Don’t Forget the States—The Important But Complex Landscape of State-Level FCA Enforcement

When whistleblowers look to file suit for fraud against the government, the oldest and most common tool is the federal False Claims Act (FCA). This statute allows whistleblowers to file suit in the name of the United States and gives the Department of Justice (DOJ) an opportunity to investigate—sometimes for years at a time—while the case remains under seal and before the defendant is aware that the case has been filed. While the federal FCA is a powerful tool in fighting fraud and recovering taxpayer funds, one meaningful limitation is that it only applies to federal funds. The FCA cannot be used to recover funds for state or local government programs, or from private parties.

State vs. Federal FCA Enforcement

Why Does State vs. Federal FCA Enforcement Matter?

In many cases, this limitation doesn’t matter. Medicare and national security programs are generally paid for entirely with federal funds, and a disproportionately large number of government fraud cases involve these two broad subject areas.

However, in many other cases, a major source of the money being defrauded is a state or local government, rather than the federal government. The Medicaid program is one obvious example. The federal government provides a portion of state Medicaid funding, with the states themselves responsible for the rest (the federal government’s share of the financing obligation varies from state to state, from a minimum of 50% to a maximum of over 77%). And by law, a claim for Medicaid fraud under the federal FCA only covers the federal funds that have been defrauded. To recover state funds, the whistleblower must also assert claims under the relevant state false claims act statutes.

Getting More Specific on State and Federal FCA Statutes

Certain types of healthcare fraud overwhelmingly involve Medicaid rather than Medicare. For example, any kind of fraud involving pediatric care will inherently be Medicaid-focused, as the Medicare system usually only covers beneficiaries who are 65 years of age or older. Fortunately, many states have false claims act statutes of their own that are expressly modeled on the federal FCA, and it is relatively straightforward to combine state and federal FCA charges into a single whistleblower case.   

Unfortunately, there are also many states that do not have FCA statutes of their own. And even amongst those that do, there can be significant differences, both substantively and procedurally.  For example, some state FCA statutes only cover Medicaid fraud, leaving other potential schemes outside the scope of whistleblower enforcement. A few states (specifically New York and Illinois) have statutes that apply to at least some forms of tax fraud. But most state statutes expressly exempt tax fraud from their scope of coverage (the federal FCA does too, and the IRS has its own, separate whistleblower program to address issues of federal tax fraud). And some state statutes apply not only to fraud involving state dollars, but also fraud against local governments. A few local governments actually have their own false claims laws or ordinances—including New York City, Chicago, Philadelphia, Allegheny County (Pittsburgh), and various local governments in the State of Florida.

Understanding the “State” of False Claims

The basic point here is that if you are looking into filing an FCA claim, make sure that you and your attorney are considering not only the potential federal programs at issue, but also any state or local funding that might have been impacted by the scheme, particularly for those states and local governments that have FCA laws of their own. Barrett Johnston Martin & Garrison, PLLC, stays on top of the latest developments and nuances involving health care fraud and False Claims Act cases (both at the local and federal levels) to represent whistleblowers in cases all over the country. If you have information or questions regarding a potential case of health care fraud, schedule a free and confidential consultation with our firm.