What is False Claims Act Health Care and Pharmaceutical Fraud?

Is health care fraud in violation of the False Claims Act frequent?

Health care fraud is perhaps the most frequently-occurring type of fraud against the Government.

Why is this?
The reason is simple. While there are only a handful of large defense contractors, there are millions of health care providers and health care workers.

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What are typical health care fraud schemes?

Health care fraud is as varied as the millions of providers and patients.

Schemes to cheat the Government include charging for services not rendered or rendered by an unqualified person or improper coding to “upcharge” a patient service in order to obtain a higher reimbursement rate from Medicare, Medicaid, CHAMPUS, or other federally-funded health care programs. Hospitals and other entities that must provide the Government with annual cost reports often provide inaccurate data.  If done “knowingly,” that is, in violation of the False Claims Act, these cost reports result in violations of the law. The Medicare laws are also designed to prohibit “kickbacks” or other financial incentives to health care providers for referring or “steering” patients to favored providers.

Finally, health care fraud can occur in programs where grants, either from the private sector or the Government, pay for some parts of a patient’s health care or pay for research. Care must be taken in those instances not to “double bill” both the Government and a private payor and to accurately report the research processes and findings.

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What is “upcoding” or “upcharging” in the health care field?

Medical providers use a standardized system of numerical codes for patient services, required by Medicare, Medicaid, and other Government programs. In this way, insurers and the Government do not have to decipher what services were provided from myriad records or from thousands of different types of coding or billing systems. You have probably seen many of the more common codes in an ordinary receipt from your own physician. Of course, in a hospital setting or other specialized area of medicine, there are many more applicable codes than those that appear pre-printed on the bill from your outpatient visit to the family doctor. Misuse of these standardized codes to obtain more money than is allowed by law is commonly termed “upcoding” or “upcharging.”

Each Medicare billing code is tied to a particular group of services and will eventually result in a reimbursement to the physician or other provider (hospital, psychologist, chiropractor, etc.) based upon the code entered by the provider. Providers or their employers have financial incentives to “upcharge” or increase the bill by exaggerating or even falsely representing what medical conditions were present and what services were provided. The more serious the medical conditions, the more medical conditions listed as being present or treated, and the more extensive the services rendered, the greater the Government payment.

An example of "upcoding" is when a two-minute visit for diagnosis and treatment of an upper respiratory condition (i.e. a cold without complications) is “upcharged” from a very low reimbursement rate code by instead intentionally using codes for a more serious ailment.  Thus, the "URI" diagnosis is altered to falsely diagnose the patient as suffering from a more severe bronchitis and sinus infection, with some asthmatic breathing impairment requiring nebulizer treatment, all requiring a one-hour office visit. In either case, because the additional services billed were not provided or not medically necessary, a fraudulent “upcharge” occurs.

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How do medical cost reporting irregularities result in a False Claims Act violation?

Certain Medicare and Medicaid providers, particularly hospitals, nursing homes, and clinics, are paid "prospectively.” That is, they are reimbursed for anticipated expenses in advance of actual final review by the Government and the provider of the billing or services provided. In order to annually reconcile the reimbursements and actual expenses, a comprehensive “cost report” is prepared by the provider and submitted to the Government. These cost reports frequently contain overcharges and if the overcharges are made "knowingly," the False Claims Act may be violated.

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