| Union Calendar No. 393

104**th Congress**
2nd SessionReport 104-747HOUSE OF REPRESENTATIVES
**HEALTH CARE FRAUD: ALL PUBLIC AND PRIVATE PAYERS NEED FEDERAL CRIMINALANTI-FRAUD PROTECTIONS**
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**August**2, 1996._Committed to the Committee of the Whole House onthe State of the Union and ordered to be printed

Mr. **Clinger,**from the Committee on Government Reform and Oversight,submitted the following

ELEVENTH REPORT

On July 25, 1996, the Committee on Government Reform and Oversight approvedand adopted a report entitled ``Health Care Fraud: All Public and Private PayersNeed Federal Criminal Anti-Fraud Protections.'' The chairman was directed totransmit a copy to the Speaker of the House.

I. Summary

Health care fraud, by some estimates a $100 billion problem, does not staywithin the jurisdictional boundaries that divide Federal, State and local healthcare finance and law enforcement. Sophisticated patterns of fraud and abuse havebeen detected operating simultaneously against private insurers as well asFederal and State health programs. These scams victimize patients and payersacross multiple States, even nationally.

Faced with increasing health care costs, and the growing price of healthcare fraud, Congress and Federal policymakers are aware of the need for a morecoordinated, unified approach to anti-fraud enforcement.(1) One essentialelement of that approach is the availability of Federal criminal health careoffenses to prosecute frauds against any and all payers victimized by the samescheme.

Current Federal enforcement tools are inefficient and inadequate againstincreasingly sophisticated patterns of fraud and abuse. Health care fraud cases,prosecuted mainly under mail and wire fraud statutes, money laundering and falseclaims laws, are complex, costly and time-consuming.

Scarce enforcement resources are wasted when Federal enforcement efforts toprotect Medicare and Medicaid only result in ``fraud shifting'' to privatepayers. In that event, the general public continues to pay the price for healthcare fraud in the form of higher insurance premiums and higher costs forGovernment health programs.

Support for creation of Federal health care fraud crimes is bothlongstanding and bipartisan. The previous and current administration endorsedmaking health care fraud a Federal crime. Legislation in both the 103d and 104thCongress has enjoyed bipartisan sponsorship and support.

Findings in brief
-  Health care fraud schemes steal billions of dollars from public andprivate payers each year.
-  The Department of Justice (DOJ) needs stronger and more direct statutoryauthority to deter fraud and abuse against public and private health care plans.
-  Scarce enforcement resources are wasted in pursuit of the same fraudulentscheme against public and private health care plans in multiple jurisdictions.

Recommendation

1. Congress should enact legislation to make health care frauds against allpublic and private payers Federal criminal offenses.

II. Background

Total health care spending in the United States reached $1 trillion (2) inFY 95. Medicare and Medicaid programs together represent one-third of all U.S.health care spending. The remaining $664.5 billion of health care spending aregenerated by States and private health care payers.

Federal outlays to Medicare in FY 95 were $159.8 billion (3) while Federaland State outlays to Medicaid were $156.2 billion.(4) Other Federal health careprograms such as Civilian Health and Medical Program of the United States(CHAMPUS) and Federal Employee Health Benefit Plan (FEHBP) cost the FederalGovernment $3.3 billion and $16.2 billion (5) respectively in FY 95.

According to the General Accounting Office (GAO), 10% of every health caredollar spent in this Nation is lost to fraudulent and wasteful providerclaims.(6) Applying this estimate to all health care spending means that morethan $100 billion, or over $274 million a day, was lost to fraud and abuse in FY95.

The need to confront waste, fraud and abuse in the Nation's health careplans more aggressively is recognized by both Democrats and Republicans.Previous Congresses and previous administrations have supported the adoption ofmore effective criminal sanctions against those who defraud health care payers.

In a May 1992 report produced for the Subcommittee on Human Resources andIntergovernmental Relations, the General Accounting Office (GAO) found ``thatvulnerabilities within the health insurance system allow unscrupulous healthcare providers, including practitioners and medical equipment suppliers, tocheat health insurance companies and programs out of billions of dollarsannually.''(7) GAO reports, ``Health care fraud has expanded beyond singlehealth care provider frauds to organized activity affecting health care programsin both the Government and private insurance sectors.''(8) [Emphasis added]

The report stated ``profiteers are able to stay ahead of those who payclaims because of a variety of factors. These include (1) independent operationsof the various health insurers that limit collaborative efforts to confrontfraudulent providers . . . Further, efforts to combat the problems by oneinsurer can be largely negated when fraudulent or abusive providers move theiroperations to other insurers.''(9)

