The government recaptured a record $4 billion last year from pharmaceutical companies, hospitals, doctors, nursing homes and other providers that defrauded federal health-care programs, the administration reported Monday. This is twice as much as was recouped in 2008, and funneled some $2.9 billion back into the Medicare Trust Fund.
This is a good start—Medicare and Medicaid fraud reportedly cost the government a whopping $54 billion last year—but we can do even better. In a new report from the Department of Health and Human Services and the Department of Justice, the success in recouping fraudulent payments is attributed to the Health Care Fraud Prevention & Enforcement Action Team (HEAT), a joint effort between the two agencies created in 2009.
Earlier this week, new federal rules came into effect that HHS Secretary Kathleen Sebelius says will allow the government to be more proactive in preventing fraud in the Medicare, Medicaid and CHIP programs. These new rules (click here to see an overview) which are included in the Affordable Care Act, require more rigorous screenings of providers and suppliers who participate in Medicare, Medicaid and the Children’s Health Insurance Program (CHIP), levy larger fines for abuses, and also give HHS the power to immediately stop payment to providers who are being investigated for fraud. The goal of these new provisions is to prevent fraud rather than playing catch-up once the crimes have been committed.
For example, providers and suppliers that have in the past posed a higher risk of fraud—like suppliers of durable medical equipment, home health agencies and independent diagnostic testing facilities—will be subject to a more thorough screening process. And new information technology will alert authorities if a provider has been kicked out of one state’s Medicaid or CHIP program, and the provider will not be allowed to participate in any other state or federal health program. A health care company that even employs someone barred from doing business with the government cannot receive federal payments. "The current administration is feeling that they want to increase enforcement in this area, and they're of the belief that monetary settlements aren't sufficient, and they need to charge individuals to deter the conduct," Jeffrey Senger, a lawyer at Sidley Austin LLP in Washington and former acting chief counsel with the FDA, told the Washington Post.
Finally, the new rules increase federal sentencing guidelines for health care fraud offenses by 20-50% for crimes that involve more than $1,000,000 in losses. They make obstructing a fraud investigation a crime and make it easier for the Department of Justice to investigate potential fraud or wrongdoing at facilities like nursing homes and to recapture any funds acquired through fraudulent practices.
The anti-fraud effort clearly has momentum. According to HHS, “federal prosecutors opened 1,116 criminal health care fraud investigations as of the end of FY 2010, and filed criminal charges in 488 cases involving 931 defendants. A total of 726 defendants were convicted for health care fraud-related crimes during the year."
Included in this round-up was a ring of Armenian-American mobsters who fraudulently billed Medicare for $163 million. “A joint federal task force busted the ring last October, arresting 53 individuals in what the DOJ called the largest fraud scheme perpetrated by one criminal enterprise,” according to Politico. In this scheme, the mobsters operated 118 phony clinics, using stolen identities of doctors and Medicare recipients. Highlighting a link (at least in this case) between violent crime and Medicare fraud, Politico notes that FBI agents “also seized a cache of weapons during the bust that included many guns and a Bat’leth, a vicious-looking double-sided Klingon longsword inspired by ‘Star Trek.’”
In addition to these criminal enforcement successes in 2010, more than $2.5 billion in recoveries (also a record) were obtained in civil health cases brought under the False Claims Act—a law originally passed during the Civil War to guard against dishonest defense contractors. The law was gutted in the 1940’s and had fallen out of use until 1986 when Congress amended it to strengthen financial incentives and legal protections for whistleblowers.
These incentives are clearly helping. Faced with ruined careers and financial peril, a study in the New England Journal of Medicine found that the majority of whistleblowers (often current or former employees of drug companies who see their cases drawn out over an average of 5 years) suffer extreme stress leading to marital problems, family strains and even illness. Under the strengthened False Claims Act, whistleblowers are at least getting financially rewarded for their courage; they now are eligible to receive 15 to 30 percent of what the government recoups in civil fraud cases.
According to the Philadelphia Inquirer: “‘[W]histleblowers’” have been instrumental in bringing to light the most egregious violations and have been responsible for initiating the largest number of federal settlements over the past 10 years. From 1991 through 2000, qui tam (whistleblower) cases made up only 9 percent of payouts to the government, but from 2001 through 2010, they comprised 67 percent of total payouts.”
These financial incentives have created a new business opportunity for law firms representing whistleblowers and are factoring most prominently in Florida where the Los Angeles Times reports that a specialty pharmacy called Ven-A-Care “enjoyed its best month ever—posting a hefty $168.7 million in revenues.” The tiny company, with fewer than a dozen employees, wasn’t filling more prescriptions for its infusion drugs, instead it developed “a lucrative niche market: blowing the whistle on drug companies that overcharge Medicare and Medicaid — and collecting tens of millions of dollars in reward money.”
