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Medicaid Fraud Investigation Process and Penalties

By Laura A. Perkovic

Medicaid provider fraud is a unique focus area of health care fraud prosecutions, involving highly specialized law enforcement teams focused exclusively on providers who bill Medicaid for health care products and services. Medicaid is administered by the states, with federal funding and oversight. Medicaid fraud is prosecuted by state Medicaid Fraud Control Units (MFCUs), also with federal funding and oversight. Forty-nine states, and the District of Columbia have MFCUs, many of which are part of each state’s Attorney General’s office. If you are a health care professional serving Medicaid patients, here is what you need to know about Medicaid fraud investigations and prosecutions.

Medicaid Fraud Investigation Process

MFCUs are state law enforcement agencies. MFCUs have authority under their respective state and federal laws to investigate and prosecute violations of all applicable state laws pertaining to the provision of medical assistance and the activities of providers under state Medicaid plans. Each state statute is slightly different, but simply put, MFCU investigations involve:

  1. billing fraud involving the Medicaid program;
  2. abuse and neglect of residents within facilities that receive Medicaid payments; and
  3. misappropriation of patient funds by such health care facilities.

MFCUs investigate providers- doctors, nurses, pharmacies, DME companies, dentists, counselors, hospitals, home health agencies, and others; they do not investigate patients or recipients concerning the receipt of Medicaid benefits. An exception to this arises in circumstances where patients and providers conspire or collaborate to commit Medicaid fraud.

Each MFCU employs a team of attorneys, investigators, and auditors. The MFCU is not a part of the state Medicaid program, and the state program has no authority concerning these prosecutions. In fact, the MFCU has the authority to investigate and prosecute fraud within the administration of the state Medicaid program itself. Although the MFCU and state Medicaid are separate by design, they work closely to accomplish the common goal of combating fraud and recovering money. In particular, the MFCU collaborates with the state Medicaid program integrity offices (the people who conduct audits to identify and recoup overpayments). While both the MFCU and state program may investigate similar conduct regarding improper billing, the state program must refer all cases of suspected fraud to the MFCU.

Medicaid Fraud Penalties and Crimes

MFCUs are unique in that their cases can result in criminal prosecutions and/or civil lawsuits where providers are sued under the False Claims Act. That determination is made based on the nature and quality of the evidence (i.e. whether there is sufficient proof of intent to defraud). Or, when there is weak evidence of fraud to support either a criminal or civil case, the MFCU might end up closing an investigation and referring the matter to its state Medicaid program integrity office for collection of overpayments.

Providers should be aware that MFCU investigations can result in simultaneous criminal charges and civil lawsuits, sometimes known as “parallel proceedings.” As such, providers can face more than one battlefront arising out of the same set of facts, and face both prison time as well as hefty civil monetary penalties.

On the criminal front, each state has a criminal statute specifically criminalizing the knowing or purposeful submission of false or fraudulent claims to Medicaid, sometimes called “Provider Fraud” or “Medicaid Fraud.” Just like any prosecution, MFCUs can also charge any state crime as may be appropriate under the circumstances, such as theft or computer crime. Medicaid provider fraud prosecuted at the state level can be a felony or misdemeanor, depending on the state law. In some states, it is a felony regardless of the amount involved.

It is important to note that Medicaid fraud cases can be investigated and prosecuted by federal agencies as well; and many times, such cases involve additional aspects such as Medicare fraud, private insurance fraud, or drug diversion. It is not unusual to see multi-agency collaboration among MFCUs, HHS-OIG, FBI, DEA, and U.S. Attorneys’ Offices. (Please see the Chapman Law Group FAQ page for additional information on federal health care fraud prosecutions.)

On the civil front, most states have enacted some version of a False Claims Act, similar or identical to the federal corollary. False Claims lawsuits allow the government to recover treble damages, plus civil monetary penalties. (Please see the Chapman Law Group FAQ page for additional information on the False Claims Act.) The main difference between a criminal case and civil case is that criminal cases must demonstrate proof of intent to defraud beyond a reasonable doubt. Civil cases require less proof of intent, and can be won by demonstrating by a preponderance of the evidence that a provider was merely reckless in the submission of false claims to Medicaid.

Access To Business Records and Patient Charts During Medicaid Fraud Investigations

Yes. Again, the protocols will differ slightly from state to state. The MFCU may obtain records by subpoena or search warrant, but most often such collection of evidence is accomplished by a written request in the form of a letter. If you receive a record request, it may be that you are a target of an investigation, or it may be that your records are needed for other evidentiary reasons.

Many state statutes authorize the MFCU to enter upon the premises of a Medicaid provider and access records and files relevant to the MFCU investigation. Depending on the nature of the investigation, this may include Medicaid and non-Medicaid patient charts or business records such as provider and patient schedules and billing records.

The written requests may be delivered in-person without advance notice by MFCU personnel, requesting immediate access to such records for inspection and copying. Or, it might be mailed or faxed, requesting copies of certain records. In addition to state statutes authorizing MFCU access to records, Medicaid provider agreements require providers to furnish to the MFCU any requested records supporting payments for services. As a contracted Medicaid provider, you are under an obligation to maintain documentation to support claims for services billed to the Medicaid program. Failure to furnish these records to the MFCU may result in exclusion from federally funded health care programs. (Please see the Chapman Law Group FAQ page for additional information on exclusions.)

If you are presented with a request for access to your records, you should be polite and cooperative. It is illegal to obstruct a lawful investigation, and may lead to criminal charges. However, you may ask to verify the identity of MFCU personnel. While your staff assists in accommodating requests with minimal disruption to business operations, you should call an attorney experienced with Medicaid fraud investigations to understand your rights and obligations, as well as any criminal and civil liabilities that you or your practice might face.

Impact of HIPAA and Other Privacy Laws During Medicaid Fraud Investigations

Disclosure of protected health information pursuant to a request from the MFCU does not violate the HIPAA Privacy Rule. Several exceptions to the HIPAA Privacy Rule apply, allowing disclosures to be made to the MFCU. First, Medicaid providers’ cooperation with the MFCU pursuant to its investigative authority is required by law. Second, MFCUs are considered health oversight agencies. Third, MFCUs are law enforcement agencies, and, depending upon the nature of the investigation, this exception to the Privacy Rule might apply.

Separate and apart from HIPAA, substance abuse records have special protections under federal law. MFCU authority to access substance abuse records may be curtailed by special federal privacy laws, depending entirely upon the nature of the MFCU investigation. If your practice involves substance abuse diagnosis or treatment, including alcohol, pain killers, or smoking cessation, be aware that there are special restrictions on disclosures, even to law enforcement, without a court order. You should consult an attorney familiar with substance abuse record laws for guidance on these matters. (Please see the Chapman Law Group FAQ page for additional information on substance abuse treatment records.)

Chapman Law Group has extensive experience in health care fraud cases. Attorney Laura Perkovic is a former health care fraud prosecutor, with additional years of experience involving medical practice management, compliance, and provider billing; in addition to criminal defense. Ron Chapman II has earned the reputation as a highly-respected and aggressive criminal defense attorney in the area of health care fraud defense, and more. Chapman Law Group health care fraud team handles cases in many courts throughout the nation. State and federal investigations and audits involving provider billing can result in career-ending criminal charges or civil liabilities. It is wise to consult with an experienced legal team as soon as government investigators make contact with your business, in order to understand your rights, obligations, and exposure.