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Health Care Fraud Report Fiscal Year 1997

Health Care Fraud Report Fiscal Year 1997

Table of Contents

Executive Summary

Health Care Fraud: Nature and scope of the problem

National Health Care Fraud Program

  • A Fair and Balanced Approach
  • Enforcement Vehicles - Criminal and Civil
  • Civil Rights of Institutionalized Persons Act
  • National Projects
  • Prevention Efforts

Enforcement Accomplishments

  • A Record of Success
  • Criminal and Civil Enforcement Statistics
  • Significant Cases


Future Challenges

Selected cases

Executive Summary

Since 1993, fighting fraud and abuse in the health care industry has been one of the Justice Department's top priorities. Health care fraud siphons billions of dollars away from federal health care programs - particularly Medicare and Medicaid - that provide essential health care services to millions of elderly, low-income, and disabled Americans. But the impact of health care fraud and abuse cannot be measured in terms of dollars alone. Increasingly, health care schemes that fraudulently deny medically necessary services pose a direct threat to the health and safety of individual patients.

The Department has developed a balanced and responsible program to fight health care fraud and abuse. The first component of the Department's program focuses on enforcement efforts, including the use of criminal and civil tools. The second component emphasizes prevention and deterrence, through compliance initiatives for the health care industry and through public education to empower individual patients to be vigilant in identifying and reporting potential health care fraud schemes.

The Department's enforcement actions have resulted in returning fraudulently obtained funds to the government, and in curtailing participation in federally sponsored programs. In FY 1997, $1.2 billion was awarded or negotiated as a result of criminal fines, civil settlements, and judgments in health care fraud matters. More than $500 million of this amount resulted from settlements in three cases involving clinical laboratory billing practices.

$695 million of the funds collected were returned to the Medicare Trust Fund to support future beneficiary payments. Additionally, 363 defendants in 217 criminal cases were convicted, and over 1000 individuals and businesses were excluded from participating in federal health programs due to criminal convictions.

The Department also works to prevent fraud in a number of ways: by encouraging providers to police their own activities through compliance programs; and by sponsoring consumer outreach initiatives, such as the consumer fraud hotlines, to involve patients with first-hand knowledge in the detection of fraudulent practices. Settlement agreements with providers also stress future prevention. Settlements in FY 1997 included 84 corporate integrity agreements, where providers committed to change their operations so as to prevent fraud from recurring in the future.

The Health Insurance Portability and Accountability Act of 1996 provided an additional $29 million in FY 1997 Department of Justice funding directed towards health care fraud, which represents a 48% increase over base funding levels. This funding is essential to continue to combat the challenges faced in several areas - home health care, durable medical equipment, and pharmacy services, to name a few. In addition, the pace of legislative and industry change is altering the landscape of health care delivery and payment, presenting new challenges that must be planned for, both in prevention and enforcement efforts.

Protecting against fraud in managed care is a major future challenge, since the percentage of beneficiaries participating in federally-funded managed care plans continues to grow. In managed care arrangements, the fraud prevention and detection effort is primarily concerned with ensuring that the full quality of care and range of services that providers contract to provide are actually delivered. Proper contracting provisions, quality assurance mechanisms, and post-care audits are required to ensure that providers comply with the care requirements and are accountable for their activities.

Health Care Fraud: Nature and Scope of the Problem

The Severity of the Problem

Fraud in the United States' health care system is a serious problem that has an impact on all health care payers, and affects every person in this country. Health care fraud cheats taxpayers out of billions of dollars every year. Tax dollars alone, however, do not tell the full story about the impact of health care fraud on the American people. Beneficiaries must pay the price for health care fraud in their copayments and contributions. Fraudulent billing practices may also disguise inadequate or improper treatment for patients, posing a threat to the health and safety of countless Americans, including many of the most vulnerable members of our society.

Fraudulent schemes are changing and growing more sophisticated. Unscrupulous persons and companies can be found in every health care profession and industry, and fraudulent schemes targeting health care patients, providers, and plans have occurred in every part of the country and involve a wide array of medical services and products.

While the vast majority of health care providers are law-abiding, some providers are taking advantage of federal health benefits programs. The Inspector General of the Department of Health and Human Services recently found that in FY 97, the Medicare program alone overpaid hospitals, doctors, and other health care providers more than $20 billion, or 11% of Medicare payments to providers. While not all of this involves outright fraud, we are losing billions of taxpayer dollars each year to fraud and abuse. In 1997, U.S. taxpayers lost the equivalent of more than $500 in improper payments for every one of the 38.5 million Medicare beneficiaries.

Who Commits Health Care Fraud?

Every type of provider commits health care fraud. Fraud has been perpetrated by individual physicians and large publicly traded companies, medical equipment dealers, ambulance companies, laboratories, hospitals, nursing homes, and home health care agencies. Individual scam artists who provide no health care at all prey upon the nation's health care programs, as well. Fraudulent schemes put billions of dollars in the pockets of individuals and providers who cheat the system, while we struggle to pay for life-saving drugs to fight AIDS or provide more frequent screening to detect and prevent cancer and other life-threatening illnesses.

How Do Perpetrators Commit Health Care Fraud?

