of American Medicine:1965-1993 Madeleine P. Cosman,
Ph. D., J.D.
The Criminalization of American Medicine:1965-1993
Madeleine P. Cosman, Ph. D., J.D.
The inauguration of President Clinton introduced a brave new world of American medicine. It is both terrifying and exhilarating. American medicine which never has done so much so well for so many is consistently attacked for its imperfections, inadequacies, and inequities. Probably the most criticized and the most praised programs are Americas most ambitious attempts to provide the best medicine for the most: Medicare and Medicaid.
Amazingly, the history of Medicare and Medicaid goes back a mere 28 years. During that 28 year span between 1965 and 1993, Medicare law and litigation has developed from civil law to criminal law.
Here on the edge of medical opportunity and disaster, we who wish to create medicines future, not simply respond to change, are obligated to know the substance and the style of these medical laws. Since criminal law has markedly different procedures, standards of evidence, specificity of claims, burdens of proof, fines and forfeits, punishments including prison terms, and social stigma, it is imperative that every physicianand every attorney who works with doctors know the subjects of Medicare fraud and abuse legislation, emphatically, referrals of patients to laboratories or consultants, and the penalties under these criminal statutes. A practitioner convicted of one offense is subject to the formidable "3 Fs": guilty of a felony, fined $25,000 per incident and five years in prison. Moreover, there is a minimum mandatory exclusion from Medicare for 5 years.
Since ignorance of the law is no excuse, imperfect knowledge of Medicare fraud and abuse law can be deadly. Moreover, current medical law no doubt will be the prototype of future medical legislation. Therefore it is valuable to examine the significant legislation which includes:
(1) The Stark Law or The Ethics in Patient Referrals Act (Stark),
(2) The Medicare and Medicaid Patient and Program Protection Act (MMPPPA), and
(3) The Medicare Fraud and Abuse Safe Harbor Regulations (Safe Harbors) associated with MMPPPA .
Then let us briefly examine nine fraud and abuse cases prosecuted in the past eight years. In several I have had close contact with the physicians, their practices, and their attorneys.
The Medicare Fraud and Abuse legislation and litigation demonstrate the stunning power of the Department of Health and Human Services Office of the Inspector General, its unreasonably ruthless enforcement methods, and its administrative papers, called Medicare Fraud Alerts, given force of law. The cases also epitomize the theory that bad cases make bad law. The legislation and litigation require our confronting the criminal law context for Medicare and the concomitant philosophy of criminal punishment. To intelligently know where we are going in medicine, we must know where we have come from and where we are now.
While every lawyer knows the difference between criminal and civil litigation, the physicians who must obey the laws do not necessarily know the implications of their obedience or transgression, and the courts have made some judicial interpretations upon criminal statute that force the benevolent observer and the honest doctor to ask basic questions: What is a criminal? Why do we punish crimes?
While every self-respecting criminal must voluntarily perform a criminal act, mere nasty or evil thoughts not being enough to ground criminal liability, every law student knows that the actus reus or criminal act must be performed consciously and volitionally, not compelled nor instinctually nor convulsively, but freely willed. Furthermore, that criminal act is not enough for a crime. Under Common Law as well as the Model Penal Code, criminal liability requires conjunction between the criminal act (or the omission to act) and a criminal state of mind, the mens rea.
For the Common Law crime to be a crime, in addition to the criminal act the perpetrator has to have the Culpability Four: specific intent or malice or general intent, or, for those crimes so socially obnoxious, such as raping children and mislabeling poisons, strict liability with intent irrelevant. Wechsler, Schwartz, and the American Law Institute codifying the Model Criminal Code in 1962 cleverly restated the four mental criteria for criminal culpability: acts performed purposefully, knowledgeably, recklessly, or negligently.
