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Health care fraud cases on the rise $1 trillion industry is a lucrative target, especially locally; U.S. attorney taking aim; Most cases initiated by whistle-blowers alleging faulty bills


The U.S. health care system has grown into a trillion-dollar-a-year behemoth, making it a fat target for unscrupulous entrepreneurs who are stealing billions of dollars.

Next to violent crime, fighting health care fraud has become the priority for Baltimore's U.S. attorney and the FBI -- as it has for Attorney General Janet Reno -- and they are using a Civil War-era statute to do it: the federal False Claims Act.

Adopted in 1863 when profiteers were gouging the Union army by such acts as selling gunpowder kegs filled with sawdust, the law encourages whistle-blowers to come forward. It allows an employee who has evidence that a company is defrauding the government to file a lawsuit and receive part of any settlement.

Commonly called "qui tams," a Latin abbreviation for "he who brings an action for the king as well as himself," the suits provide investigators with inside information in a very complex field.

Health care fraud "is easy to do, and there are a million different ways to do it," said Special Agent Kevin L. Perkins, who leads a 10-agent white-collar crime squad in Baltimore that is focusing many of its resources on health care fraud.

"It's nice to have an insider," he said. "It's so much more efficient."

Baltimore -- with its teaching hospitals and medical research facilities and the headquarters of the Health Care Financing Administration, which oversees Medicare -- is emerging as a leader in qui tam litigation.

According to Justice Department statistics, 19 qui tam cases were filed in Baltimore in recent years, most of them related to health care fraud. And in the past two weeks, four new qui tam cases were filed in U.S. District Court in Baltimore, three of them related to health care fraud.

"We're known for being very aggressive on qui tam litigation," said Assistant U.S. Attorney Kathleen McDermott, who prosecutes health care cases in Baltimore. And to encourage more whistle-blowers to come forward, the FBI has established a hot line to report health care fraud, (800) 581-4114.

Last year, three major recoveries of federal funds were made in U.S. District Court in Baltimore.

In April 1995, U.S. HomeCare, which handled billing for several subcontractors serving Medicare patients, agreed to pay the federal government $650,000, without admitting guilt, to settle allegations it submitted false claims. Tina Schenherr, who was fired after making allegations, got $123,000.

In May, Dickeyville resident Terry Fletcher received $1.3 million for bringing her qui tam suit against MetPath Inc. Fletcher alleged that MetPath, one of the nation's largest independent clinical laboratories, billed the Medicare and Medicaid programs for millions of dollars in tests that never were performed. The Teterboro, N.J.-based company agreed to pay $8.6 million to settle the claims.

In October, National Medical Systems agreed to pay a $1.5 million settlement for billing the government for 200 top-of-the-line lymphedema pumps when it provided much cheaper equipment. Public Integrity Inc., a watchdog group for the medical-equipment industry, received $225,000 for bringing the suit.

Because of the vast number of transactions, the risk of a health care fraud being caught is not particularly high, say federal law enforcement officials. So much of the claims processing, which is where much of the fraud occurs, is done electronically by third parties. Transactions are completed "in a nanosecond," with no paper trail.

"Much of it is undetectable without a whistle-blower coming forward," McDermott said.

The False Claims Act was rarely used in recent decades until it was amended in 1986 during the Reagan-era military buildup. As when it first was employed, its target was unscrupulous military contractors, like the ones who were charging the government for goods such as the legendary $500 toilet seat.

In the past decade, the government has recovered more than $1 billion through cases filed under the False Claims Act, according to the Justice Department.

To begin a false claims action, the employee files a complaint with the facts of the alleged fraud. The suit is sealed for at least 60 days to allow authorities to investigate, and cases with merit usually are sealed longer.

The U.S. attorney looks at the qui tam lawsuit and decides whether to join the action. If the government intervenes, the whistle-blower can receive 15 percent to 25 percent of the


A whistle-blower can pursue the case alone. The chances for success are far less, but the payoff is bigger, 25 percent to 30 percent.

In the largest case, Douglas D. Keeth's qui tam suit against United Technologies Corp. in Hartford, Conn., where he was an executive vice president, was settled in 1994 for $150 million. Keeth's 15 percent share was $22.5 million.

It has just been in the past three years that prosecutors and whistle-blowers have trained their sights on the health care industry. Four years ago, 70 percent of the recoveries came from defense contractors and 5 percent from health care fraud. Last year, about half came from defense contractors, but health care fraud amounted to more than a third, Justice Department statistics show.

Several factors account for the increase. "Obviously, there's been a dramatic increase in the amount of money spent on health care, particularly federal dollars," said Lisa Hovelson, executive director of Taxpayers Against Fraud, which has participated in several major qui tam cases.

"The sheer magnitude of the money, plus there has been more attention to health care over the past few years with proposals for health care reform I think that has prompted the whistle-blowers to come forward. It has prompted more investigative activity on behalf of the government," she said.

The whistle-blower suits are not without controversy.

"Companies fear qui tams a lot, because it gives an incentive to an employee to report fraud, in addition to their civic duty," said Lynne A. Battaglia, U.S. Attorney for the District of Maryland.

Some believe employees should not make money by reporting fraud. And some question the motivation of whistle-blowers.

Said J. Stephen Simms, a Baltimore attorney who has represented whistle-blowers in several cases: "We get the people who are our clients, who know about the fraud, who've been there, seen it, have sat in on the meetings where the fraud was discussed."

"Sometimes the people aren't completely clean. Sometimes they've been in the middle. Sometimes they have an ax to grind.

"The government doesn't care, and it shouldn't care," Simms said. "If you think about how the government prosecutes organized crime, they don't get someone from the outside. They get someone from the inside."

He notes that whistle-blowers take tremendous risks. Even though they have some protection under federal law, many are fired and many never work in their industry again.

Pub Date: 8/19/96

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