The largest bulk of recoveries under the False Claims Act have been for actions challenging Medicaid fraud and abuse. Several billion dollars have been recovered in just the past five years against leading pharmaceutical companies, device manufacturers, and various medical providers for ever-inventive schemes of fraud.
Fraud and abuse on multibillion-dollar Medicaid program comes in a variety of forms.
These can include the following: pharmaceutical and medical device companies marketing products unlawfully through off-label promotion for uses not approved or safe for patients; payments that violate the Anti-Kickback Statute; Medicaid plans unlawfully providing false risk-adjustment or other data regarding patient-members; health care providers unlawfully billing through up-coding, improper unbundling, or billing for services not provided or medically unnecessary, among other examples.
Perhaps the most straightforward and common form of health care fraud concerns fraudulent billing of Medicaid by health care providers for services that are not provided or that are not necessary and proper.
Government health care plans, such as Medicaid, will generally cover qualified costs of “reasonable and medically necessary” services for certain groups of individuals. Medicaid providers are required to provide services “economically and only when, and to the extent, medically necessary.” In order to be paid by Medicaid for services provided, these providers must certify, on forms called CMS-1500, that the services it provided were “medically…necessary to the health of the patient.”
With respect to many procedures or treatments, Medicaid requires a fixed sum be paid for a certain set of bundled services. Common among these are laboratory tests that are part of a single patient visit. The aggregate rate of reimbursement to medical providers for these services is generally less (and sometimes significantly so) than what would be paid by the government in total if each part of the bundled services were to be billed separately. For this reason, medical providers have a direct economic incentive to “unbundle” such services and bill government programs separately for their cost. This will often violate the False Claims Act.
One of the most important pieces of pricing information in government health care programs is the so-called average wholesale price, or AWP. Average wholesale price refers to the average price at which drugs are purchased by wholesale customers. AWP is the predominant benchmark metric used by government health plans, including Medicaid, to determine the government payment rate for a particular drug.
Medicaid requires that it receive the “best price” for pharmaceutical products. Pharmaceutical companies, however, have enormous incentives to disguise the actual best prices that it will often give to private sector customers as an inducement or kickback. These companies carefully guard complicated financial arrangements with drug wholesalers, pharmacies, various group purchasing entities, to mask the pricing arrangements so as to protect an inflated, stated “best price” provided to Medicaid.
The federal Anti-Kickback Statute broadly prohibits payments in exchange for the use of products or services by Medicaid beneficiaries. In addition to violations and abuse of this statute, many financial arrangements among medical providers violate the federal Stark law, 42 U.S.C. § 1395nn. That law prohibits the referral of Medicare or Medicaid patients for designated health services to an entity with which a referring physician has a financial relationship, in the absence of any applicable safe harbor.
In particular, Medicaid providers must routinely certify compliance with both the Anti-Kickback Statute and the Stark law. The certification provides: “I agree to abide by the Medicaid laws, regulations, and program instructions that apply to this provider …. I understand that payment of a claim by Medicaid is conditioned upon the claim and the underlying transaction complying with such laws, regulations, and program instructions (including but not limited to, the Federal anti-kickback statute and the Stark law), and on the provider’s compliance with all applicable conditions of participation in Medicaid.”
