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Bar Journal - Spring 2007

The Federal Deficit Reduction Act of 2006: Efforts to Cut Spending, Incentives to Enact New False Claims Acts

By:

I. INTRODUCTION

 

Over a year ago, President Bush signed the “Deficit Reduction Act of 2005,” signaling the Administration’s desire to curb federal spending on federal and state health care programs. The passage of the Deficit Reduction Act (“DRA”) was not without controversy, and the vote approving it was extremely close. The White House’s fact sheet announcing the February 8, 2006 signing highlighted the DRA as an important step in curbing mandatory health care spending programs.1

 

The DRA is designed to limit federal spending by approximately $39 billion between 2006 and 2011 both by reductions in Medicare and Medicaid program spending, and implementation of targeted provisions designed to eliminate Medicaid fraud, waste, and abuse through a variety of measures.2

 

Health care providers who receive funds from federal health care programs are subject to an array of statutory requirements designed to prevent and reduce fraud, abuse, and to promote illegal self-referral. Those who practice health care law spend a great deal of time analyzing these issues of health care provider compliance, but because spending on Medicare and Medicaid comprises such a large percentage of governmental outlays derived from tax revenues, the connections between health care spending policy and compliance are significant for everyone, not just health lawyers.3

 

Moreover, asked what trend worries them most, many citizens, business owners, and health care providers point to rising health care costs.4  Access to “affordable” health care and health care costs were principal themes in elections last fall.5  Thus, any discussion of health care policy and regulation must by necessity focus on executive and legislative branch efforts (1) to promote reforms in the manner in which federal and state dollars are employed and (2) to enact laws to prosecute those persons or entities that abuse the system.

 

While this article is not an exhaustive analysis of every facet of the Deficit Reduction Act, it examines particular efforts to address incentives to curb health care spending, and reviews some of the policies behind these measures.

 

This article provides (1) a brief overview of Medicare and Medicaid, (2) a description of the particular provisions of the DRA designed to reduce spending, including incentives for state legislatures to enact their own state False Claims Acts, and (3) a discussion of the current status of New Hampshire’s own False Claims Act in light of the DRA’s passage and requirements.6

 

II.   Brief Review of Medicare
and Medicaid Programs

     A.   Medicare

 

In 1965, Congress established, and President Lyndon Johnson signed into law, the federal Medicare program under Title XVIII of the Social Security Act. Medicare provides universal hospital coverage for Americans who are age 65 years or older and is a social health insurance program. Although originally established as a health insurance program for aged persons to complement their retirement, Medicare has since been expanded to cover other persons, including the long-term disabled.7

 

The Medicare program originally provided hospital insurance and supplementary insurance but has been significantly expanded since its inception and is now organized into four “parts,” A through D. Medicare Part A covers in-patient hospital, critical access hospital care, hospice care, and skilled nursing facility care. The Federal Hospital Insurance Trust Fund (“Fund”), established in 1965 and funded by payroll taxes from employers and workers, finances Part A. The Fund is subject to trends in economic conditions and health care costs increases. Medicare Part B is a voluntary program that covers physician services, laboratory services, physical and occupational therapy, and out-patient hospital care. Part C, created through the Balanced Budget Act (“BBA”) in 1997, established a private health plan coverage option for Medicare recipients.8 Finally, Part D, established by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”) established a voluntary prescription drug benefit for beneficiaries enrolled in Part A or Part B. The MMA became operational in 2006.9 

 

 

     B.   Medicaid

 

Medicaid, by contrast, “is a joint state and federal program under which the federal government provides financial support to states that establish and administer a state Medicaid program, in accordance with federal law, through an approved state plan.”10 States that participate in Medicaid administer their own programs within broad federal guidelines and receive matching funds from the federal government. Depending on the state per capita income, the federal share varies between 50 percent and 80 percent.11 In New Hampshire, the Department of Health and Human Services administers the state’s Medicaid program. In 2006, New Hampshire’s federal share was 50 percent.12

 

Medicaid is designed to serve the poor, including children and their parents, the elderly, and the disabled.13 It is the largest health insurance program in the country. While Medicaid is administered by the federal government, the individual states are responsible for the day-to-day administration of their own Medicaid plans. States are not required to participate, but as a practical matter, all states and the District of Columbia do so because the substantial federal funding helps defray costs that states would otherwise bear on their own. States are free to design their individual state Medicaid programs provided they offer certain federally-mandated services and run their programs within federal parameters.14

 

The federal contribution to Medicaid was over $176 billion dollars in 2004, and is expected to exceed $193 billion in fiscal year 2007. Medicaid coverage is significant; in fiscal year 2004 Medicaid covered 43.7 million low-income children and adults. The federal government has forecast this figure to exceed 46 million in fiscal year 2007. In New Hampshire, total Medicaid enrollment in fiscal year 2003 was 129,700, and Medicaid spending for fiscal year 2005 totaled $1.26 billion.15

 

 

     C.   Fraud and Abuse

 

The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created a Health Care Fraud and Abuse Control Program, “a far-reaching program to combat fraud and abuse in health care, including both public and private health plans.”16  Prior to 1996, however, fraud and abuse efforts were largely funded through federal grants to state-based Medicaid Fraud Control Units.17 HIPAA appropriates money from the Medicare Trust Fund to conduct and finance anti-fraud activities. In 2005, the U.S. Department of Health and Human Services (“DHHS”) and the U.S. Department of Justice (“DOJ”) certified $240.558 million for appropriation to the Health Care Fraud and Abuse Control account. In addition, the Federal Bureau of Investigation received $114 million from HIPAA to combat fraud and abuse.

