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Health Care Fraud Loss

Frequently, in criminal prosecutions for health care fraud, the deciding factor driving punishment is the health care fraud loss determined by the health care fraud loss Guidelines found at Section 2B1.1 of the federal sentencing Guidelines. What many practitioners forget though is that health care fraud loss is far from an exact science which is why even federal courts permit a finding of loss based 0n a “reasonable estimate.” The government’s estimation of loss, however, may range from reasonable to mere conjecture. Further, especially in cases involving “upcoding” or kickbacks, health care providers may be eligible for a credit against loss.

Indeed, according to §2B1.1 3(E)(I), “loss shall be reduced by…. the fair market value of the…..services rendered, by the defendant or other persons acting jointly, to the victim before the offense was detected.” Below is a list of cases from all over the United States where credits were applied or where the court recognized that credits may be applied against health care fraud loss .

• United States v. Medina, 458 F.3d 1291, 1304 (11th Cir. 2007) (concluding, in health care fraud case involving the payment of kickbacks, that loss under the Guidelines could not include amounts paid forems or services that were medically necessary); see also United States v. Guerra, 307 Fed. Appx. 283, 285 (11th Cir. 2009) (unpublished) (affirming district court’s re-sentencing on remand in Medina; district court correctly read Medina to mean there was no loss because “there was no evidence that an y of the prescriptions per se were not medically necessary”).
• Even in 11th circuit cases where loss credits were denied, the circuit has found that such credits may be appropriate. United States v. Ekpo, 266 Fed Appx 830 (11th Cir. 2008). The court found that defendant DME providers were not entitled to a credit against loss because there was no evidence adduced at sentencing showing that the recipients of the wheelchairs were “eligible” to receive those wheelchairs. Absent such evidence, the court found that it could not conclude that providing wheelchairs to those beneficiaries was the equivalent of providing value.); United States v. Campell, 765 F.3d 1291, 1303 (11th Cir. 2014) (denying any credit against loss to the defendant convicted of public corruption offenses, but reinforced that in billing fraud cases, “the pecuniary harm suffered by the victim is the difference between the amount billed and the amount of the legitimate services rendered.”).
• United States v. Klein, 543 F.3d 206, 213-14 (5th Cir. 2006) (vacating the sentence of defendant doctor convicted of health care fraud based in part on upcoding for treatment of Hepatitis C patients because the PSR failed to account for the value of the drugs that were administered for patients in calculating the total loss amount attributable to defendant).
• United States v. Jones, 475 F.3d 701,706-07 (5th Cir. 2007).The defendant was convicted of Medicare fraud based on claims for cost reimbursement for payments pmade by the billing entity to a third party. Although Medicare regulations required independence between the billing entity and the third party payee to prevent collusion, the defendants committed fraud by failing to disclose the lack of independence between the billing entity and the third party in violation of Medicare regulations. On appeal, the Fifth Circuit reversed the district court’s loss finding, holding that the loss was limited to the amounts proven by the government to have been claimed by the billing entity for payments to the third party that were “either unreasonable or greater than its actual cost.”).
• United States v. Tariq Mahmood, M.D., No. 15-40521 — at *22-23— (5th Cir. April 14, 2016) (Slip Op) (other citations omitted) (vacating defendant’s sentence in health care fraud case after defendant was convicted for resequencing the diagnosis codes at various hospitals in order to bill for more expensive treatments that were not provided. The court, in vacating his sentence, reasoned that that “Medicare receives ‘value’ within the meaning of U.S.S.G. § 2B1.1 comment. (n. 3(E)(i)) when its beneficiaries receive legitimate health care services for which Medicare would pay but for a fraud.”).
• United States v. Rutgard, 116 F.3d 1270 (9th Cir. 1997)( a doctor was prosecuted for Medicare fraud based on the performance of services that were not medically necessary. Ninth Circuit reversed the district court’s loss finding, holding that “Rutgard must be given credit for the medical services that he rendered that were justified by medical necessity. As always, the burden is on the government to establish what services were not medically necessary. The global estimate of loss made by the district court cannot stand.”).

