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Complying with healthcare fraud laws: An overview for the hearing professional

Freeman, Barry A.; Loavenbruck, Angela

doi: 10.1097/01.HJ.0000294838.94260.69

As federal officials grow increasingly vigilant in rooting out healthcare fraud, the need for hearing healthcare providers to understand and comply with all relevant regulations has become greater than ever. Two experts offer some practical advice.

Barry A. Freeman, PhD, is Dean, Programs in Communication Sciences and Disorders, Nova Southeastern University. Correspondence to Dr. Freeman at Angela Loavenbruck, EdD, is Owner of Loavenbruck Audiology, a private practice in New City, NY.

Correspondence to Dr. Loavenbruck at

Officials at the U.S. Department of Justice have declared healthcare fraud the crime of the decade and they are responding with national initiatives to combat this fraud. These initiatives include increased funding and an expanded use of government resources, including the Federal Bureau of Investigation (FBI), U.S. Postal Service, and local law enforcement. For example, since 1992 the number of FBI agents assigned to investigate healthcare fraud has increased from 111 to 420.

After a workshop on compliance at last year's American Academy of Audiology Convention, 60% of the attendees thought that they might be out of compliance with federal guidelines. Meanwhile, someone in the audience suggested that the other 40% were too embarrassed to admit it!

The purpose of this article is to provide an overview of compliance issues that directly impact the practice of audiology and other areas of hearing health care.

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Fraud is an intentional deception or a misrepresentation that an individual knows to be false or, at least, does not believe to be true, and that is committed by the person knowing that it could result in benefit to him/herself.

In the early 1800s, Congress enacted the False Claims Act in response to fraud committed by government defense contractors. The act was amended in 1986 to “enhance the government's ability to recover losses sustained as a result of fraud against the government.”

This act states that “any person who knowingly presents or causes to be presented to…the U.S. government…a false or fraudulent claim for payment or approval…is liable to the U.S. government for civil penalties.” The basic elements of the False Claims Act include making or using a false record and/or obtaining payment for a false or fraudulent claim. Penalties are $5000 to 10,000 per violation plus three times the amount of the damages.

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Fraud convictions increasing

The number of convictions for healthcare fraud increased four times from 1992 to 1998 when there were 469 federal convictions. According to the Health Insurance Association, 43% of fraud charges were for fraudulent diagnosis, 34% for billing for services not rendered, and 21% for waiving patient co-pays or deductibles. Table 1 reviews some of the more common types of Medicare fraud.

Table 1

Table 1

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Some of these categories of fraud have very specific implications for hearing healthcare professionals. It is the government's contention that the routine waiver of the 20% co-payment for Medicare recipients suggests that the actual fee is 20% less then the amount billed. Therefore, the practitioner is only entitled to the lower fee. Practitioners, then, should be sure that their office policy includes efforts to collect the co-pay from the patient.

Similarly, some patients and practitioners know that reimbursement is better for some diagnostic or procedure codes than for others. Medicare audits specifically look for information in patient records to see if the billed codes are justified.

To charge a practitioner with fraud, the government must show that an incorrect claim was billed to the government and that it was known to be false. As former Attorney-General Janet Reno stated, “it is not the Department of Justice's policy to punish honest billing mistakes…or mere negligence,…but where there is reckless disregard and people go beyond simple negligence, we will use the law.”

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“Red flags” to investigators

Table 2 summarizes tips from the Health Care Financing Administration (HCFA) web site to investigators to assist in identifying possibly fraudulent activities. The advertising of “free tests,” for example, raises a red flag to investigators and might trigger a Medicare audit. It might suggest that some patients receive a service at no charge while Medicare recipients are billed for the same services.

Table 2

Table 2

Similarly, investigators are leery of providers who pressure patients to undergo high-priced diagnostic services. HCFA carriers carefully monitor the utilization of certain procedure codes and know what the standard is for a region. Providers who fall outside that norm should be prepared to give a careful explanation.

