Health Care Fraud

Historically, health care fraud has generated large numbers of false claims cases, as well as  the majority of government dollars recovered from false claims lawsuits each year. Given the enormity and complexity of government health care programs, and the huge dollar amounts implicated, this is not surprising.  

In addition to fraud arising out of Covid-19 and the CARES Act, the Department of Justice and Department of Health and Human Services anticipate an uptick in health care fraud in the coming years within a wide range of areas such as:

• Health Care Provider Fraud: Health care providers, including hospitals, ambulatory surgical centers, skilled nursing facilities, dialysis or pain management centers, and/or home health care and hospice providers may commit fraud related to government health programs such as Medicare and Medicaid and TRICARE, the health care program for uniformed service members, veterans and their families. Fraud can be perpetrated in any number of ways such as by:  1) misrepresenting on claims for government reimbursement that services were performed when they were not,  2) fraudulently charging for medical services such as skilled therapy or medical procedures that were unnecessary,  3) “upcoding” medical services, meaning that a provider fraudulently bills for a patient visit, or medical procedure, at a rate reserved for  longer, more complex services than those actually performed,  4) “unbundling” a set of inter-related procedures that are required to be bundled together for billing purposes  in order to falsely increase reimbursement or 5) having providers such as nurses or other personnel perform services which only physicians can lawfully perform.
  • Individual health care providers such as physicians, dentists, or high level executives at hospitals and the like who play a decision-making role in engineering or orchestrating  the fraud, can also violate the false claims act.  
• Managed Care Fraud: Unlike the traditional Medicare fee-for-service model, Part C of Medicare allows  participants to receive their health insurance from Medicare Advantage Organizations. These private companies (“MAOs”), receive a fixed sum of money annually per patient (the amount of which depends on the health of each member patient), make payments to providers for that patient's covered services, and keep the difference as their profit. Medicaid Managed Care programs operate in a similar way under state Medicaid programs. Capitated payments provide a profit motive to MAOs to operate efficiently and rein in overall health care spending. In practice, though, this payment structure can provide incentives for companies to unlawfully increase their profits by manipulating cash flows on both ends of the equation. At one end, they can represent to the government that their patient population is less healthy than it is, thereby increasing the patient’s “risk score” and obtaining artificially increased capitation payments as a result. At the other end, they can pay providers less than providers are entitled to in order to unlawfully inflate profits. In recent years DOJ has intervened in a number of qui tam lawsuits alleging that MAOs have tampered with member patient’s medical records to make patients appear sicker than they actually are in order to increase capitated payments. One tactic MAOs have utilized to game the system is to hire third parties to conduct one-sided patient file reviews. One-sided patient file reviews means that inaccurate patient risk scores are only corrected when they are too low, but not when they are too high.     
• Pharmaceutical and Medical Device Fraud: Allegations of FCA violations arising from overcharging the government health care programs for drugs and medical equipment have led to sizeable recoveries against  drug manufacturers and medical device companies for many years.
  • Often drug price schemes involve situations in which the price the government pays for the drug is derived from the commercial price which the drug company reports to the government. By misrepresenting that commercial price, the government is tricked into paying a fraudulently high amount. Drugs and medical devices must be reasonable and necessary to be eligible for government reimbursement. When a provider seeks reimbursement for a drug or device which was not, false claims act liability can attach. Similarly, although a physician can prescribe a drug for an “off-label” use (meaning a use which has not been FDA approved for safety and efficacy), the drug manufacturer is generally prohibited from promoting a drug for such an off-label use. If such promotions result in prescriptions for off-label use, particularly when drug manufacturers have paired these promotions with false statements about the drug, the false claims act may well be violated. The use of invalid drug patents to block generic entry is  beginning to receive attention as a potential violation of the false claims act. The harm wrought by the anti-competitive behavior is obvious – by fraudulently blocking generic entry with bogus patents, the brand manufacturer unlawfully maintains a monopoly and  inflated, monopolistic prices which the government ends up paying.
  • The FDA recognizes three separate classes of medical devices: Classes I, II, and III. The individual classes take into consideration a product’s intended use, indications for use, and the level of risk associated with the product.  The circumstances giving rise to false claims violations in this context parallel those of the pharmaceutical fraud. Class III devices are generally invasive and carry the most risk. The potential for patient harm, always an important consideration in assessing the merits of a false claims case, is a particularly urgent one when evaluating fraud and Class III devices.  
