Vive La Différence? American and French Healthcare Fraud, Waste, and Abuse Laws

Pietragallo Gordon Alfano Bosick & Raspanti, LLP

[co-author: Laure Le Calvé]

America and France share many common ideals. The American Constitution is founded on the principle of government “of the people, by the people, and for the people.” The French Constitution embodies this same principle in the ideals of “liberté, égalité, fraternité.” Based upon these shared values, our two countries have forged an indelible alliance through which we have triumphed together side-by-side in the American War of Independence, two World Wars, and even the Cold War. Now, our two nations work together as allies to lead the world in responding to a wide variety of economic, political, medical, technological, and scientific challenges that confront a rapidly changing world.

The US and France participate in a truly global network of healthcare providers, with significant economic and scientific dependence between these two countries. Hundreds of biotech companies are based in France, many of which also do business with American-based companies. For example, in the medical device sector alone, in France this year, revenues from medical device sales are expected to reach €31.2 billion (more than $35.2 billion). Sales from device exports from France are expected to account for €8.9 billion (almost $9.8 billion), which is 26% of the total market. Of the 1,300 medical device firms operating in France, one-third of these are based outside of France. Foreign medical device companies generate two-thirds of the device sales revenues in France, with American companies accounting for the largest share, 22% of the total revenues.

One major challenge confronting both America and France is developing and implementing a healthcare system that can provide life-extending care in a way that is effective, innovative, and cost efficient. Although the healthcare systems in America and France differ in many respects, there is one challenge that confronts both countries: the problem of fraud, waste, and abuse. Both countries take this problem seriously. For example, in America the federal government recovered more than $2.5 billion in 2018 alone from healthcare fraudsters, while in France estimates indicate that at least one in five emergency room visits in 2017 was deemed “inappropriate.”

This article will focus on myriad statutes and regulations enacted in America and France to combat fraud, waste, and abuse. It will highlight some of the important similarities as well as differences between these laws. Given the close historical and commercial ties between America and France, particularly healthcare companies that operate regularly in both countries, it is essential that all players involved in healthcare (e.g., businesses, manufacturers, providers, and attorneys) have a working understanding of the fraud, waste, and abuse laws of both countries.

The American and French healthcare systems

There is no dispute that the United States and France both invest tremendous public resources in their healthcare systems. In America, which has a population of over 326 million, estimates indicate that more than $3.5 trillion was spent on healthcare in 2017. This represents an expenditure of $10,739 per citizen in the United States. By comparison, in France, which has a population of over 67 million, estimates indicate that more than $328 billion dollars was spent on healthcare in 2017. This represents about $4,902 per person in France. There are many complicated reasons for the differences in healthcare spending. However, there is little doubt that both America and France commit an extraordinary amount of their public wealth to delivering healthcare to their citizens. One obvious and primary difference between the healthcare in America and France is that the American system is made up of a hybrid of public and private payers, but France has a publicly run “universal” health insurer. These differences are examined further below.

The American healthcare system

It is a misnomer to label healthcare in America as one “system.” Rather than a singular system, healthcare in America is delivered through a hybrid of two different, but interrelated healthcare systems: (1) the government-funded or “public” health system, and (2) the numerous for-profit and nonprofit private health insurers. This hybrid system provided some measure of healthcare to 91.2% of Americans in 2017.

The first part of the American hybrid health system is government-funded public insurance. The main pillars of government-funded insurance are the giant Medicare and Medicaid systems. The Medicare system was created in 1965 to provide government-funded healthcare to millions of Americans older than age 65. Over time, Medicare has been expanded to now include: Part A (hospital insurance); Part B (medical insurance); Part C (Medicare Advantage Plans, which are “managed care” alternatives to Parts A and B); and most recently, the massive Part D prescription drug coverage program. Additionally, Medicare has been expanded to now cover individuals older than 65, disabled individuals, and individuals with end-stage renal disease or those requiring a kidney transplant. By 2017, 58.5 million people were enrolled in Medicare, and Medicare spending reached $705 billion (20% of the total spending on healthcare in America). This behemoth government-funded healthcare program is run by the Centers for Medicare & Medicaid Services (CMS), a division of the United States Department of Health and Human Services (HHS).

