Separating Fact from Fiction: Understanding the Pennsylvania False Claims Act

Pennsylvania’s proposed False Claims Act faces criticism amid budget debate, with opponents arguing it would benefit lawyers at the expense of healthcare providers and small businesses.

As Pennsylvania lawmakers scramble to address budget shortfalls, a contentious proposal for a state False Claims Act (FCA) has emerged as a potential revenue generator. Critics, however, warn that the measure would deliver more benefits to trial lawyers than to state coffers while potentially devastating small businesses and healthcare providers.

The proposed legislation would allow private individuals to file lawsuits on behalf of the government against businesses allegedly involved in Medicaid fraud. While supporters tout it as a way to recover misspent tax dollars, skeptics question both its necessity and projected financial impact.

Pennsylvania currently benefits from the federal FCA, which already provides a mechanism for pursuing Medicaid fraud cases. Under the current system, Pennsylvania receives its full share of any recoveries without having to pay compensation to the individuals who initiated the claims, known as “relators.” These relators currently receive their compensation—up to 30 percent of recovered funds—only from the federal portion.

A state-specific FCA would dramatically change this arrangement. Relators would become eligible for double recovery, taking up to 30 percent from both federal and state portions. This arrangement would ultimately reduce Pennsylvania’s net recovery compared to the current system.

The financial penalties proposed in the legislation are particularly concerning to healthcare providers. Violators could face triple damages plus penalties of up to $28,000 per claim. For small healthcare operations with numerous incorrectly coded claims, such penalties could prove financially ruinous.

“This act fosters a sue and settle system,” notes Curt Schroder, executive director of the Pennsylvania Coalition for Civil Justice Reform and a former state representative. “Lawyers make a fast buck knowing the people being sued will settle instead of risking financial catastrophe, even if the claim has little or no merit.”

Pennsylvania already maintains one of the nation’s lowest Medicaid error rates at just 2.5 percent, suggesting existing fraud prevention mechanisms are working effectively. The state Attorney General’s office already possesses tools to pursue fraudulent Medicaid activity, raising questions about the necessity of outsourcing this function to private attorneys.

Proponents have suggested the state FCA could generate as much as $3 billion in revenue, potentially closing half the current budget deficit. However, experiences from other states paint a more modest picture. New York has recovered approximately $4 billion since implementing its FCA in 2011, while California has recovered about $3 billion since 2000, and Minnesota only around $60 million since 2010.

These figures represent significant sums, but they accumulated over many years—not within a single budget cycle as some supporters suggest would happen in Pennsylvania.

Rural healthcare facilities, which already operate on thin margins, could be particularly vulnerable to the aggressive litigation environment an FCA might create. Small physician practices and clinics could face devastating financial consequences from technical billing errors rather than actual fraudulent activity.

Critics of the proposal suggest that if lawmakers determine additional fraud-fighting tools are needed, they should enhance the Attorney General’s authority rather than creating a system that incentivizes profit-motivated litigation.

“Outsourcing the collection of misspent government funds to profit-motivated attorneys is not the answer to the state’s fiscal and budgetary challenges,” Schroder argues. “The only ones who stand to profit off of a state FCA are the lawyers who are pushing for it.”

As budget negotiations continue in Harrisburg, the debate over the False Claims Act highlights the broader tensions between addressing revenue shortfalls, maintaining a fair legal environment, and protecting vital healthcare services across the commonwealth.