Sunset Review of Medicaid Fraud Qui Tam Provisions

Medicaid is a government health insurance program for eligible populations

Medicaid is a joint federal-state program that pays providers for health care delivered to people who meet certain criteria. The state and federal government share the cost of the program.

Washington's Medicaid program is part of Apple Health, a program administered by the Washington State Health Care Authority. It provides health insurance to eligible populations, including children and their parents, pregnant women, people with disabilities, and people age 65 and older. Income eligibility requirementsMost eligible populations must have an individual income at or below 133% of the federal poverty level. vary across the populations served.

As of April 2022, 2.2 million of Washington's 7.8 million residents (29%) were enrolled in Apple Health.

The state's Medicaid Fraud Control Division pursues Medicaid provider fraud

The Office of the Attorney General (AGO) operates Washington's Medicaid Fraud Control Division, which investigates and litigates Medicaid fraud committed by health care providers. Medicaid fraud occurs when a health care provider knowingly submits a false claim for reimbursement. Examples of fraudulent activities include:

• Billing for services not performed.
• Billing multiple times for one service.
• Falsifying a diagnosis.
• Billing for a more costly service than performed.
• Ordering excessive or inappropriate tests.
• Prescribing medicines, performing services, or ordering durable medical equipment that are not medically necessary.

Provider fraud increases Medicaid costs for the state and federal government. Some types of fraud may result in patient harm. Providers that have committed fraud include individual practitioners, Washington companies, and companies that provide services nationally.

Exhibit 1.1. The AGO participates in state and multistate qui tam cases Source: JLARC staff analysis.

Qui tam allows private parties to report Medicaid fraud and receive part of the recoveries

The 2012 Legislature passed the Medicaid Fraud False Claims Act (the Act) to help the state combat Medicaid fraud. The Act allows the AGO to pursue civil legal cases against Medicaid providers. Prior to the Act, the AGO could only pursue criminal cases.

The Act includes qui tamQui tam originates from a Latin phrase meaning "he who prosecutes for himself as well as the King." provisions that allow private parties, called relators, to file a fraud complaint in civil court against a Medicaid provider on the state's behalf. Qui tam relators often have first-hand knowledge of potential fraudulent activities and can identify fraud that may not be detected through other means, such as referral from state agencies or criminal proceedings.

As illustrated in Exhibit. 1.1, a relator can file a claim in state superior court or federal district court. Cases can be state (involving only Washington, or Washington and the federal government) or multistate (involving multiple states and the federal government). The AGO's involvement in multistate cases varies. The level of involvement depends on whether there is a direct link to Washington, such as witnesses or providers located in the state, and whether the AGO joins the national legal team representing states named in the complaint. Only states with qui tam provisions are eligible to participate in multistate cases. The AGO must investigate all state qui tam complaints (See Section 2 for more detail).

If the AGO or court finds sufficient evidence that fraud occurred, the provider pays a financial recoveryThe recovery amount is the financial compensation that the state receives through settlement or court judgment. It may include the amount of fraudulent reimbursement, damages, penalties, and interest., either through a settlement with the AGO or a court order. The recovery is shared by the state(s), federal government, and relator.

The federal government and 29 states have qui tam provisions

Forty-three states have False Claims Acts (FCAs). Of these, 29 have an FCA with qui tam provisions. Washington's FCA only applies to Medicaid and not to other state spending programs.

States with FCAs that include qui tam provisions consistent with the federal Deficit Reduction Act (DRA)The 2005 Deficit Reduction Act sought to reduce Medicaid spending and included a financial incentive for states that enact an FCA as strong as the federal law. may receive an additional 10% of the total civil recoveries (see Section 2). Washington is one of 22 states with provisions that meet this requirement.

Exhibit 1.2: Twenty-nine states, including Washington, have qui tam provisions in their False Claims Acts

Source: JLARC staff analysis of National Association of Medicaid Fraud Control Units (NAMFCU) data.

