Business Law Position Paper

Hospital Corporation of America (HCA), the nation's largest for-profit hospital chain with corporate offices in Nashville, Tennessee, has been ordered to pay the State of Utah nearly $857,000 for filing false Medicaid reports and paying doctors kickbacks, the Utah Attorney General's office said (Associated Press, 2004). HCA, known in Utah as Mountain-Star Health, operates six hospitals in Utah and more than 400 hospitals throughout the country (Murphy, 2004). This is the second time that HCA has had to reimburse Utah for losses.

The corporation paid nearly a half-million dollars to settle fraud charges in 2001 in the largest government fraud settlement ever reached. They also agreed to pay an additional $840 million in criminal fines, civil penalties, and damages for false billing practices. This settlement with the Justice Department would end the government's seven-year investigation into healthcare fraud allegations against the company. The investigation began in 1997 when two Utah doctors brought the fraud allegations to the attention of the government (Murphy, 2001).

When the government suspects healthcare fraud, it can bring charges under a variety of statutes. Providers who falsify claim reimbursements are generally subject to prosecution under two statutes: the False Claims Act and the False Statements Act. Further, since most Medicare and Medicaid fraud is camouflaged within legitimate business contracts between providers, insurance companies, and the Federal Government; the Federal Mail Fraud and Wire Fraud statutes can provide additional prosecutorial options (Kleiner & Philip, 1999). False Statements

HCA pled guilty previously to defrauding government health care programs, but just how did they arrive at that point? What stumbling blocks did they trip over to fall? The company submitted false statements to a federal agency by filing claims and paying kickbacks to doctors so they would refer Medicare and Medicaid patients to its facilities (Miller, 2002). The whistleblowers advised investigators that the hospital chain was defrauding Medicaid in three ways: 1. Billing for outpatient laboratory tests without determining if they were medically necessary

Upcoding {assigning the specific diagnostic related group (DRG) associated with a higher level illness} claims to receive larger reimbursements 3. Charging for home health services that were not needed (Murphy, 2001). The U. S. Code makes it a federal crime for anyone willfully and knowingly to make a false or fraudulent statement to a department or agency of the United States. A statement or representation is false or fraudulent if it relates to a material fact and is known to be untrue or is made with reckless indifference as to its truth or falsity.

The false statement must be related to a material matter, and the defendant (HCA) must have acted willfully and with knowledge of the falsity. It is not necessary to show that the government agency was in fact deceived or misled. The issue of materiality is one of law for the courts (Corley, R. , Reed, O. , Shedd, P. , & Morehead, J. , 1999, p. 239). The pros and cons of the False Statement Act are primarily focused on the process of upcoding. There is considerable latitude with regard to which elements of the hospital charts are entered on the Medicaid claims form.

This latitude presents physicians with numerous opportunities to "overcharge" by inaccurately miscoding information. The pros are: computerized Medicaid coders are replacing manual entry methods, rewritten claim forms to be more "user friendly" and mistake proof, and a system in place to evaluate and detect fraudulent activity. The cons are: insufficient training to accurately code DRGs; increased charges are passed along to the insurance companies, providers, and taxpayers; investigation and trial costs are being passed along to the taxpayers (Silverman & Skinner, 2003).

Intent to Defraud Another important issue in HCA's guilty verdict concerns intent to defraud. The U. S. Code contains several provisions making it criminal to carry out a scheme to defraud. A scheme is any plan or course of action intended to deceive others. Intent to defraud means to act knowingly and with the specific intent to deceive someone, ordinarily for the purpose of causing some financial loss to another or bringing about some financial gain to oneself (Corey et al., 1999, p. 239).

This intent to defraud rescinds the good faith defense. Good faith is a complete defense since good faith on the part of a defendant is inconsistent with intent to defraud or willfulness, purposes essential to fraud charges (Corey et al. , 1999, p. 239). The pros and cons concerning intent to defraud depend on an individual's point of view. Fraud and abuse affect everyone, those with private insurances as well as Medicare and Medicaid.

Pro issues that come into play are: most health care providers are honest and legitimate, the whistleblower can collect a percentage of the damages in a claim they help to expose, and there are management safeguards in-place to detect situations that appear atypical. Con issues are: the high cost of fraud losses are still being filtered to the taxpayers for payment, legitimate providers are forced to continually raise their fees to compensate potential losses, and the current billing and coding processes are changing and require more training to insure that "honest mistakes" occur rather than fraudulent activity (Sarraille, 2004).

In both of the previous examples, the beginnings of fraud started with dishonesty. Interestingly, "we have learned that financial fraud does not begin with dishonesty," says Michael Young, a partner with the New York law firm of Willkie, Farr, and Gallagher. Your boss does not come to you and say, "Let's do some financial fraud. " Fraud occurs because the financial culture has become infected with a climate of corruption (Sweeney, 2003).

Racketeer Influenced and Corrupt Organizations Act (RICO) Racketeering is defined as "any act or threat involving" specified state law crimes, federal statutes, or certain federal offenses (Corey et al., 1999, p. 241). RICO imposes criminal and civil liability upon those businesses that engage in prohibited activities and interstate commerce. Specifically, this liability extends to any person who: 1. Uses or invests income from prohibited activities to acquire an interest in or to operate an enterprise 2. Acquires or maintains an interest in or control of an enterprise 3. Conducts or participates in the conduct of an enterprise while being employed by or associated with it (Corey et al. , 1999, p. 240-241).