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State False Claims Act Enforcement on the Rise: What Businesses Need to Know
State False Claims Act (FCA) enforcement is rapidly expanding beyond traditional Medicaid fraud cases, creating significant new risks for companies doing business with state and local governments. While federal FCA enforcement remains prominent, an increasing number of states are adopting, strengthening, and broadening their own false claims laws to recover funds in innovative ways.
Unlike their federal counterpart, state FCAs vary considerably in scope and application. Many include whistleblower provisions, with some states like California offering even higher financial incentives than federal law—up to 50% of recoveries when the government declines to intervene. Several state laws permit suits involving claims to political subdivisions, and some even include tax-related false statements, which federal law excludes.
The Social Security Act creates incentives for states to adopt robust FCA laws targeting Medicaid fraud, with 23 states currently qualifying for an increased share of Medicaid-related damages. However, the trend shows states applying their false claims laws well beyond healthcare.
A significant Massachusetts case exemplifies the expanding reach of state FCAs. The state attorney general pursued two out-of-state contractors—an engineering firm and a construction company—over a regional airport runway rehabilitation project. The companies allegedly skipped a crucial construction step while falsely claiming completed work to maximize payments.
“They didn’t build a trench between the asphalt and concrete part of the runway called for in the approved design plans,” explained legal experts familiar with the case. This defect caused water infiltration, runway crumbling, and operational problems severe enough to temporarily displace a National Guard fighter wing.
The case resulted in a $3 million settlement under Massachusetts’ FCA, followed by an additional $1.5 million federal settlement for the federal portion of the mixed-funding project. Notably, a third company that had acquired one of the original contractors also faced liability, highlighting the importance of thorough due diligence during mergers and acquisitions.
In Minnesota, state FCA enforcement recently targeted a property management company for allegedly submitting over $250,000 in fraudulent claims to the State Housing Finance Agency related to a pandemic rental assistance program. Minnesota’s 15-year-old FCA allows for treble damages and penalties of approximately $27,000 per false claim.
Perhaps most striking is the application of state FCAs to tax issues. In 2020, the District of Columbia secured a $40 million settlement from a wealthy Bitcoin investor who allegedly falsely claimed residence in other states to avoid nearly $25 million in DC income taxes. The investigation revealed the individual was actually living in a 7,000-square-foot Georgetown penthouse while docking multiple yachts in Washington Harbor.
Similarly, New York—which also permits tax-related FCA claims—reached a $1.5 million settlement with sports merchandise company Fanatics for allegedly under-collecting sales tax on online purchases. Both cases began with whistleblower complaints before state attorneys general took them over.
Legal experts identify several emerging trends in state FCA enforcement:
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Increasing legislation, with states like Connecticut and Colorado recently broadening their laws beyond healthcare fraud, and California considering expanding to include tax fraud claims
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State attorneys general using FCAs to advance policy priorities, similar to the federal government’s stated intent to use the federal FCA to challenge certain DEI practices
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Greater cooperation between federal and state enforcement agencies, as well as multi-state actions
To prepare for increased enforcement, businesses should identify which state and local FCA statutes apply to their operations, conduct thorough due diligence during mergers and acquisitions, maintain robust compliance programs specifically designed to prevent false claims to state and local agencies, and establish clear internal reporting processes.
“Having a good internal reporting mechanism where people can voice concerns to high-up authorities is the most basic, easy slam-dunk compliance structure that can keep you out of False Claims Act trouble,” one expert noted.
As state FCAs continue evolving and enforcement intensifies, companies doing business with state or local governments must stay vigilant to avoid potentially significant liability.
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9 Comments
Higher whistleblower rewards under some state FCAs could encourage more internal reporting, but also more frivolous lawsuits. Companies will have to be vigilant in investigating claims and defending against dubious qui tam actions.
Expanded state FCA laws create both risks and opportunities for companies doing business with state and local governments. On one hand, the increased enforcement is burdensome. But on the other, whistleblower provisions can incentivize internal reporting and self-policing to avoid steep penalties.
The incentives for states to adopt stronger FCA laws, like increased Medicaid reimbursement, seem to be driving this trend. I’m curious to see if this results in a race among states to be more aggressive enforcers in the coming years.
This is an interesting development in state-level False Claims Act enforcement. It signals that governments are getting more aggressive in going after fraud, waste, and abuse in public contracting. Businesses need to ensure strong compliance programs are in place to mitigate these rising risks.
The rise in state FCA cases is a concerning trend for companies, especially those in the healthcare and government contracting sectors. Careful compliance and proactive risk management will be crucial to avoiding costly lawsuits and reputational damage.
The rise in state FCA cases is a trend that companies cannot afford to ignore. Robust compliance, internal controls, and proactive risk management will be critical to navigating this increasingly complex legal landscape.
This article highlights the growing patchwork of state FCA laws that companies need to navigate. The inconsistencies between jurisdictions could create compliance headaches, underscoring the importance of robust internal controls and monitoring.
Interesting to see how state governments are bolstering their False Claims Act enforcement capabilities. I wonder if this will lead to more coordination and information-sharing between state and federal authorities on fraud cases going forward.
State FCA enforcement expanding beyond healthcare fraud is an important development. It suggests governments are casting a wider net to recover funds lost to false claims, which could impact a broader range of industries.