United States: Corporate Accountability and Compliance in Health Care - Will Health Care be the Next Enron?

Corporate Compliance and Accountability in The Health Care Provider and Pharmaceutical Industries: Mitigating Fraud, Waste and Abuse

In recent years, the government has devoted substantial resources to respond to health care fraud and abuse. The increase in governmental prosecutorial activity in the health care industry can be traced to two significant trends. Concern over waste, fraud and abuse has become more prevalent, prompting the Department of Justice to identify the eradication of health care fraud as its number two priority, right behind violent crime.¹ In addition, employees are becoming increasing aware of the economic benefits of becoming a "whistleblower."² The qui tam provisions of the False Claims Act entitles individuals who bring violations of the Act to the attention of the government to a significant percentage of any recovery. ³

The Office of Inspector General ("OIG") of the Department of Health and Human Services ("HHS") is encouraging the health care community to prevent and reduce fraud and abuse in federal health care programs by providing voluntary guidance on effectively implementing and monitoring a compliance program. In the last several years, the OIG has issued compliance program guidance directed at several segments of the health care industry. The best way for a health care organization to mitigate risk is to implement an effective compliance program.

This paper will address the myriad of federal and state statutes regulating health care fraud and abuse, delineating certain risk behaviors targeted by these statutes, and analyzing the penalties associated with unlawful conduct. The second part of this paper will discuss the importance of implementing a comprehensive and effective compliance program for hospital organizations and the pharmaceutical manufacturing industry. Finally, this paper will address the overall impact of the heightened scrutiny of the health care industry, including recommended reform measures.

There are a multitude of Federal statutory schemes aimed at preventing waste, fraud and abuse in the health care industry. The prime areas of governmental concern include:

1. Additional costs to Federal health care programs;

2. Quality of care;

3. Access to care;

4. Patients’ freedom of choice;

5. Competition; and

6. Health care providers abuse of professional judgment.

A common thread running through each of the federal statutes is that the bottom line is always about money—wrongful receipt of state or Federal funds, the presentment of a false claim for reimbursement, or improper relationships with referral sources (resulting in kickbacks/discounts). Many of the statutory schemes impose criminal as well as stiff civil penalties.

The government’s enforcement efforts have resulted in a multi-billion dollar recovery. In 2003 alone, over $2 billion was recovered. In fiscal year 2003, whistle-blowers recovered over $319 million in rewards under the Act. Between 1995 and 2003, over $8 billion has been recovered. Six billion dollars has been recovered as a result of whistleblower cases.⁴

On a local level, the University of Washington Medical Center was the subject of investigation for Medicare and Medicaid billing fraud resulting from the report of a whistleblower who worked in the billing and compliance section of the UW’s billing groups. Allegedly, the UW submitted millions of dollars worth of faulty medical insurance reimbursement claims from 1996 to 2002. Criminal charges were brought against two physicians, both of whom entered into plea arrangements, but no other individual university officials were charged. The UW faculty members were the first two faculty members in the U.S. to be convicted of criminal Medicare fraud.

The following is a sample of the DOJ’s largest recoveries during 2003 for fraud and abuse in health care:

-$641 million from HCA Inc. (formerly known as Columbia/HCA and HCA - The Healthcare Company) for cost report fraud, the payment of kickbacks to physicians and overbilling Medicare for HCA's wound care centers. This settlement concluded litigation in numerous qui tam lawsuits as well as separate investigations initiated by the government. Along with an earlier civil settlement and criminal guilty plea reached in 2000, as well as a related administrative settlement with HHS, HCA has paid the United States $1.7 billion, with whistleblowers receiving a combined share of $154 million-by far, setting record recoveries both by the United States and whistle-blowers.

-$382 million from Abbott Laboratories and its Ross Products Division. Abbott’s conduct resulted in the first combined civil settlement and criminal conviction arising from "Operation Headwaters," an undercover investigation by the Federal Bureau of Investigation, the U.S. Postal Inspection Service and the Office of the Inspector General for HHS, in which federal agents created a fictitious medical supplier known as Southern Medical Distributors. During its operation, various manufacturers, including Ross, offered kickbacks to undercover agents to purchase the manufacturers' products and then advised them how to fraudulently bill the government for those items. In addition to federal Medicare and Medicaid recoveries, the states recovered $18 million in state Medicaid funds in connection with the federal government's claims and an additional $14.5 million on claims the states pursued alone. Abbott subsidiary C G Nutritionals also paid $200 million in criminal fines.