Likewise, there is a growing body of case law in government contract/bid fraud cases authorizing credits against loss. United States v. Schneider, 930 F. 2d 555, 558 (7th Cir. 1991) (remanding for resentencing “without an additional punishment based on a proven loss – for none was proven.”); United States v. Anders, 333 F. App’x 950, 954-55 (6th Cir. 2009) (holding that it was error for district court not to credit value of services provided pursuant to a fraudulent bid contract when defendant contractor performed contract); United States v. Joseph Nagle, No. 16-1543 (3rd Cir. Nov. 30, 2016) (Slip. Op) (holding that defendant convicted of the largest contract bidding fraud scheme in history against the Department of Transportation was entitled to a substantial credit against loss based on the profits obtained by defendant company.); United States v. Sublett, 124 F.3d 693, 695 (5th Cir. 1997) (holding that it was proper to deduct the value of legitimate services actually provided by defendant’s operation under contracts he obtained by falsely misrepresenting his academic credentials to win bid to provide counseling services to IRS employees).

The Firm has substantial experience representing health care providers in health care fraud loss disputes and has obtained favorable results for clients seeking to discredit Government loss figures.

A provider ensnared in a Government investigation should not accept the Government’s estimates or methodology for computing loss at any point in the proceeding (pre indictment or after the filing of an information or indictment) without first conducting an independent investigation and analysis of that health care fraud loss estimate. Assessing loss also depends on the type of provider and the type of service provided.

A provider should not agree to a loss figure in a plea agreement or a loss figure in the factual basis in support of the plea agreement until and unless the provider has conducted an adequate review and confirmed the accuracy of that loss figure.

A provider should, where applicable, argue for credits against loss especially where the case involves services which are provided or services which are medically necessary. In either case, there is a fair market value for those services.

Where applicable, a provider should terminate any discussions regarding loss if the government is assuming a position that is contrary to the law and the facts. In certain cases, if the difference between the government’s figure and the defense figure is stark, then, depending on the strength of the Government’s case and evidence,  the provider should (a) proceed to trial (b) enter a written plea agreement without any provision governing loss or with a provision that outlines the position of the Government and the defense regarding loss and prepare for a sentencing loss hearing; or (c) if the Government will not agree to (b) then consider a potential open plea (best in cases involving 1 count) and prepare for a loss sentencing hearing.

Largest Ever Health Care Fraud Takedown

This week marked the largest ever health care fraud take down in US history resulting in 601 charged defendants across 58 federal districts, including 165 doctors, nurses and other licensed medical professionals, for their alleged participation in health care fraud schemes involving more than $2 billion in false billings. Of those charged, 162 defendants, including 76 doctors, were charged for their roles in prescribing and distributing opioids and other dangerous narcotics. Thirty state Medicaid Fraud Control Units also participated in today’s arrests. In addition, HHS announced today that from July 2017 to the present, it has excluded 2,700 individuals from participation in Medicare, Medicaid, and all other Federal health care programs, which includes 587 providers excluded for conduct related to opioid diversion and abuse.

Today’s health care fraud takedown was led and coordinated by the Criminal Division, Fraud Section’s Health Care Fraud Unit in conjunction with its Medicare Fraud Strike Force (MFSF) partners, a partnership between the Criminal Division, U.S. Attorney’s Offices, the FBI and HHS-OIG. In addition, the operation includes the participation of the DEA, DCIS, IRS-CI, Department of Labor, other various federal law enforcement agencies, and State Medicaid Fraud Control Units.

