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Fraud-Fighting Provisions of the Health Care Reform Act

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Alan G. Gilchrist
Foster Swift Health Care Law E-News
April 26, 2010

While much of the discussion concerning the Health Care Reform Act has addressed private health insurance reforms, there have been significant changes to the Medicare and Medicaid statutes concerning fraud and abuse.

Combined with the creation of the Health Care Fraud Prevention Enforcement Action team, which has already been active in southeastern Michigan and proposed substantial increased budgeting to the Department of Health and Human Services to attack fraud and abuse, it is clear that the next few years will be very active.

The following is a summary of the significant changes.  Unless otherwise noted, the effective date of the changes is upon passage of the Act or March 23, 2010.

Changes in the Intent Standard for the Anti-Kickback Statute and the Criminal Health Care Fraud Statute, 18 U.S.C. ยง 1347

Previously, to prove a violation of either statute, the government must show that the defendant acted "knowingly and willfully".  Case law has interpreted this standard to require knowledge that the federal statute prohibits the act and engaging in the prohibited conduct with the specific intent to disobey the law.

The Anti-Kickback Statute is amended to provide that a person need not have actual knowledge of the statute or specific intent to commit a violation of the statute.  The Health Care Fraud Statute, which covers claims of payment, contains nearly identical amendments.

The specific intent provisions of the prior statutes have served as a deterrent to prosecutors bringing borderline criminal cases resulting in civil recovery actions only.  This deterrent has now been removed.

The Anti-Kickback Statute is also amended to provide that claims for items or services resulting from kickback violations are false and fraudulent for purposes of the Civil False Claims Act and the Criminal Health Care Fraud Statute has been amended to provide that violations of the Anti-Kickback Statute are included in the types of conduct that constitute federal health care fraud.

Changes to the False Claims Act

Previously, public disclosure was a jurisdictional bar under the False Claims Act unless the individual bringing the suit was the original source of the information.  Now, however, courts must dismiss the action brought by relators unless opposed by the government where there has been prior disclosure.  The original source tool for relators still exists.

In addition, the disclosure is now limited to criminal, civil or administrative pleadings and reports, hearings, audits or investigations that are federal.  For criminal, civil or administrative proceedings for public prior disclosure to apply, the government or its agent must be a party.  State disclosures no longer constitute public disclosure.  Disclosure to the news media, however, remains grounds for dismissal.

There is also an expanded definition of original source to include an individual who discloses to the government the information on which the false claims are based prior to the public disclosure and the individual who provides independent knowledge adds materially to the publicly-disclosed information to the government before filing an action.

U.S. Sentencing Guidelines

The guidelines are amended to provide an increase between two and four levels for health care offenses involving $1,000,000 or more.

Civil Monetary Penalties

Complementing the federal government's authority under the False Claims Act has been the authority of the Secretary of Health and Human Services to impose civil monetary penalties on persons who engage in various types of unlawful conduct.  However, activity under the Civil False Claims Act has far surpassed any actions taken by the Secretary of HHS.  The bill expands penalties to include:

  • failure to timely provide access for audits, investigations or other statutory functions (up to $15,000 per day)
  • knowingly making or causing to be made a false claim for payment (up to $50,000 for each claim)
  • knowingly making a false statement on an enrollment application (up to $50,000 for each false statement)
  • ordering or prescribing services when the person ordering or prescribing has been excluded (up to $50,000 for each order or prescription)

The amendments also expand civil monetary penalties to cover the failure to return overpayments.

Beneficiary Inducement

As part of HIPAA, civil monetary penalties were authorized for the offering of remuneration to any beneficiary that is likely to influence such individual to order or receive from a particular provider any service payable under Medicare or Medicaid.  The bill provides for significant exceptions:

  1. remuneration that promotes access to care and imposes a low risk of harm to patients and the federal health care programs;
  2. an offer or transfer of services for free or at less than fair market value for certain coupons, rebates and other rewards from a retailer;
  3. the offer of services for free or at less than fair market value for certain services not offered as part of an advertisement or solicitation; that are not tied to the provision of other services reimbursed by Medicare or Medicaid; where there is a reasonable connection between the services and medical care of the patient; and where the person that receives the services is in financial need; and
  4. effective not earlier than January 1, 2011, the waiver of a prescription drug plan sponsor under Medicare Part D or an MA organization offering an MA-PD plan under Medicare Part C of any co-payment for the first fill of a covered drug that is a generic.

