The US Department of Health and Human Services (DHHS) plans to review state laws regarding regulatory fraud against Medicaid programs, including off-label promotion of pharmaceutical products and medical devices, to determine if the programs remain eligible for enhanced incentives meant to ratchet up pressure against bad regulatory practices.
When companies are found-or simply alleged-to have participated in off-label marketing of their products, kickbacks to prescribing entities, or pricing fraud, the government will often use its authority under the False Claims Act to prosecute the company.
The FCA, otherwise known as the Lincoln Law, was first enacted after the civil war in response to companies selling Union soldiers highly deficient goods advertised as high-quality ones. As a result, Congress passed a law making it illegal to engage in fraudulent marketing activities, which now includes misbranding or otherwise promoting a product for purposes for which it has not received regulatory approval.
The law also includes so-called qui tam provisions that allow a private citizen to file a lawsuit on behalf of the US government. If successful, the citizen would then be compensated for a portion of the returned funds.
With the law responsible for returning tens of billions of dollars to the US government, including billions from US pharmaceutical companies for regulatory malfeasance, compliance is important.
But it can also be a phenomenally complex piece of legislation to understand, not only in theory but in practice. That's because individual states also have their own versions of the FCA in many cases, which can sometimes run afoul of the federal version of the law if they are not properly worded.
These state-based pieces of legislation create a complicated patchwork of legislation and liability, and it can sometimes be unclear whether a company will be sued by a state or the federal government for a particular crime.
State Programs and Section 1909
As part of its efforts to create incentives for enforcement, DHHS's Office of the Inspector General (OIG) said it will accept requests for reviews of state FCA laws to determine if they are in compliance with federal law, and in particular section 1909 of the law. That portion of the law provides an incentive for states to assume liability for going after companies found to have defrauded Medicaid, including by marketing products off-label that wind up getting purchased by the program.
Under normal circumstances, because Medicaid is a joint federal-state program, any winnings in court would be split between the two parties depending on the federal medical assistance percentage (FMAP) formula used by the Centers for Medicare and Medicaid Services (CMS), which oversees the program. Under Section 1909, states that are compliant with the FCA get a 10% boost in their FMAP.
For example, assuming a $100 million payout when a state normally had a 50% FMAP rate, the state would receive $60 million instead of $50 million. This has the practical effect of creating an incentive for states to pursue Medicaid fraud more aggressively, OIG explained.
But to be eligible for this incentive, state governments need to accomplish four things: establish liability to the state for false or fraudulent claims, have qui tam provisions that allow the public to sue on its behalf, contain a 60-day filing provision for review by the state attorney general, and be at least as strict in their civil penalties as the federal government.
These are not static requirements, however. The federal FCA has been amended a number of times, most recently (for the purposes of healthcare fraud) by the 2010 Patient Protection and Affordable Care Act (PPACA). To remain in compliance with Section 1909, states have to update their respective laws to account for strengthened penalties and responsibilities.
And now, after a two-year waiting period, OIG has announced it plans to review states for compliance with the new provisions.
Which leaves three potential outcomes on the table: Either all states will remain in compliance, leaving a regulatory environment for enforcement that is little changed for regulatory professionals, or some states could fall out of compliance, leaving them with fewer incentives to go after fraud, and in particular less egregious forms of it. However, other states-only 28 states out of 50 are compliant-may come into compliance, raising the likely rates of enforcement.