2007 Spring, Pg. 6. The Federal Deficit Reduction Act of 2006: Efforts to Cut Spending, Incentives to Enact New False Claims Acts.

AuthorBy Attorney Andrew B. Eills

New Hampshire Bar Journal


2007 Spring, Pg. 6.

The Federal Deficit Reduction Act of 2006: Efforts to Cut Spending, Incentives to Enact New False Claims Acts

New Hampshire Bar JournalSpring 2007, Volume 48, No. 1Health Care & the LawThe Federal Deficit Reduction Act of 2006: Efforts to Cut Spending, Incentives to Enact New False Claims ActsBy Attorney Andrew B. EillsI. INTRODUCTION

Over a year ago, President Bush signed the "Deficit Reduction Act of 2005," signaling the Administration's desire to curb federal spending on federal and state health care programs. The passage of the Deficit Reduction Act ("DRA") was not without controversy, and the vote approving it was extremely close. The White House's fact sheet announcing the February 8, 2006 signing highlighted the DRA as an important step in curbing mandatory health care spending programs.(fn1)

The DRA is designed to limit federal spending by approximately $39 billion between 2006 and 2011 both by reductions in Medicare and Medicaid program spending, and implementation of targeted provisions designed to eliminate Medicaid fraud, waste, and abuse through a variety of measures.(fn2)

Health care providers who receive funds from federal health care programs are subject to an array of statutory requirements designed to prevent and reduce fraud, abuse, and to promote illegal self-referral. Those who practice health care law spend a great deal of time analyzing these issues of health care provider compliance, but because spending on Medicare and Medicaid comprises such a large percentage of governmental outlays derived from tax revenues, the connections between health care spending policy and compliance are significant for everyone, not just health lawyers.(fn3)

Moreover, asked what trend worries them most, many citizens, business owners, and health care providers point to rising health care costs.(fn4) Access to "affordable" health care and health care costs were principal themes in elections last fall.(fn5) Thus, any discussion of health care policy and regulation must by necessity focus on executive and legislative branch efforts (1) to promote reforms in the manner in which federal and state dollars are employed and (2) to enact laws to prosecute those persons or entities that abuse the system.

While this article is not an exhaustive analysis of every facet of the Deficit Reduction Act, it examines particular efforts to address incentives to curb health care spending, and reviews some of the policies behind these measures.

This article provides (1) a brief overview of Medicare and Medicaid, (2) a description of the particular provisions of the DRA designed to reduce spending, including incentives for state legislatures to enact their own state False Claims Acts, and (3) a discussion of the current status of New Hampshire's own False Claims Act in light of the DRA's passage and requirements.(fn6)

  1. Brief Review of Medicare and Medicaid Programs

    1. Medicare

      In 1965, Congress established, and President Lyndon Johnson signed into law, the federal Medicare program under Title XVIII of the Social Security Act. Medicare provides universal hospital coverage for Americans who are age 65 years or older and is a social health insurance program. Although originally established as a health insurance program for aged persons to complement their retirement, Medicare has since been expanded to cover other persons, including the long-term disabled.(fn7)

      The Medicare program originally provided hospital insurance and supplementary insurance but has been significantly expanded since its inception and is now organized into four "parts," A through D. Medicare Part A covers in-patient hospital, critical access hospital care, hospice care, and skilled nursing facility care. The Federal Hospital Insurance Trust Fund ("Fund"), established in 1965 and funded by payroll taxes from employers and workers, finances Part A. The Fund is subject to trends in economic conditions and health care costs increases. Medicare Part B is a voluntary program that covers physician services, laboratory services, physical and occupational therapy, and out-patient hospital care. Part C, created through the Balanced Budget Act ("BBA") in 1997, established a private health plan coverage option for Medicare recipients.(fn8) Finally, Part D, established by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("MMA") established a voluntary prescription drug benefit for beneficiaries enrolled in Part A or Part B. The MMA became operational in 2006.(fn9)

