Virginia and Wisconsin Settle False Claims Accusations
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UPDATED: Jun 3, 2017
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When an individual makes a false claim for federal benefits, outraged cries of “welfare fraud” lead to headlines and editorials that call for reform. When a state government makes a false claim for federal funds, the public scarcely seems to notice.
In two recent cases, state governments have settled Justice Department claims that the states made false claims for SNAP funds. The Supplemental Nutrition Assistance Program (SNAP) is a successor to the Food Stamp program. About 45 million low-income individuals and families receive assistance from SNAP that makes it possible for them to buy food for their children.
The SNAP program is funded by the federal government but administered by states. It is the state’s obligation to determine eligibility for SNAP benefits in a way that is accurate and unbiased. States must audit their eligibility determinations and report their error rates to the U.S. Department of Agriculture (USDA).
The USDA pays some of the audit costs and awards a performance bonus to states that have low error rates. Unfortunately, that provides a motivation for states to calculate error rates in a way that maximizes the state’s income.
Both of the recent false claims cases arose after states hired Julie Osnes as a quality control consultant. Osnes, formerly a state official in South Dakota who opened a private consulting business, has consulted with several states that hired her to reduce their error rates. News reports indicate that her compensation included a performance bonus of her own when her methods reduced a state’s error rate, giving her an incentive to use underhanded tactics to help states earn those bonuses.
The Justice Department announced that the Virginia Department of Social Services (VDSS) will pay $7.1 million to resolve allegations that it defrauded the SNAP program. The state admitted that it hired Osnes to reduce its error rate by training quality control workers to “use whatever means necessary” to find a benefits decision “correct” rather than reporting an error. The state also admitted that its quality control staff members were instructed to drop a case or purge it from the sample if they “could not find a way to make a benefits decision correct.”
Virginia received performance bonuses that it did not earn over a three-year period by using a biased method of calculating error rates. The state has since terminated its contract with Osnes.
Notably, the quality control staff at VDSS resisted Osnes’ training and complained to supervisors that the procedures they were instructed to use were unethical. The Justice Department reports that the quality control manager at VDSS “pressured and intimidated these employees to force them to adopt these methods [by] threatening termination, providing negative performance reviews, taking away teleworking and flexible scheduling privileges, and engaging in other forms of harassment and retaliation.”
The story from Wisconsin is similar to the Virginia experience. The Justice Department announced that the Wisconsin Department of Health Services (WDHS) will pay nearly $7 million to resolve allegations that it made false claims concerning SNAP.
The WDHS also hired Osnes as a consultant. Acting on her advice, the WDHS reduced its error rate and received three performance bonuses that it did not earn. In 2009, Osnes was paid 15% of the state’s performance bonus.
A communications director for WDHS placed the blame squarely on Osnes, claiming that she operated “a well-known and widely used consulting company” and that staff merely followed her guidance. Staff should certainly have realized, however, that they were being “guided” to compute fraudulent error rates, and supervisors should have known that the methods Osnes used violated federal standards.
False Claims Act
The False Claim Act prohibits making a false or fraudulent claim to the federal government. It is often used against federal contractors who overcharge the government for the goods or services they provide by inflating the cost of materials used or by charging for services that they did not provide. Clinics that overbill for Medicare services and road construction contractors that charge for materials they didn’t use are among the many kinds of cases against private companies that are filed under the False Claims Act.
In some cases, whistleblowers instigate their own False Claims Act lawsuits. If they are successful, the whistleblower may be entitled to receive a percentage of the recovery. The False Claims Act provides for damages in triple the amount of the federal government’s loss, giving whistleblowers an incentive to commence lawsuits that have merit.
In other cases, whistleblowers simply report the wrongdoing to government officials. They are not entitled to compensation, but the False Claims Act prohibits an employer from retaliating against employees for reporting a false claim. When agencies violate the law by retaliating, whistleblowers may have legal remedies. In any case, it makes sense for whistleblowers to get legal advice before blowing the whistle, to make sure their rights are protected.