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Mass. False Claims Act key tool in AG’s arsenal

Attorney General Martha Coakley’s office has used the Massachusetts False Claims Act to recover significant funds for the state, its subdivisions and municipalities in these tight fiscal times.

Businesses and organizations that enter into contracts with Massachusetts government entities need to recognize the broad scope of the act and take precautions to understand and comply with their obligations.

The act, which is modeled on the federal False Claims Act of 1986 and was enacted in Massachusetts in 2000, provides that any person who knowingly presents a false or fraudulent record to obtain payment of a claim by the commonwealth, or is the beneficiary of an inadvertent submission of a false claim, will be liable for a civil penalty, plus three times the amount of damages that the government entity sustained because of the act of that person.

In addition to enforcement by the AG, the act allows individuals, referred to as “relators,” to bring a civil action on behalf of the commonwealth for a violation of the act.

A relator must first submit his complaint to the AG’s Office and the AG may take over, allow the relator to proceed or dismiss the action.  If a relator is successful with an action, he receives a portion of the commonwealth’s recovery.

Traditionally, the AG’s Office has brought false claims actions against and recovered funds from health care providers — often pharmaceutical companies — for the state’s Medicaid program.

With approximately one-third of the state budget devoted to Medicaid, this has been a fruitful area for false claims enforcement. Since 2007, Coakley’s office has recovered more than $210 million on behalf of the Massachusetts Medicaid program.

Many of the Medicaid recoveries come from multi-state enforcement proceedings in which Massachusetts partners with other states and the federal government. All states including Massachusetts receive funds from the federal government for Medicaid fraud enforcement.

However, the AG’s Office has expanded the use of the act beyond Medicaid fraud and has now targeted a variety of different industries for enforcement under the act.

The office has targeted securities brokers, investment banks, construction companies, service station owners, affordable housing developers, insurance brokers, waste haulers and incinerators, and pharmacies.

In addition, the office has used the act to recover funds for a variety of different government actors including the state’s pension fund, the state’s underground storage tank fund, state authorities, and cities and towns.

In FY 2011, Coakley recovered more than $40 million under the act in non-Medicaid related actions.

Part of the reason that the AG has been able to increase recoveries and bring actions against a wide variety of actors is because the office has received a dedicated budget line item from the Legislature to fund non-Medicaid false claims actions.

Likewise, an active relators’ bar has become effective at preparing and presenting false claims actions to the AG. Under the act, relators share in recoveries even if the AG takes over the action.

The most unique of the AG’s false claims cases may have been against the operator of and waste hauler for three municipal waste incinerators. In that case, the AG recovered funds for the municipalities whose waste has been shipped to the incinerators by alleging that the operator and hauler had agreed to dispose of the municipalities’ waste properly and their failure to do so was a false claim.

Through that action, the AG’s Office used the act in addition to its enforcement authority under the Clean Water and the Wetlands Protection acts to extract increased penalties.

Businesses that enter into contracts with the state or municipal government should take certain precautions to protect themselves:

Institute a compliance program. An effective compliance program should require employees, contractors or agents of the business to report suspected violations of the business’s policies or of any government contracts as soon as possible. The act provides certain protections for businesses that self-report violations as soon as they learn of them and a compliance program will help ensure that businesses learn of potential violations quickly. Businesses should take measures to ensure that the compliance program is understood and followed by employees, contractors and agents.

Review the invoices before submission to the government. Businesses that regularly submit invoices to government entities must set up procedures to ensure the invoices are valid and defensible. Recently, the AG’s Office held a construction company responsible under the act for the actions of its rogue employee who submitted fraudulent invoices for personal expenses.  Although the employee was criminally convicted, the construction company was held responsible as well.

Understand that a simple contract dispute with a government entity may not be so simple. The act does not require an intent to defraud, but includes situations in which a business acts in deliberate ignorance or reckless disregard of the truth. Once a business has been alerted by the government that its practices have been called into question, the business should be mindful of submitting additional claims to the government until the dispute is resolved.

Be careful when preparing applications for government contracts or grants. When applying for a government contract or grant, it is best to seek clarification from the government entity if a question is vague rather than assuming the meaning of the question. The AG’s Office has brought enforcement proceedings against construction companies that omitted information about potential safety incidents involving their companies from prequalification applications.  Also, the act clearly extends to obligations that a grantee makes in order to receive a grant.

With government budgets remaining tight in Massachusetts, scrutiny of government contracts by Coakley’s office will only continue, and businesses should be prepared.

Boston lawyer Kevin C. Conroy practices in Foley Hoag’s administrative law department and recently served as deputy attorney general. He can be contacted at kconroy@foleyhoag.com.




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