In efforts to fight fraud and abuse in health care organizations, the federal government is increasingly relying on the False Claims Act and qui tam suits brought by whistleblowers. This article argues this approach is dysfunctional for both the whistleblowers and the organizations targeted by them. The article proposes that enhanced standards, strong individual inner controls, both informed by virtue ethics and utilized by the Joint Commission on the Accreditation of Healthcare Organizations (JCAHO) during the health care organization accreditation process, offer a better alternative than the current retributive approach now used by the federal government.
Since the mid-1990s, the federal government increasingly relies on whistleblowing as a method to control fraud, waste and abuse in the Medicare and Medicaid programs. Although not the result of a single, specific policy decision, several factors combined to create the situation. First, in 1986, an amendment to the Federal False Claims Act made the filing of whistleblower suits much easier. Second, in 1995 in an effort to combat fraud, waste and abuse in both Medicare and Medicaid, the U.S. Department of Health and Human Services (HHS) in cooperation with the U.S. Department of Justice (DOJ) implemented a new anti-fraud, waste and abuse program called "Operation Restore Trust" or (ORT).
Elected officials and managers, who worked in the program offices of both Medicare and Medicaid programs, and even the general public, were concerned about fraud, waste and abuse for years. Medicare alone lost $20 billion in 1997 to fraud, waste and abuse. This translates to a loss of 11 cents of every Medicare dollar spent in the United States (HCFA, 2000). Although we will not know the exact dollar amount of Medicare and Medicaid lost to fraud, waste and abuse a reduction of any sort in the losses will not only result in a financial savings for the taxpayers, but will provide a much needed increase in public confidence in the future integrity of the programs.
As a method to achieve these ends, whistleblowing is not without its hazards. For example, very often during the process of disclosure the individual whistleblower is placed at extreme personal and professional risk. Although the False Claims Act allows for potential financial gain for the successful whistleblower, many whistleblowers ultimately regret their decisions. Moreover, as this article will argue in a subsequent section, many of the organizations targeted by whistleblowers suffer both during and long after the original allegation.
This article argues that whistleblowing is dysfunctional for both whistleblowers and their organizations. Health care organizations, whose primary mission is to care for the sick and injured in an increasingly competitive marketplace, can ill afford such a dysfunction situation. Yet, fraud, waste and abuse in health care persist and public managers and policy makers should not ignore it. This article suggests that our health care organizations need alternative methods that do not cause disruption and dysfunction to address the problem of fraud, waste and abuse in health care. According to Fletcher, Sorrell and Silva (1998), private health care accrediting organizations (such as the Joint Commission on the Accreditation of Healthcare Organizations, or JCAHO) can provide a viable alternative to whistleblowing, but only if the JCAHO goes beyond mere compliance with standard practices. This article also argues the JCAHO accreditation process can provide an alternative to whistleblowing, but only if the JCAHO includes a strong ethical grounding in its approach to health care accreditation. The article examines the potential for virtue ethics, as first described by Aristotle, and later developed by Lynch and Lynch (1997) as an ethical mind-set for managers in both public and private sector organizations, to provide just such an ethical grounding for the JCAHO standards.
Health Care Fraud, the False Claims Act, and Operation Restore Trust
The term "health care fraud" is often mentioned in the same breath as the 1986 False Claims Act (31 U.S.C. Sections 3729-33). The federal government uses the False Claims Act remedy increasingly to uncover instances of fraud and abuse such as billing for ghost patients, up coding, unbundling, and billing for inadequate or unnecessary care. Since 1988, the government has recovered nearly $2 billion from health-care providers and others who cheated government health programs. In the war on health care fraud, law-enforcement agencies consider the Act to be their most powerful civil weapon (Slade, 2000).
The federal government's war on health-care fraud officially began in 1993 when the Attorney General Janet Reno announced that pursuing it would be a top priority for the Department of Justice. Through increasingly aggressive use of the False Claims Act, the government obtained huge settlements and paid sizable compensation to private individuals who brought fraud to the attention of the government. The government used the False Claims Act to investigate a wide range of health care providers, from managed care organizations, clinical laboratories, pharmaceutical companies, and chains of hospitals and nursing homes, to physician practices, home health agencies and durable medical equipment suppliers. The government also pursued the entities that assist plans and providers with health care transactions, such as billing companies, attorneys, and Medicare carriers and fiscal intermediaries.
The first very large settlement was a $111 million False Claims Act settlement with National Health Laboratories in 1992. Other large settlements were with SmithKline Beecham Clinical Laboratories for improper "bundling" of lab services ($325 million), Blue Cross and Blue Shield of Illinois for improper processing of Medicare claims ($140 million), National Medical Care for billing for unnecessary tests ($375 million), and Beverly Enterprises, the nation's largest operator of nursing homes, for inflating the costs of treating Medicare patients ($170 million). According to many researchers and health care specialists, the government's use of the False Claims Act is effective in deterring health-related frauds. For example, when the New York Times reported in 1999 that Medicare spending dropped for the first time in the history of the program, the paper noted that federal efforts to "rein in fraud" was at least partially responsible for the decline (Slade, 2000).
Commentators attribute a major factor in the government's success to the financial incentives for "whistleblowing" established by provisions in the False Claims Act that permit private persons to bring cases on behalf of the United States and to share in the government's recovery. The congress enacted the False Claims Act, also called the "Lincoln Law," the …