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Prosecuting Healthcare Fraud: The Need for Statutory Guidance on Costs and Benefits

The Trump Administration launched the largest healthcare fraud takedown in history in June, charging over 600 individuals responsible for over $2 billion in fraud losses. This takedown, along with the previous summer’s (which had previously been the largest when it happened) has allayed concerns that the Justice Department would ease off healthcare fraud prosecutions as a form of white-collar, rather than violent, crime.

Indeed, former Attorney General Sessions committed to aggressive prosecution of healthcare fraud as part of the Administration’s response to the opioid epidemic. One change does seem clear, however: the Administration is prioritizing the prosecution of individuals, and scaling back on the prosecution of corporations.

There are legitimate reasons for this focus, which are related to the particular challenges and complications of prosecuting in the healthcare industry.

In addition to preferring individual to corporate prosecutions in general, prosecutors facing a corporation in the healthcare industry must carefully and thoughtfully weigh the public benefits of deterrence and punishment with potentially very real public costs measured in the company’s inhibited ability to deliver care to people. The point, of course, is that in addition to being notoriously corrupt and widely vilified, the pharmaceutical industry saves lives.

And in contrast to, say, the tech industry, which we might say is more superfluous than healthcare, or finance, where ample substitutes exist for any given product, it is perfectly plausible in the healthcare industry that a small, fragile new company is both engaged in callous and potential deadly criminal activity while being the only or best producer of a valuable and cutting edge new treatment. Thoughtless prosecution of providers may over-deter in ways that, on balance, harm patient care. In considering when and how to prosecute in the healthcare industry in ways that are truly in the public interest, then, prosecutors must consider profound, speculative and hard-to-quantify costs and benefits.

And this weighing is not helped by an extremely complicated, convoluted and at least somewhat theoretically confused statutory scheme of federal healthcare criminal law. One fundamental problem is the extent to which healthcare crimes are legally conceptualized as frauds against the public fisc, rather than crimes against the patients or the health of the public (but prosecutors do, and should, consider public health values in prosecuting under them).

Indeed, the statute that gives its name to this entire body of law (18 U.S.C. § 1347—Health care fraud) only criminalizes defrauding health care benefit programs; it doesn’t mention patients at all. Same for the False Claims Act, a Civil War era statute facially unrelated to healthcare that has become an important tool of deterring fraud against federal healthcare programs. The theory of both of these statutes, obviously, is to safeguard taxpayer money and lower healthcare costs.

This is an important goal, but it is not the only value at stake in prosecuting malfeasance in healthcare. To promote the financial values of a statute, a prosecutor might choose to prosecute an up-charging-but-helpful pediatrician before a pill mill, to the extent that the loss to the insurers was greater in the former case. This strikes most people, including most prosecutors, as the wrong outcome, and indeed, prosecutors do take into account harm to the public in making discretionary decisions about how to allocate their time and resources. But under a penal code that nominally concerns itself only with fraud of the government and not harm of the patients, this prioritization is always something of an intuition-driven fudge.

Moreover, prosecutors have increasingly turned to creative interpretations of wholly unrelated criminal statutes to punish conduct harmful to patients that must be criminal beyond its fraudulent impact. For example, federal prosecutors used the mafia-inspired-and-healthcare-unrelated Racketeer Influenced and Corrupt Organizations Act (RICO) against the former executives of the New England Compounding Center, whose egregious sanitary practices resulted in a nationwide meningitis outbreak that killed 64. The victims and public seem to have appreciated the extremely high sentences that statute permits, but the judge found the case overcharged and a far cry from the kind of misconduct RICO was supposed to criminalize. Other important statutes involved in the prosecution of healthcare fraud and misconduct, including the Anti-Kickback Statute and Stark Laws, are similarly inspired by the confused and sometimes contradictory values of safeguarding the funding of entitlement programs, lowering healthcare costs, and protecting patient well-being. These laws, too, are often accused of being vague, overbroad, and prohibiting a range of unobjectionable conduct, features that certainly give prosecutors wide discretion and little guidance in using them.

Clarifying this morass of law into a uniform criminal code of healthcare (a plausibly bipartisan issue) would give prosecutors guidance about the values the law is seeking to promote and how best to use their discretion to maximize the public interest of ensuring the best access to the best healthcare at the lowest cost. For one thing, separate laws should govern the financial crime of defrauding the government insurance program and the crime of negligently jeopardizing patient health. While in many cases, these charges may end up being brought concurrently, this would ensure a wider coverage of criminal law that captures the whole range of misconduct in the industry. We should stop putting prosecutors in the position of bringing charges because people got hurt, but having to defend them with strained circumlocutions about overcharging or by analogy to organized crime. Second, the statutory (or policy) scheme should offer guidance on prosecuting corporations and how to weigh appropriate punishment against the need for certain treatments to be available.

Prosecutors have a great deal of discretion in general. They often have to weigh competing interests and make value judgments about what cases are most worth bringing. But in healthcare fraud, prosecutors often hardly know what values they’re supposed to be promoting or what laws they’re supposed to be using. This, at least we can give them: some more guidance on how to do justice in healthcare in the form of clear, uniform code.


James Toomey

James Toomey graduated from Harvard Law School with a JD in 2019. As a student fellow during the 2018-2019 academic year, he wrote a paper entitled "How to End Our Stories: Dementia, Narrative Personal Identity and Seniors' Theories of Legal Capacity." He argued from analysis of interviews and an online survey of seniors that a concept of legal capacity based on the narrative consistency of a given decision with an individual's life story, rather than the current doctrine's analysis of the mechanical functioning of the individual's mind, would better reflect how seniors think about questions of dementia and decision-making.

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