USDOJ: Deputy Attorney General: Publications and Documents - - Health Care Fraud Report Fiscal Year 1998

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Health Care Fraud Report

Fiscal Year 1998



Since 1993, the Department
of Justice (Department) has made fighting fraud and abuse in the health
care industry one of the Department's top priorities. Health care fraud
and abuse drains billions of dollars from Medicare and Medicaid, which provide
essential health care services to millions of elderly, low income, and disabled
Americans. The impact of health care fraud and abuse cannot be measured
in terms of dollars alone. While health care fraud burdens our nation with
enormous financial costs, it also threatens the quality of health care.

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

The Department's enforcement
actions have proven results. In FY 1998, $480 million was awarded or negotiated
as a result of criminal fines, civil settlements, and judgments in health
care fraud matters. Under the requirements of the Health Insurance Portability
and Accountability Act of 1996 (HIPAA), $243 million was returned to the
Medicare Trust Fund to support future beneficiary payments. Additionally,
the Department reported that there were 326 defendants in 219 criminal cases
that were convicted of health care fraud and abuse. At the same time the
U.S. Department of Health and Human Services excluded more than 3000 individuals
and businesses from participating in federal health programs, many due to
criminal convictions.

The Department continues
to prevent fraud and abuse 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's fraud hotlines, to
involve patients with first-hand knowledge in the detection of fraudulent
practices. Settlement agreements with providers also emphasize future prevention
efforts. Settlements in FY 1998 included 231 corporate integrity agreements,
where providers agreed to change their operations so as to prevent fraud
from recurring in the future.

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. The Department's continuing challenge in the future
is to change the behavior of health care businesses so that they will take
effective measures to prevent health care fraud schemes, while keeping enforcement
efforts cognizant of the adverse impact of provider's conduct on the welfare
of their

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The Severity
of the Problem

Health care fraud in
the United States remains 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
do not show the full 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.

Progress has been made
in combating health care fraud as seen in the decline of Medicare overpayments.
In FY 1998, Medicare overpayments were estimated at $12.6 billion, or 7.1
percent, of Medicare's total fee-for-service spending, according to a comprehensive
audit by the Office of Inspector General (OIG) for the U.S. Department of
Health and Human Services (HHS). That compares with an estimated $20.3 billion,
or 11 percent, of Medicare spending, for FY 1997, and $23.2 billion, or
14 percent, for FY 1996, the first year such an audit was conducted. This
dramatic improvement is the result of stepped-up enforcement of Medicare
regulations and laws by the Justice Department and HHS, additional funding
for enforcement, and increased compliance by hospitals and other providers.
In spite of this improvement, there is still more that needs to be accomplished
in the health care fraud and abuse prevention effort.

Who Commits
Health Care Fraud?

Fraudulent schemes are
changing and becoming even 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.

Fraud has been perpetrated
by individual physicians and large publicly traded companies, medical equipment
dealers, contract carriers for Medicare and Medicaid, 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 lifesaving
drugs to fight AIDS and provide more frequent screening to detect and prevent
cancer as well as 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 other
common schemes. 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 the decision making of
medical providers, 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. For example, Tennessee clinics treated and discharged
patients undergoing alcohol and drug rehabilitation without any physician
involvement. In Georgia, one scheme involved enrolling impoverished children
in after school programs, that were then portrayed as psychotherapy in billings
to the state and Federal Government. In Minnesota, a university had been
selling a non-FDA approved drug. Eliminating and deterring health care fraud
schemes of all types are among the Department's highest priorities. The
Department is committed to addressing the scope and variety of schemes in
our efforts to successfully investigate and prosecute fraud.

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A Comprehensive Program
Against Health Care Fraud and Abuse

The Department of Justice
takes a balanced approach to combating health care fraud. The Department's
strategy consists of two components: a strong civil and criminal enforcement
program, 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. In essence, preventing fraud where possible, but pursuing civil
and criminal remedies when it is not. The Department is committed to tough
but responsible enforcement of federal civil and criminal laws, as well
as to strong partnerships with health care providers to promote compliance
within the industry. The best way to strengthen the health care system in
this country is by enforcing the laws and promoting compliance and prevention.

HIPAA required the Attorney
General and the Secretary of 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. This focus coordinates the administrative
approach, provides significant directed funding, and strengthens criminal
laws and administrative powers related to 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, which included:

  • Creating a new criminal
    offense for health care fraud, theft or embezzlement in connection with
    a health care offense, false statements relating to health care offense,
    and obstruction of criminal investigations of health care offenses
  • Adding a Federal
    health care offense to the money laundering statute
  • Extending injunctive
    relief relating to health care offenses (includes freezing of assets)
  • Providing the Attorney
    General with subpoena authority in criminal health care fraud investigations
  • Establishing criminal
    forfeitures for Federal health care offenses
  • Expanding anti-kickback
    statute to cover Federal health care programs, not just Medicare and State
    health care programs
  • Strengthening exclusions
    for health care convictions

Each year, the Attorney
General and the Secretary of HHS must determine and certify discretionary
funding requirements, which were $119.6 million in FY 1998. In addition,
the Federal Bureau of Investigation (FBI), receives mandatory funding under
HIPAA, which was $56 million in FY 1998.

Vehicles - Criminal and Civil

During FY 1998, federal
prosecutors and attorneys filed 322 criminal health care fraud cases, had
3,471 civil health care fraud matters pending end of year, and filed 107
new civil fraud cases.

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 the Department
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
$2 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 The Department 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 whistleblowers bringing qui
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 United States Attorney's Office (USAO)
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
statute provides strong financial incentives to expose fraudulent
activities. Over half of the $480 million the Department was awarded in
health care fraud cases in FY 1998, involved judgments or settlements related
partially or completely to allegations in qui tam cases. More than
one half of all qui tam suits involve allegations of fraud against

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 the Department 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 from 1987 to 1997 to be $148 billion.

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

In FY 1998, the Executive
Office for the United States Attorney's (EOUSA) Office of Legal Education
(OLE) conducted a number of both basic and advanced courses for Department
attorneys, auditors, investigators and paralegals. Courses included:

  • Affirmative Enforcement/Health
    Care Fraud Investigators Session
  • Basic Health Care
    Fraud for Attorneys
  • Basic Affirmative
    Civil Enforcement - included a health care fraud component
  • Advanced Affirmative
    Civil Enforcement - included a health care fraud component
  • Advanced Health Care
    Fraud for Attorneys
  • Basics of Medicare
    for Attorneys and Paralegals

The funding made available
through HIPAA also made it possible to have 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
(HCFA) provided in-depth training on the Medicare Program to almost 300
agents. Training was also provided on Pharmacy Diversion and Cost Report

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 1998, 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 FY 1998, 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 conducted CRIPA investigations
of 27 health care facilities and monitored the implementation of consent
decrees involving an additional 20 health care facilities. The Department's
efforts in these facilities focused on protecting residents from abuse,
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.

