¹ A wide variety of health programs, both large and small, are financed wholly or partially with federal, state, and local funds. These programs range from neighborhood health clinics to mass immunization programs, and utilize several different types of funding mechanisms, including block grants, matching grants, and loans. Also, health care services sometimes are provided directly by the government—for example, in federal veterans’ hospitals, in Public Health Service and Indian Health Service facilities, or in state mental hospitals. The potential for fraud and abuse exists in all such programs, but appears to be greatest in programs financed by federal and state funds where the funds are paid directly to the provider of services rather than to the patient. The most significant of the latter type of program are (1) the federal Medicare program, originally “Health Insurance for the Aged,” contained in Title XVIII of the Social Security Act, 42 U.S.C. §§ 1395-1395 ll (1970 & Supp. V 1975); and (2) the federal-state Medicaid program, originally “Grants to States for Medical Assistance Programs,” contained in Title XIX of the Social Security Act, 42 U.S.C. §§ 1396- 1396i (1970 & Supp. V 1975).

² Federal legislative proposals introduced in the 95th Congress, some of which will be referred to herein, include: H.R. 3 and S. 143 (Medicare-Medicaid Anti-Fraud and Abuse Amendments); and H.R. 6221 and S. 705 (Clinical Laboratories Improvement Act). P.L. 94-505, enacted by the 94th Congress, established the Office of Inspector General in the Department of Health, Education, and Welfare; his powers and responsibilities are summarized in the text accompanying notes 11 through 13 infra.

As noted later in the text of this Comment and in note 16, infra, a modified version of H.R. 3 recently became law in the form of P.L. 95-142.

³ H.R. 3, the anti-fraud and abuse measure focused upon in this Comment and described in greater detail below, provides criminal penalties only for fraud, not for abuse. But it is likely that if the measure is effective in discouraging fraud, it will discourage abuse as well.

⁴ Medicare-Medicaid Anti-fraud and Abuse Amendments: Joint Hearing Before the Subcomm. on Health of the House Comm. on Ways and Means and the Subcomm. on Health and the Environment of the House Comm. on Interstate and Foreign Commerce, 95th Cong., 1st Sess. 9 (1977) (statement of Joseph A. Califano, Jr., Secretary of HEW). This hearing transcript is recommended to the reader as an excellent source of background information on the problem of fraud and abuse in Medicare and Medicaid.

For additional background material, see Problems of Medicaid Fraud and Abuse: Hearing Before the Subcomm. on Oversight and Investigations of the House Comm. on Interstate and Foreign Commerce, 94th Cong., 2d Sess. (1976); STAFF OF SUBCOMM. ON LONG-TERM CARE OF SENATE SPECIAL COMM. ON AGING, 94TH CONG., 2D SESS., FRAUD AND ABUSE AMONG PRACTITIONERS PARTICIPATING IN THE MEDICAID PROGRAM (1976); STAFF OF SUBCOMM. ON HEALTH OF HOUSE COMM. ON WAYS AND MEANS AND OF HOUSE COMM. ON INTERSTATE AND FOREIGN COMMERCE, 95TH CONG., 1ST SESS., FRAUD AND ABUSE IN THE MEDICARE AND MEDICAID PROGRAMS (1977); and STAFF OF SUBCOMM. ON OVERSIGHT AND INVESTIGATION OF THE HOUSE COMM. ON INTERSTATE AND FOREIGN COMMERCE, 95TH CONG., 1ST SESS., FRAUD AND ABUSE IN NURSING HOMES: PHARMACEUTICAL KICKBACK ARRANGEMENTS (1977).

⁵ The policy goal is to eliminate most, but not all, fraud and abuse. It is generally believed that in order to eliminate all such practices, a virtual “police state” adversely affecting the free exercise of important private rights would be required. See § II(C) (4) of this Article for more details on this subject.

⁶ It appears that so long as the federal dollar spigot is running, there will be leaks and that possibly the only lasting way to prevent the flow of dollars through those leaks would be to turn off the spigot completely.

⁷ One of the advantages of this method is that it is in keeping with the fact that many health care institutions are “not-for-profit” organizations. It is also politically more feasible to use public funds to finance health care delivery if “profits” for the providers are not created thereby, particularly since the amount of such profits could vary and not necessarily be proportionate to the quality of care delivered. Costs are relatively easy to monitor if there is proper bookkeeping and accounting, and more uniformity of reimbursement throughout the country and within regions is obtainable through this type of mechanism.

