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Published 8/1/2011
Madeleine Lovette

Medicare Fraud and Abuse 101

An introduction to the False Claims, Anti-Kickback, Stark, Exclusion, and Civil Monetary Penalty laws

Physicians must comply with a multitude of laws on both the federal and state levels. Five of the most significant federal laws governing physician practices are the following:

  • The False Claims Act
  • The Anti-Kickback Statute
  • The Physician Self-Referral Act (Stark)
  • The Exclusion Statute
  • The Civil Monetary Penalty Law

These five statutes comprise the Medicare fraud and abuse laws. They are enforced by the Department of Justice (DOJ), the Office of the Inspector General (OIG) in the Department of Health & Human Services (HHS), and the Centers for Medicare & Medicaid Services (CMS).

The False Claims Act
The civil False Claims Act (FCA) prohibits individuals and businesses from submitting, or causing someone else to submit, a false or fraudulent claim for payment to the government. It applies to all government programs, including Medicare.

The two most common violations of the FCA are the submission of false claims to the government and the fabrication of records to get a false claim paid. Breaches of the FCA may result in fines of up to three times the program’s loss plus $11,000 per claim filed.

Under the Affordable Care Act—the healthcare reform law that was signed by President Obama last year—a violation of the Anti-Kickback Statute (discussed below) is now automatically deemed as a false claim. Thus, a physician can now accrue multiple penalties for violations of both laws from submitting a single claim.

Neither the civil FCA nor the Anti-Kickback Statute requires an explicit intent to defraud for a violation to occur. The law defines “knowing” both as tangible knowledge and a disregard of widely available information (ie, the existence of the law).

Lastly, the civil FCA contains a qui tam or “whistleblowing” provision that allows non–government-affiliated individuals to file charges on behalf of the government. Such individuals may include colleagues, hospitals, staff, and patients.

A criminal FCA has also been passed; violations of this act can lead to criminal penalties and prison sentences.

The Anti-Kickback Statute
The Anti-Kickback Statute (AKS) is a criminal law that prohibits individuals or companies from seeking, receiving, or offering remuneration in exchange for referring patients to receive items or services paid by the government. Remuneration includes both monetary benefits and items such as complimentary meals or lodging. Receiving “excessive” payment or rewards for referrals can also constitute a violation of the AKS.

Penalties for violating the AKS can include fines, prison terms, and barring culpable physicians from participating in the Medicare program. A physician can also be penalized under the Civil Monetary Penalties Law (discussed below) for distributing or receiving a kickback.

The government does not need to demonstrate financial loss to accuse a physician of an AKS violation, and it may hold an individual accountable even if the kickback is for a medically necessary service. In such a case, the argument that the service would have been prescribed with or without a kickback is not applicable.

5Some exemptions or “safe harbors” exist for physicians who engage in practices that could otherwise constitute an AKS violation. Safe harbors can include leasing space, renting equipment, and selling a practice. In such cases, employing fair market value and creating and disclosing a written contract are among the requirements for claiming “safe harbor.”

The Physician Self-Referral Act
The Physician Self-Referral Act, also known as the Stark Law, governs the practice of referring a patient to receive a service or visit a facility in which that physician has a financial interest. For example, a physician may be a part owner of a hospital or open magnetic resonance imaging center. If the physician refers patients to that facility, he or she may be in violation of the Physician Self-Referral Act.

A physician may only self-refer, and subsequently bill, for the law’s 11 designated health services (Table 1) if his or her financial relationship meets one of the Stark Law’s exceptions, such as the “in-office ancillary exception,” which allows physicians to own imaging, laboratory, and other ancillaries if they participate in a group practice.

Under the law, a group practice must meet the following conditions to qualify for the in-office ancillary exception:

  • It must consist of a single legal entity.
  • It must have at least two physicians who are members of the group.
  • Each physician member must furnish substantially the full range of patient care services, and at least 75 percent of the total patient care services must be furnished through the group and billed under a billing number assigned to the group.
  • The income from the practice must be distributed according to methods that are determined before the receipt of payment for services; no physician who is a member of the group practice can receive compensation based on the volume or value of referrals.
  • Members of the group must personally conduct no less than 75 percent of the physician-patient encounters of the group practice.

Groups that provide “advanced imaging” services must notify the patient, at the time a service is ordered, that the patient may receive the service elsewhere. The notice must include the name, address, and phone number of at least five other suppliers, excluding hospitals, located within 25 miles of the physician office.

The group practice exception does not mean that a practice cannot accrue other types of penalties. For example, all partners can be liable for a single physician’s overbilling and overutilization. To limit this risk, groups can enter into an agreement (which may require an amendment to the practice’s corporate bylaws) under which each physician is held responsible for his or her own actions.

The Exclusion Statute
Under the Exclusion Statute, a physician who is convicted of a criminal offense—such as Medicare fraud (both misdemeanor and felony convictions), patient abuse and neglect, or illegal distribution of controlled substances—can be banned from participating in Medicare by the OIG. Physicians who are excluded may not directly or indirectly bill the federal government for the services they provide to Medicare patients.

Practices should not employ or contract with excluded physicians or entities if it is possible that services furnished by those individuals or entities could be billed to Medicare. To ensure this, physicians are responsible for accessing the OIG’s online database of excluded individuals and entities before they employ an individual or enter into a business contract. If a physician is affiliated with an excluded individual or entity that receives a federal reimbursement for providing services, that physician can incur fines and be held liable for the amounts paid to the excluded individuals or entities.

The Civil Monetary Penalties Law
The Social Security Act authorizes the HHS to seek civil monetary penalties and exclusion for certain behaviors. These penalties are enforced by the OIG through the Civil Monetary Penalties (CMP) Law. The severity of penalties and monetary amounts charged depend on the type of conduct engaged in by the physician.

A physician can incur a CMP in the following ways:

  • Presenting or causing claims to be presented to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
  • Violating the Anti-Kickback Statute by knowingly and willfully (1) offering or paying remuneration to induce the referral of federal healthcare program business, or (2) soliciting or receiving remuneration in return for the referral of federal healthcare program business.
  • Knowingly presenting or causing claims to be presented for a service for which payment may not be made under the Stark law.

Madeleine Lovette is the communications specialist in the AAOS office of government relations. She can be reached at lovette@aaos.org