Insurance Fraud as a Federal Crime

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Posted on July 21, 2021 by Barry Zalma

Fear of hard federal jail time should be rampant among fraud perpetrators in the United States who stage automobile accidents, fake trip-and-fall accidents, present or assist fraudulent workers’ compensation claims, or abuse health insurers because the U.S. Department of Justice (DOJ) is now awake to insurance fraud. Unlike most states, when convicted of a federal crime, the defendant will actually serve almost all of the time given at sentencing.

Staged accident perpetrators who, in the past, understood that if they were caught, they faced no more than an order of restitution and a few weeks in the county jail, now face hard time. When prosecuted in federal court the same people now face up to ten years in the federal penitentiary.

The reason for federal prosecution of insurance fraud was stated in United States v. Lucien, 347 F.3d 45 (2d Cir. 10/14/2003) where the 2nd Circuit Court of Appeal, in a case of first impression, upheld the convictions of people involved in staging automobile accidents, for violation of Federal Health Care Fraud statutes. The Second Circuit explained that because health care fraud drains billions of dollars from public and private payers annually, Congress has since 1992 sought a tool to combat the problem. [See Comm. on Gov’t Reform and Oversight, Health Care Fraud All Public and Private Payers Need Federal Criminal Anti-Fraud Protections, H.R. Rep. No. 104-747 (1996)]  “In 1996 Congress enacted the latest in a series of health care fraud statutes making any fraud perpetrated against a public or private payer a federal criminal offense.

The U.S. Department of Justice has created a Health Care Fraud Prevention and Enforcement Action Team (HEAT) that includes senior officials from DOJ and HHS and aims to strengthen existing anti-fraud initiatives while also investing new resources and technology to prevent fraud, waste and abuse. Past efforts have included the expansion of joint DOJ-HHS Medicare Fraud Strike Force teams that have been successfully fighting fraud in South Florida and Los Angeles since 2007. The Medicare Fraud Strike Force team operating in South Florida has convicted 146 defendants and secured $186 million in criminal fines and civil recoveries as of May 2009. After the success of operations in South Florida, the Medicare Fraud Strike Force expanded in May 2008 to phase two in Los Angeles, where 37 defendants have been charged with criminal health care fraud offenses. To date in the Los Angeles cases, more than $55 million has been ordered in restitution to the Medicare program.

Strike Force teams currently operate in the following areas: Miami, Florida; Los Angeles, California; Detroit, Michigan; Houston, Texas; Brooklyn, New York; Baton Rouge and New Orleans, Louisiana; Tampa and Orlando, Florida; Chicago, Illinois; Dallas, Texas; Washington, D.C.; Newark, New Jersey/Philadelphia, Pennsylvania; and the Appalachian Region. Strike Force teams have shut down health care fraud schemes around the country, arrested more than a thousand criminals, and recovered millions of taxpayer dollars. For a listing of recent HEAT enforcement actions go to https://oig.hhs.gov/fraud/strike-force/.

Each Strike Force team brings the investigative and analytical resources of the FBI, HHS-OIG and other law enforcement agencies, as well as the prosecutorial resources of the Criminal Division’s Fraud Section and the local United States Attorney’s Offices (USAOs), to analyze data obtained from CMS and bring cases in federal district court.

Each Medicare Fraud Strike Force team brings the investigative and analytical resources of the FBI and HHS-OIG and the prosecutorial resources of the Criminal Division’s Fraud Section and the United States Attorney’s Office (USAO) to analyze data obtained from CMS and bring cases in federal district court. Strike Force accomplishments from cases prosecuted in all nine areas during FY 2014 include:

• 165 indictments, informations, and complaints involving charges filed against 353 defendants alleged to have collectively billed the Medicare program more than $830 million;
• 304 guilty pleas negotiated and 38 jury trials litigated, with guilty verdicts following trial against 41 defendants; and
• Imprisonment for 248 defendants sentenced during the fiscal year, averaging more than 50 months of incarceration.

In the seven and a half years since its inception, Strike Force prosecutors filed more than 963 cases charging more than 2,097 defendants who collectively billed the Medicare program more than $6.5 billion; 1,443 defendants pleaded guilty and 191 others were convicted in jury trials; and 1,197 defendants were sentenced to imprisonment for an average term of approximately 47 months. These efforts, as you can see, have reduced Medicare payments in several arenas, as you can see in the chart below.

In addition, since Lucien, the Second Circuit, in United States v. Zakhary, 357 F.3d 186 (02/04/2004) concluded that the Mandatory Victims Restitution Act of 1996, as codified at 18 U.S.C. § 3663A and the post-1996 version of 18 U.S.C. § 3664, “requires a court to order full restitution to the identifiable victims of certain crimes, including fraud,” without regard to a defendant’s economic circumstances.  Similarly, in United States v. Gelin, 712 F.3d 612 (1st Cir., 2013) the First Circuit reported that throughout the United States judges, prosecutors, police officers and insurance professionals are seeing organized criminal groups, compromising doctors, chiropractors, attorneys, hospitals, and these groups establish store front clinics, diagnostic testing companies, as well as bogus law offices. “They stage phony car accidents. Fake patients visit the clinics where expensive medical procedures like MRIs and x-rays are billed to insurers, even though not provided to the persons posing as patients. In addition, unfilled prescriptions are billed, kickbacks are paid, and lawyers collect false personal injury claims.”

Therefore, in addition to serving definite time in jail for insurance fraud, the Federal Court can order the criminal to pay the insurer victim full restitution without regard for the defendant’s ability to pay. This does not guarantee payment but since restitution is a condition of probation the thought of spending time in jail becomes a great incentive to the criminal to pay the restitution if the money is available.

All three defendants in the Lucien case participated in staged automobile accidents and fabricated personal injury claims to take advantage of the operation of the New York Comprehensive Motor Vehicle Insurance Reparations Act. The government proved at trial that other conspirators recruited the Lucien defendants to participate in the health care fraud charged by the government.

The trial in the Lucien case was one of six trials arising from related indictments charging numerous individuals with participating in an overarching scheme of health care fraud based on a series of deliberately staged automobile accidents in several boroughs of New York City. Following the accidents, the recruited passengers were referred, in exchange for a fee, to various medical clinics in New York City. The recruited passengers assigned their no-fault insurance benefits to the health care clinics (medical providers), which billed the insurance companies directly. The recruited passengers subsequently pursued their own civil causes of action for their feigned injuries.

To receive no-fault reimbursements, the health care clinics generated fictitious treatment records for the passengers in the accidents. The accident participants used these fictitious medical records to support their claims of personal injury and to obtain settlements from insurance companies.

18 U.S.C. Section 1347 provides

As used in this title, the term “‘health care benefit program’ means any public or private plan or contract, affecting commerce, under which any medical benefit, item, or service is provided to any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract.

The statute, 18 U.S.C. § 1347, as the 2nd Circuit explained directs that whoever “knowingly and willfully executes, or attempts to execute, a scheme or artifice. . . to defraud any health care benefit program … shall be fined under this title or imprisoned not more than 10 years, or both.” The common meaning of the word “whoever” is “whatever person, any person at all, no matter who.”

Excerpted from my book, “Insurance Fraud Volume II” available as a Kindle book or a paperback at https://zalma.com/blog/insurance-claims-library/

© 2021 – Barry Zalma Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business.

He is available at http://www.zalma.com and [email protected]. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma;  Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/; and the last two issues of ZIFL at https://zalma.com/zalmas-insurance-fraud-letter-2/  podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4