Even as federal prosecutors rack up multimillion-dollar hospital fraud settlements, their toolboxes and resources for investigating fraud have grown with the passage of the health reform law.

The Patient Protection and Affordable Care Act contains numerous provisions aimed at "stopping fraud before it happens," said Kathleen Sebelius, secretary of Health & Human Services, in a press conference announcing the release of the annual Health Care Fraud and Abuse Control Program report. Experts say complying with the law will force hospitals to make greater investments in compliance and billing programs, resources, training and personnel. It also will expose them to greater liability to whistleblower lawsuits, more aggressive state and federal prosecution, and higher civil and criminal fraud penalties.

There is a lot of money at stake. State and federal spending on Medicare and Medicaid was expected to top $800 billion in FY 2010, according to the Centers for Medicare & Medicaid Services, with hospitals accounting for roughly one-third of federal health care spending.

Lawyers say recent cases show the government seems especially interested in pursuing cases involving hospital relationships with physicians, sometimes involving third parties such as device- or drugmakers. It comes at a time when health reform is demanding greater physician-hospital coordination of care. How hospitals navigate those relationships in light of the new fraud provisions calls for a delicate balance.

Notable investigations include:

  • In October 2009, the Department of Justice reached a $27.6 million settlement with Universal Health Services' subsidiary South Texas Health System for alleged kickbacks to physicians for patient referrals.
  • Last May, DOJ settled with the Health Alliance of Greater Cincinnati and two of its current hospital members and a former member for $108 million for an alleged kickback scheme involving cardiac patients.
  • Last August, Tenet Healthcare acknowledged that it was part of a federal inquiry into billing practices for implantable defibrillator devices.

Turning Up the Heat

Seattle health care defense attorney Robert Homchick says Congress has been consistently enhancing the range of requirements and types of instruments and weapons available to CMS, the Health & Human Services' inspector general and the DOJ to fight fraud.

Homchick, of the firm Davis, Wright & Tremaine, notes that violations of the federal antikickback law are now subject to provisions of the False Claims Act, which he predicts will spur even more whistleblower suits. He also points out that health care reform expands civil monetary penalties and subpoena powers and increases funding—nearly $500 million over 10 years—for enforcement activities.

"Coupled with last year's significant expansions in the False Claims Act, this really puts more pressure on hospitals and other providers," he says. "It's more of what Congress has been doing in recent years. But if you turn up the heat on the stove, eventually the pot starts to boil. This and the growth of the RAC [recovery audit contractor] audits pose a daunting combination that suggests this could be a pretty challenging time for hospitals and their compliance programs."

Iowa Sen. Charles Grassley, the ranking Republican on the Senate Finance Committee, last year sponsored the Fraud Enforcement Recovery Act, which strengthened the FCA. Grassley, who has always taken a keen interest in health care fraud issues, says the changes "were necessary to address a number of judicial interpretations that had limited the original intent of the False Claims Act. Those amendments will help to ensure that taxpayer dollars are protected from fraud and abuse regardless of legal technicalities."

For example, Grassley says, they will ensure that tax money paid to subcontractors are no longer exempt from the reach of the whistleblower and will extend meaningful whistleblower protections to government agents and contractors.

"They also clarify that the False Claims Act was intended to extend to any false or fraudulent claim for government money or property, whether or not the claim is presented to a government official or employee, whether or not the government has physical custody of the money, and whether or not the defendant specifically intended to defraud the government," he explains. "Unnecessarily limiting the False Claims Act was weakening one of the government's most powerful tools against fraud. With these improvements, False Claims Act cases can stand or fall on their own merits and not recede because of legal technicalities."

Looking for Everything

Greg Burkhart, chief compliance and ethics officer for eight-hospital Sentara Healthcare in Norfolk, Va., says the enhanced liability under the FCA, new fraud provisions under the PPACA, and stronger compliance mandates "are just more of the same. It seems like everything is hitting us at once. In some ways, it's going to be even more challenging."

