Legislature(2015 - 2016)GRUENBERG 120

04/07/2016 01:00 PM House JUDICIARY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 1:30 p.m. Today --
Heard & Held
-- Public & Invited Testimony --
Heard & Held
-- Public & Invited Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 347-RECOVERY OF FALSE CLAIMS FOR STATE FUNDS                                                                     
1:34:29 PM                                                                                                                    
CHAIR LEDOUX announced that the  first order of business would be                                                               
HOUSE BILL NO. 347, "An Act  relating to the limitation period to                                                               
commence a  false claims action;  relating to recovery  for false                                                               
claims for  state or municipal  funds; and amending Rules  4, 24,                                                               
and 46, Alaska Rules of Civil Procedure."                                                                                       
1:35:03 PM                                                                                                                    
REPRESENTATIVE KREISS-TOMKINS explained that  the qui tam bill or                                                               
the Alaska  False Claims Act  is an anti-waste, fraud,  and abuse                                                               
piece of legislation  that has been adopted on  the federal level                                                               
by approximately  29 states around  the nation.  He  advised that                                                               
it  is  fairly  well  vetted  and  modeled  after  other  states,                                                               
specifically the State of New  York, and is substantially similar                                                               
to language in  the Medicaid Reform bill, currently  in the other                                                               
body.    While there  are  a  few cosmetic  differentiations,  he                                                               
offered,  it  is  effectively  the   same  idea  except  this  is                                                               
inclusive  to all  subject matter,  whereas  the Medicaid  Reform                                                               
bill is specific to only Medicaid.   He deferred to his staff for                                                               
a greater analysis.                                                                                                             
1:36:27 PM                                                                                                                    
REID  MAGDANZ,  Staff,  Representative  Jonathan  Kreiss-Tomkins,                                                               
Alaska State  Legislature, reiterated  that the False  Claims Act                                                               
is based off  of false claims acts enforced at  the federal level                                                               
and  approximately 29  other states  in the  union.   The central                                                               
components include:  defining false  claims (Sec.  2 of  HB 347);                                                               
the attorney  general is charged with  investigating false claims                                                               
cases;  and  the  portion  of  the  bill  that  is  perhaps  most                                                               
noteworthy relates  to the  ability of  a private  plaintiff, the                                                               
qui  tam plaintiff,  to bring  a  case alleging  false claims  in                                                               
situations where the  attorney general does not bring  a case due                                                               
to limited resources or because  the attorney general is unaware.                                                               
House Bill 347  spells out the process for  the private plaintiff                                                               
to bring a  case, wherein they would file a  [complaint] with the                                                               
court  under  seal  and  at  the same  time  serve  the  attorney                                                               
general, whereby the attorney general  has 60-days to review that                                                               
case and investigate  the claims made.  At the  end of the 60-day                                                               
period or  an extension, the  attorney general can  either pursue                                                               
the case or allow a municipality  to pursue the case if the claim                                                               
is  against  a municipality.    Although,  he explained,  if  the                                                               
attorney general declines  to pursue the case,  the private party                                                               
who  originally identified  the fraud  can pursue  the action  to                                                               
conclusion.   He offered that  no matter which course  is chosen,                                                               
the private  plaintiff is  entitled to receive  a portion  of the                                                               
money  recovered if  the case  is won,  and the  exact percentage                                                               
varies based  upon how much information  and how large of  a role                                                               
the private  plaintiff played.   The federal law has  resulted in                                                               
over $30 billion  worth of recovery to the  federal government in                                                               
cases originally brought  by a private plaintiff.   He noted that                                                               
this [bill]  provides a powerful  tool against fraud  by allowing                                                               
individual people the  ability to bring cases  when they identify                                                               
fraud, and it provides a financial incentive to do so.                                                                          
1:40:01 PM                                                                                                                    
CHAIR LEDOUX opined  there is a federal qui tam  statute but that                                                               
statute  specifically excludes  tax matters.   She  asked whether                                                               
this bill includes tax division  issues, and further asked him to                                                               
explain what  this bill  does where  the federal  statute decided                                                               
not to, and whether the qui  tam statutes in other states include                                                               
MR. MAGDANZ referred to Sec. 2(b) [page 2, line 25], which read:                                                                
        (b) This section applies to claims, records, or                                                                         
     statements made under AS 43 if                                                                                             
MR. MAGDANZ advised  that HB 347 does apply to  tax cases, and it                                                               
only applies to claims, records,  or statements made under AS 43,                                                               
Alaska's tax  title, if  the net  income or  sales of  the person                                                               
against whom  the action  is brought  is equal  to or  exceeds $1                                                               
million  or the  damages sought  exceed $350,000.   He  continued                                                               
that  the bill  includes tax  matters because  the state  law the                                                               
sponsor modeled it after also includes tax matter.                                                                              
1:41:27 PM                                                                                                                    
CHAIR LEDOUX questioned whether Mr.  Magdanz said that there must                                                               
be a claim in excess of $1 million.                                                                                             
MR.  MAGDANZ opined  that  it is  not  a claim  in  excess of  $1                                                               
million, the net  income or sales of the person  against whom the                                                               
false claims  action is  being brought must  exceed $1  million a                                                               
year.   Therefore, it  cannot be  used to  bring a  claim against                                                               
small businesses or individuals with small tax burdens.                                                                         
1:42:05 PM                                                                                                                    
REPRESENTATIVE  CLAMAN asked,  in addition  to the  tax question,                                                               
whether there are other ways  wherein the Alaska False Claims Act                                                               
would differ  from the federal False  Claims Act in terms  of the                                                               
kinds of claims that can be brought.                                                                                            
