Health Care Fraud and Compliance

While I devote much of my blog to anti-corruption issues, I wanted to take a few posts to examine significant health care fraud and compliance issues. What is interesting is the overlap in many compliance issues. Like the anti-corruption area, the Justice Department and HHS have aggressively enforced health care fraud laws.

Over the past two years, the Justice Department has expanded its prosecution of health care fraud, especially Medicare. The Healthcare Fraud Prevention & Enforcement Action Team (HEAT)’s Medicare Strike Force, which now operates in seven U.S. cities, has led this effort. The Strike Force model’s central goal is to investigate and prosecute defendants who steal taxpayer dollars through fraudulent billing of Medicare.


In Fiscal Year 2010 alone, the Medicare Strike Force filed 140 indictments involving charges against 284 defendants who collectively billed the Medicare program more than $590 million. In the same year, 217 guilty pleas were obtained, jury trials resulted in guilty verdicts against 23 other defendants, and 146 defendants were sentenced to prison terms, with an average sentence of more than 40 months of incarceration. The Strike Force also secured court orders of restitution totaling over $169 million. The Medicare Strike Force has prosecuted defendants engaged in numerous forms of Medicare fraud, from fraudulent billing for durable medical equipment and HIV-infusion to home health care and mental health therapy. The Strike Force has prosecuted doctors, nurses, owners and operators of fraudulent providers and suppliers, and individuals who recruited beneficiaries to participate in fraud schemes.


Health care fraud involves the enforcement of (1) anti-kickback statute; (2) False Claims Act (FCA); (3) Stark law (physician self-referral law); and (4) exclusion statute.

The federal health care anti-kickback statute is a criminal statute that prohibits, among other things, giving or receiving any financial benefit or “remuneration” in exchange for, or to induce, the referral of any patients for, or the purchase, order or recommendation of, any item or service for which payment may be made under Medicare or other federal health care programs. Remuneration is defined broadly to include the transfer of anything of value, in cash or in kind, directly or indirectly, covertly or overtly. Violation of the Anti-Kickback statute constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to 5 years, or both. Conviction will also lead to automatic exclusion from Medicare, Medicaid, and other federally-funded federal healthcare programs. Exclusion may also be sought by HHS through an administrative proceeding. In addition, violations of the anti-kickback statute are also subject to civil monetary penalties of up to $50,000 for each “act” committed in violation of the statute and penalties of up to three times the amount of the alleged illegal “remuneration.”

The Stark Law prohibits a physician from referring patients to entities with which the physician has a financial relationship for certain designated health services that are reimbursable by Medicare. It also prohibits the entities furnishing designated health services from billing Medicare, or any other payor or individual for services performed as a result of a prohibited referral. The purpose of the Stark Law is to create a bright line, “strict liability” prohibition against physicians having financial relationships with the healthcare facilities to which they refer their Medicare or Medicaid patients. As a result, “regardless of the intent of the parties, if a referral does not comply with the Stark Law, any designated health services performed as a result of a prohibited referral constitute overpayments.” The primary remedy for a Stark violation is denial of payment for a prohibited claim or required return (refund) of any amounts collected under such claim. Civil penalties may also be imposed as $15,000 for each service that violates the statute and penalties of $100,000 for arrangements designed to circumvent the Stark Statute.

Private litigants and the government alike have been successful in using alleged violations of these healthcare fraud and abuse provisions as a basis for an action under the Civil False Claims Act. Under the FCA, the United States (or private relators who “stand in the shoes of the government” for purposes of bringing an FCA action), may recover treble damages and per claim penalties in the amount of $5,500 to $11,000 for anyone who knowingly presents or causes to be presented a false or fraudulent claim to any federal agency or entity making payments on claims using federal funds. It is important to note that the FCA has been increasingly used by private plaintiffs in cases alleging a violation of the Anti-Kickback statute and Stark Law because it provides that private parties who are successful in bringing qui tam actions will receive a percentage of the recovery, attorneys fees and costs as a reward.

Why do companies worry so much about the False Claims Act? To put it simply -- very large and expensive recoveries in the billions of dollar range. The size of the government’s recoveries eclipse those of the FCPA. In addition, there are serious regulatory implications. Under the Medicare program, an FCA judgment or settlement can result in exclusion from the Medicare, Medicaid, and/or other Federal health care programs. See 42 U.S.C. 1320a-7(b). And there is the potential for the government to require a corporate integrity agreement with the Department of Health and Human Services.