On March 8, before the regular session ended, the legislature passed ESSB 5978, which creates a Medicaid fraud false claims act.  Its enactment was assumed by the 2012 supplemental budget that passed the Senate, as well as the second House-passed supplemental.  It is estimated to reduce 2011–13 revenues by $4.9 million.

Washington already had a false claims act (FCA, RCW 74.09.210) and a Medicaid Fraud Control Unit (MFCU), which is funded by both the state and federal governments (the federal government covers 75 percent of the costs).  State MFCUs investigate and prosecute cases of Medicaid fraud.

ESSB 5978 sets civil penalties for fraud at $5,500 to $11,000, plus three times the amount of damages.  It also specifies that the state attorney general (AG) must annually adjust the civil penalties so they remain the same as federal FCA civil penalties.

It allows individuals (qui tam relators, or whistleblowers) to bring civil actions for Medicaid fraud on behalf of themselves and the state, if they are the original source of the information.  If the AG decides to proceed with the case, the relator must receive 15 to 25 percent of the proceeds or settlement.  If the AG does not proceed, and the relator conducts the action, he must receive 25 to 30 percent of the proceeds or settlement.

ESSB 5978 establishes a Medicaid fraud penalty account, in which civil penalties collected under previous state law, receipts from judgments or settlements under the federal FCA, and receipts from judgments or settlements under the new state law will be deposited.  If insurance policies exclude coverage for intentional acts, an insurer does not have to defend or indemnify the insured for Medicaid fraud.

The federal government’s FCA allows qui tam relators to bring actions in federal court in cases of Medicaid fraud on behalf of the federal government, and they get a share of any recoveries.  (States receive a share of recoveries as well.)

Federal law allows states to keep 10 percent of any fraud recoveries that would have had to be repaid to the government—if the state enacts a FCA that is in line with federal provisions (including qui tam).  Recent federal legislation (including the Patient Protection and Affordable Care Act) made changes to the FCA, including broadening the qui tam provisions.  These changes meant that states that had been in compliance (and receiving the extra share) were not any more.

Only two states (Connecticut and Iowa) are currently in compliance.  Fourteen states are not currently compliant but are still receiving the higher share—there is a grace period for them to get back into compliance (depending on the state, until March 31, 2013 or August 31, 2013).  Whether or not a state is compliant with these provisions (or even allows qui tam actions) does not seem to make them more likely to increase recoveries.  In 2010, Washington ranked 25^th in terms of recoveries per total Medicaid expenditures.  As the table shows, there’s not much rhyme or reason: the states in compliance rank 15^th and 30^th.

ESSB 5978 appears to follow federal law closely.  Although Washington may be eligible for the additional share of recoveries, the revenues will be offset should any actions be brought by qui tam relators.  The bill requires annual reports on its implementation, beginning Nov. 15, 2012, and it sunsets June 30, 2016.