-$280 million from AstraZeneca Pharmaceuticals, LP, to resolve allegations that AstraZeneca conspired with health care providers to charge Medicare, Medicaid and other federally funded insurance programs for free samples of its prostate cancer drug, Zoladex, and for otherwise inflating the price of the drug in violation of the Prescription Drug Marketing Act. The whistleblower's share of this settlement was $47.7 million.

-$143 million from Bayer Corporation to resolve a whistleblower's allegations that Bayer defrauded the Medicaid and Public Health Service programs by relabeling products sold to a health maintenance organization at deeply discounted rates and then concealing the discounts to avoid paying rebates, in violation of the Medicaid Rebate program. In addition, Bayer paid $108 million to reimburse state Medicaid programs for the same conduct.

-$47 million from SmithKline Beecha m Corporation, doing business as GlaxoSmithKline, to settle claims similar to those against Bayer. GlaxoSmithKline paid an additional $40 million to reimburse state Medicaid programs and Public Health Service entities.

-$51 million from Tenet Healthcare Corporation and Tenet HealthSystems Hospitals, Inc. to settle government allegations that Tenet's Redding, California facility performed unnecessary cardiac procedures that were then billed to Medicare, Medicaid and TRICARE. In addition, Tenet paid nearly $3 million to reimburse California's Medicaid funds.

-$49 million from Endovascular Technologies, Inc., a subsidiary of Guidant Corp., to settle the government's allegations that Endovascular Technologies failed to report to the Food and Drug Administration thousands of adverse incidents involving its "Ancure" cardiac device. The failure resulted in the submission of tens of millions of dollars of false claims for Medicare, Medicaid and VA benefits for procedures involving the device. In several instances, the device was linked to patient injuries and deaths. Endovascular Technologies also paid $43.4 million in criminal fines and forfeitures. ⁵

The net result of the increased focus on health care fraud and abuse is that organizations must understand the strucures and regulations and how to avoid or, at a minimum, mitigate risks.

The Civil False Claims Act, 31 U.S.C. § § 3729-3733, ("FCA") a Civil War-era statute, prohibits the knowing submission of false or fraudulent claims to the federal government. The FCA was not originally enacted to address health care fraud. Nonetheless, FCA is the legal basis most often used to bring a case against a health care provider for the submission of false claims to a Federal health care program. Numerous other fraud statutes are tied to the FCA.

The FCA prohibits knowingly presenting (or causing to be presented) to the Federal Government a false or fraudulent claim for payment or approval. Additionally, it prohibits knowingly making or using (or causing to be made or used) a false record or statement to get a false or fraudulent claim paid or approved by the Federal Government or its agents, like a carrier, other claims processor, or State Medicaid program.

False Claim -A "false claim" is a claim for payment for services or supplies that were not provided specifically as presented or for which the provider is otherwise not entitled to payment. Examples of false claims for services or supplies that were not provided specifically as presented include, but are not limited to:

-a claim for a service or supply that was never provided;

-a claim indicating the service was provided for some diagnosis code other than the true diagnosis code in order to obtain reimbursement for the service (which would not be covered if the true diagnosis code were submitted);

-a claim indicating a higher level of service than was actually provided;

-a claim for a service that the provider knows is not reasonable and necessary; or

-a claim for services provided by an unlicensed individual;

Knowingly -To "knowingly" present a false or fraudulent claim means that the provider: (1) Has actual knowledge that the information on the claim is false; (2) acts in deliberate ignorance of the truth or falsity of the information on the claim; or (3) acts in reckless disregard of the truth or falsity of the information on the claim. It is important to note the provider does not have to deliberately intend to defraud the Federal Government in order to be found liable under this Act. The provider need only "knowingly" present a false or fraudulent claim in the manner described above.

Deliberate Ignorance -To act in "deliberate ignorance" means that the provider has deliberately chosen to ignore the truth or falsity of the information on a claim submitted for payment, even though the provider knows, or has notice, that information may be false. An example of a provider who submits a false claim with deliberate ignorance would be a physician who ignores provider update bulletins and thus does not inform his/her staff of changes in the Medicare billing guidelines or update his/her billing system in accordance with changes to the Medicare billing practices. When claims for non-reimbursable services are submitted as a result, the False Claims Act has been violated.

