Chilivis Grubman Dalbey & Warner LLP
On January 27, 2010, Michel De Jesus Huarte was sentenced to 22 years in prison in the Southern District of Florida for his role in a healthcare fraud conspiracy which operated in Florida, Georgia, Louisiana, North Carolina and South Carolina. Huarte’s co-defendants received lesser sentences ranging from 18 months to 15 years in prison for their part in a $100 million HIV infusion medication scam.
Perhaps coincidentally, the very next day the Department of Health and Human Services (HHS) and the Department of Justice (DOJ) held a National Summit on Healthcare Fraud – focused on healthcare fraud as an epidemic which has indeed become a national economic crisis. The summit was the latest initiative of the Healthcare Fraud Prevention and Enforcement Action Team (HEAT), a joint HHS-DOJ program that was formally begun in May 2009 by Attorney General Eric Holder. The National Summit was an unprecedented event on the topic of healthcare fraud. Not only were HHS and DOJ involved, but also numerous other law enforcement agencies, as well as leading members of the private sector, including insurers. This impressive group of private and public entities came together as a part of the Obama Administration’s new initiative to promote the coordination and sharing of healthcare fraud data between the public and private sector.
In her opening remarks to the Summit, HHS Secretary Kathleen Sebelius emphasized the administration’s “zero tolerance stance” for criminals who cheat taxpayers and consequently endanger patients and the future of Medicare. Recognizing that all those in attendance have an interest in putting a stop to healthcare fraud, Secretary Sebelius issued a call to arms, stating:
Today, the President has asked us to put these criminals on notice. The problem of healthcare fraud is bigger than either government, law enforcement or the private industry can handle alone. We will need all of us working together to solve it. In the fight to prevent, find, catch, and prosecute these crooks, we want every good idea we can get.
Healthcare fraud is a national problem. It affects federal programs like Medicare, state programs like Medicaid, and private insurance companies. We’re all part of a healthcare system that has been undergoing rapid growth.”
To illustrate her point concerning the rapid growth of fraud and abuse in the healthcare system, Sebelius noted that the annual amount spent combating healthcare fraud has increased from $75 million to over $2.5 billion from 1970 until the present. In the eyes of Secretary Sebelius this means that, “[t]he difference between catching fraud then and now is the difference between trying to find a penny in a bathtub and trying to find a penny in a swimming pool.”
In his own opening remarks, Attorney General Eric Holder described the Summit as a critical step forward in the work being done by the Healthcare Fraud Prevention and Enforcement Action Team (HEAT), HHS-DOJ joint task force programs initiated by the Department of Justice in May 2009. Attorney General Holder informed those in attendance that 2009 was “an all time high” in the number of healthcare fraud charges levied against defendants, with over 800 defendants charged and 580 convictions, due in large part to the HEAT program and its strike forces. He also stated that DOJ civil enforcement of healthcare fraud laws recovered over $2.2 billion dollars under the False Claims Act.
Notwithstanding the positive news, Attorney General Holder described healthcare fraud as a serious problem whose scope is “simply shocking,” noting that more than $60 billion in public and private healthcare spending is lost to fraud each year. Like Secretary Sebelius, Attorney General Holder tacitly admitted that, due to the size and amount of money involved in the national healthcare system, “so long as healthcare fraud pays and these crimes go unpunished, our healthcare system will remain under siege.”
Attorney General Holder’s Estimate of the Scope of Healthcare Fraud May Be Too Low
The $60 billion dollar healthcare fraud figure cited by Holder may in fact be too conservative of an estimate, however. In May 2009, while testifying before the Senate Committee on the Judiciary: Subcommittee on Crime and Drugs, Malcolm K. Sparrow, a Harvard Professor of Public Management and expert in fraud detection and control strategy, stated:
The units of measure of losses due to healthcare fraud and abuse in this country are hundreds of billions of dollars per year. We just don’t know the first digit. It might be as low as one hundred billion. More likely it is two or three. Possibly four or five. But whatever that first digit is, it has eleven zeros after it.
Other experts mirror Sparrow’s conclusions, putting the estimated annual loss between $70 and $100 billion. Regardless of the actual number, losses from healthcare fraud are massive, and everyone agrees that these losses are a major contributor to the escalating healthcare costs facing all Americans. Illustrated another way, some 10-20% of the annual Medicare and Medicaid budget is spent on fraudulent or false claims.
