Healthcare Fraud

One of the largest categories of expense for the federal government each year is healthcare.  These expenses are primarily paid out through government funded programs like Medicare, Medicaid, TRICARE and the Veterans Administration.  State governments also spend billions each year on healthcare, including through the state portion of Medicaid.

Frauds against these programs are estimated to cost taxpayers billions of dollars each year. While each fraud is unique, the schemes tend to fall into various well-known categories.

Types of Healthcare Fraud

Services Not Rendered

Under government funded healthcare programs, including Medicare and Medicaid, the government will only pay for procedures and tests that were actually performed or devices actually used.  To receive government reimbursement for those services and goods, a healthcare provider must certify that the services were actually performed, or the goods were actually used.  The submission of a claim for payment for health care services, procedures, treatments, diagnostic tests, medical devices or pharmaceuticals that were never provided is a false claim and may violate the False Claims Act.

Ghost Patients

For a healthcare provider to receive reimbursement under government healthcare programs, such as Medicare, Medicaid and TRICARE, the provider must submit a claim to the government certifying that the procedures, tests and devices for which they are seeking payment were actually used or performed, and were performed and used in compliance with all applicable rules and regulations.  The submission of a claim for health care services, treatments, diagnostic tests, medical devices or pharmaceuticals provided to a patient who either does not exist or who never received the service or item billed for in the claim is called Ghost Patient fraud and can violate the False Claims Act.

Healthcare Kickbacks

The federal Anti-Kickback Statute (AKS) was enacted in 1972 and has been strengthened numerous times since then.  At its core, the AKS prohibits pay-for-patient referral schemes and is designed to ensure that decisions about government funded medical care are made based on sound medical judgment and not personal financial gain.  Many states have enacted similar anti-kickback laws.  These laws help to reduce the costs charged to government programs and prevent conflicts of interest from affecting patient care.

Kickbacks may come in many different forms, including referral and finder’s fees (the most common), bonuses for increased purchases, discounted leases and equipment rentals, honorariums, research grants, speaker fees, above-market compensation, or freebies, like tickets to sporting events, travel and paid entertainment expenses.  The offer, payment, solicitation or receipt of any such monies or remuneration in exchange for a referral can be a violation of the AKS, as well as other federal and state laws and regulations.

Every healthcare provider who wants to participate in a government sponsored healthcare program must complete an application that includes a certification stating that they are aware of these anti-kickback laws and will not violate them in providing services to beneficiaries of government funded healthcare programs.  In 2010, Congress amended the AKS to make clear that claims submitted to federally funded healthcare programs in violation of the AKS automatically constitute false claims for purpose of the False Claims Act (FCA).  Therefore, health care providers who offer, pay, solicit or receive money, property or financial benefit of any kind to induce or reward the referral of patients or healthcare services payable by a government health care program, including Medicare or Medicaid, may be in violation of both the AKS and the FCA.  Notwithstanding the government’s emphasis that healthcare provided to beneficiaries of government funded programs must be free of the taint of any kickbacks, violations of the AKS continue to occur and may result in False Claims Act violations.

Upcoding Services

Government healthcare programs, including Medicare and Medicaid, require all healthcare providers to use standardized billing codes called Current Procedure Terminology (CPT) codes and Multiple Severity – Diagnostic Related Groups (MS-DRG) to identify the services provided when they submit claims for payment for those services.  Upcoding occurs when a provider knowingly alters the billing code for a health care service, treatment, diagnostic test or other billable item to a code for a more expensive health care service, treatment, diagnostic test or billable item than was used or medically necessary, and bills the government using the code for the more expensive item.  This fraudulent billing practice is an intentional manipulation of the government’s billing procedures and causes the government to pay more than it should for the actual diagnosis and treatment of the patients.  Government funded healthcare programs are increasingly vulnerable to this kind of fraud now that healthcare providers have largely moved to electronic medical records and electronic billing services.  Where upcoding used to occur with manual changes to individual patient records, electronic records now allow these kinds of changes to be made quickly and with virtually no paper trail.

