Health care expenditures in the United States are enormous. In 1980, it was estimated that 251 billion dollars was spent for health care. In 1995, that figure had arisen to 1.008 trillion dollars. Medicare and Medicaid in 1995 alone had a collective budget of 274 billion dollars. Of this amount, the Government Accounting Office (GAO) estimates that waste, fraud, and abuse accounted for up to 10% of delivery costs. If we are to believe this figure, in the health care system as a whole, there could be over 100 billion dollars worth of fraudulent conduct transpiring annually with some 27.4 billion dollars involving Medicare or Medicaid fraud.
Because of the large dollar figures alleged to be involved, the Department of Health and Human Services (HHS), the Office of Inspector General of the Department of Health and Human Services (OIG), the FBI and State Medicaid Fraud Control Units have joined forces to deal with the perceived problems of abuse. The emphasis in the prosecutions of health care fraud cases has dramatically increased since this joint effort began. As an example, since 1992, FBI investigations into health care fraud have increased by 335%, from 657 prosecutions in 1992 to 2200 in 1996. Since 1993, health care fraud convictions have gone up 240%. The FBI currently has a back log of over 1,500 health care cases, which is obviously growing.
Statistics bear out the government's increased emphasis on health care fraud: In 1996, the FBI received more than 50 million dollars for surveillance cameras, recording equipment, computers, and 46 additional agents, all devoted to patrol the health care industry. In 1996, more than 2,700 individuals and organizations were excluded from doing business with the federal health care programs. The Justice Department's Civil Division initiated a record setting 243 new civil cases in health care fraud. In 1997, the federal government collected more than 1 billion dollars in health care fraud fines and settlements. That is approximately 5% of the amounts of monies that the government contends was overpaid by Medicare in 1996. In 1997, HHS and its Inspector General's Office beefed up its staff from 800 to 1,143 investigators with 9 new field offices. Six more investigative offices are planned for this year. The Department of Justice added 167 new jobs to its health care fraud task force.
A new law that has given the government enormous enforcement powers is the Health Insurance Portability and Accountability Act of 1996. This law defined new crimes in connection with health care delivery and makes it easier for the government to prosecute fraud cases. Over the next six years, Congress has also legislated more than 4.5 billion dollars to pay for better fraud enforcement.
The Health Insurance Portability and Accountability Act (HIPAA) mandates funding from the federal Hospital Insurance Trust Fund which provides a significant increase in funding for health care prosecutions. In essence, the program has the potential to become, in the words of one consultant, "a giant mammoth self-funding bureaucracy solely against health care providers."
The HIPAA created a new federal crime of health care fraud effective January 1, 1997. The crime is defined in 18 U.S.C. § 1347 as follows: Whoever knowingly or willfully executes or attempts to execute a scheme or articifice to defraud any health care benefit programs or to obtain by means of false and fraudulent pretenses, representations, or promises, any of the money or property owned by, or under custody or control of, any health care benefit program in connection with the delivery of or payment for health care benefits, items, or services . . . [shall be guilty of a violation of federal law]. Health care benefit program is defined broadly in 18 U.S.C. § 24 as: Any public or private plan or contract, affecting commerce, under which any medical benefit, item or service is provided to any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract.
Accordingly, a private insurance plan or contract that provides medical services, benefits, or items constitutes a "health care benefit program" under 18 U.S.C. § 24 and the new criminal statutes. Federal jurisdiction requires only that the plan or contract "affect commerce."
The penalties for the defined health care fraud include fines and a prison term of either 10 or 20 years, the latter to be imposed if the fraud results in serious bodily injury. If the violation causes someone's death, HIPAA provides for a life sentence.
Under 18 U.S.C. § 699, it is now prohibited to knowingly and willfully embezzle, steal, intentionally misapply, or otherwise convert any of the money, property, premiums, or other assets of a health care benefit program. If the value of the property taken exceeds only $100, the maximum sentence is 10 years imprisonment. If the value is less than $100, the maximum sentence is one year.
Federal prosecutors may now charge thefts or embezzlements that do not meet the jurisdictional requirements under 18 U.S.C. § 666, the existing statute that prohibits theft or embezzlement of $5,000 or more from an entity receiving more than $10,000 of federal funds per year. The new law also allows federal prosecutions of embezzlements from private health insurance plans.