 

While estimates vary, three to ten percent of what Americans spend annually in health care is lost to fraud, according to the National Health Care Anti-Fraud Association.18 The total amount of health care fraud was, therefore, approximately $51 billion for calendar year 2003.19

 

According to the DHHS and the DOJ, during fiscal year 2005, the federal government won or negotiated approximately $1.47 billion in judgments and settlements relating to health care fraud and abuse.20 In 2005, the DOJ opened 935 new criminal health care fraud investigations involving 1,597 potential defendants.21  In the same year, the DOJ opened 778 new civil health care fraud investigations, and had 1,334 civil health care fraud investigations pending at the end of the fiscal year.22

 

III. Deficit Reduction Act:  Overview

 

It is against this background that Congress, by a narrow margin, passed the DRA. The DRA freezes or reduces payments to health care providers through a variety of programmatic and statutory changes to the Medicare law and the Medicaid law, some of which have been controversial.

 

Several key provisions of the DRA address, through “carrot and stick” approaches, requirements for Medicare Part A providers. These new incentives and penalties present compliance challenges to particular health care providers. They appear to have been motivated by the desire to measure, where feasible, particular data and, in other cases, to implement methodologies and arrangements for encouraging more economical use of health care services. In addition, some of the provisions cap Medicare reimbursement for particular services.

 

 

     A.   Hospital Quality Improvement

 

Section 5001 of the DRA uses a “stick approach” to encourage hospitals to submit quality-related data for fiscal year 2007 and each subsequent fiscal year. Hospitals that do not submit the data required by the Center for Medicaid and Medicare Services (“CMS”) will be subject to a two percent reduction in any increase in Medicare reimbursement for inpatient services.23 Because hospitals rely heavily on Medicare reimbursement, the potential loss of two percent of Medicare reimbursement dollars could be detrimental to their operations. Section 5001 requires CMS to continue to expand the set of measures for determining quality data from hospitals through 2008. Hospitals providing inpatient services, therefore, must accumulate and report to CMS new data regarding the quality of care. This data includes measures related to outcomes, patients’ perspectives on care, efficiencies, and costs of care that relate to services furnished in inpatient settings in hospitals. CMS will make data on these “quality measures” available to the public on its website sometime in 2007 or 2008.24 This mandate to acquire and aggregate data to determine effective methods of evaluating what “quality care” is or should be reflects a growing national trend to compare and measure outcomes and quality in health care with the goal of reducing costs.25

 

B.   Physician Investment
in Specialty Hospitals

 

Physician investment in specialty hospitals has long been a source of tension. Nationally, the debate concerns whether such entities should be allowed to accept investments from physicians who own or work in them and whether such specialty hospitals directly affect community acute care hospitals. Community hospitals must provide their communities a wide array of services, some of which, such as certain orthopedic procedures, generate substantial income and offset the costs of providing other services that do not or are offered at a loss. Specialty hospitals have been viewed as engaging in “cherry-picking” of more lucrative procedures, resulting in community hospitals losing their revenues derived from profitable and specialized procedures. 26

 

The debate intensified in 2003, when Congress, through the enactment of the MMA, suspended CMS’s authority to approve specialty hospitals for a period of 18 months. During this period, CMS implemented a moratorium on physician investment in and referrals to specialty hospitals primarily engaged in the care and treatment of patients with cardiac or orthopedic conditions.27 By its provisions, however, the MMA allowed CMS to lift the moratorium, and CMS did so in August, 2006.

 

Section 5006 of the DRA addresses the lifting of the moratorium by requiring DHHS to produce a report to Congress regarding physician investment in specialty hospitals. The report must address issues such as the proportionality of investment return, whether physician investment can be considered “bona fide,” whether investment information should be disclosed, and whether specialty hospitals provide appropriate charity care. The DRA requires DHHS to submit recommendations for legislation concerning specialty hospitals.28 Thus, while unclear at the moment, it is possible that specialty hospitals will be approved, but only after rigorous review by CMS.

 

C.   Medicare Demonstration Projects to Permit Gainsharing Arrangements

 

Gainsharing arrangements are attractive to hospitals because they offer “a business model that enables them to pay physicians to change their behavior and adhere to clinical protocols designed to enhance hospitals’ economic performance.”29 Section 5007 of the DRA establishes a “gainsharing demonstration program” to be overseen by CMS.30 These demonstration projects must involve an arrangement between a hospital and physician under which the physician receives remuneration representing solely a share of the savings incurred directly as a result of collaborative efforts between the hospital and the physician. Any arrangement submitted for review to CMS must outline how the project will achieve “improvements in quality and efficiency.” Each demonstration project must also include a method of notification to affected patients that the hospital is participating in the project, as well as measures demonstrating continuous monitoring to ensure that the quality and efficiency of care provided is “maintained or improved.”31 This represents a shift in the way in which DHHS has viewed the concept of providing incentives to physicians for reductions in costs of medical procedures.


DHHS’ Office of Inspector General (“OIG”) first provided compliance guidelines on this concept in its Special Advisory Bulletin of July, 1999, where it acknowledged that gainsharing arrangements are designed to align the physicians and hospital incentives through the offering of a portion of the hospital’s cost savings to physicians in exchange for the physicians’ identification and implementation of cost savings strategies.32 The OIG’s Advisory Bulletin addressed whether gainsharing arrangements would violate Section 1128A(b)(1) of the Social Security Act (the “Civil Money Penalty” law). This section establishes a civil money penalty and prohibits any hospital or critical access hospital from knowingly making a payment directly or indirectly to a physician as an inducement to reduce or limit services to Medicare or Medicaid beneficiaries under the physician’s care. However, because the financial incentives to physicians are such that gainsharing arrangements can result in reduced use of services, potentially at the risk to patients, in its July 1999 Bulletin the OIG declared that most hospital-physician gainsharing arrangements were illegal.33

 

