ADDRESSING PRESCRIPTION DRUG FRAUD WITH A STATE FALSE CLAIMS ACT
States seeking to save money in their Medicaid programs and address vendor fraud
should consider enacting a state False Claims Act. The Federal False Claims Act has
been used in litigation against pharmacy benefit managers (PBMs), chain drugstores
and pharmaceutical manufacturers for fraudulent pricing and billing practices including
drug switching, false reporting of Medicaid ‘best price’, short-filling prescriptions, failure
to pay rebates, kickbacks and side deals. States involved in these federal cases, or
bringing claims under similar state laws, have recovered millions of dollars. Recent
changes in federal law create a financial incentive (an additional share of any recovery
based on Medicaid funding formulas) for states to enact false claims laws addressing
Medicaid fraud that are as effective as the federal law in key particulars (providing for
filing under seal, whistleblower protection and compensation, significant penalties).
Investments in fraud enforcement pay off
A 2006 Taxpayers Against Fraud report concluded that every dollar invested by the
government in investigation and prosecution of federal health care fraud returns $15
back to the American people. The report finds that in the 5-year period from 2000 to
2004, the Federal government spent $443.8 million to recover $6.642 billion in healthcare
fraud related settlements and judgments. States frequently share in these
recoveries. For example, in August 2006 the drug manufacturer GlaxoSmithKline
agreed to a $70 million settlement with Arizona, California, Connecticut, Montana,
Nevada and New York over allegations that the company artificially inflated average
wholesale prices of prescription drugs. Thirty-four other states and the District of
Columbia also will be eligible to receive part of the settlement.
Benefits of a state False Claims Act
Under the Deficit Reduction Act of 2005 (S.1932), if a state has a qualifying False
Claims Act, it is eligible for more money when Medicaid False Claims Act cases are
decided. The additional recovery could be considerable, and is a reason to enact a
qualifying law. For example, in the recent Serono settlement, New York State
recovered $80 million. If New York had had a qualifying False Claims Act at the time
however, it would have received $96 million -- an additional 20% over its initial
recovery. New York State ultimately joined 19 other states plus the District of
Columbia by enacting its version of the False Claims Act in 2007.
Model State False Claims Act
Taxpayers Against Fraud (TAF) has developed a model state false claims act that
meets the criteria of the Deficit Reduction Act to qualify for additional Medicaid
recoveries. The model bill is posted on the TAF website along with many additional
materials on state and federal FCA investigations, cases and recoveries. For more
information go to: http://www.taf.org/statefca.htm/.
(Updated April 2008)
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