Healthcare Fraud – A $60 Million Business

According to a recent Associated Press article published in the New York Times, healthcare fraud is estimated to cost the federal government at least $60 billion a year. These losses are mainly to Medicare and Medicaid and are said to involve “everything from sophisticated marketing schemes by major pharmaceuticals encouraging doctors to prescribe drugs for unauthorized uses to selling motorized wheelchairs to people who don’t need them.”

Despite intensive and increasing regulatory oversight, there seems to be no end to it, with health care fraud increasing and more and more economic pressure placed on providers through decreased reimbursements to save costs. But, the government is working hard and utilizing new high-tech data analysis technologies which have enabled it to track Medicare fraud more efficiently by identifying billing spikes.

The federal government unsealed its indictment on Tuesday, February 28, 2012, of a Texas physician, Dr. Jacques Roy, and his office manager, who were arrested on charges of running a $375 million fraud scheme, the largest in history by an individual physician. The indictment charged that, over a five-year period, Dr. Roy certified 11,000 Medicare beneficiaries for home health services from more than 500 agencies for services that were not medically necessary or were not performed.

The patients were recruited by runners, including home health agency owners, who went door-to-door to recruit Medicare and Medicaid beneficiaries for home health services. He had people sign forms that contained the physician’s electronic signature and a representation that the physician had seen the beneficiaries in their homes.  Some recruiters were paid $50 for every signed form. Dr. Roy faces a maximum prison sentence of 100 years and over $18 million in fines and forfeitures. Millions in reimbursements to the home health agencies have been suspended and the agencies themselves who were knowingly involved in the scheme face exclusion from the Medicare program.

Healthcare providers who believe that they can skate under the radar undetected should be aware of the new tools being implemented by law enforcement to detect fraud. While they may find it easy to run around the statutes in the short run, they will be caught eventually and suffer draconian penalties which stiffen with each round of health care reform. On the other hand, because the various anti-fraud laws and safe harbors are complex and often counterintuitive, many providers unintentionally run afoul of the law without even knowing it, creating for themselves enormous overpayment obligations, fines, and possible prison time.

While most providers would never think of engaging in the fraudulent activities described in Dr. Roy’s indictment, many would be surprised to learn that transactions that are common within the business community, such as the payment of commissions for sales referrals, exchanging in-kind services for referrals of business, and similar transactions, may violate federal and state law.

We have found that most independent contractor arrangements among health care providers incorporate illegal or improper compensation terms, even though the parties intended to comply with the law. They, too, may find themselves ensnared in a legal tangle with government regulators which will be costly at the very least. That is why we encourage anyone engaged in the healthcare industry, either as a direct provider of healthcare services, or a vendor, to seek the counsel of a qualified health lawyer to review their transactions before they are formalized.


The Patient Brokering Act and fee-splitting

Q: I am a member of a group practice that leases the use of an MRI facility for a fixed monthly fee. I also contract with a radiologist outside of my group to provide the interpretation of the test. My physician group then bills an insurance company for the technical and professional components of the service. The group does not bill the Medicare or Medicaid programs. Is the group violating the law?

A: Yes. The type of arrangement that you described is commonly referred to as a “block lease.” If your group was billing the Medicare or Medicaid programs for this service you would likely be violating the Federal Patient Self-Referral Act ( the “Stark Law”) and the Medicare prohibition on marking up diagnostic tests. Many providers are under the mistaken belief that if they are not billing a federal program like Medicare, they do not have to comply with laws governing this type of relationship. In Florida, we have state laws such as the Patient Brokering Act and prohibitions on fee-splitting, which prohibits this type of block lease arrangement.

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What to do in case of patient record theft

Q: I am a physician and my office was recently broken into. The perpetrators stole several patient charts that included confidential medical information about my patients. What are my legal obligations to the patients whose records were stolen?

