Medicare and Medicaid Fraud: Statutes, Penalties, and Reform

Introduction: The Scale of Medicare and Medicaid Fraud

In recent years, an increasing number of fraudulent claims have been detected in the Medicare and Medicaid programs, raising concerns among taxpayers, the elderly, government agencies, and law enforcement authorities alike. One of the most significant problems with this activity is that both programs are already facing the depletion of available funds and are in dire need of reform. After working their entire lives, elderly people look forward to years of retirement supported by modest medical care and prescription drug coverage. However, the majority of this population has no other means of paying for healthcare — and soon, neither will the government. This scenario, once unimaginable, is fast approaching, an outcome attributable in large part to the high volume of abuse of government assistance programs.

Medicare, the national government insurance program that covers nearly 41 million seniors and disabled citizens, has raised substantial concerns about its financial stability. The National Center for Policy Analysis (2001) reported that fraud and abuse cost Medicare and Medicaid approximately $33 billion each year. As a result, courts have enacted several statutes carrying severe legal consequences for those who engage in Medicare and Medicaid fraud. This paper provides an overview of the fraud that occurs in these programs and concludes with recommendations for their future.

Federal and State Statutes Governing Healthcare Fraud

A variety of both federal and state statutes address Medicare and Medicaid fraud, providing prosecutors with multiple options and subjecting healthcare providers to many different types of liability. Under the False Claims Act, 18 U.S.C. § 287, any healthcare provider who presents a false or fictitious claim or demand to the government seeking reimbursement for medical goods or services may be held liable. The prosecutor need only prove that the provider intentionally submitted the claim knowing it to be false, fictitious, or fraudulent (Bennett, 2007). This can be demonstrated by showing that the claim was for goods or services that were not provided, were not provided as stated, or were provided but were not medically necessary (Bennett, 2007).

Offenders of this statute are unfortunately common. In Florida, for example, fraudulent Medicaid activity amounted to $6.7 billion, uncovered after an eight-month investigation of the federal-state health program for low-income residents. A statewide grand jury indicted six doctors and 44 others on criminal fraud charges, with schemes ranging from simple forgery to elaborate "ghost operations," kickbacks, patient brokering, and money laundering (National Center for Policy Analysis, 2001).

The Medicaid fraud uncovered in Florida revealed that there were too few procedures in place to verify whether new provider applicants were legitimate, and the state was paying claims rapidly without first verifying them. In response, the Florida State Agency for Health Care Administration implemented new anti-fraud measures, and with 80% of those measures in place, the agency's director reported that they had prevented $1 billion in payments on fraudulent claims (National Center for Policy Analysis, 2001).

Under the federal statute, the punishment for a conviction under the False Claims Act is up to five years imprisonment and a fine of $250,000 for an individual or $500,000 for a corporation for a felony conviction; or $100,000 for an individual and $200,000 for a corporation for a misdemeanor conviction (Bennett, 2007). This penalty is particularly severe because these amounts apply per occurrence.

The False Statements Act and Anti-Kickback Provision

The False Statements Act, 18 U.S.C. § 1001, imposes liability on any healthcare provider that makes false or fraudulent statements or representations in a communication submitted to the government, including false writings or documents, or that falsifies or conceals a material fact. Like the False Claims Act, the healthcare provider need not have made the statement directly to the federal government; it is sufficient that the false statement was made to a state agency or insurance company that subsequently submitted it to the government (Bennett, 2007).

Examples of this type of violation occurred as early as 1987, when a hospital supply company marked up the cost of supplies to hospitals, which then submitted those inflated costs to insurance companies acting as fiscal intermediaries for Medicare and Medicaid. More recent violations include a case in which one individual collected $7 million by charging the government between $5 and $7 for gauze surgical wrapping that cost just one cent each (National Center for Policy Analysis, 2001). To establish a violation, the government must prove that the healthcare provider willfully submitted the false statement knowing it to be false, and that the statement was material — that is, of a type that would naturally tend to influence the agency's decision or action.

The penalty for a conviction under the False Statements Act is a fine of not more than $10,000 or imprisonment of not more than five years, or both, and as with the False Claims Act, this penalty may be assessed for every individual violation (Bennett, 2001).

Another significant provision addressing Medicare and Medicaid fraud is found in the Social Security Act, 42 U.S.C. § 1320a-7b(b), commonly known as the "anti-kickback" provision. This statute prohibits anyone from knowingly and willfully soliciting or receiving any remuneration — such as kickbacks, bribes, or rebates — directly or indirectly, in return for referring an individual to a person for the furnishing of any item or service for which payment is made under the Medicaid Act or a state health care program, or in return for purchasing, leasing, ordering, or recommending any good, facility, service, or item for which payment may be made, in whole or in part, under such programs (Bennett, 2007).

Violation of the statute is classified as a felony, while knowingly and willfully offering to pay such remuneration constitutes a misdemeanor. However, the provision does not apply to discounts or other price reductions obtained by healthcare providers if the reduction is properly disclosed and reflected in the costs claimed or charges made. Violations of the anti-kickback provision can result in a fine of not more than $25,000 or imprisonment for not more than five years, or both (Bennett, 2007).

References

Bennett, M. (2007). Criminal prosecutions for Medicare and Medicaid fraud. Retrieved April 4, 2007, from http://www.aapsonline.org/fraud/fraud.htm.

Antos, J. (1997). The magnitude of the financial crisis in Medicare. Subcommittee on Health Care, United States Senate.

National Center for Policy Analysis. (2001). Fraud in Medicare. Retrieved April 4, 2007, from

Serafini, M. (2004). Health care — the real Medicare crisis ahead. Retrieved March 26, 2007, from