Health Care Fraud Redux?

Although these new task forces may lead to more work in white-collar defense in parts of the country, for many reasons the chances of successfully defending a Medicare fraud case are slim. Probably the most critical reason is money. The government has many tools available to limit the funds needed to mount a proper defense. The majority of health care providers and suppliers receive a large percentage of their income from Medicare and Medicaid. Once an indictment is unsealed, ordinarily the government will stop payment and demand the immediate repayment with interest of funds previously paid in the alleged fraud. Any funds newly earned will be offset against this balance. In addition, the government will routinely move to freeze a supplier's or provider's bank accounts to prevent allegedly forfeitable assets from being dissipated.

The negative publicity of an announced indictment usually will cause patients and referral sources to look elsewhere, thereby further limiting the available funds to keep a business operating. Moreover, the government commonly will seize the medical and billing records of suppliers and providers, making it expensive and difficult for counsel to obtain and analyze critical documents needed for the defense. Defendants who hold professional licenses and have associated privileges, such as physicians, typically also will have to fight with state boards to keep their license, face the loss or limitation of their hospital privileges, and risk being suspended or expelled as authorized providers under commercial insurance plans.

Although the government's theory of its case may be flawed, defendants facing such long odds often feel compelled to accept the government's plea offer rather than risk receiving a harsher sentence if convicted at trial. Yet, in situations where the government's case depends on the meaning of a technical regulation, it may still be worthwhile for a defendant to make the government prove its theory of the case. The jury might acquit, thinking the provider might have made an honest mistake. Even if a jury returns a guilty verdict, the trial can familiarize the judge with issues critical to a defendant's sentencing range under the advisory sentencing guidelines, such as how to determine relevant conduct and the amount of loss. This may be especially important now that the Sentencing Guidelines are advisory, because judges are not as hamstrung in what they can and cannot consider ' particularly in light of the 'parsimony principle,' codified in 18 U.S.C. ' 3553(a), which requires the judge to craft a sentence not greater than necessary to meet the other sentencing objectives.

Prosecution of Ambulance Providers in Houston

The author recently defended an individual during a six-week Medicare fraud trial in Houston. Even though the judge ultimately instructed the jury that the government had been materially wrong in two key legal theories, the jury still returned a split verdict.

The first problem with the government's theory, as set out in the indictment and argued throughout the trial by the prosecutors and experts, involved the correct interpretation of the medical-necessity requirements for ambulance companies providing non-emergency, regularly scheduled transportation to dialysis facilities of patients with end stage renal disease (ESRD). The applicable Medicare regulation, which is hardly a model of clarity, is codified at 42 C.F.R. ' 401.40.

Medicare's coverage for ESRD patients is unique. During the 1970s, Congress exempted ESRD disease victims from the otherwise applicable age requirements for eligibility in recognition that ESRD patients need immediate coverage and will die without dialysis unless they get a kidney transplant. Even with dialysis, their life expectancy and quality of life often are not great. About half typically die within the first year of receiving dialysis.

Ambulance services are available to ESRD patients as an authorized Medicare benefit under limited circumstances. Under the 'basic rules,' ambulance suppliers must meet minimum standards for vehicles, billing, and staffing. In addition, each transport must meet the medical-necessity and the origin and destination requirements set out in 42 C.F.R. ' 401.40(a). In turn, the regulation's 'general rules' for determining medical necessity (' 401.40(d)(1)) state that Medicare covers ambulance transport of ESRD patients when furnished to beneficiaries whose medical conditions contraindicate other means of transportation. In short, a patient's condition must require both the ambulance and the level of service provided to be reimbursed by Medicare.

While the regulation's requirements are easy to meet when emergency transportation is involved, they are very difficult to meet for regularly scheduled, non-emergency transports. Under the same regulation, non-emergency transportation is appropriate only if either the beneficiary is bed-confined and it is documented that other methods of transportation are contraindicated because of the beneficiary's condition; or, regardless of bed confinement, the patient's medical condition requires ambulance transportation. Even though the regulation instructs that bed confinement is not the sole criterion for determining medical necessity of ambulance transportation, in practice the government almost exclusively focuses its attention on bed confinement.