Note: The District of Columbia, Puerto Rico, Guam, and Virgin Islands also have FCAs with qui tam provisions.

The 2016 Legislature extended the sunset date on Washington's qui tam provisions to allow more time for review

When the 2012 Legislature enacted the qui tam provisions, stakeholders expressed concern about the potential for frivolous lawsuits. JLARC’s 2015 sunset review of Washington’s Medicaid Fraud False Claims Act did not find evidence of frivolous claims, though few qui tam cases had been filed at that time.

Following JLARC's review, the 2016 Legislature extended the sunset date for the qui tam provisions to allow more time for oversight and review. The rest of the Act's provisions were extended without a sunset. The qui tam provisions will sunset on June 30, 2023, unless the Legislature reauthorizes them (RCW 43.131.419).

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RCW 74.66 specifies the roles and responsibilities of the Office of Attorney General (AGO) after a relator files a state qui tam complaint. JLARC staff found that the AGO complies with all statutory roles and responsibilities.

The AGO is also involved in multistate qui tam cases. The level of participation varies by case.

The AGO investigates state qui tam complaints and decides whether to decline or proceed

A standard process is in place for state qui tam cases.

A private party, called a relator, files a complaint in state or federal court. When a person suspects that a Medicaid provider has committed fraud, qui tam provisions allow that person to file a complaint in civil court on the government's behalf. The relator must hire an attorney to file the complaint and the complaint is filed under seal.This means that the case is only disclosable to the court, the relator, the AGO, and the federal government if they are named in the complaint. The provider is not aware of the complaint and does not have access to it while it is under seal.

The relator serves the AGO with the complaint. The relator must send the complaint to the AGO and provide evidence for the allegation(s).

The AGO investigates. The AGO is required to investigate the complaint within 60 days or request an extension from the court. During the investigation, the AGO looks for evidence that fraud occurred, and that the provider knowingly committed fraud or showed reckless disregard for Medicaid rules and regulations. The AGO considers the following:

• Do the allegations appear to fall under the legal definition of fraud? The AGO determines whether the alleged fraud violates Medicaid rules and regulations. In some cases, the relator may observe behavior that they think is suspicious, but the relator may not be aware of the entire situation or all applicable Medicaid rules.
• How strong is the evidence? Qui tam cases are civil cases and evidence must meet the standard of "preponderance of evidence."In a civil case, plaintiffs must meet the burden of proof by providing evidence that a claim is more likely to be true than not true. The AGO determines whether there is sufficient evidence to meet that standard and demonstrate that fraud occurred and that the provider knowingly committed fraud.
• What is the amount of potential recovery? The AGO weighs whether the amount of the potential recoveryThe recovery amount is the financial compensation the state receives through settlement or court judgment. It may include the amount of fraudulent reimbursement, damages, penalties, and interest. exceeds the costs to pursue legal action. Suspected fraud that involves small amounts may be referred to another entity, such as the Health Care Authority or a licensing board, for administrative review.
• Was there evidence of patient harm? If so, the AGO will pursue legal action against the provider even if the recovery amount is small. The case may also be referred for administrative review and/or criminal proceedings.

The AGO decides whether to decline or proceed. At the end of the investigation, the AGO takes one of three actions:

1. Declines to pursue legal action. If the investigation does not uncover fraud or sufficient evidence to support the allegations, the AGO will decline to take action against the provider. If the investigation reveals wrongdoing that does not constitute fraud, the AGO may refer the matter to other entities for corrective action. If the AGO declines to take legal action, the relator can proceed with legal action on their own or request case dismissal.

2. Settles with the defendant. Litigation is expensive for all parties. If the AGO finds sufficient evidence that fraud occurred, it will try to settle with the provider to obtain a recovery for the state while avoiding costs of pursuing a court case.

3. Proceeds with litigation ("intervenes"). If a settlement does not occur, the AGO formally intervenes in the case and proceeds with litigation. The AGO has primary responsibility for the case. Cases that go to litigation end when the court makes a ruling or the case settles before trial. If the court rules that the provider committed fraud, the ruling will include a recovery.

