USDOJ: Deputy Attorney General: Publications and Documents - Health Care Fraud Report Fiscal Year 1997

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Health Care Fraud Report

Fiscal Year 1997


TABLE
OF CONTENTS

 

EXECUTIVE SUMMARY


Since 1993, fighting fraud and abuse in the health care industry has been one of the Justice
Department's top priorities. Health care fraud siphons billions of dollars away from federal
health care programs - particularly Medicare and Medicaid - that provide essential health care
services to millions of elderly, low-income, and disabled Americans. But the impact of health
care fraud and abuse cannot be measured in terms of dollars alone. Increasingly, health care
schemes that fraudulently deny medically necessary services pose a direct threat to the health
and safety of individual patients.

The Department has developed a balanced and responsible program to fight health care fraud
and abuse. The first component of the Department's program focuses on enforcement efforts,
including the use of criminal and civil tools. The second component emphasizes prevention
and deterrence, through compliance initiatives for the health care industry and through public
education to empower individual patients to be vigilant in identifying and reporting potential
health care fraud schemes.

The Department's enforcement actions have resulted in returning fraudulently obtained funds
to the government, and in curtailing participation in federally sponsored programs. In
FY 1997, $1.2 billion was awarded or negotiated as a result of criminal fines, civil
settlements, and judgments in health care fraud matters. More than $500 million of this
amount resulted from settlements in three cases involving clinical laboratory billing practices.

$695 million of the funds collected were returned to the Medicare Trust Fund to support future
beneficiary payments. Additionally, 363 defendants in 217 criminal cases were convicted, and
over 1000 individuals and businesses were excluded from participating in federal health
programs due to criminal convictions.

The Department also works to prevent fraud in a number of ways: by encouraging providers
to police their own activities through compliance programs; and by sponsoring consumer
outreach initiatives, such as the consumer fraud hotlines, to involve patients with first-hand
knowledge in the detection of fraudulent practices. Settlement agreements with providers also
stress future prevention. Settlements in FY 1997 included 84 corporate integrity agreements,
where providers committed to change their operations so as to prevent fraud from recurring in
the future.

The Health Insurance Portability and Accountability Act of 1996 provided an additional
$29 million in FY 1997 Department of Justice funding directed towards health care fraud,
which represents a 48% increase over base funding levels. This funding is essential to
continue to combat the challenges faced in several areas - home health care, durable medical
equipment, and pharmacy services, to name a few. In addition, the pace of legislative and
industry change is altering the landscape of health care delivery and payment, presenting new
challenges that must be planned for, both in prevention and enforcement efforts.

Protecting against fraud in managed care is a major future challenge, since the percentage of
beneficiaries participating in federally-funded managed care plans continues to grow. In
managed care arrangements, the fraud prevention and detection effort is primarily concerned
with ensuring that the full quality of care and range of services that providers contract to
provide are actually delivered. Proper contracting provisions, quality assurance mechanisms,
and post-care audits are required to ensure that providers comply with the care requirements
and are accountable for their activities.

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HEALTH CARE FRAUD: NATURE AND SCOPE OF THE PROBLEM



The Severity of the Problem

Fraud in the United States' health care system is a serious problem that has an impact on all
health care payers, and affects every person in this country. Health care fraud cheats taxpayers
out of billions of dollars every year. Tax dollars alone, however, do not tell the full story
about the impact of health care fraud on the American people. Beneficiaries must pay the price
for health care fraud in their copayments and contributions. Fraudulent billing practices may
also disguise inadequate or improper treatment for patients, posing a threat to the health and
safety of countless Americans, including many of the most vulnerable members of our society.

Fraudulent schemes are changing and growing more sophisticated. Unscrupulous persons and
companies can be found in every health care profession and industry, and fraudulent schemes
targeting health care patients, providers, and plans have occurred in every part of the country
and involve a wide array of medical services and products.

While the vast majority of health care providers are law-abiding, some providers are taking
advantage of federal health benefits programs. The Inspector General of the Department of
Health and Human Services recently found that in FY 97, the Medicare program alone
overpaid hospitals, doctors, and other health care providers more than $20 billion, or 11% of
Medicare payments to providers. While not all of this involves outright fraud, we are losing
billions of taxpayer dollars each year to fraud and abuse. In 1997, U.S. taxpayers lost the
equivalent of more than $500 in improper payments for every one of the 38.5 million Medicare
beneficiaries.

Who Commits Health Care Fraud?

Every type of provider commits health care fraud. Fraud has been perpetrated by individual
physicians and large publicly traded companies, medical equipment dealers, ambulance
companies, laboratories, hospitals, nursing homes, and home health care agencies. Individual
scam artists who provide no health care at all prey upon the nation's health care programs, as
well. Fraudulent schemes put billions of dollars in the pockets of individuals and providers
who cheat the system, while we struggle to pay for life-saving drugs to fight AIDS or provide
more frequent screening to detect and prevent cancer and other life-threatening illnesses.

How Do Perpetrators Commit Health Care Fraud?

Health care fraud schemes are diverse and vary in complexity, with unscrupulous providers
targeting both public and private health insurance plans. Such schemes include:

  • billing for services not rendered

  • billing for services not medically necessary

  • double billing for services provided

  • upcoding (e.g. billing for a more highly reimbursed service or product than the one
    provided)

  • unbundling ( e.g. billing separately for groups of laboratory tests performed together in
    order to get a higher reimbursement)

  • fraudulent cost reporting by institutional providers

Kickbacks in return for referring patients or influencing the provision of health care are
another common scheme. The anti-kickback statute prohibits the payment of kickbacks for the
purpose of inducing the referral of services which are paid for by federal health care programs.
Kickbacks corrupt medical providers' decision making, placing profit above patient welfare.
They can lead to grossly inappropriate medical care, including unnecessary hospitalization,
surgery, tests, and equipment.

Other types of schemes include providing services by untrained personnel, failing to supervise
unlicensed personnel, distributing unapproved devices or drugs, and creating phony health
insurance companies or employee benefit plans.

Where Does Health Care Fraud Take Place?

Health care fraud schemes have been investigated and prosecuted in every part of the country,
in urban and rural areas, and in rich and poor areas. As health care options and the reach of
federal programs have expanded, so have the boundaries of health care fraud. New arenas for
fraud are being seen in home health care and hospice services which have become eligible for
reimbursement under federal programs. Strong control programs for reimbursement and
vigilant enforcement efforts are required in these areas to prevent fraud from growing.

What Are the Consequences of Health Care Fraud?

Health care fraud exacts a price from everyone. A San Diego ophthalmologist defrauded
Medicare by performing medically unnecessary surgeries. This doctor often saw more than
150 patients a day, performed 45 surgeries on some days, and gave each patient six separate
procedures unrelated to any medical need. In Oklahoma, a psychiatric facility for children kept
its costs low and profits high by understaffing the facility and keeping children in an unsafe
environment, and then billed this "psychiatric treatment" to Medicaid. There are multiple
examples of nursing homes that pocketed Medicare funds instead of providing residents
adequate care. In a shocking example of this kind of misconduct, five patients died as a result
of the inadequate provision of nutrition, wound care, and diabetes management by three
Pennsylvania nursing homes; one death occurred when a patient, who was unable to speak,
was placed in a scalding tub of 138-degree water.

Eliminating and deterring health care fraud schemes of all types are among the Department's
highest priorities. We are committed to addressing the scope and variety of schemes in our
efforts to successfully investigate and prosecute fraud.

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NATIONAL HEALTH CARE FRAUD PROGRAM



A Fair and Balanced Approach

The Department of Justice (DOJ) takes a balanced approach to combating health care fraud.
The Department's strategy consists of two components: a strong civil and criminal
enforcement program, recently strengthened under the Health Insurance Portability and
Accountability Act of 1996 (HIPAA); and prevention efforts, which encourage providers to
adopt compliance programs and accept responsibility for policing their own activities. We
want to prevent fraud when we can and pursue civil and criminal remedies when we cannot.
We are committed to tough but fair enforcement of federal civil and criminal laws, as well as
to strong partnerships with health care providers to promote compliance within the industry.
We believe that this approach -- of enforcing the laws and promoting compliance and
prevention -- is the best way to strengthen the health care system in this country.

Direction under the HIPAA

Enacted in August of 1996, the HIPAA marks the beginning of a new stage in federal law
enforcement efforts to combat health care fraud. HIPAA provides the focus necessary to
aggressively confront the growing scope and complexity of health care fraud and to produce
significant results. This focus coordinates the administrative approach, provides significant
directed funding, and strengthens criminal laws and administrative powers related to health
care fraud.

HIPAA required the Attorney General and the Secretary of the Department of Health and
Human Services (HHS) to establish a Health Care Fraud and Abuse Control Program
(HCFAC), providing a coordinated national framework for federal, state, and local law
enforcement agencies, the private sector, and the public to fight health care fraud. The
Program seeks to achieve the following objectives:

  • To punish wrongdoing

  • To deter others from committing fraud and abuse

  • To protect patients against abuse and neglect

  • To protect the integrity of the Medicare Trust Fund, and other Federal health care
    programs

  • To educate patients and providers about the need to prevent health care fraud and to
    foster compliance within the industry

HIPAA also strengthened enforcement authority under several new or revised provisions,
including:

  • Created new criminal offense for health care fraud, theft or embezzlement in connection
    with health care offense, false statements relating to health care offense, and obstruction
    of criminal investigations of health care offenses;

  • Added a Federal health care offense to the money laundering statute

  • Extended injunctive relief relating to health care offenses ( includes freezing of assets);

  • Provided the AG with subpoena authority in criminal health care fraud investigations;

  • Established criminal forfeitures for Federal health care offenses;

  • Expanded anti-kickback statute to cover Federal health care programs, not just
    Medicare and State health care programs;

  • Strengthened exclusions for health care convictions

Significant progress was achieved in FY 1997 towards getting the program up and running.
Under HIPAA, HHS and DOJ became jointly accountable to coordinate health care fraud
prevention and enforcement activities nationwide. The Attorney General and the Secretary of
HHS each year, must determine and certify discretionary funding requirements, which in
FY 1997 was $104 million. In addition, the FBI receives mandatory funding under HIPAA,
which in FY 1997 was $46 million. In 1997, the initial program structure and tracking
mechanisms were established; resources were authorized to augment staffing in HHS and DOJ
to deal with increasing caseloads; specific widespread types of frauds were addressed under a
national project structure; several initiatives were developed to help providers understand and
comply with the law aimed at preventing health care fraud; outreach programs for the public
and specialized fraud training programs for DOJ staff were developed; and criminal, civil, and
administrative sanctions were imposed with damages and penalties collected and restored to the
Hospital Insurance Trust Fund, other federal health programs, and other statutory recipients.

