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Contributed by Laura G. Hoey and Amanda Raad, Ropes & Gray LLP
Those with an eye on health care headlines likely have noticed an increase in the number of arrests during 2011 relating to health care fraud. In addition to the traditional health care fraud cases targeting hospitals, pharmaceutical companies, and medical device manufacturers, which result in high-dollar civil and criminal recoveries, the government is now dedicating resources to combat street-level, flagrantly fraudulent conduct such as billing schemes involving stolen Medicare beneficiary numbers and health care provider identities. This attack on schemes that provide no legitimate services to patients is being carried out largely through nationwide Medicare Fraud Strike Forces, which are now fully operational in eight cities, including Miami, Los Angeles, Detroit, Baton Rouge, Brooklyn, New York, Tampa, and Chicago. The first Strike Force began operating in South Florida in 2007, but the expansion of this concept is one outgrowth of the Health Care Fraud Prevention and Enforcement Action Team (HEAT), formed in May of 2009 through a combined effort of the U.S. Department of Justice (DOJ) and the U.S. Department of Health and Human Services (HHS).
While the high number of indictments and arrests resulting from coordinated Strike Force efforts garner significant media attention, health care institutions must remain vigilant about compliance. The Strike Forces are not a shift in priorities or resources for law enforcement but rather represent the expansion of a new and distinct strategy in the government’s war on health care fraud.1 Perhaps best said by Kirk Ogrosky, the former Deputy Chief of the Fraud Section who helped to develop the Medicare Fraud Strike Force concept, “for years, prior to the Medicare Fraud Strike Force, the government poured its resources into litigating large False Claims Act cases with legitimate companies while criminal defendants walked away with billions in taxpayer monies.” The hope is that the deterrent effect of the Strike Forces will slow the bleeding of taxpayer money out of the system. To fund the Strike Forces, however, the government must continue to pursue the traditional cases against health care institutions and providers that result in high-dollar recoveries.
The Lucrative First Front: Settlements with Major Players in the Health Care, Pharmaceutical, and Medical Device Industries Have Broken the Billion-Dollar Mark
DOJ and HHS recovery figures illustrate the efficacy of the government’s traditional war on health care. In reporting to Congress, DOJ and HHS presented combined recovery figures for Fiscal Year 2010 of approximately $2.5 billion in judgments and settlements and $2.86 billion in transfers to the Medicare Trust Fund.2 In 2009, the same year that HEAT launched, DOJ and HHS reported two health care fraud settlements that broke the billion-dollar mark: Pfizer, Inc. agreed to pay $2.3 billion to resolve criminal and civil issues arising from the promotion of certain of its pharmaceutical products,3 and Eli Lilly and Company paid $1.4 billion to settle its potential criminal and civil liability based on similar marketing allegations.
The government’s focus on marketing practices in the health care, pharmaceutical, and medical device industries only continues. In late October, 2011, Abbott Laboratories agreed to pay $1.3 billion to settle claims with the government and 24 states concerning the alleged off-label marketing of its anti-seizure medication. Most recently, on November 3, 2011, GlaxoSmithKline announced that it reached an agreement in principle with the government to pay upwards of $3 billion to resolve several investigations into the company’s sales and marketing practices.
As evidenced by these recent developments, the government continues to prosecute pharmaceutical companies for violations related to the way in which drugs are presented to the Food and Drug Administration for approval and subsequently marketed and sold. The government also continues to obtain multi-million-dollar settlements from hospitals, physicians, pharmacies, nursing homes, and skilled nursing facilities. Illegal kickbacks and improper referrals remain a keen focus for prosecutors.
The Expanding Second Front: Medicare Fraud Strike Forces
The government launched its Strike Force efforts recognizing that loss prevention was just as important as prosecution and fund recovery. The Strike Forces set about analyzing data to identify high-billing levels in health care fraud hotspots in order to target migrating schemes and identify criminals masquerading as health care providers. Recent cases highlight the increased infiltration of the Medicare program by violent and organized criminal networks.4 Through identity theft, these networks seek to take advantage of what can be described as Medicare’s “pay-and-chase” model. If an individual has the proper codes and unique identifiers, the Medicare system will pay out in short order, leaving law enforcement to chase and to attempt to recover the ill-gotten funds.
The Strike Force missions begin as covert operations, and each expansion of the Strike Force Front typically is announced in the form of a press release following the first round of arrests in a particular location. For example, the February 2011 press release announcing the Strike Force’s arrival in Chicago and the arrest of 11 area defendants also contained the announcement of nation-wide coordination among existing Strike Forces to arrest a total of 111 defendants for their participation in various Medicare fraud schemes. Nationwide coordination is a cornerstone of the Strike Force model. Most recently, in September 2011, the Strike Forces coordinated arrests of 91 defendants nationwide. The vast majority of these defendants continue to wind their way through the judicial system. DOJ and HHS submit updates to Congress on the continuing Strike Force efforts in several locations throughout the country, generally reporting the number of defendants arrested and charges brought. Unlike the reports of million-dollar recoveries as noted for the First Front above, Strike Force reports to Congress emphasize the amounts those defendants “collectively billed”5 Medicare.6 Again, the emphasis is on stopping the bleeding rather than recovering the funds.
No Signs of Retreat
The government could sustain its current health care fraud battle for some time, with the offensive First Front continuing to fund what is an important, but less profitable, defensive Second Front. The Strike Forces will result in larger press conferences, more defendants working their way through the judicial process, a larger number of health care fraud cases charged, and perhaps less dollars fraudulently out the door. The Strike Forces may continue to grab the headlines, but they have not proven to be a diversion of resources nor a distraction from the government’s aggressive and extremely lucrative First Front.
Laura Hoey is a government enforcement partner in Ropes & Gray’s Chicago office. Prior to joining the firm, Laura served for four and a half years as an assistant U.S. attorney. As a federal prosecutor, Laura was the health care fraud coordinator and helped organize a health care fraud task force which includes federal and local law enforcement. She has a deep understanding of the workings of the federal government agencies involved in enforcement cases, including the FBI, the FDA and the Department of Health and Human Services Office of the Inspector General. She can be reached at firstname.lastname@example.org.
Amanda Raad is a government enforcement associate in Ropes & Gray’s Chicago office. Amanda focuses her practice on defending individuals and corporations against allegations of Food Drug and Cosmetic Act violations, Foreign Corrupt Practices Act and U.K. Bribery Act violations, insider trading, and financial fraud. Amanda also helps clients take a proactive approach to compliance through developing best practices compliance programs. She can be reached at email@example.com.
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