Understanding Medicare and Medicaid Fraud

Question: Which of the following is not a violation of Medicare/Medicaid fraud statutes?

A. Referring patients to a lab of which your spouse is part owner.

B. Hospital "remuneration," such as below-market office leases or expensive tickets to events.

C. Forgiving the co-pay portion of a retired colleague’s bill.

D. Marketing Food and Drug Administration-approved drugs for off-label use.

E. Negligently submitting a wrong-patient Medicare claim.

Best answer: E. Choice E is analyzed under the False Claims Act, which imposes liability for knowingly submitting a payment demand to Medicare/Medicaid. Legally, this means having actual knowledge (scienter) that the claim is false or acting in deliberate or reckless indifference to the truth. However, an error that is negligently committed is insufficient to constitute a violation. Choice A is a direct violation of the Stark Law against self-referral, and B and C are violations of the Anti-Kickback Statute (AKS). The current 2011 threshold is $359 for "complimentary" tickets to events, and the government has warned that routinely waiving co-payments could implicate the AKS. Choice D, of special relevance to pharmaceutical and device manufacturers, is illegal under the False Claims Act. Whereas doctors are allowed to prescribe drugs or devices for an off-label indication, the law forbids a manufacturer from marketing its products for a non-FDA–approved use.

With an annual budget of almost $1 trillion, it is estimated that some 10% or up to $100 billion of Medicare/Medicaid funds are lost to fraud, waste, and abuse. The Office of Inspector General is the independent oversight agency regulating such sources of loss. "Fraud" includes the obtaining something of value through intentional misrepresentation or concealment of material facts, "waste" includes the incurring of unnecessary costs as a result of deficient management, practices, systems, or controls, and "abuse" includes any practice that is not consistent with the goals of providing patients with services that are medically necessary, meet professionally recognized standards, and are fairly priced. [See: A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse.]

To combat fraud, waste, and abuse, Congress has enacted three separate laws: The False Claims Act, the Anti-Kickback Statute, and the Physician Self-Referral Statute. In addition, states have their own versions of these laws. Stiff penalties for violations include fines, restriction of practice privileges, and imprisonment. More than 5,000 physicians in the United States are currently excluded from participation in Medicare/Medicaid programs because of violations (N. Engl. J. Med. 2011;364:102-3).

It is illegal under the False Claims Act to submit false or fraudulent claims for payment to Medicare or Medicaid (31 U.S.C. §§3729-3733). Private individuals, frequently former employees, consultants, even competitors, can file a so-called qui tam action alone or in concert with the government, and they stand to collect a substantial bounty in the event the prosecution proves successful. The Act originated during the Civil War, when increased government procurement led to fraudulent claims by contracting parties, prompting President Abraham Lincoln to state: "Worse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the Nation while patriotic blood is crimsoning the plains of the South, and their countrymen are moldering in the dust."

In the health care field, claims may be false if the service is not actually rendered to the patient, is provided but already covered under another claim, is miscoded, or is not supported by the medical record. Intent to defraud is not a required element; deliberate ignorance or reckless disregard of the truth will suffice. Whistle-blowers, that is, qui tam plaintiffs, can receive up to 30% of any False Claims Act recovery. Penalties are severe, and include treble damages, costs and attorney fees, and fines of $11,000 per false claim. Imprisonment and criminal fines are additional penalties. One of the latest criminal schemes to defraud Medicare involved organized crime’s establishment of more than 100 bogus clinics in 25 states, using stolen identities of doctors and patients. The government became suspicious when submitted bills purportedly came from ophthalmologists for bladder tests, ENT surgeons for ultrasounds, and office visits from a forensic pathologist. The Department of Justice has reportedly arrested 28 people linked to this fraud (BMJ 2010;341:c5865).

Under the Anti-Kickback Statute (42 U.S.C. §1320a-7b), it is illegal to knowingly or willfully offer, pay, solicit, or receive remuneration, directly or indirectly, in cash or in kind, in exchange for referring an individual or furnishing or arranging for a good or service, and for which payment may be made under Medicare or Medicaid. Importantly, the case of the United States v. Greber established that there is statutory violation even if only one purpose of the remuneration is to induce referrals. It is relatively easy for a medical center to run afoul of this law, and several hospitals have paid multimillion dollar settlements for kickback "remunerations."

The Physician Self-Referral Statute, commonly called the Stark Law, prohibits a physician from making a referral to an entity for the furnishing of a designated health service for which payment may be made under Medicare or Medicaid if the physician or an immediate family member has a financial relationship with the entity, unless an exception applies. This being a strict liability law, no proof of specific intent is required. There are strict, complex, and narrowly construed "safe harbors" and exceptions to both the Anti-Kickback and Stark laws, but the field is complex, so providers contemplating health care business deals should proceed cautiously and seek specific advice from experienced legal counsel.

Dr. S.Y. Tan is a former professor of medicine and adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author.

