Taxpayers Against Fraud Education Fund is a non-profit organization dedicated to combating fraud against the federal government through the promotion and use of the qui tam provisions of the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733.  TAFEF serves to:  (1) inform and educate the general public, the legal community, and other interested groups about the FCA and its qui tam provisions; (2) work in partnership with qui tam plaintiffs, private attorneys, and the government to effectively prosecute qui tam suits; (3) contribute to understanding of the FCA’s nature, working, and critical importance to the public interest; and (4) advance public, legislative, and government support for qui tam. 

The FCA establishes civil liability for persons or entities who knowingly submit false or fraudulent claims for federal funds and imposes treble damages and civil penalties of $5500 to $11,000 per false claim.  Since the Act was revitalized by amendment in 1986, the federal government has recovered more than $12 billion through FCA enforcement.[1]  Essential to the effectiveness of the FCA are its qui tam provisions, which allow persons with evidence of fraud against federal programs to bring suit on behalf of the government.

The new Medicare Advantage (MA) program replaces the current Medicare+Choice (M+C) program under Part C of Medicare.  Under the new MA program, Medicare payment rates to private health plans will be increased, and a new private plan option, the regional MA plan, will be introduced.  The purpose of these changes is to increase the number of Medicare beneficiaries who receive coverage through private health plans.  Enrollment in private plans is projected to increase from 4.6 million beneficiaries in 2004 to 6.8 million beneficiaries in 2009.  Federal transfer payments to private plans—over and above what would have been paid under current law—are estimated at $23.4 billion over this same period.  (Table 4, 69 Fed. Reg. 46930).

An effective FCA is absolutely essential to protecting the integrity of the tens of billions of federal Medicare funds that will be paid to private plans as the Medicare Advantage program is implemented.  The FCA and its qui tam provisions have already demonstrated their ability to uncover sophisticated corporate fraud against Medicare: from FY 1999 through FY 2002, FCA settlements returned over $3.3 billion to the Medicare Trust Fund.[2]  The purpose of these comments is to ensure that the FCA and its qui tam provisions can effectively deter fraud against the Medicare Advantage program and, where it occurs, uncover the illegal conduct and recover any ill-gotten gains.  Our comments focus on certification of data, compliance plans, and record maintenance by private health plans contracting with the Medicare Advantage program.

Certification of Data by MA Plans

Proposed 42 CFR §422.504(l).  The proposed rule would redesignate the current 42 CFR §422.502(l), relating to certification by M+C organizations of data that determine payment, as 42 CFR §422.504(l), applying these certification provisions to MA organizations.  These provisions require certification of the accuracy, completeness, and truthfulness “of relevant data that CMS requests.”

TAFEF Comment:  The proposed language is essential to the effectiveness of the FCA as a deterrent to fraud by MA organizations and should be retained and strengthened.  We urge that the language be strengthened by requiring that any delegation of authority by the CEO or CFO of an MA organization to sign a certification be in writing and specific to the purpose of obtaining federal reimbursement.  We also urge that the final regulation clarify that the data that must be certified include all data that determine monthly payments to MA organizations under proposed 42 CFR §422.304, all risk adjustment data specified by proposed 42 CFR §422.310, and any other information relating to the making of Medicare payments to MA contractors. 

Compliance Plan for MA Organizations

Proposed 42 CFR §422.503(b)(4)(vi).  The proposed rule would redesignate the current 42 CFR §422.501(b)(3)(vi), relating to compliance plans by M+C organizations, as 42 CFR §422.503(b)(4)(vi), applying these requirements to MA organizations.  In addition, the proposed rule would add new paragraphs (b)(4)(vi)(G)(1), (2), and (3), requiring MA organizations to inquire into evidence of misconduct and report the existence of misconduct to the Government within 60 days after a determination that a violation of federal law may have occurred.  The proposed language at (G)(2) specifies that if the potential violation relates to the FCA, the MA organization must report the violation to the HHS Office of Inspector General. 

