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Reprinted from ANNALS OF INTERNAL MEDICINE Vol. 128; No. 8, 15 April 1998 Printed in U.S.A.

MEDICINE AND PUBLIC ISSUES

Understanding the Fraud and Abuse Laws: Guidance for Internists American College of Physicians *

This paper explains the fraud and abuse laws as they are

being enforced in December 1997. The American College

of Physicians recognizes the onerous burden that these

laws and their enforcement have on practicing internists.

These laws have created an atmosphere in which physi-

cians feel that almost all of their behavior is suspect. In

particular, many physicians believe that inadvertent billing

and coding errors made in the context of a complex system are being treated as fraud. For this reason, the College will

work with the American Society of Internal Medicine, the

American Medical Association, and other medical organi-

zations to develop legislative and regulatory proposals

that will 1) reduce unnecessary burdens for physicians who

do not engage in illegal activities and 2) prevent and

punish fraud.

I

Fraud and abuse is an umbrella term that applies to a

series of statutes and regulations designed to prevent

government health programs from paying excessive and

inappropriate claims. In recent years, federal and state

enforcement activities have been strengthened as govern-

ments have increasingly seen reduction of health care

fraud as a way to rein in spending and an opportunity to

reduce “waste” in government programs. A 1997 report

from the Department of Health and Human Services Office

of the Inspector General concluded that in fiscal year 1996,

net overpayments by Medicare totaled about $23.2 billion.

Although the Office of the Inspector General could not

identify how much of the overpayment was due to fraud,

the report has been used to justify increased scrutiny of

health care providers. This trend will continue, and en-

forcement of the fraud and abuse laws will increase, leav-

ing physicians vulnerable to various charges and

investigations.

This paper seeks only to explain the current rules and provide general guidance for internists. It does not explain

all of the details of each fraud and abuse statute or regu-

lation, and it should not be considered legal advice.

Rather, it uses both narrative and case examples to high-

light important issues and educate physicians about po-

This paper is also available at http://www.acponline.org.

Ann Intern Med. 1998;128:678-684.

* This paper, written by Michael J. Werner, JD, was developed for the American College of Physicians Health and Public Policy Committee (HPPC). Members of the HPPC were Whitney W. Addington, MD (Chair); Derrick L. Latos, MD (Vice-Chair); William M. Fogarty, MD; Janice Herbert-Carter, MD; Martin Hickey, MD; Richard Honsinger Jr., MD; Stephan L. Kamholz, MD; Risa J. Lavizzo-Mourey, MD; Joel Levine, MD; Wayne J. Riley, MD; Lee Toman, MD; Richard K. Tompkins, MD; and James Webster Jr., MD. This paper was approved by the Board of Regents on 11 January 1998.

678 0 1998 American College of Physicians

tential problems. Because this area of law is in flux and

physicians need the most up-to-date information avail-

able, physicians should contact their own attorneys before

participating in activities that may be governed by the

fraud and abuse laws. Updated information about fraud

and abuse will appear in ACP Observer and on the Ameri-

can College of Physicians World Wide Web site.

Unlawful Kickbacks: It is illegal to “solicit, pay, offer, or

receive any remuneration, in cash or in kind, for the referral or to induce the referral of a patient, or for ordering,

providing, recommending or arranging for the provision

of any service” payable by federal health care programs.

Examples of prohibited physician behavior are routinely waiving deductibles and copayments for Medicare pa-

tients and obtaining free office space or equipment at a

hospital where the physician has admitting privileges. The statute and regulations provide exceptions to the

general prohibitions that govern in many situations, in-

cluding risk-sharing arrangements. Physicians can request advisory opinions from federal regulators to determine

the legality of their activities. Information on obtaining

advisory opinions can be found at the Off ice of the Inspec-

tor General’s Web site.

Self-Referral Prohibitions: The law establishes two fun-

damental prohibitions on referral behavior. A physician

may not refer a Medicare patient for a “designated service” to an entity with which he or she has a financial

relationship, and the referred-to entity may not submit a

claim for the service unless the transaction meets one of the statute’s exceptions. The term “financial relationship”

is unlimited and includes compensation, investment, and

direct and indirect relationships.

