MEDICAL FRAUD

MEDICAL FRAUD

Medicare Fraud 

• Billing for services not furnished 

• Misrepresentation of diagnosis to justify payment 

• Soliciting, offering, or receiving a kickback 

• Unbundling or “exploding” charges 

• Falsifying certificates of medical necessity, plan of 

treatment, and medical records to justify payment 

• Billing for a service not furnished as billed, i.e., 

upcoding

Abuse 

• Key: no knowing or willful misrepresentation to 

obtain payment 

• Examples: 

• Medically unnecessary services 

• Inadequate documentation of medical services 

sufficient to justify payment 

• Unintentional misuse of modifiers 

• Failure to comply with participation agreement

Consequences of Medical Fraud 

• Fines, exclusion from federal medical programs, 

even imprisonment 

• Seizure of assets 

• Private insurer plaintiff actions 

• Qui Tam actions by present or former employees, 

or employees turning state’s evidence 

• Adverse Action Report to the National 

Practitioner Data Bank 

• OIG’s Excluded Individuals/Entities List 

• www.hhs.gov/progorg/oig/cumsan

Medical Fraud 

CRIMINAL LAWS

Anti-Fraud Act 

42 USC 1320a-7b(a)(1) 

• It is a felony for any person to knowingly and willfully make 

any false statement of a material fact in any application for 

payment under any federal health care program. 

• Legal Standard 

• Specific intent to submit 

• Specific intent to engage in the conduct prohibited by law, 

regardless of knowledge about which law was violated. 

• Criminal burden of proof 

• Sanctions 

• 5 years in prison 

• $25,000 fine 

• $10,000 per claim filed plus 3 times damages

Medicare Anti-Kickback Statute 

42 USC 1320a-7b(b)(1)(A) 

• Unlawful to knowingly and willfully solicit or receive/offer or pay: 

• Any remuneration (kickbacks, bribes or rebates) 

• Directly or indirectly, in cash or in kind 

• In return for/or to induce 

• Purchasing, leasing, ordering, or arranging for any service or item i 

payable by any federal health care program 

• Specific intent to engage in the conduct prohibited 

• “One purpose rule” 

• Criminal burden of proof 

• Sanctions: 5 years in prison, $25,000 fine 

• $50,000 civil money penalty plus 3 times damages plus discretionary exclusion 

from Medicare

Health Care Fraud Act 

18 USC 1347 

• Illegal to knowingly and willfully execute a scheme 

to defraud any health care benefit program or to 

obtain any money by false or fraudulent means 

• Knowingly/willfully with specific intent 

• Criminal standard of proof 

• Applicable to any public or private health care 

benefit program 

• 10 years in prison; 20 years if injury to a patient; 

fines as imposed by court

Mail Fraud 

(18 USC 1341) 

• Devising any scheme to defraud, or obtaining money or 

property through fraudulent representations, by placing in 

a post office or authorized mail depository any matter or 

thing to be sent by the Postal Service 

(in the film, The Firm, what famous Memphis law firm 

was destroyed by application of this law) ; or 

• Depositing any matter or thing to be sent by any private or 

commercial interstate carrier

Wire Fraud 

(18 USC 1343) 

Devising any scheme to defraud, or obtaining 

money or property through false or fraudulent 

representations using wire, , radio or television 

communication in interstate or foreign 

commerce

Conspiracy to Defraud the Government 

(18 USC 287) 

Entering into any agreement, combination or 

conspiracy to defraud the federal government by 

obtaining or aiding in obtaining the payment or 

allowance of any false, fictitious or fraudulent 

claim

Submission of Fictitious/Fraudulent 

Claim (18 USC 287) 

Making or presenting a claim to any person or 

officer in the United States’ civil, military or 

naval service or any federal department or 

agency, and knowing such claim to be false, 

fictitious or fraudulent

False Statements 

(18 USC 1001) 

Knowingly and willfully: 

• (a) falsifying or concealing a material fact by trick or 

device; 

• (b) making any materially false, fictitious or 

fraudulent statement or representation; or 

• (c) making or using a false writing or document 

knowing it contains any materially false, fictitious or 

fraudulent statement

HIPAA Criminal Statutes 

• Health Care Fraud (18 USC 1347) 