In discussing the nature and prevalence of fraud and abuse of health careplans, the May 1992 GAO report stated, ``Instances of fraud and abuse can befound involving all segments of the health care industry in every geographicarea of the country . . .''(10) In addition, GAO found ``schemes can be quicklyreplicated throughout the health care system.''(11)

The Bush administration made five specific proposals to combat health carefraud. On January 13, 1993, the Secretary of the Department of Health and HumanServices (HHS), the Attorney General and the Director of the Office ofManagement and Budget (OMB) announced the recommendations of a task forcecommissioned to examine the problem of health care fraud and abuse.(12) Therecommendations included:

o Extending to all public and private payers the current Medicare andMedicaid prohibition on kickbacks.

o Expanding the current Medicare ban on payment for self-referrals forclinical lab tests to additional services where the physician does not directlyrender service and where abuses have been found.

o Strengthening the Medicare and Medicaid civil monetary penalty statutesand the quality of care sanctions to deter abuses.

o Prohibiting the routine waiver of Medicare Part B (physician andoutpatient services) coinsurance.

o Establishing databases of all final adverse actions and certain activefraud investigations against health care practitioners, with appropriatesafeguards for privacy and access.

In the announcement, OMB Director Richard Darman emphasized, ``More must bedone to combat health care fraud and waste. Every percent of health careexpenses lost to fraud and abuse annually costs honest Americans $9 billion peryear.''(13)

The Clinton administration, in its FY 1994 Health Care Fraud Report, calledfor an ``all-payer'' approach to health care fraud control and for the creationof criminal health care fraud offenses. Acknowledging the scope and variety ofhealth care fraud, the report stated, ``Everyone pays the price for health carefraud: beneficiaries of Government health care insurance such as Medicare andMedicaid pay more for medical services and equipment; consumers of privatehealth insurance pay higher premiums; and taxpayers pay more to cover healthcare expenditures.''(14)

In the 103d Congress, discussions included the widespread nature of healthcare fraud. Before the House Committee on Judiciary's Subcommittee on Crime andCriminal Justice on February 4, 1993, GAO reported all payers are vulnerable tofraud and abuse.

Janet Shikles, Director of Health Financing and Policy Issues, testified``Criminal prosecution and civil pursuit of fraud is expensive, slow and hasbeen shown to have little chance of recovering financial losses. Moreover,private insurers are largely without access to the administrative remedies ofthe public payers, such as the ability to exclude providers convicted of healthcare fraud from billing the public programs.''(15)

Efforts to determine how both public and private health care plans could bebetter protected from fraud resulted in the release on July 7, 1994 of a staffreport by Senator William Cohen (R-ME), ranking member of the Senate SpecialCommittee on Aging.

The report found current criminal and civil statutes inadequate toeffectively sanction and deter health care fraud. The report states ``the lackof a specific Federal health care fraud criminal statute, inadequate toolsavailable to prosecutors, and weak sanctions have significantly hampered lawenforcement's efforts to combat health care fraud. Inordinate time and resourcesare lost in pursuing these cases under indirect Federal statutes. [Emphasisadded] Often even when law enforcement shuts down a fraudulent scheme, the sameplayers resurface and continue their fraud in another part of the health caresystem.''(16) The report recommended:

o Making all health care fraud and abuse a violation of Federal law.

o Establishing a data base available to all program administrators, privateinsurers and law enforcement groups which will identify persons or providers whohave been found guilty of fraud.

o Establishing standard penalties for fraud which, for a first timeoffender, require mandatory exclusion from the programs for a specified periodof time as well as assessment of civil monetary penalties.

o Strengthening certification standards and procedures for providers.

o Enhancing provider responsibility and accountability for electronic mediaclaims.

o Requiring contractors to utilize automated computer screening of providerclaims.

o Making HCFA's pricing of medical equipment and services more current,competitive and market sensitive in its reimbursement of provider claims.

o Improving anti-kickback laws.

In the 103d Congress, hearings and legislation dealing with the deterrence,detection and prosection of health care fraud enjoyed bipartisan support.

The Subcommittee on Human Resources and Intergovernmental Relations (HRIR),chaired by Representative Edolphus Towns (D-NY), held three hearings on waste,fraud and abuse in Medicare and Medicaid. Two hearings focused on Medicaid fraudand prescription drug diversion.