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Unqualified service providers

Medicare fraud also includes billing for services provided by an unqualified person. The regulations clearly state that practitioners must be licensed by their state or meet other standards required to practice in that state. The government has taken the position that Medicare patients deserve health care that is provided by a licensed practitioner and that only services provided by that practitioner or his or her employee can be billed to Medicare.

Students can be present when a service is being provided and may give assistance to the licensed practitioner, but a student cannot be the primary provider of care. Clinical chart notes and reports should be signed by the licensed practitioner.

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In 1989, Congress passed laws governing self-referrals of Medicare and Medicaid patients. Referred to as Stark I, the legislation was enacted to control physician referral for clinical laboratory services. In 1998, HCFA published what has come to be known as Stark II, defining physician-referral guidelines and proposed rules on referrals to healthcare entities with which physicians have a financial relationship (Federal Register, 1998, p. 1663).

The Stark laws “prohibit a physician from making a referral to an entity for the furnishing of designated health services [see Table 3]…if the physician has a financial relationship with that entity” (Federal Register, 1998, p.1663). A financial relationship is defined as an ownership or investment interest in the entity or a compensation arrangement between the physician and the entity.

Table 3

Table 3

The final rule, which was published January 4, 2001, does not include audiology among the designated health services (DHS) to which physicians may not make referrals if they have a financial relationship with the DHS. In their response to an inquiry, HCFA officials stated that they were looking at services where there was a “correlation between financial ties and increased utilization…We [HCFA] do not believe Congress intended us to review every possible DHS to determine potential for overutilization.”

They went on to say that expanding the list at this time would cause “undue disruption of the healthcare delivery system.” HCFA acknowledged that “potentially abusive financial relationships might be permitted” under the law, but these “could still be addressed through other statutes that address fraud and abuse, including the anti-kickback statute.” HCFA, then, recommended that physicians and other healthcare providers (e.g., audiologists) look for “alternative business structures that would permit the services to be provided” without physician financial interest and referral incentives.

HCFA's concern is that a financial incentive can affect patient choice, competition, and utilization of services. While audiology is not specifically identified as a DHS, practitioners still must follow the guidelines defined in their own state laws. Most states have fraud, abuse, and anti-kickback statutes similar to those defined by HCFA. Therefore, practitioners must be aware of state laws and their definition of legitimate relationships such as the ones defined in Table 4.

Table 4

Table 4

The two statutes defined within the law, anti-kickback and the self-referral prohibition, carry specific penalties including 5 years' imprisonment, loss of provider status, loss of state license, and fines. A fictitious example of the penalties for a violator is presented in the separate sidebar article on the previous page.

HCFA also has issued safe-harbor provisions to define business relationships and practices that are not subject to the statutes. These are specified in Table 5 and include such agreements as space and equipment rentals where practitioners can have an agreement with a physician to rent space at a fair and equitable price. Again, the agreement must be clearly defined and not include financial incentives such as fee splitting for patient referrals.

Table 5

Table 5

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As audiologists achieve recognition and autonomy within the reimbursement system, there is an increased level of professional responsibility. With this responsibility come an increased level of risk and the need to be cognizant of compliance issues.

This overview merely highlights some of the more obvious and common aspects of a compliant practice. As usual, the best advice is to consult an attorney before entering into contracts and to avoid all marketing and billing practices that could trigger an audit of the practice.

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Dr. Smith is an audiologist who was asked by administrators to visit a nursing home and evaluate the 100 residents. The audiologist did not have a physician referral but billed Medicare using the provider number of the home's physician. He billed four codes for comprehensive audiometry, tympanograms, acoustic reflexes, and otoacoustic emissions. The total amount of his bill to Medicare was $12,500.

Medicare audited the records and discovered that Dr. Smith did not have a legitimate physician referral. Medicare informed Dr. Smith that it could fine him $10,000 per billing code for each patient ($10,000 × four codes × 100 patients) or $4 million. In addition, there also is liability for three times the amount of the bills submitted or $37,500 (3 × $12,500). The total liability is $4,037,500.

© 2001 Lippincott Williams & Wilkins, Inc.