Amicus Curiae Brief — Hughes Aircraft Co. v. United States Ex Rel. Schumer

a ,

a

red. FS

Pay PK | oe

, re ' i=) bf

a ese oS

ee Phat

Supreme Court, U.S.

FILED

ge

No, 95-1340 CLERK

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1996

HUGHES AIRCRAFT COMPANY,

Petitioner,

Vv.

UNITED STATES EX REL. WILLIAM J. SCHUMER,

Respondent.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Brief Amicus Curiae of National Health Law

Program, Inc. in Support of Respondent

JANE PERKINS | WILLIAM J. BLECHMAN

NATIONAL HEALTH LAW Counsel of Record

PROGRAM, INC. MIRIAM LEFKOWITZ

211 N. Columbia Street KENNY NACHWALTER SEYMOUR

Chapel Hill, N.C. 27514 ARNOLD CRITCHLOW &

(919) 968-6308 SPecTOR, P.A.

201 S. Biscayne Boulevard

Suite 1100

Miami, Florida 33131

(305) 373-1000

Counsel for Amicus Curiae

National Health Law Program,

January 3, 1997 Inc.

eee

BEST AVAILABLE COPY’

i

TABLE OF CONTENTS

Page

CA Ge FR OMIOEEED occ ccccccescccccccccecs ili

INTEREST OF AMICUS CURIAE ..........000eeeees l

SUMMARY OF THE ARGUMENT ................. a

NOE 0 6 USO UCERUAUHA EEN) ba Picdedvceoseces 6

A. Congress Intended The 1986 Amendments To

The FCA To Strengthen The Rights Of Citizens

To Report And Prosecute False And Fraudulent

Claims To The Government .................

1. Fraud Against The Government Was A

Serious Problem Before The 1986

Amendments To The FCA ..............

2. Congress Responded To Rampant And

Unremedied Fraud Against The Government

By Amending And Strengthening The FCA

And Its Qui Tam Provisions .............

3. The Amended FCA And Its Revitalized Qui

Tam Provisions Have Proven Effective In

Fighting Fraud By Those Who Contract

With Or Bill The Government ..........

Page TABLE OF AUTHORITIES

B. The FCA And Its Revitalized Qui Tar Cases

Provisions Are Needed To Fight False An!

Fraudulent Claims To The Government In Th’ | Page

Health Care Industry ...................2- » 2 |

| Fleming v. United States,

1. The Health Care Industry Is Highl: 336 F.2d 475 (10th Cir. 1964),

Susceptible To False And Fraudulent Claim: cert. denied, 380 U.S. 907 (1965) ............... 22

To The Government By Health an

Providers And Contractors ............ 12 Peterson v. Weinberger,

508 F.2d 45 (5th Cir.),

2. The Qui Tam Provisions Of The FCA, A: cert. denied, 423 U.S. 830 (1975) .... 0.0.00. 2 ee. 4

Amended, Are An Effective Litigation Too

To Combat False And Fraudulent Claims Tc Rex Trailer Co. v. United States,

The Government By Health Care Provider: EE ide dG Se 66d6s cobcecoceces 22

SED W's Wahdu We dcasekec ces 17

United States ex rel Burr v. Blue Cross and Blue

C. Consistent With The Remedial Purpose Of The Shield of Florida, Inc., No. 91-134-Civ-J-16,

1986 Amendments, Injury To The Public Fisc Is 1992 WL 521775 (M.D. Fla. Aug. 4, 1993) ....... 19

Not An Essential Element Of A Cause Of Action

aS ade ie Riba ea 22 United States ex rel. Davis v. Long's Drugs, Inc.,

411 F. Supp. 1144 (S.D. Cal. 1976) ............... 4

IE Seles cay Senko cls ic taeaceecs 23

United States ex rel. Dowden v. MetPath, Inc.,

No. 91-1843, 1993 WL 397770 (C.D. Cal.

DP ccencbGbuuesrbeteccooceococees 19

United States ex rel. Flynn v. Blue Cross/Blue

Shield of Michigan, L93-1794, 1995 WL 71329

EE 19

iv

Cases

Page

United States ex rel. Marcus v. Hess,

Fee Ge a tadcesedccdccesedscuenuse 22

United States v. Neifert-White Co.,

FOES OPT OTTT ETT TET TT ee 23

Statutes

BS GC, BIGGS 006s cd cicdsdusstevstsostddéce passim

Congressional Materials

H.R. Rep. No. 660, 99th Cong., 2d Sess. (1986) ...... 8, 10

S. Rep. No. 345, 99th Cong. 2d Sess., reprinted in 1986

CEG AR See. ccccceciendés 4, 7, 8, 9, 11, 12, 22, 23

Senator William S. Cohen, Investigative Report of

Minority Staff of Senate Special Committee on Aging,

Gaming The Health Care System (July 7, 1994)

veceee kencsceddeneavanneee 12, 14, 15, 16, 17, 20, 23

Rafael Alvarez, Company Settles False Claims Case: Firm

Accused of Billing Medicare High Prices for Cheap

Equipment, Baltimore Sun, Oct. 3, 1995, at 2B ...... 18, 19

Bureau of the Census, Statistical Abstract of the United

PRNEEED. Géneconnédensécedacdesodaeeuassuene 22

Page

Robert Cooter & Thomas Ulen, Law and Economics

Di ditdisanindiebeanbsns déabeil acdedudev suede 10

Dep't. of Justice, Albuquerque Psychiatrist, Hospital Settle

With U.S. for $700,000 (DOJ 96-214, May 8, 1996) .... 19

Dep't. of Justice, Health Care Fraud Report FY 94 (1994)

po eeneseeeadeadveesocdsooecesosceccecoseses 18, 19

Dep't. of Justice, Justice Department Recovers Over $1

Billion in Qui Tam Awards And Settlements (DOJ 95-542,

SD cdundasdcubevedinadenecdecent 5, 12, 17

Dep't. of Justice, Medical Supplier Pays U.S. $4 Million

To Settle Fraud Case (DOJ 96-288, June 19, 1996) ..... 18

Doctors Reach Settlement, Washington Post, July 26, 1996

GEEe cncttiethbcbddtoddanndbousedsotdccncadccades 19

$875,000 Settlement In False Claims Case, N.Y .L.J., Dec.