In any matter involving a heath care benefit program, 18 U.S.C. § 1035 prohibits knowingly and willfully (1) falsifying, concealing, or covering up a material fact by any trick, scheme, or device; (2) making any materially false, fictitious, or fraudulent statements or representations; or (3) making or using any materially false document, knowing it contains any materially false, fictitious, or fraudulent statement or entry, in connection with the delivery of or payment for health care benefits, items, or services. The maximum sentence is five years imprisonment. The new false statement offense covers statements and concealments made to private insurers that could not be prosecuted under 18 U.S.C. § 1001, which is the existing statute that specifically prohibits false statements to federal agencies.
It is now a crime, pursuant to 18 U.S.C. § 1518, to willfully obstruct, prevent, mislead, or delay, or attempt to do so, the communication of information or records relating to a violation of a federal health care offense to a criminal investigator. The term "criminal investigator" is defined as "any individual duly authorized by a department, agency, or armed force of the United States to conduct or engage in investigations for prosecutions for violations of health care offenses." Unlike the general obstruction of criminal investigations statute, 18 U.S.C. § 1510, the new obstruction offense does not contain the "by means of bribery" requirement. Likewise, it is not limited to "official proceedings," as in the general witness tampering statute 18 U.S.C. § 1512.
A new Title 42 misdemeanor, 42 U.S.C. § 1320a-7b(a)(6), prohibits purposefully disposing of assets, including by any transfer in trust, in order to qualify an individual for Medicaid, when disposing of such assets results in the imposition of a period of ineligibility for Medicaid assistance under 42 U.S.C. § 1396p(c). Such a period of ineligibility is a condition in order to prosecute for this offense.
In addition to creating five new health care fraud federal crimes, HIPAA also expanded existing money laundering, asset forfeiture, and fraud injunction statutes to cover "federal health care offenses." As defined by 18 U.S.C. § 24, the term "federal health care offenses"means a criminal conspiracy to violate or a violation of any of the new health care fraud statutes, as well as theft/embezzlement, false statement, and obstruction crimes discussed above, along with the existing statutes prohibiting false claims (18 U.S.C. § 287); conspiracy (18 U.S.C. § 371); theft or embezzlement from employee benefit plans (18 U.S.C. § 664); theft or bribery concerning programs receiving federal funds (18 U.S.C. § 666); false statements (18 U.S.C. § 1001); false statements in ERISA documents (18 U.S.C. § 1027); mail fraud (18 U.S.C. § 1341); wire fraud (18 U.S.C. § 1343); and ERISA bribery (18 U.S.C. § 1954), if the violation or conspiracy relates to a health benefit program.
Section 246 expanded the scope of "specified unlawful activity," forming the predicate for a money laundering violation under 18 U.S.C. § 1956, to include "any act or activity constituting an offense involving a Federal health care offense." Similarly, section 249 amended the criminal forfeiture statute, 18 U.S.C. § 982, by adding a new section which states that the court, in imposing sentence on a person convicted of a Federal health care offense, shall order the person to forfeit property, real or personal, that constitutes or is derived, directly or indirectly, from gross proceeds traceable to the commission of the offense." Section 247 broadened the fraud injunction statute, 18 U.S.C. § 1345, to permit the government to file a civil action to enjoin the commission or imminent commission of a federal health care offense and to freeze the assets of persons disposing of property obtained as a result of a federal health care offense.
In addition to harsh criminal sanctions, the HIPAA extended sanctions for fraud and abuse involving Medicare or Medicaid to fraud and abuse involving any federal program. 42 U.S.C. § 1320a. HIPAA requires that the HHS exclude individuals or entities convicted of the following offenses in Medicare and State Health Care Programs: (a) any felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct in connection with delivery of a health care item or service, or with respect to any act or omission in a health care program operated by a federal, state, or local government agency; and (b) any felony relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance. 42 U.S.C. § 1320a-7(a) and (3).
HIPAA allows the HHS to apply permissive exclusion to individuals who have a direct or indirect ownership or controlling interest in a sanctioned entity and who knew or should have known of the actions constituting the basis of the exclusion; and individuals who are officers or managing employees of the entity. 42 U.S.C. § 1395a-7(b)(15).
One of the statutes of choice being used by prosecutors to pursue health care fraud cases is Title 18 U.S.C. § 287, the criminal code section imposing sanctions for the submission of the false claims to the federal government. This Code section reads as follows:
Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious or fraudulent, shall be imprisoned for not more than five years and shall be subject to the fine in the amount provided in this Title.