CMS began a series of three-year demonstration projects on January 1 of this year to determine whether “gainsharing” can work. CMS will operate six projects, two of which will be in rural locations. All of the projects will consist of at least one hospital. According to CMS, it intends to approve projects that “propose multiple approaches to achieving savings” and will require that gainsharing with physicians be based on net savings, that is, “reductions in patient care costs attributable to the gainsharing activity offset by any corresponding increases in costs associated with the same patients.” CMS also requires that participating hospitals must guarantee “budget neutrality” or savings to Medicare over the entire episode of care for the period of the demonstration.34

 

While the OIG has in past years issued several Advisory Opinions approving particular gainsharing arrangements, the enactment of a demonstration program represents the belief of some in Congress that broad financial incentives must be implemented to promote cost-cutting measures where health care quality can be maintained.35 The demonstration project will be conducted between January 1, 2007 and on December 31, 2009.36 

 

      D.   Imaging Services

 

The growth of imaging technology in the last decade has offered health care providers new and unparalleled clinical resources to measure and treat a wide variety of medical conditions. In the past, “imaging” might have referred to x-ray, but it now encompasses computer-assisting imaging services such as ultrasound, echo-cardiography, computed tomography, magnetic resonance imaging, nuclear medicine (such as a positron emission tomography), and fluoroscopy. All of these modalities are vital in modern health care practice.

 

These services are reimbursed by Medicare through technical fees for the imaging service and professional fees; both are paid to physicians if the services are located in a physician’s office. Previously, the technical fees reimbursed by Medicare for imaging services provided in a physician’s office were higher than in a hospital. In an effort to decrease imaging spending rates, and in keeping with a central tenet of the DRA, Congress has capped the technical fee components of reimbursement for imaging services performed in stand-alone diagnostic testing facilities and physician offices at the amount paid to the hospital’s outpatient departments for the same service.37 Excluded from the cap on reimbursement are diagnostic and screening mammography.

 

Congress’ goal, to rein in the utilization of stand-alone diagnostic imaging, will be challenging. Imaging technology in general has become pervasive throughout the country and its utilization steadily has increased.

 

 

      E.   Ambulatory Surgical Centers

 

Another cost-cutting effort is aimed at ambulatory surgical centers, which exclusively conduct out-patient or “same-day” surgeries.38 Section 5103 of the DRA provides that if the fees for procedures conducted at the ASC exceed that of a hospital’s out-patient fee schedule, the ASC will be paid the same amount as the hospital.39

 

F.   Medicare Payment Advisory Commission Report

 

The Medicare Payment Advisory Commission (“MedPac”) is an independent federal body established by the Balanced Budget Act of 1997. MedPac advises Congress on issues affecting the Medicare program and is also charged with “analyzing access to care, guiding of care, and other issues affecting Medicare.”40  The DRA requires MedPac to submit a report to Congress by March 1, 2007, on mechanisms that could be used to replace the formula by which Medicare payments are calculated and increased (known as the “statutory sustainable growth rate system”) currently in place.41

 

In its report, MedPac must examine a number of issues concerning the manner in which physicians are reimbursed under Medicare. These include options to control the volume of physician services under the Medicare program and an examination of the application of volume control under the current Medicare Physician Fee Schedule. MedPac must identify levels of appropriate volume controls, particularly those applicable to group practices, hospital medical staffs, geographic areas, and outliers, and examine the administrative feasibility of, and alternative methods to, assessing volume growth. It also must determine an appropriate level of discretion for DHHS to change payment rates under the Medicare Physician Fee Schedule or otherwise take steps that affect “physician behavior.”42 Congress has authorized $550,000 for MedPac to produce its report.43

 

 

     G.   Synopsis of Medicare Reforms

 

While not an exhaustive list of the provisions of the DRA, these particular programs and reforms demonstrate a significant aspect of the DRA’s thrust: curb cost increases to Medicare. As noted above, some of these legislative efforts are based upon a “stick” approach and others require new and comprehensive action by CMS and providers themselves. The remaining sections of this article address specific efforts aimed at reducing Medicaid spending.

 

IV.  A New Federal Medicaid
Integrity Program

 

With the passage of HIPAA in 1996, which created the Medicare Integrity Program (“Program”), the Medicare program received a boost in its efforts to fight monetary fraud and abuse.44 This program investigates and reviews Medicare expenditures to prevent fraud and abuse, often contracting with independent contractors to perform such review.

 

Congress has tried to replicate the program with the creation of a new federal Medicaid Integrity Program. Under the Medicaid Integrity Program, outside investigators will contract with DHHS to review and audit entities for Medicaid compliance.45 Section 6034 of the DRA sets out the required elements of these contracts. DHHS will rely on contractors for the review and audit of claims for items or services provided under a State Medicaid Plan.

 

Under the DRA, eligible entities will contract with DHHS to:

   Review the actions of individuals or entities furnishing items or services (whether on a fee-for-service, risk, or other basis) for which payment may be made under a State Medicaid Plan to determine whether fraud, waste, or abuse has or is likely to occur, or whether such activities have any potential for resulting in an expenditure of funds not intended under Section 6034.

   Audit claims for payment of items or services furnished under a state plan, including cost reports and consulting contracts.

   Identify overpayments to individuals or entities receiving federal funds under the Medicare program.

   Educate health care providers, managed care entities, beneficiaries, and other individuals with respect to payment integrity and quality of care.46

 

Entities that contract with DHHS must cooperate with the OIG, as well as the U.S. Attorney General and other law enforcement agencies in Medicaid fraud and abuse investigations.47 Congress has provided a four-year funding plan, which became effective upon the DRA’s passage, with $5 million in 2006, $50 million each in fiscal years 2007 and 2008, and $75 million for each fiscal year thereafter.48 Thus, providers should expect stepped up enforcement and investigative activity.