Criminal culpability criteria are worth contemplating as we move through the Medicare criminal legislation and litigation because fundamental, salient expectations of criminal law ominously have slipped into and slid out of administrative decisions. More menacingly, physicians and surgeons, unfamiliar with defenses and protections customarily granted to common criminals, sometimes are denied even the fundamental assumption of American jurisprudence that a person is innocent until proven guilty beyond a reasonable doubt for each essential element of the alleged crime.
Legality and Proportionality
Two additional powerful concerns in criminal law are intriguing to contemplate while reviewing Medicare legislation and litigation: legality and proportionality. No lawyer need be reminded that the principle of legality requires that no citizen be prosecuted, convicted, or punished for an act that was not a crime when it occurred. Not only does the Due Process Clause prohibit a court from retroactively enlarging the scope of a criminal law, but law must be understandable and must give fair notice to the reasonably intelligent people who must obey it, otherwise courts must declare it void for vagueness.
Gilbert and Sullivans Mikado expresses beautifully the worthy, constitutionally protected idea of proportionality. "My object all sublime/ I shall achieve in time/To make the punishment fit the crime/ the punishment fit the crime." The Eighth Amendment prohibits cruel and unusual punishment, or disproportionality. Why do we punish criminals? For general deterrence, specific deterrence, denunciation of crimes, incapacitation of criminals, and retribution.
Drafters of the Model Penal Code especially celebrated deterrence. But deterrence can work only when the acts prohibited can be recognized and avoided. Medicare fraud statutes now used by an arrogant and overzealous bureaucracy to prosecute even innocent practices make honest physicians insecure and unsafe. This law works more akin to terror then deterrence.
Laymen assuming the formidable concurrence of criminal act with criminal mind as province of the murderer, arsonist, embezzler, and burglar, are surprised to find it also the legal context for physicians and surgeons covered by Medicare legislation and litigation. Medicare fraud and abuse legislation did not start out as criminal. A brief overview suggests where Stark, MMPPPA, and the Safe Harbors fit.
In 1965 Medicare and Medicaid were created in order to provide for all citizens in their wise but vulnerable years, after age 65, the medical care and physical assurances that the wealthy could buy but all Americans needed. Therefore the Social Security Act was amended, and under §1872 any potential frauds and abuses of these new entitlements would be prevented, curbed, and caught.
By 1972 special fraud and abuse legislation (Social Security Amendments of 1972) was created for Medicare and Medicaid. In 1977, activities prohibited under Medicare and Medicaid dramatically changed their nature through fraud and abuse amendments which became draconian. Prohibited activities escalated from misdemeanors to felonies: minimum fines for violations rose from $10,000 to $25,000 per incident; and maximum imprisonment per violation increased from one to 5 years.
One court case powerfully expanded the fraud statutes in 1985. In United States vs. Greber, the Medicare fraud and abuse legislation which had prohibited kickbacks, bribes, and rebates for referrals, reaffirming general ethical prohibitions against fee splitting, now was judicially expanded to initiate the infamous one purpose rule. If one of the purposes for reimbursing a physician who refers patients is inducement for future referrals, no matter whether payment also was for medical services, the practitioner is guilty of fraud and abuse.
The Medicare and Medicaid Patient and Program Protection Act (MMPPPA) of 1987 is primarily criminal legislation. That same year the Omnibus Budget and Reconciliation Act (OBRA) increased the authority of the Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) for civil actions against physicians and surgeons. The language describing intent changed from a physician who "knows or has reason to know" that a particular billing or referral action might be considered fraud to "knows or should know."
HHS, the non-elected, self-regulating agency decided that knowledge was not necessary if the practitioner should have had knowledge, thus the vicarious liability of the doctor boss for the nurses and secretaries errors. Moreover, 1987 was the florescence of exclusion sanctions: physicians convicted of fraud and abuse were temporarily or permanently ousted from Medicare and Medicaid programs. For a physician with substantial numbers of patients over age 65, exclusion means financial ruin.