Reckless Disregard -To act in "reckless disregard" means that the provider pays no regard to whether the information on a claim submitted for payment is true or false. An example of a provider who submits a false claim with reckless disregard would be a physician who assigns the billing function to an untrained office person without inquiring whether the employee has the requisite knowledge and training to accurately file such claims.

Examples.

A physician submitted claims to Medicare and Medicaid representing that he had personally performed certain services when, in reality, the services were performed by a nonphysician and they were not reimbursable under the Federal health care programs.

-Dr. X intentionally upcoded office visits and angioplasty consultations that were submitted for payment to Medicare.

-Dr. X, a podiatrist, knowingly submitted claims to the Medicare and Medicaid programs for non-routine surgical procedures when he actually performed routine, non-covered services such as the cutting and trimming of toenails and the removal of corns and calluses.

The penalty for violating the False Claims Act is a minimum of $5,500 up to a maximum of $11,000 for each false claim submitted. In addition to the penalty, a provider could be found liable for damages of up to three times the amount unlawfully claimed.

The FCA has become a powerful tool for uncovering fraud and abuse of government programs. One unique feature is FCA’s qui tam provisions, which provide a mechanism for private citizens and their attorneys to blow the whistle on private parties who defraud government programs. The FCA compensates the private whistleblower if his or her efforts are successful in helping the government recover fraudulently obtained government funds.

The 1986 Amendments added qui tam provisions that:

1. Entitle successful whistleblowers to at least 15% and up to 30% of the funds they help the government recover from the defendant;

2. Provide that the defendant pay for the successful whistleblowers reasonable expenses and attorney's fees;

3. Protect whistleblowers from employer retaliation; and

4. Allow whistleblowers and the lawyers to remain as parties in the suits even after the Government joins;

The FCA's qui tam provisions allow a private person to bring a lawsuit on behalf of the United States Government.⁶ The private person must have non-public information of the fraud (unless they qualify as an "original source" of the information, in which case the percentage of recovery available is reduced).⁷ This jurisdictional bar (referred to as the "public disclosure" provision) effectuates the FCA's purpose in encouraging only those qui tam suits that actually alert the Government to fraud.

Likewise, the private person must also be the first-to-file the lawsuit.⁸ This "first-to-file" rule of the FCA is heavily-litigated. Disputes commonly arise where two lawsuits allege the same fraud against different defendants (even related companies) or where the two lawsuits allege a slightly different fraud against the same defendant.

The FCA contains an anti-retaliation provision for the protection of relators.⁹ Under § 3730(h), any employee who is fired, demoted, harassed or otherwise discriminated against because of lawful acts "in furtherance of" a qui tam action is entitled to all relief necessary to make the employee whole. This may include reinstatement, twice the amount of back pay, and payment of litigation costs and attorneys' fees.

In addition to section 3730(h) of the FCA, many states have laws that may protect a qui tam relator from employment retaliation for reporting or refusing to participate in fraud.

The Sarbanes-Oxley Act was signed into law on July 30, 2002 in response to corporate scandals including Arthur Andersen’s indictment and conviction for obstructing justice by shredding accounting documents after the investigation into Enron’s implosion, and WorldCom’s June 2002 announcement that it had overstated its earnings for five previous quarters by over $3.8 billion, among others. The stated purpose of the Act is to "protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes." This law will require a Public Company Accounting Oversight Board to oversee public companies’ financial statement audits through rigorous registration, standard setting, inspection and disciplinary programs. The Act also promulgates proposed regulations for corporate conduct, including, but not limited to, regulations concerning accounting, corporate governance, public disclosures, and "whistle-blower" protections.

Section 806 of the Sarbanes-Oxley Act creates federal protection for whistleblowers who work for publicly traded companies. Section 806 amends 18 § U.S.C. by adding Section 1514A which prohibits retaliatory conduct toward anyone who participates in lawful reporting of violations concerning financially fraudulent company activities. In order to receive protection under this statute, the whistleblower must reasonably believe that the activities constitute violations of (a) federal securities law, (b) SEC rules or regulations or (c) other federal law provisions that relate to shareholder fraud.

Two of the key elements are reporting and individual liability. To warrant protection under Sarbanes-Oxley, the alleged violations must be reported to a law enforcement officer or to someone with supervisory authority or authority to investigate, discover or correct the violations. Unlike Title VII, this new legislation permits remedies against individual actors as well as the company. The broader classes of people who may be individually liable include officers, employees of publicity traded corporations, and corporate contractors, sub-contractors, and agents.

