Leahy, Judiciary Committee Members Introduce Health Care Fraud Enforcement Bill

Health Care Fraud Enforcement Act Will Strengthen Tools To Investigate Health Care Fraud

WASHINGTON  – Following a Senate Judiciary Committee hearing Wednesday on “Effective Strategies for Preventing Health Care Fraud,” Senator Patrick Leahy joined with Senator Ted Kaufman (D-Del.) to introduce the Health Care Fraud Enforcement Act.  The legislation is also cosponsored by Committee members Arlen Specter (D-Pa.), Herb Kohl (D-Wis.), Chuck Schumer (D-N.Y), and Amy Klobuchar (D-Minn.).  Leahy chairs the Senate Judiciary Committee.

Building on the fraud prevention efforts included in the Finance and Health, Education, Labor and Pension (HELP) Committee’s comprehensive health care reform bills, the legislation would further strengthen the government’s capacity to investigate and prosecute waste, fraud and abuse in both government and private health insurance.  Officials from the Department of Health and Human Services and the Department of Justice testified Wednesday that health care fraud enforcement is a top priority of the Obama administration, which has taken steps to increase efforts to investigate and prosecute fraud.

“I am heartened by the significant and impressive steps the administration has already taken to step up health care fraud prevention and enforcement," said Leahy.  “I was glad to contribute to the efforts to include anti-fraud provisions in the Finance and HELP Committees’ health care reform bills. But I believe that we must do everything we can to ensure that those responsible for rooting out health care fraud have the tools they need.  I was pleased to join Senator Kaufman to develop the anti-fraud measures in the Health Care Fraud Enforcement Act, and look forward to working to strengthen fraud enforcement tools as the Senate debates health care reform legislation.”
“Fraud perpetrated against both public and private health plans costs between $72 and $220 billion annually, increasing the cost of medical care and health insurance and undermining public trust in our health care system,” said Kaufman. “We all know that rooting out waste, fraud, and abuse, in both government and private programs, is critical to making health care reform work. The Finance and HELP committees have worked long and hard to find ways to bend the cost curve down.  There’s more work to be done, however, and the Health Care Fraud Enforcement Act is an important part of that effort.”

The bill makes straightforward but critical improvements to the federal sentencing guidelines, to health care fraud statutes, and to forfeiture, money laundering, and obstruction statutes, all of which would strengthen prosecutors’ ability to combat this particularly destructive form of fraud. These improvements include:

o   Sentencing increases:  The bill directs the Sentencing Commission to increase the guidelines range for health care fraud offenses and clarifies that the full potential scope of the fraud should be considered at sentencing.

o   Redefining “health care fraud offense”:  The bill includes all health care crimes within the definition of “health care fraud offense,” regardless of where they are codified.  (ERISA, drug marketing, and kickback crimes are currently not included)  This change will make available to law enforcement the full range of antifraud tools, including criminal forfeiture and obstruction penalties, to combat these offenses.

o   Improving whistleblower claims: Kickbacks lead to unnecessary and risky medical care and pervert the doctor-patient relationship.  This bill clarifies that all payments made pursuant to illegal kickbacks are false for purposes of the False Claims Act.

o   Creating a common-sense mental state requirement for health care fraud offenses: Some courts have held that defendants must be aware that their conduct violates a specific provision of criminal law in order to be held accountable.  This bill restores the original intent of Congress that a person is guilty of a health care offense if he knowingly does what the law forbids.

o   Increasing funding:  Money spent on health care fraud prevention and enforcement is returned manifold through costs savings and civil and criminal recoveries.  This bill authorizes a modest, yet significant, increase in federal antifraud spending of $20,000,000 per year through 2016.

Earlier this year, Leahy introduced legislation to strengthen tools and increase resources available to federal prosecutors to find, prosecute and jail those who committed financial fraud. The Fraud Enforcement and Recovery Act was signed into law on May 20.

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Health Care Fraud Enforcement Act of 2009
For Background Purposes

Section 1: Short Title

This section provides that the legislation may be cited as the “Health Care Fraud Enforcement Act of 2009.”

Section 2(a). Fraud Sentencing Guidelines

Credible estimates suggest that fraud perpetrated against both public and private health plans costs between $72 and $220 billion annually, increasing the cost of medical care and health insurance and undermining public trust in our health care system.  Despite the enormous losses in many health care fraud cases, analysis from the United States Sentencing Commission suggests that health care fraud offenders often receive shorter sentences than other white collar offenders in cases with similar loss amounts.  And according to statements from cooperating health care fraud defendants, many criminals are drawn to health care fraud because of this low risk to reward ratio.  To protect our increased federal investment in health care, we must ensure that those who steal from that investment, and those who contemplate doing so, understand that they face swift prosecution and substantial punishment.

