In health care, the most important body of law under which liability may arise is generally considered to be the Federal False Claims Act (“FCA”).
Dating back to the American Civil War, the FCA has over time become the “primary litigative tool for combating fraud” for both federal and state governments. At its core, the FCA imposes liability on anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” (See 31 U.S.C. § 3729(a)(1)(A).)
In 1965, the United States unveiled its Medicare system, and only seven years later Congress passed the first of many laws focusing on Medicare reform, including:
- The Social Security Amendments of 1972, Pub. L. No. 92-603: These laws tried to gently regulate Medicare provider fraud and abuse, as well as over utilization and unnecessary referrals.
- Medicare-Medicaid Anti-Fraud and Abuse Amendments of 1977: Congress expanded the scope of prohibited conduct under Medicare to include practically any remuneration for a physician from the referral of a Medicare or Medicaid beneficiary. Congress also authorized exclusion from Medicare and Medicaid of any physician convicted of such conduct.
- Omnibus Reconciliation Act of 1980: Congress added a knowledge qualifier so enforcement could focus on providers who “knowingly and willfully” violated the tenets of Medicare and Medicaid.
- Civil Monetary Penalties Law of 1981: Congress authorized the Federal Government to assess fines as well as enforce program exclusions against providers who submit false, fraudulent or otherwise inappropriate claims to Medicare or Medicaid.
- Medicare and Medicaid Patient and Program Protection Act of 1987: Congress enlisted the aid of the Office of Inspector General (“OIG”) to clarify which types of provider arrangements were inappropriate. This resulted in the first of many “safe-harbor” regulations identifying specific instances that would not be subject to federal prosecution.
- Ethics in Patient Referral Act of 1989: Commonly known as the first of three “Stark” laws, Congress passed regulations directed at physician referrals for clinical services to an entity in which the physician has a financial interest.
- Omnibus Budget Reconciliation Act of 1993 (Stark II) and the 2007 modifications to Stark II (informally known as Stark III). (Stark I, Stark II and Stark III collectively shall be referred to as “the Stark Laws”): Throughout the 1990s and into the 21st century, Congress expanded the Stark Laws to include a wide range of health-related services and financial arrangements, which in turn necessitated volumes of rules and regulations, as well as exceptions to these rules. The primary federal statute within which these Stark Law prohibitions exist is 42 U.S.C. § 1395nn(a) , and the exceptions or safe harbors exist throughout the balance of the statute.
- The version of the FCA in effect from 1986 until 2009 prohibited so-called “reverse false claims,” making it unlawful to use a false record or statement to conceal, avoid or decrease an obligation to pay money to the United States. (See 31 U.S.C. § 3729(a)(7) (1986).)
- The Fraud Enforcement and Recovery Act of 2009 (“FERA”), which was signed into law on May 20, 2009, and instituted the first amendments to the FCA since 1986, expanded the reverse false claim provision significantly so that it now prohibits “knowingly conceal[ing] or knowingly and improperly avoid[ing] or decreas[ing] an obligation to pay” the United States. (See 31 U.S.C. § 3729(a)(1)(G).) This new provision includes the submission of any false record or statement, or even an affirmative act of concealment. Violation simply requires the act of “improperly” avoiding the “obligation” to pay back funds. The revised statute defines “obligation” very broadly, to include an “established duty, whether or not fixed,” that can arise from various relationships, statutes or regulations, or even “from the retention of any overpayment.” (See 31 U.S.C. § 3729(b)(3).) The statute does not define “improperly,” and thus the provision has quite a broad reach.