 

In return for the funding measures, Congress has required DHHS to establish a “comprehensive plan for ensuring the integrity” of the Medicaid Integrity Program for each five-year fiscal period beginning in 2006, and to issue an annual report.49 The DRA’s inclusion of this new Program and the significant funding level, manifest that CMS and OIG will scrutinize Medicaid services, billing, and payments in order to detect fraud and abuse.

 

V.   Employee Education about
False Claims Recovery

 

A significant demonstration of the DRA’s goal to reduce fraud and abuse – and one that should be of immediate concern to health care providers – is the mandatory requirement applicable to entities that receive payments or pay more than $5 million a year from Medicaid funds. Effective January 1, 2007, all states must require that such health care providers provide to their employees a comprehensive employee education program about false claims recovery. This mandatory employee education must:

 

   Establish written policies for all employees, contractors, or agents of the provider (including management) that provide detailed information about the federal False Claims Act, the available administrative remedies, applicable state laws pertaining to civil or criminal penalties for false claims and statements, and whistleblower protections under such laws;

   Include as part of such written policies detailed provisions regarding each health care providers’ policies and procedures for detecting and preventing fraud, waste, and abuse; and

   Include in any employee handbook for the health care provider, specific discussion of the state and federal laws, the rights of employees to be protected as whistleblowers, and the entity’s policies and procedures for detecting and preventing fraud, waste, and abuse.50

 

As a result of the DRA, educational components that formerly were voluntary are now mandatory. Providers must review their specific education programs to ensure compliance. In addition, because of the mandatory nature of these requirements, if a provider does not provide this education, it risks losing all of its Medicaid funding and any other funding covered by the Social Security Act.51 These provisions place significant obligations on large Medicaid providers to prepare compliance materials for employees.

 

On December 13, 2006, CMS issued guidance to state Medicaid directors concerning employee education. 52CMS confirmed that entities subject to the educational requirements include governmental agencies, corporations, and other business arrangements, whether for profit or not-for-profit. If the entity receives or makes Medicaid payments totaling at least $5 million annually, the entity must provide certain education to its employees. The $5 million is based upon the aggregate payments from or to that entity, whether or not the entity submits claims for payments using one or more provider identification or tax identification numbers. Moreover, CMS requires that this section of the DRA be incorporated into each state’s provider enrollment agreement. Each state must determine the manner in which it will ensure health care providers’ compliance, and each state must include in its state Medicaid plan a description of the state’s compliance oversight and the frequency of reassessment compliance.53

 

VI.  Incentives to States to Enact
State False Claims Acts

 

Because a key component of the DRA is to provide a valuable financial incentive to states to enact their own state False Claims Act laws, a brief introduction to the Federal False Claims Act (“FCA”) is appropriate. Congress originally enacted the FCA in 1863 as a result of widespread procurement fraud in Civil War defense contracts.54 The FCA is now the federal government’s primary civil tool for purported fraud involving government-funded programs. Under the FCA, the government may seek criminal and civil claims against defendants who have presented a false, fictitious, or fraudulent claim to the federal government. 55The government can pursue significant civil monetary damages from defendants who have submitted fraudulent claims. Civil action damages are compensatory and not punitive, and civil actions generally may be maintained at the same time as criminal actions against a defendant.56

 

 

     A.   Qui Tam” Actions

 

To enhance the government’s ability to enforce and prosecute claims under the FCA, Congress has permitted private citizens to bring civil actions on behalf of the United States for violations of the FCA. The incentives are financially meaningful to private citizens. Qui tam plaintiffs (whistleblowers), referred to in the FCA as “relators,” can recover up to 25 percent of the proceeds in cases where the government intervenes and up to 30 percent in cases where the federal government chooses not to intervene.57 The incentives are strong for relators: in 2005, $136,756,946 was awarded to private persons who filed suits on behalf of the federal government under the qui tam provisions of the FCA.58

 

 

     B.   State False Claims Acts Incentives

 

The DRA’s focus on eliminating fraud, waste, and abuse in Medicaid programs and spending highlight the belief of Congress, as well as the current administration, that promoting incentives for states to reduce their individual Medicaid spending outlays can produce positive results. Section 6031 of the DRA, therefore, expressly encourages states to enact their own False Claims Acts through strong financial incentives.59

 

Under the DRA, if a state has in effect a law relating to false or fraudulent claims that meets the DRA’s requirements, the federal government will reduce the Federal Medical Assistance Percentage (“FMAP”) that applies to Medicaid amounts recovered under the state’s false claims law by 10 percent. The FMAP is the percentage of total state Medicaid funding that comes from the federal government, as opposed to the state. In many states, such as New Hampshire, the FMAP is about 50 percent. States must pay the federal government the FMAP of any amounts the state recovers through a False Claims Act action. The DRA decreases the amount of any recovery that a compliant state must pay to the federal government. For example, in a compliant state where the FMAP is 50 percent, the state will keep 60 percent (as opposed to 50 percent) of all recoveries. Thus, Congress has provided a strong incentive for states to enact compliant false claims acts.60

 

The DRA gives extra time to states which need to enact state legislation to make a state Medicaid plan comply with the federal law. A state can meet the DRA requirements as long as it enacts legislation by the first day of the first calendar quarter beginning after the close of the final legislative session after the DRA’s enactment, February 6, 2006.61 It is not clear, however, whether states that passed or amended a false claims act law after January 1, 2007, will be entitled to the FMAP reduction. Significantly, states may enact broader, conceivably more stringent state false claims acts, provided that they comply with the requirements of the DRA.62

 

C.   State Qui Tam Provisions
and Requirements

 

The DRA specifies particular requirements that a state’s false claims act must contain. These are:

 

1. The state law must establish liability to the state for false or fraudulent claims described in the Federal False Claims Act, with respect to any expenditure described in the Medicaid program;

2. The state law must contain provisions at least as effective for rewarding and facilitating qui tam actions as those in the Federal False Claims Act;

3. The state law must contain a provision allowing whistleblowers to file an action under seal for 60 days with review by the state attorney general; and