Health care fraud schemes are diverse and vary in complexity, with unscrupulous providers targeting both public and private health insurance plans. Such schemes include:

  • billing for services not rendered
  • billing for services not medically necessary
  • double billing for services provided
  • upcoding (e.g. billing for a more highly reimbursed service or product than the one provided)
  • unbundling ( e.g. billing separately for groups of laboratory tests performed together in order to get a higher reimbursement)
  • fraudulent cost reporting by institutional providers

Kickbacks in return for referring patients or influencing the provision of health care are another common scheme. The anti-kickback statute prohibits the payment of kickbacks for the purpose of inducing the referral of services which are paid for by federal health care programs. Kickbacks corrupt medical providers' decision making, placing profit above patient welfare. They can lead to grossly inappropriate medical care, including unnecessary hospitalization, surgery, tests, and equipment.

Other types of schemes include providing services by untrained personnel, failing to supervise unlicensed personnel, distributing unapproved devices or drugs, and creating phony health insurance companies or employee benefit plans.

Where Does Health Care Fraud Take Place?

Health care fraud schemes have been investigated and prosecuted in every part of the country, in urban and rural areas, and in rich and poor areas. As health care options and the reach of federal programs have expanded, so have the boundaries of health care fraud. New arenas for fraud are being seen in home health care and hospice services which have become eligible for reimbursement under federal programs. Strong control programs for reimbursement and vigilant enforcement efforts are required in these areas to prevent fraud from growing.

What Are the Consequences of Health Care Fraud?

Health care fraud exacts a price from everyone. A San Diego ophthalmologist defrauded Medicare by performing medically unnecessary surgeries. This doctor often saw more than 150 patients a day, performed 45 surgeries on some days, and gave each patient six separate procedures unrelated to any medical need. In Oklahoma, a psychiatric facility for children kept its costs low and profits high by understaffing the facility and keeping children in an unsafe environment, and then billed this "psychiatric treatment" to Medicaid. There are multiple examples of nursing homes that pocketed Medicare funds instead of providing residents adequate care. In a shocking example of this kind of misconduct, five patients died as a result of the inadequate provision of nutrition, wound care, and diabetes management by three Pennsylvania nursing homes; one death occurred when a patient, who was unable to speak, was placed in a scalding tub of 138-degree water.

Eliminating and deterring health care fraud schemes of all types are among the Department's highest priorities. We are committed to addressing the scope and variety of schemes in our efforts to successfully investigate and prosecute fraud.

National Healt Care Fraud Program

A Fair and Balanced Approach

The Department of Justice (DOJ) takes a balanced approach to combating health care fraud. The Department's strategy consists of two components: a strong civil and criminal enforcement program, recently strengthened under the Health Insurance Portability and Accountability Act of 1996 (HIPAA); and prevention efforts, which encourage providers to adopt compliance programs and accept responsibility for policing their own activities. We want to prevent fraud when we can and pursue civil and criminal remedies when we cannot. We are committed to tough but fair enforcement of federal civil and criminal laws, as well as to strong partnerships with health care providers to promote compliance within the industry. We believe that this approach -- of enforcing the laws and promoting compliance and prevention -- is the best way to strengthen the health care system in this country.

Direction under the HIPAA

Enacted in August of 1996, the HIPAA marks the beginning of a new stage in federal law enforcement efforts to combat health care fraud. HIPAA provides the focus necessary to aggressively confront the growing scope and complexity of health care fraud and to produce significant results. This focus coordinates the administrative approach, provides significant directed funding, and strengthens criminal laws and administrative powers related to health care fraud.

HIPAA required the Attorney General and the Secretary of the Department of Health and Human Services (HHS) to establish a Health Care Fraud and Abuse Control Program (HCFAC), providing a coordinated national framework for federal, state, and local law enforcement agencies, the private sector, and the public to fight health care fraud. The Program seeks to achieve the following objectives:

  • To punish wrongdoing
  • To deter others from committing fraud and abuse
  • To protect patients against abuse and neglect
  • To protect the integrity of the Medicare Trust Fund, and other Federal health care programs
  • To educate patients and providers about the need to prevent health care fraud and to foster compliance within the industry

HIPAA also strengthened enforcement authority under several new or revised provisions, including:

  • Created new criminal offense for health care fraud, theft or embezzlement in connection with health care offense, false statements relating to health care offense, and obstruction of criminal investigations of health care offenses;
  • Added a Federal health care offense to the money laundering statute
  • Extended injunctive relief relating to health care offenses ( includes freezing of assets);
  • Provided the AG with subpoena authority in criminal health care fraud investigations;
  • Established criminal forfeitures for Federal health care offenses;
  • Expanded anti-kickback statute to cover Federal health care programs, not just Medicare and State health care programs;
  • Strengthened exclusions for health care convictions

Significant progress was achieved in FY 1997 towards getting the program up and running. Under HIPAA, HHS and DOJ became jointly accountable to coordinate health care fraud prevention and enforcement activities nationwide. The Attorney General and the Secretary of HHS each year, must determine and certify discretionary funding requirements, which in FY 1997 was $104 million. In addition, the FBI receives mandatory funding under HIPAA, which in FY 1997 was $46 million. In 1997, the initial program structure and tracking mechanisms were established; resources were authorized to augment staffing in HHS and DOJ to deal with increasing caseloads; specific widespread types of frauds were addressed under a national project structure; several initiatives were developed to help providers understand and comply with the law aimed at preventing health care fraud; outreach programs for the public and specialized fraud training programs for DOJ staff were developed; and criminal, civil, and administrative sanctions were imposed with damages and penalties collected and restored to the Hospital Insurance Trust Fund, other federal health programs, and other statutory recipients.