In the recent prosecution in Houston, the government and its experts went further than focusing on bed confinement. They contended that a 'Special Rule' for unscheduled or non-repetitive ambulance transports in fact applied to all non-emergency transports, even though the regulations expressly provide a different 'Special rule' for regularly scheduled transports. Compare ' 401.40(d)(3) with ' 401.40(d)(2). Throughout the trial, the government and its experts insisted that ' 401.40(d)(3)(v) ('[t]he presence of the signed certification … does not alone demonstrate that the ambulance transport was medically necessary') allowed the government to disregard signed authorizations from the patient's attending physician. Around the time of the Houston trial, the U.S. Attorney's Office was taking the same position in a trial in another branch of the district. In her charge to the jury, the judge ruled that the government was wrong.

Another significant error of law advanced by the government dealt with a key exception to the federal Anti-Kickback Statute, 42 U.S.C. ' 1320a'7b. This statute broadly criminalizes providing (or offering to provide) things of value to people who can make referrals for items or services covered by federal health programs. After this law was enacted, Congress recognized that the law's reach was so broad that even socially appropriate conduct could be prosecuted. Therefore, it amended the statute to include exceptions and instructed HHS-OIG to develop additional safe harbors that providers could use for structuring their conduct to avoid violations. Currently, about two-dozen safe harbors are available. One of the most important is the employee safe harbor, which allows employers to pay bonuses and incentives to employees for attracting Medicare business. Under 26 C.F.R. ' 1001.952(i), certain offers and payments from employers to employees do not violate the federal Anti-Kickback Statute. Under this exception, prohibited 'remuneration' does not include what an employer pays a bona fide employee. Nevertheless, the government and its experts contended at trial that the defendants were guilty in part because they offered bonuses to paramedics for recruiting business to the ambulance company. But the judge ruled otherwise. She instructed the jury that the defendants would not be guilty of paying illegal bonuses so long as they were unaware that an employee was paying the patients to be recruited.

Reducing the Amount of Loss for Sentencing

The judge ultimately rejected the government's claim it could disregard signed certificates of medically necessity and let its experts opine as to the propriety of ambulance transports of ESRD patients. For this reason, the government faces the task of proving that the claimed loss should be included for sentencing purposes. The Sentencing Guidelines require the government to establish loss amounts by a preponderance of the evidence. Consequently, the loss amount in this case will likely be far lower than the government would have obtained in a plea bargain. In an exception to the general rule, here the defendants might wind up better off after the jury's guilty verdict than if they had pleaded guilty because the amount of loss has significant impact on the length of a sentence in fraud cases.

Medicare fraud and abuse cases are difficult for all parties. Defense counsel who get involved in defending these cases may find that, despite the odds being stacked in the government's favor, the issues are interesting and challenging. Whether the government's creation of dedicated Medicare Fraud Task Force offices in Miami, Los Angeles, and Houston will spread to other areas of the country remains to be seen. But, given the ever-increasing amount of government funds being spent on health care and the graying of the population, health care fraud and abuse investigations and prosecutions could reemerge as major priorities for federal prosecutors throughout the nation.

Michael E. Clark ([email protected]), a former federal prosecutor, is a member of this newsletter's Editorial Board. He represents businesses and professionals in administrative, civil, and white collar criminal matters and is the Chair of the White Collar Crimes Committee in the ABA Section of Business Law.

At times in the past decade, health care fraud seemed to be the top priority of the U.S. Department of Justice (DOJ). Although nationally it's now been eclipsed by corporate accountability, the DOJ has focused on health care fraud and abuse in two of the nation's largest federal prosecutors' offices: Los Angeles and Houston. The Central District of California and the Southern District of Texas ' supposedly fraud and abuse hot spots ' are setting up dedicated Medicare Fraud Task Forces based on a model that enjoyed great success in the Southern District of Florida.

