A New Approach to Combating Healthcare Fraud and Reducing Healthcare Costs

Recently, the California Insurance Commissioner announced that he was intervening in the qui tam case of three whistleblower pharmaceutical reps against the pharmaceutical giant, Bristol-Myers Squibb (BMS). The reps, represented by Waters Kraus & Paul, Waters & Kraus' California office, allege that BMS paid doctors kickbacks in order to get them to write prescriptions for some of BMS' top drugs, including Plavix and Pravachol. The case is ground-breaking for several reasons. First, the allegations provide extraordinary detail about the forms of gifts and payments BMS gave to California doctors—liquor, cigars, gift cards, trips to Disneyland, tickets and suites at Lakers games, even a Pravachol "Lakers Camp" for doctors and their families. More important, this is the first qui tam case in which the Commissioner's office has intervened that alleges that this type of scheme—common in the pharmaceutical industry—violates the "runners and cappers" provision of California's Insurance Code.


Combating Healthcare Fraud


The "runners and cappers" provision was initially passed in the 1990's to combat workers comp and auto insurance fraud, but its purpose was to combat healthcare fraud more generally. It states:

"It is unlawful to knowingly employ runners, cappers, steerers or other persons to... procure clients or patients to perform or obtain services or benefits under a contract of insurance or that will be the basis for a claim against an insured individual or his or her insurer."

The provision contemplates schemes in which, for example, a clinic pays a "runner" or "capper" to bring patients to the clinic, and then the clinic charges the costs of treatment for those patients to private insurance companies. The qui tam case against BMS alleges that BMS used physicians in the same manner as those clinics use runners and cappers—essentially paying the doctors to write prescriptions that would ultimately be covered by private insurance companies. The provision allows the Commissioner to seek treble damages and penalties.


Getting to the Bottom of Rising Healthcare and Insurance Costs


The news has been full of similar cases brought under the federal government's False Claims Act, but those cases focus on the fraud perpetrated on Medicare, Medicaid, and other government-run health systems. The current case against BMS focuses on the harm done to private insurance companies, and by natural consequence, to their insureds. In California in particular, where insurance companies have been threatening to raise rates by up to 60 percent, it is important to get to the bottom of rising healthcare and insurance costs. One cause of the inflation in healthcare costs surely is the type of scheme pursued by BMS in California: the payment of kickbacks not only means more prescriptions are written (and therefore covered by insurance) than otherwise would be, but also that more prescriptions of expensive, brand-name drugs are written, rather than their generic counterparts. The millions of dollars the drug companies spend on such kickback schemes must certainly also ultimately be built into the price of drugs, which the consumer and her insurance company also pay for. In the end, if the case is successful, the runners and cappers provision could turn out to be a significant tool not only in fighting fraud, but in containing the cost of healthcare and insurance. Only Illinois has a similar statute; perhaps other states ought to follow suit.

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Loren Jacobson is a partner at Waters & Kraus, LLP, in the firm’s Dallas office. Her practice focuses on qui tam (whistleblower) cases and appellate matters.