4. The state law must provide for civil penalties in an amount equal to or greater than the amount authorized by the FCA.63

 

 

     D.   OIG Guidance

 

In August, 2006, the OIG published guidelines for evaluating state false claims acts. While the OIG does not require any specific language, the guidelines it has provided are useful in analyzing whether a state law meets the statutory requirements.64 In evaluating a state law to determine whether it satisfies the DRA, the OIG considers whether the law contains particular elements that establish liability to the state for fraudulent claims with respect to Medicaid program expenditures, including:

 

   Knowingly presenting, or causing to be presented, false or fraudulent claim for payment or approval to the Medicaid program;

   Knowingly making, using, or causing to made or used, false records or statements 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. The OIG’s guidance provides that “knowing” and “knowingly” mean that a person (a) has actual knowledge of the information; (b) acts in deliberate ignorance of the truth or falsity of the information; and (c) acts in reckless disregard of the truth or falsity of the information. Moreover, no proof of specific intent to defraud is required. 65

 

Under the OIG’s guidelines, furthermore, the OIG will consider whether the law provides the following:

 

1. a provision that authorizes a relator to bring a civil action for a violation of a state false claims act for the person and for the state, brought in the name of the state;

2. a provision that requires a copy of the complaint and written disclosure of material evidence and information to be served on the state attorney general in accordance with the particular state’s 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 the 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 has 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 prosecutes 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 contributions 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 attorney’s fees and costs, to be awarded against a defendant;

6. a statute of limitations period of at least six years after the date of a violation, or three 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 by a preponderance of the evidence; and

8. a provision that provides a cause of action for relators who suffer retribution from employers whose whistleblower activities are related to the state false claims act.66

 

     E.   “Filed Under Seal” Provisions

 

The DRA requires that relators be allowed to file their state “qui tam” cases under seal for 60 days. In addition, in reviewing state false claims acts, the OIG will consider whether the state law’s seal provisions operate in a way that conflict with the federal seal requirement and any pendant federal FCA case. Just as under the FCA, in practice, this 60-day period is often extended given the length of time required to investigate health care fraud cases.

 

 

     F.   Civil Penalty Provisions

 

Finally, the DRA requires that the state law must contain a civil penalty that is not less than the amount of the civil penalty authorized under the FCA. The OIG will review whether a particular state law provides treble damages (or double damages where there has been timely self-disclosure and full cooperation) and whether civil penalties in amounts of at least $5,000 to $10,000 per false claim are available.67

 

G.   Status of OIG Evaluation of
State False Claims Acts

 

As of January 1st of this year, eight states had submitted their state False Claims Acts to the OIG for review. Of the eight, the OIG has determined that only three — Illinois, Massachusetts, and Tennessee — comply with all of the requirements set forth in the DRA.68  Thus, as of January 1, 2007, the five other states reviewed by the OIG were not eligible for the DRA’s 10 percent “incentive,” a reduction in the FMAP.69 In its announcement, the OIG noted that “the state False Claims Acts that were found not to have complied, included failure to meet the minimum civil penalty amount and failure to contain provisions that are at least as effective as the federal False Claims Act in rewarding and facilitating qui tam actions.”70

 

VII. New Hampshire’s “False Claims Act”

 

New Hampshire’s Medicaid fraud and abuse law, codified at RSA 161:58 through 161:61-e, directly addresses Medicaid fraud and false claims.71.  Chapter RSA 167 provides that the Commissioner of the New Hampshire Department of Health and Human Services must cooperate with the State Attorney General with respect to possible fraud or abuse in the Medicaid program.72 The Medicaid Fraud Unit of the Attorney General’s Office, the state agency that potential relators alert regarding Medicaid fraud, has had significant success in investigating and prosecuting Medicaid fraud and abuse in New Hampshire.73

 

There are both civil and criminal components to New Hampshire’s statute. In particular, the New Hampshire statute states that providers are subject to civil suit filed by the state if the provider:

a.   makes or causes to be made or causes to be presented for payment or approval any claim upon the Department or upon any funds administered by the Department, knowing or having reason to know that the claim is false, fictitious, or a fraudulent claim; or

b.   makes any false document which the provider does not believe to be true for the purpose of obtaining or aiding another to obtain the payment or approval of a Medicaid claim; or

c.   enters into any written agreement, combination, or conspiracy to defraud the Department by obtaining the payment or approval of any false, fictitious, or fraudulent claim; or

d.   does any of these acts outlined above in combination with any other.74

 

The statute provides that recovery is available for restitution, interest, punitive damages in an amount three times the amount of the payments, or $2,000 for each false claim or for each document submitted in support of such false claim.75

 

RSA 167:61-a is a criminal statute making it a felony crime to submit a false claim for payment, make any false or fraudulent statement to obtain a Medicaid claim, and knowingly make or present false records and documentation to be submitted for goods or services for payment by the state’s Medicaid Office.

 

The New Hampshire Legislature appeared to anticipate Congress’s requirement in 2004 when it enacted RSA 167:61-b, which allows a relator to file an action under seal with the New Hampshire Attorney General.76 This law took effect in January 2005. It operates in parallel with 167:61 until that statute is repealed in 2010. It must act in parallel because the new statute is not retroactive. Hence, a case with claims which goes back several years might be brought entirely under the old statute or partially under the old and partially under the new. The state law establishes liability to the state for those false or fraudulent claims described in the federal False Claims Act, and appears to contain provisions that are at least as effective in rewarding and facilitating qui tam actions under the federal False Claims Act. Moreover, the state law contains a requirement that a relator’s complaint shall remain under seal for at least 60 days, an express requirement of the DRA.77

 

As noted above, the OIG already has evaluated other states’ False Claims Acts. For example, by letter dated December 21, 2006, the OIG notified the California Attorney General that California’s False Claims Act did not meet all of the requirements of Section 6031(b) of the DRA because California’s False Claims Act provided for civil penalties of up to $10,000 for each false claim, but did not set a floor for civil penalties, in contrast to the federal False Claims Act which provides for civil penalties of not less than $5,000 and not more than $10,000.78 New Hampshire’s False Claims Act, by contrast, provides for civil penalties of not less than $5,000 and not more than $10,000. New Hampshire’s new False Claims Act may or may not meet the DRA’s requests for FMAP. The New Hampshire False Claims Act does contain a provision that was absent from the California false claims act and that prevented the California act from qualifying.

