The Public Policy

Boston Bounty Hunters

But where's the money?

By 7.14.05

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The Federal Government has built an incredible money machine in Boston! Aggressive U.S. Attorney Michael Sullivan and his equally aggressive assistants have created a uniquely lucrative legal practice in False Claims Act (FCA) cases. Their renowned Health Care Fraud Unit of the Massachusetts U.S. Attorney's office has (between May 1996 and May 2001), according to the Boston Globe, "recovered $1.54 billion for federal taxpayers, more than 30% of all health care fraud settlements by the nation's 94 U.S. attorney's offices."

That statement was printed before the Unit recovered another $1.561 billion from three more recent cases: TAP Pharmaceuticals in 2001 for $875 million; Bayer in 2003 for a combined $256.5 million, and Warner-Lambert (now Pfizer) in 2004 for $430 million. These three cases of alleged Medicare and Medicaid false claims alone make up nearly half of the $3.225 billion of Department of Justice (DOJ) health care recoveries in those three fiscal years.

This would be a good thing if these big settlements were making Medicare and Medicaid funds whole for their supposed losses and ultimately securing benefits for beneficiaries.

But are they? Let's follow the money.

Right off the top comes the reward money for the "relators," the whistleblowers who initiated the legal action. These rewards are hefty: in the TAP case, a former salesman took home $77 million, and a doctor and his clinic split another $17 million; in the Warner-Lambert case, the whistleblower, an employee of only four months, won $26.6 million for his trouble; the family of the deceased whistleblower involved in the Bayer case got $34 million. In all, more than one fourth of the $1.03 billion collected by the DOJ nationwide on health care fraud in FY 2003 went to the relators.

Where does rest of the money go? Thanks to provisions of the FCA added in 1986, whistleblower's attorneys are guaranteed standard hourly fees and expenses, plus a shot at a multi-million dollar contingency fee. In December 2003, a Massachusetts Lawyers Weekly article noted that the Boston law firm representing the Warner-Lambert whistleblower had already racked up 6,000 billable hours for three attorneys and a paralegal. The case ended up settling for $430 million. Needless to say, the law firms specializing in FCA cases are cleaning up financially.

After the whistleblowers and lawyers take their share, the government and prosecutors divide up the rest. The first federal mouth that gets fed is the joint HHS/DOJ program responsible for funding investigations and prosecuting these cases -- the government's own lawyers. The U.S. Government Accounting Office (GAO), in an April 2005 report, reported deposits in the Health Care Fraud and Abuse Control program (HCFAC) of $766 million for fiscal year 2002, and $243 million for 2003. These allocations to HCFAC account for another quarter of the total $1.03 billion recovered from all health care fraud prosecutions in FY 2003.

Half of the amount recovered in the federal government's fraud program goes to relators and lawyers. The other half of the amount recovered appears to go as restitution to the programs that were defrauded. Unfortunately, this is a little hard to figure out from the HHS/DOJ reports on HCFAC. Besides being typically 4-12 months late, they also do not clearly show how the money is actually credited to various health care programs to "make them whole" for the amounts they were purportedly defrauded.

The "legislative father" of the Act, Senator Charles Grassley, has introduced legislation to require frequent reports -- which may provide a clearer sense of the efficiency of the FCA. Since most whistleblower and FCA lawyer bonanzas relate to Medicare and Medicaid fraud, these programs should get paid first. Based on current reports, the FCA effort seems wildly inefficient -- crediting only 50 cents on the dollar to the programs -- and designed only to enrich whistleblowers and their lawyers rather help the programs or beneficiaries.

Awards to whistleblowers, their lawyers and the government's lawyers should be limited to $1 or $2 million. The rest of these massive settlements should go directly to the Medicare trust fund and other health care programs. And yes, there should be clear reports of where the money goes after the bounty is collected.

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About the Author

Charles G. Hardin is president and CEO of RetireSafe, a grassroots network dedicated to promoting pro-growth solutions to America's retirement challenges.