Is it Medicare fraud when a healthcare provider fails to report Medicare billing errors?

In many hospitals and other healthcare institutions, there is a tendency to think that nothing needs to be done when billing mistakes are made in the institution’s favor. But that decision is a risky one if it involves Medicare or any other federal health insurance funds.

Failure to report Medicare billing errors to the federal government is a type of Medicare fraud that can get healthcare providers – and their employees – into trouble in two ways: They could be prosecuted for criminal violations, which could result in prison time as well as fines, and they could be sued for treble damages and penalties by whistleblowers and the government.

Criminal liability under the “duty to disclose” provision

The Social Security Act contains a “duty to disclose” provision [42 USC sec. 1320-7b(a)3] that makes concealing from the government or failing to report Medicare overpayments a felony.

Under the “duty to disclose” provision, healthcare providers and others who conceal or fail to disclose that they have received larger payments than they are entitled to are guilty of a felony and could be imprisoned for up to five years and fined up to $25,000. Their employees, including auditors, who conceal these overpayments may be guilty of a misdemeanor and subject to fines.

One area in which this statute might be particularly important to healthcare providers is cost reporting. For example, hospitals might inaccurately estimate the proportion of their indirect administrative and general costs attributable to outpatient care rather than inpatient care. Intermediaries may not catch mistakes like that for a couple of years, if they ever do, since final settlements or audits usually don’t occur until two years after the cost reports are submitted. By then, the incorrect claims are likely to have been repeated in later cost reports because hospitals generally use cost reports from previous years to calculate succeeding cost reports. In these cases, it’s the hospital’s responsibility to report errors in other cost reports.

Reporting and returning overpayments

The Affordable Care Act, enacted in 2010, included a provision that requires a person who receives a payment from Medicare or Medicaid to “report and return” the overpayment to the Government within 60 days of identifying it or, if applicable, within 60 days that the corresponding cost report is due, whichever is later. [42 U.S.C. 1320a-7k(d)(1)]. An overpayment is considered “identified” when the person has or should have through the exercise of reasonable diligence, determined that an overpayment was received. Retaining an overpayment after it should have been reported can be a violation of the False Claims Act.

Blowing the whistle on Medicare fraud

Healthcare providers that submit fraudulent Medicare claims to the government also run the risk of someone blowing the whistle on the practice. That person could be a doctor, a clerk, a patient or even a competitor. The whistleblower simply needs to know about specific acts of fraud to file a lawsuit seeking damages on behalf of the government.

The False Claims Act allows private citizens as well as the government to sue individuals, companies or institutions that are defrauding the government and recover three times the government’s losses plus a penalty for each violation. The statute provides a penalty range of $5,000 to $10,000, which has been adjusted for inflation. For violations occurring after November 2015, a penalty can range anywhere from around $11,000 to just over $22,000, depending on when the penalties are awarded. Fraudulent practices by a provider often will involve thousands, and sometimes millions, of individual patient claims, which makes the amount of civil penalties in healthcare fraud cases potentially staggering.

An increasing number of whistleblowers are filing lawsuits against healthcare providers. To encourage people to report Medicare fraud, the law stipulates that whistleblowers will receive 15 percent to 25 percent of whatever money the government recovers as a result of their lawsuits, if the government joins the case and up to 30 percent if it doesn’t. The False Claims Act also provides a whistleblower who has been fired or otherwise retaliated against for trying to stop a violation, the right to pursue remedies for harm he or she suffers as a result of the retaliation.

Insiders are the best source of information on Medicare fraud

Whistleblowers may file lawsuits even if they participated in the fraud. Congress figured insiders would be the best source of information about fraud, and employees are usually forced to participate in fraudulent schemes to keep their jobs. However, judges may reduce the whistleblowers’ rewards if they find that they planned or initiated the fraud.

Lawsuits initiated by whistleblowers are called qui tam cases (“qui tam” is short for a longer Latin phrase meaning “he who brings the action for the King as well as for himself.”) The lawsuits are filed under seal and are not available to the public while the government investigates to decide whether it wants to join the lawsuit, which can take a long time, and often years.

Even the defendant is not notified of the lawsuit until after the seal is lifted. As part of its investigation, the government may ask the court for a partial lifting of the seal to inform the defendant of the charges and potentially negotiate a settlement. In those instances, the seal is sometimes lifted at the same time a settlement is reached.

If the government joins a qui tam case, the Justice Department has primary responsibility for its prosecution, although the whistleblower retains a role. The whistleblower and the whistleblower’s attorney work with the government on its investigation, providing any documents, names of witnesses or other information that might help the case. And if the government proposes a settlement that the whistleblower disagrees with, the whistleblower has the right to a hearing.