26, 1996, at 2, as corrected by N.Y.L.J., Dec. 28, 1995. at

Health Care Financing Admin., Dep’t of Health & Human

Services, /ntegrating EPSDT and Managed Care (1996) . 14

HMO Settlement Should Encourage Others To Expose

Medicaid Fraud, Sun Sentinel, Nov. 9, 1996, at 14A . 19, 20

vi

Miscellaneous

Page

Paul Jesilow, et al., Prescription For Profit: How Doctors

SPINES adic cédbdicncdaddddbéceus +

Massachusetts Insurer to Pay $2.75 Million to Settle Fraud

Case, Wall St. J., Sept. 29, 1994, at B12 .............. 19

Richard McKay, LabCorp Defends Settlement Over

Billing, Greensboro News & Rev., Nov. 23, 1996, at Al . 20

Office of Inspector General, Dep’t. of Defense, Semi-

Annual Report to the Congress (Oct. 1, 1994 - Mar. 31,

SUE don bdccdddocicsdewedede daddddutbucbedsect 18

Office of Inspector General, Dep’t. of Health & Human

Services, Laboratory Corporation of America to Pay $187

Million to Resolve Charges of False Claims to Government

PO Ei, BEE dnc cccendcdccdcbocanedccs 18

Richard A. Posner, Economic Analysis of Law (1992) . 7,10

Paul Reidinger, Fraud Doctors, ABA Journal (May 1996)

William Stringer, Kalorama Consulting Group, Inc., The

1986 False Claims Act Amendments: An Assessment of

SOO So's cece decccdecdudeu tetas 11

Elyse Tanouye, Laboratory Corp. Nears Accord In

Medicare Case, Wall St. J., Nov. 21, 1996, at A2 ...... 20

vii

Page

Richard Turner, National Health Labs Pleads Guilty To

Fraud, Agrees To Pay $110 Million, Wall St. J., Dec. 21,

ee CEO ery er ne ee 21

U.S. Gen. Acct. Off., Federal Agencies Can, and Should

Do More to Combat Fraud in Government Programs

SED o.d) oWicicctcecdcncdvct 2, 15

U.S. Gen. Acct. Off., Fraud In Government Programs:

How Extensive Is It? How Can It Be Controlled?

(GAO/AFMD-81-57; GAO/AFMD-8 1-73; GAO-AFMD-

duet uwecbeoeuesens cocbeéeccecbecess 6,7

U.S. Gen. Acct. Off., Health Insurance Regulation: Wide

Variation in States’ Authority, Oversight and Resources

SNEED BEEP 60% daneccccccscbdaccec 5,13

U.S. Gen. Acct. Off., Health Insurance: Vulnerable Payers

Lose Billions to Fraud and Abuse (GAO/HRD-92-69,

diideatdGa nts Coe bake be dd dddicdeéacce 14

U.S. Gen. Acct. Off., Medicaid: States Efforts to Educate

and Enroll Beneficiaries in Managed Care (GAO/HEHS-

SRR ei Cee uke dau dt seteuans Cubdus s+ 2

U.S. Gen. Acct. Off., Medicare: High Spending Growth

Calls for Aggressive Action (GAO/T-HEHS-95-75, 1995)

SaGbebb6eugeehoe bhinstGbeas becdeus cesses o6 cc 13, 18

Vili

Page

U.S. Gen. Acct. Off., Medicare: Modern Management

Strategies Could Curb Fraud, Waste and Abuse (GAO/T-

Sy PED UA oubt ddaseh bcd cb diniedien nue l

U.S. Gen. Acct. Off., Medicare: Rapid Spending Growth

Calls For More Prudent Purchasing (GAO/T-HEHS-95-

Sey CD wae nccnateuccudadeeesec ciaetunin 12, 13

U.S. Gen. Acct. Off., Medicare: Reducing Fraud And

Abuse Can Save Billions (GAO/T-HEHS-95-157, 1995) . 13

Whistle-Blowers Get Cut of Funds, Greensboro News &

weev.. Dav. BE, WONG, a8 BD... occ cccccccccccccce 20, 21

l

INTEREST OF AMICUS CURIAE

The National Health Law Program (“NHeLP”) is a national

public interest firm that seeks to improve health care for

America’s working and unemployed poor, minorities, elderly

and people with disabilities. NHeLP serves legal services

programs, protection and advocacy offices, community-based

organizations, the private bar, providers, and individuals who

work to maintain a health care safety net for the millions of

uninsured or underinsured low-income people. NHeLP

monitors Medicare, Medicaid and other publicly-funded health

care programs, seeks remedies when laws and policies are

ignored, and helps Americans receive needed medical care.

NHeLP has an interest in preserving the integrity of

Medicare, Medicaid and other Government-funded health care

programs.