MR.  MAGDANZ offered  that  he has  not  performed an  exhaustive                                                               
side-by-side analysis of  the two acts, but  their definitions of                                                               
false  claims are  relatively similar  and he  would provide  the                                                               
1:43:07 PM                                                                                                                    
STACIE KRALY,  Chief Assistant  Attorney General,  Human Services                                                               
Section  Statewide Supervisor,  Department of  Law, available  to                                                               
answer questions.                                                                                                               
MS. KRALY, in  response to Chair LeDoux, responded  that she does                                                               
not do any work with respect to taxes.                                                                                          
CHAIR  LEDOUX asked  in what  situations there  might be  a valid                                                               
case  for tax  fraud  that the  attorney  general's office  would                                                               
decide not to pursue a case.                                                                                                    
MS. KRALY requested clarification  and asked whether the question                                                               
was  that  Chair  LeDoux  would like  to  understand  under  what                                                               
circumstances  the  attorney general  may  decline  to pursue  an                                                               
action where the monetary thresholds had been met.                                                                              
CHAIR  LEDOUX  agreed,  and  she  clarified  where  the  monetary                                                               
circumstances  have been  met and  under  what circumstances  the                                                               
attorney general would decline to pursue a case.                                                                                
MS. KRALY responded that she  can answer that question generally,                                                               
and will return with more specifics.   She explained that the way                                                               
false claims acts are designed  is that the attorney general will                                                               
be served  with a copy  of the complaint  that has been  filed in                                                               
court under seal,  and would have 60-days to  evaluate the merits                                                               
of  the allegations  within that  complaint.   At which  time the                                                               
attorney general has  to make a decision either  to: proceed with                                                               
the case on their own accord;  defer to the qui tam plaintiff, in                                                               
this instance;  or move  the court to  dismiss the  claim because                                                               
even though the  monetary thresholds had been met  there would be                                                               
circumstances as  set forth in  the statutes.  She  remarked that                                                               
she is not as familiar with  this statute as with the statute for                                                               
Medicaid  fraud cases.    There are  specific  limitations as  to                                                               
certain claims not considered to be  a false claim even if it may                                                               
arise to  be a false claim  in general or  it may appear to  be a                                                               
false  claim, such  as information  that is  within the  public's                                                               
sphere.   For  example,  she said,  an  investigative news  story                                                               
advises that "Organization  X has been doing these  bad acts" and                                                               
then  someone files  a  case and  states that  "This  is a  false                                                               
claim."   That  scenario would  not be  considered a  false claim                                                               
under  the statute,  so  that  claim could  not  be pursued  even                                                               
though the  monetary thresholds had  been met.   In the  event an                                                               
ongoing investigation  had taken  place for  some other  civil or                                                               
criminal  action related  to that  allegation, the  Department of                                                               
Law  would be  limited from  pursuing  those.   She related  that                                                               
there are  specific provisions  within HB  347, and  within false                                                               
claims acts  in general that  limit and preclude  the prosecution                                                               
of a  false claim  under very  certain circumstances  in statute.                                                               
She offered  a scenario  where the  Department of  Law determined                                                               
there wasn't  sufficient evidence to  support the claim  and meet                                                               
the burden  of taking it  to trial,  the Department of  Law could                                                               
then move to settle or dismiss the case.                                                                                        
1:46:39 PM                                                                                                                    
CHAIR LEDOUX  surmised that  in the event  the Department  of Law                                                               
(DOL)  decides  not  to  pursue the  case  they  could  determine                                                               
whether it is a frivolous case or not and dismiss it themselves.                                                                
MS.  KRALY responded  generally  yes, and  advised  that she  has                                                               
reviewed several versions of the  general false claim act and all                                                               
have the provision  where the Department of Law (DOL)  or in this                                                               
case  because  municipalities  were  involved,  the  governmental                                                               
agency  would  be  able  to evaluate  that  claim  and  determine                                                               
whether or not to move to dismiss  the court.  She opined that it                                                               
is  not  an  automatic  dismissal  because  they  would  have  to                                                               
petition   the  court   to   dismiss  the   claim.     In   those                                                               
circumstances, she advised,  the qui tam plaintiff  would be able                                                               
to be  present in the court  and make an argument  or evidentiary                                                               
offer  to  the court  to  say,  "No,  this  claim should  not  be                                                               
dismissed and I should  be allowed to go forward."   It is not an                                                               
automatic  dismissal,   she  reiterated,  it  is   a  process  of                                                               
requesting  the court  to consider  dismissal with  the plaintiff                                                               
being able to argue otherwise.                                                                                                  
1:48:01 PM                                                                                                                    
CHAIR  LEDOUX  pointed out  that  she  wants  to be  certain  the                                                               
committee does not pass something  that allows qui tam plaintiffs                                                               
to, perhaps, unjustly harass.                                                                                                   
MS. KRALY  responded that that  is a very  good point and  it has                                                               
been raised  in both bodies  in dealing with the  Medicaid reform                                                               
bill.  Due to the  60-day investigation by the attorney general's                                                               
office  and the  ability  of  the attorney  general  to move  for                                                               
dismissal and/or  to settle  a case,  those protections  are such                                                               
that they will limit what  has been characterized as frivolous or                                                               
harassing  litigation   by  individuals.    There   are  built-in                                                               
protections under  these statutes  for the  Department of  Law to                                                               
come in  and perform a  robust evaluation of the  allegations and                                                               
