As the state-to-state battle to pass false claims act legislation prepares to heat up again in the 2014 legislative session, a major new study released this week by Taxpayers Against Fraud should be considered by state legislators everywhere. The study — performed by health care economist Jack A. Meyer — shows that the federal government gets a return of $20 for every dollar spent on false claims act enforcement.
It does not take an especially savvy investor to understand that a 20:1 return on an investment is a good deal.
The formula is quite simple. Meyer merely estimated the federal outlays necessary to investigate and prosecute health care fraud for the three federal agencies responsible for this work — that is, the U.S. Attorneys, the Office of the Inspector General (OIG) in the US Department of Health and Human Services, and the Civil Division of the U.S. Department of Justice. That number came to $574.6 million. He then compared that number to the total monetary recoveries from 2008 to 2013 — which is in excess of $9.38 billion — produced by these agencies through healthcare fraud enforcement actions.
Although I have never been particularly good at math, I know that some of my readers are, and so I want to state here that that number comes out to a mere 16:1 recovery ratio; that is, $16 for every $1 spent. The extra $4 per dollar comes from another piece to the puzzle, and one not counted by the Department of Justice in their own internal calculations — namely, the increased criminal penalties and fines recovered in healthcare fraud actions. Meyer explains that this is a result of the federal agencies using a method of calculation first devised in the days when there really were no criminal penalties and fines as a result of healthcare prosecutions.
Even this 20:1 ration is understated, however, because as Meyer points out:
Even this number is too low, however, as in does not account for the deterrent effect of False Claims Act law enforcement. Major settlements with large recoveries have a ripple effect that reduces the likelihood of similar fraud against federal and state health care programs. Though these deterrent effects cannot be measured accurately at this time, they may be a substantial multiple of the direct, measurable benefits in the form of actual monetary recoveries.
This study should provide a useful tool for legislators in the 21 states who still do not have state level false claims act legislation. To be sure, however, I personally do not think the problem in those 21 states is a lack of data supporting the positive effects of a state false claims act, because that data is plentiful and it is everywhere….the problem lies somewhere else, perhaps in a failure of those legislators to take a business-like approach to their work, but that is a different topic for a different day…