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U.S. Department of Justice Heatlh Care Fraud Report Fiscal Years 1995 & 1996




HEALTH CARE FRAUD: CRISIS OF THE NINETIES.................................................2

NATIONAL HEALTH CARE FRAUD PROGRAM.......................................................4

Coordination Within the Department of Justice

Coordination Between Justice Department and Other Law Enforcement Agencies


ENFORCEMENT ACCOMPLISHMENTS.......................................................................6

Significant Cases

Targeting Fraud By Industry

Statistical Enforcement Accomplishments

INVESTIGATIVE AND PROSECUTORIAL RESOURCES............................................15

Existing Resources Allocated To Health Care Fraud

Pilot Health Care Fraud Projects

Innovations To Improve Use Of Available Resources


FUTURE OF HEALTH CARE FRAUD ENFORCEMENT...............................................18

Health Care Fraud Legislation
Managed Care And Fraud Working Group

SELECTED CASES.......................................................................................................20





In 1993, the Attorney General made health care fraud one of her top priorities. This is the Department of Justice's second report on health care fraud. Covering the Department's activities in fiscal years 1995 and 1996, the report provides an overview of the Department's health care fraud enforcement program, highlighting the Department's numerous and significant successes.

Health care fraud is the crime of the nineties: fraudulent schemes are ever changing and growing more sophisticated; unscrupulous persons and companies can be found in every health care profession and industry; fraudulent schemes targeting health care patients, providers and plans have occurred in every part of this country.

Through increased resources, focussed investigative strategies and better coordination among law enforcement, the Department continues to upgrade its efforts in combating the full array of fraud perpetrated by health care providers. Health care fraud investigations by the Federal Bureau of Investigations increased from 657 in Fiscal Year 1992 to 2,200 in Fiscal Year 1996. Criminal prosecutions increased from 83 cases and 116 defendants in Fiscal Year 1992 to 246 cases and 450 defendants in Fiscal Year 1996. Convictions -- guilty pleas and guilty verdicts -- rose from 90 defendants in Fiscal Year 1992 to 307 in Fiscal Year 1996. Civil health care fraud efforts similarly increased. The number of civil health care fraud investigations handled by the Department increased from 270 in Fiscal Year 1992 to 2,488 in Fiscal Year 1996.

These numbers reflect significant enforcement accomplishments, set forth in this report. Notable cases across the country included the Boston conviction of a Fortune 500 company and several executives for defrauding the Food Drug Administration in connection with the sale and distribution of heart catheters unapproved for human use; the Minneapolis conviction of a nationwide provider of health care services for making improper payments to induce doctors to refer patients; and the San Diego conviction of a physician for performing unnecessary cataract surgery. The Department targeted fraudulent practices in specific health care industries such as fraudulent billing and unbundling by independent clinical laboratories; fraudulent misrepresentations in connection with the Health Care Financing Administration's (HCFA) Medicare contractor's Contractor Performance Evaluation Program; and fraudulent billing by hospitals.

Effective health care fraud enforcement depends on innovative, aggressive and responsible action by law enforcement. The Department has launched several pilot health care fraud projects including efforts to explore electronic fraud detection, support state and local law enforcement and build alliances with public and private health insurance plans.

The Department's aggressive health care fraud enforcement record provides an effective foundation for the future. In 1996, the President signed the Health Insurance Portability and Accountability Act. This Act provides a framework, new tools and resources for the fight against health care fraud. The Department is working closely with the Department of Health and Human Services and the other federal, state and local law enforcement to combat this scourge against the integrity of our nation's health care system.





Health Care Fraud Is Committed by Every Type of Health Care Provider

While most health care providers are honest and concerned first and foremost about their patients' welfare, unscrupulous persons and companies of every stripe willingly defraud our nation's health care programs. Health care fraud has been perpetrated by individual physicians as well as multi-state publicly traded companies, medical equipment dealers, ambulance companies, and laboratories as well as the hospitals, nursing homes, and home health care agencies they service. In addition, too many persons -- who provide no health care at all -- nevertheless prey upon the nation's health care programs with fraudulent scams.

Health Care Fraud Schemes Are Diverse

Health care fraud schemes can be simple or complex. Unscrupulous health care providers target public as well private health insurance plans.