As a result of the hearings, the subcommittee recommended that HCFA developa strategy to address drug diversion, including designation of unit within HCFAto provide assistance to State Medicaid agencies.

It is estimated prescription drug diversion schemes cost the Medicaidprogram billions of dollars. New York State alone estimates that it loses $150million a year to fraudulent prescription drug operations.(17)

Legislative proposals to strengthen health care anti-fraud efforts was alsooffered by both Democrats and Republicans. On July 27, 1994, the HRIRSubcommittee marked up Section 5401 of H.R. 3600, the Health Security Act.Subcommittee Chairman Towns' substitute amendment to Section 5401 directed theSecretary of HHS and the Attorney General to establish a program to ``prevent,detect and control health care fraud and abuse.''(18) The substitute amendment,supported by Representative Steven Schiff (R-NM), the ranking member of thesubcommittee, was adopted and incorporated into H.R. 3600.

Representative Bob Michel (R-IL), Republican Leader, introduced H.R. 3080,the Affordable Health Care Now Act of 1993. As the Republican counterproposal toH.R. 3600, H.R. 3080 established an all-payer anti-fraud and abuse program. Thisincluded creating the criminal offense of health care fraud, extending theapplication of criminal penalties under Section 1128B of the Social Security Actto private health care plans, extending penalties for health care fraud andbroadening the application of the mail fraud statute.

In the 104th Congress, the subcommittee, chaired by RepresentativeChristopher Shays, (R-CT) held eight hearings which considered waste, fraud andabuse in health care programs:
-  HRIR Subcommittee hearing on Department of Health and Human Services,March 1, 1995.
-  HRIR Subcommittee follow-up hearing on Department of Health and HumanServices, March 22, 1995.
-  HRIR Subcommittee hearing on Waste in Human Service Programs, May 23,1995.
-  HRIR Subcommittee hearing on Keeping Fraudulent Providers Out of Medicareand Medicaid, June 15, 1995.
-  HRIR Subcommittee hearing on H.R. 2326, the Health Care Fraud and AbusePrevention Act of 1995 and H.R. 1850, the Health Care Fraud and Abuse Act of1995, September 28, 1995.
-  HRIR and Government Management, Information, and Technology Subcommitteejoint hearing on the Oversight and Review of Medicare's Transaction andInformation Systems, November 16, 1995.
-  HRIR Subcommittee hearing on Screening Medicare Claims for MedicalNecessity on February 8, 1996.
-  HRIR and GMIT Subcommittee joint hearing on H.R. 3224, the Health CareFraud and Abuse Prevention Act of 1996, H.R. 1850, the Health Care Fraud andAbuse Act of 1995 and H.R. 2480, Inspector General for Medicare and Medicaid,May 2, 1996.

Representative Schiff introduced H.R. 2326, the Health Care Fraud and AbusePrevention Act of 1995, along with Representatives Shays, Clinger (R-PA), Townsand Schumer (D-NY), on September 13, 1995.

Title I required the Inpectors General of the Departments of Health andHuman Services (HHS), Defense, Labor, Veterans Affairs, the Office of PersonnelManagement and the U.S. Attorney General to establish a joint program toprevent, detect and control health care fraud which includes State agencies andlocal law enforcement; required Federal enforcement authorities to coordinatetheir efforts more effectively; and established a control account, funded byfines and damages, to help defray Federal and State costs of prevention anddetection of fraud and abuse.

Provisions of H.R. 1850, introduced by HRIR ranking member RepresentativeTowns, were very similar to those of Title I of H.R. 2326. However, H.R. 1850did not include the Attorney General as part of the health care fraud controlprogram. At the September 28, 1995 hearing, there was a consensus that theaddition of the Attorney General strengthened the proposed coordination effort,adding a direct link to criminal enforcement.

Title II established health care fraud as a crime for public and privatepayers, defined health care fraud to include theft, embezzlement, falsestatements, bribery, graft, illegal, remunerations, and obstruction of criminalinvestigations of health care fraud, established civil penalties for health carefraud and established investigative demand procedures.

Title III provided for new tools for the HHS Inspector General (IG) tobetter combat Medicare and Medicaid fraud and abuse.

Major portions of Title II of H.R. 2326 were included in the MedicarePreservation Act which was passed by the House on October 19, 1995.

On March 29, 1996, Representatives Schiff and Shays introduced H.R. 3224, anupdated version of H.R. 2326. Again, most of Title II was included in H.R. 3103,the Health Care Availability and Affordability Act. H.R. 3103 was passed by theHouse on March 28, 1996.