Question: Which of the following is not a violation of Medicare/Medicaid fraud statutes?

A. Referring patients to a lab of which your spouse is part owner.

B. Hospital "remuneration," such as below-market office leases or expensive tickets to events.

C. Forgiving the co-pay portion of a retired colleague’s bill.

D. Marketing Food and Drug Administration-approved drugs for off-label use.

E. Negligently submitting a wrong-patient Medicare claim.

Best answer: E. Choice E is analyzed under the False Claims Act, which imposes liability for knowingly submitting a payment demand to Medicare/Medicaid. Legally, this means having actual knowledge (scienter) that the claim is false or acting in deliberate or reckless indifference to the truth. However, an error that is negligently committed is insufficient to constitute a violation. Choice A is a direct violation of the Stark Law against self-referral, and B and C are violations of the Anti-Kickback Statute (AKS). The current 2011 threshold is $359 for "complimentary" tickets to events, and the government has warned that routinely waiving co-payments could implicate the AKS. Choice D, of special relevance to pharmaceutical and device manufacturers, is illegal under the False Claims Act. Whereas doctors are allowed to prescribe drugs or devices for an off-label indication, the law forbids a manufacturer from marketing its products for a non-FDA–approved use.

With an annual budget of almost $1 trillion, it is estimated that some 10% or up to $100 billion of Medicare/Medicaid funds are lost to fraud, waste, and abuse. The Office of Inspector General is the independent oversight agency regulating such sources of loss. "Fraud" includes the obtaining something of value through intentional misrepresentation or concealment of material facts, "waste" includes the incurring of unnecessary costs as a result of deficient management, practices, systems, or controls, and "abuse" includes any practice that is not consistent with the goals of providing patients with services that are medically necessary, meet professionally recognized standards, and are fairly priced. [See: A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse.]

To combat fraud, waste, and abuse, Congress has enacted three separate laws: The False Claims Act, the Anti-Kickback Statute, and the Physician Self-Referral Statute. In addition, states have their own versions of these laws. Stiff penalties for violations include fines, restriction of practice privileges, and imprisonment. More than 5,000 physicians in the United States are currently excluded from participation in Medicare/Medicaid programs because of violations (N. Engl. J. Med. 2011;364:102-3).

It is illegal under the False Claims Act to submit false or fraudulent claims for payment to Medicare or Medicaid (31 U.S.C. §§3729-3733). Private individuals, frequently former employees, consultants, even competitors, can file a so-called qui tam action alone or in concert with the government, and they stand to collect a substantial bounty in the event the prosecution proves successful. The Act originated during the Civil War, when increased government procurement led to fraudulent claims by contracting parties, prompting President Abraham Lincoln to state: "Worse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the Nation while patriotic blood is crimsoning the plains of the South, and their countrymen are moldering in the dust."

In the health care field, claims may be false if the service is not actually rendered to the patient, is provided but already covered under another claim, is miscoded, or is not supported by the medical record. Intent to defraud is not a required element; deliberate ignorance or reckless disregard of the truth will suffice. Whistle-blowers, that is, qui tam plaintiffs, can receive up to 30% of any False Claims Act recovery. Penalties are severe, and include treble damages, costs and attorney fees, and fines of $11,000 per false claim. Imprisonment and criminal fines are additional penalties. One of the latest criminal schemes to defraud Medicare involved organized crime’s establishment of more than 100 bogus clinics in 25 states, using stolen identities of doctors and patients. The government became suspicious when submitted bills purportedly came from ophthalmologists for bladder tests, ENT surgeons for ultrasounds, and office visits from a forensic pathologist. The Department of Justice has reportedly arrested 28 people linked to this fraud (BMJ 2010;341:c5865).

Under the Anti-Kickback Statute (42 U.S.C. §1320a-7b), it is illegal to knowingly or willfully offer, pay, solicit, or receive remuneration, directly or indirectly, in cash or in kind, in exchange for referring an individual or furnishing or arranging for a good or service, and for which payment may be made under Medicare or Medicaid. Importantly, the case of the United States v. Greber established that there is statutory violation even if only one purpose of the remuneration is to induce referrals. It is relatively easy for a medical center to run afoul of this law, and several hospitals have paid multimillion dollar settlements for kickback "remunerations."

The Physician Self-Referral Statute, commonly called the Stark Law, prohibits a physician from making a referral to an entity for the furnishing of a designated health service for which payment may be made under Medicare or Medicaid if the physician or an immediate family member has a financial relationship with the entity, unless an exception applies. This being a strict liability law, no proof of specific intent is required. There are strict, complex, and narrowly construed "safe harbors" and exceptions to both the Anti-Kickback and Stark laws, but the field is complex, so providers contemplating health care business deals should proceed cautiously and seek specific advice from experienced legal counsel.

Dr. S.Y. Tan is a former professor of medicine and adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author.

Question: Which of the following is not a violation of Medicare/Medicaid fraud statutes?