TAFEF Comment:  The proposed language will encourage compliance with Medicare program requirements by MA plans.  We note that Senator Charles Grassley, the Chairman of the Senate Finance Committee, recently requested the nation’s 18 largest drug manufacturers to inform their employees about the FCA.[3]  We believe this thoughtful policy applies with equal force to private plans participating in Medicare as MA organizations.  Specifically, we urge that the proposed language be strengthened by requiring MA organizations, in carrying out their compliance training and education programs, to inform all employees about the FCA.

Record Maintenance by MA Plans

Proposed 42 CFR § 422.504(d), § 422.504(e)(4).  The proposed rule would redesignate the current 42 CFR § 422.502(d), relating to maintenance of records by M+C organizations for a 6 year period, as 42 CFR § 422.504(d), applying these requirements to MA organizations. The records to be maintained must, among other things, be sufficient to accommodate periodic auditing of the MA organization’s financial records, including data related to Medicare utilization and costs.  The proposed rule would also specify at 422.504(e)(4) that if there is an allegation of fraud or similar fault by the MA organization, the record retention period “may” be extended to 6 years from the date of any resulting final resolution of the fraud or similar fault.

TAFEF Comment: In order for the qui tam provisions of the FCA to be fully effective against potential fraud by MA plans, two modifications must be made to the proposed language.  First, the proposed language should be strengthened to clarify that the record maintenance requirement applies to all books, records, documents, and memoranda, whether in paper or electronic form, that relate to the receipt of federal funds by the MA organization, including the data subject to certification under 42 CFR §422.504(l), clarified as per TAFEF’s comments above.   

Second, the record retention requirements applicable to the MA organization should parallel the statute of limitations that applies to FCA cases in which government officials are unaware of the material facts—i.e., a minimum of 6 years to a maximum of 10 years from the date of the submission of the false claim.[4] Accordingly, proposed 42 CFR

§§ 422.504(d) and 422.504(e)(4) should each be modified to extend the record maintenance period from 6 years to 10 years from the conclusion of the final contract period or the completion of audit, whichever is later.  In addition, paragraph (e)(4)(ii) should be strengthened by clarifying that an allegation of fraud or similar fault by the MA organization includes an allegation that the False Claims Act has been violated and that, in the event of such an allegation, the record retention requirement “shall” be extended to 10 years from the end of the contract period during which the false claim was alleged to have been made.

For more information, contact:

Amy M. Wilken
Associate Director
Taxpayers Against Fraud Education Fund

[1] See Press Release, U.S. Department of Justice, “False Claims Act Recoveries Exceed $12 Billion Since 1986“ (Nov. 10, 2003), available at http://www.usdoj.gov/opa/pr/2003/Novebmer/03_civ_613.htm.

[2] See J. Meyer, Fighting  Medicare Fraud: More Bang for the Federal Buck  (April 2004), Figure 3, www.taf.org/meyerreport.htm

[3] Press Release, “Grassley: PhRMA can help fight fraud against government health care programs,” (September 10, 2004), www.finance.senate.gov/press/Gpress/2004/prg091004a.pdf.

[4] Under 31 U.S.C. §3731(b), a qui tam action may not be brought after the later of (1) more than 6 years after the date on which the false claim is made; (2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances; or (3) 10 years after the date on which the false claim is made.

Taxpayers Against Fraud Education Fund is a non-profit organization dedicated to combating fraud against the federal government through the promotion and use of the qui tam provisions of the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733.  TAFFEF serves to:  (1) inform and educate the general public, the legal community, and other interested groups about the FCA and its qui tam provisions; (2) work in partnership with qui tam plaintiffs, private attorneys, and the government to effectively prosecute qui tam suits; (3) contribute to understanding of the FCA’s nature, working, and critical importance to the public interest; and (4) advance public, legislative, and government support for qui tam.   

