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Published 11/1/2008
Pete Johnson, Esq.; Timothy S. Johnson, MD

Avoid healthcare fraud by playing by the rules

Know what’s involved—and what you should avoid doing

Federal and state governments are stepping up the pace and cracking down on healthcare fraud. Even more significantly, private citizens are joining in on the action—taking a percentage of the money judgments collected by state and federal governments. If accused, physicians may face hefty fines, the loss of their practice, public embarrassment, criminal indictments, and possibly a jail sentence.

To help AAOS members better understand what healthcare fraud is, this article provides a basic definition, reviews the laws designed to prevent it, and provides some suggestions to help orthopaedic surgeons play by the rules.

What is healthcare fraud?
Healthcare fraud comes in many forms, including the following:

  • Billing for a service not rendered
  • Billing for a higher reimbursable service than performed (known as upcoding)
  • Performing unnecessary services
  • Accepting improper kickbacks
  • Unbundling tests and services to generate higher fees
  • Providing unnecessary durable medical equipment (DME) or overbilling for necessary DME
  • Paying patients to undergo unnecessary surgery (outpatient surgery fraud)

What federal laws are designed to prevent healthcare fraud?
Both civil and criminal statutes are designed to prevent healthcare fraud.

Federal Civil Statutes
The False Claims Act, a civil statute originally enacted in 1863, is the government’s primary tool for recovering monies lost from fraud against the government. It prohibits the submission of knowingly false claims to obtain federal funds. Under the False Claims Act, healthcare professionals and others can be liable for three times the damages, plus civil penalties of between $5,000 and $10,000 per false claim.

To step up enforcement, the False Claims Act allows the government to enlist the help of private citizens. The law contains a “qui tam” provision that enables a private citizen, known as the relator or whistleblower, to enforce the act’s provisions by filing a lawsuit on behalf of the government. If the government is successful in recovering monies through a qui tam case, the whistleblower is entitled to a share of those funds, up to 25 percent of the total recovered. These economic incentives have motivated patients, competitors, former business associates, and current and former employees to take an active role in uncovering fraud.

The government takes seriously all cases of healthcare fraud. Beginning in the early 1990s, the Department of Justice (DOJ) made healthcare fraud a top priority. Since then, False Claims Act recoveries have totaled nearly $20 billion; in 2007 alone, nearly $1 billion was collected. Also in 2007, the DOJ opened more than 750 new investigations of healthcare fraud.

Orthopaedic surgeons are not immune. In Texas in September 2007, an orthopaedic surgeon (not a fellow of the AAOS) settled a False Claims Act investigation against him by agreeing to pay more than $3 million to the United States and the state of Texas. The surgeon had been accused of fraud involving billing for services not rendered after a fellow physician reported his billing practices to authorities.

More recently, HealthSouth—formerly one of the largest providers of outpatient rehabilitation, ambulatory surgery, and diagnostic imaging services—and two of its physicians paid almost $15 million to settle allegations that false claims were submitted to the government and illegal kickbacks were paid to orthopaedic surgeons who referred patients to HealthSouth for care. This case also involved alleged violations of the physician self-referral law, known as the Stark law, and the Copeland Anti-Kickback Act, which are additional laws used by the government to fight fraud.

Federal Criminal Statutes
For more egregious cases, the civil investigation may be just the hors d’oeuvres to the main course—a criminal indictment. In these cases, offending physicians and healthcare professionals may be charged not only with committing healthcare fraud but also with breaking a host of federal criminal statutes, including false statements, false claims, mail fraud, wire fraud, and conspiracy. These offenses can carry penalties of up to 20 years in prison; in cases where the fraud caused death, the offender can be sentenced to life in prison.

The government is actively pursuing criminal prosecutions. In 2007, the Federal Bureau of Investigation investigated almost 2,500 healthcare fraud cases, resulting in more than 800 indictments and 635 convictions. Included in those convictions is an orthopaedic surgeon (not an AAOS fellow) from Atlanta who pled guilty in March 2007 to defrauding a major insurance company out of $3 million.

How can you avoid fraud accusations?
Healthcare providers, including orthopaedic surgeons, can take two simple steps to avoid accusations of fraud.

The first step is to conduct regular billing audits. Participating in a government healthcare program subjects the healthcare provider to a host of record-keeping and reporting requirements. Most of these records are available to government regulatory agencies without a formal investigation. Conducting regular audits may uncover conduct or discrepancies that should be investigated and corrected immediately.

The second step is to keep detailed, accurate patient records. Under the Medicare and Medicaid programs, the burden is on the provider of services to maintain and furnish, on request, adequate documentation to demonstrate that items or services have been provided as claimed. Detailed and accurate records will assist any investigator in determining whether a billing issue was fraud or a mistake and will help clear up any discrepancies quickly.

If you are the target
If you find yourself the subject of a fraud investigation, the first step to take is to seek legal counsel. Do not try to handle the situation on your own. By the time you are notified, the DOJ has been aware of the case for some time. Plaintiffs in a False Claim Act lawsuit must file the action under seal—meaning out of public view (including your view)—to allow the DOJ the opportunity to join the suit. The DOJ may take 18 months or more to make its decision, without your knowing anything about the investigation.

If you are the subject of a criminal investigation, the government will have spent months gathering evidence about your billing practices before they come knocking on your door.

Legal counsel can clear up misunderstandings or mistakes quickly, without the need for costly or embarrassing litigation. Remember, these statutes are used to prosecute fraud, not simple mistakes or carelessness. Billing items viewed in isolation may appear to be fraud, but when viewed in light of all records, they may be more accurately described as carelessness or mistakes (such as billing patterns that show a physician is just as likely to have billed too little as too much).

Although it is important for you to cooperate with law enforcement when you receive a formal request for documentation, it is also wise to contact legal counsel. Some limitations exist on the kind of information that law enforcement is entitled to receive during these investigations.

The second thing to remember is not to destroy any records. Destroying records in anticipation of litigation can be an independent, criminal offense. In any event and irrespective of your motive, it looks bad.

Finally, always tell the truth to investigating authorities. Do not speak with others about the claim or investigation unless a lawyer is present. And when you speak, always tell the truth. Nothing is worse than complicating a case with a new false statement claim arising from the investigation of a meritless suit or prosecution.

Stay clean
In the end, the easiest way to avoid accusations of healthcare fraud is to keep careful watch of relevant laws, monitor your billing practices, and take immediate corrective action when errors are discovered during routine audits. Be mindful of your employees and competitors because, if you are not playing by the rules, they may decide to blow the whistle and even the score.

Editor’s note: The information contained in this article is intended for general information purposes and is not legal advice, nor should it be interpreted as such. For legal advice, consult an attorney.

Articles labeled Orthopaedic Risk Manager are presented by the Medical Liability Committee under the direction of contributing editor Douglas W. Lundy, MD. E-mail your comments to feedback-orm@aaos.org or contact this issue’s contributors directly.

Pete Johnson, Esq., is a defense attorney practicing law in Southern California. He can be reached at pete@pjohnsonlaw.com

Timothy S. Johnson, MD, is an orthopaedic surgeon and the Leadership Fellows Program representative on the AAOS Medical Liability Committee. He can be reached at tjohns55@jhmi.edu