Government, Private Parties Focus on Stopping Health Care Fraud

In mid-June, the U.S. Attorney for the Eastern District of New York, Loretta E. Lynch, announced four separate indictments charging 17 individuals for their participation in an alleged health care fraud scheme. In addition, federal agents searched offices of 12 durable medical equipment retail companies located in South Brooklyn that were operated by the defendants and seized assets from bank accounts maintained by the defendants’ companies. They also arrested several operators of the companies for allegedly engaging in schemes to defraud private insurance companies.

According to the indictments, the defendants filed fraudulent claims with a number of insurance carriers. Specifically, the defendants, through their retail companies, allegedly submitted false invoices to the insurance companies for reimbursable expenses for durable medical equipment at prices in excess of the price they paid, as well as for durable medical equipment that had never been obtained. The indictments alleged that it also was part of the defendants’ schemes to engage in financial transactions to conceal the identity, source, and destination of the fraudulent proceeds by “laundering” them through checks they issued to the same wholesalers. The checks then were negotiated at check cashing stores and the resulting cash was delivered back to the defendants.[1]

One of the surprising things about the indictments is that they do not necessarily seem surprising. More and more often,[2] federal and state authorities are bringing criminal actions in an effort to stem the multi-billion dollar tsunami of health care fraud, which affects the cost and availability of private and public insurance,[3] that is facing the country and the nation’s health care system. At the first national summit on health care fraud held earlier this year, U.S. Attorney General Eric Holder referred to health care fraud as “one of our most urgent, destructive, and widespread national challenges.”[4]

This column illustrates some of the issues in the health care fraud problem, discusses federal and state efforts to combat some of these issues by using both criminal and civil health care fraud enforcement measures, and notes the growing influence of private whistleblowers in litigation involving this major fraud.

The Numbers

Last month, at the National Association of Attorneys General Summer Meeting in Seattle, Acting Deputy Attorney General Gary G. Grindler spoke about the scope of the health care fraud problem. He noted that the combined spending on Medicare and Medicaid has more than doubled over the past decade and that it is projected to exceed $800 billion this year. He then observed that fraud also has increased, and he said that some estimates project that fraud amounts to three to 10 percent of total spending – or between $25 and $80 billion per year.[5] The billions of dollars lost to health care fraud every year affect Medicare, Medicaid, and private insurance companies.[6]

During fiscal year 2009, the federal government won or negotiated approximately $1.63 billion in judgments and settlements in health care fraud cases and proceedings. For the same period, U.S. Attorneys’ Offices opened 1,014 new criminal health care fraud investigations involving 1,786 potential defendants.  Federal prosecutors had 1,621 health care fraud criminal investigations pending, involving 2,706 potential defendants, and filed criminal charges in 481 cases involving 803 defendants.  A total of 583 defendants were convicted for health care fraud-related crimes during the year. The Department of Justice (“DOJ”) opened 886 new civil health care fraud investigations and had 1,155 civil health care fraud matters pending.[7]

Taking these actions costs money, and the federal budget has been increasing to support enforcement. For example, the fiscal year 2010 fraud-fighting budget jumped from nearly $200 million to more than $300 million.[8] Moreover, the Obama administration’s 2011 budget request goes even further by seeking a 23 percent increase over 2010 levels for economic fraud enforcement, including health fraud.[9]

Government Proceedings 

The federal government recently created two entities to investigate and bring actions against health care fraud. Last May, the DOJ and the Department of Health and Human Services (“HHS”) created the Health Care Fraud Prevention and Enforcement Action Team (“HEAT”). That has led to the expansion of Medicare Fraud Strike Forces to Brooklyn and other areas across the country.[10] Then, the government created a Financial Fraud Enforcement Task Force, which is tasked with improving efforts across the federal government and with state and local partners to investigate and prosecute significant financial crimes, including health care fraud.[11]

In early June, the DOJ and HHS sent a letter to state attorneys general setting forth a variety of actions that the federal government is taking to cut into health care fraud. The letter noted, among other things, that President Obama has directed HHS to cut the improper payment rate, which tracks fraud, waste and abuse in the Medicare Fee for Service program, in half by 2012.[12] It also indicated that the HHS also will be doubling the size of its Senior Medicare Patrol, which recruits and trains retired professionals and other senior citizens in New York and every other state to recognize and report instances or patterns of health care fraud. 

