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Health Care Law and Policy
St. Johns University School of Law
Kaiser, Geoffrey R.

Professor Kaiser
Health care fraud
Fall 2015
I.                   OVERVIEW
1.        Fraud:  Lying for money
§   Health care fraud includes health insurance fraud, drug fraud, and medical fraud. Health insurance fraud occurs when a company or an individual defrauds an insurer or government health care program, such as Medicare (United States) or equivalent State programs.
§    The manner in which this is done varies, and persons engaging in fraud are always seeking new ways to circumvent the law. Damages from fraud can be recovered by use of the False Claims Act, most commonly under the qui tam provisions which rewards an individual for being a “whistleblower”, or relator (law)
                                                               i.            The FBI estimates that Health Care Fraud costs American tax payers $80 billion a year. Of this amount $2.5 billion was recovered through False Claims Act cases in FY 2010. Most of these cases were filed under qui tam provisions.
§   Hard to detect bc insurance companies on their face are set up to literally pay out claims. Its very hard to detect fraud bc of the very nature of insurance companies.
2.         There are several different schemes used to defraud the Health care system
a.        Billing for services not rendered
                                                      i.            Often done as a way of billing Medicare for things that never happened. This can involve forging the signature of those enrolled in Medicare, and the use of bribes or “kickbacks” to corrupt medical professionals
                                                     ii.            Filing a claim for healthcare services, treatments, tests, medical devices, or drugs that were never deliveredà Can also be items that were not supplied (i.e. by a pharmacist)
                                                   iii.            Easiest to prove with clear, objective evidence (service proveable on physical exam, sometimes patient file will provide conclusive evidence
a.        However, if volume of services is great, or other factors such as age, illness, or the passage of time may affect the reliability or accuracy of patient testimony that the provider did not provide a service as alleged, and it will be harder to prove.
b.        Non-existant patients
                                                  i.            Filing a claim for healthcare services, treatment, etc, to a patient who does not exist or never received the treatment.
c.         Upcoding of services
                                                   i.            Billing insurance companies for services that are more costly than the actual procedure that was done.
                                                  ii.            Submit code for more serious/expensive version of treatment rendered
                                                iii.            Mispresentation of services rendered à code/complexities/confusion can undermine criminal intent.
d.        Upcoding of items
                                                   i.            Similar to upcoding of services, but involving the use of medical equipment. An example is billing Medicare for a power-assisted wheelchair while only giving the patient a manual wheelchair
e.        Duplicate claims
                                                   i.            In this case a provider does not submit exactly the same bill, but changes some small portion like the date in order to charge Medicare twice for the same service rendered. Rather than a single claim being filed twice, the same service is billed two times in an attempt to be paid twice.
f.         Unbundling (and bundling)
                                                   i.            Bills for a particular service are submitted in piecemeal, that appear to be staggered out over time. These services would normally cost less when bundled together, but by manipulating the claim, a higher charge is billed to Medicare resulting in a higher pay out to the party committing the fraud
                                                  ii.            Billing services individually, rather than as a healthcare program’s special packaged rates.
                                                iii.            Gives provider more $$–most of the time its lab-related misconduct
ü  Thus a health care provider can maximize the reimbursement amount by billing the tests separately rather than under the single “bundled” billing code.
                                                iv.            The same term “bundling” most frequently refers, conversely, to the artificial combination of tests and procedures in such a manner that they are not separately available, which results in the performance of, and billing for, unnecessary tests.
                                                  v.            Cases: Labcorp (182 million dollar settlement) and Smithkline Clinical Labs ($325 million settlement)
g.        Excessive services
                                                   i.            Occurs when Medicare is billed for something greater than what the level of actual care requires. This can include medical related equipment as well as services.
h.        Medically Unnecessary services
                                                i.            Unlike excessive services, this fraudulent scheme occurs when claims are filed for care that in no way applies to the condition of a patient, such as an echo cardiogram billed for a patient with a sprained ankle.
                                               ii.            Hardest to prove at trial!! Govt is not allow to interfere with patient/doc relationship—some docs might actually believe that the service was necessary! Only the cases that are clear-cut are the ones with the best chance of success.
