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Health Care Fraud And Abuse Outline

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Health Care Fraud & Abuse
I. Introduction
A. Fraud & Abuse: Defined

1. "Fraud"
a. Definition - "theft by deception" - making false statements or representations of material facts to obtain some benefit or payment for which no entitlement would otherwise exist b. Examples - knowingly billing for services that were not furnished and/or supplies not provided; knowingly altering claims forms and/or receipts to receive a higher payment amount

2. "Abuse"
a. Definition - "gaming the system" - practices that, directly or indirectly,
result in unnecessary costs to Medicare/Medicaid b. Examples - misusing codes on a claim; charging excessively for services or supplies; billing for services that were not medically necessary
B. Recent examples from DOJ

1. Schemes, providers, pharma, nursing homes, health systems a. e.g., Teva Pharmaceuticals & inflating Rx prices i.
Cause submission of false claims to Medicaid; state Medicaid programmes establish reimbursement rates for Rx based on AWPs reported by Rx manufacturers; inflated AWPs causes government to set reimbursement rates for above actual prices paid to them by their customers such as retail pharmacies; retailer would then allegedly
"market the spread" in an effort to induce higher sales ii.
"Market the spread" - when a pharma company gives doctors a certain Rx price (AWP) they have an obligation to self-report AWP
so Medicare/Medicaid knows what to reimburse - allegations that doctors are encouraged to prescribe Rx to pocket reimbursement

1 Health Care Fraud & Abuse
II. "The Big 3"
A. Anti-Kickback Statute (AKS), 42 USC § 1320a-7b(b)(1), (2) - criminal liability
[Prohibits financial incentives that encourage excessive or unnecessary use of government-paid health care]
3 required AKS elements:
(knowingly, willfully)
payment of remuneration
(offers, pays, solicits, receives)
to induce/refer
violation of AKS if not within statutory exception or safe harbors
Questions to Ask
- Is the person or entity in a position to generate business?
- Is the product or service reimbursed by federal health care programmes?
- Is one purpose of this arrangement to generate additional business?
- Maintain affirmative and meaningful patient choice (including description of alternative treatments)
- Disclosure of relationships or arrangement
- No referral or requirement for referral clauses
- Ex ante determination of fee schedule governed by FMV
- Ongoing monitoring, record retention, timesheets

1. Statute a. Definition - An individual or entity that "knowingly and willfully solicits,
receives, offers or pays any remuneration (including any kickback, bribe or rebate)" in "return for" or "to induce" referrals or services (business)
reimbursable by the federal government i.
PPACA - Reduces the burden of proof - adds "[w]ith respect to violations of this section, a person need not have actually knowledge of this section or specific intent to commit a violation of this section"

ii. FCA liability - PPACA amendments codify the false certification theory and provide that an AKS violation constitutes a FCA claim b. Statutory Exceptions, 42 USC § 1320a-7b(b)(3) - discounts, bona fide employment relationships - different from safe harbors c. Safe Harbors, 42 CFR § 1001.952 - Certain arrangements or practices not subject to prosecution under AKS; however, strict requirements may be difficult to satisfy in many instances. (* = both exception & safe harbor)
(a) investment interests
(b) space rental
(c) equipment rental
(d) personal services and management contracts
(e) sale of practice

2 Health Care Fraud & Abuse
(f) referral services
(g) warranties
(h) discounts*
Failure to comply with a safe harbor
(i) employees*
or exception can mean one of three
(j) group purchasing organizations*
(k) waiver of beneficiary coinsurance and deductible amounts*
(l) increased coverage, reduced cost-sharing amounts, or reduced
(1) arrangement does not fall within premium amounts offered by health plans ambit of the statute;
(m) price reductions offered to health plans
(n) practitioner recruitment
(2) arrangement is obviously abusive,
(o) obstetrical malpractice insurance subsidies constitutes a clear statutory violation,
(p) investments in group practices and is very likely to be prosecuted; or
(r) ambulatory surgical centers
(s) referral arrangements for specialty services
(3) arrangement involves risk because
(t) price reductions offered to eligible managed care organizations it "may violate the statute in a less
(u) price reductions offered by contractors with substantial financial serious manner…" and a facts and risk to managed care organizations circumstances analysis is warranted
(v) ambulance replenishing
("totality of the fact-and(w) health centers circumstances test").
(x) electronic prescribing items and services
(y) electronic health record items and services d. Penalty - Fines up to $25K, imprisonment up to 5 years, or both; , and mandatory exclusion i.
Violation of AKS means potential imposition of CMPs or exclusion

