Cross-posted from Tort Deform
by New York State Senator Eric Schneiderman
One of the most important and least reported accomplishments in this year’s state budget was the enactment of a New York State false claims act. This law is a major step forward for health care reform and protection of taxpayers, but it was far too long in coming, and it was achieved only after overcoming opposition that can only be described as bizarre on the part of "tort reform" devotees in the Republican Majority.
When the New York Times published a series on Medicaid fraud in New York State in July of 2005 detailing outrageous abuses and asserting that the state could be losing as much as $18 billion per year to waste fraud and abuse, the hew and cry response in Albany was virtually instantaneous. Predictable finger pointing ensued, with some trying to scapegoat undocumented immigrants, despite clear evidence from the Times investigation that fraud on any significant scale is almost always committed by providers and large institutions—not individuals patients.
To solve the problem of Medicaid fraud some called for bureaucratic reorganization and more funding for investigations. I was among those who wanted to go farther, and harness the quasi-regulatory effect of the civil justice system by passing a false claims act (FCA). Originally enacted at the federal level under President Lincoln to help fight war profiteering during the Civil War, false claims acts enjoyed bipartisan support nationally because of their stunning effectiveness at curbing fraud and government waste, not just in healthcare programs like Medicaid, but across the board.
Here’s how the False Claims Act works. Under the qui tam provision of the law, if someone knows that the government is being ripped off—whether by a doctor over-billing Medicaid, or a contractor padding their payroll on a government job—they can sue the perpetrator on behalf of the government. If they win then the defrauder must pay back three times the amount they stole plus civil penalties, the whistleblower is rewarded with a portion of the money for making the recovery possible, and he or she is legally protected from retaliation. The rest of the recovered money—a minimum of seventy five percent under the New York State FCA—goes back to the government.
Since the federal FCA was revamped and strengthened in 1986 it has saved U.S. taxpayers more than $18 billion. In the health care arena Uncle Sam recovers $15 for every $1 invested in False Claims Act health care investigations and prosecutions. Fifteen other states and the District of Columbia have FCAs that are equally successful.
False Claims Acts are so effective in fact, that the 2005 Deficit Reduction Act, passed by the Republican Congress and signed by President Bush, included incentives for states to enact such laws. Previously states and the federal government split any recovered funds 50/50, but under the new law, states will qualifying false claims acts will get a 60/40 split of any recovered funds in there favor. This will amount to 20% more revenue from any Medicaid fraud uncovered, not only by qui tam actions, but also by public agencies including the Attorney General’s office and local District Attorneys.
But a funny thing happened when the false claims act landed on the agenda in Albany. Republican senators, who styled themselves as jealous protectors of tax dollars, railing against Medicaid fraud and abuse, emerged as staunch opponents of their own party’s solution to the problem. They insisted that government agencies, rather than individual New Yorkers, could solve the problem. As the debate unfolded, Senate Republicans revealed a truly astonishing justification for their unwillingness to support a false claims act, despite its proven effectiveness and strong GOP support in Washington DC: it would allow trial lawyers to make too much money.
Readers of this blog surely know that trial lawyers are frequent scapegoats in the tort "reform" debate, but I don’t know of another case in which this rhetorical smokescreen of attacking "greedy trial lawyers" has become so much of an end in itself as to overwhelm supposedly fundamental conservative beliefs. Senators who were so incensed by the Times report of massive fraud and abuse were nevertheless adopting the position that it would be preferable to allow stolen government funds to go un-recovered than to recover the money with the help of whistleblowers, and compensate the whistleblowers and their attorneys with a small portions of the funds. Some argued that the state could not afford to share recovered funds, but that is of course ludicrous. Qui tam actions bring to light cases of fraud that would otherwise go undiscovered, so any amount of money that the state recovers will be a net gain—75 percent of something is a lot more than 100 percent of nothing.
Republican senators asserted that a false claims act would encourage frivolous lawsuits against innocent healthcare provider by lawyers seeking to make an easy buck, but nothing of the kind has occurred with the federal false claims act. On the contrary, because false claims attorneys assume the upfront cost of assembling cases, and only receive compensation if they win, only the most airtight cases, exposing abuses on a large enough scale to pay for the costs of litigating them, are brought to trial.
And, while I am generally a defender of the public sector, I would have expected to find agreement with my Republican colleagues on a false claims act because it is clearly more effective than simply hiring more government investigators. A system as vast as Medicaid is virtually impossible for government agencies alone to effectively monitor, and catch every would-be scammer. A false claims act gives employees of service providers, doctors, nurses, and patients, an incentive to contribute their eyes and ears to the fight against fraud. These people, who are involved in the system every day, often know when something shady is going on, but are either afraid to come forward, or simply decide that it’s not their problem. A false claims act not only taps into invaluable first-hand information about what’s going on below our government radar, but it effectively contracts out the litigation of claims that the government lacks the resources to pursue. All the government does is pay a reasonable fee for the service—only when the case is actually successful—and collect the money.
The expansive reach of a false claims act, and the three-fold penalty for any amount of fraud that is uncovered, also makes it a highly effective deterrent. As U.S. Senator Charles Grassley (R-IA) and Rep. Howard Berman (D-CA) have noted:
"Studies estimate the fraud deterred thus far by the qui tam provisions runs into the hundreds of billions of dollars. Instead of encouraging or rewarding a culture of deceit, corporations now spend substantial sums on sophisticated and meaningful compliance programs. That change in the corporate culture -- and in the values-based decisions that ordinary Americans make daily in the workplace -- may be the law's most durable legacy."
When the Senate Republicans quietly caved in their opposition to the false claims act, allowing it to become part of a package of Medicaid fraud reduction measures included in the final budget, it was one of the most significant victories of this year’s budget battle. I have no illusions that the Republican Majority in the Senate has come around to a more enlightened view of the civil justice system, but at least in this instance their irrational trial-lawyer-bashing will no longer deny the public the benefits of hundreds of millions of stolen tax dollars recovered and untold fraud deterred that accrue from opening the court house doors to citizen whistleblowers through a false claims act.