The FCA establishes civil liability for persons or entities who knowingly submit false or fraudulent claims for federal funds and imposes treble damages and civil penalties of $5500 to $11,000 per false claim.  Since the Act was revitalized by amendment in 1986, the federal government has recovered more than $12 billion through FCA enforcement.[1]  Essential to the effectiveness of the FCA are its qui tam provisions, which allow persons with evidence of fraud against federal programs to bring suit on behalf of the government.

Under the new Medicare Part D program, some 41 million Medicare beneficiaries will have the option of paying a monthly premium and enrolling in a private plan that elects to offer prescription drug coverage.  Medicare will make payments to participating plans on behalf of the beneficiaries who choose to enroll.  These Medicare payments will include advance monthly payments, reinsurance subsidies, and low-income subsidies.  In addition, Medicare will provide subsidies to employers that sponsor qualified retiree prescription drug plans.  The total amount Medicare expects to pay in connection with these various subsidies is $67 billion in 2006 and $401 billion over the period 2006-2010 (69 Fed. Reg. at 46785, Table V-2). 

An effective FCA is absolutely essential to protecting the integrity of the hundreds of billions of federal Medicare funds that will be paid to private plans as the Part D coverage is implemented.  The FCA and its qui tam provisions have already demonstrated their ability to uncover sophisticated corporate fraud against Medicare and Medicaid by prescription drug manufacturers and against the Federal Employees’ Health Benefits Program by pharmacy benefits managers.[2]  The purpose of these comments is to ensure that the FCA and its qui tam provisions can effectively deter fraud against the Part D program and, where it occurs, uncover the illegal conduct and recover any ill-gotten gains.  Our comments focus on certification of data, compliance plans, and record maintenance by prescription drug plan (PDP) sponsors, and certification of data and record maintenance by retiree drug plan sponsors.

Certification of Data by PDP Sponsors

 Proposed 42 CFR §423.505(l).  The proposed rule would require that the CEO, CFO (or an individual with the authority to sign on behalf of the CEO or CFO) of a PDP sponsor request Medicare payment on a document that certifies the accuracy, completeness, and truthfulness of all data related to payment.  Such certifications would have to be made with respect to enrollment information (§423.505(l)(2)), claims data (§423.505(l)(3)), bid submission information (§423.505(l)(4), allowable cost data (§423.505(l)(5)), and price comparison data (§423.505(l)(6)).  

TAFEF Comment:  The proposed language is essential to the effectiveness of the FCA as a deterrent to fraud by PDP sponsors and should be retained and strengthened.  We urge that the language be strengthened by requiring that any delegation of authority by the CEO or CFO of a PDP sponsor be in writing and specific to the purpose of obtaining federal reimbursement.  In addition, the language should also be strengthened to require that the CEO or CFO of any related entity, contractor, or subcontractor of the PDP sponsor certify that any data it generates that are used by the PDP sponsor in submitting a claim for  payment or determining the amount of payment under Part D are accurate, complete, and truthful.   

Compliance Plans of PDP Sponsors  

Proposed 42 CFR §423.504(b)(4)(vi).  The proposed rule would require PDP sponsors to have a compliance plan that, among other things, includes procedures for inquiring into evidence of misconduct and reporting the existence of misconduct to the Government within 60 days after a determination that a violation may have occurred.  The proposed language at clause (G)(2) specifies that if the potential violation relates to the FCA, the PDP sponsor must report the violation to the HHS OIG.   

TAFEF Comment:  The proposed language will encourage compliance with Medicare program requirements by PDP sponsors.  We note that Senator Charles Grassley, the Chairman of the Senate Finance Committee, recently requested the nation’s 18 largest drug manufacturers to inform their employees about the FCA.[3]  We believe this thoughtful policy applies with equal force to PDP sponsors.  Specifically, we urge that the proposed language be strengthened by requiring the PDP sponsors, in carrying out their compliance training and education programs, to inform all employees about the FCA and its qui tam provisions.

Record Maintenance by PDP Sponsors

Proposed 42 CFR § 423.505(d).  The proposed rule would require PDP sponsors to agree to maintain for 6 years specified documents and records, including all prescription drug claims and all price concessions (including concessions offered by manufacturers).  The records and documents must, among other things, be sufficient to accommodate periodic auditing of the sponsor’s financial records, including data related to Medicare utilization and costs. 

