MEDICARE FRAUD AND OTHER HEALTHCARE FRAUD

In recent years, Medicare fraud and Medicaid fraud have been the two most active areas of qui tam litigation, outnumbering qui tam cases involving defense contractor fraud. It is estimated that Medicare fraud and other healthcare fraud cost the federal government billions of dollars each year. Accordingly, Medicare fraud qui tam lawsuits have been responsible for some of the government’s biggest health care fraud recoveries. WARREN | BENSON LAW GROUP has obtained hundreds of millions of dollars in Medicare fraud whistleblower recoveries, and has represented Medicare fraud whistleblower clients in more than 30 states.

Never underestimate the fraudulent mind. There are numerous frauds Medicare and other healthcare providers and companies have devised to cheat the Government. Below are various examples of ways in which companies and individuals have defrauded Medicare and Medicaid. These examples are not exhaustive, but are set forth only to give an idea of the fraudulent schemes which have been successfully prosecuted in qui tam or whistleblower lawsuits.

SERVICES NOT RENDERED:

The simplest scheme of healthcare fraud is the billing for services that were never rendered to patients.

Examples under this scheme include healthcare providers billing Medicare or Medicaid for services that were never performed, medical supplies and equipment that were never delivered, and lab or medical tests that never occurred. In the Nursing Home industry, nursing homes might falsify nursing logs to make it look as though Medicare patients were being treated when in fact the nurses were treating other private pay and indigent patients. This type of nursing home fraud is known as fraud in “Medicare distinct” billing.

Examples

An Arkansas nursing home chain agreed to pay $170 million for a variety of falsifications, including falsification of nursing logs to make it appear that the nurses delivered a disproportionately higher number of hours of nursing care to Medicare patients in the “Medicare distinct” beds, when in fact they were attending to Medicaid and indigent or private pay patients.

A Michigan corporation agreed to a $1.9 million settlement for having falsely billed for doctor supervision of nurse anesthetists when no such supervision was provided.

A Texas orthopedic surgeon billed for services performed while he was out of the country and while he was playing golf at medical conventions. He also billed for services performed by unlicensed therapy personnel. He agreed to pay a total of $886,000 to settle charges of submitting false claims for Medicare reimbursement and was convicted of theft from the Medicaid program for filing similar false claims.

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UPCODING AND UNBUNDLING:

Upcoding

Another common scheme involves upcoding to obtain a higher reimbursement than one is entitled to. Medicare and Medicaid systems use a set of billing codes which healthcare providers use in billing for services. These codes are known as the HCPCS codes. In an upcoding scheme, providers wrongfully use a higher paying code to fraudulently reflect that a more expensive procedure or device was involved in the patient’s treatment. These codes are billed electronically and typically slip through the system unless caught through a random audit of only approximately 2% of the claims each year. The only other way to catch the fraudulent use of these higher codes is for an insider to come forward and report the upcoding.

Unbundling

Another common example of coding fraud is called “unbundling.” When procedures or lab tests involve a number of related services or tests that are typically performed together, Medicare and Medicaid have specific billing codes that must be used to obtain reimbursement for all of the associated services or tests as a whole, rather than allowing reimbursement for each of the related services or tests billed separately. For instance, blood and clinical laboratories often perform “Complete Blood Count” (“CBC”) testing as ordered by physicians. These “CBCs” usually involve up to a dozen or more tests for various enzymes, minerals, platelets, etc. However, because these CBCs are so common, the lab companies have a standard automated test that is used, rather than having to test for each component separately. Accordingly, Medicare billing codes include specific codes that must be billed to obtain a single reimbursement for all of these tests together. In the “unbundling” scheme, lab companies billing for each do not use the composite billing code, but instead bill multiple codes as though they had performed separate tests for each of the blood components. In this unbundling scheme, the lab fraudulently obtains much higher overall reimbursement than it is entitled to.

Examples

In Virginia, a hospital was billing for hospital outpatient procedures using codes reserved for physician’s office visits instead of an outpatient procedure performed at the hospital. Medicare pays a higher rate for physician’s office visits to reflect the cost of their overhead. Hospitals receive a separate facilities fee to cover overhead and, as a result, the correct reimbursement rates for hospital outpatient services are at a lower rate. The hospital agreed to a settlement of $3 million.