The Miami Strike Force was publicly announced on May 9, 2007, after 28 defendants were arrested by FBI and agents of the Inspector General of Health and Human Services (HHS-OIG). Through Sept. 30, 2007, the task force's operations resulted in 130 defendants indicted, over 100 convictions obtained, and 130 defendants awaiting trial ' all in Dade County, FL. See www.usdoj.gov/opa/pr/2008/May/08-crm-399.html.

Odds Stacked Against the Defense

Although these new task forces may lead to more work in white-collar defense in parts of the country, for many reasons the chances of successfully defending a Medicare fraud case are slim. Probably the most critical reason is money. The government has many tools available to limit the funds needed to mount a proper defense. The majority of health care providers and suppliers receive a large percentage of their income from Medicare and Medicaid. Once an indictment is unsealed, ordinarily the government will stop payment and demand the immediate repayment with interest of funds previously paid in the alleged fraud. Any funds newly earned will be offset against this balance. In addition, the government will routinely move to freeze a supplier's or provider's bank accounts to prevent allegedly forfeitable assets from being dissipated.

The negative publicity of an announced indictment usually will cause patients and referral sources to look elsewhere, thereby further limiting the available funds to keep a business operating. Moreover, the government commonly will seize the medical and billing records of suppliers and providers, making it expensive and difficult for counsel to obtain and analyze critical documents needed for the defense. Defendants who hold professional licenses and have associated privileges, such as physicians, typically also will have to fight with state boards to keep their license, face the loss or limitation of their hospital privileges, and risk being suspended or expelled as authorized providers under commercial insurance plans.

Although the government's theory of its case may be flawed, defendants facing such long odds often feel compelled to accept the government's plea offer rather than risk receiving a harsher sentence if convicted at trial. Yet, in situations where the government's case depends on the meaning of a technical regulation, it may still be worthwhile for a defendant to make the government prove its theory of the case. The jury might acquit, thinking the provider might have made an honest mistake. Even if a jury returns a guilty verdict, the trial can familiarize the judge with issues critical to a defendant's sentencing range under the advisory sentencing guidelines, such as how to determine relevant conduct and the amount of loss. This may be especially important now that the Sentencing Guidelines are advisory, because judges are not as hamstrung in what they can and cannot consider ' particularly in light of the 'parsimony principle,' codified in 18 U.S.C. ' 3553(a), which requires the judge to craft a sentence not greater than necessary to meet the other sentencing objectives.

Prosecution of Ambulance Providers in Houston

The author recently defended an individual during a six-week Medicare fraud trial in Houston. Even though the judge ultimately instructed the jury that the government had been materially wrong in two key legal theories, the jury still returned a split verdict.

The first problem with the government's theory, as set out in the indictment and argued throughout the trial by the prosecutors and experts, involved the correct interpretation of the medical-necessity requirements for ambulance companies providing non-emergency, regularly scheduled transportation to dialysis facilities of patients with end stage renal disease (ESRD). The applicable Medicare regulation, which is hardly a model of clarity, is codified at 42 C.F.R. ' 401.40.

Medicare's coverage for ESRD patients is unique. During the 1970s, Congress exempted ESRD disease victims from the otherwise applicable age requirements for eligibility in recognition that ESRD patients need immediate coverage and will die without dialysis unless they get a kidney transplant. Even with dialysis, their life expectancy and quality of life often are not great. About half typically die within the first year of receiving dialysis.

Ambulance services are available to ESRD patients as an authorized Medicare benefit under limited circumstances. Under the 'basic rules,' ambulance suppliers must meet minimum standards for vehicles, billing, and staffing. In addition, each transport must meet the medical-necessity and the origin and destination requirements set out in 42 C.F.R. ' 401.40(a). In turn, the regulation's 'general rules' for determining medical necessity (' 401.40(d)(1)) state that Medicare covers ambulance transport of ESRD patients when furnished to beneficiaries whose medical conditions contraindicate other means of transportation. In short, a patient's condition must require both the ambulance and the level of service provided to be reimbursed by Medicare.