Of particular note,
during August 1998, the Civil Rights Division settled a CRIPA case involving
unlawful conditions of confinement in a Pennsylvania nursing home. This
settlement represents the first case stemming from a joint investigation
under CRIPA and the FCA. The settlement, which was a cooperative effort
by the Special Litigation Section, the U.S. Attorney for the Eastern District
of Pennsylvania, the Civil Division, and the Office of the Inspector General
of the HHS, covered both the injunctive relief necessary to remedy deficiencies
in the nursing home as well as monetary penalties to reimburse the federal
government for fraudulent Medicare billings for inadequate care. The settlement
required improvements in conditions at the Pennsylvania nursing home to
ensure that its elderly and disabled residents were free from abuse and
neglect and that they received adequate care and treatment. As a result
of alleged false billing practices, the defendants agreed to pay civil monetary
penalties to the federal government under the FCA and also to pay restitution
to the residents by establishing a fund for a special project, authorized
by the United States, that will improve the quality of life for residents
at the nursing home. In addition, the settlement provides for a Federal
monitor who will oversee compliance with the terms of the agreement.

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
the United States Attorney's Office (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 to providers and provide an adequate
opportunity to respond.

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. In FY 1998, final regulations were issued
for the advisory opinion process, through which HHS can provide guidance
on whether specific transactions violate the anti-kickback or civil monetary
penalty statute and fifteen advisory opinions were issued. Also, in FY 1998,
HHS-OIG developed model compliance plans for home health agencies, hospitals,
and recently third party medical billing companies. 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. One special
fraud alert has been issued on financial relationships between hospices
and nursing homes.

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 FY 1998, the
Civil Rights Division also engaged in active outreach efforts to educate
consumers, advocates, and the public about its CRIPA activities. The Division
continued the activities of its Nursing Home Working Group, to coordinate
and enhance its civil rights enforcement efforts in nursing homes. Finally,
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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A Record of

The USAOs, the Civil
Division, the Criminal Division, the 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. In FY 1998, enforcement efforts resulted
in $480 million in civil settlements and judgments won or negotiated. Statistical
enforcement accomplishments in both civil and criminal cases are presented
below, followed by synopses' of key cases. Descriptions of a variety of
FY 1998 cases appear at the end of this report.

The Department collected
$264 million in FY 1998. Of the monies collected, $239 million was returned
to the Medicare Trust Fund, $9 million was recovered as the federal share
of Medicaid, $12 million was restored to other Federal agencies, and $4
million was paid to plaintiffs involved in qui tam suits.

Criminal and
Civil Enforcement Statistics

Criminal matters investigated
increased 23 percent in FY 1998, and prosecutions increased 14 percent.
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.

    1998 1,866 2,986
    1997 1,517 2,479
    1996 1,346 2,151
    322 439
    282 531
    1998 219 326
    1997 217 363
    1996 177 307

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
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. Overall,
the number of matters pending began to decrease in FY 1998, as activity
on the DRG National Project began to wind down.

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 the various enforcement agencies on specific projects, and also to investigate
potential fraudulent practices where no specific referral is involved.

    1998 3,471
    1997 4,010
    1996 2,488
    1998 107
    1997 89
    1996 90

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
161 new health care fraud matters in FY 1998.

Civil Division judgments
and settlements in health care fraud matters decreased from $989.7 million
in FY 1997 to $300.4 million in FY 1998, a decrease of 33 percent. The decrease
is due to the fact that 3 unusually large cases settled in FY 1997, Labcorp
($187m), Smithkline ($325m), and Damon ($83.7m). Qui tam actions
continue to provide support for a major portion of civil cases and judgments/settlements,
as shown below.

    Cases Filed
    346 546 469
    Cases Filed Alleging Health Care Fraud
    176 306 273
    Care Fraud Judgments/Settlements in Matters with Qui tam Claims



    Health Care Fraud Judgments/Settlements (millions)
    $136 $961 $300

* Cases personally handled
by the Civil Division, cases worked in conjunction with the USAOs and cases
delegated to the USAOs.
** Judgments/settlements in cases involving the Civil Division working alone
or in conjunction with the USAOs; excludes monies from cases handled exclusively
by the USAOs.
*** FY 1997 judgments/settlements include Smithkline Beecham at $333.9 million
(includes $8.6 million interest and $14.5 million in state recoveries).
**** FY 1998 judgments/settlements include $.98 million in state recoveries.


FY 1998 saw the conclusion
of two major investigations involving allegations of fraud on the part of
the contractors who process claims on behalf of the Medicare program. Health
Care Services Corporation, the Medicare carrier for Illinois and Michigan,
agreed to pay the government $140 million in settlement of a qui tam
suit alleging that it shredded claims, altered documents and otherwise manipulated
data relied on by the HCFA to evaluate its contract performance. In addition
to the civil settlement, the corporation agreed to plead guilty to obstructing
a federal audit, conspiracy to obstruct a federal audit, and making false
statements to HCFA which will result in a $4 million criminal fine. In order
to guard against future misconduct, and to ensure that any potential lapses
are detected early, the government and the corporation also entered into
a strict corporate integrity agreement.

Pennsylvania Blue Shield,
the Medicare carrier for several mid-Atlantic states, resolved a 2-year
investigation by agreeing to pay $38.5 million in settlement of allegations
that it improperly processed Medicare secondary payor claims, neglected
to recover overpayments, bypassed certain computer payment safeguards, and
failed to implement required screens for certain lab tests, all of which
resulted in false claims to the Medicare program. Again, the contractor
agreed to undertake corporate integrity obligations, including training
and external reviews of its performance.

In the area of psychiatry,
an Atlanta businessman was sentenced to 3 years and 10 months and ordered
to pay $7 million in restitution for defrauding HHS, the State of Georgia
Department of Medical Assistance, and certain Medicaid recipients, through
a complex scheme involving billing Medicaid for individual and group psychotherapy
allegedly provided to children. The scheme involved employees going door-to-door
in impoverished areas to recruit children for after school programs, typically
failing to inform parents that Medicaid would be billed for psychotherapy
allegedly provided to their children. These services were not necessary
and not actually provided to the children.

Smaller but significant
settlements were reached in relation to defective pricing and pharmaceutical
suppliers. Invacare Corporation agreed to pay $2.6 million to the U.S. Department
of Veterans Affairs to settle allegations of fraud in the sale of wheelchairs.
The corporation failed to provide accurate and complete cost data during
contract negotiations. An Illinois supplier of drugs and pharmaceutical
products pleaded guilty to making false statements to the Illinois Department
of Public Aid concerning fraudulent bills submitted to them, the Corporation
also agreed to pay $5.3 million to the U.S. Government and the State of
Illinois. The defendant established a procedure in which medications that
were returned to the pharmacy were placed back into inventory without crediting
the Illinois Department of Public Aid, which had paid for the drugs.

The U.S. Court of Appeals
for the Eighth Circuit reversed a lower court's ruling that the University
of Minnesota could not be sued under the FCA. The court held that the United
State's claim that the university misused federal grant money and made millions
of dollars on an experimental drug that had not been approved by the Food
and Drug Administration (FDA) could go forward. The Federal Government sued
the University of Minnesota in 1995, claiming that it had misused grant
money in an organ transplant research project. The government had also alleged
that the University had submitted false Medicare claims, and that it received
nearly $2 million through illegal kickback arrangements.

The Department continues
to make use of the new enforcement tools provided under HIPAA. In what may
be the first use of 18 U.S.C. § 1035, enacted under HIPAA, which makes it
a criminal offense to submit false statements relating to health care matters,
two Florida men were indicted for allegedly defrauding 27 private insurance
and self-insured companies out of more than $10 million by filing false
medical claims, and with various acts of money laundering.