This legislation is the most protective measure to protect shareholders from similar losses resulting from Enron and WorldCom abuses. However, the Act’s new protections must be balanced with employer vulnerability to significant civil and criminal penalties. Corporations must now implement and facilitate constructive whistle blowing procedures or risk considerable exposure to litigation, fines and other criminal penalties.

The Sarbanes-Oxley whistleblower provisions are distinguishable from traditional whistleblower employment retaliation statutes as Sarbanes-Oxley imposes criminal penalties for acts of retaliation. Section 1107 of the Act provides that any individual who knowingly, with the intent to retaliate, takes harmful action against a person who provides truthful information to a law enforcement officer, regarding a commission of any federal offense will be fined and/or subjected to up to ten years imprisonment. Publicly traded companies and their individual officers, managers and agents must use more caution when terminating, demoting or taking other adverse employment actions against their employees.

The breadth of individuals who may be liable under the Act is expansive, including any officer, employee, contractor, subcontractor or agent of the company. Vicarious liability also arises from these actors’ conduct. Outside corporate legal counsel will likely be included in the cast of eligible defendants.

A complaint of retaliation may arise if any of the above actors engage in the following retaliatory conduct: discharge, demote, suspend, threaten, harass or in any way discriminate against an employee in the terms and conditions of employment. While "terms and conditions" are not defined, it is reasonable to consider that the court may analogize it to the definition of "tangible employment action" as stated by the U.S. Supreme Court in Burlington Industries, Inc. v. Ellerth, 118 S. Ct. 2257, 77 FEP 1 (1998). The definition adopted by the court was "a tangible employment action constitutes a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits."

Under the Act, employers are required to both establish audit committees and adopt procedures for the confidential and anonymous reporting of concerns regarding questionable accounting or auditing practices. Public L. No. 107-204, Sec. 301 amending 5 U.S.C. Sec 78(f). In light of the risks created by the Act’s whistleblower provisions, corporations should establish an unbiased external audit committee for the confidential reporting of retaliation.

Sarbanes-Oxley provides for reinstatement, back pay with interest, and compensatory damages. Compensatory damages include reasonable attorneys’ fees and costs if the whistleblower prevails. The Act does not provide for punitive damages. Judicial review is only available through the Court of Appeals, but such appeal does not automatically stay the Department of Labor’s order.¹¹ Importantly, the Act does not preempt or supplant existing state law or collective bargaining agreement protections for whistleblowers, including tort actions for wrongful termination in violation of public policy (for which emotional distress and punitive damages against the employer are available). Employees may also recover damages for intangible harms such as being ostracized, ridiculed or harassed. Remedies under state law and collective bargaining agreements are not preempted.¹²

The Act specifically delineates the type of conduct that warrants protection. First, disclosing information or assisting in an investigation based on the employee’s reasonable belief that there has been a violation of federal mail fraud, wire fraud, securities law fraud, bank fraud or any violation of SEC or federal laws prohibiting fraud against shareholders. Disclosures of this nature are protected if they are made to a person with supervisory authority over the employee, a federal regulatory or law enforcement agency, congress or an investigation agency hired by the employer to investigate matters of suspected violations. Second, protected conduct also includes filing or participating in a proceeding involving allegations of the above violations. These types of conduct are akin to the "opposition" and "participation" activity protected by Title VII.

Significantly, Section 1107 (18 U.S.C. Sec. 1513(e)), the criminal penalties section is applicable only when the whistleblower provides truthful information to a law enforcement officer. However, unlike Section 806, the criminal penalty provisions consider intentional retaliation to be "any action harmful to any person" who reported "any federal offense."

It is a crime to knowingly and willfully:

(1) make, or cause to be made, false statements or representations in applying for benefits or payments under all Federal health care programs;

(2) make, or cause to be made, any false statement or representation for use in determining rights to such benefit or payment;

(3) conceal any event affecting an individual's initial or continued right to receive a benefit or payment with the intent to fraudulently receive the benefit or payment either in an amount or quantity greater than that which is due or authorized;

(4) convert a benefit or payment to a use other than for the use and benefit of the person for whom it was intended;

(5) present, or cause to be presented, a claim for a physician's service when the service was not furnished by a licensed physician;

(6) for a fee, counsel an individual to dispose of assets in order to become eligible for medical assistance under a State health program, if disposing of the assets results in the imposition of an ineligibility period for the individual.

