Legal Updates

Health Care Institutions Must Educate Employees on How to Report Medicaid Fraud, Waste or Abuse

Effective with the New Year, most health care providers must develop and publish policies on health care fraud, pursuant to just-released regulations promulgated pursuant to the federal Deficit Reduction Act of 2005 (the “DRA”).

The DRA added a new provision to the Social Security Act that became effective on January 1, 2007.  The new provision requires states participating in the Medicaid program to amend their state plans for medical assistance (“State Plans”) so as to require certain participating entities to develop and publish detailed fraud-prevention policies for their employees.

Under the amended State Plans, health care providers and other entities that receive or make annual payments of $5 million or more under the State’s Medicaid program must do the following, as a condition of continuing to receive such payments:

• Establish for all employees of the entity (including management) written policies that provide “detailed information” about (a) the Federal False Claims Act; (b) the Federal Program Fraud Civil Remedies Act of 1986; and (c) similar civil and criminal state laws (generally, these laws encourage whistleblowing relative to fraud, waste or abuse in connection with federal and state programs and provide the whistleblower with protection against retaliation);
• Include in the written policies a description of the whistleblower protections in these laws and an explanation of the role of these laws in preventing and detecting fraud, waste and abuse in federal health care programs;
• Include “detailed provisions” in the written policies, regarding the entity’s policies and procedures for detecting and preventing fraud, waste and abuse;
• Include in any employee handbook a “specific discussion” of (a) the laws referenced above; (b) the rights of employees to be protected as whistleblowers under those laws; and (c) the entity’s policies and procedures for detecting and preventing fraud, waste and abuse; and
• Require certain contractors and agents of the entity to adopt the written policies.

These new requirements suggest that the federal government believes that employees are essential to preventing and identifying Medicaid fraud, waste and abuse.  This inference can be drawn from the fact that the required new policies must contain a detailed explanation of both the legal avenues for reporting Medicaid fraud, waste and abuse and also the legal protections available to those who “blow the whistle.”

Given the new requirement to include “detailed” and “specific” information about the referenced laws, the new policies will explain to “would-be informants” the potential benefits of reporting Medicaid violations to the authorities.  Such benefits, aside from the satisfaction of “doing the right thing,” may include a significant monetary reward.

For instance, an employee who “blows the whistle” on Medicaid fraud, waste or abuse by commencing an action under the Federal False Claims Act may receive a reward of fifteen percent (15%) to thirty percent (30%) of the monies recovered by the federal government, plus attorneys’ fees and costs.  This, and similar provisions of the other referenced laws, must be spelled out in the entity’s new policies, as well as in existing employee handbooks.

States will generally have until March 31, 2007, to bring their Medicaid plans into compliance with the DRA by imposing the new policy requirements on providers and other covered entities.  Significantly, although states may create model language for covered entities to use in their written policies and handbooks, states are not required to do so.  The revised State Plans may contain additional requirements and, presumably, will set forth deadlines by which covered entities must achieve compliance.

All health care providers and others who will be subject to the new policy requirements are urged to take the following measures:

• Immediately audit existing policies and procedures for detecting and preventing Medicaid fraud, waste and abuse;
• Modify these policies and procedures, as necessary, to include “detailed information” about the Federal False Claims Act and the other federal and state laws referenced in the DRA;
• Include in the modified policies and procedures a description of the whistleblower protections in these laws and an explanation of the role of these laws in preventing and detecting fraud, waste and abuse in federal health care programs;
• Incorporate the substance of the modified policies and procedures into any existing employee handbook;
• Monitor the activities of the pertinent state agency to determine whether additional compliance requirements will be necessary; and
• Take appropriate steps to ensure that all contractors and agents subject to the DRA acknowledge and adopt the revised policies and procedures in writing.

Employers subject to the DRA are encouraged to undertake these measures with the assistance of legal counsel.  The Firm is available to consult with employers on best practices for complying with this law.