Regulating health care costs through fraud enforcement.

• Author: O'Leary, Howard E.
• Position: Health Care and the Law

IGNORING Dr. Johnson's admonition that "round numbers are always false," Beltway lore has it that some $275 million each day, or $100 billion a year, are lost to health care fraud and abuse.(1) Congress and successive administrations have reacted by embarking on a jihad against allegedly unscrupulous providers.

The Department of Justice Criminal Division has set up health care fraud task forces in a dozen or more cities, while approximately 450 full-time equivalent positions at the Federal Bureau of Investigation and the Health and Human Services Office of Inspector General (HHS-OIG) have been dedicated to investigating health care fraud. Increasingly, however, the private bounty hunter or qui tam relator has been the individual responsible for some of the most notable prosecutions and recoveries in health care fraud enforcement.

Since 1980, a system of enforcement and adjudication--modeled on the federal government's efforts to eradicate defense procurement fraud--has evolved, and it typically brings the accused corporate or institutional provider to its kness without the formality of a trial. A criminal indictment for a Medicare or Medicaid related offense generally touches off a three-pronged attack against the provider: (1) a criminal proceeding to determine guilt or innocence, (2) a government civil or administrative action to recover multiple damages and civil penalties and (3) an administrative proceeding to exclude or debar the provider from participation in the Medicare and Medicaid programs.

The trump card in this arsenal of weapons is the government's ability to suspend and withhold the provider's payments under Medicare on indictment or other reliable evidence of fraud or willful misrepresentation(2) and to exclude on conviction. A corporate or institutional provider looking down the barrel of an imminent indictment must assume that its payments under Medicare and Medicaid will be "temporarily" suspended without a hearing pending the outcome of the criminal and civil fraud proceedings.(3)

Faced with the loss of revenues from Medicare, a guilty plea to a criminal offense often becomes part of a global settlement of all of the provider's criminal, civil and administrative liability. Once an indictment or the filing of a civil fraud complaint is inevitable, the institutional provider's guilt or innocence may become less relevant, and its objective may shift to negotiating a resolution of its civil and administrative liability, which will permit its continued existence.

In recent years, the government has taken some impressive corporate scalps. In June 1994, NME Psychiatric Hospitals Inc., a subsidiary of National Medical Enterprises, then one of the nation's largest psychiatric hospital chains, pleaded guilty to conspiring to defraud the United States and to six counts of paying kickbacks to physicians and others for referrals. It agreed to pay a total of $362.7 million to resolve its federal criminal, civil and administrative liability, and to settle claims by 28 states.(4) In December 1992, National Health Laboratories Inc., one of the country's largest medical laboratory chains, pleaded guilty to two counts of submitting false claims to the government and agreed to pay $111.4 million in a similar settlement.(5)

This article reviews some of the principal criminal, civil and administrative weapons the federal government uses to combat health care fraud, certain recent enforcement efforts, and the increasing interaction between private qui tam or whistleblower actions and federal health care fraud enforcement efforts.

CRIMINAL HEALTH CARE FRAUD ENFORCEMENT

1. Submission of False Statements or Claims to Medicare or Medicaid

   A provider seeking reimbursement from Medicare or Medicaid typically submits the following information: the patient's name, the date of service, a description of the service provided, the procedure code for the service, the charge, the provider's name and identifying number, and a certification (express or implied) that the service was medically necessary. Any one or more of the above elements can be--and probably has been--the basis for criminal false statements or false claims prosecution.

   Most criminal prosecutions are for services not provided as claimed, including:

   * claims for services that are not medically necessary;

   * claims for services that may be medically necessary but are not covered by Medicare, for example, experimental procedures;

   * "upcoding," which is using a code for a higher level of reimbursement than the code for the services actually provided;

   * "unbundling," which is billing for one global procedure as a number of smaller ones to obtain a higher total level of reimbursement; and

   * inflating cost reports filed with Medicare or Medicaid.

