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    Regulatory liability in Beazley Remedy

    Healthcare regulatory liability

    Regulatory risk looms ever larger for healthcare providers. View our video below to understand the scale of the risk. Then, to obtain more local information, scroll down to the interactive map of the United States showing how and where regulatory fines and penalties have been imposed. Also below, you can find information on the laws that present healthcare providers with regulatory risk, as well as the protection that Beazley offers.

    Fraud fighting tools

     The government's firepower has been growing. Learn what's in the arsenal

    • The False Claims Act, also called the “Lincoln Law,” is an American federal law that imposes liability on persons and companies (typically federal contractors) who defraud governmental programs. It is the Federal government’s biggest tool used in combating fraud.
    • The law includes a qui tam provision that allows whistleblowers, called “relators” under the law, to file actions on behalf of the government. Persons filing under the Act stand to receive a portion (15-30%) of any recovered damages. Relators have a huge incentive to “blow the whistle” on healthcare providers since they stand to receive such large portions of the settlements.
      • A whistleblower can be any private citizen of the United States that witnesses fraud. This could be a disgruntled employee, a competitor, an independent physician, an executive or even a third party consultant.
    • Penalties under the FCA can be substantial. Federal penalties can total 3 times the amount of the claim plus fines of $11,181 - $22,363 per service improperly billed. After a recent adjustment it was also agreed that they would adjusted annually to account for inflation. 
    • It is important to note that 32 states also have their own States False Claims Acts and have received a portion of the recoveries.
    • The number of False Claims Act cases have risen substantially over the past several years. The vast majority of cases that settle originate from whistleblowers.
    • The Stark law is a limitation on certain physician referrals.  It prohibits physician referrals of designated health services (DHS) for Medicare and Medicaid patients if the physician (or an immediate family member) has a financial relationship with that entity.  Stark law has strict liability, therefore intent does not carry any weight.
    • Civil penalties can be imposed of up to $24,253 for each service that violated the Stark Law and 3 times the amount of improper payment the entity received from the Medicare program.
    • Any service provided while violating the Stark law is also a violation of the False Claims Act, thus increasing the potential severity.
    • The Federal Anti-Kickback Statute prohibits the exchange (or offer to exchange) of anything of value, in an effort to induce (or reward) the referral of Federal health care program business. This can be enforced on both a criminal or civil basis. The Anti-Kickback Statute is broadly drafted and establishes penalties for individuals and entities on both sides of the prohibited transaction.
    • Conviction for a single violation under the Anti-Kickback Statute may result in a fine of up to $100,000 per violation and imprisonment for up to 5 years. On a civil basis potential fines are $50,000 and 3 times the amount of the kickback.
    • The most commonly recognized third party contractor for healthcare billing is Recovery Audit Contractors (RAC).  They identify and recover improper Medicare payments paid to healthcare providers under fee for service Medicare plans.  RAC auditors are paid on a contingency basis.  RAC auditors recover overpayments as well as underpayments.  Health systems can receive hundreds of RAC auditors a year.
    • Medicare Administrative Contractor (MAC) are contracted to perform prepayment medical reviews to ensure services provided to Medicare beneficiaries are covered and medically necessary.
    • Medicaid Integrity Contractors (MIC) does an ongoing review of Medicaid providers.  Review MICs analyze Medicaid claims data, audit MICs audit provider claims to identify overpayments.  Education MICs provide education to providers on payment integrity and quality of care issues.
    • Zone Integrity Contractors (ZPIC) conduct targeted audits.  A ZPIC are often most concerning for organizations because they have a tendency to use statistical data sampling and extrapolation methods.  This results in auditors recouping overpayments totaling hundreds of thousands of dollars.

    Loss examples

    While the False Claims Act imposes liability on all people and entities that have defrauded governmental programs, it has a special importance for healthcare. In fiscal year ending in 2017, the Department of Justice obtained $3.7 billion in False Claims Act recoveries. $2.4 billion of this was recovered from the healthcare industry.

    The 2017 False Claims Act annual recovery was the 8th consecutive year the DOJ’s recoveries have exceeded $3 billion, suggesting this is a new ‘normal’.

    While settlements have been reached in almost every US state, states that have enacted their own version of the False Claims Act can also seek recoveries through state government, resulting in higher total settlement amounts.

    The Qui Tam mechanism allows individuals with evidence of fraud against the federal programs to sue on behalf of the government. In 2017, whistle-blowers earned more than $392M in share awards.

    Solutions

    How Beazley's regulatory liability coverage tackles the problem

    • Providers should have a current compliance plan, compliance officer as well as compliance and audit committees.
    • Implement written policies, procedures and standards of conduct.  Policies need to be written, stored for all to see and updated regularly.
    • Conduct effective training and education.
    • Develop effective lines of communication.  HR, Risk managers and compliance should be in constant communication.  Compliance and audit should be reporting to the board regularly.
    • Conduct internal monitoring and auditing.
    • Enforce standards through well publicized disciplinary guidelines Respond promptly to detected offenses and undertaking corrective action.  An anonymous hotline and a robust investigation process is preferred.
    • Define roles and responsibilities, assign oversight for compliance and conduct an assessment of the program's effectiveness.
    • The executive board should be regularly trained on compliance matters.  The best boards actively ask questions of the compliance team and audit committees.
    • Providers should have an awareness of how their mix of business compares with their competitors and identify any areas where they are outliers.  Any spikes in types of services may invite an investigation into unnecessary treatment.  
    • Clients should review the OIG's Work Plan every year and use it as a map for their own internal compliance audits.  This Work Plan tells providers what the OIG will be targeting each year. The provider should hire a high percentage of credentialed coders.
    • Thorough exclusion screening process.  All new hires need to be screened against the public lists on who is banned from billing for reimbursement from government programs.
    • Ideally third party compliance effectiveness reviews should be performed.  This is not mandated, but it can improve loss control measures and be used as a good defense in the event of a governmental investigation.

