CRIMINAL AND CIVIL LIABILITY FOR

                                  By Gabriel L. Imperato, Esq.
                                        Broad and Cassel
                                     Fort Lauderdale, Florida


A legacy of governmental enforcement actions in the health care industry has raised concerns for
third-party consultants, (i.e. attorneys, accountants, reimbursement experts, etc) particularly
those who provide services to health care providers participating in Federal health care programs.
Specifically, the United States Department of Justice’s (“DOJ”) decision to intervene in the qui
tam case of United States ex rel. Schilling v. KPMG Peat Marwick LLP, Case No. 98-901-CIV-
T-17F (M.D. Fla. Tampa Division) ( “U.S. ex rel Schilling v. KPMG”) and criminal and civil
enforcement actions in other cases evidences the government’s willingness to invoke criminal
culpability, forfeiture and civil damages from consultants who conspire, aid and abet, or
otherwise participate in health care fraud or who allegedly have knowledge of a health care
provider’s receipt of overpayments from Federal health care programs and aid in the
concealment of such “known overpayments”. See also United States v. Augustine Medical Inc.,
et al, Case No. Crim. 03-30023-GPM (Indictment Filed January 24, 2003). Consequently, it is
important for consultants and their legal counsel to minimize the risks of liability and be aware
of the potential theories of criminal and civil liability that could be used to implicate their clients
that provide consulting services to health care providers.


The prospect of criminal and civil liability for consultant relationships and the clear intention of
the government to hold providers and their consultants accountable for these relationships
necessitates management of this exposure and risk. The management of this risk starts with the
selection of a consultant, and in this regard, there are several aspects of this process to consider.

The selection criteria for any consultant should include, at a minimum, the consultant’s
experience, qualifications, reputation, and references. A provider should be careful to have a
competent and credible understanding of the relevant experience of the consultant being
considered, not only in general, but also as it would pertain to the particular engagement for
which the consultant is being considered. There are many consultants who have general
experience in a broad subject matter, but it is important that providers choose consultants who
possess relevant knowledge and experience relating to the subject matter at hand. It does not do
a provider any good to hire a consultant who has broad-based reimbursement experience under
Part A of the Medicare and/or Medicaid programs, when the subject matter of the engagement
involves reimbursement issues under Part B of the Medicare and/or Medicaid programs. If a
provider chooses a consultant for cost-reporting matters, the question should be posed if that
consultant has experience in the preparation and submission of cost reports for the particular type
of provider? There can be a substantial difference in filing a cost report for a general acute care
hospital and a home health agency. Furthermore, a consultant expert in reimbursement for
physician services may be quite inadequate for advice in reimbursement for durable medical
equipment and supplies.

A provider should also determine who, within the consultant organization, will be involved in the
contemplated engagement, and whether the parties assigned to the engagement possess the
appropriate experience. The less experienced team member should have direct supervision by a
more experienced team member, and therefore, one should not be reluctant to ask questions
about each individual’s qualifications.

A provider should also make an effort to check a consultant’s organization to verify its
qualifications and experience.             A review of the OIG exclusion list at
http:/ would also be prudent to ensure that the individual or an
organization that a provider is contemplating hiring, does not appear on the exclusion list. It may
also be useful to ask the prospective consultant to identify organizations to whom they have
provided services in the past to ensure that those organizations are not on the exclusion list.

Once a consultant under consideration is reviewed for experience, qualifications, and references,
it makes sense to have a discussion so that reasonable expectations can be established. A
provider and a consultant should establish reasonable expectations based on the expertise of the
consultant. If there is a fit, then proceed; if not, at least the scope of the engagement can be
tailored and the expectations modified accordingly.