Medicare is the nation’s largest single payer of health care

costs. In 1994, Medicare spent $162 billion, or 14 percent of the

federal budget, on behalf of about 37 million elderly and

disabled Americans. About 90 percent of Medicare

beneficiaries obtain services on an unrestricted fee-for-services

basis. Patients choose their own physicians or other health care

providers, and the resulting charges are sent to the program for

payment. The Health Care Financing Administration (“HCFA”)

within the Department of Health and Human Services is

Medicare’s health care buyer. HCFA contracts with private

companies across the country like Blue Cross and Blue Shield,

Aetna and Travelers to process and pay Medicare claims.'

: U.S. Gen. Acct. Off., Medicare: Modern Management

Could Curb Fraud, Waste and Abuse \-2 (GAO/T-HEHS-95-227, 1995).

2

Medicaid is the nation’s major publicly-financed health and

long-term care insurance program for low-income Americans.

Medicaid is cooperatively funded and administered by Federal

and State Governments. In fiscal year 1995, Medicaid provided

health care coverage for about 40 million low-income people.

Over the past 10 years, Medicaid expenditures have more than

tripled to $159 billion.* In response to budgetary pressures,

increasing numbers of Medicaid recipients have been required

to enroll in “managed” health care benefits plans.’ The decided

trend in these managed care arrangements is for Medicaid to pay

health care plans a preset amount and expect the plan to provide

the Medicaid services that are needed by the recipients.

Both Medicare and Medicaid are susceptible to widespread

fraud by insurers, physicians, hospitals, and other members of

the health care industry. The effects of this fraud ripple through

the health care system:

When federal programs are exploited and abused,

it not only costs the taxpayers more, but also may

diminish public support for programs, deprive

eligible beneficiaries of benefits, and lower the

level of services provided.‘

The loss of hundreds of millions of dollars annually as a

result of false and fraudulent billing of Government by health

3 U.S. Gen. Acct. Off., Medicaid: States’ Efforts to Educate and

Enroll Beneficiaries in Managed Care 3 (GAO/HEHS-96-184, 1996).

: Id at | (As of June 1995, 11.6 million Medicaid beneficiaries--32

percent of all Medicaid beneficiaries~were enrolled in managed care plans. ).

: U.S. Gen. Acct. Off., Federal Agencies Can, and Should, Do More

to Combat Fraud in Government Programs || (GAO/GGD-78-62, 1978).

3

care providers and contractors threatens both the financial

viability of these Government-funded health care programs and

the quality of medical services, and thus places at risk those

Americans who rely on Medicare or Medicaid for their health

insurance and medical needs.

The False Claims Act has proven to be an effective tool in

ferreting out false and fraudulent billing practices in the health

care industry and in enabling the Government to recover

significant dollars whose loss would ultimately be borne by the

American taxpayer.

Although the facts in this case involve defense procurement

fraud, this Court’s decision could have implications in other

areas of government contracting, including the health care

industry.’ NHeLP’s amicus curiae brief explains how the

amended FCA and its qui tam provisions serve as an effective

: Indeed, the Brief for Amici Curiae “Healthcare Associations”

suggests that if this Court interprets the “public disclosure” issue broadly as

requested by Petitioner, then a hospital might be able to prevent its employee

from becoming a qui tam relator if the employee learns about fraudulent

claims from an audit performed at the Government’s direction. See Brief for

Amici Curiae The Association Of American Medical Colleges, The

American Hospital Association, And The American Medical Association In

Support Of Petitioner, at 4-5, 19-20. The Healthcare Association’s

interpretation of the “public disclosure” bar would turn that jurisdictional bar

on its head because virtually all audits, reports and other self-monitoring of

claims under Medicare, Medicaid and other Government-sponsored health

care programs are required by or done at the request of the Government. The

practical effect of the Healthcare Association’s broad interpretation of the

“public disclosure” bar would be to leave health care providers and

contractors to police themselves regarding the submission of claims to the

Government. Such a situation would be tantamount to leaving the fox to

guard the hen house.

4

means to eliminate the fraud that permeates Medicare,°

Medicaid’ and other Government-funded health care programs.

In recognition of NHeLP’s interest in this case, the parties

have consented to the filing of this brief.*

SUMMARY OF THE ARGUMENT

The False Claims Act, with its gui tam provisions, is an

effective litigation tool that is essential to our nation’s fight

against the unlawful submission of false or fraudulent claims to

the Government by, among others, health care providers and

contractors.

At the time the Act was amended in 1986, procurement

fraud in the defense industry was pervasive. As the Act

succeeded in combating at least some of the excesses of defense

. False or fraudulent claims to the Government under the Medicare

program are remedied under the FCA. See S. Rep. No. 345, 99th Cong., 2d

Sess. 21, reprinted in 1986 U.S.C.C.A.N. 5200 [hereinafter Senate Report]

(“false Medicare claims have been uniformly held to be within the ambit of

the False Claims Act, though the claims were actually filed with and paid by

insurance companies”) (citing with approval Peterson v. Weinberger, 508

F.2d 45 (Sth Cir.), cert. denied, 423 U.S. 830 (1975)).

, Although federal involvement in Medicaid is less direct than

Medicare, claims submitted to state agencies under Medicaid are subject to

civil enforcement actions under the FCA. See Senate Report, supra, at 22

(citing with approval United States ex rel. Davis v. Long's Drugs, Inc., 411

F. Supp. 1144 (S.D. Cal. 1976)). For background information on the rise of

fraud and abuse in Medicaid, see Paul Jesilow et al., Prescription For Profit:

How Doctors Defraud Medicaid (1993).

