The North Carolina Medicaid Fraud Control Unit and other State healthcare enforcement agencies currently have a variety of weapons available for criminal and civil prosecution and recovery in healthcare cases. House Bill 1135 enacted during the 2009 legislative session provides the government with new weapons and strengthens existing ones. The legislation as originally proposed was amended or otherwise modified prior to the enactment of HB 1135 to address concerns raised by legislators, healthcare provider groups, and others with an interest in the proposed legislation. All health care providers are potentially impacted by newly enacted HB 1135 and should pay close attention to its far reaching provisions. HB 1135 has four distinct sections, all of which will be discussed in this Summary.
Old Law - North Carolina currently has the Medical Assistance Provider False Claims Act (“MAPFCA”), which is similar to the federal False Claims Act (“federal FCA”), to assist in civil recoveries (N.C. Gen. Stat. § 108A-70.12). This law became effective for any conduct occurring on or after December 1, 1997. The act applies to any Medicaid provider who knowingly presents or causes to be presented to Medicaid a false or fraudulent claim for payment or approval. It also applies to any Medicaid provider who knowingly makes, uses or causes to be made or used a false record or statement to get a false or fraudulent claim paid or approved by the Medicaid Program. A civil penalty may be assessed for each claim of not less than $5,000 and not more than $10,000, plus three times the actual damages sustained by Medicaid. There are provisions for Civil Investigative Demands by the Attorney General. Unlike the federal statute, the MAPFCA does not include a qui tam (whistleblower) provision.
The New Law - Rather than repealing or amending the existing MAPFCA, HB 1135 creates a new State False Claims Act (“State FCA”). While the new Act is also patterned after the federal FCA, there are important differences with the federal Act. It also differs significantly from the MAPFCA by including a qui tam provision and having a broader scope and application than the existing MAPFCA. The State FCA applies to all claims submitted to the state relating to transportation, corrections and education, for example, and not just Medicaid.
Larger Penalties - The new North Carolina False Claims Act, NC Gen. Stat. § 1-603 et seq., provides for triple damages and a penalty from $5,500 to $11,000 per claim for anyone who knowingly submits or causes the submission of a false or fraudulent claim to the State. A “claim” is defined as any request or demand for money or property presented to a State officer, agent or employee. A claim may also be a request or demand made to a contractor, grantee, or other recipient, if all or a portion of the money or property in question is to be spent or used on behalf of the State or for a State program.
Knowingly Keeping Overpayments - Note that the language of the new State FCA is consistent with the recent amendments to the federal FCA, which expand liability for knowingly retaining Medicare or Medicaid overpayments and for presenting false or fraudulent claim for payment or approval. The State FCA provides that it is a violation if a person “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the State, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the State.” The term “obligation” in this section includes “an established duty, whether or not fixed, arising . . . from the retention of any overpayment.” Thus, “knowingly and improperly” failing to return an overpayment, if there is an “established duty” to do so, becomes the basis for an action under the State FCA. The term “improperly” is intended to limit this duty to repay by presumably excluding nonfraudulent overpayments such as those under Medicaid that undergo a reconciliation process, or those which are being appealed pursuant to Medicare appeal procedures.
Civil Investigative Demands - Like the MAPFCA, the State False Claims Act contains provisions limiting recovery to double damages for self-reported violations if certain conditions are met. There are also provisions for Civil Investigative Demands (“CID”) or administrative subpoenas by the Attorney General. Unlike its counterpart in the federal FCA, the State administrative subpoena may only be used to obtain documents or other objects relevant to an investigation being conducted pursuant to the State FCA. It does not provide for requesting answers to written interrogatories or deposition testimony which may be sought by a CID issued under the Federal FCA.
Qui Tam (whistleblower) Suits – A New Right to Sue - The new statute provides that a civil false claims action may be filed by the Attorney General or by a private person in the name of the State. The latter “qui tam” provision allows a private person, known as a “qui tam plaintiff,” to bring an action on behalf of the State, where the private person has information that the named defendant or defendants have knowingly submitted or caused the submission of false or fraudulent claims to State.