On June 11, 1996, Senators Bob Graham (D-FL) and Max Bacchus (D-MT)introduced S. 1858 to provide for improved coordination communication andenforcement related to health care waste, fraud and abuse. S. 1858 wouldestablish health care fraud as a crime, define false statement, theft,embezzlement, money laundering and obstruction of investigations as health careoffenses, establish forfeitures for health care offenses, provide for injunctiverelief and grand jury disclosure.

III. Findings

1. Health care fraud schemes steal billions of dollars from public andprivate payers each year

Hearing testimony and supporting documents point to an increasing awarenesson the part of policy analysts, Federal law enforcement officials and healthinsurers that public and private payers share the same vulnerability to abusivepractices and fraud.

In the June 15, 1995 HRIR hearing, William Mahon, executive director of theNational Health Care Anti-Fraud Association (NHCAA), testified, ``By its nature,the amount lost to any ongoing fraud can never be quantified to the exact dollarand thus must be estimated in an educated context. In that context, NHCAAestimates the loss to outright fraud at between 3% and perhaps as much as 10% ofwhat we spend as a nation on health care each year.''(19)

Mr. Mahon enumerated what he viewed as the stark realities of health carefraud: ``One is that almost never do fraudulent providers defraud one payer at atime. The only smart way to commit health care fraud is to spread your activityamong enough payers, so that you remain relatively inconspicuous with each onefor longest possible time.''(20)

Mr. Mahon continued, ``The second truism of the subject is that almost neverdo fraudulent providers defraud either the private or the public sectorexclusively. If they do it to Medicare, to Medicaid, to CHAMPUS [Civilian Healthand Medical Plan of the United States] they do it to employers health insurance,to Blue Cross and Blue Shield, and to Aetna and all the other privatepayers.''(21)

He also reported ``that multiple-target, private-public fraud can beaddressed most effectively through concerted private-public efforts . . .''(22)

Gerald Stern, Special Counsel on Health Care Fraud for the DOJ, agreed,stating, ``Perpetrators of health care fraud will seek to prey on any healthcare system the market produces or Congress adopts. Where there is money,unscrupulous providers simply shape schemes to fit the particular form ofreimbursement.''(23)

A February 1994 GAO Report, ``Medicaid: A Program Highly Vulnerable toFraud,'' found Medicaid is ``. . . highly vulnerable to fraud because of itssize, structure, target coverage.''(24) GAO reports show that medicalprofessionals or businesses that engage in fraudulent and abusive practices havetargeted both Medicaid and Medicare resulting in unnecessary expenditures byboth programs as well as by private health care insurers. (Emphasis added)

In addition, Sarah Jagger, GAO's Director of Health Financing and Policy,reported during the March 22, 1995 oversight hearing on the Department of Healthand Human Service (HHS) the opportunities for fraud and abuse exist because eachprogram provides incentives to submit claims for services that are not needed,not provided, or overpriced.(25)

A January 13, 1993 joint HHS/DOJ/OMB announcement reported ``there is noreason to believe that the overutilization risk attributable to kickbacks doesnot apply to private payers. Most kickback schemes involve federal programs andprivate payers as well . . . Some kickback schemes start by avoiding Medicareand Medicaid business until after referral patterns are established.''(26)Administration officials noted this type of scheme would no longer be availableto evade liability under the proposed all-payer anti-kickback statute.

The Cohen staff report states, ``Our investigation found that scams such asthese are perpetrated against both public and private health plans, and thathealth care fraud schemes have become more complex and sophisticated, ofteninvolving regional or national corporations and other organized entities. Nopart of the health care system is exempt from these fraudulent practices . ..''(27)

Recent high profile prosecutions of health care fraud cases demonstrate thatthese schemes target public and private payers simultaneously.

National Medical Enterprise (NME) operated psychiatric hospitals andsubstance abuse facilities nationally. NME plead guilty to bribing doctors andother referral sources to refer patients for admission to NME facilities. It wasalso alleged NME paid for referrals of patients, improperly waived Medicareco-payments for patients and then claimed reimbursement from Medicare for thesewaived amounts as bad debts, engaged in other billing fraud, and billed forservices not rendered and for treatment that was not reasonable or necessary.

In June 1994 NME signed a criminal plea and civil and administrativesettlement with DOJ to pay $379 million in criminal fines, civil damages andpenalties to the Federal Government and several States for kickbacks and fraudat NME in more than 30 States.(28) This included a payment to several States ofa total of $16.3 million for harm caused the State-funded portion of Medicaidand other State health programs.

