The issues of fraud and fraudulent billings continue to dominate national and local headlines. The state lost its federal Medicaid fraud unit funding for not aggressively pursuing falsified billings. Local officials were bribed to steer contracts to a sole-source contractor. The state is bilked out of millions of dollars by its homeless housing contractor.  

The common thread to all these stories is clear – acts of unbridled greed by individuals and corporations whose sole purpose is to maximize profit at the public’s expense. Government contracts and government funding are the sweet spot for fraudulent billing. Lax oversight, coupled with hidden cost over-runs and false claims for payment, make it easy for these unscrupulous actors to avoid detection.

The total amount of fraudulent billing to programs like Medicare and Medicaid is unknown. Reasonable estimates are that five to ten percent of all billings are fraudulent. That would amount to as much as $120 billion nationally for Medicare and $95 billion nationally for Medicaid falsely billed each year. Locally, the estimates are equally staggering – as much as $540 million for Medicare and $320 million for Medicaid falsely billed each year.

How can we be protected from this theft and what actions should state and local governments take to combat the fraud?

The answer is the State False Claims Act and the County False Claims Act — state statutes that allow private parties to bring actions on behalf of the government with certain restrictions. If the case is successful, the private party – called a “relator” – gets a portion of the recovery. But more important for the immediate prosecution of these fraudulent actors, both the state and counties can pursue these claims on their own.

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Allowing private parties to pursue actions on behalf of the government has a storied history. These statutes – known as “qui tam” or literally “he who also” – originated in medieval England to allow local sheriffs and other individuals to take actions, such as collections, on behalf of the king. The local official would retain a portion of the amount recovered, offering a strong inducement to maximize collections.

These actions carried over to the United States. Ten of the first 15 statutes passed by the First Congress contained some type of private enforcement or “qui tam” provision.  

The federal false claims act – under which current federal qui tam actions are prosecuted – was passed in the early 1860s. The Union Army was imperiled by fraudulent contractors who sold shoes made with cardboard, or sold horses to one regiment – and then resold them to another regiment before delivery. 

A report to Congress contained a quote mistakenly attributed to President Lincoln but equally poignant stated: “Worse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the Nation while patriotic blood is crimsoning the plains of the South and their countrymen moldering in the dust.”

There was no department of justice to prosecute these contractors. To combat the fraud, Congress passed the federal false claims act – Lincoln’s law – which allowed private parties to sue on behalf of the government and recover a portion of the proceeds.

The statute fell into disuse until the 1980s when rampant defense fraud resulted in reports that the Pentagon had paid $500 for a hammer ($1,500 today) and $640 ($2,000 today) for a toilet seat raised the public ire over defense spending waste.

Congress, under the direction of Senator Charles Grassley, liberalized the false claim act requirements, providing greater recovery for relators – often insiders who reported fraudulent billing to government agencies. Since its inception, the federal false claims act has recovered over $85 billion from government defense companies, health care providers and other government contractors.

Hawaiʻi Fifth State To Enact Statute

In 2000, under legislation championed by then Senate Judiciary Chair Coleen Hanabusa, Hawai‘i became only the fifth state to enact a state qui tam statute, a number that has grown to 36 by 2025. In 2001, Hawai‘i passed the County False Claims Act, becoming the first state in the nation to authorize each of its municipalities to bring false claim actions, joining New York City, Chicago and Philadelphia as the only cities with municipal false claims acts.

The provisions in the Hawai’i statute mirror the federal false claims act. The law provides for treble damages, payment of attorneys fees and substantial fines of approximately $14,000 to $28,000 for each false claim submitted.  Proof of intent to defraud is not required. And individual corporate leaders can be held to account.

During the first fifteen years of the state statute’s enactment, enforcement actions were robust.

Experienced relator’s counsel such as former attorney general Warren Price and Rick Eichor, working with dedicated public servants including former Chief Justice Mark Recktenwald, then-assistant U.S. Attorney in charge of false claims cases, and Michael Parrish, head of the state Medicaid Fraud Unit, resolved a number of cases that were as egregious as those that gave rise to the federal statute’s enactment and liberalization including

• A national drug distribution company that resold pills slated for destruction that were returned from nursing homes. The company hid the returned pills in a bathroom and after a change in shifts, supervisors gave the pills to unsuspecting pharmacy technicians, who were told to remove the pills from bottles and blister packs and place them back in the bulk containers, endangering kupuna with potentially expired medication.
• A local hospital that instructed anesthesiologists to remain home and monitor Certified Nurse Anesthetists during operative procedures via telephone, potentially forcing them to respond to medical emergencies without being physically present at the surgical procedure.
• A local doctor who owned a pharmacy that was only accessible by entry from the doctor’s office. Every patient who came in to fill a prescription had to sign into the office registrar before filling a prescription, allowing the doctor to falsely charge for an office visit.

For a variety of reasons, actions by private parties are challenging.

Potential relators, with knowledge that reporting fraudulent billings will affect their careers, are reluctant to come forward. Because the cases are brought on behalf of the government, the government effectively controls the litigation, resulting in cases taking a number of years to resolve. If the government declines to intervene in the case, relators may proceed on their own, a risky proposition without government resources and expertise.

Latest Questionable Billing Shows Need To Act

Which brings us back to the most recent example of potential fraudulent billing – the state’s homelessness contractor, a non-profit organization that had its annual revenue increase from $1.3 million to $142.9 million in three years.

There have been cost overruns, insider consultant contracts, housing units not delivered and payments made for unauthorized services. All of this concluding with an apology and a promise to pay it back and do better next time?

When a Hawai‘i taxpayer makes a mistake, there’s no apology accepted with a promise to pay it back. You pay interest. You pay penalties. And you make sure you don’t miss that payment again.

Shouldn’t this contractor – and the individuals responsible – be treated the same?

The state has the tools to reclaim all of its lost funds – and more – as a remedy and a deterrent. The false claims act is one such tool and it should be used – in this case and every other case where we – Hawai‘i citizens – are being asked to foot the bill for someone else’s wrongful conduct.