TAFEF Comment:  In order for the qui tam provisions of the FCA to be fully effective against potential fraud by PDP sponsors, two modifications must be made to the proposed language.  First, the proposed language should be strengthened to clarify that the record maintenance requirement applies to all books, records, documents, and memoranda, whether in paper or electronic form, that relate to the receipt of federal funds by the PDP sponsor, including the data subject to certification under proposed 42 CFR §423.505(l). 

Second, the record retention requirements applicable to the PDP sponsors should parallel the statute of limitations that applies to FCA cases in which government officials are unaware of the material facts—i.e., a minimum of 6 years to a maximum of 10 years from the date of the submission of the false claim.[4]   Accordingly, the record maintenance period should be extended from 6 years to 10 years from the conclusion of the contract year during which the records or data subject to certification were first generated.

Certification of Data by Retiree Drug Plan Sponsors

Proposed 42 CFR § 423.884(b)(3)(iv).  The proposed rule would require that the sponsor of retiree drug plan, in applying for a subsidy payment, “sign any further certification that CMS may require.” 

Proposed 42 CFR § 423.888(b) provides that subsidy payments to retiree drug plan sponsors are conditioned on “the provision of accurate and truthful information in a form and manner specified by CMS.”

TAFEF Comment: The proposed language is not sufficient to permit the effective operation of the FCA and its qui tam provisions, which are premised on the enforcement of the accuracy, completeness, and truthfulness of certifications of data or claims that determine federal payments.  At a minimum, the certification requirements applicable to retiree drug plan sponsors should be no less specific than the general certification requirements that apply to PDP sponsors under proposed 42 CFR §423.505(l)(1) discussed above.  Specifically, in the application for retiree drug subsidy payments, the CEO or CFO of a retiree prescription drug plan, or individual delegated in writing by one of those officers to make the  following certifications, should be required to certify (based on best knowledge, information, and belief) the accuracy, completeness, and truthfulness of all data and other information related to payment. 

Maintenance of Records by Retiree Drug Plan Sponsors

Proposed 42 CFR §423.888(d).  The proposed rule would require sponsors of retiree drug plans to maintain specified records for 6 years after the expiration of the plan year in which the costs were incurred. 

TAFEF Comment:  In order for the qui tam provisions of the FCA to be fully effective against potential fraud by retiree drug plan sponsors, two modifications must be made to the proposed language.  First, the proposed language should be strengthened to clarify that the record maintenance requirement applies to all books, records, documents, and memoranda, whether in paper or electronic form, that relate to the receipt of federal funds by the retiree drug plan sponsor, including the data and information subject to certification under 42 CFR § 423.888(b), modified as per the recommendation above.

Second, the record retention requirements applicable to retiree drug plan sponsors should parallel the statute of limitations that applies to FCA cases in which government officials are unaware of the material facts—i.e., a minimum of 6 years to a maximum of 10 years from the date of the submission of the false claim.  Accordingly, the record maintenance period should be extended from 6 years to 10 years from the submission of the sponsor application for subsidy payment for a plan year.

For more information, contact:

Amy M. Wilken
Associate Director
Taxpayers Against Fraud Education Fund

[1] See Press Release, U.S. Department of Justice, “False Claims Act Recoveries Exceed $12 Billion Since 1986“ (Nov. 10, 2003), available at http://www.usdoj.gov/opa/pr/2003/Novebmer/03_civ_613.htm.

 [2] See A. Schneider, Reducing  Medicare and Medicaid Fraud by Drug Manufacturers:  The Role of the False Claims Act (November 2003), www.taf.org; Press Release, United States Attorney, Eastern District of Pennsylvania, “The United States Settles Its Anti-fraud Claims for Injunctive Relief and 20 State Attorneys General Settle Unfair Trade Practices Claims Against Medco Health Solutions,” (April 26, 2004), www.usdoj.gov/usao/pae.