Billing Frauds

The Department continues to bring criminal and civil charges against those providers who knowingly submit false bills to health care payors:

  • billing for services or equipment not rendered
  • billing for services or equipment not medically necessary;
  • double billing for the same service or equipment;
  • upcoding (e.g., billing for a service or equipment reimbursed at a higher rate than was provided);
  • unbundling (e.g., billing separately for services or equipment included in a global rate).
  • billing frauds in cost reports from hospitals or nursing homes, to obtain reimbursement when not permitted or at a higher rate of reimbursement than permitted.

Another too common fraudulent scheme is the payment and receipt of kickbacks in return for influencing the provision of health care. Kickbacks are pernicious because they corrupt medical providers' decision making, often replacing profit for patient welfare. Kickbacks can lead to grossly inappropriate medical care, including unnecessary hospitalization, surgery, tests, and equipment.

Other Schemes

Other 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, such as fraudulent Multiple Employer Welfare Arrangements.

Health Care Fraud Schemes Have Been Perpetrated Across the Country

We have investigated health care fraud schemes in every part of the country from Maine to California, from Hawaii to Puerto Rico, from Washington State to Florida. Health care fraud is perpetrated in urban areas and rural regions.

The Consequences of Health Care Fraud Are Severe

While no one has an exact figure, the General Accounting Office estimates that health care fraud, waste and abuse may account for as much as 10 per cent of all health care expenditures. As health care expenditures now exceed one trillion dollars each year, more than $100 billion may be lost in fraud, waste and abuse annually.

Everyone pays the price for health care fraud: beneficiaries who pay more in premiums for medical services and equipment and in their copayments or contributions; businesses who are compelled to pay increasing amounts to provide health care to their employees; and taxpayers who pay more to cover health care expenditures in public health plans.

Health care fraud not only costs money, it also can place patients at risk of serious physical harm. The Department has prosecuted cases in which teenagers were unnecessarily hospitalized because of kickbacks paid to physicians and hospitals; senior citizens across the Midwest had medically unnecessary, poorly fitting knee, leg and back braces foisted upon them due to unscrupulous telemarketers; and other senior citizens underwent unnecessary cataract surgery because of an opthamologist's greed. In some instances, health care fraud can cause unnecessary deaths. In one case, patients died when a Fortune 500 company sold unapproved heart catheters to hospitals because it preferred immediate profits to waiting for Food and Drug Administration clearance.

The scope and variety of health care fraud and the seriousness of its consequences simply cannot be overestimated.





The Department's health care fraud efforts are centered in the U.S. Attorneys' Offices, the Criminal Division and the Civil Division. Several persons provided invaluable leadership in health care fraud enforcement: Karen Morrissette, Deputy Chief, Fraud Section, Criminal Division; Joyce Branda, Deputy Director, Commercial Litigation, Civil Division; and Iden Martyn, Deputy Director, Executive Office for United States Attorneys (EOUSA). These efforts are coordinated by Debra Cohn, Special Counsel to the Deputy Attorney General. Since 1994, the Attorney General's Advisory Council, comprised of U.S. Attorneys from across the country, has had a health care fraud subcommittee, presently chaired by Lynne Battaglia, U.S. Attorney for the District of Maryland. This subcommittee is responsible for supporting the health care fraud enforcement work of all 94 U.S. Attorneys, in every district in the nation.

U.S. Attorney's Offices

Each U.S. Attorney has appointed a health care fraud coordinator. These prosecutors have some experience and/or interest in health care fraud enforcement. Many U.S. Attorneys named civil as well as criminal Assistant U.S. Attorneys as health care fraud coordinators. Each U.S. Attorney or FBI SAC also sponsors a local health care fraud working group to bring together federal and state law enforcement working in health care fraud enforcement.

Federal Bureau of Investigation

Federal Bureau of Investigation (FBI) field offices continue to report dramatic increases in health care fraud as evidenced by the fact that the FBI's health care fraud caseload now exceeds 2000 active investigations.

The FBI actively supported the overall Department of Justice legislative initiative to obtain additional substantive, procedural and monetary tools and resources to combat health care fraud. Most of the FBI field offices were actively involved in task forces and working groups composed of representatives from several federal, state and local investigative and prosecutive agencies having joint or complementary jurisdiction in health care fraud matters. FBI Headquarters stressed the importance of joint investigations with the Department of Health and Human Services Office of Inspector General (HHS OIG). With recent U.S. Supreme Court decisions resolving several legal issues surrounding the use of civil and criminal forfeiture statutes and with new federal legislation authorizing forfeiture and use of the money laundering statute specifically in health care fraud cases, the FBI expects a significant increase in the utilization of this enforcement tool.

