Fraudulent Medical Billing and the False Claims Act
Although the FCA was first enacted with dishonest defense contractors in mind, the FCA has become an effective weapon to fight healthcare fraud. Categories of facility healthcare fraud often involve allegations of total neglect or no services, worthless services, inadequate and inferior services and products, and aggressive patient treatment.1 Other areas of fraud in health care billing include misrepresentation of credentials, upcoding of services, unbundling of services, and misrepresentation of patient data or populations.
 – Treatment Issues
[a] – Total Neglect or No Services Provided
The most obvious case of FCA liability imposed on a physician for fraudulent billing occurs when he submits claims for services that were not provided.2
[b] – Worthless Services
A healthcare provider may also be liable for submitting claims for services rendered if the services are so deficient that they provided no medical value.3
[c] – Inadequate Services
Many schemes involving inadequate care are accomplished by denying tests or services at facilities that are paid on a per diembasis. Schemes involving inadequate services may also involve healthcare providers submitting claims for procedures with required components where the provider did not satisfy each of the components.
[d] – Standard of Care
Statutes and regulations governing Medicare, Medicaid, and Social Security programs, as well as those governing nursing homes, require healthcare providers to meet quality of care standards.4 A provider’s failure to meet these standards may result in exclusion from a program, as well as substantial monetary damages.5 A provider may fall short of these standards when patients are subjected to unreasonable risks due to a provider’s failure to take proper preventative measures.
[e] – Aggressive Treatment
Aggressive patient treatment usually results after a physician orders unnecessary medical tests and provides unnecessary medical services.7 A provider can dramatically increase its profits for multiple procedures if the provider is reimbursed for each unnecessary test or service rendered, rather than being paid per diem.8
 – Misrepresentation of Credentials
A healthcare provider may also be liable for submitting a false claim under the FCA for misrepresenting the credentials of the person who provided the services. These cases typically involve a provider representing to the Government that someone who is eligible for reimbursement provided the service, when it was actually performed by a person who is precluded from reimbursement.
Cases involving misrepresentation of credentials may involve a wide variety of factual scenarios, including providing reimbursement claims with incorrect provider identification numbers (“PIN”)9 billing for services rendered by an unlicensed physician,10 or falsely representing that a teaching physician was present for procedures provided by a university’s medical school in accordance with applicable Medicare regulations.11
 – Upcoding or Improper Coding of Goods and Services
When a claimant submits a claim for Medicare reimbursement to the Government, he must provide documentation that supports the claim.12 Appropriate documentation typically includes correct coding of certain services to enable the Government to reimburse the healthcare provider at the proper rate. The Healthcare Common Procedure Coding System (“HCPCS”) is a guide that provides the codes that a healthcare provider must use to describe the services, procedures, or goods for which reimbursement is sought.13 These codes are divided into two levels, Current Procedure Terminology (“CPT”) codes, which govern services and procedures, and HCPCS codes, which generally cover goods.14 Most cases involving upcoding concern CPT codes rather than HCPCS codes.
There are also frequent problems with International Coding Diagnosis Codes (“ICD-9 Codes”),15 which are codes used by Medicare and Medicaid to numerically designate a diagnosis, or diagnoses, for patients covered under these plans. ICD-9 codes determine the reimbursement that a practitioner receives from Medicare and Medicaid. Coding accuracy is a major concern for all physician offices, clinics, and hospitals because incorrect coding can have severe financial, and even criminal, consequences. The Office of the Inspector General (“OIG”) views any type of improper coding as fraud.16 Improper coding has been the basis for many judgments against large and small healthcare corporations, physician groups, and individual physicians.17
 – Bundling and Unbundling Procedures
The term “bundling” refers to coding related medical services as “one” inclusive procedure, in contrast to submitting claims for separate services. For example, a laboratory testing facility may bundle the codes, and, therefore, the cost of a procedure that analyzes several components at once.18 CMS provides some guidelines to providers regarding which services and goods should be bundled in a document called The Hospital Manual.19 For example, when a laboratory draws a patient’s blood to conduct tests, The Hospital Manual suggests that the laboratory combine all of the tests as one service, instead of breaking down the different tests into individual services for reimbursement.20
However, many providers will initially bundle services in order to receive reimbursement for the one inclusive procedure, but then submit another claim in which the same procedure has been unbundled into separate procedures to receive a second reimbursement on the same services. This is termed “unbundling” and can double the reimbursement collected from Medicare for services or procedures.21 Providers have an obvious incentive to unbundle, because they can therefore receive a greater overall reimbursement from the Government for submitting separately coded services rather than for single procedures.
