Health care fraud still a key target of federal False Claims Act

Physicians are seldom named in false claims cases but are often in a position to blow the whistle on fraud they observe.

By Amy Lynn Sorrel — Posted Dec. 8, 2008

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Health care continues to top the government's list of federal fraud investigation priorities, yielding the lion's share of recoveries in false claims cases in 2008.

The latest figures from the Dept. of Justice show enforcement officials recouped $1.34 billion in settlements and judgments under the False Claims Act in the fiscal year ending Sept. 30. Of that total, $1.12 billion, or 84%, came from health care entities. The act gives federal officials authority to prosecute fraudulent billing of any government program.

That number represents a drop from the $1.54 billion in recoveries reported in 2007 and a record $2.2 billion in 2006. But that doesn't mean federal prosecutors have let up efforts to combat health care fraud, said Russell Hayman, a partner and health care fraud expert with McDermott Will & Emery LLP in Los Angeles.

"Health care services account for roughly 10% of the nation's gross domestic product. Put that together with the fact it is so heavily regulated by the federal government and states, and you have a recipe for False Claims Act activities on the scale we've seen in recent years," he said.

Hayman attributed the relative decline in recoveries to a spate of settlements with drug and device companies in 2007. In 2006, the government pulled in a $920 million settlement with Tenet Healthcare Corp., one of the nation's largest hospital chains.

The government tallied its biggest returns in 2008 from settlements with pharmaceutical firms Merck & Co. Inc. and Cephalon Inc., and managed care company Amerigroup, with recoveries ranging from $225 million to $361 million.

However, the Justice Dept.'s results do not include the portion of recoveries returned to states participating in some of the investigations, noted Patrick Burns, a spokesman for the consumer watchdog organization Taxpayers Against Fraud. He estimated that at least $400 million more was returned to states in 2008, mostly in Medicaid fraud recoveries.

"What we're seeing now is the Dept. of Justice has a better handle than ever on the scope of fraud out there," Burns said, adding that the government recoups roughly $15 for every dollar it invests in health care false claims investigations. "But states are often taking matters into their own hands because the [federal government] doesn't always have the resources."

At least 22 states have passed their own versions of the False Claims Act. Federal legislation enacted in 2005 offered states a 10% bonus in their share of Medicaid recoveries from approved state-initiated actions under a false claims statute.

Despite the smaller financial haul in 2008, the Justice Dept.'s recoveries represent a wider range of enforcement activity, said Andrew L. Hurst, an attorney specializing in false claims litigation in Washington, D.C.

"Federal prosecutors are getting more creative in their theories to expand false claims liability," said Hurst, a partner at Reed Smith LLP.

Some of the largest settlements this year involved allegations of illegal off-label promotion by pharmaceutical manufacturers, as well as anti-kickback violations by drug firms, device-makers and hospitals involving illegal referral agreements. Such cases, often involving physicians, are growing areas of concern to federal prosecutors, Hurst said.

Rarely are physicians targeted under the False Claims Act, generally because the government does not consider it worthwhile to go after smaller practices, according to Burns. "The goal of the Dept. of Justice is to change the way [drug and device firms] do business; ... then physicians will not be the problem."

Instead, federal prosecutors are taking a more collaborative approach with physicians in investigations, Hurst said. With kickbacks, "what we are seeing is [the government] asking more doctors for documentation and testimony about the transaction to get more evidence." Given such heightened scrutiny, however, doctors involved in illegal arrangements still could face liability, he warned.

Quality of care issues raise another red flag, Hayman said. "The government is saying, 'if the quality of care is not appropriate, we shouldn't pay for it at all.' Then a claim could be a false claim, and that's something we didn't see 10 years ago."

Physicians blow the whistle

Nearly 80% of the government's $1.34 billion in total recoveries in 2008 came from suits initiated by whistle-blowers, a role sometimes played by physicians. Two major settlements hailed by the government were initiated, in part, by doctors blowing the whistle on Merck and a New York hospital for alleged fraudulent Medicare and Medicaid billing. Both entities denied any wrongdoing.

Burns said physician whistle-blowers can be essential to helping federal investigators uncover complicated health care fraud schemes. "Fraudsters design their fraud to survive scrutiny, so [the government] needs insiders like doctors to say, 'here's how the fraud works.' "

The Dept. of Justice report also comes out as some federal lawmakers are seeking to broaden the scope of the False Claims Act, which carries a potential penalty of treble damages. Whistle-blowers can receive 15% to 25% of these recoveries in successful government suits. In 2008, they took home $198 million.

The False Claims Act Correction Act, introduced last year, would expand the list of potential whistle-blowers and the statute of limitations for bringing suits. The bill also would allow certain claims on the basis of publicly disclosed information.

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Fighting fraud

Health care fraud continues to be a major focus of the government's enforcement of the False Claims Act while whistle-blowers are a driving force in reporting all types of fraud.

2006 2007 2008
Total recoveries $3.1 billion $2.0 billion $1.3 billion
Health care recoveries $2.2 billion $1.5 billion $1.1 billion
Whistle-blowers cases $1.8 billion $1.5 billion $1.0 billion

Source: U.S. Dept. of Justice

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