Filing Qui Tam - The qui tam complaint must be filed under seal, which means that all records relating to the case must be kept secret by the court. Copies of the complaint are given only to the Attorney General. The complaint and all other filings in the case remain under seal for a period of at least 120 days. At the conclusion of the 120 days, the State may file a motion for an extension showing “good cause” why the case should remain under seal for an additional period of time.
Qui Tam Disclosures - In addition to the complaint filed with the court, the qui tam plaintiff and his or her counsel must provide the Attorney General with a written disclosure containing substantially all the evidence in the possession of the qui tam plaintiff about the allegations set forth in the complaint. This disclosure statement is not filed with the complaint and is not available to the named defendant.
Qui Tam – State Investigation and Intervention - While the complaint is under seal, the Attorney General must diligently investigate the allegations of violations of the State False Claims Act to determine if the State should intervene and proceed with the prosecution of the action. The State may also decline to intervene in the pending qui tam action. If the State declines to intervene, the qui tam plaintiff has the right to prosecute the action on behalf of the State. If the State intervenes and proceeds with the civil action, it may file its own complaint or amend the complaint of the person who brought the action to clarify or add detail to the claims for relief and assert any additional claims for which the State contends it is entitled to relief. After the complaint is unsealed, the complaint must be served on the defendant pursuant to the North Carolina Rules of Civil Procedure. The defendant named in the complaint is not required to respond to the complaint until 30 days after the complaint is unsealed and served on the defendant.
Qui Tam Awards - Awards to the qui tam plaintiff range from 15% to 25% of the recovery and are paid from the proceeds of the action or settlement. The potential award increases to 25% to 30% if the State does not intervene and the action is prosecuted by the qui tam plaintiff. To provide protection from retaliation to an employee, contactor, or agent acting pursuant to the statute, the FCA creates a cause of action for such persons who may be entitled to relief. The MAPFCA has a similar provision but the state FCA goes further in applying it to “any employee, contractor, or agent” and including the phrase “efforts to stop.” The defendant is responsible for reasonable expenses incurred by the qui tam plaintiff, which includes reasonable attorneys’ fees and costs. There is also a provision for the qui tam plaintiff to be responsible for the defendant’s attorney fees and expenses in actions in which the State does not intervene, the defendant prevails, and the court determines the action was clearly frivolous, vexatious or brought primarily for the purpose of harassment.
Qui Tam Limitations - There are several limitations on actions pursuant to the State FCA, which include:
- No action may be brought by a public employee or public official based upon allegations of wrongdoing which such person had a duty to investigate or which were accessed as a result of the person’s public employment or office.
- No action may be based upon allegations or transactions which are the subject of a civil suit or administrative civil money penalty proceeding in which the State is already a party.
- A civil action may not be brought under both the State FCA and the Medical Assistance Provider False Claims Act.
- A civil action under the State FCA may not be brought more than 6 years after the date of the alleged violation, or more than 3 years after the facts material to the action are known to the Attorney General, whichever is later, but in no event more than 10 years after the date of the violation.
Qui Tam – Why Now? A primary impetus to the passage of the State False Claims Act was the provision in the Deficit Reduction Act of 2005 which allows states with a FCA certified by the Office of Inspector General for the US Department of Health and Human Services to retain an additional 10% of the federal share of Medicaid funds recovered under the FCA. To be certified, a state’s false claims act must meet certain federal standards, including facilitating qui tam actions at least as effectively as the federal false claims act and imposing civil penalties no less than those provided for under the federal law. Based upon previous OIG determinations, it is very likely the newly enacted State FCA will be certified. The statute also requires the Attorney General to provide reports to the legislature regarding the number of qui tam (whistleblower) actions pursued and the disbursement of proceeds resulting from them. Finally, while HB 1135 did not specifically provide for additional staff for the Attorney General’s Office, staffing issues were addressed in the 2009 Health and Human Services appropriations bill and will likely result in incremental increases in staff for the Medicaid Investigations Unit (‘MIU”) over the fiscal years covered by the budget.