. Letters of consent from both parties have been filed with the Clerk

of the Court.

5

procurement fraud, the focus of civil enforcement actions by the

Government and gui tam relators by the mid 1990’s shifted from

the defense industry to the health care industry.’

False and fraudulent billing of Government by health care

providers and contractors has reached epidemic proportions.

Although the Government pays nearly one trillion dollars

annually for health care, including its funding of programs such

as Medicare and Medicaid, it has few, if any, effective

institutional controls to detect false and fraudulent claims."

Similarly, States lack resources and regulations to police health

care fraud."

The False Claims Act and its gui tam provisions are needed

to effectively detect and prosecute the rampant false and

fraudulent billing of Government by health care providers and

contractors. Every citizen has an interest in remedying and

deterring the submission of false or fraudulent claims to the

Government because each of us pays in one way or another for

tax dollars that are paid to health care providers and contractors.

Fighting fraud does more than simply uphold the integrity

of the public fisc. It also has tangible, positive effects on the

everyday lives of the beneficiaries of Government programs

such as Medicare and Medicaid. Recovering funds unlawfully

° See Dep't. of Justice, Justice Department Recovers Over $1 Billion

in Qui Tam Awards And Settlements (DOJ 95-542, Oct. 18, 1995).

= See infra notes 22-26 and accompanying text.

= See U.S. Gen. Acct. Off., Health Insurance Regulation: Wide

Variation in States’ Authority, Oversight, and Resources 6-7 (GAO/HRD-94-

26, 1993); infra note 26.

6

taken from these programs enables more Americans to receive

health insurance coverage and medically necessary services.

The United States Court of Appeals for the Ninth Circuit

correctly ruled that damage to the public fisc is not an essential

element of a gui tam action under the FCA.”

Accordingly, this Court should affirm the judgment of the

Court of Appeals.

ARGUMENT

A. Congress Intended The 1986 Amendments To The FCA

To Strengthen The nights Of Citizens To Report And

Prosecute False and Fraudulent Claims To The

Government

1. Fraud Against The Government Was A Serious

Problem Before The 1986 Amendments To The

FCA

In 1981, the United States General Accounting Office

produced a three volume Report to Congress entitled Fraud In

Government Programs: How Extensive Is It? How Can It Be

Controlled?" The Report concluded: “Fraud against

Government programs is widespread. It undermines the

integrity of Federal programs and makes people lose confidence

= The “Argument” Section of this brief does not address the

retroactivity and public disclosure issues.

a U.S. Gen. Acct. Off., Fraud in Government Programs: How

Extensive Is It? How Can It Be Controlled? (GAO/AFMD-81-57;

GAO/AFMD-8 1-73; GAO-AFMD-82-3, 1981) [hereinafter Report or GAO

Report I, II or Ill}.

7

in public institutions.” GAO Report I, supra, at cover sheet.

Among those identified as responsible for the fraud were federal

contractors and grantee employees. /d. at 7. False statements

were second only to theft as the largest type of fraud identified

by the GAO Report. GAO Report II, supra, at 2.

The study found that nearly all false statement cases related

to five agencies: the Social Security Administration, the

Department of Defense, the Veterans Administration, the

Department of Agriculture, and the Department of Housing and

Urban Development.'* Jd. at 3. The Report noted that fraud

permeated Government programs. /d. at 8-15 (citing a range of

fraud against Government involving welfare and food stamps

benefits, defense procurement, crop subsidies and disaster

relief).

The GAO Report explained that the total cost of fraud

could never be known because so much fraud goes undetected.

GAO Report I, supra, at 4-5.'° The GAO Report stated that

“[t}he sad truth is that crime against the Government often does

pay.” Jd. at cover page. Unlike violent crime, where the

evidence of illegal conduct is shockingly apparent, fraud is

much more subtle. It is concealed by lies and often is cloaked

in the legitimacy of an on-going corporate or public concern.

See Richard A. Posner, Economic Analysis of Law 221 (1992).

” Notable by its absence at the time was the Department of Health and

Human Services, which oversees the Medicare and Medicaid programs. As

explained on pp. 12-22, infra, since the early 1990s, the health care industry

has increasingly become the focus of enforcement actions under the FCA.

- See also Senate Report, supra, at 2.

Although the exact dollar cost of false and fraudilent

claims to the Government could not be calculated with

certainty, the United States Department of Justice estimated in

1981 that “fraud [w]as draining 1 to 10 percent of the eitire

Federal budget.” Senate Report, supra, at 3. Such a projection

meant at the time that “fraud against the Government could be

costing taxpayers anywhere from $10 [billion] to $100 billion

annually.” Jd.

Before the 1986 Amendments to the FCA, frauc in

Government-funded programs often went undetected OF

unremedied because the Government itself suffered ffom

bureaucratic gridlock and insufficient resources; and because the

citizenry was not effectively empowered to compel the

Government to take remedial action. Congress observed at the

time that:

[T]here are serious roadblocks to [the Government]

obtaining information as well as weaknesses in both

investigative and litigative tools. ... Detecting fraud

is usually very difficult without the cooperation of

individuals who are either close observers or

otherwise involved in the fraudulent activity. Yet in

the area of Government fraud, there appears to be a

great unwillingness to expose illegalities. . . . [T]he

collection of information which leads to successful

fraud recoveries is hampered by Government’s

inadequate investigative tools.