In addition to this plea arrangement, NME has been the subject of severalcivil suits by private payers who were also defrauded. In the first stage ofsettlements, NME agreed to pay $125 million to Aetna Life Insurance,Metropolitan Life Insurance and CIGNA.(29) Subsequent settlements included 13other companies which recouped $90 million.

Another well-known health care fraud case, the so-called ``Rolling Labs''case, involved a billion dollar medical insurance scheme. A chain of mobilediagnostic testing services and clinics in the Los Angeles area performedmedically unnecessary tests on unsuspecting patients after promising freepreventive diagnostic tests. Bills for these medically unnecessary tests weresubmitted to public and private health care plans. After a 5-year investigationof this scheme by multiple Federal and State agencies, two defendants wereconvicted of mail and wire fraud, conspiracy, money laundering andracketeering.(30)

Other examples of health care fraud cases include:

o In 1991, one of New Hampshire's largest employers, the Sturm, Ruger Co.,canceled its employees' prescription drug benefit after costs of the benefitincreased so dramatically as to force the company to raise the employeeco-payment from $3 to $20. It was later discovered that a Newport, NH pharmacisthad defrauded that and other prescription plans, as well as the State Medicaidprogram, for a total of $373,278 between April 1989 and July 1991.

o On April 18, 1995, a Bridgeport, CT Federal grand jury returned anindictment for wire fraud against an individual who participated in a scheme todefraud CIGNA and its subsidiary for submitting false claims.

o On May 24, 1995, an FBI initiative was announced which targeted stagedautomobile accidents and related casualty and health insurance fraud. Itresulted in arrests and indictments in 31 States.

o On May 25, 1995, the U.S. Attorneys offices in Columbus, OH andCharleston, SC and the Federal Trade Commission announced a coordinated attackon telemarketing health care fraud schemes filing several actions againstcompanies in Ohio and South Carolina with deceptive practices in selling medicalequipment.

2. The Department of Justice (DOJ) needs stronger and more direct statutoryauthority to deter fraud and abuse against public and private health care plans

Current criminal and civil statutes are inadequate to effectively sanctionand deter health care fraud. According to the Cohen staff report, ``Federalprosecutors now use traditional fraud statutes, such as the mail and wire fraudstatutes, the False Claims Act, false statement statutes and money launderingstatutes to prosecute health care fraud. Our investigation found that the lackof a specific Federal health care fraud criminal statute, inadequate toolsavailable to prosecutors, and weak sanctions have significantly hampered lawenforcement's efforts to combat health care fraud.''(31)

Reinforcing that finding, the DOJ's Stern testified regarding a fraud schemeperpetrated against Medicare and other health care payers that took many monthsto prosecute under mail and wire fraud laws: ``In San Diego, an ophthalmologisthad been billing Medicare and other health care plans more than $80 million formedically unnecessary cataract and eyelid surgery. Last March, after amultimonth jury trial, he was convicted of 132 counts of false claims, mailfraud, and money laundering.''(32)

He continued, ``On some days, he saw more than 150 patients. On other days,he performed 35 to 45 surgeries, with each patient receiving six separatesurgical procedures, unrelated to medical need. In 1992, after a search warrantwas executed, Medicare suspended all payments to the physician. While he wasawaiting trial, the State of California revoked his medical license. The U.S.Attorney General's office obtained a court order repatriating $7.5 million,which he shipped offshore.''(33)

In his testimony on June 15, Mr. Mahon supported specific initiatives togive prosecutors additional tools in the fight against health care fraud. Hesuggested ``following the so-called `all-payer' approach, featured in virtuallyall of the legislative proposals on health care fraud, many of them bipartisan,set forth since 1992_the essence of which is:

o to create a Federal crime of health care fraud, encompassing actionsagainst private and public third-party payers.

o to make illegal in dealings with private and other government payers whattoday is illegal only in dealings with the Medicare and Medicaid programs.

o to effectively bar providers guilty of fraud from dealings with any healthinsurance plan, private or public.

o to coordinate the activities of Federal and State law enforcement agenciesand to provide for their coordination of activity with private payers.''(34)

In his September 28, 1995 testimony, Mr. Mahon reemphasized the importanceof the ``all-payer'' approach:

In NHCAA's June 15 testimony, we urged the Subcommittee to consider that themost effectively way to protect the public interest in addressing fraud againstthe nation's health care payment systems is through a so-called ``all-payer''approach, recognizing (1) that the public impact of health care fraud extendsfar beyond its effect on the Medicare, Medicaid and other government programsand (2) that any effective new anti-fraud effort must be tailored to certainrealities of the crime, specifically:

o that private sector health care expenditures exceed those of governmenthealth insurance programs, representing 57% and 43% respectively, of thenation's total health care outlays.

o that in most cases, dishonest providers who defraud government programsalso defraud private health insurers, and vice-versa.

o that the typical health care fraud scheme is aimed a multiple private andpublic payers simultaneously.

o that any deficiencies in current law notwithstanding, it already is farmore dangerous for dishonest providers to defraud Medicare and Medicaid than tosteal from private payers.

