California got a $3.1-million piece of the settlement pie when drugmaker Warner Chilcott agreed to pay the federal government $125 million in October over allegations it defrauded Medicare and Medicaid. But the state did much better in a second, lesser known settlement with the drugmaker just two months later. It got $11.8 million. That heftier payout stemmed from a separate but similar case brought under a California law that allows whistle-blowers to file lawsuits alleging fraud against private insurers.
ModernHealthcare.com reports that California and Illinois are the only states with such laws, and until now, not many healthcare lawsuits have been filed under those statutes. That, however, may change, as awareness of the laws — and recognition of the potential rewards for those who use them — grows. Fraudsters face triple damages under the laws, and whistle-blowers are often entitled to larger shares of recovered money than what they can get under the federal False Claims Act.
“We have found that health insurance fraud is one of the biggest problems we have,” said Nancy Kincaid, a spokesperson with the California Department of Insurance. “It’s a multi-billion dollar problem. Everybody is paying for these losses.” Kincaid also expects to see more such cases in California.
The idea behind the laws, which have been on the books for years, is that it’s in a state’s interest to pursue fraud against private insurers because such misdeeds raise healthcare costs for everyone.
An even larger healthcare-related case preceded the Warner Chilcott one in California. In 2013, Sutter Health, which has hospitals throughout northern California, settled a case brought under the statute for $46 million. The whistle-blower in that case alleged that Sutter included extra, false charges for anesthesia on bills sent to patients and insurers. Sutter did not admit to any wrongdoing as part of the settlement.
There are rich rewards for whistle-blowers who file successful cases under the two laws. Whistle-blowers are entitled to 30% to 50% of the money that is recovered. In the Warner Chilcott case, the whistle-blowers got 49% of the recoveries, amounting to about $11.4 million. In the Sutter case, the whistle-blower received about $13.2 million, according to the California Department of Insurance.
There’s no way to track exactly how many cases are now being brought under these laws in California and Illinois. The cases typically remain private – or under seal – at first. In some cases, the cases can stay under seal for years.
But R. Scott Oswald, managing principal of The Employment Law Group in Illinois, which represents whistle-blowers, said he and his colleagues are seeing more whistle-blowers taking action under the Illinois statute. His firm has several cases that have been under seal for years, he said.
Justin Berger, a principal at Cotchett Pitre and McCarthy who represents whistle-blowers in such cases in California, said his firm also seems to be filing more of the cases lately. Berger said he’s also hearing from U.S. attorneys that they’re seeing more of the lawsuits filed in conjunction with Medicare fraud cases. “It’s becoming more common because there’s a little more visibility,” Berger said.
Historically, the California and Illinois laws haven’t grabbed much attention. Over the years, not too many healthcare related lawsuits had been filed under the California law and even fewer had been filed in Illinois, Simmer said.
Insurance companies may not have traditionally been very interested in the laws because they can simply raise rates to absorb the costs of fraud, said Patrick Burns, a co-executive director of the Taxpayers Against Fraud Education Fund, a not-for-profit supporting whistle-blower incentive programs. It’s also possible not as much fraud slips under the noses of private insurers as it does in Medicare and Medicaid because private insurers have their own robust fraud detection programs, Oswald said. A lack of awareness about the laws is also likely to blame for the slow drip of cases filed under them over the years, Oswald said.
Recent cases, however, are raising the profile of the laws, he said.
The California Department of Insurance is now using $4 million set aside from that Sutter settlement to fund a special health insurance enforcement team that investigates complaints and claims of wrongdoing, Kincaid said. “The commissioner is concerned that there have been a number of these that have been brought forward, typically by whistle-blowers or insiders,” Kincaid said of cases brought under the California law.
In recent years, the number of False Claims Act cases involving healthcare has exploded. Two-thirds of federal whistle-blower lawsuits last year were healthcare-related.