A Pennsylvania hospital agreed to pay a $2.7 million settlement because of its upcoding fraud. The hospital was submitting claims for a complex form of pneumonia when the correct diagnosis indicated a simpler form that is reimbursed at a lower rate. In addition, the hospital agreed to pay $562,201 for other upcodings, including false claims for septicemia, a blood infection.

A Florida ophthalmologist agreed to pay $2,531,000 for submitting false claims for laser surgeries performed as part of post cataract removal surgery by indicating that the surgeries were performed after the ninety day post-operative period; submitted claims for services that were either never rendered or upcoded; and submitted claims for two evaluations and management services per patient visit.

A Hawaii physician agreed to pay a $2.1 million settlement for submitting false claims to Medicaid. The physician operated a pharmacy in his clinic. He billed Medicaid for dispensing expensive brand name drugs when in fact his clinic provided cheaper generic substitutes. Additionally, he billed for drugs not dispensed and billed for medications that were expired or were drug samples.

An Arizona hospital paid a $3.3 million settlement for overcharging state and federally funded health care programs for outpatient clinical laboratory services by double-billing and unbundling. The hospital used two or more billing codes in lieu of the single billing code for the variety of lab test that were performed as a single group of tests.

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KICKBACKS:

A federal statute known as The Stark Law, is designed to prevent billing for Medicare services resulting from abusive self-referrals and kickbacks. Under the Stark Law, a physician is prohibited from making any referral to a provider of designated health services if the physician has a “financial relationship” with the provider, unless an exception applies. Financial relationship is defined as a compensation arrangement between the physician and the provider, and a compensation arrangement is defined as “any arrangement involving any remuneration between a physician (or immediate family member of such physician) and an entity other than an arrangement involving only remuneration described in subparagraph (C).” 42 U.S.C. § 1395nn(a)(2) and (h)(1)(A). Prohibited financial arrangements include compensation in personal service arrangements at above market rates and leasing of office space at below market rates.

Under the Stark Act, a healthcare provider is prohibited from submitting claims to government payers for services rendered to patients referred in violation of the statute, including services rendered where the Medicare provider has paid money or other items of value to the referring physician, in order to increase the use of the Medicare provider's goods or services. If an entity submits claims in violation of the statute, government payers are prohibited from paying such claims. 42 U.S.C. § 1395nn(g)(1). Therefore, any claim submitted by a qui tam defendant in violation of the Stark Act is a false claim and would not have been paid by Medicare, had Medicare known the truth.

Examples

A Massachusetts pharmaceutical company paid a $559.5 million settlement for giving illegal kickbacks to doctors who prescribed its prostate cancer drug. A vice president of sales for the company quit his job and alerted the government when he became concerned about the company’s marketing practices. Additionally, an HMO provider had come under increasing pressure to switch from an equally effective but significantly less expensive alternative drug because the pharmaceutical company offered its doctors a panoply of inducements to prescribe the expensive drug, including ski and golfing trips, free televisions and VCRs, cocktail party bar tabs, and an array of free products and services.

A Texas durable medical equipment company paid durable medical equipment dealers and independent agents fees in exchange for the referral of Medicare patients. The kickback scheme included payment of specific amounts which increased based on the dollar volume of durable medical equipment delivered to the patients. The company agreed to a $1.2 million settlement.

A California hospital gave free office space to a psychiatric services management company and inflated management and director fees to induce it to funnel patients to the hospital. This kick back scheme violated the Stark Law and resulted in a $5.1 million settlement paid by the hospital.

A Florida durable medical equipment company agreed to a $10 million settlement for giving kickbacks to suppliers and physicians for patient referrals. The company distributed mail-order respiratory medication and diabetic supplies to Medicare beneficiaries. The company paid kickbacks, disguised as “marketing fees,” each time a patient received a medication shipment, and also waived co-insurance payments for Medicare beneficiaries.

