For most public employees, New Jersey’s State Health Benefits Plan is some of the best health coverage in the country. But for those looking to commit insurance fraud in the program, which costs taxpayers more than $2.5 billion annually, it is something else.
It’s an easy target.
“It smells of cheese for rats,” Marc Pfeiffer, assistant director of the Bloustein Local Government Research Center at Rutgers University, said of the plan.
The plan — with more than 835,000 former and current public employees and their families enrolled, infamously branded by Gov. Chris Christie as the “Cadillac” of health care options — is an easy target for fraud.
One reason is its size.
Take, for example, an ongoing federal investigation in prescription benefits fraud centered in South Jersey. Nine people, including an Atlantic City firefighter, a Margate doctor and two Mainland pharmaceutical reps, have pleaded guilty in the past month to charges of defrauding the plan of more than $25 million.
The scheme could actually be twice the size of those spelled out in the guilty pleas. According to the court documents, the unspecified “Pharmacy Benefits Administrator” paid the unnamed “Compounding Pharmacy” more than $50 million for compounded medications mailed to people in New Jersey.
Federal court documents detail a massive prescription-fraud scheme from January 2015 to April 2016 that involved recruiting public employees — teachers, firefighters, municipal police officers and state troopers — to obtain medically unnecessary prescriptions for patients whom doctors never treated. The prescriptions included those for compounded pain creams, scar creams, antifungal creams, libido creams and certain vitamin combinations, all of which paid out generous reimbursements to the pharmacy from the health insurance plan.
In exchange for the prescriptions, the recruiters and the doctors received kickbacks from the out-of-state compounding pharmacy and pay co-conspirators, documents say.
Federal authorities have yet to identify, the name and the location of the out-of-state compounding pharmacy that was at the center of the fraud scheme.
Pfeiffer said wherever there’s money, you’ll find someone trying to “take advantage of the system.” And the state plan’s generosity presents more opportunities for fraud.
The State Health Benefits Plan has been a popular target for Christie over his tenure. During his stump speech over the last eight years, Christie has called the state insurance coverage a “Cadillac plan” due to its extensive coverage, premiums for which are mostly funded by New Jersey taxpayers. In 2014, Christie set up a task force to review the state benefits program and reduce its cost.
David Frankford, a professor of law at Rutgers University-Camden said drug compounding has had issues for years because of inflated pricing and a lack of industry regulations. He was unimpressed by the $25 million scope of the fraud.
“That’s peanuts in the scheme of what actually goes on,” he said.
He said hundreds of billions of dollars in fraudulent claims are paid out annually.
But Frankford, who teaches a course on health care fraud, said there is an impact.
“So we’re paying for services that wouldn’t otherwise be performed,” Frankford said. “It’s generally thought that it hurts the process of competition, because rather than providers choosing other providers based on their merits or quality, they choose based on whether or not they get a kickback.”
The figure is even larger if one accounts not only for insurance dollars wasted due to fraud, but also the cost of trying to detect it and prosecute it, Frankford said.
Frankford, who has been writing about fraud since the 1980s, said the nature of the health insurance system — especially the state plan, which processes hundreds of claims a day — makes it difficult to detect fraud.
Compounding fraud is a growing issue around the country.
In July, federal authorities arrested 412 people in connection with defrauding health benefits plans of more than $1.3 billion. U.S. Attorney General Jeff Sessions said the current administration will continue to target those who try to defraud health benefit plans.
Willem O. Rijksen is director of communications for the Office of the State Treasurer, which oversees the state’s health benefits and pensions plans. He said the contractors for the state have proper safeguards in place.
“The state’s contracts with carriers have appropriate systems in place to identify charges for services that appear to be abnormal, excessive or fraudulent, and to conduct examinations when deemed necessary,” Rijksen wrote in an email. “Cases found to be abnormal, excessive or fraudulent are to be reported to the appropriate federal and state authorities.”
Frankford said the only way to stop health care fraud is to prosecute it.
“In particular, prosecute individuals,” Frankford said. “Most criminal experts will say that the amount of the penalty is important, but much more important is whether or not it can be detected and prosecuted. People will take the risk if they know it’s fairly unlikely to be prosecuted.”