As a follow-up to my previous posts on the amended California False Claims Act — and especially my commentary on the lack of an “alternate remedy provision” — I received some comments from loyal readers that I wanted to share with others.
First, I learned from a reader that California did indeed make the amendments in an attempt to comply with the Deficit Reduction Act of 2005, which gives states an additional 10% on their FMAP. In fact, the California legislature followed the guidance from OIG which did not for some reason list an alternate remedy provision as one of the things the former California False Claims Act lacked.
The second comment I received was from a perplexed reader who asked why this type of provision is important in the first place, and I will address that question now.
Let me say at the outset here that none of this post is addressed to the California Department of Justice. California was the very first state to pass its own state false claims act, and the California Department of Justice has led the country in non-health care state false claims recoveries. Importantly, in my conversations with my fellow members of the relator’s bar, I could not find a shred of evidence — even antecdotal evidence — that the California Department of Justice has ever, in any form, used the lack of an alternate remedy provision to leave a relator out in the cold.
So even if the alternate remedy provision is not important to California, why are such provisions generally important?
What is an “Alternate Remedy Provision” and why is it important?
An alternate remedies provision in an FCA statute provides that if the state declines to intervene in the qui tam case and instead pursues its remedies in another manner, the relator is entitled to share in any monetary recovery obtained through the alternate remedy. Sounds simple enough right?
Here is why it is important: because qui tam relators are required to take steps to share all of the information they have with the government — for example, relators are required to serve a disclosure memorandum on the state prior to filing the case, and are then required to file the case under seal of the Court and serve the sealed complaint on the government, but not on the defendant –the government will have an enormous amount of information in its possession about the case.
And in most contexts, the government will have some method of addressing the fraud other than intervening in the qui tam action. As just one example, through administrative proceedings, the government can try to recover over-payments from Medicaid providers. There is however no provision in state health care laws to share this administrative recovery with a relator. Such recoveries can take many other forms, including but not limited to criminal penalties and fines, debarment proceedings, imposing administrative fines, withholding payment due to the contractor, and so forth.
And, if a government agency were allowed to study closely all of the relator’s allegations and evidence, and then proceed with a case against the same defendants without sharing the recovery with the relator, government agencies might be tempted to never cooperate with a relator.
Broadly speaking then, an “alternate remedy” is the government’s exercise of an alternate method to deal with a fraudfeasor without intervening in the relator’s case — and hence, without sharing the recovery with a relator.
The alternate remedy in the federal FCA is found at 31 U.S.C. §3730(c)(5) and provides that:
[T]he Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty. If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section. Any finding of fact or conclusion of law made in such other proceeding that has become final shall be conclusive on all parties to an action under this section. For purposes of the preceding sentence, a finding or conclusion is final if it has been finally determined on appeal to the appropriate court of the United States, if all time for filing such an appeal with respect to the finding or conclusion has expired, or if the finding or conclusion is not subject to judicial review.
Given that the alternate remedies provision is designed to protect the interests of qui tam relators directly and the interests of the government indirectly, it needs to be said that the scarcity of case law interpreting this provision of the federal FCA is a true testament to the community of interests that has arisen between United States Department of Justice lawyers and lawyers in private practice representing qui tam relators. One example is U.S. ex rel. Bledsoe v. Community Health Systems, Inc. 342 F.3d 634, 647 (C.A.6, 2003) but such cases are few and far between, largely because the federal government knows and understands that it is in everyone’s interests not to try using an alternate remedy to cut out a relator.
Experience with False Claims Act prosecutions is the key — California has it and the United States has it, but many states are lacking
The federal government has extensive experience with false claims litigation — to be specific, it has almost 150 years of experience with such litigation. In addition, the U.S. Department of Justice has some of the best civil litigators in the country handling these matters. Perhaps most important, the public-private partnership between relator’s counsel in private practice and the civil litigators at the U.S. Department of Justice has developed and matured over time.
The same thing is true with the California Department of Justice — California was the first state to enact a state false claims act, and until very recently, a number of California’s non-health care recoveries were among the biggest recoveries under any false claims act.
But as other state governments adopt state-level false claims legislation we are seeing, shall we say, different levels of ability from state to state on the non-health care side of the false claims act. And we may start to see more alternate remedy case law as time goes on, as more state appellate courts begin to have these matters work their way up the chain.