It is interesting that the exception for coupons, rebates or other rewards applies only to retailers and not other entities that offer services to beneficiaries.

Penalties for Medicare Advantage or Part D Plans

The bill establishes penalties for Medicare Advantage or Part D plans that misrepresent or falsify information required to be furnished to HHS and for the failure to provide necessary services.  The bill further protects beneficiaries from predatory marketing practices such as enrolling individuals in the plan without their consent, transferring an individual from one plan to another solely to generate commissions, and employing or contracting with an individual who engages in conduct for which sanctions can be imposed.  The effective date of these amendments is January 1, 2010.


Overpayments must be reported and returned within sixty (60) days of identity or the date the corresponding cost report is due.  Repayments may be made to the carrier, contractor or intermediary.

An overpayment repaid after the sixty (60) deadline is considered a False Claims Act violation.

The Act further provides for permissive exclusion where providers have failed to return overpayments.



Self-Disclosure Protocol

The bill establishes a self-disclosure protocol for providers to disclose violations of the Stark law.  It authorizes HHS to reduce the amount due and owing for violations of the Stark law to an amount less than that specified in the statute.  These protocols are to be established no more than six (6) months from March 23, 2010.

Disclosure of Stark violations has been a major headache to providers in light of the draconian penalties threatened.  It remains to be seen if the protocol will make self-disclosure a more viable option.

The In-Office Ancillary Services Exception

This is a major change for physicians' offices.  The in-office ancillary services exception is the exception commonly used by physicians who order laboratory testing or other diagnostic services.  The bill requires that physicians referring MRIs, CTs, and PETs must inform the patients at the time of referral that this service can be obtained by someone other than the referring physician or a physician who is a member of the physician's practice group.  The practice must also supply a list of suppliers who furnish such services in the area in which the individual resides.  This requirement covers services that are directly supervised by the referring physician or another physician within the physician's practice group.  In other words, it covers mobile services where supervision is provided by the ordering doctor's practice.  The effective date is January 1, 2010.  The bill also gives the Secretary the authority to expand these provisions to other designated health services.

Physician-Owned Hospitals

Physician-owned hospitals will no longer be able to participate in the Medicare program unless the physician has an ownership interest and the hospital had a provider number by December 31, 2010.  The bill further prohibits the expansion of any existing physician-owned hospitals with very limited exceptions.



Drug Device, Biological and Medical Supply Manufacturers

These providers are required to report annually to the Secretary of HHS beginning on March 31, 2013 and every calendar year thereafter payments and other transfers of value to physicians and teaching hospitals.  The types of payments that must be reported are extremely broad, including consulting fees and compensation for serving as faculty or a speaker for a medical education program, honoraria, entertainment, education and research, grants and charitable contributions, and royalties.

They are also required to disclose certain ownership or investment interests held by physicians, excluding publicly-traded securities.

All information submitted to the Secretary will be available on the internet.  Penalties for failure to report are severe, reaching a ceiling of $1,000,000.

Each drug manufacturer and authorized distributor beginning in 2012 must submit to HHS the identity and quantity of drug samples requested and the identity and quantity of drug samples distributed during that year.  The report must include the name, address and professional designation of the practitioner that makes the request.

Health Benefit Plans

Health benefit plans with a prescription drug plan, sponsor or an MA offering an MA-PD plan under Medicare Part D must report generic dispensing rates and negotiate price concession amounts.