Historical Data Concerning Civil Enforcement of Healthcare Fraud
While this is disturbing news for prosecutors, lawmakers and taxpayers, such widespread fraud can present lucrative opportunities for plaintiffs and civil lawyers who are well versed in healthcare law. Pursuant to the False Claims Act, 31 U.S.C. 3729, et seq., persons with evidence of fraud involving federal programs or contracts, known as “relators,” may file a civil qui tam suit against the wrongdoer on behalf of the United States. Such a law suit is initially filed under seal, and the Government has the right to intervene and join in the action against the defendant, if it sees fit. If a relator, or the Government upon intervention, is successful in recovering money from the defendant, either through a judgment or a settlement, the False Claims Act provides that the Relator is entitled to 15-30% of the amount recovered.
Unlike a criminal fraud case, which requires proof beyond a reasonable doubt, in a civilqui tam the Government is only required to prove the existence of fraud by a preponderance of the evidence. Furthermore, where proof of knowing violations or submissions are made, the Government may recover three times the amount of loss suffered.
As of 2004, 80% of all qui tam cases filed were related to healthcare fraud. This was nearly double the percentage of healthcare cases observed just seven years earlier.Accordingly, much of the $2.2 billion in civil enforcement recoveries as well as the criminal prosecutions for healthcare fraud, described by Attorney General Holder at the National Summit, likely began with the filing of a qui tam complaint. It is not uncommon for the Government, when investigating a relator’s claim to determine whether to intervene in their Complaint, to discover other fraudulent behavior unknown to the relator, which leads to both civil and criminal action on the part of the Department of Justice.
While a relator may continue to pursue his or her qui tam action against the defendant if the Government decides not to intervene, chances of success, as well as the size of any recovery, are largely influenced by whether the Government intervenes or not. This is clear upon reviewing the data maintained by the Department of Justice’s civil division concerning all qui tam actions, healthcare and otherwise, filed from 1986 through 2009. That data shows:
|From 1986-2009||Settlement or Judgment Reached||Case Dismissed||Total No. Concluded cases||Success rate|
|DOJ Civil Division Intervened||1,076||58||1,134||95%|
|DOJ Civil Divisiondid not intervene||239||3,681||3,920||6%|
|All Cases (regardless of intervention)||1,315||3,739||5,054||26%|
Not only does Government intervention lead to an extraordinarily high success rate, but the Department of Justice data also reveals that Government intervention results in the relator’s 15-30% share historically being 28 times higher than if the Government declines to intervene.
One explanation for the extraordinarily high success rate and high reward rates are that the Government is able to engage in a more thorough fact investigation than a whistle-blowing relator and, to that end, is able to determine more accurately how good a case is before they decide whether to intervene or not. Regardless of the reasons of their successes, the statistics contained in Table 1 above make it abundantly clear that in order to succeed in a qui tam action, the Government’s intervention is all but required. Furthermore, according to the chart below, there is evidence that the returns for the Government are also greater where the qui tam case originates from a relator, as opposed to the Government’s own independent investigation.
From the perspective of the civil litigators interested in qui tam cases, the increased government investment in healthcare fraud, both in terms of man power and funds, is likely to lead to increased rates of government intervention, to the benefit of your clients. From the perspective of the those lawyers representing healthcare providers, the increased investment will obviously require a corresponding increase in diligence on the part of your clients to avoid healthcare fraud issues. Unfortunately, since the Government’s investigations are now more focused on data trends to uncover fraud, the diligence necessary to uncover potential fraud may require some clients to invest in expensive and complicated audits of their electronic billing systems. Furthermore, the increased focus on healthcare fraud may also lead to a more combative and a more punitive environment as providers’ attempt to resolve or settle healthcare fraud matters.
A Review of the HEAT Program
Unfortunately for the typical qui tam relator, the Government historically only intervenes in 22% of all qui tam cases filed. It is in this context that one should consider the implications of the joint undertaking by HHS and DOJ, the Healthcare Fraud Prevention and Enforcement Action Team (HEAT).
