Clinton seeks huge Medicare fraud penalties

Perception of rampant Medicare fraud fuels fire

Take a fine of $2,000 per false claim, and increase it five times to $10,000 per fine per claim. Then, take $10,000 per false claim and increase it to a range of $25,000 to $50,000 per fine per claim.

That’s a leap from $2,000 to as much as $50,000, and that’s the increase you’re looking at over a two-year period if President Clinton’s recent fraud and abuse proposals move beyond politically popular tough talk and become law this year.

The figures above don’t even count the remainder of the payment penalties. With each fine, you pay an additional amount based on the dollar value of the false claim itself. For example, last year, the fine was twice the amount of each false claim; it’s now three times the amount of the claim. Clinton’s proposal would keep this portion of the penalties the same.

Same error on 100 claims could break you

Clinton’s tough measures reflect public sentiment that fraud is rampant — a perception that’s a bit overblown, particularly in the area of physician practices, some experts contend. In light of that, the scariest part for the average, everyday, non-scheming physician is making mistakes and then paying fines for every one of those mistakes. For example, the same coding error repeated for 100 claims could mount up to $2.5 million in fines, not counting triple damages on the value of claim amount itself.

"One stupid mistake gets you into more trouble than spending years trying to find a way to loop the till," says Alice Gosfield, JD, a Philadelphia attorney who specializes in Medicare issues and is a longtime editorial advisor for Physician Payment Update.

While Clinton’s key goal is to avert further federal embarrassment over massive home health fraud and abuse that captured headlines in 1996, he is pushing forward with more legislation to keep federal investigators casting their nets broadly in search of Medicare and Medicaid fraud and abuse, warns Albert W. Shay, JD. Shay is a health care attorney specializing in Medicare, with the Washington, DC, office of McDermott, Will & Emery.

Federal regulators are sure to watch home health and hospice closely, given media coverage of big fraud discoveries in those areas, but that doesn’t mean physicians and hospitals aren’t under scrutiny, too. In January, the Office of the Inspector General (OIG) in Washington, DC, announced a doubling of its legal/investigatory staff.

The recent fraud accusations leveled at Columbia/HCA Healthcare Corp. for inappropriately upcoding medical records also serve to remind providers — both hospitals and physicians — that they’re in the hot seat.

There are few guidelines for the ethical and legal issues that surface in patient fraud cases, warns Neil J. Farber, MD, an oncologist/hematologist at Allegheny University Hospital and at Veterans Affairs Medical Center, both in Philadelphia. (See related story on conflicts between patient fraud and patient confidentiality, p. 85.)

In addition to monetary damages, the primary hot button that affects physician practice management is the "should have known" clause. Before the Health Insurance Portability and Accountability Act (HIPA) of 1996 (also known as the Kennedy-Kassebaum bill) was passed, the government’s burden of proof in civil monetary penalty actions required evidence that the physician either knew or should have known a claim was fraudulent.1

Showing intent to break the law

In 1995, however, the U.S. Court of Appeals for the Ninth Circuit in Hanlester Network v. Shalala interpreted the government’s burden of proof as requiring the government to prove not only that the person intentionally engaged in the conduct, but that the person knew the act was illegal and committed the act with particular intent to disobey the law.

This meant that individual would not be found guilty of fraud unless the person knew that the statute prohibited certain conduct and then engaged in that conduct with the specific intent of violating it. The precedent only applied to cases brought in the Ninth Circuit, but Congress last year codified this standard in HIPA.

The Chicago-based AMA fought hard to get this provision added to Kennedy-Kassebaum, Gosfield says. But don’t get too excited, she warns. "It certainly is relevant in that it codifies what the case law was saying anyway," Gosfield says. "On the other hand, I’m not sure it’s quite as wonderful as some people think. You’ve got to be out of your mind if you think ignorance will work as a defense."

Other parts of the law, such as provisions regarding responsibilities of incorporated businesses (most practices are incorporated) still have the "should have known" standard.

Clinton’s recent proposals, however, would reverse the HIPA amendment to return the government’s burden of proof to its original standard of "known or should have known."

Lack of knowledge is flimsy defense

"The OIG is saying it vehemently disagrees with that [the current Ninth Circuit standard]," Shay says. Regardless of whether the reversal occurs or not, lack of intent or knowledge is flimsy legal ground. "Medicare is steeped in its belief in getting it right the first time," Gosfield warns.

Also, Clinton’s proposal cites several infractions that will be spelled out explicitly as punishable by civil money penalties, says Shay:

• nonparticipating physicians or suppliers who bill more than the limiting charge;

• providers who bill inappropriately for clinical diagnostic laboratory tests;

• physicians who bill on an unassigned basis for services rendered to beneficiaries dually eligible for Medicare and Medicaid;

• nonparticipating physicians who fail to notify beneficiaries of the actual charge of elective surgery;

• suppliers who fail to supply durable medical equipment after all the rental payments have been made;

• physicians who bill for assistants at cataract surgery;

• nonparticipating physicians who do not make refunds to beneficiaries for medically unnecessary or poor-quality services;

• physicians who repeatedly bill beneficiaries for certain diagnostic tests in excess of the limiting charge.


1. President to offer proposal to address Medicare/ Medicaid fraud and abuse; other Medicare technical amendments. Health Law Update. Boston: McDermott, Will & Emery; 1997.