A. Referring patients to a lab of which your spouse is part owner.

B. Hospital "remuneration," such as below-market office leases or expensive tickets to events.

C. Forgiving the co-pay portion of a retired colleague’s bill.

D. Marketing Food and Drug Administration-approved drugs for off-label use.

E. Negligently submitting a wrong-patient Medicare claim.

Best answer: E. Choice E is analyzed under the False Claims Act, which imposes liability for knowingly submitting a payment demand to Medicare/Medicaid. Legally, this means having actual knowledge (scienter) that the claim is false or acting in deliberate or reckless indifference to the truth. However, an error that is negligently committed is insufficient to constitute a violation. Choice A is a direct violation of the Stark Law against self-referral, and B and C are violations of the Anti-Kickback Statute (AKS). The current 2011 threshold is $359 for "complimentary" tickets to events, and the government has warned that routinely waiving co-payments could implicate the AKS. Choice D, of special relevance to pharmaceutical and device manufacturers, is illegal under the False Claims Act. Whereas doctors are allowed to prescribe drugs or devices for an off-label indication, the law forbids a manufacturer from marketing its products for a non-FDA–approved use.

With an annual budget of almost $1 trillion, it is estimated that some 10% or up to $100 billion of Medicare/Medicaid funds are lost to fraud, waste, and abuse. The Office of Inspector General is the independent oversight agency regulating such sources of loss. "Fraud" includes the obtaining something of value through intentional misrepresentation or concealment of material facts, "waste" includes the incurring of unnecessary costs as a result of deficient management, practices, systems, or controls, and "abuse" includes any practice that is not consistent with the goals of providing patients with services that are medically necessary, meet professionally recognized standards, and are fairly priced. [See: A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse.]

To combat fraud, waste, and abuse, Congress has enacted three separate laws: The False Claims Act, the Anti-Kickback Statute, and the Physician Self-Referral Statute. In addition, states have their own versions of these laws. Stiff penalties for violations include fines, restriction of practice privileges, and imprisonment. More than 5,000 physicians in the United States are currently excluded from participation in Medicare/Medicaid programs because of violations (N. Engl. J. Med. 2011;364:102-3).

It is illegal under the False Claims Act to submit false or fraudulent claims for payment to Medicare or Medicaid (31 U.S.C. §§3729-3733). Private individuals, frequently former employees, consultants, even competitors, can file a so-called qui tam action alone or in concert with the government, and they stand to collect a substantial bounty in the event the prosecution proves successful. The Act originated during the Civil War, when increased government procurement led to fraudulent claims by contracting parties, prompting President Abraham Lincoln to state: "Worse than traitors in arms are the men who pretend loyalty to the flag, feast and fatten on the misfortunes of the Nation while patriotic blood is crimsoning the plains of the South, and their countrymen are moldering in the dust."

In the health care field, claims may be false if the service is not actually rendered to the patient, is provided but already covered under another claim, is miscoded, or is not supported by the medical record. Intent to defraud is not a required element; deliberate ignorance or reckless disregard of the truth will suffice. Whistle-blowers, that is, qui tam plaintiffs, can receive up to 30% of any False Claims Act recovery. Penalties are severe, and include treble damages, costs and attorney fees, and fines of $11,000 per false claim. Imprisonment and criminal fines are additional penalties. One of the latest criminal schemes to defraud Medicare involved organized crime’s establishment of more than 100 bogus clinics in 25 states, using stolen identities of doctors and patients. The government became suspicious when submitted bills purportedly came from ophthalmologists for bladder tests, ENT surgeons for ultrasounds, and office visits from a forensic pathologist. The Department of Justice has reportedly arrested 28 people linked to this fraud (BMJ 2010;341:c5865).

Under the Anti-Kickback Statute (42 U.S.C. §1320a-7b), it is illegal to knowingly or willfully offer, pay, solicit, or receive remuneration, directly or indirectly, in cash or in kind, in exchange for referring an individual or furnishing or arranging for a good or service, and for which payment may be made under Medicare or Medicaid. Importantly, the case of the United States v. Greber established that there is statutory violation even if only one purpose of the remuneration is to induce referrals. It is relatively easy for a medical center to run afoul of this law, and several hospitals have paid multimillion dollar settlements for kickback "remunerations."

The Physician Self-Referral Statute, commonly called the Stark Law, prohibits a physician from making a referral to an entity for the furnishing of a designated health service for which payment may be made under Medicare or Medicaid if the physician or an immediate family member has a financial relationship with the entity, unless an exception applies. This being a strict liability law, no proof of specific intent is required. There are strict, complex, and narrowly construed "safe harbors" and exceptions to both the Anti-Kickback and Stark laws, but the field is complex, so providers contemplating health care business deals should proceed cautiously and seek specific advice from experienced legal counsel.

Dr. S.Y. Tan is a former professor of medicine and adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author.