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Ohio bill boosting fraud penalties riles businesses

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By Josh Sweigart, Staff Writer Updated 7:54 PM Friday, January 27, 2012

State lawmakers passed a measure this week to better protect public employees who blow the whistle on fraud, waste and abuse; but another bill that would actually encourage whistle-blowers is facing stiff opposition from the business community.

Dubbed the Ohio “false claims act” after a federal counterpart, the proposed legislation would give whistle-blowers a cut of the damages or restitution, as well as stiffen penalties on fraud.

It also would allow the state to keep a larger cut in cases that involved the misuse of federal money, such as last year’s settlement with Dayton-based CareSource on accusations of Medicaid fraud.

Backers include Ohio Attorney General Mike DeWine. “The idea is providing incentives to someone with inside knowledge of fraud taking place to come forward and say, ‘Look, this is what’s happening and the state is getting ripped off ... .,’ ” said Scott Corbitt, policy director at the AG’s office.

But a tamer version of the same bill died in committee in 2007. That bill was limited only to Medicaid fraud, and lost traction amid concerns from groups such as the Ohio Chamber of Commerce.

“We think it does nothing more than encourage lawsuits,” said Linda Woggon, executive vice president of the Ohio Chamber. “You can make a business out of just bringing lawsuits knowing a business is going to settle and you’re going to get a third of it.”

The call for a false claims act was renewed last year after Dayton-based CareSource — which manages Medicaid cases — agreed to a $26 million settlement in a fraud case brought forward by two former employees.

That case was brought under the federal false claims act, which only applies to federal funds and only allows the state 40 percent of the damages. That would increase to 50 percent if the proposed state bill passes, under federal rules.

The Dayton Daily News has since reported that Medicaid fraud is a massive and growing problem in the state, with cases handled by the Attorney General’s office increasing 10 percent last year and restitution and settlements totaled more than $100 million between July, 2010, and this past June.

Fraud underlies the allegations of Medicaid misuse that led to the death of Makayla Norman. The disabled 14-year-old starved to death last year in her home while under the care of her mother and Medicaid-funded home nurses. A fraud investigation is ongoing and the nurses and her mother have been charged criminally

While Medicaid fraud sticks out because of its size, the proposed bill would apply to any contract issued by the state.

“The most important part of this bill for me is that it would allow the Ohio taxpayers to recover on things like road construction on bridge construction or building construction, or IT services that are paid to a state agency,” said Rick Morgan Jr., the attorney who represented the whistle-blowers in the CareSource case.

Randy Smith, former manager of information services for a state agency, recently testified to the Senate Judiciary committee about a 2002 federal case he brought against a contractor that was paid more than $100 million to develop a computer system.

“The case lasted for several years, and the discovery process confirmed that the vendor hired many unqualified people on the basis of personal relationships and other factors, and also failed to do much of what the contract required,” Smith said.

“However, because almost all of the money paid to the contractor was considered state money ...it turned out that almost none of it could be recovered under the federal false claims act.”

But opponents fear the proposed law would create too much of an incentive for trial attorneys to attempt to bring false claims knowing companies are likely to settle just to avoid a costly lawsuit.

“(The existing federal law) has kind of created a cottage industry of plaintiff’s attorneys that seek out these cases because the potential for huge recoveries because the penalties are so severe,” said Sean McGlone, policy director for the Ohio Hospital Association. “

Both the Chamber and the OHA say they support measures to cut down on fraud, just not this bill as written. Woggon suggests giving additional resources to the AG’s Office or offering a finders fee to encourage whistle-blowers to report fraud to the state instead of hire an attorney.

But these changes could make the bill ineligible for a bigger cut of the settlement in federal fraud cases.

The bill has penalties for attorneys who bring frivolous suits, but opponents say the potential payoff far outweighs that risk.

Morgan said cutting out private attorneys would add to the state’s workload and rob tipsters of control of how their cases are handled.

The proposed state bill would also bring more money into the state’s ailing coffers from cases involving federal money.

Under federal law, it allows the state to keep 50 percent of federal funds recovered compared to 40 percent now.

The state would have to give whistle-blowers 15 to 30 percent of the settlement.

The state bill is modeled after a federal bill created under the Lincoln administration to deal with concerns about fraudulent weapons sales to the Union army. Since it was amended under Ronald Reagan in 1986, it has recovered about $30 billion in damages, according to the U.S. Department of Justice.

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