It is a crime to knowingly and willfully solicit, receive, offer, or pay remuneration of any kind (e.g., money, goods, services):

-for the referral of an individual to another for the purpose of supplying items or services that are covered by a Federal health care program; or

-for purchasing, leasing, ordering, or arranging for any good, facility, service, or item that is covered by a Federal health care program.

The statute prohibits the solicitation or receipt of any remuneration for a prohibited purpose, which places both parties to a prohibited "kickback" transaction at equal risk.¹³ The statute covers transactions involving any of the federal health programs.¹⁴

The statute requires intent; therefore, paying money or transferring value is not illegal as long as it is not done with improper intent ("knowingly and willfully . . . to induce"). The precise meaning of "knowing and willful" varies among jurisdictions. The Ninth Circuit has held that to prove that an "inducement" is "knowing and willful," the government must prove that the defendant knew that the Anti-Kickback statute "prohibits offering or paying remuneration to induce referrals" and that the defendant engaged in the "prohibited conduct with the specific intent to disobey the law." Hanlester Network v. Shalala, 51 F.3d 1390 (9th Cir. 1995). Other courts have found a lesser mens rea is required. See United States v. Jain, 93 F.3d 436 (8th Cir. 1996).

There are a number of limited exceptions to the law, also known as "safe harbors," which provide immunity from criminal prosecution and which are described in greater detail in the statute and related regulations (found at 42 CFR 1001.952 and www.hhs.gov/oig/ak).

Current safe harbors include:

-investment interests;

-space rental;

-equipment rental;

-personal services and management contracts;

-sale of practice;

-referral services;

-warranties;

-discounts;

-employment relationships;

-waiver of Part A co-insurance and deductible amounts;

-group purchasing organizations;

-increased coverage or reduced cost sharing under a risk-basis or prepaid plan; and

-charge reduction agreements with health plans.

The penalty may include the imposition of a fine of up to $ 25,000, imprisonment of up to 5 years, or both. In addition, the provider can be excluded from participation in Federal health care programs. The regulations defining the aggravating and mitigating circumstances that must be reviewed by the OIG in making an exclusion determination are set forth in 42 CFR part 1001.

1. Dr. X accepted payments to sign Certificates of Medical Necessity for durable medical equipment for patients she never examined.

2. Home Health Agency disguises referral fees as salaries by paying referring physician Dr. X for services Dr. X never rendered to the Medicare beneficiaries or by paying Dr. X a sum in excess of fair market value for the services he rendered to the Medicare beneficiaries.

The patient anti-dumping statute, 42 U.S.C. § 1395dd, requires that all Medicare participating hospitals with an emergency department: (1) Provide for an appropriate medical screening examination to determine whether or not an individual requesting such examination has an emergency medical condition; and (2) if the person has such a condition, (a) stabilize that condition; or (b) appropriately transfer the patient to another hospital.

Under 18 U.S.C. § 1347,

It is a crime to knowingly and willfully execute (or attempt to execute) a scheme to defraud any health care benefit program, or to obtain money or property from a health care benefit program through false representations. Note that this law applies not only to Federal health care programs, but to most other types of health care benefit programs as well.

The penalty may include the imposition of fines, imprisonment of up to 10 years, or both. If the violation results in serious bodily injury, the prison term may be increased to a maximum of 20 years. If the violation results in death, the prison term may be expanded to include any number of years, or life imprisonment.

1. Dr. X, a chiropractor, intentionally billed Medicare for physical therapy and chiropractic treatments that he never actually rendered for the purpose of fraudulently obtaining Medicare payments.

2. Dr. X, a psychiatrist, billed Medicare, Medicaid, TRICARE, and private insurers for psychiatric services that were provided by his nurses rather than himself.

Under 18 U.S.C. § 669,

It is a crime to knowingly and willfully embezzle, steal or intentionally misapply any of the assets of a health care benefit program. Note that this law applies not only to Federal health care programs, but to most other types of health care benefit programs as well. The penalty may includ e the imposition of a fine, imprisonment of up to 10 years, or both. If the value of the asset is $ 100 or less, the penalty is a fine, imprisonment of up to a year, or both.

