Appendix C: Civil and Administrative Statutes

This Appendix contains a description of civil and administrative statutes related to fraud and abuse in the context of health care. The Appendix is not intended to be a compilation of all federal statutes related to health care fraud and abuse. It is merely a summary of some of the more frequently cited Federal statutes.

I. The False Claims Act (31 U.S.C. 3729-3733)

Description of Unlawful Conduct

This is the law most often used to bring a case against a health care provider for the submission of false claims to a Federal health care program. The False Claims Act 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.

Definitions

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.

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.

Penalty for Unlawful Conduct

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.

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.

II. Civil Monetary Penalties Law (42 U.S.C. 1320a-7a)

Description of Unlawful Conduct

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.

Penalty for Unlawful Conduct

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.

III. Limitations on Certain Physician Referrals ("Stark Laws") (42 U.S.C. 1395nn)

Description of Unlawful Conduct

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).

Exceptions Relating to Other Compensation Arrangements

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.

Penalty for Unlawful Conduct

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.

Examples

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.

IV. Exclusion of Certain Individuals and Entities From Participation in Medicare and other Federal Health Care Programs (42 U.S.C. 1320a-7)

Mandatory Exclusion

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.

Permissive Exclusion

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.

Examples

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-to-day operations of the practice after his exclusion was effective.