In that context, we noted, any legislative efforts that focuses solely onincreasing enforcement activities and the legal penalties related to fraudagainst government health insurance programs_without addressing the privatesector side of the fraud equation_is likely to result in a ``fraud-shifting''analogous to the familiar cost-shifting phenomenon. That is, rather than riskeven more severe penalties by defrauding the government, dishonest providerswill follow the safer path of intensifying their fraudulent billing activityagainst private payers.(35)

3. Scarce enforcement resources are wasted in pursuit of the same fraudulentscheme against public and private health care plans in multiple jurisdictions

During the June 15, 1995 hearing, Representative Towns said he ``was veryconcerned about, even when we try and go after fraud and abuse, it seems wewaste manpower and womanpower hours with various agencies stumbling over eachother.''(36) A more coordinated, unified enforcement approach to health carefraud, including the availability of Federal criminal health care offenses toprosecute frauds against any and all payers victimized, would address theproblem.

Sarah Jaggar, Director of GAO's Health Financing Division, in the March 1995hearing said that ``. . . numerous jurisdictions have responsibility overMedicaid fraud and abuse matters. It is not unusual for a prescription drugfraud case [for example] to involve five or more State, local and Federalagencies in its investigation, prosecution and resolution.''(37)

In her testimony before the House Committee on Judiciary's Subcommittee onCrime and Criminal Justice on February 4, 1993, Ms. Shikles raised the issue ofthe dollar threshold fraud cases usually need to reach before prosecutors willconsider committing scarce resources. She reported that ``investigative andprosecutorial resources and priorities vary by jurisdiction, often constrainingstate and Federal prosecutors from pursuing health care cases involvingrelatively small dollar amounts. In several jurisdictions, for example, Federalprosecutors told us that they generally accept only criminal health care casesthat are clear-cut and involve $100,000 or more . . .''(38)

IV. Recommendation

1. Congress should enact legislation to make health care fraud againstpublic and private payers a Federal criminal offense

In his opening statement on June 15, 1995, HRIR ranking memberRepresentative Towns asked, ``Are there changes that must be made to currentcriminal and civil statutes to improve their effectiveness in sanctioning anddeterring health care fraud?''(39)

The answer to Representative Towns' question was yes.

Gerald Stern testified that DOJ ``endorses efforts to strengthen criminal,civil and administrative remedies for health care fraud, which will giveprosecutors new tools in their efforts to stop health care fraud, punish itsperpetrators and recover funds for the Government and other victims. Theseprovisions create a general health care fraud offense prohibiting schemes todefraud health plans or persons in connection with the delivery of or paymentfor health care, establishment of a criminal and civil bar on kickbacks in anyFederal health care program, authorizing administrative subpoenas in health carecases, and permitting use of grand jury material by civil health careprosecutors. Such measures would give us additional critical tools to combatthis scourge on our nation's health care plans.''(40)

NHCAA's William Mahon stressed ``in trying to address Medicare and Medicaidfraud, Congress and law enforcement have an obligation and an opportunity to doit most effectively by addressing both sides of the equation. My outspokencomment, if you will, is that if Congress feels it has addressedMedicare-Medicaid fraud, but does not go beyond that into private payer fraud,it is shortchanging the taxpayers, shortchanging all the people who pay forprivate health insurance in this country.''(41)

In a September 21, 1995 letter to the subcommittee, Martin Corry, directorof Federal Affairs for the American Association of Retired Persons (AARP)concluded, ``Creating a new criminal code provision that specifically addresseshealth care fraud, establishing a health care fraud and abuse control program,and creating a health care fraud and abuse control account are all measures thatshould significantly assist authorities in investigating and prosecutingfraudulent providers.''(42)

Following the September 28, 1995 HRIR hearing, Thomas Schatz, president ofCitizens Against Government Waste, wrote to Ways and Means Committee ChairmanBill Archer (R-TX) urging adoption of tough measures to eliminate waste, fraudand abuse in health care programs. ``The information uncovered by the [CAGW]report and our research, and the testimony before the subcommittee today,''Schatz said, ``show that the problems in Medicare are indicative of the problemsin health care in general.''(43)

Making health care fraud against public and private payers a Federalcriminal offense will end prosecutors' reliance on antiquated criminal statutes.Prosecutors should not have to jump through evidentiary hoops to develop mail orwire fraud cases when the real crime is health care fraud. Scarce resourcesshould be focused on indicting and convicting those who knowingly and willfullydefraud public and private health care plans.