Enforcement Vehicles - Criminal and Civil

During FY 1997, the Department's caseload grew significantly. Federal prosecutors and
attorneys filed 282 criminal indictments in health care fraud cases, opened 4,010 civil health
care fraud matters, and filed 89 new civil fraud cases. These numbers represent a 15%
increase in criminal prosecutions and a 61% increase in civil matters opened over FY 1996.
Since FY 1992, both criminal health care fraud prosecutions and convictions have more than
tripled.

The use of civil laws is a critical component of our enforcement policy. Most civil health care
fraud matters involve the False Claims Act (FCA), under which DOJ may bring civil
enforcement actions and seek damages and penalties against providers who knew that false or
fraudulent bills were submitted to Medicare, Medicaid, or other federal health programs.(1)

The Department has recovered $1.8 billion in matters involving alleged fraud against HHS
since 1986, when Congress amended the FCA to strengthen this important remedy, and noted
in doing so that the Act is intended to address fraud against the Medicare and Medicaid
programs. Congress intended for all providers to take responsibility for ensuring the accuracy
of the bills they submit for reimbursement. Mere negligence, mistakes, and inadvertence,
however, do not amount to false claims, and DOJ does not and will not bring FCA actions
against doctors and hospitals for honest billing errors. The purpose of the law is to single out
those providers who recklessly or with deliberate indifference allow fraudulent billing practices
to occur or continue.

In civil cases, the Department receives referrals from private whistle-blowers bringing qui tam
actions, other informants, and federal and state agencies. The Department carefully examines
each referral to properly assess the liability of the health care provider and encourages
providers to brief the responsible government attorney on any factors which may have bearing
on a case. The Civil Division also maintains staff with expertise in health care fraud, and may
work in conjunction with the USAOs or independently to handle large, national, or precedent-setting cases.

Qui tam, or whistle-blower suits have dramatically increased detection of and monetary
recoveries for health care fraud. Under the FCA, in certain circumstances private individuals
can file an action on behalf of the United States, and obtain part of any recovery by the
government in the action. The qui tam statute provides strong financial incentives to expose
fraudulent activities. Over half of the $1.2 billion the Department was awarded in health care
fraud cases in FY 1997, involved judgments or settlements related partially or completely to
allegations in qui tam cases. Over one half of all qui tam suits involve allegations of fraud
against HHS.

Qui tam suits are very important because they can serve to detect fraud that might otherwise go
undetected. In a qui tam action, the government may choose to intervene and take over the
case, or may decline yet collect part of any recovery in the case. Qui tam plaintiffs often work
with DOJ to build a strong chain of evidence that can be used during settlement discussions or
at trial.

Overall, the FCA has powerful and far reaching effects. First, it has been the vehicle for
recovering hundreds of millions of dollars of fraudulently obtained funds each year. Second,
the statute encourages providers to take responsibility for the accuracy of their claims - because
they may be liable under FCA if they are reckless or deliberately ignorant of wrongdoing by
employees. Finally, the statute helps to deter providers from committing fraud, because of its
damage and penalty provisions. One recent study, "The 1986 False Claims Act Amendments:
An Assessment of Economic Impact" by W. Stringer, estimates the deterrent effect of the FCA
over the last ten years to be $148 billion.

New tools and training are also being developed to aid litigation efforts:

  • In 1997, the Executive Office for the United States Attorneys' (EOUSA) Office of
    Legal Education (OLE) conducted a number of both basic and advanced courses for
    Department attorneys, auditors, investigators and paralegals. This curriculum included
    two conferences entitled Basic Health Care Prosecution Team Training, largely for new
    Department personnel. This specialized training was very successful, and has been
    repeated and expanded in 1998.

  • The funding made available through HIPAA also made possible four Regional Training
    Conferences for FBI agents assigned to health care fraud investigations. These one-week training sessions sponsored by the Health Care Financing Administration
    provided in-depth training on the Medicare Program to almost 300 agents. Training
    was also provided on Pharmacy Diversion and Cost Report issues.

Civil Rights of Institutionalized Persons Act

In addition to the Department's civil and criminal health care fraud prosecutions, the Civil
Rights Division has played an important role in protecting the rights of individuals in health
care facilities and improving their conditions of confinement. During FY 1997, the Civil
Rights Division continued its vigorous enforcement program under the Civil Rights of
Institutionalized Persons Act (CRIPA) to remedy egregious conditions in public residential
health care facilities. Under CRIPA, the Attorney General has authority to investigate
conditions in public, residential institutions, including nursing homes and mental health and
mental retardation facilities, and to take appropriate action where there is a pattern or practice
of unlawful actions that deprive persons confined in the facilities of their constitutional or
federal statutory rights. As a result of the Department's efforts since CRIPA was enacted in
1980, tens of thousands of institutionalized persons who were living in dire, often life-threatening, conditions now receive adequate care and services.

In FY1997, the Department was active in CRIPA matters and cases involving 43 health care
facilities in 20 states, the District of Columbia, the Commonwealth of Puerto Rico, and the
Territory of Guam. The Department initiated CRIPA investigations of 13 health care facilities,
continued its investigations of nine additional health care facilities, and monitored the
implementation of consent decrees involving 14 health care facilities. In addition, the Attorney
General filed CRIPA suits involving seven health care facilities, all of which were resolved by
settlement agreements entered as federal court orders during the fiscal year. The Department's
efforts in these facilities focused on protecting residents from abuse and neglect and undue
restraint, providing adequate medical and nursing care and rehabilitation, and ensuring that
residents are served in the most integrated setting appropriate to meet their needs as required
by the Americans with Disabilities Act.

National Projects

Increasingly health care fraud is becoming a widespread and sophisticated activity involving
large computerized payment systems and a myriad of claims. Detecting fraudulent billing
schemes often involves doing extensive computer analysis on claims. To provide for consistent
treatment of fraudulent schemes national projects have been initiated to address similar types of
wrongdoing by a given class of providers.

For each national project, the Department establishes a working group to provide "best
practices" guidance, and oversee compliance with Department policies, while simultaneously
giving USAOs the flexibility they need to address each matter fairly and on an individual basis.
The working groups are comprised of Assistant United States Attorneys and Civil Division
attorneys with particular expertise in health care fraud. For each project, the working group
develops an appropriate, initial factual and legal predicate, a set of best practices on the
investigative steps each district should take before proceeding against individual providers,
sample contact letters, settlement agreements, and other pleadings. In addition, each working
group is responsible for coordinating efforts with the investigative and program agencies.
Working groups aim to ensure that the legal process and standards used are consistent across
cases and afford proper notice and opportunities for response to providers.

A major national project undertaken that yielded significant results was the 72 Hour Window
Project, which detected and sought recoveries for double billings that occurred when hospitals
billed Medicare for outpatient services rendered within 72 hours prior to hospital admission.
The costs for these services were to be reimbursed as part of the standard Diagnosis Related
Group (DRG) reimbursement amount, and should not have been billed separately. Over

$46 million was returned to the government by October 1, 1997.

Prevention Efforts

Outreach efforts are crucial to winning the fight against health care fraud. The Department
wants to encourage corporate citizenship and affirm the importance of strong compliance
programs. This emphasis on compliance plans represents a fundamentally different approach
from traditional law enforcement. Rather than the FBI and the Inspector General policing
corporations, corporations would police themselves. Rather than an adversarial relationship
between law enforcement and the private sector, there would be a relationship of cooperation
and mutual support. Providers also benefit because a successful compliance program helps
them to avoid potential civil and criminal liability.

Under a compliance program providers become knowledgeable about when, where, and how
fraud can occur, as well as about what the law and regulations require. They then develop
control procedures and reporting for vulnerable aspects of their operations to prevent common
types of fraud. They also develop reporting and audits that can detect fraud, and a way to deal
with problems when they are found. If problems are found, they should be disclosed to the
appropriate agencies and authorities to limit potential liability.

HHS and the Department are trying to encourage responsible provider action by providing
model compliance guidance, and by providing interpretations of the law to guide providers in
assessing their activities. The program in FY 1997 included many diverse initiatives to
promote prevention through effective compliance. An advisory opinion process, through
which HHS can provide guidance on whether specific transactions violate the anti-kickback or
civil monetary penalty statute, was established, and four advisory opinions were issued.

HHS-OIG has developed model compliance plans for clinical laboratories and, recently, for
hospitals. HHS-OIG will continue to develop these plans as well as voluntary disclosure
programs. In addition, HHS is canvassing the industry for suggestions on where safe harbors
under the anti-kickback statute and special fraud alerts are needed.

Outreach efforts will also focus on beneficiary populations, educating them on how to
recognize and report suspected fraud and abuse. Consumers of health care should be the first
line of defense against fraud. The Department places a high priority on this kind of outreach
and intends to increase its efforts to enhance public awareness of health care fraud.

During FY1997, the Civil Rights Division also engaged in active outreach efforts to educate
consumers, advocates, and the public about its CRIPA activities. The Division created a
Nursing Home Working Group with representatives from its Criminal, Disability Rights,
Housing, and Special Litigation Sections, to coordinate and enhance its civil rights
enforcement efforts in nursing homes. As required by CRIPA, where federal financial,
technical, or other assistance was available to help state and local jurisdictions correct
deficiencies, the Division advised responsible public officials of the availability of such aid and
arranged for assistance, where appropriate.

