Insurance Fraud as a Federal Crime

Go to Jail and Stay in Jail

Fear of hard federal jail time should be rampant among fraud perpetrators in the United States who stage automobile accidents, fake trip-and-fall accidents, present or assist fraudulent workers’ compensation claims, or abuse health insurers because the U.S. Department of Justice (DOJ) is now awake to insurance fraud. Unlike most states, when convicted of a federal crime, the defendant will actually serve almost all of the time given at sentencing.

Staged accident perpetrators who, in the past, understood that if they were caught, they faced no more than an order of restitution and a few weeks in the county jail, now face hard time. When prosecuted in federal court the same people now face up to ten years in the federal penitentiary.

The reason for federal prosecution of insurance fraud was stated in United States v. Lucien, 347 F.3d 45 (2d Cir. 10/14/2003) where the 2nd Circuit Court of Appeal, in a case of first impression, upheld the convictions of people involved in staging automobile accidents, for violation of Federal Health Care Fraud statutes. The Second Circuit explained that because health care fraud drains billions of dollars from public and private payers annually, Congress has since 1992 sought a tool to combat the problem.[1]  “In 1996 Congress enacted the latest in a series of health care fraud statutes making any fraud perpetrated against a public or private payer a federal criminal offense.[2][3]

The U.S. Department of Justice has created a Health Care Fraud Prevention and Enforcement Action Team (HEAT) that includes senior officials from DOJ and HHS and aims to strengthen existing anti-fraud initiatives while also investing new resources and technology to prevent fraud, waste and abuse. Past efforts have included the expansion of joint DOJ-HHS Medicare Fraud Strike Force teams that have been successfully fighting fraud in South Florida and Los Angeles since 2007. The Medicare Fraud Strike Force team operating in South Florida has convicted 146 defendants and secured $186 million in criminal fines and civil recoveries as of May 2009. After the success of operations in South Florida, the Medicare Fraud Strike Force expanded in May 2008 to phase two in Los Angeles, where 37 defendants have been charged with criminal health care fraud offenses. To date in the Los Angeles cases, more than $55 million has been ordered in restitution to the Medicare program.

Strike Force teams currently operate in the following areas: Miami, Florida; Los Angeles, California; Detroit, Michigan; Houston, Texas; Brooklyn, New York; Baton Rouge and New Orleans, Louisiana; Tampa and Orlando, Florida; Chicago, Illinois; Dallas, Texas; Washington, D.C.; Newark, New Jersey/Philadelphia, Pennsylvania; and the Appalachian Region. Strike Force teams have shut down health care fraud schemes around the country, arrested more than a thousand criminals, and recovered millions of taxpayer dollars. For a listing of recent HEAT enforcement actions go to https://oig.hhs.gov/fraud/strike-force/.

Each Strike Force team brings the investigative and analytical resources of the FBI, HHS-OIG and other law enforcement agencies, as well as the prosecutorial resources of the Criminal Division’s Fraud Section and the local United States Attorney’s Offices (USAOs), to analyze data obtained from CMS and bring cases in federal district court.

Each Medicare Fraud Strike Force team brings the investigative and analytical resources of the FBI and HHS-OIG and the prosecutorial resources of the Criminal Division’s Fraud Section and the United States Attorney’s Office (USAO) to analyze data obtained from CMS and bring cases in federal district court. Strike Force accomplishments from cases prosecuted in all nine areas during FY 2014 include:

  • 165 indictments, informations, and complaints involving charges filed against 353 defendants alleged to have collectively billed the Medicare program more than $830 million;
  • 304 guilty pleas negotiated and 38 jury trials litigated, with guilty verdicts following trial against 41 defendants; and
  • Imprisonment for 248 defendants sentenced during the fiscal year, averaging more than 50 months of incarceration.

In the seven and a half years since its inception, Strike Force prosecutors filed more than 963 cases charging more than 2,097 defendants who collectively billed the Medicare program more than $6.5 billion; 1,443 defendants pleaded guilty and 191 others were convicted in jury trials; and 1,197 defendants were sentenced to imprisonment for an average term of approximately 47 months. These efforts, as you can see, have reduced Medicare payments in several arenas, as you can see in the chart below.

In addition, since Lucien, the Second Circuit, in United States v. Zakhary, 357 F.3d 186 (02/04/2004) concluded that the Mandatory Victims Restitution Act of 1996, as codified at 18 U.S.C. § 3663A and the post-1996 version of 18 U.S.C. § 3664, “requires a court to order full restitution to the identifiable victims of certain crimes, including fraud,” without regard to a defendant’s economic circumstances.  Similarly, in United States v. Gelin, 712 F.3d 612 (1st Cir., 2013) the First Circuit reported that throughout the United States judges, prosecutors, police officers and insurance professionals are seeing organized criminal groups, compromising doctors, chiropractors, attorneys, hospitals, and these groups establish store front clinics, diagnostic testing companies, as well as bogus law offices. “They stage phony car accidents. Fake patients visit the clinics where expensive medical procedures like MRIs and x-rays are billed to insurers, even though not provided to the persons posing as patients. In addition, unfilled prescriptions are billed, kickbacks are paid, and lawyers collect false personal injury claims.”