the  evidence  that  supports those  allegations,  she  remarked.                                                               
Within that 60-day period of  investigation the Department of Law                                                               
has the  ability to subpoena  for records and  conduct discovery.                                                               
There is  a provision in  the statute that allows  the Department                                                               
of Law  a continuation  of 30-days  to be  certain of  a complete                                                               
investigation to assure  that the claim does have  merit, or that                                                               
it should be dismissed, or settled.                                                                                             
1:49:32 PM                                                                                                                    
CHAIR LEDOUX  asked whether the  Department of Law  is supportive                                                               
of this bill.                                                                                                                   
MS. KRALY  responded that the  Department of Law has  no position                                                               
on this bill.                                                                                                                   
1:49:42 PM                                                                                                                    
REPRESENTATIVE CLAMAN  referred to the attorney  general's notice                                                               
of  the  [complaint],  and  offered   a  circumstance  where  the                                                               
attorney  general knows  little or  nothing about  the claim  and                                                               
decides it  is a  good claim.   The  attorney general  then takes                                                               
over the  claim and the qui  tam plaintiff is out  of the picture                                                               
as it  is the  state's lawsuit.   He asked  whether that  is what                                                               
happens when the state decides to accept the claim.                                                                             
MS.  KRALY said  in a  sense yes,  but the  qui tam  plaintiff is                                                               
still able  to participate, possibly  not given party  status but                                                               
they are  involved and  if there  is a  settlement they  have the                                                               
ability to participate  and object to a settlement.   She pointed                                                               
out that she  has not studied this bill in  detail, but the other                                                               
false  claims acts  read as  such  and they  participate but  the                                                               
litigation would be directed by the Department of Law.                                                                          
1:50:57 PM                                                                                                                    
REPRESENTATIVE  CLAMAN offered  a second  scenario in  that after                                                               
being notified of  the claim, the state moves to  dismiss it.  He                                                               
asked whether the  determination is based on the  merits based on                                                               
the facts,  or a  legal determination assuming  the facts  are as                                                               
the  qui  tam  plaintiff  says  they  are,  it  is  still  not  a                                                               
recognizable claim  under the False  Claims Act so it  should get                                                               
MS. KRALY  opined that it could  be done either way,  and further                                                               
opined that  there is kind of  a merits based analysis  but there                                                               
is also a  substantive review that is required  by the Department                                                               
of Law (DOL)  that would then determine whether or  not there was                                                               
sufficient  evidence.   For example,  she offered,  the complaint                                                               
comes in and alleges a situation  within the public sphere and as                                                               
a matter of  law, it is not  a false claim and DOL  would move to                                                               
dismiss, which is easy  to decide.  In the event  there is not an                                                               
easy answer, which  would go through the four  or five provisions                                                               
in this  bill and other bills  like it, which reads  these do not                                                               
constitute false claims; therefore, they  can't proceed.  At that                                                               
point,  a more  substantive  review of  the  allegation would  be                                                               
required through discovery and an  investigation to determine the                                                               
merits of the allegations, she explained.                                                                                       
1:52:30 PM                                                                                                                    
REPRESENTATIVE CLAMAN  asked how this  bill gives the state  or a                                                               
potential  false claims  plaintiff something  they don't  already                                                               
have by using the federal act.                                                                                                  
MS. KRALY pointed  out that the quick answer is  that it allows a                                                               
false  claims for  state administered  programs  and, she  opined                                                               
that the federal  act would not allow pursuing a  false claim for                                                               
a  state funded  program.   She offered  the example  of Medicaid                                                               
programs  and said  there are  a number  of federal  false claims                                                               
dealing with pharmaceuticals that  the state participates in, but                                                               
those  are  a  broader  based  issue  and  also  have  a  federal                                                               
component to  it.  She  opined that this  would give the  qui tam                                                               
plaintiff the ability to identify  and pursue a false claim based                                                               
upon   state  funded   activities   under   state  statutes   and                                                               
1:53:50 PM                                                                                                                    
REPRESENTATIVE  CLAMAN referred  to  the  state's current  budget                                                               
situation and asked the department's  capacity to get involved in                                                               
the false claims actions on a state level.                                                                                      
MS. KRALY  referred to the  fiscal note attached to  the Medicaid                                                               
reform  bill (SB  74), and  noted that  the department  asked for                                                               
some resources to  pursue that.  She  said it is a  matter of how                                                               
it would  be calculated  out and that  it may  require additional                                                               
resources by the Department of Law,  but she is not familiar with                                                               
how the department will calculate those out.                                                                                    
1:54:47 PM                                                                                                                    
CHAIR LEDOUX asked who the Alaska  False Claims Act might be used                                                               
against  and  noted  that  Medicaid   has  a  federal  component;                                                               
therefore, couldn't an  action be brought under  the federal law.                                                               
She asked for an example.                                                                                                       
MS. KRALY deferred to the sponsor or his staff.                                                                                 
REPRESENTATIVE KREISS-TOMKINS deferred to his staff.                                                                            
1:55:45 PM                                                                                                                    
MR. MAGDANZ said the definition of  false claims in Sec. 2 of the                                                               
act applies  to basically  anyone asking the  state for  money or                                                               
resources or  receiving money  or resources from  the state.   He                                                               
