Introduction

The North Carolina Medicaid Fraud Control Unit and other state health care enforcement agencies currently have a variety of weapons available for criminal and civil prosecution and recovery in health care cases. House Bill 1135, enacted during the 2009 legislative session provides the government with new weapons and strengthens existing ones. The legislation as originally proposed was amended or otherwise modified prior to the enactment of HB 1135 to address concerns raised by legislators, health care provider groups, and others with an interest in the proposed legislation. All health care providers are potentially impacted by newly enacted HB 1135 and should pay close attention to its far-reaching provisions. HB 1135 has four distinct sections, all of which will be discussed in this summary.

Section 1 – False Claims Act

Old Law – North Carolina currently has the Medical Assistance Provider False Claims Act (MAPFCA), which is similar to the federal False Claims Act (federal FCA), to assist in civil recoveries (N.C. Gen. Stat. § 108A-70.12). This law became effective for any conduct occurring on or after December 1, 1997. The act applies to any Medicaid provider that knowingly presents or causes to be presented to Medicaid a false or fraudulent claim for payment or approval. It also applies to any Medicaid provider that knowingly makes, uses, or causes to be made or used a false record or statement to get a false or fraudulent claim paid or approved by the Medicaid Program. A civil penalty may be assessed for each claim of not less than $5,000 and not more than $10,000, plus three times the actual damages sustained by Medicaid. There are provisions for Civil Investigative Demands by the attorney general. Unlike the federal statute, the MAPFCA does not include a qui tam (whistleblower) provision.

The New Law – Rather than repealing or amending the existing MAPFCA, HB 1135 creates a new State False Claims Act (State FCA). While the new Act is also patterned after the federal FCA, there are important differences with the federal Act. It also differs significantly from the MAPFCA by including a qui tam provision and having a broader scope and application than the existing MAPFCA. The State FCA applies to all claims submitted to the state relating to transportation, corrections and education, for example, and not just Medicaid.

Larger Penalties – The new North Carolina False Claims Act, N.C. Gen. Stat. § 1-603 et seq., provides for triple damages and a penalty from $5,500 to $11,000 per claim for anyone who knowingly submits or causes the submission of a false or fraudulent claim to the state. A “claim” is defined as any request or demand for money or property presented to a state officer, agent or employee. A claim may also be a request or demand made to a contractor, grantee or other recipient, if all or a portion of the money or property in question is to be spent or used on behalf of the state or for a state program.

Knowingly Keeping Overpayments – Note that the language of the new State FCA is consistent with the recent amendments to the federal FCA, which expand liability for knowingly retaining Medicare or Medicaid overpayments and for presenting false or fraudulent claim for payment or approval. The State FCA provides that it is a violation if a person “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the state, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the state.” The term “obligation” in this section includes “an established duty, whether or not fixed, arising . . . from the retention of any overpayment.” Thus, “knowingly and improperly” failing to return an overpayment, if there is an “established duty” to do so, becomes the basis for an action under the State FCA. The term “improperly” is intended to limit this duty to repay by presumably excluding nonfraudulent overpayments such as those under Medicaid that undergo a reconciliation process, or those which are being appealed pursuant to Medicare appeal procedures.

Civil Investigative Demands – Like the MAPFCA, the State FCA contains provisions limiting recovery to double damages for self-reported violations if certain conditions are met. There are also provisions for Civil Investigative Demands (CIDs) or administrative subpoenas by the attorney general. Unlike its counterpart in the federal FCA, the state administrative subpoena may only be used to obtain documents or other objects relevant to an investigation being conducted pursuant to the State FCA. It does not provide for requesting answers to written interrogatories or deposition testimony which may be sought by a CID issued under the federal FCA.

Qui Tam (whistleblower) Suits – A New Right to Sue – The new statute provides that a civil false claims action may be filed by the attorney general or by a private person in the name of the state. The latter “qui tam” provision allows a private person, known as a “qui tam plaintiff,” to bring an action on behalf of the state, where the private person has information that the named defendant or defendants have knowingly submitted, or caused the submission of false or fraudulent claims to state. The new FCA also details how qui tam complaints must be filed, including certain required disclosures, the state’s role in investigating and intervening in the complaint, potential awards to the qui tam plaintiff and limitations on qui tam actions.

Qui Tam – Why Now? – A primary impetus to the passage of the State FCA was the provision in the Deficit Reduction Act of 2005 which allows states with an FCA certified by the Office of Inspector General for the US Department of Health and Human Services to retain an additional 10% of the federal share of Medicaid funds recovered under the FCA. To be certified, a state’s false claims act must meet certain federal standards, including facilitating qui tam actions at least as effectively as does the federal false claims act and imposing civil penalties no less than those provided for under the federal law. Based upon previous OIG determinations, it is very likely that the newly enacted State FCA will be certified. The statute also requires the attorney general to provide reports to the legislature regarding the number of qui tam (whistleblower) actions pursued and the disbursement of proceeds resulting from them. Finally, while HB 1135 did not specifically provide for additional staff for the Attorney General’s Office, staffing issues were addressed in the 2009 Health and Human Services appropriations bill which will likely result in incremental increases in staff for the Medicaid Investigations Unit (MIU) over the fiscal years covered by the budget.

Section 2 – Health Care Fraud Subpoena to Produce Documents

New Subpoena – HB 1135 provides for a “health care fraud subpoena to produce documents,” adding a new subpoena to the government’s enforcement arsenal. While the new health care fraud subpoena is similar to the subpoena authority known as an Authorized Investigative MorganDemand (AID) given to the United States Department of Justice in 1998 for use in federal health care fraud investigations, it has a number of limitations the federal AID does not have, and that are specified in the new FCA.

Section 3 – Medical Assistance Provider Fraud

Current Law – At the state level, most Medicaid fraud cases are prosecuted criminally under the Medical Assistance Provider Fraud statute (N.C. Gen. Stat. § 108A-63). This statute is violated when a Medicaid provider willfully and knowingly makes or causes to be made a false statement or a false representation of a material fact, in either an application for payment or an application to determine Medicaid provider eligibility for payment, or which allows a provider of services to qualify or remain eligible to provide Medicaid services. The statute is also violated when a Medicaid provider knowingly and willfully conceals or fails to disclose any fact or event affecting the provider’s initial or continued entitlement to Medicaid payments, or affecting the amount of payment to which such person is or may be entitled. Currently, violation of the Medical Assistance Provider Fraud statute is a Class I felony.

New Liability – HB 1135 creates an additional legal basis for criminal liability under the existing Medical Assistance Provider Fraud statute, violation of which constitutes a Class H felony, and adds a new obstruction of justice offense.

Section 4 – Effective Dates

Section 1 of the HB 1135 creating the State FCA becomes effective January 1, 2010, and applies to acts committed on or after that date. A false claims civil action may be filed after January 1, 2010, under Section 1, based on acts committed prior to that date, if the activity would also be covered under Chapter 108A-70.10 of the General Statutes (MAPFCA) and if the limitation period set forth in G.S. 1-615(a) and G.S. 108A-70.13 has not lapsed.

Section 2 of HB 1135 creating the health care fraud document subpoena became effective upon the governor’s signing of the bill on August 28, 2009.

Section 3 of this act amending the Medical Assistance Provider Fraud statute becomes effective December 1, 2009, and applies to offenses committed on or after that date.