Burkhart says one thing he's learned from the new provisions is the need to be more data driven. "They are looking at everything, and it's pretty disconcerting to know that our current administration expects to get a lot of the money to pay for health reform from hospitals," he says. "The government has gotten more savvy in how it interprets data and gotten better at finding meat in real issues. That forces us to do the same, to stay on top of that data. I'm an attorney, not a data guy; I need help with that."

He says the increased federal attention has elevated awareness within his organization. "I don't have to tell people anymore how important compliance is," he says. "The first half of my career I spent telling everyone that. But everybody gets it now. That's a positive."

Trustees also are aware of the government's stepped-up attention to fraud. "And they're asking the questions and putting me through the grinder more regularly than they used to," Burkhart says. "They take this very seriously."

Sentara and other health systems likely will have to "staff up to address these issues," he says. "We already work collaboratively with our patient accounting, finance and legal departments. Everyone is at the table for all of these issues. But staffing is obviously a concern."

Frank Sheeder, a health care defense attorney with the firm Jones Day in Dallas, says hospitals will have to pump more resources into their compliance programs. "If hospitals don't comply, they are putting all state and federal reimbursement at risk and could be unable to participate in Medicare and Medicaid," he warns.

How Effective is Your Program?

Tom Herrmann, vice president with the health care consulting firm Strategic Management in Alexandria, Va., says hospitals that already have comprehensive, robust compliance programs that include internal audits, hot lines, employee education and training programs will not likely suffer much cost or other burdens under the reform law's provisions.

"But how effective are most hospital compliance programs?" he wonders. "Clearly, the majority of hospitals get major amounts of money from federally funded programs. The PPACA is saying that as a condition for receiving those funds, hospitals must be held accountable for the integrity of their submitted claims."

Herrmann says Congress has addressed perceived weaknesses in existing laws, citing the self-disclosure protocol in the Stark law, restrictions on physician ownership of hospitals, enhancements to the FCA and the anti-kickback statute.

"The HHS' inspector general has identified various deficiencies, and Congress responded. Time will tell how effective they have been," he says. "They certainly provide prosecutors and enforcement agencies with new and different tools to address them."

The announcement of a working task force between the DOJ and HHS underscores the new commitment to reduce fraud. In May 2009, the two departments formed the Health Care Fraud Prevention and Enforcement Action Team, or HEAT. According to the HEAT website, the initiative elevates Medicare fraud-busting activity to a Cabinet-level priority for both DOJ and HHS.

"In the past, those actions were not as coordinated," Herrmann says. "So there is a renewed commitment to working together."

Ensuring Fairness

While hospitals face daunting challenges from the new fraud provisions, there is a positive result. Maureen Mudron, deputy general counsel for the American Hospital Association, applauded the requirement for CMS to establish a self-disclosure protocol. "It is intended to prevent draconian compliance penalties that have no relationship to the harm, if any, to the Medicare program," she says. Mudron says the AHA urges HHS to address the unintended consequences of the current rules and ensure fairness in enforcement of the self-referral law.

"We are also focused on ensuring that changes in the False Claims Act are used appropriately. Mistakes are not fraud," she says. In letters and a meeting with DOJ officials, the AHA pressed for greater oversight of the use of the FCA, particularly in its investigation of kyphoplasty procedures (which treat vertebral fractures from osteoporosis). The association expressed concern that aggressive FCA investigations are being initiated on the discovery of evidence of a mistake or overutilization. AHA urged the department to reaffirm and update the 1998 "Holder Memo," which provided guidance on the use of the act in civil health care matters.

Additionally, the AHA asked CMS to consider the cumulative effect on providers when implementing PPACA's fraud reduction provisions. The association argues that adding these demands to the many other overlapping integrity activities that affect hospitals will divert resources away from patient care.

Mark Taylor is a freelance writer in Munster, Ind.

Sidebar - It's Adding Up

Sidebar - Recent Expansions in Fraud Provisions