Healthcare Fraud: The Distinctions Between Criminal and Civil Enforcement
Our firm has represented numerous doctors and medical professionals under investigation for healthcare fraud at the federal level. In general, healthcare fraud claims stem from deceptive practices related to billing federal government programs, including Medicare, Medicaid, and/or Tricare. Any violation of federal regulations can lay the foundation for healthcare fraud; however, the government generally targets schemes that involve billing for services that are not rendered, billing under inaccurate codes, billing for services produced by illegal monetary kickbacks, and billing for services that are not medically necessary. These four schemes make up most of the healthcare fraud that is prosecuted in the United States yearly.
Healthcare fraud can expose doctors and clinic owners to both civil and criminal liability. In this post, we will discuss these two paths and highlight relevant distinctions, including the differences in the burdens of proof and elements of the actions.
Civil Liability under the False Claims Act
The False Claims Act (FCA) provides a statutory foundation for civil lawsuits for healthcare fraud. These actions can be brought directly by the federal government or by a private person through a Qui Tam lawsuit. FCA suits brought directly by the federal government are pretty straight forward. The government will file a civil suit in federal district court, the targets of the suit will be served with the petition, and the litigation will be off and running. Normally, the government will reach out to the targets prior to taking any action to see if a settlement can be reached without the need for unnecessary litigation.
Under the Qui Tam route, a private person brings the lawsuit on behalf of themselves and the federal government. As the case develops, the government can decide whether to intervene in the suit for the plaintiff. If they choose to intervene, the government will take over and pursue the False Claims suit with their own resources. If the government wins or settles the suit, and recovers fraudulently obtained funds, the Qui Tam plaintiff will receive an award. This award is normally around 30% of the recovered funds. The Qui Tam reward process exists to incentivize private parties to unearth fraudulent billing schemes in this space.
The FCA damages provisions are harsh for defendants. If a doctor or medical business owner loses the suit, the FCA requires the federal district court to award damages in two ways: 1) triple the actual value of the fraudulently obtained funds and 2) a mandatory fine between $5,500 to $11,000 per false claim submitted. This general structure is not discretionary. The damage findings are often huge rewards for the government. If fraudulently obtained funds are recovered, a Qui Tam plaintiff can likewise enjoy a big pay day.
An example will likely help to highlight the FCA damages provision. Let’s assume a doctor/clinic owner is found liable for filing false billings to Medicare over a five-year period. In those five years, the doctor billed Medicare for 2,000 services that he never actually performed. The value of those services is $10,000,000. Under the FCA, the Court would first triple the actual value of the claims. This would lead to a $30,000,000 judgment in favor of the government/plaintiff. Next, the district court would calculate the fine based on the per claim penalty range. If the Court chose the lowest figure allowed under the FCA ($5,500 per claim), the penalty would be $11,000,000. Under these facts, the Court would deliver a final judgment against the defendant for $41,000,000.
This large of a judgment will likely ruin a defendant. Most medical professionals are solvent, but few can handle an eight-figure judgment. Even worse, the government will undoubtedly exercise its forfeiture powers to seize assets and bank accounts to recoup their losses.
The FCA damages provisions are intentionally draconian. The goal of the FCA is both financial recovery and deterrence. The Department of Justice (DOJ) believes deterrence should be the goal of most criminal and civil enforcement. For that reason, every FCA settlement and/or judgment will be followed by a DOJ press release. These press releases make these huge figures available for public consumption online. Their hope is that these large figures will deter medical professionals from engaging in deceptive billing practices; thus, curtailing waste in federal programs.
The FCA damages provision serves as a huge hammer for obtaining leverage against medical professionals. Throughout the civil process, the government will communicate with the defendant and their healthcare fraud attorneys to discuss settlement figures. This negotiation process requires the defendant to internalize the risks of fighting the lawsuit. The defense team must calculate: 1) cost of litigation, 2) likelihood of success in litigation, 3) settlement offer, and 4) potential value of a civil judgment post-trial. Only after these considerations are vetted can a well-informed decision be made on how to navigate these waters.
To highlight this calculus, let’s go back to the doctor in the example above. This hypothetical doctor likely knows that he failed to perform various services that were billed to Medicare. With competent counsel, he will also be aware of the potential for a huge judgment if he loses at trial. Under those circumstances, it would be wise for this defendant to engage in negotiations. The healthcare fraud lawyer handling his case will need to: 1) parse through each claim presented by the government to ensure only the false claims are included in discussions, 2) develop a financial profile showing the doctor’s ability to pay, and 3) present a figure that the doctor can live with in the financial settlement. The hope is that the doctor can exit the suit with his license intact, the ability to continue practicing medicine, and a financial hit that can be absorbed. Going to trial under those facts should be a move of last resort.
While the decision for the above doctor is somewhat simple. These calculations can become complicated when valid legal defenses exist under the FCA. If there is a defense to the FCA claims, that defense can be used to either leverage manageable settlement figures or fight the case outright. Since the FCA suit is civil in nature, the defendant is not guaranteed counsel (as opposed to criminal cases). The defendant will have to retain a healthcare fraud lawyer to litigate the issues, including trial if necessary. This can be an expensive endeavor as numerous hours must be spent by the attorneys and their staff to navigate the civil discovery process, build a defense, and ultimately, try the case. This leaves defendants with no options that will not involve a large financial setback. Though paying lawyers a couple million dollars is preferable to a $40+ million-dollar judgment if the defense is well grounded.