The FBI is committed to pursing an effective blend of criminal, civil and administrative enforcement. FBI Headquarters is monitoring the growing number of qui tam civil fraud actions being filed by citizens alleging fraud in various health care programs. These complaints are reviewed for indications of national trends and geographically broad fraud schemes. The FBI has recently altered its internal statistical accomplishment measurement process to include civil enforcement in health care fraud. To educate special agents about the complex Medicare program, which includes much of the civil and program exclusion remedies, HCFA and the FBI are jointly sponsoring regional conferences to train approximately 200 FBI and HHS OIG agents.




Successful health care fraud enforcement cannot be achieved by the Department of Justice acting alone. We have relied heavily on the investigative and audit work of numerous federal and state law enforcement agencies committed to addressing health care fraud, each with different experience, expertise and program knowledge. This includes agencies which are dedicated to prevention, evaluation and investigation of fraud and abuse in particular health care plans: the Department of Health and Human Services Office of Inspector General (HHS OIG) (Medicare/Medicaid); the Medicaid Fraud Control Units (MFCUs) (Medicaid/patient abuse); Defense Criminal Investigative Service (DCIS) (Civilian Health and Medical Program of the Uniformed Services - CHAMPUS); the Office of Personnel Management Office of Inspector General (Federal Employees Health Benefits Plan (FEHBP)), the Railroad Retirement Board Office of Inspector General (Railroad Retirement), Veterans Administration OIG, and the Department of Labor, Office of Inspector General, Office of Labor Racketeering, Pension & Welfare Benefits Administration. Critical support also is provided by agencies with more general law enforcement mandates such as the U.S. Postal Service Inspection Service, the Drug Enforcement Agency, the Internal Revenue Service (IRS), the FDA, and the Federal Trade Commission (FTC).

All these entities share a common commitment to ending fragmented health care fraud enforcement, eliminating duplication and jointly targeting the most egregious providers. To that end, the Department has initiated several forums to facilitate coordination of our health care fraud enforcement efforts.

Executive Level Health Care Fraud Policy Group

Since 1993, the Executive Level Health Care Fraud Policy Group has met monthly to coordinate issues relevant to health care fraud prevention, control, investigation and prosecution. The group's membership includes the HHS Inspector General, representatives from the Criminal Division, the Civil Division, the Attorney General's Advisory Committee (AGAC) Health Care Fraud Subcommittee, the FBI and the HCFA Senior Advisor on Program Integrity.

National Health Care Fraud Working Group

The National Health Care Fraud Working Group, chaired by Karen Morrissette, Deputy Chief, Fraud Section, Criminal Division, meets quarterly. Nearly 100 prosecutors, investigators and representatives of federal -- and now state -- agencies attend. This group provides an invaluable forum for exchange of information on health care fraud schemes and investigative and prosecutorial techniques, problems and innovative solutions.




The Department of Justice -- United States Attorneys' Offices and the litigating components of the Civil Division and the Criminal Division -- have aggressively confronted health care fraud. We have brought numerous criminal and civil charges resulting in criminal punishment, the recovery of millions of dollars, and the imposition of corporate integrity agreements to reduce future fraud. A sampling of the Department's enforcement accomplishments appears at the end of this report. Here we highlight a few notable cases and intensified enforcement initiatives.


Fortune 500 Company Commits Fraud Against FDA

In August 1995, three former senior executives of C.R. Bard, Inc. were convicted in Boston of conspiring to defraud the Food Drug Administration (FDA) in connection with the sale and distribution of heart catheters unapproved for human use. The corporation earlier had pleaded guilty to a 391 count criminal information charging numerous federal crimes and paid $61 million in criminal fines and a civil settlement. From 1987 through early 1990, Bard unlawfully sold and distributed heart catheters which FDA had not approved for human use. Much experimental testing in humans was -- without either patients' or doctors' knowledge -- for the purpose of "disaster checking" -- trying out as-yet unapproved catheters in humans to see if they would experience any unforeseen complications. The case was investigated by the FDA and prosecuted by the U.S. Attorney for the District of Massachusetts and FDA's Associate Chief Counsel for Medical Devices.