Interestingly, under Title 18 U.S.C. § 286, whoever enters into a conspiracy to defraud the government with respect to such false claims is subject to imprisonment for up to ten years. As set forth above, the government is also now enabled to use the money laundering statutes to dramatically increase the penalties and criminal fines pertaining to fraudulent activities in the health care arena. Further, a False Claims Act prosecution on the criminal side, of course, does not in any way prohibit a parallel civil false claim action against the entity involved.
The Civil False Claims Act is found at Title 31 U.S.C. § 3729. The definition of a civil false claim makes it clear that even if the government does not directly pay money to the company committing fraud, a false claim may still exist. Moreover, the penalties are huge: $10,000 per false claim, plus three times the amount of the claim. A civil false claim is defined as follows:
For purposes of this section, "claim" includes any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient that United States Government provides any portion of the money or property which is requested or demanded, or if the government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.
While the government is free to bring a False Claims Act against a health care provider, Qui Tam federal provisions also permit private citizens to file civil actions in the name of the United States. The term "Qui Tam" means "who brings the action for the king as well as for himself." Under the Qui Tam provisions of the False Claims Act, private citizens may bring a civil action in the name of the United States to recover from anyone who knowingly submits false claims for payment by the government. See 31 U.S.C. § 3729 at et. seq. Accordingly, a health care provider is subject to civil false claims actions being brought by "concerned citizens" on behalf of the United States, as well as possible parallel civil and criminal prosecution by the United States government. Because insiders and whistle blowers are more likely to be Qui Tam plaintiffs, just about any employee armed with inside information about false claims filed with the government is in a position to enforce the law in this area. Thus, the civil and criminal exposure in the false claims arena is something to be taken very seriously by all health care providers. Unfortunately, despite all the possible penalties outlined above, exposure to the provider does not stop here. Given the mandatory exclusion for conviction of a crime of health care fraud, the government's civil branch now has an atom bomb that can be used in any potential prosecution to extort a civil settlement from the putative defendant. As set forth above, if a putative defendant is faced either with criminal prosecution where they must run the gauntlet and risk possible exclusion from the Medicare and Medicaid program, and/or enter into a settlement under the False Claims Act, the prospects of a happy resolution in either case are minimal. As set forth above, the False Claims Act provides for fines of $5,000 to $10,000 per claim, plus treble damages per disputed claim if there is no settlement. In other words, if a putative defendant does not enter into a voluntary settlement, they could face criminal prosecution for submission of a false claim or a conspiracy to do so, plus a parallel civil "prosecution" under the False Claims Act where the government would attempt to obtain sanctions of $10,000 per claim, plus three times the amount of the claim. Rather than risk exclusion from the Medicare and Medicaid programs, common sense dictates that many entities, even those with legitimate good faith defenses to the alleged False Claims Act "prosecutions," nonetheless will enter into a settlement in order to avoid more draconian alternatives.
The problem with the well-intentioned provisions of the new enforcement powers given to the federal government is the extortionate aspect of same. If an entity legitimately believes that it has attempted in good faith to comply with arcane and highly technical Medicare/Medicaid regulations, such a good faith belief, if unilaterally deemed to be irrelevant to the federal government, is of practically no use to the defendant in extricating itself from a health care fraud parallel prosecution. In other words, if the putative defendant with a good faith belief defense is unsuccessful in convincing the federal government of the sincerity of its position, than the alternative is troublesome to say the least. Either a civil settlement is arrived upon, or the entity faces the possibility of indictment and exclusion. Business prudence will dictate in many such cases that entities, even those with good faith beliefs in their position, will nonetheless agree to pay substantial and draconian federal fines and penalties via civil settlement rather than run the risk of indictment and subsequent exclusion from the Medicare/Medicaid program. This atom bomb, which is now a possible sanction in all such cases, can put businesses at substantial risk (and literally drive them out of business) if it is unsuccessful in defending its position. Thus, one can almost guarantee that civil fines and penalties will continue to increase dramatically because of the alternatives to civil settlement of a threatened False Claims Act prosecution.