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ENFORCEMENT ACCOMPLISHMENTS


A Record of Success

The Department of Justice reached unprecedented levels of success in its fight against health
care fraud in FY 1997. United States Attorneys' Offices (USAO), the Civil Division, the
Criminal Division, the Federal Bureau of Investigation (FBI), and the Justice Management
Division (JMD) have utilized the increased resources provided by HIPAA, to prosecute and
win record numbers of cases and recover larger amounts in fines and settlement payments than
ever before. Statistical enforcement accomplishments in both civil and criminal cases are
presented below, followed by synopses of key cases. Descriptions of a variety of FY 1997
cases appears at the end of this report.

In FY 1997, enforcement efforts resulted in $1.2 billion in civil settlements and judgments
won or negotiated. $517 million of these judgments were from three cases against independent
laboratories for similar types of false billing.

The DOJ collected $785 million in FY 1997. Of the monies collected, $665 million was
returned to the Medicare Trust Fund, $31 million was recovered as the federal share of
Medicaid, $55 million was restored to other Federal agencies, and $33 million was paid to
plaintiffs involved in qui tam suits.

Criminal and Civil Enforcement Statistics

Both criminal and civil investigations and cases filed for health care fraud rose again in FY 1997. Criminal matters investigated increased 13% in FY 1997, and prosecutions
increased 15%. Criminal health care fraud cases are referred to USAOs by the FBI,

HHS-OIG, or other enforcement agencies and opened as matters pending in individual
districts. A case remains a "matter" until an indictment is filed or the case is declined for
prosecution. As the number of matters referred to USAOs has increased, the number of
criminal health care fraud prosecutions filed has correspondingly increased.

Health care fraud convictions include both guilty pleas and guilty verdicts. The Department
has seen a tremendous increase in the number of convictions. In FY 1997, criminal convictions
reached a record high of 217 cases, which was a 22% increase over FY 1996.

CRIMINAL HEALTH CARE FRAUD MATTERS (USAOs)
FISCAL YEAR

MATTERS

DEFENDANTS

1997

1,517

2,479

1996

1,346

2,151

1995

1,247

2,047

CRIMINAL HEALTH CARE FRAUD PROSECUTIONS FILED (USAOs)

FISCAL YEAR

CASES

DEFENDANTS

1997

282 531

1996

246 450

1995

229

381
CRIMINAL HEALTH CARE FRAUD CONVICTIONS (USAOs)
FISCAL YEAR CASES DEFENDANTS
1997 217 363
1996 177 307
1995 158 255

Civil health care fraud cases may be handled by a USAO itself or by the Civil Division in
conjunction with a USAO. USAOs handle most matters in which the alleged single damages
are less than $1 million. Civil health care fraud matters are referred by federal or state
investigative agencies or by private persons known as "relators". Relators file suits on behalf
of the federal government under the 1986 qui tam amendments to the FCA, and may be
entitled to share in the recoveries resulting from these lawsuits. When a case is referred to a
USAO it becomes a matter pending in the district. The United States may file a civil complaint
or intervene in a qui tam complaint in U.S. District Court.

CIVIL HEALTH CARE FRAUD MATTERS PENDING (USAOs)
FISCAL YEAR MATTERS
1997 4,010
1996 2,488
1995 1,406
CIVIL HEALTH CARE FRAUD CASES FILED (USAOs)
FISCAL YEAR CASES
1997 89
1996 90
1995 60

In conjunction with the USAO's, the Civil Division also pursues civil remedies in health care
fraud matters, working closely with the FBI, HHS-OIG, and other federal law enforcement
agencies. The Civil Division initiated a record number of 243 new health care fraud matters in
FY 1997, which is double the number initiated in FY 1996.

Civil Division judgments and settlements in health care fraud matters rose from $274 million in
FY 1996 to $989.7 million in FY 1997, an increase of 261%. This number includes
judgments awarded and settlements negotiated, in that fiscal year, from cases involving the
Civil Division working with USAO's, and excludes civil cases handled exclusively by USAOs
and criminal cases.

Qui tam actions continue to provide support for a major portion of civil cases and recoveries,
as shown below.

QUI TAM CASES AND RECOVERIES FY 1996 FY 1997
Qui Tam Cases Filed 361 534
Qui Tam Cases Filed Alleging Health Care Fraud 200 289
Health Care Fraud Judgments/settlements in Matters with Qui tam
Claims
$135.5 mm $618.1
Total Health Care Fraud Judgments/settlements $274.1 mm $989.7

In addition to acting on referrals of fraud allegations, the Affirmative Civil Enforcement
(ACE) program was initiated to encourage the USAOs to take a proactive approach to the use
of available civil remedies to address health care and other fraud. The ACE program provides
dedicated resources to supplement those of various enforcement agencies on specific projects,
and also to investigate potential fraudulent practices where no specific referral is involved.

Significant Cases

In one of the two largest FCA settlements ever reached, SmithKline Beecham Clinical
Laboratories, headquartered in Philadelphia, paid $325 million to resolve federal and state
fraud claims alleging overcharges to the Medicare, Medicaid, Federal Employees Health
Benefits, Railroad Retirement, and the Department of Defense Tricare (formerly known as
CHAMPUS) health care programs. Allegations of a wide range of fraud schemes include
billing for tests not provided, not requested by the referring physician, or not medically
necessary; and paying various forms of kickbacks to referring physicians. SmithKline was also
alleged to have obtained payment from Medicare by inserting false "diagnosis" codes on
claims, and to have double billed for tests for kidney dialysis patients. The settlement involved
three qui tam actions filed against SmithKline while the government's wide-reaching
investigation into the billing practices of clinical laboratories (Operation LABSCAM) was
underway.

Two other very large settlements, that were also an outgrowth of the LABSCAM investigation,
were with Damon Clinical Laboratories, Inc. for $83.7 million, and Laboratory Corporation of
America (LabCorp) for $182 million. Both of these cases involved the laboratories making it
difficult for physicians to order individual tests, in effect forcing multiple tests to be ordered,
and then billing Medicare separately for the unbundled tests. Both of these suits involved qui
tam
lawsuits, and the qui tam plaintiffs involved received $22.5 million of the settlement amounts.

In the home health area, the nation's largest home health provider, First American Health Care
of Georgia, Inc., and its purchaser, Integrated Health Services, Inc., agreed to reimburse the
federal government approximately $252 million for overbilled and/or fraudulent Medicare
claims submitted by the company. First American, which operated 425 facilities in more than
30 states, billed Medicare for personal expenses of First American's senior management, and
marketing and lobbying expenses. First American filed for bankruptcy protection last year in
Georgia and its purchaser in bankruptcy agreed to pay the government on First American's
behalf.

Smaller but significant settlements were reached in relation to carrier fraud and kickback
schemes. Blue Shield of California paid $12 million to settle allegations that it altered or
destroyed documents to obstruct HCFA's Medicare contract performance review. In
September 1997, Baptist Medical Center agreed to pay $17.5 million to resolve claims
concerning $1 million in kickbacks it allegedly paid, as well as fraudulent Medicare claims.
Apria Healthcare Group Inc, a leading supplier of durable medical equipment, for $1.65
million, settled allegations of kickbacks for referral of patients requiring oxygen equipment.
OrNda Healthcorp settled for $12.6 million to resolve claims that it paid physicians for
Medicare patient referrals to its hospitals, and that it had prohibited financial relationships with
these physicians.

Traditionally the FCA has been used to make claims for fraudulent billing, but has not been
used to address cases where inadequate care is provided under federally funded programs. In a
District Court decision, U.S. ex.rel. Aranda v. Community Psychiatric Centers of Oklahoma,
Inc.
, Civ-94-608-A (W.D. Okla.), the Court held that a claim for inadequate quality of care
could in fact be the basis for a claim brought under the FCA. This decision, while at a lower
court level, begins to address the legal issues that will be faced as the use of capitated payment
arrangements, such as HMOs, expands in the Medicare and Medicaid programs.

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RESOURCES


Passage of the HIPAA in FY 1996 greatly increased the resource levels devoted to health care
fraud activities in FY 1997 and beyond. In FY 1997 the Department of Justice received

$22.2 million of the $104 million appropriation certified by the Secretary of HHS and the
Attorney General, as necessary to execute the HCFAC Program. The funding breakdown
within the Department is shown in the chart below. Separately, the FBI received $47 million
($39 of which was base funding which transferred to HIPAA) for related enforcement
activities.

Expenditures in FY 1997 totaled $91.5 million, with $50.6 million for the FBI and $40.9
million for USAOs, Criminal and Civil Division. HIPAA funds allowed resources devoted to
health care fraud to increase by 48% over base funding levels, from $61.7 million in FY 1996.

Discretionary funding under HIPAA will increase by 15% annually until FY 2003, and FBI
enforcement funding will reach $114 million by FY 2003. The continued funding growth will
fuel DOJ and HHS to sustain a record of successful enforcement under increasing caseloads.

FY 1997 ALLOCATION OF DISCRETIONARY

HCFAC APPROPRIATION

(Dollars in thousands)

Department of Justice

United States Attorneys

Civil Division

Federal Bureau of Investigation

Criminal Division

Justice Management Division

Total


$8,548

9,656

3,625

329

42

$22,200

Department of Health and Human Services $80,246
Other Agencies (Federal, State, and Local) $1,554
Total $104,000

In the last four years, Department staffing for health care fraud has grown rapidly.
Department prosecutorial and FBI agent work years devoted to health care fraud matters have
tripled since FY 1993. Additionally, staff in the Civil and Criminal Divisions support the
effort in litigating individual cases. The following chart shows the trend in attorney and agent
work years devoted to health care fraud. The 51% growth in manpower (Department attorney
and FBI agent work years) from FY 1996 to FY 1997 corresponds to the increased workload
in civil and criminal matters handled of 44% and cases filed of 10%.