A manager working for
the University of Mississippi pleaded guilty to embezzling nearly $147,000.
The violation to which the defendant pleaded guilty was 18 U.S.C. § 669,
an embezzlement statute created by HIPAA. Section 669 of Title 18 makes
it a crime to embezzle money or property from a health care benefit program
or from an individual or entity providing health care services under a federal
health care program such as Medicare.

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In FY 1998, the Department
received $28.4 million of the $119.6 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 $56 million ($47 million of which
was base funding) for related enforcement activities.

Total departmental expenditures
in FY 1998 were $126 million, with $77 million for the FBI and $49 million
for USAOs, Criminal, Civil Division, and Civil Rights Division.

Discretionary funding
under HIPAA will increase by 15 percent annually until FY 2003, and FBI
enforcement funding will reach $114 million by FY 2003.


    (Dollars in thousands)
    of Justice
    States Attorneys
    Management Division
    Total $28,470
    of Health and Human Services
    Total $119,600

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, a 22 percent growth in manpower (Department attorney and FBI
agent work years) from FY 1997 to FY 1998. In FY 1998, the FBI received
additional funding for 47 agent and 40 support positions.



    Rights Division


    1998 185 40 7 .25 442 672.25
    1997 132
    7 .2 395 551.2
    1996 93 11 3 .2 256 363.2
    1995 85 13 3 .1 261 362.1
    1994 71 10 3 0 225 310
    1993 43 6 3 0 147 200

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The Department continues
to reach out to consumers, providers, regulators, and the private bar in
an effort to identify ways to improve enforcement efforts and policies.
It is not sufficient that the Department collect dollars obtained through
health care fraud schemes and cause penalties to be imposed on those who
commit fraudulent acts. The Department's efforts in that regard have been
quite successful. The Department's continuing challenge in the future is
to change the behavior of health care businesses so that they will take
effective measures to prevent health care fraud schemes.

To be sure, punishing
those who commit health care fraud acts will deter those who might commit
fraudulent acts in the future. However, changes in behavior, particularly
corporate behavior, require changes in billing systems, education of providers
and those who do their billing, and alteration of the attitudes of Boards
of Directors, Chief Executive Officers, and facility Administrators. In
essence, the Department wants health care businesses to alter the way they
do business by placing a high priority on complying with applicable laws
and regulations.

To this end, in a variety
of forums, Departmental officials have encouraged corporate self-governance,
urging businesses to assume responsibility for self-policing, rather than
waiting for a whistleblower to alert the government to the fraud or for
the government to detect it through other means. These changes in corporate
attitudes are occurring, and will continue to occur, as more and more health
care businesses realize that it is "good business" to invest in their own
future through fraud control systems and compliance programs.

The Department's reasons
for encouraging good corporate citizenship are not limited to the need to
protect public and private health care dollars which might otherwise be
lost to fraud. The Department is concerned about the adverse effects on
the quality of care which is rendered to patients as a result of fraudulent
acts. In that regard, corporate compliance programs should not only prevent
health care fraud, but should also result in greater compliance with standards
of care, the violation of which can constitute violations of law.

The Department's future
enforcement efforts will be especially cognizant of the adverse impact of
provider's conduct on the welfare of their patients. A particular area of
concern is protecting against fraud in managed care as
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.

Back to the Top


Ambulance Services

On February 27, 1998,
in the Southern District of Mississippi, the owners of Gieger Transfer Services,
an ambulance company, were sentenced to 80 months in prison and ordered
to pay restitution of $228,917 and a $12,500 fine. The defendants billed
Medicare $400 per ambulance trip, claiming that patients taken on non-emergency
ambulance trips were "bed confined" when, in fact, many could walk and had
no need for ambulance transportation. A substantial portion of the money
paid to the United States under the agreement is derived from the forced
sale of beachfront properties purchased by the owners following the sale
of their company in September 1997. The forced sale of the properties resulted
from a $2.25 million civil settlement with the owners and the company formerly
owned by them.

Clinical Drug
Trials Fraud

On September 15, 1998,
in the Central District of California, the owner and President of American
Pharmaceutical Research (APR) were sentenced to 15 months in jail for conspiring
to make false statements within the jurisdiction of the FDA. This case arose
out of an FDA audit during which time it was learned that APR, which hired
itself out to pharmaceutical companies to conduct clinical drug trial on
human subjects, falsified drug study data that was being submitted to the
FDA and failed to comply regularly with required drug testing and procedures.


On February 20, 1998,
in the Middle District of Florida, the owner/operator of the Tampa branch
of the Florida Impotence Clinics, Inc., was sentenced to 27 months in prison
and restitution of $925,779. The defendant had pleaded guilty to having
been engaged in a conspiracy to receive kickbacks for referrals to suppliers
of diagnostic testing services. The owner received $30 for any vacuum constrictor
device used to treat impotence which was paid for by Medicare and sold by
any clinic associated with the company.

On August 3, 1998, in
the Northern District of Texas, a psychiatrist who was also an attorney
and a member of MENSA, was convicted by a federal jury on 12 counts of mail
fraud for overbilling insurance companies. The psychiatrist operated a clinic
where he worked one day a week for approximately 7 hours when he would see
patients. The majority of his patients would be billed for at least two
medical procedures. One procedure would include a comprehensive medical
service with a complete physical examination which should take at least
40 minutes. The other procedure was for an individual psychotherapy session
of 45-50 minutes. Thus, for nearly every patient that was seen, they were
billed for at least an hour and 25 minutes of care. In his seven-hour workday,
the psychiatrist billed one hour and 25 minutes of work for 25-30 patients,
billing from 35-40 hours in a single day. At the trial
the psychiatrist's patients testified that they typically saw the doctor
for about 10 minutes, and they were not aware that they received either
the physical examinations or the psychotherapy that was billed.

On September 24, 1998,
in the Western District of Washington, a doctor and his wife, operators
of Seattle Acupuncture Center, pleaded guilty to a one-count information
charging them with conspiracy to make false Medicare and Medicaid claims,
and to commit mail fraud and health care fraud. Between 1992 through 1997,
when acupuncture was not covered by Medicare, Medicaid and other insurers,
the doctor and his wife falsely told Medicare and other insurers that patients
received certain forms of physical therapy rather than the acupuncture actually
provided. In some cases they submitted claims when no services were provided
to the patients. The couple received $375,000 to which they were not entitled.
In addition to each pleading guilty to the criminal charge, they have jointly
paid $520,809 to the Federal Government as restitution and treble damages,
and approximately $117,000 in restitution to private insurance companies.

On August 14, 1998,
in the District of Hawaii, a hospital paid $2.4 million to the Federal Government
and the state of Hawaii to settle allegations of wrongdoing concerning its
billing and accounting procedures. The settlement concluded a multi year
investigation into the handling of Medicare credit balances, and unbundling
of billings for outpatient laboratory services. As a Medicare provider,
the hospital was required to submit quarterly reports identifying all excess
Medicare payments, and then return the excess payments. As a result of the
unbundling, the hospital obtained approximately $238,494 in excess Medicare
payments, and $35,000 in excess Civilian Health and Medical Program of the
Uniformed Services (CHAMPUS) payments for 1992 through 1995. As part of
the settlement, the hospital paid $2.3 million to the Federal Government,
and $100,000 to the State of Hawaii. The hospital also agreed to a corporate
integrity plan, which requires it to keep comprehensive accounting records,
undergo periodic audits, and maintain a fraud and abuse reporting hotline.


