CMS Proposes $9.9 Million Reward for Medicare Fraud Whistleblowers

April 25, 2013

Health Care Fraud Investigations and Enforcement Alert

Author(s): Brian K. French

The Centers for Medicare & Medicaid Services (“CMS”) has issued a proposed rule that would substantially increase whistleblowers’ incentives to report suspected cases of fraud and abuse. CMS’ Incentive Reward Program would increase the potential reward for information leading to a recovery of Medicare funds from 10% to 15% of the amount collected. More importantly, the proposed rule would increase the program’s rewards cap from just $1,000 to as much as $9.9 million, depending on the amount of CMS’s recovery.

On April 24, 2013, the Centers for Medicare & Medicaid Services (“CMS”) issued a proposed rule that would substantially increase the incentives for whistleblowers to report information that leads to a recovery of Medicare funds from individuals or entities that have engaged in fraud and abuse. The proposed rule increases the maximum reward payable under CMS’s Medicare Incentive Reward Program (the “IRP”) from 10 percent of the amount recovered—currently capped at $1,000—to 15 percent of the recovery, up to a maximum of $9.9 million.

Proposed changes to the IRP

Implemented by CMS in 1998, the IRP encourages individuals to report potential fraud and abuse. To receive a reward, an individual must provide specific information regarding potentially fraudulent activities which are not already the subject of a review or investigation by CMS or law enforcement. The maximum award payable under the IRP is 10 percent of the recovery, up to $1,000. According to CMS, since the program’s inception, the agency has recovered just $3.5 million as a result of the program and paid just $16,000 for 18 rewards. In an attempt to motivate more individuals to report suspicious activity, CMS proposes to revise the IRP to increase the award to 15 percent of the first $66 million recovered, up to a cap of $9.9 million.

As contemplated by CMS, the proposed rule would effectively require whistleblowers to choose between participating in the IRP, and filing a qui tam lawsuit under the False Claims Act (“FCA”). The FCA enables individuals with knowledge of fraud against the federal government to file lawsuits on the government’s behalf under the statute’s qui tam provisions. Whistleblowers must file their complaints under seal to allow the Department of Justice (“DOJ”) time to investigate and determine whether to intervene in the action. Whistleblowers (also known as “Relators”) can receive between 15% and 25% of any recovery in a qui tam action in which the government has intervened, and up to 30% in non-intervened cases.

Under the proposed rule, an individual would not be eligible for an IRP reward if he or she has filed a qui tam lawsuit under federal or any state FCA. An individual also would not receive a reward for the same or substantially similar information that is the subject of a pending FCA case or that is the basis of an FCA whistleblower payment. Eligibility for a reward would be limited to the first person who provides CMS with specific information on a provider or supplier that is engaging in, or has engaged in, sanctionable fraud and abuse.

In recent years, the federal government has recovered staggering amounts in FCA judgments and settlements. In 2012 alone, DOJ recovered a record $4.9 billion in FCA health care fraud matters. From January 2009 through the end of fiscal year 2012, DOJ recovered more than $9.5 billion in these cases[1].  Although the financial motivation for individuals to file qui tam cases under the FCA is clear from the size of these recoveries, some whistleblowers could begin opting for the IRP if the proposed rule is adopted.

Under the FCA, qui tam complaints automatically remain under seal for 60 days to allow the government to determine whether to intervene in the case. However, as of 2011, the average amount of time a case remained under seal was roughly 13 months[2],  and some cases remain sealed for many years. Although health care providers generally prefer cases to remain sealed while a resolution is negotiated with the government, whistleblowers do not receive any recovery until the matter is unsealed and the case is either settled or resolved at trial. Thus, to avoid these delays (as well as the need to share their recoveries with an attorney who has taken their case on a contingency fee basis), it is possible that many whistleblowers will prefer simply to report their information to CMS in the hopes of receiving a more timely, yet still substantial, recovery under the new IRP regulations.

Provider enrollment provisions

In addition to revising the IRP framework, the proposed rule also includes several changes to the Medicare enrollment requirements, which provide CMS with more authority to deny enrollment to providers at higher risk of defrauding the program. Such changes include:

  • Denying enrollment if a provider, supplier, or current owner thereof is affiliated with an entity that has an unpaid Medicare debt. As described by CMS, this proposal would prevent individuals and entities from being able to incur substantial debt to Medicare, leave the Medicare program, and then re-enroll as a new business to avoid repayment of the outstanding Medicare debt. Under the proposed rule, CMS would only enroll individuals or entities if they repay the debt or enter into a repayment plan.
  • Denying enrollment or revoke Medicare billing privileges if the provider, supplier, owner, or managing employee has been convicted of certain felony offenses within the past 10 years. Currently, enrollment cannot be denied or revoked based on a managing employee’s felony conviction.
  • Permitting CMS to revoke billing privileges of providers and suppliers that have a pattern or practice of billing for services that do not meet Medicare requirements.
  • Limiting the ability of ambulance companies to “back bill” for services furnished prior to enrollment. This proposal would eliminate ambulance suppliers’ current ability to bill for up to a year prior to enrollment in the Medicare program.

The proposed rule is due to be published in the Federal Register on April 29, 2013. Interested parties may submit comments on the proposed rule for up to 60 days after publication.

  1. See Press Release, U.S. Department of Justice, “Justice Department Recovers Nearly $5 Billion in False Claims Act Cases in Fiscal Year 2012” (Dec. 4, 2012), available at [Back to reference]
  2. See Letter from Assistant Attorney General Ronald Weich and Assistant Secretary of Health and Human Services Jim Esquea to Senator Charles Grassley dated January 24, 2011, available at . [Back to reference]

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

Back to top