The Culture and Politics of Health Care Work

Health Care Fraud and What to Do about It

Terry L. Leap

• Publisher: ILR Press
• Year: 2011
• ISBN:
  9780801461286
• Topic: Medicine
• Subtopic: Health Policy

U.S. health care is a $2.5 trillion system that accounts for more than 17 percent of the nation's GDP. It is also highly susceptible to fraud. Estimates vary, but some observers believe that as much as 10 percent of all medical billing involves some type of fraud. In 2009, New York's Medicaid fraud office recovered $283 million and obtained 148 criminal convictions. In July 2010, the U.S. Justice Department charged nearly 100 patients, doctors, and health care executives in five states of bilking the Medicare system out of more than $251 million through false claims for services that were medically unnecessary or never provided. These cases only hint at the scope of the problem.

In Phantom Billing, Fake Prescriptions, and the High Cost of Medicine, Terry L. Leap takes on medical fraud and its economic, psychological, and social costs. Illustrated throughout with dozens of specific and often fascinating cases, this book covers a wide variety of crimes: kickbacks, illicit referrals, overcharging and double billing, upcoding, unbundling, rent-a-patient and pill-mill schemes, insurance scams, short-pilling, off-label marketing of pharmaceuticals, and rebate fraud, as well as criminal acts that enable this fraud (mail and wire fraud, conspiracy, and money laundering). After assessing the effectiveness of the federal laws designed to fight health care fraud and abuse—the antikickback statute, the Stark Law, the False Claims Act, HIPAA, and the food and drug laws—Leap suggests a number of ways that health care providers, consumers, insurers, and federal and state officials can bring health care fraud and abuse under control, thereby reducing the overall cost of medical care in America.

1

HEALTH CARE FRAUD AND ITS FACILITATING CRIMES

The False Invoice Scheme

Two business partners, one living in Texas and the other in Tennessee, had a good thing going. Despite being separated by hundreds of miles, these middle-aged women worked together, making money hand over fist through a simple invoicing scheme that lined their pockets with hundreds of thousands of dollars.

The woman in Texas was employed by a medical center as the director of physician recruiting. The woman in Tennessee ran her own physician-recruiting service. After meeting online in 2002, the pair agreed to a physician-recruitment scam. The Texas partner told her Tennessee counterpart what items to bill the medical center along with the billing amounts. Then the crooked Tennessee partner created and sent the invoices for the bogus services to her friend in Texas. Both women knew that the work represented on the invoices had not been performed at all or had not been performed as represented. Once the Tennessee physician—recruiter received a check for “services rendered” on the invoices, she kicked back between 25 and 50 percent to her accomplice in Texas.

From 2002 to 2007, the Texas medical center paid the Tennessee businesswoman $851,416.83 based on the fraudulent invoices. Of that amount, her friend in Texas received $283,126 in kickbacks. The scheme was eventually detected, and the two women pleaded guilty to theft in January 2009. U.S. District Judge Sam R. Cummings sentenced them each to thirty months in federal prison and ordered them to pay a total of $905,166.05 in restitution.1

This health care fraud case is extremely simple. Since the medical center was deceived into making payments for services that it never received, the women committed fraud. Yet, in addition to the primary crimes of fraud and theft, white-collar offenders such as these two women usually face charges for a variety of facilitating crimes. By acting together, they engaged in a conspiracy to commit an illegal act. Because their scheme involved using the mail system as well as the telephone and the Internet, the pair opened themselves up to mail and wire fraud charges. Furthermore, if they had tried to hide their money or disguise its source, the women could have been charged with money laundering and tax evasion. Finally, many criminals who attempt to deceive investigators may face charges of lying to federal authorities, obstruction of justice, and perjury.