Skilled Nursing Facilities and Nursing Facilities

These providers must begin immediately collecting information concerning ownership and control of the facility, which must be disclosed after regulations are implemented.  This will include the members of the governing body, officers, directors, members, partners, trustees, or other managing employees at the facility and other parties, including those who exercise operational, financial or managerial control over the facility, lease property to the facility, or provide management, administrative, clinical counseling, or financial services to the facility.

Section 6102 of the Act has various additional transparency requirements, including providing information on staffing, turnover, and tenure, which will be available on the official internet website for the federal government for Medicare beneficiaries.  A nursing facility must provide to any individual to review upon request any surveys, certifications, and investigations made respecting the facility during the preceding three years.  The facility must post a notice of the availability of such report in areas of the facility that are prominent and accessible to the public.



Compliance Programs

The bill requires the establishment of a compliance program as a condition of enrollment under the Medicare/Medicaid and SCHIP programs.  The Secretary of HHS is to establish core elements for compliance program.

DME and Home Health Services

The bill requires physicians and other health care providers to have a face-to-face patient encounter prior to submitting requests for reimbursement for home health services or DME.

The Secretary can withhold payment to newly enrolled DME suppliers for 90 days after the supplier submits an initial claim for payment if there is a significant risk of fraud among DME suppliers in a specific geographic area.  There is virtually no question that Southeastern Michigan will be viewed as such a geographic area.

Suspension of Payments Pending Investigation

Medicare and Medicaid payments may be suspended pending the investigation of a credible allegation of fraud unless HHS determines there is good cause not to suspend payments.

The suspension of payments pending investigation has been a rare tool used by carriers and intermediaries.  If the bill results in broad application of this authority, the results can be devastating.

Expansion of Recovery Audit Contractor Program (RACs)

RACs are now expanded to Medicaid and Medicare Parts C and D.

Provider Enrollment Screening

The Act requires HHS to establish screening procedures for providers and to impose a fee for the screening.  The new screening must include licensure checks and may also include permanent and background checks, fingerprinting, unannounced site visits, database checks and other appropriate screening measures as determined by the Secretary.  For new providers, the screening will be effective March, 2011 and for current providers, March, 2012.

National Provider Identifier

Effective January 1, 2011, all Medicare and Medicaid providers and suppliers must include their National Provider Identifiers and all program applications and claims. 

Time Limit to Submit Medicare Claims

Claims must be submitted within one (1) calendar year after the date of service for all services furnished after January 1, 2010.  For services furnished before January 1, 2010, the submission must be filed not later than December 31, 2010.

Increased Disclosure Requirement on Enrollment

Effective one year after enactment, any enrollee that has an affiliation with another provider or supplier that has (i) uncollected debt; (ii) suspension of payments from any federal health care programs; (iii) been excluded from participation in a federal health care program; or (iv) had its billing privileges denied or revoked must disclose this information when submitting an application for enrollment or re-enrollment.


There is no question that the OIG and Department of Justice have shifted their emphasis to data sharing versus reliance on whistleblowers and "street" investigations.  The bill contains numerous data sharing provisions, including (i) the establishment of an evidentiary privilege for communications between certain federal and state agencies, including state AG, DOJ, and DHHS; (ii) mandating a federal fraud and abuse collection program for reporting adverse actions; (iii) termination of the health care integrity protection databank and transfer of all data collected to the National Practitioner Databank; (iv) Integrated Data Repository of CMS to include claims and payment data from a variety of programs, including Medicare, Medicaid, Veterans' Affairs, and the health care service with the data from such programs to be matched with the data in the HHS system for identifying fraud; and (v) the National Association of Insurance Commissioners shall develop a model uniform report for federal health insurance companies to assist suspected fraud and abuse with responsible state agencies.


Congress also took steps to insure that enforcement agencies have sufficient financial resources to combat fraud.  The Act authorizes $10,000,000 in increased Health Care Fraud and Abuse Control for each year through 2020 and the Reconciliation Act provides for an additional $250,000,000 through 2017, beginning with a $95,000,000 boost in 2011.


The enhanced enforcement provisions of this Act put health care providers of all types at greater risk.  The disclosure requirements should be of immediate concern, as they require affirmative action.