• Knowingly and willfully defrauds or attempts to defraud a 

“health care benefit program” – including any public or private 

health benefit plan 

• Theft or Embezzlement in Connection with Health Care (18USC 

669) 

• Knowing and willful embezzlement or theft of money or assets of 

a “health care benefit program” 

• False Statement Relating to Health Care Matters (18 USC 1035) 

• Knowingly and willfully making of material false statement 

involving delivery or payment for benefits or services… 

• Obstruction of Criminal Investigation of Health Care Offense (18 

USC 1518) 

• Prohibits obstruction or attempt to obstruct information or records 

rds 

relating to a violation of a federal health care offense to a criminal 

investigator

Blue Shield Fraud Audits 

HIPAA provides private right cause of action 

to commercial third party payors 

• $5 Million fraud “uncovered” in FY 2000 

• 14 fraud convictions; 27 indictments 

• 1,100 cases opened 

• 88 cases referred to enforcement agencies 

• 5 year statistics: $25 Million/56 convictions

Medical Fraud 

CIVIL LAWS

Civil RICO Statute 

(18 USC 1964(c)) 

• Obtaining income from a pattern of racketeering 

activity by operating or investing in an enterprise 

engaged in interstate commerce. 

• Humana Inc. v. Forsyth, , 119 S.Ct. 710 (Jan. 20, 

1999) 

• Humana Health Insurance of Nevada, Inc. class action 

• Held: McCarran-Ferguson Act did not frustrate Nevada 

law governing unfair insurance practices 

• RICO treble damages and attorneys’ fees authorized

Civil Monetary Penalties Act 

42 USC 1320a-7a(a)(1)(A),(5) 

• Prohibits presenting claims for services provided as claimed 

• Pattern or practice of upcoding 

• Pattern of medically unnecessary services 

• Knew or should have known 

• Actual knowledge 

• Deliberate ignorance of truth or falsity 

• Reckless disregard of truth or falsity 

• Preponderance of the evidence standard of proof 

• Applicable to all federal health care programs 

• Sanctions: 

• Return all money; $10,000 per claim filed plus treble damages 

• Exclusion from federal programs plus licensure disciplinary action

• Federal 

The Enforcers 

• OIG 

• DOJ/Regional U.S. Attorney 

• FBI 

• Carrier Fraud Enforcement Unit/Benefit Integrity Unit 

• State 

• AG 

• Medicaid Fraud Control Unit 

• County District Attorneys 

• Commercial Insurer Special Investigation Units

• LIES 

Focus of Enforcement 

• False Claims 

• BRIBES 

• Kickbacks 

• PERKS 

• Self referrals

Significant Fraud Laws 

• Federal Healthcare Program Anti-Kickback 

Statute 

• Federal Physician Self-Referral Law (Stark Laws) 

• Federal Civil False Claims Act

Federal Anti-Kickback Statute 

• Prohibits providers from offering, paying, 

soliciting or receiving any remuneration in 

return for: 

• Referral of patients; or 

• Inducing purchases, leases or orders 

• Remuneration includes kickbacks, bribes and 

rebates, in cash or in kind, direct or indirect

Federal Anti-kickback exceptions 

• Employee 

• Discounts 

• Group Purchasing Organization 

• Risk Sharing Arrangement

Federal Anti-kickback 

Safe Harbors 

Failure to comply with safe harbor can mean 

one of three things: 

• Arrangement does not fall within the scope of the 

statute 

• Arrangement constitutes a clear statutory violation 

• Arrangement involves risk because it may violate the 

state in a less serious manner


• Federal Healthcare Program Anti-Kickback Statute 

• Federal Physician Self-Referral Law (Stark 

Laws) 


Stark Amendments 

42 USC 1395nn(a)(1)(A) 

• Prohibits referral to any person or entity for designated 

health service in which referring provider has a 

financial interest when provider knows or should 

know of the interest 

• Preponderance of the evidence proof standard 

• For Medicare and Medicaid patients 

• Sanctions: 

• Return all money collected and billed 

• $15,000 civil money penalty 

• $100,000 civil money penalty for circumvention schemes

The Stark Laws 

If a physician (or the physician’s immediate 

family member) ) has a financial relationship with 

an entity, then the physician may not refer a 

Medicare (and usually Medicaid) patient to the 

entity for designated health services unless an 

exception exists.


