A recent study by Boston University professor Jetson Leder-Luis, entitled Can Whistleblowers Root Out Public Expenditure Fraud? Evidence from Medicare, found that deterrence from $1.9 billion in False Claims Act settlement payments generated almost $19 billion in Medicare cost savings – a 10:1 deterrent effect. Professor Leder-Luis concludes that whistleblower-initiated False Claims Act cases are a form of “private enforcement” that “is an effective antifraud policy” with “large deterrent effects, small public costs, and no evidence of negative health effects on patients.”
Professor Leder-Luis’s study focuses on Medicare, an area with massive government spending outlay ($700 billion per year, according to data from 2019) and significant opportunities for fraud. Two major sources of data underpin the research. The first is Medicare claims data from 1999 – 2016. The second is data Professor Leder-Luis obtained via a Freedom of Information Act request to the Department of Justice in 2018 regarding all whistleblower-initiated False Claims Act suits from 1987 to 2018. Professor Leder-Luis also used data from the Department of Justice, the Office of the Inspector General, and the federal courts to estimate the cost to the government of handling whistleblower cases.
The paper focuses on four “case studies.” Professor Leder-Luis reviewed the fraudulent conduct at issue in different qui tam lawsuits and sorted grouped them into “case studies” with similar underlying fraud. The four case studies he focused on each generated settlements of over $100 million. He then analyzed the amount of specific deterrence the set of lawsuits in each of the four case studies created in the five years after they were filed.
Specific deterrence refers here to the effect on the defendants in the lawsuits in each case study. It describes the change in Medicare spending on the types of procedures involved in the fraud the whistleblowers identified. In other words, it measures how much more money the defendants would likely have billed to Medicare had the whistleblowers not brought suit. Specific deterrence in these case studies was an average of 6.8 times the case’s settlement value. In other words, the average $100 million settlement would correspond to the government saving $680 million in Medicare spending. These numbers indicate that whistleblower cases bring “a large savings to the Medicare program…exceeding both the recoveries to the government from the settlement as well as the whistleblower compensation.”
Whistleblower lawsuits also create some amount of general deterrence, which describes the effect on the wider healthcare industry. If a healthcare company sees its competitor get sued for fraud and hit with a large penalty, it is likely to be deterred from engaging in the same type of fraud. Professor Leder-Luis’s study does not calculate general deterrence, meaning that it whistleblower False Claims Act cases likely have an even higher overall social value.
And whistleblower cases are relatively cheap in terms of the government resources they require. In fiscal year 2018, the Department of Justice, Health and Human Services Office of the Inspector General, and federal courts spent no more than $108.5 million on all healthcare whistleblower FCA cases, per Professor Leder-Luis’s estimate. (He makes clear that these numbers are based on conservative assumptions, and the true amount is likely even lower.) The federal government’s overall spending on health care fraud and abuse detection and enforcement in that same year was $2.04 billion. Thus, Professor Leder-Luis concludes, “whistleblowing is a particularly low-cost way to combat and deter health care fraud, and produces extensive public benefit.”
This groundbreaking paper’s deep dive into the data on the outcomes of Medicare whistleblower cases confirms that whistleblowers are a key fraud-fighting weapon for the government and that their bravery pays off many times over for the taxpaying public.