An office manager for Dr. X knowingly embezzles money from the bank account for Dr. X's practice. The bank account includes reimbursement received from the Medicare program; thus, intentional embezzlement of funds from this account is a violation of the law.

Under 18 U.S.C. § 1035,

It is a crime to knowingly and willfully falsify or conceal a material fact, or make any materially false statement or use any materially false writing or document in connection with the delivery of or payment for health care benefits, items or services. Note that this law applies not only to Federal health care programs, but to most other types of health care benefit programs as well.

The penalty may include the imposition of a fine, imprisonment of up to 5 years, or both.

Dr. X certified on a claim form that he performed laser surgery on a Medicare beneficiary when he knew that the surgery was not actually performed on the patient.

Under 18 U.S.C. § 1518,

It is a crime to willfully prevent, obstruct, mislead, delay or attempt to prevent, obstruct, mislead, or delay the communication of records relating to a Federal health care offense to a criminal investigator. Note that this law applies not only to Federal health care programs, but to most other types of health care benefit programs as well. The penalty may include the imposition of a fine, imprisonment of up to 5 years, or both.

1. Dr. X instructs his employees to tell OIG investigators that Dr. X personally performs all treatments when, in fact, medical technicians do the majority of the treatment and Dr. X is rarely present in the office.

2. Dr. X was under investigation by the FBI for reported fraudulent billings. Dr. X altered patient records in an attempt to cover up the improprieties.

Under 18 U.S.C. § § 1341 and 1343,

It is a crime to use the mail, private courier, or wire service to conduct a scheme to defraud another of money or property. The term "wire services" includes the use of a telephone, fax machine or computer. Each use of a mail or wire service to further fraudulent activities is considered a separate crime. For instance, each fraudulent claim that is submitted electronically to a carrier would be considered a separate violation of the law.

The penalty may include the imposition of a fine, imprisonment of up to 5 years, or both.

1. Dr. X knowingly and repeatedly submits electronic claims to the Medicare carrier for office visits that he did not actually provide to Medicare beneficiaries with the intent to obtain payments from Medicare for services he never performed.

2. Dr. X, a neurologist, knowingly submitted claims for tests that were not reasonable and necessary and intentionally upcoded office visits and electromyograms to Medicare.

The Civil Monetary Penalties Law (CMPL) is a comprehensive statute that covers an array of fraudulent and abusive activities and is very similar to the False Claims Act. For instance, the CMPL prohibits a health care provider from presenting, or causing to be presented, claims for services that the provider "knows or should know" were:

-not provided as indicated by the coding on the claim;

-not medically necessary;

-furnished by a person who is not licensed as a physician (or who was not properly supervised by a licensed physician);

-furnished by a licensed physician who obtained his or her license through misrepresentation of a material fact (such as cheating on a licensing exam);

-furnished by a physician who was not certified in the medical specialty that he or she claimed to be certified in; or

-furnished by a physician who was excluded from participation in the Federal health care program to which the claim was submitted.

Additionally, the CMPL contains various other prohibitions, including:

-offering remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary to obtain items or services billed to Medicare or Medicaid from a particular provider;

-employing or contracting with an individual or entity that the person knows or should know is excluded from participation in a Federal health care program.

The term "should know" means that a provider: (1) Acted in deliberate ignorance of the truth or falsity of the information; or (2) acted in reckless disregard of the truth or falsity of the information. The Federal Government does not have to show that a provider specifically intended to defraud a Federal health care program in order to prove a provider violated the statute.

Violation of the CMPL may result in a penalty of up to $ 10,000 per item or service and up to three times the amount unlawfully claimed. In addition, the provider may be excluded from participation in Federal health care programs. The regulations defining the aggravating and mitigating circumstances that must be reviewed by the OIG in making an exclusion determination are set forth in 42 CFR part 1001.

Examples

1. Dr. X paid Medicare and Medicaid beneficiaries $ 20 each time they visited him to receive services and have tests performed that were not preventive care services and tests.

2. Dr. X hired Physician Assistant P to provide services to Medicare and Medicaid beneficiaries without conducting a background check on P. Had Dr. X performed a background check by reviewing the HHS-OIG List of Excluded Individuals/Entities, Dr. X would have discovered that he should not hire P because P is excluded from participation in Federal health care programs for a period of 5 years.

