Fraud recoveries on the rise

GlaxoSmithKline, $3 billion. Abbott Laboratories, $1.5 billion. Merck, $950 million. Senior Care Action Network, $323.7 million. Actavis, $202.6 million. The numbers are eye-popping. Now for the jaw drop: of these top five healthcare False Claims Act settlements in 2012, all were initiated by whistle-blowers.

The healthcare industry is on notice: Fraud recoveries in the healthcare sector are on the rise and whistle-blowers are the biggest weapon in the fight against fraud.

"We think it's very effective," said Charles Miller, a spokesperson at the Justice Department. "Whistle-blowers have been a major factor in helping the government curtail – or at least recoup – funds that were gained through fraud and abuse."

2012 was a record-setting year for healthcare fraud recoveries, according to the Department of Justice (DOJ). Recoveries under the False Claims Act topped $3 billion, bringing the four-year federal recovery total to more than $9.5 billion.

[See also: Healthcare fraud recoveries set record in 2012.]

2012 was also a record year for qui tam (whistle-blower) suits. Of the more than $3 billion in total healthcare fraud recoveries, $2.5 billion was recovered through whistle-blower suits. Per DOJ statistics, of the 647 new qui tam (whistle-blower) filings in 2012, 412 were healthcare-related.

"I can't quit you"

Fraud cases in healthcare are on the rise because fraud is the industry's core business practice, said Patrick Burns, the co-director of Taxpayers Against Fraud (TAF).

"Let me tell you why healthcare (fraud) is not going to go away," he said. "I say it's like Brokeback Mountain: 'I can't quit you.' They can't quit dealing with fraud."

Healthcare is a commodity, Burns said, and while commodity pricing is generally a "race for the basement," that's not the case in healthcare. In healthcare, he said, it's a race to the ceiling.

"The primary product of the healthcare field – whether it's hospitals, drugs, or services – is not providing healthcare. It's billing," Burns said. "The competitive advantage in healthcare isn't that you have a better product. There are multiple ways that you can increase the billing. For example – in a world in which you have five, six or seven perfectly good statins, which one do you write a prescription for? The answer is the one [from the drug company] paying you the money. That's a kickback. … This is how it goes. How much does it cost us? Billions and billions and billions of dollars."

The government steps it up

Amendments to the False Claims Act strengthening qui tam provisions, and a focus by the federal government on combating fraud and abuse in the Medicare and Medicaid programs, have contributed to the growth in whistle-blower cases.

Because of their size and the nature of their payment programs, Medicare and Medicaid are vulnerable to abuse, and those vulnerabilities lead many people to take advantage, said Colette Matzzie, a lawyer who represents whistle-blowers for law firm Phillips & Cohen in Washington, D.C.

"There's an increasing awareness, both in Congress and in the administration, that there's a lot of money – billions of dollars – lost to fraud within the Medicare and Medicaid programs," she said.

Some of the efforts the federal government has made to combat Medicare and Medicaid fraud include: targeting resources in the Affordable Care Act toward the effort to restrict and restrain fraud and abuse; the creation of the Health Care Fraud Prevention and Enforcement Team (HEAT) by the Department of Health and Human Services (HHS) and the DOJ in 2009 which builds on the efforts of the DOJ-HHS Medicare Strike Force; launching last summer the Public-Private Partnership to Prevent Health Care Fraud; and in April, a new HHS proposal to increase rewards to nearly $10 million for reporting fraud.

The potential for getting a lot of money for whistle-blowing is a big incentive, say many lawyers.

"There's been such publicity around super large settlements and plaintiffs recovering huge amounts of money – that's always going to be a driver," said Melissa Tearney, a partner at Boston law firm Choate, Hall & Stewart. "To me, it's less about the economy and just more about the way the statue is structured with these financial incentives … where relators are recovering tens if not hundreds of millions of dollars.

