Fraud and Abuse

Abstract & Commentary

Synopsis: Multiple laws passed by the federal and state governments are directed toward curbing what is considered excessive reimbursement patterns by health care providers. Known collectively as fraud and abuse issues, physicians need be familiar with the far-reaching provisions to avoid civil and criminal penalties.

Source: Kalb PE. Health care fraud and abuse. JAMA 1999; 282:1163-1168.

From "medicaid mills" to physicians at teaching hospitals (PATH), audits of academic institutions, governmental scrutiny, and disciplinary action against health care industry personnel and institutions has escalated during the past several years. Journalistic headlines continue to highlight allegations of fraud by publicly traded companies such as Columbia/HCA or international clinical laboratories such as SmithKline Beecham. In a healthcare environment that emphasizes restricted resources and more limited referrals, the chilling message of accountability for wasteful spending has been directed as well to the individual practitioner. Intentional misrepresentation of billing practices is no longer required for prosecution, and "compliance plans" have become as common as medical staff bylaws.

Washington, DC, attorney Kalb summarizes the bases for legal action (criminal and civil) that can be taken by the U.S. Department of Justice, administrative actions by the Department of Health and Human Services’ Office of Inspector General, as well as state actions. In an attempt to contain costs as well as regulate referral practices, the government interest in pursuing fraudulent behavior can be traced to three primary types of conduct. As if government oversight is not sufficient, quitam, or individual "whistle blower," lawsuits have been encouraged to incentivize citizen participation in identifying potential government targets.

The first basis for governmental action is for false claims. Although more than a half dozen federal and state prohibitions exist, the federal False Claim Act (FCA) is the most important of these, prohibiting "knowing" submission of false claims, statements, or certification, as well as causing or conspiring with others to do so. Damages of up to three times the amount of the false claim plus mandatory penalties of $5,000 to $10,000 apply regardless of the size of claim. The element of "knowing" has been the subject of legal interpretation, but generally applies to the submission of bills for services not provided or including nonreimbursable services on cost reports. Under this act, the government’s PATH initiative has been pursued. Cases have arisen claiming that the submission of a bill implies a certification of compliance with the Anti-Kickback statutes. Enforcement has, in some cases, been extended to suggest that the provision of substandard care—a question of legal negligence usually under state jurisdiction—may violate the FCA. In this manner, medical conduct may be affected by the provisions of the act.

The second basis for action for fraud is the payment or receipt of kickbacks, bribes, or other inducements that are specifically intended to influence the purchase or sale of healthcare-related goods and services, highlighted by the federal Anti-Kickback statute, although most states have similar statutes. Persons offering (or paying) as well as accepting such remuneration have legal exposure. Given the broad range of interactions among healthcare personnel, the statute and Health Care Financing Administration (HCFA) have adopted exceptions or "safe harbors." Thus, where Holter monitor services paid physicians for interpretation fees that were deemed excessive, a false inducement was found. Often, cases are determined by what the nature of the "knowing" is with respect to the transaction.

The third major basis for action is self-referral prohibitions, the federal ones sometimes called the Stark I and Stark II laws, derived from the Ethics in Patient Referral Act. Services such as physical therapy, clinical laboratory work, radiology, and imaging facilities are governed by these provisions. As for the Anti-Kickback Act, "safe harbors’" are provided by Congress for the Stark laws (named after Congressman Pete Stark) to except relationships where the ownership or investment interest of the party or the compensation arrangement do not violate the intended purpose of "kickback" prevention. These laws carry only civil penalties but are notable in that they apply only to physicians and do not require improper intent.

Violations of these laws carry penalties, fines, and potential exclusion from government programs.

Comment by R. James Brenner, MD, JD

Between 1992 and 1996 the number of civil investigations by the FBI and the Department of Justice increased more than 900%, and the number of criminal investigations tripled. The Department of Health and Human Services (HHS) spends more than $600 million a year attempting to recoup losses to the Medicare program projected as wasteful spending secondary to fraudulent billing, and most cases result in some form of settlement. The once time-honored tradition of professional courtesy is now seen as an issue of fraud and abuse by the government (Inspector General) and contracts by managed care companies demanding reimbursement schedules less than Medicare violate federal provisions that the Medicare program receive the most favorable charges ("most favored nation status") by a provider who contracts to serve patients under the Medicare program. Few practices, especially few radiology practices, can either choose or survive without caring for this important population of patients. Third-party payers are also interested in preventing fraud. Audits, for example, of mammography practices that show a disproportionate number of diagnostic studies rather than screening studies for irreconcilable reasons have been the basis for private action against providers.

That fraud is a regrettable drain on the resources of this country invites little argument. Whether the multitude of provisions now available and used by private, state, and federal authorities to correct this problem has created a solution with its own Pandora’s box is being debated around the country. As is often the case, the appropriate response to curtailing fraud has created an environment that subjects reasonable opinions to costly redress. Those who commit fraud and abuse should be identified and subject to accountability. The extension of laws from intent to simple negligence of inappropriate action may be reasonable, but is a precarious field of law. Hospital staffs, freestanding imaging centers, and billing companies have been advised as a matter of first response to develop "compliance plans" where systems are created that interfere with processes that may lead to fraud. Such an in-place system—the approach of which is being borrowed from penal sentencing guidelines—is viewed by the government as an act of good faith in case of investigation, but is attended by self-incriminating (and possibly self-defeating) provisions that may deter active participation.