In April 2007, we issued a bulletin about the Department of Health and Human Services Office of Inspector General reviewing state false claims laws to determine compliance with the fraud and abuse guidelines described in the Deficit Reduction Act of 2005 (DRA). Recently, the OIG approved the state laws of New York, Nevada and Texas, bringing the list of approved states to eight: Hawaii, Illinois, Massachusetts, Nevada, New York, Virginia, Tennessee, and Texas.
The DRA provides that states with DRA-compliant laws receive an increased portion of any recovery from legal actions brought under such a law by the state government. Specifically, when a state recovers money for the Medicaid program under a state law, it is obligated to return the federal portion of that money to the federal government. Under the DRA, a state with a compliant law is allowed to keep a larger percentage of the recovery, up to 10 additional percent, in such actions. The goal of the DRA is to provide an incentive to a state to take a more proactive role in the investigation and prosecution of suspected abuses of the Medicaid program, while maintaining the federal False Claims Act’s (“FCA’s”) existing protections for whistleblowers.
Therefore, drug and device firms doing business with state Medicaid programs now have an additional layer of fraud and abuse regulation to navigate that, in many cases, will be more restrictive than existing federal fraud and abuse laws. When developing promotional and marketing programs, drug and device firms must keep in mind that failure to comply with both federal and state fraud and abuse laws can result in significant financial sanctions under the applicable law.