This section will lead to increased sentences for health care criminals in part by clarifying the calculation of “intended loss.”  As with most white collar cases, the key driver of a health care fraud sentences under the Sentencing Guidelines is the amount of the “intended loss” under Section 2B1.1, since “actual loss” will rarely if ever exceed “intended loss.”  But courts take varying approaches to calculate “intended loss”, some of which minimize this measure by limiting the loss intended by fraudulent bills to the amount actually paid by the government (or payable under government fee schedules).

This section clarifies the law by providing that the “intended loss” attributable to a health care fraud scheme is the aggregate dollar amount of the fraudulent bills submitted.

This section also amends the Guidelines to provide a two-level increase in the offense level for any defendant convicted of a federal health care offense relating to a government health care program that involves a loss of $1,000,000 or more, a three level increase if the loss is $7,000,000 or more, and a four level increase if the loss is $20,000,000 or more.

Section 2(b).  Intent Requirement for Health Care Fraud

Both the Anti-Kickback Statute (42 U.S.C. § 1320a-7b) and the health care fraud statute (18 U.S.C. § 1347) include the term “willfully.”  In both contexts, the Ninth Circuit Court of Appeals has read the term to require proof of a heightened and unwarranted mens rea on the part of the defendant.  See Hanslester Network v. Shalala, 51 F.3d 1390 (9th Cir. 1995) (on appeal from an administrative exclusion proceeding, construing “knowingly and willfully” in the anti-kickback statute as requiring proof both that defendants know that the statute prohibits offering or paying remuneration to induce referrals and that defendants engage in the prohibited conduct with the specific intent to disobey the law); United States v. Awad, 551 F.3d 930 (9th Cir. 2009) (holding that “willfully” in 18 U.S.C. § 1347 requires the government to prove that the defendant was aware that the conduct in question was unlawful).  This heightened scienter requirement may be appropriate for criminal violations of hyper-technical regulations, but it is inappropriate for these crimes, which punish simple fraud.  The Finance Committee health care reform bill (America’s Healthy Future Act) addresses this problem for the Anti-Kickback Statute, but not for 18 U.S.C. § 1347.  Accordingly, this section tracks the finance bill and clarifies that “willful conduct” in this context does not require proof that the defendant had actual knowledge of the law in question or specific intent to violate that law.

Section 2(c).  Kickbacks

All too often, health care providers secure business by paying illegal kickbacks, which needlessly increase health care risks and costs.  When a doctor’s independent judgment is compromised by a kickback, the patient faces the risk that the doctor is making decisions that are not in the patient’s best interest.  In addition, excessive payments to doctors increase health care costs, may result in unfair competition, and may compromise medical research independence and the standards of scientific integrity.

The Department of Justice has had success both prosecuting illegal kickbacks and pursuing False Claims Act (FCA) matters predicated on underlying violations of the Anti-Kickback Statute (AKS).  Nevertheless, defendants in such FCA cases continue to mount legal challenges.  A court recently held that, even though a device company may have paid a kickback to a doctor to use a particular medical device, the bill for the procedure to implant the device was not false because the claim was submitted by the innocent hospital, and not by the doctor.  United States ex rel. Thomas v. Bailey, 2008 WL 4853630 (E.D. Ark.) (Nov. 6, 2008) .  In other words, a claim that results from a kickback and that is false when submitted by a wrongdoer is laundered into a "clean" claim when an innocent third party finally submits the claim to the government for payment.  This has the effect of insulating both the payor and the recipient of the kickback from FCA liability.  This obstacle to a successful FCA action particularly limits Department’s ability to recover from pharmaceutical and device manufacturers, because in such instances the claims arising from the illegal kickbacks typically are not submitted by the physicians that received the kickbacks, but by pharmacies and hospitals that had no knowledge of the underlying unlawful conduct.

This section remedies the problem by amending the AKS to ensure that all claims resulting from illegal kickbacks are false, even when the claims are not submitted directly by the wrongdoers themselves.  (Notably, in such circumstances, neither AKS nor FCA liability will lie against an innocent third party that submitted the claim but lacked the requisite intent required under those statutes.)

Section 2(d).  Health Care Fraud Offense

This section adds the existing anti-kickback offense, as well as certain health care-related offenses under the Food, Drug and Cosmetic Act and the Employee Retirement Income Security Act (ERISA), to the definition of federal health care fraud offense.  This will:

  • make the proceeds of these offenses subject to criminal forfeiture under 18 U.S.C. § 982(a)(7);
  • render obstruction of an investigation of these offenses a crime under 18 U.S.C. § 1518;
  • include these offenses as specified unlawful activity for purposes money laundering, 18 U.S.C. § 1956(c)(7)(F); and
  • authorize the use of administrative subpoenas under 18 U.S.C. § 3486 for the production of documents or authentication testimony.

