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Walker, lawmakers repeal anti-fraud law

Gov. Scott Walker signs the 2015-17 Wisconsin state budget at Valveworks USA in Waukesha, Wis., on July 12, 2015. A provision in that document, approved by the Legislature with no debate, repealed the state False Claims Act. Because of that repeal, Wisconsin now collects millions of dollars less when companies are caught defrauding the state’s Medicaid program. (Michael Sears / Milwaukee Journal Sentinel / Provided by the Wisconsin Center for Investigative Journalism)

Julie Spitzer and Dee J. Hall

Wisconsin Center for Investigative Journalism

Wisconsin taxpayers lost out on millions of dollars in settlements after state officials quietly eliminated one of the most effective tools for rooting out fraud in the $9 billion-a-year state Medicaid program, interviews and public records show.

It is a glaring exception to Republican Gov. Scott Walker’s crusade to eliminate waste, fraud and abuse in state government.

Wisconsin would have qualified for an estimated $11 million in additional settlement money from companies found to have defrauded the Medicaid program since 2013 if legislators and Walker had not weakened, then repealed, the state’s False Claims Act.

That estimate was produced by the Wisconsin Center for Investigative Journalism using methodology endorsed by Taxpayers Against Fraud, a nonprofit organization that advocates for whistleblowers and government efforts to root out fraud.

The Wisconsin Department of Justice declined to estimate the loss.

Asked in an email why Walker repealed the law, spokesman Tom Evenson did not address the question but instead highlighted the governor’s efforts to root out fraud and waste in Medicaid and FoodShare, which he said has saved taxpayers about $150 million. Evenson also did not respond to an offer to have the state estimate the losses from the repeal of the False Claims Act.

"The bottom line is that Medicaid fraud continues to be investigated and detected," Evenson said.

The law had awarded whistleblowers and their attorneys up to 30 percent of penalties when companies were caught defrauding the state’s Medicaid program. The national average in such cases is much less, about 16 percent.

Business groups, which pushed Walker and the Legislature to repeal the law, derisively refer to whistleblowers and their attorneys as "bounty hunters."

In October, Republican Attorney General Brad Schimel announced the state would receive $3.4 million of a nationwide settlement against Mylan, the makers of EpiPen, for allegedly underpaying rebates to Medicaid, which is funded by the state and federal governments.

"Mylan just discovered taking advantage of taxpayers comes at a high price," Schimel said in a statement.

But the price Mylan will pay is tilted more toward reimbursing the federal government than giving money back to Wisconsin taxpayers, because of the repeal of the state False Claims Act in the 2015-17 state budget. That decision made Wisconsin ineligible for a larger share of the settlement, resulting in about $695,430 less for the state in the EpiPen settlement, said Patrick Burns, associate director of Taxpayers Against Fraud.

Stephen Kohn, executive director of the National Whistleblower Center, said Wisconsin is the only state to repeal its False Claims Act, a distinction he believes makes Wisconsin among the worst states for whistleblowers.

Over the past 30 years, 88 percent of fraud cases brought on behalf of the U.S. Department of Health and Human Services, which runs Medicaid, were filed by whistleblowers, according to figures provided by the U.S. Department of Justice. Between 1987 and 2016, the government initiated 907 cases, while whistleblowers brought 6,683 cases.

Such whistleblower cases also brought in more money than those launched by the government. Whistleblower cases filed on behalf of HHS brought in $27.8 billion to the federal government, with $4.6 billion going to whistleblowers and their attorneys. Cases initiated by the government brought in $6.1 billion. The figures do not include billions of dollars returned to states, nor do they include criminal fines levied against the companies, according to Taxpayers Against Fraud.

Repeal stymies suit

Efforts by former Democratic Wisconsin Attorney General Peg Lautenschlager to recoup millions of dollars for the state for other alleged prescription drug overbillings also have been thwarted — at least for now — by repeal of the act.

A Dane County Circuit Court judge ruled in May that Lautenschlager’s lawsuit against a group of pharmaceutical companies cannot proceed because it was filed after the Legislature repealed the state False Claims Act — although the alleged behavior occurred years earlier, from 2002 through 2011. Lautenschlager filed the case as a private citizen.

Lautenschlager has appealed that decision. The defendant drug companies argue Judge Juan Colas got it right; such whistleblower cases now are barred in Wisconsin.

If the state’s former top prosecutor is successful, the companies would be forced to repay state taxpayers, and — under the old False Claims Act — an as-yet undetermined percentage would go to Lautenschlager and her attorney, former Deputy Attorney General Dan Bach.

But the current attorney general, Schimel, has declined to participate in the litigation. That means Lautenschlager and Bach must bear the cost — and the risk — of pursuing the case.

"If we do not prevail on our appeal, the state will lose the opportunity to collect tens of millions of dollars," Bach said. "There is no good reason why the state would repeal a statute … that allows it to recover funds fraudulently obtained from the public."

Schimel spokesman Johnny Koremenos said the state had several reasons for declining to intervene, including that it "disagreed with the merits of the claim."

"Even if the claims were meritorious, and not stale and old, the state would still be entitled to at least 70 percent of the proceeds even after declining," Koremenos wrote. "The state would have had little to gain from intervening in this lawsuit."

Bach does not buy that argument. He noted the state under Lautenschlager brought suit in 2004 against 36 pharmaceutical companies "based on similar facts and the same legal theory" as the current case. After years of litigation, the case against Pharmacia resulted in a judgment of roughly $30 million.

