Government spending on healthcare and the cost of healthcare in general has risen dramatically in the past few decades. With costs continuously escalating, the federal government has more incentive than ever before to root out the fraud and corruption in the healthcare sector that costs taxpayers billions of dollars each year.
In addition to compensating nursing homes, hospitals, and certain other health care providers for patient care, Medicare and Medicaid allow for reimbursement for additional costs, including overhead, capital improvement, and financing. As such, providers may submit a claim to the government for a percentage of these additional costs by filing cost reports at the end of each year.
The amount due to the provider is based on a formula that incorporates the costs incurred in rendering patient care, and providers are instructed that they will be reimbursed only on the basis of costs relating to rendering patient care. Providers are instructed to allocate their costs into “cost centers” in order to distinguish patient care costs from other costs.
After allocating cost centers, providers then must apportion the patient care costs between Medicare or Medicaid beneficiaries and other patients not covered by those two programs. If a provider knowingly inflates the costs incurred, mischaracterizes the nature of the costs or misallocates the government cost, the provider will be liable under the False Claims Act.
Examples of Cost Report Fraud
In a cost reporting scheme, providers can commit fraud in cost reporting in various ways, including:
Notably, in 2003, the government obtained a tremendous victory against HCA Inc. (formerly known as Columbia/HCA and HCA – The Healthcare Company) for fraud relating to overpayment of claims arising from fraudulent cost-reporting practices. Specifically, HCA agreed to pay the United States $631 million in civil penalties to settle the false claims submitted to Medicare and other federal healthcare programs and, as part of the settlement, designated $250 million to resolve damages related to cost report fraud.