If the government decides not to intervene in a lawsuit, then the whistleblower has the right to continue on his or her own.

Government attorneys and whistleblowers’ attorneys only have to prove that improper claims were submitted “with reckless disregard of the truth.” Whether the Medicare fraud was intentional is irrelevant, unlike in criminal cases where that must be proved.

Liabilities under the False Claims Act

Liability under the False Claims Act includes:

  • Presentation of a false claim for payment. Most healthcare fraud involves submission of improper claims for Medicare and Medicaid reimbursement.
  • Use of a false statement to get a claim paid, such as using a false diagnosis code.
  • Reverse false claims. For example, if a provider makes false statements during the course of a government audit that would reduce the amount of money the provider owes the government, then the provider would be liable for fraudulently reducing the amount it owes the government. A failure to return an overpayment also can be a reverse false claim.

Examples of Medicare Fraud Activities

There have been lawsuits and investigations for practices such as:

  • Billing for services not provided.
  • Upcoding and unbundling.
  • Billing for services that aren’t medically necessary.
  • Substandard services.
  • Improper cost reporting.
  • Kickbacks and self-referrals. The Anti-Kickback Statute provides that a claim for goods or services resulting from a violation of that statute are false or fraudulent claims under the False Claims Act. [42 U.S.C. §1320a-7b(g)].

Congress passed the False Claims Act in 1863 because military suppliers were selling the Union army defective munitions, but the law is not limited to that type of fraud. When Congress amended the statute in 1986, it hoped that the law would be used to uncover fraud in all areas where the government provides funding, either directly or indirectly.

The modern-day False Claims Act stipulates harsher penalties for wrongdoers and greater rewards for whistleblowers. As more people have learned about the rewards the law offers, the number of whistleblower lawsuits filed annually has jumped from 33 in 1987 to 675 in 2017. More than half of the qui tam cases that have been filed are against healthcare providers.

Real Cases of Medicare Fraud Whistleblowing

There are hundreds of instances where whistleblowers using the False Claims Act and its whistleblower provisions have stopped harmful practices in the healthcare industry and recovered funds for taxpayers. For example:

  • Pharmaceutical giant GlaxoSmithKline paid $3 billion to settle charges that it engaged in a nation-wide scheme to push sales of three popular prescription drugs for off-label uses, paid kickbacks, and misrepresented the safety and efficacy of the drugs’ off-label usage. This is a largest settlement ever reached with a pharmaceutical company.
  • Quest Diagnostics Inc. paid $302 million to settle charges that the medical lab company manufactured and distributed defective blood testing kits, putting the health of hundreds of thousands of dialysis patients at risk.
  • eClinicalWorks reached a $155 million settlement for allegedly developing an electronic health record system riddled with numerous software problems that put patients at risk.

Voluntary disclosure of Medicare fraud

A voluntary disclosure of any fraudulent claims or overpayments will not release a provider from returning any wrongful payments. But prosecutors are more likely to agree to not press criminal charges, and the False Claims Act provides for reduced damages in the case of voluntary disclosures.

The law provides that damages are limited to two times the government’s losses for voluntary disclosures if three conditions are met:

  1. The provider must report its errors within 30 days of discovering them.
  2. It must cooperate with the ensuing government investigation.
  3. The disclosure must be made before any criminal investigation, civil lawsuit or administration action relating to the violations has begun.

For example, Charles Cole Memorial Hospital, a critical access hospital in rural Pennsylvania, self-reported Medicare billing irregularities in 2018, agreeing to pay the federal government $373,547 for the violations. Cole Memorial reported that between 2007 and 2013, certain services provided by nurse practitioners and physician assistants were not billed with an appropriate modifier, thus billing Medicare for higher costs.

The US Department of Health and Human Services Office of Inspector General offers physicians and healthcare providers several procedures for submitting self-disclosures about improperly billing Medicare and other federal health insurance programs as well as fraud stemming from Stark Law and Anti-Kickback Statute violations.

However, despite the False Claims Act’s inducement of reduced damages, some providers may decide to keep quiet about any errors in Medicare payments. But given the federal government’s commitment to fighting healthcare fraud and the financial incentives under the False Claims Act for blowing the whistle on fraud, those providers are taking a huge gamble.

This article is an updated version of an article by Phillips & Cohen partners John R. Phillips & Mary Louise Cohen that was printed in New Perspectives, Journal of the Association of Healthcare Internal Auditors.

Let us help you.
Get a free, confidential case review