ABA Health eSource
August 2010 PPACA Special Edition

Fraud, Waste and Abuse Initiatives: Enforcing Like It’s 1993

By Frank Sheeder and Lindsey F. Bartula, Jones Day, Dallas, TX

AuthorAuthorThe government is determined to reduce Medicare and Medicaid fraud by using new tools in the recently enacted Patient Protection and Affordable Care Act (“PPACA”) and other legislation, as well as through various traditional initiatives. The need to crack down on fraud, waste and abuse in the health care system is a common political and policy theme. Such initiatives often go hand-in-hand with reform efforts. In fact, some of the current themes were also articulated in 1993, when the Clinton administration endeavored to reform the health care system.

Clinton Administration

In a 1993 address to Congress about his health care reform plan, President Clinton explained:

We also have to crack down on fraud and abuse in the system. That drains millions of dollars a year. It is a very large figure, according to every health care expert I’ve ever spoken to. So I believe we can achieve large savings. And that large savings can be used to cover the unemployed uninsured and will be used for people who realize those savings in the private sector to increase their ability to invest and grow, to hire new workers or to give their workers pay raises, many for the first time in years. 1

President Clinton’s desires to reduce fraud and abuse in the health care system were put into action by Attorney General Janet Reno, who explained in a September 1993 press conference that “[t]he Justice Department is currently evaluating measures to increase the Federal power to fight fraud and abuse, for example by strengthening anti-kick-back laws and making heavy penalties against defrauding the Government applicable to those who defraud the private health care system as well.” 2 In the same press conference, First Lady Hillary Clinton spoke about reform and enforcement initiatives:

I also want to thank the Attorney General and the Justice Department for their ongoing and accelerating efforts to crack down on the problem of health care fraud and abuse. As the Nation’s health care bills have mounted, consumers and businesses have paid a high price. The crimes have grown more sophisticated and more outrageous, and every time someone rips off the health insurance system, the public, the private insurers, all of us pay more . . . . We intend to make it very clear, health care fraud will not go unpunished. In a reformed health care system there will no longer be any room for the kind of games that for too long have permitted the kind of fraud and abuse that we are cracking down on now. 3

The current Administration has used similar messages as part of the recent reform process.

Obama Administration

 In a September 2009 speech to a joint session of Congress, President Obama placed fraud and abuse enforcement as a cornerstone of reform. He explained that “[t]he only thing this plan would eliminate is the hundreds of billions of dollars in waste and fraud . . . .” 4 In describing the cost of the reform plan, President Obama explained that “[r]educing the waste and inefficiency in Medicare and Medicaid will pay for most of this plan,” noting further that:

[W]e’ve estimated that most of this plan can be paid for by finding savings within the existing health care system, a system that is currently full of waste and abuse. Right now, too much of the hard-earned savings and tax dollars we spend on health care don’t make us any healthier. That’s not my judgment – it’s the judgment of medical professionals across this country. And this is also true when it comes to Medicare and Medicaid. 5

In March 2010, in conjunction with reform efforts, President Obama announced a new effort to recoup taxpayer dollars through the use of payment recapture audits. The White House press statement explained that “[e]ach year, the federal government wastes billions of American taxpayers’ dollars on improper payments to individuals, organizations, and contractors. These are payments made in the wrong amounts, to the wrong person, or for the wrong reason. In 2009, improper payments totaled $98 billion, with $54 billion stemming from Medicare and Medicaid. We cannot afford nor should we tolerate this waste of taxpayer dollars in our health care system.” 6 The statement explained further that:

Today, the President is announcing a new effort to improve accountability and cut down on this waste and fraud through the use of payment recapture audits. These are investigations in which specialized private sector auditors use cutting-edge technology and tools to scrutinize government payments and then find and reclaim taxpayer funds made in error or gained through fraud. These auditors can be compensated based on the amount of improper payments they identify and are reclaimed — providing a powerful incentive to find every error. 7

This was not the last step in the current fight against fraud, waste and abuse in the health care system.

