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Fraud & abuse enforcement expanded

By Stephanie A. Fox, Esq.

On August 2, 1996 Congress passed the Health Insurance Portability and Accountability Act of 1996, more frequently referred to as the Kassebaum-Kennedy Bill. The Act was conceived by many as a mechanism to make health insurance more portable and accessible to Americans. With only two dissenting votes, however, Congress used the Act as an opportunity to strike at the alleged fraud and abuse that legislators believe runs rampant in the health care industry and which contributes significantly to rising health care costs. Key provisions of the Act guarantee insurance and access for individuals and small businesses. Provisions of the Act also expand the government’s ability to control fraud and abuse in health care insurance programs other than Medicare and Medicaid, with its creation of a new program, dubbed the “Fraud and Abuse Control Program”. This article will summarize the relevant portions of the Act relating to fraud and abuse.

The Fraud and Abuse Control Program

Financed by the Medicare Hospital Trust Fund and coordinated by the Department of Health and Human Service’s Inspector General and the Department of Justice, Section 201 of the Act establishes The Fraud and Abuse Control Program. Over the next seven years, the Inspector General and the Department of Justice will receive more than one billion dollars to attack health care fraud. The Federal Bureau of Investigation will also receive $500,000 from general revenue to hire more investigators.

Under the Fraud and Abuse Program the Office of Inspector General (OIG) and the Department of Justice are to coordinate law enforcement at all government levels to fight fraud in both the public and private sectors. Until the implementation of this program, the OIG dealt only with Medicare and Medicaid, and the Department of Justice seldom used its powers to chase suspected fraud in private entities. The concept behind this Program is to provide for more stringent exclusions from Medicare, as well as to provide the means for “watch dogs” of alleged fraud and abuse.

Under the Program, the OIG will be able to exclude from Medicare any investors, officers and managing employees of companies that have committed fraud or previously were excluded from Medicare, even if that investor, officer or employee had no knowledge of the wrongdoing. The impact of this section suggests that, if you have been excluded before, and you move onto a new venture, you will not be given a fresh start with Medicare; you will remain excluded. The Department of Justice is also given the ability to subpoena records in furtherance of any health care fraud investigation, without any requirement that the investigation be tied to Medicare or Medicaid.

Section 201 of the Act requires the OIG to issue advisory opinions on proposed provider business arrangements that fall under the anti-kickback law and the laws that allow for the imposition of civil penalty. The OIG has six months to set up a procedure to process requests for advisory opinions. These opinions are to be made public. While the Department of Justice and OIG are opposed to the issuance of advisory opinions, arguing that they could undermine prosecutions and drain government resources, the advisory opinions will assist in protection of the physicians.

Section 202 of the Fraud and Abuse Program provides for approximately $500,000,000 a year to be dedicated to the Health Care Financing Administration (HCFA) to execute another new venture set up as the “Medicare Integrity Program”. Some of this money will be used to expand Health and Human Services’ “Operation Restore Trust”, an anti-fraud campaign currently at work in five states, with the hope that the Program will move into all 50 states. Restore Trust’s three main targets are home health care, nursing home services and durable medical equipment sales and service. As part of the Medicare Integrity Program, HCFA may contract with private companies to track down perpetrators of Medicare fraud. This is a function that was currently performed mainly by insurance carriers hired to process Medicare claims. It is possible that these new provisions will permit private organizations and companies to become “watch dogs” and be hired as investigators of fraud and abuse.

Section 203 of the Program establishes beneficiary incentive programs. If an individual reports a sighting of fraud and abuse of at least $100, Health and Human Services may pay the individual a portion of the money reclaimed from defrauders.

Revisions to Current Sanctions for Fraud and Abuse

Sections 211 through 217 of the Act make several changes in the way government excludes providers from Medicare and Medicaid. Under the terms of the Act, a provider will now automatically be excluded if convicted of felony involving health care fraud or controlled substance abuse. Previously, any exclusion was automatic only if the conviction related to Medicare or Medicaid. The new Act also provides mandatory minimum sentences, ranging between one and three years, for permissive exclusions. A physician who is sanctioned for failure to comply with professional standards will receive a one year exclusion, at the minimum. The Act no longer provides for any defense on behalf of the provider who claims that he intended to meet the professional standards.

Civil Monetary Penalties

The Act makes several changes to the way the government seeks civil penalties for fraud and abuse. Section 231 of the Act amends Sections 1320a-7a(f) relating to the recovery and dispersement of funds arising out of a claim under a federal health care program. The new provisions authorize fines of up to $25,000 per infraction for HMOs that fail to carry their Medicare contracts or run afoul of federal regulations. It makes civil Medicare and Medicaid penalties applicable to all federal health care programs and authorizes a fine of up to $10,000 a day on individuals who continue as investors or managers of health care organizations after the individuals have been excluded from federal health care programs.

One of the more significant provisions of the Act changes the formula that determines penalties for false claims under the Civil Monetary Penalties Law (CMPL) (remember these penalties are separate from and in addition to penalties under the Civil False Claims act). It increases the fine from $2,000 to $10,000 per infraction and boosts damages from two to three times the amount of the claim. The Act redefines the level of intent that must be proven before a physician can be fined for civil penalties. The Act defines “knowingly” and “knows or should know” as acting in deliberate ignorance or reckless disregard of the truth. The new provisions make “deliberate ignorance” or “reckless disregard of the truth” as a criteria that must be satisfied before civil penalties can be levied for upcoding and providing unnecessary care. Previously, lack of due diligence was all that had to be established by the government. The Act also establishes a penalty for doctors who certify unneeded home health care.

Revision to Criminal Law

The Act makes several changes to federal criminal law by establishing federal offenses for health care fraud, theft or embezzlement, false statements in connection with health care, obstruction of criminal health care investigations and money laundering. The Act authorizes the Attorney General to subpoena documents in the investigation of health care fraud in both public and private sectors. Additionally, Section 245 permits real and personal property to be forfeited if it is derived, directly or indirectly, from gross proceeds from health care fraud. The proceeds of such forfeiture shall be deposited into the Federal Hospital Insurance Trust Fund.

Amendment to the Anti-Kickback Statute

Section 216 of the Act amends the federal anti-kickback statute. Remuneration between an organization and an individual or entity providing items or services will no longer be considered a kickback if the parties have a written contract that puts the individual or the entity at substantial financial risk. Details of how this provision is to work will come later. The Act does authorize Health and Human Services to set up specific rules. Additionally, the Act requires Health and Human Services to create a procedure to define new safe harbors to the anti-kickback law and to report annually to Congress on its progress toward developing the safe harbors.

The fraud and abuse enforcement provisions under the Act attempt to provide an additional attack on health care fraud. The Act excludes doctors convicted of felony related health fraud or controlled substances to be excluded from Medicare and Medicaid. Medicare patients are encouraged to report suspected fraud and abuse. The Act also provides more conditions under which HMOs can be fined or sanctioned for violating the Medicare rules and further, transferring assets to gain Medicaid eligibility becomes subject to criminal penalties. The provisions of the Act attempt to rid the system of fraud and abuse. However, it will take many years until we know whether the Act reduces fraud in the system or simply scares the providers.

Stephanie A. Fox, Esq., is with the law firm of Kalogredis Tsoules and Sweeney Ltd, in Wayne, PA.

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