       A.      Attorneys

       The federal government’s decision to indict two health care attorneys (and to identify two
       other health care attorneys as unindicted co-conspirators) in United States v. Anderson1
       spurred much debate among health care attorneys concerning the proper role of an
       attorney who advises a health care client. In Anderson, a federal jury convicted two
       hospital executives and two physicians in an alleged $2.2 million Medicare and Medicaid
       anti-kickback scheme.2 The government alleged that the two physicians referred
       Medicare patients to the hospital in return for remuneration under sham consulting
       contracts drafted by attorneys for the hospital, who were also indicted in that case.

       After the prosecutors presented their evidence against all of the defendants in Anderson,
       the District Court acquitted both attorneys based on the court’s finding that the attorneys
       relied in good faith on their clients’ representations, and that the attorneys used their best
       efforts to provide sound advice in an ambiguous area of the law. The indictments in

Anderson were unprecedented in that the government sought to criminalize the core legal
advice that health care transactional lawyers have traditionally dispensed to health care
providers about structuring business relationships to comply with the requirements of
applicable law. In the indictments, the government alleged that, over a ten year period,
the attorneys sought to assure their hospital client of continued patient referrals from
nursing homes by structuring business ventures in a way that violated the Federal
Antikickback Statute. In addition, the government alleged that both lawyers concealed
illegal payments for referrals by several methods, including the preparation of sham
consulting agreements to disguise the payments as consulting fees; the modification of
existing agreements to eliminate expressed references to patient referrals; and the use of
the attorney-client relationship to protect business discussions regarding the referral

By alleging that the attorneys used the attorney-client privilege in furtherance of a crime,
the government was able to pierce the attorney-client privilege with the crime fraud
exception to the privilege. Accordingly, the government gained access to documents that
otherwise would have been protected from disclosure. The government’s strategy of
piercing the attorney-client privilege may have resulted in a chilling effect on the free
flow of communications between attorneys and their clients3 and even the willingness of
attorneys to even give advice in an ambiguous area of law.

The comments of the court concerning the advice of counsel and the ambiguity of the
Federal Antikickback Statute provide some consolation to health care clients and their
counsel. The court in Anderson found that the indicted health care attorneys merely
endeavored to provide sound legal advice in an ambiguous area of the law -- something
lawyers do every day. After finding that no reasonable jury could find beyond a
reasonable doubt that the health care attorneys committed any criminal act, the court
stated as follows:

       The Court is firmly convinced from the evidence presented that the only
       reasonable inference a jury could draw is that the lawyers, each in their
       own turn, attempted to advise their clients to engage in legal transactions
       and that these two Defendants did not prepare sham agreements to paper
       over a fraud but, rather, tried their best to prepare agreements that would
       reflect what they intended to be legal transactions into which they believed
       their clients desired to enter. The state of the law was in flux; and the
       lawyers adapted their advice to it as it changed.

       The Government, in effect, argues that the relationship between [the
       hospital] and [the physicians] was so tainted by an overarching desire on
       the part of the [hospital] to receive referrals and on the part of the [the
       physicians] to receive payments for those referrals that illegal
       remuneration to induce was virtually inescapable. The Court disagrees. It
       is undisputed from the evidence that all the lawyers who dealt with or
       reviewed those transactions . . . held good faith beliefs that it was possible
       to facilitate some business relationship that was legal between the
       hospitals and the [the physicians]. Even if patient referrals were devoutly

       hoped for and anticipated; even if the volume of patients could be large;
       even if the parties might never have come together, but for [the hospital]
       having embarked on a long-range plan that depended on attracting nursing
       home patients, there is nothing in the evidence or the law that would have
       a priori precluded a legal relationship from being entered into under these


       The Government also contends that the evidence of guilt is sufficient
       because [the lawyers] knew the services were not worth fair market value
       and knew that the services were not being provided. I’ve studied the
       evidence marshaled by the Government, in its brief to that effect, but the
       Court finds it to be insufficient. It shows that the lawyers relied on their
       clients, were not engaged to monitor the activities of the consultants, and
       each time it came to their attention that there was a potential compliance
       problem, they urged their clients to make sure that fair market value for
       real services was being required.