The law describes two sets of exceptions: relationships

that generally require investment at fair market value and

relationships that involve members of group practices.

Physicians can seek advisory opinions from the Health Care Financing Administration (HCFA) about their particular

circumstances. Information on obtaining an advisory opin-

ion is available from the HCFA web site. False Claims: Physicians are vulnerable to criminal

charges and civil penalties if they engage in a pattern or

practice of presenting claims that they know or should know will lead to greater payments than are appropriate

or if they engage in a pattern or practice of submitting

claims that they know or should know are for services that were not medically necessary. Reckless disregard for the

accuracy of claims filed or an attempt to remain ignorant

of billing requirements will be considered a violation. In

addition, physicians who have been audited by the Office

of the Inspector General report that even good faith errors

are viewed with suspicion by the enforcement agencies

and can lead to sanctions. Behaviors likely to raise concern

include reporting improper diagnosis or procedure codes

to maximize reimbursement, double billing, claiming costs

for noncovered services, providing questionable documen-

tation for the medical necessity of professional services,

and misrepresenting information to obtain payments.

Because the penalties for fraud and abuse violations

are so onerous, physicians should develop a process for

internal review to ensure compliance with the law and

proper billing. This will enable physicians to identify prob-

lems and determine appropriate strategies for correction.

It will also help persuade the government that any identified problems are isolated and inadvertent errors rather

than evidence of fraud. Guidance on billing is available

from the HCFA Web site.

Penalties: The stakes are high for physicians involved in

fraud and abuse investigations. Government prosecutors

can seek to exclude physicians from Medicare, Medicaid, or

other federal health programs, can seek criminal sanc-

tions, or can try to impose large civil monetary penalties.

I n an attempt to rein in government spending, primarily in Medicare and Medicaid, and to im-

prove the fiscal integrity of Medicare and Medicaid, the U.S. Congress and the Clinton administration have expanded efforts to prevent fraud and abuse within these programs. Fraud and abuse is an umbrella term that applies to a series of statutes and regulations designed to prevent government health programs from paying excessive and inappropriate claims.

In recent years, federal and state enforcement activities have been strengthened as governments increasingly see reduction in health care fraud as a way to rein in spending and an opportunity to reduce “waste” in government programs. A 1997 report from the Department of Health and Human Services Office of the Inspector General concluded that in fiscal year 1996, net overpayments by Medi- care totaled about $23.2 billion. Although the Office of the Inspector General could not identify how much of the overpayment was due to fraud, the report has been used to justify increased scrutiny of providers.

As described below, the fraud and abuse laws are complex and often misunderstood. Nonetheless, failure to abide by their terms can lead to exclusion from Medicare, Medicaid, and other government health care programs; criminal sanctions; or the im- position of large fines.

This paper seeks only to provide general guidance for internists and does not explain all of the details of each fraud and abuse statute or regula- tion. Rather, it is designed to highlight important

15 April 1998

issues and educate physicians about potential problems. It should not be considered legal advice. Moreover, it is based on statutes, regulations, and advice from the federal enforcement agencies as of December 1997. Because this area of law is in flux and physicians need the most up-to-date information available, they should contact their own attorneys before participating in activities that may be governed by the fraud and abuse laws.

Physicians are also urged to contact their own counsel because they need advice and guidance based on their individual financial and professional situations. Further information about fraud and abuse will appear in ACP Observer and on the American College of Physicians World Wide Web site (http://www.acponline.org). The College will also remain a resource for physicians attempting to remain up to date on documentation and other issues that can trigger the application of fraud and abuse laws.

Unlawful Kickbacks

Under the federal anti-kickback statute, it is a felony to knowingly and willfully “solicit, pay, offer, or receive any remuneration, in cash or in kind, for the referral or to induce the referral of a patient, or for ordering, providing, recommending or arranging for the provision of any service” payable by the federal health care programs. Any financial gain by an entity that provides any kind of remuneration will be suspect.