offered that  he has  not performed a  precise legal  analysis to                                                               
know  exactly which  cases  might  fall under  it  or might  not.                                                               
Basically, he  noted, anyone  who had a  contract with  the state                                                               
could  be  subject  to  a   false  claims  action  if  they  were                                                               
defrauding  the state.    For example,  he  said, IT  procurement                                                               
1:56:42 PM                                                                                                                    
REPRESENTATIVE  KREISS-TOMKINS  asked  whether  Mr.  Magdanz  was                                                               
familiar  with   false  claims  brought   in  other   states  and                                                               
jurisdictions that settled, and the subject matter.                                                                             
1:56:55 PM                                                                                                                    
MR.  MAGDANZ  answered that  he  copied  a  short list  from  the                                                               
"Taxpayers Against Fraud"  website and many of the  cases have to                                                               
do  with medical  claims  or pharmaceuticals.    He then  offered                                                               
examples of  different cases, such  as, oil on public  lands, the                                                               
United States  Department of Housing and  Urban Development (HUD)                                                               
1:57:34 PM                                                                                                                    
CHAIR LEDOUX questioned why that  would have been brought under a                                                               
state statute.                                                                                                                  
MR. MAGDANZ responded  that these are examples  of claims brought                                                               
under federal statute.                                                                                                          
1:57:48 PM                                                                                                                    
REPRESENTATIVE  KELLER referred  to  [Sec. 37.10.110],  beginning                                                               
page 1,  line 11 through  to page 2, line  24, and said  he found                                                               
the language  confusing and was  advised that this  language came                                                               
from the  federal act.   He pointed to [Sec.  37.10.110(a)(4)] on                                                               
page 2, lines 9-11, which read:                                                                                                 
               (4) possess or control public property or                                                                        
     money  used   or  to  be   used  by  the  state   or  a                                                                    
     municipality  and  knowingly  deliver or  cause  to  be                                                                    
     delivered less  property than the amount  for which the                                                                    
     person receives a certificate or receipt;                                                                                  
REPRESENTATIVE KELLER opined that Alaska  is the only state where                                                               
all of  the natural resources  of the state are  public property.                                                               
He pointed this  out, not because he sees it  as a large problem,                                                               
but  rather because  it is  simply importing  language without  a                                                               
careful  analysis  of  all  of   the  language  in  every  single                                                               
Representative Keller referred to  [Sec. 37.10.110(a)(6)] on page                                                               
2, lines 15-16, which read:                                                                                                     
               (6) knowingly buy or receive as a pledge of                                                                      
     an  obligation or  debt public  property from  a person                                                                    
     who may not lawfully sell or pledge the property.                                                                          
REPRESENTATIVE KELLER referred to  [Sec. 37.10.110(a)(8)] on page                                                               
2, lines 15-16, which read:                                                                                                     
                    (8) fail to disclose a false claim to                                                                       
     the state  or a  municipality within a  reasonable time                                                                    
     after discovery of  the false claim if the  person is a                                                                    
     beneficiary  of an  inadvertant submission  of a  false                                                                    
     claim to  an employee, officer,  or agent of  the state                                                                    
     or  a  municipality or  to  a  contractor, grantee,  or                                                                    
     other recipient of state or municipal funds.                                                                               
REPRESENTATIVE KELLER described subsections  (4), (6), and (8) as                                                               
confusing because  it is difficult  to imagine a case  where this                                                               
might  be applied.    He  asked whether  this  language had  been                                                               
carefully  considered,   whether  this  language  is   common  to                                                               
Alaska's laws, and  whether the committee is doing  things it may                                                               
2:00:01 PM                                                                                                                    
MR.  MAGDANZ acknowledged  that this  language was  largely drawn                                                               
from   other   examples   in  templet   legislation,   and   that                                                               
Representative Keller made good points.                                                                                         
CHAIR  LEDOUX said  she is  not moving  HB 347  today and  opened                                                               
public testimony.                                                                                                               
2:01:04 PM                                                                                                                    
DAVID BOYLE said  he is testifying on his own  behalf and that he                                                               
is a  member of the Alaska  Policy Forum.  He  explained that the                                                               
Alaska  False Claims  Act has  a deterring  effect on  preventing                                                               
fraud, such  as Medicaid fraud.   More importantly, he  noted, it                                                               
rewards  public   employees  and  protects  them   from  reprisal                                                               
actions,  it rewards  everyday  Alaskans to  be  active in  daily                                                               
governmental  functions,  and  there   are  29  states  including                                                               
Washington D.C., with false claims  acts.  He then listed various                                                               
cases within  the federal program,  which included:  the McKesson                                                               
Corporation  (Pharmacy)  was found  guilty  of  $151 million  for                                                               
sales  in  Medicaid  fraud;   the  Walter  Investment  Management                                                               
Corporation submitted $30  million in false claims  to the United                                                               
States  Department of  Housing and  Urban  Development (HUD)  and                                                               
they  later  received  $5.5 million  in  reward  incentives;  and                                                               
recently  12  Detroit  public  school  principals,  an  assistant                                                               
superintendent,  and the  vendor were  charged by  the FBI  in an                                                               
illegal bribery  and kick-back scheme  - fraudulent  invoices for                                                               
supplies  totaling  over $900  thousand.    In 2009,  the  Alaska                                                               
Policy Forum  recommended to the  Anchorage School  District that                                                               
they "Formulate,  invest, and implement  a fraud waste  and abuse                                                               
policy to ensure  most efficient operations.  The  focus on fraud                                                               
