In the first half of 2019, the United States Department of Justice (“DOJ”) has shown that it intends to aggressively pursue health care providers who engage in fraudulent schemes to enrich themselves at the expense of their patients and American taxpayers. The DOJ has been especially diligent in its investigation and prosecution of health care providers who receive kickbacks and other improper incentives, as well as those on the other side of the transaction who make the illegal payments.
Recent DOJ Settlements Involving Health Care Providers
A review of the 2019 DOJ press release headlines offers insight into the scope and pervasiveness of illegal practices that some health care providers allegedly engage in:
- Avanti Hospitals LLC, and Its Owners Agree to Pay $8.1 Million to Settle Allegations of Making Illegal Payments in Exchange for Referrals – January 28, 2019
- Pathology Laboratory Agrees to Pay $63.5 Million for Providing Illegal Inducements to Referring Physicians – January 30, 2019
- Covidien to Pay Over $17 Million to The United States for Allegedly Providing Illegal Remuneration in the Form of Practice and Market Development Support to Physicians – March 11, 2019
- MedStar Health to Pay U.S. $35 Million to Resolve Allegations that it Paid Kickbacks to a Cardiology Group in Exchange for Referrals – March 21, 2019
- United States Files Lawsuit Against West Virginia Hospital, Its Management Company, and Its CEO Based on Kickbacks and Other Improper Payments to Physicians – March 25, 2019
- Former CEO of Hospital Chain to Pay $3.46 Million to Resolve False Billing and Kickback Allegations – April 30, 2019
- Pharmaceutical Company Agrees to Pay $17.5 Million to Resolve Allegations of Kickbacks to Medicare Patients and Physicians – April 30, 2019
- Rialto Capital Management and Current Owner of Indiana Hospital to Pay $3.6 Million to Resolve False Claims Act Allegations Arising from Kickbacks to Referring Physicians – June 3, 2019
The DOJ’s Arsenal in the Fight Against Health Care Fraud
Three statutes are most often implicated in fraud and abuses cases involving health care providers are the False Claims Act, 31 U.S.C. §§ 3729-3733 (“FCA”); the Anti-Kickback Statute 42 U.S.C. § 1320a-7b(b) (“AKS”); and the Physician Self-Referral Law, 42 U.S.C. § 1395nn (commonly known as the “Stark Law”).
The False Claims Act
The federal False Claims Act, 31 U.S.C. §§ 3729-3733, authorizes a private individual, known as a “relator,” to bring a cause of action on behalf of the federal government to recover funds lost because of fraud or other misconduct. A lawsuit filed under the False Claims Act is known as a qui tam action, and it allows a relator to sue on behalf of the government and, if successful, receive a percentage of the recovery.
The FCA was signed into law by President Lincoln during the Civil War. It was originally intended as means to legally pursue unscrupulous contractors who defrauded the Union Army by selling inferior goods, such as sawdust mixed with gunpowder, crippled horses, and boots made of cardboard. Even today, the FCA remains one of the most effective and important tools to prevent the government from purchasing overpriced, inferior, or nonexistent goods or services.
Most FCA violations in the health care industry arise from the submission of false or fraudulent claims for payment to government-funded health care programs, such as Medicare, Medicaid, CHAMPVA, and TRICARE. The civil penalties for violations of the FCA can be substantial. The filing of false claims can result in fines of up to three times the amount of the government’s losses, plus a penalty ranging from $11,463 to $22,927 for each false claim submitted. If a health care provider submits a claim to the government that resulted from a kickback or Stark law violation, it can also render the claim false or fraudulent. This, in turn, creates liability under the FCA, in addition to liability under the AKS or Stark law. Some examples of FCA violations involving health care providers can be found here.
The FCA’s whistleblower provision allows a relator to file a lawsuit on behalf of the United States. If the government makes a successful recovery based on original information provided by a whistleblower, the whistleblower may be entitled to a reward of 15 to 30% of the government’s recovery.
The Anti-Kickback Statute
The Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), prohibits offering, paying, soliciting, or receiving “remuneration” to induce referrals of items or services covered by Medicare, Medicaid, and other federally-funded health care programs. The AKS is a criminal law that involves any item or service payable by a federal health care program (e.g., drugs, supplies, or health care services for Medicare or Medicaid patients). “Remuneration” includes anything of value and can include items other than cash, such as free rent, expensive hotel stays and meals, and excessive compensation for medical directorships or consulting services.