The other main pillar of American government-funded insurance is the Medicaid system. Medicaid, also created in 1965, was set up to provide government-funded healthcare for poor and low-income families. Like Medicare, the Medicaid program has been expanded over time, and now covers low-income families, pregnant women, people of all ages who have long-term disabilities, and people who need long-term care. Also, like Medicare, the Medicaid program provides hospital insurance, medical insurance, “managed care,” and prescription drug coverage. However, unlike Medicare, the Medicaid program is not funded solely by the federal government. Rather, the Medicaid program is jointly funded by the federal government and each of the 50 states (plus territories including Puerto Rico, Guam, and the District of Columbia). Moreover, unlike Medicare, the Medicaid program is run by each individual state, and thus the program can vary significantly from state to state. In terms of size, the Medicaid program covers more than 73 million Americans. Medicaid spending nationwide grew to $581 billion in 2017.

Medicare and Medicaid are the two main pillars of the American public health system, but there are other significant, publicly funded health insurance programs, including, but not limited to: the Children’s Health Insurance Program (CHIP), TRICARE (the health system for the US military), the Department of Veterans Affairs (the health system for US military veterans), and the Federal Employees Health Benefit (FEHBP) program.

The second part of the American hybrid health “system” is the private health insurance market. In 2017, an estimated 67.2% of Americans had private health insurance. Private insurance spending has grown to more than $1.1 trillion per year. The most common form of private insurance is employer-based insurance in which nongovernment employers offer their employees group insurance plans, typically administered by private, for-profit insurance companies. Additionally, about 16% of Americans received private insurance by purchasing coverage directly from insurance companies, rather than through their employers. Private insurance companies are, as the name suggests, privately run. However, they are regulated at the state level by individual state insurance departments that guard against fraud, waste, and abuse through their own sophisticated internal fraud monitoring and special investigations units, often directed by former law enforcement personnel.

Perhaps the most significant recent trend in the American private insurance market is the rapid consolidation of mega insurance companies, driven (among other reasons) by increased competition and an aging American population.

The French healthcare system

The French healthcare system is primarily a government-funded, single-payer system known as l‘assurance maladie, or the sécurité-sociale (Sécu). The Sécu system picks up most healthcare costs, but French citizens can also voluntarily purchase private insurance (assurance complèmentaire or the mutuelle santé) to cover those medical costs that are not covered by the state Sécu. This voluntary health insurance is provided through mutual organizations and private insurers, and it is not always compulsory.

Historically, l’assurance maladie comprised a number of private or mutual insurance carriers that collected insurance premiums from their clients, which were then used to pay for the costs of healthcare. Today, health insurance is a public organization and operates under the supervision of the government, which has ultimate financial responsibility. The funds are committed through legislation enacted each year by the French Parliament, which covers the financing of the Sécu.

The main health insurance fund is a general fund called the Régime Général. This fund covers about 85% of the population working in industry and commerce, as well as the unemployed and those retired or not covered by another fund. Within the Régime Général, the Protection Universelle Maladie (PUMA) guarantees permanent health coverage for all persons who are legal residents in France, whether they are employed or not. This universal system of healthcare has been in place in France since January 2016.

At the national level, healthcare strategy in France is the responsibility of the Ministry of Social Affairs, Health, and Women’s Rights. At a local level, the General Fund is administered by a health authority, called the Caisse Primaire d’Assurance Maladie (CPAM). For self-employed workers in France, there is a separate state-controlled insurance scheme called Régime Social des Indépendants (RSI). However, since 2018, the RSI has been in the process of being dismantled, and all those affiliated with it will be transferred to their local CPAM in the future.

American healthcare enforcement

In America, the task of preventing and combating fraud, waste, and abuse in the hybrid healthcare system is spread among a complex patchwork of actions: federal and state law enforcement agencies and investigators, private insurance company fraud investigations/monitoring departments, and private-citizen whistleblowers. Adding to this complexity are the numerous federal and state criminal and civil laws and regulations that apply to combat fraud, waste, and abuse in the healthcare system. Untangling this web is essential to understanding the American healthcare system, and to avoid the worst effects of being caught up in a potentially devastating healthcare fraud investigation and/or civil or criminal prosecution.