Currently, private insurers are often frustrated by prosecutors'unwillingness or inability to take on cases that, while significant to theinsurer, fall short of certain dollar thresholds. In an all payer environment,enforcement resources can be focused on significant, high cost fraud schemes iflosses to both public and private payers can be aggregated to reach dollarthresholds considered worthy of prosecution.

Congress has examined this critical issue of combating fraud and abuse inpublic and private health care plans since 1992. The problem has been clearlydefined through congressional hearings, testimony and audits. Bipartisanlegislation providing for a refined tool to attack this problem has made its waythrough committees to the floor of the House and has been passed by Congress.

The most recent legislative initiative passed by the House, the Health CareAvailability and Affordability Act of 1996, H.R. 3103, carefully defines healthcare fraud offenses. It establishes health care fraud as a Federal felony forboth public and private payers.

Under H.R. 3103, a person is guilty of health care fraud who ``havingdevised or intending to devise a scheme or artifice, commits or attempts tocommit an act in furtherance of or for the purpose of executing such scheme orartifice to defraud any health care benefit program; or to obtain, by means offalse or fraudulent pretenses, representations, or promises, any of the money orproperty owned by, or under the custody or control of, any health care benefitprogram . . .''(44) A health care benefit program is ``any public or privateplan or contract under which any medical benefit, item or service is provided toany individual, and includes any individual or entity who is providing a medicalbenefit, item or service for which payment may be made under the plan orcontract.''(45)

The bill also authorizes forfeitures, injunctive relief, and investigativedemand procedures.

Like H.R. 3103, any final legislation should require proof of a knowing andwillful pattern of behavior for the application of these health care offenses byprosecutors. This would assure honest mistakes by health care providers wouldnot result in criminal conviction or imprisonment.

``All payer'' provisions should also carefully limit or exclude illegalremuneration, bribery or graft as health care offenses. While applicable to feefor service arrangements like Medicare, these offenses would have, at best, anuncertain impact on managed care programs. Strengthened anti-fraud provisions,particularly those aimed at intentional overutilization, need not, and shouldnot be in conflict with legitimate managed care arrangements.

Nor should expanded Federal criminal health care offenses (46) interferewith the practice of medicine or the use of alternative procedures or therapiespermissible under applicable State and Federal laws.

@

(1) Fraud and Abuse in Medicare and Medicaid: Stronger Enforcement andBetter Management Could Save Billions, Eighth Report of the Committee onGovernment Reform and Oversight, June 27, 1996, pp. 7-10.

(2) ``National Health Care Expenditures,'' Health Affairs, Project Hope, p.1.

(3) Historical Tables, Budget of the United States Government, fiscal year1997, p. 59.

(4) Congressional Budget Office (CBO), 3/96 ``Baseline Report: Medicaid.''

(5) Appendix, Budget of the United States, fiscal year 1997, p. 923.

(6) GAO Report: ``Health Insurance: Vulnerable Payers Lose Billions to Fraudand Abuse,'' GAO/HRD-92-69, 5/7/92, p. 1.

(7) Ibid.

(8) Ibid., p. 2.

(9) Ibid., p. 1.

(10) Ibid., p. 2.

(11) Ibid., p. 3.

(12) ``Administration Announces Task Force Recommendations to Combat HealthCare Fraud and Abuse,'' HHS/OMB/DOJ press release, January 13, 1993 (insubcommittee files).

(13) Ibid.

(14) DOJ report: ``Department of Justice Health Care Fraud Report, FiscalYear 1994'' p. 3.

(15) GAO Testimony: ``Health Insurance: Legal and Resources ConstraintsComplicate Efforts to Curb Fraud and Abuse,'' GAO/T-HRD-93-3, 2/4/93, p. 1-2.

(16) ``Gaming the Health Care System: Investigative Staff Report,'' SenatorWilliam Cohen, ranking member, Senate Special Committee of Aging, July 7, 1994,p. 3.

