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Fraud enforcement under Medicare Part D

By William H. Maruca, Esq.

It’s been called the most significant change in coverage since the Medicare program’s inception. It’s also been called staggeringly complicated and largely incomprehensible to the very population it was intended to help. It’s also ripe with opportunities for the dishonest and fraught with traps for the unwary. It’s the Medicare Part D Prescription Drug Benefit, and it’s a high priority for fraud enforcement in 2006.

The drug program’s very complexity is a source of fraud and liability exposure for practitioners, patients, facilities, health plans and pharmacies alike. In a nutshell, Medicare now offers an optional drug benefit to beneficiaries through a variety of approved private plans (pharmacy benefit plans, or PBPs) whose benefits must be at least as generous as a “model” plan, the terms of which are far from simple. The model plan calls for two layers of drug coverage starting after the patient incurs a $250 annual deductible, followed by 75 percent coverage for the next $2,000 in total drug costs (with the patient picking up $500 of that $2,000 out-of-pocket), followed by the so-called “doughnut hole” in which patients pay all of the next $2,850 in drug costs. Once a patient has incurred total prescription drug charges of $5,100 and spent $3,600 during a calendar year ($250 + $500 + $2,850), the model plan covers 95 percent of remaining prescription drug costs. Got it?

Many available plans do not follow this model precisely, but instead offer lower deductibles, higher percentages of the first layer of coverage, no “doughnut hole,” and other variations which the plans must certify are actuarially equivalent or better than the model plan. Further, each plan is required to offer alternatives among various broad categories of drugs, but each plan is free to set its own formulary.

There are two types of eligible PBPs: stand-alone drug plans and Medicare Advantage affiliated plans. The stand-alone PBPs provide drug benefits for patients who are covered under Original (fee-for-service) Medicare. Medicare Advantage PBPs are affiliated with comprehensive Medicare managed care plans.

So, where does the enforcement community expect to find drug fraud? Some new risks are anticipated to arise because of incentives inherent the design of the Part D benefit, but others are as old as health insurance itself.

More Pressure on Physicians

Physicians may face increased pressure from patients to make false statements to facilitate benefits under Part D that the patients would not otherwise be entitled to receive. For instance, married couples may ask physicians to write prescriptions for one spouse for medications to be taken by the other spouse (either because the non-patient spouse has already satisfied the out-of-pocket requirements but the patient-spouse has not, to help reach those thresholds, or because one spouse’s PBP formulary covers a drug that the other spouse needs). While a physician acceding to such request may do so with the purest of motives and with his patients’ best interests in mind, such a scheme would be fraudulent under Medicare rules and violate other federal and state laws. The False Claims Act allows the government to impose civil monetary penalties of up to $11,000 for each such prescription, and in the worst cases, permits exclusion from Medicare and Medicaid.

Physicians may also be tempted to alter a diagnosis in order to help patients meet the requirements under their PDP for coverage of certain drugs. Long before Part D was enacted, well-meaning physicians have been known to stretch the truth to help their patients. Part D will multiply those situations.

Kickbacks from pharmaceutical manufacturers to physicians will continue to be under close scrutiny. Historically, much abusive behavior was documented under which some drug companies doled out freebies including lavish meals, travel and entertainment, and questionable research or teaching contracts, in efforts to influence physician prescribing behavior. The era of easy money and giveaways from drug companies came to a head in a flurry of suits and regulatory efforts over the past several years. Nevertheless, enforcement authorities believe that drug companies may have more to gain than before under Part D from efforts to induce physicians to switch patients to their products.

The drug industry, to its credit, has taken concrete efforts to police its own ranks. The 2002 PhRMA Code on Interactions with Healthcare Professionals sets forth strict ethical constraints on drug marketing efforts to physicians, but it took several high-profile fraud cases, including the TAP Pharmaceuticals and AstraZeneca suits, as well as the OIG’s 2003 Compliance Guidance for Pharmaceutical Companies, to bring the risks home to physicians and many drug reps. Anecdotally, it is becoming rare to see a drug company pick up the tab for a physician dinner meeting (a.k.a. “dine-and-dash”) without presenting significant substantive educational information. However, the authorities expect that the sheer amount of federal money pouring into the prescription drug market under Part D will be too hard for the unscrupulous to resist. Physicians with large nursing home populations in particular may be targeted for inducements. “TINSTAAFL” – There Is No Such Thing As A Free Lunch – remains good advice. Be certain to have any an experienced health care attorney review any financial relationship with a drug company before you sign, including research grants, teaching contracts, speaking fees, etc.

The PhRMA Code remains the touchstone of permissible contacts between drug companies and physicians. Under the Code, all interactions should be focused on informing health care professionals about products, providing scientific and educational information, and supporting medical research and education. Drug companies should never offer and physicians should never accept anything of value in a manner or on conditions that would interfere with the independence of the physician’s prescribing practices.

Physicians are not the only players targeted by aggressive drug sales reps. Policy makers who control drug formularies, both in facility settings as well as within health plans, can expect increased marketing pressure in the Part D era. Substituting one drug for another on a formulary list will have more dramatic economic consequences than ever before.

Beneficiary Fraud

The Office of Inspector General (OIG) of the Department of Health and Human Services has identified drug fraud as a high priority in its 2006 Work Plan. One area of interest cited in the plan is how to verify beneficiaries’ true out-of-pocket (TrOOP) expenses that qualify toward catastrophic coverage. The “doughnut hole” gap in coverage creates incentives for beneficiaries to falsify their out of pocket costs to reach the 95 percent layer of coverage. Enforcement officials anticipate that there may be collusion among beneficiaries, pharmacies, and health plans to manipulate TrOOP expenses.

Patients will have incentives to inflate their out-of-pocket costs incurred and to include costs which are not eligible toward the out-of-pocket thresholds, such as drugs imported from Canada or purchased outside the beneficiary’s selected PBP. Many patients may not even fully understand that actual costs they pay from their own funds toward such ineligible drug purchases do not count toward those amounts.

Drug Samples

Samples distributed to physicians benefit patients who otherwise could not afford them, and help drug companies build “brand loyalty” among patients and physicians. OIG warns that misuse or diversion of samples for profit, by physicians, their employees, pharmacies, or drug sales reps will be prosecuted aggressively.

Duplicate Payments

The OIG will be vigilant for evidence of duplicate payments for drugs under the “old” and “new” Medicare programs. Drugs for which payment is available under Medicare Part B, such as chemotherapy agents or injections of cancer drugs like Lupron administered in physicians offices, will continue to be covered by Part B and should not also be reimbursed under Medicare Part D drug coverage. Physicians who provide drug therapy as part of their practices need to stay up to date on which drugs are covered by which Medicare program.

Identity Theft

Con artists may attempt to use the Part D benefit as a tool to steal personal information from elderly and vulnerable beneficiaries. CMS has already uncovered several schemes in which Medicare beneficiaries were tricked into providing bank card information and other financial data in exchange for assistance with the new prescription drug coverage.

Follow the Money

Any time there are massive infusions of federal dollars into a program, some greedy and unscrupulous elements will identify and attempt to take advantage of vulnerabilities in the system. Hot on their trail will be whistle-blowers with inside knowledge of improper practices and a desire to cash in (typically competitors and disgruntled employees). And not far behind will be the OIG, FBI, Postal Inspector Service, Medicaid Fraud Control Units and other governmental investigators. Be smart. Don’t get caught in their crossfire.

William H. Maruca, Esq., is a partner with the Pittsburgh office of the regional law firm of Fox Rothschild LLP.

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