    2. Medicaid

      Medicaid, by contrast, "is a joint state and federal program under which the federal government provides financial support to states that establish and administer a state Medicaid program, in accordance with federal law, through an approved state plan."(fn10) States that participate in Medicaid administer their own programs within broad federal guidelines and receive matching funds from the federal government. Depending on the state per capita income, the federal share varies between 50 percent and 80 percent.(fn11) In New Hampshire, the Department of Health and Human Services administers the state's Medicaid program. In 2006, New Hampshire's federal share was 50 percent.(fn12)

      Medicaid is designed to serve the poor, including children and their parents, the elderly, and the disabled.(fn13) It is the largest health insurance program in the country. While Medicaid is administered by the federal government, the individual states are responsible for the day-to-day administration of their own Medicaid plans. States are not required to participate, but as a practical matter, all states and the District of Columbia do so because the substantial federal funding helps defray costs that states would otherwise bear on their own. States are free to design their individual state Medicaid programs provided they offer certain federally-mandated services and run their programs within federal parameters.(fn14)

      The federal contribution to Medicaid was over $176 billion dollars in 2004, and is expected to exceed $193 billion in fiscal year 2007. Medicaid coverage is significant; in fiscal year 2004 Medicaid covered 43.7 million low-income children and adults. The federal government has forecast this figure to exceed 46 million in fiscal year 2007. In New Hampshire, total Medicaid enrollment in fiscal year 2003 was 129,700, and Medicaid spending for fiscal year 2005 totaled $1.26 billion.(fn15)

    3. Fraud and Abuse

      The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") created a Health Care Fraud and Abuse Control Program, "a far-reaching program to combat fraud and abuse in health care, including both public and private health plans."(fn16) Prior to 1996, however, fraud and abuse efforts were largely funded through federal grants to state-based Medicaid Fraud Control Units.(fn17) HIPAA appropriates money from the Medicare Trust Fund to conduct and finance anti-fraud activities. In 2005, the U.S. Department of Health and Human Services ("DHHS") and the U.S. Department of Justice ("DOJ") certified $240.558 million for appropriation to the Health Care Fraud and Abuse Control account. In addition, the Federal Bureau of Investigation received $114 million from HIPAA to combat fraud and abuse.

      While estimates vary, three to ten percent of what Americans spend annually in health care is lost to fraud, according to the National Health Care Anti-Fraud Association.(fn18) The total amount of health care fraud was, therefore, approximately $51 billion for calendar year 2003.(fn19)

      According to the DHHS and the DOJ, during fiscal year 2005, the federal government won or negotiated approximately $1.47 billion in judgments and settlements relating to health care fraud and abuse.(fn20) In 2005, the DOJ opened 935 new criminal health care fraud investigations involving 1,597 potential defendants.(fn21) In the same year, the DOJ opened 778 new civil health care fraud investigations, and had 1,334 civil health care fraud investigations pending at the end of the fiscal year.(fn22)

  2. Deficit Reduction Act: Overview

    It is against this background that Congress, by a narrow margin, passed the DRA. The DRA freezes or reduces payments to health care providers through a variety of programmatic and statutory changes to the Medicare law and the Medicaid law, some of which have been controversial.

    Several key provisions of the DRA address, through "carrot and stick" approaches, requirements for Medicare Part A providers. These new incentives and penalties present compliance challenges to particular health care providers. They appear to have been motivated by the desire to measure, where feasible, particular data and, in other cases, to implement methodologies and arrangements for encouraging more economical use of health care services. In addition, some of the provisions cap Medicare reimbursement for particular services.

    1. Hospital Quality Improvement

      Section 5001 of the DRA uses a "stick approach" to encourage hospitals to submit quality-related data for fiscal year 2007 and each subsequent fiscal year. Hospitals that do not submit the data required by the Center for Medicaid and Medicare Services ("CMS") will be subject to a two percent reduction in any increase in Medicare reimbursement for inpatient services.(fn23) Because hospitals rely heavily on Medicare reimbursement, the potential loss of two percent of Medicare reimbursement dollars could be detrimental to their operations...

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