The Anderson case demonstrates that federal prosecutors will look beyond sham
agreements to the real intent of the parties and to the actual facts and circumstances of
each arrangement. The reason the health care attorneys were acquitted, and their clients
were convicted, appears to be that while the lawyers attempted to advise their clients to
comply with the government’s current application of the Federal Anti-Kickback Statute,
their clients apparently continued to violate the law. The lawyers in the Anderson case
were exonerated, but this by no means reduces the risk that other lawyers could be
targeted in future investigations and prosecutions.

Furthermore, what if the evidence in Anderson were different? What if the prosecutors
proved that the attorneys at some point knew that their clients were engaged in illegal
conduct but that the attorneys did not report it? Could the attorneys have been convicted
of a crime? The American Bar Association’s Model Rules for attorneys states the

       A lawyer shall not counsel a client to engage, or assist a client, in conduct
       that the lawyer knows is criminal or fraudulent, but a lawyer may discuss
       the legal consequences of any proposed course of conduct with a client
       and may counsel or assist a client to make a good faith effort to determine
       its validity, scope, meaning, or application of the law.4

Attorneys who learn during the representation of a client that the client has engaged in
criminal conduct in the past have an ethical obligation not to disclose that information to
third parties without the client’s consent.5 However, when an attorney reasonably

believes that his or her client will engage in criminal conduct in the future, the Model
Rules provide, in pertinent part, as follows:

       A lawyer may reveal such information to the extent the lawyer reasonably
       believes necessary: (1) to prevent the client from committing a criminal or
       fraudulent act that the lawyer believes is likely to result in . . . substantial
       injury to the financial interests or property of another; . . ..6

Thus, an attorney may never counsel a client to engage in, or assist a client with conduct
that is criminal or fraudulent. If the attorney does so, the attorney may face criminal
liability. Although an attorney must not disclose confidential information relating to a
client’s past crimes, the attorney may disclose confidential information to authorities if it
will prevent the client from committing certain future crimes.7 Even though the federal
government failed in its prosecution of the attorneys in the Anderson case, that failure
likely will not deter it from trying again if the right set of facts come its way.

B.     Accountants

The DOJ intervened in U.S. ex rel Schilling v. KPMG and alleged that KPMG Peat
Marwick LLP (“KPMG”) violated the Federal Civil False Claims Act, 31 U.S.C. § 3729
et seq., as amended (the “FCA”), by assisting Basic American Medical, Inc. and
Columbia Hospital Corporation (“Columbia”) in the submission of false claims through
their annual Medicare, Medicaid, and CHAMPUS cost reports for fiscal years 1990-1992.
The introductory section of the DOJ’s complaint states the following theory of liability:

       In violation of their duty to report known errors resulting in unwarranted
       federal payments, defendant and its agents, employees, and co-
       conspirators likewise concealed such errors from Government agents in
       order to help BAMI and Columbia keep funds to which defendant knew
       they were not entitled.         Defendant and its co-conspirators also
       systematically ignored BAMI’s and Columbia’s obligation to amend their
       CHAMPUS cost reports in light of audit adjustments made to the
       Medicare cost reports from which the CHAMPUS reports are derived.
       Defendant thus knowingly helped BAMI and Columbia retain CHAMPUS
       reimbursement that those hospital chains were not entitled to keep.8

Does a third-party consultant such as KPMG have a “duty to report known errors
resulting in unwarranted federal payments,” as alleged in the complaint? Can a
consultant such as KPMG be held liable under the FCA or under criminal statutes if it
conspired with these health care providers to “conceal” such overpayments from
government agents? The simple answers to these questions are no and yes, respectively,
but like most areas of the law, nothing is simple regarding these issues.