New Subpoena - HB 1135 provides for a “health care fraud subpoena to produce documents”, adding a new subpoena to the government’s enforcement arsenal. While the new health care fraud subpoena is similar to the subpoena authority known as an Authorized Investigative Demand (“AID”) given to the United States Department of Justice in 1998 for use in federal healthcare fraud investigations, it has a number of limitations the federal AID does not have. These limitations include the following:
- Use of the subpoena is limited to Medicaid provider fraud investigations being conducted by the MIU of the Attorney General’s Office. The subpoena may only be used during the investigation phase and prior to arrest.
- Use of the subpoena is limited to the production of documents and may not be used to compel the testimony of witnesses.
- Individuals cannot be required to produce documents, only corporations and governmental entities.
- The subpoena allows the corporation or governmental entity at least 20 days to respond, and additional time may be requested.
- The corporation or governmental entity has the option to produce the records by (1) hand delivery, (2) certified mail, (3) requiring an agent of the MIU to pick up the records at the provider’s place of business, or (4) any other agreed to method which could include electronic means.
- Any corporation or governmental entity that objects to the subpoena has the right to a hearing before any superior court judge. If the corporation or governmental entity does not comply, the Attorney General must go before a judge to compel compliance.
Current Law - At the State level, most Medicaid fraud cases are prosecuted criminally under the Medical Assistance Provider Fraud statute (N.C. Gen. Stat. §108A-63). This statute is violated when a Medicaid provider willfully and knowingly makes or causes to be made a false statement or a false representation of a material fact in either an application for payment or an application to determine Medicaid provider eligibility for payment or which allows a provider of services to qualify or remain eligible to provide Medicaid services. The statute is also violated when a Medicaid provider knowingly and willfully conceals or fails to disclose any fact or event affecting the provider’s initial or continued entitlement to Medicaid payments, or affecting the amount of payment to which such person is or may be entitled. Currently, violation of the Medical Assistance Provider Fraud statute is a Class I felony.
New Liability - HB 1135 creates an additional legal basis for criminal liability under the existing Medical Assistance Provider Fraud statute. It adds Subsection (e) which makes it unlawful for a provider to knowingly or willfully execute or attempt to execute a scheme or artifice to defraud or obtain money or property of the Medicaid Program by means of false pretenses or representations. This statute is modeled on 18 USC 1347, Health Care Fraud, which in turn was modeled on 18 USC 1344, Bank Fraud. HB 1135 increases the punishment for engaging in such a scheme to defraud the Medicaid Program to a Class H felony.
Obstruction - Section 3 of HB 1135 also adds a new obstruction of justice offense to the existing Medical Assistance Provider Fraud statute [N.C. Gen. Stat. § 108A-63(f)]. Effective December 1, 2009, it will be unlawful for a provider to make or cause to be made a false entry in, or to alter, destroy, conceal, or make a false statement about a record related to services provided under the Medicaid Program. The offense requires a showing that the provider’s actions were (1) knowing and willful and (2) carried out with the intent to obstruct, delay or mislead an investigation by the Attorney General’s Office of a violation of the Medicaid fraud statute.
Section 1 of the HB 1135 creating the State False Claims Act becomes effective January 1, 2010, and applies to acts committed on or after that date. A false claims civil action may be filed after January 1, 2010, under Section 1 based on acts committed prior to that date if the activity would also be covered under Chapter 108A- 70.10 of the General Statutes (MAPFCA) and if the limitation period set forth in G.S. 1-615(a) and G.S. 108A-70.13 have not lapsed.
Section 2 of HB 1135 creating the health care fraud document subpoena is effective upon the Governor signing the bill.
Section 3 of this act amending the Medical Assistance Provider Fraud statute becomes effective December 1, 2009, and applies to offenses committed on or after that date.