and  abuse should  be:  1. procurement  and  contracting and  the                                                               
potential  theft  of  district  property.    This  requires  that                                                               
stringent   equipment  control   policies   be  established   and                                                               
followed.  The  comprehensive fraud and abuse  policy should also                                                               
include  full whistleblower  protection  and  incentives for  the                                                               
identification  of fraud  waste -and  abuse."   Unfortunately, he                                                               
said,  the Anchorage  School District  did not  agree because  it                                                               
would be  too difficult to  implement and the  incentivization of                                                               
the program would not be fair.   He asked that the committee pass                                                               
HB 347 out  of committee because "we need to  squeeze every penny                                                               
out of the Alaska budget due to our fiscal crisis."                                                                             
2:03:51 PM                                                                                                                    
STEVEN MERRILL said he is testifying on behalf of the Alaska                                                                    
Policy Forum, is an Anchorage attorney, "and a long-time freedom                                                                
fighter."  Mr. Merrill offered testimony as follows:                                                                            
     My statement here for you  today is entitled, Gangsters                                                                  
     Beware,  and  I want  to  start  with an  old  Scottish                                                                  
     proverb: 'Thieves operate in  the dark, yet are visible                                                                    
     in many ways people can see.'                                                                                              
     Every  year paperwork  con artists,  from mega  billion                                                                    
     dollar corporations to family  run fraud shacks rip off                                                                    
     American government  to the tune of  untold billions of                                                                    
     dollars.  Few  perpetrators are ever caught.   The ones                                                                    
     that are  caught typically  are discovered  and exposed                                                                    
     by  those  working  in some  way  with  the  fraudster.                                                                    
     Maybe someone  who becomes outraged at  the crime being                                                                    
     committed.   But that  kind of  event might  usually be                                                                    
     the end  for justice,  just silent, disgusted  what was                                                                    
     happening.  That is  unless the potential whistleblower                                                                    
     manages to use  the only effective means  that has ever                                                                    
     been in  the United  States for exposing  fraud against                                                                    
     the public treasury.   That is called  the False Claims                                                                    
     Act.    It's time  Alaska  joined  29 other  states  in                                                                    
     trying to  do something about  the tens of  millions of                                                                    
     dollars in  state government, right here  in our state,                                                                    
     is  conned into  giving  to flim-flam  men every  year.                                                                    
     Alaska  needs its  own false  claims  act, as  proposed                                                                    
     here by Representative Kreiss-Tomkins,  it also needs a                                                                    
     whistleblower protection act, and  an Alaska fraud hot-                                                                    
     line  so  people  can  be aware  of  these  laws,  both                                                                    
     government   contractors,  government   employees,  and                                                                    
     management  of  government   contractors,  so  everyone                                                                    
     knows  what the  law  is  and how  they  can contact  a                                                                    
     confidential source.   The  fraud hot-line  could offer                                                                    
     confidentiality that  is kept outside the  direct state                                                                    
     record keeping, which is quite  often very important to                                                                    
     a  whistleblower.   I helped  the  Alaska Policy  Forum                                                                    
     this year draft  a false claims act for  Alaska that is                                                                    
     drawn from  a number of  state laws across  the county.                                                                    
     So -- that is the case  also with this bill proposed by                                                                    
     Representative  Kreiss-Tomkins,  primarily  drawn,  I'm                                                                    
     told, from the New York  statute.  The major difference                                                                    
     between  the  two  is  that   the  New  York  law  caps                                                                    
     whistleblower  compensation at  a 25  percent share  of                                                                    
     the total recovery.  And  it also, more importantly and                                                                    
     to me oddly, sets a  minimum amount in controversy that                                                                    
     is quite high, $350 thousand dollar limit.                                                                                 
2:06:54 PM                                                                                                                    
     Now  most   states,  and  most   --  and   the  federal                                                                    
     government have a  higher cap and no  floor.  Typically                                                                    
     the  cap  is 30-35  percent.    The difference  between                                                                    
     these approaches can  be critical to whether  a case is                                                                    
     going to be accepted or not.   One that may not have an                                                                    
     exceptionally large recovery to be  had.  A false claim                                                                    
     could be for  vast millions of dollars or  for rip offs                                                                    
     that  do not  even reach  $100 thousand  dollars.   Why                                                                    
     should lesser fees face no  consequences -- no possible                                                                    
     consequences?   The  solution we  propose is  to delete                                                                    
     the  cap in  this bill  and  to use  brackets like  tax                                                                    
     brackets  for determining  the (indisc.)  share of  the                                                                    
     recovery.   A  higher  proportion of  the first  dollar                                                                    
     recovered and  a lesser proportion  as the size  of the                                                                    
     recovery rises.   Ladies  and gentlemen,  this proposed                                                                    
     new law,  before the  committee, would  finally greatly                                                                    
     endanger  the  hosts  of parasites  who  are  routinely                                                                    
     stealing the public  funds of Alaska.   This year let's                                                                    
     make the first serious effort  ever in Alaska to combat                                                                    
     fraud, waste and abuse of public funds.  Thank you.                                                                        
2:08:14 PM                                                                                                                    
MR. MERRILL,  in response  to Chair LeDoux,  agreed to  forward a                                                               
copy of the qui tam bill formulated by the Alaska Policy Forum.                                                                 
CHAIR LEDOUX said the committee  would like to compare their bill                                                               
with  the current  HB 347  to  determine how  to make  it into  a                                                               
