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On June 18, the U.S. Justice Department (“DOJ”) announced the results of a nationwide sweep conducted by the Medicare Fraud Strike Force which led to the arrest of more than 240 healthcare providers alleged to be involved in over $700 million in false billings for Medicare services.  Earlier in the month, the Office of the Inspector General for Health and Human Services (“HHS-OIG”) issued a Fraud Alert highlighting settlements with 12 physicians alleged to have violated the Anti-Kickback Statute (“AKS”) (42 U.S.C. Section 1320a-7b). The physicians were charged with receiving improper remuneration in connection with medical directorships and office staff arrangements. Each of these announcements serves as a strong reminder of the continuing brisk pace of enforcement efforts by federal prosecutors and regulators seeking to root out health care fraud. Supported by an abundance of resources, the Medicare Fraud Strike Force is comprised of prosecutors, agents, and auditors from DOJ, HHS-OIG, the Federal Bureau of Investigation, U.S. Attorneys’ offices, and state and local law enforcement, all devoting scrutiny to billing practices related to prescription medication and services provided through Medicare Part D, Medicaid Personal Care Services, and Medicare home health benefits. Those facing arrest for healthcare fraud are subject to a broad range of criminal, civil and administrative penalties, including exclusion proceedings. The federal healthcare fraud statute (18 U.S.C. Section 1347) provides for up to 10 years’ imprisonment and a $250,000 fine.  Violations of the federal False Claims Act (31 U.S.C. Section 3729) can result in civil penalties of between $5,500 and $11,000 per false billing entry as well as up to three times the amount of damages the government sustains as a result of the conduct, while violations of some states’ false claims laws can also result in civil, administrative or criminal penalties. The federal False Claims Act also includes a  provision that allows private individuals to initiate private attorney general or “qui tam” lawsuits on behalf of the United States against alleged violators. This provision exponentially increases the potential of a lawsuit being filed against those doing business with a federal healthcare program.  Exclusion proceedings generally follow any form of healthcare fraud and can subject a provider to at least five years of debarment from participation in a federal healthcare program. Debarment can be fatal for businesses that heavily rely on federal healthcare contracts. As evidenced by its Fraud Alert, HHS-OIG continues to scrutinize healthcare providers for violations of the AKS. HHS-OIG alleged that the compensation paid to the physicians under medical directorship arrangements constituted improper remuneration under the AKS for a number of reasons, including that the payments were based on the physicians’ volume or value of referrals and did not adequately reflect fair market value for the services to be performed, and because the physicians did not actually provide the services called for under the agreements. HHS-OIG also alleged that some of the physicians had entered into arrangements under which an affiliated health care entity paid the salaries of the physicians’ front office staff. Because these arrangements relieved the physicians of a financial burden they otherwise would have incurred, HHS-OIG alleged that the salaries paid under these arrangements constituted improper remuneration to the physicians. HHS-OIG determined that the physicians were an integral part of the scheme and subject to liability under the Civil Monetary Penalties Law (42 U.S.C. Section 1320a-7a), which provides in kickback cases for penalties of up to $50,000 for each improper act and damages of up to three times the amount of the remuneration at issue. Separate from these civil monetary penalties, violations of the AKS can also trigger criminal fines of up to $25,000 per violation and/or up to a 5 year term of imprisonment.

Implications for Healthcare Providers – Actions to Consider

Faced with the prospect of criminal, civil and/or administrative liability, healthcare providers are urged by regulators to develop strong compliance programs designed to manage the many risks confronted in the healthcare sector and enable them to efficiently monitor adherence to applicable laws and program requirements. In its numerous published voluntary compliance program guides, the HHS-OIG has determined the key elements to an effective compliance program to be:

  • The use of internal monitoring and auditing to monitor compliance and assist in reducing identified problem areas;
  • The development, distribution and implementation of written standards of conduct and policies and procedures that promote the organization’s commitment to compliance and that address specific areas of potential fraud;
  • The designation of a compliance officer or contact with clearly defined reporting lines, and, depending on the size of the organization, other appropriate bodies (e.g., a corporate compliance or audit committee) responsible for operating and monitoring the compliance program;
  • The development of regular appropriate training and education programs for affected employees;
  • The development of a system to promptly respond to detected offenses and investigate and take corrective action in relation to identified systemic problems;
  • The development of open lines of communication, including the maintenance of a process to receive complaints and the adoption of procedures to protect the anonymity of complainants and prevent retaliatory actions against them; and
  • The enforcement of appropriate and well-publicized disciplinary guidelines against employees who have violated internal compliance policies and procedures, applicable statutes, regulations or federal health care program requirements.

With increased federal resources devoted to enforcement and a stricter regulatory environment, pharmaceutical companies, healthcare providers, medical device companies and companies participating in Medicare and Medicaid programs will continue to be subject to intense regulatory oversight and more frequent investigations into business practices. In parallel, where improper billing related to Medicare and Medicaid prescription drugs is found, companies operating in the healthcare sector (e.g., pharmacies, retailers, nursing homes and pharmacy benefit managers) may be the target of federal enforcement for healthcare fraud and/or false claims. Companies and individual providers will need to remain all the more vigilant in efforts to prevent fraud and ensure that they and their partners comply with the myriad of complex regulations governing their industry.


Trevor McFadden is a partner in Baker & McKenzie’s North America Compliance & Investigations Practice Group in Washington, DC, where he focuses on corporate compliance and internal investigations. His experience includes a distinguished career with the US Department of Justice. As an assistant United States attorney in DC, he prosecuted numerous criminal cases. Previously, he was counsel to the Deputy Attorney General, where he advised on white collar and violent crime matters. Mr. McFadden also served as a law clerk for Judge Steven Colloton of the US Eighth Circuit Court of Appeals and was on the Editorial Board of the Virginia Law Review.


Brian Whisler is a member of Baker McKenzie’s Compliance and Investigations, Dispute Resolution and Global Pharmaceuticals Practice Groups. Prior to joining the Firm, Mr. Whisler served as the criminal chief assistant United States attorney in the Eastern District of Virginia, where he managed the criminal trial practice of the Richmond office which handled cases ranging from white collar crime, violent crime, public corruption and terrorism. Mr. Whisler focused his own trial practice on white collar prosecutions including health care fraud, securities fraud, money laundering, and tax fraud. He also served as an assistant United States attorney for the Western District of North Carolina where he focused on white collar prosecutions and served as chief of appeals and health care fraud coordinator.

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