NORTH CAROLINA LAW REVIEW Volume 67 | Number 4 Article 7 4-1-1989 Fraud by Fright: White Collar Crime by Health Care Providers Pamela H. Bucy Follow this and additional works at: http://scholarship.law.unc.edu/nclr Part of the Law Commons Recommended Citation Pamela H. Bucy, Fraud by Fright: White Collar Crime by Health Care Providers, 67 N.C. L. Rev. 855 (1989). Available at: http://scholarship.law.unc.edu/nclr/vol67/iss4/7 This Article is brought to you for free and open access by Carolina Law Scholarship Repository. It has been accepted for inclusion in North Carolina Law Review by an authorized administrator of Carolina Law Scholarship Repository. For more information, please contact [email protected]. FRAUD BY FRIGHT: WHITE COLLAR CRIME BY HEALTH CARE PROVIDERSt PAMELA H. Bucyt Fraudby health care providers is one of the most deleterious of all white collar crimes. It is also one of the most difficult to prosecute. In her Article, ProfessorBucy comparesfraud by health care providers with other types of white collar crime and analyzes the theories offraud his- torically used to prosecute health careproviders. She concludes that the strongest theory--prosecutionfor providing unnecessary or substandard health care-is the theory that has been used the least. ProfessorBucy suggests ways for prosecutors to use this theory more often and more effectively in order to combat a problem that ravishes human dignity and personal health as well as the nationalpocketbook "I will apply measures for the benefit of the sick according to my ability and judgment; I will keep them from harm and injustice." Portion of Oath of Hippocrates, Sixth Century B.C.- First Century A.D.; currently administered by many medical schools to graduating medical students.1 "[I c]ould make a million dollars out of the suckers ...... Statement of owner/operator of cancer clinics regarding cancer 2 patients. I knew "if sufficient testing was not done the clinic would not be profita- ble." I ordered tests that were "not medically necessary .... I prostituted my medical license." 3 Statement of physician testifying as government witness. "It [is] fantastic that on some of these patients [I] only saw them once but [I] was submitting bills and reports reflecting numerous visits and treatments." 4 Statement of physician. 0 Copyright 1989 Pamela H. Bucy. All rights reserved. t One court in finding defendant, a physician, guilty of mail fraud stated: "defendant, with the intent of fraudulent deception, meant to frighten the supposed patient into parting with his money." United States v. Smith, 222 F. 165 (E.D. Pa. 1915). t Assistant Professor of Law, University of Alabama School of Law. B.A. 1975, Austin Col- lege; J.D. 1978, Washington University School of Law; Assistant United States Attorney, E.D. Mo., Criminal Division, 1980-1987; Coordinator, Health Care Task Force, E.D. Mo. 1985-1987. The author expresses her appreciation to Dean Nathaniel Hansford for his support and encouragement; to the University of Alabama Research Grants Committee for its support; to her colleagues Wythe Holt and Kenneth C. Randall for their editorial suggestions; to Angela Aderholt, Melissa Kessler, Donna Knotts, Christopher Gerety, and Nick Whitehead for their research assistance, and to Hugh Chavern, M.D., M.P.H. and R. Pat Bucy, M.D., Ph.D for their help and insight. 1. 4 ENCYCLOPEDIA OF BIOETHICS 1731 (1978). 2. Baker v. United States, 115 F.2d 533, 540 (8th Cir. 1940), cert. denied, 312 U.S. 695 (1941). 3. United States v. Mahar, 801 F.2d 1477, 1485 (6th Cir. 1986). 4. United States v. Perez, 489 F.2d 51, 76 (5th Cir. 1973). NORTH CAROLINA LAW REVIEW [Vol. 67 Despite his altruistic admonition to physicians, Hippocrates was not naive. He also counseled new physicians that whatever houses they may visit, they should "come for the benefit of the sick, remaining free of all.., mischief." A little Hippocratic realism may be appropriate. While the vast majority of health care providers 6 are exemplary professionals, some are not. We cannot afford to ignore this fact. The cost to the public of the fraud, waste, and abuse by health care providers in the United States is an estimated $45 billion per year. 7 While criminal fraud does not account for this entire amount, criminal fraud by health care providers is a serious problem and diverts scarce health care resources.8 Moreover, because fraudulent health care providers are often incompetent health care providers, 9 the harm suffered at their hands may be more than monetary. A recent emphasis on fraud in health care by policy makers, law enforce- 5. 4 ENCYCLOPEDIA OF BIOETHICS, supra note 1, at 1731. 