On July 16, 1998, in
the Southern District of Illinois, Health Care Service Corporation (HCSC),
the Medicare contractor for Illinois and Michigan, pleaded guilty to eight
felony counts and agreed to pay a $4 million criminal fine and $140 million
in settlement of its liability under the FCA. HCSC, also known as Blue Cross
and Blue Shield of Illinois, pleaded guilty to six counts of making false
statements to conceal evidence of its poor performance in processing Medicare
claims from HCFA, and two counts of obstructing and conspiring to obstruct
federal auditors. The civil settlement resolves allegations in a suit brought
by a former employee of HCSC under the qui tam provisions
of the FCA that the company falsified documents and manipulated samples
used in government audits of the company's Medicare operations, failed to
process claims in accordance with guidelines established by HCFA, and failed
to handle beneficiary and physician inquiries in a timely manner. Prior
to the corporate pleas, one former and one current manager at HCSC's Marion
office pleaded guilty to charges of conspiracy, wire fraud and obstruction
of a federal audit. On July 8, 1998, five other managers were indicted on
similar charges. Through their submission of false information to HCFA concerning
the performance of HCSC on its Medicare Part B contracts, HCSC had its contracts
with HCFA renewed, received almost $1.3 million in incentive payments from
HCFA, and the five defendants received bonuses. In December 1997, HCSC agreed
to withdraw from the Medicare program as of September 1, 1998. As part of
the civil settlement, HCSC entered into a corporate integrity agreement.

On August 17, 1998,
in the Middle District of Pennsylvania, Highmark, Inc., the parent company
for Pennsylvania Blue Shield (PBS), agreed to pay the United States $38.5
million to resolve claims relating to PBS's performance as a Medicare Part
B carrier. PBS had contracted with HHS to process Medicare Part B claims
for Pennsylvania, Delaware, New Jersey, and the District of Columbia. The
United States alleged that PBS violated the FCA and other laws by: (1) failing
to properly process Medicare Secondary Payor (MSP) claims, or failing to
take appropriate action to recover mistaken MSP payments; (2) obstructing
the Contractor Performance Evaluation Program (CPEP) by, among other actions,
rigging samples for the HCFA audits; (3) failing to recover overpayments
resulting from Series 700 errors and misrepresenting to HCFA the impact
of those errors (4) failing to implement Medicare Carrier Manual requirements
for the screening of End Stage Renal Disease lab claims; and (5) inappropriately
using force codes, following the adjustment of claims, to bypass electronic
audits or edits. In a related development, a former corporate vice president
at PBS was charged in a three count information with conspiring to submit
false information to the HCFA and two counts of making false statements
to HCFA in connection with CPEP audits. The former Vice President has pleaded
guilty to these charges, which carry a maximum penalty of up to 3 years
imprisonment and fines totaling $300,000 and is awaiting sentencing.

Defective Pricing
and Buy America Act Violations

On September 23, 1998,
in the Southern District of Ohio, Invacare Corporation agreed to pay $2.6
million to the U.S. Department of Veterans Affairs (DVA) to settle allegations
of fraud in the sale of wheelchairs. Invacare allegedly failed to provide
accurate and complete cost data during contract negotiations and violated
the Buy America Act by supplying foreign-made wheelchairs. The United States
had alleged that Invacare violated the FCA by providing DVA with inaccurate
and incomplete data concerning discounts offered to other customers, and
that these false statements caused the DVA to agree to a higher contract
price than it would have otherwise.

Durable Medical
Equipment Suppliers

On May 19, 1998, in
the Eastern District of Pennsylvania, the head of MKM Healthcare Corp.,
a Pennsylvania medical supply company, pleaded guilty to a charge that he
paid kickbacks to a surgeon, in return for ordering wound care supplies
for his Medicare patients from MKM. On August 20, 1998, the surgeon's co-defendant
also pleaded guilty to conspiracy to receive kickbacks. The kickbacks were
disguised as fees for "educational services" supposedly provided by Wound
Care Management Corp., a "front" company established by the surgeon to hide
his receipt of kickbacks. Later the kickbacks were paid directly to the
surgeon as compensation under a sham employment agreement as a supervising
physician for MKM.

On October 2, 1998,
in the Southern District of Ohio, the president of Major Health Services,
Inc. (MMHS), pleaded guilty to two counts of mail fraud. Under the name
MMHS, the president was paid approximately $140,000 for false claims submitted
to TRICARE and private insurance claims for Durable Medical Equipment (DME).
MMHS billed for DME never received or DME other than what customers actually
received. The president obtained a list of persons with handicapped licence
plates from the motor vehicle's office, and directed employees in the Colorado
office to use telemarketing techniques to sell scooters and adjustable beds,
while offering DME as free with no co-share payment to people with physical
handicaps. MMHS billed insurance companies for more sophisticated and expensive
equipment, such as motorized wheelchairs and hospital beds, than actually


On May 1, 1998, in the
Southern District of Mississippi, the office manager of a physician group
at the University of Mississippi Medical Center pleaded guilty to embezzling
nearly $147,000. The violation to which the defendant pleaded guilty
was 18 U.S.C. § 669, an embezzlement statute created by HIPAA. Section 669
makes it a crime to embezzle money or property from a health care benefit
program or from an individual or entity providing health care services under
a federal health care program such as Medicare. An audit of the group's
accounts and books revealed that the defendant wrote checks payable to himself
from the group's account and attempted to conceal the location of the funds
by altering the checks after they were cashed. The missing funds could exceed
$400,000. The physician group received funds from Medicare and Medicaid
as reimbursement for services provided to beneficiaries of, or recipients
from, these programs.

Group Homes

Between July 8, 1997,
and February 18, 1998, in the District of Massachusetts, six men were sentenced
to various jail terms and ordered to pay $3.5 million in restitution for
defrauding eight non-profit mental health care companies that provided services
to de-institutionalized mentally retarded individuals in six states and
Washington, D.C. The men formed a fictitious management company to provide
contract services to group homes for the mentally ill. The men received
payments from the Medicare and Medicaid programs for services not rendered.

Home Health

On January 30, 1998,
in the Middle District of Tennessee, Medshares Home Care of Tennessee, Inc.,
doing business as Home Care of North Central Tennessee, Inc., agreed to
pay the government $1.2 million to settle allegations brought under the
qui tam provisions of the FCA. The government alleged that Medshares
submitted false claims to Medicare from July 1, 1994, through December 31,
1996, for skilled nursing visits, home health aide visits, medical social
service visits, occupational therapy visits, physical therapy visits and
medical supplies that were not "medically necessary," or were not for "homebound"
beneficiaries eligible for the home health benefit. Through an audit of
a random sampling of Medicare patient's records, the government determined
that 17 percent of the company's patients were provided services that were
not necessary.