3. Dr. X and his oximetry company billed Medicare for pulse oximetry that they knew they did not perform and services that had been intentionally upcoded.

Physicians (and immediate family members) who have an ownership, investment or compensation relationship with an entity providing "designated health services" are prohibited from referring patients for these services where payment may be made by a Federal health care program unless a statutory or regulatory exception applies. An entity providing a designated health service is prohibited from billing for the provision of a service that was provided based on a prohibited referral. Designated health services include: clinical laboratory services; physical therapy services; occupational therapy services; radiology services, including magnetic resonance imaging, axial tomography scans, and ultrasound services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services.

New regulations clarifying the exceptions to the Stark Laws are expected to be issued by HCFA shortly. Current exceptions articulated within the Stark Laws include the following, provided all conditions of each exception as set forth in the statute and regulations are satisfied.

Exceptions for Ownership or Compensation Arrangements

-physician's services;

-in-office ancillary services; and

-prepaid plans.

Exceptions for Ownership or Investment in Publicly Traded Securities and Mutual Funds

-ownership of investment securities which may be purchased on terms generally available to the public;

-ownership of shares in a regulated investment company as defined by Federal law, if

such company had, at the end of the company's most recent fiscal year, or on average, during the previous 3 fiscal years, total assets exceeding $ 75,000,000;

-hospital in Puerto Rico;

-rural provider; and

-hospital ownership (whole hospital exception).

-rental of office space and rental of equipment;

-bona fide employment relationship;

-personal service arrangement;

-remuneration unrelated to the provision of designated health services;

-physician recruitment;

-isolated transactions;

-certain group practice arrangements with a hospital (pre-1989); and

-payments by a physician for items and services.

Violations of the statute subject the billing entity to denial of payment for the designated health services, refund of amounts collected from improperly submitted claims, and a civil monetary penalty of up to $ 15,000 for each improper claim submitted. Physicians who violate the statute may also be subject to additional fines per prohibited referral. In addition, providers that enter into an arrangement that they know or should know circumvents the referral restriction law may be subject to a civil monetary penalty of up to $ 100,000 per arrangement.

1. Dr. A worked in a medical clinic located in a major city. She also owned a free standing laboratory located in a major city. Dr. A referred all orders for laboratory tests on her patients to the laboratory she owned.

2. Dr. X agreed to serve as the Medical Director of Home Health Agency, HHA, for which he was paid a sum substantially above the fair market value for his services. In return, Dr. X routinely referred his Medicare and Medicaid patients to HHA for home health services.

3. Dr. Y received a monthly stipend of $ 500 from a local hospital to assist him in meeting practice expenses. Dr. Y performed no specific service for the stipend and had no obligation to repay the hospital. Dr. Y referred patients to the hospital for in-patient surgery.

Individuals or entities convicted of the following conduct must be excluded from participation in Medicare and Medicaid for a minimum of 5 years:

(1) a criminal offense related to the delivery of an item or service under Medicare or Medicaid;

(2) a conviction under Federal or State law of a criminal offense relating to the neglect or abuse of a patient;

(3) a conviction under Federal or State law of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct against a health care program financed by any Federal, State, or local government agency;

(4) a conviction under Federal or State law of a felony relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance.

If there is one prior conviction, the exclusion will be for 10 years. If there are two prior convictions, the exclusion will be permanent.

Individuals or entities convicted of the following offenses, may be excluded from participation in Federal health care programs for a minimum of 3 years: 

(1) a criminal offense related to the delivery of an item or service under Medicare or Medicaid;

(2) a misdemeanor related to fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct against a health care program financed by any Federal, State, or local government agency;

(3) interference with, or obstruction of, any investigation into certain criminal offenses;

(4) a misdemeanor related to the unlawful manufacture, distribution, prescription or dispensing of a controlled substance;

(5) exclusion or suspension under a Federal or State health care program;

(6) submission of claims for excessive charges, unnecessary services or services that were of a quality that fails to meet professionally recognized standards of health care;

(7) violating the Civil Monetary Penalties Law or the statute entitled "Criminal Penalties for Acts Involving Federal Health Care Programs;"

(8) ownership or control of an entity by a sanctioned individual or immediate family member (spouse, natural or adoptive parent, child, sibling, stepparent, stepchild, stepbrother or stepsister, in- laws, grandparent and grandchild);

(9) failure to disclose information required by law;

(10) failure to supply claims payment information; and

(11) defaulting on health education loan or scholarship obligations. The above list of offenses is not all inclusive. Additional grounds for permissive exclusion are detailed in the statute.