Section 3(a).  Subpoenas Under the Health Insurance Portability and Accountability Act of 1996

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (P.L. 101-73) makes it a crime for an officer of a financial institution, with intent to obstruct a judicial proceeding, to disclose the existence of a “subpoena for records” to anyone, chiefly the customer whose records are being sought.   FIRREA defined “subpoena for records” to mean a “Federal grand jury subpoena for customer records” issued in connection with investigations of money laundering and a range a crimes involving financial institutions.    The Health Insurance Portability and Accountability Act of 1996 (HIPAA) (P.L. 104-191) expanded the definition of “subpoena for records” to include administrative subpoenas (“[or] a Department of Justice subpoena (issued under section 3486 of title 18)”) in authorizing certain investigative demand procedures in federal health care offense cases.  HIPAA, however, failed to conform the language in 18 U.S.C. § 1510(b)(1)-(2) to account for this inclusion.

This section corrects the apparent drafting error by providing that obstruction of criminal investigations involving administrative subpoenas under HIPAA should be treated in the same manner as obstruction of criminal investigations involving grand jury subpoenas.

Section 3(b).  Subpoenas Under the Civil Rights of Institutionalized Persons Act

Pursuant to the Civil Rights for Institutionalized Persons Act (CRIPA), 42 U.S.C § 1997, the Civil Rights Division of the Department of Justice investigates conditions in publicly operated institutions, such as nursing homes, mental health institutions, facilities for persons with disabilities, residential schools for children with disabilities, as well as jails and prisons, where there has been an allegation of pattern or practice of violating residents’ federal civil rights. Under CRIPA, only injunctive relief is available; the statute does not provide for the award of damages.

CRIPA investigations commonly concern allegations of inadequate medical and mental health care, unsafe living conditions, and the failure to protect residents from harm. The majority of CRIPA investigations are conducted with the voluntary cooperation of state and local jurisdictions.  When unlawful conditions are identified, CRIPA investigations are typically resolved through a negotiated settlement agreement that addresses the reforms necessary to correct policies, procedures and practices to address the identified deficiencies.

 Some jurisdictions have refused to cooperate with the Division, however.  And CRIPA does not authorize the Department of Justice to issue subpoenas for documents, records, or even for access into the institution that is the target of the investigation.  As a result, investigations have been hamstrung and the effectiveness of CRIPA to remedy systemic abuse of institutionalized persons has been unnecessarily limited.

For example, in a CRIPA investigation of a county nursing home in New Jersey, the local jurisdiction would not cooperate.  The Division’s investigation revealed inadequate medical and mental health care, unlawful restraint, inadequate nutrition and hydration.  In one particularly serious incident, which occurred weeks after meeting with the county officials to request their cooperation with the investigation, a resident was fed so quickly by staff that she aspirated and died.  Emergency room physicians extracted a volume of mashed potatoes from the resident’s lungs that filled a Ziploc bag.  Another nursing home resident slowly starved to death because staff improperly positioned that resident’s feeding tube.  The Division was compelled to file suit, resulting in a negotiated settlement more than four years after the investigation began.

The absence of subpoena authority enables non-cooperating jurisdictions to obstruct and delay the Division in its mission to ensure that the federal rights of persons in the custody of state and local officials are respected. The resultant litigation when jurisdictions exploit the absence of subpoena power is extraordinarily costly, yet the substantive outcome (appropriate injunctive relief) is the same.

This section addresses the problem by authorizing the Department of Justice to issue subpoenas for access to any institution that is the subject of an investigation related to a violation of CRIPA, and for any documents, records, materials, files, reports, memoranda, policies, procedures, investigations, video or audio recordings, and quality assurance reports of such institution.

Section 4.  Additional Authorization of Appropriations to the Department of Justice for Criminal and Civil Enforcement of Health Care Fraud

Health care fraud cannot be fought effectively without more investigators and prosecutors.  This section authorizes the appropriation of $20,000,000 each year from 2011 through 2016 for investigations, prosecutions, and civil or other proceedings relating to fraud and abuse in connection with any health care benefit program, as defined in 18 U.S.C. 24(b). The bill authorizes the United States Attorneys’ Offices to be appropriated an additional $10,000,000 each year for this purpose, the Criminal Division of the Department of Justice, $5,000,000 each year, and the Civil Division of the Department of Justice, $5,000,000 each year.

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