A California home oxygen therapy company paid a $3.5 million settlement for wrongful billings to Medicare. The company billed Medicare for home oxygen therapy provided by the company’s centers in locations throughout California. However, the company’s billings for home oxygen therapy were for patients purportedly qualified for the procedure under tests that the company itself administered. Medicare prohibits suppliers of home oxygen equipment to use their own tests to qualify patients for coverage because of their interest in the outcome of such tests.

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FALSE CERTIFICATIONS AND INFORMATION:

Health care providers are required to act openly and honestly with the Medicare and Medicaid programs and submit claims based upon accurate information. In addition, Medicare providers are required to disclose all known errors and omissions in their claims for Medicare reimbursement. Providers who submit false claims in violation of these requirements violate the False Claims Act.

Examples

A New Mexico diagnostics company defrauded Medicare by improperly submitting claims to a Medicare claims carrier in Colorado, which was outside its jurisdiction, in order to receive reimbursements at the higher Colorado rates. This false certification that the claims were for services rendered in Colorado resulted in a settlement of $853,000.

A Texas hospital paid a $14.5 million settlement based on its falsified data to increase its reimbursements under a program jointly funded by the federal and state governments to compensate hospitals for providing indigent patient care. The Disproportionate Share Hospital program is a joint federal and state program under which hospitals track and report services rendered for uninsured patients and for which they otherwise go uncompensated. The hospital falsified data by charging uninsured patients 7 to 10 times more than it charged insured patients, thereby inflating its claims for reimbursement under the Disproportionate Share Hospital program.

In Mississippi, a hospital chain agreed to a $1.5 million settlement of a qui tam lawsuit in which it was alleged that the hospital billed under physician provider numbers when, in fact, the services were rendered by nurses rather than physicians. Nursing services are reimbursed at a lower rate than physician services, so the hospital used the physician numbers to achieve a higher reimbursement rate.

Under Medicare’s Prospective Payment System ( PPS), inpatients are assigned a diagnostic related group (DRG) code that determines the amount of reimbursement a hospital is to receive for each patient’s stay. If a patient is sent home, the hospital receives the full DRG reimbursement; however, if a patient is merely transferred to another hospital, the transferring hospital receives only a pro-rated share of the DRG. A Delaware hospital used false information in its claims to Medicare by failing to state that certain patients were transferred to another hospital. Rather, the hospital indicated on claim forms that the patients were sent home or moved to non-hospital facilities. As a result, the hospital agreed to a $4.4 million settlement.

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LACK OF MEDICAL NECESSITY:

It is improper to bill Medicare for services or treatment that is not medically necessary. To knowingly do so is a violation of the False Claims Act.

Examples

In New York, an ophthalmologist agreed to pay a settlement of $8.5 million for performing medically unnecessary, contraindicated, and unperformed ophthalmologic services. The settlement agreement provided that the doctor would be permanently excluded from all federally funded health care programs. The physician’s own medical charts did not justify the wide scope of services for which he submitted bills. He also created and submitted new documentation, sometimes years after the questioned dates of service, to attempt to justify his claims after Medicare requested supporting documentation.

A Florida lab company paid $53.1 million in settlement of a qui tam lawsuit based on lack of medical necessity for end stage renal dialysis patients. The laboratories submitted false claims to Medicare for services provided to the dialysis patients in end state renal dialysis (ESRD) centers for medically unnecessary lab tests provided to ESRD patients, double billed for lab tests, and violated Medicare billing regulations pertaining to lab test panels.

In Illinois, a physician group filed false claims for reimbursement to Medicare and Medicaid by submitting claims for inpatient services that were not supported by sufficient documentary evidence and filed claims for both inpatient and outpatient services that were wrongly coded. The physician group agreed to pay an $8.275 million settlement.

A California hospital agreed to pay a $1.3 million settlement to resolve a qui tam case involving fraudulent Medicare billings for magnetic resonance imaging ( MRI) and neurological diagnostic tests. The tests had been performed on patients who responded to advertisements by a hospital neurologist. The neurologist would diagnose every patient with the same disorder, radiculopathy, which would necessitate that the patient receives a battery of tests from the hospital. The neurologist would then perform the tests himself, but would do so after normal business hours and without other physicians present. The neurologist billed Medicare for far more tests than could normally be done in the amount of time claimed.