Washington splits qui tam recoveries with the federal government and the relator. The state's qui tam provisions result in an additional 10% of recoveries for the state.

If the AGO or court finds sufficient evidence that fraud occurred, the provider pays a financial recovery, either through a settlement with the AGO or a court order. The recovery includes the amount of fraudulent reimbursement, damages, penalties, and interest. Recoveries are shared between the state, federal government, and the relator.

Medicaid costs are shared between the state and federal government. The state and federal government's shares of recoveries are determined by the Medicaid cost-sharing split in place when the fraudulent activity occurred. Washington's qui tam provisions are consistent with the federal Deficit Reduction Act (DRA)The 2005 Deficit Reduction Act sought to reduce Medicaid spending and included a financial incentive for states that enact a False Claims Act as strong as the federal law., allowing the state to receive an additional 10% in all civil recoveries, including multistate and non-qui tam cases. As a result, Washington is entitled to approximately 60% of the recoveries and the federal government receives 40%. The relator's share depends on their level of involvement and can be up to 30% of the state and/or federal government's share.

Qui tam cases account for 69% of the AGO's civil fraud cases during the study period

During the study periodFederal fiscal years 2016 through 2022. Federal fiscal year 2022 includes eleven months of data, from October 1, 2021 through August 31, 2022., the AGO opened 499 civil Medicaid fraud cases, including 344 qui tam cases. The AGO prioritizes its workload of fraud cases in the following order:

• State qui tam. Cases filed by relators that name only Washington's Medicaid Fraud False Claims Act (the Act) in the complaint or name both Washington's Act and the federal False Claims Act (FCA).
• State non-qui tam. Cases that the AGO investigates without a relator filing a complaint. The AGO receives fraud referrals from other state agencies, private parties that do not want to be relators, criminal investigations, or other means.
• Multistate qui tam (also known as global). Cases filed by relators naming the federal FCA, Washington's Act and at least one other state's FCA. The cases are filed in a federal court in any state where the provider works. Washington is involved with these cases because of its qui tam provisions. Without the provisions, the state would not participate in cases under seal. The state may receive recoveries if the provider operates in Washington.
• Multistate non-qui tam. Washington’s AGO and at least one other state and the federal government initiate a case without a relator filing a complaint.
• National Association of Medicaid Fraud Control Units (NAMFCU). Cases in which Washington is not specifically named in the complaint, but is financially affected by the fraud, or cases for which the AGO provides data or assistance to another state or to the federal government.

Exhibit 2.1: Qui tam cases were the most common type of case opened during the study period

Source: JLARC staff analysis of AGO data.

Note: The study period is federal fiscal years 2016 through 2022. Federal fiscal year 2022 includes eleven months of data, from October 1, 2021 through August 31, 2022.

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JLARC staff reviewed case files for 19 state cases filed during the study periodFederal fiscal years 2016 through 2022. Federal fiscal year 2022 includes eleven months of data, from October 1, 2021 through August 31, 2022.. These cases involve Washington, and 15 of the 19 included the federal government.

Twelve of the 19 cases have been resolved

As detailed in Exhibit 3.1, 12 of the state cases have been resolved. The Office of the Attorney General (AGO) declined to pursue legal action in eight, settled three, and litigated one. The settled and litigated state cases resulted in recoveries of $22.9 million. As of August 2022, the remaining seven cases were still under sealThe case is under seal during the AGO's investigation. Only the court, the relator, the AGO, and the federal government (if named) are aware of the case. The provider does not have access to court documents while it is under seal..

Exhibit 3.1: Of the 12 resolved state qui tam cases filed in Washington during the study period, the AGO declined eight, settled three, and litigated one

Source: JLARC staff analysis of the AGO data and court documents. Seven other state qui tam cases are under seal.

The median case length was 766 days (2.1 years)

JLARC staff divided cases into two main phases: the AGO investigation phase and post-investigation phase. The length of the AGO investigation varies by case.