"If you're sitting in a pharma company and you see something wrong on some level or if you're even doing something wrong … why would you report it in through the company (when) you (can) walk to a lawyer (or) have someone march into DOJ and have the potential for making a lot of money?"

But whistle-blowers, for the most part, aren't in it for the money, said Barbara Hoey, an attorney for in law firm Littler Mendelson's healthcare and whistle-blower and retaliation practices in New York City. Most whistle-blowers start out as earnest employees trying to alert management to a problem. It's the way their employer treats them that puts them on the road to becoming a whistle-blower.

"By the time you get the guts to report something to your boss, you have probably been thinking about it for weeks or months," said Hoey. "You finally get the nerve up to do it, you make the report and what happens? Days pass. Nothing happens. Weeks pass. Nothing happens. Do you know what the employee is thinking at that point? They're thinking either no one's taking me seriously, or worse, they're plotting to fire me. … So now, out of complete panic, they will run to the government and then you have a whistle-blower."  

What companies can do

Because most employees prefer to solve problems internally, companies have an opportunity to avoid finding themselves embroiled in a whistle-blower action. Lawyers who advise healthcare companies cannot stress enough how important it is to have a robust compliance program and to make employees feel safe if they raise attention to potential problems.

But having a robust compliance program goes far beyond a company's official compliance policies and procedures manual, said Mary Bennett, a trained pharmacist who once served as vice president of Caremark's compliance and integrity office, and is now vice president of NAVEX Global's Ethical Leadership Group.

Managers at healthcare companies need to undergo annual training on how to handle situations involving potential fraud, and employees must have resources that clearly demonstrate what they should do if they suspect fraud and what happens if they report concerns.

"If you've got people who want to do the right thing, you've got to give them some guidelines beyond a code of conduct," Bennett said. "A lot of times employees are nervous about raising issues because they don't really understand what happens once they do."

In addition to being trained on what steps must be taken if an employee raises concerns, managers need to be trained on how employees view retaliation. The employee view of retaliation, Bennett said, often differs from how managers understand retaliation.

There are a lot of assumptions made in the workplace, she said, and it falls to managers to be vigilant about how their own behavior is being perceived and how employees are treating their peers who have raised issues.

Company boards, too, are aware of the rising number of healthcare-related False Claims Act suits and the role of whistle-blowers in those suits. Boards are being proactive to make sure they're protecting the companies they represent, said Mark Greenfield, a corporate attorney at Blank Rome and a member of Cedars-Sinai Medical Center's Board of Directors.

"Every careful and prudent board member is going to want to make sure that they're responsive to the legislation that is demanding corporations behave in a certain manner," he said. "The overall concept for the board is to make sure that they can make it attractive and safe for employees to come forward at the earliest possible opportunity if they know something."

Greenfield recommends that companies create an internal compliance program that provides employees with financial incentives and non-retaliation policies. He suggests it be handled by a board committee rather than by company management so that if or when employees share concerns, those concerns will not be subject to the risk of being inappropriately evaluated or sanitized by management.

A bold idea

Healthcare companies don't need legislation to create transparency and reduce fraud. They can do that on their own, said Adam Resnick, an ex-convict who became a whistle-blower when he exposed a kickback scheme between Omnicare, a pharmacy provider to nursing homes, and a nursing home chain. The reward money Resnick received in the settlement of the suit went toward the restitution he owes the federal government for his role in the collapse of a bank in 2002.

Today, Resnick describes himself as a professional whistle-blower – someone who aids in the investigative process of potential fraud cases, and he thinks if companies are really serious about being in compliance, they should hire whistle-blowers.

"Good healthcare has to say no to bad healthcare," Resnick said. "And if they take a public stance like that … you would think the best thing they could do if they are serious about cleaning up their business is hiring former whistle-blowers or fraud investigators – not lawyers who come in and say 'we're doing the compliance' and then create structures that safe harbor them."

"To me, the smartest PR move … a company could make is to hire a whistle-blower after they've successfully brought a case against the company. What a way to say 'we're clean, we're honest.'"