Example: A contract between a public relations firm and a durable medical equipment supplier that participates in Medicare said that the supplier would pay the public relations firm a percentage of all Medicare business secured by the firm for the supplier. The court found this contract invalid because it arranged for an illegal kickback.

A physician who violates this law can face criminal or civil charges. If a physician has engaged in prohibited conduct with the specific intent to induce referrals or orders for services, he or she can face criminal charges. Civil penalties can be imposed for offering inducements to patients if the offeror knows or should know that they will influence patients to order or receive items or services from a particular provider, supplier, or practitioner. “Should know” is defined to mean acting “in deliberate ignorance” or “in reckless disregard” of whether the questionable activity would influence a patient.

The only statutory exceptions to the provision are for waivers of co-insurance and deductibles in certain circumstances, differentials in co-insurance and deductibles that are part of a benefit plan design and have been disclosed, and incentives given to

Annals of Intemal Medicine l Volume 128 l Number 8 679

individual persons to promote preventive care in certain circumstances. In addition, the law does not prohibit the provision of things of nominal value, such as refreshments, local transportation, and medical literature. However, such activities as 1) participating in joint ventures among providers where the physician-investors are chosen because they can make referrals or 2) routinely waiving Medicare copayments and deductibles for reasons other than the genuine financial hardship of a particular patient will be subject to scrutiny.

Example: A local hospital approaches a physician who is applying for admitting privileges and tells her that, in addition to these privileges, she will receive certain amenities or “perks” from the hospital, such as the use of significantly discounted office space or equipment and free training for her office staff in Current Procedural Terminology (CPT) coding and laboratory techniques. This arrangement is considered an illegal remuneration likely to induce future referrals.

Example: A physician practice routinely does not charge copayments or deductibles when the physicians provide services for the spouses of long-time friends or colleagues who are Medicare beneficiaries. This is an illegal remuneration because it is likely to induce patients to receive services from particular physicians and because there is no indi- cation that the patients are indigent.

Example: A hospital and a local physician group develop a joint venture to purchase and operate a clinic. The members of the physician group who provide services at the clinic have admitting privileges at the partner hospital and at another hospital in town. The physicians will continue to refer patients to both hospitals. The physicians will receive no compensation from the hospital regardless of the number of referrals made and will receive no compensation from the clinic but will directly bill Medi- care and other payers. The physicians will not be violating the anti-kickback statute because neither the hospital nor the physicians will use the venture to generate additional referrals or to be compensated for these referrals.

After the law was enacted, many organizations and entities complained that legitimate and benefi- cial commercial arrangements would be voided by the statute. Consequently, the Department of Health and Human Services established “safe harbors” to “immunize” certain activities. The regulations make it clear that an activity that is not covered by a safe harbor is not necessarily illegal or subject to heightened scrutiny. Failure to comply with a safe harbor means only that the arrangement does not have the “absolute assurance of protec- tion” from anti-kickback liability.

Eleven types of transactions were covered by the

original safe harbors. The situations governed by the safe harbors include investment interests, space rental, equipment rental, personal services and management contracts, sale of a practice, referral services, warranties, discounts, employees, and group purchasing organizations. As a rule, these safe harbors are narrow in scope and an activity must fall within very specific guidelines to be protected.

For example, the “space rental” safe harbor protects payments made by a lessee to a lessor for the use of premises as long as five criteria are met: 1) The lease is in writing and is signed by both parties; 2) the lease specifies the premises covered; 3) if the lease is intended to give the lessee access to the premises for periodic intervals rather than on a full-time basis for the term of the lease, the lease must specify the schedule of such intervals, their precise length, and the exact rent for such intervals; 4) the term of the lease is at least 1 year; and 5) the aggregate rental charge is set in advance, is consis- tent with fair market value in arm’s_length transactions, and is not determined in a manner that con- siders the volume or value of any referrals or other Medicare business between the two parties.