"All of the other defendants wound up settling with the state, resulting in the recovery of tens of millions of dollars from defendants who had defrauded the state Medicaid program," said Bach, who was Lautenschlager’s second-in-command at the time the original suit was filed.

In one of those settlements — inked by Schimel just last year — the DOJ settled with a handful of drug companies for $60 million, $10 million of which went to Miner, Barnhill and Galland, the law firm that initiated the suit. The alleged overcharging stretched back to 1993, according to the settlement.

"Whatever reasons DOJ may have had for declining the opportunity to intervene in the current case," Bach said, "the lack of merit of these claims cannot plausibly be among them."

Anti-fraud law weakened, killed

The death of the state False Claims Act came in stages beginning in 2011, the year Walker was elected.

That year, federal officials notified Wisconsin that it must update its False Claims Act to meet new requirements or forfeit the extra 10 percent share of recoveries to the Medicaid program that states with qualifying False Claims Acts receive. The state declined.

Wisconsin was granted a two-year grace period to update the law, but failed to do so. The state became ineligible for the incentive payments starting in 2013, the state Department of Justice confirmed.

Then in 2015, the Legislature repealed the law with the encouragement of Wisconsin Manufacturers and Commerce, the state’s largest business lobby. The law had allowed whistleblowers and their attorneys, known as relators, to receive a portion of the penalty, depending on their role in uncovering the fraud.

Kohn of the National Whistleblower Center called the repeal "a green light to people to steal from the Wisconsin taxpayer."

False claims laws targeted

Wisconsin’s law was enacted in 2007 after passage of the 2005 federal Deficit Reduction Act, which gave states that enacted False Claims Acts higher recoupments in Medicaid fraud cases.

Thirty states have such laws; as of 2015, 13 states had laws that qualified them to receive additional payments when their Medicaid programs are defrauded, according a Seton Hall Law School study.

Nationally, there has been a coordinated effort by business groups — particularly those representing government contractors — to prevent states from adopting False Claims Acts. In West Virginia, lawmakers voted down a proposed law after the state’s Chamber of Commerce lobbied against it.

When Wisconsin’s law was still compliant, the whistleblower and his or her attorney would receive their shares, with the remainder split about 50-50 between the state and federal governments. But after it refused to update the law, Wisconsin became eligible for just about 40 percent of the share of the recoveries.

In 2015, when the Legislature was contemplating repealing the law, the Wisconsin DOJ told the Legislative Fiscal Bureau it expected to recover even more for the state, according to correspondence provided by the bureau. The correspondence does not mention the 10 percent incentive payment the state stood to lose.

Charles Morgan, program supervisor for the LFB, said in an email interview that DOJ did not make it clear that repealing the law meant "the state’s share of (Medicaid) recoveries would decrease."

Business groups oppose law

During the 2015-16 legislative session, Wisconsin Manufacturers and Commerce called for repeal of the False Claims Act. The group charged the law provided "an incentive for private attorneys to sue businesses for alleged fraud" and such cases should be handled by the state.

WMC did not respond to requests for an interview.

No committee discussion or debate occurred during the 2015 repeal. The motion was introduced in the Legislature’s Joint Finance Committee by co-chairs Rep. John Nygren, R-Marinette, and Sen. Alberta Darling, R-River Hills. They did not respond to several requests for comment.

Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform, applauded Walker for signing the repeal into law, saying it would stop incentivizing "private bounty hunter plaintiffs."

Nola Hitchcock Cross, a Milwaukee attorney who won multimillion-dollar settlements involving Medicaid and Medicare fraud nationally, said there is less financial incentive now to report Medicaid fraud in Wisconsin than in some other states.

Asked why she believed Wisconsin repealed its False Claims Act, Cross responded: "Corporate greed."

Fraud tips continue to come in

But according to Assistant Attorney General Katie Wilson, the state’s Medicaid Fraud Control and Elder Abuse Unit still receives referrals from many sources, including a hotline set up for tipsters. After dipping for a few years, settlements were up in fiscal year 2016 — although, the center found, not as much as they could be if the state had a False Claims Act.

Of the $81 million recovered by the Medicaid fraud unit in 2016, Wisconsin recovered $20.9 million under False Claims Act theories. According to a calculation endorsed by Taxpayers Against Fraud, that amount could have been $26.2 million if Wisconsin had its own False Claims Act in compliance with the federal law. Officials at the Medicaid fraud unit would not confirm these numbers.

Tim Samuelson, then-director of the Medicaid fraud unit, said it is unclear whether the repeal is affecting people’s willingness to expose Medicaid fraud. Samuelson has since been appointed by Walker to a vacancy on the Dane County Circuit Court.

"I don’t know that there’s been enough time for us to have an opinion as to any causes or results from repeal," he said.

Reporter Cara Lombardo contributed to this story, which was produced as part of an investigative reporting class in the University of Wisconsin-Madison School of Journalism and Mass Communication under the direction of Dee J. Hall, the Wisconsin Center for Investigative Journalism’s managing editor. The nonprofit center,, collaborates with Wisconsin Public Radio, Wisconsin Public Television, other news media and the UW-Madison School of Journalism and Mass Communication. All works created, published, posted or disseminated by the center do not necessarily reflect the views or opinions of UW-Madison or any of its affiliates.