Healthcare fraud probes grow in number, intensity

The possibility of scoring a lucrative healthcare fraud settlement may be spurring broad information requests by the government that look more like “fishing expeditions” than targeted investigations, and as a result are driving up providers’ costs, legal experts said.

Healthcare fraud investigations have consistently netted the government more than $2 billion in settlements a year since 2010, with whistleblowers recouping hundreds of millions of that share annually, according to U.S. Justice Department data. A “historic” $6 billion healthcare fraud investigation unveiled last week will likely fuel more federal and state probes.

The number of cases brought by a whistleblower jumped from around 200 a year in the early 2000s to more than 400 annually since 2011.

Now that financial incentive is likely drawing more frequent and comprehensive state and federal investigations, legal experts said.

“Burdensome investigative demands for documents seem to be on the rise, possibly due to reallocation of FBI and other investigative support and the deadlines Justice Department attorneys face in pending False Claims Act qui tam cases,” said Craig Smith, partner at Hogan Lovells.

Investigators often start broad and can ask for five to 10 years of data. That can cost providers tens or hundreds of thousands of dollars in data analysis, resource allocation and legal counsel, said Mark Silberman, chair of Benesch’s white collar, government investigations and regulatory compliance practice group who has served as a state and federal prosecutor. “They sometimes root out terrible fraud, but the problem is the government doesn’t seem to be doing much diligence to see if the claims are valid,” Silberman said, adding  investigators often deputize public health agencies in the discovery process. “They are putting the burden on facilities to evaluate the information and prove that everything is OK.”

Silberman wondered to what extent prosecutors might be launching investigations to try to justify and maintain their budgets.

The Justice Department did not respond to requests for comment.

Designed to keep false claims and similar actions at bay, whistleblower civil and criminal fraud cases often start with a tip from inside the offending organization. Whistleblowers can reap up to 25% of the settlement if one is reached.

“There is always going to be that financial incentive that drives the system when there is the possibility of hitting a jackpot,” said Christopher Hotaling, a partner at Nixon Peabody who worked as a federal prosecutor in the U.S. Attorney’s Office in Chicago.

But Hotaling said in more-recent discovery processes, subpoenas and civil investigative demands may be broader than they have been, but not by a significant margin. Still, potential nine-figure settlements are likely driving larger information requests, he said.

Federal overseers typically suss out the whistleblower’s claims, starting with the allegations and if they constitute fraud, interviewing the whistleblower and reviewing their documentation. After some initial fact-finding, the government decides whether it wants to intervene in the case—which it does less than 25% of the time. It could also allow the whistleblower to pursue the case or move to dismiss it.

It’s best to work with investigators, try to narrow their requests and persuade the government not to intervene in the suit, Smith said. “The last thing you want is to be defending against an ill-informed fraud suit brought by your biggest customer,” he said.

Michael Shaheen, a partner at Crowell & Moring and former trial attorney with the Justice Department’s fraud section, said he hasn’t seen the government’s due diligence dip. Before the government approached the provider, it would almost always assess the legal merits of the whistleblower’s claims; interview the individual and review their documents; talk to former employees of the accused provider; and analyze government data to identify any problematic billing practices, he said.

“Only after exhausting those investigative strategies would I reach out to the defendant provider, and I believe most of my colleagues followed the same procedures,” Shaheen said.

A document called the Granston memo is meant as a guide to weeding out frivolous False Claims Act cases, as it advises the government to be more selective about what cases are being brought in its name. Since it was promulgated in early 2018, there have been approximately 45 government motions to dismiss FCA cases, Smith said. That’s a fairly significant increase, considering that it has been historically rare for the government to move to dismiss an FCA suit brought by a whistleblower, he said.

But in a probe’s early stages, strategy varies by jurisdiction. Some investigators issue broad requests as they “fish” for anomalies, others use a more focused approach. “Some have a scorched-earth approach where they request everything related to a matter,” said Robert Salcido, an Akin Gump partner.

Since the COVID-19 pandemic hit, Salcido said he has seen both extremes. In one case, the jurisdiction involved had a strong political mandate to get to the bottom of whether nursing homes took adequate precautions to protect residents and staff. That placed onerous demands on prosecutors, who had to deal with a large quantity of documents and an expedited time period, he said.

In a case alleging price gouging for personal protective equipment, the government investigator recognized the time and expense of getting the documentation for every PPE vendor, so they asked the provider for a subset of data as soon as realistically possible, Salcido said.

“There’s a perception that at times the political appointees feel a great deal of pressure to say they held the industry accountable, particularly during these tough times when a lot of people have had adverse health impacts,” he said.

While there aren’t specific guidelines about how much documentation investigators can ask for, there is an implicit limitation, Salcido said. If subpoenas or civil investigative demands are overly burdensome and defendants successfully push back, it could build a negative body of case law, which could give other providers incentives to follow suit, he said.

The False Claims Act gives investigators a lot of leeway, and it doesn’t seem that the government has any motivation to change it, given the significant return on investment, said Neville Bilimoria, partner at Duane Morris.

“Certainly healthcare providers can fall victim to overly burdensome document requests, subpoenas or civil investigative demands and get taken on a fishing expedition,” he said, adding that there has been an uptick in the scope of the documentation requests. “The only thing to do is work with the government to try to limit those.”

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