The point to remember is that even a simple health care fraud case such as the one involving these two far-flung business partners can have severe consequences. By pleading guilty instead of putting themselves at the mercy of a federal jury trial, the two women avoided twenty-two additional charges that could have lengthened their sentences considerably.2

Fraud Defined

The backbone of all white-collar crimes is fraud, and the primary ingredients of fraud are misrepresentation and acts of deception. When we use the term “fraud” in common language, it always has a pejorative meaning. “That’s fraudulent behavior,” we exclaim when we hear about someone behaving less than honestly. Certain conditions must be met, however, before an individual can be judged guilty of fraud in a legal proceeding.3

Fraud differs from abuses such as price gouging or mistakes such as billing errors. Price gouging usually occurs when someone takes advantage of a vulnerable person and charges them an exorbitant sum for goods or services. In the wake of a natural disaster such as a hurricane, unscrupulous price gougers charge devastated residents inflated prices for basic necessities. The second example—a billing error—is a mistake that will not result in criminal charges or a civil suit, unless such “mistakes” are blatant or follow a repeated pattern. Fraud also differs from a bad result (e.g., a frail patient dies after a successful surgery), an incorrect prediction or forecast (e.g., a doctor’s prognosis for a patient was wrong), and even malpractice (e.g., a doctor failed to provide adequate postoperative care and his patient developed a life-threatening infection).

Three conditions are required to prove fraud. Prosecutors must demonstrate that the perpetrator lied to or mislead the victim to conceal the fraud. Then they must show that the victim believed and acted on the perpetrator’s fraudulent statements. Finally, to constitute fraud, it must be documented that the victim suffered economic or other damages at the hands of the perpetrator.

The person committing a fraudulent act must knowingly or recklessly make a misrepresentation of a material fact. The misrepresentations they make include lies of commission and lies of omission. A lie of commission occurs by saying something that is not true about “a fact that is significant or essential to the issue or matter at hand” (in legalese, this is known as a material fact).4 When a physician intentionally overcharges a health insurer, he or she has committed a lie of commission. Some health care providers contend that overbilling compensates them for accepting low payments, wasting time on claims disputes, or dealing with insurance company red tape. But no matter how justifiable their complaints, they do not have the right to decide on what payment they believe befits them. Such misrepresentations constitute fraud.

A lie of omission occurs when a health care provider hides an important fact such as a medical mistake endangering a patient’s life. According to a study by HealthGrades, over three hundred thousand deaths of Medicare patients between 2002 and 2004 resulted from medical care errors.5 Most of these deaths were due to mistakes, not fraud. But fraud may be used to mislead investigators, to cover up serious medical errors, to avoid malpractice suits, or to protect one’s professional reputation.

The case of Esmin Green became a Pandora’s box for New York’s Health and Hospitals Corporation. Green’s case received widespread media coverage after she fell and died while waiting for psychiatric care at HHC’s Kings County Hospital Center in Brooklyn. A subsequent investigation of HHC by the New York Daily News revealed missing records at HHC facilities as well as discrepancies and false entries in hospital records. Some entries were faked to cover serious mistakes by HHC personnel.6

Demonstrating the first condition of fraud can be vexing to prosecutors because they must show that the defendant meant to defraud and then took actions to cover his or her tracks. For this reason, prosecutors may prefer pursuing civil rather than criminal charges against an offender. The “preponderance of evidence” burden of proof standard in civil cases is less demanding than the “beyond a reasonable doubt” standard in criminal cases. Providers accused of fraud often claim they had no intention of deceiving their victim (i.e., they had no mens rea or “guilty mind”). For example, a physician may describe the liberal use of diagnostic tests on a patient not as abusive overutilization but as crucial to the thorough evaluation of that patient.7

As mentioned earlier, definitions of fraud may be too broad and thus entangle clinicians who have only the best intentions toward their patients and society. Remember the obstetrician who tried to get her patient’s annual checkup covered by claiming falsely that the patient had a headache? She knew quite well that her patient suffered nothing of the sort, but she also believed that the patient’s health insurance should cover annual physical exams. Is this otherwise honest physician a perpetrator of fraud because she wanted to serve the best interests of her patient? One could argue that the physician was innocent of wrongdoing because she was protecting her patient. On the other hand, a cynic might argue that if the physician was so concerned about her patient’s welfare—perhaps then being accused of favoring one patient over another—she could have provided the annual checkup free of charge. Another counterargument is that by giving the patient a thorough physical exam and charging it fraudulently to the patient’s insurer, the physician was acting in the best interests of both the patient and the health care system. Had she spotted a serious medical problem early, she could have nipped it in the bud before it later developed into something more debilitating. As can be seen, the line may be blurred between a physician’s making a medical decision that is in the best interests of the patient versus a decision that might be regarded as health care fraud.

