Washington DC Healthcare Fraud & Medicare Fraud Attorney

Fraud: Schemes and Reimbursement Models

Healthcare fraud can take place in a variety of ways but usually involves fraud against the federal Medicare or state Medicaid reimbursement systems. Here are some examples of different types of healthcare and medicare fraud that have been pursued by whistleblower attorneys.


Whistleblowers play vital roles in exposing pharmaceutical fraud. In the past several years, billions of dollars have been collected from pharmaceutical companies and others for fraud related to the unlawful promotion, pricing and illegal marketing of drugs that violate the Federal and State False Claims Acts, the Federal Ant-Kickback Statute, as well as other federal and states laws. Whistleblowers who expose fraud not only protect themselves from potential prosecution, but they help ensure that pharmaceutical firms who violate the law are brought to justice.

Some of the fraud schemes that may violate False Claims Acts include:

    • Off-Label Marketing of Drugs: Before any drug can be approved for use in the United States, it must first be approved by the Food and Drug Administration (“FDA”). The FDA determines which medical conditions a drug may be used to treat, and this information is typically reflected on the drug’s “label.” Federal law prohibits drug makers from marketing or promoting drugs for the uses not approved by the FDA. Off-Label uses can include selling a drug for a medical condition not in the drug’s label, or promoting for higher dosages, longer therapy or improper patient populations. This practice is known as “off-label” marketing because it goes beyond those uses specifically approved by the FDA. Off-label promotion, especially when a drug company makes misleading representations about the drug’s safety or effectiveness, may also be known as “misbranding” a drug, for which there are civil and criminal penalties.
      Drug companies violate federal law, including the False Claims Act, when they market, promote or encourage physicians to use their drugs off-label. As a result, pharmaceutical companies that have engaged in illegal off-label marketing or promotion of their drugs have paid hundreds of millions of dollars when whistleblowers like sales representatives, sales managers, compliance officers, physicians, nurses and/or other employees bring these cases.
    • Illegal Kickbacks: Another unlawful practice involves pharmaceutical companies providing payments or other financial incentives to hospitals and/or physicians in order to induce them to prescribe their drugs to patients. Such payments or financial inducements can come in many forms, including:
      • Bonus payments;
      • Free or reduced cost vacations;
      • Lavish dinners and lunches;
      • Tickets to sporting events or other forms of entertainment;
      • Gifts;
      • Payments for attending conferences, lectures or other meetings;
      • Payments for serving on “advisory boards” which are excessive when compared to the work being performed;
      • Joint business ventures between pharmaceutical companies and hospitals or physicians;
      • Research funding and unrestricted educational grants;
      • Phony or sham drug trials; and
      • Free samples of drugs, which physicians then sell to patients.


    • Inflating the Price of Pharmaceuticals: Medicare and many State Medicaid programs determine the amount they will pay for drugs based upon a figure known as the Average Wholesale Price (“AWP”) for that drug. The AWP is determined by information reported by pharmaceutical manufacturers. One common type of fraud has been for pharmaceutical manufacturers to inflate the AWP of their drugs and to use that inflated cost to provide a financial inducement for Pharmacists, Pharmacy Benefits Managers (“PBMs”); Insurers; and Group Purchasing Organizations to prescribe their drugs. Pharmaceutical manufacturers provide such financial inducements through what is known as “marketing the spread.” In this scheme, the “spread” is the difference between (1) the actual cost that the pharmacist pays for a drug and (2) the price that the Government (Medicaid) will pay for dispensing that drug, which is determined by the AWP for the drug. As a financial inducement to prescribe their drugs, pharmaceutical manufacturers have inflated the AWP, thereby increasing the “spread” between the actual cost of the drug and the amount that the Government pays for that drug. Pharmaceutical manufacturers have marketed this fraudulently inflated profit as a means of inducing Pharmacists, Pharmacy Benefits Managers (“PBMs”); Insurers; and Group Purchasing Organizations to prescribe their drugs. Such inducements violate the Federal Anti-Kickback statute, the Federal and State False Claims Acts, as well as various other federal and state laws and regulations.


