[Federal Register Volume 71, Number 161 (Monday, August 21, 2006)]
[Notices]
[Pages 48552-48554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-13749]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of Inspector General


Publication of OIG's Guidelines for Evaluating State False Claims 
Acts

AGENCY: Office of Inspector General (OIG), HHS.

ACTION: Notice.

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SUMMARY: Under section 1909 of the Social Security Act (the Act), 42 
U.S.C. 1396h, the Inspector General of the Department of Health and 
Human Services is required to determine, in consultation with the 
Attorney General, whether a State has in effect a law relating to false 
or fraudulent claims submitted to a State Medicaid program that meets 
certain enumerated requirements. If the Inspector General determines 
that a State law meets these requirements, the State medical assistance 
percentage, with respect to any amounts recovered under a State action 
brought under such a law, shall be increased by 10 percentage points. 
This notice sets forth the Inspector General's guidelines for 
evaluating whether a State law meets the requirements of section 1909 
of the Act.

DATES: Effective Date: These guidelines are effective on August 21, 
2006.

FOR FURTHER INFORMATION CONTACT: Roderick T. Chen, Office of Counsel to 
the Inspector General, (202) 401-4134, or Joel Schaer, Office of 
External Affairs, (202) 619-0089.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 1909 of the Act, added by section 6031 of the Deficit 
Reduction Act of 2005 (Pub. L. 109-171), creates a financial incentive 
for States to enact legislation that establishes liability to the State 
for individuals or entities that submit false or fraudulent claims to 
the State Medicaid program. This incentive takes the form of an 
increase in the State's share of any amounts recovered from a State 
action brought under a qualifying law.\1\ In order for a State to 
qualify for this incentive, the State law must meet certain enumerated 
requirements, as determined by the Inspector General of the Department 
of Health and Human Services in consultation with the Attorney General.
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    \1\ The increase results from a 10-percentage point decrease in 
the Federal share of any recovery from a State action brought under 
a qualifying law.
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    Medicaid, authorized under Title XIX of the Act, 42 U.S.C. 1396-
1396v, is a joint Federal and State program that pays for medical and 
other related benefits provided to needy beneficiaries. States that 
participate in Medicaid administer their own programs within broad 
Federal guidelines and receive matching funds from the Federal 
government. The Federal share generally varies between 50 percent and 
83 percent, depending on the State per capita income.
    False or fraudulent claims presented to State Medicaid programs by 
participating providers and others may give rise to civil liability 
under the Federal False Claims Act (FCA), 31 U.S.C. 3729-3733. Under 
the FCA, any person who knowingly submits a false or fraudulent claim 
to a State Medicaid program is liable to the Federal Government for 
three times the amount of the Federal Government's damages plus 
penalties of $5,000 to $10,000 for each false or fraudulent claim. Any 
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. For example, if a State's Medicaid share is 40 
percent, then the State would be entitled to receive 40 percent of the 
damages and the Federal Government would retain 60 percent of the 
damages.
    Under the qui tam provisions of the FCA, private persons (known as 
relators) may file lawsuits in Federal court against individuals and/or 
entities that defraud the Federal government by filing false or 
fraudulent Medicaid claims. The Department of Justice (DOJ) has an 
opportunity to investigate the relator's allegations, and DOJ may 
intervene and take over the prosecution of the action. If DOJ chooses 
not to intervene, the relator has the right to conduct the action. In 
general, with respect to recoveries of Federal damages and penalties in 
cases in which DOJ has intervened, the relator is entitled to between 
15 and 25 percent of the recovery of Federal damages and penalties 
depending upon the extent to which the relator substantially 
contributed to the case. In general, the relator is entitled to between 
25 and 30

[[Page 48553]]

percent of any recoveries of Federal damages and penalties if DOJ has 
not intervened in the case. Because the FCA applies only to false 
claims against the Federal Government, the relator is not entitled to a 
share of the State portion of a Medicaid recovery under the FCA.
    Many States have enacted their own false claims acts that establish 
civil liability to the State for individuals and entities that submit 
false or fraudulent claims to the State Medicaid program. Generally, 
these laws include qui tam provisions that reward relators with a share 
of the State portion of recoveries in cases of Medicaid fraud. 
Currently, 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. For example, if a State's 
Medicaid share is 40 percent, then the State would retain 40 percent of 
any damages recovered from an individual or entity that has defrauded 
Medicaid, and the Federal Government would be entitled to the remaining 
60 percent of damages.

