Investigations Newsletter: Ten Individuals Charged for $1.4 Billion Health Care Billing Scheme

Arent Fox

Ten Individuals Charged for $1.4 Billion Health Care Billing Scheme

On June 29, an indictment was unsealed charging ten individuals with health care fraud and wire fraud for allegedly participating in a pass-through billing scheme that used hospitals located in rural areas as shells to submit fraudulent claims worth $1.4 billion for laboratory testing. The ten individuals, including hospital managers, laboratory owners, and billers, were ultimately paid about $400 million by private insurers.

According to the indictment, the defendants would take over rural hospitals in Florida, Georgia, and Missouri that were in financial trouble using their own management companies, and bill private insurers through the rural hospitals for medically unnecessary lab tests, drug tests, and blood tests that were actually completed at outside laboratories that they also controlled. Defendants took advantage of the negotiated contracts that the rural hospitals had with private insurers that provided for higher reimbursement rates if the tests were billed through outside laboratories.

The indictment also charges recruiters who were allegedly paid kickbacks by defendants in exchange for obtaining urine specimens and other samples for testing. Eight defendants were charged with money laundering for their alleged role in promoting the scheme and distributing the fraudulent proceeds.

A copy of the DOJ’s press release can be found here.

Eleventh Circuit Partially Reinstates $348 Million FCA Verdict

The Eleventh Circuit reinstated $255 million of a $348 million jury verdict against skilled nursing facilities for overbilling Medicare by using billing codes falsely indicating that patients were provided a higher service of care than they actually were. In reinstating the $255 million verdict, the Eleventh Circuit reversed the district court’s decision to overturn the jury verdict after finding that the whistleblower had failed to prove at trial that defendants’ misrepresentations to Medicare were material to the government’s payment decision. The district court described the erroneous billing claims as “paperwork defects” and found that the misrepresentations could not have been material since the government continued to pay claims even after there was a dispute as to whether the defendants had engaged in overbilling.

In reversing the district court, the Eleventh Circuit found that the whistleblower, a nurse who had worked at two facilities operated by defendants, had alleged “a simple and direct theory of fraud” by showing that the facilities represented that they had provided more services than they actually performed by “upcoding” their bills, and were paid more than they were owed. Therefore, the false claims were clearly material to the decision by Medicare to pay the claims. The Eleventh Circuit rejected the notion that the defendants’ misrepresentations were simply clerical errors, finding that the jury was entitled to conclude that the misrepresentations were not the result of unintentional error.

In regard to the remaining $90 million verdict on Medicaid fraud claims, the Eleventh Circuit agreed with the district court that no jury could have reasonably concluded that fraud occurred since the whistleblower failed to show that the alleged failure to prepare and maintain comprehensive care plans for residents was material, as these violations are never enforced.

The Eleventh Circuit’s decision is the latest opinion that offers guidance on the materiality standard as set by the United States Supreme Court in United States ex rel. Escobar v. Universal Health Services, 136 S. Ct. 1989 (2016).

A copy of the Eleventh Circuit’s decision can be found here.

Our Analysis

The Risks Are Real: What We Know and Can Predict About CARES Act Financial Fraud Enforcement

While gearing up to get trillions of dollars into the economy, the government was also setting in place the mechanism to investigate and prosecute fraud related to these programs.

The CARES Act was signed into law on March 27, 2020 to inject over $2 trillion into the economy and help American workers and businesses survive the economic impact of the COVID-19 pandemic.

In only three months, the US government has initiated the first wave of aggressive criminal and civil investigations and actions to pursue allegations of fraud in connection with the procurement and use of this federal aid. And there can be no doubt that this enforcement activity will continue with vigor. Borrowers and businesses should be prepared for potential audits, investigations, and legal action if they such applied for or accepted government funds.

There is a dangerous misconception that potential CARES Act fraud under $2 million is not being pursued. The Department of Justice (DOJ) has already started prosecutions for alleged fraudulent schemes far less than that figure.

Read the full article.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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