A Brief Primer on Pertinent Federal Criminal Statutes Related to Health Care Fraud

While obviously the False Claims Act, 31 U.S.C. 3729-33, as amended (“FCA”), is a civil statute, it is important to bear in mind that there are many criminal statutes, particularly those relating specifically to health care fraud, that are close analogs. When dealing with either a qui tam case, or a FCA action initiated by the Department of Justice, it is essential to consider if there is any basis present for possible criminal liability as well. This is a particularly important consideration when initiating settlement discussions with the government, responding to civil FCA discovery requests, or in terms of handling any type of purported “civil” or “administrative” investigation. While any extensive analysis of pertinent criminal statutes is beyond the scope of this discussion, the following brief outline hopefully will be of assistance.

General Criminal Statutes

There are a number of long-standing criminal statutes that can be invoked against health care providers, even though they predate the current emphasis on combating health care fraud.

a. Obstruction of Federal Audit.

18 U.S.C. 1516 is particularly important to health care providers, since audits are the primary tool used by the government to monitor provider performance as well as usually being the initial step in any investigation. The statute imposes substantial penalties upon any person or entity that receives in excess of $100,000 from the government in any year and “with intent to deceive or defraud the United States, endeavors to influence, obstruct, or impede a Federal auditor in the performance of official duties” relating to that person or entity. Of particular importance is the rather expansive language of “influence, obstruct, or impede” employed in the statute. Certain parameters are clear–for example furnishing bogus checks and bank statements to auditors triggers the statute. In United States v. Henry, 1993 U.S. App. LEXIS 31191 (1993), during an audit, defendants attempted to conceal fraud by creating and submitting false checks and bank statements. See also United States v. Jones, 2002 U.S. App. LEXIS 7526 (2002). However it would appear that any effort to mislead or confound auditors could conceivably also invoke liability under the statute. Surprisingly, despite its potentially expansive sweep, the statute has seldom been employed.

b. Mail Fraud and Wire Fraud.

18 U.S.C. 1341 and 1343 make it a separate violation of federal criminal law to utilize either the mails or private or commercial interstate carriers (such as Federal Express), or wire communications (such as faxes, telephones, and e-mail or electronic forms of transmission), to accomplish an illegal act, such as presenting a false claim to Medicare, state health plan or private insurer. A fundamental advantage to the government in utilizing the mail fraud statute is that 18 U.S.C. 1345 provides for injunctive relief to stop an alleged fraud and freeze the defendant’s assets. Section 1345 (a)(1)(C) specifically states that the injunctive process can be used in connection with persons “committing or about to commit a Federal health care offense.”

c. Presenting False, Fictitious or Fraudulent Claims.

18 U.S.C. 287 — frequently referred to as the “criminal false claims act” — is generic in that it applies to any kind of false claim submitted to the government, including those relating to Medicare and state health plans. Criminal liability results from the submission of any claim “upon or against the United States. . . knowing such claim to be false, fictitious or fraudulent …” Compare the “knowing” criterion governing this section with the more rigorous “willful” standard employed in 18 U.S.C. 1001, discussed below.

d. Conspiracy to Defraud the Government.

18 U.S.C. 286 adds a significant dimension to 287. It mandates that whoever enters into “any agreement, combination, conspiracy to defraud the United States….by obtaining or aiding to obtain the payment ….of any false, fictitious or fraudulent claim” shall be subject to a separate criminal penalty. Once again, the language is subject to an expansive reading, since anyone “aiding” the payment of false claims conceivably becomes criminally liable.

e. Making False Statements to the Government.

18 U.S.C. 1001 is a real workhorse in federal prosecutions. It attaches criminal liability to anyone who “knowing and willfully falsifies, conceals or covers up … a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry….” (emphasis supplied). Section 1001 frequently is employed to prosecute individuals or entities who make misleading or false statements to, or conceal facts from, federal investigators during audits and investigations. In this regard, it is vital to note that the statute reaches concealment or falsification of a material fact, as well as affirmatively making false or fraudulent statements. However, the state of mind requirement is somewhat stringent, in that the government must prove that the defendant acting “willfully.” See United States v. Jain, 93 F.3d 436, 441 (8th Cir. 1996) (discussion of “willfully” within the context of the Federal Healthcare Anti-kickback Act, 42 U.S.C. 1320a-7b). For obvious reasons, this is a particularly important statute to consider whenever one becomes subject to a federal investigation.

f. RICO.

The Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. 1961 et seq., recently has become quite prominent in health care fraud prosecutions, although it can serve as the basis for a civil cause of action as well. Simply because the statute appears to be directed at organized crime does not mean that it should not be reviewed by even small-scale providers. The complexities of RICO rendered it unsuitable for analysis here, but there are many helpful discussions of the statute available. See, e.g., Jones et al., “Racketeer Influenced and Corrupt Organizations,” 39 Am. Crim. L. Rev. 977 (2002); Jaff, “Goliath as Victim: Can the State Bring a Civil Action under RICO?,” 3 Quinnipiac Health L.J. 5 (1999/2000).

Criminal Health Care Fraud Statutes

g. Making or Causing to be Made False Statements or Representations

42 U.S.C. 1320a-7b(a) is a provision of the Social Security Act which renders it a felony to make or cause to be made “any false statement or representation of a material fact” in any application for payment or benefit under a Federal health care program. The operative language is “any false statement or representation” (emphasis supplied) of a material fact, which encompasses requests for reimbursement, cost reports, certifications that services were performed by licensed physicians, as well as practically every other kind of representation to Medicare or Medicaid. Moreover, the section also imposes an affirmative obligation upon a recipient of any such payment or benefit to fully disclose any information that would affect “his initial or continued right to any such benefit or payment.” This obligation also extends to anyone who applies for benefits on behalf of a third party. Conversion of a payment or benefit received by another is also rendered a felony under the section. Individuals who submit requests for reimbursement falsely representing that services were performed by a physician also fall afoul of the statute.

h. Making False Statements with Respect to Conditions or Operations of Institutions.

42 U.S.C. 1320a-7b(c) is of particular import to hospitals, skilled nursing facilities, intermediate care facilities and home health providers. It imposes criminal sanctions for making misrepresentations in connection with gaining initial certification or re-certification where such certification is necessary in order to participate in Medicare or under a state health care program. The statute mentions explicitly the making of false statements or representations of material fact in connection with “the conditions or operation of any institution, facility or entity…” The statute also targets any false statements or misrepresentations made in connection with information required to be furnished by virtue of 42 U.S.C. 1320a-3a, which mandates the disclosure of related ownership or control interests.

i. Kickbacks.

The Federal Healthcare Anti-kickback Act, 42 U.S.C. 1320a-7b(b), mandates severe criminal penalties or mandatory exclusion from Federal health care programs. The statute reaches any “any plan or program that provides health benefits, whether directly, through insurance, or otherwise, which is funded directly, in whole or in part by the United States Government [with the exception of federal employee health plans: 5 U.S.C. 8901 et seq.]. 1320a-7b(f).

According to a 1994 OIG Fraud Alert, “the anti-kickback statute penalizes anyone who knowingly and willfully solicits, receives, offers or pays a remuneration in cash or kind to induce or in return for:

  1. referring an individual to a person for the furnishing or arranging for the furnishing, of any item or service payable under [a Federal health care program]; or
  2. purchasing, leasing or ordering, or arranging for or recommending purchasing, leasing or ordering, any good facility, service, or item payable under [a Federal health care program].”

Thus the statute reaches both those who would tender illegal inducements as well as those who receive them. Kickbacks recently have become a rather significant enforcement target for the federal government. In part, this is a result of the statute’s rather expansive and ill-defined language (e.g., remuneration “in kind”; “recommending”), resulting in a rather broad potential reach. Another reason is that the government has begun to contend that illegal kickbacks are also violations of the False Claims Act and subject to the extraordinary punitive penalties imposed by that civil statute. Therefore, healthcare providers are potentially subject to the double whammy of a criminal penalty and civil damages arising from exactly the same actions (not to mention OIG-imposed administrative sanctions as well). There is no question but that the Anti-kickback Act is second only to the False Claims Act in terms of being one of the most critical statutes affecting health care providers.

j. Disclosure of ownership or control in related organizations.

42 U.S.C. 1320a-3 directs that a Medicare or state health care provider must disclose to CMS the identity of any person with an ownership interest, or identify any subcontractor in which the entity has a 5% or greater interest. The purpose of this provision is to insure that all contractual transactions are truly at arms-length and do not involve subversion of bargaining by the two supposedly separate parties actually being controlled by the same individuals or entities. Any failure to make full, complete and accurate disclosure subjects the provider to criminal prosecution under 42 U.S.C. 1320a-7b(c).