II. Section 1909 of the Social Security Act

    In order to encourage States to pursue Medicaid fraud, Congress 
added a new section 1909 to the Act, effective January 1, 2007. Under 
this section, if a State has in effect a State false claims act that 
meets certain enumerated requirements, the Federal medical assistance 
percentage will be decreased by 10 percentage points with respect to 
any amount recovered under a State action brought under such a law. 
Therefore, the State's share of any recovery in an action under such a 
law will be increased by 10 percentage points. For example, if a State 
has a qualifying State false claims act and the State's Medicaid share 
is 50 percent, the State would be entitled to 60 percent of the amount 
of the recovery, while the Federal Government would receive the 
remaining 40 percent.
    Section 1909(b) of the Act requires the Inspector General to 
determine, in consultation with the Attorney General, whether a State 
has in effect a false claims act that meets the following requirements:
    1. The law must establish liability to the State for false or 
fraudulent claims described in 31 U.S.C. 3729 with respect to any 
expenditure described in section 1903(a) of the Act;
    2. The law must contain provisions that are at least as effective 
in rewarding and facilitating qui tam actions for false or fraudulent 
claims as those described in 31 U.S.C. 3730-3732;
    3. The law must contain a requirement for filing an action under 
seal for 60 days with review by the State Attorney General; and
    4. The law must contain a civil penalty that is not less than the 
amount of the civil penalty authorized under 31 U.S.C. 3729.
    A State that, as of January 1, 2007, has a law in effect that meets 
the enumerated requirements shall be considered in compliance with such 
requirements so long as the law continues to meet such requirements.
    The effective date of section 1909 of the Act is January 1, 2007. 
Thus, a State with a law in effect that meets the enumerated 
requirements will qualify for a 10 percentage point increase in its 
share of any amounts recovered from a State action brought under the 
law if the recovery is received on or after January 1, 2007. A State 
may enact a law before, on, or after January 1, 2007. Furthermore, the 
action that gives rise to the recovery may be commenced before, on, or 
after January 1, 2007. As long as the State's law meets the enumerated 
requirements on or after January 1, 2007, and the recovery from the 
action brought under the qualifying law is received by the State on or 
after January 1, 2007, the State will qualify for a 10 percent increase 
in its share of the amount recovered.
    It is important to note that section 1909 of the Act does not 
require a State to have in effect a false claims act or to enact a 
false claims act that meets these minimum requirements. States may 
choose not to enact false claims acts, or may choose to enact false 
claims acts that do not meet the enumerated requirements. However, a 
State that does not have such a law in effect will not qualify for the 
10 percentage point increase in its share of any recoveries from an 
action brought under such a law.

III. OIG Guidelines for Evaluating State False Claims Acts

    Section 1909(b) of the Act sets forth four requirements that a 
State law must meet if the State is to qualify for the 10 percentage 
point increase in any State Medicaid share recovered under the law. The 
Inspector General is required to determine, in consultation with the 
Attorney General, whether a State law meets these requirements. After 
reviewing section 1909 of the Act and consulting with DOJ, OIG has 
developed guidelines to use in evaluating whether a State law meets the 
enumerated requirements. It is important to note that these guidelines 
are not model statutory provisions. OIG is not requiring any specific 
language to be included in State false claims acts. Rather, the 
guidelines reflect the provisions relevant to OIG's review of whether a 
State law meets the requirements of section 1909(b) of the Act.

A. Liability for False or Fraudulent Claims

    Under section 1909(b)(1) of the Act, the State law must establish 
liability to the State for false or fraudulent claims described in 31 
U.S.C. 3729, with respect to any expenditure described in section 
1903(a) of the Act. Section 1903(a) of the Act describes expenditures 
related to State Medicaid plans, including all expenditures for medical 
assistance under a State Medicaid plan. When evaluating a State law to 
determine whether it meets the requirements of section 1909(b)(1) of 
the Act, OIG will consider whether the law provides for the following:
    1. Liability to the State for false or fraudulent claims with 
respect to Medicaid program expenditures, including:
     Knowingly presenting, or causing to be presented, a false 
or fraudulent claim for payment or approval to the Medicaid program;
     Knowingly making, using, or causing to be made or used, a 
false record or statement to get a false or fraudulent claim paid or 
approved by the Medicaid program;
     Conspiring to defraud the Medicaid program by getting a 
false or fraudulent claim allowed or paid;
     Knowingly making, using, or causing to be made or used, a 
false record or statement to conceal, avoid, or decrease an obligation 
to pay or transmit money or property to the Medicaid program.
    2. Definitions for the terms ``knowing'' and ``knowingly'' meaning 
that a person, with respect to information: (a) Has actual knowledge of 
the information; (b) acts in deliberate ignorance of the truth or 
falsity of the information; or (c) acts in reckless disregard of the 
truth or falsity of the information. In addition, no proof of specific 
intent to defraud should be required.

