Providers have new rules to take on Medicaid fraud: Many companies required to educate employees

February 5, 2007

A federal law that took effect Jan. 1 requires hospitals and others serving the Medicaid population to teach their employees how to detect fraud and report it to the government.

Medicaid is the joint federal-state program that provides health insurance coverage to the needy and is prone to abuse. In an effort to reduce abuse, the legislation requires companies that do at least $5 million annually in Medicaid business to educate all employees and officers on how to spot fraud.

The law essentially encourages people in the health care industry to blow the whistle on their employers. Further, those who do must be told by their employers that they will be protected against retaliation and may be entitled to a share of money recovered by the government.

Under the long-standing federal False Claims Act, some whistleblowers have received millions of dollars in rewards for disclosing large-scale fraud. But deception is especially rampant in the health care industry. It is estimated that fraud accounts for $60 billion of the $2 trillion spent on

Health care fraud

2005 figures

$2 trillion amount Americans spent on medical care $60 billion estimated U.S. medical fraud $300 billion U.S. Medicaid spending $2.2 billion defrauded U.S. Medicaid funds recovered $4.5 billion Indiana Medicaid spending $450 million estimated Indiana Medicaid fraud

Source: IBJ research

annual medical care, according to the National Health Care Anti-Fraud Association in Washington, D.C.

"It obviously has an impact on taxes and health insurance premiums," said Louis Saccoccio, executive director of the NHCAA. "But it's not just a financial crime. It can have a significant impact on patients as well, like providing unnecessary procedures."

Marion County's safety-net hospital system, Wishard Health Services, does $5 million of Medicaid business every month.

Wishard began preparing last summer for the approaching deadline by mobilizing human resources, finance and legal officers to study existing policies and procedures and expand upon them. The meetings resulted in additions to the employee handbook and articles on the topic appearing in the hospital's internal newsletter.

Jessica Barth, Wishard's vice president of legal affairs and chief counsel, favors the new requirement.

"Fraud and abuse in the system just drives up the cost to everybody," she said. "We strive to have an environment where people feel they can report their concerns and have them addressed, and people don't fear retaliation for doing so."

The law is causing some trepidation within the medical field, however, said Mike Grubbs, a partner at Barnes & Thornburg LLP who represents health care providers.

The fear is that it will encourage more lawsuits that could cause them to shell out even more money to defend claims in which no insurance coverage is available, he said.

A whistleblower can receive up to 30 percent of a recovery-a windfall considering penalties resulting from false-claims cases sometimes total hundreds of millions of dollars.

Dallas-based Tenet Healthcare Corp., the operator of the nation's second-largest hospital chain, agreed in June to pay $900 million to resolve charges that it cheated the federal government by over-billing Medicare. To finance the settlement, Tenet plans to sell 11 hospitals in four states.

"One individual can spin the wheel of fortune and say, 'I'm going to file a [claim],'" Grubbs said. "The more people hear about that, the more it becomes an opportunistic thing. The cost of defending these types of claims is potentially devastating to a smaller organization."

The government for several years has encouraged health care providers to adopt programs inviting employees to report illegal activities that the organization itself could investigate and voluntarily disclose the findings. Corporations that follow those guidelines normally receive lesser penalties if they discover and report the fraud themselves.

Offenders can be required to pay back three times the amount they received as a Medicaid provider and could face a $10,000 penalty for each false claim. Exclusion from the program also is an option, which often means a "death penalty" because many cannot function without that revenue, Grubbs said.

Annual state and federal Medicaid spending in Indiana tops $4.5 billion. The state's Medicaid Fraud Control Unit operates under the Office of the Attorney General and cites the most common fraud as billing for nonexistent patients and services not provided.

From April 2005 to March 2006, the last complete cycle of federal Medicaid funding, the state fraud unit received 267 complaints, 24 of which it referred to either a federal or county prosecutor, said Allen Pope, the unit's director.

General estimates are that fraud accounts for 10 percent of any state's Medicaid spending. Pope is hopeful the amount of abuse will decline.

"That's certainly the objective of the law," he said. "The employees are in a better position than anyone in the world to know that something is going on that shouldn't be."

David Honig, a partner at Hall Render Killian Heath & Lyman PC, a local law firm with a substantial health care practice, disagreed. Providers are so heavily regulated that he doubts the law will have much of an effect.

"You're not talking about your fly-bynight fraudster; you're talking about large, established practices," he said. "They're not some guy who sets up a storefront ... and sells drugs out the back door."

Congress imposed the requirement mandating companies to educate their employees about fraud as part of a cost-cutting law, the Deficit Reduction Act, signed by President Bush in February 2006.

Another part of the law requires states to have a False Claims Act and bring it into alignment with the federal version, in order to receive federal Medicaid funding. Indiana adopted its law in 2005.
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