Health Care Fraud

Health Care Fraud (Medicare and Medicaid)

Medicare fraud and Medicaid fraud have cost the federal government billions of dollars. Qui tam (whistleblower) lawsuits filed under the False Claims Act have been responsible for some of the government’s biggest health care fraud recoveries.

There are many different ways companies and individuals can bilk Medicare and Medicaid. The examples of health care fraud that are discussed give an idea of the types of fraud that have been or could be the basis of qui tam lawsuits.

False Claims Involving Pharmaceutical Companies

Pharmaceutical companies may be liable under the False Claims Act for Medicare and Medicaid fraud in any case where the government loses money directly or indirectly. This would include practices such as:

• Paying kickbacks and inducements to physicians, hospitals, and pharmacists to prescribe or otherwise favor their drugs
• Engaging in off-label marketing
• Misreporting the “best price,” the “federal ceiling price,” or other benchmark prices that pharmaceutical companies report to the Medicare and Medicaid programs
• Overcharging for “340B” program drugs
• Manufacturing or diverting substandard or tainted drugs
• Providing false data to the Food and Drug Administration or withholding negative data from the FDA about the efficacy of a pharmaceutical drug or medical device in clinical research trials to get FDA approval to sell and market the pharmaceutical drug or medical device.

Kickbacks and Off-label Marketing of Implants and Medical Devices

Sales and marketing tactics used by medical device companies, such as lucrative consulting agreements with doctors and off-label marketing, could violate the False Claims Act and could be the basis for a qui tam (whistleblower) lawsuit.

Both the pharmaceutical and medical device industries follow some of the same sales and marketing practices that have been found in the case of pharmaceutical companies to be violations of the False Claims Act and other federal and state statutes. As a result of qui tam lawsuits and federal and state investigations, drug companies have paid more than $2 billion to settle allegations of Medicare and Medicaid fraud.

A medical device company could be liable under the False Claims Act for Medicare and Medicaid fraud if it:

• Has financial arrangements with doctors that essentially serve as kickbacks for using a company’s implant or other medical device. Some financial arrangements that are coming under federal scrutiny include royalty payments on new devices, paying the cost of educational conferences, sponsoring fellowships, and providing unrestricted grants.
• Markets the implant or other medical device for uses that haven’t been approved by the U.S. Food and Drug Administration. A division of Serono pleaded guilty in 2005 to charges it conspired to market Serostim by supplying doctors with diagnostic software that was not fully approved by the Food and Drug Administration. Serono paid $704 million to settle qui tam lawsuits and related federal charges. Prosecutors said the software led to an increase in demand for Serono’s drug, Serostim, used to treat wasting in AIDS patients.
• Sells implants or other medical devices that are defective, or that the company has reason to believe are defective. In a qui tam case, Hewlett Packard Co. and Agilent Technologies Inc. paid $7 million to settle a whistleblower lawsuit alleging that the companies knowingly sold defective monitoring equipment to federal agencies.

Kickbacks and Improper Payments to Group Purchasing Organizations (”GPO”)

The basis of GPO fraud is improper payments or fees that vendors, manufacturers, distributors, and suppliers make to GPOs to influence the hospital purchasing companies’ contracting decisions. The GPO contractors might make straight kickbacks to the GPO or pay kickbacks in another form, such as paying higher administrative fees to the GPO than are permissible under the “safe harbor” provisions of the Anti-Kickback Statute. GPO contractors also might pay a “marketing fee” to the hospital purchasing companies, as another form of kickback.

Services Not Rendered/Add-On Services

Probably the clearest example of fraud by health care providers involves billing for services that were never delivered to patients. The basic scheme can involve as many variations as there are treatments.

For example, some physicians bill Medicare or Medicaid for diagnostic procedures they never performed, or physical therapy sessions that never took place, and nursing homes might bill for supplies that were never actually purchased or used. There is often some falsification of records to support improper billings.

Another type of false claim involves adding unnecessary procedures and services to a legitimate bill in order to inflate the total. The government has also held clinical laboratories liable when they induced physicians to order unnecessary add-on tests by including the extra test in a standard blood chemistry panel at minimal or no extra charge to the physician or patient. The lab then bills Medicare for the additional test without the doctor’s knowledge. When the physician doesn’t have the option of ordering the standard panel without the extra test, the lab may be liable for claims submitted for the extra test.

Upcoding and Unbundling / Fragmentation

Billing Medicare and Medicaid for medical services is done using a complex system of numerical codes that designate various diagnoses and procedures. Reimbursements are based on those codes. The coded, computerized bills submitted by providers are processed by large insurance companies (known as “intermediaries” or “carriers”), which contract with the government to pay claims using government funds.

Because different codes or code combinations may produce dramatically different reimbursements from government programs, there is a financial incentive to “upcode,” or bill for a more serious (and more expensive) diagnosis or procedure.

Another common example of improper coding is called “unbundling,” also known as “fragmentation.” Medicare and Medicaid often have special reimbursement rates for a group of procedures commonly done together, such as typical blood test panels by clinical laboratories. Some health care providers seeking to increase profits will “unbundle” the tests and bill separately for each component of the group, which totals more than the special reimbursement rates.

Kickbacks

One of the most complicated and troubling aspects of the health care system involves hidden financial arrangements between various health care providers. There are a variety of improper arrangements in which providers offer some material benefit in return for other providers prescribing or using their products or services.

In most instances, such arrangements are illegal. Doctors are supposed to decide on the most appropriate treatment for their patients without consideration of their own financial interests. Kickbacks often result in medically unnecessary treatment.

False Certifications and Information

Health care providers who submit Medicare and Medicaid claims containing false statements also may be liable under the False Claims Act.

In Florida, five people were involved in a scheme in which Medicare was fraudulently billed about $5.2 million for oxygen concentrators, nebulizers, medications, and tests. Three men were ordered to pay $2.3 million in restitution, and were sentenced to 41, 46, and 51 months in jail, for paying physicians for prescriptions that they sold to two medical supply companies and a laboratory to use in billing Medicare. One of the company owners and one of the physicians, who also had billed for house calls he did not make, also received prison sentences.

Lack of Medical Necessity

Another practice that may render health care providers liable under the False Claims Act is billing Medicare and Medicaid for services or procedures that are not medically necessary.

A Florida chiropractor who owned several clinics required doctors whom he hired to order X rays, diagnostic tests, and other therapies regardless of the needs of the patients. He also billed for tests never given, such as pelvic X rays, and submitted duplicate claims for the same services. He was sentenced to five years in prison and ordered to pay $1.6 million for defrauding Medicare, the Railroad Retirement Board, and private insurers.

Fraudulent Cost Reports

Medicare reimburses health care institutions for a portion of their other overhead costs, in addition to paying for individual procedures and treatments. Virtually every hospital and many other providers submit cost reports to Medicare, which are used to calculate how much the government will reimburse the provider for expenses related to patient care. This includes the costs of capital improvements like new medical equipment and bigger wards. Over the years, cost reports can represent billions of dollars in payments for some providers.

Providers who knowingly inflate their cost reports, mischaracterize the nature of those costs, or give the wrong percentage of their services dedicated to Medicare patients are liable under the False Claims Act.

Grant or Program Fraud

The federal and state governments fund a variety of research and other specialized projects in the health care area. Typically, government funds are targeted for a specific and narrow purpose, a specialized research project, or medical care for a specific group. Sometimes the recipients of grant or program funds commit fraud by mischaracterizing their qualifications, the basis of their research, or the quality and extent of services they provide.