    • Best Price Fraud: In order for a pharmaceutical manufacturer to sell its drugs to the Medicaid or Medicare program, it must agree to charge the program the lowest price at which the manufacturer sells to drug wholesalers, pharmacists, HMOs, Group Purchasing Organizations, and other private sector customers. In order to induce these private insurers, wholesalers, pharmacists and businesses to purchase and prescribe their drugs, and to include them on their preferred formularies, pharmaceutical manufacturers have offered their drugs at prices below the best price offered to Medicare or Medicaid. Many times these discounted or nominal prices are concealed from the Government through other agreements between the pharmaceutical companies and the private insurers, wholesalers, pharmacists and businesses. The pharmaceutical companies conceal these discounts so as to avoid having to provide rebates to Medicare to match the discounted price they are providing to private insurers, wholesalers, pharmacists and businesses. This violation of the best Price requirement can be a violation of Federal and State False Claims Acts.


  • Pharmaceutical Benefits Manager Fraud: Pharmaceutical Benefits Manager (“PBM”) firms appeared in the 1960s as a way to help insurance companies manage their claims for prescription drugs and administer prescription drug plans more efficiently. In recent years, PBM’s have expanded their roles to include reducing costs for insurance companies by negotiating bulk discounts and rebates with pharmaceutical companies, and through cost-controlling drug formularies. In addition, PBM’s also provide increased services such as mail-order pharmacies and on-line refill services. PBM’s earn hundreds of millions of dollars for these services, and have lucrative contracts with Government health care insurance programs. PBM’s have been the target of numerous Federal and State False Claims cases for conduct ranging from illegal rebate and discount agreements with pharmaceutical manufacturers, and offering kickbacks to insurance companies, to violating contractual responsibilities by shorting prescriptions, switching medications and canceling prescriptions to conceal failures to meet contractually mandated deadlines for filling prescriptions.

General Healthcare Fraud (Hospitals, physicians and other health care providers)

There are numerous ways that healthcare providers may attempt to defraud Medicare or Medicaid. Here are some common examples in which the Government has pursued prosecution:

  • Billing for services or supplies that were never actually provided
  • Altering claim forms to obtain a higher reimbursement amount
  • Applying for duplicate reimbursement in order to get paid twice
  • Completing Certificates of Medical Necessity (CMNs) for patients not personally or professionally known by the provider
  • Unbundling or “exploding” charges
  • Soliciting, offering, or receiving a kickback, bribe, or rebate
  • False representation with respect to the nature of the services rendered or charges for such services, identity of the person receiving or rendering the services, dates of the services, etc.
  • Filing claims for services that are non-covered but billed as if they were covered services
  • Claims involving collusion between a provider and a beneficiary, resulting in higher cost or charges to the Medicare program
  • Use of another person’s Medicare card in obtaining medical care
  • Collusion between a provider and a carrier employee

Skilled Care, Physical, Occupational and Speech Therapy

Skilled Physical, Occupational and related other specialized therapies can be particularly vulnerable to Medicare fraud given the Government’s higher reimbursement rates for skilled therapy. However, in the nursing home or rehab context, Medicare should not be paying for various services that are considered non-skilled because they can be performed by nurses or nurse aids. Assistance with walking, toileting, range of motion exercises and eating can sometimes be improperly billed as a skilled care service by having therapists performing the job of a nurse or nurse aides.

In the skilled care setting, Medicare fraud can be committed by the facility providing skilled care services that were not reasonable, medically necessary, or authorized for reimbursement under federal regulations. Skilled therapists may be kept in the dark about regulatory billing requirements and divorced from the actual billing statements, so they may not understand that the facility is breaking the law and putting their license at jeopardy.

Federal regulations contain various restrictions on who can receive skilled therapy, whether that therapy takes the form of speech, physical, occupational or speech therapy. Sometimes patients may also be treated in group settings or by non-licensed professionals, which depending on the circumstances, can constitute a violation of Medicare regulations. Cases have been prosecuted involving the billing of services for a licensed therapist, where the actual therapy was provided by an assistant.