better bill.                                                                                                                    
MR. MERRILL advised that the  Alaska Public Forum bill recommends                                                               
a  hot-line law  and  a whistleblower  protection  act which,  he                                                               
opined, are necessary components of this.                                                                                       
2:09:22 PM                                                                                                                    
RAY KREIG,  Alaska Policy Forum,  said he is  probably testifying                                                               
both  on behalf  of  the Alaska  Policy Forum  and  himself.   He                                                               
offered testimony as follows:                                                                                                   
     And I just  wanted to say, in listening  to the earlier                                                                    
     questions, including Madam Chair  your own questions of                                                                    
     'Why do  we need this  if there is a  federal statute?'                                                                    
     Just to  give you a  little bit of history,  the Policy                                                                    
     Forum was  looking into the  excesses of the  new crime                                                                    
     lab on Tudor  Road while it was being proposed.   And I                                                                    
     got  involved with  that  investigation  and our  first                                                                    
     attention  at  the Policy  Forum  to  the problem  with                                                                    
     Alaska  not having  fraud,  waste,  and abuse  statutes                                                                    
     came  from   our  interviewing   a  former   crime  lab                                                                    
     director,  Chris Beheim.   He  strongly  felt that  our                                                                    
     state  procedures and  statutes  were  lacking in  this                                                                    
     area.   And the  ongoing outcome of  the investigations                                                                    
     surrounding the crime lab was  this whitepaper that Mr.                                                                    
     Beheim  was  a co-author  of,  that  came out  and  was                                                                    
     distributed to the legislature several  months ago.  We                                                                    
     didn't know  about this hearing  today, we had  no idea                                                                    
     it was  coming up.   Mr. Beheim undoubtedly  would have                                                                    
     testified, but he's just unavailable  right now as this                                                                    
     is going  on.  So,  I am not  nearly the expert  on the                                                                    
     statute, obviously,  as Mr. Merrill  but I  thought the                                                                    
     committee  should  know  that  the  retired  crime  lab                                                                    
     director  Beheim was  the original  origin of  this and                                                                    
     strongly is  in favor  of passing this  legislation and                                                                    
     the   other   accompanying  whistleblower   legislation                                                                    
     that's in the Policy Forum  whitepaper.  Thank you very                                                                    
CHAIR LEDOUX held public testimony open.                                                                                        
2:12:31 PM                                                                                                                    
MS.  KRALY clarified  for the  record  the issue  of the  federal                                                               
False Claims Act  in Medicaid and explained there is  a reason to                                                               
have a  state false  claims act even  when Medicaid  is involved.                                                               
She  further explained  that if  the  state had  an approved  and                                                               
federally certified Alaska False Claims  Act, the State of Alaska                                                               
would receive  a ten percentage  point swing for Alaska  from the                                                               
federal  government for  monies recovered  under its  state false                                                               
claims act, a 55/45 percent axle.   She expressed that the record                                                               
should be  clear that the fact  that the federal act  would allow                                                               
the state to  pursue Medicaid claims under that  federal act, the                                                               
state act has a direct benefit to the State of Alaska.                                                                          
2:13:31 PM                                                                                                                    
REPRESENTATIVE KELLER  noted that  there are fraud  occasions now                                                               
and asked whether any federal  monies are currently available for                                                               
that which the state has pursued.                                                                                               
MS. KRALY responded  that the state has  participated in multiple                                                               
class actions related to Medicaid  and Medicaid fraud through the                                                               
Consumer Protection  Section, Medicaid Fraud Control  Unit of the                                                               
Department of Law (DOL).                                                                                                        
REPRESENTATIVE KELLER  asked whether there is  federal money that                                                               
helps the state in those fraud investigations now.                                                                              
MS.  KRALY answered  that if  the action  is prosecuted  or dealt                                                               
with through  the Medicaid  Fraud Control  Unit there  is federal                                                               
funding that pays  for the attorneys and  investigators that work                                                               
on those  cases and  they provide  an "administrative  match" and                                                               
they  are funded  at 75  percent  federal dollars  to 25  percent                                                               
state dollars.                                                                                                                  
2:15:00 PM                                                                                                                    
NANCY  MEADE, General  Counsel, Administrative  Staff, Office  of                                                               
the Administrative Director, Alaska  Court System (ACS), said the                                                               
record  should be  clear that  the Alaska  Court System  is still                                                               
looking at the impact  HB 347 may have on the  court system.  She                                                               
noted that the Department of  Law (DOL) provided an indeterminate                                                               
fiscal note on  the grounds that they are unclear  as to how many                                                               
cases this  might generate.   There is some expectation  that the                                                               
cases  it  does  generate  will  be  mostly  by  self-represented                                                               
parties.  She  offered that this is a policy  call and should the                                                               
legislature  pass the  bill, the  court  system will  be able  to                                                               
implement it.   She advised  that she spoke  to the staff  of the                                                               
sponsor regarding  the unusual procedures  in the bill,  and that                                                               
perhaps it isn't  quite as stylized to what is  typically done in                                                               
Alaska as  it could be.   It is unclear  how a complaint  will be                                                               
filed with  the court  in-camera and then  remain under  seal for                                                               
60-days  because  currently  there  are  no  procedures  set  up,                                                               
although, she noted,  the court system could  develop a procedure                                                               
if  it  becomes  law.    She suggested  that  it  could  be  more                                                               
efficient  and  effective  that   the  complaints  are  delivered                                                               