Corporate Conviction for Paying Kickbacks To Induce Patient Referrals

Caremark Inc., a nationwide provider of health care services, entered into a global criminal, civil and administrative settlement with the Department of Justice, the Department of Health and Human Services (HHS) and the states. Caremark pleaded guilty to charges that it defrauded federal health care programs by making improper payments to induce doctors to refer patients to Caremark. Caremark agreed to pay a total of $161 million in fines, restitution and damages and to implement a "corporate integrity plan" to ensure future compliance with health care laws and regulations. The Department also has brought criminal charges against employees and other individuals.

Physician Found Guilty For Performing Unnecessary Cataract Surgery

In June 1995, a LaJolla, California ophthalmologist, was sentenced to 11 years, three months imprisonment and fined $150,000 for fraud against government and private insurance plans. He also was ordered to make $15.9 million in restitution. He had been convicted on 132 counts of fraud and money laundering after a five-month trial by the U.S. Attorney for the Southern District of California. Between 1988 and May 1992, this opthalmologist received $15.5 million from Medicare, primarily for cataract and eyelid surgeries that were not medically necessary or for which false billings were submitted.




Clinical Laboratories: Concentrated Focus Yields Results

In 1993, the Department determined that many members of the independent clinical laboratory industry were billing Medicare for millions of unnecessary individual tests that were performed routinely and automatically together with an automated series of tests. The labs had misled physicians who purportedly "ordered" the tests to think that the tests would be performed for free. The prior year, National Health Laboratories, Inc. had reached a global resolution of criminal and civil charges paying over $110 million. The government launched a national project involving the Criminal Division, U.S. Attorneys, Civil Division attorneys, HHS OIG, HHS auditors and HCFA staff to examine many of the independent clinical laboratories. This effort was committed to (1) full criminal and civil investigations of the targeted laboratories; (2) centralized, focussed audit work with HCFA's cooperation; (3) coordination among Department of Justice, U.S. Attorneys' Offices, state Medicaid Fraud Control Units, investigative agencies, and federal benefits programs; and (4) flexibility in investigative approaches and venue issues. Law enforcement agencies such as FBI and DCIS joined the effort.

Highlights of Independent Laboratory Fraud matters resolved in FY 1995 and FY 1996 follow:

Bioran Laboratories of Cambridge, Massachusetts (now owned by Corning Inc.), paid the United States $6,675,000 to settle allegations that it routinely and automatically performed both an automated series of tests using a discrete analyzer machine, commonly known as a SMAC machine, as well as iron tests whenever a chemistry profile was ordered. Bioran was billing Medicare approximately $27 every time an automated series was ordered, instead of the appropriate $17.

Corning Clinical Laboratories Inc., formerly known as MetPath Inc., paid the Government $11 million to settle allegations that it charged various Government programs for both a Complete Blood Count ordered by the doctor, as well as additional indices not ordered by the doctors and not medically necessary. The affected agencies included Medicare, the Railroad Retirement Medicare program, CHAMPUS, FEHBP, and the California and Georgia Medicaid programs. The settlement resolves a qui tam suit.

Allied Clinical Laboratories paid a $4.9 million civil settlement to resolve allegations that it inserted false diagnosis codes into the Medicare billings for certain laboratory tests submitted by certain Allied billing offices, enabling it to bill for "limited coverage" blood tests even when the physician had not provided the requisite diagnosis indicating that the test was medically necessary and therefore reimbursable by Medicare. HHS OIG secured a corporate integrity agreement.

Medicare Contractor Cases: Fraud By Insurance Companies

The Civil Division and the U.S. Attorneys are handling a group of cases involving the Medicare carriers and fiscal intermediaries, i.e., the contractors which HCFA pays to review and process the claims for reimbursement submitted by physicians, hospitals and other health care providers. Generally, these cases concern misrepresentations in the context of HCFA's Contractor Performance Evaluation Program (CPEP). Several of these cases have been settled in the past three years, including:

Blue Cross Blue Shield of Michigan agreed to pay $27 million to settle allegations that it backdated and altered audit reports submitted to HCFA to obtain favorable CPEP ratings. HCFA terminated its contractual relationship with the company.

Blue Cross and Blue Shield of Florida agreed to pay $10 million to settle allegations that it paid claims without performing required audits and edits in order to report to HCFA reductions in the contractor's claims backlog.

Blue Cross and Blue Shield of Massachusetts agreed to pay $2.75 million, to settle allegations that it destroyed claims and manipulated samples of claims submitted for audit by HCFA to obtain favorable CPEP ratings. It also entered into a program compliance agreement with HHS OIG.