                                             iii.            Provider must be able to show treatment was “medically necessary”
                                              iv.            Must prove 3 elements:
1)        the services were not necessary;
2)        the provider, or someone at its direction, represented that the services billed were necessary; and
3)       the representations of necessity were known to be false
i.         Failure to Provide Adequate or Necessary Services
                                            i.            Failing to meet and acceptable standard of error
                                           ii.            42 U.S.C. Section 1320c-5(a)—the statute to which the relator pointed as the source of defendants’ obligations to comply with the standard of care—obliges health care providers to deliver care that is “of a quality which meets professionally recognized standards of health care
                                         iii.            Mikes v Straus: (NY case) service must be so bad that it is practically the same as no service. High burden! If the service claim can be said to be worthless, that can satisfy the FCA, provided it is submitted knowing, since a worthless claim is akin to a claim for a service not rendered at all.
ü  Medical nec is required for payment, but medical nec does not mandate a particular standard of care. Goes to whether a procedure is required, but not how well it is performed.
ü  A false certification of compliance with a regulation or statute cannot be used as the basis of a qui tam action pursuant to the False Claims Act if payment is not conditioned on that certification
j.         Inappropriate physician investments/compensation arrangements
                                                i.            Violating the Stark Law will violate FCAà Federal stark law prohibits docs from referring patients to or ordering goods/services from entites with which they have an investment in
                                               ii.            Can’t order services from an entity you have connections too
k.        Red Lining
                                             i.            Fixed care costs
                                            ii.            Hospitals and Insurance companies want to enroll the healthiest people to maximize profits
l.         Off-Label Marketing (aka misbranding)
                                             i.            Pharmaceutical companies cannot market a drug for a use not approved for by the FDA.
1)       False and misleading labels on the drug is considered misbranding  (bc the label is no longer accurate) –company had intent to use the drug for purposes not approved by the FDA
2)       Intent to mislead and intent to defraud
                                            ii.            HOWEVER, once FDA approved, doctors can prescribe for off-label use.
                                          iii.            Misemanor misbranding= misbranding without intent/knowledge—all you need to do is introduce a product into interstate commerce
m.       Falsified Hosptial Cost-report fraud
                                          i.             Hospitals/nursing homes/facilities, etcm participating in Medicare program and financial reports with Medicare. Fudging the numbers in order to get increased profits is illegal under FCA
                                         ii.            Reserve cost report: separate reports that indicate areas in which the intermediary might not allow a particular cost claimed on the cost report that was filed…not inherently suspect,  however, they must be filed in good faith.
ü  Providers that must maintain reserve cost reports should document their reasons for maintaining them, the differences between the standards applied in adopting the positions in the reports, and the reasons for the differences
                                       iii.            Nursing homes, hospitals, and certain other health care providers who participate in the Medicare or Medicaid programs are required to file annual cost reports to obtain reimbursement for the cost of services rendered to Medicare or Medicaid patients.85 The amount due to the provider is based on a formula that incorporates the costs incurred by the provider in rendering patient care. The provider is instructed that it will be reimbursed only on the basis of costs related to patient care. Providers are instructed to allocate their costs into “cost centers” so that costs relating to patient care can be distinguished from other costs. Providers then apportion the cost centers relating to patient care between Medicare or Medicaid patients and other patients not covered by the programs
                                       iv.            Providers can commit fraud in cost reporting in various ways, including:
1)       by including expenses that are not related to patient care;
2)       by inflating expenses that are related to patient care
3)       by shifting costs to reimbursable cost centers or to covered patients; an
4)       by failing to disclose the related status of business entities with whom the provider is dealing.
                                         v.            Problems proving cost report fraud:
o    Can involve intricate accounting issues
o    Knowledge that an improper expense was included in the report
o    Problems valuing health care services in cases of related organizations, “reasonable cost” vs. cost of comparable items
o    In cost report fraud cases, typically one cost report for one fiscal year is one count.
n.        Inflating drug prices
o.        Retention of Overpayments
                                          i.            Wrongully obtaining a payment (without intent to commit fraud) but then keeping that money anyway
                                         ii.            FERA expanded he basis of liability in the FCA to include improperly concealing, avoiding or decreasing an obligation to pay money to the federal govt. defined obligation to include “retention of any overpayment”
                                       iii.            42 USC 1320 requires return of overpayment within 60 days
p.        Pharmaceuticals Benefits Manager Fraud
                                          i.            Firms hired by Insurance companies to help control pay-outs for prescription drugs
                                         ii.            Good a fudging numbers, paying off drug companies, discount agreements.
q.         Kickbacks
                                                i.            Kickbacks are rewards such as cash, jewelry, free vacations, corporate sponsored retreats, or other lavish gifts used to entice medical professionals into using specific medical services. This could be a small cash kickback for the use of an MRI when not required, or a lavish doctor/patient retreat that is funded by a pharmaceutical company to entice the prescription and use of a particular drug.