Immediate Family Members 

• Spouse 

• Parent 

• Step-Parent 

• Parent-in 

in-Law 

• Child 

• Step-Child 

• Child-in 

in-Law 

• Sibling 

• Step-Sibling 

Sibling 

• Sibling-in 

in-Law 

• Grandparent/Grandchild 

• Spouse of grandparent or grandchild


Designated Health Services 

• Clinical laboratory services 

• Physical therapy services 

• Occupational therapy services 

• Radiology 

• Home health services and supplies 

• Durable medical equipment and supplies 

• Radiation therapy services 

• Parenteral and enteral equip and supplies 

• Prosthetics and orthotics 

• Outpatient prescription drugs 

• Inpatient and outpatient hospital services


Exceptions 

• Exceptions for both ownership and 

compensation arrangements 

• Exceptions relating only to ownership or 

investment interests 

• Exceptions relating only to compensation 

arrangements


Exceptions for Both Ownership and Compensation 

• Physicians’ Services 

• In-Office Ancillary Services 

• Pre-paid Plans 

• Academic Medical Centers 

• Implants in an ASC 

• EPO and Dialysis Drugs 

• Preventive test, immunizations, vaccines 

• Eyeglasses/contacts post-cataract surgery 

• Knowledge exception


Exceptions for Ownership Only 

• Publicly Traded Securities and Mutual Funds 

• Hospitals in Puerto Rico 

• Rural Providers 

• Hospitals (other than those in Puerto Rico)


Exceptions for Compensation Only 

Statutory Exceptions 

• Rental of Office Space/Equipment 

• Employment 

• Personal Services 

• Compensation Unrelated to DHS 

• Physician Recruitment 

• Isolated Transactions 

• Group Practice Arrangements with Hospitals 

• Items or Services


Exceptions for Compensation Only 

New Regulatory Exceptions 

• Non-Monetary up to $300 

• Fair Market Value 

• Medical Staff Incidental Benefits 

• Risk Sharing Arrangements 

• Compliance Training 

• Indirect Compensation


Penalties 

• Civil sanctions of up to $15,000 for each bill 

or claim; $100,000 for circumvention schemes 

• Exclusion from federal programs 

• Recoupment of payment


• Federal Healthcare Program Anti-Kickback Statute 

• Federal Physician Self-Referral Law (Stark Laws) 


False Claims Act 

31 USC 3729-33 

33 

• Knowingly submitting or conspiring to submit: 

• A claim for payment to the government 

• When the claim is false or fraudulent 

• Penalties 

• TREBLE damages plus $5,500 to $11,000 per claim 

• Qui Tam actions authorized

FCA Scienter – “knowingly” 

• Actual knowledge 

• Acts in “deliberate ignorance” or 

• “Reckless disregard” of the truth or falsity 

• No requirement of proof of specific intent to 

defraud 

• Mistake or negligence insufficient 

• Gross negligence is sufficient

FCA government advantages 

• Knowingly can be proven by showing defendant 

“should have known” 

• “Preponderance of the evidence” standard of proof 

• Severe penalties 

• Treble damages PLUS 

• $5,500 to $11,000 per false claim 

• Corporate Integrity Agreements (CIAs( 

CIAs)

Corporate Integrity Agreements (CIAs( 

CIAs) 

• Term 3 to 8 years 

• Mandatory disclosure program 

• Removal of “ineligible persons” 

• Prompt reporting of 

overpayments 

• Annual compliance reports 

• Exclusion for breach

What can be “False” about a claim 

• Data in the document 

• Codes incorrect 

• Services not performed 

• Dates of service incorrect 

• “Beneficiary” ineligible 

• Billing for not “medically necessary” services 

• Providing services not up to clinical standards

Reasonable and Necessary Services 

• “Services or items reasonably necessary for the diagnosis 

or treatment of illness or injury or to improve the 

functioning of any malformed body member.” 42 USC 

1395y(a)(1)(A) Medicare definition 

• “[M]edically unnecessary services… intentionally seeks 

reimbursement for a service that is not warranted by the 

patient’s current and documented medical condition.” 

• 42 USC 1320a-7a(a)(1)(E) 

Civil Money Penalties 

• Health care service or products that a prudent physician 

would provide to a patient … in accordance 

with…clinically appropriate… medical practice. AMA def.