On April 15, 1998, in
the Northern District of Texas, the former president and administrator of
the now defunct home health agency, Lubbock Care Associates, and the agency
itself, pleaded guilty to mail fraud and engaging in monetary transactions
in criminally derived property. The defendant submitted more than $500,000
in fraudulent claims to Medicare for patients who did not qualify for home
health services. The defendant falsified records to make it appear that
patients were homebound when, in fact, they were not. The agency also submitted
fraudulent promissory notes to Medicare to pay employees almost $186,646
in unpaid salary. Medicare eventually reimbursed nearly $500,000 to the
home health agency. The investigation started when employees for the agency
reported the problems to the FBI.


On September 10, 1998,
in the Central District of California, Paracelsus Healthcare Corporation,
a California corporation based in Houston, Texas, agreed to pay $7.3 million
to settle allegations that it defrauded Medicare at two Paracelsus facilities
-- Orange County Community Hospital ("OCCH") and Bellwood General Hospital.
The settlement resolves a qui tam suit brought by two former hospital
administrators who will receive $1,387,000 of the recovery. The settlement
resolved allegations that Paracelsus: (a) made improper payments to "management
companies," including Pride Institute at Solutions and Daybreak, Inc., in
connection with psychiatric programs at OCCH; (b) submitted improper charges
to Medicare for services to patients in the Pride and Daybreak programs;
and (c) paid kickbacks to physicians and physician groups at Bellwood, an
acute care facility. As part of the settlement, Paracelsus agreed to cost
report audit adjustments valued at an estimated additional $3,900,000 and
entered a Corporate Integrity Agreement with HHS-OIG.

On December 16, 1997,
in the Eastern District of Tennessee, Paracelsus Healthcare Corporation,
a hospital company, was ordered to pay the United States and Tennessee a
total of $3 million to settle allegations that it billed and sought to defraud
the Medicaid and Medicare programs for outpatient services that were not
supervised by a physician and for inpatient rehabilitation care for which
there was inadequate physician involvement. The suit claimed that the company
violated Medicare and Medicaid regulations by admitting, treating and discharging
outpatients undergoing alcohol and drug rehabilitation at the company's
clinics in middle and eastern Tennessee without any physician involvement.
The suit said that patients treated in the hospital's inpatient substance
abuse rehabilitation unit failed to receive the number of physician visits
required under Tennessee's Medicaid regulations. The settlement also resolves
claims that the hospital deceived Tennessee regarding the frequency of inpatient
physician visits being performed.

On June 4, 1998, in
the District of Maryland, Levindale Geriatric Hospital paid $800,000 to
resolve allegations it violated the FCA by recoding and resubmitting denied
charges for room and board. After the claims for room and board were denied
by the Medicare Part A program, Levindale recoded the claims as supplies,
laboratory work and other services, and submitted the claims for payment.
In addition to paying a substantial penalty under the FCA, Levindale entered
into a compliance agreement with HHS-OIG

Laboratory Services

On April 13, 1998, in
the District of Maryland, Corning Life sciences, now known as Quest Diagnostics,
paid $6.8 million to resolve allegations that it billed the Medicare part
B program for laboratory tests not ordered by a physician. Six Corning laboratories,
including the Rockville and Baltimore, Maryland laboratories, engaged in
the practice. The FCA recovery reflects 4.5 times the losses sustained by
the Medicare Program. Corning is already subject to a compliance agreement
in connection with a prior FCA settlement and the HHS-OIG amended the existing
compliance agreement to address the conduct involving billing for tests
not ordered.

On October 31, 1997,
in the Eastern District of California, Physician's Clinical Laboratory,
Inc. (PCL) was ordered to pay the United States $2 million to settle allegations
that PCL had overbilled the United States under the Medicare and CHAMPUS
programs with regard to blood and urine testing. The suit alleged that PCL
overcharged the United States and the State of California in the Medicare
and Medi-Cal programs. The suit alleged that PCL conducted urinalysis testing
at one location, using particular technology, when in fact they performed
the services at a different location using a procedure which called for
a lower amount of reimbursement under the Medicare and CHAMPUS programs.
The suit also alleged that PCL had improperly billed the United States for
blood analysis, resulting in charging for tests which actually were not

Lymphedema Pumps

On April 2, 1998, in
the Central District of California, a federal grand jury returned an indictment
charging the owner of the KP Medical Center in Los Angeles with conspiracy
to defraud the United States, false statements, mail and wire fraud, and
bankruptcy fraud. The owner allegedly submitted more than $3 million in
false claims to Tricare and other federal health care programs by signing
certificates of medical necessity that falsely indicated that certain patients
needed pumps for treatment of lymphedema, when the pumps were never needed
or actually provided to the beneficiaries. The defendant also allegedly
defrauded the Medicare and Medi-Cal programs, and submitted false statements
to the programs, by billing under one name while actually operating under
another name. The defendant allegedly conspired with two men who owned a
home health agency to receive $100 kickbacks for each Medicare beneficiary
he referred to them in violation of the anti-kickback statute.

Medical Schools

On March 19, 1998, in
the Western District of Pennsylvania, eighteen physician clinical practice
plans associated with the University of Pittsburgh School of Medicine, the
University of Pittsburgh Medical Center Health System, and the University
of Pittsburgh agreed to pay $14 million for false or improper billings to
the Medicare program, and $3 million for false or improper billings to the
Pennsylvania State Medicaid Program. The settlement resolves allegations
that the Clinical Practice Plans submitted claims in violation of established
Medicare and Medicaid rules governing payment for physician services provided
in the teaching setting. Attending physician's services which are furnished
to beneficiaries in a teaching setting are covered under Medicare Part B
and payment may be made only if the physician assumes and fulfills the same
responsibilities for this patient as for other paying patients.

These responsibilities
include the attending physician's personal examination of the patient. Pursuant
to established HCFA regulations, and directives from HCFA's contractors,
the services of residents cannot be billed separately as services under
Part B of Medicare. Services of residents and interns in approved teaching
physician programs are explicitly excluded from the definition of "physician's
services" and are not payable as such. These services are covered as hospital
services under Medicare. Services provided by a resident or intern under
the attending physician's personal and direct supervision, however, may
be reimbursable under Medicare Part B. The Pennsylvania Medicaid rules allow
payment only for services actually rendered by a provider.

The Clinical Practice
Plans conducted an audit at their own expense. The audit found faulty or
inaccurate billing practices where physicians billed for services actually
rendered by residents, and some billing for evaluation and management services
where the code levels selected were not supported by sufficient documentation
in the medical records (upcoding.) The terms of the settlement also require
specific compliance measures by the Clinical Practice Plans through a Corporate
Integrity Agreement.

On September 8, 1998,
in the District of Connecticut, a $5.6 million settlement involving Yale
University School of Medicine was reached regarding the school's maintenance,
use and write-off of credit balances. A portion of the settlement calls
for the school to pay the United States $1,200,289 to settle a qui tam
action. The rest of the settlement requires the school to pay $1,888,525
to private insurance companies and $2,511,298 to the State of Connecticut
treasurer, pursuant to unclaimed property laws. The school did not match
specific medical charges and posted them in their records as unidentified
credit balances. Such credit balances represented amounts owed by the school
to patients, health benefits program's and/or clinical departments within
the school for the period January 1997 through September 1998. The government
contended that the school improperly handled a significant number of credit
balances. In the settlement, the school acknowledged that it failed to adequately
manage and supervise the handling of certain credit balances. As part of
a 4-year Corrective Action Plan, the school will establish a credit balance
department, conduct biannual instruction programs for all individuals involved
in the resolution of credit balances, and submit to annual audits.