The Stark Law of 1989 is titled "Ethics in Patient Referral Act." Like Stark, 1990 OBRA made further changes in criteria for punishments. Civil liability penalties, initially for "knowing acts" were now imposed for careless "negligent acts." The Medicare and Medicaid exclusion standard was expanded from behavior "knowing and willful" or "negligent" to cover all "gross, flagrant, or repeated" violations of law. An inadvertent wrong billing code submitted for 100 patients flagrantly and repeatedly violated the law.
In this banner year for enforcers, 1990, HHS also began notifying State License Boards as well as the National Practitioner Data Bank of any action against a physician or surgeon pertaining to competence or conduct. HHSs OIG further increased its enforcement authority by civil remedies within the criminal legislation, and was now able to prosecute without a criminal indictment and without a high burden of proof.
In July 1991, the Medicare Fraud and Abuse Safe Harbor Regulations at last were made public, four years late. These 10 administrative pronouncements from HHS are metaphoric harbors and coves for physicians and surgeons adrift on the dangerous Medicare ocean.
Safe Harbors pertain to such topics as investments, space rentals, medical practice sales, and employment arrangements otherwise forbidden by the Fraud and Abuse laws. In 1993 the brave new world of American medicine has a formidable number of remarkable creatures in it, all are directly or indirectly associated with Medicare: HMOs, PPOs, IPAs, HCFA, HHS, OAI, OIG, DAB, GPO, DME, DRGs, PROs, ECPs, CAPs, NACAP, ICLs, RBRVS, CPT Codes, HCPCS, ICD9CM Codes, UB83, UB92, E: FL 77, NPDB, NAIC, FFDCPA, MCCA, and various permutations on MMPPPA.
The Stark Bill (named for its initiator, Fortney "Pete" Stark, Democratic Representative from California) or the "Ethics in Patient Referral Act" of 1989, is predicated upon unequal power. Stark establishes as a point of law that physicians have inordinate power to refer patients who do not have information, sophistication, time, or desire to intelligently choose among medical services, and consequently cannot make independent, cost-effective decisions.
The 101 st Congress therefore amended Title 18 of the Social Security Act in order to free patients, physicians, and Medicare from abuse by physicians financial connections to laboratories, surgery centers, x-ray, scanning, and MRI centers. No physician or surgeon may refer a patient for a Medicare-reimbursed service to a laboratory, dispensary, imaging center, or provider, if the physician or his or her family has any ownership, investment, or compensation interest therein. The recommender cannot be rewarded by any Son of financial gain, kickback, or "lock-in" gift.
The Stark Law has stern civil sanctions for violators: denial of payment for any prohibited referral; refund to the government of payments already received for prohibited referrals; a penalty of $15,000 for each prohibited item or service. (One billing error performed 100 times results in a penalty payment of $1,500,000 plus twice the amount billed, or $3,000,000, totaling $4,500,000.) The violating practitioner also is excluded from Medicare if he or she knows or should know that the referral is prohibited. For circumvention schemes the penalties are $100,000 per incident plus permanent exclusion from the Medicare programs. Illegal strategies are punishable whether they are written or spoken, implicit or explicit, if a principal purpose is to obtain referrals.
Medicare and Medicaid Patient and Program Protection Act
More powerful than the Stark Law is MMPPPA: the Medicare and Medicaid Patient & Program Protection Act of 1987, combining civil and criminal statutes. Fundamental prohibitions are against false claims for reimbursement, failures to report forbidden business transactions, excessive charges, and, with emphatic emphasis, remuneration for referrals. Anti-Kickback legislation has criminal sanctions for whoever knowingly and willfully solicits or receives (offers or pays) any remuneration, such as a kickback, bribe, or rebate, directly or indirectly, overtly or covertly, in cash or in kind, to induce referrals. Anyone guilty of so acting is punished via the "3 Fs": judged a felon, fined $25,000 per incident, and sentenced to five years in jail.
