Federal and State Medicaid Reforms

March 2007Health Care Alert

Federal and state legislators have recently taken steps to strengthen the Medicaid system's ability to combat fraudulent claims. First, the new section of the Federal Civil False Claims Act gives states, and individual whistleblowers, greater incentives to pursue false or fraudulent claims. Second, the Federal and state governments have enacted mandatory compliance and enforcement programs.

Increased False Claims Act Incentives

Under the existing Federal Civil False Claims Act (FCA), a whistleblower who reports a false or fraudulent Medicaid claim by a health care provider may bring a civil suit against it in Federal court. If this qui tam action is successful, the Federal and state governments share the recovery of damages in proportion to the amount each contributes to that state's Medicaid program. For example, if a state contributes 40 percent and the Federal government contributes 60 percent, the state will receive 40 percent of the damages recovered, and the Federal government will receive 60. (The percent each state contributes to its Medicaid program varies according to that state's per capita income.) The whistleblower is also entitled to a percent of the Federal recovery.

Some states have enacted their own false claims acts, holding those who file false Medicaid claims liable to the state as well. State false claims acts generally include qui tam provisions, and also require the recovery award be split between state and Federal governments in proportion to the percent each contributes to the state's Medicaid program. However, as of August 2006—to provide states with greater incentives to pursue cases of fraud, or to encourage those states without false claims acts in place to establish them—if a state enacts a false claims act that mirrors that of the Federal government, the percent of the state's share of recovery of a state action will be increased by 10 percent.

New York State does not yet have a false claims act in place, but Governor Spitzer is working with legislators to establish one in New York, possibly as early as mid-April of this year.

Mandatory Medicaid Compliance and Enforcement Programs

New Education Requirement. As of January 1 of this year, all health care providers who receive or make payments under Medicaid totaling $5 million or more annually are required to establish and disseminate compliance policies about the FCA, including whistleblower provisions, to educate their employees, contractors and agents. Failure to comply may result in administrative sanctions, such as exclusion from Medicaid. Though New York is not currently prepared to conduct oversight and enforcement activities, the Federal law is in effect and health care providers must be compliant.

Enforcement Responsibilities Consolidated. The Office of the Medicaid Inspector General (OMIG)—created July 26, 2006 as the civil enforcement counterpart to the New York State Attorney General's Medicaid Fraud Control Unit—consolidated dispersed audit functions and assumed fraud and abuse investigations from individual Department of Health branches. While this functional separation lays the foundation for more efficient regulation of the Medicaid system, it may lead to a more adversarial investigatory process as it approaches issues in a standardized manner rather than taking individual circumstances into account While the process may be more streamlined, the relationship will change. To support enforcement, the enacting statute also mandates that all health care providers for which Medicaid is a substantial part of their business maintain a compliance program.

NYS Medicaid Waiver Contingent on Fraud Recoveries. The Centers for Medicare and Medicaid Services (CMS) has approved New York State's Medicaid waiver, which provides $1.5 billion in Federal funding for New York State health care reforms, including implementation of the Berger Commission's recommendations for restructuring hospital and nursing home systems. However, this funding is contingent on New York increasing Medicaid fraud and abuse recoveries. The state has laid the groundwork to meet or exceed the recovery targets.

What You Should Do, and How Herrick Can Help

Medicaid fraud investigations will be more frequent and, likely, more aggressive. Prudent providers should develop or review and implement their compliance plans with special attention to health care fraud and abuse. It is important to conduct this review before an outside investigation is commenced.

Herrick, Feinstein's Health Care Practice represents clients from all segments of the health care industry, from medical practices and pharmacies to managed care facilities. Our attorneys have practical experience in the day-to-day issues of health care organizations and understand the complex legal and regulatory concerns facing health care entities.

Copyright 2007 Herrick, Feinstein LLP. The Health Care Alert is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.