A promise or opinion made in good faith and founded on reliable knowledge does not constitute fraud. Suppose a physician prescribes an expensive antibiotic and tells his patient he will feel better within a week. Even though the antibiotic did not later perform as promised, no fraud occurred as long as the physician had made an informed judgment based on current medical knowledge.

The second condition required for establishing fraudulent intent is for the victim not only to believe but also to take action based on a misrepresentation. A Boston-area psychiatrist fabricated medical diagnoses and made insurance claims for patients, some of whom he had never met. His false diagnoses included “depressive psychosis,” “suicidal ideation,” “sexual identity problems,” and “behavioral problems in school.” Many of his diagnoses were documented using fictitious counseling session notes. In this case, the health care insurers accepted these bogus evaluations as legitimate, and the insurers paid the psychiatrist over $1 million in reimbursements. He was later caught and convicted of fraud and money laundering.8

Health care fraud cases often hinge on the trust patients place in health care providers. “Fraud in the inducement” is a misrepresentation that entices a person to enter into a transaction with a false impression of the risks.9 Bernard Madoff did exactly this sort of thing in the field of financial management when he lied to his clients and pocketed their investment monies. A patient who is paralyzed by a controversial and dangerous experimental treatment after his physician tells him the procedure is “routine” and “normal” is a victim of fraud in the inducement.

A San Francisco executive was sentenced to forty-one months in prison and ordered to pay $1.3 million in restitution after he defrauded thousands of people across the United States by selling them worthless health insurance. The phony insurance company collected over $2.8 million in premiums, but most of these funds were not placed into insurance trust accounts. Instead, the perpetrator spent the premiums on expensive cars, football tickets, and commissions to promoters who helped market the fraudulent plan.10

Finally, the act of fraud must cause harm. Nearly all health care frauds result in economic damage. Economic damages include the loss of money, products, or services as well as inflated health care costs, higher health insurance premiums, extraordinary legal expenses, additional regulatory and compliance costs, beefed up fraud detection measures that slow the processing of insurance claims, and time wasted in dealing with the fraud (an opportunity cost). Health care frauds, however, add a pernicious element to white-collar crime and fraud in general. They often cause physical harm to sick and vulnerable individuals. For example, fraud, in the form of fake or substandard laboratory tests, may allow a patient’s serious health problem to go undiagnosed and untreated.

Counterfeit diagnoses, on the other hand, may lead to unnecessary, painful, or dangerous treatments. A hospital in Maryland has been at the center of a federal investigation over the accusation that doctors there inserted coronary implants (stents) in as many as 369 patients who did not need them. Medicare and private insurers will pay for these implants only if the patient has at least a 70 percent blockage. One sixty-nine-year-old patient was told that he had a 95 percent arterial blockage when, in fact, the blockage was closer to 10 percent. Another patient, who was told she had a 90 percent blockage, later learned that she had no problem. But for the rest of her life she will be saddled with an irremovable stent. At over ten thousand dollars a pop, cardiac catheterizations are a tempting and lucrative business for an unscrupulous physician.11

A network of doctors and clinics based in California devised a rent-a-patient scheme to defraud health insurance companies. As many as 4,500 patients from forty—four states and Puerto Rico were recruited and paid small sums of money to undergo unnecessary colonoscopies and other surgeries. The doctors then billed private insurance carriers at inflated rates, resulting in a $30 million civil suit against them by twelve Blue Cross plans.12 This fraud resulted in lost income and legal expenses for Blue Cross.

Phony diagnoses may also stigmatize a patient, later limiting employment opportunities or making it difficult to obtain health or life insurance. Charges for unnecessary tests or treatments have also caused patients to exceed their lifetime health care insurance benefit limits—something the Obama administration is eliminating in its health care reform proposals. But persons without major medical coverage are walking a tightrope with no financial safety net, which...

Table of contents

• Preface
• Acknowledgments
• Introduction
• 1. Health Care Fraud and Its Facilitating Crimes
• 2. The Major Health Care Fraud Laws
• 3. Fraud in Fee-for-Service and Managed Care
• 4. Fraud at Major Hospitals
• 5. Fraud in the Pharmaceutical, Medical Equipment, and Supply Industries
• 6. Fighting Health Care Fraud and Abuse
• Conclusion
• Appendix
• Notes
• References
• Index