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Over the last two decades, federal and state governments have dramatically increased their payments to private health care companies that manage Medicare Advantage and Medicaid managed care plans, now paying them around $400 billion a year. For the more than 20 million Americans enrolled in one of these plans, these companies function as the control center for payment decisions, receiving payments from the government and making payments to providers.
Although these companies take in tremendous amount of taxpayer money, and have immense power regarding how to distribute these funds, a cloud of secrecy shields from public view their financial operations and profitability. The unique environment in which Medicare Advantage and Medicaid Managed Care plans operate – enormous amounts of money to be spent, a thicket of government reimbursement guidelines, little transparency, typically no party with equal bargaining power, and what amounts to an honor system – can create a recipe for cooking up fraud.
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These aren’t merely theoretical problems. A recent government audit found that Medicare overpaid Medicare Advantage plans by approximately $7 billion in 2016 alone. And this audit did not examine possible underpayments to providers, nor did it examine the approximately $200 billion the federal government and states jointly pay through Medicaid.
Because the internal workings of these companies are largely kept secret from the government, enforcement actions by the Department of Justice are often prompted by lawsuits filed under the False Claims Act. This law, enacted in 1863, was initially aimed at shady contractors who sold the Union Army faulty rifles and ammunition, spoiled food, and other unusable goods. Having been amended and its scope expanded through the years, it today prohibits companies from defrauding the government in a broad array of contexts. The False Claims Act allows whistleblowers to initiate lawsuits on the government’s behalf. If the government recovers money from a lawsuit, the whistleblower earns a financial reward.
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