The charges announced today  as part of the health care fraud takedownaggressively target schemes billing Medicare, Medicaid, TRICARE (a health insurance program for members and veterans of the armed forces and their families), and private insurance companies for medically unnecessary prescription drugs and compounded medications that often were never even purchased and/or distributed to beneficiaries. The charges also involve individuals contributing to the opioid epidemic, with a particular focus on medical professionals involved in the unlawful distribution of opioids and other prescription narcotics, a particular focus for the Department.

According to court documents, the defendants allegedly participated in schemes to submit claims to Medicare, Medicaid, TRICARE, and private insurance companies for treatments that were medically unnecessary and often never provided. In many cases, patient recruiters, beneficiaries and other co-conspirators were allegedly paid cash kickbacks in return for supplying beneficiary information to providers, so that the providers could then submit fraudulent bills to Medicare. Collectively, the doctors, nurses, licensed medical professionals, health care company owners and others charged are accused of submitting a total of over $2 billion in fraudulent billings. The number of medical professionals charged is particularly significant, because virtually every health care fraud scheme requires a corrupt medical professional to be involved in order for Medicare or Medicaid to pay the fraudulent claims. Aggressively pursuing corrupt medical professionals not only has a deterrent effect on other medical professionals, but also ensures that their licenses can no longer be used to bilk the system.

For the Strike Force locations, in the Southern District of Florida, 124 defendants were charged with offenses relating to their participation in various fraud schemes involving over $337 million in false billings for services including home health care and pharmacy fraud. In one case, an owner, medical director, and two employees of a sober living facility were charged with conspiracy to commit health care and wire fraud, substantive counts of health care fraud, and substantive counts of money laundering. The indictment alleges a scheme that illegally recruited patients, paid kickbacks, and defrauded health care benefit programs for widespread fraudulent urine testing. During the course of the fraudulent scheme, the facility submitted more than $106 million in claims for substance abuse treatment services.

In the Central District of California, 33 defendants were charged for their roles in schemes to defraud insurance programs out of more than $660 million. For example, one indictment in a compounding pharmacy fraud case alleges an attorney/marketer paid kickbacks and offered incentives such as prostitutes and expensive meals to two podiatrists in exchange for prescriptions written on pre-printed prescription pads, regardless of the medical need for the prescriptions. Once the prescriptions were filled, members of the conspiracy submitted approximately $250 million in fraudulent claims to federal, state, and private insurers for the compounded drugs.

In the Southern District of Texas, 48 individuals were charged in cases involving more than $291 million in alleged fraud. Among these defendants are a pharmacy chain owner, managing partner, and lead pharmacist charged with a drug and money laundering conspiracy. According to the indictment, the coconspirators used fraudulent prescriptions to fill bulk orders for over one million pills of hydrocodone and oxycodone, which the pharmacy, in turn, sold to drug couriers for millions of dollars. In the Northern District of Texas, a home health agency owner was arrested on a criminal complaint for a $2.6 million health care fraud scheme.

In the Eastern District of Michigan, 35 defendants face charges for their alleged roles in fraud, kickback, money laundering and drug diversion schemes involving approximately $197 million in false claims for services that were medically unnecessary or never rendered. In one case, a physician was charged in separate kickback conspiracies with two home health agency owners, which resulted in more than $12 million in fraudulent insurance billings.

In the Northern District of Illinois, 21 individuals were charged for various fraud schemes involving home health and dental services. These schemes involved allegedly over $54 million in fraudulent billing. One case alleges a home health fraud and kickback conspiracy, which resulted in more than $6.2 million paid by Medicare based on the fraudulent billings.

In the Eastern District of New York, 13 individuals were charged with participating in a variety of schemes including kickbacks, services not rendered, identity theft and money laundering involving over $38 million in fraudulent billings. For example, the owner of a Brooklyn ambulette company was charged in a $7 million conspiracy stemming from the alleged payment of kickbacks for the referral of patients, who subjected themselves to purported physical and occupational therapy and other services, and were transported by the ambulette company.