Senate Report, supra, at 4-6; accord H.R. Rep. No. 660, 9?th

Cong., 2d Sess. 18 (1986) [hereinafter House Report] (“GAO

found that due to weak internal controls and the fact that

Government auditors do not pay adequate attention to possible

fraud, many fraud cases have gone undetected.”).

9

2. Congress Responded To Rampant And

Unremedied . raud Against The Government By

Amending And Strengthening The FCA And Its

Qui Tam Provisions

In 1986, Congress amended the FCA, including its gui tam

provisions, to improve the effectiveness of Government and its

citizens to prosecute false and fraudulent claims to the

Government. Senate Report, supra, at |.

The gui tam amendments eliminated the overly restrictive

jurisdictional bar preventing qui fam lawsuits about which the

Government possessed certain information, 31 U.S.C. § 3730;

entitled successful qui tam relators to at least 15% and up to

30% of the funds they help recover from the defendant, id. §

3730(d); required the defendant to pay for the successful

relator's reasonable costs of suit and attorney’s fees, id.;

permitted relators to maintain their status as parties to the FCA

case even if the Government intervened in the case, id. §

3730(c); and established protections from employer retaliation

for employee whistleblowers. /d. § 3730(h).

The effects of these changes were threefold. First, they

removed the key barriers that had previously prevented citizens

from filing gui tam suits against wrongdoers.'® Second, they

affirmatively encouraged people with knowledge of FCA

violations to come forward to vindicate the Government’s

= See Senate Report, supra, at 25-26 (giving qui tam plaintiffs a more

direct role in the litigation serves as a check that the government does not

neglect evidence, cause undue delay, or drop the false claims case without

legitimate reason), id at 24 (“[M)]uch of the purpose of the gui tam actions

would be defeated unless the private individual is able to advance the case

to litigation.”).

10

rights.'’ And third, as a result, they increased the deterrent

effect of the Act.

A “rational” wrongdoer contemplating whether to commit

fraud weighs the potential payoff from fraud against the

likelihood and consequences of being caught.'* The revitalized

qui tam provisions are available to any of the “rational”

wrongdoer’s peers, co-workers or others who know of the

unlawful conduct and want to right it. The incentives for these

people to right the wrong have been sufficiently strengthened by

the 1986 Amendments, thus increasing the likelihood that a

wrongdoer will be caught. In addition, the 1986 Amendments

to the Act increased the potential loss to a wrongdoer from being

caught by exacting treble damages and requiring the wrongdoer

to pay the relator’s fair costs and attorneys’ fees. For the

“rational” wrongdoer, the potential payoff from fraud is more

likely to be outweighed by the higher likelihood of being caught

° See House Report, supra, at 23 (“The purpose of the gui tam

provisions of the False Claims Act is to encourage private individuals who

are aware of fraud being perpetrated against the Government to bring such

information forward.”).

= See generally Robert Cooter & Thomas Ulen, Law and Economics

506-32 (1988). Judge Posner, in his book Economic Analysis of Law, writes:

A growing empirical literature on crime has shown that

criminals respond to changes in opportunity costs, in the

probability of apprehension, in the severity of punishment,

and in other relevant variables as if they were indeed the

rational calculators of the economic model. . . .

Richard A. Posner, Economic Analysis of Law, 223-24 (1992).

under conventional economic theory, the rejuvenated qui tam

provisions make it less likely that a “rational” wrongdoer will

commit fraud. It was Congress’ intent that its 1986

Amendments have this effect, cf. Senate Report, supra, at 2, 8,

and the courts should enforce the statute consistent with the

remedial purpose of the Act.

3. The Amended FCA And Its Revitalized Qui Tam

Provisions Have Proven Effective In Fighting

Fraud By Those Who Contract With Or Bill The

Government

One way to measure the effectiveness of the 1986

Amendments is to compare the number of FCA qui tam cases

filed and the total dollars recovered in those cases prior to and

after the Amendments.

Although information on the subject is limited, one study

reports, based on Justice Department records, that between 1943

and 1986, there were only three qui tam cases filed under the

FCA with total recoveries of $54,000." According to another

source, qui tam lawsuits numbered six or fewer annually prior

to 1986.”

Since the 1986 Amendments to the Act, the Government

has recovered over three billion dollars in civil fraud actions,

- William Stringer, Kalorama Consulting Group, Inc., The / 986 False

Claims Act Amendments: An Assessment Of Economic Impact 23 (1996).

= Paul Reidinger, Fraud Doctors, ABA Journal 49, 52 (May 1996).

12

and more than one billion dollars of those recoveries are

attributed to 153 qui tam cases.*"

False and fraudulent billing of Government has been going

on at least since President Lincoln’s time. See Senate Report,

supra, at 8. Yet, only since Congress amended the FCA and its

qui tam provisions in 1986 has Government, with the substantial

assistance of an empowered and proactive citizenry, been able

to effectively prosecute and deter billing fraud in any sustained,

meaningful and measurable way.

B. The FCA And Its Revitalized Qui Tam Provisions Are

Needed To Fight False And Fraudulent Claims To The

Government In The Health Care Industry

1. The Health Care Industry Is Highly Susceptible

To False And Fraudulent Claims To The

Government By Health Care Providers And

Contractors

The Government spends about one trillion annually on

health care for its citizens.” Funding for Medicare and

Medicaid accounts for many of those dollars.” However,

= See Dep't. of Justice, Justice Department Recovers Over $1 Billion

In Qui Tam Awards And Settlements (DOJ 95-542, Oct. 18, 1995).

as See Senator William S. Cohen, Investigative Report of Minority

Staff of Senate Special Committee on Aging, Gaming The Health Care

System 7 (July 7, 1994) [hereinafter Investigative Report).