    Beazley launched its regulatory liability coverage in March 2012 and has continued to update and create enhancements.  Beazley was one of the first to provide a true risk transfer solution to the market and arguably the first to provide a risk transfer product to the larger provider.

    This coverage can now be purchased as part of a package within the Healthcare management liability suite called Beazley Remedy.  Regulatory billing E&O coverage can be purchased by itself or in conjunction with D&O, EPL and Fiduciary.  The limits can be written shared or separate.  A variety of options for retentions, coinsurance, limits and retro dates can be quoted.  The product is currently admitted in the majority of the US states for a $10M limit, and a surplus lines product can be provided up to $20M.   Our minimum retention is $250K and our minimum coinsurance is 10%.

    D&O policies used to be silent with respect to billing E&O lawsuits.  As a result several cases exhausted the D&O limit for several carriers in the early 2000s.  The management liability market responded by creating a small defense only sublimit which is accompanied by a $1M retention and 50% coinsurance.  This became the norm and higher limits or broader coverage is rare. 

    This sublimit option has a late claim trigger so most carriers only acknowledge a claim when it is a formal request for monetary damages.  The typical government billing E&O claim needs to be taken seriously when there is an audit or investigation from the government or third party contractor.  Qui Tam claims are under seal for an average of 18 months and often longer.  The request for monetary damages would only come at the point the case is unsealed.  In the meantime the provider will receive Civil Investigative Demands (CID) and Subpoenas which they need to take seriously and immediately retain specialized outside counsel and consultants to assist. 

    Beazley's regulatory product responds with a very broad early claims trigger so that insureds can start incurring defense costs at the point of an audit or investigation.

    Insuring Agreement A - covers claims by the government and on behalf of the government as well as commercial payor claims. This coverage includes Loss and Defense costs.  This insuring clause would respond to government investigations, Qui Tam cases and audits. 

    Insuring Agreement B -  covers voluntary notification to the government.  If a provider discovers a billing error then they have the option to for formally disclose to the government.  Coverage includes defense expenses.

    Definition of Claim - Any written demand brought by or on behalf of any governmental entity or commercial payor seeking monetary compensation for a wrongful act, commencing an audit or investigation of a wrongful act or seeking injunctive relief on account of a wrongful act.  This doesn't include routine billing inquiries, prior known losses or criminal proceedings (except when the same conduct is also alleged in the civil proceeding). - When the government comes calling...The provider will know that they are being investigated when they receive either a request for records, Civil investigative demand or a Subpoena.  It is important to have an early claim trigger because a defense firm is often needed long before the full extent off the investigation is exposed.

    Definition of Wrongful Act - The definition of wrongful act includes presenting erroneous submissions to the governmental or commercial payor health benefit programs.  It specifically includes Stark, Anti-kickback and False claims Acts within the definition.

    Definition of Loss - includes the monetary amount the Insured is legally obligated to pay as a result of a claim, this includes sums paid as awards, judgments, settlements and civil fines and penalties.  This doesn't include disgorgement, the cost of implementing a corporate integrity agreement.

    Definition of Defense Costs - include attorney fees and the necessary consultants, auditors and medical experts needed to defend a claim.  

    Pre Claim Investigation Costs - This enhancement attaches to our regulatory form and involves engagement of council and consultants prior to a governmental investigation.  It is important to have a robust compliance program in place, one that finds and corrects problems in the organization and if necessary, conducts investigations and if needed, self reports.  Beazley provides support in those instances because proper handling of these events can substantially improve the government's response.  We have an agreement in place with Navigant Consulting and specialist counsel to provide forensic and investigatory services, legal and government relation services.  This pre-claim investigation coverage can be used when the client uncovers a potential "wrongful act" themselves. The sublimit for this additional coverage is 10% of the Regulatory Liability premium.  This sublimit is available at zero retention. If the situation warrants a voluntary self-disclosure to the government, then Insuring Clause B is then triggered and the policy retention applies. 

    The descriptions contained on this website are for preliminary informational purposes only. In the US, the product may be available on an admitted basis in some but not all jurisdictions through Beazley Insurance Company, Inc. In other US jurisdictions, the product is underwritten by Beazley syndicates at Lloyd's and is available only on a surplus lines basis through licensed surplus lines brokers. The publication and delivery of the information contained herein is not intended as a solicitation for the purchase of insurance on any US risk.

    Except where products are issued by Beazley Insurance Company, Inc., coverages are underwritten by Beazley syndicates at Lloyd's and will vary depending on individual country law requirements and may be unavailable in some countries.  The exact coverage afforded by the products described herein is subject to and governed by the terms and conditions of each policy issued.

    Some coverages are made available through Beazley USA Services, Inc., which is a service company that is a part of the Beazley Group and has authority to enter into contracts of insurance on behalf of the Lloyd's underwriting members of Lloyd's syndicates 623 and 2623 which are managed by Beazley Furlonge Limited.  Beazley USA Services, Inc. is licensed and regulated by insurance regulatory authorities in the respective states of the US and transacts business in the State of California as Beazley Insurance Services (License#: 0G55497).