- Munich and Lane, “When Neglect Becomes Fraud: Quality of Care and False Claims,” 43 St. Louis U. L.J. 27, 30-31 (1999).
- United States v. Pani, 717 F.Supp. 1013, 1014 (S.D.N.Y. 1989). See also, Carroll, “Dental Practice Pleads Guilty,” Boston Globe, available at 2000 WLNR 794959 (Jan. 16, 2005)(dental practice pled guilty and was ordered to pay $45,000, and one of its dentists agreed pursuant to civil settlement to pay $200,000 to resolve allegations that the defendants submitted bills to Medicare for restorations and x-rays that were never performed).
Second Circuit: United States ex rel. Mikes v. Straus, 274 F3d 687, 702-703 (2d Cir.2001)
Ninth Circuit: United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048, 1053-1053 (9th Cir. 2001).
- See: 42 U.S.C. §§ 1395i-3(b) and 1396r(b). Both the Medicare and Social Security statutes state that “a skilled nursing facility must care for its residents in such a manner and in such an environment as will promote maintenance or enhancement of the quality of life of each resident.” Id. Statutes demand that a nursing home facility provide certain services, including assuring that (1) a patient’s dietary requirements are nutritionally met each day, (2) special needs of the patients are also routinely met, including ordinary and emergency dental services, and (3) other needs of the patients are not neglected, including nursing, rehabilitative, and medically related social and pharmaceutical services to “attain or maintain the highest practicable physical, mental and psychological well-being of each resident.” Id. For more specific standards, see 42 U.S.C. §§ 301 to 1397jj.Medicare and Medicaid establish minimum requirements that all nursing homes must meet to participate in Medicare and Medicaid programs, respectively. The Omnibus Budget Reconciliation Act of 1987 imposed requirements related to the quality of care actually provided by a home and established a range of available sanctions to help ensure that homes maintained compliance with the new requirements. Specifically, in terms of the quality of life for residents of nursing facilities, the Act states that “[a] nursing facility must care for its residents in such a manner and in such an environment as will promote maintenance or enhancement of the quality of life of each resident.” In addition, The Act mandates that a nursing facility “provide services and activities to attain or maintain the highest practicable physical, mental and psychosocial well-being of each resident in accordance with a written plan of care which: ‘describes the medical, nursing, and psychosocial needs of the resident and how such needs will be met…’.” Pub. L. No. 100-203, §§ 4201, 4211, 101 Stat. 1330-160, 1330-182. Available sanctions include: civil money penalties (“CMP”); denial of payment for new admissions (“DPNA”); and termination. Pub.L. No. 100-203, §§ 4203, 4213, 101 Stat. 1330-179, 1330-213. The Centers for Medicare and Medicaid Services (“CMS”) contracts with state survey agencies to assess whether homes meet these federal quality requirements through routine inspections, known as standard surveys, and complaint investigations. CMS and the states can use a variety of federal sanctions to help encourage compliance with quality requirements ranging from less severe sanctions to those that can affect a home’s revenues and provide financial incentive to return to and maintain compliance.In March 2007, the United States Government Accountability Office (“GAO”) issued a report to the U.S. Senate regarding the effectiveness of sanctions imposed on nursing homes by CMS in encouraging nursing homes to maintain compliance with federal quality of care requirements. Although the number of sanctions issued nationwide has declined in recent years, the new system developed by CMS has not deterred some homes from repeatedly harming residents. The GAO study found that weaknesses in the sanction policy undermined its effectiveness and the complexity of its immediate sanctions policy hampered enforcement. The weaknesses identified by the GAO included the following:
(1) CMP were generally imposed at the lower end of the allowable dollar range and are usually not paid while under appeal;
(2) CMS favored the use of sanctions that gave homes more time to correct deficiencies, increasing the likelihood that the sanctions would not be implemented;
(3) there was no record of a sanction for about 22% of the homes reviewed that met CMS’s criteria for immediate sanctions; and
(4) involuntary termination of homes from participating in the Medicare or Medicaid programs was rare.