Enforcement Vehicles - Criminal and Civil

During FY 1997, the Department's caseload grew significantly. Federal prosecutors and attorneys filed 282 criminal indictments in health care fraud cases, opened 4,010 civil health care fraud matters, and filed 89 new civil fraud cases. These numbers represent a 15% increase in criminal prosecutions and a 61% increase in civil matters opened over FY 1996. Since FY 1992, both criminal health care fraud prosecutions and convictions have more than tripled.

The use of civil laws is a critical component of our enforcement policy. Most civil health care fraud matters involve the False Claims Act (FCA), under which DOJ may bring civil enforcement actions and seek damages and penalties against providers who knew that false or fraudulent bills were submitted to Medicare, Medicaid, or other federal health programs.(1)

The Department has recovered $1.8 billion in matters involving alleged fraud against HHS since 1986, when Congress amended the FCA to strengthen this important remedy, and noted in doing so that the Act is intended to address fraud against the Medicare and Medicaid programs. Congress intended for all providers to take responsibility for ensuring the accuracy of the bills they submit for reimbursement. Mere negligence, mistakes, and inadvertence, however, do not amount to false claims, and DOJ does not and will not bring FCA actions against doctors and hospitals for honest billing errors. The purpose of the law is to single out those providers who recklessly or with deliberate indifference allow fraudulent billing practices to occur or continue.

In civil cases, the Department receives referrals from private whistle-blowers bringing qui tam actions, other informants, and federal and state agencies. The Department carefully examines each referral to properly assess the liability of the health care provider and encourages providers to brief the responsible government attorney on any factors which may have bearing on a case. The Civil Division also maintains staff with expertise in health care fraud, and may work in conjunction with the USAOs or independently to handle large, national, or precedent-setting cases.

Qui tam, or whistle-blower suits have dramatically increased detection of and monetary recoveries for health care fraud. Under the FCA, in certain circumstances private individuals can file an action on behalf of the United States, and obtain part of any recovery by the government in the action. The qui tam statute provides strong financial incentives to expose fraudulent activities. Over half of the $1.2 billion the Department was awarded in health care fraud cases in FY 1997, involved judgments or settlements related partially or completely to allegations in qui tam cases. Over one half of all qui tam suits involve allegations of fraud against HHS.

Qui tam suits are very important because they can serve to detect fraud that might otherwise go undetected. In a qui tam action, the government may choose to intervene and take over the case, or may decline yet collect part of any recovery in the case. Qui tam plaintiffs often work with DOJ to build a strong chain of evidence that can be used during settlement discussions or at trial.

Overall, the FCA has powerful and far reaching effects. First, it has been the vehicle for recovering hundreds of millions of dollars of fraudulently obtained funds each year. Second, the statute encourages providers to take responsibility for the accuracy of their claims - because they may be liable under FCA if they are reckless or deliberately ignorant of wrongdoing by employees. Finally, the statute helps to deter providers from committing fraud, because of its damage and penalty provisions. One recent study, "The 1986 False Claims Act Amendments: An Assessment of Economic Impact" by W. Stringer, estimates the deterrent effect of the FCA over the last ten years to be $148 billion.

New tools and training are also being developed to aid litigation efforts:

  • In 1997, the Executive Office for the United States Attorneys' (EOUSA) Office of Legal Education (OLE) conducted a number of both basic and advanced courses for Department attorneys, auditors, investigators and paralegals. This curriculum included two conferences entitled Basic Health Care Prosecution Team Training, largely for new Department personnel. This specialized training was very successful, and has been repeated and expanded in 1998.
  • The funding made available through HIPAA also made possible four Regional Training Conferences for FBI agents assigned to health care fraud investigations. These one-week training sessions sponsored by the Health Care Financing Administration provided in-depth training on the Medicare Program to almost 300 agents. Training was also provided on Pharmacy Diversion and Cost Report issues.

Civil Rights of Institutionalized Persons Act

In addition to the Department's civil and criminal health care fraud prosecutions, the Civil Rights Division has played an important role in protecting the rights of individuals in health care facilities and improving their conditions of confinement. During FY 1997, the Civil Rights Division continued its vigorous enforcement program under the Civil Rights of Institutionalized Persons Act (CRIPA) to remedy egregious conditions in public residential health care facilities. Under CRIPA, the Attorney General has authority to investigate conditions in public, residential institutions, including nursing homes and mental health and mental retardation facilities, and to take appropriate action where there is a pattern or practice of unlawful actions that deprive persons confined in the facilities of their constitutional or federal statutory rights. As a result of the Department's efforts since CRIPA was enacted in 1980, tens of thousands of institutionalized persons who were living in dire, often life-threatening, conditions now receive adequate care and services.