The options for a particular medical professional will largely be dictated by their financial means. There are situations where fighting the FCA suit is simply not possible. If a nurse practitioner or other lower-level medical practitioner falls under the government’s probe, it may be difficult for the defendant to push back on the government in formal litigation. Sadly, for these practitioners the only way out is to negotiate like hell for a settlement that will not sink the ship. Competent FCA counsel does not come cheap, and litigating an FCA case with unskilled counsel can lead to financial devastation.
FCA Intersects with the Criminal Code
Nearly all false claims actions have a criminal undertone. Though the two statutes cover similar actions, there is one key distinction between the FCA and a Title 21 violation. Under the FCA, the government only needs to show that the defendant acted recklessly regarding the falsity of the claims. A doctor that does not know the claims are false but is reckless in allowing the claims to be submitted, can still be found liable under the FCA. Under the criminal code, the government must prove the medical professional acted willfully. This requires the government to prove the defendant knew the claims were false before they were submitted.
This distinction is important. Under the criminal standard, there are defenses that do not exist under the FCA. It is a difficult burden to show a medical professional understood the regulations and chose to submit a false claim for payment. Especially, when the regulatory environment is as opaque and confusing as the one tied to the medical industry.
This distinction is likely best handled with an example. Our firm handled a large criminal healthcare fraud case in 2020. We took the case to trial and received 32 not guilty verdicts. The verdicts were obtained by leaning into the knowledge element for criminal cases. In that case, the government alleged a physician committed healthcare fraud by submitting claims for chelation therapy that were not medically necessary. The government’s doctors believed that chelation treatment should only be used for acute lead poisoning with very high blood lead levels. Our expert, a Harvard graduate and leader in his field, presented studies showing that chelation was an effective treatment for persons with far lower blood lead levels than discussed by the government’s expert. For those patients, chelation treatment could improve cognitive decline and renal issues associated with long-term lead exposure.
Once the science was put forward, the task of the trial court was to determine whether our client knew the claims for chelation therapy were not medically necessary when they were submitted. The Court found that the government had not met their burden of proof. The physician was well versed in the newer studies showing the usefulness in treating aging patients with long term lead exposure. The fact that Medicare was approving/paying his submissions after audits only strengthened his basis to believe the claims were valid. The correct answer was not guilty. A more thorough breakdown of that case can be found here.
Though this was a great win, would we have been so successful in an FCA suit? My guess is that our defense would have struggled under the lower standard for two reasons: 1) the government would have access to a lower standard of proof (preponderance of the evidence) in a civil case and 2) the government would only need to prove the physician was reckless (not actual knowledge). Under those circumstances, the government could have relied on the $60 million billed to Medicare, the CMS guidance calling into question chelation billing practices, and the physician’s status as the top chelation biller in the country. It is possible that we could have won the case under the FCA, but that is far from a foregone conclusion. This hesitancy directly relates to that subtle variation in burdens of proof and the elements of the action.
Parallel FCA and Criminal Actions
As should be apparent at this point, most healthcare fraud claims straddle the line between criminal and civil violations. The government can, and will, engage in a battle on two fronts when appropriate. It is not uncommon for a defendant to be fighting a criminal investigation alongside an FCA suit.
While parallel matters relating to healthcare fraud require more work, and money, to defend, it also provides some unique opportunities. If the government believes they could struggle to prove knowledge under the criminal statute, they may engage the defense attorney in negotiations to resolve all claims in a package (global resolution). A global resolution involves resolving the criminal and FCA cases together. Put differently, the physician or medical business owner may be able to exit the government probes with monetary damages in lieu of monetary damages + prison time (it should be noted that a guilty verdict in the criminal process will lead to a judgment for the actual loss to the government on top of potential prison time).
Taking prison time off the table, and creating an environment where the business may be able to continue, is a result that must be explored. However, the healthcare fraud attorney must understand that the government has substantial leverage in the monetary negotiation. Under a global resolution, the government has two hammers over the defendant’s head; the FCA damages provision and criminal charges. They will use that leverage as a basis for large settlement figures. It will be up to the defendant to decide whether the settlement figures are worth the government laying their hammers down. Again, this analysis always requires a full understanding of a client’s chance of success at a criminal or civil trial.
A Web of Land Mines
Once a person has been exposed to the medical industry, it is impossible to ignore the land mines present throughout this field. When a physician or medical business owner decides to bill federally backed healthcare programs, they must understand the world they are entering. Medicare clients are not ones where physicians should be living in a grey area. If a certain payment could violate the anti-kickback statute, it should be avoided. If it is unclear whether a procedure should be billed a certain way, the physician needs to get an opinion from a regulatory professional or coding expert. If it is unclear whether a particular procedure is “medically necessary”, the medical professional needs to research the issue and ensure they are compliant.
Most of our clients are not physicians that are billing for services that were not rendered (the most obvious form of healthcare fraud). Most are pushing the envelope at the edges of their practice and not receiving guidance from regulatory experts before installing their operating procedures. This is a dangerous game that should be avoided. Through the FCA and the criminal statutes, the government has the tools to hit medical professionals from all angles. And they are not shy about using them.
For those physicians and clinic owners that do come under a federal probe, it is imperative that they contact a competent healthcare fraud lawyer immediately. In line with the regulations themselves, this area of the law is complicated. A full understanding is required to ensure the client receives the best resolution possible.