- A year after passing FERA, Congress passed the Affordable Care Act. Section 6402 of the Affordable Care Act established a new requirement for “Reporting and Returning of Overpayments,” which is now codified at 42 U.S.C. § 1320a-7k(d). This provision tightens the loophole even further, requiring specifically that all providers and suppliers report and return overpayments within sixty days of identifying the overpayment or the date the corresponding cost report is due, “if applicable.” (42 U.S.C. Section 1320a-7k(d).) It also defines “overpayment” to mean “any funds that a person receives or retains under [a federal health care program] to which the person, after applicable reconciliation, is not entitled under such title.” (42 U.S.C. Section 1320a-7k(d)(2).) Finally, the Affordable Care Act directly implicates the FCA, defining an overpayment retained after such deadline as an “obligation” under the FCA. (42 U.S.C. § 1320a-7k(d)(3).)
- With the enactment of the Affordable Care Act in March 2010, providers now found themselves required to repay any identified overpayment within 60 days or the upcoming cost report deadline, with the knowledge that failure to do so could become an obligation under the FCA which, so long as “knowingly and improperly” unpaid, would in turn give rise to FCA liability. On February 16, 2012, CMS published its first Proposed Rule regarding this so-called 60-day rule. Comments on the Proposed Rule were due by April 16, 2012, and a final rule is not expected for many months to come. Therefore, the scope of this rule remains uncertain.
The Federal Anti-Kickback Statutes
Generally speaking, the Federal Anti-Kickback Statutes (AKS) create a set of regulations designed to impose a basis for exclusion and other penalties (see 42 U.S.C. Section 1320a-7), and the exceptions to the AKS are set forth in 42 C.F.R. § 1001.952. The AKS establish a basic law governing financial relationships between persons or entities who provide health care services eligible for payment under federal health care programs such as Medicare or Medicaid, and those who are in a position to refer or influence business to them.
The AKS are intended to prohibit, as criminal offenses, business or financial transactions that would tend to increase the amount of money paid out by federal health care programs through encouraging excessive or otherwise inappropriate utilization of items or services eligible for reimbursement under those programs – a goal which most taxpayers would agree is a salutary one indeed. Violations of the statute can result in criminal fines of up to $25,000 per occurrence and imprisonment for up to five years, as well as the imposition of civil money penalties and/or exclusion of a provider from participation in federal health care programs.
The Stark Laws
As originally adopted, effective January 1, 1992, Stark I prohibited a physician from referring a Medicare patient to a clinical laboratory with which the physician (or an immediate family member) had a “financial relationship” and prohibited the clinical laboratory from filing a Medicare claim or billing the patient or any third party for services rendered as a result of such a referral. In 1993, “Stark II” broadened the statute to include both Medicare and Medicaid referrals and, effective January 1, 1995, also barred physicians from referring Medicare or Medicaid patients to any entity with which the physician (or an immediate family member) had a “financial relationship,” and for the provision of “designated health services” (“DHS”) as well as clinical laboratory services, and likewise prohibited the entity from billing Medicare, Medicaid, the patient or any third party for services provided pursuant to such a referral.
Complex in their influence, the Stark Laws have three basic core components:
(1) Defining designated health services (“DHS”), which include:
- Clinical laboratory services
- Physical therapy services
- Occupational therapy services
- Radiology services, including MRI, CT scans, ultrasound services and nuclear medicine services
- Radiation therapy services and supplies
- Durable medical equipment and supplies
- Parenteral and enteral nutrients, equipment and supplies
- Prosthetics, orthotics and prosthetic devices and supplies
- Home health services
- Outpatient prescription drugs
- Inpatient and outpatient hospital services
(2) Defining a financial relationship with respect to a physician or a member of the physician’s immediate family (although subject to certain enumerated exceptions), including:
- An ownership or investment interest (including debt, equity and, perplexingly enough, “other means”) in an entity providing DHS (or an entity which has an ownership or investment interest in such an entity); or
- A compensation arrangement with such an entity.
(3) Defining the existence of a referral (also subject to certain exceptions), including:
- Any request by a physician for an item or service for which payment may be made under Medicare Part B, including that physician’s request for a consultation with another physician (and any test or procedure ordered or performed by or under the supervision of that other physician); and
- With respect to items or services not covered under Part B, the request or establishment of a plan of care by a physician which includes the provision of DHS.