Healthcare providers who engage in upcoding and submit claims for payment for more expensive care than was actually provided may be submitting false claims for payment to the government in violation of the False Claims Act.

Bundling and Unbundling of Services

Similar to upcoding, “unbundling” certain bundled services may also violate the False Claims Act.  Government funded healthcare programs, including Medicare and Medicaid, require healthcare providers to use specific billing codes to identify the services provided.  The government program has a predetermined amount that it will pay healthcare providers who submit claims for payment for that defined service.  To reduce costs to the government and to promote efficiency for the patients, government healthcare programs have special reimbursement rates for groups of procedures that are typically performed together, such as laboratory tests.  One common type of fraud has been to bill each code separately, which results in greater reimbursement than the bundled reimbursement rate.  “Unbundling” these codes and billing the services individually to maximize reimbursement from government healthcare programs like Medicare and Medicaid causes the government to pay more than it should and can violate the False Claims Act.

Lack of Medical Necessity

Government funded healthcare programs, including Medicare and Medicaid, will only pay for care that is reasonable and necessary for the diagnosis or treatment of illness or injury.  Before any healthcare provider is paid for health care services, treatments, tests, devices or pharmaceuticals provided to patients whose care is paid for by these government programs, the provider must certify that the treatment or service was medical necessary.

Unfortunately, there are healthcare providers who will order treatment or perform tests and procedures that are not medically necessary in order to bill government healthcare programs for a patient’s supposed care.  When a healthcare provider submits claims for payment to a government funded healthcare program for care that is not medically necessary, the government ends up paying for frivolous or unnecessary procedures, tests and devices.  This is  fraud and may give rise to a False Claims Act violation and a whistleblower lawsuit.

False Claims Act cases involving lack of medical necessity are an especially important kind of whistleblower case because patients are subjected to unnecessary risk and potential harm from unscrupulous healthcare providers using them to increase billing to the government.

False Certification

Certain frauds on government healthcare programs are so common that the government has implemented secondary systems to guard against them happening.  One of these safeguards is to require healthcare providers to make certifications that they are not engaged in fraud when they submit a claim for payment to the healthcare program.  For example, providers are required to certify that the procedures, tests and devices were medically necessary, were actually used or performed, and were performed and used in compliance with all applicable rules and regulations.  Pharmaceutical companies and pharmacy benefits managers that provide drugs, biologicals (vaccines) or services pursuant to the government paid programs are also required to certify that they are complying with the terms in their contracts with the government. Compliance with these requirements is so important to the government that in some instances a claim cannot be paid without the healthcare provider’s certification.  One common type of fraud has been to falsify these certifications in order to get a health care claim paid or to obtain additional business.

Many whistleblower complaints alleging healthcare fraud expose the healthcare provider’s primary fraud (i.e. providing care that was not medically necessary or not in compliance with controlling rules and regulations) but also the secondary fraud of falsely certifying to the government that their claims for payment were true and correct in order to receive reimbursement.  When a healthcare provider falsely certifies a claim for payment, it is a fraud on the government and may form a separate basis for liability under the False Claims Act.  These claims do not have to be brought together, however.  Either fraud can be a False Claims Act violation, and either one may form the basis of a False Claims Act complaint.

Physician Self-Referral| Stark Law Violations

Federal and state laws prohibit doctors who participate in government sponsored programs such as Medicare and Medicaid from having a financial interest in certain types of services provided to their patients.  These laws are sometimes called the “Anti-Self-Referral Laws.”  The most common of these laws is the federal Stark law.

The purpose of the Stark law was to respond to concerns that  a physician’s financial relationship with the entities to which he or she refers patients  presents a conflict of interest and encourages over utilization of services.  This could result in medically unnecessary services or therapies for the patients and unnecessary costs billed to federal and state government health care programs.   Under the Stark law, a physician (or his/her immediate family member) who has an ownership, compensation or other financial relationship with an entity is prohibited from referring Medicare or Medicaid beneficiaries to that entity for specified health care services, supplies or devices, unless a specific exception or “safe harbor” applies.  This includes referrals to  MRI and Ultrasound imaging centers, laboratories, equipment sellers, physical and psycho-therapy clinics, medical facilities and other health care service providers, in which the physician or his family member has a financial interest.