America’s primary healthcare fraud laws

In America, there is a large body of often-changing federal and state statutory, regulatory, and decisional case law governing healthcare providers, physicians, insurers, hospitals, pharmaceutical manufacturers, and medical device manufacturers. For healthcare providers and businesses, compliance with this thicket of criminal, civil, and administrative laws and regulations is especially challenging. The most used fraud and abuse tools include the federal Anti-Kickback Statute (AKS), the federal FCA, state FCAs, the Stark Law, and, more recently, the Physician Payments Sunshine Act. In addition to these laws, there are two important industry codes of conduct that govern relationships and behavior: the PhRMA Code of Ethics, which covers the pharmaceutical industry, and the AdvaMed Code of Ethics, which covers the medical device industry.

General French Anti-Corruption Law

French Law No. 2016-1691(also known as the Sapin II Law), which was passed on November 8, 2016, was intended to increase transparency, fight corruption, and modernize the French economy. Although the Sapin II Law is not specific to the healthcare industry, both anti-corruption laws (anti-gift and Sapin II) could apply to the same healthcare company.

Indeed, the Sapin II Law applies to all commercial businesses or industrial and commercial bodies headquartered in France, or whose parent company is headquartered in France, with more than 500 employees, or belonging to a group with more than 500 employees, that has an annual turnover, or consolidated group turnover, of more than €100 million.

Companies falling under the scope of Sapin II have an obligation to implement anti-corruption compliance programs, including measures intended to prevent and detect corruption and influence peddling. Such programs include the implementation of a code of conduct prohibiting actions that are likely to constitute corruption or influence peddling.

Sapin II also requires that the framework for internal whistleblowing and reporting of suspected wrongdoing and violations of the company’s internal code of conduct include:

  • A risk-mapping process in order to identify, analyze, and evaluate the company’s risk of exposure to external solicitation for corruption;
  • A process for assessing the risk-mapping of clients, main suppliers, and intermediaries;
  • Internal or external accounting controls designed to ensure the accuracy of the company’s books and records, and to prevent or detect concealment of corruption or influence peddling in the company’s books and records;
  • Training programs for managers and staff particularly exposed to corruption risks;
  • An internal disciplinary regime for employees who violate the company’s internal code of conduct; and
  • Regular internal monitoring and evaluation of the above-mentioned measures.

The Sapin II Law created an agency dedicated to the fight against corruption and to the modernization of economic life, the French Anti-Corruption Agency (AFA), which is charged with making recommendations to companies on the effectiveness of, and potential improvements to, their anti-corruption programs. Penalties imposed against companies by the AFA for failure to implement these anti-corruption measures can be severe.

The AFA also assists a number of stakeholders in preventing and detecting any corruption, trading of influence, favoritism, or other misappropriation of public funds. Their expertise may be sought by the courts, large companies, administrations, or communities. The AFA has replaced the Central Office for the Prevention of Corruption (SCPC) and benefits from increased regulatory powers.

The AFA has administrative powers to inspect the existence and efficiency of anti-corruption compliance mechanisms implemented, in particular by companies, state administrations, or local authorities. This control extends to both state or local entities, as well as economic actors (private or public companies). Notably, the AFA can issue pronouncements and order sanctions, including issuing warnings to company representatives. The sanctions commission may issue orders, including:

  • Mandating that the company update internal compliance procedures within a time period that may not exceed three years;
  • Requiring the payment of an administrative fine; and
  • Publishing, distributing, or displaying injunctions or financial penalties.

On July 4, 2019, AFA rendered its first decision since the French anti-corruption law was put into force.

In this recent case, AFA ordered a company to comply with the Sapin II Law before the end of 2019 by implementing:

  • An internal code of conduct defining prohibited conducts likely to constitute corruption or influence peddling;
  • A risk-mapping process in order to identify, analyze, and evaluate the company’s risk of exposure to external solicitations for corruption;
  • A process for assessing the risk-mapping of clients, main suppliers, and intermediaries;
  • Internal or external accounting controls designed to ensure the accuracy of the company’s books and records, and to prevent or detect concealment of corruption or influence peddling in the company’s books and records;
  • Regular internal monitoring and evaluation of the above-mentioned measures.