HIPAA Criminal Statutes

The determination of the government to devote enhanced resources to underwriting enforcement initiatives to combat health care fraud became even more evident on August 21, 1996, when President Clinton signed the Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191) (“HIPAA”). Title II of the Act, captioned “Preventing Health Care Fraud and Abuse,” encompasses a package of new offenses, enhanced penalties, increased investigative funding, and inventive enforcement mechanisms. For example, the “Fraud and Abuse Control Program” contained in Section 201 provides enhanced enforcement funding drawn from the civil penalties and criminal fines assessed for health care fraud violations, including the requirement that offending health care providers who be required to reimburse the costs of the government’s investigation. Section 204 expands the Medicare criminal sanction provisions so that they apply to all federal health care programs (with the exception of federal employee benefit programs). In addition, the act expands the government’s current enforcement focus on Medicare and Medicaid programs by creating a host of new criminal offenses (Sections 241-246) and innovative enforcement devices (Sections 248-249) which encompass all health care delivery systems, regardless of payer. It is important to recognize that all these new offense require proof that the act was done “knowingly and willfully” which is the usual stringent criminal law standard.

Section 241 (18 U.S.C. 24) defines this new category of “health care offense” as involving the violation of specified federal criminal laws (e.g., mail fraud or conspiracy) in connection with a health care benefit, including benefits derived from private insurers. In addition, five new health care fraud offenses are created by the act. Each new offense specifies substantial penalties of incarceration and/or fines.

The first HIPAA criminal offense is found in section 242 (18 U.S.C. 1347), which establishes a federal offense of “health care fraud.” This offense includes knowingly and willfully executing a scheme or artifice to defraud a health care benefit program or to obtain by means of false or fraudulent pretenses, representations or promises any of the money of the health care benefit program in connection with the delivery of or payment for health care benefits, items or services.

Section 243 (18 U.S.C. 669) creates the next HIPAA offense of theft or embezzlement in connection with health care. This offense consists of knowingly and willfully embezzling or stealing or converting to the use of any person, other than the rightful owner, or intentionally misapplying, any money or other assets of a health care benefit plan.

Giving false statements relating to health care matters is the third HIPAA offense and is found in Section 244 (18 U.S.C. 1035). This provision forbids knowingly and willfully lying or covering up a material fact or making false statements in connection with the delivery of, or payment for, health care benefits.

Section 245 (18 U.S.C. 1518) makes it a criminal offense to obstruct, or attempt to obstruct, the criminal investigation of health care fraud offenses. The focus of this offense is willfully preventing, obstructing, misleading or delaying the flow of information or records to investigators engaged in investigating a possible federal health care offense, or attempting to do any of these actions. Note that this statute has a significantly broader potential sweep than 18 U.S.C. 15416, discussed above, which focuses exclusively upon frustrating audits.

The fifth and final HIPAA offense (Section 246) (effects an amendment of the general federal money laundering statute ([18 U.S.C. 1956(a)(1)] to include money laundering relating to a federal health care fraud offense.

Under Section 248 (18 U.S.C. 3486) of HIPAA, the Attorney General may issue subpoenas for documents in connection with the investigation of any health care offense, whether it involves a public or private insurer.

HIPAA also granted the government enhanced authority (Section 247) under 18 U.S.C. 1345 to secure injunctive relief and seek an federal court order freezing the assets of those suspected of committing health care offenses. The government has not been slow to employ this new authority; see United States v. Chang, 937 F. Supp. 1186 (D. Md. 1996). In addition, Section 249 (18 U.S.C. 982) permits the forfeiture of real and personal property derived directly or indirectly from the commission of a health care fraud offense.

It is advisable that health care providers review these HIPAA criminal offenses. The five new offenses, coupled with the earlier criminal statutes discussed in this article, afford the government a vast and varied array of statutes upon which to predicate a criminal prosecution. Particularly in light of section 204 of the Act, which makes certain criminal provisions previously applicable only to Medicare and Medicaid (including the Anti-kickback law) now applicable to all federal health care programs (other than federal employee health benefit plans), and section 241 defining “health care offense” to include offenses against private insurers as well as federal programs, providers should undertake compliance reviews and legal audits of their operations to insure that they are not accruing potential liability under any of these manifold criminal statutes, as well as the Civil False Claims Act.

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