• AGO investigation: The AGO begins its investigation when it receives a complaint. If the AGO needs longer than 60 days for the investigation, it must file a motion with the court for an extension. To date all investigations have exceeded 60 days. The investigation ends when the AGO files a notice with the court to decline or intervene, or a settlement is reached with the provider. The court seal is often lifted when the AGO makes its decision. For the 12 unsealed cases, the median number of days for the AGO investigation is 359 (ranging from 80 to 792 days). For the seven sealed cases that are still under investigation, the median number of days between the beginning of the AGO's investigation and 8/31/2022 is 708 days (ranging from 434 to 1,402 days).
• Post-investigation: After the seal is lifted, the case moves towards resolution (with the exception of settled cases, which are often resolved while the case is under seal). If the AGO pursues legal action, the AGO maintains control of the case. If the AGO declines to pursue legal action, the relator may request a voluntary dismissal or proceed with litigation themselves. For the 12 unsealed cases, the median number of days between when the seal lifted and case resolution is 130 days (ranging from -27 days for a case resolved under seal to 1,701 days).

Exhibit 3.2: Case lengths range from 99 days (0.3 years) to 1,923 days (5.3 years)

Source: JLARC staff analysis. Bold case names indicate the AGO settled with the provider or proceeded with litigation.

One state case was ruled as clearly frivolous during the study period

When the 2012 Legislature enacted the Medicaid Fraud False Claims Act, opponents expressed concerns that the qui tam provisions would lead to numerous frivolous lawsuits. "Frivolous" is not formally defined in statute, but precedent is set through decades of federal case law. Courts ruled that cases are:

• Clearly frivolous when they are "wholly without merit." This includes cases with no admissible evidence to support the claim, cases in which the claim is similar to another filed by the same relator and the court already ruled it was without legal merit, or cases with allegations that are not applicable to Medicaid statutes. Cases without legal merit are not automatically considered frivolous. For example, relators may see or experience something that they suspect is fraud, but further investigation may indicate that no fraudulent activity occurred. Cases also may be considered without legal merit when the evidence is insufficient to clearly demonstrate fraud occurred.
• Clearly vexatious when they are filed with "an improper purpose." This includes cases that are wholly without merit and the claims appear to be meant to harass or embarrass the provider. In the Washington case, the court described claims against the provider as “scurrilous and potentially damaging to [the provider's] professional reputations.”

The Medicaid provider can file a motion with the court to make a clearly frivolous or clearly vexatious determination if all of the following conditions are met:

• The AGO declines to pursue legal action.
• The relator pursues the case on their own. If the relator voluntarily dismisses the case, it cannot be ruled as clearly frivolous or clearly vexatious.
• The court rules in favor of the provider.

Even if the above conditions are met, courts have indicated that clearly frivolous and clearly vexatious rulings are "reserved for rare and special circumstances."

Steps in the qui tam process may limit potentially frivolous cases

There are checkpoints in the qui tam process to limit potentially frivolous cases:

Relators must hire an attorney. Relators must demonstrate evidence of fraud for an attorney to take the case. Relators' attorneys are often paid only if they win the case, and qui tam cases may take years to resolve.

The AGO controls the trajectory of a case. The AGO controls the investigation while the case is under seal. Two of the AGO’s criteria for settling or litigating are whether the claim has legal merit and the strength of the evidence. Of the eight cases the AGO declined, six were voluntarily dismissed by the relator within a few months of the AGO's decision.

Cases are under seal during the AGO's investigation. While under seal, the provider is not aware of the complaint, although they may have to respond to information requests from the AGO. Providers do not accrue significant attorney fees during this phase and information about the case is not available to the public.

Relators are liable for the providers' attorney fees. If a relator continues a case on their own and the court rules the case is clearly frivolous or clearly vexatious, the relator must pay the provider's legal costs.