(17) Waste in Human Service Programs: Other Perspectives: Oversight HearingBefore the Subcommittee on Human Resources and Intergovernmental Relations ofthe House Committee on Government Reform and Oversight, HRIR hearing of 5/23/95.(Testimony of Doug Kennedy, New York Post investigative reporter) (originaltranscript p. 82, in subcommittee files).

(18) Activities of the House Committee on Government Operations, Report103-884, 1/2/95, p. 218 & p. 294.

(19) Keeping Fraudulent Providers out of Medicare and Medicaid: OversightHearing Before the Subcommittee on Human Resources and IntergovernmentalRelations of the House Committee on Government Reform and Oversight, hearing of6/15/95, p. 84.

(20) Ibid.

(21) Ibid., p. 81.

(22) Ibid., p. 85.

(23) Ibid., p. 56.

(24) GAO Report: ``Medicaid: A Program Highly Vulnerable to Fraud,''GAO/T-HEHS-94-106, 2/25/94, p. 1.

(25) Agency Oversight Hearing on HHS: The Mission of HHS: Oversight HearingBefore the Subcommittee on Human Resources and Intergovernmental Relations ofthe House Committee on Government Reform and Oversight, hearing of 3/22/95.(Prepared written statement of Sarah Jagger, Director of Health Financing andPolicy, General Accounting Office,) p. 87.

(26) See Supra note 12 p. 2.

(27) See Supra note 16 p. 2.

(28) See Supra note 19 p. 52.

(29) Business Week, ``Put the Head in the Bed and Keep it There,'' October19, 1993.

(30) See Supra note 19 p. 52.

(31) See Supra note 16 p. 3.

(32) See Supra note 19 p. 85.

(33) Ibid., p. 50.

(34) Ibid., p. 85.

(35) H.R. 2326, the Health Care Fraud and Abuse Prevention Act of 1995 andH.R. 1850, the Health Care Fraud and Abuse Act of 1995, HRIR Subcommitteehearing of 9/28/95, (prepared written statement of William Mahon, executivedirector, NHCAA, p. 1).

(36) See Supra note 19 p. 3.

(37) See Supra note 25 p. 84.

(38) See Supra note 15 p. 2.

(39) See Supra note 19 p. 4.

(40) Ibid., p. 56.

(41) Ibid., p. 82.

(42) Letter of September 21, 1995 to Representative Christopher Shays,chairman, Subcommittee on Human Resources and Intergovernmental Relations, fromMartin Corry, director, Federal affairs, American Association of Retired Persons(in subcommittee files).

(43) Letter of September 28, 1995 to Representative Bill Archer, chairman,House Committee on Ways and Means, from Thomas A. Schatz, president, CitizensAgainst Government Waste (in subcommittee files).

(44) H.R. 3103, the Health Care Accessibility and Affordability Act of 1996.

(45) Ibid.

(46) Regarding the permissible scope of federalization of criminal activity,see, memorandum of July 18, 1996 to the Subcommittee on Human Resources andIntergovernmental Relations from Charles Doyle, senior specialist, AmericanPublic Law, American Law Division, Congressional Research Service, U.S. Libraryof Congress (in subcommittee files). The U.S. Constitution vests Congress withthe authority to ``regulate commerce . . . among the several States,'' U.S.Const. Art. I, sec. 8, cl. 3, and to enact legislation ``necessary and proper''to implement that authority, U.S. Const. Art. I, sec. 8, cl. 18. Congress mayproscribe the use of the facilities of interstate commerce to accomplish healthcare fraud, United States v. Lopez, 115 S.Ct. 1624, 1629 (1995) (``Congress mayregulate the use of the channels of interstate commerce''). Congress may alsoenact legislation to protect those ``directly engaged in the production,distribution, or acquisition of goods and services in interstate commerce,''United States v. Robertson, 115 S.Ct. 1732, 1733 (1995). Moreover, shouldCongress determine on the basis of its studies and evidence presented to it thathealth care fraud has a substantial impact upon some aspect of interstatecommerce, the commerce clause empowers it to outlaw such misconduct, UnitedStates v. Lopez, 115 S.Ct. at 1629 (``Congress' commerce authority includes thepower to regulate those activities having a substantial relation to interstatecommerce.'') Based upon evidence of interstate attributes of health care fraudcomparable to that upon which it based the Controlled Substances Act and theAccess Act, Lopez and the subsequent lower court cases indicate it may prescribehealth care fraud under its commerce clause powers. |
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