Civil sanctions of MMPPPA are exclusions from Medicare. The Secretary of HHS has both obligation and privilege to expel practitioners and providers. Mandatory exclusions require the Secretary to end participation for a minimum of 5 years for anyone convicted of a criminal offense such as a fraud, theft, embezzlement, breach of fiduciary responsibility, neglect of a patient, or financial misconduct with any Medicare item or service.
Permissive exclusions allow the Secretary to expel from Medicare anyone convicted of a criminal offense or convicted of obstructing a criminal investigation pertaining to Medicare; and one convicted of criminal manufacture, distribution, or prescription for dispensing a controlled substance. Stunningly broad, permissive exclusions embrace any physician suspended from any state or national reimbursement program, whose license was revoked or suspended, who excessively charged, performed unnecessary services, failed to perform necessary services, or provided inferior services. Or defaulted on an education loan, had an adverse PRO determination, or failed to disclose an ownership interest in a laboratory or imaging center. Exclusions are not rescinded during appeals.
Three Concurrent Civil Laws
Three civil laws almost always are alleged as violated in any transgression of MMPPPA. False Claims legislation (1988) demands that a physician who knowingly makes or conspires to make false claims for reimbursement for a medical service or item shall be fined a minimum of $5,000 to a maximum of $10,000 per claim plus 3 times the fine in punitive damages.
For Misleading Advertising (1991), if the words Medicare, Social Security, and Health Care Finance Administration are not used accurately, any offense in print is fined $5,000; any broadcast or telecast offense costs $25,000 each, plus suspension from Medicare and Medicaid and any state equivalents.
An indirect excrescence of the criminal statutes is the increasing number of qui tam actions since 1986. Few physicians know that a disgruntled employee, competitor, or acrimonious spouse might file such a suit. Qui tam derives from the quaint Latin phrase qui tam pro domino rege quam pro se ipso in hac parse sequitur: who sues on behalf of the State as well as for himself. An informer who reports a physician violating Medicare regulations is called a "relator" and shares with the government whatever fines are imposed. If the relator plans and initiates the fraud, the court may reduce his part of the booty. If the entrappers conduct is criminal, the qui tam action will be dismissed.
Though entrapment could be an affirmative defense against a qui tam, which a doctor defendant could raise and prove, it is unlikely to work since predisposition to perform the crime generally is fatal to the defense, and especially when the crime is referrals.
Three Concurrent Criminal Laws
Federal criminal statutes form another triad with MMPPPA accusations. Criminal False Claims adds to the civil penalties ($5,000 to $10,000 per incident plus 3 times the fine in punitive damages) an additional retribution of 5 years of imprisonment.
RICO statutes (pertaining to Racketeer Influenced and Corrupt Organizations) provide fines for violation up to $25,000 or up to 20 years in prison, or both, plus return of the illegally gotten gain. The third common charge under a criminal statute is Mail Fraud. Its fine is $1,000 per incident or 5 years imprisonment, or both.
Medicare/Medicaid Fraud & Abuse Safe Harbor Regulations 1991
Such stern, strict legislation required some mitigation. Though promised right after the MMPPPA of 1987, the Safe Harbors did not see the light of application until July 1991. The OIG issued the long awaited regulations, four years in the making, specifying those payment practices that would not be treated as criminal offenses or serve as bases for exclusion from the Medicare and Medicaid programs under the Anti-Kickback Statute. While welcome, they are ominous in their statement that but for the Safe Harbors the described conduct would violate the Anti-Kickback Statute. Some of the now permitted, heretofore prohibited, business activities are so routinely beneficial and benevolent that few attorneys would have thought to warn doctors of their peril.
Just as physicians are alarmingly vulnerable to fraud and abuse accusations for innocuous business practices, so lawyers are at risk for malpractice accusation if not current with F&A law, its administrative interpretation by federal and state agencies, and with the flood of agency-generated rules and regulations.
