The Federal False Claims Act, formerly known as the Abraham Lincoln Act, was first passed in 1863 in response widespread corruption by defense contractors that were defrauding the Union Army. In 1987, the FCA was amended to provide financial incentives to whistleblowers who expose schemes defrauding the United States government.
Soon, states began to pass their own False Claims Acts to target healthcare fraud. The benefits of enacting state false claims statutes were the subject of a recent article. Over the last decade, more than 20 states have enacted state false claims statutes. These statutes, like the federal False Claims Act, allow states to join lawsuits filed by whistleblowers who expose fraud involving government programs.
Several states have tried - but failed - to pass such acts, including Pennsylvania, Ohio, and Kentucky. The primary criticism of the false claims statutes - on both the federal and state level - has come from the pharmaceutical and medical industries. Incidentally, of the $3 billion recovered by the government under the federal False Claims Act, $2.2 billion has come from fraudulent conduct in the pharmaceutical industry. Other opponents of state legislation fear to the cost-effectiveness of such statutes and emphasize the need to avoid litigation.
Despite these criticisms, state false claims statutes have proved to be instrumental to states in recovering moneys defrauded by unscrupulous corporations. Last May, for example, California announced a $241 million settlement of a False Claims Act lawsuit against Quest Diagnostics for alleged overcharges to the California Medicaid program. California's share of the settlement totaled $171 million.
In another example, New York, with one of the most powerful state FCAs in the country, recently intervened in a whistleblower lawsuit against the Bank of New York Mellon for defrauding investors in foreign exchange transactions. New York Attorney General Eric Schneiderman is seeking nearly $2 billion on behalf of public pension funds and other investors.
But states that have been unable to enact false claims statutes are starting to pay the price. Last August, Kentucky sought to join an FCA lawsuit against Education Management Corporation ("EMC"), a for-profit educational company. Kentucky accused EMC of making false statements to the Kentucky Higher Education Authority and the United States Department of Education. California, Florida, Illinois - all of which have state false claims statutes - had already joined the case. However, the court held that Kentucky could not join the lawsuit, citing its lack of a false claims statute.
Kentucky's House Speaker, Greg Stumbo, has been trying to push a false claims statute since 2003 when has was Attorney General. Stumbo, who plans to reintroduce legislation in Kentucky early this year, stated that "there's no reason for states not to have it."
Andrew M. Beato is an experience whistleblower attorney with the law firm of Stein, Mitchell & Muse in Washington, D.C.