Managed Care Arrangements

Managed care arrangements are also covered by the anti-kickback law. As with other arrangements, any attempt to link referrals directly or indirectly with return on investments will be suspect. There- fore, an arrangement that renders a physician’s abil- ity to invest in an entity conditional on use of or referral to certain providers is unlawful.

Although many integrated delivery systems offer physicians investment opportunities in affiliated entities, such as managed care organizations or management services organizations, the law prohibits investment in businesses that participate in Medi- care and provide disproportionate benefits to investor- physicians. For example, stock in an affiliated managed care organization cannot be made available to primary care physicians at below-market prices on the basis of the number of enrollees who select those physicians as primary care physicians.

Certain integrated delivery system investments in physician groups are also unlawful.

Example: A physician group with a large number of Medicare beneficiaries that is seeking capital for expansion and integration efforts is contacted by a local integrated delivery system. The system offers to loan money to the group at below-market rates with an exceptionally long repayment schedule. En- forcement agencies would consider this loan an illegal remuneration.

In response to the growing influence of managed care in the marketplace, the Department of Health and Human Services recently promulgated safe har-

680 15 April 1998 l Annals of Internal Medicine l Volume 128 l Number 8

bors to govern managed care arrangements. One states that increased coverage and reduced cost- sharing or premiums offered by Medicare risk-based health care organizations are not unlawful. Another protects similar activities by plans that do not contract with the Health Care Financing Administra- tion (HCFA) but pay providers on an at-risk, capi- tated basis if the following conditions are met: 1) The term of the agreement between the plan and the provider is at least 1 year; 2) the agreement specifies in advance the covered items and services to be furnished to enrollees and the total amount per enrollee that the provider will be paid, including the copayments to be paid by enrollees to the provider; 3) the payment amount contained in the agreement between the plan and the provider must remain in effect throughout the term of the agreement; 4) the provider and plan must fully and ac- curately report to Medicare the terms of the agreement; and 5) the provider must not claim or request payment in any form from the Department of Health and Human Services, a state health care program, or an enrollee, and the plan cannot pay the provider in excess of the amount stated in the agreement.

Risk-Sharing Exception

The anti-kickback law was recently amended to include a statutory exception for risk-sharing arrangements. Any remuneration between a Medicare risk contractor and a person or entity providing items or services on the basis of a written agreement or providing remuneration on the basis of an agreement that places the person or entity at sub- stantial financial risk for the cost or use of the items or services that the person or entity is obligated to provide will be protected. This exception applies only to agreements entered into after 1 January 1997.

Advisory Opinions

Physicians can request an advisory opinion from the Office of the Inspector General to determine whether their activities are legal. These opinions are only binding for the activity contemplated by the individual requester. The Office of the Inspector General’s Web site (http://www.os.dhhs.gov/progorg/ oig) contains instructions on obtaining an advisory opinion.

In general, the arrangement must exist at the time of the request or the requester must have a “good faith intention” to enter into the described arrangement in the near future. The request must be in writing and must include a complete and specific description (including all documents, such as contracts, leases, and employment agreements) of all relevant information. The requester must pay for the advisory opinion (a $250 processing fee and

about $100 per hour for the federal agencies re- sponding to the request). The Office of the Inspec- tor General is required to respond within 60 days.

Self-Referral Prohibitions

The Ethics in Patient Referral Act and subse- quent amendments, known as Stark I and Stark II after their author, Congressman Stark, establish two fundamental prohibitions. A physician may not refer a Medicare patient for a “designated service” to an entity with which he or she has a financial relationship, and the referred-to entity may not submit a claim for the service unless the transaction meets one of the statute’s exceptions.

Designated services are defined in the statute as physical therapy; clinical laboratory services; radiology; radiation therapy; occupational therapy; durable medical equipment and supplies; parenteral and enteral nutrients, equipment, and supplies; prosthet- ics, orthotics, and prosthetic devices and supplies; prescription drugs; inpatient and outpatient hospital services; and home health services.

