The federal False Claims Act (FCA)^[1] is widely regarded as a powerful tool to punish fraud against the federal government. Since 1986, the federal government has recovered more than $75 billion from FCA settlements and adjudications.^[2] Enforcement tools that are often overlooked, however, are state false claims statutes.

Recognizing this, the federal government provides states with a financial incentive to promulgate their own false claims statutes that confer at least as much power to prosecute alleged fraud against state governments as the federal FCA does for federal false claims violations.

The federal FCA imposes treble damages plus significant penalties against any person or entity that knowingly submits, or causes to be submitted, false claims for payment to the government; falsely certifies compliance with applicable laws to obtain payment from the government; or retains government payments premised on false claims or false certifications.^[3] FCA suits may be brought directly by the government or by whistleblowers on the government's behalf (called qui tam suits) against those who have may have obtained government payments premised on allegedly false claims. The statute provides whistleblowers with financial rewards and protection against job retaliation. These whistleblower actions comprise a significant percentage of the False Claims Act recoveries. In fiscal year 2023, $2.3 billion of the $2.68 billion in FCA settlements and judgments (nearly 86%) stemmed from qui tam lawsuits.^[4]

States began enacting their own false claims statutes starting in the late 1980s. The pace increased after the Deficit Reduction Act of 2005 (DRA) created a financial incentive for states to enact false claims laws targeting Medicaid fraud.^[5] This financial incentive increases a state's Medicaid fraud recovery by 10% if the state's false claims law is approved by the Office of Inspector General of the Department of Health and Human Services (HHS-OIG).^[6] Even so, not all states have a false claims statute, and not all states that have false claims statutes encompass all types of fraud.

As of 2024, at least 30 states, the District of Columbia, and at least four municipalities have codified some form of false claims liability. While some state false claims laws target only healthcare or Medicaid fraud,^[7] others are as broad as (or even broader than) the federal FCA. For example, New York's false claims law extends to tax claims, which are specifically excluded under the federal FCA.^[8]

While a state is free to enact any legislation it chooses, it is entitled to the 10% increase in its share of Medicaid fraud recoveries only if HHS-OIG approves its false claims law.^[9] HHS-OIG has published four requirements that a state statute must meet. To qualify for the bonus recovery, the state law must:

1. establish liability to the state for false or fraudulent claims to Medicaid consistent with the liability provisions of the federal FCA;
2. be at least as effective as the federal FCA in rewarding and facilitating qui tam actions;
3. provide for filing an action under seal for 60 days with review by the state attorney general; and
4. contain a civil penalty that is not less than the penalty authorized by the federal FCA^[10]

Currently, HHS-OIG has certified 23 states as having qualifying false claims acts. Those states are California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Illinois, Indiana, Iowa, Massachusetts, Minnesota, Montana, Nevada, New Jersey, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Virginia, and Washington.^[11]

In contrast, six states have submitted statutes that were deemed non-DRA compliant by HHS-OIG. Those states are Florida, Louisiana, Michigan, New Hampshire, New Mexico, Wisconsin.^[12]

Entities that contract with the government should be aware of whether their payments source, even partially, to state funds (as in the case of Medicaid). Where payments source to state funds, analyzing potential state FCA implications is important, particularly in states like New York, where FCA statutes may impose broader liability than the federal FCA. Some states have even intervened in qui tam actions that the federal government has declined. For instance, the Massachusetts attorney general's office intervened in the declined Martino-Fleming whistleblower suit, leading to a 2021 settlement of nearly $20 million to resolve state FCA allegations that false claims for reimbursement of mental healthcare services rendered by unlicensed and improperly supervised clinic staff were submitted to the Massachusetts Medicaid program.^[13] State FCA laws may not always create additional avenues for relief, however. For instance, a New Jersey appellate court affirmed the dismissal of a pair of qui tam lawsuits under the public disclosure bar of the New Jersey False Claims Act because "the allegations in plaintiffs' complaints had previously been publicly disclosed" in separate federal FCA actions, such that "plaintiffs were not the original source of that information."^[14]

[1] 31 U.S.C. §§ 3729–3733.

[2] See Press Release, U.S. Dep't of Justice, False Claims Act Settlements and Judgments Exceed $2.68 Billion in Fiscal Year 2023 (Feb. 22, 2024), available at https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023.

[3] See 31 U.S.C. § 3729(a)(1).

[4] See Press Release, U.S. Dep't of Justice, False Claims Act Settlements and Judgments Exceed $2.68 Billion in Fiscal Year 2023 (Feb. 22, 2024), available at https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-268-billion-fiscal-year-2023; U.S. Dep't of Justice, Fraud Statistics – Overview, available at https://www.justice.gov/opa/media/1339306/dl?inline.

[5] See generally Deficit Reduction Act of 2005, Pub. L. 109-171 (2005) (amending Social Security Act to include Section 1909, codified in 42 U.S.C. § 1396h, "State false claims act requirements for increased State share of recoveries"); see also U.S. Department of Health & Human Services, OIG Guidelines for Evaluating State False Claims Act (Mar. 15, 2013), available at https://oig.hhs.gov/documents/false-claims-act/285/guidelines-sfca.pdf (OIG Guidelines).

[6] See OIG Guidelines at 4.

[7] See, e.g., Conn. Gen. Stat. §§ 4-274, et seq.; La. Rev. Stat. Ann. §§ 46:437.1, et seq.; Mich. Comp. Laws §§ 400.601, et seq.; Tex. Hum. Res. Code, §§ 36.101, et seq.; Wis. Stat. §§ 635. 20.931, et seq.

[8] Compare State v. B&H Foto & Electronics Corp., No. 452106/2019 (N.Y. Sup. Ct. Sept. 21, 2021) (interpreting New York False Claims Act, N.Y. State Fin. Law § 189(1)(g)–(h), to extend to state tax claims), with 31 U.S.C. § 3729(d) ("This section does not apply to claims, records, or statements made under the Internal Revenue Code of 1986.").

[9] See OIG Guidelines at 4.

[10] See OIG, U.S. Department of Health & Human Services, State False Claims Act Reviews, https://oig.hhs.gov/fraud/state-false-claims-act-reviews/; see also 42 U.S.C. § 1396h(b).

[11] OIG, U.S. Department of Health & Human Services, State False Claims Act Reviews, https://oig.hhs.gov/fraud/state-false-claims-act-reviews/ (listing status of state FCA laws reviewed by HHS-OIG between July 2008 and February 2024).

[12] See id.

[13] See Office of the Attorney General of Massachusetts, Private Equity Firm and Former Mental Health Center Executives Pay $25 Million Over Alleged False Claims Submitted for Unlicensed and Unsupervised Patient Care (Oct. 14, 2021), available at https://www.mass.gov/news/private-equity-firm-and-former-mental-health-center-executives-pay-25-million-over-alleged-false-claims-submitted-for-unlicensed-and-unsupervised-patient-care. The settlement resolved allegations in U.S. ex rel. Martino-Fleming and Commonwealth of Mass. v. South Bay Mental Health Ctrs., Co., 540 F. Supp. 3d 103 (D. Mass. 2021).

[14] State of New Jersey ex rel. Health Choice Grp. LLC v. Bayer Corp., No. A-2731-20 (N.J. Sup. Ct. App. Div. Mar. 1, 2024); State of New Jersey ex rel. Health Choice All. LLC v. Eli Lilly and Co., Inc., No. A-2733-20, Order at 4 (N.J. Sup. Ct. App. Div. Mar. 1, 2024) (combined decision affirming dismissal of each action as foreclosed by the public disclosure bar).