2. Cases a. Element 1: Intent
Clarity and Codification
Person need not have actual knowledge of this section or specific intent to commit a violation of this section (individual does not have to know of the statute, nor intend to violate it, but must know conduct is unlawful).
(1) D must know
"Willful" only
Heightened mens
Willfully means
Act was requires a purpose rea only means the act was committed that the Antithat D knew committed voluntarily and
Kickback Act to commit a wrongful act, no conduct was voluntarily and purposely with the prohibits offering specific intent to wrongful, no purposely, with specific intent to or paying proof needed that the specific intent do something the remuneration to violate the law required he knew his to do something law forbids; with induce referrals,
conduct violated a the law forbids,
bad purpose or to and (2) D must known legal duty that is with a bad disobey or engage in purpose, either to disregard the law prohibited conduct disobey or with the specific disregard the law intent to disobey the law

3 Health Care Fraud & Abuse i.
The Battle Over Scienter:
1995: the split
1996-2000: middle ground
2010: a resolution

ii. iii.

iv. HANLESTER v. SHALALA (9th Cir. 1995)
1) Holding: "The legislative history demonstrates that
Congress, by use of the phrase 'knowingly and willfully'
to describe the type of conduct prohibited under the antikickback laws, intended to shield from prosecution only those whose conduct was 'while improper, was inadvertent.'"

1. Knowingly and willfully requires a. (1) Defendants must know that the AKS
prohibits offering or paying remuneration to induce referrals, and b. (2) Defendants must engage in prohibited conduct with the specific intent to disobey the law

2. Proof of a business agreement to refer programme business is not required
1) Holding: "Trend in interpretation of the AKS [is] toward liberal construction of the language."

1. Specifically declines to follow HANLESTER

2. "Willful" requires only a purpose to commit a wrongful act, no specific intent to violate the law required
UNITED STATES v. JAIN (8th Cir. 1996): heightened mens rea burden for government - defendant knew conduct was wrongful,
but no proof needed that he knew conduct violated a known legal duty 1) Facts: Psychologist Jain and Center for Mental Health
Services appeals convictions for violating AKS by receiving payments from psychiatric hospital for referring patients to North Hills Hospital.

1. Jain allegedly paid $1000/month for referrals

2. Called it a marketing agreement, but no proof

3. Conversations revolved around volume of patient referrals

4. Alleged that he threatened to refer patients elsewhere if fees not increased

5. Payments began in mid-1989, increased throughout 1990 2) Issue: Definition of willfulness 3) Holding: Government must meet a heightened mens rea burden because there are safe harbors under AKS - which shows that this statute includes conduct that is not inevitably nefarious.

1. Heightened mens rea should only mean that Jain knew conduct was wrongful, no proof needed that he knew his conduct violated a known legal duty.
UNITED STATES v. DAVIS (5th Cir. 1998)
1) Facts: Davis convicted under AKS.
2) Holding: Scienter requirement defined

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v. vi.

1. "Knowingly" means the act was done voluntarily and intentionally, not because of mistake or accident

2. "Willfully" means act was committed voluntarily and purposely with the specific intent to do something the law forbids; with bad purpose or to disobey or disregard the law
UNITED STATES v. STARKS (11th Cir. 1998)
1) Facts: Future Steps contracted with FL CHS to run chemical dependency unit for pregnant women at General
Hospital. Starks worked for FL HRS and Project Support.
Future Steps agreed to pay Starks for each patient referred.
Payments initially made by check, later by cash. Women threatened they would lose babies if they didn't go to
Future Steps.
2) Issue: Whether defendants had to know their arrangement violated AKS.
3) Holding: The defendants knew they were acting unlawfully, that is enough.

1. "[T]he giving or taking of kickbacks for medical referrals is hardly the sort of activity a person might expect to be legal." Kickbacks are "more clearly"
malum in se (wrong or evil in itself) than highly technical tax regulations.
PPACA Sec. 6402(f)
1) (f) Health Care Fraud -

1. (1) Kickbacks - Section 1128B of the Social
Security Act (42 USC § 1320a-7b) is amended by adding at the end of the following new section:
a. "(g) In addition to the penalties provided for in this section or section 1128A, a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of subchapter
III of chapter 37 of title 31, United States

2. (2) Revising the Intent Requirement - Section 1128B of the Social Security Act (42 USC § 1320a7b), as amended by paragraph (1), is amended by adding at the end of the following new subsection:
a. "(h) With respect to violations of this section, a person need not have actual knowledge of this section or specific intent to commit a violation of this section."

b. Element 3: The Improper Purpose of Inducement/Referral i.
UNITED STATES v. GREBER (3rd Cir. 1985): one purpose test 1) Facts: Greber was an osteopathic physician who held hospital staff and teaching positions. He also was
President of Cardio-Med which provided physicians with diagnostic services, including Holter-monitor. Cardio-

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ii. Lab work is rampant with allegations of fraud and requires contracts to carry out work.

iii. Med billed Medicare for monitor service and forwarded portion to referring physician.