During the 2015 and 2022 sunset reviews, JLARC staff asked stakeholders if they still had concerns related to the qui tam provisions. Stakeholders did not report any current concerns.

To date, one state case was ruled as clearly frivolous

Of the 12 resolved state cases JLARC staff reviewed, one case was ruled as clearly frivolous.

The case, United States of America et al. v. Community Natural Medicine et al., was filed in federal court and would have occurred with or without the state's qui tam provisions. The case alleged multiple federal False Claims Act violations, including two that involved Medicaid. For one claim, the AGO investigation found the alleged fraudulent behavior did not pertain to Medicaid. For the other claim, the AGO found the alleged violation was a covered service and claims for payment were not fraudulent. The AGO and United States Attorney's Office declined to pursue legal action and the relator continued the case on their own. The provider requested a frivolous and vexatious determination and the court ruled that the relator failed to provide admissible evidence and that the allegations were scurrilous and potentially damaging to the defendants' professional reputations. This resulted in a ruling that the claims were clearly frivolous, clearly vexatious and brought for the primary purpose of harassing and embarrassing the provider. The relator was ordered to pay a portion of the provider's legal fees.

This JLARC assignment included questions about racial equity. However, JLARC staff could not identify whether there were disparate impacts or benefits based on the race of Medicaid providers or patients.

The AGO and the courts do not collect data about the race and ethnicity of relators and providers. Even if such information were available, only 19 qui tam cases were filed in Washington during the study period, which is not a large enough sample size to identify a pattern of impacts.

Some fraud, such as performing and billing for unnecessary procedures or billing for services not provided, may result in patient harm. Patient data was not included in any court documents in the cases JLARC staff reviewed. It is not possible to evaluate whether there would be disparate impacts on Medicaid clients if the qui tam provisions were to sunset. However, the Medicaid system is intended to support disadvantaged populations and fraud affects this system. Forty-three percent of Washington's Medicaid clients identify as non-white (see Exhibit 3.3), however records are not maintained to determine how fraud involving patient harm affects clients by race. Fraudulent activities that could result in patient harm may not be uncovered without the qui tam provisions.

Exhibit 3.3. Racial distribution of Washington's Medicaid clients

Source: Washington Health Care Authority, Apple Health Client Dashboard, May 2022.

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The state and federal government share the costs and recoveries for investigating and litigating Medicaid provider fraud in Washington. During the study periodFederal fiscal years 2016 through 2022. Federal fiscal year 2022 includes eleven months of data, from October 1, 2021 through August 31, 2022., Washington recovered more than it spent.

The federal government covers 75% of the costs for Washington's Medicaid Fraud Control Division

A grant from the U.S. Department of Health and Human Services covers 75% of the state's costs for its Medicaid Fraud Control Division. The Office of the Attorney General (AGO) spent $4.0 million in state funds pursuing civil fraud cases during the study period and the federal grant covered an additional $12.1 million, totaling $16.2 million in expenditures. Costs include the pursuit of both qui tam and non-qui tam cases at the state and multistate level. Washington is eligible for the federal grant regardless of statutory qui tam provisions.

Washington typically keeps 60% of recoveries and returns 40% to the federal government

Because the Medicaid program is a federal-state partnership, both the state and federal government share Medicaid costs and recoveries awarded for fraud cases.

In Washington, Medicaid costs are typically split approximately 50/50 with the federal government based on the Federal Medical Assistance Percentage (FMAP)Federal/state cost sharing formula for Medicaid., with some variation each year. The state and federal government share the recoveries using the same percentage split that they used to cover the cost of the fraudulent activities.

After Washington passed its Medicaid Fraud False Claims Act with qui tam provisions in 2012, the state became eligible for an additional 10% of the total recoveries (see Section 2). This means Washington keeps roughly 60% of recoveries for the state's Medicaid program and the federal government receives 40%.