• Pharmacy Benefit Manager Fraud: Pharmacy benefit managers (PBMs), are companies that manage prescription drug benefits on behalf of government funded programs such as MAOs, Medicare Part D drug plans, and  government employee health benefit plans.  In exercising this role, PBMs routinely negotiate with drug manufacturers and pharmacies. Although the contractual relationships between PBM’s and the numerous parties with whom they conduct business are generally not made public, a PBM is as a general matter obligated to pass along the cost savings it negotiates on behalf of the program it represents. To the extent it conceals this benefit, and pockets it for itself, the PBM is opening itself up to liability under the FCA for causing false claims to be submitted to the government. Additionally, PBM’s sometimes wear several hats while operating within the complicated matrix of the pharmaceutical distribution chain. This means there may well be situations in which the PBM has financial  interests which conflict, and thus may be incentivized to negotiate for something less than the best deal possible for the government program.  Should this happen, the false claims act has potentially been violated.  
• Durable Medical Equipment (DME) Fraud: DME is equipment which can be used again and again, such as beds, wheelchairs and back braces. This realm of health care is subject to less regulation and has fallen victim to some of the most egregious examples of billing the government for items which were induced by kickbacks, were unnecessary, were never  provided or, as has occurred with items such as back braces, hearing aids and glucose monitors, were never prescribed by a provider.
• Anti-Kickback Statute and Stark Laws Violations:  The Anti-Kickback Statute  [42 U.S. Code § 1320a–7b(b)] (“AKS”) is a criminal law that prohibits the knowing and willful payment of "remuneration" to induce or reward patient referrals or the generation of business involving any item or service payable by the Federal health care programs (e.g., drugs, supplies, or health care services for Medicare or Medicaid patients). Remuneration is defined broadly and includes anything of value. It can take many forms besides cash, such as free or reduced rent, expensive hotel stays and meals, and excessive compensation for medical directorships or consultancies.  A health care provider can be guilty of violating the AKS even if they actually rendered the service and the service was medically necessary. Pursuing kickbacks under the false claims act has long been a priority  of the DOJ. In fact,  the AKS expressly provides that "a claim that includes items and services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA]." The Stark Law [42 U.S.C. 1395nn] prohibits physicians from referring patients to receive "designated health services" payable by Medicare or Medicaid from entities with which the physician or an immediate family member has a financial relationship, unless an exception applies. Financial relationships include both ownership/investment interests and compensation arrangements. The list of “designated health services” is a long one and includes by way of example, home health services, outpatient prescription drugs, inpatient and outpatient hospital services, durable medical equipment and clinical laboratory services.
• Electronic Health Records Fraud: EHRs are electronic versions of the information contained in paper charts in your doctor’s or other health care provider’s office. An EHR may include your medical history, notes, and other information about your health including your symptoms, diagnoses, medications, lab results, vital signs, immunizations, and reports from diagnostic tests such as x-rays. The federal government has long recognized that Electronic Health Records had great potential to improve health care, but can also cause harm to the provision of safe and effective health care if they do not function properly. To encourage hospitals to invest the millions of dollars needed to purchase and use a foundationally sound EHR system, in 2010 the government  established programs under Medicare and Medicaid to pay significant Incentive Payments  to hospitals and physicians for owning and using EHRs certified against a federal standard. This goal, albeit extremely worthwhile, created the potential for fraud in a least two respects. First, to qualify for Incentive Payments the EHR software must be “certified” meaning that it was tested by a government approved body and found to be capable of performing a set of specific  criteria. If the  software manufacturer cheats during the testing, the software will falsely receive certification and cause hospitals and other providers to unwittingly apply for Incentive Payments using unqualified software. Second, to receive Incentive Payments, providers must demonstrate that they are using the software in a “meaningful manner” by satisfying certain objectives. If the provider falsely represents that these objectives have been satisfied, when they have not, FCA liability will attach.
• Telemedicine Fraud: Prior to the Covid pandemic, the Medicare and Medicaid programs had been repeated targets of telefraud, as had unsuspecting patients in their home. But when the coronavirus pandemic shut down America in 2020, Congress acted quickly to ease restrictions on telemedicine through the CARES Act. This greatly expanded the circumstances under which doctors could bill Medicare and Medicaid for seeing patients and providing services remotely. The law also allowed providers to charge for seeing patients in other states for the first time. This has led to an explosion of telemedicine fraud. For instance, in September of 2021 the Office of the Inspector General for HHS issued a report on telemedicine in the context of Medicaid and behavioral health. The OIG concluded that increased monitoring by states to detect Medicaid telemedicine fraud is urgently needed. More generally, the DOJ has responded to the uptick in telemedicine fraud by making it a primary target.  

The Office of the Inspector General for HHS monitors the health care industry for fraudulent activity and regularly issues reports providing the results of its investigation and analysis. https://oig.hhs.gov/oei/reports.  It is a good source for identifying  which types of fraud may currently be in the government’s crosshairs.

Please contact us directly at whistleblower@cohenmilstein.com, if you believe you’ve witnessed health care fraud against the government.