In FY1997, the Department was active in CRIPA matters and cases involving 43 health care facilities in 20 states, the District of Columbia, the Commonwealth of Puerto Rico, and the Territory of Guam. The Department initiated CRIPA investigations of 13 health care facilities, continued its investigations of nine additional health care facilities, and monitored the implementation of consent decrees involving 14 health care facilities. In addition, the Attorney General filed CRIPA suits involving seven health care facilities, all of which were resolved by settlement agreements entered as federal court orders during the fiscal year. The Department's efforts in these facilities focused on protecting residents from abuse and neglect and undue restraint, providing adequate medical and nursing care and rehabilitation, and ensuring that residents are served in the most integrated setting appropriate to meet their needs as required by the Americans with Disabilities Act.

National Projects

Increasingly health care fraud is becoming a widespread and sophisticated activity involving large computerized payment systems and a myriad of claims. Detecting fraudulent billing schemes often involves doing extensive computer analysis on claims. To provide for consistent treatment of fraudulent schemes national projects have been initiated to address similar types of wrongdoing by a given class of providers.

For each national project, the Department establishes a working group to provide "best practices" guidance, and oversee compliance with Department policies, while simultaneously giving USAOs the flexibility they need to address each matter fairly and on an individual basis. The working groups are comprised of Assistant United States Attorneys and Civil Division attorneys with particular expertise in health care fraud. For each project, the working group develops an appropriate, initial factual and legal predicate, a set of best practices on the investigative steps each district should take before proceeding against individual providers, sample contact letters, settlement agreements, and other pleadings. In addition, each working group is responsible for coordinating efforts with the investigative and program agencies. Working groups aim to ensure that the legal process and standards used are consistent across cases and afford proper notice and opportunities for response to providers.

A major national project undertaken that yielded significant results was the 72 Hour Window Project, which detected and sought recoveries for double billings that occurred when hospitals billed Medicare for outpatient services rendered within 72 hours prior to hospital admission. The costs for these services were to be reimbursed as part of the standard Diagnosis Related Group (DRG) reimbursement amount, and should not have been billed separately. Over

$46 million was returned to the government by October 1, 1997.

Prevention Efforts

Outreach efforts are crucial to winning the fight against health care fraud. The Department wants to encourage corporate citizenship and affirm the importance of strong compliance programs. This emphasis on compliance plans represents a fundamentally different approach from traditional law enforcement. Rather than the FBI and the Inspector General policing corporations, corporations would police themselves. Rather than an adversarial relationship between law enforcement and the private sector, there would be a relationship of cooperation and mutual support. Providers also benefit because a successful compliance program helps them to avoid potential civil and criminal liability.

Under a compliance program providers become knowledgeable about when, where, and how fraud can occur, as well as about what the law and regulations require. They then develop control procedures and reporting for vulnerable aspects of their operations to prevent common types of fraud. They also develop reporting and audits that can detect fraud, and a way to deal with problems when they are found. If problems are found, they should be disclosed to the appropriate agencies and authorities to limit potential liability.

HHS and the Department are trying to encourage responsible provider action by providing model compliance guidance, and by providing interpretations of the law to guide providers in assessing their activities. The program in FY 1997 included many diverse initiatives to promote prevention through effective compliance. An advisory opinion process, through which HHS can provide guidance on whether specific transactions violate the anti-kickback or civil monetary penalty statute, was established, and four advisory opinions were issued.

HHS-OIG has developed model compliance plans for clinical laboratories and, recently, for hospitals. HHS-OIG will continue to develop these plans as well as voluntary disclosure programs. In addition, HHS is canvassing the industry for suggestions on where safe harbors under the anti-kickback statute and special fraud alerts are needed.

Outreach efforts will also focus on beneficiary populations, educating them on how to recognize and report suspected fraud and abuse. Consumers of health care should be the first line of defense against fraud. The Department places a high priority on this kind of outreach and intends to increase its efforts to enhance public awareness of health care fraud.

During FY1997, the Civil Rights Division also engaged in active outreach efforts to educate consumers, advocates, and the public about its CRIPA activities. The Division created a Nursing Home Working Group with representatives from its Criminal, Disability Rights, Housing, and Special Litigation Sections, to coordinate and enhance its civil rights enforcement efforts in nursing homes. As required by CRIPA, where federal financial, technical, or other assistance was available to help state and local jurisdictions correct deficiencies, the Division advised responsible public officials of the availability of such aid and arranged for assistance, where appropriate.

Enforcement Accomplishments

A Record of Success

The Department of Justice reached unprecedented levels of success in its fight against health care fraud in FY 1997. United States Attorneys' Offices (USAO), the Civil Division, the Criminal Division, the Federal Bureau of Investigation (FBI), and the Justice Management Division (JMD) have utilized the increased resources provided by HIPAA, to prosecute and win record numbers of cases and recover larger amounts in fines and settlement payments than ever before. Statistical enforcement accomplishments in both civil and criminal cases are presented below, followed by synopses of key cases. Descriptions of a variety of FY 1997 cases appears at the end of this report.

In FY 1997, enforcement efforts resulted in $1.2 billion in civil settlements and judgments won or negotiated. $517 million of these judgments were from three cases against independent laboratories for similar types of false billing.

The DOJ collected $785 million in FY 1997. Of the monies collected, $665 million was returned to the Medicare Trust Fund, $31 million was recovered as the federal share of Medicaid, $55 million was restored to other Federal agencies, and $33 million was paid to plaintiffs involved in qui tam suits.