EFFORT IN WORK YEARS DEVOTED TO HEALTH CARE FRAUD
Fiscal
Year
USAO
Attorneys

Civil Division
Attorneys

Criminal Division
Attorneys

FBI Agents Total
Atty/Agents

1997 132 17 7 395 551
1996 93 11 4 256 364
1995 85 13 4 261 363
1994 71 10 4 225 310
1993 43 6 4 147 200

The HIPAA funding supported 285 new Department health care fraud positions. Additions
included 60 criminal Assistant United States Attorneys (AUSAs); 30 civil AUSAs;

23 paralegals; 30 auditor/investigators; 23 support positions, and a Health Care Fraud
coordinator in the EOUSA's Legal Programs section. The Civil Division received an
additional 33 positions, the Criminal Division an additional 4 positions, and JMD an additional
4 positions. The FBI also received additional funding for 46 agent and 31 support positions.
This places a total of 370 agents at year-end FY 1997 devoted to health care fraud, as
compared to 112 in FY 1992. The full impact of these new positions will be realized in future
years as new staff is hired, trained, and become more productive.

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FUTURE CHALLENGES


Although the Department of Justice has achieved significant results in its health care fraud
program over the past year, many new challenges lie ahead. In an ever changing economic
and regulatory environment, the Department's enforcement activities must continually evolve
to remain as effective as possible.

As a result of legislative and regulatory action, Medicare and Medicaid payment mechanisms
have been changed, eliminating some systemic vulnerabilities, while creating new opportunities
for fraud and abuse. The Department will not merely react to these changes; but will be ever
vigilant to new schemes and will adapt enforcement practices accordingly. The Department
also will continue to devote its attention to efforts to prevent fraud, through stepped-up
compliance efforts and consumer and patient education.

The Department will also continue to hold itself accountable for its enforcement efforts,
ensuring that, in all respects, investigative and prosecutive activities are both tough and fair.
Moreover, we will enlist the assistance and input of the public, consumers and providers alike,
in this effort.

Although all significant health care fraud schemes warrant the Department's attention, we will
be especially cognizant of the adverse impact of some providers' fraudulent actions on the
health of the patients for whom they care. The denial of medically necessary services, threats
to the health of the nation's elderly, and the underservice of populations in managed care plans
will receive the Department's special attention.

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SELECTED CASES


Ambulance Services

  • On January 22, 1997, in the District of Arizona, six members of the Baker family,
    owners and operators of Professional Medical Transport, Inc., of Phoenix, Arizona,
    were charged, in a 68-count indictment, with submitting $1.3 million in fraudulent
    Medicare billings, along with witness tampering and making illegal campaign
    contributions. The indictment charges that PMT overcharged Medicare by billing for
    full ambulance services when those services were not medically necessary.

  • In the Northern District of California, the Goldstar Ambulance Company was found
    liable under the FCA for submitting false claims to Medicare for routine, round-trip
    transports of dialysis patients. In an opinion issued on April 8, 1997, the judge
    concluded that the defendants were reckless in failing to verify to actual condition of the
    patients before submitting the request for payment. The court found defendants liable
    for treble damages and $5,000 penalties for 49 of the 100 dialysis claims submitted into
    evidence. The district court's decision has been affirmed on appeal by the United
    States Court of Appeals for the Fifth Circuit.

  • On May 22, 1997, five defendants were sentenced in cases relating to Medicaid fraud
    by two ambulance companies in the Southern District of West Virginia. One rescue
    squad captain and emergency medical technician (EMT) were sentenced to 24 months in
    prison and ordered to pay $15,000 in restitution. One former ambulance driver was
    sentenced to 12 months in prison and ordered to pay $8,000 in restitution. Another
    EMT was sentenced to 18 months in prison and ordered to pay $8,000 in restitution.
    The last defendant was sentenced to 24 month in prison and ordered to pay $125,000 in
    restitution for submitting bills to Medicaid based on fraudulent squad records, and his
    ambulance service was ordered to serve five years' probation and pay $175,000 in
    restitution.

  • On May 29, 1997, St Joseph's Medical Center, a Baltimore area hospital, in the
    District of Maryland, agreed to pay the United States $564,000 to settle FCA
    allegations that it improperly billed the Medicare program for ambulance transportation
    of patients. From 1992 to 1995, Medicare paid St. Joseph's $188,000 for 159 claims
    for ambulance transportation of patients who were actually transported by hospital
    gurney for diagnostic services to offices located within or near the hospital complex. St
    Joseph also entered into a compliance agreement with the HHS-OIG.

  • On June 27, 1997, American Ambulance & Oxygen, in the District of Maryland,
    agreed to pay the United States $1.45 million to resolve allegations it violated the False
    Claims Act (FCA) in transporting Medicare patients for routine medical office visits.
    The medicare beneficiaries were ambulatory and did not qualify for ambulance
    transportation.

False Claims Submitted Through Billing Firms

  • On April 21, 1997, Metzinger Associates, a New Jersey Medicare billing consulting
    company, agreed to pay $60,000 in fines, provide 250 hours of consulting services to
    the U.S. Attorney's Office to help the government detect Medicare and Medicaid
    billing and coding fraud, and to be excluded from Medicare and Medicaid for three
    years to settle FCA violations. The USAO for the Eastern District of Pennsylvania
    brought suit against Metzinger and a number of hospitals in 1994 alleging, among other
    things, FCA violations for using improper coding methods such as upcoding,
    unbundling, and rebundling to maximize Medicare reimbursement.

  • On May 21, 1997, in the Western District of Oklahoma, EmCare, Inc., of Dallas,
    Texas, one of the nation's largest physician staffing companies, agreed to pay more
    than $7.75 million to settle allegations that it overcharged Medicare, Medicaid, the
    Federal Employees Health Benefits Program, and CHAMPUS, by submitting false
    claims through an Oklahoma City billing company, Emergency Physicians Billing
    Services. The claims reflected more expensive medical procedures than were actually
    performed and billed for services more extensive than those actually provided by
    EmCare physicians. The case was brought through a qui tam suit in 1994; the relator
    has since died, but her estate will receive $1.5 million.
  • On June 5, 1997, Coastal Emergency Physicians Group of Texas (Coastal), in the
    Western District of Oklahoma, agreed to pay the federal government and the state of
    Texas $268,460 to settle allegations that a billing service, acting on behalf of a
    company owned by Coastal (Medicus Medical Group), submitted false claims to
    Medicare, Medicaid, and CHAMPUS. The United States alleges that Emergency
    Physicians Billing Services (EPBS) upcoded codes on claims submitted to agencies, and
    billed for services more extensive than those provided by Medicus' physicians. The
    agreement with Coastal settles an action originally brought as a qui tam case. The
    government is continuing to pursue matters against EPBS.

Clinics

  • On March 6, 1997, in the Northern District of Texas, a medical clinic owner and
    operator was sentenced to 84 months in prison for conspiracy to commit health care
    fraud. His clinics advertised "free" weight-loss treatment, which is not covered by
    insurance companies, and then subjected patients to extensive and expensive testing and
    billed various insurance companies for the tests and office visits. The clinics disguised
    the claims by indicating that the weight loss treatments pertained to covered medical
    conditions.

  • In the Northern District of Texas, on March 27, 1997, two diet clinic operators were
    sentenced for submitting false claims to CHAMPUS, private insurance companies, and
    self-insured companies through U.S. mail. They conspired with three medical doctors
    in offering a "free" medically supervised weight loss program, and instead their clinics
    ran patients through extensive standard testing and then billed the patients' insurance
    companies between $600 and $750 per set of tests. On the claims forms, they
    concealed the weight loss treatment and diagnosis of obesity, which are not covered by
    medical insurance.

  • On April 30, 1997, Rogue Valley Serenity Lane, in the District of Oregon, an alcohol
    and drug treatment facility near Portland, Oregon, agreed to pay the government
    $400,000 to settle claims that the facility fraudulently billed Medicare for services not
    covered and not properly documented. The government alleged that Rogue Valley had
    bundled the costs of non-covered room and board into its charges for group
    psychotherapy at its outpatient residential facility. The government also alleged that
    Rogue Valley had failed to document that Medicare patients received the therapy
    sessions for which Medicare was billed.

Defective Pricing and Buy America Act Violations: Drugs and Supplies

  • In December 1996, Horizon/CMS Healthcare Corporation, in the District of New
    Mexico, agreed to pay $5.7 million to settle FCA allegations that in 1994 the company
    submitted false reimbursement claims for supplies to Medicare Part B and Medicaid.
    Horizon, after acquiring the Greenery Rehabilitation Group of skilled nursing facilities
    located in Connecticut, North Carolina, Louisiana, and Massachusetts engaged in a
    "retro-active billing program" for medical supplies. Because Horizon misused and
    misinterpreted Greenery Group records, it billed for multiple supplies which obviously
    had not, and could not have been supplied to patients. This matter was settled prior to
    litigation. Horizon has agreed to adopt a corporate integrity program to identify
    problems and prevent improper billing practices.

  • On February 4, 1997, Apria Healthcare Group, Inc., in the Northern District of
    Georgia, one of the nation's largest suppliers of Durable Medical Equipment (DME)
    and three health care providers agreed to pay more than $2 million to settle allegations,
    brought in a qui tam suit, that they defrauded Medicare by using sham contracts and
    paying kickbacks. Under the terms of the settlement, Apria has paid $1.65 million,
    Georgia Lung Associates has paid $346,000, and two other providers, the Paso del
    Norte Health Foundation and Physicians Pharmacy, Inc., have paid a total of $24,000.
    The relator in the qui tam suit alleged that Apria, which provided pulmonary equipment
    and oxygen to Medicare beneficiaries, submitted false claims for patients whose
    referrals it received through a kickback scheme it operated by entering into sham
    contracts with one provider and compensating another provider for referrals. In a
    separate agreement with the HHS-OIG, Apria also entered into a corporate integrity
    agreement in which it agreed to ensure future compliance with Medicare laws and
    regulations, including a voluntary disclosure program for employees to report
    inappropriate practices.

