health care - anti-fraud regulations

One of the things that frightened doctors the most about the Clintons’ failed Health Care Reform Act was the Draconian program it proposed for combating health care fraud. It offered a very broad definition of fraud, arguably broad enough to include almost every practitioner. And the punishment it offered for perpetrators of fraud ranged from massive monitory penalties to hard time. So the largest sigh of relief when that bill was defeated emanated from doctors, who now thought the threat of overzealous punishment for innocent mistakes had passed.

Many physicians remain unaware to this day that the Health Insurance Portability and Accountability Act of 1996 (HIPAA, otherwise known as the Kassebaum-Kennedy Bill), resurrected many of those same anti-fraud measures, lifting large blocks of language from the Clinton’s original plan and making them the law of the land.

The laws themselves are accompanied by a clear mandate for the Department of Justice (DOJ) to make health care fraud a top priority. This the DOJ has done; indeed, only violent crime has a higher priority today. Further, in their zealous pursuit of fraudulent physicians, the DOJ has the strong support of the American people. Some of the more notable provisions of HIPAA follow.

Creation of new federal health care crimes

HIPAA creates a new series of federal crimes, together called “health care fraud.” These offenses make it a federal crime to defraud health care benefit programs – any benefit program, not just Medicare.

Defrauding health benefit programs may be accomplished by theft or embezzlement, obstructing a criminal investigation of health care offenses, making false statements or misrepresentations relating to health care matters, using the mail in the act of doing any of the above (mail fraud), or processing the proceeds gained from doing any of the above (money laundering). These crimes are punishable by up to 10 years in prison, or even life in prison if a patient dies as a result of fraudulent activity.

These new statutes give the Feds some very sharp teeth for rooting out real health care fraud, such as running phony medical clinics or laundering drug money through medical facilities. Prosecutors will have tremendous leverage in investigating and prosecuting criminals, thanks to the severe penalties mandated by sentencing guidelines for federal crimes, and by their new ability to immediately paralyze suspected violators by freezing their assets.

On the other hand, these new statutes also mean that, potentially, any doctor who makes a simple misstatement to an HMO can land in jail.

New monetary penalties for civil offenses

It is likely that pursuing felony charges against doctors will only rarely serve the purpose of the feds. Instead, the feds more likely will be interested in extracting monetary penalties for the violation of civil prohibitions. HIPAA provides for such penalties in spades.

For instance, HIPAA prohibits billing for medical services “that a person knows or should know are not medically necessary.” Anyone vaguely familiar with the practice of medicine understands that there are many gray areas in which experts will disagree about what is or is not medically necessary. Ordering a mammogram in a healthy 38 year old woman who thinks she perceives a new breast lump that the physician cannot really feel, for instance, would be considered prudent by some, entirely wasteful by others. HIPAA apparently invites the feds to become the final arbiters of such disagreements, and provides for severe monetary penalties for those who wind up on the wrong side of the decision.

Such penalties include up to a $10,000 fine plus up to three times the dollar amount of the overpayment for each item. Any more than a handful of violations will be prohibitively expensive for most physicians, thus creating a powerful incentive to “settle” with the feds at the first sign of an investigation.

Creation of a coordinated anti-fraud program and account

HIPAA creates a new anti-fraud program that has its own trust fund, the Health Care Fraud and Abuse Control Account, within the Medicare Trust Fund. This provision in effect establishes a powerful new anti-fraud bureaucracy from units of the OIG and FBI, and provides it with all the money it needs to fund its efforts. The fraud trust fund will receive appropriations of up to $2.5 billion over the first few years, but this is only seed money. The anti-fraud units will be allowed to receive into this account the penalties, fines and settlements they collect as a result of the anti-fraud activities. In other words, what they collect, they keep.

Encouraging qui tam suits - The False Claims Act

Qui tam provisions, more commonly known as whistleblower provisions, empower private parties to sue in the name of the United States for “false claims.” These provisions were originally enacted during the Civil War to protect the government from bad horse trades, and were largely forgotten until the 1980s. At that time, qui tam provisions were resurrected, strengthened and given new emphasis in the False Claims Act to bolster the DOJ's crack down on the defense industry. Whistleblower suits are now being actively encouraged as a way of finding health care fraud.

The False Claims Act provides powerful incentives for suing providers – in qui tam suits, the whistleblower gets to keep up to 15% of whatever is collected. As one might expect, whistleblowers often turn out to be disgruntled employees, ex-spouses, or competitors seeking either revenge or to get rich quick. An entire industry has developed to encourage such suits – a simple search on the Internet readily turns up a host of law firms that now specialize in qui tam actions.

Next: How will the new regulations be used?

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