Criminal and Civil Enforcement Statistics

Both criminal and civil investigations and cases filed for health care fraud rose again in

FY 1997. Criminal matters investigated increased 13% in FY 1997, and prosecutions increased 15%. Criminal health care fraud cases are referred to USAOs by the FBI,

HHS-OIG, or other enforcement agencies and opened as matters pending in individual districts. A case remains a "matter" until an indictment is filed or the case is declined for prosecution. As the number of matters referred to USAOs has increased, the number of criminal health care fraud prosecutions filed has correspondingly increased.

Health care fraud convictions include both guilty pleas and guilty verdicts. The Department has seen a tremendous increase in the number of convictions. In FY 1997, criminal convictions reached a record high of 217 cases, which was a 22% increase over FY 1996.







































Civil health care fraud cases may be handled by a USAO itself or by the Civil Division in conjunction with a USAO. USAOs handle most matters in which the alleged single damages are less than $1 million. Civil health care fraud matters are referred by federal or state investigative agencies or by private persons known as "relators". Relators file suits on behalf of the federal government under the 1986 qui tam amendments to the FCA, and may be entitled to share in the recoveries resulting from these lawsuits. When a case is referred to a USAO it becomes a matter pending in the district. The United States may file a civil complaint or intervene in a qui tam complaint in U.S. District Court.



















In conjunction with the USAO's, the Civil Division also pursues civil remedies in health care fraud matters, working closely with the FBI, HHS-OIG, and other federal law enforcement agencies. The Civil Division initiated a record number of 243 new health care fraud matters in FY 1997, which is double the number initiated in FY 1996.

Civil Division judgments and settlements in health care fraud matters rose from $274 million in FY 1996 to $989.7 million in FY 1997, an increase of 261%. This number includes judgments awarded and settlements negotiated, in that fiscal year, from cases involving the Civil Division working with USAO's, and excludes civil cases handled exclusively by USAOs and criminal cases.

Qui tam actions continue to provide support for a major portion of civil cases and recoveries, as shown below.


FY 1996

FY 1997

Qui Tam Cases Filed



Qui Tam Cases Filed Alleging Health Care Fraud



Health Care Fraud Judgments/settlements in Matters with Qui tam Claims

$135.5 mm


Total Health Care Fraud Judgments/settlements

$274.1 mm


In addition to acting on referrals of fraud allegations, the Affirmative Civil Enforcement (ACE) program was initiated to encourage the USAOs to take a proactive approach to the use of available civil remedies to address health care and other fraud. The ACE program provides dedicated resources to supplement those of various enforcement agencies on specific projects, and also to investigate potential fraudulent practices where no specific referral is involved.

Significant Cases

In one of the two largest FCA settlements ever reached, SmithKline Beecham Clinical Laboratories, headquartered in Philadelphia, paid $325 million to resolve federal and state fraud claims alleging overcharges to the Medicare, Medicaid, Federal Employees Health Benefits, Railroad Retirement, and the Department of Defense Tricare (formerly known as CHAMPUS) health care programs. Allegations of a wide range of fraud schemes include billing for tests not provided, not requested by the referring physician, or not medically necessary; and paying various forms of kickbacks to referring physicians. SmithKline was also alleged to have obtained payment from Medicare by inserting false "diagnosis" codes on claims, and to have double billed for tests for kidney dialysis patients. The settlement involved three qui tam actions filed against SmithKline while the government's wide-reaching investigation into the billing practices of clinical laboratories (Operation LABSCAM) was underway.

Two other very large settlements, that were also an outgrowth of the LABSCAM investigation, were with Damon Clinical Laboratories, Inc. for $83.7 million, and Laboratory Corporation of America (LabCorp) for $182 million. Both of these cases involved the laboratories making it difficult for physicians to order individual tests, in effect forcing multiple tests to be ordered, and then billing Medicare separately for the unbundled tests. Both of these suits involved qui tam lawsuits, and the qui tam plaintiffs involved received $22.5 million of the settlement amounts.

In the home health area, the nation's largest home health provider, First American Health Care of Georgia, Inc., and its purchaser, Integrated Health Services, Inc., agreed to reimburse the federal government approximately $252 million for overbilled and/or fraudulent Medicare claims submitted by the company. First American, which operated 425 facilities in more than 30 states, billed Medicare for personal expenses of First American's senior management, and marketing and lobbying expenses. First American filed for bankruptcy protection last year in Georgia and its purchaser in bankruptcy agreed to pay the government on First American's behalf.

Smaller but significant settlements were reached in relation to carrier fraud and kickback schemes. Blue Shield of California paid $12 million to settle allegations that it altered or destroyed documents to obstruct HCFA's Medicare contract performance review. In September 1997, Baptist Medical Center agreed to pay $17.5 million to resolve claims concerning $1 million in kickbacks it allegedly paid, as well as fraudulent Medicare claims. Apria Healthcare Group Inc, a leading supplier of durable medical equipment, for $1.65 million, settled allegations of kickbacks for referral of patients requiring oxygen equipment. OrNda Healthcorp settled for $12.6 million to resolve claims that it paid physicians for Medicare patient referrals to its hospitals, and that it had prohibited financial relationships with these physicians.

