An invitation for the state to fight fraud

Published on February 01, 2009

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An invitation for the state to fight fraud

By STEVE SIMON and RON LATZ,February 1, 2009

Stealing from the taxpayers is always wrong, but it’s even worse during tough economic times. Still, some contractors defraud state government by knowingly overcharging or underpaying for products or services. Now that Minnesota faces a huge budget shortfall, we have a special duty to do something about fraud against taxpayers. By passing a common-sense law known as the False Claims Act, Minnesota can attack and prevent costly fraud, recovering millions of lost taxpayer dollars while earning a financial bonus from the federal government.

The False Claims Act dates back to Abraham Lincoln. It began as a tool to pursue crooked contractors who sold bad mules and rotten food to the Union Army during the Civil War. More than a century later, Congress improved the law by providing financial incentives to workers who report employers that knowingly cheat the government. A worker who reports alleged fraud must have direct knowledge of the wrongdoing and may not rely on hearsay or media reports. Law-enforcement authorities may then screen the claim to decide whether to pursue it. The whistleblower receives 15 to 30 percent of any recovery, and the wrongdoer pays up to three times the government’s actual damages.

The whistleblower incentives work. Since 1986, the federal government has recovered $22 billion from contractors of all kinds who knowingly cheat the public. Unfortunately, the federal law doesn’t protect state governments from fraud. States have to protect themselves. That’s why 22 states have passed their own False Claims Acts to confront contractors who knowingly scam the system.

With the help of whistleblowers, states have uncovered nearly $3 billion in fraud schemes. Last year, Illinois recovered more than $40 million from a health plan that cheated the state by knowingly accepting government payments for patients it had not enrolled. Massachusetts recouped $40 million from a highway construction scam. Texas took back $60 million from drug companies that knowingly manipulated prices. The information that led to those recoveries surfaced because the law provided financial incentives for employees to come forward with strong evidence of fraud.

Because state-level False Claims Acts have been so successful, Congress recently offered a big financial reward for states that adopt such laws. If the state law conforms to federal standards, the state gets a 10 percent boost in its share of the recovery from Medicaid fraud cases. Minnesota currently gets 50 percent of all Medicaid fraud recoveries, with the other half going to the federal government. If Minnesota passes a False Claims Act, even if the law is never used, it will get 60 percent of those recoveries automatically. That 10 percent bonus alone could be worth millions of extra dollars per year.

Opponents of the False Claims Act have tried a number of arguments. Sometimes, they claim that we already have enough antifraud laws on the books. But existing laws apply to narrow categories of fraud, fail to provide incentives for whistleblowers or do not entitle our state to the federal bonus money. Sometimes opponents claim that the False Claims Act will punish innocent contractors for accidental errors. Not true. The law applies only to those who “knowingly” defraud, and not to innocent mistakes or negligence.

The False Claims Act could help us recover millions from fraudulent contractors every year. That’s money we could use to help balance our budget and invest in our people. With a glum economic outlook, and with renewed calls for reform and accountability in government, we should embrace an opportunity like the False Claims Act.

Steve Simon is a member of the state House of Representatives. Ron Latz is a member of the state Senate. Both are DFLers from St. Louis Park.

© 2009 Star Tribune. All rights reserved.

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