According to the L.A. Times, Ven-A-Care employees conduct research, comparing the prices the firm paid for drugs with the prices reported by drug makers to the government for reimbursement. Ven-A-Care files suit on behalf of the government when it uncovers large discrepancies between the two sets of prices.
For example, a 2005 California suit filed by the company alleged that a 1-gram vial of the antibiotic vancomycin was sold to providers for $6.29, but billed to Medi-Cal for $58.37. In another instance uncovered by Ven-A-Care, 50-milligram tablets of the blood pressure medication atenolol were billed to pharmacies at $3.04 and to Medi-Cal at $70.30.
In total, Ven-A-Care, has helped the government recover some $2.2 billion from drug companies that over-charged Medicare and Medicaid for prescription drugs. “Since 2000, the company has won settlements in at least 18 such suits,” the L.A. Times reports. “Three settlements announced last month brought the fees awarded the company and its attorneys since 2000 to more than $380 million.”
There is seemingly no limit to the amount of fraud that can be uncovered with enough manpower. A December report by the advocacy group Public Citizen titled, “Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991 to 2010” found that settlements and fines from lawsuits filed against pharmaceutical companies have skyrocketed over the last two decades—especially since 2006. “Of the 165 settlements comprising $19.8 billion in penalties during this 20-year interval, 73 percent of the settlements (121) and 75 percent of the penalties ($14.8 billion) have occurred in just the past five years (2006-2010).”
“The pharmaceutical industry now tops not only the defense industry, but all other industries in the total amount of fraud payments for actions against the federal government under the False Claims Act,” the report concludes.
State Medicaid programs are also hotbeds for potential fraud. The Public Citizen report finds; “Deliberately overcharging state health programs, mainly Medicaid fraud, has been the most common violation against state governments and is responsible for the largest amount of financial penalties levied by these governments. This type of violation is also the main factor in the considerable increase in state settlements with pharmaceutical companies over time.”
Some Medicaid fraud whistleblowers are companies like Ven-A-Care. But more are individuals who work for the companies being charged with fraud. For example, in September 2009, the federal government, Indiana, and several other states settled a lawsuit with Pfizer Inc. over the illegal marketing of its drugs Bextra, Lyrica and others, and over illegal kickbacks provided to physicians who prescribed them off-label. The total obtained for the Indiana Medicaid program was $9.52 million, but as part of this nationwide settlement, six Pfizer employees who “blew the whistle” shared approximately $102 million from the federal portion of the civil recovery.
State Attorneys offices are also playing a larger role in instigating health care fraud investigations and the subsequent recovery of assets. In Massachusetts, the state’s Medicaid Fraud Division recovered more than $66 million in 2010, breaking the previous recovery record, set in 2009, by more than $14.3 million. More than a third of those assets were recovered in cases where the state’s investigators acted as lead negotiators working with the federal government to secure the two biggest health-care fraud settlements of 2010—a $520 settlement in April with AstraZeneca involving illegal marketing of the anti-psychotic Seroquel, and a $750 million settlement with GlaxoSmithKline in October for making and selling adulterated drugs. Massachusetts is now the country’s leader in this area; recovering more than $191 million in state funds over the past four years from Medicaid fraud cases.
Nationally, the fraud-busting effort could lead to even more convictions next year. The joint HHS/DOJ report says that authorities opened more than 1,100 new fraud probes in 2010 involving more than 2,000 potential defendants. That’s in addition to more than 1,700 pending criminal investigations. To help, this year, the Affordable Care Act calls for an additional $350 million to ramp up anti-fraud efforts, including money to hire more enforcement agents and other “feet on the street” needed to counter the wasteful fraud that permeates our health care system.
Conservatives would like to decrease funding for these efforts—with repeal clearly stalled, they have threatened to focus instead on “defunding” as many provisions of the health care law that they can. But with the government demonstrating that it can recoup so much in fraudulent spending through dogged investigation, this particular cut may not go over well with the voting public. In a typically schizoid response, a recent Kaiser poll finds that although 50% of Americans say that they are unhappy with the health care law, more than two-thirds disapprove of cutting off funding as a way to block the legislation
Maybe they just need more tangible results that health reform can succeed in reducing the deficit. Cutting off funding for anti-fraud efforts would derail a truly promising effort to slow down health care spending. The Congressional Budget Office, when scoring the Affordable Care Act, did not directly calculate the return on investment for fraud investigation, but HHS Secretary Kathleen Sebelius said the funds so far recovered and returned to the Medicare Trust Fund represent a successful return on investment of nearly $5 seized for every dollar spent on programs to fight fraud. That’s an impressive figure; a clear indication that some aspects of the Affordable Care Act are already having a positive impact on reining in health care costs.