= See, e.g, U.S. Gen. Acct. Off., Medicare: Rapid Spending Growth

Calls for More Prudent Purchasing 3-4 (GAO/T-HEHS-95-193, 1995). For

fiscal year 1994, federal spending on Medicare totaled $162 billion, or $440

million per day. /d. at 1. In March 1995, the Congressional Budget Office

a ee ee ee

13

fraud and abuse. For example, less than one quarter of one

percent of Medicare dollars is spent auditing payments by the

Government.” Rather than increase the percentage of processed

claims reviewed for billing fraud, HCFA has actually decreased

the percentage from 20% in 1989 to 5% in 1994,”° while the

number of claims submitted for processing has gone up

annually.” ,

Managed care is contributing to the Government's inability

to effectively police health care fraud. Medicaid increasingly

relies on capitated, risk-based managed health care plans to

estimated that these expenditures would approach $350 billion by 2002, and

exceed $460 billion by 2005. /d.

Controls placed on Medicare spending in one sector of the health

care industry create pressure to increase spending in other sectors. For

example, between 1992 and 1993, as diagnosis-related group cost

containment measures limited Medicare reimbursements to hospitals for in-

patient stays and treatment, there was a concomitant increase in Medicare

spending for outpatient services, home health agencies and nursing homes.

See U.S. Gen. Acct. Off., Medicare: High Spending Growth Calls For

Aggressive Action 3 (GAO/T-HEHS-95-75, 1995).

= U.S. Gen. Acct. Off., Medicare: Reducing Fraud And Abuse Can

Save Billions § (GAO/T-HEHS-95-157, 1995).

ad Id. at 7.

= Id. at 3-5, 7.

The States are not better positioned than the Federal Government

to fight health care fraud and abuse because the States are under-funded and

lack sufficient experienced manpower to do the job. See U.S. Gen. Acct.

Office, Health Insurance Regulation: Wide Variation in States’ Authority,

Oversight, and Resources 6-7 (GAO/HRD-94-26, 1993).

14

serve program beneficiaries. The managed care plans and their

networks of providers are paid preset amounts of money per

member per month, and they, in turn, agree to provide each

Medicaid member with health care as called for in the

Government contract and as needed by the patient. However,

because the plans are being paid on a capitated basis, claims

often are not submitted to the Government purchaser who might

otherwise verify that a required service was in fact rendered.

Thus, in the managed care context, the Government is losing

access to encounter and claims data that it has traditionally

relied on to police health care fraud and abuse.”” While much of

the movement toward managed care has focused on Medicaid,

the Medicare program is increasingly using similar purchasing

and delivery arrangements.

Rising health care spending by the Government and

the opportunity and incentive for billing fraud and abuse by

health care providers and contractors.

With so much Government money at stake in the health

care industry, and so few institutional controls on how those

dollars are spent, Government-funded health care programs have

become highly susceptible to false and fraudulent billing. A

1992 Report by the General Accounting Office predicted that

fraud and abuse would consume 10%, or about $100 billion, of

the Government’s annual health care expenditures.” A Senate

Report two years later confirmed those figures and noted ‘nat

ad E.g., Health Care Financing Admin., Dep’t of Health and Human

Services, Integrating EPSDT and Managed Care 6 (1996).

= U.S. Gen. Acct. Off., Health Insurance: Vulnerable Payers Lose

Billions to Fraud and Abuse (GAO/HRD-92-69, 1992).

15

“[o]ver the last five years, estimated losses from these

fraudulent [health care] activities totaled about $418 billion--or

almost four times as much as the cost of the entire savings and

loan crisis to date.” Investigative Report, supra, at 1. That

Report characterized health care fraud as “rampant,” and warned

that “[a]s our health care system moves toward a managed care

ne 6 Id.

at 32.

Health care fraud and abuse has compromised the quality

of and coverage for health care delivery for many Americans.”

One Government study concluded:

[P Jatients--and, in the case of Medicare and Medicaid,

taxpayers--pay a high price for health care fraud and

abuse in the form of higher health care costs, higher

premiums, and at times, serious risks to patients’

health and safety.

Investigative Report, supra, at 1. For example:

* — ahome health care company billed Medicaid for

millions of dollars of health care services by

aides who were untrained and unqualified to

provide those services;*”

- See U.S Gen. Acct. Off., Federal Agencies Can, and Should, Do

More to Combat Fraud in Government Programs \\ (GAO/GGD-78-62,

1978) (“When federal programs are exploited and abused, it not only costs

the taxpayers more, but also may diminish public support for programs,

~ aie acer tence eartaminaies wrmatadeanea

30 See Investigative Report, supra, at 2.

16

: 1500 employees lost prescription drug coverage

because a pharmacist’s fraudulent billing of

Medicaid and a private insurer artificially

inflated the cost of insurance to prohibitively

expensive levels for their employer;”'

* many nursing home patients and pharmacy

customers unknowingly received ineffective

samples or expired prescription drugs from a

pharmacy that billed the Government for the

drugs;”

* patients received expired or reused pacemakers,

and mislabeled pacemakers intended for “animal

use only,” as part of a kickback scheme

involving cardiologists, surgeons and a

pacemaker salesman;” and

* a physician who examined patients with

hypertension falsified their blood pressure

readings and failed to treat their disease though

he billed Medicaid hundreds of thousands of

dollars for supposedly treating these and other

patients suffering medical maladies.”

