False Claims Act spurs new insurance against suits

If you’re among the growing number of providers looking for additional protection against the False Claims Act, it may be time to consider an option that was until recently available only to major health care delivery systems — traditional indemnity insurance.

The recent trend toward criminalizing false claims has spurred the development of a new insurance policy designed to protect providers from the high cost of a False Claims Act investigation. According to its architects, what makes the program unique is that it offers protection not only against the costs of defending a false claims charge but against penalties for reckless disregard that may follow. Since tens of millions of dollars are potentially on the line, the new program is getting a lot of attention.

The program was jointly developed by Boynton & Boynton, a regional insurance agency in Fairhaven, NJ, that specializes in health care and QuadraMed, a software development firm in Bethlehem, PA. The policy is underwritten by Lloyd’s of London.

Several similar products are already available, according to experts. However, those plans carry high deductibles and premiums and are only practical for large health care delivery systems.

The new program is generating a lot of attention, even though no provider has actually purchased a policy yet. "The problem is that everybody thinks it is a great idea, but nobody budgeted for it last year," says Scott Satterfield of the insurance firm Carpenter Moore in San Francisco, CA. Some providers are also waiting for someone else to take the first step.

Moreover, the program can mean a significant investment for a large provider. "I have a couple of large facilities that have been quoted over $300,000 in premiums," reports Satterfield. "Even though they are very close to buying it, they have not done it yet."

Nevertheless, the concept behind the new program has more advocates than detractors. "I think it would be prudent for any provider to take a long, hard look at these policies because in the current environment, there are so many investigations going on that the likelihood of even the most pristine provider coming under some sort of government scrutiny is much higher than it used to be," says Charles Murdter, an attorney with the Seattle-based firm Davis, Wright & Tremaine.

"At the end of the day, you may be given a clean bill of health, but the cost of the investigation can be so high that it really does make sense trying to insure yourself against those costs," adds Murdter, a former federal prosecutor with U.S. Department of Justice.

Jeffrey Schwartz, a health care attorney with Fox, Rothschild, O’Brien & Frankel in Philadelphia, takes a similar view: "I always tell my clients in the anti-trust arena, and I might even tell them in the false claims arena, if they get good coverage with a reasonable deductible and reasonable coverage it’s probably a smart thing to buy."

Boynton & Boynton president Jay Lynch says the program was developed as a hospital-based product and put on the market five months ago. But demand from physician groups, nursing homes, and others led his firm to re-engineer the program to apply the same coverage to other markets. "We were already covering physicians who were employed by hospitals," he says. "But the feedback we got from the market was that people would like to see it for physician groups that are not necessarily affiliated with a hospital."

Boynton & Boynton’s new program is unique in that it requires providers maintain an automated compliance program, says Joe Russo, a health care attorney with Russo & Russo in Bethlehem, PA. "It’s great to have manual compliance plans, but it’s extremely important, especially for large integrated delivery systems, to have an automated compliance plan where all the information is centralized." This also gives underwriters the ability to perform continuous risk assessments.

Lynch says a program for physicians was approved several weeks ago and that his firm is roughly two months away from completing a similar product for nursing homes.

Several similar products are currently being developed. For example, some insurance companies offer a product that defends against the cost of a government investigation, but it provides no liability coverage for any ensuing fines.

Satterfield adds that several carriers that insure hospitals for liability are also developing similar products but most of them will only sell to their own insured. "Right now, Boynton’s program is the only one available to the open market that anybody can purchase," says Satterfield.