  • On May 7, 1997, in the Northern District of Texas, a dentist, an attorney, and a
    businessman were charged in an 88-count indictment with defrauding Medicare by
    devising a scheme to sell inexpensive wheelchair cushions to elderly nursing home
    residents and then billing Medicare and Medicaid as if they had provided medically
    necessary, custom-fitted body jackets. They called their product "Lumbar Sacral
    Support Systems." The dentist allegedly marketed the cushions to nursing homes and
    then billed over $1,200 for each wheelchair cushion which cost him approximately $75 to produce. The attorney allegedly joined the scheme and help solicit investors and
    partners, as well as helping to form companies to promote and sell the cushions. The
    third defendant first invested in one of the companies created to market the cushion and
    later took over the running of the company.

  • On June 13, 1997, Orem Medical Corporation, in the District of Maryland, and its
    corporate principals entered into a civil fraud judgment under the FCA for $3 million.
    In the judgment, the Defendants acknowledged the submission of false claims for
    medical supplies to over 170 veterans hospitals. Orem failed to properly invoice the
    discount contract price for medical supplies under a Department of Veterans' Affairs
    contract. The judgment also requires permanent debarment from government
    programs.

Durable Medical Equipment Suppliers

  • On March 17, 1997, in the Southern District of New York, two former attending
    physicians at Lincoln Medical and Mental Health Center of the New York City Health
    and Hospitals Corporation (Lincoln Hospital) were charged in a 151-count indictment
    with conspiracy, mail fraud, and submitting false claims to Medicare and Medicaid for
    durable medical equipment (DME), which included wheelchairs, hospital beds, canes,
    walkers, and bedside commodes. The indictment charges that the defendants engaged
    in the preparation of false medical prescriptions for DME by obtaining names and
    Medicare/Medicaid identification numbers of beneficiaries and billing for equipment
    items authorized by examinations and diagnoses they did not perform.

  • On March 21, 1997, in the Southern District of Florida, a Miami resident who
    established two totally fraudulent medical equipment supply companies was sentenced
    to 54 months in prison, three years of supervised release, and a $15,000 fine for
    defrauding Medicare of $2.6 million. The companies existed only on paper; no patients
    were ever seen and no medical equipment was ever delivered. The defendant used the
    names of licensed physicians and patients' Medicare numbers without their consent. He
    pleaded guilty to a conspiracy to filing false claims.

  • On March 27, 1997, in the Southern District of Florida, a Miami man who served time
    in federal prison for drug smuggling and tax evasion pleaded guilty to defrauding
    Medicaid and received 10 years in prison. The defendant created 28 phony companies
    to file over $3 million in claims to Medicaid for supplying oxygen equipment to poor
    and elderly Dade County residents, but did not supply them anything. He received
    approximately $1.5 million in cash from this scheme.

  • On May 29, 1997, in the Southern District of California, the CEO of Motion Medical
    Inc., and the corporation itself, pleaded guilty to one count each of mail fraud. Motion
    engaged in a number of fraudulent schemes to submit false billings to CHAMPUS,
    FEHBP, and private health insurance programs by billing for wheelchairs when only
    three-wheeled scooters were provided and for hospital beds when adjustable leisure
    beds were provided.

  • On May 2, 1997, in the Eastern District of Michigan, a father and daughter team from
    the Detroit area were sentenced each to 57 months in prison for defrauding Medicare
    out of more the $25 million. The indictment alleged that the defendants ran an
    enterprise through a pattern of racketeering activity for approximately five years. They
    fraudulently obtained more than $25 million from the Medicare program through a
    scheme to defraud which included receiving reimbursement for unneeded supplies
    provided to elderly patients residing in nursing homes, receiving reimbursement for
    medical supplies which they did not provide, misrepresenting the quantities of supplies
    actually provided, and engaging in deceptive billing practices. As part of a global
    settlement of criminal and civil allegations, they agreed to forfeit rights to $9 million in
    cash and property. In addition, to resolve FCA allegations arising from the same
    transactions, two other relatives agreed to pay $125,000, and two associates agreed to
    pay $250,000.

  • On July 20, 1997, in the Middle District of Florida, the owner of several durable
    medical equipment supply companies in the Tampa, Florida, area was sentenced to four
    years in prison and ordered to pay $10 million in restitution for running a multi-state
    Medicare fraud scheme. The three defendants operated companies that supplied
    equipment to Medicare beneficiaries, and allegedly submitted fake bills to Medicare,
    using the names of deceased persons. The companies' owner pleaded guilty to one
    count each of conspiracy to commit mail fraud, wire fraud, and money laundering.

Group Homes

  • On May 6, 1997, in the Southern District of Ohio, a federal jury in Columbus, Ohio,
    convicted a manager of group homes for the mentally retarded of 44 counts of theft and
    money laundering. The indictment alleges that the manager submitted false cost reports
    to the Ohio Department of Human Services through a phony company he created for the
    sole purpose of diverting funds for his personal use. As a result of the fraud, he
    received $210,000 from Medicaid for the fictitious expenses he reported.

  • On July 9, 1997, in the District of Massachusetts, man was sentenced to two and a half
    years in prison for defrauding the government out of more than $2.5 million by using
    phony management contracts. Along with co-conspirators, the defendant formed a
    fictitious management company to provide contract services to group homes for the
    mentally ill. He received payments from the Medicare and Medicaid programs for
    services not rendered.

Home Health Services

  • In October 1996, in the Northern District of Georgia, First American Health Care of
    Georgia, Inc., the nation's largest home health provider, and its new owner, Integrated
    Health Services, Inc. (IHS), agreed to pay the government $255 million to settle
    allegations that the company overbilled and submitted false Medicare claims by billing
    for costs unrelated to the care of patients in their homes, including personal expenses of
    senior management, marketing and lobbying expenses. In a related criminal action, the
    company's two major principals were found guilty of defrauding Medicare and are
    currently serving prison terms. They are also excluded from further participation in
    Medicare, and a company compliance program will be implemented.

  • On March 12, 1997, the owner and administrator of two home health care services in
    Missouri was sentenced to 15 months in prison and three years supervised release, in
    the Southern District of Iowa, and ordered to pay almost $65,000 in restitution to
    Medicare IASD, an intermediary Medicare claims processor in Des Moines, Iowa. The
    owner submitted inflated annual cost reports to HHS for one of the agencies to obtain
    expenses associated with the non-Medicare certified business, receiving $113,000 in
    improper payments from Medicare.

  • On March 25, 1997, Premier Nursing Services, Inc., a home health agency formerly
    located in Tarentum, Pennsylvania, and its owner/administrator, Kathleen Ann Diana,
    were convicted by a federal jury in Federal District Court for the Western District of
    Pennsylvania of all 15 counts of an indictment charging mail fraud in which the
    Medicare and Medicaid programs were defrauded of approximately $1.1 million over a
    5 year period. The nature of the scheme was that these programs were billed for home
    health services provided to approximately 200 unqualified patients. The patients were
    falsely described as being confined to their homes (homebound) and therefore eligible
    for home health services, when in fact they were substantially mobile.

  • On April 24, 1997, in the Western District of Missouri, the former owner of a
    company that provided residence health care and care for homebound persons in
    Missouri was convicted in a $2 million Medicare fraud case. The government alleged
    that the owner defrauded Medicare by falsifying performance documents and files that
    determined the company's eligibility to participate in Medicare, failed to furnish
    accurate cost information relating to Medicare payments, and directed employees to
    create false expense receipts and records.

Pharmaceuticals and Pharmaceutical Services

  • In January 1997, in the Southern District of Florida, Cueto's Pharmacy and two related
    Cueto medical supply companies located in Hialeah, Florida, were sued by the
    government for defrauding Medicare by watering down medication for 1,800 patients
    suffering from asthma, emphysema, and other breathing problems over a two-year
    period. Fortunately, most of the purported patients were phony and did not require the
    medication. The cost to the Medicare program, however, was $25 to $50 million
    during those two years through the network of medical outfits that tested patients, filled
    prescriptions, and delivered the medication.

  • Nine defendants were indicted in March, 1997, in the Southern District of California,
    on Racketeer Influenced and Corrupt Organizations Act charges in a case involving a
    number of Southeast Asian pharmacies and clinics that defrauded the Medi-Cal program
    of more than $1 million. The clinics were alleged to have paid kickbacks to drivers to
    bring Medi-Cal beneficiaries to the clinic for unnecessary examinations. The "patients"
    would then be given prescriptions for unnecessary medications, which would be filled
    by pharmacies that would pay kickbacks to both the clinics and the patients.
  • On May 30, 1997, in the Southern District of Illinois, the owner of Budde's
    Prescription Shoppe, Inc., was sentenced to 21 months in prison and ordered to pay
    $8,000 in criminal fines and $40,000 in restitution to PCS, an insurance broker. The
    defendant wrote false prescriptions and fraudulently billed PCS for services not
    rendered. He was ordered to forfeit his pharmacy or a payment in lieu of forfeiture of
    $85,000. The corporation was sentenced to five years probation and ordered to pay a
    $100,000 corporate fine.

Physicians and Other Practitioners

  • On September 19, 1997, in the Eastern District of New York, Leon Cantor, 58-year-old physician who practiced medicine in Queens and on Long Island for more
    than 20 years, was sentenced to 10 months in prison to be followed by a three year term
    of supervised release with a condition of 1000 hours of community service.

    Dr. Cantor engaged in a massive health care fraud scheme in which he billed for
    medical services he had not performed over a nine-year period, resulting in losses of
    approximately $1.4 million to 11 private insurance companies and the Medicare
    program. As a condition of his plea agreement, Cantor will make full restitution to the
    defrauded insurance companies and Medicare.

  • In October 1996, a federal court in the Eastern District of Missouri ordered Dr. Marlou
    Davis to pay $4.1 million in an FCA suit alleging that he improperly solicited
    prospective patients at nursing homes, supermarkets, shopping malls, and drug stores.
    Dr. Davis lured patients to "health fairs" at which he solicited them to come to his
    office for a "free" screening, informing the Medicare patients that this would assist
    them in avoiding heart disease and strokes. The services rendered in reality were not
    free and the average bill Dr. Davis submitted for patients was approximately $1,400.
    Marketing representatives, who solicited patients on behalf of the doctor, were
    compensated on a percentage basis, which depended on the dollar amount of the
    services rendered. He also did not require his patients to pay the 20% copayment and
    misrepresented the actual charges for his services, causing overpayment of his claims
    by the government.