 

However, a potential area of concern with the New Hampshire statute is the provision in RSA 167:61-c, II(e), which provides that before the expiration of the 60-day period or any extension obtained of the complaint filed in camera and under seal, the state shall either proceed with the action or notify the court that it has declined to take over the action, “in which case the action shall be dismissed.”79  The federal False Claims Act permits relators to bring civil actions under the law or on behalf of the United States and to conduct the action even if the Department of Justice declines to intervene in the action.80  Texas’s False Claims Act contains a provision similar to New Hampshire’s. In its letter to the Texas Attorney General dated December 21, 2006, the OIG pointed out this difference between the Texas False Claims Act and the requirements of the DRA.

 

On the other hand, the Texas act contained two additional provisions that related to financial percentages of recoveries awarded to relators, and arguably made the Texas act less “effective.” Given the absence of those two provisions in the New Hampshire act, it is possible that the OIG may find the New Hampshire act meets the DRA’s requirement for FMAP. It should be noted that the provision is intended to screen out non-meritorious cases that are not expected to succeed in any event. Historical data establishes that relator recoveries when the government does not intervene are insubstantial. Further, the provision should not have a “chilling” effect on relator filings because relators that “blow the whistle” usually believe that they have a meritorious case.81 

 

Although New Hampshire has not yet obtained certification for the financial incentive under Section 6031 of the DRA, entitling the state to an increase of 10 percentage points in its share of any amounts recovered under a state action brought under its False Claims Act, the state intends to do so.82 It would appear that New Hampshire’s statute either complies or is close to compliance with the DRA’s requirements for FMAP.83

 

CONCLUSION

 

The scope of the DRA and the manner in which it seeks to curb federal spending are significant. It will be some time before the programmatic changes to Medicare discussed in this article can be evaluated for their fiscal effectiveness. Nonetheless, the DRA’s revisions to the Medicaid Act to reduce or eliminate Medicaid fraud, waste, and abuse present immediate challenges to providers in their compliance efforts.

 

Endnotes

1.   http://www.whitehouse.gov/news/releases2006/02/20060208-9.html (last visited December 18, 2006).  The U.S. Senate passed the DRA on December 21, 2005 (Senate Roll Call No. 363, 109th Congress, 1st Session) by a vote of 51-50, and the House of Representatives concurred with the Senate version on February 1, 2006 by a margin of two votes (House Roll Call No. 4, 109th Congress, 2nd Session).

2.   Ibid.

3.   See Brief Summaries of Medicare and Medicaid, Office of the Actuary Centers for Medicare & Medicaid Services, Department of Health and Human Services, November 1, 2002 for a comprehensive history of federal health care programs, available at http:///www.cms.hhs.gov/apps/review/supp/2001/overview.pdf (last visited December 12, 2006).

4.   Milt Freudenheim, “Health Care Costs Rise Twice as Much as Inflation,” New York Times, September 27, 2006.

5.   See, e.g., Edward Porter, “This Time It’s Not the Economy,” New York Times, October 24, 2006; David Leonhardt, “Election’s Over; Now to Tackle the Realities,” New York Times, November 8, 2006.

6.   The reader should bear in mind that regulatory activity in this area may have outpaced the particular conclusions reached herein by this article’s publication date.

7.   See Health care Finance Admin. Brief Summaries of Title XVIII and XIX of the Social Security Act (June, 1995) at www.cms.hhs.gov (last visited December 31, 2006).  While the history of Medicare and Medicaid is beyond the scope of this article, a basic observation may be useful to bear in mind when considering health care compliance issues:  the scope of government regulation is proportional to the magnitude of governmental spending.

8.   The Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 Stat. 251 (1997); Social Security Act §§ 1851-1859.

9.   The Medicare Prescription Drug Improvement and Modernization Act of 2003, Pub. L. No. 108-173, 117 Stat. 2006 (2003).

10. Petition of Maxi Drug, Inc., et al., ____ N.H. ____ (opinion issued December 28, 2006).

11. 71 Fed. Reg. Vol. 71, 48552 (August 21, 2006).

12. The Kaiser Family Foundation State Medicaid Fact Sheets, available at www.kff.org (last visited January 6, 2007).

13. The statutory provisions applicable to the Medicaid programs are in Title XIX of the Social Security Act; 42 U.S.C. § 1396, et seq. (2006).

14. 42 U.S.C. § 1396a(9)(10) (2006).  For a comprehensive discussion concerning Medicaid coverage and states’ responsibilities and risks with regard to coverage, see “New Developments in Medicaid Coverage:  Who Bears Financial Risk and Responsibility?,” The Kaiser Commission on Medicaid and the Uninsured, June, 2006, available at www.kff.org (last visited November 2, 2006).

15. Ibid. For a discussion addressing appropriate methods to project the cost of Medicaid, see Donald E. Hall, “Projecting the Cost of Medicaid: Limitations of the Medical Price Index,” New Hampshire Center for Public Policy, February, 2005, available at www.nhpolicy.org/medicaid (last visited December 31, 2006).

16. Annual Report of the Attorney General and the Secretary of the Department of Health and Human Services, Health Care Fraud and Abuse Control Program, Annual Report for Fiscal Year 2005, p. 2, available at http://oig.hhs.gov/publications/docs/hcfac/hcfacreport2005.pdf (last visited January 10, 2007).

