In the final hours of its regular session, the Washington Legislature enacted the Washington Medicaid Fraud False Claims Act (the “Act”).  The Act, ESSB 5978, has been sent to the governor’s desk, and she is expected to sign it.  Washington will join 29 other states that have enacted similar laws.

The Act creates a state system of Medicaid false claims liability that is parallel to, and largely duplicative of, the federal False Claims Act.  Both laws contain draconian remedies, including treble damages and civil penalties of $5,500-$11,000 per claim; both provide financial incentives for private whistleblowers to bring suit on the government’s behalf; and both protect whistleblowers from retaliation.  The Washington Attorney General's office has been empowered to bring such cases on the state's behalf with a bolstered Medicaid Fraud Control Unit.

Given that the federal system has the experience and resources to address what tend to be nuanced and complex cases with potentially ruinous liability for defendants, the bill was opposed by virtually all health industry groups.   The Act was promoted by the plaintiffs’ bar, apparently looking for more favorable treatment by resource-thin state superior courts that are to this point inexperienced in adjudicating such cases.

The Act contains additional risks for the healthcare industry that do not exist under the federal False Claims Act:

(1)  The attorney general's office is empowered to unilaterally impose civil administrative penalties for claims determined to violate the Act, with no clearly established appeal mechanism.

(2)   While the federal False Claims Act has a statute of limitations that ranges between six and 10 years, the Act has none, theoretically permitting claims that extend back farther than the federal law. 

(3)  The Act limits the so-called “public disclosure” bar to disclosures to state agencies, which opens the door to lawsuits brought by whistleblowers trading on information publicly disclosed to federal agencies.  Thus, the Act creates the potential for liability in cases that would not have survived in federal court because of the federal public disclosure bar.

(4)  The Act provides that the submission of a false claim is an “intentional act” for insurance coverage purposes, depriving defendants of insurance coverage under policies that exclude intentional acts.  This includes a defendant who submits a false claim with actual knowledge that the claim is false, as well as any defendant who submits a claim in "reckless disregard" or "deliberate ignorance" of whether the information is true or false.

(5)   The Act allows the attorney general to subcontract the prosecution of these cases to “private attorneys and local governments,” with no restrictions as to the contract prosecutor’s experience, qualifications or objectivity.

If, as expected, Governor Gregoire signs the bill into law, the Washington healthcare industry that services Medicaid beneficiaries will need to prepare itself for new and less predictable state court adjudication of whistleblower claims.

© 2012 Perkins Coie LLP