The term financial relationship is unlimited and includes compensation, investment, and both direct and indirect relationships. The statute’s ban on referrals also applies to members of the invested physician’s group. Thus, a physician cannot refer to an entity if one of his partners has invested in that entity.

Non-Group Practice Exceptions

The self-referral prohibition applies unless the relationship is covered by one of the law’s specified exceptions. The exceptions include renting equipment and office space under certain circumstances; making payments to the referred-to entity, provided that the payment is for fair market value; owning publicly traded securities and mutual funds, provided that they have been obtained on terms available to the public and that the entity in which the physician has invested has had stockholder equity of at least $75 million during the 3 previous fiscal years; investing in a rural provider if substantially all of the designated health services that the provider supplies are furnished to persons residing within the rural area; investing in a hospital if the physician is authorized to provide services there and the investment is directly in the hospital itself; and recruiting physicians by inducing them to relocate into the community.

Example: A physician calls her stockbroker and invests $25 000 to purchase, at market price, shares in a large, well-established mutual fund that has stock in several health care companies as part of its portfolio. Ten percent of the stocks held by the fund are shares in XYZ Hospital Corporation, a

1.5 April 1998 l Amals of Interm Medicirle l Volume 128 l Number 8 681

national chain of for-profit hospitals. Even if the physician refers patients to a local XYZ hospital, she is not violating the law provided that the mutual fund has had sufficient equity over the past 3 years.

Example: An internist in solo practice invests in a local hospital where he has admitting privileges. A few years later, the hospital invests in a free-stand- ing imaging center. The internist refers Medicare patients to the center for radiology services. He has not violated the law because his investment was in the hospital and thus meets one of the statute’s exceptions.

Group Practice Exceptions

The statute also provides for three exceptions with respect to self-referral, provided that the physicians involved meet the statute’s definition of a group practice. According to the law, a group practice is a legally organized group of two or more physicians in which each member provides most of the full range of services provided by the physicians. In addition, the law requires that the physicians share office space, facilities, equipment, and personnel; almost all of the services of the group members must be provided through the group and billed under a single group number; and members of the group must conduct no fewer than 75% of the physician-patient encounters. Moreover, the physicians within the group must be compensated in a manner that does not directly or indirectly reflect the volume or value of referrals made by those physicians. The ramifications of this definition are that many loosely integrated organizations, such as independent practice associations and preferred provider organizations, will not meet the requirements and therefore could undertake activities that run afoul of the Stark laws.

If the physician organization meets the definition of a group, the activities of the physicians will be protected if they fall within three statutory protec- tions: that is, if 1) they refer a patient for a designated service to be performed by another physician in the group; 2) they refer a patient for a designated service furnished by the referred physician himself or herself, another physician who is a member of the same group, or someone directly supervised by a member of the group (this is often interpreted to mean employees of the physician practice) if the services are provided in a building in which the referring physician (or his or her group member) furnishes services other than the designated services; and 3) the group had a relationship with the referred-to hospital before 19 December 1989.

Example: A physician group that owns a clinical laboratory develops a compensation system that pays member-physicians bonuses on the basis of the number of referrals that they make for laboratory

services. This arrangement is not legal under the Stark laws because a group practice cannot compen- sate physicians in a manner that is directly related to the volume of referrals for designated services.

Example: A group practice purchases equipment and medications so that chemotherapy can be provided in the office by one of the physicians or by support personnel. This arrangement is probably legal under the Stark laws because chemotherapy and other outpatient prescription drugs can be provided in the office as long as they are administered by the physician directly or by support personnel under the physician’s supervision.

Advisory Opinions

Physicians who are unsure whether their activity would violate the self-referral ban can seek an advisory opinion from the Department of Health and Human Services. These advisory opinions are not available for arrangements with clinical laboratories. The opinions bind the government and the request- ing party only. More information about how to obtain an advisory opinion is available on HCFA’s Web site (http://www.hcfa.gov).