17. http://oig.hhs.gov/publications/mfcu.html.

18. National Health Care Anti-Fraud Association Statistics, available at www.NHCAA.org (last visited December 31, 2006).  The NHCAA, established in 1995, is a coalition of private payors, including private health insurers, trade associations, and Blue Cross and Blue Shield organizations.

19. Ibid.

20. The Department of Health and Human Services and the Department of Justice Health Care Fraud and Abuse Control Program, Annual Report for FY 2005, p. 1.

21. Ibid.

22. Ibid.

23. 42 U.S.C. § 1395ww(b)(3)(B)(viii) (2006); the federal government oversees the Medicare and Medicaid programs through the Centers for Medicare and Medicaid Services (“CMS”), a division of the United States Department of Health and Human Services.

24. 42 U.S.C. § 1395ww(b)(3)(B) (2006).

“. . . a baby born in the United States this year will live to age 78 on average, a decade longer than the average baby born in 1950.  People who have already made it to their 40’s can now expect to reach 80.  These gains are probably bigger than the ones the British experienced in the entire millennium leading up to 1800.  If you think about this as the return on investments in medicine, the payoff has been fabulous:  Would you prefer spending an extra $5,500 on health care every year – or losing 10 years off your lifespan?  . . . We often imagine that the costs and benefits [of health care] are unrelated, that we can somehow have 2006 health care at 1950 (or even 1999) prices.  We think of health care as if it were gasoline, a product whose price and quality have nothing to do with each other.”

25. This article presents specific reforms set forth in the DRA that attempt to promote reductions in health care spending for both Medicare and Medicaid. In the opinion of the author, any discussion on health care must acknowledge not only the so-called “costs,” but also the benefits derived from health care spending. See, in particular, “The Choice: A Longer Life or More Stuff,” by David Leonhardt, The New York Times, September 27, 2006.

“. . . a baby born in the United States this year will live to age 78 on average, a decade longer than the average baby born in 1950. People who have already made it to their 40’s can now expect to reach 80. These gains are probably bigger than the ones the British experienced in the entire millennium leading up to 1800. If you think about this as the return on investments in medicine, the payoff has been fabulous: Would you prefer spending an extra $5,500 on health care every year – or losing 10 years off your lifespan? . . . We often imagine that the costs and benefits [of health care] are unrelated, that we can somehow have 2006 health care at 1950 (or even 1999) prices. We think of health care as if it were gasoline, a product whose price and quality have nothing to do with each other.”

26. See The Health Lawyer, The ABA Health Law Section, “The Third Circuit Gives Hospitals an Edge Over Rivals in Gordon v. Lewistown Hospital, Vol. 19, no. 12 (Dec. 2006) for a discussion concerning recent anti-trust case analysis between specialty hospitals and community acute care hospitals.

27. See 42 U.S.C. § 1395nn(h)(7)(A) (2006); The Health Lawyer, Vol. 10, no. 12 (Dec. 2006), footnote 22.

28. Deficit Reduction Act, Section 5006(a)(2).

29. D. McCarthy Thornton et al, “Gainsharing: Regulatory Breakthrough, but Challenges Remain,” Health Care Fraud Report, Bureau of National Affairs, Vol. 09, No. 12, 06/08/2005.

30. DRA, Section 5007.

31. DRA, Section 5007.

32. Office of Inspector General, Special Advisory Bulletin, Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries, released July, 1999 (http://oig.hhs.gov/fraud/docs/alertsandbulletins/gainsh.htm, last visited December 15, 2006).  The Office of Inspector General is the entity within the United States Department of Health and Human Services mandated by law to protect the integrity of DHHS’s programs.  The OIG conducts audits and investigations, and coordinates activities to prevent and detect fraud and abuse.  See 69 Fed. Reg. 40386 (Friday, July 2, 2004).

33. 42 U.S.C. § 1320-7a(b); see also Issues to Consider:  Gainsharing and Physician Recruitment, Health Care Law Update, October 14, 2005, New Hampshire Bar Association Continuing Legal Education Program.

34. Medicare Hospital Gainsharing Demonstration information provided by the Centers for Medicare and Medicaid Services, available at http://www.cms.hhs.gov/DemoProjectsEvalRpts/downloads/DRA5007_Fact_Sheet.pdf.

35. See, for example, OIG Advisory Opinion 06-22, issued November 26, 2006, concerning a proposed arrangement in which a hospital will share with a group of cardiac surgeons a percentage of the hospital’s cost savings arising from the surgeons’ implementation of a number of cost reduction measures in certain surgical procedures; OIG Advisory Opinion 05-02, concerning a proposed arrangement in which a hospital would share with five cardiology groups a percentage of the hospital’s cost savings arising from the cardiologists implementation of cost-reduction measures in certain cardiac catheterization laboratory procedures. 

36. 42 U.S.C. § 1395w-4(b) (2006).

37. 42 U.S.C. § 1395w-4(c)(2)(B) (2006).

38. As of January 1, 2007, New Hampshire has twenty-four non-licensed ASCs, eight of which are non-hospital based.  ASCs in New Hampshire are licensed under RSA 151, and must receive a Certificate of Need from the New Hampshire Health Services Planning and Review Board under Chapter RSA 151-C, unless otherwise exempt. 

39. 42 U.S.C. § 1395(i)(2)(E) (2006).  Some physician trade groups have expressed concern over the reimbursement levels.  See American Association of Ambulatory Surgery Centers, Letter of John J. Duggan, M.D. to Mark B. McClellan, M.D., Secretary of Health and Human Services, October 10, 2006.

40. DRA, Section 5007; for information about MedPac, see www.medpac.gov.  MedPac’s website provides access to its reports to Congress.