6. Health care providers include medical physicians, osteopathic physicians, chiropractors, podiatrists, nurses, physical and respiratory therapists, hospitals, emergicare centers, nursing homes, home nursing associations, and durable medical equipment companies. This Article does not address fraud by recipients or potential recipients of health care services as reflected in cases such as United States v. Regner, 677 F.2d 754 (9th Cir.) (insured attempted to defraud insurance company by misrepresenting facts surrounding automobile accident), cert. denied, 459 U.S. 911 (1982); United States v. Williams, 545 F.2d 47 (8th Cir. 1976) (insured failed to dis- close that he had multiple insurance policies when he applied for another policy); United States v. Pope, 415 F.2d 685 (8th Cir. 1969) (insured falsified physician statements that he submitted to insur- ance company in support of claim), cert. denied, 397 U.S. 950 (1970). 7. In 1986 $458.2 billion was spent on health care expenditures in the United States, BUREAU OF THE CENSUS, U.S. DEPT. OF COMMERCE, STATISTICAL ABSTRACT OF THE UNITED STATES 1988, at 86 (108th ed. 1988) [hereinafter STATISTICAL ABSTRACT 1988]. Many commentators fa- miliar with medical fraud estimate that ten percent of our health care costs are caused by fraud. See, e.g., Medicare andMedicaid Fraud:Hearing Before the Subcomm. on Health of the Senate Comm. on Finance,96th Cong., 2d Sess. 6 (1980) [hereinafter Medicare and Medicaid Fraud: HearingBefore Senate Comm. on Finance] (statement of Oliver B. Revell, Assistant Director, Chief of Criminal Investigative Division, Federal Bureau of Investigation); Medicare and Medicaid Fraud: Hearing Before the Subcomm. on Health & Long-Term Care of the House Select Comm. on Aging, 96th Cong., 2d Sess. 1-2 (1980) [hereinafter Medicaid and Medicare Fraud: HearingBefore House Comm. on Aging] (opening statement of Chairman Claude Pepper); Medicare and Medicaid Frauds: Hear- ing Before the Subcomm. on Health and Long-Term Care of the Senate Special Comm. on Aging, Pt. 5,94th Cong., 2d Sess. 534 (1976) [hereinafter Medicare and MedicaidFrauds: Hearing Before the Senate Comm. on Aging, Pt. 5] (statement of Frank E. Moss, D., Utah); House Select Comm. on Aging, 97th Cong., 2nd Sesm, Medicaid Fraud: A Case History in the Failureof State Enforcement III (Comm. Print 1982) [hereinafter MedicaidFraud Case History]. But see Oversight of HHS In- spector General's Effort to Combat Fraud, Waste and Abuse: Joint HearingBefore the Senate Comm. on Finance and Senate Select Comm. on Aging, 97th Cong., 1st Sess. 133 (1981) [hereinafter Over- sight]. In a 1977 report the Health and Human Services Inspector General estimated losses between $5.5 to $6.5 billion to Medicare and Medicaid that were attributable to fraud, waste, and abuse. Id. With health care expenditures in 1977 at $169.9 billion, STATISTICAL ABSTRACT 1988, supra, at 86, this estimate represents approximately three to four percent of total expenditures. This estimate, however, covers only fraud, waste, and abuse in governmental programs; it does not encompass fraud, waste, and abuse in private industry. See Oversight, supra, at 136. 8. Oversight, supra note 7, at 133. 9. See, eg., Medicare and Medicaid Frauds: Hearing Before the Senate Special Comm. on Finance, Pt. 5, supra note 7, at 525 ("[There is] rampant fraud, abuse and maladministration in the Medicaid program and a pattern of reprehensible exploitation of the sick and poor not to mention the taxpayer who is paying the bill.") (statement by Senator Charles H. Percy); Medicare & Medi- caid Frauds: Hearing Before the Subcomm. on Long-Term Care of the Senate Special Comm. on Aging, Pt 6, 94th Cong., 2d Sess. 686-87 (1976) [hereinafter Medicare and Medicaid Frauds: Hear- ing Before the Senate Comm. on Aging, Pt. 6] (statements of Nancy Kurke, M.D., staff physician at a Medicaid clinic); see infra text accompanying notes 537-57. 1989] HEALTH CARE FRAUD ment officials, and private industry1° has had dramatic ramifications for many in the health care industry. Nevertheless, the academic literature has virtually ig- nored this area of the law.1 l As one seasoned health care fraud investigator stated "[Y]ou have to have guts ....There is no body of law or procedure and you are.., going out in an area relatively unexplored."' 12 A legal synthesis and 10. Beginning in the 1970s, numerous congressional committees actively investigated fraud in health care. The Senate Committee on Aging alone held over fifty such hearings. Medicaid Fraud Case History, supra note 7, at 8-9, 14-15 nn.l-8. In response to testimony and evidence consistently indicating that the health care industry was "fraught with fraud," id. at III (remarks of Chairman Claude Pepper), Congress created an office in 1976 within the Department of Health and Human Services (HHS) vested solely with the responsibility to conduct a coordinated attack on fraud by health care providers. Pub. L. No. 94-505, 90 Stat. 2429 (1976). In 1972, 1977, 1980, 1981, 1986, and 1987 Congress passed and signed into law anti-health-care fraud and abuse bills. The 1972 Act established criminal penalties for certain types of fraud by health care providers and gave the Secre- tary of the Department of Health and Human Services (formerly HEW) authority to suspend Medi- care payments to providers found to have abused the program.