Nursing Homes

On January 13, 1998,
in the Eastern District of Pennsylvania, three Philadelphia-area nursing
homes agreed to pay $500,000 and implement a comprehensive corporate integrity
program to settle allegations brought under a civil FCA complaint that they
billed Medicare and Medicaid for inadequate care provided to nursing home
residents from June 1995 to the present. The complaint specifically identifies
5 residents for whom the government was paying who were not adequately cared
for by Chester Care Center, Bishop Nursing Home, and Manchester House Nursing
and Convalescent Center. One resident of Chester Care Center died of injuries
received when she was placed in a scalding tub of water by a nurse's aide,
even though the nursing home was aware it had a malfunctioning boiler and
had been cited by the state for improper water temperatures. Three other
Chester residents died of receiving inadequate diabetes care, and another
resident of Bishop Nursing Home died of the nursing home's failure to respond
in an appropriate and timely manner to the resident's progressive weight
loss and failed to treat his resultant pressure sores properly.

On August 19, 1998,
in the District of Connecticut, the operator of Pioneer Valley Geriatrics
(PVG) was sentenced to 21 month's incarceration, three years of supervised
release, a $5,000 fine and $5,198 in restitution for defrauding Medicare.
The operator pleaded guilty on April 3, 1998, to a one-count information
charging him with mail fraud in connection with claims he caused to be submitted
to Medicare in relation to services provided by PVG at Chesthelm Nursing
Home in Connecticut, where PVG had contracted to provide mental health services
to patients. The operator caused the presentation by PVG of claims to Medicare
totaling $12,075 for 110 separate services of Chesthelm. These claims were
represented as being performed by, or under the direct supervision of, a
licensed medical doctor, but were not. Due to information that was discovered
in an unrelated investigation months after the defendant was sentenced,
the defendant filed a 2255 motion, seeking a resentencing related to whether
he should have received an enhancement for obstruction of justice. The Government
is consenting to the resentencing, at which time the court could impose
the same sentence that was originally imposed.

On August 26, 1998,
in the Eastern District of Michigan, an osteopath pleaded guilty to three
counts of mail fraud and one count of accepting illegal kickbacks. The osteopath,
who owned several Detroit area nursing homes, was charged with billing Medicare
and Blue Cross/Blue Shield of Michigan for nursing home patient examinations
that were either upcoded, or not performed at all. The osteopath was also
charged with accepting more than $25,000 in kickbacks from a local hospice
in return for recommending the hospice to the staff of the osteopath's nursing
homes. As part of the plea agreement, the osteopath agreed to pay in full
at the time of sentencing, $522,000 in restitution for the mail fraud violations
and a $200,000 fine. He also agreed to pay restitution for losses resulting
from the kickback scheme, which may exceed $700,000.

On August 13, 1998,
in the Eastern District of Pennsylvania, a settlement was reached with the
Department and HHS in which a Philadelphia nursing home will upgrade conditions
to ensure that elderly and disabled residents are free from abuse and neglect
and receive adequate treatment. The agreement, filed together with a lawsuit
in the U.S. District Court in Philadelphia, stems from complaints about
conditions at the Philadelphia Nursing Home (PNH) that were investigated
by the Department. Under the agreement, the city of Philadelphia and Episcopal
Long Term Care (ELTC), the city's contractor, will ensure that residents
are free from mistreatment, abuse and neglect; provide adequate psychiatric,
medical and nursing care, including daily activities that enable the residents
to reach their highest practicable level of physical and mental well being;
limit the use of restraints; work with a federal monitor to implement the
agreed upon procedure; pay the Federal Government $50,000 to resolve FCA
violations; and create a $15,000 fund for a special project, authorized
by the United States, that will improve the quality of life for residents
at PNH. A geriatric nurse practitioner appointed by the government at the
nursing home's expense will visit the home at least monthly to monitor its
compliance with terms of the agreement.

and Pharmaceutical Services

On June 12, 1998, in
the Eastern District of Pennsylvania, a Philadelphia pharmacist was sentenced
to four years in prison, and ordered to return the $700,000 he obtained
through filing false claims for prescription drugs with insurance companies.
The defendant, and his brother, operated four pharmacies between 1985 and
1995. The defendant was ordered to forfeit $700,000, and his brother was
ordered to forfeit $1.4 million, and both were charged in a criminal information
with a 10-year fraud on prescription drug plans involving sham prescription
reimbursement claims supported by phony prescriptions; fictitious prescriptions
supplied by street dealers in return for a share of the expected reimbursement;
the use of drug samples obtained from doctors in return for cash or goods;
and an illegal drug diversion of Schedule II controlled substances including
Percocet, Vicodin, Xanax and Promethazine with Codeine. This case was charged
and the defendants pled to RICO conspiracy.

On April 16, 1998, in
the Southern District of Illinois, Home Pharmacy Services, Inc., a wholly
owned subsidiary of Omnicare, Inc., entered into a Settlement Agreement
to resolve its liability under the FCA. Home Pharmacy Services, Inc., was
an institutional pharmacy that served nursing homes throughout southern
Illinois. Almost all of the patients serviced were on Medicaid, paid by
the Illinois Department of Public Aid (IDPA). The pharmacy would receive
returned medicines from the nursing homes because a patient died or the
prescription changed. The pharmacy would repackage and resell the returned
pharmaceuticals and not credit IDPA for the returns. Home Pharmacy agreed
to pay $5.3 million to settle the allegations of false claims. The former
president of Home Pharmacy Services, Inc., pled guilty to felony false statements,
and on September 21, 1998, was sentenced to 24 months imprisonment and ordered
to pay $500,000 in restitution and a $250,000 fine. As part of the civil
settlement, Home Pharmacy entered into a corporate integrity agreement.

On June 16, 1998, in
the Southern District of Illinois, a Smithton resident pleaded guilty to
making false statements to the Illinois Department of Public Aid concerning
fraudulent bills submitted to that agency by Home Pharmacy Services (HPS),
a Belleville, Illinois supplier of drugs and pharmaceutical products to
nursing homes throughout southern Illinois. The defendant established a
procedure in which medications which were returned to the pharmacy were
placed back into inventory without crediting the Illinois Department of
Public Aid which had paid for the drugs when first supplied to the nursing
homes. The drugs were returned to HPS from the nursing home because the
patients for whom they were prescribed had died. The drugs would be sent
out a second time for other patients and Medicaid would be billed twice
for the same medication. The defendant caused HPS to continue billing the
agency even though he knew that HPS owed the agency in excess of $2 million.
On April 10, 1998, HP's parent company, Ohio-based Omnicare, agreed to pay
$5.3 million to settle qui tam allegations made by former employees
of HPS.

Physicians and
Other Practitioners

On December 9, 1997,
in the Central District of California, an opthamologist agreed to pay the
United States more than $375,000 to settle a qui tam suit brought
by a former office manager. The suit alleged that the doctor routinely billed
Medicare for endothelial microscopy for every cataract patient he treated,
even though it is a rarely used pre-cataract surgical procedure, and despite
the fact that the doctor never performed the procedure. The doctor agreed
to implement a five-year compliance program in which he will have to pay
for an annual audit of his practice and permit office searches by federal
investigators at any time.