While the regulation's requirements are easy to meet when emergency transportation is involved, they are very difficult to meet for regularly scheduled, non-emergency transports. Under the same regulation, non-emergency transportation is appropriate only if either the beneficiary is bed-confined and it is documented that other methods of transportation are contraindicated because of the beneficiary's condition; or, regardless of bed confinement, the patient's medical condition requires ambulance transportation. Even though the regulation instructs that bed confinement is not the sole criterion for determining medical necessity of ambulance transportation, in practice the government almost exclusively focuses its attention on bed confinement.

In the recent prosecution in Houston, the government and its experts went further than focusing on bed confinement. They contended that a 'Special Rule' for unscheduled or non-repetitive ambulance transports in fact applied to all non-emergency transports, even though the regulations expressly provide a different 'Special rule' for regularly scheduled transports. Compare ' 401.40(d)(3) with ' 401.40(d)(2). Throughout the trial, the government and its experts insisted that ' 401.40(d)(3)(v) ('[t]he presence of the signed certification … does not alone demonstrate that the ambulance transport was medically necessary') allowed the government to disregard signed authorizations from the patient's attending physician. Around the time of the Houston trial, the U.S. Attorney's Office was taking the same position in a trial in another branch of the district. In her charge to the jury, the judge ruled that the government was wrong.

Another significant error of law advanced by the government dealt with a key exception to the federal Anti-Kickback Statute, 42 U.S.C. ' 1320a'7b. This statute broadly criminalizes providing (or offering to provide) things of value to people who can make referrals for items or services covered by federal health programs. After this law was enacted, Congress recognized that the law's reach was so broad that even socially appropriate conduct could be prosecuted. Therefore, it amended the statute to include exceptions and instructed HHS-OIG to develop additional safe harbors that providers could use for structuring their conduct to avoid violations. Currently, about two-dozen safe harbors are available. One of the most important is the employee safe harbor, which allows employers to pay bonuses and incentives to employees for attracting Medicare business. Under 26 C.F.R. ' 1001.952(i), certain offers and payments from employers to employees do not violate the federal Anti-Kickback Statute. Under this exception, prohibited 'remuneration' does not include what an employer pays a bona fide employee. Nevertheless, the government and its experts contended at trial that the defendants were guilty in part because they offered bonuses to paramedics for recruiting business to the ambulance company. But the judge ruled otherwise. She instructed the jury that the defendants would not be guilty of paying illegal bonuses so long as they were unaware that an employee was paying the patients to be recruited.

Reducing the Amount of Loss for Sentencing

The judge ultimately rejected the government's claim it could disregard signed certificates of medically necessity and let its experts opine as to the propriety of ambulance transports of ESRD patients. For this reason, the government faces the task of proving that the claimed loss should be included for sentencing purposes. The Sentencing Guidelines require the government to establish loss amounts by a preponderance of the evidence. Consequently, the loss amount in this case will likely be far lower than the government would have obtained in a plea bargain. In an exception to the general rule, here the defendants might wind up better off after the jury's guilty verdict than if they had pleaded guilty because the amount of loss has significant impact on the length of a sentence in fraud cases.

Medicare fraud and abuse cases are difficult for all parties. Defense counsel who get involved in defending these cases may find that, despite the odds being stacked in the government's favor, the issues are interesting and challenging. Whether the government's creation of dedicated Medicare Fraud Task Force offices in Miami, Los Angeles, and Houston will spread to other areas of the country remains to be seen. But, given the ever-increasing amount of government funds being spent on health care and the graying of the population, health care fraud and abuse investigations and prosecutions could reemerge as major priorities for federal prosecutors throughout the nation.

Michael E. Clark ([email protected]), a former federal prosecutor, is a member of this newsletter's Editorial Board. He represents businesses and professionals in administrative, civil, and white collar criminal matters and is the Chair of the White Collar Crimes Committee in the ABA Section of Business Law.