1. Government: referral fee was 40% of Medicare payment, called "interpretation fees," even though physicians had not interpreted the data

2. Greber: "[I]f the doctor didn't get his consulting fee,
he wouldn't be using our service. So the doctor got his consulting fee."
2) Issue: Whether the government must show that Greber's only purpose behind fee was to induce services 3) Holding: One purpose test

1. "If one purpose of the payment was to induce future referrals, the Medicare statute has been violated"
UNITED STATES v. KATS (9th Cir. 1989): one purpose test 1) Facts: Manigbas owned Tech Diagnostic Medical Lab and agreed to kickback 50% of Medicare payments received by
Tech-Lab as result of referrals from Total Health Care
(THC). Smushkevich and Manigbas setup the same scheme for Tech-Lab and Community Clinic (owned by
Smushkevich and Kats). Kats was convicted of conspiracy to commit Medicare fraud and for receipt of kickbacks in exchange for referral of Medicare payments.

1. THC forward blood and urine samples from medical offices to Tech-Lab.

2. Tech-Lab billed THC.

3. THC billed private insurance or government-funded insurance programme.

4. Tech-Lab, when reimbursed, paid 50% back to THC.
2) Issue: Jury instruction that "it is not a defense that there might have been other reasons for the solicitation of a remuneration by the defendants, if you find beyond reasonable doubt that one of the material purposes for the solicitation was to obtain money for the referral of services."
3) Holding: Upheld jury instructions regarding kickbacks.
UNITED STATES v. MCCLATCHEY (10th Cir. 2000): one purpose test + collateral hope/motivating factor distinction 1) Facts: Baptist entered into contract with LaHues to pay
$75,000 per year to act as Co-Directors of Gerontology
Services at Baptist.

1. LaHues provided little-to-no service

2. Extended contract, then continued relationship even after contract expired

3. Additional contracts drafted in 1991 & 1993

4. Contract terminated in 1993 due to possible sales

5. Sale did not occur, new contract negotiated 2) Issue: Jury returned a guilty verdict but the District Court granted McClatchey's motion for judgment of acquittal,
concluding that no reasonable jury could find he

6 Health Care Fraud & Abuse deliberately intended to induce the LaHues' to refer their patients to Baptist (thereby violating the AKS).
3) Holding: Overturned.

1. Three facts demonstrated intent.
a. McClatchey knew the LaHues had not performed substantial services b. McClatchey knew Baptist staff member did not want LaHues to perform the services c. McClatchey knew how important the referrals were to Baptist

2. One purpose test + collateral hope/motivating factor distinction a. "[A] hospital or individual may lawfully enter into a business relationship with a doctor and even hope for or expect referrals form that doctor, so long as the hospital is motivated to enter into the relationship for legal reasons entirely distinct from its collateral hope for referrals."
4) Note: collateral hope/motivating factor distinction seen in other courts

1. UNITED STATES v. ROGAN (N.D. Ill. 2006):
"[A] hope, expectation or belief that referrals may ensue from remuneration for legitimate services is not a violation of the AKS."
OIG, 56 Fed. Reg. 35,592, 35,955 (1991)
"It is unfortunately not possible to provide safe harbor protections for all business arrangements that are not abusive. There are certain arrangements that, although themselves legitimate, are structurally so similar to abusive arrangements that protection by way of new safe harbor provisions will inevitably also protect abusive practices as well…. Thus, we need to examine the intent of the parties on a caseby-case basis even though a large majority of such payments may represent only legitimate compensation…. The recent case, [U.S. v. Bay State], … emphasizes that the gravamen of the violation of the statute is "inducement" and not necessarily the structure of the arrangement. Thus, such case by case inquiries must necessarily focus on the intent of the parties."

primary purpose test 1) Facts: Contract for ambulance services awarded to Bay
State Ambulance by the City of Quincy in 1981. Felci, a city employee, was responsible for overseeing contract with Bay State. Felci then became a consultant for Bay
State. He was not to have any decision-making power with respect to subsequent contracts on which Bay State might bid. However, when the contract bid came up again,
Felci voted to award new contract to Bay State.
2) Issue: Whether reasonable payments for actual work is a crime under the AKS.


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