B. Qui Tam Provisions

    Under section 1909(b)(2) of the Act, a State law must contain 
provisions that are at least as effective in rewarding and facilitating 
qui tam actions for false or fraudulent claims as those described in 31 
U.S.C. 3730-3732. When evaluating a State law to determine whether it 
meets the requirements of section 1909(b)(2) of the Act, OIG will 
consider

[[Page 48554]]

whether the law provides for the following:
    1. A provision that authorizes a person (relator) to bring a civil 
action for a violation of the State false claims act for the person and 
for the State, which will be brought in the name of the State.
    2. A provision that requires a copy of complaint and written 
disclosure of material evidence and information to be served on the 
State Attorney General in accordance with State Rules of Civil 
Procedure.
    3. A provision that provides that when a relator brings a qui tam 
action, no person other than the State may intervene or bring a related 
action based on the facts underlying the pending action.
    4. Provisions that set forth rights of parties to qui tam actions, 
including:
     If the State proceeds with the action, the State has 
primary responsibility in the action, but the relator shall have the 
right to continue as a party to the action; and
     If the State elects not to proceed with the action, the 
relator may conduct the action but the State may intervene at a later 
date upon a showing of good cause.
    5. Provisions that reward a relator with a share of the proceeds of 
the action or settlement of the claim, including:
     If the State proceeds with an action brought by the qui 
tam relator, the relator receives at least 15 percent of the proceeds 
of the action or settlement of the claim, and may receive a higher 
percentage depending on the relator's contribution to the prosecution 
of the action;
     If the State does not proceed with an action, the relator 
receives at least 25 percent of the proceeds of the action or 
settlement, and may receive a higher percentage depending on the 
relator's contribution to the prosecution of the action; and
     The court is authorized to award the relator an amount for 
reasonable expenses, including attorneys' fees and costs, to be awarded 
against the defendant.
    6. A statute of limitations period not shorter than 6 years after 
the date of the violation is committed, or 3 years after the date when 
facts material to the right of action are known or reasonably should 
have been known by the State official charged with the responsibility 
to act in the circumstances, whichever occurs last.
    7. A provision that establishes the burden of proof, for each of 
the elements of the cause of action including damages, no greater than 
a preponderance of the evidence.
    8. A provision that provides a cause of action for relators who 
suffer retribution from employers for whistleblower activities related 
to the State false claims act.
    OIG is required to consider whether the State law is at least as 
effective in rewarding and facilitating qui tam actions when compared 
to the provisions at 31 U.S.C. 3730-3732. State false claims acts may 
include procedural rights, reductions in relator awards, jurisdictional 
bars, and other qui tam provisions similar to those found in the FCA 
that do not conflict with the requirements of section 1909(b)(2) of the 
Act. However, if such provisions are more restrictive than the 
provisions in the FCA, OIG may determine that a State law is not as 
effective in rewarding or facilitating qui tam actions. OIG will make 
such determinations on a case-by-case basis and in consultation with 
DOJ.

C. Seal Provisions

    Under section 1909(b)(3) of the Act, a State law must contain a 
requirement for filing an action under seal for 60 days with review by 
the State Attorney General. When evaluating whether a State law meets 
the requirements of section 1909(b)(3) of the Act, OIG will consider 
whether the law provides a provision that requires the complaint to be 
filed in camera and to remain under seal for at least 60 days. In 
addition, OIG will consider whether the State law's seal provisions 
operate in a way that conflict with the Federal seal in a pendant FCA 
case.

D. Civil Penalty Provisions

    Under section 1909(b)(4) of the Act, the State law must contain a 
civil penalty that is not less than the amount of the civil penalty 
authorized under 31 U.S.C. 3729. OIG will review a State law to 
determine if these provisions include a provision that sets at least 
treble damages (or double damages in instances of timely self-
disclosure and full cooperation) and civil penalties at amounts of at 
least $5,000 to $10,000 per false claim.\2\
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    \2\ DOJ is authorized to adjust the civil penalties under the 
FCA for inflation and has issued regulations that raise the FCA 
penalties. See Public Law 101-410, 104 Stat. 890 (Oct. 5, 1990); 28 
CFR 85.3. However, the statutory provisions of the FCA identify the 
range of civil penalties as $5,000 to $10,000, and OIG will review 
State laws based on those statutory provisions.
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IV. OIG Procedures for Reviewing State False Claims Acts

    As noted above, the effective date of section 1909 of the Act is 
January 1, 2007. A State that, as of January 1, 2007, has a law in 
effect that meets the enumerated requirements shall be deemed in 
compliance with such requirements for so long as the law continues to 
meet such requirements.
    With the publication of these guidelines, OIG will accept requests 
for review of State laws to determine if they meet the requirements of 
section 1909(b) of the Act. In order to request OIG review of a State 
law, the State Attorney General's office should submit a complete copy 
of the State law, or any other relevant information, to the following 
address: Office of Inspector General, Department of Health and Human 
Services, Cohen Building, Mail Stop 5527, 330 Independence Avenue, SW., 
Washington, DC 20201, Attention: Roderick Chen, Office of Counsel to 
the Inspector General.
    Submissions by telecopier, facsimile, or other electronic media 
will not be accepted. OIG will review the State law under these 
guidelines and in consultation with DOJ, and inform the State Attorney 
General's office in writing whether the State law meets the 
requirements of section 1909(b) of the Act.

    Dated: August 16, 2006.
Daniel R. Levinson,
Inspector General.
 [FR Doc. E6-13749 Filed 8-18-06; 8:45 am]
BILLING CODE 4150-04-P