under the Act, the relator shall be awarded 15 to 25 percent of the proceeds.³⁰ The amount is “[p]roportional to the amount of time and effort that the person contributed to the final resolution of the civil action.”³¹ However, if the court finds that the action is based primarily on publicly disclosed information, the relator’s reward is limited to no more than 10%.³² A prevailing relator may be awarded reasonable attorneys’ fees and costs.³³ If the court finds that the relator initiated, planned, or deliberately participated in the violation on which the action was based, the court may reduce the share of the proceeds.³⁴

If the relator is convicted of a crime arising from participation in the violation on which the action was based, the relator: 1) must be dismissed from the action and 2) will be denied any reward.³⁵ If the conviction is subsequent to the reward, the reward must be forfeited.³⁶ Regardless of any wrongdoing on the part of the relator, the State may still pursue the action.³⁷ If the defendant prevails and the court finds that the relator brought the claim to harass the defendant or in bad faith, the court may order the relator to pay the defendant’s attorneys’ fees and expenses.³⁸

Robust Anti-Retaliation Provision

Similar to the federal False Claims Act, the Maryland Act prohibits retaliation against an employee, contractor, or grantee who acts in furtherance of an action under the act.³⁹⁴⁰ , Protected conduct under the Act includes: A whistleblower suffering unlawful retaliation can file a civil action seeking an injunction against further retaliation; reinstatement to full seniority with all fringe benefits; two times the amount of lost wages, benefits, other remuneration, including interest; attorneys’ costs and fees; punitive damages; and the assessment of a civil penalty of up to $5,000 and any other compensatory damages necessary to make the whistleblower whole.

• Participating in an action filed or about to be filed under the Act;
• Disclosing or threatening to disclose information that the whistleblower reasonably believes shows a violation of the Act to a supervisor or public body; and
• Objecting to or refusing to participate in any activity, policy, or practice that the whistleblower reasonably believes to be a violation of the Act. ⁴¹

A whistleblower suffering unlawful retaliation can file a civil action seeking an injunction against further retaliation; reinstatement to full seniority with all fringe benefits; two times the amount of lost wages, benefits, other remuneration, including interest; attorneys’ costs and fees; punitive damages; and the assessment of a civil penalty of up to $5,000 and any other compensatory damages necessary to make the whistleblower whole. ⁴²

Effective Date and Statute of Limitations

The Act took effect on October 1, 2010 but applies retroactively.⁴³ The statute of limitations is six years from the date on which the alleged false claim was made or three years from when the facts material to the right of action are known or should have been known by the relator, State’s Inspector General, or the Director of the State’s Medicaid Fraud Control Unit.⁴⁴ In no event may an action be filed more than 10 years after the date on which the underlying false claim was made.

Commentary

The Act, called a “strong blow to those who have defrauded taxpayers out of millions of dollars through false and fraudulent Medicaid claims” by Lt. Governor Brown,⁴⁵ has been criticized as not going far enough to combat contractor fraud. The primary criticism of the Act is that it does not appear to meet the minimum requirements of the federal Deficit Reduction Act of 2005 (DRA) which would allow Maryland to receive an additional 10% share of Medicaid funds recovered by state and federal false claims act actions.⁴⁶ Under the federal False Claims Act, “[a]ny recovery of damages to the State Medicaid program will be shared with the State in the same proportion as the State’s share of the costs of the Medicaid program.”⁴⁷ Similarly, “if a State obtains a recovery as the result of a State action relating to false or fraudulent claims submitted to its Medicaid program, it must share the damages recovered with the Federal Government in the same proportion as the Federal Government’s share in the cost of the State Medicaid program.”⁴⁸ If a state has a DRA qualified false claims act, the federal government will lower its mandated share of recovered Medicaid funds by 10 percent, in turn increasing the state’s recovery by 10 percent.⁴⁹ For example, if $100 million is recovered in a state with a 50-50 Medicaid split and that state has a DRA qualified false claims act, the state is entitled to keep 60% or an extra $10 million

Under the DRA, a state false claims act qualifies for the 10 percent increase if:

(1) The law establishes liability to the State for false or fraudulent claims described in section 3729 of Title 31, with respect to any expenditure described in section 1396b(a) of this title. (2) The law contains provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims as those described in sections 3730 through 3732 of Title 31. (3) The law contains a requirement for filing an action under seal for 60 days with review by the State Attorney General. (4) The law contains a civil penalty that is not less than the amount of the civil penalty authorized under section 3729 of Title 31.⁵⁰

The DRA requires the Inspector General of the Department of Health and Human Resources (IG) to consult with the U.S. Attorney General to determine whether a state False Claims Act qualifies for the 10 percent reward⁵¹ and in 2006, the IG published guidelines for making such a determination in the federal register. ⁵²

According to the Revised Fiscal and Policy Note for the Act, published by the Maryland Department of Legislative Services, the Act will likely not qualify under the DRA because it prohibits a private individual from pursuing a qui tam action if the State declines to intervene or withdraws and because the Act does not set a minimum penalty per violation.⁵³

In sum, while the Act is not as robust as most state false claims acts, it provides a substantial incentive for employees to blow the whistle on health care fraud and provides robust protection against retaliation.