Traditionally the FCA has been used to make claims for fraudulent billing, but has not been used to address cases where inadequate care is provided under federally funded programs. In a District Court decision, U.S. ex.rel. Aranda v. Community Psychiatric Centers of Oklahoma, Inc., Civ-94-608-A (W.D. Okla.), the Court held that a claim for inadequate quality of care could in fact be the basis for a claim brought under the FCA. This decision, while at a lower court level, begins to address the legal issues that will be faced as the use of capitated payment arrangements, such as HMOs, expands in the Medicare and Medicaid programs.


Passage of the HIPAA in FY 1996 greatly increased the resource levels devoted to health care fraud activities in FY 1997 and beyond. In FY 1997 the Department of Justice received

$22.2 million of the $104 million appropriation certified by the Secretary of HHS and the Attorney General, as necessary to execute the HCFAC Program. The funding breakdown within the Department is shown in the chart below. Separately, the FBI received $47 million ($39 of which was base funding which transferred to HIPAA) for related enforcement activities.

Expenditures in FY 1997 totaled $91.5 million, with $50.6 million for the FBI and $40.9 million for USAOs, Criminal and Civil Division. HIPAA funds allowed resources devoted to health care fraud to increase by 48% over base funding levels, from $61.7 million in FY 1996.

Discretionary funding under HIPAA will increase by 15% annually until FY 2003, and FBI enforcement funding will reach $114 million by FY 2003. The continued funding growth will fuel DOJ and HHS to sustain a record of successful enforcement under increasing caseloads.



(Dollars in thousands)

Department of Justice

United States Attorneys

Civil Division

Federal Bureau of Investigation

Criminal Division

Justice Management Division








Department of Health and Human Services


Other Agencies (Federal, State, and Local)




In the last four years, Department staffing for health care fraud has grown rapidly. Department prosecutorial and FBI agent work years devoted to health care fraud matters have tripled since FY 1993. Additionally, staff in the Civil and Criminal Divisions support the effort in litigating individual cases. The following chart shows the trend in attorney and agent work years devoted to health care fraud. The 51% growth in manpower (Department attorney and FBI agent work years) from FY 1996 to FY 1997 corresponds to the increased workload in civil and criminal matters handled of 44% and cases filed of 10%.


Fiscal Year


Civil Division

Criminal Division

FBI Agents
































The HIPAA funding supported 285 new Department health care fraud positions. Additions included 60 criminal Assistant United States Attorneys (AUSAs); 30 civil AUSAs;

23 paralegals; 30 auditor/investigators; 23 support positions, and a Health Care Fraud coordinator in the EOUSA's Legal Programs section. The Civil Division received an additional 33 positions, the Criminal Division an additional 4 positions, and JMD an additional 4 positions. The FBI also received additional funding for 46 agent and 31 support positions. This places a total of 370 agents at year-end FY 1997 devoted to health care fraud, as compared to 112 in FY 1992. The full impact of these new positions will be realized in future years as new staff is hired, trained, and become more productive.

Future Challenges

Although the Department of Justice has achieved significant results in its health care fraud program over the past year, many new challenges lie ahead. In an ever changing economic and regulatory environment, the Department's enforcement activities must continually evolve to remain as effective as possible.

As a result of legislative and regulatory action, Medicare and Medicaid payment mechanisms have been changed, eliminating some systemic vulnerabilities, while creating new opportunities for fraud and abuse. The Department will not merely react to these changes; but will be ever vigilant to new schemes and will adapt enforcement practices accordingly. The Department also will continue to devote its attention to efforts to prevent fraud, through stepped-up compliance efforts and consumer and patient education.

The Department will also continue to hold itself accountable for its enforcement efforts, ensuring that, in all respects, investigative and prosecutive activities are both tough and fair. Moreover, we will enlist the assistance and input of the public, consumers and providers alike, in this effort.

Although all significant health care fraud schemes warrant the Department's attention, we will be especially cognizant of the adverse impact of some providers' fraudulent actions on the health of the patients for whom they care. The denial of medically necessary services, threats to the health of the nation's elderly, and the underservice of populations in managed care plans will receive the Department's special attention.

Selected Cases

Ambulance Services

  • On January 22, 1997, in the District of Arizona, six members of the Baker family, owners and operators of Professional Medical Transport, Inc., of Phoenix, Arizona, were charged, in a 68-count indictment, with submitting $1.3 million in fraudulent Medicare billings, along with witness tampering and making illegal campaign contributions. The indictment charges that PMT overcharged Medicare by billing for full ambulance services when those services were not medically necessary.
  • In the Northern District of California, the Goldstar Ambulance Company was found liable under the FCA for submitting false claims to Medicare for routine, round-trip transports of dialysis patients. In an opinion issued on April 8, 1997, the judge concluded that the defendants were reckless in failing to verify to actual condition of the patients before submitting the request for payment. The court found defendants liable for treble damages and $5,000 penalties for 49 of the 100 dialysis claims submitted into evidence. The district court's decision has been affirmed on appeal by the United States Court of Appeals for the Fifth Circuit.
  • On May 22, 1997, five defendants were sentenced in cases relating to Medicaid fraud by two ambulance companies in the Southern District of West Virginia. One rescue squad captain and emergency medical technician (EMT) were sentenced to 24 months in prison and ordered to pay $15,000 in restitution. One former ambulance driver was sentenced to 12 months in prison and ordered to pay $8,000 in restitution. Another EMT was sentenced to 18 months in prison and ordered to pay $8,000 in restitution. The last defendant was sentenced to 24 month in prison and ordered to pay $125,000 in restitution for submitting bills to Medicaid based on fraudulent squad records, and his ambulance service was ordered to serve five years' probation and pay $175,000 in restitution.
  • On May 29, 1997, St Joseph's Medical Center, a Baltimore area hospital, in the District of Maryland, agreed to pay the United States $564,000 to settle FCA allegations that it improperly billed the Medicare program for ambulance transportation of patients. From 1992 to 1995, Medicare paid St. Joseph's $188,000 for 159 claims for ambulance transportation of patients who were actually transported by hospital gurney for diagnostic services to offices located within or near the hospital complex. St Joseph also entered into a compliance agreement with the HHS-OIG.
  • On June 27, 1997, American Ambulance & Oxygen, in the District of Maryland, agreed to pay the United States $1.45 million to resolve allegations it violated the False Claims Act (FCA) in transporting Medicare patients for routine medical office visits. The medicare beneficiaries were ambulatory and did not qualify for ambulance transportation.