The initial qui tam complaint was filed by John Schilling, a former employee in the
Southwest Florida Division of Columbia/HCA Health Care Corporation. Mr. Schilling’s
complaint alleged that KPMG is an accounting firm with expertise in hospital

       reimbursement issues and that it knew it was unlawful to conceal material facts and to aid
       and abet BAMI and Columbia in submitting or concealing false claims. The complaint
       further alleges that KPMG knew that providers who discover material errors or omissions
       and claims submitted for reimbursement to Medicare are required to disclose those
       matters to the government pursuant to 42 U.S.C. § 1320a-7b(a)(3).

Curiously, the complaint alleges that KPMG had obligations under the American Institute of
Certified Public Accountants’ “Statements of Auditing Standards,” and it alleges that KPMG
violated those standards when it prepared and filed the cost reports for BAMI and Columbia.9
This reference to the accountant’s professional standards evidences that the complaint may be
“grasping at straws” in an attempt to create a legal duty on the part of KPMG to disclose certain
facts to the government, based on the accountant’s professional standards of practice.

The complaint further alleges that KPMG prepared “reserve cost reports” to enable BAMI and
Columbia to set aside reserves in case the Medicare fiscal intermediary ever detected the false
statements in the various providers’ cost reports. Based on all of these allegations, Count I of the
complaint alleges that KPMG violated the FCA by knowingly presenting and causing to be
presented false and fraudulent claims to the federal government for reimbursement. Count II of
the complaint alleges that KPMG engaged in a conspiracy in violation of the FCA, 31 U.S.C. §§
3729(a)(3) and 3732(b), which prohibits conspiracies in violation of the FCA.

The United States and KPMG agreed to settle the allegations in this case in January of 2002 for
approximately $9 million.


There are some well recognized “warning signals” which can alert a provider to the likelihood of
exposure and risk in the consultant relationship. The hiring of a consultant does not relieve a
provider of responsibility for ensuring the integrity of its dealings with Federal health care
programs. Accordingly, it is essential to be on the lookout for warning signals that could give
rise to criminal or civil liability for principal parties, such as health care providers and suppliers,
in connection with consultant relationships.

The legacy of enforcement involving consultant relationships, as well as public documents
disseminated by the OIG, the General Accounting Office and the results of congressional
hearings has identified a number of questionable practices, as follows:

1.     Illegal or Misleading Representations

       A consultant may misrepresent that it has “inside” or “special” access to government
       materials and information and/or that its services or products are approved, certified, or
       otherwise recommended by government agencies, such as the OIG. For example, in one
       case a consultant misrepresented that if a provider fails to attend its “Medicare-
       sanctioned” seminar, it will be subject to government penalties.10 This is, of course,
       preposterous in view of the fact the government does not penalize providers for failing to
       attend seminars. Another example is a consultant claiming that the OIG recommends the

     consultant’s services. The government takes extraordinary measures to avoid such
     explicit or implicit statements.

2.   Promises and Guaranties

     There have been examples of consultants who explicitly or implicitly promise or guaranty
     specific results that are unreasonable, unachievable, and improbable in any event. If a
     consultant “guaranties” that it can increase one’s revenue, successfully appeal a denial of
     reimbursement, obtain agreement to reopen a closed claim by a government agency, then
     one should rethink the decision to hire that consultant. A consultant who has committed
     to achieve such results is merely one small step away from submitting false claims or
     preparing false cost reports on behalf of a client to effectuate its promises or guaranties.
     Submission of such claims will not only result in criminal and civil liability for the
     consultant, but also for the provider. An example of this would be a valuation consultant
     promising or assuring a client that its appraisal of a physician’s practice will yield a “fair
     market value” that satisfies the client’s need for a particular valuation, regardless of the
     actual and real value of the practice.