Clinton Era Reform Efforts Lead to Increased Enforcement

In both the Clinton and Obama administrations, reform efforts have led to increased health care fraud, waste and abuse enforcement initiatives. After unsuccessful legislative reform efforts during the Clinton Administration, Congress passed the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) 8 which, among privacy and other provisions, created a number of new crimes, including health care fraud, theft or embezzlement in connection with health care, and obstruction of criminal investigations of health care offenses. HIPAA also increased civil penalties for health care violations. In addition to legislative efforts targeted at health care fraud in the wake of failed health care reform, enforcement action increased. In a 1998 press conference, Attorney General Reno detailed the government’s successes in health care fraud investigations and enforcement actions. She explained that:

[S]ince 1992, criminal health care fraud prosecutions and convictions have increased by more than 400 percent. Last year, more than 2,700 individuals and businesses were excluded from Federal health care programs, a 93-percent increase over 1996. Another remedy, debarment, so that they cannot participate in the business because of what they have done. In addition, last year we recovered more than $1 billion in criminal fines, civil settlements and administrative penalties; $968 million of the funds that [were] recovered [were] returned to the Medicare Trust Fund. And that is money that would have gone to con artists. Instead, it will help preserve the Trust Fund and improve health care for millions of Americans. 9

Recent Legislation and Enforcement

Leading up to the recently enacted health care reform package, Congress passed the American Recovery and Reinvestment Act of 2009 (“ARRA”) 10 and the Fraud Enforcement and Recovery Act of 2009 (“FERA”). 11 The government also created the Health Care Fraud Prevention and Enforcement Action Team (“HEAT”). 12 While ARRA was an element of the stimulus package, it also contained sweeping whistleblower provisions for people who report suspected misuse or gross mismanagement of stimulus funds, a large portion of which are allocated to health care projects. FERA substantially amended the False Claims Act by expanding liability to indirect recipients of federal funds, establishing liability for the willful retention of identified overpayments (even where there is no underlying false claim), adding a broadly defined materiality requirement, expanding protections for whistleblowers and providing relators with access to documents obtained by the government. The HEAT initiative is a joint effort between the Department of Justice (“DOJ”) and the Department of Health and Human Services (“HHS”) under which increased resources are deployed “to reduce skyrocketing health care costs and improve the quality of care by ridding the system of perpetrators who are preying on Medicare and Medicaid beneficiaries.” 13

In May 2010, the DOJ and HHS announced their financial and prosecutorial triumphs in the “Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2009.” 14 The Report touts that the government won or negotiated $1.63 billion in judgments and settlements, and the Medicare Trust Fund received $2.51 billion from these and past efforts. 15 United States Attorney’s offices opened 1,014 new criminal health care fraud investigations involving 1,786 potential defendants. 16 Relators received $48,323,034. 17 HHS-OIG reported that legislative and administrative actions led to $16.47 billion in savings — $5.5 billion in Medicare savings and $10.97 billion in savings toward the Federal share of Medicaid. 18

The government is bolstering its reform efforts by tough words and actions. In addition to the new tools in the recently enacted PPACA that will help combat fraud, waste and abuse in the health care system, on June 8th it launched “an unprecedented national campaign to combat fraud and misinformation. . . . The campaign includes a series of steps to protect seniors by ensuring that they have clear and accurate information about the new law and implementing stronger tools to fight waste, fraud and abuse in the Medicare program.” 19

Later, in a June 15, 2010 Joint Subcommittee Hearing on Reducing Fraud, Waste and Abuse in Medicare, government agency officials and members of Congress expounded on this initiative to target health care fraud. 20 A CMS statement notes that CMS anticipates a high “Return on Investment” for its fraud-fighting efforts. The CMS Director of the Program Integrity Group explained that:

Our [budget] request would invest more than $1.7 billion in mandatory and discretionary resources for the HCFAC [Health Care Fraud and Abuse Control] program in FY 2011. This proposal is the largest one-year increase in HCFAC since its inception in 1997 and reflects the strong commitment the Administration is making to program integrity. This request is part of a multi-year strategy to implement our strategic principles and goals, and is part of a larger, government-wide effort to invest in program integrity activities that reduce improper payments and return funds to the Federal treasury. We are confident that investments in fraud-fighting programs will more than pay for itself in averted fraudulent payments, increased recoveries, and stronger audit functions. 21

