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False Claims Fears

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Some little-noticed provisions in the Deficit Reduction Act of 2005 could encourage more employees than ever to blow the whistle on hospitals for suspected Medicaid fraud, resulting in potentially embarrassing—not to mention expensive—headaches for senior leaders.

Hospital executives have focused on the broad Medicare and Medicaid funding cuts contained in the law, passed in February, that will reach almost $10 billion combined over five years, but many senior leaders may not be giving the false claims provisions the attention they merit, says Beth McClain, special counsel with the law firm of Fried, Frank, Harris, Shriver & Jacobson LLP in Washington, D.C. The potential legal exposure and resulting financial fallout from the provisions “could be huge,” McClain says. “Their lives are already difficult, and this makes things more difficult.”

The provisions contain incentives that encourage states to enact Medicaid anti-fraud legislation modeled after the federal False Claims Act. According to the National Conference of State Legislatures in Denver, many states already have false claims statutes on the books, but few are modeled on the federal law.

Fear your employees

Hospitals shouldn’t take the provisions lightly. A flood of new state laws would likely create a compliance nightmare that would prevent a systemwide compliance program from being implemented. “Multistate hospitals especially will find this potentially very threatening to their bottom line,” McClain says.

Compliance with the myriad state laws that could result might also be expensive. The Deficit Reduction Act requires all entities that make or receive more than $5 million in annual Medicaid payments to establish specific written policies and procedures to inform employees and others about state false claims and whistleblower laws.

The incremental cost of ramping up compliance programs won’t be much to worry about, says McClain. “Frankly, it’s not the fact that they’re imposing compliance costs. It’s the nature of the information they’re forcing them to give,” she says. “What’s more troubling is they force providers to teach their employees how to file lawsuits against them.”

But some think the chances of states actually enacting a rash of new state whistleblower—or qui tam laws—is somewhat remote, especially in the near term, says Mark Pickrell, a member and attorney with the law firm of Waller Lansden Dortch & Davis LLC in Nashville, Tenn. Pickrell contends that “it usually takes several years for states to pass any legislation relating to these things.”

“You’re still going to have to know whether there is a whistleblower act in your state, and you have to go through time and expense to see if there is one,” he says. “But the likelihood of states passing their own false claims legislation is pretty low because the protections for the programs are already there.”

All the same, at least eight states have pending legislation based on the federal FCA. Whether any of them will see the light of day is anyone’s guess, but in the meantime, it’s not a bad idea to ensure compliance with the federal law and keep a close eye on what your state legislature is doing regarding the DRA’s incentives on Medicaid fraud, says Pickrell.

“Making sure there’s a fraud and abuse hotline available is the best mechanism that senior management has to ensure any concerns about government billing can be raised quickly and anonymously,” he says. “The steps you took to prevent fraud will be part of the consideration for your legal exposure.”

Educate legislators

Proactive hospital leaders should communicate to state legislators the potential pitfalls of passing state-specific false claims legislation, McClain says. Many legislators understand providers’ importance in the grand aim of providing quality healthcare to their constituents, and many of them may be predisposed to avoiding unnecessary laws that hinder the process, says McClain. State legislators “tend to be responsive, but there is a very well-funded plaintiffs bar that is pushing legislation in the states.”

That’s why she says it’s “absolutely critical to monitor what’s going on and respond immediately when a bill gets introduced.” Why? Depending on how they’re drafted, new state laws might even cause problems for states themselves in collecting their share of funds from providers by superseding existing state fraud laws that are not modeled on federal FCA qui tam provisions, McClain says.

“States already have common law or statutory rights to recover their share of Medicaid money that was obtained fraudulently,” she says. “State qui tam laws give the plaintiffs the right to some of the state share, which can reduce the total recovery for the state.”

Legislators should also be made aware that they might have to repay the federal government for possible fraudulent Medicaid payments—possibly years before the states themselves recover any funds.

That’s why it’s absolutely critical to monitor pending state bills and respond immediately when a bill is introduced that would benefit plaintiffs at the expense of the state, says McClain. “A qui tam suit that’s been served, especially by the state attorney general, will trigger the 60-day reporting requirement,” says McClain, referring to the federal repayment guidelines. The state won’t see any recovery for two or three years, “but will have to pay back to feds the amount they believe they’ve been defrauded within 60 days,” McClain says.

“If hospitals are talking to state Medicaid administrators and pointing out they will face this difficulty, it will reduce the appetite for the states to pass these laws.”

Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.