3.   Encouraging Abusive Practices

     There have been cases where reimbursement specialists and consultants have advocated
     that their clients engage in aggressive billing schemes or unreasonable practices that are
     either abusive, if not outright fraudulent, under Federal health care programs. For
     example, a reimbursement specialist may suggest that a client use inappropriate billing
     codes in order to maximize reimbursement, and may describe methods to avoid detection.
     Another example is a consultant who may advise a client to adopt a patently unreasonable
     interpretation of a reimbursement rule or regulation to justify substantially greater
     reimbursement. Also, a consultant may encourage a client to modify or customize a
     routine medical supply in an insignificant manner to justify billing the supply as a device
     that generates higher reimbursement, or suggest the creation of deceptive documentation
     in order to mislead potential reviewers. Obviously, such conduct potentially subjects
     both the provider and the consultant to liability.

4.   Discouraging Compliance Efforts

     Some consultants may make absolute or blanket statements that a client should
     undertake, or not undertake, certain compliance efforts or not cooperate with payor
     audits, regardless of the client’s circumstances. For example, some consultants have
     advocated not reporting or refunding overpayments received from Federal health care
     programs and private insurance carriers after the provider had discovered such
     overpayments. A provider should carefully discuss compliance issues with prospective
     consultants to determine what type of attitude and experience the consultant has towards
     compliance matters. If a consultant advises one not to worry about government
     enforcement agencies or the requests and requirements of the Medicare carriers or

     intermediaries or generally displays an attitude of compliance indifference or defiance,
     then the provider should begin to be concerned. As reflected in the OIG’s compliance
     guidances,11 the OIG believes that voluntary compliance efforts, such as internal auditing
     and self-review, are important tools for doing business with the Federal health care
     programs. Left undetected and, therefore unchecked and uncorrected, improper billing
     and other conduct may exacerbate fraud and abuse problems for a provider in the future.

5.   Scrutinization

     Finally, the type of compensation arrangements in consultant contracts should be
     carefully scrutinized. A consultant contract, which is based on a contingency and/or
     percentage of revenue, is not only risky for a provider, but is considered a highly suspect
     compensation arrangement by government enforcement authorities. The chief concern
     with these types of contingency or percentage-of-revenue-based payment arrangements is
     that it provides incentives for potential fraudulent and abusive conduct with respect to the
     submission of claims to Federal health care programs. There have been a number of
     consultant cases, some of which have resulted in national fraud initiatives by the Federal
     government, which have been based on contingent or percentage-of-revenue-based
     contractual arrangements over the past several years. A compensation arrangement
     which does not incentivize potential fraudulent and abusive behavior, but otherwise
     rewards competent, credible and reliable conduct in the consultant relationship will
     reduce the likelihood of exposure and risk in consultant relationships. As a general
     matter, if a consultant’s advice seems too good to be true, it probably is, and a provider
     should be careful about entering into an arrangement with such a con.

     In conclusion, if a consultant’s advice seems too good to be true, it probably is. The OIG
     urges providers to be vigilant and exercise judgment when selecting and relying on


     A.     The OIG’s Model Compliance Programs

     1.     Third-Party Medical Billing Companies

            On November 30, 1998, the Office of the Inspector General of the Department of
            Health and Human Services (“OIG”) issued its Model Compliance Program For
            Third-Party Medical Billing Companies (“Model Program”). With respect to
            disclosing fraudulent conduct on the part of a provider, the Model Program states
            as follows:

                      If the billing company finds evidence of misconduct (e.g.,
                      inaccurate claim submission) on the part of the provider that they
                      service, the billing company should refrain from the submission of
                      questionable claims and notify the provider in writing within thirty
                      (30) days of such a determination. This notification should include

            all claim specific information and the rationale for such a

            If the billing company discovers credible evidence of the provider's
            continued misconduct or flagrant fraudulent or abusive conduct,
            the billing company should: (1) refrain from submitting any false
            or inappropriate claims; (2) terminate the contract; and/or (3)
            report the misconduct to the appropriate Federal and State
            authorities within a reasonable time, but not more than sixty (60)
            days after determining that there is credible evidence of a

     Thus, the OIG currently recognizes that third party consultants do not have a duty
     to disclose overpayments received by their provider clients. However, the OIG
     expects, at a minimum, the consultant to separate itself from the provider as soon
     as it becomes clear that the wrongful conduct will continue.