On August 19, 1998,
in the District of Nebraska, a man who had represented himself to patients
as a surgeon, biochemist, and specialist in "ultramolecular medicine" who
could cure cancer, AIDS, and other diseases, was sentenced to two and one-half
years in prison, ordered to pay a $5,000 fine, and $80,000 in restitution
to his victims. Patients spent more than $1 million on the analysis, diagnosis,
treatments and products, according to the indictment. The "surgeon" with
only a high school degree and some unnamed "further educational undertakings"
engaged in fraudulent behavior from 1989 through early 1996. The "surgeon"
told patients he could diagnose ailments by examining hair and fingernail
samples in what he claimed was a high tech lab. During the investigation
the "surgeon" diagnosed a guinea pig hair as that of a person suffering
from allergies and liver, kidney, and various organ problems. He told patients
that he analyzed those samples through a NASA-provided laser, had 129,000
patients worldwide, and cured 400-500 AIDS patients and several thousand
ovarian cancer patients.

On August 19, 1998,
in the District of South Carolina, a man was sentenced to two months in
prison and ordered to pay $40,874 in restitution for mail fraud and for
aiding and abetting a chiropractor who defrauded insurance companies by
filing bills for unnecessary tests. The man aided the scheme of a doctor,
the former owner and operator of the Plemmons Clinics. From 1992 to 1994,
the doctor filed $2 million in billings for unnecessary nerve and vascular
tests that he performed on family, friends, and patients. For seven months
in 1994, the man that aided the doctor signed the bills for unnecessary
testing that the doctor sent to insurance companies. In June 1998, the doctor
was sentenced to 46 months in prison and ordered to pay more than $1 million
in restitution for the actual payments he received from the insurance companies.

On September 21, 1998,
in the Western District of Washington, a Tacoma chiropractor pleaded guilty
to a felony charge of mail fraud. The chiropractor, doing business at ACTS
Chiropractic Center, caused chiropractic records to be falsified to indicate
that progress examinations were conducted on a different day from the date
of an examination, so he could bill for two services which had actually
occurred during a single office visit. During 1994 and 1995, when some of
the falsely billed office visits were rejected, the chiropractor falsely
billed for spinal manipulations on these dates when no services were provided.
The fraudulent bills were processed by King County Medical, predecessor
of Regence Blue Shield, while acting as a third party administrator of the
Boeing Medical Plan. The chiropractor will pay an agreed restitution of
$19,038 to Regence for the Boeing Plan.

On September 18, 1998,
in the Eastern District of California, a podiatrist practicing in Stockton
and Lodi, California was sentenced to 18 months in prison for defrauding
the Medicare program. In addition, to settle the government's civil case
against him, the podiatrist agreed to pay more than $350,000 and to accept
permanent exclusion from the Medicare program. From 1993 to 1997, the podiatrist
regularly visited Medicare patients at nursing homes and performed routine
foot care consisting of clipping patients' toe nails. Knowing that Medicare
does not pay podiatrists for routine foot care, he claimed he performed
surgical procedures and billed the federal health care program for surgeries.
He then falsified his medical records to document performance of the procedures.
In 1996, the HHS-OIG was alerted to the high number of foot surgeries the
podiatrist had billed to the Medicare program. During a six-month period
in which the podiatrist's billings were audited, the podiatrist submitted
claims to Medicare for more than 1,750 surgeries, including more than 500
procedures in which he claimed to have removed foreign bodies from patients.
Thereafter, federal agents conducted an undercover investigation in one
nursing home, using audio and video surveillance. The video depicted the
podiatrist only performing toe nail clippings. Nevertheless, he billed medicare
for performing foot surgery on those patients. The podiatrist pleaded guilty
to one count of Medicare fraud, and entered into a stipulated judgement
to settle the government's civil claims against him. To raise money to settle
the civil case, he agreed to sell his house, his office building in Stockton,
his car, and another vehicle.

On May 8, 1998, in the
Northern District of Indiana, a doctor was sentenced to 37 months imprisonment,
3 years supervised release, and a $40,000 fine for soliciting and receiving
kickbacks in exchange for patient referrals to St. Joseph's Medical Center.
The doctor's sentence was enhanced by the Court at the government's request
for obstruction of justice because he committed perjury during the first
part of his sentencing hearing, and before the grand jury that ultimately
indicted him.

On August 3, 1998, in
the Central District of California, a Beverly Hills, California dentist
pleaded guilty to five felony mail fraud counts related to a fraudulent
billing scheme in which insurance companies paid out tens of thousands of
dollars for services that had not been rendered. On many of the claim forms
submitted to the insurance companies, the dentist listed a "mail drop" that
was purported to be the residence of the patient, when the mail drop was
used in order to divert any correspondence from the insurance companies
to an address under the dentist's control, which prevented patients from
learning about the fraudulent billing. During the course of the scheme,
the dentist received letters from insurance companies that sought verification
from patients that certain services were not provided. On occasion, the
dentist, or someone at the direction, completed these forms and returned
them to the insurance companies. The verification forms falsely stated that
all services in question had been performed, when in fact they were not.

On July 1, 1998, in
the Eastern District of Michigan, a cardiologist was sentenced to twelve
months and one day on convictions of two counts of mail fraud. From 1993
through 1996, the cardiologist caused the submission of two reimbursement
claims to Medicare and Blue Cross/Blue Shield of Michigan each time he performed
a single echocardiogram or artery extremity study. As the result of these
fraudulent billing practices, the cardiologist caused monetary losses of
$59,049 to Medicare and $48,649 to Blue Cross/Blue Shield of Michigan. At
the time of sentencing, the cardiologist made full restitution to both Medicare
and Blue Cross/Blue Shield for the losses.

On August 4, 1998, in
the Eastern District of California, a Fairfield dentist who pleaded guilty
to a felony health care fraud charge was sentenced to a year in prison.
The dentist was ordered to pay a fine of $3,000, an assessment of $100,
and ordered to perform 300 hours of community service following his release
from prison. The dentist, for nearly 30 years, provided pediatric dental
care to the families of service men and women under the Active Duty Family
Member Dental Plan ("FMDP"), a dental insurance plan sponsored by TRICARE,
which was formerly known as CHAMPUS. A random audit by the plan administrator
detected billing irregularities which led to the federal investigation.
The dentist pleaded guilty to a single felony charge of health care fraud
and in his plea agreement, the dentist admitted to submitting reimbursements
for X-rays and dental procedures that were not medically necessary to the
health insurance program for dependents of active duty military personnel.
The dentist paid $527,085 to settle a related civil suit brought by the
federal government against him arising out of the same conduct and he will
also be permanently excluded from the TRICARE program.

On September 16, 1998,
in the Eastern District of Pennsylvania, a podiatrist, was indicted on charges
of conspiracy, mail fraud, and making false claims to the United States
government. The charges arise from the podiatrist's fraudulent billings
to Medicare from 1988 through 1994 for podiatric services to patients in
his office and at three nursing homes, services that neither he nor his
staff had provided. Specifically, the indictment charged that although the
podiatrist and his staff rendered routine foot care, which is not generally
reimbursable by Medicare, he billed Medicare for such reimbursable services
as avulsion (surgical removal of a toenail), incision and drainage of abscess,
and arthrocentesis (the use of a needle to inject cortisone or remove fluid
from a joint). The resulting loss to Medicare was more than $300,000. In
1994, the podiatrist was convicted of mail fraud in connection with an insurance
fraud scheme; he served 15 months in federal prison.

