• Not a Paper Tiger: Current Trends in Health Care Fraud Enforcement
  • February 15, 2012 | Authors: Joelle Epstein; Nicholas C. Harbist
  • Law Firms: Blank Rome LLP - Philadelphia Office ; Blank Rome LLP - Princeton Office
  • The war against health care fraud will wage on in 2012. The federal government made it a national priority. Beginning in February 2011, The Medicare Fraud Strike Force announced a massive enforcement action, which led to charges against 111 defendants for participation in a Medicare fraud scheme totaling more than $225 million. The defendant list includes doctors, nurses, and health care company owners and executives. In addition to the arrests, 16 search warrants were executed on healthcare institutions. Officials stated that this operation is the "largest-ever health care fraud takedown," involving more than 700 law enforcement agents from various federal, state, and local law enforcement agencies.

    In this era of new enforcement initiatives, health care practitioners on both the organizational and individual level are being faced with an increasing threat of civil and/or criminal prosecution for health care regulatory practices that may violate federal and state laws. The U.S. Department of Health and Human Services and the U.S. Department of Justice are now working together more closely and efficiently with the FBI and IRS on numerous fronts to combat Medicare fraud.

    In the May 2010 National Summit on Healthcare Fraud, which was attended by major players in the fight against healthcare fraud, waste and abuse, Attorney General Eric M. Holder Jr. estimated that "more than $60 billion in public and private healthcare spending is lost each year to healthcare fraud. That is a staggering amount of money. It's half the entire economy of...Kansas [and i]t's more than the net worth of America's eight largest private foundations." At the summit, Secretary of the Department of Health and Human Services, Kathleen Sebelius, commented that President Obama would "request $561 million in the 2011 budget, an 80% increase in discretionary funds, to support the investigation and prosecution of health care fraud." In today's world of growing budget deficits, the thought of increasing budgets and discretionary spending is hard to imagine, but as Attorney General Holder noted: "In 2009, the Justice Department reached an 'all time high' in the number of healthcare fraud defendants charged, more than 800. We also obtained more than 580 convictions. And on the civil enforcement front, our healthcare fraud recoveries last year under the False Claims Act exceeded a stunning $2.2 billion dollars." This has been eclipsed by the staggering $4 billion in 2010. Holder noted that in May 2009, a joint departmental initiative between the Department of Justice and the Department of Health and Human Services, the Health Care Fraud Prevention and Enforcement Action Team (HEAT), "uncovered more than a quarter of a billion dollars in fraudulent billings." Attorney General Holder stated that these enforcement initiatives return four dollars for every dollar spent, making additional funding for these initiatives even more likely. Indeed, The Obama administration's 2011 fiscal year proposed budget requested a 23 percent increase in funding ($60 million) for the DOJ's Criminal Division to enhance the prosecution of economic crime, which includes the prosecution of health care fraud.

    On the civil front, Assistant Attorney General, Tony West, told a pharmacy industry group in late October that his office would utilize the HEAT task forces and coordinate with state and local law enforcement to look for opportunities to bring civil cases against both corporations and individuals, not only in the traditional pharmaceutical fraud cases, but also in kickback cases and cases involving unnecessary treatment.

    Echoing Attorney General Holder's comments, Paul Fishman, the newly appointed U.S. Attorney for the District of New Jersey, declared at a recent healthcare summit at Seton Hall Law School that healthcare fraud was a top priority for the U.S. Attorney's Office in New Jersey because of the opportunities for fraud in the supply line. U.S. Attorney Fishman also noted that the investigations were "at an all time high," and that his Office restored four dollars for every dollar spent combating healthcare fraud. Because of the "rampant opportunity for abuse," U.S. Attorney Fishman reformed his offices Securities and Healthcare Fraud Unit, and named a new chief, Maureen Ruane of the separate Healthcare Fraud Unit. Ms. Ruane will oversee nine federal prosecutors who are dedicated exclusively to the investigation and prosecution of healthcare fraud. Mr. Fishman declared that his office would focus not only on traditional phony services and staged accident cases, but also on non-medical necessity cases, upcoding cases, and kickback cases. He stated that his office was attempting to create seamless investigations where the civil and criminal divisions work "hand in glove."