False Claims Submitted Through Billing Firms

  • On April 21, 1997, Metzinger Associates, a New Jersey Medicare billing consulting company, agreed to pay $60,000 in fines, provide 250 hours of consulting services to the U.S. Attorney's Office to help the government detect Medicare and Medicaid billing and coding fraud, and to be excluded from Medicare and Medicaid for three years to settle FCA violations. The USAO for the Eastern District of Pennsylvania brought suit against Metzinger and a number of hospitals in 1994 alleging, among other things, FCA violations for using improper coding methods such as upcoding, unbundling, and rebundling to maximize Medicare reimbursement.
  • On May 21, 1997, in the Western District of Oklahoma, EmCare, Inc., of Dallas, Texas, one of the nation's largest physician staffing companies, agreed to pay more than $7.75 million to settle allegations that it overcharged Medicare, Medicaid, the Federal Employees Health Benefits Program, and CHAMPUS, by submitting false claims through an Oklahoma City billing company, Emergency Physicians Billing Services. The claims reflected more expensive medical procedures than were actually performed and billed for services more extensive than those actually provided by EmCare physicians. The case was brought through a qui tam suit in 1994; the relator has since died, but her estate will receive $1.5 million.
  • On June 5, 1997, Coastal Emergency Physicians Group of Texas (Coastal), in the Western District of Oklahoma, agreed to pay the federal government and the state of Texas $268,460 to settle allegations that a billing service, acting on behalf of a company owned by Coastal (Medicus Medical Group), submitted false claims to Medicare, Medicaid, and CHAMPUS. The United States alleges that Emergency Physicians Billing Services (EPBS) upcoded codes on claims submitted to agencies, and billed for services more extensive than those provided by Medicus' physicians. The agreement with Coastal settles an action originally brought as a qui tam case. The government is continuing to pursue matters against EPBS.


  • On March 6, 1997, in the Northern District of Texas, a medical clinic owner and operator was sentenced to 84 months in prison for conspiracy to commit health care fraud. His clinics advertised "free" weight-loss treatment, which is not covered by insurance companies, and then subjected patients to extensive and expensive testing and billed various insurance companies for the tests and office visits. The clinics disguised the claims by indicating that the weight loss treatments pertained to covered medical conditions.
  • In the Northern District of Texas, on March 27, 1997, two diet clinic operators were sentenced for submitting false claims to CHAMPUS, private insurance companies, and self-insured companies through U.S. mail. They conspired with three medical doctors in offering a "free" medically supervised weight loss program, and instead their clinics ran patients through extensive standard testing and then billed the patients' insurance companies between $600 and $750 per set of tests. On the claims forms, they concealed the weight loss treatment and diagnosis of obesity, which are not covered by medical insurance.
  • On April 30, 1997, Rogue Valley Serenity Lane, in the District of Oregon, an alcohol and drug treatment facility near Portland, Oregon, agreed to pay the government $400,000 to settle claims that the facility fraudulently billed Medicare for services not covered and not properly documented. The government alleged that Rogue Valley had bundled the costs of non-covered room and board into its charges for group psychotherapy at its outpatient residential facility. The government also alleged that Rogue Valley had failed to document that Medicare patients received the therapy sessions for which Medicare was billed.

