Wednesday, April 28, 2010

Opening the War Chest: Recent Federal Efforts Intensifying the Fight Against Health Care Fraud

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 health care 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.[1]

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 Health Care Fraud – an epidemic which has indeed become a national economic crisis. The summit was the latest initiative of the Health Care 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 health care 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 health care 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 health care fraud, Secretary Sebelius issued a call to arms, stating:
Today, the President has asked us to put these criminals on notice. The problem of health care 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.

Health care 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 health care system that has been undergoing rapid growth.” [2]

To illustrate her point concerning the rapid growth of fraud and abuse in the health care system, Sebelius noted that the annual amount spent combating health care 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."[3]

In his own opening remarks, Attorney General Eric Holder described the summit as a critical step forward in the work being done by the Health Care 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 health care 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.[4] He also stated that DOJ civil enforcement of health care fraud laws recovered over $2.2 billion dollars under the False Claims Act.

Notwithstanding the positive news, Attorney General Holder described health care fraud as a serious problem whose scope is “simply shocking,” noting that more than $60 billion in public and private health care 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 health care system, “so long as health care fraud pays and these crimes go unpunished, our health care system will remain under siege.”[5]

Attorney General Holder’s Estimate of the Scope of Health Care 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 health care 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 zeroes after it.[6]

Other experts mirror Sparrow’s conclusions, putting the estimated annual loss between $70 and $100 billion.[7] Regardless of the actual number, losses from health care 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.[8]

Historical Data Concerning Civil Enforcement of Health Care 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 health care 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 civil qui 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 health care fraud.[9] This was nearly double the percentage of health care cases observed just seven years earlier.[10] Accordingly, much of the $2.2 billion in civil enforcement recoveries as well as the criminal prosecutions for health care 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 realtor’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, health care and otherwise, filed from 1986 through 2009.[11]

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 make it abundantly clear that in order to succeed in a qui tam action, the Government’s intervention is all but required.

Furthermore, 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. [12]

From the perspective of the civil litigators interested in qui tam cases, the increased government investment in health care 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 health care providers, the increased investment will obviously require a corresponding increase in diligence on the part of your clients to avoid health care fraud issues. Unfortunately, since the Government’s investigations are no more focus 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 health care fraud may also lead to a more combative and a more punitive environment as provider’s attorney attempt to resolve or settlement health care 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 Health Care Fraud Prevention and Enforcement Action Team (HEAT).

On May 20, 2009, in a joint press release,[13] 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 health care 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 health care 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 health care fraud in Miami-Dade County.[14] 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 $334 MM in durable medical equipment claims paid by Medicare.[15]

In light of these successes, DOJ and HSS created another Strike Force, Phase Two, which jointly investigated health care 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.[16] 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.[17]

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 $1.7 billion in projected spending over the next five years.[18] In this manner, HHS and DOJ are seeking to “raise[] the stakes on health care fraud, with increased tools, resources and sustained focus by senior-level leadership.”[19] The statement further opined that HEAT program, along with the increase proposed spending, could save the United States over $2.7 billion over the next five years.[20]

Implications of the National Health Care Summit
With these statements as background, consider again the National Health Care 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 health care 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.[21]

While the political motivations and the actual deterrent effect such a conference might have on health care 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 health care 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.

The number of prosecutions for health care fraud, by fiscal year. Most were for schemes to defraud Medicare. 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 gent involved and join in the fight. By emphasizing the successes of the government’s new focus on health care 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[22] 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 antifraud 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 health care insurers has barely changed.”[23]

The Future of Health Care Fraud Enforcement
Regardless of the extent of the HEAT programs successes, two facts are indisputable. First, fighting health care fraud is how a higher priority than it ever has been and health care 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 health care 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 health care in this country.

Brian F. McEvoy is a former Assistant United States Attorney and Health Care Fraud Coordinator for the Southern District of Georgia. Brian is now a Shareholder at Polsinelli in Atlanta.

[1] Jay Weaver, Miami man gets 22 year for Medicare clinic fraud, The Miami Herald, Jan. 27, 2010, available at
[2] Health and Human Services Secretary Kathleen Sebelius, Remarks at National Summit Health Care Summit (January 28, 2010) (transcript available at
[3] Id.
[4] Attorney General Eric Holder, Remarks at National Summit Health Care Summit (January 28, 2010) (transcript available at
[5] Id.
[6] Malcolm K. Sparrow, Testimony at “Criminal Prosecution as Deterrent to Health Care Fraud” before Senate Committee on Judiciary: Subcommittee on Crime and Drugs (May 20, 2009) (transcript available at [hereinafter “Sparrow Testimony”].
[7] 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 (last visited February 23, 2009).
[8] Sparrow Testimony, supra.
[9] 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 (last visited February 27, 2010).
[10] 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).
[11] Taxpayers Against Fraud, Fraud Statistics – Overview, October 1, 1987 – September 30, 2009, Civil Division,, U.S. Department of Justice, available at
[12] 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 (last visited February 27, 2010).
[13] U.S. Dept. of Health & Human Services, Press Release, Attorney General Holder and HHS Secretary Sebelius Announce New Interagency Health Care Fraud Prevention and Enforcement Action Team (May 20, 2009), available at [hereinafter “May 20 Press Release”].
[14] Fact Sheet: Phase One Medicare Fraud Strike Force Miami-Dade County, Fla., p.1 available at (last visited February 24, 2010).
[15] Id.
[16] Fact Sheet: Phase Two Medicare Strike Force Los Angeles Metro Area, p.1 available at
[17] Fact Sheet: Phase Three Medicare Strike Force Detroit Metro Area, p.1 available at; Fact Sheet: Phase Four Medicare Strike Force Houston Metro Area, available at
[18] John J. Carney and Robert M. Wolin, Target Health Care Fraud, New York Law Journal, July 13, 2009.
[19] May 20 Press Release, supra.
[20] Id.
[21] U.S. Dept. of Health & Human Services, Press Release, Health & Human Services Secretary Kathleen Sebelius, Attorney General Eric Holder Convene National Summit on Health Care Fraud, Unveil Historic Commitment to Fighting Fraud in President’s FY 2011 Budget (January 28, 2010) (available at
[22] Brad Heath, Little Progress Seen Against Health Insurance Fraud, USA Today (January 29, 2010) (available at
[23] Id.

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