1. Nurse R was excluded based on a conviction involving obtaining dangerous drugs by forgery. She also altered prescriptions that were given for her own health problems before she presented them to the pharmacist to be filled.

2. Practice T was excluded due to its affiliation with its excluded owner. The practice owner, excluded from participation in the Federal health care programs for soliciting and receiving illegal kickbacks, was still participating in the day-today operations of the practice after his exclusion was effective.

RCW 48.30A is the Health Insurance Fraud Act. With some limited exceptions contained in RCW 48.30A.020, in relevant part, for attorney-doctor payments for services rendered or expert witness fees, minor gratuities, group buying exceptions or multi-provider advertising, a provider may not pay any third person for a referral of a claimant without violating the law. Violation of this statute is cause for discipline and constitutes unprofessional conduct, which could result in regulatory penalties, including refusal, revocation, or suspension of a professional license or right or admission to practice. RCW 48.30A.040.

RCW 19.68.010 is the anti-rebating law that prohibits referral of patients to other providers whom the referring physician has an ownership in the practice without prior disclosure in writing to the patient.

It shall be unlawful for any person, firm, corporation or association, whether organized as a cooperative, or for profit or nonprofit, to pay, or offer to pay or allow, directly or indirectly, to any person licensed by the state of Washington to engage in the practice of medicine and surgery, drugless treatment in any form, dentistry, or pharmacy and it shall be unlawful for such person to request, receive or allow, directly or indirectly, a rebate, refund, commission, unearned discount or profit by means of a credit or other valuable consideration in connection with the referral of patients to any person, firm, corporation or association, or in connection with the furnishings of medical, surgical or dental care, diagnosis, treatment or service, on the sale, rental, furnishing or supplying of clinical laboratory supplies or services of any kind, drugs, medication, or medical supplies, or any other goods, services or supplies prescribed for medical diagnosis, care or treatment. Ownership of a financial interest in any firm, corporation or association which furnishes any kind of clinical laboratory or other services prescribed for medical, surgical, or dental diagnosis shall not be prohibited under this section where (1) the referring practitioner affirmatively discloses to the patient in writing, the fact that such practitioner has a financial interest in such firm, corporation, or association; and (2) the referring practitioner provides the patient with a list of effective alternative facilities, informs the patient that he or she has the option to use one of the alternative facilities, and assures the patient that he or she will not be treated differently by the referring practitioner if the patient chooses one of the alternative facilities.

Any person violating the provisions of this section is guilty of a misdemeanor.

RCW 74.09.240 prohibits self-referrals and kickbacks with medical assistance patients and is the Washington state version of the Stark Federal Act.

Whistleblower lawsuits are on the rise. They are increasingly brought by competitors and former employees. An individual may blow the whistle for a variety of reasons, including, to send a message or clean up the industry, to make money, to even the playing field as a competitor, for vindication, or as an offensive tactic rather than be faced with personal liability, if the whistleblower was involved in any wrongdoing.

1 See generally Paul E. Kalb, MD & I. Scott Bass, Government Investigations in the Pharmaceutical Industry: Off- Label Promotion, Fraud and Abuse, and False Claims , 53 FOOD DRUG L.J. 63 (1998).

2 Id.

3 31 U.S.C. § 3730(d)

4 Department of Justice Press Release November 10, 2003, Justice Dept. Civil Fraud Recoveries Total $2.1 Billion For FY 2003 False Claims Act Recoveries Exceed $12 Billion Since 1986.

5 Id.

6 31 U.S.C. § 3730(b).

7 31 U.S.C. §3730(e)(4)(A).

8 31 U.S.C. § 3730(b)(5).

9 31 U.S.C. § 3730(h).

10 Portions of the Sarbanes-Oxley section are modified from the article, When the Whistle Blows – You Better Stop, Listen and Investigate, by Kimberly D. Baker and Rashelle C. Tanner.

11 See Senate Report No. 107-146.

12 18 U.S.C.A. § 1514A (d).

13 42 U.S.C. § 1320a -7b(b)(1)(B).

14 Health Insurance Portability and Accountability Act, Pub. L. No. 104-191, § 204, 110 Stat. 1936, 1999 (1996). 

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