During the study period, the AGO recovered $71.8 million for the state’s Medicaid program and $56.2 for the federal government. While Washington received 60% of the recoveries for most cases, when all cases were combined the percentage was 56%. Variations in the percentage split between the state and federal government are due to federal policy changes, the time frame for damages awarded in each fraud case, and other federal agreements. The recoveries include qui tam and non-qui tam cases at the state and multistate levels. Qui tam cases make up 87% of all recoveries.

Exhibit 4.1: Multistate qui tam cases generated the majority of state recoveries during the study period

Source: AGO data from federal fiscal years 2016-2022. Federal fiscal year 2022 includes eleven months of data, from October 1, 2021 through August 31, 2022.

The AGO implements the qui tam provisions efficiently and economically, with adequate cost controls

As described in Section 2, the AGO prioritizes qui tam cases over other types of fraud cases and follows a consistent and structured process that weighs the costs of litigation when deciding to decline, settle, or litigate a case. The agency has procedures to monitor spending and staff time through regular supervisory reviews and a required approval process for expenses beyond regular staffing costs. The AGO is subject to annual recertifications and periodic audits by the federal Office of Inspector General.

During the study period, the state's return on investment (ROI) was $17.76 recovered for every dollar spent.

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The qui tam process meets legislative intent

The Legislature expressed its intent in two billsEESB 5978 (2012) and SB 6053 (2018). regarding the Medicaid Fraud False Claims Act. Exhibit 5.1 highlights how the qui tam process meets legislative intent.

Exhibit 5.1: Washington's qui tam provisions meet the Legislature's intent to combat fraud and maximize state recoveries

Source: RCW 74.66.010, RCW 74.66.020, and JLARC staff analysis.

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Question 1: Has the Office of the Attorney General (AGO) implemented the qui tam provisions in a manner consistent with the law and legislative intent?

Yes. The AGO has implemented the qui tam provisions consistent with the law and legislative intent. The AGO developed processes to investigate all state qui tam cases, as required by statute. It participates in multistate cases that involve Washington providers. The AGO decides whether to decline a case or proceed with legal action based on the legal merits of the case, the strength of evidence, the amount of recoveries, and whether there is patient harm. During the study period, the AGO complied with all statutory requirements in Chapter 74.66 RCW.

Question 2: Has the AGO implemented the qui tam provisions in an efficient and economical manner, with adequate cost controls in place?

Yes. The AGO uses a consistent process to prioritize qui tam cases, weighs the costs of litigation when it determines whether to pursue legal action, conducts regular reviews of cases to ensure timely responses, and adheres to statutory timelines. The agency has procedures to monitor its spending and staff time through regular supervisory reviews and a required approval process for expenses beyond regular staffing costs. The AGO is also subject to annual recertifications and periodic audits by the federal Office of Inspector General.

During the study period, the AGO recovered eighteen times more money than it spent for all Medicaid civil fraud cases.

Question 3: Are the AGO’s qui tam activities duplicated by another entity or the private sector?

No. There is no public or private entity that duplicates the roles and responsibilities of the AGO in state qui tam cases. While there is potential for duplication in multistate cases, the AGO coordinates with other entities to ensure that its efforts complement, rather than duplicate, those of the other government entities involved.

Question 4: What are the possible effects of eliminating or changing the Medicaid Fraud False Claims Act’s qui tam provisions?

Without the qui tam provisions, Washington would lose:

• A method for identifying Medicaid fraud and pursuing a recovery. During the study period, the state recovered $22.9 million in state cases.
• The AGO's ability to participate in state qui tam cases filed in federal court and collect the state’s share of recoveries. This is because the federal government does not have direct authority to recover the state’s share under Washington’s Medicaid Fraud False Claims Act.
• Eligibility for the additional 10% in all civil recoveries. During the study period, the state recovered an additional $9.0 million due to this benefit.
• The ability to participate in multistate cases. AGO participation has allowed the agency to share knowledge and resources with other states and the federal government. Participation helps the AGO identify fraud by providers that are not directly involved in the multistate case. One such case led to a non-qui tam investigation and resulted in a recovery of $1.1 million.

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