Hiscock & Barclay
Hiscock & Barclay

Legal Alert

Medicare Whistleblower Program Proposes Increased Rewards to Combat Fraud and Abuse

The federal Centers for Medicare & Medicaid Services (“CMS”) recently issued a proposed ruling to increase substantially the maximum rewards for Medicare fraud tips from $1,000 to nearly $10 million, in an attempt to incentivize more whistleblowers to come forward. The proposed rule seeks to make changes to the Medicare Incentive Reward Program, enacted in 1998, by paying those responsible for reporting instances of Medicare fraud and abuse a portion of the funds recovered.1

The proposed rule would increase the reward paid to whistleblowers from 10% of the overpayments recovered in the case or $1,000, whichever is less, to 15% of the final amount collected applied to the first $66 million for the covered conduct. In other words, an individual could earn as much as $9.9 million if CMS collects more than $66 million as a result of a fraud tip.

The intent of these provisions is not to provide rewards for inadvertent or simple mistakes and unintentional billing errors; the intent is to provide a reward in cases of actual fraud or reckless disregard in the submission of claims for payment. However, these new incentives will likely increase the incidence of federal investigations to determine whether or not fraud or reckless disregard has occurred. This in turn would place additional burdens and expenses on providers arising out of investigative costs.

Enhancing the award so dramatically is expected to transform the existing incentive reward program for Medicare beneficiaries into a system akin to the False Claims Act which gives whistleblowers a percentage of any money recouped from fraud schemes.2 The proposed rule is modeled on a successful Internal Revenue Service tax fraud whistleblower program that has recouped almost $1.6 billion since 2007, which in turn is modeled on the qui tam whistleblower provisions of the False Claims Act.

Since CMS began paying rewards to individual whistleblowers in 1998, it has only recovered about $3.5 million under the program, resulting in total payments under $16,000 to 18 tipsters. By substantially increasing the available award, CMS hopes to further incentivize whistleblowers and expects to reclaim about $24.5 million in additional recoveries per year. Kathleen Sebelius, Secretary of the Department of Health and Human Services (“HHS”), explained that the proposal “is a signal to Medicare beneficiaries and caregivers, who are on the front lines of this fight, that they are critical partners in helping to protect taxpayer dollars.” CMS further anticipates that fraud and errors will be reduced by Medicare beneficiaries’ enhanced scrutiny of their bills.

The proposed rule also includes several provisions increasing the ability of the agency to deny Medicare enrollment to certain providers who are deemed at risk of defrauding the program.3 For example, the proposed rule authorizes the agency to deny Medicare enrollment to providers, suppliers and owners affiliated with another entity with an unpaid debt to Medicare unless such debtors agree to a repayment plan. CMS contends that this will prevent suppliers from accumulating debt, leaving the program and subsequently re-enrolling as a new business. The proposed rule also allows CMS to revoke Medicare enrollment to a provider or supplier whose senior employee has been convicted of a felony within the past ten years or if the provider or supplier has a pattern of billing for services that do not meet Medicare requirements, thereby allowing CMS to purge “bad actors” from its program. Additionally, the rule would eliminate a current provision which allows ambulance suppliers (deemed as particularly high risk for Medicare fraud by HHS) to “back bill” Medicare for services furnished within the 12 month period prior to submitting an application for enrollment in Medicare. Instead, ambulance service providers would be allowed to bill Medicare only after filing an enrollment application and, if their billing privileges are later revoked, an ambulance service provider would be required to submit any remaining claims to the program within 60 days of revocation of billing privileges—the standard applied to other providers. CMS estimates that these restrictions on ambulance suppliers will result in Medicare savings of over $327 million per year.

Negative outcomes in these investigations can also result in the exclusion of the provider from Medicare and Medicaid, or the imposition of a Corporate Integrity Agreement (CIA). If a CIA is imposed, the federal Department of Health and Human Services (HHS) will closely monitor the provider for a substantial period of time.

The proposed rule was published in the Federal Register on April 29, 2013 and will be open for comments until June 28, 2013. The proposed rule is available here.

For health care providers enrolled in Medicare or Medicaid, having an effective regulatory compliance plan that is vigorously implemented is imperative. Further, having fraud detection and prevention programs in place is also imperative, particularly as HHS increases its efforts to protect against fraud and abuse. Similarly, due diligence and monitoring as to employees, business partners and relationships remains critical in light of HHS’ broad approach to investigating potential sources of fraud and abuse and denying enrollment on the basis thereof.

Hiscock & Barclay has extensive experience in the areas of Medicare and Medicaid regulatory compliance, audits, investigations, fraud detection and prevention, preparing and implementing compliance plans and programs, conducting internal audits and defending qui tam actions. Should you have any questions regarding the issues raised in this Legal Alert, please contact David P. Glasel, Margaret Surowka Rossi, Bella Satra or any member of our firm’s Health Care & Human Services Practice Area.


1 See 42 C.F.R. § 420.405.
2 See 31 U.S.C. §§ 3729-3733.
3 See 42 C.F.R. Part 424, Subpart P.