State False Claims Act: Let’s Do the Math
By Curt Schroder, Executive Director, PA Coalition for Civil Justice Reform & David N. Taylor, President & CEO, Pennsylvania Manufacturers’ Association
Every few years in Harrisburg, an idea comes along that is advertised as a silver bullet. This legislative session, that idea is a Pennsylvania False Claims Act (FCA) pursuant to HB 1697. A False Claims Act (FCA) allows individuals and lawyers to financially benefit from filing lawsuits on behalf of the government against businesses and health care providers. At a time when lawmakers should be focused on aligning the commonwealth’s legal climate with economic growth across all business sectors, a state FCA would do the opposite – discouraging investment, job growth, and participation in state contracts. These not-always-justified claims for mistakes like clerical errors can force small businesses to shut down and make rural health care providers close their doors.
The pitch is simple and politically attractive; pass a state FCA, crack down on fraud, and bring in billions of dollars to the commonwealth. On his way out as Attorney General, Governor Shapiro claimed Pennsylvania could recover $3 billion. And now, with Governor Shapiro having spent through the commonwealth’s surplus and the legislature facing a $6 billion structural deficit, “finding” $3 billion under the proverbial couch cushions seems like a panacea.
But the math doesn’t math, the asserted “problem” already has a solution, and the expanded powers present real dangers.
Everyone agrees that fraud should be prosecuted and that every taxpayer dollar matters. But before we create an entirely new layer of needless litigation in the commonwealth, it is worth asking a basic question: Would Pennsylvania actually recover more money under a state FCA than it does today?
We took the time to run the numbers.
What Happens Under Current Law?
Currently, Pennsylvania receives 100% of its Medicaid recovery under the federal False Claims Act. In Medicaid cases, which make up the overwhelming majority of FCA actions nationwide, the federal government and the Commonwealth split recoveries according to the FMAP (Federal Medicaid Assistance Percentage). This formula determines the percentage of funding support for Medicaid from the federal and state governments. The relator (the private plaintiff /bounty hunter who files the case), is paid from the federal share of the recovery only. Pennsylvania keeps one hundred percent of its portion of recovery under the federal FCA.
Using a straightforward example of a $1 million Medicaid recovery under 2026 FMAP rates, Pennsylvania retains $439,400 under the federal FCA. That is the benchmark.
No new statute is required, no additional bureaucracy, no expanded powers, and no double payouts to private litigants from the state’s share.
What Changes Under a State FCA?
Under House Bill 1697, the calculation changes in a very important way.
With a state FCA in place, the relator’s percentage, which can range from 15 percent to 30 percent, is taken from the entire recovery now, including Pennsylvania’s portion. The state does receive a 10 percent federal incentive adjustment, which shifts some of the FMAP share toward the commonwealth. This is where supporters stop their explanation, but the math does not stop there.
When we apply the relator percentages and the FMAP shift to the same $1 million example, Pennsylvania keeps less than it does under federal law alone in nearly every scenario. If the relator receives 30 percent, the Commonwealth retains $377,580; at 25 percent, it keeps $404,550; at 20 percent, it retains $431,520. All of those figures fall below the $439,400 Pennsylvania keeps today.
Only when the relator receives the minimum 15 percent does Pennsylvania come out slightly ahead.
However, relator awards are not fixed at 15 percent, and they can go as high as 30 percent.
Therefore, for non-Medicaid expansion recoveries, which represent the vast majority of Medicaid based FCA cases, Pennsylvania fares better under the status quo of the federal False Claims Act.
That is not a political statement, it’s arithmetic. The detailed step-by-step calculations are laid out here for those who enjoy a good spreadsheet as much as we do:
Caveats and Precedents
First, a state FCA would apply beyond Medicaid. Supporters argue that Pennsylvania is missing out on recoveries from state only funded programs and is leaving enormous sums on the table. Perhaps that’s where supporters think the $3 billion comes from? But examples from other states tell a much different story.
New York has recovered roughly $4 billion under its state FCA since 2011. California has recovered about $3 billion since 2000. Minnesota has recovered around $60 million since 2010. Those are significant sums, but they accumulated over fifteen years or more. These recoveries did not appear in a single budget cycle as supporters want you to believe will happen in Pennsylvania.
Second, Medicaid expansion complicates the analysis. Under the Affordable Care Act, Pennsylvania opted into expansion, which carries a 90 percent federal and 10 percent state funding split. In expansion cases, because of the large federal share, the additional 10 percent FMAP adjustment under a state FCA can improve Pennsylvania’s position in every relator scenario. However, only 28 percent of Pennsylvania’s Medicaid enrollees fall into that expansion category.
These caveats underscore how complex this policy really is. The headline claim that a state FCA simply means “more money for Pennsylvania,” glosses over a great deal of detail. It assumes the current systems are not working – or that stricter enforcement of current state and federal statues could not achieve the same result.
Beyond the Spreadsheet
The conversation should not be only about revenue projections, but rather about how current enforcement works in practice.
A state FCA outsources a significant portion of enforcement to private attorneys operating on contingency fees. It expands liability, extends the statute of limitations to ten years, and increases the financial pressure on defendants through treble damages and substantial per claim penalties of up to $28,000 per claim.
For large, well-capitalized corporations with national legal teams, that may be manageable. For small and mid-sized manufacturers, contractors, rural hospitals, and health care providers navigating complicated billing systems and regulatory requirements, it becomes an existential threat. An inadvertent coding mistake, repeated numerous times, can quickly become a lawsuit with out-of-business exposure. Faced with that risk, many defendants settle regardless of the merits, because survival of the company comes first. State FCA claims often lead to less fact-finding and become more of a hostage negotiation. “This is not justice,” according to Curt Schroder, “its coercion!”
That dynamic is not theoretical; it’s built into how FCA litigation works. “The legislature must not outsource recovery of misspent state money to their fat cat lawyer contributors,” according to Schroder.
Pennsylvania’s Medicaid error rate is already among the lowest in the nation. The Attorney General’s Medicaid Fraud Control Section consistently ranks near the top nationally in charges and convictions. The system we have is not broken.
If lawmakers believe additional enforcement tools are needed, they can strengthen public enforcement directly while not relying on creating new financial incentives for private trial lawyers to start litigation. “If more tools are needed, let’s give the Attorney General what he needs and not outsource enforcement to attorneys more concerned with greed than effective enforcement of public policy,” Schroder added.
In Summary
“At a time when Pennsylvania is competing for jobs, investment, and growth, we should be careful about sending the message that participation in state programs comes with a new layer of expansive liability and a ten-year look-back window,” said David N. Taylor, President & CEO of the Pennsylvania Manufacturers’ Association. “We agree, fraud should be prosecuted aggressively – no one disputes that. At the same time, Pennsylvania’s litigation climate is one of the worst in the nation and it makes no sense to give the lawsuit industry a new product line to exploit.”
Pennsylvania’s real challenge today is overspending by state government. To think there is an injection of $3 billion to state coffers from this policy is not based in reality or precedent. The issue of state overspending, especially when based on these faulty assumptions, will become even more problematic when those revenues do not materialize – leaving taxpayers holding the bag. At the very least, before we promise billions to close overspending gaps, we should make sure the math computes.
And before we unleash a new litigation regime, we should ask: Does it truly benefit taxpayers or primarily benefit those filing the lawsuits?
