The federal and state False Claims Acts permit whistleblowers to file lawsuits alleging that someone has committed fraud against the government. In the context of healthcare, this means government healthcare programs such as Medicare and Medicaid. But private health insurance companies are also susceptible to fraud.
Private health insurance plays a significant role in America’s healthcare system. Private health insurers pay $1.2 trillion per year, accounting for 31 percent of total healthcare spending. With experts estimating that as much as 20 percent of healthcare spending is wasted due to fraud, this means that private insurers may be doling out approximately $240 billion every year to fraudsters. Ordinary patients ultimately bear these costs, as insurance companies increase their premiums to account for the amount they waste due to fraud.
While whistleblowers are usually limited to reporting fraud against the government, two statutes aim to deter fraud against private insurance companies, as well. Only two states—Illinois and California—permit whistleblowers to sue where private insurance companies are harmed. Illinois’ Insurance Claims Fraud Prevention Act (IICFPA) has seldom been used, but California’s Insurance Frauds Prevention Act (CIFPA) has been remarkably successful.
For instance, in 2015, drug manufacturer Warner Chilcott pled guilty to a fraudulent healthcare scheme and paid $125 million in penalties to the federal and state governments. The company had paid kickbacks to physicians throughout the country to induce them to prescribe the company’s drugs, manipulated prior authorizations to induce insurance companies to pay for prescriptions, and made unsubstantiated marketing claims. Private health insurance companies were also harmed by Warner Chilcott’s conduct, paying for prescriptions they shouldn’t have. Because of CIFPA, the California Department of Insurance (CDI) was able to recover $23.2 million for the harm caused to California insurers.
CIFPA continues to be a robust tool in the fight against healthcare fraud. In 2016, CDI recovered $30 million from Bristol-Myers Squibb, which had allegedly paid unlawful kickbacks to physicians to prescribe several of its drugs. Likewise, in 2020, CDI recovered $24 million from AbbVie, which was accused of paying unlawful kickbacks to physicians to prescribe its drug Humira.
California only represents 12% of the private insurance market. Imagine if whistleblowers had the power to combat healthcare fraud in the remaining 88% of the private insurance market. CIFPA recoveries represent just the tip of the iceberg of the hundreds of billions of dollars in fraud on private insurance companies in the United States each year.
Written by Noah Rich of Baron & Budd, P.C.