Possible Pennsylvania False Claims Act?

Pennsylvania False Claims ActAlthough a vast majority of states (and the District of Columbia) have False Claims Acts to protect their taxpayer dollars, twenty states still have not enacted effective anti-fraud legislation. Pennsylvania is one of those states lacking a False Claims Act law. Despite various lawmakers – on both sides of the aisle – introducing versions of a False Claims Act to the Pennsylvania legislature for nearly two decades, none have yet made it into law.

Now, a member of the Pennsylvania House of Representatives is trying again. Rep. Brandon Neuman (D – 48th District) announced that he will reintroduce the Pennsylvania Taxpayer Protection Against Fraud Act during the 2017-2018 legislative session. Neuman explained that “[i]n these continuing tough economic times, we can’t afford to ignore any additional source of new income. House Bill 1027 would raise significant revenues through recovered losses and other damages and it will also deter fraud and punish those stealing from Pennsylvania and its taxpayers.”

The challenge, however, will be getting the bill to a vote. Such efforts have been previously killed by corporate lobbyists with powerful political sway and clear motivation to avoid fraud-reducing measures.  If Neuman and co-sponsor Rep. Bryan Cutler (R – 100th District) can get the bill to a vote and curry enough favor to pass it into law, Pennsylvania stands to reap significant financial benefits in two main ways:

  1. enhanced share of recoveries in national fraud cases, and
  2. enhanced reporting of state-specific fraud.

Pennsylvania could recover more from national fraud cases.

First, when a healthcare fraud case relates to a nationwide scheme with both federal and state components, a recovery is typically split between the states and federal governments according to the Federal Medical Assistance Percentages, or “FMAPs.” For example, if a state has an FMAP of 60% (meaning the federal government contributes 60% and the state government contributes 40%), then the amount of the recovery attributable to that state would be divided accordingly. But, following the Deficit Reduction Act of 2005, any state that enacts a False Claims Act consistent with the federal False Claims Act is entitled to an additional 10% share. So, in that same example, the fraud recovery would be split 50%-50% instead of 60%-40%.

Pennsylvania could finally recover when only state-funds have been stolen.

In addition, a state-specific FCA allows private citizens to bring cases where only state funds were compromised. Whistleblowers can already bring cases involving federal and state funds under the federal False Claims Act, and a state can collect its share of the recovery regardless of whether it has adopted its own False Claims Act. Additionally, state governments can initiate their own prosecutions if they develop knowledge of fraud through their own investigations.

However, if a program is state-funded only (such as a pension program, or state infrastructure development), there is no mechanism for an individual with knowledge of fraud to bring a case on behalf of the state without a state-specific False Claims Act. Moreover, the state-specific FCA is necessary to award a whistleblower for bringing a case, an incentive which has time-and-time again proven invaluable to incentivize private individuals to come forward despite the risk of putting their professional careers on the line to disclose fraud.

As Rep. Neuman stated, “It makes sense to go after fraud before we go and ask the taxpayers to increase their contributions, when we are taking a serious look at the fraud that exists in our system. This is big-time fraud, that other states have been willing to go after. Pennsylvania is way behind the times when it comes to protecting the taxpayer and their well-earned dollar.”

We will monitor the progress of Rep. Neuman and Rep. Cutler’s bill when they introduce it to the Pennsylvania and will post an update if Pennsylvania finally decides to join the majority of states in incentivizing integrity and fraud reduction.

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