AN EMPIRICAL LOOK AT THE ARGUMENTS THAT KILLED THE Maryland FALSE CLAIMS ACT
As regular readers of this blog will recall, in the 2008 legislative session, the Maryland False Claims Act failed by a single vote in the full Senate, after having been passed by the Maryland House of Delegates.
Given that the Virginia Fraud Against Taxpayers Act passed both houses of the Virginia legislature in 2002 unanimously, we never got a chance to see the usual suspects put on their dog and pony show in an effort to thwart its passage. While the organized resistance to state qui tam statutes is, by and large, not as organized or as large as other lobbying movements, we know we can count on certain folks to fight the passage of qui tam statutes. For example, the various health care-related lobbying groups, as well as the various Chamber of Commerce organizations, can always be counted on to do whatever is in their power to prevent qui tam statutes from being enacted.
These groups were more or less silent on the Virginia statute. Maryland, on the other hand, proved to be a different story, as the attachments to this blog entry show.
I have included the /files/116785-109034/chamberofcommerceSB845.pdf”>testimony from the Maryland Chamber of Commerce. As the reader can see, the arguments against the Maryland False Claims Act fall into a couple of categories. I have grouped the arguments advanced by commercial interests into several broad categories below.
(1) The False Claims Act will penalize honest businesses who make honest mistakes and violate overly technical “regulations.”
This is the most common red-herring we hear from the business community. Rhetorically, it is a stroke of genius–the only thing more threatening to small and medium sized businesses than “regulation” is the prospect of being sued for an honest mistake that violates a regulation.
This defense rarely succeeds, however, for a number of reasons. First and foremost, if someone has truly made one or more honest mistakes in the way they bill the Government for services or goods, it will normally be apparent. This is because providers who make honest mistakes will normally break even when all of their mistakes are tallied.
In other words, for every mistake made that leads to a gain, there will be a corresponding error in which the company lost money. By the same token, an “honest mistake” defense will not work where the mistakes all lead to an increase in income, and the provider wound up making more money than they otherwise would have.
In any event, “honest mistakes” are not prohibited under the statute. What is, however, prohibited is knowingly making a false statement for the purpose of getting a claim paid or approved.
(2) Maryland does not need a False Claims Act because the actions it makes unlawful are already covered under other statutes; furthermore, it is not necessary to create a private cause of action for the same laws already enforced by the Maryland Attorney General.
This is another old chestnut that gets dusted off every time a state prepares to enact a false claims statute.
I believe Sen. Grassley already handled this argument quite properly in 1986, when the amendments to the Federal False Claims Act were being debated. First, government cannot be everywhere at the same time. Government, on its own, simply cannot catch every single fraudfeasor any more than it can catch every single speeding driver on a state’s roads. For that matter, even the efforts of the state Government AND a skilled cadre of qui tam lawyers in private practice will not be enough to catch all of the fraudfeasors out to feed on our public tax dollars. A private cause of action does make enforcement more likely, however, and that alone makes its passage worthwhile.
Additionally, the largest benefit is that the Deficit Reduction Act of 2005 would give Maryland an extra 10% of all monies recovered in FCA prosecutions, no matter whether the case was initiated by the federal government, by a private qui tam relator, or by the Maryland Attorney General’s Office. A complete discussion of this important topic is beyond the scope of this blog post, and those interested should click here.
(3) The stringent penalties and fines called for the in the statute would quickly put small and medium sized companies out of business for honest mistakes.
See the arguments refuting the “honest mistakes” rhetoric above. As for putting companies that submit a large number of false claims out of business, that is a big affirmative. If a company submits a level of false claims such that treble those damages and civil penalties puts the company out of business, that company deserves to be out of business, as far as I am concerned.
The simple fact is that too many individuals and companies have business models that are based entirely on false claims–in other words, some individuals and companies could not both comply with the requirements of the law and make money at the same time, because they do not honestly provide any goods or services of value.
On some level, we have to recognize that when groups like the Maryland Chamber of Commerce, or the United States Chamber of Commerce, oppose the passage of False Claims Acts, they are simply demanding that a greater share of the wealth that government redistributes go into the pockets of business.
In other words, the Chamber of Commerce may pretend to be a bastion of free-market thinking, and may pretend to be infuriated when taxes are raised, but at the end of the day they really don’t mind if the government redistributes money from one pocket to another, as long as the money goes from the taxpayer’s pocket into the right pocket.
Zachary Kitts
Cook & Kitts, PLLC