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Healthcare Fraud also Harms Private Insurers - and Whistleblowers can Help

Posted  April 25, 2019

Whistleblowers with information about healthcare fraud look first to the False Claims Act, and the impact that healthcare fraud has on Medicare, Medicaid, and other government healthcare spending.  But, healthcare fraud that harms private insurance companies – as opposed to government payors – also attracts government enforcement attention.  Several recent criminal prosecutions in Texas and elsewhere illustrate the government’s interest in fraud against private insurance companies.  And, a recent California settlement with a Constantine Cannon client, which included the resolution of claims under both the FCA and the California Insurance Fraud Prevention Act, illustrates how whistleblowers can bring actions under seal for harm to private insurance companies and receive a share – between 30% and 50% – of any proceeds from the case.

Recent Enforcement Actions Involving Private Insurers

These cases each demonstrate the ways that fraud can impose significant costs on private insurers, contributing to rising healthcare costs.

  • Forest Park Medical Center.  On April 10, 2019, seven individuals, including four doctors, were convicted for their roles in a scheme through which surgeons agreed to refer patients with private insurance to Forest Park Medical Center in exchange for advertising dollars the Dallas hospital provided to the doctors through “co-marketing agreements.”  The government prosecuted defendants under the federal Travel Act, which prohibits the use of interstate commerce to carry on illegal activity under a different law; the government pointed to violations of the Texas commercial bribery statute.
  • Primera Medical Group.  On March 14, 2019, two former Primera executives were sentenced to prison for their roles in submitting more than $8.5 million in fraudulent invoices to private insurance companies for allergy testing and allergy immunotherapy services that were never provided and were not medically necessary.  The defendants recruited patients for allergy testing without determining whether the testing was medically necessary, advertising that their insurance would pay for the services without any out-of-pocket cost to the patients.
  • Palo Pinto General Hospital.  On March 8, 2019, the former CEO of Palo Pinto pleaded guilty to defrauding BlueCross BlueShield of Texas, CIGNA Texas, and United Healthcare by submitting nearly $55 million in sham claims to the insurers for allergy and genetic testing the hospital claimed to have performed.  In fact, the hospital did not have the equipment to perform the tests in question, and the patients did not know the claims were being submitted.
  • Red Oak Hospital.  On February 22, 2019, physician Harcharan Narang and hospital owner Dayakar Moparty were convicted for their submission of false claims to private insurers for medical tests that were not medically necessary, not provided, or both, and for falsifying home health patient assessments to record he patients as sicker and therefore receive higher reimbursements from Blue Cross Blue Shield, Cigna, Aetna, and other private insurers.

The above actions are criminal proceedings.  While the insurance companies who were harmed by the fraud may themselves bring civil actions against the fraudsters to recover the amounts that the insurance companies have overpaid, insurance companies often do not know about the fraud in a timely manner.  Without incentives for insiders to come forward and report hidden fraud to them – like the False Claims Act – insurers lack a critical fraud detection tool.

Whistleblower Rewards for Reporting Fraud Against Private Insurance Companies

As said, fraud against government healthcare programs can be reported by whistleblowers under the False Claims Act.  But what about fraud against private insurers?  A provider may serve a patient base with a low number of Medicare or Medicaid patients, may advertise specifically to privately-insured patients (as the Primera defendants did), or may take steps in designing their fraudulent activities to avoid Medicare and Medicaid patients (as the defendants in Forest Park did).

Two states, California and Illinois, have laws that allow whistleblowers to file suit against fraudsters who target private insurance companies, the California Insurance Frauds Prevention Act and the Illinois Insurance Frauds Prevention Act.  These acts mirror the False Claims Act in that whistleblower can file actions under seal, and the government has a right to intervene.  If the government declines, the whistleblower may proceed on a non-intervened basis.  Like the FCA, damages are trebled, defendants face per-claim penalties, and the whistleblower is entitled to a share of any eventual recovery.

Of course, many healthcare frauds target both government payors and private insurers.  For cases arising in California or Illinois, a whistleblower can file an action bringing claims under both the FCA and the relevant insurance fraud statute. The conduct may then be simultaneously investigated by the Department of Justice and by the state insurance authorities, who each have their own right to intervene.  Joint investigations involving federal and state authorities are familiar to any attorney who has been involved in a whistleblower case pleading both federal and state FCA violations for false claims to Medicare and Medicaid.

In the Skyline Urology case, a whistleblower represented by Constantine Cannon alleged that the provider engaged in a coding scheme that improperly unbundled “evaluation and management” services from other billed services, resulting in overpayments both by Medicare and by private insurance companies.  The $2.1 million settlement, announced on February 25, 2019, was allocated $1.85 million to the United States, and $250,000 to the State of California.  The whistleblower is entitled to an award for both recoveries.

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Tagged in: Healthcare Fraud, Private Insurance Whistleblower Reward Programs,


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