    Moreover, U.S. Attorney Fishman noted that his Office was considering utilizing the so-called Park doctrine to impose strict liability on officers and employees of corporations who violate federal law. Mr. Fishman emphasized that his Office would no longer solely utilize deferred prosecution agreements, but would attempt to hold all responsible individual corporate officers accountable for corporate misconduct. He noted that in many corporate prosecutions there were too many cases where just corporations were held accountable, but not the responsible corporate officers. In fact, earlier this year, the United States Attorney's Office in Philadelphia brought charges against four (4) Synthes executives under the Park doctrine, which holds a corporate executive strictly liable for violations of criminal law if the executive was in a position of authority to prevent or correct the violation and did not do so. Unlike traditional crimes, there is no requirement to prove criminal intent. In addressing the Food and Drug Law Institute in October, FDA Litigation Chief, Eric Bloomberg, emphasized that his Office was looking for test cases to utilize the Park doctrine in order to "change the corporate culture" of firms that otherwise may view fines as merely the cost of doing business. Indeed, even though the Synthes executives plead guilty to misdemeanor violations under the Food and Drug Cosmetic Act, these senior executives were all sentenced to between four (4) to nine (9) months in prison each for illegally marketing spine devices off-label.

    Congress also weighed in last year, expanding the reach of the False Claims Act through the health care reform legislation (Pub. L. No. 111-148 (Mar. 21, 2010)). While changes to the False Claims Act enhance the Federal Government's ability to pursue all sorts of fraud committed by entities that operate under U.S. government contracts, it has specific implications for health care fraud. The changes implemented by the new legislation make prosecution under the False Claims Act easier. For example, the False Claims Act can now be used against health care providers that knowingly retain overpayments and do not return them to the government during the prescribed time (60 days).

    Congress also narrowed the public disclosure bar, which had prevented courts from pursuing qui tam actions that were based on information already disclosed to the public. Information disclosed in state and private proceedings is no longer considered to be publicly disclosed, nor is information disclosed in federal criminal, civil, or administrative trials and hearings where the government is not party to the proceedings. The original source exception, which permits a False Claims Action based on publicly available information to move forward, now applies not only to relators that have direct and independent knowledge of the information upon which the action is based, but also to relators that have knowledge that is independent of and materially adds to the publicly disclosed information. Even if the action is subject to the public disclosure bar, the Department of Justice now has discretion, in any event, to pursue to the action.

    Lastly, the new legislation codifies that health care providers engaged in kickbacks will be subject to the provisions of the False Claims Act. This means that for activities that violate the Anti-Kickback statute, the violator can now be subject to the increased damages provided for by the False Claims Act—trebles damages for each individual violation. Recent legislation also diminishes the mens rea requirement under the Criminal Health Care Fraud Statute, 18 U.S.C. § 1347. The government is no longer required to demonstrate that the violator specifically intended to violate the law, as required by the previous version of the statute.

    On the administrative front, the Department of Health and Human Services Office of Inspector General ("HHS/OIG") took steps in February 2010 to ensure that Recovery Audit Contractors ("RACs"), the entities that report instances of suspected fraud to Centers for Medicare and Medicaid Services ("CMS"), had more of an incentive to report fraud, thereby increasing the likelihood and efficacy of health care fraud investigations. State enforcement agencies, including the Medicaid Fraud Enforcement Units, have also received increased incentives to ramp up their enforcement mechanisms.

    In addition to traditional criminal and civil enforcement, the HHS/OIG explained in November 2010 its expanded authority to exclude companies and individuals from participation in the health care programs. With regard to officers and managing employees, they can now be excluded based solely on their position within the corporation. The HHS/OIG also has authority to exclude individuals who own or have a controlling interest in the company if those individuals knew, or should have known of the violations. The HHS/OIG noted that its exclusionary authority had not been used in the past, but emphasized that it intended to use this authority on an ongoing basis.

    In New York, the State Legislature just passed Senator Schneiderman's Fraud, Enforcement & Recovery Act, which strengthens New York State's False Claims Act by adopting the changes made to the Federal False Claims Act. The New York legislation also increases protections to whistleblowers and enhances the state's ability to recover the losses it has endured because of the false claims.

    Because of increased enforcement of healthcare fraud, all providers in the health care industry are at risk of exposure to healthcare fraud investigations. Every segment of the industry has been the subject of enforcement actions. For example, DOJ prosecutions continue to run the gamut of Medicare/Medicaid fraud. Some examples include: (1) a nurse and a CEO who had been arrested for healthcare fraud in Texas for allegedly billing Medicaid $280,550 for private duty nursing services not actually provided; (2) a $24 million plus interest settlement with a national dental management company to resolve allegations that it caused bills to be submitted to state Medicaid programs for medically unnecessary dental services performed on children insured by Medicaid; (3) a New Orleans orthopedic surgeon indicted for submitting claims in the amount of $102,053 to the U.S. Department of Labor's Office of Workers Compensation program for services he claimed he provided after Hurricane Katrina that the doctor did not render; and (4) the institution of a civil suit by the United States against a Louisiana interventional cardiologist who had already been convicted and sentenced to 10 years in prison on 51 counts of healthcare fraud in connection with claims that he performed medically unnecessary cardiovascular procedures such as cardiac angiograms, angioplasties and stents. In the continuing HEAT strike force efforts in Miami, Florida; Baton Rouge, Louisiana; Brooklyn, New York; Detroit, Michigan and Houston, Texas, 94 people have been charged for their alleged participation in schemes to collectively submit more than $251 million in false claims to the Medicare program. Durable medical equipment suppliers have been at the heart of much of HEAT's 2009/2010 law enforcement efforts; ambulance providers are regularly in the spotlight; hospitals have been settling cases for years; and physicians have increasingly been the subject of investigations.