In the Middle District of Florida, 21 individuals were charged with participating in a variety of schemes involving more than $21 million in fraudulent billings. In one case, a physician and clinic owner were charged with a conspiracy to defraud Medicare of more than $2.8 million for fraudulent home health billings.

In the Southern Louisiana Strike Force, operating in the Middle and Eastern Districts of Louisiana as well as the Southern District of Mississippi, 42 defendants were charged in connection with health care fraud, drug diversion, and money laundering schemes involving more than $16 million in fraudulent billings. One case alleges that three pharmacy owners and a nurse practitioner conspired to unlawfully dispense controlled substances and defraud TRICARE and private insurance companies out of $12 million.

In the Corporate Strike Force, five defendants were charged in the Middle District of Tennessee with a kickback conspiracy at a durable medical equipment company, which allegedly resulted in more than $1 million in kickbacks and over $2.5 million in fraudulent billings to Medicare.

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In addition to the Strike Force locations, today’s enforcement actions include cases and investigations brought by an additional 46 U.S. Attorney’s Offices, including the execution of search warrants in various investigations conducted by the Central and Northern Districts of California, Middle District of Florida, Southern District of Georgia, Western District of Kentucky, Eastern District of Michigan, Western District of North Carolina, Eastern and Western Districts of Texas, Eastern and Western Districts of Virginia, and Western District of Washington.

In the Northern and Southern Districts of Alabama, 15 defendants were charged for their roles in eight health care fraud schemes involving compounding pharmacy fraud and unlawful distribution of controlled substances.

In the Eastern District of California, four defendants were charged for their roles in two health care fraud schemes, one of which included forged prescriptions.

In the Southern District of California, seven defendants, including a physician, were charged for their roles in three health care fraud schemes and one scheme involving identity theft and services that were not rendered.

In the District of Colorado, a defendant was charged with health care fraud related to billings to Medicaid and Medicare.

In the District of Connecticut, three defendants, including two medical professionals, were charged for their roles in two schemes involving compounding drugs and unlawful distribution of Schedule II and IV controlled substances.

In the District of Delaware, a physician/owner of a pain management clinic was charged with unlawfully prescribing more than two million dosage units of Oxycodone products.

In the District of Columbia, a durable medical equipment company owner was charged with defrauding Medicaid of $9.8 million.

In the Northern District of Florida, four defendants were charged in a scheme to defraud TRICARE and other private insurance companies out of over $8 million for medically unnecessary compounded creams and pills.

In the Northern, Middle, and Southern Districts of Georgia, 12 defendants, including two physicians, were charged in nine health care fraud, drug diversion, or compounding pharmacy schemes involving over $13.5 million in fraudulent billings.

In the District of Idaho, three defendants, all of who are medical professionals, were charged for their roles in three separate fraud schemes involving controlled substances.

In the Central and Southern Districts of Illinois, seven defendants were charged in six separate schemes to defraud the Medicaid program.

In the Northern District of Indiana, eight defendants were charged in various health care fraud schemes to defraud both the Medicare and Medicaid programs.

In the Northern District of Iowa, two defendants – both medical professionals – were charged for their roles in two opioid-related schemes.

In the Districts of Kansas and the Northern and Western Districts of Oklahoma, 12 defendants, including four physicians, were charged in various unlawful distribution of controlled substances schemes. In the Western District of Oklahoma, one case marks the district’s first time charging unlawful distribution of controlled substances resulting in a death.

In the Eastern and Western Districts of Kentucky, 12 defendants, including five medical professionals, were charged in various schemes involving health care fraud, unlawful distribution of controlled substances, aggravated identity theft, and money laundering. One case involved the operation of two false-front medical clinics.

In the Districts of Maine and Vermont, two defendants were charged for their roles in two schemes to defraud various government programs including Medicare, Medicaid, and ones run by the HHS’ Administration for Children and Families.

In the District of Nebraska, seven defendants, including one physician, were charged in five separate schemes to defraud Medicare, Medicaid, and various HHS programs.