False Claims

The federal False Claims Act states that any knowing and willful statement that is inaccurate and is made to obtain funds from the government is a false claim. Physicians violating this Act are subject to criminal penalties. Under the provisions of both the False Claims Act and the Health Insurance Portability and Accountability Act, physicians are also vulnerable to civil penalties if they engage in a pattern or practice of presenting claims that they know or should know will lead to greater payments than are appropriate or if they engage in a pattern or practice of submitting claims that they know or should know are for services that were not medically necessary. “Should know” is defined to mean acting “in deliberate ignorance of the truth or falsity of the information” or acting “in reckless disregard of the truth or falsity of the information.”

Thus, a reckless disregard for the accuracy of claims filed or an attempt to remain ignorant of billing requirements will be considered a violation. In addition, physicians who have been audited by the Office of the Inspector General report that even good faith errors are often viewed with suspicion by the enforcement agencies and can lead to sanctions.

Violations of the False Claims Act primarily arise in cases of fraudulent billing and coding for Medi- care services. Some courts have held that violations of the anti-kickback and self-referral prohibitions, and the claims filed therein, are also violations of


this Act. Behaviors likely to raise concern include reporting improper diagnosis or procedure codes to maximize reimbursement, double billing, claiming costs for noncovered services, providing questionable documentation for the medical necessity of professional services, and misrepresenting information to obtain payments.

To help physicians comply with the law and prop- erly bill for the services they provide, HCFA recently published guidelines for evaluation and management codes. These guidelines are available from HCFA’s Web site. (The guidelines, however, are controversial, and implementation may be delayed to accommodate revisions.)

In general, one of the best ways for physicians to deflect scrutiny is to adequately document the jus- tification for all treatment decisions and resulting claims. The Office of the Inspector General’s audit of the Medicare program found that insufficient or no documentation accounted for almost $11 billion in inappropriate payments in fiscal year 1996. Over the next few years, federal agencies as well as insurance carriers will demand better documentation from physicians. Physicians who appropriately document the rationales for their decisions are less likely to generate controversy.

In addition to good documentation, physicians should follow basic reimbursement rules to avoid liability. To be reimbursable, a physician service (such as diagnosis, therapy, or consultation) must be rendered by a physician, and any ancillary services performed that are incident to a physician’s service are reimbursable if they are performed by a physician or a nonphysician who is under the direct supervision of a physician (this has been interpreted to mean an employee of the physician practice). In addition, a physician must be on the premises and must be available to assist the ancillary personnel providing the services included in the claim.

Example: A physician arranges for free medical tests in his office to be provided by an outside laboratory on a walk-in basis. The physician reviews the test results and, although he does not actually see the persons tested, he is listed as the “referring physician” by the laboratory on its Medicare claims and certifies that the insurance billings are for tests that are medically necessary. This arrangement is a violation of the False Claims Act. The physician is liable even though he did not perform the tests or submit the claims.

Example: A physician hires a physician assistant to help manage a growing practice. While the physician is out of the office making rounds at the local hospitals, the physician assistant takes detailed patient histories and does second-level office visits. The physician bills Medicare for these services. The physician has violated the Federal False Claims Act

because in order for the physician to bill for services performed by a physician assistant, the physician must directly supervise the physician assistant or be present in the office suite.

Physicians who use billing companies as “consultants” should also beware. Although the Department of Health and Human Services has said that use of these companies is not illegal, companies that are paid on the basis of a percentage of Medicare reimbursement returned or that submit claims without having them reviewed by the physician will generate scrutiny.

Because the penalties for fraud and abuse violations are so onerous, physicians should consider developing a process for internal review to ensure compliance with the law and proper billing. This will enable the physician to identify problems and determine an appropriate strategy for correction. It will also help persuade the government that any identified problems are isolated and inadvertent errors rather than evidence of fraud.

Many experts argue that a formal review of billing procedures and any other internal assessments of the physician’s compliance with fraud and abuse rules and billing requirements should be conducted under the direction of an attorney. If accountants and other consultants are necessary to complete the internal audit, they can be hired by the attorney. If this assessment is done under the attorney’s direction, attorney-client privilege can shield internal assessments of billing. Otherwise, the information identified during the assessment, including any anal- ysis and work, must be turned over to the government in a future investigation.