False and fraudulent billing in the health care industry

manifests itself in many forms, including: overbilling; billing for

» Id

33 Id.

3 Id. at 2, 16.

- Id. at 22.

17

services not rendered; collecting capitation amounts but not

providing the service called for in the managed care contract;

“unbundling” (billing one item as many separate component

parts); “upcoding” services to receive higher reimbursements;

paying kickbacks and inducements for referrals of patients;

falsifying claims and medical records to certify an individual for

Government benefits; and billing for “ghost” patients or

“phantom” services. Investigative Report, supra, at 1.

2. The Qui Tam Provisions Of The FCA, As

Amended, Are An Effective Litigation Tool To

Combat False And Fraudulent Claims To The

Government By Health Care Providers And

Contractors

The FCA and its qui tam provisions, as amended by

Congress in 1986, already have proven effective in policing and

prosecuting procurement fraud in the defense industry.**> With

fraud and abuse “rampant” in the health care industry,» the

amended Act should likewise be an effective litigation tool for

Government and its citizens to combat false and fraudulent

claims to the Government by health care providers and

contractors.

By all indications, the collaborative effort between the

Government and its citizens to ferret out false and fraudulent

claims in the health care industry is working. Qui tam lawsuits

= See statistics on successful procurement fraud prosecutions and

recoveries under the amended FCA in Dep't of Justice, Justice Department

Recovers Over $1 Billion in Qui Tam Awards And Settlements (DOJ 95-542,

Oct. 18, 1995).

= See Investigative Report, supra, at 32.

under the FCA have been responsible for the Government

recovering:

* $3.1 million from a clinical laboratory which,

over a five-year period, billed Medicare for local

mileage charges for transporting specimens 5.7

million miles, equivalent to 230 trips around the

earth;”’

* $182 million from a laboratory testing company

that billed Medicare for tests never performed;**

* Millions of dollars that hospitals or physicians

collected based on improper referrals or forged

Medicare claims;”

* Millions of dollars from medical equipment and

drug companies that overbilled the Government or

falsely represented to the Government the nature

of the products or supplies being sold;

- U.S. Gen. Acct. Off., Medicare: High Spending Growth Calls for

Aggressive Action 6 (GAO/T-HEHS-95-75, 1995).

= Office of Inspector General, Dep't. of Health & Human Services,

Laboratory Corporation of America to Pay $187 Million to Resolve Charges

of False Claims to Government Programs (Nov. 21, 1996) ($182 million

civil liability plus $5 million criminal fine).

- See Office of Inspector General, Dep't. of Defense, Semi-Annual

Report to the Congress (Oct. 1, 1994 - Mar. 31, 1995).

a Dep’t. of Justice, Medical Supplier Pays U.S. $4 Million To Settle

Fraud Case (DOJ 96-288, June 19, 1996); Dep’t. of Justice, Health Care

Fraud Report FY 94 (1994), Rafael Alvarez, Company Settles False Claims

Case: Firm Accused Of Billing Medicare High Prices For Cheap Equipment,

19

* $1.86 million from an ambulance service for

dialysis patients who supposedly were confined to

their beds but in fact could walk;*'

* $39.8 million from a laboratory testing company

that billed Medicare for tests that were not

reasonable and necessary for the diagnosis or

treatment of an illness or injury;”

* $40.35 million from insurers who mishandled or

submitted improper or false billing to Medicare;”

and

* Millions of dollars from physicians, home health

operators, and nursing home facilities who falsely

billed Medicaid for services not rendered or

improperly performed.“

Baltimore Sun, Oct. 3, 1995, at 2B.

. Dep't. of Justice, Health Care Fraud Report FY 94.

e United States ex rel. Dowden v. MetPath, Inc., No. 91-1843, 1993

WL 397770 (C.D. Cal. Sept. 13, 1993).

© United States ex rel. Flynn v. Blue Cross/Blue Shield of Michigan,

L93-1794, 1995 WL 71329 (D. Md. Jan. 10, 1995); United States ex rel

Burr v. Blue Cross and Blue Shield of Florida, Inc., No. 91-134-Civ-J-16,

1992 WL 521775 (M.D. Fla. Aug. 4, 1993); Dep’t. of Justice, Health Care

Fraud Report FY 94 (1994); Massachusetts Insurer To Pay $2.75 Million To

Settle Fraud Case, Wall St. J., Sept. 29, 1994, at B12.

= Dep't of Justice, Albuquerque Psychiatrist, Hospital Settle With

U.S. For $700,000 (DOJ 96-214, May 8, 1996); Doctors Reach Settlement,

Washington Post, July 26, 1996, at B6; $875,000 Settlement In False Claims

Case, N.Y.L.J., Dec. 26, 1995, at 2, as corrected by N.Y.L.J., Dec. 28, 1995,

at 2; HMO Settlement Should Encourage Others To Expose Medicaid Fraud,

20

The foregoing examples are merely a small percentage of

the false and fraudulent billing that plagues Medicare, Medicaid

and other Government-funded health care programs.

