Health care fraud under the new Medicare Part D prescription drug program.

• Author: Rabecs, Robert N.
• Position: The Changing Face of White-Collar Crime

1. INTRODUCTION

   The investigation and prosecution of health care fraud over the last several years has resulted in significant recoveries and settlements by the government. The United States recovered approximately $1.5 billion in fraud settlements and judgments for the fiscal year ending September 30, 2005, the Department of Justice ("DOJ") announced on November 7, 2005. "As in the last several years, health care accounted for the lion's share of fraud settlements and judgments," amounting to $1.1 billion, according to a DOJ press release. (1) The DOJ stated that the Department of Health and Human Services' ("HHS") biggest recoveries were largely attributable to the Medicare and Medicaid programs. (2) According to the Health Care Fraud and Abuse Control ("HCFAC") program report released October 27, 2005 by the HHS Office of Inspector General ("OIG"), the federal government won or negotiated $605 million in judgments and settlements in 2004 related to the Medicare and Medicaid programs. (3)

   The level of investigation and enforcement activity involving health care fraud is only likely to increase in the next several years as a result of the new Medicare prescription drug program which went into effect on January 1, 2006. (4) The new program, known as Medicare Part D, was created pursuant to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "MMA"). (5) Under the program, Medicare beneficiaries will be able to obtain partial Medicare coverage and reimbursement for their outpatient prescription drugs. Some studies have estimated that the Part D program will cost an estimated $720 billion over its first ten years. (6) Lewis Morris, chief counsel to the HHS OIG, has said that by far the largest enforcement challenge facing his office is the rollout of the Part D program. "We expect the Part D program to be the focus of bad actors because of its size alone," Morris said. (7) Thus, because of the increased money involved, the scrutiny into fraud and abuse may be much more intense.

   Implementation of Part D changes the enforcement landscape by creating a new Medicare benefit to which the fraud and abuse authorities will apply. Many Medicare beneficiaries will now have (or be eligible for) Medicare coverage for prescription drugs who did not have coverage in the past. The framework for fraud and abuse investigation and enforcement will not necessarily change with Medicare Part D. Very little has changed in terms of government enforcement weapons involving the Medicare Part D program. The Federal Healthcare Programs' Anti-Kickback Statute (8) (the "Anti-Kickback Statute"), the False Claims Act, (9) and the civil money penalties law (10) will likely continue to be the main enforcement tools. In fact, Morris has said that, as the Part D program is implemented, the OIG will continue to focus on practices it has targeted in the past, including kickbacks. (11)

   However, the application of the existing authorities will necessarily have to focus on new abuses that may arise by virtue of the relationships and incentives unique to the Part D program. (12) In this regard, according to James G. Sheehan, associate U.S. attorney in Philadelphia, "[t]he Medicare Part D program involves specifically vulnerable beneficiaries, high-cost populations, substantial control by providers, and creates a whole new category of payments and financial relationships." (13) Consequently, those involved in the program will need to engage in very close scrutiny of their operations and compliance obligations.

   The types of fraud and abuse which may arise under the Part D program are varied and may include: (1) pharmaceutical manufacturer inducements paid to private insurance plans and pharmacy benefit managers that will administer the Part D program in return for placement of the manufacturer's drugs on plan formularies; (2) pharmaceutical manufacturers and/or health plans paying subsidies to employers to keep their Medicare-eligible employees/retirees on employer-sponsored prescription drug plans; (3) health plan marketing of the Part D benefit to Medicare beneficiaries (including cherry picking enrollees, shifting patients between plans to generate commissions, and providing beneficiaries with distorted information); and (4) health plan efforts to manipulate the period during which Part D enrollees are responsible for paying 100% of their drug costs. (14)

   This article will discuss two areas in which fraud and abuse may arise under the new Part D program and which, therefore, could be subject to government scrutiny and enforcement action. Both of these areas involve the potential application of the Anti-Kickback Statute to cost-sharing assistance provided to Part D enrollees by pharmacies and pharmaceutical manufacturers which contract with Part D health plans.