  • On February 7, 1997, in the Southern District of Ohio, a podiatrist located in
    Columbus, Ohio, pleaded guilty to one count of money laundering from a previous
    indictment. The defendant systematically billed CHAMPUS and other health care
    programs for a complex surgical procedure when a lesser procedure was actually
    performed and received substantially more money. As part of his plea agreement, the
    defendant will make fraud awareness presentations to audiences including his peer
    group and students studying to be licensed podiatrists.

  • On February 10, 1997, in the Eastern District of Pennsylvania, a Huntington Valley
    osteopath was found guilty of four counts of mail fraud for his participation in a scheme
    to defraud insurance companies of $3.5 million by inflating claims of people injured in
    accidents, and by fabricating medical records.

  • On February 12, 1997, in the District of Kansas, four physicians, five dentists, one
    medical corporation, and one pharmacy located in Kansas agreed to pay $190,000 in
    fines to settle allegations of failing to maintain complete and accurate records of
    controlled substances between 1994 and 1996. The civil charges were brought under
    the Comprehensive Drug Abuse Prevention Control Act.

  • The Ninth Circuit affirmed 106 counts of conviction, reversed 25 counts, vacated the
    order of forfeiture, and remanded for resentencing in the case of a San Diego
    ophthalmologist convicted in 1995 of running a "Medicare Mill" whereby elderly
    patients were falsely diagnosed with cataracts and eyelid problems and subjected to
    unnecessary surgery. Following the remand, the parties stipulated to a sentence
    whereby the defendant agreed to serve 60 months in custody and settle allegations
    under the civil FCA for $6.6 million. This case was originally brought in the Southern
    District of California.

  • A father and son, both dentists, were sentenced to 21 months and 27 months
    imprisonment, respectively, for a scheme to defraud Medicaid by submitting false claim
    forms through U.S. Mail, in the Northern District of Texas. On the forms, the
    defendants falsely inflated the amount of dental work needed, performed unnecessary
    procedures, and billed for more work than had been performed on some patients.

  • On April 23, 1997, in the District of Massachusetts, a chiropractor pleaded not guilty
    to charges of insurance fraud, larceny, and conspiracy. Along with five other
    defendants, the chiropractor was charged with submitting false claims derived from
    staged accident and injury schemes to insurance companies. Prosecutors allege that
    they deliberately neglected to inform insurance carriers of previous accidents, similar
    injuries, and prior treatments. Seven insurance companies were allegedly defrauded out
    of more than $78,000.

  • On April 25, 1997, in the Northern District of Texas, a chiropractor was sentenced to
    21 months in prison and ordered to pay $37,891 in restitution for defrauding two
    insurance companies. The defendant, with the help of a patient, falsified patient
    records, submitted false insurance claims for treatments not received, and split the
    proceeds. Both men pleaded guilty to one count of mail fraud, and the doctor agreed
    never to practice medicine again.

  • On May 9, 1997, in the District of Minnesota, a provider of orthotic devices such as
    braces and splints to nursing home patients was charged with defrauding Medicare of
    an estimated $130,000. The defendant allegedly forged physicians' signatures on
    Certificates of Medical Necessity (CMN) forms and never delivered equipment ordered,
    as well as allegedly ordered $18,600 in equipment for patients that were deceased at the
    time of order.

  • On May 27, 1997, Toronto police arrested a fugitive doctor who fled the United States
    after being convicted 11 years ago in Chicago, of one of the costliest Medicaid billing
    schemes in U.S. history. From 1981 to 1983, the defendant and a group of 35 co-conspirators acquired approximately $20 million from the submission of fraudulent
    Medicaid claims. They operated a chain of pharmacies and clinics that filled
    prescriptions for a combination of medications that would mimic the effects of heroin.
    The addicts would then sign documents stating that they had received legal prescription
    drugs for which Medicaid was billed. The defendant fled to Toronto in 1986 after he
    was convicted of conspiracy, racketeering, unlawful distribution of controlled
    substances, and mail fraud. The original case was tried in the Northern District of
    Illinois.

  • On June 17, 1997, in the District of Maryland, a physician and his associated
    companies agreed to pay $3.1 million to resolve allegations of improper claims to
    Medicare for physical therapy services rendered at seven nursing homes in Maryland,
    the District of Columbia, and Virginia, from 1991 to 1995. The defendant violated the
    Medicare billing provisions under "incident to" physician supervision regulations by
    billing physical therapy in nursing homes where no physician was present. He disputes
    the charge that the Medicare claims were improper. As part of the settlement, all of his
    companies are permanently excluded from the Medicare and Medicaid programs.

Psychiatrists, Psychiatric Hospitals, and Mental Health Services

  • On October 11, 1996, Innovative Healthcare Systems, Inc. (IHS), of Birmingham,
    Alabama, was sentenced in the Western District of Missouri (Kansas City) following its
    plea of guilty to one count of wire fraud on December 6, 1995. IHS, which owned and
    operated Oakwood Psychiatric Hospital of Windsor, Missouri, submitted false claims to
    CHAMPUS, seeking and obtaining funds for services provided by unlicensed,
    uncredentialed and unqualified providers, which was contrary to CHAMPUS
    regulations and requirements. IHS paid $698,005 in restitution to CHAMPUS and
    $83,568 to Medicare for reimbursement of the funds received as a result of the
    services.

  • On February 27, 1997, the former managing director of Two Rivers Psychiatric
    Hospital, Inc., in Kansas City, Missouri, pleaded guilty to a 2-count Information filed
    in Kansas City U.S. District Court. The Information charged the director with
    knowingly and willfully authorizing the write-off of two CHAMPUS beneficiaries' cost
    shares, thereby obtaining from CHAMPUS funds to which it was not entitled and
    converting these funds to its own use. The director had been indicted previously in
    1995 on a kickbacks charge for paying a physician $41,500 in exchange for referrals of
    CHAMPUS patients to his facility; the charges in this indictment were dismissed at the
    time of his sentencing. In 1996, Two Rivers entered a plea of no contest to a one-count
    Information charging it with mail fraud for the kickback payment. Two Rivers paid
    $63,159 in restitution to CHAMPUS for the reimbursements it received as a result of
    these referrals.
  • On February 11, 1997, in the Western District of Oklahoma, Community Psychiatric
    Center of Oklahoma, d/b/a Community Psychiatric Center Southwind Hospital, agreed
    to pay a $750,000 civil settlement to the government to resolve a qui tam suit alleging
    that the company billed Medicaid and CHAMPUS for reimbursement for care it
    provided to many children, despite its failure to provide a safe environment for the
    children in violation of the FCA. The psychiatric hospital ignored reports by its staff
    of unsafe conditions, while it continued to admit more children and submit more false
    claims. The settlement followed the court's refusal to dismiss the charges brought in a
    complaint under the FCA, holding that the charges were actionable under the FCA.
    United States ex rel. Aranda v. Community Psychiatric Center of Oklahoma, 945 F.
    Supp. 1485 (W.D. Okla. 1996.)

  • On March 27, 1997, in the Northern District of Georgia, the founder of a counseling
    center for the homeless and her associate pleaded guilty to a single count of conspiracy
    to defraud Medicaid. They defrauded Medicaid of almost $1 million by providing
    group therapy for mothers and children, but billing Medicaid for second-opinion
    consultations with physicians. The center's founder prepared and submitted the
    overbillings and the associate "cooked" the books when they feared an audit in the
    summer of 1995.

  • On March 19, 1997, a Georgia psychiatrist and his associates were charged with
    conspiracy, mail fraud, wire fraud, dispensation of controlled substances, and money
    laundering, in the Southern District of Georgia. The defendants conspired to defraud
    CHAMPUS, Medicare, and Medicaid by employing unlicensed and unqualified
    therapists to provide mental health services to Georgia and Florida beneficiaries and
    then billed the government programs as if the psychiatrist had provided the services
    himself.

  • On April 10, 1997, in the Eastern District of New York, an elderly Brooklyn
    psychologist was convicted of 14 counts of mail fraud and health care fraud for falsely
    billing Medicare for at least $1 million of services not rendered between 1991 and
    1996. The defendant rarely saw patients or left her home, and she spent most of her
    time watching television, while submitting bills for thousands of hours of therapy
    sessions, including sessions on Christmas and New Year's Day 1996, and on the day
    she was arrested and in custody in the federal courthouse.

  • On May 13, 1997, a doctor and his psychiatric practice, Adult and Adolescent
    Psychiatry PC (AAP), were charged in the District of Connecticut in an indictment with
    33 counts of mail fraud and 87 counts of unlawful dispensing of controlled substances.
    The indictment charges that beginning in January 1994, the defendants devised a
    scheme to defraud CHAMPUS, Medicare, and Medicaid through billing for services
    not performed or not performed in the manner represented.

  • On April 24,1997, in the District of Massachusetts, River Valley Counseling Center,
    Inc., a Holyoke, Massachusetts health care company, agreed to pay $608,000 to settle
    claims that it falsely inflated claims it submitted to Medicare for reimbursement for
    mental health services provided to elderly beneficiaries at local area nursing homes.
    River Valley inflated the claims by billing for services not rendered, and billing
    services at higher-than-allowed rates. River Valley also billed for psychotherapy
    treatment provided to patients who could not benefit from such treatment.

  • On June 10, 1997, the Department filed a CRIPA complaint together with a settlement
    agreement and remedial plan in United States v. Virginia (E.D. Va.), involving
    conditions at the Northern Virginia Mental Health Institute, a psychiatric hospital in
    Fairfax County. On the same date, the court approved the settlement and dismissed the
    action pursuant to Rule 41(a)(2) of the Federal Rules of Procedure. The court
    specifically retained jurisdiction, however, to enforce the State's compliance with the
    settlement agreement and the remedial plan. Under the terms of the settlement,
    Virginia has agreed to provide patients with adequate assessment, diagnosis, mental
    health treatment, medical care, discharge planning and aftercare services, and to
    maintain a sufficient number of qualified professional and direct care staff at the facility
    to carry out these requirements. The United States agreed to provide technical
    assistance through its experts during the early remedial phases to ensure that Virginia
    achieves compliance with the settlement. The settlement agreement requires Virginia to
    implement the remedial plan by January 1999.