Nursing Homes: Efforts to Strengthen Federal Enforcement Have Not Deterred Some Homes from Repeatedly Harming Residents, GAO-07-241 (Washington, D.C., March 26, 2007).
- 42 U.S.C. § 1320(a)-7(a). Due to concerns about the patients’ access to other nearby nursing homes and the potential for resident transfer trauma, nursing homes are rarely terminated from participating in the Medicare or Medicaid programs. See Nursing Homes, id.
- United States ex rel. Aranda v. Community Psychiatric Centers of Oklahoma, 945 F. Supp. 1485, 1488-1489 (W.D. Okla. 1996).
- See United States ex rel. Kneepkins v. Gambro Healthcare Inc., 115 F.Supp.2d 35, 37-39 (D.Mass 2000).
- United States v. Mackby, 261 F.3d 821, 824 (9th Cir. 2001).
- United States ex rel. Riley v. St. Luke’s Episcopal Hospital, 355 F.3d 370, 378-380 (5th Cir. 2004).
- United States ex rel. Schuhardt v. Washington University, 228 F. Supp.2d 1018, 1026 (E.D. Mo. 2002).
- United States ex rel. Harris v. Bernad, 275 F. Supp.2d 1, 3 (D.D.C 2003).
- Center for Medicare and Medicaid Services, “Medicare Program: Procedures for Coding and Payment Determinations for Clinical Laboratory Tests and for Durable Medical Equipment,” available at http://www.cms.hhs.gov/medicare/hcpcs/codpayproc.asp (last visited December 8, 2004 and has since been moved or archived).
- Id. The HCPCS is broken down into two subsystems: Level I and Level II. Id. Level I of the HCPCS consists of the CPT, a uniform numerical coding system, which is maintained by the American Medical Association. Id. The CPT system is used to identify medical services and procedures that are provided by physicians and other healthcare professionals and for which they bill public or private health insurance programs such as Medicare. Level II of the HCPCS is a uniform coding system that is used to identify products, supplies, and services that are not included in the CPT system. Id. CMS, “America’s Health Insurance Plan, and the Blue Cross Blue Shield Association Maintain the Level II Coding System.” Id. See also, “CPT(r)(Current Procedure Terminology),” available at [removed on 3/26/13 as link is no longer valid].
- ICD-9-CM Official Guidelines for Coding and Reporting, available at http://www.cdc.gov/nchs/data/icd9/icdguide.pdf (last visited December 30, 2009).
- See “OIG Compliance Program Guidance for Clinical Laboratories,” 63 Fed. Reg. 45,076, 45,078 (Aug. 24, 1998).
- For reference, this is being classified as improper or upcoding since there would be no reimbursement, but for the change in coding. It may also be classified as off label.
- Ohio Hospital Association v. Shalala, 201 F.3d 418, 421 (6th Cir. 2000).
- The Hospital Manual is provided by the Center for Medicare and Medicaid Services (CMS), which provides informal agency guidance regarding billing guidelines. These informal regulations have never been promulgated pursuant to the Administrative Procedures Act, 5 U.S.C. § 553, and therefore may not be deemed “regulations.” Graham and Witten, “Pre-trial Motions Practice in False Claims Act Litigation Against Healthcare Providers,” ABA Center for Continuing Legal Education, (Nov. 19-20, 1998). See also Barber, Honig and Cooper, “Prolific Plaintiffs or Rabid Relators? Recent Developments in False Claims Act Litigation,” 1 Ind. Health L. Rev. 131, 167-169 (2004); Fitzgerald, “Healthcare Providers Encounter the Civil False Claims Act,” Colorado Lawyer 65, 68 (Jan. 28, 1999).
- Graham and Witten, id.
- United States ex rel. Bledsoe v. Community Health Systems, 342 F.3d 634, 645-646 (6th Cir. 2003).
iAuthor of treatise, Federal False Claims Act and Qui Tam Litigation, Law Journal Press (2010), research source of the issues discussed in this article.
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