                                               ii.            People engaging in this type of fraud are also subject to the federal Anti-Kickback statute
                                             iii.            These are illegal
                                             iv.            Pharmaceutical companies pay-off doctors (Free-Bees and such) to distort their clinical opinion of certain drugs.
                                               v.            Can be:
ü  Expensive trips and dinners
ü  Free samples of drugs that docs then sell to patients 
ü  Excessive fees for speaking engagements, consulting services, training sessions, and advisory boards
ü  Bonus payments to high-drug-volume docs and hospitals
ü  Sham drug trials
3.        Examples
a.        In the case United States ex rel. Donigian v. St. Jude Medical, Inc, St. Jude Medical, Inc. agreed to pay $16 million to quiet allegations of paying kickbacks to physicians. The whistleblower was able to provide detailed insider information as to the nature of the kickbacks, which ranged from entertainment to sporting event tickets and other gifts. The relator in this case was awarded $2.64 million.[citation needed] b.        The case United States et al., ex rel. Jim Conrad and Constance Conrad v. Forest Pharmaceuticals, Inc involved a drug manufacturer selling a drug, Levothroid, that had never been approved by the FDA. These allegations settled for $42.5 million due to multiple whistleblowers stepping forward to provide detailed information on the alleged fraud. The collective reward to the relators in this case was over $14.6 million
4.        Reporting fraud
a.        There are many ways to report cases of fraud. If a patient or health care provider believes they have witnessed Health Care Fraud, they are encouraged to contact the FBI via either their local office, telephone, or the online tips form.
b.        If, however, they want to ensure the government actively investigates the alleged fraud, they are encouraged to contact legal counsel from an experienced firm that specializes in qui tam litigation under the False Claims Act.
                                                i.            A good legal team can advise potential whistleblowers of their rights, protections, and what evidence is necessary to solidify a case against the group leading the fraud.
5.        Special characteristics of health care fraud
a.        It’s a hybrid crime—pursued through civil, admin, and crim remedies
b.        Impacted by the existence of a 3rd party reimbursement mechanism and highly complex regulations that are constantly evolving and changing.
c.        Evidence of intent can be difficult to obtain bc of the complexity of the system and bc the process of getting claims paid often involves the participation of many people within a heathcare organization.
d.        Its different from other white collar crimes b/c its not purely an economic crime, it can actually kill people (and it has) and impact peoples health directly

reports on CMS operations and leanr of specific issues regarding current investigations.
e)        DOJ/HHS interagency staff-level working groups; OIG attorneys detailed to the Fraud section of the Criminal Division as special trial attorneys and to USAOs as SAUSAs as additional prosecutorial resources.
f)        Collaboration between federal government, state officials, several leading private health insurance organizations and other healthcare anti-fraud groups to share information and best practices in order to improve detection and prevent HCF
g)        Each USAO has a healthcare fraud coordinator and there is a healthcare fraud working group in each federal judicial district.
·          Since the mid-1990s, increased resources allocated to healthcare fraud enforcement.
·          The Health Care Fraud and Abuse Control Program (HCFAC) mandated by HIPAA provides the largest component of the funding for fighting fraud, waste, and abuse.
a)        coordinate federal, state and local law enforcement efforts and facilitate the enforcement of statutes applicable to healthcare fraud;
b)       conduct investigations, audits and evaluations related to healthcare fraud;
c)        provide industry guidance related to fraudulent healthcare practices; and
d)       establish a national databank to report final adverse actions against healthcare providers.