2.   The OIG’s Model Compliance Plan For Hospitals

     Earlier in February 1998, the OIG issued its “Compliance Program Guidance For
     Hospitals” (the “Plan”) participating in federal health care programs. The Plan
     does not have the force and effect of law, but it does reveal the OIG’s position
     regarding compliance issues. With respect to self-reporting, the Plan states, in
     pertinent part, as follows:

            If the compliance officer, compliance committee or management
            official discovers credible evidence of misconduct from any source
            and, after a reasonable inquiry, has reason to believe that the
            misconduct may violate criminal, civil or administrative law, then
            the hospital promptly should report the existence of misconduct to
            the appropriate governmental authority within a reasonable period,
            but not more than sixty (60) days after determining that there is
            credible evidence of a violation.          Prompt reporting will
            demonstrate the hospital’s good faith and willingness to work with
            governmental authorities to correct and remedy the problem. In
            addition, reporting such conduct will be considered a mitigating
            factor by the OIG in determining administrative sanctions (e.g.,
            penalties, assessments, and exclusion), if the reporting provider
            becomes the target of an OIG investigation.

                                       * * *

            Failure to repay overpayments within a reasonable period of time
            could be interpreted as an intentional attempt to conceal the
            overpayment from the Government, whereby establishing an
            independent basis for a criminal violation with respect to the
            hospital, as well as any individuals who may have been involved.

                  For this reason, hospital compliance programs should emphasize
                  that overpayments obtained from Medicare or other federal health
                  care programs should be promptly returned to the payor that made
                  the erroneous payment.12

           Thus, in contrast to the OIG’s guidance to third-party consultants (which is based
           on the presumption that the consultants do not have a duty to disclose), the OIG
           states that participating providers have a legal duty to report known

      3.   The OIG’s Voluntary Self-Disclosure Protocol (See 63 Fed. Reg. 58399, October
           30, 1999)

           a.     OIG says it is open to “all health care providers . . ..”
           b.     Does not reference consultants.


      A.   The Social Security Act

      1.   42 U.S.C. § 1320a-7b(a)(3).

           a.     Statutory Language

           This statute could arguably be used by the federal government to impose criminal
           liability against providers who fail to disclose a known overpayment. The
           specific statute provides, in pertinent part, as follows:

                  Whoever –

                                              * * *

                  (3) having knowledge of the occurrence of any event affecting
                  (A) his initial or continued right to any such benefit or payment, or
                  (B) the initial or continued right to any such benefit or payment of
                  any other individual in whose behalf he has applied for or is
                  receiving such benefit or payment, conceals or fails to disclose
                  such event with an intent to fraudulently secure such benefit or
                  payment, either in a greater amount or quantity that is due or when
                  no such benefit or payment is authorized,

                  [shall be subject to criminal penalties and fines.]

           b.     Plain Reading

                  i.      “conceals or fails to disclose . . ..”

       ii.     “his initial or continued right to any such benefit . . ..” (Emphasis

               Query: Is the term “benefit” limited to the actual Medicare
               reimbursement, or is it broad enough to encompass a benefit that a
               consultant gets by virtue of the provider’s receiving an

       iii.    “with an intent to fraudulently secure such benefit or
               payment . . ..”13

c.     Case Law

There does not appear to be any reported decisions construing 42 U.S.C. § 1320a-
7b(a)(3) with respect to allegations of an individual or entity’s failure to disclose
known overpayments.14 However, there is a reported administrative law judge
(“ALJ”) decision concerning an exclusion by the OIG that was based on a
conviction under 42 U.S.C. § 1320a-7b(a)(3).15 The ALJ decision reveals that the
physician was charged criminally by the United States Attorney for the Middle
District of Florida for violating 42 U.S.C. § 1320a-7b(a)(3) because he learned of
another company’s fraudulent billings to Medicare but failed to disclose, and
assisted in concealing, the overpayments – even though there was no evidence
that the physician received any of the overpayment. The physician ultimately
pled guilty to the charge, and as a result it is unclear whether the charge would
have been upheld. However, the allegation that the physician actively assisted the
provider in concealing the overpayment may have been the critical fact that led to
the plea agreement.

