A continuing concern in health care is fraud litigation—the cost of which has been on the rise since the Department of Justice began keeping statistics in 1987. For the past fiscal year, the settlement and judgment recoveries in health care fraud cases was $2.615 billion. Most of these cases are initiated by qui tam ‘whistleblowers’. In fact, 90 percent of health care fraud cases are qui tam actions; this percentage has also been on the rise. This may be the result of what may be understood as the moral hazard arising from the relationship between the government and the qui tam relator. The government has conceded its civil responsibilities to qui tam relator with the guise of gathering ‘insider information’ of false claims. Under the False Claims Act, relators are guaranteed a significant portion (usually around 20 percent) of any recovered damages. This, of course, creates an incentive for qui tam relators since rewards or settlements tend to be quite lucrative; the total of which for 2013 was $318,029,245.
The notion of moral hazard was famously applied to health care by the Nobel laureate, Kenneth Arrow, so as to explain how widespread medical insurance increases the demand for medical care. Simply put, moral hazard is the effect of insurance on incentives. Moral hazard increases the aggregate costs since an insured party is less averse to risk due to the knowledge that any losses from risky behavior will be borne by the insurer. Applying this notion to qui tam false claims cases, we come to perceive the government as an insured party since the relator insures the government from the costs associated with initiating litigation and pursuing discovery. This, in turn with the incentives provided by the generous awards available under the False Claims Act to a qui tam relator, increases the number of anti-fraud cases prosecuted and arguably decreases their quality.
United States v. Greber (1985)
This case highlights the inherent asymmetry of information in the health care field. Where there happens to be disagreement between circuit courts on the issue of kickbacks, this court properly sides with the broader view taken by Hancock (1979) and Tapert (1980). The 1977 amendments—the "Medicare-Medicaid Antifraud and Abuse Amendments"—were “intended to combat financial incentives to physicians for ordering particular services patients did not require”. In order to address the wide range of ‘inducements’ resulting from kickbacks and/or remunerations that produce problems of information asymmetry, an equally expansive interpretation of the 1977 amendments was utilized by the district court and then affirmed by the circuit court.
The physician acts on behalf of his patient as an agent—ideally for the principle’s health. However, when kickbacks are afforded to the physician, he may be less likely to act solely in the interest of his patient's health—who is unaware of these ‘inducements’. The physician may order a blood test from a particular laboratory, not because this laboratory is the most cost-effective (or even because the test is medically appropriate), but because it offers him a kickback in whatever form that it may happen to take. The patient and the insurer—Medicare—are not made aware of this inducement and thus an information asymmetry is created. A physician who acts in such a manner betrays the trust that is necessary for the physician-patient relationship to operate optimally. Moral hazards and adverse selections in health care lead to an increase of aggregate costs and largely unnecessary services and procedures; as such, health care providers ought to take care to assure they provide care that is necessary and not wholly contingent upon financial incentives.
This case highlights the inherent asymmetry of information in the health care field. Where there happens to be disagreement between circuit courts on the issue of kickbacks, this court properly sides with the broader view taken by Hancock (1979) and Tapert (1980). The 1977 amendments—the "Medicare-Medicaid Antifraud and Abuse Amendments"—were “intended to combat financial incentives to physicians for ordering particular services patients did not require”. In order to address the wide range of ‘inducements’ resulting from kickbacks and/or remunerations that produce problems of information asymmetry, an equally expansive interpretation of the 1977 amendments was utilized by the district court and then affirmed by the circuit court.
The physician acts on behalf of his patient as an agent—ideally for the principle’s health. However, when kickbacks are afforded to the physician, he may be less likely to act solely in the interest of his patient's health—who is unaware of these ‘inducements’. The physician may order a blood test from a particular laboratory, not because this laboratory is the most cost-effective (or even because the test is medically appropriate), but because it offers him a kickback in whatever form that it may happen to take. The patient and the insurer—Medicare—are not made aware of this inducement and thus an information asymmetry is created. A physician who acts in such a manner betrays the trust that is necessary for the physician-patient relationship to operate optimally. Moral hazards and adverse selections in health care lead to an increase of aggregate costs and largely unnecessary services and procedures; as such, health care providers ought to take care to assure they provide care that is necessary and not wholly contingent upon financial incentives.
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