The Department of Health and Human Services has published a model compliance plan for clinical laboratories, which is available from the Office of the Inspector General’s Web site. Over the next several months, the Department of Health and Hu- man Services intends to develop model plans for physicians, hospitals, and other sectors of the health care industry. These will also be available from the Office of the Inspector General’s Web site.

In general, an effective compliance plan should contain the following elements: evidence that the organization, including its leadership, is committed to standards of behavior (often implemented by developing written policies and procedures to ensure proper conduct and assigning responsibility to a se- nior manager for day-to-day policy implementation and enforcement); effective training and education programs for everyone in the organization to ensure accurate and appropriate billing for services; regular monitoring of the organization’s activities; a way for anyone in the organization to confidentially report practices deemed to be inappropriate; and the abil- ity to respond to such reports and take corrective

15 April 1998 l Annuls of Internal Medicine l Volume 128 l Number 8 683

action. As with defenses under the False Claims Act, appropriate documentation is a central compo- nent of a good compliance plan.

Penalties

The stakes are high for physicians involved in fraud and abuse investigations. Government prosecutors can seek to exclude physicians from Medi- care, Medicaid, or other federal health programs or can try to impose criminal sanctions or large civil monetary penalties.

Exclusion

The secretary of the Department of Health and Human Services is required to exclude from Medi- care and state health care programs for at least 5 years physicians and entities who have been convicted of felonies relating to health care fraud, Medicare and Medicaid program-related crimes, and patient abuse. The secretary also has the dis- cretionary authority to exclude from these programs persons who have been convicted of misdemeanor criminal health care fraud offenses.

If the exclusion of a person for these offenses has been mandatory, that exclusion will be in place for 10 years (if the person has been convicted on only one previous occasion) or will be permanent (if the person has been convicted on two or more occa- sions). These exclusions apply to Medicare, state health care programs, and other federally funded health care programs (except the Federal Employee Health Benefits Program).

The secretary also has the authority to refuse to enter into an agreement or to terminate or refuse to renew an agreement with a physician who has been convicted of a felony under federal or state law for an offense that the secretary determines is “detri- mental to the best interests of the program or program beneficiaries.”

In addition, persons or entities found to have submitted or caused to be submitted claims for excessive charges or who furnished or caused to be furnished unnecessary items or services can be excluded for at least 1 year.

Moreover, an organization that is controlled by a “sanctioned” person (someone who has been ex-

cluded or has been assessed civil monetary penalties) can be excluded from federal and state health care programs. Control is defined as having a 5% ownership interest, being an officer or director, or having other management responsibility. If a physician transfers an ownership or control interest in an entity to an immediate family member or a member of the household in anticipation of or after a con- viction or exclusion from a federal health care program, the entity may be excluded from federal health care programs on the basis of that transfer.

Civil Monetary Penalties

A physician is subject to civil monetary penalties for violations of the anti-kickback statute in the amount of $50 000 for each offense plus treble dam- ages. These penalties also apply to a person who arranges or contracts for the provision of health care items or services with a person or entity that the person knows or should know has been excluded from participation in a federal health care program.

Civil monetary penalties may also be assessed when a person engages in a pattern or practice of presenting claims for 1) an item or service based on a code that the person knows or should know will result in greater payments than are appropriate or 2) a service that the person knows or should know is not medically necessary. The fine for each false claim is up to $10 000 per improper item on the claim form, and the damage assessment is up to three times the amount of the claim.

Conclusions

As several high-profile cases have illustrated, vigor- ous enforcement of the fraud and abuse laws will continue for the next few years, leaving physicians vulnerable to investigations and possible sanctions. The College will pursue legislative and regulatory relief for its members, but to avoid liability, physicians should educate themselves about the fraud and abuse laws.

Requests for Reprints: Michael J. Werner, JD, American College of Physicians, 700 13th Street NW, Suite 2.50, Washington, DC 20005.


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