[3] Press Release, “Grassley: PhRMA can help fight fraud against government health care programs,” (September 10, 2004), www.finance.senate.gov/press/Gpress/2004/prg091004a.pdf.

 [4] Under 31 U.S.C. §3731(b), a qui tam action may not be brought after the later of (1) more than 6 years after the date on which the false claim is made; (2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances; or (3) 10 years after the date on which the false claim is made.

Taxpayers Against Fraud Education Fund is a non-profit organization dedicated to combating fraud against the Federal Government through the promotion and use of the qui tam provisions of the False Claims Act (FCA or Act), 31 U.S.C. §§ 3729-3733. TAFEF serves to: (1) inform and educate the general public, the legal community, and other interested groups about the FCA and its qui tam provisions; (2) work in partnership with qui tam plaintiffs, private attorneys, and the government to effectively prosecute qui tam suits; (3) contribute to understanding of the Act’s nature, workings, and critical importance to the public interest; and (4) advance public, legislative, and government support for qui tam.

The FCA establishes civil liability for persons or entities who knowingly submit false or fraudulent claims for federal funds and imposes treble damages and civil penalties of $5500 to $11,000 per false claim. Since the Act was revitalized by amendment in 1986, the government has recovered more than $12 billion through FCA enforcement. Essential to the strength of the FCA are its qui tam whistleblower provisions, which allow persons with evidence of fraud against federal programs or contracts to bring suit on behalf of the government.

Background

On August 29, 2003, CMS published a Final Rule with Comment Period that finalized two provisions of the 1995 proposed rule implementing the Medicaid drug rebate

program. 68 Fed. Reg. 51912. One of the provisions, 42 C.F.R. § 447.534(h)(1), established a 3-year recordkeeping requirement for drug manufacturers participating in the rebate program. The rule would have allowed manufacturers participating in the Medicaid rebate program to destroy all pertinent records 3 years from the date the manufacturer reports rebate data to CMS.

In comments submitted on October 27, 2003, TAF joined Senator Grassley (Chairman of the Senate Finance Committee, which has jurisdiction over the Medicaid rebate program), the National Association of Attorneys General, and others in strongly objecting to the 3-year recordkeeping requirement for allowing the premature destruction of records needed as evidence in FCA cases involving fraud against the program. We urged CMS to rethink this provision of the final rule or to promulgate a recordkeeping requirement of 10 years in keeping with the substantive standard in the False Claims Act.

The January 1, 2004 Interim Final Rule addressed in these comments removes the 3-year recordkeeping requirement, replaces it with a 10-year requirement until December 31, 2004 or until publication of the final rule, and solicits comments on the 10-year requirement. The relevant provision now provides:

42 C.F.R. § 447.534(h)(1)
(h) Recordkeeping requirements. (1)(i) A manufacturer must retain records (written or electronic) for 10 years from the date the manufacturer reports that rebate period’s data. The records must include these data and any other materials from which the calculations of the average manufacturer price and best price are derived, including a record of any assumptions made in the calculations. The10-year timeframe applies to a manufacturer’s quarterly submission of pricing data as well as any revised pricing data subsequently submitted to us.

(ii) A manufacturer must retain records beyond the 10-year period if one or more of the following circumstances exist:

(A) The records are the subject of an audit or of a government investigation related to pricing data that are used in average manufacturer price or best price of which the manufacturer is aware, and

(B) The audit findings or investigation related to the average manufacturer price and best price have not been resolved.

CMS should promulgate the 10-year requirement as a final rule, effective prior to the expiration of the current 10-year requirement on December 31, 2004.

The 10-Year Recordkeeping Requirement is Necessary to Maintain FCA Protection of the Medicaid Rebate Program

The Medicaid drug rebate program is a large, important, and growing program. Over the ten-year period FY 1991 through FY 2000, total federal and state Medicaid spending on prescription drugs was $116 billion. After rebates of nearly $20 billion, net federal and state spending was $96 billion. The size of Medicaid drug expenditures, and the size of the related Medicaid rebate amounts, means that manufacturer compliance with the rules of the rebate program over a sustained period of time has major budgetary implications for the federal government and states alike.