If the answer to any of the following questions is ‘yes,’ there may be an improper financial arrangement in violation of the Anti-Self-Referral laws.

• Has the physician been offered or paid a nominal capital contribution to a third-party vendor?
• Has the physician been offered or given a larger share of the aggregate capital contributions made than the amount contributed to be an owner of the venture?
• Has the physician been offered or given a higher rate of return for little or no financial risk?
• Has the venture or business partner offered to loan the doctor the money needed to make the capital contribution?
• Has the physician been asked or did she promise or guarantee to refer patients or order items or services from the venture?

While these types of improper financial arrangements can take many forms and depend on the unique facts in each case, the common theme is that the physician referring patients or ordering goods is profiting from these referrals.

Violations of the Anti-Self-Referral laws can also lead to violations of the False Claims Act.  Every healthcare provider for Medicare and Medicaid beneficiaries, including physicians and the hospitals or other healthcare facilities in which hold an interest, must certify their compliance with the Stark law as a condition for receiving Medicare and Medicaid reimbursement.  Therefore, a healthcare provider who bills the government for healthcare services in violation of the Stark law is making a false claim for payment from the government which may be a violation of the False Claims Act.

Cost Reporting Fraud

Hospitals and other providers participating in government funded healthcare programs, such as Medicare Part A and Medicaid, are required to submit annual cost reports to the government.  Cost reports are the final claim the provider submits to the government program for items and services rendered to program beneficiaries during the year covered by the report and are used to calculate how much the government will reimburse the provider for expenses related to beneficiary care.  These expenses can include the cost of providing medical and healthcare services to government program beneficiaries, as well as the cost of capital expenditures like new medical equipment and ward expansions.  Over the years, cost reports can represent hundreds of millions, and even billions, in payments for some providers.

Cost reporting fraud can occur when providers knowingly inflate the costs they incurred, mischaracterize the nature of those costs, inflate the amount of services dedicated to government beneficiaries (rather than privately insured patients), or seek reimbursement for services unrelated to patient care or provided to non-government funded patients.  Submission of an inflated, manipulated or falsified cost report may violate the False Claims Act.  It can also occur if a provider’s cost report conceals an overpayment by the government to avoid repaying any amounts the government may have overpaid during the year.

Because cost reports provide a reconciliation of expenses for services provided throughout the year, they will also often reflect other fraudulent billing practices that were occurring during that year.  For instance, expenses associated with fraudulent claims for unnecessary services or services not provided, or claims that are improperly upcoded or unbundled, may also be reflected as inflated expenses within the cost report.  As a result, claims for cost reporting fraud often occur alongside claims for other types of fraudulent billing practices occurring during the same time frame.  Submission of a fraudulent cost report and submission of an underlying fraudulent claim may separately violate the False Claims Act and either can form the basis for a False Claims Act complaint.

Providers who submit cost reports are also required to certify the truth and correctness of their reports along with their compliance with government program laws and regulations.  These certifications, when accompanied by a fraudulent cost report, may also form the basis for a separate false certification claim under the False Claims Act.

Red-Lining

Government funded healthcare programs, including Medicare and Medicaid, typically reimburse health care providers based on an agreed upon rate. Some beneficiaries also have supplemental Medicare insurance coverage with private insurance companies which may be required to reimburse the provider on a per patient basis, irrespective of the patient’s current state of health or medical history.

