Drug recycling leads to $5.3 million settlement
A recent settlement in Illinois illustrates just how much whistle-blowers can be motivated to expose health care fraud in your organization - three people will share $871,000 as their reward for exposing a company's practice of recycling dead patients' unused drugs. But the lesson doesn't stop there. The whistle-blower award is only part of a $5.3 million settlement to end the federal government's investigation.
The settlement is to be paid by Omnicare Inc. of Cincinnati, and its subsidiary, Home Pharmacy Services Inc. of Belleville, IL. Based on the whistle-blower complaints, the U.S. Department of Justice had alleged the companies violated federal and state laws that require pharmacies either to credit the Medicaid program for any unused pharmaceuticals or to dispose of them. One whistle-blower told federal investigators that some white acetaminophen tablets had been recycled so many times they appeared gray.
Home Pharmacy Services was acquired in 1992 by Omnicare, the nation's largest independent pharmacy for elder care providers. The Illinois subsidiary provides pharmacy services to the residents of more than 100 nursing facilities.
A very big stick
The false claims suit was filed by the law firm of Phillips & Cohen in Washington, DC. In the March 1997 Healthcare Risk Management, attorneys John R. Phillips and Mary Louise Cohen of the firm explained that the False Claims Act has become an important weapon in the federal government's fight against health care fraud. The act allows private citizens to sue individuals, companies, or institutions that are defrauding the government and receive a portion of the damages recovered. Whistle-blowers can be awarded 15% to 25% of whatever money the government recovers if it joins the case, and up to 30% if it declines to intervene. The reward provision, which Congress strengthened in 1986, and the job protection provisions of the law are the primary reasons for the growing success and use of the False Claims Act.
A whistle-blower can be just about anyone involved with the health care provider. Anyone with knowledge of a provider submitting false claims to the government can file a lawsuit.
The government's case against the two companies resulted from information supplied to the Illinois state police and federal agents by three former employees of Home Pharmacy Services, says Stephen Meagher, an attorney with the law firm's San Francisco office who represented the whistle-blowers. "At great risk to themselves, two of the whistle-blowers secretly provided key information about the fraud to state and federal investigators for more than a year while continuing to work at the company," Meagher says. "They were compensated for this risk and their valuable assistance only because of the False Claims Act."
Meagher says the whistle-blowers were concerned that elderly patients were taking drugs that were no longer effective because they had been reheated so many times as a result of the repackaging process. In addition, he says, no effort was made to keep track of the drugs' expiration dates. One of the employees, Debra Chinn, complained to Omnicare officials and state authorities after she quit the company in 1994, and then she wrote letters to President Clinton and U.S. Attorney General Janet Reno. Her complaints were forwarded to the Department of Health and Human Services, which suggested she go to the Illinois State Board of Pharmacy. She did, and the board asked the state police to investigate.
Chinn recruited one of her sisters, who still worked for Omnicare, to help the state police with their investigation. The sister secretly assisted investigators in gathering information about the company's practices, and she was fired on the day state and federal regulators raided the company.
The False Claims Act that made the Omnicare award possible could be amended if a move in Congress is successful. Bipartisan legislation has been introduced by Sen. Thad Cochran (R-Missouri) and Sen. Ernest Hollings (D-South Carolina) to amend the False Claims Act to distinguish between Medicare fraud and unavoidable billing mistakes. The Senate bill is a companion to a House bill, the Health Care Claims Guidance Act of 1998, introduced by Rep. Bill McCollumb (R-Florida) and Bill Delahunt (D-Massachusetts). The House bill is cosponsored by 130 House members.
The American Hospital Association recently endorsed the legislation, saying it would protect "honest providers who make innocent billing mistakes from high-pressure prosecutorial tactics." The legislation would raise the burden of proof for fraud from a "preponderance of the evidence" to "clear and convincing evidence."
In addition, Medicare overpayments to providers of less than a specified percentage would result in penalties of no more than the amount of the claim plus interest. The legislation also would establish a "safe harbor" for hospitals that submit a false claim based on advice from fiscal intermediaries and carriers, limiting hospital fines to actual damages and interest instead of triple damages plus $5,000 to $10,000.
But at the same time, some legislators and consumer groups have argued that the House bill actually would increase health care fraud. If the government does not pursue billing errors below a certain amount, as the bill proposes, the result would be a "free fraud zone" for small claims, opponents argue. Some opponents say those small fraud claims could amount to $21 billion per year, or 10% of total Medicare claims.
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