The government has brought important claims alleging health care fraud against physicians, patients, hospitals, and others industry participants. Recently, for instance:

• Nine hospitals across the country, including St. Elizabeth Medical Center in Utica, N.Y., agreed to pay the federal government more than $9.4 million to settle allegations that they submitted false claims to Medicare. The settlements resolve allegations that the hospitals overcharged Medicare between 2000 and 2008 when performing kyphoplasty, a minimally-invasive procedure used to treat certain spinal fractures that often are due to osteoporosis. In many cases, the procedure can be performed safely as a less costly out-patient procedure, but the government contended that the hospitals performed the procedure on an in-patient basis to increase their Medicare billings;[13]
• Cochlear Americas, a Colorado-based cochlear implant manufacturer, agreed to pay $880,000 to resolve allegations that it paid illegal remuneration to health care providers to induce purchases of cochlear implant systems;[14]
• AstraZeneca LP and AstraZeneca Pharmaceuticals LP agreed to pay $520 million to resolve allegations that they illegally marketed the anti-psychotic drug Seroquel for “off label” uses not approved as safe and effective by the Food and Drug Administration (“FDA”), causing false claims for payment to be submitted to federal insurance programs including the Medicaid, Medicare and TRICARE programs, and to the Department of Veterans Affairs, the Federal Employee Health Benefits Program and the Bureau of Prisons.[15]

Certainly, there have been state actions taken recently as well, including by N.Y. Attorney General Andrew Cuomo. In April, for example, the Attorney General’s office brought suit against N.Y. Senate Majority Leader Pedro Espada Jr. and a number of current and former officers and directors of the Comprehensive Community Development Corporation (“Soundview”), for allegedly stealing money from Soundview, a not-for-profit organization founded by Espada to provide health care to people in the South Bronx.[16]

Whistleblowers

Changes to federal law included in the health care reform act and the growing awareness of individuals about the potential boon they can receive from whistleblowing has led to a significant increase in private actions under the federal False Claims Act (“FCA”) – with large recoveries to individual “qui tam” relators.[17] One whistleblower has apparently received more than $17 million as his share of successful actions under the FCA.

All of this leads to one conclusion: we are in an era of heightened enforcement, with the government pulling out all stops to cut back on health care fraud and abuse.  Although the incentives to engage in health care fraud are large, there are a lot of eyes watching – and the costs, if caught, are great.

[1] See http://newyork.fbi.gov/dojpressrel/pressrel10/nyfo061510.htm.

[2] See, e.g., U.S. v. Javan, 2010 U.S. App. Lexis 11901 (9^th Cir. June 7, 2010) (affirming health care fraud conviction); see, also, Ahmed v. Sebelius, 2010 U.S. Dist. Lexis 45476, (D. Mass. May 10, 2010) (upholding decision of Department of Health and Human Services revoking physician’s Medicare billing privileges after his felony conviction for obstruction of a criminal investigation into health care offenses in violation of 18 U.S.C. § 1518).

[3] See http://newyork.fbi.gov/dojpressrel/pressrel10/nyfo061510.htm.

[4] See http://www.justice.gov/ag/speeches/2010/ag-speech-100128.html (“Holder Speech”).

[5] See http://www.justice.gov/dag/speeches/2010/dag-speech-100614.html.

[6] See Press Conference by Secretary of Health and Human Services Kathleen Sebelius on Health Care Fraud and the Affordable Care Act, May 13, 2010, available at http://www.hhs.gov/secretary/about/speeches/sp20100513.html.

 [7] See The Department of Health and Human Services and The Department of Justice Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2009 (May 2010), available at http://www.justice.gov/dag/pubdoc/hcfacreport2009.pdf.

[8] See Holder Speech, supra note 4.

[9] See Lanny A. Breuer Assistant Attorney General, Criminal Division, U.S. Department of Justice, Prepared Remarks to Compliance Week 2010 – 5th Annual Conference for Corporate Financial, Legal, Risk, Audit & Compliance Officers, May 26, 2010, available at http://www.justice.gov/criminal/pr/speeches-testimony/documents/05-26-10aag-compliance-week-speech.pdf.

[10] See http://www.stopmedicarefraud.gov/heatsuccess/index.html.

[11] See http://www.stopfraud.gov/index.html.

[12] See http://www.whitehouse.gov/the-press-office/statement-president-passage-improper-payments-elimination-and-recovery-act-house-re (“wasteful overpayments from the federal government to individuals, organizations and contractors … cost taxpayers $98 billion in 2009”); http://www.whitehouse.gov/the-press-office/presidential-memorandum-regarding-finding-and-recapturing-improper-payments.

[13] See http://www.justice.gov/opa/pr/2010/May/10-civ-578.html.

[14] See http://www.justice.gov/opa/pr/2010/June/10-civ-673.html. Late last year, Pfizer Inc. and its subsidiary Pharmacia & Upjohn Company Inc. agreed to pay $2.3 billion to the federal government to resolve criminal and civil liability arising from the alleged illegal off-label promotion of certain pharmaceutical products. See http://www.hhs.gov/news/press/2009pres/09/20090902a.html.

[15] See http://www.justice.gov/opa/pr/2010/April/10-civ-487.html.

[16] See http://www.ag.ny.gov/media_center/2010/apr/apr20a_10.html.

[17] See Amy Kolz, “The Professional:  Serial whistle-blower Joseph Piacentile makes millions helping the government uncover fraud. That’s how the False Claims Act is supposed to work. Or is it?,” The American Lawyer, June 2010, available at http://www.law.com/jsp/tal/PubArticleTAL.jsp?id=1202457711736&pLitigation_Spring_p__The_Professional&hbxlogin=1.

This article is reprinted with permission from the July 2, 2010 issue of the New York Law Journal. Copyright ALM Properties, Inc. Further duplication without permission is prohibited. All rights reserved.