Is RICO looming for private health care insurers?

Remember RICO, the Racketeer Influenced and Corrupt Organizations Act? RICO became the favorite tool of Mafia-hunting prosecutors in the 1980s, allowing them to assess triple damages.

Now the Supreme Court is scheduled to hear Nov. 30 whether RICO can be used against a private health insurer. A Las Vegas attorney has filed a suit charging Humana with engaging in a pattern of fraudulent behavior by consistently cheating patients on copays.

The suit claims that in the early 1980s, Humana marketed its own health insurance to encourage patients to use Humana hospitals. The insurance covered 80% of charges, with the patients covering the remaining 20%. Yet Humana insurance got as much as 89% discounts from Humana Hospital Sunrise in Las Vegas, a hospital now owned by Columbia and which has been plagued by union troubles and allegation of poor care.

Patients were never told that their insurer was getting a hospital discount, nor was the discount passed on to them, according to the suit. So for a $5,000 hospital stay, patients were sent EOBs that told them Humana had paid $4,000 and they owed $1,000 — even though Humana had really only paid $550. To conceal the discounts from regulators, Humana's insurance arm would pay the full amount to the hospital, which in turn would refund the money through inter-company ledger transfers, the suit claims.

The scheme boosted the combined profits of the hospital and insurer from $14.7 million in 1985 to $30.9 million in 1989, according to the suit. The Nevada Attorney General investigated the alleged fraud and was preparing a criminal complaint, when the state insurance commission settled for a $50,000 fine, states the suit. The case, filed on behalf of 84,000 patients, seeks both reimbursement of the missing discounts and damages for medical care that patients could otherwise have afforded if they had been given the discounts. A Humana official would only say that offering discounts was a common industry practice at the time.

Legally, the case really focuses on the question of whether the federal RICO act can be leveled against insurers, or whether state insurance law should apply. But if the Supreme Court upholds an appeals court ruling that says the case should go forward, health care providers could potentially find themselves fighting RICO suits, says plaintiffs' attorney Will Kemp, JD, at Harrison, Kemp and Jones in Las Vegas.

If a provider could be shown to have, say, consistently overbilled patients, that could theoretically be grounds for a RICO suit, says Kemp.

RICO is like the False Claims Act in that defendants can be hit with triple damages. But the FCA requires that the federal government have been defrauded, while RICO encompasses crimes against private parties as well. While the FCA also focuses on whether someone knew or should have known they were defrauding the government, RICO examines whether someone engaged in a pattern of civil or criminal misconduct.