Thus, the Stark Laws apply wherever (1) a physician contemplates a referral of (2) a Medicare or Medicaid patient for (3) designated health services (“DHS”) to (4) an entity in which the physician or a member of the physician’s immediate family has an ownership interest or with which the physician or a member of the physician’s immediate family has a compensation arrangement, including a physician’s “referral” to himself or herself for DHS. In such a case, (a) the making of the referral is illegal, and (b) the provider of DHS cannot make a claim for payment from Medicare or Medicaid or bill the patient or any third party for services resulting from the referral in each case, unless an exception to the prohibition expressly applies.
Where a referral is made in violation of the Stark Laws, no payment under Medicare may be made for services provided as a result of such referral, and the provider is liable to refund any such payments which were wrongly made. In addition, violations of the statute can give rise to civil money penalties of up to $15,000 per service and exclusion from the Medicare program. “Circumvention schemes” – arrangements, such as cross-referral arrangements, which one or both parties know or should know have “a principal purpose of assuring referrals by the physician to a particular entity” but which do not involve direct referrals to the entity – carry a civil money penalty of $100,000 per scheme.
Unlike the AKS, which are primarily interpreted and enforced by the OIG, the Stark Laws are interpreted and enforced by the Centers for Medicare & Medicaid Services (“CMS”). Among other things, this means that there is sometimes a disconnect, or at least a lack of symmetry, between the requirements of the Stark Laws and the AKS, as well as the safe harbors afforded under both, thus leading to a difference in interpretation and enforcement at times.
Pursuant to the Physician Ownership and Referral Act of 1993 (“PORA”), California has its own set of laws designed to curtail unlawful referrals to health care providers (see California Business and Professions Code § 650.01), and an equally complicated structure for exceptions in Section 650.02. While PORA is designed to emulate the Stark Laws, and in large part does, PORA addresses all unlawful health care referrals, while Stark applies to the Medicare program only. Furthermore, while the Stark Laws do not impose criminal liability for violations, the AKS and PORA do. The AKS also apply to all federally funded health care programs, not just Medicare.
As a result, the particular nuances within each of the prohibitions and corresponding exceptions necessitate a thorough analysis at times under the Stark Laws, AKS and PORA for most issues involving allegations of certain unlawful health care practices.
Other Criminal Statutes Applicable to Health Care Providers
Although there are a large number of criminal laws that can affect a health care provider, the laws addressing fraud are perhaps most likely to spawn a criminal investigation. In the area of health care, criminal fraud often concerns either billing or referrals. The more commonly used statutes briefly described below will in many situations overlap with each other as well as with statutes not described here.
Health Care Fraud, 18 U.S.C. § 1347
The health care fraud statute prohibits the knowing and willful execution of a scheme to (1) defraud any health care benefit program or (2) obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program, in connection with the delivery of or payment for health care benefits, items, or services. The penalty for violation is a criminal fine of up to the greater of $500,000, twice the gross gain from the offense, or twice the gross loss caused by the offense; imprisonment for up to ten years; or both. If bodily injury or death results from the violation, the maximum fine and imprisonment sentence increase. The Affordable Care Act amended this statute to provide that “a person need not have actual knowledge of this section or specific intent to commit a violation of this section.” (See 18 U.S.C. Section 1347(b).) Therefore, it is no longer necessary for a prosecutor to prove that a provider knew of and intended to violate the statute when it engaged in the prohibited fraudulent conduct.
The mail and wire fraud statutes are similar to the health care fraud statute, but broader in that they do not require the fraudulent conduct to have occurred “in connection with the delivery of or payment for health care benefits, items, or services.” Rather, a violation of the mail and wire fraud statutes requires that a person have devised or intended to devise a scheme to defraud and used the interstate mails or wires for purposes of executing the scheme. In practice, the mail and wire fraud statutes can be used to prosecute almost any form of fraud or white collar crime. Conduct in violation of the health care fraud statutes often violates the mail and/or wire fraud statutes as well. Each use of the mails or wires constitutes a separate violation of the statute. Each violation can be punished by a fine of up to $500,000, twice the gross gain from the offense, or twice the gross loss caused by the offense, as well as imprisonment for up to twenty years, or both.
