The respected Robert Wood Johnson University Hospital is set to pay over $6 million in order to settle allegations of Medicare fraud.

Two federal lawsuits brought against the hospital claim that bills to the hospital’s Medicare patients were fraudulently inflated in order to gain larger payments from the Medicare program. The federal program supplies supplemental reimbursements, known as “outlier payments,” to health care institutions when the cost of care is unusually high. Robert Wood Johnson University Hospital is accused of inflating costs in order to gain access to these outlier payments, which were created as a protection to health care providers who might be giving care to patients with extraordinary conditions.

Both federal lawsuits were brought under Qui Tam provisions of the False Claims Act. The whistle blowers will receive just over $1.1 million in compensation for reporting the alleged fraud.

To date, with the help of whistle blowers, the Justice Department has been able to regain nearly $1.1 billion in outlier payment fraud.

The Health Care Fraud Enforcement Act of 2009, S. 1959, 111th Cong. (2009), if passed, would amend the Social Security Act to add that a violation of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b, is a false or fraudulent claim under the False Claims Act.  And, the provision defining a “federal health care offense” (18 U.S.C. § 24(a)), would include violations of the Anti-Kickback Statute.

In introducing the bill on October 28, 2009, Senator Ted Kaufman remarked, “By making all payments that stem from an illegal kickback subject to the False Claims Act, this bill leverages the private sector to help detect and recover money paid pursuant to these illegal practices.”

This new law, if passed, will strengthen the False Claims Act and undoubtedly enhance whistleblowers’ ability to recover for reporting kickbacks.

A pilot program run by Medicare in three states (California, New York and Texas) claimed $900 million in fraudulently claimed money in the last three years. The program focused on regaining taxpayer money that had been paid out to hospitals and doctors based on fraudulent or overcharged bills.

This week, President Obama announced the expansion of the program to a Federal level. Auditors, known around the White House as “bounty hunters” have been deployed around the nation to identify and investigate fraudulent Medicare and Medicaid charges.

Auditors will receive a small percentage of the regained money as an incentive to finding improper payments. “It’s estimated that improper payments cost taxpayers almost $100 billion last year alone,” President Obama said on Wednesday, “If we created a Department of Improper Payments, it would actually be one of the biggest departments in our government.”

The program works by empowering auditors to use state of the art computer programs that troll through records to identify fraudulent claims. Auditors then use more traditional means to track and investigate suspicious claims.

False Claims Act cases involving treatment issues are one of the types of fraudulent billing healthcare qui tam cases. There are five potential areas in which qui tam cases arise in the area of treatments for which Medicare or Medicaid claims are submitted.

1. Total Neglect or No Services Provided.
The most obvious case of FCA liability imposed on a physician for fraudulent billing occurs when he submits claims for services that were not provided. For example, a doctor submits reimbursement claims to Medicare for surgeries he never performed.

2. Worthless Services.
A healthcare provider may also be liable for submitting claims for services rendered if the services are so deficient that there was no medical value. For example, if in providing a multitude of services, a nursing home failed to properly feed a patient resulting in an overall deterioration of health, serious illness, or death, a court could find the value of all services to be worthless.

3. Inadequate Services.
Many reported schemes involving inadequate care occur when a facility—that is paid on a per diem basis by the Government—provides inadequate tests or services. For example, Medicare may pay a nursing home facility per diem for each patient regardless of the services provided. By ordering fewer tests, using fewer supplies, employing less staff and reducing referrals to specialists, the nursing home facility is providing inadequate services to increase its profits. These tactics violate the Nursing Home Reform Act, the Social Security Act, and Medicare/Medicaid laws. When a the nursing home is paid on a per diem basis for each Medicare patient, the nursing home implicitly agrees to follow the standards of care in the Medicare and Medicaid statutes, and to provide adequate care in a manner that maintains or enhances of the quality of life of its residents. If the nursing home provides inadequate care and submits a reimbursement claim for its residents, the nursing home is submitting a false claim in violation of the FCA.

4. Standard of Care.
Statutes and regulations governing Medicare, Medicaid, Social Security programs, as well as nursing homes, require healthcare providers to meet quality of care standards. If a provider fails to meet these standards, then such failure may result in exclusion from the program, as well as substantial monetary damages. A provider may fall short of these standards when patients are subjected to unreasonable risks due to a provider’s failure to take proper preventative measures. For example, a long-term psychiatric facility’s failure to prevent patients from being subjected to a risk of physical and mental harm may expose the facility to FCA liability, because it failed to meet the adequate standard of care.

5. Aggressive Treatment.
Aggressive patient treatment usually results when a physician orders unnecessary medical tests and provides unnecessary medical services. A provider can dramatically increase its profits for multiple procedures if it is reimbursed for each unnecessary test or service rendered, rather than being paid per-diem.

The Office of the US Attorney in Los Angeles announced this week that Manuk Karapetyan, a 46 year old healthcare clinic owner, has been convicted of Medicare fraud. Karapetyan allegedly fraudulently billed more than $3.4 million to Medicare in the names of four doctors whose identities he had stolen. The fraudulent claims came on behalf of nearly 800 patients who were supposedly treated at a non-existent medical clinic, USA Independence Medical Corp.

Karapetyan had been paid $566,000 form Medicare funds by the time he was discovered. The investigation began when the patients whose names Karapetyan had used began to submit fraud complaints to their doctors and Medicare after reviewing their bills and noticing unexpected charges filed in their names.

Sentencing for Karapetyan, who has been in custody since April of 2009, is scheduled for June 21. He could receive up to 320 years in prison for fraud and identity theft.