These federal fraud prosecutions have become a major legal threat for several reasons. First, they are politically attractive as a way to save wasted federal dollars. [The Health Care Financing Administration has launched a program called “Operation Restore Trust” to coordinate fraud prosecutions and to maximize the visibility of these actions.] Second, there are a lot of talented financial fraud investigators available as the Resolution Trust Corporation wound down. Third, there is a lot of fraud. The government estimates about $23 returned for each dollar invested in fraud investigations. Fourth, there is great deterrent value in these prosecutions and settlements. The large settlements against three medical schools [$30 million settlement against the University of Pennsylvania, $15 million against New York University, and $12 million against Thomas Jefferson] have other medical schools scrambling to ensure that they are complying with billings laws, in some cases with dramatic reductions in billing to Medicare and Medicaid. There also have been settlements in excess of $100 million with a hospital chain and with a laboratory, putting both industries on notice of substantial potential liability.

The risk is dramatically increasing for physicians in MCOs because the federal government and the states are pushing Medicare and Medicaid patients into MCOs. Plan terms and physician practices that are standard for private pay patients may become illegal when a government pay patient enters the plan. Many plans and most physicians do not appreciate this fact and fail to change their practices accordingly. The Kassebaum-Kennedy bill extends the jurisdiction of the federal government to private health plans, allowing the criminal prosecution of physicians for fraud against private plans and beneficiaries.

Physicians in MCOs must be alert to these dangers. If there is any potential criminal activity, then the physician must seek private counsel at once to ensure that his or her rights are protected. Although the attorney for the MCO can protect the MCO’s interests, those interests may be adverse to those of the physician. This is especially important as the plan conducts compliance audits because the physician cannot automatically invoke attorney–client privilege for communications to the plan’s attorney.