A Pennsylvania nursing home chain paid $12.2 million to settle a qui tam suit based on lack of medical necessity for services billed to Medicare. In violation of Medicare rules, elderly nursing home residents were certified as needing partial hospitalization even though their condition was unlikely to improve as a result. Medicare provides coverage only for those partial hospitalization services that are medically necessary to maintain or improve the patient's condition and functional level and to prevent total hospitalization. Additionally, the nursing home program counselors billed as therapy sessions activities that were not properly reimbursable by Medicare, such as watching television, birthday parties, and napping.

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FRAUDULENT COST REPORTS:

In addition to paying for direct patient care, Medicare reimburses hospitals for additional costs such as overhead costs, capital improvement costs, and financing costs, among others. Hospitals submit a claim for these additional costs by filing “cost reports” at the conclusion of each year, and base their claim on the percentage of overall services that were related to Medicare patients as opposed to other-pay patients. Thus, the reimbursable amount is calculated as a percentage of the overall costs incurred.

Some hospitals disguise non-reimbursable costs as mis-labeled items in the cost report, hoping never to get caught because the cost report is very detailed and technical.

Examples

A California hospital chain agreed to pay a settlement of $2.9 million because it knowingly kept overpayments made by Medicare and did not return those payments in a timely manner. The hospital knew of the over-payments but remained silent and even filed false cost reports that did not reflect the overpayments.

In Tennessee, a medical home health company paid $1.8 million for submitting claims to Medicare for pension expenses that the company did not actually incur. The company submitted cost reports seeking reimbursement from Medicare for over $600,000 in compensation expenses for 397 employees under a deferred stock bonus profit sharing plan. However, the company had only 57 employees at the time, and none of those employees had any money or stock in their individual plan accounts. All of this resulted in a false claim under the cost report to be reimbursed for expenses the company never incurred.

A Delaware hospital similarly submitted false claims under its cost report for non-existent expenses related to employee costs. The hospital agreed to a $3.7 million settlement when it was caught submitting fraudulent health benefit costs for its employees that it had not actually incurred. The hospital had fraudulently claimed on its cost report an expense for health insurance for its employees, when in reality it had not incurred the expense at all.

A corporation in Alabama paid a $7.9 million settlement of a qui tam lawsuit where the corporation overcharged Medicare for equipment and supplies. The corporation bought the equipment and supplies that were the subject of the lawsuit from a related company owned by the parents of the CEO of the defendant. The lawsuit alleged that the corporation billed the items at a price above the supplier’s cost basis, in violation of the rules governing transactions with related entities. In addition, the corporation over billed Medicare for rental payments and the costs of an abandoned computer system, all of which were improperly claimed on the cost report.

A Tennessee company paid $95.5 million to settle a lawsuit alleging that it engaged in cost-shifting on its cost reports. The company included unallowable costs in its Medicare cost reports, and routinely kept a secret set of “reserve” cost reports that specifically identified improper claims in case the fraud was ever discovered. The company shifted its hospital’s costs onto the Medicare cost reports of its home health agency, and therefore received more reimbursement than that to which it was entitled because the home health agency was virtually all Medicare related, whereas the hospital was not. As a result, the percentage of reimbursement from Medicare for the cost report expenses was a much higher percentage than if the expenses had been reported under the hospital’s cost report. The expenses included rental costs of a building owned by the hospital’s former CEO, sales transaction payments disguised as consulting fees, and kickbacks to physicians.

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GRANT OR PROGRAM FRAUD:

Hospitals and research institutions receive billions of dollars annually in federal and state grants for research and other specialized projects in the health care area. Primarily, these grants have strict parameters within which the money can be used, and only for the purposes set forth and approved in the grant. However, institutions sometimes shift costs between grant programs to cover up cost overruns and mischaracterize the purposes for which they are spending the funds. This conduct can form the basis for a False Claims Act lawsuit.