Politicians are often heard decrying fraud and abuse in the healthcare system, particularly where government payers like Medicare and Medicaid are involved. Such fraud certainly occurs: situations involving physicians billing payers for patients they did not see, or treatments they did not provide, are real. This conduct is often redressed through a law called the False Claims Act, which holds government contractors, including healthcare providers, civilly liable for multiple damages and penalties if they knowingly submit false claims to the government.
But the FCA has expanded far beyond this paradigm, and a discussion about reform is necessary.
Passed in 1863, the FCA is a Civil War-era statute originally aimed at preventing objectively deceptive conduct, such as billing the government twice for the same mules, repainting rotted ships and selling them as new, and selling gunpowder barrels containing sawdust.
Fast forward 154 years and, in the case of modern day healthcare providers, the law has become a far-reaching behemoth. The increasingly creative use of the FCA to police issues far outside the statute’s original aims has produced unintended consequences for patients and the healthcare system.
Last year, the Department of Justice announced that in the preceding 8 years, it recovered $19.3 billion in healthcare fraud claims – 57% of the total federal healthcare fraud recoveries in the past 30 years.
Lack of medical necessity is a common theory of FCA liability asserted against healthcare providers, and necessity cases are substantial players in DOJ’s recoveries. A reader might say, “So what?” If a physician gives care that a patient does not need and bills for it, shouldn’t the physician pay? In clear cases, yes; a physician who performs an amputation for a hangnail and bills for it likely committed fraud within the intended meaning of the FCA. However, most medical necessity cases are far less clear-cut, calling into question physicians’ clinical judgment through accusations of “fraud.”
The problem with many such cases is this: Whether medical treatment is necessary for a particular patient is often a matter of judgment on which reasonable, qualified physicians can — and frequently do — differ. Accordingly, FCA cases alleging lack of medical necessity often devolve into battles between medical experts who disagree on the central issue of patient need, resulting in an elastic concept of fraud that depends on which side’s expert witness carries the day.
These problems are compounded by the fact that FCA cases can be brought by the government as well as on the government’s behalf by private whistleblowers who, together with their counsel, stand to reap substantial financial benefit tied to a percentage of any award or settlement. Between 2009 and June 2016, whistleblowers were rewarded bounties of over $3 billion. Large healthcare providers treating thousands of patients are favorite targets given the math – the more supposedly unnecessary treatments, the higher the potential recoveries. Notably, however, these providers often serve some of the neediest, publicly-insured patients, for whom access to care would otherwise be limited or nonexistent.
The costs go far beyond those directly endured by providers. Massive recoveries necessarily drive up the overall healthcare costs. The reputational sting of being labeled a fraudster may deter physicians from joining a practice. Providers may simply choose not to accept publicly insured patients given the risks. Physicians, cognizant that every decision they make could be labeled “fraud,” may unintentionally undertreat.
FCA reforms that would limit claims alleging lack of medical necessity are unlikely to get traction, but reforms directed at reducing the volume of tenuous necessity (and other) FCA claims should be considered. Common-sense limitations, such as reducing whistleblowers’ share of recovery to a level that still encourages them to come forward but does not inspire creative claims would help.
Ideas like this are just the tip of the iceberg, but it is certainly time to address the FCA’s expansive role in healthcare. Particularly when matters of physician judgment are involved, a fraud statute has no place except in egregious cases. The current, contrary reality strains the American healthcare system by increasing costs and impeding access to care, ultimately failing the patient.
Mark W. Pearlstein & Laura McLane are partners at McDermott Will & Emory LLP, an international law firm based in Boston, MA.
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