Understanding Medicare regulations is an important step to evaluating whether a potential claim may constitute Medicare fraud. Medicare has three parts: Part A covers in-patient care. Part B covers out-patient or ambulatory care and professional services. Part C provides prescription drug coverage. While Medicare is a federal program, each state provides a Medicaid program which is in part funded by the federal Government. Each state has its own set of rules for reimbursement, and it is important to consider those rules in filing any state-based False Claims Act case.

There are various types of reimbursement models that can be gained or manipulated for purposes of submitting fraudulent payments to Medicare. To understand the schemes of fraud it is important to understand some of the reimbursement models. The perspective payment model is common and uses predetermined fees that in theory are based on the patient’s acuity or level of sickness.

One example of such a model is Medicare’s DRG (diagnosis related group) perspective payment system. Under such a system each hospital undertakes a series of computations for reimbursement that is determined by information collected in Medicare cost reports. The hospital receives DRG reimbursement based on predetermined amounts for each group. Under perspective payment system skilled nursing facilities received a fixed rate per diem for all Part A post-hospital extended care services. The reimbursement rates are adjusted for a case mix using a system known as resource utilization groups or RUGS. Each rug has associated nursing and therapy rates that are applied to the base payment rates that impact reimbursement. Typically, the higher the RUG category the greater the patient’s acuity and the higher the reimbursement rate. Sometimes healthcare facilities may attempt to gain the RUG system by placing patients in higher or the highest RUG categories, when in fact their medical condition suggests that they are suited for an intermediate or lower category or reimbursement. As RUG categories can be influenced by the amount of time that a resident receives skilled therapy, some facilities will attempt to artificially inflate the RUGS by keeping the patients in therapy for as long as possible. Some facilities help achieve this goal by having their patients receive extended therapy in groups. Medicare regulations have specific restrictions on the nature of group billing and the provision of group physical therapy.

Unlike other long-term care facilities, SNFs may be reimbursed under Part A as well as for any patients who receive Part B-covered services only. The Medicare program provides coverage under Part A for skilled nursing facility services but not for custodial care.2

The Part A SNF benefit includes: nursing care, bed and board, physical, occupational, or speech therapy, medical social services, and drugs, biologicals, supplies, appliances, and equipment for use in the facility.

Medicare law stipulates that beneficiaries are eligible for Part A benefits if they are transferred to a SNF after a minimum 3-day covered stay in an acute hospital. The patient must require skilled nursing care, and a physician must order the services. Part A covers SNF services for up to 100 days per “spell of illness.” The beneficiary is responsible for a copayment for the 2 1st through 100th day of care. After 100 days, beneficiaries are not covered under the SNF benefit, but they may be covered for various services under Part B, even while they are receiving only custodial care.

Most SNFs provide custodial care as well as skilled nursing services. The SNFs are responsible for meeting the needs of long-term patients who are eligible for Part B services only during their stay.

What is Physical and Occupational Therapy?

According to the American Physical Therapy Association, physical therapy primarily involves (1) examining patients with impairments or functional limitations in order to determine a diagnosis and intervention and (2) designing, implementing, and modifying a program to alleviate those impairments. Among other things, physical therapists evaluate patients’ motor function, range of motion, posture, pain, gait, and balance. Common treatments include therapeutic exercise, functional training in activities of daily living, prescription and customization of prosthetic devices, and wound care. For example, physical therapy may include therapeutic exercises–such as knee extensions to restore injured joints–or walking on ramps, stairs, or curbs to improve walking ability impaired by injury.

Fee for Service Model

In this model a provider is paid a set fee for each individual service provided. This is one of the traditional models that has been used and continues to be used by a large number of healthcare providers. Generally, the greater number of services provided, the greater the revenues that are generated. Fraud can occur in a variety of contexts. Sometimes services are provided for tests or treatment that was simply not medically necessary. Other times healthcare providers may steal patients’ Medicare or social security numbers and submit claims for services that were not even provided to any patient.

Patients in skilled care facilities may be vulnerable to this type of fraud. For example, many nursing homes employ independent contractors like podiatrists who may come into the facility to provide foot care. Various cases have been reported where such providers end up submitting separate medical charges to Medicare for most of the residents in the facility, even though not all the residents received specific care for services rendered.