Defective Pricing and Buy America Act Violations: Drugs and Supplies

  • In December 1996, Horizon/CMS Healthcare Corporation, in the District of New Mexico, agreed to pay $5.7 million to settle FCA allegations that in 1994 the company submitted false reimbursement claims for supplies to Medicare Part B and Medicaid. Horizon, after acquiring the Greenery Rehabilitation Group of skilled nursing facilities located in Connecticut, North Carolina, Louisiana, and Massachusetts engaged in a "retro-active billing program" for medical supplies. Because Horizon misused and misinterpreted Greenery Group records, it billed for multiple supplies which obviously had not, and could not have been supplied to patients. This matter was settled prior to litigation. Horizon has agreed to adopt a corporate integrity program to identify problems and prevent improper billing practices.
  • On February 4, 1997, Apria Healthcare Group, Inc., in the Northern District of Georgia, one of the nation's largest suppliers of Durable Medical Equipment (DME) and three health care providers agreed to pay more than $2 million to settle allegations, brought in a qui tam suit, that they defrauded Medicare by using sham contracts and paying kickbacks. Under the terms of the settlement, Apria has paid $1.65 million, Georgia Lung Associates has paid $346,000, and two other providers, the Paso del Norte Health Foundation and Physicians Pharmacy, Inc., have paid a total of $24,000. The relator in the qui tam suit alleged that Apria, which provided pulmonary equipment and oxygen to Medicare beneficiaries, submitted false claims for patients whose referrals it received through a kickback scheme it operated by entering into sham contracts with one provider and compensating another provider for referrals. In a separate agreement with the HHS-OIG, Apria also entered into a corporate integrity agreement in which it agreed to ensure future compliance with Medicare laws and regulations, including a voluntary disclosure program for employees to report inappropriate practices.
  • On May 7, 1997, in the Northern District of Texas, a dentist, an attorney, and a businessman were charged in an 88-count indictment with defrauding Medicare by devising a scheme to sell inexpensive wheelchair cushions to elderly nursing home residents and then billing Medicare and Medicaid as if they had provided medically necessary, custom-fitted body jackets. They called their product "Lumbar Sacral Support Systems." The dentist allegedly marketed the cushions to nursing homes and then billed over $1,200 for each wheelchair cushion which cost him approximately $75 to produce. The attorney allegedly joined the scheme and help solicit investors and partners, as well as helping to form companies to promote and sell the cushions. The third defendant first invested in one of the companies created to market the cushion and later took over the running of the company.
  • On June 13, 1997, Orem Medical Corporation, in the District of Maryland, and its corporate principals entered into a civil fraud judgment under the FCA for $3 million. In the judgment, the Defendants acknowledged the submission of false claims for medical supplies to over 170 veterans hospitals. Orem failed to properly invoice the discount contract price for medical supplies under a Department of Veterans' Affairs contract. The judgment also requires permanent debarment from government programs.

Durable Medical Equipment Suppliers

  • On March 17, 1997, in the Southern District of New York, two former attending physicians at Lincoln Medical and Mental Health Center of the New York City Health and Hospitals Corporation (Lincoln Hospital) were charged in a 151-count indictment with conspiracy, mail fraud, and submitting false claims to Medicare and Medicaid for durable medical equipment (DME), which included wheelchairs, hospital beds, canes, walkers, and bedside commodes. The indictment charges that the defendants engaged in the preparation of false medical prescriptions for DME by obtaining names and Medicare/Medicaid identification numbers of beneficiaries and billing for equipment items authorized by examinations and diagnoses they did not perform.
  • On March 21, 1997, in the Southern District of Florida, a Miami resident who established two totally fraudulent medical equipment supply companies was sentenced to 54 months in prison, three years of supervised release, and a $15,000 fine for defrauding Medicare of $2.6 million. The companies existed only on paper; no patients were ever seen and no medical equipment was ever delivered. The defendant used the names of licensed physicians and patients' Medicare numbers without their consent. He pleaded guilty to a conspiracy to filing false claims.
  • On March 27, 1997, in the Southern District of Florida, a Miami man who served time in federal prison for drug smuggling and tax evasion pleaded guilty to defrauding Medicaid and received 10 years in prison. The defendant created 28 phony companies to file over $3 million in claimsto Medicaid for supplying oxygen equipment to poor and elderly Dade County residents, but did not supply them anything. He received approximately $1.5 million in cash from this scheme.
  • On May 29, 1997, in the Southern District of California, the CEO of Motion Medical Inc., and the corporation itself, pleaded guilty to one count each of mail fraud. Motion engaged in a number of fraudulent schemes to submit false billings to CHAMPUS, FEHBP, and private health insurance programs by billing for wheelchairs when only three-wheeled scooters were provided and for hospital beds when adjustable leisure beds were provided.
  • On May 2, 1997, in the Eastern District of Michigan, a father and daughter team from the Detroit area were sentenced each to 57 months in prison for defrauding Medicare out of more the $25 million. The indictment alleged that the defendants ran an enterprise through a pattern of racketeering activity for approximately five years. They fraudulently obtained more than $25 million from the Medicare program through a scheme to defraud which included receiving reimbursement for unneeded supplies provided to elderly patients residing in nursing homes, receiving reimbursement for medical supplies which they did not provide, misrepresenting the quantities of supplies actually provided, and engaging in deceptive billing practices. As part of a global settlement of criminal and civil allegations, they agreed to forfeit rights to $9 million in cash and property. In addition, to resolve FCA allegations arising from the same transactions, two other relatives agreed to pay $125,000, and two associates agreed to pay $250,000.
  • On July 20, 1997, in the Middle District of Florida, the owner of several durable medical equipment supply companies in the Tampa, Florida, area was sentenced to four years in prison and ordered to pay $10 million in restitution for running a multi-state Medicare fraud scheme. The three defendants operate 

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Directeur de la publication : Joël-François Dumont
Comité de rédaction : Jacques de Lestapis, Hugues Dumont, François de Vries (Bruxelles), Hans-Ulrich Helfer (Suisse), Michael Hellerforth (Allemagne).
Comité militaire : VAE Guy Labouérie (†), GAA François Mermet (2S), CF Patrice Théry (Asie).