The California Insurance Frauds Prevention Act: What to Know About California’s Powerful Commercial Health Insurance Fraud Statute

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Although this blog focuses mainly on the federal False Claims Act (FCA), other antifraud statutes feature in the qui tam relator and government enforcement toolkit. Key among them: the California Insurance Frauds Prevention Act (IFPA).

The IFPA is a state antifraud statute that, while modeled on the FCA, stands on its own because it targets fraud on commercial insurance. The IFPA has become a primary vehicle in California for addressing alleged healthcare fraud. Over the last decade, qui tam IFPA actions have resulted in tens of millions of dollars in settlements in healthcare fraud matters. Going forward, qui tam relators and the State of California will continue to use the IFPA to pursue significant recoveries for alleged healthcare fraud. This is a statute every provider doing business in California needs to know about. The main features of the IFPA are discussed below.

Conduct Covered by IFPA

When it was enacted in 1993, the IFPA focused only on workers’ compensation fraud. Recognizing the need to combat other types of insurance fraud, California expanded the statute’s reach over time. Codified at Cal. Ins. Code § 1871, et seq., the IFPA has evolved to cover many types of insurance fraud, including health insurance fraud.

In fact, the IFPA recites a legislative finding that “health insurance fraud is a particular problem for health insurance policyholders” and “account[s] for billions of dollars annually in added health care costs nationally.”

As it relates to healthcare fraud, the IFPA targets two types of conduct:

  • By incorporating specific provisions of the California Penal Code, the IFPA imposes civil liability on any person who engages in conduct that violates California’s criminal healthcare fraud statute. Prohibited conduct includes knowingly making or causing to be made “any false or fraudulent claim for payment of a health care benefit,” and knowingly presenting or causing to be presented “any false or fraudulent claim for the payment of a loss or injury, including payment of a loss or injury under a contract of insurance.”
  • The IFPA also imposes civil liability on any person who “knowingly employ[s] runners, cappers, steerers, or other persons” “to procure clients or patients to perform or obtain services or benefits under a contract of insurance or that will be the basis for a claim against an insured individual or his or her insurer.” Relators and the State of California have argued that this provision applies to the payment of kickbacks in healthcare fraud cases.

Similar to the FCA, damages under the IFPA are treble the amount of any false claims plus a civil penalty of between $5,000 and $10,000 per false claim. Thus as with the FCA, a defendant’s potential liability under the IFPA can skyrocket quickly.

Qui Tam Provisions

Like the FCA, the IFPA is a qui tam statute, meaning an action can be brought by either the State of California or a private plaintiff suing on the state’s behalf. As with the FCA, a relator suing under the IFPA must file a qui tam complaint under seal and provide a copy of the complaint and substantially all material evidence to the relevant government authorities. The government may elect to intervene and proceed with the action, or it may allow the relator to take the action forward on their own.

Under the IFPA, a relator is entitled to 30 to 40 percent of the proceeds of a successful action in an intervened case and 40 to 50 percent in a declined case—significant incentives that exceed the percentages afforded to relators under the FCA.

Relators can assert claims under the IFPA on their own, in combination with claims under the FCA and state false claims acts, or in a follow-up action after an FCA lawsuit based on the same underlying conduct. This gives relators flexibility in presenting claims for commercial health insurance fraud to the court.

Dual State Agency Jurisdiction

One difference between the FCA and the IFPA is that two government agencies are empowered to pursue actions under the IFPA: the local district attorney and the California Commissioner of Insurance. Either a local district attorney or the Commissioner of Insurance can file an IFPA action in the first instance. And for qui tam actions, an IFPA relator must provide the sealed qui tam complaint to both the local district attorney and the Commissioner of Insurance, and either may elect to intervene.

The IFPA’s structure means two government agencies, each with its own resources and priorities, will evaluate an IFPA action, potentially increasing the likelihood of government intervention in qui tam cases. Revealing its commitment to these matters, the California Department of Insurance employs false claims trial attorneys focusing on the prosecution of civil insurance fraud.

Recent IFPA Settlements

IFPA actions have resulted in tens of millions of dollars in settlements over the last decade. Top settlements include:

  • Sutter Health agreed to pay $46 million to resolve allegations that it submitted false, fraudulent, or misleading charges for anesthesia services it inappropriately charged on top of separate anesthesiologist fees, even where it was alleged no anesthesia was performed.
  • Bristol-Myers Squibb agreed to pay $30 million to settle allegations that it improperly paid kickbacks to high-prescribing physicians to induce them to prescribe the company’s drugs.
  • AbbVie agreed to pay $24 million to settle allegations that it illegally paid kickbacks to market the drug HUMIRA by using “ambassadors” disguised as registered nurses to interact with doctors and patients.
  • Warner Chilcot agreed to pay $23 million to settle allegations that it paid illegal kickbacks to promote certain of its drugs.

Emboldened by these settlements, qui tam relators and the State of California will continue to use the IFPA to target alleged healthcare fraud.

Unsettled Limitation to IFPA

California state trial courts interpreting the IFPA have held that the statute’s use of the words “contract of insurance” and its placement in the California Insurance Code suggest the IFPA applies only to traditional private insurance regulated by the California Department of Insurance.  These decisions raise the question whether claims related to HCSPs, HMOs, and self-funded ERISA plans—which account for the majority of commercial insurance plans in California but are regulated by the California Department of Managed Health Care, not the Department of Insurance—fall outside the IFPA. If they do, it would curtail the scope of the IFPA and the potential damages a defendant could face in an IFPA action.

No state appellate court has ruled on this issue, so the question remains open. Despite the significant implications of this issue, the fact that it remains unsettled has not prevented defendants from entering into sizeable IFPA settlements, as noted above.

Illinois Insurance Claims Fraud Prevention Act

Besides California, Illinois is the only other state with a qui tam statute allowing a private relator to bring claims for commercial insurance fraud on behalf of the state. Like the IFPA, the Illinois Claims Fraud Prevention Act, 70 ILCS 92/1, et seq., imposes liability for paying unlawful remuneration to induce services under a contract of insurance and for violating certain criminal state antifraud provisions. Although there have not been attention-grabbing settlements under the Illinois Claims Fraud Prevention Act as there have been under the IFPA, it may only be a matter of time before enforcement under the Illinois Claims Fraud Prevention Act picks up.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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