Of the ten safe harbors, five directly pertain to medical practice sales and thus daily are part of my professional work.
and Private Investment Interests
Seven new Safe Harbors as listed in the September 21, 1993 issue of the Federal Register include: financial arrangements for hospitals recruiting physicians relocating or practicing in a rural area; surgeon-owners of ambulatory surgery centers; liberalizing investment interests in rural hospitals and outpatient facilities; group practitioners referring within their own group practice; providing malpractice insurance subsidies to obstetricians and practitioners in Health Personnel Shortage Areas; referral arrangements for specialty services; and freedoms and restrictions for Cooperative Hospital Service Organizations.
Those of us working daily with Safe Harbors await the next ones with anticipation and hope. Meanwhile physicians and surgeons are being hauled into Federal courts for violating the law. Here are nine cases demonstrating how Medicare Fraud and Abuse law is being enforced.
The fact patterns suggest that some of these cases have made bad law.
1. U.S. v. Greber
2. U.S. v. Kats
3. U.S. v. Bay State Ambulance
4. U.S. v. Levin
5. Hanlester Network & SmithKline Beecham Enforcement Actions.
6. U.S. v. Lorenzo
7. U.S. v. Kensington Hospital
8. Polk County d/b/a Polk County Hospital, Texas v. Peters.
9. U.S. v. Rutgard
These nine Medicare cases suggest that someday soon an innocent doctor will be prosecuted, found guilty, and convicted under the Greber One Purpose rule. A competent attorney will get the Circuit Court to reverse. Eventually the Supreme Court will be obliged to resolve the conflict between circuits. Meanwhile, physicians and their attorneys correctly will argue that Congressional intent was to punish payments in return for referrals, where "in return" is a matter of fact to be decided by a jury. In each case the jury should be obliged to decide whether it is beyond reasonable doubt that the payment was made solely or substantially in order to induce referrals. But if juries are instructed, as in Greber, that that law is broken if one purpose of payment was to induce referrals, then, as in Greber, it will be inevitable for the jury to find a felony had been committed. The logical though pernicious conclusion to the Greber line of cases in adumbrated in Kats where the jury was informed that any payment, even if not material, that is, "immaterial," for inducing referrals constituted felony. That is tantamount to making any payment to any referrer a statutory felony. Congress had the power to legislate physicians strict liability for the crime of referral. It did not.
Medicare Fraud and Abuse legislation and litigation yield eleven ominous surprises.
This is one experts view from the edge. By nature, experience, and achievement, I am a maker of new enterprises and new institutions. But before going forward, I am grateful to see where I am now. Critical Medicare legislation already is criminal. The Inspector General, not elected nor answerable to anyone but the President, has foreboding freedoms to generate regulations, promulgate them via a flood of informal and often unreadable administrative directives, and to enforce law via civil actions without indictments nor high burdens of proof. Future laws guiding and guarding medical care in America are not likely to become gentler nor kinder towards physicians. Plans for increasing medical coverage for all citizens and de-escalating costs for medical care inevitably will restrict liberty of American physicians and surgeons.
No country in the world has innovated so much in medicine for so long for so many. No country in the world has benefited so brilliantly from medical free enterprise. Standing on the brink of managed care, restricted care, and universal care, I appreciate the excellence of our recent past and view the brave new world of American medicine neither with fear nor optimism, but with consternation and caution. Not enough doctors know the laws they are obliged to obey. Not enough attorneys know the perils of their medical clients. Not enough Americans recognize that as medical care evolves from a privilege to a right, medicine transforms from a profession to a government responsibility. While it may be possible to provide high quality universal health care coverage to all 250 million American citizens, we must have people creating and directing that vast program other than those who presuppose Americas doctors are criminal exploiters of Medicare patients and programs. Medicine must not be Americas first profession whose brilliant inventions and independent practices are forever ended. For as American medicine goes, so goes the nation.
MEDICAL EQUITY INC.
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