⁸ Under cost-based reimbursement, an institution has no real incentive to economize, so long as the higher cost can reasonably be justified as necessary for the care of the patient. Because hospitals and other health care institutions are subject to competitive pressures in attempting to attract physicians and patients, there is every incentive to spend lavishly in order to offer “the best” in services and the latest technology. In contrast, prospective reimbursement methods, particularly those whereby the institution may benefit by achieving economies, are more apt to encourage careful spending and adherence to a budget that is determined in advance. For a detailed discussion of reimbursement mechanisms, see Weiner, “Reasonable Cost” Reimbursement Under Medicare and Medicaid—The Emergence of Public Control, 3 AM. J. L. & MED. 1 (1977).

⁹ Prosecution of Medicare and Medicaid fraud normally occurs through the combined application of 18 U.S.C. §§ 287, 1001 (1970) (federal false claims provisions); of 31 U.S.C. §§231-35 (federal false claims provisions); and 42 U.S.C. § 1395nn (Supp. V 1975) (Medicare offenses and penalties) and 42 U.S.C. 1396h (Supp. V 1975) (Medicaid offenses and penalties). H.R. 3, among other things, strengthens the criminal penalties for defrauding either of the two programs.

¹⁰ Note, however, that many states and municipalities also have developed techniques for dealing with fraud and abuse. See, e.g., Medicare-Medicaid Anti-fraud and Abuse Amendments: Joint Hearing, supra note 4, at 49 (testimony of Charles J. Hynes, Deputy Attorney General, Special State Prosecutor for Nursing Homes, Health and Social Services, State of New York); at 194 (testimony of Manuel Carballo, Wisconsin Department of Health and Social Services); and at 326 (testimony of Peter Terenzio, New York City Public Health Association).

¹¹ Title II of P.L. 94-505, signed into law on October 14, 1976.

¹² See S. REP. NO. 1324, 94th Cong., 2d Sess. 3-14 (1976). 13 See id. at 7; see P.L. 94-505, § 205.

¹⁴ The only major issue that ultimately could not be resolved by agreement between the two House Committees, which had the bill referred to them jointly, pertained to requirements for the confidentiality of patients’ records. On September 23, 1977, during floor debate on H.R. 3 and on amendments thereto, the confidentiality provisions were stricken from the bill on a parliamentary point of order.

¹⁵ For details on how proposed health legislation becomes law, see American Hospital Association, Health Specialists’ Guide to the Federal Legislative Process and to the Process of Federal Program and Regulation Development, 3 AM. J. LAW & MF.D. 209 (1977).

¹⁶ A full and complete explanation of H.R. 3 may be obtained by referring to H.R. REP. No. 393, 95th Cong., 1st Sess. (1977) (Part I: Ways and Means; Part II: Interstate and Foreign Commerce) and to S. REP. NO. 453, 95th Cong., 1st Sess. (1977). The House and Senate conferees reported H.R. 3, as amended, JOINT CONF. REP. NO. 673, 95th Cong., 1st Sess. (1977), and the proposal was signed into law as P.L. 95-142.

¹⁷ Under factoring arrangements, institutions providing services reimbursable under Medicare and Medicaid sell their receivables (money owed to them) for a percentage of face value to factoring agencies, which then collect from the government. Because such arrangements were found to be a major source of inflated and fraudulent claims, factoring was made illegal in 1972. However, the practice was continued through use of a power of attorney, allowing collections to be made in the name of a service provider.

¹⁸ For example, prohibiting the use of “factors” (see note 17 supra) for financing Medicare and Medicaid accounts receivable might create a cash flow problem for physicians, particularly those who are just beginning their practices, unless effective steps are taken to enforce prompt payment of claims by the states. H.R. 3 and S. 143 deal with this problem by requiring states to make provisions in their state Medicaid plans for claims payment procedures that attempt to ensure reasonably prompt payment of bills submitted by eligible noninstitutionally-based providers.

Also, the public will have to be “educated,” to ensure that requiring a particular provider to disclose information does not imply to potential patients any wrongdoing or suspicion of wrongdoing with regard to that provider.