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Faculty Expert – Kwok on Healthcare Fraud

David Kwok

Dec. 14, 2015 - On Dec 4, the Supreme Court granted certiorari in Universal Health Services v. United States ex rel. Escobar, a fraud case that may reshape the future of $1.9 billion of annual healthcare fraud recoveries in the United States. Julio Escobar and Carmen Correa lost their daughter to a seizure while she was under the care of Universal Health Services. When Escobar and Correa learned that the staff caring for their daughter were not licensed or certified, they filed a whistleblower action under the False Claims Act alleging that Universal Health had defrauded the government, which had paid for their daughter medical care. Federal courts have been unsure whether Universal Health’s behavior legally constitutes fraud, and the Supreme Court may step in to offer guidance. Assistant Professor David Kwok, who teaches and writes in the areas of white collar crime, public policy, and law and the social sciences, explains the complexities of the issue and suggests a way of more clearly defining exactly what constitutes healthcare fraud.

Q. Why is the Supreme Court interested in this case?

The federal government has been emphasizing prosecution of healthcare fraud cases, and the federal circuits have different approaches in determining what types of behavior constitute fraud. Courts agree that if a healthcare provider does not provide any treatment to a patient and yet still bills Medicare for the treatment, that provider has committed fraud. The more difficult scenario occurs when treatment is provided but the provider has knowingly failed to comply with a rule or regulation related to the treatment. For example, one court has held that lying about the supervising physician does not constitute fraud, while another court has held that lying about a physician provider does constitute fraud under the False Claims Act.

Q. Why are courts hesitant to label known violations as fraud?

Healthcare is heavily regulated and courts have been concerned about proportional punishment. Civil liability under the False Claims Act can result in $5,500 to $11,000 penalties for each false claim, and courts might be concerned that such penalties are too high in comparison with the harm from some violations.

Q. What are some of the different approaches used by courts to determine whether a violation constitutes fraud?

One factor courts have used is to distinguish between “conditions of payment” versus “conditions of participation.” If a healthcare provider violates a condition of payment, that violation can constitute fraud. In contrast, if a provider violates a condition of participation in the Medicare system, some courts have said that such behavior is not fraud under the False Claims Act. Rather, the proper punishment for violating a condition of participation is correction of the violation itself or expulsion from the Medicare system.

Another factor courts have considered is express versus implied certification: must a provider expressly certify that it was in compliance with the proper regulation to create fraud liability? Or is some behavior sufficient to constitute implied certification, even if the provider never expressly certified that it was in compliance with the relevant regulations?

Q. What do Escobar and Correa hope to gain in a Supreme Court decision?

As whistleblowers, Escobar and Correa are entitled to a “bounty” payment that is a percentage of the government’s fraud recoveries under the False Claims Act. These bounties have encouraged many whistleblowers to come forward with allegations of fraud under the statute. Besides their immediate interest in obtaining a percentage of some payment from United Health Services, a good result from the Supreme Court would help clarify the stakes for future whistleblowers.

Unlike Escobar and Correa, many whistleblowers identify wrongdoing committed by their employers, and those whistleblowers fear retaliation in their workplace. The present inconsistencies among the federal courts make it difficult for whistleblowers to understand whether alleged wrongdoing would legally constitute fraud under the False Claims Act. If the wrongdoing does not constitute fraud, they are ineligible for any reward under the statute.

Q. Do you have any predictions as to how the Supreme Court will decide?

I understand why courts have been hesitant to label all known regulatory violations as fraud, but it’s not clear to me that any one lower court’s approach has proven best thus far. My main hope is that the Supreme Court articulates clear reasoning that will help both whistleblowers and companies understand when fraud is being committed. For example, I have proposed a rule based on fair competition: if a competitor could comply with the regulatory scheme, then a company knowingly failing to comply with the regulation should constitute fraud under the False Claims Act. A clear, unified rule that makes it easier for non-attorneys to understand fraud will benefit all parties involved.