June 3, 2003

Two New Studies

Fraud Recovery Under Medicare
Returns Nine To One on Investment

Dollars Recovered From Medicaid Fraud
Far Behind Those Recouped Under Medicare

WASHINGTON, D.C. - Medicare fraud recoveries are more than 20 times greater than Medicaid fraud recoveries, according to a study released today that urges federal and state agencies to redouble their efforts to combat Medicaid fraud.

The study finds that federal Medicaid fraud collections totaled only $43 million in 2001, while total Medicare collections were more than $1 billion. "With so many states under pressure to cut back their Medicaid programs because of budget constraints, we can and should do more to take back every dollar possible from those who defraud Medicaid," said study author Andy Schneider, J.D., principal of Medicaid Policy, LLC. "The False Claims Act provides us with an effective way to do that."

Schneider's study, Reducing Medicaid Fraud: The Potential of the False Claims Act, was released today with another study showing that fraud recovery for Medicare is hugely successful - getting a direct monetary return of nearly nine dollars for every dollar invested in fraud recovery activities. The Medicare study, Fighting Medicare Fraud: More Bang for the Federal Buck, was conducted by Jack A. Meyer, president of New Directions for Policy. The nonprofit, nonpartisan Taxpayers Against Fraud Education Fund (TAFEF) commissioned both studies.

Together, the two studies make a strong case for maintaining and enforcing the federal False Claims Act (FCA), sometimes called the "whistleblower" law. Schneider's study contains a dozen recommendations for improving the FCA's effectiveness in combating Medicaid fraud.

"The good news is that fraud recoveries are saving taxpayers billions of Medicare dollars," said James Moorman, president of TAFEF and a former U.S. Assistant Attorney General. "The bad news is that we're not doing as well on Medicaid fraud. We need to fight Medicaid fraud more effectively, and to do that, we must make better use of the False Claims Act."

Meyer's study shows that the cost-effectiveness of the federal government's Medicare fraud recovery efforts has improved, from a benefit/cost ratio of 8 to 1 in 2000 to nearly 9 to 1 in 2001. Civil health care fraud recoveries in 2001 were $1.2 billion, up 71 percent from the previous year. In contrast, government enforcement costs were about $72.8 million, an increase of only $4.3 million, or about 6.3 percent, from 2000.

The dramatic increase in Medicare fraud recoveries was due largely to a landmark $745 million agreement by HCA, Inc., the nation's largest for-profit hospital chain, to settle civil allegations of fraud against Medicare and, to a lesser extent, Medicaid. Whistleblower suits prompted the government's investigation of HCA.

Meyer noted that large settlement agreements like that with HCA also have a deterrent effect on other firms that do business with Medicare. Although these deterrent effects can't be measured accurately, they are likely quite substantial, Meyer said, adding that many firms have adopted better business practices to ensure that they comply with the law.

"Our experience with Medicare is a lesson in the FCA's importance," Meyer said. "If the federal government enforces FCA with vigor and respect, it will continue to save taxpayers large amounts of money, contribute to Medicare's fiscal viability, and deter big-time fraud."

Gap Between Medicare And Medicaid
Not Limited To 2001 Fraud Recoveries

The discrepancy between Medicare and Medicaid fraud recoveries is longstanding, according to Schneider's study. Between 1997 and 2001, the federal government recovered only $115 million in Medicaid fraud, compared to $2.85 billion for Medicare during the same period. Even after adjusting for differences in federal spending between the two programs - federal Medicare outlays were about double those for Medicaid - recoveries from Medicare fraud were more than 12 times greater the amount of federal collections from Medicaid fraud.

There are indications that FCA activity in the Medicaid area is increasing, with impressive results. In April, Bayer and GlaxoSmithKline agreed to a combined $345 million FCA settlement involving overcharges to Medicaid for several of their drug products.

But from the limited data available, it appears that more FCA Medicare cases are brought and settled than FCA Medicaid cases, and that the largest Medicare fraud settlements are much larger than the largest settlements for Medicaid fraud, according to the study.

That's due in part to the fact that states pay for approximately 40 percent of Medicaid, with the federal government funding the remaining 60 percent. As a result, Medicaid fraud settlements return less money to the federal government than do comparable-sized Medicare cases. Some states, however, have enacted their own false claims statutes that allow whistleblowers to file suit for recovery of the state's share in a Medicaid fraud case.

Among the study's recommendations for improving the FCA's effectiveness in Medicaid:

• Congress should encourage states to enact their own false claims acts with whistleblower provisions patterned after the FCA by offering those that do an enhanced federal matching rate (100 percent) on Medicaid administrative costs relating to anti-fraud activities.
  
  
• The Department of Justice (DOJ) should take steps to encourage whistleblowers to bring FCA Medicaid cases against fraudulent Medicaid providers, managed care plans, and contractors. In particular, DOJ should offer whistleblowers a minimum share of 20 percent of the federal portion of recoveries on Medicaid claims.

For more information, and for copies of both reports, see the links below:

• Reducing Medicaid Fraud: The Potential of the False Claims Act by Andy Schneider, Medicaid Policy, LLC

• Fighting Medicare Fraud: More Bang for the Federal Buck by Jack Meyer, New Directions for Policy

Medicaid Policy LLC is a Washington, D.C.-based consulting firm that conducts research and policy analysis concerning Medicaid for states, providers, public interest organizations, and foundations.

New Directions for Policy is a Washington, D.C.-based nonpartisan research and policy organization that develops, analyzes, and evaluates social policies for government, businesses, and the foundation community.

Taxpayers Against Fraud Education Fund (TAFEF) is a Washington, D.C.-based, nonprofit, nonpartisan organization dedicated to combating fraud against the federal government through the promotion and use of the whistleblower provisions of the False Claims Act. TAFEF serves to inform and educate the general public, the legal community, and other interested groups about the FCA and its whistleblower provisions.