False Statements Relating to Health Care Matters, 18 U.S.C. § 1035
There are a number of “false statement” statutes in the federal criminal code. 18 U.S.C. § 1035 specifically applies to matters involving a health care benefit program. It criminalizes the knowing and willful (1) falsification, concealment, or cover up of a material fact, (2) making of a materially false, fictitious, or fraudulent statement or representation, or (3) making or using of any materially false writing or document knowing it to contain a materially false, fictitious, or fraudulent statement or entry, in connection with the delivery of or payment for health care benefits, items, or services. Each violation is punishable by a fine of up to the greater of $500,000, twice the gross gain from the offense, or twice the gross loss caused by the offense, as well as imprisonment for up to five years, or both.
False Statements Generally, 18 U.S.C. § 1001
Conduct covered by 18 U.S.C. § 1035 that involves a federal health care program—such as Medicare—is likely also to constitute a violation of 18 U.S.C. § 1001. The general false statements statute criminalizes, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the United States, the knowing and willful (1) falsification, concealment, or cover up of a material fact, (2) making of any materially false, fictitious, or fraudulent statement or representation, or (3) making or using any false writing or document knowing the same to contain a materially false, fictitious, or fraudulent statement or entry. 18 U.S.C. § 1001 generally would not reach false statements made under private health insurance plans or plans that are entirely state-funded, while 18 U.S.C. § 1035 would. Both statutes reach false statements made in the context of a federal health care program, and 18 U.S.C. Section 1001 further reaches false statements made in the course of any federal criminal, civil, legislative, or administrative investigation. Providers therefore need to be aware of both false statement statutes.
Obstruction of Justice – Health Care, 18 U.S.C. § 1518
The health care specific obstruction statute makes it a crime to prevent, obstruct, mislead, or delay the “communication of information or records” to a criminal investigator where the information or records relate to a violation of the federal health care laws, or to attempt to do so. The penalty for violation is a fine of up to the greater of $500,000, twice the gross gain from the offense, or twice the gross loss caused by the offense, as well as imprisonment up to five years, or both. There are numerous other obstruction of justice statutes that, while not specific to health care, may be implicated through government audits, investigations, and prosecutions of health care providers. Providers should be aware that intentionally impeding or attempting to influence a government investigation or audit—for instance by destroying documents or lying to investigators—can result in serious criminal penalties, even if the investigator or auditor is an HHS or other regulatory official rather than an FBI agent or DOJ attorney.
 31 U.S.C. Section 3729(a) states: “(1) [A]ny person who– (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; (C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G); (D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property; (E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true; (F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or (G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000 . . . plus 3 times the amount of damages. . . .”
 Modifications set forth in the Affordable Care Act also exist within this statute.
 In addition to these federal laws, other regulations permit the OIG to issue “advisory opinions” that attempt to clarify and interpret Stark Laws, among other health care regulations. (See 42 U.S.C. Section 1320a-7d(b).) Since the first advisory opinion in June 1997, the OIG has issued scores of other judgments on various matters relating to health care regulations.
 The AKS provide: “(1) Whoever knowingly and willfully solicits or receives any remuneration (including any kickbacks, bribes, or rebates) directly or indirectly, overtly or covertly, in cash or in kind – (A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a federal health care program, or (B) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a federal health care program, shall be guilty of a felony . . . (2) Whoever knowingly and willfully offers or pays any remuneration (including any kickbacks, bribes, or rebates) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person – (A) to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a federal health care program, or (B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a federal health care program, shall be guilty of a felony . . .”