directly  to the  attorney general's  office  without having  the                                                               
court more  or less  be the babysitter  for those  complaints for                                                               
60-days  until the  attorney general  decides  what to  do.   She                                                               
noted it  is something  her office  will work  out and  she looks                                                               
forward to continuing to work with the sponsor's office.                                                                        
2:16:40 PM                                                                                                                    
CHAIR  LEDOUX  asked why  Ms.  Meade  thought  that most  of  the                                                               
complaints will be brought by pro per plaintiffs.                                                                               
MS. MEADE  opined that  if the complaints  or claims  have merit,                                                               
the attorney general's office would  be inclined to take the case                                                               
and pursue the  case.  With regard to oil  companies, she opined,                                                               
the  Department  of Revenue  routinely  audits  and the  attorney                                                               
general's office  pursues the  audit on  every single  tax return                                                               
the oil  companies file.   She referred  to Medicaid and  said it                                                               
appears  that  if the  attorney  general  was  told there  was  a                                                               
problem with a doctor falsely  making Medicaid claims against the                                                               
state, the  attorney general would  pursue it.   It is  true that                                                               
this is  for those cases  that the  attorney general opts  not to                                                               
pursue either because  it doesn't think there  is enough evidence                                                               
to  win,  or alternatively,  it  doesn't  have the  resources  to                                                               
pursue every  single case.  She  offered that some of  these will                                                               
be brought by  self-represented people whether there is  a lot of                                                               
basis for them, or maybe not.                                                                                                   
2:18:08 PM                                                                                                                    
CHAIR LEDOUX  referred to the  incentive piece and  asked whether                                                               
Ms. Meade  believes this would  bring out employees  of companies                                                               
who see  something legitimately wrong  in their companies.   Yet,                                                               
without the bill the employees  might ask themselves whether they                                                               
really want  to step forward.   Although, if they see  there is a                                                               
monetary reward  to it they might  take that chance, and  if it's                                                               
legitimate they will find an attorney.                                                                                          
MS. MEADE  agreed, and  said that  the intent of  the bill  is to                                                               
help people  who witness legitimate  fraud recover the  funds for                                                               
the state and  receive a reward.  She  related that, particularly                                                               
in  this  state, there  are  a  high number  of  self-represented                                                               
litigants  and  under  this bill  self-represented  people  could                                                               
pursue claims  that the attorney general's  office determines are                                                               
not pursuable.   Again, she said, this is  the committee's policy                                                               
call  and  those  are  some  of the  questions  she  has  as  she                                                               
determines how this bill will affect the court system.                                                                          
2:19:34 PM                                                                                                                    
CHAIR LEDOUX asked why the claims would be filed in-camera.                                                                     
MS. MEADE responded that that is  exactly her question.  The bill                                                               
reads that the complaint shall  be filed with the court in-camera                                                               
and  remain under  seal with  the court  holding it  for 60-days,                                                               
which  is  not  the  typical  procedure for  a  complaint.    She                                                               
expressed that  she was  unsure what the  judge would  be looking                                                               
for  in the  in-camera review  to  decide whether  the next  step                                                               
should  be  taken  or  not.     Again,  she  related,  those  are                                                               
procedural  issues that  could  perhaps be  worked  out with  the                                                               
sponsor and possibly a different procedure could be developed.                                                                  
2:20:17 PM                                                                                                                    
REPRESENTATIVE CLAMAN  noted there  is the  potential of  pro per                                                               
claims  being  brought,  but  isn't another  one  of  the  likely                                                               
consequences of  having a false claims  act in the state  is that                                                               
there will be some group of  law firms that become specialists in                                                               
bringing  these  claims  because  that is  his  impression  on  a                                                               
national level.                                                                                                                 
MS. MEADE  expressed that she  would be speculating and  does not                                                               
know the consequences of false claims acts in other states.                                                                     
2:21:25 PM                                                                                                                    
CHAIR LEDOUX  asked Representative Kreiss-Tomkins whether  he can                                                               
advise the committee as to why the bill reads filing in-camera.                                                                 
REPRESENTATIVE  KREISS-TOMKINS  deferred  to  Ms.  Kraly  or  Mr.                                                               
Magdanz, and  opined that the preview  is to be certified  by the                                                               
federal government  as a false claims  act on the state  level in                                                               
order to receive enhanced recovery  for Medicaid fraud.  He asked                                                               
the witnesses whether this language  is different from what is in                                                               
the Medicaid reform bill in the Senate.                                                                                         
2:22:18 PM                                                                                                                    
MS. KRALY  referred to the  in-camera and under  seal requirement                                                               
in this  bill and opined  that there  is an under  seal provision                                                               
language in  SB 74,  but she  needed to  confirm.   She explained                                                               
that  the Office  of  the Inspector  General  has guidelines  for                                                               
purposes  of certifying  a  Medicaid False  Claims  Act and  that                                                               
language  is required  to  be a  state act  in  order to  receive                                                               
certification,  especially  as  to  it being  under  seal.    The                                                               
purpose of the in-camera provision  is to allow the Department of                                                               
Law to  investigate the  merits of the  claim without  the person                                                               
who  committed the  alleged false  claims being  served with  the                                                               
complaint  which,  she  noted,  goes  back  to  the  question  of                                                               
protecting against  frivolous complaints.  Normally,  a complaint                                                               
is filed, the defendant is  served, and answers happen.  Whereas,                                                               
