Medicare is a federally-funded health insurance program established through Title XVIII of the Social Security Act and administered by the Healthcare Financing Administration (HCFA). The primary eligibility requirement for participation is beneficiaries have to be 65 years of age or older, whereas Medicaid participants are eligible based upon one’s financial income.
Medicare reimburses physicians for health care services provided to their beneficiaries providing close to 600 billion a year in payments [1]. Medicare has a prospective payment system in which costs are determined by a patient’s diagnosis and paid in advance of treatment.
Medicare payments are audited to safeguard against fraudulent claims; however, a large part of the system operates in good faith, supported by documents supplied by the physician [2]. This form of quality control has left the door open for fraudulent practices and abuse of the system. Fraudulent claims add 10% ($98 billion) in costs to annual Medicare and Medicaid spending alone, up to $272 billion across the entire health care system [3]. Medicare claims are fraudulent when services never provided are billed, unnecessary treatment is rendered, financial incentives are given for referral of diagnostic tests, and when self-referral arrangements are made. Additional safeguards have been implemented to reinforce the quality assurance of Medicare payments and to preserve the integrity of the program.
The False Claims Act, 31 U.S.C. 3729, can be used against health care providers who knowingly submit false claims by intentionally misrepresenting the facts to obtain higher payments by filing claims through Medicare. Submitting fraudulent claims in connection with Medicare is a felony punishable by a fine and imprisonment for up to five years.
In addition to making false claims, receiving kickbacks for referring a Medicare patient is also considered a felony. According to 42 U.S.C. 1320a-7b (b), one is criminally liable when one willing and knowingly receives or pays anything of value to influence referrals. The penalty for such a conviction is a fine of up to $25,000 and no more than five years imprisonment.
The Stark Act prohibits a physician from referring a patient to a health care facility in which the physician has any financial interest, to be precise- a contractual compensation agreement. The Act was expanded to include Medicare payments and criticized as being too intrusive on a physician’s ability to effectively practice under the structured managed care health care system in which compensation agreements are commonplace.
These regulations that impose criminal liability to ensure compliance with the federal laws have not deterred many from making fraudulent claims and taking advantage of the health care system. In 2007, a Medicare fraud task force was formed to combat fraudulent claims, and by the end of last year, over 2000 probes were opened by federal prosecutors [4]. Actions such as these taken by the government reinforce the importance of preserving the integrity of the Medicare health insurance system by preserving costs.
[1] The Economist. (2014, May 31st). Health-care Fraud: $272 billion swindle. Retrieved from http://www.economist.com/news/united-states/21603078-why-thieves-love-americas-health-care-system-272-billion-swindle.
[2] Harris, Dean M. Healthcare Law and Ethics: Issues for the Age of Managed Care. Chicago: Health Administration Press, 1999.
[3] The Economist. (2014, May 31st). Health-care Fraud: $272 billion swindle. Retrieved from http://www.economist.com/news/united-states/21603078-why-thieves-love-americas-health-care-system-272-billion-swindle.
[4] Ibid.