Therefore, in addition to serving definite time in jail for insurance fraud, the Federal Court can order the criminal to pay the insurer victim full restitution without regard for the defendant’s ability to pay. This does not guarantee payment but since restitution is a condition of probation the thought of spending time in jail becomes a great incentive to the criminal to pay the restitution if the money is available.

All three defendants in the Lucien case participated in staged automobile accidents and fabricated personal injury claims to take advantage of the operation of the New York Comprehensive Motor Vehicle Insurance Reparations Act. The government proved at trial that other conspirators recruited the Lucien defendants to participate in the health care fraud charged by the government.

The trial in the Lucien case was one of six trials arising from related indictments charging numerous individuals with participating in an overarching scheme of health care fraud based on a series of deliberately staged automobile accidents in several boroughs of New York City. Following the accidents, the recruited passengers were referred, in exchange for a fee, to various medical clinics in New York City. The recruited passengers assigned their no-fault insurance benefits to the health care clinics (medical providers), which billed the insurance companies directly. The recruited passengers subsequently pursued their own civil causes of action for their feigned injuries.

To receive no-fault reimbursements, the health care clinics generated fictitious treatment records for the passengers in the accidents. The accident participants used these fictitious medical records to support their claims of personal injury and to obtain settlements from insurance companies.

18 U.S.C. Section 1347 provides:

As used in this title, the term “‘health care benefit program’ means any public or private plan or contract, affecting commerce, under which any medical benefit, item, or service is provided to any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract. (Italics added)

The statute, 18 U.S.C. § 1347, as the 2nd Circuit explained directs that whoever “knowingly and willfully executes, or attempts to execute, a scheme or artifice. . . to defraud any health care benefit program … shall be fined under this title or imprisoned not more than 10 years, or both.” The common meaning of the word “whoever” is “whatever person, any person at all, no matter who.”

Proving health care fraud is often difficult the Third Circuit in United States v. Jones, 471 F.3d 478 (3d Cir. 12/28/2006) reversed a conviction because the plain language of the statute clearly prohibits health care fraud “by knowingly or willfully using ‘false or fraudulent pretenses, representations, or promises’ to obtain the money or property of a health care benefit program in connection with the delivery of, or payment for, health care benefits, items, or services.” Fraud, is different from theft.[4] Under the common law and the Model Penal Code, theft is synonymous to larceny – the taking of another’s property by trespass with intent to deprive permanently the owner of the property.

The conviction was reversed because the Government established only that:

(1) from February 2000 to March 2004, the amount deposited into Progressive’s bank account was $451,000 less than the amount received from clients; (2) the discrepancies between the amount received and the amount deposited occurred on the majority of the days on which Jones worked alone and did not occur when Jones was absent from work; (3) Jones was one of the employees that made bank deposits; and (4) Jones had made cash deposits to her bank account and cash expenditures exceeding her wages. The Government has not established, nor did it seek to establish, any type of misrepresentation by Jones in connection with the delivery of, or payment for, health care benefits, items, or services.

Although Jones was a thief she was released because she was only charged with fraud and there was no evidence she committed a fraud.

On the other hand, in United States v. Davis, No. 06-5073 (6th Cir. 06/22/2007) the Sixth Circuit upheld a conviction where fraudulent medical reports, prescriptions and orders were used to defraud Medicare by obtaining payment for oxygen supplies neither needed nor provided. At the conclusion of the trial, the jury found Ms. Davis and Mr. Davis guilty on all twelve counts of violating 18 U.S.C. § 1347(1) and (2) as well as the single count of obstruction of justice in violation of 18 U.S.C. § 1518(a). Upon conviction for health care fraud and obstruction of justice, Ms. Davis was sentenced to a term of imprisonment for 60-months, and Mr. Davis received a sentence of 36-months’ imprisonment. Both received three years of supervised release, a special assessment of $100.00 on each count, and direction to make restitution in the amount of $171,933.00, imposed jointly and severally on Ms. Davis and Mr. Davis.

As indicated by the verdict, the jurors hearing this testimony unanimously agreed that Mr. Davis had knowingly aided and abetted Medicare fraud. We are loath to override their conclusion. The Supreme Court has made clear that “[t]he trier of fact, not the appellate court, holds ‘the responsibility . . . fairly to resolve conflicts in the testimony, to weigh the evidence, and to draw reasonable inferences from basic facts to ultimate facts.’” [Tibbs v. Florida, 457 U.S. 31, 45 n.21 (1982) (citing Jackson, 443 U.S. at 319.

[1]  See Comm. on Gov’t Reform and Oversight, Health Care Fraud All Public and Private Payers Need Federal Criminal Anti-Fraud Protections, H.R. Rep. No. 104-747 (1996)

[2] Health Insurance Portability and Accountability Act of 1996, Pub. L. No. 104-191, § 242(a) (1), 110 Stat.

[3]  2016 (1996);” http://oversight.house.gov/images/stories/Reports/2009-08-13_Medicare_Fraud_Report.pdf

[4]   Nugent v. Ashcroft, 367 F.3d 162, 170 (3d Cir. 2004)

Adapted from Volume Two of my new two volume book, “Insurance Fraud” now available: Volume One available as a Kindle book and a paperback and Volume Two Available as a Kindle book and a paperback.

Read about these and more insurance books by Barry Zalma at http://zalma.com/blog/insurance-claims-library/

About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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