Health care fraud.

AuthorHubbell, Tracy D.
PositionTwenty-First Annual Survey of White Collar Crime
  1. INTRODUCTION II. STATUTES ADDRESSING MEDICARE AND MEDICAID FRAUD A. Medicaid False Claims Statute 1. Elements of the Offense a. Statement of Material Fact b. False Representation c. Knowing and Willful d. Knowledge of Falsity 2. Penalties B. Medicaid Anti-Kickback Statute 1. Elements of the Offense a. Knowing and Willful b. Solicitation or Receipt of Remuneration c. For the Purpose of Inducing Referral of Business 2. Defenses a. Unconstitutional Vagueness b. Entrapment by Estoppel c. Good Faith 3. Penalties 4. Safe Harbor Provisions a. Purpose b. Uncertainty in the New Regulations c. Enumerated Safe Harbors i. Investment Interest ii. Sale of Physician Practices, Physician Recruitment, and Obstetrical Malpractice Insurance Subsidies iii. Contracts for Space, Equipment, Personal Services, and Employment iv. Advertisements and Promotions v. Electronic Prescription Systems vi. Referral Services vii. Relationships Between Providers viii. Arrangements Between Providers and Health Plans ix. Relationships Between Providers and Suppliers x. Ambulance Replenishing d. Proposed Amendments C. Self-Referral/Stark Amendments 1. Elements of the Offense a. Financial Relationship b. Referral c. Submission of a Claim for Services d. Absence of an Exception or Safe Harbor 2. Penalties D. The Health Insurance Portability and Accountability Act of 1996 1. Offenses 2. Defenses 3. Exemptions 4. Penalties III. PROSECUTING HEALTH CARE FRAUD WITH GENERAL FEDERAL STATUTES A. False Claims Act 1. Elements of the Offense a. Presentation of a Claim b. False, Fictitious, or Fraudulent Nature of a Claim c. Intent 2. Defenses 3. Penalties B. False Statements 1. Elements of the Offense a. Statement to a Governing Agency b. Falsity of Statement c. Intent 2. Defenses 3. Penalties C. Mail and Wire Fraud 1. Elements of the Offense a. Scheme or Artifice to Defraud b. Use of the Mails or Wire in Furtherance of the Scheme 2. Defenses 3. Penalties IV. ENFORCEMENT A. Introduction B. Entities Responsible for Enforcement 1. Federal Enforcement a. Department of Justice b. Department of Health and Human Services i. Health Care Financing Administration ii. Office of the Inspector General c. Private Parties and Qui Tam Actions 2. State Level Enforcement 3. Federal and State Cooperation 4. Compliance Programs I. INTRODUCTION

    The Centers for Medicare and Medicaid Services ("CMS"), formerly the Health Care Financing Administration ("HCFA"), (1) estimates that by the year 2014, health care spending will reach $3.6 trillion and will account for 18.7% of the Gross Domestic Product. (2) With FY 2005 projected federal expenditures of more than $496 billion, (3) the Medicare and Medicaid programs comprise the largest single purchaser of health care in the world. (4) Thus, it is no surprise that criminals view health care fraud as a lucrative field for illicit profit. (5) Indeed, the National Health Care Anti-Fraud Association CNHCAA") estimates that such fraud accounts for at least three, but as much as ten percent of total health care expenditures. (6) Because health care fraud costs taxpayers more than $12 billion a year, (7) federal and state agencies have made health care fraud prosecution a primary focus. (8) In 2004, the federal government won or negotiated more than $605 million in judgments, settlements, and administrative impositions in health care fraud cases and proceedings. (9) In addition, the number of health care fraud cases referred for criminal prosecution by the Department of Health and Human Services ("HHS") has significantly increased. (10) Even following September 11, 2001, countering fraud and abuse remains a priority. (11)

    The federal government concentrates on detecting and prosecuting health care fraud in its health care insurance programs, Medicare and Medicaid. (12) Statutes enacted to deal with fraud in these specific programs are necessary because "[a]s the government's second largest social program, Medicare continues to be an attractive target for fraud and abuse." (13)

    Persons and organizations certified by the HHS to receive payment under the Social Security Act are the most likely targets for Medicare and Medicaid fraud investigations. (14) Persons and organizations include hospitals, nursing and rehabilitation centers, Health Maintenance Organizations ("HMOs"), and intermediate carriers such as private insurance companies, private and public clinics, medical laboratories, durable medical equipment ("DME") providers, physicians, and physician practice groups. (15) In addition, assisted living facilities are of increasing concern. (16)