For both Medicare and Supplemental Medicare coverage, providers and insurance companies are not permitted to discriminate against patients based on how sick they are.  However, since they can maximize their profits or reduce their costs by limiting the number of sick patients they treat, a health care provider or insurance company may be tempted to discriminate against patients that they recognize as posing potentially higher costs to increase payments from the government while minimizing costs of care.  A provider may avoid treating those patients while a private insurance company may discriminate against them during the enrollment process to keep them out of their program altogether.  These discriminatory practices against patients who are deemed to be sicker or pose a higher risk for illnesses are commonly called “red-lining,” and can violate state and federal laws, which in turn may violate the False Claims Act.

Medicare Part C | Medicare Advantage | Medicaid Managed Care Fraud

Medicare Advantage (Medicare Part C) and Medicaid Managed Care

Medicare Advantage (MA), also known as Medicare Part C, is an alternative to traditional Medicare where beneficiaries enroll in health plans operated by private companies.  It was designed by Congress two decades ago to encourage health insurers to find innovative ways to provide better care at lower cost.  Since its inception, MA programs have continued to grow in popularity, with over half of Medicare recipients now enrolled in private MA plans.  Many states have also implemented Medicaid managed care programs, which operate under the similar principles as MA plans. MA programs have failed to lower the cost of healthcare in large part because of significant fraud.

Under MA (and similar Medicaid managed care programs), the government pays private health insurers to provide health insurance benefits to individuals beneficiaries.  These private insurers operated under a “managed care” model, whereby enrolled beneficiaries receive an array of benefits, including primary and specialist care, hospital services, and sometimes additional benefits like dental or prescription drug care.  The private MA insurer covers the cost of these services, which are then reimbursed by the Centers for Medicare and Medicaid Services (CMS) (or, for Medicaid, the relevant state agency).  However, rather than reimburse the insurer for each service provided to MA beneficiaries under a traditional fee-for-services plan (as with traditional Medicare), CMS instead uses a “capitated” payment model.  Under this model, CMS pays MA plan insurers a set per-member-per-month (PMPM) amount to provide the necessary healthcare services and benefits to their enrollees.  The underlying goal is to encourage cost reduction through coordinated and preventative care.

CMS, however, recognizes that MA enrollees with certain conditions or afflictions will often incur higher treatment costs.  Thus, CMS (and states overseeing Medicaid managed care plans) offer additional “risk adjustment” payments for those beneficiaries.  These supplemental payments are calculated based on the enrollees’ specific documented diagnoses.  MA plans can apply for these additional payments by submitting these diagnosis codes as risk adjustment claims, which must include the following:

1. The patient has the given diagnosis code, which is properly documented in the medical record;
2. The diagnosis was treated by a qualified provider;
3. The treatment occurred during the relevant treatment year; and
4. The treatment was provided in-person, during a face-to-face visit.

Risk Adjustment Fraud

Risk adjustment fraud occurs when MA plans, Medicaid managed care plans, or providers intentionally manipulate or misrepresent patient health data to receive higher “risk adjustment” payments from these government funded healthcare programs.  This type of fraud can take a variety of forms but is typically aimed at improperly inflating beneficiaries’ diagnostic data, leading to higher monthly capitated payments from CMS or state programs.  Some common examples of fraudulent risk adjustment practices include:

• Upcoding or False Diagnosis – submitting claims for conditions that a patient doesn’t have or exaggerating the severity of a patient’s condition to receive a higher reimbursement.
• Misrepresentation of Ongoing Conditions – submitting claims for the ongoing treatment of a condition based on medical history, when the patient has already recovered and no longer currently treated for the condition.
• Inadequate Documentation – submitting diagnoses based on insufficient medical record documentation.
• Claim Manipulation – submitting claims based on ineligible providers or services or claims that were not based on in-person encounters, or manipulating claims to falsify this information.
• Audit Manipulation – auditing patient charts to find and include additional risk-adjustment diagnoses, while ignoring or failing to remove unsupported codes.

These types of fraudulent risk adjustment practices can violate the False Claims Act.  Both MA plans and providers may face liability for their involvement in fraudulent risk adjustment practices.