Private Insurers/Self-insured

On January 28, 1998,
in the Southern District of Florida, two South Florida men were indicted
for allegedly defrauding 27 private insurance and self-insured companies
out of more than $10 million by filing false medical claims, and with various
acts of money laundering. In what may be the first use of a provision enacted
by HIPAA, the defendants were charged with violating 18 U.S.C. § 1035, which
makes it a criminal offense to submit false statements or health care matters.
Both men had prior federal convictions for securities fraud or drug trafficking.
According to the indictment, the defendants allegedly set up 13 fictitious
companies which posed as medical service providers, submitted more than
$50 million in fraudulent claims to 27 companies, and received more than
$10 million. Once the defendants received this money, they deposited it
into bank accounts they controlled under aliases.

On May 8, 1998, in the
District of Maryland, an operator of Industrial Medical and Physical Therapy
(Industrial), an "accident mill", in Baltimore, MD, was sentenced to twenty-seven
months imprisonment to be followed by a three-year term of supervised release
upon her plea to one count of mail fraud and one count of income tax evasion.
The operator was ordered to pay $300,000 in restitution to several different
automobile accident insurance companies, including the Maryland Automobile
Insurance Fund (MAIF). The insurance companies were defrauded as a result
of the fraudulent schemes to which the operator pled guilty. Another operator
was convicted of three counts of mail fraud and two counts of income tax
evasion on March 13, 1998 after a three-week jury trial, and ordered to
pay restitution to the Internal Revenue Service in the amount of $17,834.00
and $15,000 in restitution to various insurance companies who were defrauded
by Industrial. Using "runners" to locate automobile accident victims, the
operators of Industrial churned out inflated insurance claims by billing
for physical therapy services that were not provided, double billing on
x-rays, and billing for hard, plastic cervical collars when less expensive,
soft foam cervical collars were provided.

Psychiatric Hospitals, and Mental Health Services

On January 26, 1998,
in the Western District of Texas, two businessmen pleaded guilty to conspiracy
and health care fraud for defrauding the Medicaid program out of more than
$2.8 million. The defendants submitted claims for chemical dependency treatment
for juveniles who did not have drug or alcohol problems. In addition, the
counseling they did receive was inappropriate, and in other cases no counseling
was provided at all.

On May 4, 1998, in the
District of Kansas, a psychiatrist was sentenced to five years in prison
and ordered to pay $927,000 in restitution for defrauding federal and private
insurers of almost $2 million. The defendant was convicted by a jury on
November 26, 1997 of 13 counts of mail fraud, 21 counts of money laundering,
and one count of using the mail to promote commercial bribery. Under a post-conviction
agreement with the government, the psychiatrist agreed not to appeal the
verdict in exchange for a government recommendation to the court to depart
downward from the offense level. The defendant devised and executed a scheme
to defraud Medicare, CHAMPUS and private insurers by submitting false claims
for services he did not perform, services not rendered, submitting bills
twice for the same services, and by upcoding and unbundling bills.

On June 8, 1998, in
the Central District of California, a Beverly Hills doctor pleaded guilty
to defrauding Medicare of more than $216,000 by billing for treating patients
who were either dead, in prison, or too distant from the doctor for him
to have seen them on the dates in question. The indictment charged the defendant
with 10 counts of mail fraud for carrying out the fraudulent Medicare billing
scheme from January 1992 to May 1996, processing his claims through the
Transamerica Corp. The doctor billed for services he never provided and
inflated claims for reimbursement from Medicare. A related civil FCA action
against the defendant on similar charges, recovered $1,500,000 in settlement.
The settlement amount represented approximately five times the estimated
loss to Medicare.

On September 30, 1998,
in the Northern District of Georgia, an Atlanta businessman was sentenced
to 3 years and 10 months and ordered to pay $7 million in restitution. From
January 1994 through July 1995, the defendant defrauded HHS, the State of
Georgia Department of Medical Assistance and certain Medicaid recipients,
through a complex scheme involving billing Medicaid for individual and group
psychotherapy allegedly provided to children. The scheme involved employees
going door-to-door in impoverished areas to recruit children for after school
programs, typically failing to inform parents that Medicaid would be billed
for psychotherapy allegedly provided to their children; billing for psychotherapy
services that were not provided by a licensed psychologist or physician,
which had no medical necessity and which had not actually been provided;
billing Medicaid for the treatment of children in Atlanta for psychological
services when, in fact, the billing physician, was out of the country, in
places such as London, Paris, Bermuda, St. Croix, and Barbados. In the 14-month
period of the scheme the defendant submitted approximately $8.6 million
in claims to Medicaid.

Staged Automobile
Accidents/ Workers Compensation Fund

On October 6, 1997,
in the District of Minnesota, three men pled guilty to money laundering
charges. The men staged phony car accidents and scammed insurance companies
for an estimated $500,000 for their treatment of accident related injuries
at fictitious medical clinics they set up in vacant office space. They established
alias identities for themselves using false names, dates of birth, addresses
and social security numbers, and used the aliases to obtain insurance policies,
set up post office boxes for fictitious medical clinics, opened bank accounts,
and submitted insurance claims.

Unapproved Drugs

On September 2, 1998,
in the Eastern District of California, a manufacturer agreed to pay $1 million
to settle a whistleblower lawsuit. The lawsuit, originally filed by a former
employee of the company, alleged the company sold "bone-growth stimulator"
devices to Medicare and Medicaid beneficiaries, then knowingly billed the
federal and state health care programs for the costs of the devices, even
though the Food and Drug Administration (FDA) specifically advised the company
that the use of the devices had not been approved by the FDA as safe and
effective. The complaint against the manufacturer was filed in December
1996 by a Senior Appeals Specialist employed with the company from 1994
to 1996. This case may be the first time the FCA has been applied against
a medical device manufacturer for submitting claims for reimbursement to
the government based on the sale of medical devices not approved by the
FDA. Under the terms of the settlement agreement, the manufacturer will
pay $1 million to be distributed to the Medicare and Tricare programs, and
to Medicaid programs in states where the devices were sold.

On September 4, 1998,
the U.S. Court of Appeals for the Eighth Circuit reversed a ruling of the
U.S. District Court for the District of Minnesota that the University of
Minnesota was not subject to the FCA because it is a state entity. The Federal
Government sued the University of Minnesota in 1995, alleging that the University
received $50 million from the illegal sale of a drug used to suppress immune
reactions in post-transplant patients; the drug was not approved by the
Food and Drug Administration. The suit also alleged that the University
misapplied approximately $5 million in federal grants, submitted approximately
$1 million in false claims to Medicare, and received nearly $2 million through
an illegal kickback arrangement. The district court dismissed the suit's
FCA counts, holding that the Act's language -- establishing liability against
any person who knowingly presents a false claim for payment to the Federal
Government -- did not clearly apply to state entities. The Court of Appeals
reversed, holding that state entities like other recipients of federal funds,
took those federal monies subject to the law, including the FCA. The lawsuit
was remanded back to the U.S. District Court, where it recently settled
for $32 million.

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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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Updated September 9, 2014