Why Healthcare Fraud is on the Rise with Ileana Hernandez of Manatt


The United States is no stranger to healthcare fraud schemes in both the public and private sectors. While it would be difficult to measure just how much this costs Americans each year, a conservative estimate by David Hyman of the Milken Institute found that total healthcare expenditures were inflated by at least $68 billion. The U.S. doesn’t have a monopoly on healthcare fraud schemes, though, as countries worldwide experience them too. In fact, it’s possible that the United States could learn from other countries’ approaches to combat this epidemic.

Understanding Healthcare Fraud

The U.S. Department of Justice (DOJ) discusses healthcare fraud with a focus on kickback schemes in its 2016 fiscal year (FY) and annual performance report, which is part of the Fraud Statistics Program. The DOJ discusses how healthcare fraud occurs when someone: “(1) knowingly presents or causes to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent; (2) knowingly makes, uses, or causes to be made or used a false record or statement material to a false or fraudulent claim; (3) conspires to commit a violation”.

The DOJ also sheds some light on how much this type of fraud costs taxpayers each year through the FBI’s annual crime statistics reports, which include healthcare fraud as a separate category. For example, in FY2015, there were 591 healthcare fraud cases and 2,148 pending investigations by the FBI. Also, according to the DOJ’s FY2016 performance report, in 2015 alone, $2.5 billion was recovered through False Claims Act cases and $3.4 billion through the Financial Fraud Enforcement Task Force.

With these staggering statistics, it’s no surprise that healthcare fraud continues to be on the rise. As Ileana Hernandez of Manatt says, “It also makes one wonder why there isn’t more being done to combat this problem, or at least why it seems to be getting worse.”

Hernandez believes the reason is simple: demand for healthcare services increases with an aging population, and more people seek care. Because growing insurance costs are higher in some states than others, many believe they can offset these costs by participating in fraud schemes, which are often high profit and low risk.

Hernandez also notes that fraud schemes can occur anywhere healthcare is provided, including the following sectors: “hospitals, nursing homes, home health agencies, pharmacies, laboratories, or doctors’ offices. Common forms of fraud include upcoding services to obtain more reimbursement than is due, billing for services not rendered, kickbacks to induce the referral of claims to particular providers, unbundling of tests or procedures to increase reimbursement and intentional drug diversion.”

So how do fraud schemes typically work? They vary greatly in complexity and range from a healthcare provider charging a patient a fee that is covered by the patient’s insurance but isn’t because of a false diagnosis code added to the bill. Other schemes involve physician-owned distributorships where doctors receive kickbacks from medical equipment suppliers for administering certain brands of equipment and supplies.

In closing, Hernandez says, “It is important to acknowledge that even if the government has resources to go after more of these cases in the future, not every charge will result in a conviction. However, it could still be a nightmare for those charged with healthcare fraud because of potential jail time and huge fines. It’s also a black mark on one’s record that could make it difficult to get jobs in the future.”