Monday, December 17, 2012

OIG Finds Tennessee’s Amended False Claims Act Too Narrow, Requiring Tennessee to Go Back to the Drawing Board Again


Within the last few weeks, the Office of Inspector General (OIG) issued a letter to the State of Tennessee regarding its Medicaid Fraud False Claims Acts. Unfortunately for the State of Tennessee, the OIG provided notice that their statutory framework failed to meet the requirements of section 1909 of the Social Security Act which offers a “financial incentive for a State to enact a law that establishes liability to the State for individuals and entities that submit false or fraudulent claims to the State Medicaid Program.”

Specifically, OIG made the determination that the amended Tennessee False Claims Act (T.C.A. §71-5-181 to §71-5-185) failed to meet the requirements of section 1909(b) of the Social Security Act in two ways.

First, under section 1909(b)(1), a state’s false claims act must establish liability for any expenditure for false or fraudulent claims as laid out in the Federal False Claims Act.  The Federal False Claims Act (via an amendment by the Fraud Enforcement Recovery Act of 2009 (FERA)) mandates liability for any person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.”  In comparison, the amended Tennessee False Claims Act is more limited because it establishes liability for any person who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim to get a false or fraudulent claim under the [M]edicaid program paid for or approved.”  The OIG found the amended language of the Tennessee False Claims Act to be narrower than that of the Federal False Claims Act. In particular, the OIG seemed to focus on the Tennessee statute phrase “to get a false or fraudulent claim…paid for or approved.”  The Federal False Claims Act does not require payment or approval of a claim to trigger liability under the federal statute as does the amended Tennessee False Claims Act.  As such, the OIG opined that the amended Tennessee False Claims Act does not provide for the same “breadth of conduct” as the Federal False Claims Act and therefore does not meet the necessary requirements of the Social Security Act.

Secondly, under section 1909(b)(2), in order to receive the financial incentive, a state’s false claims act must “contain provisions that are at least as effective in rewarding and facilitating qui tam actions for false and fraudulent claims” as those found in the Federal False Claims Act.  The Federal statutory framework protects against discrimination of employees, contractors or agents in terms and conditions of employment “because of lawful acts done by the employee, contractor, agent, or associated others in furtherance of an action….to stop 1 or more violations…”  Citing the same objection, the OIG once again found the Tennessee False Claims Act did not protect the same “breadth of activity” as the Federal False Claims Act because the Tennessee statute only provides for protection for “lawful acts done by the employee, contractor, or agent on behalf of the employee or associated others in furtherance of an action…including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed…”

This recent ruling by the OIG represents the second denial of the State of Tennessee’s False Claims Act for purposes of being eligible for the financial incentive available to states that pass false claims legislation.  In an August 31, 2011 letter to the State, the OIG ruled that the initial version of the Tennessee False Claims Act did not comport with the federal requirements.  Although Tennessee remains in “non-compliance”, there are currently no penalties to the State, and it will continue to be eligible to receive the financial incentive.  However, should Tennessee fail to fix the statutory flaws and submit the amended legislation to OIG before August 31, 2013, the State will forfeit its incentive of a 10% increase in its share of Medicaid fraud recoveries brought under the state’s false claims act.  That being said, it must be highlighted that approval of the amended legislation by OIG is not necessary by August 31, 2013.  In fact, the mere submission to OIG of the newly amended Act by that date will toll the expiration of the grace period until OIG issues a letter determining whether the amended legislation is compliant with its Federal counterpart.

Given the short timetable for resubmission of an amended law to the OIG, it is expected that the Tennessee Legislature would likely focus their attention on this issue shortly after it comes back into session in January 2013.