Maryland Bar Bulletin
Publications : Bar Bulletin : September 2009


With a projected revenue shortfall of $700 million for the current fiscal year and $1.5 billion for the next, Maryland faces a budget crisis of monumental proportions. Remarkably, in each of the two last legislative sessions, the legislature has failed to pass a simple, common-sense piece of legislation that would potentially return tens or hundreds of millions of dollars to the Maryland Treasury while preventing tens or hundreds of millions more from ever leaving the Treasury in the first place. At the same time, this one simple piece of legislation would protect the integrity of Maryland’s Medicaid program, as well as virtually every other state government program in existence, all without costing Maryland a dime.

Simply put, there is no question that if Maryland is serious about facing the budget shortfall and improving Medicaid’s services to the underprivileged, the enactment of a Maryland False Claims Act (FCA) must be among its top priorities. In the last two legislative sessions, a bi-partisan effort – led by Governor Martin O’Malley himself – to enact a Maryland False Claims Act was defeated, both times by a single vote in the Senate. Both times, the statute’s defeat was primarily the result of a concentrated lobbying effort by Maryland healthcare providers.

False Claims Act is the primary tool used by the federal government to combat fraud, waste and abuse, and now Congress wants the states on board as well.

Far from fearing a Maryland FCA, however, healthcare providers should embrace this common-sense legislation. In the first place, passage of a Maryland FCA would increase the funds available for Medicaid by increasing the federal government’s share of Maryland’s total Medicaid costs. This split between the federal and state governments is known as the “federal medical assistance percentage” (FMAP), and Maryland currently splits the bill with the federal government 50/50.

Thanks to the federal Deficit Reduction Act of 2005 (DRA), however, by passing a state FCA, Maryland can alter the Medicaid split to 60/40 in its favor for all money recovered under its state FCA. The reasoning behind this incentive is no secret – the federal False Claims Act is the primary tool used by the federal government to combat fraud, waste and abuse, and now Congress wants the states on board as well. The Congressional Budget Office estimated that the DRA would reduce Medicaid spending at the federal level by some $252 million over the period 2006-2010, and by more than $1 billion over the period from 2006-2015.

In predicting the increased revenues Maryland would receive from enacting a Maryland False Claims Act, however, there is no need for speculation – we have the examples of Virginia and 24 other states to guide us. Virginia passed its FCA – called the Virginia Fraud Against Taxpayers Act (VFATA) – in 2002; it became law on July 1, 2003. That same year, the Virginia Medicaid Fraud Control Unit collected $11.8 million in civil fines and recoveries. In FY 06-07, by way of contrast, Virginia recovered more than $117 million; for FY 07-08, more than $450 million was recovered using the VFATA.

However, the recovery of treble damages and civil penalties is far from the only benefit Maryland would receive from passing a Maryland False Claims Act. A Maryland FCA would level the playing field, and remove the advantage dishonest healthcare providers currently enjoy over the honest. Moreover, just a few high-profile prosecutions for treble damages, civil penalties, and attorney’s fees will quickly cause any healthcare providers that may have been approaching the line between honest and dishonest to rethink their business model. The added benefit that comes from increased compliance is not to be understated.

As a final thought, Maryland would be better served by passing a general FCA (which protects all state money, and makes it unlawful to submit any false claim to the state for money), as opposed to a healthcare-specific FCA (which focuses solely on false claims by healthcare providers). While Medicaid may be the program most at risk, it is far from the only area where the dishonest few are enriching themselves at a high cost to everyone else. If Maryland were to pass a healthcare-only FCA, it would leave the rest of the state’s dollars open to fraud, waste and abuse. California, for example, has recovered more than $291 million from non-healthcare fraudfeasors over the last 10 years using its FCA in problematic areas such as unclaimed property, state technology procurement, state construction projects and school construction. A little closer to home, after the well-publicized 2008 settlement of a Virginia qui tam case concerning a federal credit union’s alleged failed to deliver unclaimed property to Virginia, Virginia’s revenues from unclaimed property in FY 2009 jumped 56 percent (from roughly $80 million per year) to more than $125 million for 2008.

For more than 146 years, the Federal False Claims Act has been the primary tool used by the United States to protect the public fisc and to combat fraud, waste and abuse in government programs. This common-sense legislation will benefit everyone – the healthcare industry included. There is simply no reason for Maryland to sit on the sidelines any longer.

Zachary A. Kitts is a partner at the firm of Cook Kitts & Francuzenko, PLLC, in Fairfax County, Virginia, where he focuses his practice on qui tam litigation under the federal False Claims Act, employment law, and other complex litigation matters.

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Publications : Bar Bulletin: September 2009

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