Background

Health care fraud consumes an estimated 3 to 10 percent of annual health care spending.^[1] Fraud affects both public and private programs and can be found throughout the health care system.^[2] Because the government tends to be more transparent about the magnitude and scope of fraud, and private insurers historically have tended to invest greater amounts in monitoring claims,^[3] health care fraud may disproportionately affect public health care programs.^[4]

Approximately 80 percent of health care fraud is committed by medical providers.^[5] Fraud schemes involving fraudulently or recklessly submitting claims to a federal government agency constitute a violation of the federal Civil False Claims Act (FCA).^[6] The FCA also permits private individuals (“qui tam relators”) to bring actions on behalf of the United States.^[7] Separately, knowingly and willfully offering, paying, soliciting, or receiving any remuneration to induce or reward referrals of items or services reimbursable by a federal health care program amounts to a criminal violation of the federal anti-kickback statute.^[8] Violations of either statute can result in civil monetary penalties and exclusion from Medicare and Medicaid.^[9] In addition, violation of the anti-kickback statute can result in criminal penalties, including imprisonment.^[10] The U.S. Department of Health and Human Services (HHS) has published regulations that define certain “safe harbors,” that is, conduct that will not be considered to violate the law. Examples of “safe harbors” include certain joint venture arrangements and other financial arrangements related to the sale of a practice or service discounts.^[11]

Prior to passage of the health reform law, proving a violation of the anti-kickback statute required a showing of knowing and willful violation, and the proof required before this level of intent is shown varied among the courts. Some federal courts have held that the government need only prove that a defendant knew that the conduct was unlawful and need not prove defendant had knowledge that the conduct specifically violated the statute.^[12] Other courts have held that the government must prove that a defendant knew that the statute prohibited the conduct in question and engaged in the conduct with the specific intent to violate the anti-kickback statute.^[13] In addition, prior to the health reform law, federal law did not explicitly authorize private qui tam relator actions involving solely bribes and kickbacks, as is the case with false claims; consequently, courts have varied on whether such private actions are possible. Nor was violation of the false claims act directly linked to an underlying violation of the anti-kickback statute, although some courts had upheld liability actions under the FCA when there was evidence that the claims were linked to an underlying violation of the anti-kickback statute.^[14]

Changes Made by the Health Reform Law
P.L. 111-148, §6402(f) and §10606

The health reform law revises the anti-kickback statute to broaden the reach of the law and enhance enforcement, as follows:

• Establishes a specific link between the anti-kickback statute and the false claims act by providing that a claim submitted for “items or services resulting in a violation” of the anti-kickback statute also constitutes a false or fraudulent claim under the FCA.^[15]
• Clarifies that civil liability may be imposed on parties other than the party that actually submitted the claim (e.g., others involved in the underlying arrangement).^[16]
• Revises the anti-kickback statute to lower the intent standard needed to prove a violation, thereby overruling the Hanlester Network case. The revisions provide that a violation can now be found even if no criminal intent specifically to violate the Act is proved and even if there is no proof of actual knowledge that the statute prohibited such conduct.^[17]
• Amends the federal sentencing guidelines by increasing the level of offense (i.e., the severity of the offense for sentencing purposes) for defendants convicted of federal health care offenses involving a government program, including conviction under the anti-kickback statute. The changes are as follows: increase by two levels the offense for losses of $1 million and above; increase by three levels the offense for losses of $7 million and above; increase by four levels offenses for losses of $20 million or more.
• Authorizes the U.S. Sentencing Commission to implement changes to guidelines deemed appropriate and policy statement on convictions.^[18]

Implementation

Agency

The law does not change the current enforcement structure. The Office of Inspector General (OIG) within HHS shares enforcement responsibilities with the Department of Justice (DOJ).

Key Dates

The law does not provide any specific implementation dates.

Process

The law does not provide specific direction to HHS regarding the administrative process used to implement the law. The agency therefore has the discretion to use a range of tools to implement the statute, such as publishing regulations in the Federal Register with a public notice and comment period or using other types of approaches such as posted policy instructions, official letters to affected entities and posted rulings and notices. Agency websites can be regularly checked for updates.

Key Issues

• Key Terms: How will key terms such as “actual knowledge” or “specific intent” be defined?
• Intent Standard: How will the change in intent standard affect cases pending? How will courts interpret the new lowered standard?
• Penalties: In linking the anti-kickback statute to the FCA, is it now possible for violations of the law to produce both criminal and civil penalties?
• Qui tam actions: How will linking anti-kickback statute with FCA affect qui tam actions under FCA? What rules will apply to the filing of qui tam actions under the anti-kickback statute if they are linked to false claims?
• Safe Harbors: How will the lower standard for proving a violation of the anti-kickback statute affect existing regulations that create “safe harbors” against liability under the law for certain types of conduct?
• Enforcement: How will HHS and DOJ enforcement practices change in light of the lowered standards and resulting potential higher workload?

Recent Agency Action

No action as of the time of this posting.

Authorized Funding Levels

Although the change is regulatory in nature and therefore does not directly involve the award of federal funds, the law in general provides for additional funding to fight health care fraud, abuse and waste in the amount of $10 million annually for fiscal years 2011 through 2020.^[19] An additional $250 million is provided for anti-fraud efforts under §1304 of the Reconciliation Bill (P.L. 111-152).^[20]