41. 42 U.S.C. § 1395w-4(f) (2006).

42. Section 5104; 42 U.S.C. § 1395w-4(d) (2006).

43. The report was due March 1, 2007, after the submission of this article.

44. Health Insurance Probability and Accountability Act of 1996, Pub. L. 104-191 (1996); Medicare IP; Hoffman, McFarland, and Curtis, Office of the Actuary, Centers for Medicare and Medicaid Services, Department of Health and Human Services, Brief Summaries of Medicare & Medicaid, Title XVIII and Title XIX of the Social Security Act, as of November 1, 2002, text version available at www.cms.gov and http://search2.hhs.gov/search?q=cache:C4c5lM-Wj8AJ:www.cms.hhs.gov/apps/review/supp/2001/overview.pdf+ %22medicare+integrity+program&access=p&output=xml_no_dtd&site=HHS&ie=UTF-8&client=HHS&proxystylesheet=HHS&oe=UTF-8 (last visited January 6, 2007).

45. 42 U.S.C. § 1396(a) (2006).

46. 42 U.S.C. § 1396(b) (2006).

47. 42 U.S.C. § 1396(c) (2006).

48. 42 U.S.C. § 1396(d) (2006).

49. 42 U.S.C. § 1396(e) (2006).

50. 42 U.S.C. § 1396a(a)(68) (2006).

51. Ibid.

52. Letter of Dennis G. Smith, Director, Center for Medicaid and State Operations to State Medicaid Directors, December 13, 2006.

53. Letter of Dennis G. Smith, December 13, 2006.

54. False Claims (Sanctions for false claims again the federal government) Michael S. Diament, American Criminal Law Review, 39.2 (Spring 2002):  p. 491(16).

55. The Federal False Claims Act is codified at 31 U.S.C. §§ 3729 through 3733, et seq.  For an analysis of the various theories of liability under the False Claims Act see Modern Federal Claims Act Liability:  Cradle to Grave Liability? - Part I, Health Lawyer, Dec. 2006, p. 50, and Modern Federal Claims Act Liability:  Cradle to Grave Liability? - Part II, Health Lawyer, Jan. 2007, p. 42.

56. While the damages, and in particular the possibility of treble damages, may seem punitive, the U.S. Supreme Court has ruled that FCA treble damages have compensatory as well as punitive traits and cannot be equated with classic punitive damages.  Cook County v. United States ex rel. Chandler, 123 S. Ct. 1239 (2003).

57. False Claims (Sanctions for false claims again the federal government) Michael S. Diament, American Criminal Law Review, 39.2 (Spring 2002):  p. 491(16):  For non-Latin scholars, “qui tam” is short for a Latin phrase “qui tam pro domino rege quam pro se ipso in hac parte sequitar,” which roughly means “he who brings an action for the king as well as for himself.”

58. The Department of Health and Human Services and the Department of Insurance Health Care Fraud and Abuse Control Program Annual Report for FY 2005, p. 4.

59. 42 U.S.C. § 1396, et seq. (2006)

60. Ibid.

61. 42 U.S.C. § 1396, et seq. (2006).

62. 42 U.S.C. § 1396(a)a (2006).

63. Ibid.  Section 1909(b)(2) of the DRA requires that a state law contain provisions that are at least as effective in rewarding and facilitating qui tam actions for false and fraudulent claims described in the Federal False Claims Act.

64. 71 Fed. Reg. 48553.

65. 42 U.S.C. § 1396(h) (2006); 71 Fed. Reg. 48553.

66. Ibid.

67. 71 Fed. Reg. 48554.

68. American Health Lawyers Association, Health Lawyers Weekly, “OIG Finds Only Three of Ten State False Claims Acts Submitted for Review Comply With DRA Requirements,” issued January 5, 2007.

69. Ibid.

70. See http://oig.hhs.gov/fraud/falseclaimsact.html (last visited January 1, 2007).

71. N.H. RSA 167:58 through 61-e.

72. N.H. RSA 167:59,II.

73. For an excellent review of the New Hampshire Medicaid Fraud Unit, see “Combating Health Care Fraud and Patient Abuse:  The Role of the Medicaid Fraud Unit,” 45 NHBJ 71 (March 1, 2004).

74. RSA 167:61.

75. RSA 167:61,II.

76. RSA 167:61-a; Laws of 2004, Ch. 167:2, effective January 1, 2005.  Under Laws of 2004, Chapter 167:3, the legislature prospectively repealed this section effective January 1, 2010 and at the same time enacted a new section on comprehensive civil penalties in RSA 167:61-6, which became effective January 1, 2005.

77. RSA 167:61-c,II(c); 42 U.S.C. § 1396 (2006).

78. http://oig.hhs.gov/fraud/doc/falseclaimsact/california.pdf.  See also Letter OIG to Nevada Attorney General contrasting the federal False Claims Act with the Nevada False Claims Act with respect to the time requirements for filing an action.  The OIG determined that the Nevada law did not appear to be at least as effective in facilitating qui tam actions for false or fraudulent claims as the federal False Claims Act.  http://oig.hhs.gov/fraud/doc/falseclaimsact/nevada.pdf.

79. RSA 167:61-c, II(e).

80. See 31 U.S.C. § 3730(c)(3).

81. See 45 NHBJ 71.

82. The author discussed this issue with Jeffrey Cahill, Esq., Director, Medicare Fraud Unit in December, 2006.  The author would like to thank Jeffrey Cahill, Esq. and Philip Bradley, Esq. of the N.H. Department of Justice’s Medicaid Fraud and Abuse Unit for their insightful suggestions to this article.  Any errors or omissions herein are purely those of the author.

83.        But see John Gibeaut, “Seeking the Cure,” ABA Journal, p. 44, October 2006, which discusses, in part, contrasting views of whether state False Claims Acts could interfere with the prosecution of federal FCA actions.

 

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