Fraud, Waste, and Abuse in the Healthcare Industry

Fraud, waste, and abuse (FWA) have plagued almost every sector and program in the United States, with healthcare being the most targeted one. Even before the pandemic occurs, the 2018 National Money Laundering Risk Assessment found that the healthcare sector is one of the top sources of illicit funds.

In 2020 alone, the healthcare industry reported the highest number of new filings and accounted for over 80% of the recoveries on cases related to the False Claims Act.  On top of that, an average of 13 new cases continued to be filed by whistleblowers every week.

For this reason, state and federal departments have been conducting vigorous measures to prevent fraud, waste, and abuse in the healthcare system.

So with that in mind, we thought that it is important to recognize FWA in the system and identify some of the major laws surrounding it. This way, we would be able to avoid, detect, and prevent FWA in the healthcare system.

Fraud

In general and to put it simply, fraud is knowingly and intentionally defrauding the government for personal gain. Given that programs such as Medicare and Medicaid are healthcare programs organized by the government, it is illegal to defraud them in any way. Willfully committing or attempting to defraud any government healthcare program can result in civil and criminal penalties such as imprisonment.

As the Office of the Inspector General has defined it, “fraud is defined as the wrongful or criminal deception intended to result in financial or personal gain. Fraud includes a false representation of fact, making false statements, or by concealment of information.”

Some examples of healthcare fraud are

  • knowingly billing for services not provided
  • knowingly billing for nonexistent prescriptions
  • knowingly ordering unnecessary items and/or services for patients
  • knowingly altering medical records and/or other documents to receive higher payment

Notice the excessive use of “knowingly” for fraud?

That is because one of the stark differences between fraud to waste and abuse are knowledge and intent. We would further discuss waste and abuse in the next section, but for now, the key takeaway here is that fraud means that there is knowledge that the actions are wrong and that there is intent behind it.

Waste

As we have mentioned above, waste and abuse is different to fraud when it comes to intent and knowledge.

Waste pertains to direct or indirect practices that result in unnecessary expenditure and/or mismanagement of government assets. In the healthcare industry, this pertains to practices that lead to unnecessary costs to government-run healthcare programs such as Medicare and Medicaid.

It is worth pointing out that according to the Medicare Learning Network, “waste is generally not considered to be caused by criminally negligent actions but rather by the misuse of resources.”

Some examples of healthcare waste are:

  • Spending on more expensive services that have less favorable outcome even when there is a less expensive and more effective alternative
  • Prescribing more prescriptions than necessary
  • Conducting excessive and/or unnecessary laboratory tests
  • Scheduling and billing unnecessary office visits

Now that we have established the difference between fraud to waste and abuse, you might be wondering what is the difference between waste and abuse.

To put it simply, waste pertains to direct or indirect practices leading to unnecessary government spending while abuse includes direct or indirect actions leading to unnecessary government spending.

Given that we have already tackled and given a few examples of healthcare waste, let us now look at how abuse plays out in the healthcare industry.

Abuse

To briefly recap what we have discussed above, we have already established that as compared to fraud (that requires intent and knowledge), abuse can include direct or indirect actions. And when we compare it to waste, abuse refers more to actions leading to the mismanagement of government resources and unnecessary cost to government healthcare programs.

Moreover, abuse is not just actions that can cost the government. It can also include actions that misuse authority or position for personal gain.

As the Office of the Inspector General has put it, “abuse is defined as excessive or improper use of a thing, or to use something in a manner contrary to the natural or legal rules for its use. Abuse can occur in financial or non-financial settings.”

Some examples of healthcare abuse are:

  • Upcoding or misusing codes on a claim
  • Unbundling or coding services separately that are normally group
  • Billing for brand name drugs when generics drugs are available
  • Charging excessively for medical supplies or services rendered

Given that medical professionals and staffs in the healthcare industry are still human and are not perfect, mistakes are still bound to happen.  Some of the actions or examples that we just mentioned can occur unknowingly and unnoticed.

For instance, even though upcoding mainly occurs due to negligence and oversight, there are still some instances where miscommunication or human error plays a big part. One of the main reasons why this happens is because of the lack of knowledge of the laws and regulations surrounding FWA.

With that said, let us now look at some of the laws that can help you better understand and detect fraud, waste, and abuse in the healthcare system.

FWA Regulations

The laws and provisions stated below are just some of the Federal laws related to healthcare fraud, waste, and abuse. Please keep in mind that some states may have different provisions or protocols when it comes to enforcing these laws and provisions.

False Claims Acts (FCA)

The Civil Federal False Claims Act 31 United States Code (U.S.C.) Sections 3729–3733 protect the Federal Government from fraudulent claims resulting in overcharges. The civil FCA applies to any person who commits healthcare fraud.

This means that anyone who knowingly submits or causes the submission of a fraudulent claim is required to pay not less than $5,000 of penalty plus three times the amount of damages sustained.

Apart from civil penalties, anyone can also face criminal penalties if they violate the Federal False Claims Act.

So on top of paying the monetary penalties, offenders of the Federal False Claims Act can face imprisonment as well.