On May 20, 2009, in a joint press release, Attorney General Holder and Secretary Sebelius announced the formal creation of HEAT and revealed the existence of the third and fourth joint Strike Teams that were investigating healthcare fraud under the auspices of both the DOJ and HSS. Through the HEAT program, HHS and DOJ are engaging in data-focused investigations of potential healthcare fraud, pooling their data to discover billing trends that may be indicative of fraud.
While HEAT may have been publicly announced in May 2009, HHS and DOJ had been engaging in data focused joint investigations through the creation of Medicare Fraud Strike Force teams since March 2007, when the first such team was created to investigate healthcare fraud in Miami-Dade County. Later dubbed “Phase One” the Miami Strike Force has been a resounding success in its first three years of exists garnering more than $220MM in court-ordered restitution in 87 cases involving 159 defendants in criminal cases alone. Furthermore, based on a 12 month before and after analysis of claims in the Miami-Dade County area, it is estimated that Phase One’s acts have led to a reduction of $1.75BB in durable medical equipment claim submissions and $334MM in durable medical equipment claims paid by Medicare.
In light of these successes, DOJ and HHS created another Strike Force, Phase Two, which jointly investigated healthcare fraud in the Los Angeles Metro Area in March 2008. This program is responsible for $55MM in court-ordered restitution in 21 cases involving 37 defendants. Phases Three and Four were announced in the May 20, 2009 release, though they had been operating since early 2009. Phase Three has already resulted in the prosecution of 14 cases $106MM.
Along with the creation of HEAT, the proposed budget for fiscal year 2010 called for a 50% increase in spending on fraud and abuse enforcement and prevention, and a total of $1.7BB in projected spending over the next five years. In this manner, HHS and DOJ are seeking to “raise the stakes on healthcare fraud, with increased tools, resources and sustained focus by senior-level leadership.” The statement further opined that the HEAT program, along with the increase in proposed spending, could save the United States over $2.7BB over the next five years.
Implications of the National Healthcare Summit
With these statements as background, consider again the National Healthcare Summit, which was held last January. At the conference, Attorney General Holder and Secretary Sebelius announced resounding successes of the HEAT program which began as the Medicare Strike Force in Miami some three years prior. Thus, in some respects, the National Summit can be viewed as an elaborate press conference, whose purposes may include deterring persons from engaging in healthcare fraud, as well as demonstrating the public that the proposed increased investment in the 2010 and 2011 budgets are justified and will pay dividends. To that end HEAT has announced the creation of Strike Force teams in the Brooklyn, New York, Baton Rouge, Louisiana, and Tampa, Florida areas.
While the political motivations and the actual deterrent effect such a conference might have on healthcare fraud is debatable, the conference’s true purpose might be considered as an effort by the HHS and DOJ to involve the private sector in the fight against healthcare fraud. Indeed, a significant portion of the National Summit involved remarks by James Roosevelt, Jr., CEO at Tufts Health Plan and closed door, strategic break out sessions between government enforcement officials and members of the private sector.
Considering the statistics which show that historically, cooperation between private individuals and the Government in civil fraud enforcement leads to greater recoveries for all involved, it is no surprise that the National Summit also served as a well publicized invitation for the private sector to get involved and join in the fight. By emphasizing the successes of the Government’s new focus on healthcare fraud and by unveiling proposed budgetary increases the Government is can be said to be reminding the private sector that there is more than enough success, and money, to go around.
However, there are critics who disagree with the claimed successes of the HEAT program and would question the motivations of the National Summit. Consider recently published statistics which indicate that despite the claims of increased successes, little has changed in terms of Medicare fraud enforcement after the creation of the HEAT program and the increased spending on anti-fraud provisions. While admitting that the HEAT program has scored some “high-profile” successes since 2007, the authors conclude that “[t]wo years after the federal government started its latest push to crack down on Medicare fraud, the number of people charged with ripping off healthcare insurers has barely changed.”
The Future of Healthcare Fraud Enforcement
Regardless of the extent of the HEAT program’s successes, two facts are indisputable. First, fighting healthcare fraud is now a higher priority than it ever has been and healthcare fraud enforcement is being more aggressively pursued by local, state, and federal law enforcement. Second, the present administration is actively choosing to invest more money into healthcare fraud enforcement than any administration before it. Clearly, no fulsome debate about healthcare reform in this country can take place without proper consideration of the staggering effects of associated fraud and abuse. More, the economic realities of any system require vigilant detection and enforcement of such waste. These recent developments – involving an enormous injection of resources and money to combat healthcare fraud – provide some measure of optimism with respect to controlling the costs of our ever ballooning system of healthcare in this country.