2. MEDICARE PART D PRESCRIPTION DRUG BENEFIT

   Medicare is a federally-funded insurance program that provides health care coverage to most of America's senior citizens. (15) To be eligible, an individual must be a citizen or resident alien, (16) and at least sixty-five years of age (or satisfy other qualifying conditions). (17) Prior to passage of the MMA, the Medicare program consisted of Parts A, B and C. Part A generally pays for inpatient care, such as hospitalizations. (18) Part B generally covers outpatient care and physician services. (19) Historically, Parts A and B have not provided Medicare coverage and reimbursement for the entire range of available medical services, including outpatient prescription drugs.

   Policymakers have debated the need to add prescription drug coverage to Medicare since the program's original enactment in the 1960s. However, the costs associated with providing such coverage, as well as disagreement over the role of the private sector in administering the coverage, proved to be obstacles to extending Medicare program coverage and reimbursement to outpatient prescription drugs. (20) The 1967 amendments to the Social Security Act called for the creation of a Task Force on Prescription Drugs to study the possibility of adding a prescription drug benefit to Medicare. (21) However, not until two decades later did Congress make the first of two major attempts to pass legislation providing a prescription drug benefit under Medicare.

   In 1988, Congress passed the Medicare Catastrophic Coverage Act ("MCCA"), (22) which would have phased in "catastrophic" prescription drug coverage beginning in 1991. (23) Due to a number of reasons, including a major increase in cost estimates and opposition to a supplemental premium charge to higher income beneficiaries, the MCCA was repealed before it even began. (24) The second major attempt to add Medicare prescription drug coverage came as part of the Clinton administration's comprehensive health care reform package in 1993. Introduced in Congress as the Health Security Act, (25) the Clinton plan called for the addition of a prescription drug benefit to Medicare. (26) However, after months of extensive hearings and debate, the Clinton proposal failed to generate enough support to make it to the floor of either house of Congress for a vote. (27)

   Despite the failure to add prescription drugs as a basic Medicare benefit, Medicare beneficiaries were eventually permitted to purchase supplemental benefits, called Medigap plans, that provided beneficiaries with extra coverage for additional services (including prescription drugs). (28) In addition to Medigap, Medicare Part C allowed seniors to opt out of traditional fee-for-service Medicare through enrollment in privately operated managed care plans, called Medicare+Choice plans. (29) Some Part C enrollees received additional benefits not included in traditional fee-for-service Medicare, including prescription drug coverage. (30) However, Medicare+Choice plans typically required patients to choose a primary care physician from a list of plan-approved doctors, and often mandated plan approval in order to see a specialist. (31) Furthermore, since many of the plans faced financial difficulties, some plan operators chose to discontinue coverage in certain geographic markets, leaving many beneficiaries without Part C coverage. (32)

   The MMA makes sweeping changes to the Medicare program by establishing a new Medicare Part D prescription drug benefit. (33) Effective January 1, 2006, the Part D program provides Medicare coverage and reimbursement for prescription drugs dispensed on an outpatient basis. (34) Any individual entitled to coverage under Medicare Part A or enrolled in Medicare Part B will be eligible to obtain Part D coverage of outpatient prescription drugs effective January 1, 2006. (35) The basic Part D benefit will cover insulin, vaccines, certain biological products, and any other medically-necessary drugs not currently covered under Medicare that are: (a) dispensed according to a prescription; (b) administered on an outpatient basis; and (c) mandated Medicaid-covered drugs. (36)

   Medicare beneficiaries are not required to elect coverage under Part D. (37) However, if they do wish to obtain Part D benefits they must enroll in either: (1) a qualified prescription drug plan ("PDP"); or (2) an existing Medicare Advantage ("MA") plan that includes prescription drug coverage ("MA-PD") (PDP and MA-PD are referred to collectively as "Plans"). (38) Medicare prescription drug coverage under Part D will be administered through the Plans. Each Plan must enter into a contract with HHS to provide Part D covered drugs. (39) Plans must meet numerous design requirements, including the ability to: ensure beneficiary access to a sufficient network of pharmacies; provide beneficiaries with access to negotiated prices for covered outpatient prescription drugs; establish cost-effective utilization management programs and quality assurance measures (including a medication therapy management program); meet patient safety and the quality standards; and meet detailed...