in this bill,  the complaint is filed in-camera,  under seal, and                                                               
is  confidential;  therefore,  the  Department  of  Law  has  the                                                               
ability  to  properly  investigate  the claim  to  determine  the                                                               
merits  of the  claim  and  to avoid  the  frivolous lawsuits  or                                                               
inappropriate prosecution  of the  claim before it  is determined                                                               
necessary  to  proceed.    It  is  a  procedural  safeguard,  she                                                               
described,  to  avoid individuals  who  may  be alleged  to  have                                                               
committed frauds or false claims  from having to defend something                                                               
before it is actually proven that  it's a meritorious claim.  She                                                               
reiterated that  it is a  procedural safeguard built into  all of                                                               
the false  claims she reviewed  while working on the  other bill,                                                               
and then she reviewed this bill this past week.                                                                                 
2:24:18 PM                                                                                                                    
CHAIR LEDOUX questioned whether it  would be just the opposite by                                                               
allowing someone  to be investigated  without their  knowledge of                                                               
an investigation.   She  said she  does not  see it  as something                                                               
that is  going to safeguard  the interests of the  defendant, but                                                               
rather  something that  allows a  person to  file a  suit against                                                               
another  person  and investigate  that  suit  without them  being                                                               
aware of it.   She added that it is not  necessarily a bad thing,                                                               
but the reasoning.                                                                                                              
MS. KRALY agreed that there  is truth to Chair LeDoux's statement                                                               
and some  accuracy to what  Ms. Kraly said  as well.   She opined                                                               
that in  order to  investigate the claim,  the Department  of Law                                                               
has the ability to conduct  discovery and seek subpoenas.  Absent                                                               
an open  court file,  she said  she was not  sure how  it happens                                                               
under the  construction of  the False  Claims Act.   It  would be                                                               
necessary to  have a court case  number and a case  to proceed in                                                               
order  to get  a subpoena  and  do those  sorts of  things.   She                                                               
opined that it is a procedural  safeguard and she could look into                                                               
it further, but generally those  are the protections that are out                                                               
there to alleviate  some of those issues.   Further, she related,                                                               
it is  a requirement  for federal  certification in  false claims                                                               
for Medicaid purposes.                                                                                                          
2:25:53 PM                                                                                                                    
REPRESENTATIVE  KELLER asked  whether  the in-camera  requirement                                                               
was to protect health records.                                                                                                  
MS.  KRALY  answered  that  there  could  be  other  confidential                                                               
proprietary tax  information.   When filed  under seal,  there is                                                               
limited access of information not  allowed to be shared elsewhere                                                               
under an  administrative rule to  court personnel, she said.   It                                                               
would protect  not just health information  but potentially other                                                               
business information that would be proprietary in nature.                                                                       
REPRESENTATIVE  KELLER  asked the  number  of  qui tam  cases  in                                                               
Alaska she is aware of.                                                                                                         
MS. KRALY  answered that she  is not familiar with  whether there                                                               
are active cases currently, but  she could provide information to                                                               
the  committee  regarding  the  number of  cases  the  state  has                                                               
participated in  on the federal  level and  information regarding                                                               
2:26:53 PM                                                                                                                    
REPRESENTATIVE  CLAMAN   referred  to   the  60-day   period  and                                                               
commented  that it  has been  part of  federal law  since it  was                                                               
enacted, just after the Civil War,  and he opined that it relates                                                               
to  all of  the  things being  discussed and  not  being able  to                                                               
investigate  the  claim  before  the  evidence  goes  away.    He                                                               
surmised  there are  the issues  of how  the government  gets its                                                               
investigation together,  and how  the investigation  is performed                                                               
before the party finds out they  are being investigated.  He said                                                               
he thought that it may  have to do with whistleblower protections                                                               
in that  if someone  comes forward and  the government  elects to                                                               
take on the  lawsuit, the complaining party  has more protections                                                               
than they might if they were going solo.                                                                                        
MS. KRALY noted those were excellent points.                                                                                    
2:28:44 PM                                                                                                                    
MS. MEADE  said that, although,  the language may be  required by                                                               
federal law, Alaska  has definite definitions for  what is "under                                                               
seal" and what  is "confidential."  She  explained that documents                                                               
filed "under  seal" are available  solely to the  judge, whereas,                                                               
documents filed  "confidential" are  available to the  judge, the                                                               
judge's  assistant,  and  court  employees  for  case  processing                                                               
purposes.  Ms. Meade reiterated that  she would like to work with                                                               
the  sponsor regarding  possible language  that documents  can be                                                               
filed confidentially,  which is different  than under seal.   She                                                               
noted that  she continues  to wonder what  filing with  the court                                                               
in-camera means, and they will work on that.                                                                                    
[HB 347 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB 347 - Supporting Documents - Article Alaska Policy Forum 02-10-2016.pdf HJUD 4/7/2016 1:00:00 PM
HB 347
HB 347 - Sponsor Statement.pdf HJUD 4/7/2016 1:00:00 PM
HB 347
HB 347 - Sectional Analysis.pdf HJUD 4/7/2016 1:00:00 PM
HB 347
HB 347 - Version A.PDF HJUD 4/7/2016 1:00:00 PM
HB 347
HB 347 - Fiscal Notes -LAW-CIV-04-01-16.pdf HJUD 4/7/2016 1:00:00 PM
HB 347
Amendment 9 - Conceptual Language.pdf HJUD 4/7/2016 1:00:00 PM
HB 205
Amendment 10 - Supporting Document.pdf HJUD 4/7/2016 1:00:00 PM
HB 205
Amendment 30.pdf HJUD 4/7/2016 1:00:00 PM
HB 205
HB 205 - Amendments 1-30.pdf HJUD 4/7/2016 1:00:00 PM
HB 205
HB 347 - Supporting Documents - Alaska Policy Forum Report.pdf HJUD 4/7/2016 1:00:00 PM
HB 347
HB 205 - Support Document - Letter Newt Gingrich 03.31.16.pdf HJUD 4/7/2016 1:00:00 PM
HB 205
HB 205 - Support Document - Letter Violent Crimes Compensation Board 04.07.16.pdf HJUD 4/7/2016 1:00:00 PM
HB 205