On May 1, 1996, Blue Shield of California, the Medicare Part B carrier for Northern California, was convicted of three felonies on guilty pleas to two counts under 18 U.S.C. 1516 (obstruction of a government audit) and one count under 18 U.S.C. 371 (conspiracy) arising out of allegations that the carrier falsified Medicare records, submitted rigged samples of Medicare claims to HCFA for auditing, and misrepresented performance under the carrier's contract with HCFA.

Teaching Hospitals

On December 12, 1995, the United States Attorney for the Eastern District of Pennsylvania signed an agreement with University of Pennsylvania Health System (UPHS) to settle civil claims alleging fraudulent billing of the Medicare program. UPHS paid the government $30 million and implemented a compliance program which requires a corporate reorganization, five years of outside audits, and mandatory education programs. The Government alleged that "attending physicians" billed Medicare Part B for services in fact rendered by Graduate Medical Education residents (whose salaries are already reimbursed through Medicare Part A) and also upcoded services to obtain higher levels of reimbursement.

The HHS OIG has instituted a nationwide audit program called PATH to address similar past mischarging by attending physicians and physician practice groups at other institutions. As a result of the first PATH audit, the United States Attorney's Office for the Eastern District of Pennsylvania secured a $12 million settlement with the Thomas Jefferson University in Philadelphia. Thomas Jefferson University also entered into a compliance agreement with HHS OIG.

Inpatient-Outpatient Hospital Fraud

HHS OIG worked with the Department to combat a widespread practice by many hospitals of double billing Medicare for outpatient services in connection with inpatient admissions. Many hospitals were billing Medicare separately for non-physician outpatient services required in connection with inpatient admissions although Medicare was already paying for those services under the Diagnosis Related Group for inpatient services. Between 1987 and 1992, HHS OIG Office of Audit, Region III, conducted an audit and brought the data to the attention of the United States Attorney for the Middle District of Pennsylvania. This launched a project by HHS OIG and U.S. Attorneys, led by the Middle District of Pennsylvania, to target hospitals nationwide which committed this fraudulent billing practices. Each hospital action results in collection of fraudulent payments, interest and damages and (2) a compliance agreement and training requirements for hospital billing personnel. As of December 1996, approximately $33 million has been recovered.



Increased FBI Health Care Fraud Investigations

Number of Cases

FY 96

FY 95

FY 94

FY 93

FY 92

FY 91


Increased Criminal Health Care Fraud Prosecutions

Criminal Matters

# of Matters
# of Defendants

FY 96

FY 95

FY 94

FY 93

FY 92

Criminal Prosecutions Filed

# of Cases
# of Defendants

FY 96
FY 95

FY 94

FY 93

FY 92


# of cases
# of defendants

FY 96
FY 95

FY 94

FY 93

FY 92



Increased Civil Prosecutions

The False Claims Act (FCA or Act), 31 U.S.C. 3729 et seq., establishes civil penalties for a variety of forms of fraud against the United States and authorizes the Attorney General to file civil actions to enforce the Act. Many health care fraud cases are brought under this Act.

The FCA prohibits any person from "knowingly" presenting "a false or fraudulent claim or payment or approval" to the federal government. 31 U.SC. 3729(a)(1). The Act also prohibits a variety of related deceptive practices involving government funds and property. Any person who violates the FCA "is liable to the United States government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains," for each violation of the Act. 31 U.S.C. 3729(a).


Civil Health Care Fraud Matters Pending

# of Matters

FY 96

FY 95
FY 94

FY 93

FY 92

Civil Health Care Fraud Cases Filed

# of Cases

FY 96

FY 95

FY 94

FY 93

FY 92

In fiscal year 1996 the Civil Division received more than three times as many health care fraud cases as in fiscal year 1993.


# of Civil Judgments

FY 96

FY 95

FY 94

FY 93

FY 92

Monetary Recoveries

The Civil Division has documented significant financial recoveries in health care fraud cases in FY 1995 and FY 1996:

Health Care Non-Qui Tam = $138,553,002
Health Care Qui Tam = $135,516,897
Total Health Care Fraud = $274,069,899

In fiscal years 1995 and 1996, health care fraud recoveries constituted approximately 33 percent of the $831,860,818 in total fraud recoveries secured by the Civil Division, working in conjunction with the United States Attorneys Offices across the country. This number does not include recoveries in cases handled exclusively by U.S. Attorneys or monetary recoveries in criminal cases.