In the District of Nevada, four defendants, including three medical professionals were charged with conspiracies to commit health care fraud and distribute controlled substances.

In the District of New Jersey, eight defendants, including a New York doctor, an anesthesiology technologist for a Philadelphia hospital, and the owner of a medical billing company, were charged for their roles in five schemes to defraud private insurance companies of over $16 million.

In the Southern District of New York, two defendants were charged in schemes involving health care fraud or drug diversion.

In the Middle District of North Carolina, two defendants were charged with a conspiracy to defraud Medicare out of over $4 million.

In the Southern District of Ohio, three defendants – all medical professionals – were charged for their roles in two health care fraud schemes, one of which involved illegal drug distribution and kickbacks.

In the Eastern and Middle Districts of Pennsylvania, 12 defendants were charged for their roles in three drug diversion schemes.

In the Western District of Pennsylvania, four defendants – all physicians – were charged in various health care fraud and drug diversion schemes. One scheme involved 32,000 dosage units of buprenorphine.

In the District of Rhode Island, one defendant was charged for participating in a theft and aggravated identity theft scheme.

In the District of South Carolina, three defendants were charged for their separate roles in a conspiracy to possess with the intent to distribute fentanyl.

In the District of South Dakota, two defendants were charged in separate cases, one of which involved a scheme to defraud the Indian Health Service.

In the Middle District of Tennessee, 10 defendants were charged in two separate schemes, including a conspiracy to fraudulently obtain oxycodone.

In the Eastern District of Texas, two defendants were charged for their role in health care fraud schemes to defraud the Medicare and Medicaid programs.

In the District of Utah, two defendants were charged in two cases, one of which involved a $31 million scheme to defraud Medicare and Medicaid.

In the Western District of Virginia, eight defendants were charged for their alleged roles in health care fraud schemes. One $45 million scheme to defraud Medicaid involved falsification of documents in patient files.

In the Eastern District of Washington, a dentist and another individual were indicted for distributing and conspiring to distribute hydrocodone and tramadol without a legitimate medical purpose.

In the Eastern District of Wisconsin, three defendants were charged in a scheme involving the unlawful distribution of controlled substances and aggravated identity theft.

In addition, in the states of Arizona, Arkansas, California, Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Kansas, Louisiana, Maine, Michigan, Missouri, Mississippi, Nevada, New York, Oklahoma, Pennsylvania, Texas, Vermont, and Washington, 97 defendants have been charged with defrauding the Medicaid program out of over $27 million. These cases were investigated by each state’s respective Medicaid Fraud Control Units. In addition, the Medicaid Fraud Control Units of the states of California, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Nevada, North Carolina, Ohio, Texas, Tennessee, and Virginia participated in the investigation of many of the federal cases discussed above.

The cases announced today are being prosecuted and investigated by U.S. Attorney’s Offices nationwide, along with Medicare Fraud Strike Force teams from the Criminal Division’s Fraud Section and from the U.S. Attorney’s Offices in the Southern District of Florida, Eastern District of Michigan, Eastern District of New York, Southern District of Texas, Central District of California, Eastern District of Louisiana, Northern District of Texas, Northern District of Illinois, Middle District of Louisiana, and the Middle District of Florida; and agents from the FBI, HHS-OIG, DEA, DCIS, IRS-CI, Department of Labor, other various federal law enforcement agencies, and state Medicaid Fraud Control Units.

A complaint, information, or indictment is merely an allegation, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Additional documents related to this announcement will shortly be available here:

https://www.justice.gov/opa/documents-and-resources-june-28-2018.

This operation also highlights the great work being done by the Department of Justice’s Civil Division. In the past fiscal year, the Department of Justice, including the Civil Division, has collectively won or negotiated over $2 billion in judgements and settlements related to matters alleging health care fraud.