Staged Automobile Accidents/ Workers Compensation Fund

  • On April 11, 1997, in the Northern District of California, the owner and administrator
    of a chiropractic and physical therapy clinic pleaded guilty to a 2-count indictment
    charging him with mail fraud in connection with an insurance fraud scheme. The
    indictment charged that the defendant submitted fraudulent medical bills, including
    charges for service that had never been rendered. The case was the result of a major
    FBI sting operation in the San Francisco region. The sting operation uncovered
    schemes by attorneys and medical providers who defrauded insurance companies
    through the systematic submission of false and fraudulently inflated medical bills for
    individuals claiming injuries from automobile accidents.

    Hospitals

  • On July 24, 1997, in the Central District of California, OrNda Healthcorp, recently
    acquired by Tenet Healthcare Corporation, agreed to pay the United States 12.6 million to resolve claims that OrNda hospitals paid physicians for referrals of
    Medicare patients and that the hospitals received referrals from physicians with whom
    they had prohibited financial relationships under applicable law. The United States
    claimed that the hospitals, which OrNda acquired as a result of a merger with Summit
    Healthcare Ltd. in 1994, entered into sham directorship contracts with numerous
    physicians and provided other inducements, such as reduced lease payments and loans
    which were later forgiven, so the doctors would refer Medicare patients to the
    hospitals. The agreement settles a dispute originally brought as a qui tam case, the
    relator will receive $2.3 million of the recovery.

  • On April 14, 1997, in District of Massachusetts, St. Luke's Hospital of New Bedford,
    Massachusetts, agreed to pay $1.3 million to settle claims that it defrauded Medicare by
    billing for x-rays and ultrasound tests, which were actually performed and also billed
    by a Brockton medical lab. In a related case, the government filed a complaint
    accusing the hospital's subcontractor, Medicalab, Inc., and its owners, of submitting
    false claims for mileage, emergency charges and radiology charges to Medicare.

  • On April 28, 1997, in the Northern District of Indiana, Horizon Group Enterprises,
    Inc., formerly known as St. Joseph's Horizon, of South Bend, Indiana, agreed to plead
    guilty to violating the Medicare and Medicaid anti-kickback statute. Horizon leased
    medical facility space at an inflated price, provided a $350,000 loan guarantee and
    monthly "practice enhancements" of approximately $250,000 over a four-year period,
    to two area doctors in exchange for referrals to St. Joseph's Medical Center, an
    affiliated 295-bed hospital. (The hospital is one of only two principal hospitals serving
    the South Bend area.) St. Joseph's Medical Center, Horizon Group Enterprises, Inc.,
    and St. Joseph's Care Group, Inc., are all subsidiaries of their corporate parent, the
    non-profit Holy Cross Health Systems Corp. In exchange for Horizon's plea, all
    affiliated entities are being given a one-year period to negotiate their continued
    participation in Medicare and Medicaid with HHS, and their tax-exempt status with the
    IRS. The two doctors were also convicted of soliciting and receiving kickbacks. One
    was sentenced to 37 months in prison, the other to 24 months in prison.

  • Baptist Medical Center (Baptist), a hospital located in Kansas City, Missouri, agreed to
    pay the United States $17.5 million to settle allegations that it violated the FCA by
    submitting cost reports that passed on a portion of more than $1 million in kickbacks
    that Baptist paid to a local medical group to induce referrals of Medicare-eligible
    patients, and claims that improperly reflected charges for patients referred pursuant to
    this kickback scheme. The United States Attorney's Office for the Western District of
    Missouri claimed that Baptist entered into sham consulting contracts with the Blue
    Valley Medical Group (Blue Valley) in order to pay the kickbacks, and then included
    the improper payments on cost reports submitted to HCFA. Baptist received in excess
    of $42 million in Medicare reimbursement for services provided to patients that Blue
    Valley referred pursuant to this scheme. The agreement also settles claims that Baptist
    violated the Stark I statute by submitting clinical laboratory claims for Medicare
    patients referred by Blue Valley, with which the hospital had a financial relationship as
    a result of the kickbacks.

Institutional and Community Services for Persons with Mental Retardation

  • On November 15, 1996, the Department filed a CRIPA complaint and settlement
    agreement in United States v. Tennessee (M.D. Tenn.) to remedy unlawful conditions
    of care in four institutions for persons with mental retardation: Clover Bottom
    Developmental Center and Harold Jordan Center in Nashville; Greene Valley
    Developmental Center in Greeneville; and Nat T. Winston Developmental Center in
    Bolivar. The major elements of the settlement include requiring the State to: provide
    adequate and appropriate care and services (e.g., protection from harm, adequate
    medical and psychiatric care, behavioral treatment, and training) in the institutions and
    in the community; assess the needs of each institutionalized person, including the
    appropriateness of community placement, and provide adequate community services to
    individuals whom professionals determine are better served in the community; establish
    an adequate system of supports and services in the community, including emergency
    respite care and access to health care specialists, as well as a system of informing and
    involving family members and relevant community organizations; adhere to the
    requirements of the Individuals with Disabilities Education Act and the Americans with
    Disabilities Act; protect the First Amendment rights of individuals covered by the
    agreement; establish an office of investigations to investigate allegations of neglect and
    abuse in the institutions and in the community; and establish a program for monitoring
    and enforcement of the settlement, including: (1) an independent panel of experts to
    review and report on compliance at least every six months and to review each
    individual placement into the community; (2) periodic reporting by the State; and (3)
    quarterly status conferences before the magistrate judge who mediated the settlement.
    Together with an earlier CRIPA case involving Arlington Developmental Center in
    Arlington, Tennessee, the Department has served as the catalyst for statewide relief in
    all five publicly operated mental retardation facilities in Tennessee.
  • On April 4, 1997, the Department filed a CRIPA complaint and settlement agreement in
    United States v. Wisconsin (W.D. Wisc.) to remedy deficiencies in care and treatment
    of mentally retarded residents at the Southern Wisconsin Center for the
    Developmentally Disabled in Union Grove and the Central Wisconsin Center for the
    Developmentally Disabled in Madison. Among other things, the settlement agreement
    requires the State to: provide adequate care and services (e.g., protection from harm,
    adequate medical and psychiatric care, behavioral treatment, and training) in the
    institutions; ensure that the institutions employ adequate numbers of qualified
    professional and non-professional staff to meet the needs of the residents; assess the
    needs of each institutionalized person, including the appropriateness of community
    placement, and provide adequate community services to individuals whom professionals
    determine should be served in the community; and adhere to the requirements of the
    Individuals with Disabilities Education Act and the Americans with Disabilities Act.
    The settlement agreement also establishes a panel of three experts (a physician,
    psychiatrist and psychologist), agreed upon by the parties, to evaluate the State's
    compliance with the agreement.
  • On July 14, 1997, the district court appointed a Special Master in United States v.
    Connecticut (D. Conn.) to evaluate conditions and suggest ways to correct continuing
    deficiencies at the Southbury Training School, a mental retardation facility in
    Southbury, Connecticut, with approximately 800 residents. The court's order followed
    the Second Circuit's affirmance of the district court's ruling a year earlier that
    Connecticut was in contempt of CRIPA orders to remedy unlawful conditions at the
    facility.

Insurance Companies

  • On May 2, 1997, in the Northern District of California, Blue Shield of California
    agreed to pay $12 million to settle allegations that it filed false claims for payment
    under its contract with the government to process and pay Medicare claims. The
    agreement resolves claims that the San Francisco-based Blue Shield covered up claims
    processing errors discovered by HCFA auditors in order to obtain more favorable
    scores under an agency program for grading the Medicare carrier's claims processing
    capabilities. A qui tam suit was filed by former Blue Shield employees in the Medicare
    division in Chico, and these relators will receive 18% of the settlement amount. This
    false claims settlement follows a May 1996 criminal conviction of Blue Shield for
    conspiracy and obstructing federal audits to evaluate the company's performance in the
    Medicare processing contract. Blue Shield paid a criminal fine of $1.5 million when it
    entered its guilty plea. Blue Shield ceased being a Medicare contractor in September
    1996.

Laboratory Services

  • In one of the two largest FCA settlements ever reached, on February 24, 1997,
    SmithKline Beecham Clinical Laboratories, headquartered in Philadelphia, paid $325
    million to resolve federal and state fraud claims alleging overcharges to the Medicare,
    Medicaid, Federal Employees Health Benefits, Railroad Retirement, and the
    Department of Defense Tricare (formerly known as CHAMPUS) health care programs,
    in the Eastern District of Pennsylvania. Allegations of a wide range of fraud schemes
    include routine billing for tests packaged with the automated series of tests, billing for
    tests not provided, not requested by the referring physician, or not medically necessary;
    and paying various forms of kickbacks to referring physicians. SmithKline was also
    alleged to have obtained payment from Medicare by inserting false "diagnosis" codes
    on claims, and to have double billed for tests for kidney dialysis patients. The
    settlement involved three qui tam actions filed against SmithKline while Operation
    LABSCAM was underway.

  • In October 1996, in the District of Massachusetts, Damon Clinical Laboratories, Inc.
    agreed to pay the government $83.7 million to settle allegations that Damon falsely
    billed Medicare for medically unnecessary serum ferritin and serum iron tests which it
    had bundled with a basic blood chemistry panel, and an apolipoprotein test it bundled
    with a coronary risk profile test, all in an effort to offset an across-the-board fee
    reduction Medicare announced in 1988 and 1989 for laboratory blood testing services.
    The settlement involved two qui tam actions filed against Damon while Operation
    Labscam was underway. Damon also agreed to plead guilty to a one-count criminal
    Information charging it with conspiracy to defraud the government. In connection with
    this plea, Damon agreed to pay a $35.3 million criminal fine, which represents the
    largest criminal fine ever recovered in a health care fraud prosecution. Damon has also
    been barred from participating in Medicare and certain other government health care
    programs.

