Jaws dropped at news this summer that the federal government was seeking as much as $3.3 billion from drugmaker Novartis for allegedly paying kickbacks to pharmacies.
But the feds aren't the only ones trying to make Novartis pay up on false claims allegations, and it's not just Medicare dollars at stake. Eleven states are also parties to the lawsuit under the authority of their own false claims laws. They're seeking to recover money paid out by their state Medicaid programs.
The Novartis case is the latest example of states using their own false claims laws to pursue questionable Medicaid billings by drugmakers, healthcare providers and suppliers. Lured by the potential for big paydays, several states, including Maryland and Vermont, passed or expanded their false claims laws this year, bringing the number of states with their own false claims statutes to nearly 30, according to the Taxpayers Against Fraud Education Fund.
Many state false claims laws are similar to the federal law, financially penalizing those who knowingly submit false claims to state programs such as Medicaid. Many of the state laws also allow whistle-blowers to initiate lawsuits on behalf of the state.
A factor behind the growing number of states that have adopted and more aggressively used their own false claims laws is the federal Deficit Reduction Act of 2005, which gave them a strong financial incentive to establish their own statutes. Prior to that law, only about half as many states had their own false claims laws, said Patrick Burns, co-director of the Taxpayers Against Fraud Education Fund, a not-for-profit funded by whistle-blowers and law firms that represent them.
Under that federal law, if a state's false claims law meets certain requirements, the state is not only entitled to its share of the recovered Medicaid funds but also to a portion of the federal government's share.
It's a trend that could mean more legal tangles for providers and manufacturers. The Novartis case is “going to become more of the common type of case you're going to see in False Claims Act cases,” said John Kelly, a former assistant chief for healthcare fraud at the U.S. Justice Department. “It's not going to get any easier out there for companies subject to this.”
But some state Republican leaders and business groups oppose state false claims laws, arguing that they hurt business. Earlier this month, Republican-led Wisconsin repealed its false claims statute, a move applauded by the U.S. Chamber Institute for Legal Reform.
Lisa Rickard, the institute's president, said in a written statement that the money Wisconsin had spent investigating false claims cases would be better spent elsewhere. “This flawed law incentivized private bounty hunter plaintiffs to sue companies suspected of defrauding the state's medical assistance program, and despite its good intentions, proved ineffective and costly,” she said.
Under the federal False Claims Act, the federal government may file cases against those it alleges submitted false claims to programs such as Medicare and Medicaid, or the government may join cases brought by private whistle-blowers. Federal False Claims Act cases allow triple damages plus thousands of dollars in penalties for each false claim. Because of the massive potential penalties and other possible consequences, such as exclusion from federal healthcare programs, most False Claims Act cases that are joined by the federal government end up settling. Whistle-blowers in successful cases are entitled to a percentage of any money recovered.