Medicaid Fraud May Sully Tobacco Case

The trial, set to begin next week, pivots in part on whether the industry should pay for abuses of health-care system.

If the tobacco industry loses its upcoming landmark trial in Florida, cigarette makers may end up paying more than just the usual civil damages.

They could face the prospect of picking up the tab for millions of dollars worth of fraud, waste, and abuse in Florida's Medicaid system - expenditures that had nothing to do with the tobacco industry, smokers, or cigarettes.

The case is being closely watched in legal circles across the country. Never before in United States history has there been less sympathy for the tobacco industry. Yet many legal analysts are concerned about the way Florida is pursuing its case.

While the jury will ultimately decide what - if anything - cigarette makers will pay, some experts say the fact that the state may ask manufacturers to pay for fraud is part of an unusual effort to strong-arm a much-reviled industry.

In addition, Florida's effort to make the cigarette companies pay for fraud could introduce yet another level of complexity to the 40 lawsuits across the country filed by state attorneys general against the tobacco industry. Should those cases go to trial, each state would have to deal with the issue of health-care fraud, and each judge would have to rule on it, creating a legal tangle that could make cases drag on for months and cost millions more dollars.

For now, it remains unclear how much of Florida's billion-dollar Medicaid tab may be the result of outright fraud and misdiagnosis by health-care providers.

How much waste?

Lawyers for the state say the amount of fraud, waste, and abuse is negligible, perhaps 2 to 4 percent.

The state will argue that fraud rates are low enough that the jury need not consider them when or if it begins the task of awarding compensatory damages, says Tim Howard, a former lawyer for the agency that administers Medicaid and a current member of Florida's trial team.

"We can do a reasonable estimate of fraud and abuse, but it is so minuscule," he says.

Other state officials who work directly in the Medicaid system say there is no way to accurately measure the level of fraud because some of it goes undiscovered. They say no systemwide audit has ever been performed.

And lawyers for the tobacco companies counter that making firms pay the Medicaid bill - without finding out how much fraud there was - is a violation of their constitutional rights. Tobacco-industry lawyers say fraud is "rampant" in Florida's health-care system and that it would be unfair to force the industry to pay any damages to cover these crimes and mistakes - for which it had no responsibility.

"Our legal system requires that there be certainty in damages, that you can't have speculation. You have to have [evidence] that supports your claim of damages," says Dal Burton, a trial team lawyer with the tobacco firm R.J. Reynolds.

One-of-a-kind trial

Legal experts say there has never been a tobacco trial as big or as complex as the one about to take place in West Palm Beach. They say many of the legal issues are unique.

For example, tobacco attorneys can't use tobacco's traditional defense: that cigarette makers shouldn't be held responsible for the adverse health effects of smoking because the public knows the dangers and smokers accept the risk every time they light a cigarette.

A 1994 state law passed specifically to target the tobacco industry, the Third-Party Liability Act, strips tobacco lawyers of that defense and also requires both sets of attorneys use statistics to make their cases.

State lawyers have said that Florida Medicaid experts will be able to offer accurate statistics on the level of fraud and waste, but tobacco's lawyers say those stats will be little more than a guess. How, they ask, can Medicaid administrators know how much fraud there is in the system when there has never been a systemwide audit? They demand what could be a lengthy investigation of the full extent of fraud among tobacco-related Medicaid payments.

Tobacco lawyers were able to question 45 Medicaid recipients, "We had recipients, when confronted with bills from hospitals, who told us that they had never been to those hospitals and did not receive those services," says Mr. Burton.

"What is demonstrated in these [interviews] is that fraud, waste, and abuse do exist in the system and therefore the state's statistical analysis can't hold up," he adds.

Tobacco's plea

Tobacco lawyers want to contact more Medicaid recipients to compile their own statistics, but they cannot. Palm Beach County circuit judge Harold Cohen has barred tobacco lawyers from conducting a detailed investigation of Medicaid payments. He maintains that the names and addresses of "several hundred thousand" Medicaid recipients should remain confidential and that the investigation would unduly delay the court's proceedings. He permitted defense lawyers to randomly select and question only the 45 Medicaid recipients.

The legality of this move remains murky. During its review of the Third-Party Liability Act, Florida's Supreme Court raised the Medicaid fraud issue. The court found that defense lawyers must be given an opportunity to identify fraudulent payments or payments due to misdiagnosis. But after Judge Cohen handed down his order, the firms appealed to the Supreme Court, which refused to overturn it.

That sets the stage for a showdown at trial over the Medicaid fraud issue. Lawyers are expected to offer dueling statistical portraits, aimed at swaying the jury.