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CRM 500-999

933. Medicare-Medicaid Frauds

Title XVIII of the Social Security Act, 42 U.S.C. § 1395 et seq., enacted in 1965 Pub.L. 89-97 (July 30, 1965), 79 Stat. 286, created the Federal Medicare and Medicaid programs and authorizes medical benefits for the aged, blind, and disabled. See generally United States v. Gold, 743 F.2d 800, 806 (11th Cir. 1984), cert. denied, 469 U.S. 1217 (1985). Frauds executed against these aid programs may be prosecuted via a number of criminal statutes. See Bucy, Health Care Reform and Fraud by Health Care Providers, 38 Villa. L. Rev. 1002 (1993); Bucy, Fraud by Fright: White Collar Crime by Health Providers, 67 N.C.L.Rev. 855 (1989). The 1965 statute was designed to "to provide a hospital insurance program for the aged under the Social Security Act with a benefits program and an expanded program of medical assistance to increase benefits under the Old-Age, Survivors, and Disability Insurance System, to improve the Federal-State public assistance programs, and for other purposes."

The Act included two programs popularly known as Medicare, 42 U.S.C. § 1395ff (Title 18 of Social Security Act of 1935), and Medicaid, 42 U.S.C. § 1396ff (Title 19 of Social Security Act of 1935). Medicare and Medicaid are administered by the Health Care Financing Administration (HCFA) of the United States Department of Health & Human Services (HHS). Investigations involving either program are conducted by the Office of Inspector General of HHS, the FBI and other agencies.

Medicare is a health financing program for the elderly. Its financing derives from a federally-administered trust fund. Claims for reimbursement are filed by beneficiaries or their health care providers and are paid by carriers and intermediaries (private insurance companies in each state which are the Federal government's agents) under contracts to perform this service. The carrier or intermediary is reimbursed for claims that are paid, and for administrative costs, out of the Federal trust funds.

Medicaid is a health financing program for low-income individuals administered by each state, pursuant to a state plan that must be approved by HHS. The states have some flexibility with regard to how they structure their respective programs. Each state is reimbursed by the federal government on a quarterly basis for a percent of the costs incurred in operating its program.

Beneficiaries and providers under either program can be prosecuted under Federal law for (1) making material false statements, (2) submitting false claims, or (3) being a party to a kickback scheme. The first two offenses are prohibited by 18 U.S.C. §§ 287, 1001; all three are prohibited by specific criminal provisions in the Medicare and Medicaid statutes. See generally 42 U.S.C. § 1320a-7b.

In recent years, especially with the establishment of Federally funded Medicare Fraud Control Units in many states, fraud in the Medicaid program has come to be viewed as a state concern. The Federal government program has focused its attention more on its enforcement of fraud against its Medicare program.

Successful prosecution of a Medicare case will often require a sophisticated understanding of the reimbursement principles involved in that case. The reimbursement principles under Medicare have grown increasingly complicated over the years. Different entities are paid under different methodologies (e.g., cost-based, charge-based, or fee schedules) and may be subject to limits based on a number of factors. Some providers are paid directly, and some are paid by the patient, who is then reimbursed by Medicare. The Office of General Counsel at HHS should be relied upon for assistance. The Criminal Division's Fraud Section is also available to provide assistance.

[updated April 1998] [cited in JM 9-42.001; JM 9-42.451]