 Jay Weaver, Miami man gets 22 year for Medicare clinic fraud, The Miami Herald, Jan. 27, 2010, available at MiamiHerald.com.
 Health and Human Services Secretary Kathleen Sebelius, Remarks at National Summit Healthcare Summit (January 28, 2010) (transcript available at http://www.hhs.gov/secretary/speeches/sp20100128.html).
 Attorney General Eric Holder, Remarks at National Summit Healthcare Summit (January 28, 2010) (transcript available at http://www.stopmedicarefraud.gov/innews/holderremarks.html).
 Malcolm K. Sparrow, Testimony at “Criminal Prosecution as Deterrent to Healthcare Fraud” before Senate Committee on Judiciary: Subcommittee on Crime and Drugs (May 20, 2009) (transcript available at http://www.hks.harvard.edu/news-events/testimonies/sparrow-senate-testimony) [hereinafter “Sparrow Testimony”].
 Rudman, et al., Healthcare Fraud and Abuse, 6 Perspectives in Health Information Management 1 (Fall 2009); Association of Certified Fraud Examiners, Healthcare Fraud, available at www.acfe.com/resources/fraud-101-healthcare.asp (last visited February 23, 2009).
 Sparrow Testimony, supra.
 Jack A. Meyer, President, Economic and Social Research Institute, Fighting Medicare Fraud: More Bang for the Federal Buck, prepared for Taxpayers Against Fraud Education Fund (July 2006) available at http://www.taf.org/FCA-2006report.pdf (last visited February 27, 2010).
 John R. Phillips and Mary Louise Cohen, Failing to report Medicare billing errors: a very risky business, Journal of the Association of Healthcare Internal Auditor(Spring 1997).
 Taxpayers Against Fraud, Fraud Statistics – Overview, October 1, 1987 – September 30, 2009, Civil Division,, U.S. Department of Justice, available at http://www.taf.org/FCAstats2009.pdf.
 Taxpayers Against Fraud, The 1986 False Claims Act Amendments: A Retrospective Look at Twenty Years of Effective Fraud Fighting in America, p.5 (2006) (available at http://www.taf.org/retrospective.pdf) (last visited February 27, 2010).
 U.S. Dept. of Health & Human Services, Press Release, Attorney General Holder and HHS Secretary Sebelius Announce New Interagency Healthcare Fraud Prevention and Enforcement Action Team (May 20, 2009), available at http://www.hhs.gov/news/press/2009pres/05/20090520a.html. [hereinafter “May 20 Press Release”].
 Fact Sheet: Phase One Medicare Fraud Strike Force Miami-Dade County, Fla., p.1 available at http://www.stopmedicarefraud.gov/heatsuccess/heat_taskforce_miami.pdf (last visited February 24, 2010).
 Fact Sheet: Phase Two Medicare Strike Force Los Angeles Metro Area, p.1 available at http://stopmedicarefraud.gov/heatsuccess/heat_taskforce_losangeles.pdf.
 Fact Sheet: Phase Three Medicare Strike Force Detroit Metro Area, p.1 available at http://stopmedicarefraud.gov/heatsuccess/heat_taskforce_detroit.pdf; Fact Sheet: Phase Four Medicare Strike Force Houston Metro Area, available at http://stopmedicarefraud.gov/heatsuccess/heat_taskforce_houston.pdf.
 John J. Carney and Robert M. Wolin, Target Healthcare Fraud, New York Law Journal, July 13, 2009.
 May 20 Press Release, supra.
 U.S. Dept. of Health & Human Services, Press Release, Health & Human Services Secretary Kathleen Sebelius, Attorney General Eric Holder Convene National Summit on Healthcare Fraud, Unveil Historic Commitment to Fighting Fraud in President’s FY 2011 Budget (January 28, 2010) (available at http://www.hhs.gov/news/press/2010pres/01/20100128a.html).
 Brad Heath, Little Progress Seen Against Health Insurance Fraud, USA Today (January 29, 2010) (available at http://www.usatoday.com/news/washington/2010-01-28-health-care-insurance-fraud_N.htm).
Chilivis Grubman Dalbey & Warner LLP