A: The stolen medical files likely contain private health information as well as private financial information. Federal and state laws require healthcare providers to respond when a patient’s record is lost or stolen. Fortunately, if the necessary steps are taken, a healthcare provider can typically avoid federal and state liability for a stolen patient record.

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Health Law Alert October 2008


CMS has proposed new rules in an effort to improve the quality of diagnostic testing services provided to Medicare beneficiaries by physician group practices and other physician entities. If enacted, these rules will require group practices that provide diagnostic testing services to Medicare beneficiaries to enroll as independent diagnostic testing facilities (IDTF’s) and to comply with many of the standards in effect for other IDTF’s. This will severely affect physician practices who presently furnish these services.

The current rules allow group practices and other physician entities to enroll as a “physician office” in order to avoid having to comply with the IDTF standards. If required to enroll as an IDTF, physician practices, including sole proprietorships, clinics and physician group practices, will be required to enroll as an IDTF for each practice location that furnishes diagnostic testing services. This may severely impact those physician groups who currently provide the services because they will be required to comply with most of the IDTF standards, including very restrictive supervision standards and other rigorous quality and performance standards. They will also be prohibited from sharing space with other Medicare suppliers.

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Health Law Alert Special Issue

We discussed in our recent October, 2008, Health Law Alert a proposal published by CMS that would require physician entities and group practices that provide diagnostic testing services to Medicare beneficiaries to enroll as independent diagnostic testing facilities (IDTF’s). After receiving an outcry of negative comments from affected groups and physicians, CMS, in its Final 2009 Medicare Physician Fee Schedule, abandoned his proposal. This is tremendous news for affected physician entities and groups because enrolling as an IDTF imposes rather rigorous compliance standards which are presently in effect for other IDTFs. Physician groups may continue to be enrolled as a “physician office” in order to avoid complying with the IDTF standards.

CMS did not completely rule out possibility of future rulemaking. According to CMS, “we are deferring the implementation of the [physician IDTF] proposals while we continue to review the public comments received on this provision and we will consider finalizing this provision in a future rulemaking effort if we deem it necessary.” However, as it stands now, except for mobile entities, physician entities and group practices that provide diagnostic testing services will not be required to enroll as IDTFs. CMS did, however, finalize regulations requiring enrollment for mobile entities that provide diagnostic services.

Look out for our November, 2008, Health Law Alert, coming soon. In that issue, we will outline a number of regulations affecting physician practices contained in the 2009 Medicare Physician Fee Schedule.

For a PDF version, Click Here.

Health Law Alert – November 2009


QUESTION: Can a health care provider charge interest on the late payment of deductibles, copayments, and coinsurance for private pay patients, patient’s insured through plans other than managed care plans, Medicare beneficiaries, or Medicaid recipients?

SHORT ANSWER: A health care provider may charge its private pay patients, its patients insured by managed care plans, its patients insured by plans other than managed care plans, and Medicare beneficiaries interest unless the relevant contract between the health care provider and the carrier specifically precludes charging interest.

DISCUSSION: Interest is assessed as of the date payment was due. For medical service copayments, payment is due on the date that services are rendered. For medical service coinsurance and deductibles, payment is due on the date that the coinsurance or deductible is ascertainable. That is, either upon verification from the patient’s insurance carrier or adjudication by the carrier and issuance of an Explanation of Benefits (“EOB”).

While Florida Statutes and Medicare are silent as to this narrow issue of whether a provider may assess interest for late payment of copayments, deductibles, and coinsurance, we believe that interest is the cost of extending credit, or a missed business opportunity, rather than an attempt to charge the patient in excess of the Medicare allowable. As long as the provider assesses interest for late payments of coinsurance, copayments, and deductibles indiscriminately and provided that the interest does not violate Florida’s usury laws (currently 18% simple interest per annum), charging interest on late payments should not violate federal laws.