According to the FBI, monetary recoveries, including restitution, fines and civil settlements in FBI cases totaled $139.5 million in FY 1993, 767.7 million in FY 1994, $177.3 million in FY 1995, and $223.5 million in FY 1996. This is only part of the monetary recoveries; it does not include forfeitures or monetary recoveries in criminal or civil cases investigated by agencies other than FBI.

Dramatic Increase in Health Care Fraud Qui Tam Suits

Under certain circumstances, the False Claims Act authorizes private parties (known as relators) to file civil actions to enforce the Act. These suits are known as qui tam actions, 31 U.S.C. 3730(b)(1), while some informally refer to them as whistleblower cases.

Increasingly, qui tam cases are a major factor in health care fraud enforcement work. Indeed, the number of qui tam suits filed involving allegations of health care fraud increased dramatically so that in fiscal year 1996 they constitute over one half of the total qui tam caseload:

Total cases filed 119
Cases filed involving 14
health care fraud allegations

Total Cases Filed 361
Cases filed involving 200
health care fraud allegations

Since the 1986 amendments, the United States has recovered about $1.3 billion in qui tam cases. Approximately one-quarter of this was recovered in health care fraud qui tam cases.

The influence of qui tam cases in health care area cannot be overstated. Qui tam cases are filed against every type of health care fraud provider: hospitals, physicians, durable medical equipment suppliers, clinics, ambulance companies, clinical laboratories, universities, billing services, therapists, home health care providers, nursing homes, fiscal intermediaries. Qui tam cases are filed by every actor in health care industry: employees, doctors, nurses, competitors, researchers, and subcontractors. Qui tam relators can bring meritorious as well as frivolous cases. The government may decline to intervene or may intervene and also develop significant criminal charges.

Recent health care fraud qui tam cases have included wide-ranging allegations:

VA Drug Procurement Fraud. The Chicago U.S. Attorney's Office and the Civil Division secured a $7.5 million settlement with Modern Wholesale Drug Midwest, Inc. (Rugby), a generic drug distribution company, to settle allegations that Rugby overcharged the VA for generic drugs by failing to inform the Government about discounts given to other customers.

PPO Fraud. A corporate official was convicted and sentenced to 24 years imprisonment and he and his corporation, Integrated Network Systems, Inc., Washington state's largest preferred provider organization (PPO), agreed to pay approximately $2.5 million to settle a qui tam action. after admitting to skimming $1.4 million from health insurance companies. They negotiated discounts with medical center hospitals and agreed to pass on the discounted prices to various rural medical service bureaus which agreed to pay the discounted prices to defendants, who, in turn, were to pay those sums to the hospitals. Defendants cheated by quoting and collecting boosted prices from medical service bureaus and paying the lesser discounted sums to the hospitals. One of the victim medical service bureaus administered FEHBP claims under contract with the U.S. Office of Personnel Management.

Medical Equipment Fraud. The U.S. Attorney's Office in the Western District of Wisconsin, and the Civil Division obtained a $2.1 million settlement against Curative Technologies, d/b/a Ultramed to settle allegations that it billed Medicare for expensive lymphedema pumps that it had not provided.

A former vice president of ATS, a Mediq, Inc. subsidiary, filed a qui tam action in the Middle District of Pennsylvania against Mediq, alleging that the subsidiary billed for portable EKGs and X-rays performed in one carrier's jurisdiction to the carrier in another jurisdiction where the reimbursement rate was higher. Ultimately, Mediq and ATS entered into a global settlement in which ATS and its president pleaded guilty to misprision of felony, and ATS agreed to pay a total of $2.1 million.

Fraud by Physicians: The U.S. Attorney for the Eastern District of New York settled a qui tam against a Brooklyn doctor, alleging that she collected $550,000 from the Social Security Administration for performing complete physical examinations on 10,000 people seeking Social Security disability benefits from 1990-94, when only cursory reviews had been performed, if at all. She then submitted false medical reports to make it appear as though an examination had taken place. The qui tam action was filed by five persons who were denied benefits based on the doctor's reports. Since filing the action, the relators have obtained benefits and, in addition, have received $113,700 as their share in the proceeds of the action.