Prior Authorization Fraud

Over-Authorization Fraud

Like many other types of healthcare fraud, prior authorization fraud can take multiple forms.  One form involves the over-authorization of procedures without properly assessing whether the procedures were necessary or reasonable.  This type of fraud can occur when a company contracts with the government to perform prior authorization review for services or procedures on behalf of government funded healthcare programs but is unable to do so within the time frame or parameters of the contract.  This can result in the company “rubber stamping” the authorizations to avoid contractual penalties.  In doing so, the company puts its own corporate objectives of avoiding contractual delay penalties ahead of its contractual obligations to appropriately review prior authorizations, leading to both potentially inappropriate or unnecessary medical procedures (paid by the government) and improper charges for services not actually performed.  Companies engaged in such practices may be liable under the False Claims Act both for failing to perform as required under their government contract, and for causing the government to pay for potentially unnecessary procedures.

Another form of over-authorization fraud occurs when a provider makes false statements to government funded healthcare programs to secure prior authorization for coverage of certain procedures, services, devices or drugs.  Examples of these practices include fabricating Medicare or Medicaid beneficiaries’ medical information or posing as representatives of prescribing physicians’ offices when calling to obtain prior authorization.  These types of false statements and record manipulation may also violate the False Claims Act.

Under-Authorization Fraud

Another form of prior authorization fraud involves intentional under-authorization (or denial of prior authorization) for services or procedures.  In the Medicare Advantage (MA) space, where government payments are based on a set per-member-per-month payment system, MA plans are incentivized to reduce costs in providing patient care to boost their own profits.  According to an October 2024 report by the U.S. Senate Permanent Subcommittee on Investigations, this has led to a disturbing trend among MA insurers to improperly deny prior authorization requests for enrollee care, particularly in post-acute care facilities (such as skilled nursing facilities, inpatient rehabilitation facilities, and long-term acute care hospitals).  Because these facilities typically provide longer-term care, and are more expensive for MA insurers to cover, they have become targets for MA plans looking to cut costs and increase profitability.  According to the Committee, data suggests that some of the largest MA plans are “intentionally targeting a costly but critical area of medicine – substituting judgment about medical necessity with a calculation about financial gain.”  This type of improper prior authorization denial by MA plans for healthcare services otherwise included in the plan’s monthly capitated payment may violate the MA plan’s contract with the government and support a False Claims Act claim.

Another trend affecting this area of fraud is the use of Artificial Intelligence (AI) and predictive technologies by MA insurers in their prior authorization review process.  While this is a rapidly evolving area, early reports suggest that these technologies are associated with significant (and potentially improper) increases in prior authorization denials.  The question raised by this technology is whether its use in determining prior authorization for government healthcare beneficiaries is compliant with CMS regulations and contracts governing this type of decision making.

Medicare Part D Fraud

Implemented in 2006, Medicare Part D, also called the Medicare Prescription Drug Program, provides drug coverage for millions of elderly and disabled Americans.  Under the program, private insurance plans known as “Part D Sponsors” provide prescription drugs to eligible program beneficiaries either directly or through pharmacy benefit managers (PBMs).  The Part D Sponsors then submit claims to Medicare for reimbursement of the drugs’ cost.

Like other areas of Medicare, Part D is susceptible to various types of fraud.  Some common fraudulent practices within the Part D program include:

• Billing for drugs not actually provided.
• Billing for drugs not covered by Medicare.
• Billing for drugs different than those dispensed.  This could include providing generic drugs but billing for brand name drugs or providing drugs with low-cost National Drug Codes (NDCs), but billing for drugs with high-cost NDCs.
• Billing for drugs dispensed without a valid prescription from an authorized healthcare provider, or with a falsified prescription.
• Billing for drugs that are medically unreasonable or unnecessary.
• Billing for expired drugs or drugs re-used from prior overfills.
• Billing for drugs, such as opioids and other controlled substances, that are diverted for illegal purposes.

Like other forms of healthcare fraud, these fraudulent practices within the Medicare Part D program may violate the False Claims Act.