California Insurance Frauds Prevention Act

The California Insurance Frauds Prevention Act Pays Whistleblowers with Inside Information about Insurance Fraud up to 50% of Whatever the State Collects from Wrongdoers

[Post updated November 2019] California has one of the most generous and positive whistleblower climates within the United States. Like many states, California has false claims act that allows insiders with knowledge of fraud against the state or any of its subdivisions (counties and municipalities) to bring a lawsuit in the name of the state and collect a generous reward if the suit is successful.

Unlike other states whose laws only extend to Medicaid (Medi-Cal fraud in California), California legislators enacted a special law to include fraud against private insurance. That makes California just one of two states with a unique and robust whistleblower reward program for information about a wide variety of insurance fraud.

The California Insurance Frauds Protection Act (IFPA) allows anyone with knowledge of insurance fraud to file a claim. And the awards offered by IFPA are huge, up to 50% of whatever is recovered.

It isn’t just health insurance that is included. Claims can also be filed if they relate to workers compensation and auto insurance fraud.

The IFPA, located in section 1871.7 of the California Insurance Code, sets penalties of $5,000 to $10,000 per violation and permits recovery of triple damages. This combination means rewards can add up quickly.

Under the statute, whistleblowers (called relators) can receive between 30% and 50% of the amount of money recovered from the wrongdoer.

Much like the False Claims Act, recovering a whistleblower award under the California Insurance Frauds Prevention Act first requires a sealed lawsuit be filed in court. These suits are often referred to as qui tam suits.

Common examples of insurance fraud include:

Billing for services not performed
Over billing
“Upcoding” or billing for a level service higher than that actually performed
Gaming workers comp rates by falsely changing worker classifications or reporting fewer employees
Billing auto insurance companies for substandard parts or parts not needed to be replaced
Paying kickbacks to recruit patients or customers (employing “runners” or “patient recruiters” to find patients or clients)
Staging accidents to make phony insurance claims

The California Insurance Frauds Prevention Act has resulted in many large cash rewards including Sutter Health ($46 million), Bristol Myers Squibb ($30 million) and Warner Chilcott ($23 million).

Differences Between False Claims Act and California Insurance Frauds Prevention Act

29 states, the District of Columbia and the federal government have a False Claims Act. All are similar in that they require a loss to the government. Since state and federal tax dollars finance Medicare and Medicaid, a loss to these programs triggers a los to taxpayers. California and Illinois have unique laws that also that apply to fraud involving private insurance. It is not necessary that one show harm or loss to the government.

Insurance rates in many places in the United States are out of control Yearly double digit rate increases are not uncommon. Fraud fuels much of those rate increases. By incentivizing insiders to come forward and report fraud, legislators hope that fraud can be reduced.

Each time a healthcare worker, body shop or other insider reports insurance fraud, they are helping all Californians keep rates down.

To receive a reward under the California Insurance Frauds Protection Act, one must have a lawyer and file a sealed claim in court. The person filing the claim must have inside information of the fraud or scheme.

The complaint and all related evidence are filed under seal in the Superior Court of California. That means they are secret. Instead of serving the wrongdoer, the complaint and all relevant evidence is instead served on the local district attorney and insurance commissioner.

While being investigated, the case remains secret. Ultimately, the district attorney or the state insurance commissioner can take over the case. If they decline to intervene, the whistleblower’s own lawyer can prosecute. Unless the whistleblower’s information was already publicly available, the whistleblower gets to keep between 30% and 50% of whatever is collected from the wrongdoer.

IFPA Whistleblower Anti Retaliation Provisions and Protections

California’s insurance fraud law also has liberal anti-retaliation protections for whistleblowers who step up and report fraud. The law mandates that workers suffering retaliation for their involvement in reporting insurance fraud “shall be entitled to all relief necessary to make the employee whole.”

Relief includes double back pay, reinstatement if desired (including reinstatement of any seniority), interest, special damages and attorney’s fees. Employees have three years to bring a whistleblower retaliation lawsuit (from the date the retaliation was discovered).

California Insurance Frauds Prevention Act and Managed Care

Is managed care the next frontier of California’s private insurance frauds law? We think the answer is yes.

More than half of Medicaid beneficiaries and many Medicare beneficiaries are now covered by managed care instead of a fee for service. Managed care involves a single or “capitated payment” from the government to a managed care organization (MCO) working on the government’s behalf. There is a single payment from the government to the MCO. The payment is not dependent on the amount of claims submitted.

Fraud involving managed care is difficult to prosecute under the False Claims Act because there isn’t really a loss to the government. They pay once and leave it to the MCO to divvy up the money.

Under the California Insurance Frauds Prevention Act, the law applies to fraud involving a “contract of insurance.” The Act says it is unlawful to “[k]nowingly present or cause to be presented any false or fraudulent claim for the payment of a loss or injury, including payment of a loss or injury under a contract of insurance.”

The California Bureau of Insurance tells us that they believe a contract of insurance includes managed care. That presents a powerful tool to reach greed and misconduct outside the scope of the False Claims Act.