Let the government do the investigative work at taxpayers' expense and then hit the hapless targets for a big settlement.
That seems to be the strategy of some of the nation's largest insurance companies, which have filed or threatened to file private civil fraud lawsuits against several major healthcare provider and supplier companies. Insurers typically take such legal actions after the targeted companies settle multimillion-dollar fraud cases with the federal government.
"There are certain law firms and clients of those law firms who attempt to ride the coattails of the government's prosecution," said Howard Pearl, an attorney with Chicago-based law firm Winston & Strawn, which has defended healthcare firms against such private lawsuits.
The most recent example of piling on against a provider company was the whopping $3.3 billion lawsuit that 23 insurers filed March 2 against Caremark International in U.S. District Court in Chicago (March 9, p. 8).
The lawsuit, which alleges Caremark submitted false claims for medical care between 1986 and 1995, comes nearly three years after the Northbrook, Ill.-based healthcare company's June 1995 payment of $161 million in criminal and civil fines to settle a federal kickback and fraud investigation of its former home infusion unit.
MedPartners, a Birmingham, Ala.-based physician practice management company that acquired Caremark in 1996, said it is preparing a response to the insurers' suit. No trial date has been set.
Many of these same insurers recently have filed private healthcare fraud lawsuits against a unit of pharmaceutical giant SmithKline Beecham and against for-profit hospital company National Medical Enterprises, the predecessor company to Santa Barbara, Calif.-based Tenet Healthcare Corp.
In August 1997, 37 insurers sued Collegeville, Pa.-based SmithKline Beecham Clinical Laboratories for an undisclosed amount. SmithKline said the lawsuit cost it "millions of dollars" but offered no further comment. The lawsuit, which was filed in U.S. District Court in Hartford, Conn., alleges SmithKline overbilled the insurers for clinical laboratory testing services. No trial date has been set.
The suit was filed six months after the drug giant paid the federal government $325 million to settle charges of overbilling Medicare.
Fifteen insurers have settled two lawsuits against NME since 1994, when the hospital company agreed to pay the federal government $379 million to settle criminal and civil charges. NME also agreed to plead guilty to six counts of paying illegal kickbacks for patient referrals and one count of conspiracy to make such payments.
The insurers going after these healthcare companies include some of the biggest names in the business: Golden Rule Insurance Co., Mutual of Omaha Insurance Co., Humana, Aetna Life Insurance Co., Prudential Insurance Co., Time Insurance Co., and scores of Blue Cross and Blue Shield plans (See chart, p. 28).
Golden Rule, Mutual of Omaha and Time Insurance have publicly acknowledged suing Caremark, NME and SmithKline. Another 10 or more insurers have sued all three healthcare companies but wouldn't disclose their names in a 1996 settlement with Caremark.
Yet the insurers, through their spokespeople and attorneys, deny they are coordinating their efforts and riding the coattails of federal investigators.
Both the American Association of Health Plans and the Health Insurance Association of America declined to comment on the issue, saying they aren't aware of any collaborative efforts by their members to seek out healthcare provider or supplier companies as targets for private fraud lawsuits.
The national Blue Cross and Blue Shield Association also said its members may contact each other about such suits but it isn't involved.
"There is collaboration by our members, but it is not being orchestrated by us," said spokesman Chris Martin. "Usually, the group of plans will coalesce first, and then we will become aware of it. We play the facilitator role. We provide expertise and advice in some cases."
Tina Merchant, a spokeswoman for Golden Rule, said the company has no standard process to go after a healthcare provider or supplier.
"Often, the government is investigating the company for Medicaid and Medicare fraud, and when that leaks out in the press or through the grapevine, the law firms and insurance companies are alerted by lawyers," Merchant said. "There are other occasions where we have identified potential fraud and contacted our law firms."
Golden Rule wouldn't disclose whether it plans to sue any other companies.
But Mutual of Omaha said it investigates possible fraud after hearing from any number of sources, including the media, law enforcement officials, employees, claims reviewers and other insurance companies.
Jeff Matza, first vice president of special investigations at Mutual of Omaha, said he couldn't recall what sources of information had motivated the suits against Caremark, NME and SmithKline, or whether insurance companies or law firms had contacted the company beforehand.
Matza said Mutual of Omaha has a Corporate Fraud Awareness and Detection Program that makes employees aware of potential fraud. "Usually, our investigation comes from a claims review," Matza said. "Usually, they are internally initiated."
Officials at Milwaukee-based Time Insurance, which last month changed its name to Fortis Health, wouldn't comment about the suits or their process for detecting healthcare fraud.
However, there is some evidence the plaintiff insurance companies are acting in concert.
Law firm Wiley Rein & Fielding of Washington sued NME and SmithKline on behalf of insurers. MODERN HEALTHCARE has learned the firm also settled on behalf of at least 10 insurers in a 1996 Caremark settlement. Neither the law firm nor Caremark would reveal the names of the insurers.