Congressman Peter Roskam (R-IL) discussed one of the government’s major tools, “data prospecting,” explaining that there is “a lack of accurate measurement of Medicare fraud. Estimates vary widely, and reliable estimates of actual dollar value lost to Medicare fraud are limited,” advocating as a solution the use of Predictive Modeling to prevent improper payments in the first place. 22 He explained that:

The Lewin Group conservatively estimates that a comprehensive application of predictive modeling can save Medicare $65 billion. Another analysis of TerraMedica, a healthcare technology firm, finds between $18.6 billion and $42.2 billion in annual suspicious claims that could be subject to fraud, abuse or overutilization patterns. In 2009, Medicare was able to recover $2.5 billion in improper payments, so predictive modeling could dramatically increase the amount of fraudulent payments detected and savings to the Medicare Trust Fund. Pre-payment predictive modeling would mitigate fraud and deter future criminals from attempting to defraud taxpayer dollars and strengthen the Medicare program for seniors. 23

Representative Ileana Ros-Lehtinen (R-FL) discussed the exclusion of accountable individuals, including legislation offered to expand OIG authority to exclude individuals who were corporate officers or managing employees of entities at the time the entities engaged in health care fraud:

In many cases of fraud, the corporate officers who were complicit in the crime change companies and continue to engage in Medicare fraud. These crooks are not excluded from billing Medicare. The OIG can only exclude corporate officials if they are presently involved with the entity committing fraud. This policy is counterproductive. We cannot allow these criminals to play musical chairs and go from one company to another. 24

Finally, Congressman Scott Murphy (D-NY) explained that effective Medicare fraud reform should begin early and should include use of the PPACA provision that allows payments to be suspended based on an indication of potential non-compliance. Also, anti-fraud standards should be rolled out across the country, not just in “trouble spots.” 25

The parallels between reform efforts, new legislation, tough messages, and renewed enforcement against fraud, waste and abuse are compelling. In conjunction with the implementation of the PPACA reforms and the corresponding spiraling program costs, health care providers will face escalating enforcement efforts and reimbursement recoveries — wise providers will prepare for the expansive civil, administrative, criminal, political and reputational risks that this environment creates.

1 Transcript of President’s Address to Congress on Health Care, Sept. 23, 1993, found at http://www.nytimes.com/1993/09/23/us/clinton-s-health-plan-transcript-president-s-address-congress-health-care.html.
2 U.S. Dept. of Justice, Press Conference Attorney General Janet Reno, Sept. 15, 1993, p. 4.
3 Id. at p. 8.
4 Remarks by the President to a Joint Session of Congress on Health Care, Sept. 9, 2009, found at this link.
5 Id.
6 Press Release, The White House Office of the Press Secretary (March 9, 2010) found at this link.
7 Id.
8 Pub. L. No. 104-191 (1996).
9 U.S. Dept. of Justice, Press Conference Attorney General Janet Reno, March 19, 1998, p. 5, found at http://www.justice.gov/archive/ag/speeches/1998/mar1998.htm.

Pub. L. No. 115-5 (2009).

11 Pub. L. No. 111-21 (2009).
12 http://www.hhs.gov/news/press/2009pres/05/20090520a.html.
13 http://stopmedicarefraud.gov/heatsuccess.html.
14 “Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2009,” Dept. of Health and Human Services and Dept. of Justice, May 2010, found at http://oig.hhs.gov/publications/docs/hcfac/hcfacreport2009.pdf.
15 Id. at p. 1.
16 Id.
17 Id. at p. 5.
18 Id. at p. 32.
19 Press Release, The White House Office of the Press Secretary (June 8, 2010) found at http://weblogs.baltimoresun.com/news/local/politics/2010/06/in_md_obama_warns_against_medi.html.
20 U.S. Committee on Ways and Means, Joint Subcommittee Hearing on Reducing Fraud, Waste and Abuse in Medicare, June 15, 2010, found at http://waysandmeans.house.gov/Hearings/hearingdetails.aspx?NewsID=11207.
21 Id.
22 Id.
23 Id.
24 Id.
25 Id.

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