Fraud is the deliberate billing of services never provided and abuse is the billing of services not medically necessary or overpriced. Neither practice has a precise measure, but both are estimated by the Institute of Medicine (IOM) to account for $75 billion in health spending every year.1
According to the IOM, an estimated 10 percent of costs associated with fraud would be eliminated with increased detection, prevention and recoupment, but would come at the cost of ongoing support by public and private payers. Research indicates fraud is particularly prominent in Medicare durable medical equipment (DME) purchasing.
In 2018, the federal government negotiated/won a total of $2.3 billion in healthcare fraud judgements or settlements. The majority of these funds were transferred to the Medicare Trust Funds to be reinvested in the Medicare program.2
To date, there have been numerous efforts to curb fraud and abuse. These include:3
The False Claims Act imposes fines on physicians who knowingly overcharge or sell substandard goods to the Medicare program. In 2018 alone, the government recovered $2.5 billion in healthcare-related civil fraud as a result of the False Claims Act.4 This was the ninth year in a row that more than $2 billion was recovered.
The Anti-Kickback Statute (AKS), which fines and/or imprisons physicians and pharmaceutical companies for steering their patients toward products or services that offer the referring physician any kind of reward, such as payment, for the sales. For example, in 2018, Detroit-based Beaumont Health settled claims for $84 million for violating AKS. Beaumont misrepresented one of its CT radiology centers as an outpatient department of the hospital.5 In another case against Novartis, the Department of Justice asserted that the company paid doctors to speak about its drugs, including Lotrel, Valturna and Starlix.6
The Civil Monetary Penalties Law, which fines providers for knowingly filing a fraudulent claim, an illegitimate claim or for violating the AKS.
The Physician Self-Referral Law (a.k.a. Stark Law), which fines and/or excludes physicians from participating in Federal healthcare programs for referring their patients to organizations that financially benefit the referring physician or the physician's immediate family (for example, through company ownership or investment). However, there has been recent opposition to the Stark Law stating that it impedes providers' ability to participate in value-based care models.
The Criminal Healthcare Fraud Statute, which fines and/or imprisons any person for knowingly and willfully attempting to (1) defraud a healthcare benefit program or (2) fraudulently obtain money or property from any healthcare benefit program. Under this law, an individual provider can face up to $250,000 in fines and 10 years of federal imprisonment.7
Exclusions from participation in federal healthcare programs for providers and suppliers who have been convicted of Medicare fraud, patient abuse or felony convictions related to healthcare delivery or unlawful actions with controlled substances.
The development of a predictive analysis tool - the Fraud Prevention System - launched by the Centers for Medicare & Medicaid Services (CMS) that identifies physicians engaging in illegal or questionable billing practices. As of 2016, the tool saved $1.5 billion by detecting fraudulent claims and improper Medicare payments before they were sent to providers.8
The establishment of the CMS Center for Program Integrity, aimed at protecting public healthcare programs from waste, fraud and abuse. The office conducts audits; offers education and technical assistance to states; and enhances data sharing to tackle integrity efforts in the Medicare and Medicaid programs.9
1. Yong, Pierre, L., and LeughAnne Olsen, "The Healthcare Imperative: Lowering Costs and Improving Outcomes: Workshop Series Summary," Institute of Medicine, Washington D.C., (February 2011).
2. The Department of Health and Human Services and the Department of Justice, "Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2018."
3. Centers for Medicare & Medicaid Services, Medicare Fraud & Abuse (August 2014).
4. Rush, Mark, et al., "The False Claims Act & Health Care: 2018 Recoveries and 2019 Outlook," K&L Gates, Pittsburgh, P.A. (February 2019).
5. Roark, Brian, "Detroit Health System Pays $84 Million to Settle AKS/Stark Claims," Bass, Berry and Sims (August 13, 2018).
6. Sullivan, Thomas, "Novartis Earmerks Funds for Potential Settlement in Anti Kickback Case," Policy & Medicine (August 26, 2019).
7. Oberheiden, P.C., "Overview of the Federal Health Care Fraud Statute - 18 U.S.C. 1347," (accessed on September 5, 2019).
8. LaPointe, Jacqueline, "Big Data Tool Saves CMS $1.5B by Preventing Medicare Fraud," Revcycle Intelligence (June 1, 2016).
9. Centers for Medicare & Medicaid Services, "Center for Program Integrity."