Under its decision, AFA felt the company complied with such requests, so no financial penalties were ordered.

Special French Anti-Corruption Law for healthcare providers

In addition to the general anti-corruption law explained above, France has adopted a special anti-corruption law specific to healthcare companies. Since its drafting, this law has been evolving in response to the recent healthcare scandals in France.

Per Ordinance 2017-49 (the Ordinance), adopted on January 19, 2017, the current anti-gift legislation will be largely modified to become stricter in the coming months. The Ordinance, which was to be in force no later than July 1, 2018, has yet to be fully implemented, because the implementing directives are still in the process of being drafted and negotiated. However, the relevant ministries in France have already indicated that such directives (i.e., a Decree and, two Arrêtés or regulations) should be published before the end of 2019.

It is more prudent to address the anticipated regulations to be implemented by September 2019, rather than just focusing on existing French anti-gift laws. The main principle will remain the same as the one provided under the original French AGL of January 27, 1993: The legislative intent is to prohibit all types of remuneration between healthcare companies and providers.

The French law, like the American AKS, prohibits both the offer, as well as the acceptance, of inducements. Actors on both sides of the “gift” are subject to liability. It prohibits persons manufacturing or commercializing health products or providing health services from promising or offering advantages. The future law does not distinguish between persons manufacturing or commercializing reimbursed health products (the current law targets only reimbursed products). The prohibition against receiving “advantages,” whether in cash or in kind, directly or indirectly, also extends to the persons who receive any such advantage or benefit (i.e., any healthcare professionals or students intending to practice any healthcare profession, any association of healthcare professionals, including those involved in medical training activities). Notably, it extends to “société savantes,” administration public servants and officials, local and regional authorities and their public establishments, and any other authority that designs or participates in public health or social security policies (with no legal exception).

Every law has at least one exception, and this is also the case with the French AGL. The law itself and years of practical experience have created some exclusions from the definition of advantages, as well as some exceptions to the statute prohibition.

For example, some items will be excluded from the application of the Ordinance, such as:

  • Any compensation, indemnity, and disbursement for activities covered under an agreement whose purpose is the practice, directly and exclusively, of a healthcare profession;
  • Incomes from the exploitation or assignment of intellectual property rights relating to a health product (royalties);
  • Commercial advantages granted under commercial agreements (e.g., discounts, rebates); and
  • Advantages in kind or in cash relating to the practice of the beneficiary’s profession and which are of negligible value that are defined under the Arrêté to be published (i.e., generally less than €30).

Figure 1 illustrates the French anti-gift regulation process.

Figure 1: Overview of the French anti-gift process.

Statutory exceptions are tightly regulated. Unless the arrangement to be put in place with the healthcare professional falls under one of these exceptions, or is excluded from the application of the Ordinance, it will be considered illegal.

Exceptions are now divided into categories depending on the nature of the interaction with the healthcare professional. Compensation, fees, and reimbursement of costs relating to research, development of research, scientific evaluation, advice, services, or commercial promotion are considered an exception and legal only if:

  • They are provided in a written agreement between the company and the healthcare professional;
  • They are proportionate to the services provided and at fair market value; and
  • The reimbursed costs do not exceed the costs actually spent by the beneficiary.

The compensation should be reasonable according to either the recommendations of the medical board or the relevant implementation provisions of the Ordinance (as soon as they are published).

Hospitality offered during professional or scientific events or during events promoting products or services is also governed by the Sapin II Law. Conditions apply to the coverage of hospitality fees. Not only should a written agreement between the company and the healthcare professional be signed, but the hospitality offered also must be reasonable, strictly limited to the main purpose of the event, and not extended to anyone other than the healthcare professional.

Other exceptions also apply to the financial support for professional training actions or continuing professional development, grants for research activities, or other similar activities.

In any case, any of these exceptions must receive prior authorization by the relevant French government authority when they exceed an amount set by Arrêté. Even if the amount is lower, the company would still have to declare and report expenditures to the relevant authority.

The delays in issuing the current regulations cause a number of problems for companies. The time needed to conform to new rules and procedures will be significant, particularly for companies that are subject to the implementation of the MedTech Code and other internal codes of conduct.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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