Quality Issue Fraud 

• Services or items furnished substantially in excess of 

patients needs or fails to meet professionally recognized 

standards of health care 

• Exclusion 

• Knowingly submitting claims for pattern of services that 

the provider knows or should know are not necessary 

• Civil Monetary Penalties 

• Knowingly giving a patient false or misleading 

information to influence hospital discharge decision 

• Civil Monetary Penalties 

• Hospital makes direct or indirect payment to a physician 

to induce physician to reduce or limit services to patient 

• Civil Monetary Penalties

• Is it fraud 

Professional Courtesy 

• Intended to reward or induce referrals 

• How broad the policy 

• “Insurance only,” “free of charge,” or “ignore 

the billings” 

• Exceptions: 

• Documented financial hardship 

• Reasonable collection efforts 

• No bright line or common sense test

FCA Challenges 

• Treble Damages – U.S. Supreme Court decision – antitrust 

case 

• U.S. v. Brunswick Corp., 429 U.S. 477 (1977) 

• Held: Treble damages held not unconstitutionally excessive 

• Reasonably intended to make the government “whole” 

• Punitive damages – several cases have held that punitive 

damages greater than 10 times the actual damages are 

unconstitutionally excessive 

• Maize v. Hoffman, 2001 W.L. 1141827 (Dist. Ct. Minn. Sep. 

2001) 

• No out of pocket loss – no actual damages 

• Held: $1.68 million fine not unconstitutionally severe 

• Currently on appeal before the 8 th Circuit Court of Appeals

FCA Challenges 

• U.S. Constitution 8 th Amendment “excessive fines” clause; 

14 th Amendment “due process” clause 

• U.S. v. Bajakajian, , 525 U.S. 321 (1998) 

• Held: A fine is unconstitutionally excessive if: 

• 1. the payment to the government constitutes punishment, and 

• 2. the payment is grossly disproportionate to the gravity of the offense 

• U.S. v. Mack, 261 F.3d. 891 (9 th Cir. Aug. 16, 2001) 

• HCP defrauded with damages of $55,000 

• $165,000 treble damages 

• 55 false claims times 10 = $550,000 

• Total award = $715,000 

• Remanded to lower court for consideration of whether 8 th or 14 th 

Amendment violations occurred

Whistleblowing for cash 

Qui Tam 

actions

False Claims Act Qui Tam 

• From Latin phrase “qui“ 

tam pro domino rege quan prose ipso in 

hac parte sequitur” ” meaning: 

• “who sues on behalf of the King as well as for himself ” 

• FCA adopted in 1863 to combat Union Army fraud 

• Civil and criminal penalties 

• $2,000 per claim PLUS double damages 

• “Relator” entitled to 50% of recovery PLUS all costs 

• Amendments of 1943 

• “Original source” information (direct and independent 

knowledge) required by Relator 

• Provided for government intervention 

• Reduced Relator’s take to 25% if government did not intervene; 

10% if government did intervene

FCA Qui Tam Amendments 1986 

• Mens Rea – “knowingly” submitting false 

information 

• Actual knowledge of the falsity of the information 

• Deliberate ignorance 

• Reckless disregard 

• Burden of Proof – preponderance of the evidence 

• Treble Damages and Penalties 

• Double damages 

• If voluntary disclosure before any filing, and 

• Cooperate fully with government investigation 

• Penalties amount increased to $5,000 (min) to 

$11,500 (max) per false claim submitted

FCA Qui Tam Amendments 1986 

• Relator’s share is 15% to 25% if government 

intervenes, plus attorneys’ fees and costs 

• Relator’s share is 25% to 30% if government 

declines to intervene, plus attorneys’ fees and costs 

• SOL: 

• 6 six years from date committed, or (added) 3 years 

after facts were known or should have been known by 

government to maximum of 10 years.

FCA Qui Tam Amendments 

• Anti-Retaliation Against Relator - 1986 

• Authorized cause of action by relator for retaliation 

• Two times back pay, interest, compensatory damages, 

costs and attorneys’ fees 

• FCA 1988 amendment 

• Limits wrongdoer relator by reduction in relator’s 

share of proceed if relator “planned or initiated” the 

fraudulent act.