  • In November 1996, Laboratory Corporation of America Holdings (LabCorp), the
    world's largest clinical laboratory company, agreed to pay the government $182 million to settle allegations that it submitted false claims for medically
    unnecessary laboratory tests to Medicare, Medicaid, CHAMPUS, the Railroad
    Retirement Board, and the Federal Employees Health Benefits Program, by improperly
    marketing certain cholesterol and other "add-on" tests that doctors did not need for the
    treatment of patients. In a related criminal matter, the San Diego Regional Laboratory
    of Allied Clinical Laboratories, Inc., a LabCorp subsidiary, pleaded guilty to
    submitting a false claim to Medicare and the California Medicaid program, was fined
    $5 million and excluded from the participating in the programs because of its
    misconduct. This settlement also resolved many qui tam suits filed during the course of
    the LABSCAM investigation. LabCorp also has entered into a corporate integrity
    agreement with HHS. The settlement concluded a nationwide investigation conducted
    by the Southern District of California, the District of New Mexico, the Southern
    District of New York, the Middle District of North Carolina, the Middle District of
    Pennsylvania, the Eastern District of Virginia, the FBI, HHS, and the Defense Criminal
    Investigative Service.

  • In December 1996, in the Northern District of California, Spectra Laboratories, Inc., a
    California clinical laboratory specializing in end stage renal disease (ESRD) testing,
    agreed to pay the government $10.1 million to settle a qui tam suit alleging that it
    improperly billed Medicare, the Railroad Retirement Board, CHAMPUS, and the
    Federal Employees Health Benefits Program for lab tests on patients suffering from
    severe kidney failure, including tests it had already been reimbursed for under a
    "composite rate" for standard ESRD services. Spectra entered into a corporate
    integrity agreement which requires that it establish a procedure designed to promote the
    ordering of medically necessary tests on a patient-specific basis.

  • The owners and managers of a Little Rock, Arkansas testing laboratory were charged
    with violations of the FCA for filing more than 168,000 false claims with the Medicare
    and Medicaid programs, in the Eastern District of Arkansas. The false claims involved
    the unbundling of tests performed with a multichannel analyzer, i.e., billing for both
    the multiple tests and the individual components of the tests. On April 30, 1997, the
    consultants to the laboratory settled for $17,190. The individual physician owners
    settled for $825,000 to the United States and $50,000 to the State of Arkansas.

  • In the Northern District of California, on February 12, 1997, Meris Laboratories, Inc.,
    of San Jose, California, agreed to pay $5.2 million to settle a qui tam suit brought by
    two relators which alleged that the lab defrauded Medicare and Medicaid by billing the
    programs for medically unnecessary laboratory tests, including cholesterol and blood
    serum iron tests, from 1992 until 1997. Meris also engaged in billing for "additional
    indices" in complete blood count tests. These indices were generated automatically
    from existing tests at no extra cost to Meris, were not ordered by doctors, and are
    rarely medically necessary. As part of the settlement, Meris agreed to enter into a
    corporate compliance agreement which included a code of ethics, a written billing
    policy manual, annual training of employees on corporate compliance, and
    establishment of a "hotline" where employees can anonymously report suspected
    misconduct.

  • On March 19, 1997, in the Northern District of Ohio, a 7-count indictment was
    returned, charging Lab I, Inc., of Ravenna, Ohio, and its owner with defrauding
    Medicare of approximately $50,000 and violating the anti-kickback statute. The
    defendants were charged in three counts with making false claims to the government by
    billing for glucose blood stick tests which it did not perform but which were instead
    performed by nursing home staff. They were further charged in four counts with
    paying or offering to pay kickbacks to individuals in a position to refer Medicare and
    Medicaid patients to Lab I. The kickbacks consisted of glucometers, test strips,
    lancets, and related services provided free of charge to the nursing homes to induce
    them to sign contracts with Lab I for laboratory work. The defendant, Lab I, Inc.
    pleaded guilty to all counts and co-defendant, William Allen Neill pleaded guilty to four
    counts of violating the Anti-kickback statute. On January 16, 1998, both defendants
    were ordered to make restitution, joint and several, in the amount of $100,000 to HHS.

  • On April 24, 1997, a clinical laboratory in Miami, Florida, agreed to pay the
    government $4.9 million to settle Medicare fraud charges, in the Southern District of
    Florida. The Government alleged that Franklin Laboratories, Inc. submitted claims to
    Medicare for blood and urine tests that were either not performed or not medically
    necessary. As part of the settlement, the two owner/operators of the lab are now
    permanently banned from participating in any publicly funded health care program.

  • On July 25, 1997, the owner and former president of Clinitec Laboratory in Ohio were
    each convicted of defrauding Medicare and Medicaid out of more than $1.7 million
    over a four-year period, and of paying kickbacks, in the Northern District of Ohio.
    Between 1989 and 1993, the two defendants billed Medicare and Medicaid for glucose
    blood stick tests which were not performed. Clinitec had contracts with nursing homes
    to perform the tests, but they were actually performed by the homes' nursing staff.
    Also, the defendants paid kickbacks to the nursing homes in exchange for Medicare and
    Medicaid referrals.

Lymphedema Pumps

  • On April 17, 1997, in the Southern District of California, a grand jury indicted two San
    Diego businessmen on charges that they defrauded Medicare and Medi-Cal out of more
    than $200,000 through fraudulent claims submitted to those programs for lymphedema
    pumps that were not medically necessary. The indictment alleged that the defendants,
    an owner and salesman for M&A Medical, falsely billed Medicare for equipment that
    was not provided, and forged doctors' signatures on certificates of medical necessity.
  • On May 23, 1997, Jalopy Shoppe, Inc., of Sherman Texas, operating as
    Breathco/Mediserv, Inc., and its president, agreed to pay $1.35 million to settle a qui
    tam
    suit brought under the FCA, alleging that they submitted claims in which they
    misrepresented the quality of the lymphedema pumps they were selling to obtain an
    inflated reimbursement amount from Medicare, in the Northern District of Texas.

Nursing Homes

  • On March 10, 1997, a Kissimmee, Florida, man who supplied diapers to nursing home
    patients and then billed Medicare for prosthetic devices was sentenced in the District of
    Kansas to 10 years in federal prison for receiving more than $47 million in Medicare
    reimbursements for false claims he submitted. The case was investigated jointly in the
    District of Kansas and the Middle District of Florida. In Kansas, the Medicare carrier
    discovered that Ben Carroll, who operated under various business names (Bulldog
    Medical, MLC Geriatrics), had received over $2.3 million by submitting false claims.
    In order to deceive Medicare carriers, Carroll instructed employees to refer to and bill
    the unreimbursable diapers as "Urinary Collection Devices", a reimbursable catheter.
    Carroll obtained the diapers for 30-40 cents each, then billed Medicare for the catheter
    product, which Medicare reimbursed at $7-$8.45 each. After the Kansas Medicare
    carrier stopped paying his claims, Carroll continued his scheme in Florida, where he
    conspired with a nursing home chain by entering into an agreement whereby the
    nursing home chain would receive a "packaging" fee for packaging incontinence
    products, including the unreimbursable diaper. The packaging fee was, in actuality, a
    kickback Carroll paid for the purpose of insuring that the nursing home chain would
    distribute the incontinence products to its homes, thus allowing Carroll to continue his
    false billing scheme. On September 18, 1996, Carroll pled guilty to mail fraud one
    week before trail was to begin in the Kansas case, and agreed to plead guilty to Florida
    charges which, at that time, had not been filed. Carroll pled guilty to one count of
    conspiracy to commit mail fraud on November 18, 1996, in the Middle District of
    Florida. For purposes of sentencing, the Florida case was transferred to the District of
    Kansas. In addition to serving a ten year sentence, he agreed to forfeit $32 million in
    funds derived from his scheme to defraud Medicare.

Research Grant Fraud

  • On April 7, 1997, in the Southern District of New York, New York University Medical
    Center (NYU Medical Center) agreed to pay $15.5 million to resolve civil liabilities
    arising from charges that it submitted false information to the government, resulting in
    the over-recovery of federal funds for indirect costs associated with NYU Medical
    Center's federally sponsored organized research grants, contracts, and other agreements
    for the fiscal years 1984 through 1993, and with its indirect cost rate for fiscal years
    1994 through 1997. This settlement is unique because it combines a multiple damage
    recovery under the FCA, with a rate negotiation that typically is handled by the HHS'
    Division of Cost Allocation for a separate period of time. The qui tam suit was filed in
    December 1993 by a former NYU Medical Center employee, who will receive $1.5
    million of the settlement proceeds.

DRG Project

On May 21, 1997, 102 hospitals in Connecticut, Maine, New Hampshire, Rhode
Island, and Vermont jointly announced that they had agreed to pay more than $3.4 million to settle allegations that they had violated the FCA. The USAOs in five
districts worked jointly with the HHS-OIG to coordinate simultaneous data
development, prepare demand letters, and create settlement formulas and agreements.
This effort is known as the DRG Project, modeled after previous projects in the Middle
District of Pennsylvania and in Massachusetts.

Unapproved Drugs

On May 28, 1997, in the District of Massachusetts, Copley Pharmaceuticals, Inc., of
Canton, Massachusetts, agreed to pay a $10.65 million criminal penalty to the
government for conspiring to defraud the Food and Drug Administration. This penalty
would be the largest ever paid by a generic drug manufacturer. Prosecutors charged
Copley with fraud for changing manufacturing methods from those approved by the
agency for several drugs, manufacturing batch records to cover up the deviations, and
submitting false annual reports that did not disclose the manufacturing changes,
between 1991 and 1994.

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1/Under the FCA, a person who knowingly submits a false claim to the United States may be liable for a civil
penalty of between $5,000 and $10,000, plus up to three times the amount of damages sustained. The FCA
defines "knowingly" to mean that the claimant (1) has actual knowledge of the information; (2) acts in deliberate
ignorance of the truth or falsity of the information; or, (3) acts in reckless disregard of the truth or falsity of the
information.

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