In certain sectors of the economy, a reward given to someone for a business referral is a commonly accepted and legal practice. However, compensation paid to someone for a referral involving a federal health care program is a crime. The AKS applies to both those who offer or pay remuneration as well as those who solicit or receive remuneration. Since an AKS violation can result in criminal liability, the intent of each party to the transaction is a critical element to determining culpability.
United States v. Greber, 760 F.2d 68 (3rd Cir. 1985) is a landmark case which held that paying a referring physician to use a laboratory’s services, even if the remuneration was compensation for professional services, was a violation of the AKS. Greber was a physician who was board certified in cardiology. Greber’s company, Cardio-Med, Inc., provided diagnostic services, some of which were billed to Medicare. The government eventually charged Greber with, inter alia, Medicare fraud in violation of 42 U.S.C. § 1395nn(b)(2)(B). The charges were based on Cardio-Med’s practice of paying kickbacks from Medicare funds to referring physicians in order to obtain future referrals. Greber claimed that the payments were for work performed by physicians, and future referrals were only one purpose of the payments. Greber was convicted, and he appealed. The Third Circuit affirmed the conviction, holding that a payment to a referring physician is illegal if it is done to encourage future referrals, even if the payment is compensatory. 760 F.2d at 72.
The policy reasons underlying the AKS are based on the premise that kickbacks exploit the health care system, drive up costs for medical services, and impede fair competition in the industry. Kickbacks can also result in patient steering, which can compromise the decision-making process of health care providers and institutions. Hospitals that participate in the Medicare program, or other federally-sponsored health care programs, are required to enter into contracts in which they agree to comply with federal laws and regulations, including the AKS.
Although the AKS is a criminal statute, it provides both criminal and civil penalties for violations. The criminal penalties can include fines of up to $25,000 and five years’ imprisonment for each violation. The Office of the Inspector General for the Department of Health and Human Services can pursue civil penalties of up to $50,000 per violation plus three times the amount of sustained by the government.
The Physician Self-Referral Law
The Physician Self-Referral Law or Stark Law, 42 U.S.C. § 1395nn, prohibits a physician from referring patients for certain “designated health services” payable by Medicare to an entity with which the physician, or his or her immediate family member, has a financial relationship, unless one of a number of specific exceptions applies. A financial relationship can include ownership or investment interests, or compensation arrangements between a physician, or immediate family, and an entity that furnishes designated health services.
Designated health services include:
- Clinical laboratory services;
- Physical therapy, occupational therapy, and outpatient speech-language pathology services;
- Radiology and certain other imaging services;
- Radiation therapy services and supplies;
- DME and supplies;
- Parenteral and enteral nutrients, equipment, and supplies;
- Prosthetics, orthotics, and prosthetic devices and supplies;
- Home health services;
- Outpatient prescription drugs; and
- Inpatient and outpatient hospital services.
The Stark law is a strict liability statute, which means that a physician does not have to possess the specific intent to violate the law. Much like the AKS, the Stark Law is intended to ensure that a physician’s medical judgment is based only on the best interests of the patient and is not swayed by improper financial incentives.
Penalties for Stark law violations can include:
- Denial of payment – Medicare will not pay for designated health services that were provided pursuant to a prohibited referral.
- Refund of payment – Any entity that collects payment for designated health services that were provided pursuant to a prohibited referral must refund all such payments.
- Imposition of civil monetary penalties – a civil monetary penalty of up to $15,000 can be imposed for each prohibited service, as well as additional civil assessments and potential liability under the False Claims Act.
- Exclusion from federal health care programs — Physicians and entities can be excluded from participation in government-sponsored health care programs.
The Necessity of Whistleblowers
The government lacks the resources to identify and prosecute every instance of fraud carried out by unscrupulous physicians, medical equipment providers or hospitals. Many settlements and successful verdicts reported by the DOJ are often based on information provided by a whistleblower willing to come forward after hearing or witnessing some type of improper conduct. In the health care sector, a whistleblower is often a current or ex-business partner, a hospital or office staff member, a patient, or a business competitor.
Anyone who is an “original source” of information involving fraud against the government can be a whistleblower. As defined in the False Claims Act, original source means “an individual who either (i) prior to a public disclosure . . . has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.” 31 U.S.C. § 3730(e)(4)(B).
There are many pitfalls to filing a whistleblower claim with a government department or agency. Without proper legal representation, a whistleblower might not receive a reward even though he or she provided information and assisted the government in the investigation that resulted in a successful recovery.