Medical necessity is still a a dominant theme in certain health care prosecutions and investigations. An integral part of any pure medical necessity prosecution is also extrapolation. To support extrapolation, the Government, as part of their case in chief, will use both an auditor or forensic accountant from the law enforcement agency assigned to the prosecution and, in some cases, a statistician to demonstrate that, based on a sample of “representative” claims, the physician or health care provider was submitting claims for services that were not reasonable and medically necessary, and therefore was, according to the Government, committing fraud.

Frequently, the case against a physician premised on medical necessity may boil down to the CPT codes (Current Procedural Terminology codes) that the physician used to bill and how often he or she used those codes compared to their peers. To this end, anticipate the use of data and comparisons to other physicians practicing in the same specialty (e.g. pain physicians, dermatologists, cardiologists) as part of the Government’s case. Much of this data is derived from the CMS data (which is public information) and assigns a standard deviation to the particular provider for a particular procedure or CPT code. Also expect experts from the same specialty testifying on behalf of the Government as to what they would or would not have done or how they would or would not have performed a procedure. In the trifecta of cardiologist prosecutions (US v. Paulus, US v. McLean, and US v. Persaud) and a recent ophthalmologist case (US v. Melgen), in addition to many other cases, the Government has sought to elicit testimony from experts on these issues to undermine any defense that the physician was justified in performing the disputed services.

Further, when putting on a full blown defense, it is important to remember that the health care fraud statute (and the False Claims Act) are narrow statutes. In fact, Congress stated long ago when they passed the health care fraud statute, that the statute is “not intended to penalize a person who exercises a health care treatment choice or makes a medical or health care judgment in good faith simply because there is a difference of opinion regarding the form of diagnosis or treatment.”

It is therefore critical that, if you are defending a provider accused of providing medically unnecessary services, you are also familiar with extrapolation, CPT code comparisons, CMS data, and how the Government is using experts and mining data to ultimately demonstrate fraud in medical necessity prosecutions.

The firm represents treatment centers, sober homes, and sales and marketing professionals under investigation or accused of health care fraud and abuse. Treatment center fraud is increasingly common in South Florida.

Indeed, this week another treatment center fraud prosecution has concluded. Yet, the fact pattern is nothing new and something which I have addressed in previous posts. This prosecution is also a by-product of the treatment center fraud Kenny Chatman prosecution — given that Michael Bonds, an owner of one of the sober homes which referred patients to Chaman, is listed in the factual basis forming the basis for one of the guilty pleas and is likely cooperating — and was spearheaded by the same federal prosecutor that promised to pursue the labs involved in facilitating the sober home-treatment center fraud.

The owners in the newest prosecution out of Palm Beach operated Angel’s Recovery which was a licensed substance abuse service provider (or treatment center) offering clinical treatment services for persons suffering from alcohol and drug addiction and medication-based treatment for opioid addiction. To obtain referrals of patients from sober homes, defendants paid kickbacks, i.e., free or reduced rent or patients attending sober homes, insurance premium payments including deductibles and copays, and other benefits to individuals with insurance who agreed to reside at the sober homes and attend drug treatment. A separate entity paid the insurance premiums on behalf of the sober home patients to disguise the source of the kickbacks. The owners of the treatment center also employed as doctor as a medical director – whose license was eventually suspended but continued to prescribe medication including controlled substances, sign orders, and treat patients.

The patients were also presenting for urinalysis – including more expensive lab tests for confirmatory testing – several times per week. This is again, another yellow flag. While there is some level of discretion for deciding whether, and to what extent, an individual patient should be re-tested or undergo confirmatory testing under applicable SAHSA Guidelines and insurance carrier policies, there must be documented medical necessity for those tests.

Here are the precise facts forming the factual basis for one of the owners’ guilty pleas.

If you are a treatment center operator, or an employee or former employee of a treatment center or sober home operator and you have received a subpoena or you believe you may be under investigation for sober home or treatment center fraud, kickbacks, or patient brokering it is critical to contact a treatment center fraud Attorney.