Health Care Fraud under the New Medicare Part D Prescription Drug Program

Article excerpt

I. INTRODUCTION

The investigation and prosecution of health care fraud over the last several years has resulted in significant recoveries and settlements by the government. The United States recovered approximately $1.5 billion in fraud settlements and judgments for the fiscal year ending September 30, 2005, the Department of Justice ("DOJ") announced on November 7, 2005. "As in the last several years, health care accounted for the lion's share of fraud settlements and judgments," amounting to $1.1 billion, according to a DOJ press release. (1) The DOJ stated that the Department of Health and Human Services' ("HHS") biggest recoveries were largely attributable to the Medicare and Medicaid programs. (2) According to the Health Care Fraud and Abuse Control ("HCFAC") program report released October 27, 2005 by the HHS Office of Inspector General ("OIG"), the federal government won or negotiated $605 million in judgments and settlements in 2004 related to the Medicare and Medicaid programs. (3)

The level of investigation and enforcement activity involving health care fraud is only likely to increase in the next several years as a result of the new Medicare prescription drug program which went into effect on January 1, 2006. (4) The new program, known as Medicare Part D, was created pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "MMA"). (5) Under the program, Medicare beneficiaries will be able to obtain partial Medicare coverage and reimbursement for their outpatient prescription drugs. Some studies have estimated that the Part D program will cost an estimated $720 billion over its first ten years. (6) Lewis Morris, chief counsel to the HHS OIG, has said that by far the largest enforcement challenge facing his office is the rollout of the Part D program. "We expect the Part D program to be the focus of bad actors because of its size alone," Morris said. (7) Thus, because of the increased money involved, the scrutiny into fraud and abuse may be much more intense.

Implementation of Part D changes the enforcement landscape by creating a new Medicare benefit to which the fraud and abuse authorities will apply. Many Medicare beneficiaries will now have (or be eligible for) Medicare coverage for prescription drugs who did not have coverage in the past. The framework for fraud and abuse investigation and enforcement will not necessarily change with Medicare Part D. Very little has changed in terms of government enforcement weapons involving the Medicare Part D program. The Federal Healthcare Programs' Anti-Kickback Statute (8) (the "Anti-Kickback Statute"), the False Claims Act, (9) and the civil money penalties law (10) will likely continue to be the main enforcement tools. In fact, Morris has said that, as the Part D program is implemented, the OIG will continue to focus on practices it has targeted in the past, including kickbacks. (11)

However, the application of the existing authorities will necessarily have to focus on new abuses that may arise by virtue of the relationships and incentives unique to the Part D program. (12) In this regard, according to James G. Sheehan, associate U.S. attorney in Philadelphia, "[t]he Medicare Part D program involves specifically vulnerable beneficiaries, high-cost populations, substantial control by providers, and creates a whole new category of payments and financial relationships." (13) Consequently, those involved in the program will need to engage in very close scrutiny of their operations and compliance obligations.

The types of fraud and abuse which may arise under the Part D program are varied and may include: (1) pharmaceutical manufacturer inducements paid to private insurance plans and pharmacy benefit managers that will administer the Part D program in return for placement of the manufacturer's drugs on plan formularies; (2) pharmaceutical manufacturers and/or health plans paying subsidies to employers to keep their Medicare-eligible employees/retirees on employer-sponsored prescription drug plans; (3) health plan marketing of the Part D benefit to Medicare beneficiaries (including cherry picking enrollees, shifting patients between plans to generate commissions, and providing beneficiaries with distorted information); and (4) health plan efforts to manipulate the period during which Part D enrollees are responsible for paying 100% of their drug costs. …