LD 1187, “AN ACT TO RECOUP HEALTH CARE FUNDS THROUGH THE MAINE FALSE CLAIMS ACT”

TESTIMONY OF REP. SHARON TREAT
SPONSOR OF
LD 1187, “AN ACT TO RECOUP HEALTH CARE FUNDS THROUGH THE MAINE FALSE CLAIMS ACT”

April 30, 2007
Joint Standing Committee on Health & Human Services

Senator Brannigan, Representative Perry, and members of the Health & Human Services Committee. I am Sharon Treat, and I represent House District 79, Farmingdale, Hallowell and West Gardiner. I am testifying today in support of my legislation LD 1187, “An Act to Recoup Health Care Funds through the Maine False Claims Act.”

What does the bill do? This legislation is intended to provide the State of Maine with an additional legal tool to recoup taxpayer money spent on health care programs including MaineCare and Medicare, where significant fraud is involved, which will help offset our health care costs. The legislation is written to take advantage of changes in Federal law enacted in 2005 in the Deficit Reduction Act which created financial incentives in the form of additional financial recoveries if States enact false claims act provisions modeled on provisions in federal law (see attached memo from CMS and NCSL fact sheet “Incentivising State False Claims Acts”).

Some of these provisions are similar to those in the Maine Unfair Trade Practices Act (UTPA), which our Attorney General has already been using effectively to seek recoveries in health care fraud cases. However, the UTPA does not include other provisions of the federal False Claims Act (FCA) including the “relator” or “Qui tam” provisions which provide a mechanism for a person with evidence of fraud – a whistleblower – to initiate a private lawsuit on behalf of the government and if successful, share in the financial recovery. Without these provisions, the Maine UTPA does not meet the requirements in federal law in order to be eligible for the additional savings.

Scope of fraud this bill would address. Right now, I understand that the Attorney General is involved in 21 cases of health care fraud. These are not all public cases, but I understand that they involve issues such as unauthorized switching of patients to more expensive medications, and illegal marketing of drugs for unapproved “off label” uses. Other cases the state has settled in the past include the failure of pharmaceutical companies to provide the Medicaid “best price” to the State and kickbacks and other schemes to increase market share or switch drugs. Nationally, there have been sixteen settlements of whistleblower cases against drug manufacturers involving allegations of Medicaid or Medicare fraud. Twelve of these cases were brought under the federal FCA; the remaining four were brought under the Texas false claims act. In ten of these sixteen cases, the whistleblowers were employees of the manufacturer or the manufacturer’s competitor; in six cases the whistleblower was a specialty pharmacy doing business with the manufacturers and having access to pricing data not available to federal or state governments. According to the authors of a recent report, “It is highly unlikely that, in absence of the information supplied by these employee-whistleblowers and the specialty pharmacy, federal or state officials administering the Medicaid or Medicare programs would have learned of the non-transparent marketing or pricing practices at issue in these cases.”

Nationally, nearly $3.9 billion has been recovered from drug manufacturers over the past six fiscal years as the result of cases brought by whistleblowers. During this period, two other FCA cases involving drug manufacturers were settled: Abbott Laboratories, settled on July 23, 2003 for $622 million; and Eli Lilly and Company, settled on December 21, 2005 for $36 million. Neither of these cases was initiated by whistleblowers. Thus, between FY 2001 and FY 2006, the FCA produced $4.5 billion in recoveries from drug manufacturers; of this amount, $3.9 billion, or 85 percent, is directly attributable to actions brought by whistleblowers. I have attached a chart showing the cases involved in these settlements, the types of fraud involved and the penalties and taxpayer funds recovered.

Why enact a Maine Health Care False Claims Act? As noted already, Maine has successfully recovered funds in health care fraud cases under our existing UTPA. The only reason to enact this bill would be if (1) additional cases will be brought that otherwise would not be initiated or joined by the Maine Office of the Attorney General, resulting in additional recoveries that will help fund health care in this state and reduce fraudulently inflated health care spending; and (2) the State can recover additional monies through the 10% recovery increase provision in the federal Deficit Reduction Act (DRA).

I believe that the answer to both questions is a qualified “yes.” However, because this is a policy area that is still evolving – the federal rules implementing the DRA false claims provisions have only recently been issued, and how they will be implemented remains to be seen – LD 1187 may be most appropriately addressed by a study combined with a carryover to next year. As drafted, LD 1187 mirrors model legislation that is believed to meet the federal requirements. However, since I submitted this legislation, there have been several developments which this committee should take note of and which call for additional information and a revised draft of this bill if the committee goes forward, as I hope it will.

Promises, promises. It appears that like so many federal promises, the 10% bumped-up recovery specified in the DRA may come with strings attached such that Maine may decide the benefits are not worth the cost. As other states have moved ahead with their own false claims acts, CMS has apparently sought to share in the recovery of other fraud settlements that right now go 100% to the states. Obviously, we would not want to do anything that would end up siphoning off money and sending it to the federal government – that is the opposite of the goal of this bill. In my discussions with the Attorney General’s Office, it appears that we will be in a better position a few months from now to know how CMS is interpreting the DRA and how state False Claims Acts should be written to maximize state recoveries and minimize the potential that, to put it bluntly, the federal government will get its hooks further into our state pocketbook.

LD 1187 also needs to be revised so that it more clearly defines the role of the “relator” or whistleblower so that cases which are being brought by the State anyway are not somehow credited to the whistleblower and thus trigger a payment to a private individual and reduce the recovery the State would otherwise have received. On the one hand, the relator provisions of the FCA are central to its effectiveness, as well as to meeting the federal minimum standards for the additional 10% state recovery that has been promised by the federal government. I am in full support of encouraging the private sector to act to initiate these fraud cases, because there is strong evidence that providing this mechanism for whistleblowers to file cases and share in the recovery significantly increases the funds recovered to taxpayers overall and results in cases being brought that the government either cannot or will not initiate.

On the other hand, we do not want to enact anything that would diminish the net recovery by the state in these fraud cases, so these provisions must be carefully written. Whether this can be done while still meeting the federal requirements is a tricky drafting question that the Attorney General’s Office would like to have additional time to tackle, and which would also benefit from review of CMS actions on the several state false claims acts recently enacted around the country. Again, for this reason a carryover makes sense here, with the parties reviewing developments over the summer and fall and bringing back a report and new language in January.

Thank you for your attention, and I look forward to working with the Committee on this bill.