A recent article written by John Steiner, Associate General Counsel for the American Hospital Association in the Health Care Fraud and Abuse newsletter issued in February of 1998, addresses the seriousness of the situation for health care providers nationwide. The title of Mr. Steiner's article is revealing itself: "Health Care Fraud: Guilty until Proven Innocent?" In this article, Mr. Steiner writes as follows: During the summer of 1994, the Special Prosecutor for health care fraud of the Department of Justice paid a visit to each of the U.S. Attorney's Offices throughout major metropolitan cities in America. Representatives of the American Hospital Association (AHA) and the American Medical Association in Chicago were invited to meet with the Special Prosecutor and his assistant to discuss the implication of the DOJ's recent re-assignment of health care fraud from its number 11 to its number 2 priority (second only to violent crime). In its zeal to root out fraud, the government is resorting to a "guilty until proven innocent" approach. The DOJ is using the False Claim Act of 1863 to threaten hospitals with immediate prosecution and fines of $5,000-10,000, plus triple damages per disputed claim if they fail to settle. In other words, for every ten dollar lab test that is alleged to be fraudulent, the hospital is potentially liable for $10,000 -- even if it was simply billed in error, and that is exactly what the vast majority of these "false claims" are -- errors in dealing with the tangle of Medicare regulations.
As an example of the extortionate aspects of the False Claims Act, one only need look at "Operation Bad Bundle" to see the power of the federal government at work. In 1997, the Civil Division of the Justice Department began using the False Claims Act to collect damages from hospitals for "unbundled" laboratory billing. In Operation Bad Bundle, the federal government contended that hospitals on a nationwide basis submitted separate charges (with a collective higher reimbursement rate) for certain laboratory tests that should have been billed as a single charge (with a lower reimbursement rate). Hospitals throughout the United States were threatened with False Claims Act civil prosecutions unless they agreed to a civil settlement. Further, if a civil settlement was rejected by a hospital, it was threatened with a full civil audit by the government. Given the penalties that could emerge from any such audit, both civil and criminal, it is not surprising that many hospitals agreed to settlement demands of the federal government to pay double damages for the amounts of the claims rather than treble damages, plus $10,000 per each contested claim for reimbursement. Operation Bad Bundle therefore sets a precedent which we are likely to see in other arenas where the government is using its enormous power to extort civil settlements from those who in good faith believed that their actions had been entirely consistent with existing regulations as they understood them at the time.
Recently, there has been an effort by the American Hospital Association and other health care providers to discuss input and guidance from the HHS and OIG for the development of model corporate compliance programs for hospitals. In April of 1997, the American Hospital Association submitted a document to the OIG for developing a model compliance program and as of the date of this article, that model is still undergoing revisions. The drafts being discussed track the core requirements for corporate compliance programs as set forth in the United States Sentencing Guidelines. While many health care providers may be minimally familiar with the Sentencing Guidelines for Corporations, many are not aware that the guidelines are principally designed to allow a federal judge to mitigate a criminal fine or penalty only if the corporation had in place an effective compliance program before the alleged wrongdoing occurred.
At present, if a corporation does have an effective compliance program in place but nonetheless is convicted of a crime because of the act of a rogue employee, while there might be mitigation in the sentence imposed against the corporation because a corporate compliance program was in place at the time of the commission of the offense; nonetheless, the corporation still is faced with the possibility of mandatory exclusion from the Medicare/Medicaid program because of the sanctions available under the Health Insurance Portability and Accountability Act. Because the sanctions require exclusion of entities convicted of felonies relating to health care fraud, once again, it makes perfect sense for a putative defendant to negotiate a civil resolution and payment of enormous fines and penalties rather than risk permanent exclusion even if a mitigated criminal sentence (for lesser amount than a civil settlement) could be obtained via a properly implemented corporate compliance program.
CONCLUSION
Although there are many rational reasons to aggressively defend a threatened civil false claims action, the practical reality facing health care providers today does not support a confrontational approach, even when justified by the law. If and when a threatened False Claims Act investigation of a provider commences, it appears that the entity under investigation had better hire an extremely good lawyer, for it will need him. Even with the best legal advice available, the choices available to the entity under investigation are not good. When one considers the alternatives between civil and criminal prosecution, one begins to understand that we now live in an environment in the health care industry whereby the government literally has the power to use legalized extortion for the purpose of resolving what otherwise may very well be nothing more than a good faith civil dispute between parties with unequal bargaining power. Corporate compliance plans designed to eliminate the possibility of an error seem to be the best approach to solving this dilemma, but given the possibility of mandatory exclusion upon conviction of a federal crime, even the existence of such programs may not be efficacious in defending against an extortionate civil demand for settlement from the United States.