Anti-Kickback Statute (AKS)

According to the Anti-Kick Statute 42 U.S.C. Section 1320a-7b(b) and in the scope of federal health care programs, it is a crime to offer, pay, solicit, and receive rewards for referrals. Besides cash, rewards can take many forms such as rent, luxury trips, expensive hotels, and many more.

Anyone who violates the Anti-Kickback Statute can face civil, criminal, and/or administrative sanctions. Civil penalties can rack up to hundreds and thousands of dollars, criminal penalties can send you to prison, and administrative sanctions can exclude you from participating in any Federal health care programs.

However, given that certain business practices and payment can implicate a violation of the Anti-Kickback Statute even if otherwise, provisions like the safe harbor (law) can still protect you.

In order to know more about safe harbor, we highly suggest you consult with a legal professional and see whether you satisfy all of its requirements.

Physician Self-Referral Law (Stark Law)

Another law that is related to healthcare fraud and abuse is the Stark Law (42 U.S.C. Section 1395nn). To put it simply, it prohibits medical professionals from referring patients to designated health services  or entity that the same medical professional has

–          a relationship with (family member),

–          an ownership/investment interest, or

–          a compensation arrangement.

According to the Office of the Inspector General, the Stark Law does not need specific intent to violate the law. Given that it is a strict liability statute, offenders may face civil and administrative sanctions.

Preventing FWA

Now that you have a better understanding of fraud, waste, and abuse (FWA) as well as some of the major laws surrounding it, let us now walk you through your role in fighting against it.

What are your responsibilities?

Everyone has a role to play in preventing fraud, waste, and abuse. It does not matter whether you are a medical professional or not. It is everyone’s duty to make sure that our healthcare system is free from any FWA.

That being said, let us look at the outline highlighted by the Medicare Learning Network regarding your role in preventing fraud, waste, and abuse.

  1. Everyone, especially medical professionals and healthcare providers, must comply with all the applicable statutory, regulatory, and other requirements, including adopting and using an effective compliance program.
  2. Everyone must report any noncompliance or suspected violations.
  3. Everyone, especially those who are working in the healthcare industry, must follow their organization’s Code of Conduct that highlights the standards and ethical rules of behavior.

And to further add to the responsibilities stated by the Medicare Learning Network, we would also like to add that

  1. Everyone, especially healthcare service providers, should become more proficient in medical coding and get a good grip with how the law is applied in the healthcare industry.

This way, unintentional upcoding can be prevented and it would be much easier to detect intentional upcoding in the long run.

How to prevent FWA?

If you are a medical professional or someone who works in the healthcare industry, then you should conduct yourself in an ethical manner. You can do this by

  • ensuring all your claims are accurate and correct;
  • verifying all the information you receive;
  • making sure all your data and billing are correct;
  • being aware of the laws surrounding FWA;
  • and simply abiding by it.

Even if you do not work in the healthcare industry, you can still help fight fraud, waste, and abuse of the system by simply looking for suspicious activity and reporting it to the authorities.

Keep in mind that there are several laws that would protect you if you choose to be a whistleblower and expose undetected crimes. To know more about this, you can read our article on Qui tam lawsuits or just simply consult with a legal professional about it.

What are the indicators of FWA?

There are several ways to tell whether fraud, wealth, and abuse are occurring or not. Some are blatantly obvious while others are so subtle that you can even mistake it as poor business practices.

So with that in mind, we have listed some indicators to help you spot fraud, waste, and abuse. These questions are posed and stated by the Medicare Learning Network.

  • Does the prescription, medical record, or laboratory test look altered or possibly forged?
  • Is the prescription appropriate based on the beneficiary’s other prescriptions?
  • Is the healthcare service provider’s diagnosis for the member supported in the medical record?
  • Do you see any prescriptions being altered (changing quantities or Dispense As Written)?
  • Is the wholesaler distributing fake, diluted, expired, or illegally imported drugs?

You can look at other indicators examples here.

How to report FWA?

When in doubt and if you see any suspicious activity, you can simply call your Compliance Department or any fraud, waste, and abuse hotline. The Office of the Inspector General Hotline Operations would gladly take your calls on matters related to FWA in the U.S. Department of Health and Human Services programs.

Keep in mind that once you report an FWA, there are laws that would safeguard you and prevent the other party from retaliating against you. Since you did a great service and helped shed light on undetected crime, laws like the qui tam lawsuit and among others would be there to protect you and sometimes, even reward you.

With that in mind, we highly suggest you read more about Medicare Fraud Rewards.

Conclusion

Now that you fully understand how fraud, waste, and abuse play out in the healthcare industry, you now know how vital is your role is when it comes to preventing it.

With that in mind, you need to have an effective corrective action plan once you spot any noncompliance. To help you spot any FWA, you can just go back and read what we have discussed here

  • Fraud
  • Waste
  • Abuse
  • FWA Regulations
    • False Claims Acts (FCA)
    • Anti-Kickback Statute (AKS)
    • Physician Self-Referral Law (Stark Law)
  • Preventing FWA
    • What are your responsibilities?
    • How to prevent FWA?
    • What are the indicators of FWA?

Bear in mind that the information we have mentioned above is not meant to be comprehensive nor should be construed as legal advice. We still highly recommend you seek guidance and consult a law professional on legal matters such as fraud, waste, and abuse.

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