In a February 14, 2012, press release, the Attorney General and the HHS Secretary announced that “the government’s health care prevention and enforcement efforts recovered nearly $4.1 billion in taxpayer dollars in Fiscal Year (FY) 2011.”  The press release goes on to characterize the “[a]pproximately $4.1 billion [as having been] stolen or otherwise improperly obtained.”  Much of the $4.1 billion could perhaps be more accurately characterized as settlement money obtained by the government through intimidation.

The source of much of the government’s power to intimidate derives from the federal False Claims Act (FCA), a statute originally enacted during the Civil War in response to reported unscrupulous practices by government contractors. In the 1990s, when the FCA started to be deployed against healthcare providers, the government discovered an unintended benefit – as applied to healthcare providers, the FCA authorizes potentially ruinous civil penalties. The statute provides that anyone found to have submitted false or fraudulent claims is liable not only for  treble damages, but also civil penalties of $5500 – $11,000 per claim. While a government contractor normally submits one invoice (or claim) per month, a large urban hospital can submit hundreds of claims per day to Medicare and Medicaid.  This can add up to potential liability in the hundreds of millions of dollars, as the government is quick to point out in its settlement demands. Potential liability of this magnitude has persuaded many healthcare providers to settle in order to remove the contingent liability from its books, thus saving the government from the risk of litigation.

After securing a settlement from one provider, the government can bring suit against others,  using the settlement in the prior case as “precedent.” In this manner, the government is able to reap the benefits of an adjudication, including establishing dubious theories of liability as precedent, without the risk of ever having to test its such theories in any court.

The Kyphoplasty cases are prime examples of this. Kyphoplasty is a procedure, utilizing a medical device developed by Kyphon, Inc., to treat certain types of spinal fractures. Kyphon sales personnel had advised doctors that kyphoplasty was an in-patient procedure. The government disagreed  and alleged, in an FCA suit initiated by a whistleblower, that Kyphon caused the admitting hospitals to submit false claims for in-patient stays because the procedure should have been performed on an outpatient basis. In 2008, while the suit was pending, Kyphon was acquired by Medtronic, which settled the case for $75 million. While the government's false claims theory was arguable at best, it would appear that Medtronic settled in order to get a huge contingent liability off its books (and, being publicly traded, out of its SEC filings).

With the device maker out of the way, the government initiated investigations of the hospitals that had performed the procedure. “This settlement created a precedent upon which the government built a ‘kyphoplasty initiative.’  . . .  It is certainly plausible that on the heels of the $75 million settlement with Medtronic, prosecutors concluded that  . . . additional settlement opportunities existed.” Postal and Whipple Diaz, “DOJ’s Kyphoplasty Initiative: AHA Urges Greater Oversight in the Wake of Continuing Settlement Announcements.” In a letter to the Attorney General and the HHS Secretary, the American Hospital Association (AHA) expressed its concern that the government’s “aggressive” tactics were “making FCA enforcement through negotiated ‘settlement’ a self-fulfilling prophecy.”  The letter went on to note that it was not at all clear that the government ever reviewed the medical necessity of any of the overnight admissions prior to targeting the hospitals. Rather, the government created a presumption of liability for every in-patient admission following kyphoplasty. The government’s underlying premise is that “(a) the physician judgment on which hospitals must depend was compromised in every case; and (b) hospitals knowingly or recklessly acceded to that judgment.”  As of February 2012, approximately 40 hospitals had settled.

It would appear that another kind of intimidation was also used against the hospitals. According to an article in the December 2011 edition of the ABA's The Health Lawyer, one hospital that received a notice that it was under  investigation for inpatient admissions in connection with Kyphoplasty conducted an internal investigation and uncovered no wrongdoing. The hospital nevertheless settled because the investigators threatened to examine every overnight stay “for a number of years.” Other hospitals under investigation in the Kyphoplasty matter “reported similar threats.” Albritton, "Can They do That? Government Threats to 'Come Down and Look Around' to Force Settlement in Qui Tam Cases.”

Using tactics like these, it is not surprising that the government is regularly able to tout the huge sums “recovered” as a result of its fraud fighting efforts.