    Several government agencies are involved in decreasing health care fraud. The Department of Justice ("DOJ") and HHS provide monitoring and enforcement of health care fraud regulations. (17) Individual states assist the HHS Office of the Inspector General ("OIG") and CMS to initiate and pursue investigations of Medicare and Medicaid fraud. (18) In addition, OIG uses its permissive exclusion authority to induce providers to help in the effort to track fraud through a voluntary disclosure program. (19) In prosecutions of fraud, DOJ employs the resources of its own criminal and civil divisions, as well as those of the United States Attorneys' Offices and the FBI. (20)

    Health care fraud poses a demonstrated abuse to the public treasury. This article will examine the federal and state efforts to address this abuse. Section II of this article examines the statutes specifically enacted to address Medicare and Medicaid fraud and reviews the elements, defenses, penalties, and safe harbor provisions for each statute. Section III of this Article discusses the general federal statutes used to prosecute health care fraud, including the False Claims, False Statements, and Mail and Wire Fraud Acts and describes the elements of the offenses, available defenses, and penalties applicable under each statute. Section IV provides an overview of federal and state government agencies' efforts to investigate and prosecute health care fraud. (21)


    The United States Congress' response to the escalating increase in Medicare and Medicaid fraud and abuse has been to strengthen existing statutes (22) and to pass new laws that substantially increase the government's ability to detect and fight health care fraud and abuse. (23) The result is a statutory and regulatory scheme that creates civil and criminal sanctions for any person or legal entity that provides health care goods or services in a fraudulent or abusive manner. (24) The federal government may also bring criminal prosecution under the False Claims Act 25 or other criminal fraud statutes, addressed in Section III. (26)

    This Section discusses statutes enacted to fight Medicaid and Medicare fraud and abuse in four parts. Part A discusses the Medicaid False Claims Statute. (27) Part B addresses the Medicaid anti-kickback statute. (28) Part C examines the Stark amendments, which limit certain physician referrals. (29) Finally, Part D discusses the relevant provisions of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"). (30)

    1. Medicaid False Claims Statute

      The Medicaid False Claims Statute criminalizes false statements or representations in connection with any application for claim of benefits or payment, (31) or the disposal of assets, (32) under a federal health care program. (33) While the Medicaid False Claims Statute was enacted to target false statements or representations specifically related to health care, the majority of prosecutions related to health care fraud and abuse continue to be brought under other statutes. (34)

      1. Elements of the Offense

        Under the Medicaid False Claims Statute, the government (35) must prove four elements to sustain a conviction: (i) the defendant made, or caused to be made, a statement or representation of material fact in an application for payment or benefits under a federal health care program; (36) (ii) the statement or representation was false; (37) (iii) the defendant knowingly and willfully made the statement; (38) and (iv) the defendant knew the statement to be false. (39)

        a. Statement of Material Fact

        The issue of materiality is a question of law. (40) Materiality exists where the false statement has a "'natural tendency to influence, or be capable of affecting or influencing,' a function performed by a government agency." (41) Only the potential for a statement to influence a government agency needs to be demonstrated; actual reliance on the false statement is unnecessary. (42)

        b. False Representation

        To meet the statutory requirement, the false claim must have actually been submitted to the federal government for reimbursement. (43) This includes, but is not limited to, (i) billing Medicaid for procedures or tests not performed; (44) (ii) falsely claiming that a series of procedures were needed due to "accidents;" (45) (iii) submitting claims for patients never see; (46) and (iv) submitting claims for services not personally rendered. (47)

        c. Knowing and Willful

        The Medicaid False Claims Statute applies to whoever "knowingly and willfully makes or causes to be made any false statement or representation." (48)

        d. Knowledge of Falsity

        While most Circuits have not yet considered whether knowledge of falsity is required under the Medicaid False Claims Statute, both the Ninth and Tenth Circuits have stated that knowledge of falsity is an essential element of Medicaid fraud. (49) In United States v. Laughlin, the Tenth Circuit reversed defendant's Medicaid fraud convictions on the ground that the trial judge committed prejudicial error by failing to apprise the jury that the defendant must have known the statement was false when the claim was submitted. (50) Similarly, in United States v. Larm, the Ninth Circuit affirmed the defendant's Medicaid fraud conviction based in part on evidence of knowledge of falsity of claims billed to Medicaid under an...

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