The Government's recent recovery of $182 million from

Laboratory Corporation of America (“LabCorp”) illustrates how

effective the FCA qui fam provisions can be in ferreting out

false and fraudulent billing to the Government in the health care

industry.** LabCorp marketed packages of blood tests for

doctors who billed their patients directly at one price, and

unbundled those packages and charged Medicare separately --

and at a substantially higher price--for each test in the bundle,

including some tests that routinely were not performed.“

Because physicians never saw the LabCorp statements sent to

third-party payers like Blue Cross and Blue Shield, they did not

know about the false and fraudulent billing. The relator, a

physician, used LabCorp for blood tests required for his

practice. He noticed that LabCorp commonly did tests that he

neither needed nor wanted for his patients and thus became

suspicious of its billing practices. He reported his suspicions to

the Government, and reportedly was told by one official not to

concern himself with the problem because Medicare was paying

the bills.” Ultimately, the doctor filed a qui tam complaint

Sun Sentinel, Nov. 9, 1996, at 14A; see generally Investigative Report,

supra, at 21-25.

as See supra note 38 and accompanying text.

aa See Elyse Tanouye, Laboratory Corp. Nears Accord In Medicare

Case, Wall St. J., Nov. 21, 1996, at A2.

° See Whistle-Blowers Get Cut Of Funds, Greensboro News & Rec.,

Nov. 26, 1996, at B2; Richard McKay, LabCorp Defends Settlement Over

Billing, Greensboro News & Rec., Nov. 23, 1996, at Al.

21

under the amended FCA and his action (and the lawsuits of three

other relators)* forced the Government to take remedial action.

Remarkably, in 1992, LabCorp’s predecessor, National

Health Laboratories Corporation, paid the Government $111.4

million in a qui tam case after pleading guilty to submitting false

and fraudulent claims for medical tests.”

The enormous amount of money that Government pays to

health care providers and contractors has created a tremendous

incentive not just for laboratory testing companies like LabCorp,

but for insurance companies, physicians, durable medical

equipment providers, hospitals and countless others in the health

care industry, to risk filing false and fraudulent claims to the

Government because of the potential lucrative financial return.

That misguided economic opportunity and incentive will be

deterred only by strong and certain economic and legal

consequences.” The 1986 Amendments to the FCA provide the

needed counterbalance.

The health care industry has become in the 1990s what the

defense procurement industry was in the 1980s--an industry

without conventional controls to police and prevent false and

fraudulent claims to the Government, yet an industry that is

pervasively dependent upon Government funding for its

S See Whistle-Blowers Get Cut Of Funds, Greensboro News & Rec.,

Nov. 26, 1996, at B2.

° See Richard Turer, National Health Labs Pleads Guilty To Fraud

Agrees To Pay $110 Million, Wall St. J., Dec. 21, 1992, at A2.

See supra note 18 and accompanying text.

22

existence.*' Just as the amended FCA, with its strengthened qui

tam provisions, was essential to reigning in the billing abuses of

defense contractors in the 1980s, so too is it necessary to

controlling the fraudulent billing excesses of health care

providers and contractors in the 1990s and beyond.

C. Consistent With The Remedial Purpose Of The 1986

Amendments, Injury To The Public Fise Is Not An

Essential Element Of A Cause Of Action Under The

FCA

Injury to the public fisc is not an essential element of an

action under the FCA. The Senate Report accompanying the

1986 FCA Amendments explains that “[t]he United States is

entitled to recover [civil penalties] solely upon proof that false

claims were made, without proof of any damages.” Senate

Report, supra, at 8 (italics added) (citing Fleming v. United

States, 336 F.2d 475, 480 (10th Cir. 1964), cert. denied, 380

U.S. 907 (1965)). 7

In cases pre-dating the 1986 Amendments, this Court has

consistently recognized that injury to the public fisc is not an

essential element of an FCA claim. For example, in United

States ex rel. Marcus v. Hess, 317 U.S. 537 (1943), this Court

affirmed a district court ruling that the Government’s discovery

of the fraud in time to withhold payment from the defendant did

not bar a claim under the Act. Later, in Rex Trailer Co. v.

United States, 350 U.S. 148 (1956), this Court relied on its

decision in Hess in holding that specific damages need not be

= For example, federal funds pay for 41% of hospital care, 32% of

nursing home care, and 28% of doctors’ fees. See Bureau of the C-nsus,

Statistical Abstract of the United States 98 (tbi. 137) and 100 (tbl. 141)

(1992).

23

demonstrated to recover under the Surplus Property Act. And

in United States v. Neifert-White Co., 390 U.S. 228 (1968), this

Court stated that the FCA, which it characterized as a “remedial

statute,” id. at 233, “reaches beyond ‘claims’ which might be

legally enforced, to all fraudulent attempts to cause the

Government to pay out sums of money.” /d.

Nothing in the 1986 Amendments alters this precedent.

The submission of false or fraudulent claims to the

Government by health care providers and contractors, even if

not paid by the Goverament, erodes the integrity of

Government-funded health care programs. See, e.g., Senate

Report, supra, at 3 (“Even in the cases where there is no dollar

loss . . . the integrity ity of quality requirements in procurement

programs is seriously undermined.”). When the quality of these

programs is undermined, the Government and its taxpayers

ultimately bear the costs. See Investigative Report, supra, at 1;

supra notes 4 & 29 and accompanying text.

CONCLUSION

For the foregoing reasons, the judgment of the Court of

Appeals should be affirmed.

24

Respectfully submitted,

JANE PERKINS WILLIAM J. BLECHMAN

NATIONAL HEALTH LAW Counsel of Record

PROGRAM, INC. MIRIAM LEFKOWITZ

211 N. Columbia Street KENNY NACHWALTER SEYMOUR

Chapel Hill, N.C. 27514 ARNOLD CRITCHLOW &

(919) 968-6308 SPECTOR, P.A.

201 S. Biscayne Boulevard

Suite 1100

Miami, Florida 33131

(305) 373-1000

Counsel for Amicus Curiae

National Health Law Program,

Inc.

Dated: January 3, 1997