The number of Department of Justice prosecutors working criminal and civil health care fraud matters continues to grow, although few prosecutors are dedicated exclusively to health care fraud cases. In U.S. Attorneys' Offices, in Fiscal Year 1996, the equivalent of 81 prosecutorial work years were devoted to health care fraud, up from 35 in Fiscal Year 1993, and 54 in Fiscal Year 1994. Civil resources similarly increased to 39 work years up from 22 work years in Fiscal Year 1993 and 27 in Fiscal Year 1994. These resources are supported by personnel in the Department's litigating components, the Criminal and Civil Divisions. Indeed, in Fiscal Year 1996, more than sixty percent of the Civil Division's Commercial Litigation Branch, the attorneys who do civil fraud cases, worked on health care fraud cases. The FBI has allocated significantly more resources to health care fraud since Fiscal Year 1992.


Federal Bureau of Investigations
Resources Devoted to Investigating Health Care Fraud

Agent Work Years








No matter how many investigatory and prosecutorial resources the Department targets to health care fraud, the complexity and number of health care fraud schemes demand that we use our resources efficiently and innovatively. To that end, the Department has explored various pilot health care fraud projects to enhance the effective use of its resources.

The Department allocated an additional $1.6 million from its Assets Forfeiture Fund for pilot programs in U.S. Attorneys' offices to sustain the Department's efforts against health care fraud. Approximately 25 pilot projects were funded in districts across the country: from San Diego to Boston; from Washington State to Washington D.C.; from Colorado to Tennessee. Each was designed by the United States Attorney's Office to foster creative approaches to health care fraud. Priorities were given to fraud in projects which focussed on government health care programs, fraud affecting patient harm and/or fraud involving nursing homes or home health care. In addition, pilot projects were sought which provided outreach to the public and which explored novel uses and approaches to electronic fraud detection. Some examples of pilot health care fraud projects follow:

Health Care Fraud Task Forces. Projects have facilitated bringing together federal and state investigators and prosecutors to focus on health care fraud.

Electronic Code Fraud Project. Project brings together experienced health care fraud prosecutors and computer crime and other technology experts to develop resources to assist in electronic health care fraud investigation, detection and civil or criminal prosecution using adapted medical utilization screening software. Development of guidance on identifying suitable cases and fraudulent schemes for electronic fraud assistance, available software and applicable procedures.

Public Education and Outreach. Numerous U.S. Attorneys have sponsored conferences and educational seminars on health care fraud in numerous locations including Maryland, Tennessee, and state of Washington. These conferences have brought together federal, state and local law enforcement, health plan administrators, health care providers and consumers to discuss emerging health care fraud schemes as well as health care fraud prevention, detection, investigation and prosecution.



The Department also launched a health care fraud pilot project for state Attorneys General. In Fiscal Year 1995, the Office of Justice Program's Bureau of Justice Assistance (BJA) initiated a project to reinforce the capability of State Attorneys General and local prosecutors to investigate and prosecute health care fraud, including consumer fraud and fraud against insurance companies and health maintenance organizations. The project was designed to foster health care fraud work other than that already performed by state Medicaid Fraud Control Units. BJA provided the National Association of Attorneys General Offices with $250,000 to provide technical assistance to health care fraud units in state Attorneys General. In addition, three Attorneys General -- Maryland, Wisconsin and Minnesota -- received demonstration funding of $200,000 each in Fiscal Year 1995 for eighteen months.


We have been engaged in various efforts to coordinate our civil and criminal enforcement with the various administrative remedies available to the Department of Health and Human Services. For example, in late 1994, the Department approved a Memorandum of Understanding (MOU) to permit HCFA to initiate civil monetary penalty administrative proceedings against nursing homes for violations of health and safety regulations. The MOU, negotiated with the Civil and Criminal Divisions and approved by AGAC, permits the agency to initiate administrative proceedings against nursing homes found in violation of the regulations after consultation and coordination with the appropriate U.S. Attorney. The MOU accommodates HCFA's interest in obtaining speedy compliance and the interest of law enforcement in ensuring that a case that may be appropriate for criminal or civil prosecution is not compromised by precipitous administrative action.



Recognizing that law enforcement alone cannot eliminate the health care fraud problem, the Department of Justice (both federal prosecutors and investigators) works closely with public and private health insurance plans to enhance fraud prevention, detection, and control.