    Pharmaceutical and medical device manufacturers continue to be hit hard and often. Most recently, Merck, Inc. plead guilty and paid $950 million dollars in fines and penalties to resolve allegations that the company had illegally marketed Vioxx. In another recent $520 million civil settlement relating to the illegal marketing of Seroquel, AstraZeneca was required to sign a 5 year Corporate Integrity Agreement (CIA). The CIA requires AstraZeneca to: (1) monitor the consultant and other fee arrangements that it enters into with Health Care Institutions (including ensuring that consultants are paid fair market value for their services and requiring written agreements with the consultants); (2) accurately educate its sales consultants; and (3) make sure that its bonus policies do not induce inappropriate marketing of government-reimbursed drugs.

    In December 2010, a former Glaxo Smith Kline attorney was indicted for obstructing an FDA probe into off-label marketing. According to the indictment, in October 2002 the FDA asked for information about the company's promotion of a prescription drug, as part of an inquiry into whether the drug was being promoted for uses that had not been approved by the FDA. The indictment says that, in response to the FDA's inquiry, the lawyer signed and sent a series of letters from the company to the agency that falsely denied that the company had promoted the drug for off-label uses, even though the lawyer knew, among other things, that the company had sponsored numerous programs where the drug was promoted for unapproved uses. The indictment alleged that the lawyer knew that the company had paid numerous physicians to give promotional talks to other physicians that included information about unapproved uses of the drug. In an interesting twist, the attorney has offered an "advice of counsel" defense at trial, claiming that she relied on the company's outside attorneys for advice, and the Court dismissed the charges.

    In New Jersey, the University of Medicine and Dentistry of New Jersey (UMDNJ) has been hit multiple times by health care fraud investigations. In 2005, UMDNJ paid $4.9 million to the U.S. Government and State of New Jersey as part of a deferred prosecution agreement related to a double billing scheme, which was followed by another $2 million dollar settlement to settle a whistleblower lawsuit involving disclosure of the same scheme. This year, UMDNJ agreed to pay $8 million to settle allegations that it illegally paid kickbacks to cardiologists and caused submissions of false claims to Medicare. In that investigation, the U.S. Attorney's Office also pursued the individual cardiologists who had contracted with UMDNJ to perform part time work as "Clinical Assistant Professors," and to perform bona fide services, such as teaching at UMDNJ's medical school, providing on-call coverage, attending weekly conferences, lecturing, and supporting UMDNJ's research efforts, among other things, alleging that "it was understood that these services would not be performed by the cardiologists." Instead the cardiologists were being paid to refer patients to the hospital. The DOJ had reached settlements with nine cardiologists. Two of these cardiologists also pleaded guilty to criminal embezzlement charges in connection with the no-show job scheme.

    In December 2011, the U. S. Attorney's Office arrested over a dozen doctors in a broad undercover kickback investigation.

    As investigating healthcare fraud waste and abuse has become a national priority, the enforcers are becoming more creative with how they prosecute suspected fraud, scrutinizing relationships between different providers (i.e., hospitals and physicians) to expand who they can target and using various federal and state laws to pursue the fraud actions. This makes it more likely than ever that more entities and individuals will get caught in the crossfire of an investigation. It also makes it more prudent than ever for health care providers to ensure that the activities they perceive to be innocent will not subject them to health fraud investigation or prosecution. Accordingly, it is mandatory that providers update their compliance program and vigorously enforce compliance requirements and, advisable that health care providers be vigilant when considering affiliation with another health care entity, highlighting those aspects of the arrangement that could expose the purchaser and/or buyer to a health care fraud investigation and prosecution. The ramifications of liability for both for-profit and not-for-profit entities are staggering. Not only are the criminal and civil penalties severe, but failure to engage in appropriate compliance mechanisms will adversely effect recruitment of potential board members and affect the rigors of internal board governance on the evaluation of board members performance, and for not-for-profits implicate the 990 submissions. In short, warnings of the sergeant in Hill Street Blues are appropriate: "Let's be careful out there."