Marshaling expanded financial resources, aggressive new legal authority, and rare bipartisan solidarity, the Obama administration is accelerating federal efforts to fight health care fraud, waste, and abuse that cost taxpayers and private insurers billions of dollars every year. Although the new forms of authority are granted by the Affordable Care Act (ACA), which Republicans unanimously opposed, most GOP legislators strongly support — and some even sponsored measures to enable1 — the more rigorous crackdown on illegal activities that plague Medicare, Medicaid, and private insurers. Under past policies, Congress and the executive branch “way, way, way” underspent on fighting health care fraud, according to Kerry Weems, who was acting administrator of the Centers for Medicare and Medicaid Services (CMS) from 2007 to 2009.2

Since 1990, the Government Accountability Office (GAO) has designated Medicare as a high-risk federal program because its vast size and complexity make it vulnerable to fraud, waste, and abuse. In 2009, government-wide “improper payments” totaled $98 billion — more than half of it paid by Medicare and Medicaid. It is uncertain how much of the activity that resulted in these payments was actual fraud, but Lewis Morris, chief counsel of the Office of Inspector General (OIG), Department of Health and Human Services (DHHS), told the Senate Finance Committee last year, “Although we cannot measure the full extent of health care fraud in Medicare and Medicaid, everywhere we look we continue to find fraud in these programs.” The National Health Care Antifraud Association, an organization of some 100 private insurers and public agencies, estimates conservatively that $60 billion of total national health care spending each year is accounted for by fraud.

Increasingly, federal investigators have found that the Medicare system is being infiltrated by criminals and organized criminal networks, but fraud is not limited to blatant efforts by such elements. As Morris testified on June 15 to two subcommittees of the House Ways and Means Committee, “Major corporations such as pharmaceutical and medical device manufacturers and institutions such as hospitals and nursing facilities have also committed fraud, sometimes on a grand scale.”

No previous administration has placed as high a priority on fighting fraud as that pledged by President Barack Obama. Before enactment of the ACA, the administration emphasized that it had “zero tolerance” for health care fraud, as Secretary of Health and Human Services (HHS) Kathleen Sebelius put it, and that preventing such fraud is a “personal priority” of Obama's.3 In May 2009, to more effectively coordinate federal efforts, the administration announced the creation of a Cabinet-level antifraud task force to be overseen by the deputy attorney general and the deputy HHS secretary. Under its aegis, the administration created “strike force teams,” composed of investigators from various federal agencies, that operate in “hot spots” of unexplained high Medicare billing levels, which include South Florida, Los Angeles, Detroit, Houston, Brooklyn, Baton Rouge, and Tampa. The administration plans to double the number of strike force teams by 2012 and to target additional cities where such fraud is rampant. In many of the cases brought by prosecutors to date, defendants allegedly paid kickbacks to medical professionals and beneficiaries for the use of their Medicare information to support fictitious claims for items or services that were never provided.

Largely on the basis of recommendations from the OIG, the DHHS, the Justice Department, and the GAO, Congress enacted sweeping provisions in the ACA to strengthen federal efforts to stem fraud, waste, and abuse. These provisions amend existing criminal, civil, and administrative antifraud laws in various ways, including the imposition of more stringent entry requirements on the 18,000 applicants who, in an average month, seek Medicare's approval to bill the program for services; the empowerment of the DHHS to determine which Medicare providers should create internal compliance programs designed to make them more vigilant against fraud; and a mandate for increased public reporting of industry's payments and other transfers of value to providers. Most of the antifraud provisions took effect on enactment of the reform law.

Underscoring Congress's interest in early efforts to implement antifraud provisions, the two House Ways and Means subcommittees took testimony on the subject at the June 15 hearing. Kimberly Brandt, director of the CMS's program-integrity group, emphasized that the newly granted authority would enable the agency to move away from its historical “pay and chase” mode to focus greater resources on fraud prevention. (Because Medicare has prompt payment requirements, its claims-processing systems were built to quickly process and pay 4.8 million claims each day, totaling approximately 1.2 billion claims each year.) Brandt also said that the administration anticipated spending $1.7 billion in 2011 to fund antifraud activities, including the largest 1-year increase in resources ($250 million) since Congress established the Health Care Fraud and Abuse Control Program in 1997.

In his testimony, the OIG's Morris underscored the variety of ways in which federal antifraud efforts will accelerate under the ACA. Among the most immediate changes will be more rigorous screening procedures for applicants seeking Medicare's approval to bill the program for services. The law grants the DHHS broad discretion to subject applicants to criminal background checks, fingerprinting, unannounced site visits, and database checks. As Medicare's entrance requirements get tougher, however, the program will have to balance this new policy against the political imperative of maintaining ready access to care for 40 million beneficiaries.

The law also authorizes the department to require providers and suppliers, as a condition of participation in Medicare, to adopt compliance programs that meet criteria developed in consultation with the OIG. This requirement parallels recent developments in states that have made compliance programs mandatory for Medicaid providers. James Sheehan, Medicaid's inspector general in New York, the first state to mandate such compliance, says the goal “is to compel organizations to police their own activities. It shifts the burden to the provider to be vigilant about the legality of activities or potentially pay a price for not doing so.”

Among the law's provisions with direct application to physicians and teaching hospitals is its call for greater transparency and reporting of relationships between industry and providers. Specifically, the law requires U.S. manufacturers of drugs, medical devices, biologic agents, and medical supplies that are covered under Medicare, Medicaid, or the Children's Health Insurance Program to report to the government certain information related to payments and other transfers of value to physicians and teaching hospitals. This information will be made available on a public Web site. Morris told legislators, “The requirement of public disclosure of these payments will help the government, as well as the health care industry and the public, to monitor relationships and should have a sentinel effect to deter kickbacks and other inappropriate payment relationships.” Senator Charles Grassley of Iowa, a longtime Republican watchdog on physician–corporate relationships, had introduced similar “sunshine” provisions in separate legislation.

In another far-reaching provision, the law requires that providers, suppliers, and managed care organizations report and repay within 60 days any overpayment from Medicare or Medicaid. Any party that fails to do so is subject to liability under the False Claims Act, which means that a whistle-blower could take action against it; the law also liberalizes the requirements under which whistle-blowers can bring a claim in hopes of sharing in the government's financial reward.

Other ACA provisions target potential areas of abuse. For example, the law bans physician-owned hospitals that were created after December 31, 2010, from participating in Medicare, and it prohibits the expansion of existing physician-owned hospitals, except for facilities that primarily serve residents of rural areas.

Morris acknowledged that because the ACA encourages physicians and hospitals to integrate their activities and finances more closely through shared-savings arrangements such as accountable care organizations, bundled payments, and medical homes, “some new arrangements may require new approaches to combating fraud, waste, and abuse.” Current antifraud policies limit economic ties between parties that are in a position to generate business for each other that would be paid for by a federal health care program. Republican legislators have urged the administration to create a “safe harbor” that would protect accountable care organizations against accusations that they may be breaking or skirting the law by implementing a shared-savings model. Morris told reporters after the hearing that OIG preferred that such protections be offered by the secretary only on a short-term, demonstration basis.

In addition to expanding coverage to some 30 million uninsured citizens beginning in 2014, the reform law greatly expands federal efforts to prevent or prosecute expensive fraud, waste, and abuse. But as with all ambitious congressional acts, the full tale won't be told until the provisions are implemented successfully.