At the national level, the FBI maintains liaison with various private insurance companies and organizations who have committed resources to fight health care fraud. Specifically, the FBI has worked with the National Health Care Anti Fraud Association (NHCAA) and the National Insurance Crime Bureau (NICB). Each field office develops and maintains contacts in the private insurance industry in that particular region. Furthermore, the FBI sponsors an annual conference for various insurance executives together with FBI management to discuss health care fraud issues.

Numerous U.S. Attorneys' offices, including Connecticut, Los Angeles, Atlanta and Milwaukee, have sponsored regional meetings or conferences aimed at encouraging more referrals from private insurers.

We also worked with insurers to improve electronic fraud data analysis.

HCFA's Bureau of Data Management and Strategy has designed a relational database (TORTIS) that identifies fraud indicators in claims of two industries: 1) home health care; and 2) skilled nursing facilities. This database will be an invaluable tool for targeting future investigative activity, and for evidentiary purposes in ongoing health care fraud investigations.

The Department has supported the development of several private and public databases of fraud allegations, including HCFA's Fraud Investigation Database (FID), a comprehensive nationwide system devoted to Medicare fraud and abuse data accumulation, NHCAA's Provider Indexing Network System (PINS), and NICB's on-line database.



Health Care Fraud Legislation

In August of 1996, the President signed the "Health Insurance Portability and Accountability Act of 1996" (HIPAA) which contains many provisions to strengthen health care fraud and abuse control. Building on the existing enforcement efforts of the Department of Justice and the Department of Health and Human Services (HHS), HIPAA requires the Attorney General and the HHS Secretary to establish a "Fraud and Abuse Control Program" to promote the coordination of federal, state and local law enforcement; investigations, evaluations, inspections and audits; specific guidance to providers; and data sharing. HIPAA's provisions recognizes the leadership in health care fraud enforcement already forged through the relationship between the Department of Justice -- its criminal and civil prosecutors and the FBI -- and the HHS OIG auditors, evaluators, and investigators.

HIPAA provides additional criminal, civil and administrative tools to combat health care fraud. New or revised provisions include:

Creates 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;

Adds a Federal health care offense to the money laundering statute;
Extends injunctive relief relating to health care offenses (includes freezing of assets);
Authorizes investigative demand procedures;
Establishes forfeitures for Federal health care offenses;
Expands anti-kickback statute to cover all Federal health care programs, not just Medicare and State health care programs; and
Strengthens exclusions for health care convictions.

HIPAA secures resources to investigate and prosecute health care fraud matters. In particular, HIPAA provides up to $104 million in fiscal year 1997 for health care enforcement activities as determined by the Departments of Justice and Health and Human Services. This amount increases by fifteen percent each year through 2003 and would be capped at the amount for 2003 thereafter. In addition, $47 million is appropriated in fiscal year 1997 for enforcement activities of the Federal Bureau of Investigation, increasing gradually to $114 million in 2003 and each fiscal year thereafter. Other provisions require the Department of Health and Human Services to issue written advisory opinions with respect to whether certain arrangements violate the criminal anti-kickback statute and to establish a health care fraud and abuse data collection program.

Managed Care And Fraud Working Group

To further ensure that the government's health care fraud enforcement program is prepared to address health care fraud in the future, the Department of Justice is confronting the growth of managed care and the attendant fraud and abuse. The number of Americans who receive their health care through various forms of managed care increases daily. We recognize that perpetrators often will reshape their schemes to fit any form of reimbursement -- fee-for-service, managed care, or managed competition. The Department of Justice established a Managed Care and Fraud Working Group. This Group has examined the operation of managed care plans (public and private), program vulnerabilities, fraudulent schemes unique to managed care, and issues of prevention and prosecution.

The Working Group's members represent a cross-section of the Department of Justice community -- criminal, civil, tax and antitrust lawyers, and the FBI -- and federal investigative agencies (such as HHS OIG, DCIS, and IRS), and administrators from federal agencies overseeing public health plans such as HCFA's Office of Managed Care, CHAMPUS, and FEHBP and Labor Department. Representatives of state Medicaid Fraud Control Units (MFCUs) have been active participants from the inception. The Working Group has met with representatives of managed care plans, regulators, providers, and consumers.

In May of 1995, the Criminal Division and the Managed Care and Fraud Working Group co-sponsored a one-day managed care and fraud conference for federal health care administrators, investigators and prosecutors.

Created: 10/27/97 Updated: 10/27/97

Updated February 26, 2018