The program has been the victim of significant manufacturer fraud, much of which has come to light only in recent years as the result of qui tam lawsuits. A recent report for TAFEF found that in seven FCA settlements with the federal government and the states, six different manufacturers paid out a total of $1.66 billion, of which $487 million was attributable to Medicaid fraud. Of this amount, $270 million was returned to the federal government and $217 million to the states. Six of the cases involved allegations of manufacturers’ failure to accurately report prices for purposes of calculating rebates owed to Medicaid. The seventh, against manufacturer Dey, Inc., alleged that Dey falsely reported the prices on generic drugs to the Texas Medicaid program in order to "market the spread" to pharmacists. These recoveries, of course, do not reflect the deterrent effect of these cases against other manufacturers participating in the rebate program. We believe this effect, while unmeasurable, is substantial.

To enable the FCA to work effectively to remedy past wrongdoing and to deter future fraud, a 10-year record retention requirement is essential. The cases settled so far illustrate that the periods of fraud can run even more than 10 years, and that the frauds are often not uncovered until well over 3 years has passed:

These cases, all of which were initiated by qui tam whistleblowers, indicate that the rebate program is susceptible to ongoing pricing schemes that will likely be uncovered only by insiders with specialized knowledge of industry pricing practices. CMS has recognized this fact, stating in the preamble to the January 1, 2004 Interim Final Rule:

[W]e are concerned that because of the way the drug rebate program operates, and the complexity of drug pricing, the program is potentially more susceptible to continuing errors, fraud or abuse. For example, while other programs or activities may be subject to individual, one-time errors, fraud or abuse, the drug rebate program could be more susceptible to such activities via ongoing utilization of a practice, procedure or formula instituted in the past, that is perpetuated and remains undetected.

Qui tam suits are filed under seal in federal court and the government’s preliminary investigations of these cases is, by necessity, confidential. Since the exception to the record retention requirement applies only to government audits or investigations of which the manufacturer is aware, a 10-year recordkeeping rule is necessary to stop the premature destruction of pricing records that may be essential to proving FCA liability and damages, and to avoid seriously compromising pending investigations.

There are additional unsealed federal and state FCA cases alleging pricing and marketing fraud, all of which involve allegations of abusive pricing practices occurring over more than 3 years. Twelve state attorneys general have brought or joined suits alleging such fraud, and there undoubtedly are federal and state qui tam cases making similar allegations filed under seal. Clearly, anything less than a 10-year retention rule would undermine FCA protection of the Medicaid rebate program at considerable cost to federal and state treasuries.

The 10-Year Rule Imposes Only a Minimal Recordkeeping Burden on Manufacturers

The recordkeeping burden on manufacturers is minimal, particularly in relation to the size of their enterprises and the size of the federal funds being spent on Medicaid prescription drugs. Manufacturer Pfizer, for example, which in 2002 paid $49 million to the federal government and 40 states to settle civil FCA liabilities for failing to report best prices on its drug Lipitor, reported annual gross revenues of $45 billion in FY 2003. GlaxoSmithKline, which paid $87.6 million to the U.S., 49 states, and the District of Columbia for similarly fraudulent practices in the marketing of its drugs Paxil and Flonase, reported annual gross revenues of $11 billion. When manufacturer revenues are compared to annual storage costs, which CMS estimates amount to "no more than $1.00, the maximum cost of a compact disc for electronic storage per manufacturer, or a total maximum cost of $500 per year," a shorter record retention period is hardly justified.

Recommendation

Based on the foregoing, TAF urges CMS promulgate the 10-year requirement as a final rule, effective prior to the expiration of the current 10-year requirement on December 31, 2004.

For more information, contact:

Amy M. Wilken
Associate Director
Taxpayers Against Fraud Education Fund