It is our recommendation that providers add language regarding interest for late payments to their statement of financial responsibility and authorization to treat forms. But, if you are charging interest on payment plans, be careful to determine whether you qualify as a “creditor” under the pending FTC “Red Flag Rules” which are intended to guard against identity theft. See our brief article below. Please contact us if you would like our assistance with the drafting or modification of these forms.

The Federal Trade Commission, in its announcement released on October 30, 2009, once again, delayed enforcement of the “Red Flags” Rule until June 1, 2010 at the request of Members of Congress. The rule, which was supposed to have taken effect on November 1, 2009, was promulgated under the Fair and Accurate Credit Transactions Act. It is applicable to “financial institutions” and “creditors,” which have “covered accounts.” Entities subject to the Red Flag Rule are required to develop and implement written policies and procedures designed to identify, detect, and respond to certain indications of identity theft referred to by the FTC as “red flags.” Now,
with the new enforcement date delayed until June 1, 2010, financial institutions and creditors have until then to develop and implement their “Red Flag” policies and procedures.

For a copy of the FTC press release, visit our website at

What is a creditor? According to the FTC, a creditor is an entity that regularly accepts deferred payment for goods and services. If you regularly permit patients to pay for your professional services in multiple payments over time or pursuant to a payment plan, you may be a creditor in the eyes of the FTC and may be required to comply with the new Red Flag Rules. You may also be subject to the Red Flag Rules when you maintain medical and billing records containing the patient’s name, address, and other personal identifying and financial information. The standard is whether there is a reasonably foreseeable risk of identity theft associated with those records. Smallbusiness and sole proprietorship accounts are typically viewed as covert accounts that exhibit such risks. Accordingly, most medical practices should adopt procedures to enable them to identify and detect relevant warning signs (“red flags”) of identity theft. Please contact us if you need assistance in developing appropriate policies and procedures to comply with the Red Flag Rules

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The Latest OIG Advisory Opinions

A medical supply/DME company thought it was on to something when it submitted two proposals to the OIG for review that involved the supplier bidding for an exclusive supplier deal with a county operated skilled nursing facility (“SNF”). Both arrangements were substantially similar, but would give the SNF below cost pricing on non-covered items and services in exchange for the exclusive contract and lucrative Medicare contract with the SNF.

Typically, medical supply companies that provide Medicare covered goods and services would bill Medicare directly. Non-covered goods and services will be charged directly to the SNF at a price that would cover the company’s costs and provide a profit. In this case, the SNF published an RFP soliciting bids to be its exclusive supplier of Medicare covered items and services. Each bid was also to include pricing for non-covered items. The supply company in question wanted to know if it could offer below-cost pricing to the SNF for the non-covered items and services.

The OIG, stated that “in evaluating whether an improper nexus exists between the rates offered for items and services and referrals of Federal business in a particular arrangement, we look for indicia that the rate is not commercially reasonable in the absence of other, non-discounted business.” It went on to observe that the proposed arrangement gave rise to an inference that the supplier and the SNF may be “swapping the below-cost rates on business for which the skilled nursing facility bears the business risk (i.e., the Non-Covered Items) in exchange for other profitable non-discounted Federal business (i.e., the Covered Items), from which the supplier can recoup losses incurred on the below-cost business, potentially through overutilization or abusive billing practices.” On that basis, the OIG declared that this type of “swapping” of improper discounts for the exclusive contract for the lucrative Medicare business poses a substantial risk of violating the anti-kickback statute.

The also OIG seemed to issue a not so veiled warning to the SNG that it bears some responsibility here as well by noting the “the SNF may be soliciting improper discounts on business for which it bears risk in exchange for referrals of business for which it bears no risk.” It should go without saying that the anti-kickback laws cut both ways. It is improper to both solicit a kickback and to offer one.


Specializing in all areas of health law including fraud and abuse, bioethics, health care business transactions, HIPAA, compliance programs, pharmaceutical, managed care, clinical trials, medical staff issues, contracting and licensure issues.


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