Qui Tam Actions (31 USC 3730) 

• Brought by “relator” with “original source” 

information on behalf of relator and federal 

government 

• Complaint of false claim(s) filed under seal 

• Government has 60 days (plus) to decide to 

intervene or allow relator to proceed

FCA Qui Tam success since 1986 

QUI TAM RECOVERIES (millions of dollars) 

• As of Nov. 30, 2000, 

DOJ reports Qui Tam 

recoveries exceed 

$4.174 billion 

1800 

1600 

1400 

1200 

1000 

800 

600 

400 

200 

0 

1985 1990 1995 2000 2005 

QUI TAM 

RECOVERIES 

(millions of dollars)

Qui Tam Relator success 

Non-Governmental Intervention Recoveries 

$250,000,000 

$200,000,000 

$150,000,000 

$100,000,000 

$50,000,000 

$0 

1986 - 1991 1992 - 1996 1997 - 2001

Qui Tam relators and States 

• Vermont Agency of Natural Resources v. U.S., ex. rel. Stevens, 

529 U.S. 765 (2000) 

• Do Qui Tam relators have standing to bring a case in the name 

of the federal government 

• held: yes, relators have standing to sue 

• Are States subject to Qui Tam relator actions 

• Held: States are NOT subject to FCA Qui Tam relator actions because 

under the FCA, States are not legal “persons” 

• Can U.S. Government (DOJ) sue a State under the False Claim 

Act

Under FCA, can relator (U.S. Government) 

sue local governments and agencies 

• U.S., ex. rel. Garibaldi v. Orleans School Board, 244 F.3d 486 (5 th Cir. 

2001) 

• Held: local governments are not “persons” ” under the False Claims Act. 

• U.S., ex. rel. Chandler v. Cook County, 227 F.3d 969 (7 th Cir. 2002) 

• Held: local governments are persons under the False Claims Act; counties and 

cities are not the same as States. 

• U.S., ex. rel. K and R v. Mass. Housing Finance Agency, 154 F.Supp.2d 19 

(D.C. Cir. 2001) 

• Held: Agency was a “person” ” under FCA because the agency was not a “state 

agency”. 

• U.S., ex. rel. Dunleavy v. Count of Delaware, 279 F.3d 219 (3 rd Cir. 2002) 

• FCA treble damages are punitive and local governments are exempt against 

punitive damages; local governments are not subject to FCA Qui Tam relator’s 

suit.

Office of Inspector General (OIG) Error 

Rate Analysis 

published March 2000 

• Lack of Medical Necessity 

• $5.1 Billion 

• Documentation Errors – insufficient or no 

documentation to support services billed 

• $4 Billion 

• Incorrect Coding 

• $2 Billion

OIG Position Statements 

• Physicians are not subject to civil or criminal penalties for 

innocent errors or even negligence. 

• Neither the False Claims Act nor the Civil Monetary 

Penalties Law cover mistakes, errors or negligence. 

• Sanctions will be imposed only where a “pattern” of 

improper claims with upcoded procedures or unnecessary 

services exists. 

• The difference between a “mistake” and a “pattern of conduct” 

• Prevalence 

• Amount of money

False Claims Act Disclosure 

• If a person makes a voluntary disclosure of 

behavior that creates liability under the False 

Claims Act, the potential penalty is limited to 

double damages. 31 USC 3729 

• Made by person or entity that violated the FCA 

• Made to federal officials responsible for investigating 

violations (DOJ, OIG); and 

• Made within 30 days after the provider first obtains 

information about the FCA violation.

FCA Settlements Against Physicians 

• Onerous CIAs (Corporate Integrity Agreements) 

• Settlements from $8,000 to $1,700,000 

• Most common reasons for false claims 

• Lack of medical necessity 

• Lack of supervision where required by billing rules 

• Unbundling codes 

• Systematic up-coding

U.S. Sentencing Commission Guidelines 

§ 8 A1.2 

• Potential criminal sanction may be mitigated by 

an effective compliance program that was in 

place at the time of the criminal offense 

• Proposed state false claims act – “reduced 

assessment” if voluntary disclosure and effective 

compliance program in place that detected 

offense

Conclusions 

• 1. Avoid being involved in lies, bribes or perks 

• 2. Implement a Compliance Plan 

• 3. Voluntarily disclose overpayments (carrier 

first, OIG second, and U.S. Attorney last) 

• 4. Keep your sense of humor – you are going 

to need it!

MEDICAL FRAUD

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