   The leading criminal False Claims Act prosecution for submitting medically unnecessary claims is United States v. National Health Laboratories Inc. As part of a global settlement of all of its criminal, civil and administrative liability, NHL paid a $1 million criminal fine after pleading guilty to two counts of causing the submission of false claims to the Civilian Health and Medical Program for the Uniformed Services (CHAMPUS) for certain medically unnecessary tests. NHL's president, Robert Draper, also pleaded guilty and was sentenced to three months in prison, along with a $500,000 fine.

   The Medicare statute provides that "no payment may be made under Part A or Part B for any expenses incurred for items or services ... which ... are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member."(6) In addition, claim form HCFA-1500 of the Health Care Financing Administration requires a certification that "the services shown on this form were medically necessary for the health of the patient."

   In the National Health Laboratories case, the government's theory was that NHL duped its physician customers into making an incorrect determination of medical necessity--that is, ordering a bundle of three lab tests, when, in truth and fact, only one such test was medically necessary.

   Beginning in 1987, NHL added a high density lipoprotein cholesterol (HDL) test to its sequential multi-analysis computer (SMAC) test, a series of 19 or more blood tests widely used by physicians for diagnostic and monitoring purposes. Ideally, no claim for any test should be submitted to Medicare without a determination by a physician that the test is medically necessary for the patient's treatment. Medical technology, however, may make this principle difficult to apply. For the SMAC test to be reimbursable, only a few of the 19 or more tests need be medically necessary, because all such tests are performed on the same machine and the marginal cost of performing the additional tests is very low.

   In a marketing campaign aimed at its physician customers, NHL implied that a technological breakthrough permitted it to make the HDL part of the blood test package at little or no additional cost. In truth and fact, the HDL test was run on different equipment, and NHL billed Medicare and CHAMPUS separately for the two tests, nearly doubling the amount of its take from approximately $18 to approximately $34 for each patient. Two years later, NHL added serum ferritin, a test for iron storage, to its basic SMAC test package at an additional cost to Medicare of approximately $18.

   The manner in which NHL manipulated the billing form distributed to its physicians figured prominently in the government's case. In 1987, when NHL informed its clients that it would perform an HDL test "automatically" with each SMAC test at a nominal additional charge of $1.20, it changed its preprinted test order form by eliminating any order for the SMAC test alone and replacing it with a "Health Survey Profile" consisting of both SMAC and HDL. Physicians who objected to the mandatory coupling of the SMAC and HDL tests were told they would not be charged extra for the HDL.

   Two years later, the Health Survey Profile was expanded to include a ferritin test "automatically" at an allegedly nominal charge of an additional 65 cents. Thus, when physicians asked to be billed by NHL directly for their patients' SMAC tests and they in turn billed their patients, they received HDL and ferritin test results at little or no extra charge. In those instances in which NHL billed Medicare, CHAMPUS and other third-party payers, the HDL and ferritin tests were billed at an additional $16 and $18, respectively.

   From a revenue standpoint, the results of bundling the SMAC, HDL and ferritin tests were dramatic. Prior to adding ferritin to the Health Survey Profile, for example, NHL received approximately $500,000 from Medicare for ferritin tests performed during 1988. In 1990, the year after ferritin was added to the package, NHL's revenues from Medicare for this test alone increased to approximately $31 million.

   Moreover, according to the government, physicians who ordered NHL's Health Survey Profile did not know that adding the HDL and ferritin tests tripled the cost of the SMAC test to Medicare and would not have ordered such tests if they had known.(7) In its defense but to no avail, NHL produced a 1987 letter notifying its 30,000 physician customers that the HDL test was being added to the package and that doctors could order a customized form if they didn't want the enhanced package.

   It is unclear which of the following factors or combination thereof prompted the government to pursue this case criminally: that the HDL and ferritin tests are performed on different machines from the SMAC test; that NHL's preprinted form no longer gave physicians the choice of easily ordering the three tests separately; or that NHL failed to disclose that its charges to Medicare and Medicaid were different and higher than those to its physicians.

   In two subsequent and seemingly similar cases involving the bunding of unnecessary lab...