The Government's Healthcare Fraud Recovery Formula: Intimidate Providers Into Settling, Use Settlement As 'Precedent,' Repeat

In a February 14, 2012, press release, the Attorney General and the HHS Secretary announced that "the government's health care prevention and enforcement efforts recovered nearly $4.1 billion in taxpayer dollars in Fiscal Year (FY) 2011." The press release goes on to characterize the "[a]pproximately $4.1 billion [as having been] stolen or otherwise improperly obtained." Much of the $4.1 billion could perhaps be more accurately characterized as settlement money obtained by the government through intimidation.

The source of much of the government's power to intimidate derives from the federal False Claims Act (FCA), a statute originally enacted during the Civil War in response to reported unscrupulous practices by government contractors. In the 1990s, when the FCA started to be deployed against healthcare providers, the government discovered an unintended benefit – as applied to healthcare providers, the FCA authorizes potentially ruinous civil penalties. The statute provides that anyone found to have submitted false or fraudulent claims is liable not only for treble damages, but also civil penalties of $5500 – $11,000 per claim. While a government contractor normally submits one invoice (or claim) per month, a large urban hospital can submit hundreds of claims per day to Medicare and Medicaid. This can add up to potential liability in the hundreds of millions of dollars, as the government is quick to point out in its settlement demands. Potential liability of this magnitude has persuaded many healthcare providers to settle in order to remove the contingent liability from its books, thus saving the government from the risk of litigation.

After securing a settlement from one provider, the government can bring suit against others, using the settlement in the prior case as "precedent." In this manner, the government is able to reap the benefits of an adjudication, including establishing dubious theories of liability as precedent, without the risk of ever having to test its such theories in any court.

The Kyphoplasty cases are prime examples of this. Kyphoplasty is a procedure, utilizing a medical device developed by Kyphon, Inc., to treat certain types of spinal fractures. Kyphon sales personnel had advised doctors that kyphoplasty was an in-patient procedure. The government disagreed and alleged, in an FCA suit initiated by a whistleblower, that Kyphon caused the admitting hospitals to submit false claims for in-patient stays because the...

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