The National Epidemic of False Claims against Federal and State Health Care Programs

The National Epidemic of False Claims against Federal and State Health Care Programs


In a study published in the Journal of the American Medical Association in April of 2012, former CMS Administrator Donald M. Berwick and RAND Corporation analyst Andrew D. Hackbarth estimated that fraud and abuse added as much as 98 billion dollars to Medicare and Medicaid spending in 2011 alone. Berwick D, Hackbarth A, Eliminating Waste in US Health Care, JAMA, 307(14): 1513-1516 (April 11, 2012). Financial waste from “overtreatment” of Medicare and Medicaid patients added as much as another 87 billion dollars in Medicare and Medicaid spending in 2011. The authors defined “overtreatment” as the “waste that comes from subjecting patients to care that, according to sound science and the patients’ own preferences, cannot possibly help them—care rooted in outmoded habits, supply-driven behaviors, and ignoring science.”

At a time of major federal budget deficits and escalating healthcare costs, there is general agreement across all political parties on the need to eliminate unnecessary spending or improper payments in federal and state health care programs. As stated by Berwick and Hackbarth, “No matter how polarized politics in the United States have become, nearly everyone agrees that health care costs are unsustainable.” Id. at 1513.

The Government Accountability Office (GAO), the investigative arm of Congress, has designated Medicare and Medicaid as being at “high risk” for fraud, abuse, and improper payments. Both programs were designed to enroll “any willing provider” and to reimburse claims quickly for services provided.

Every business day, Medicare administrative contractors process approximately 4.5 million claims from 1.5 million providers. The volume of claims and emphasis on rapid payment, as opposed to identifying and rooting out false or inflated claims, make the Medicare Program susceptible to false claims.

Schemes to take excessive or improper payments from federal and state health care programs are varied and many. Some schemes are sophisticated accounting manipulations based on internal data difficult to detect. Other schemes are more blatant violations of federal law. Behind the schemes is a common sense of entitlement to grab maximum government money regardless of compliance with federal laws. As Benjamin Franklin said, “There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government.”

The Importance of Acting to Recover Improper Payments for False Claims against Federal and State Health Care Programs

As stated by former CMS Administrator Dr. Donald Berwick, “The need is urgent to bring US health care costs into a sustainable range for both public and private payers.” Id. at 1513. “Commonly, programs to contain costs use cuts, such as reductions in payment levels, benefit structures, and eligibility.” Id. “[I]f initiatives to cut spending are taken too far or too fast, they become risky.” Id. “Vulnerable Medicaid beneficiaries and seniors covered by Medicare with marginal incomes may find important care services out of reach, either because they cannot afford the new cost-sharing, because clinicians and hospitals have withdrawn from local markets, or both.” Id.

“A less harmful strategy would reduce waste, not value-added care.” Id. “The opportunity for waste reduction in health care is enormous.” Id.  “The savings potentially achievable from systematic, comprehensive, and cooperative pursuit of even fractional reduction in waste are far higher than from more direct and blunter cuts in care and coverage.” Id. “Reducing waste is by far the largest, most humane, and smartest opportunity for evolving an affordable health care system.” Id. at 1515.  Actions to recover improper payments for false claims serve a significant role in reducing damages to the Federal Treasury and strengthening the financial   stability of the Medicare and Medicaid Programs.  One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover more than $10.1 billion since January 2009 in cases involving false claims against federal health care programs.

The Federal False Claims Act

The Federal False Claims Act establishes liability for anyone who “knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval,” 31 U.S.C. § 3729(a)(1), or “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government,” 31 U.S.C. § 3729(a)(2), or “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.”

To find liability under the False Claims Act, “no proof of specific intent to defraud is required.” 31 U.S.C. 3729 (b). Under the False Claims Act, a defendant is liable for acting in “reckless disregard of the truth or falsity of the information” or acting in “deliberate ignorance of the truth or falsity of the information.”

Rewards in Qui Tam Whistleblower Actions

The purpose of the False Claims Act is to enlist and reward the public’s help in uncovering false claims for payment against the Federal Treasury. For example, in fiscal year 2010, over $2.3 billion was recovered in lawsuits filed under the False Claims Act’s qui tam provisions.Under these provisions, whistleblowers (known as “relators”) are entitled to recover between 15 and 30 percent of the proceeds of a successful suit. In fiscal year 2010, whistleblowers were awarded approximately $385 million. Since 1986, when the qui tam provisions were strengthened by Congress, recoveries in qui tam cases have exceeded $18 billion and whistleblowers have obtained more than $2.8 billion in awards. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $13.9 billion.

The whistleblower or individual who files a case under the False Claims Act may receive between 15 and 30 percent of the total recovery from the defendant, whether through a favorable verdict or settlement.

If the Government intervenes and joins a lawsuit brought by a whistleblower, the whistleblower generally is eligible to receive at least 15 percent and up to 25 percent of the recovery, depending on the whistleblower’s contribution to the prosecution of the lawsuit. Attached are the Department of Justice guidelines for determining the financial reward to a whistleblower.

If the Government chooses not to intervene and the whistleblower proceeds with the lawsuit on his or her own, the whistleblower may receive between 25 and 30 percent of the recovery.

November 2012