Health Care Fraud Under the False Claims Act

Although the federal government takes steps to discover health care fraud on its own, whistleblowers play an important role in bringing fraud to the attention of the government. The False Claims Act allows private individuals to bring qui tam lawsuits on behalf of the federal government to recover money. The complaint is filed under seal and the Department of Justice will investigate the allegations of fraud. Whistleblowers are rewarded with a percentage of the money recovered if the lawsuit is successful. They are also provided protections against retaliation by Section 3730(h) of the False Claims Act.

Fraud by Hospitals, Medical Groups, and Physicians

Upcoding And Unbundling

Health care service claims are submitted for reimbursement according to the Healthcare Common Procedure Coding System based on the American Medical Association’s Current Procedure Terminology. Upcoding is a fraudulent billing practice in which a provider submits a claim for services using a code for a more expensive service or procedure than what was actually performed. Unbundling is the intentional billing of separate procedures when a procedure is normally billed for a single charge. Health care providers must accurately code services rendered, and cannot submit a code to maximize reimbursement through upcoding or unbundling.

Reimbursement For Services Not Delivered Nor Medically Necessary

The government reimburses medical providers for services performed. Providers may not file claims for treatment that are not actually provided nor medically necessary. They also cannot double bill for services. Section 6402 of the Affordable Care Act further requires that a provider must return any overpayment within 60 days or face liability under the False Claims Act.

Improper Physician Referrals And Kickbacks

Physician referrals are governed by the Stark Law and the federal Anti-Kickback Statute. The Stark Law is an amendment to the Social Security Act that prohibits self-referrals. Physicians may not refer patients to other service providers where they, or an immediate family member, have a financial interest. A provider of services may not bill for services provided as a result of the improper referral. The federal Anti-Kickback Statute prohibits payments for referrals for services covered by Medicare or Medicaid when the payment does not fall within a safe harbor. Violations of either law can create liability under the False Claims Act.

Fraud by Pharmaceutical Companies

In 2017, the ten largest pharmaceutical companies reported revenues of more than $425 billion.  Given the size of the industry and the number of players involved, the amount of fraudulent activity that goes undiscovered is seemingly immeasurable. Most fraudulent practices perpetrated by pharmaceutical companies has been directed toward government health care programs.

The most common types of fraud are listed below. However, the list is by no means exhaustive as individuals and companies continuously search for new ways to beat the system.  For example, some newly emerging areas of pharmaceutical fraud are counterfeit drugs, pharmacy fraud, and fraud in clinical trials. Counterfeit drugs are typically imported illegally and marketed in the United States as home remedies and cures. A new type of pharmacy fraud involves pharmacies that repackage drugs returned by nursing homes and then bill government health care programs for the same drugs multiple times.  Fraud in clinical trials occurs when pharmaceutical companies contract with small groups that don’t actually perform the trials and steal patients’ identities.

Pricing

Pharmaceutical companies sometimes report false and inflated prices for their dugs knowing that federal health care programs rely on those reported prices to set payment rates. The difference between the actual sales price of a drug and the increased government payments caused by the inflated price reported by a pharmaceutical company is known as the “spread.” The larger the spread on a drug, the larger the profit for the healthcare provider or pharmacist who is reimbursed by the government.

When payments from Medicare and Medicaid programs are based on the artificially inflated prices, the submission of claims for reimbursement can subject a pharmaceutical manufacturer to liability under the False Claims Act.  The government has recovered billions of dollars from pharmaceutical manufacturers for violations of the False Claims Act based on these unlawful drug pricing schemes.

Illegal Kickbacks

Kickbacks to physicians often take the form of speaker payments or “educational“ trips that are intended to disguise the true purpose of the payments – to increase the number of prescriptions written by the physician or their staff.  A physician participating in a kickback scheme who submits a claim to Medicare or Medicaid may be subject to liability under the False Claims Act.

Adulterated Drugs

Drug manufacturers are required to produce pharmaceuticals according to the specifications provided to the FDA.  If a manufacturer produces a drug that differs in strength, purity, or quality from the specifications in its FDA application, claims submitted to Medicaid and other federal health care programs can create liability under the False Claims Act.

Fraud in Other Areas of Health Care

  • Home Health Care Nursing – Home health agencies have been charged with numerous types of Medicare fraud, including illegal kickback schemes; performing unnecessary services; creating false referrals for medically unnecessary services; and submitting claims for services not rendered.
  • Pharmacists – Pharmacists have been involved in inappropriate billing; unauthorized substitution of more expensive medications; improper customer inducements; and submitting fraudulent claims in the names of family members and pharmacy customers.
  • Pharmacy Benefit Managers – PBMs have been accused of illegal kickbacks through improper rebates and fraud in their mail order business. One PBM was charged with failing to reimburse Medicaid for prescription drug costs paid on behalf of Medicaid beneficiaries who also were eligible for drug benefits under private health plans administered by the PBM. 
  • Clinical Labs – Medical laboratories have faced numerous charges by whistleblowers such as improper coding and referral kickbacks. One lab violated the False Claims Act by taking a series of laboratory tests that were to be performed as a single series and separated into several laboratory tests that were billed separately to various government agencies.
  • Durable Medical Equipment – DME fraud can take many forms, including billing for duplicate orders; deliberately shipping more than the amount ordered; billing for more expensive items than those that are shipped; forging documents that require a doctor’s signature; and paying kickbacks to patients and physicians to submit fraudulent claims.
  • Ambulances – Ambulance companies are reimbursed by Medicare for non-emergency transportation when medically necessary. Ambulance operators commit fraud when they forgo less expensive alternatives without justification; create false ambulance transport records; or submit claims for equipment not used. Ambulance companies have also been involved in illegal kickback schemes aimed at securing business with municipal entities.
  • Hospice Care – providers have been charged with submitting claims for care of patients who were ineligible for the Medicare hospice benefit because they were not terminally ill.
  • Addiction Treatment – the owner of an opioid addiction treatment practice was charged with unlawfully dispensing a drug used to treat individuals with addiction. The charges also included health care fraud for allegedly causing fraudulent claims to be submitted to Medicare and Medicaid for payments of the unlawfully prescribed drug.
  • Skilled Nursing Facilities – a company that owns and operates more than 100 skilled nursing facilities was charged with violating the False Claims Act by submitting false claims to Medicare for rehabilitation therapy services that were not reasonable, necessary and skilled. According to the complaint, the company provided excessive amounts of therapy to patients regardless of whether they needed it. The company was also charged with submitting forged pre-admission certifications of patient need for skilled nursing to a state Medicaid program. 
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