·          HCFAC Program directed by OIG and the Attorney General.  Intended as collaborative process to identify and prosecute healthcare, prevent future fraud and abuse and protect beneficiaries. HCFAC has returned over $25.6 billion to the Medicare Trust Funds since its inception in 1997. Resulted in a greater number of investigations, prosecutions, civil enforcement proceedings and recoveries.
a)        HIPAA established Health Care Fraud and Abuse Control Account within Medicare's Hospital Insurance Trust Fund. The trust fund receives criminal fines and penalties recovered in cases involving federal healthcare offenses, civil monetary penalties and assessments, amounts resulting from forfeitures in healthcare offenses, and penalties and damages recovered under the FCA involving healthcare items or services.
b)       A portion of trust fund monies is used to conduct healthcare prosecutions, investigations, financial and performance audits and inspections and other evaluations by the HHS OIG, DOJ and FBI.
c)        The return-on-investment has increased from $4.90 returned for every $1.00 invested for FY 2006 through 2008 to $7.90 returned for every $1.00 invested for FY 2010 through 2012.
d)       In FY 2014, the Department of Justice (DOJ) opened 924 new criminal health care fraud investigations.  Federal prosecutors filed criminal charges in 496 cases involving 805 defendants.  A total of 734 defendants were convicted of health care fraud-related crimes during the year. Also in FY 2014, DOJ opened 782 new civil health care fraud investigations and had 957 civil health care fraud matters pending at the end of the fiscal year.  In FY 2014, the FBI investigative efforts resulted in over 605 operational disruptions of criminal fraud organizations and the dismantlement of the criminal hierarchy of more than 142 health care fraud criminal enterprises.
e)        In FY 2014, HHS’ Office of Inspector General (HHS-OIG) investigations resulted in 867 criminal actions against individuals or entities that engaged in crimes related to Medicare and Medicaid, and 529 civil actions, which include false claims and unjust-enrichment lawsuits filed in Federal district court, civil monetary penalties (CMP) settlements, and administrative recoveries related to provider self-disclosure matters.  HHS-OIG also excluded 4,017 individuals and entities from participation in Medicare, Medicaid, and other federal health care programs.  Among these were exclusions based on criminal convictions for crimes related to Medicare and Medicaid (1,310) or to other health care programs (432), for patient abuse or neglect (189), and as a result of licensure revocations (1,744).
·          In addition to fostering greater cooperation among law enforcement agencies generally,  and enhancing resources, the government has launched national HCF initiatives:
a)        Operation Restore Trust (1995) (Home Health Care billing fraud)
b)       Operation LABSCAM (1990s) (Laboratory bundling/unbundling
c)        PATH initiative (1990s) (improper billing of residents/interns)
d)       Operation Bad Bundle (1990s) (improper hospital unbundling of lab tests)
e)        Nationwide initiative to investigate high-billing physicians (2013)
f)        Medically unnecessary interventional cardiology procedures (2013)
g)        Fraudulent Inpatient billing of khyphoplasty (2008-2013)
h)       Improper hospital billing of experimental cardiac device (2002)
v  Overall, the Justice Department and OIG efforts in these areas have resulted in substantial recoveries to the government, especially in FCA cases. In FY 2014, there were over 700 whistleblower lawsuits and recoveries totaling a record $5.69 billion for all kinds of cases under the FCA.  It was the first time recoveries exceeded $5 billion under the FCA.  $2.3 billion, or 40%, were generated through HCF cases.
Investigating Structure
·          Federal Investigative Agencies
o    Department of Justice
o    Civil Division
ü  False Claims Act
o    Criminal Division
ü  In DOJ strategic plan for 2014-2018, HCF and Financial Fraud is the no. 3 law enforcement priority after terrorism and violent crime.
o    FBI
ü  Only agency with jurisdiction over both federal and private insurance programs.  Principal agency in DOJ investigating HCF.
ü  Because a scheme to defraud often involves multiple programs and payers, including private insurers and insureds, the FBI is often in the best position to coordinate the efforts of other agencies and to organize nationwide investigations.
ü  Since the enactment of HIPAA in 1996, the FBI's role in health care fraud has increased. HIPAA made fraud against any health plan a federal offense and thereby removed some of the jurisdictional barriers to health law enforcement, which facilitated increased role of FBI.
ü  FBI involvement has meant more sophisticated investigated techniques, including greater reliance on search warrants, undercover agents, informants and electronic surveillance.