Two law firms are representing the 23 insurers that sued Caremark in March. They are Shipman & Goodwin of Hartford, Conn., and Monico, Pavich & Spevack of Chicago.
Shipman attorneys Peter Benner and James Bergenn said their case is a legitimate effort by the insurers to recoup money they allege Caremark bilked from them as part of a company scheme.
The group of 10 insurers successfully obtained a $42.3 million settlement with Caremark in early 1996 without even going to court. Neither attorneys nor Caremark would disclose when those negotiations took place or comment further on the case.
Caremark disclosed the settlement in March 1996 as part of its first-quarter earnings report. But MedPartners has refused to settle with other insurers since it took over Caremark, which led to the lawsuit filed two months ago.
Thomas Brunner, an attorney with Wiley Rein & Fielding, said neither his firm nor the insurers are taking advantage of taxpayer-funded investigations. "We had our own investigation," Brunner said.
In the NME case, Brunner said the firm began its investigation long before the company paid its $379 million government settlement in 1994. Brunner said the firm filed suit against NME in June 1992 on behalf of 13 insurers, including Hartford, Conn.-based Travelers Insurance Co. That case resulted in a $90 million settlement in December 1993.
But the latest cases against Caremark and SmithKline weren't filed until after the companies settled their fraud disputes with the federal government.
In their March suit against Caremark, insurers said they learned of a fraudulent scheme "sometime in 1995." That's the same year Caremark settled its 4-year-old fraud case with the government.
The August 1997 SmithKline complaint doesn't say exactly when the alleged fraud scheme was uncovered but acknowledges use of the government's prosecution in its case.
"Although the plaintiffs' action is based upon many of the same practices described in (SmithKline's) civil settlement with the government, this action also alleges more extensive fraud in the practices addressed by the government and additional fraudulent practices not included in the government's case," said the insurers' suit against SmithKline.
Brunner acknowledged that his firm goes looking for insurers interested in suing healthcare companies that are the subject of federal fraud investigations.
However, Shipman attorneys Bergenn and Benner said insurers approached them about filing private litigation.
Attorneys from Shipman and Wiley said their lawsuits are based on independent investigations of healthcare providers and suppliers. They said the publicly available material that results from investigations of the same companies by federal gumshoes is useful in their cases but not the cornerstone of their litigation.
But Winston & Strawn's Pearl disagrees: "Anyone who tells you that these private suits are independent of actions by the government or that it's not an effort to ride on the coattails of the government is not being accurate."
Given that, private fraud lawsuits against providers and suppliers will mushroom along with the federal government's escalating fraud-fighting efforts in the healthcare industry.
Observers predict a cottage industry is in the offing.
"Every investigation now leads to two types of civil suits," says Scott Becker, an attorney with Chicago-based Ross & Hardies, which has advised providers in similar cases. "One from the shareholders and now another from the insurance companies."
An almost certain target for future civil healthcare suits from litigious insurers is the biggest fish of all.
Nashville-based Columbia/HCA Healthcare Corp., which is under a massive federal probe for possible healthcare fraud, is braced for additional civil action to follow shareholder suits. The nation's largest for-profit hospital company already has several shareholder suits pending against it, Columbia spokesman Jeff Prescott said.
"I don't think we would be surprised by continuing legal activity," Prescott said. "We've already seen shareholder lawsuits, but I don't want to get into a prediction game" about insurer suits.
Attorneys for the firms most active in insurer suits wouldn't comment on whether they are waiting in the wings to sue Columbia or other healthcare companies under investigation by the federal government for fraud. But they said they aren't ruling it out.
Pearl said it would be unusual if Columbia, or firms that have acquired fraud-plagued companies, didn't hear from insurers or their law firms.
So far Integrated Health Services has been lucky. The Owings Mills, Md.-based post-acute-care company said it hasn't been contacted about any civil actions related to RoTech Medical Corp. IHS acquired the Orlando, Fla.-based home respiratory services provider last year, just a few months after RoTech reached a $612,500 fraud settlement with the government.
But Tenet isn't so sanguine about its chances of escaping further legal entanglements related to NME, which changed its name to Tenet in 1995 after its acquisition of American Medical International.
Tenet said it has an undisclosed amount of cash set aside for potential lawsuits. "We still have reserves for outstanding liabilities," Tenet spokesman Lance Ignon said.
The company said it regularly hears from lawyers looking for civil damages for patients or insurers.
In its annual 10K filing with the Securities and Exchange Commission, Tenet reminded shareholders that entrepreneurial attorneys are advertising in community newspapers across the country.
"That tells you how long a tail these things have," Pearl said. "The phenomenon is only going to increase because of federal healthcare fraud cases."