New York state has an enormous Medicaid-fraud problem, estimated at billions of dollars a year. To strengthen the states weak anti-fraud program, the state assembly is pushing a New York version of the federal False Claims Act; the measure would reward whistle-blowers and their attorneys for turning in Medicaid cheats. But that measure cant be the whole answerindeed, by itself, it could easily create as many problems as it solves.
Fighting Medicaid abuse requires a whole arsenal of weaponsnew technologies to sniff out fraud, tougher criminal penalties, and increased oversight of whos allowed into the program.
Because of the power and efforts of trial lawyers like Assembly Speaker Sheldon Silver, the federal False Claims Act (FCA) gets lots of press attention in discussions of how to fight Medicaid fraud. And it has indeed helped U.S. prosecutors uncover some cheatsbut it has also promoted abuse.
The law allows whistle-blowers who report fraud against the government to collect up to 30 percent of any money recovered from information they provide.
Prosecutors aided by whistle-blowers have successfully pursued several huge Medicaid-fraud cases using the FCA, resulting in hundreds of millions of dollars in fines and penalties against drug companies and hospital chains for overbilling the program. But tens of those millions went to whistle-blowers and the lawyers working with them on a contingency-fee basis, setting off a flood of further lawsuits.
Since Congress amended the law in 1986, hiking the potential payout to whistle-blowers, suits have grown tenfold, with nearly 70 percent of them involving health-care companies. Since 1986, whistle-blowers have collected a staggering $1 billion.
But the huge potential payoffs invite abuse. In some cases, insiders have let fraud go on for years after detecting it, slowly gathering evidence and then leaving the company to sue.
Then theres the protection racket problem. Whistle-blowers, plaintiffs attorneys, and even government prosecutors increasingly seem to be targeting legitimate businessesusing the threat of the FCAs steep penalties (which include permanent exclusion from government programs as well as big fines and damages) to coerce companies into settling cases rather than risking a trial verdict that could bankrupt them.
A 1999 Government Accountability Office study criticized several FCA cases. In one, the GAO concluded that hospitals that had already agreed to pay steep fines to avoid going to trial had in fact been improperly accused. The study also found that prosecutors and whistle-blowers targeted some firms for investigation not because they were plausible fraud suspects but merely because they were the biggest contractors in government health-care programsthat is, the deepest pockets for large paydays.
As a result of the investigations, the GAO is now charged with monitoring how federal prosecutors work under FCA.
Plaintiffs attorneys have helped fuel the fervor for FCA lawsuits. Shortly after Congress amended the FCA in 1986, public-interest lawyer John Phillips, who had lobbied heavily for the new legislation, set up a front group, Taxpayers Against Fraud, to tout the lawand also set up his own private practice to cash in on the act. His firm has won some $100 million in contingency fees pursuing FCA cases, according to Forbes magazine, and its successes have attracted some 200 more contingency lawyers into the field.
Meanwhile, Taxpayers Against Fraud works the media. Cited dozens of times a year in press stories as an advocate for the FCA, it has successfully encouraged a handful of states to enact their own versions of the legislationallowing similar suits in state courts, though state prosecutors dont operate under the GAOs watchful eye. And press accounts on the FCA often quote Taxpayers Against Fraud without mentioning that it isnt a real taxpayer group, just a propaganda instrument of lawyers who benefit from the laws the group promotes.
One danger of the false-claims lawsuit frenzy is that it will distract from the broader work of tracking down Medicaid fraud. Local pol Mark Greenwho began his public career working for trial-lawyer ally Ralph Nader, and is now running for state attorney generallast year penned a Times op-ed to lobby for a New York version of the FCA as the remedy for the states Medicaid woes. Green quoted Taxpayers Against Fraud without mentioning that the groups chairman, Neil Getnick, is a supporter of his election bid and that Getnicks law firm could benefit enormously from a New York state law.
A New York FCA can be one weapon in an arsenal against Medicaid fraud. But it needs sensible provisions to discourage abuse, including limiting the size of whistle-blower awards and requiring that whistle-blowers try to end fraud at their employer before filing suits. The federal law has created open season on legitimate companies and sparked a plaintiffs-bar feeding frenzy. Thats not what Congress intendedand no model for New York.