d.     Similar Statute

Another statute with similar prohibitions appears in the social security disability
benefits arena.16 That statute makes it a crime for individuals receiving social
security disability benefits to conceal or fail to disclose an event affecting their
right to continue to receive benefits.

In one case construing that statute, a defendant received social security disability
payments after a serious injury.17 As a condition to receiving the disability
benefits, the defendant agreed to notify the social security administration (“SSA”)
if he returned to work or received benefits from any workers’ compensation
program. The defendant began receiving workers’ compensation benefits but
failed to report that fact to the SSA. The defendant was convicted for concealing
the receipt of the workers’ compensation benefits with the fraudulent intent to
secure disability benefits in a greater amount than was due him. On appeal, the
defendant argued that the government did not prove that he knowingly concealed
the receipt of the workers’ compensation benefits. However, the Eighth Circuit
held that the jury could have reasonably inferred from the evidence at trial that the

     defendant’s failure to report was intentional and that he knew reporting his receipt
     of workers’ compensation benefits could affect his disability benefits.18

     This case demonstrates that when a party fails to disclose certain information to
     the government when that party has a legal duty to make a disclosure, criminal
     liability may result. However, there presently are no federal laws applicable in
     the health care context that would require a consultant to disclose a client’s
     receipt of an overpayment.

2.   18 U.S.C. § 1035 -- False Statements In Connection With Health Care.19

     a.     Overview

     In 1996, Congress passed the Health Insurance Portability and Accountability Act
     (“HIPAA”), which added the crime of submitting false statements relating to
     health care matters.20 This criminal statute essentially mirrors its predecessor, 18
     U.S.C. § 1001, which prohibited false statements generally.

     b.     Statutory Language

     The statute reads, in pertinent part, as follows:

            Whoever, in any matter involving a health care benefit program,
            knowingly and willfully--

            (1) falsifies, conceals, or covers up by any trick, scheme, or device
            a material fact; or

            (2) makes any materially false, fictitious, or fraudulent statements
            or representations, or makes or uses any materially false writing or
            document knowing the same to contain any materially false,
            fictitious, or fraudulent statement or entry, in connection with the
            delivery of or payment for health care benefits, items, or services,
            shall be fined under this title or imprisoned not more than 5 years,
            or both.

     c.     United States v. Calhoon.21

            i.      Medicare cost report fraud case decided under 18 U.S.C. § 1001.
                    Eleventh Circuit held that “[f]alsity through concealment exists
                    where disclosure of the concealed information is required by a
                    statute, government regulation, or form.”22

            ii.     The defendant in Calhoon failed to disclose that certain parties to
                    whom the provider had paid royalty fees was a “related party”
                    under applicable regulations, which would have alerted the federal
                    government to the fact that the reimbursement for such fees should
                    have been lower than what it actually paid the provider.

                  iii.    Eleventh Circuit also held that Calhoon, an employee of Charter
                          Medical Corporation, “had a legal duty to disclose both in the cost
                          reports and in the general ledgers that the costs claimed were in
                          fact advertising costs. Instead, he chose to call the costs
                          ‘outreach,’ thereby concealing the potentially nonreimbursable
                          nature of the costs.”23

                  iv      Although Calhoon did not involve a consultant’s liability, it is the
                          leading cost report fraud case in the criminal setting. In its
                          investigations of health care providers, the government will
                          undoubtedly look for any evidence of a consultant’s conspiring or
                          recommending that a provider claim certain costs or seek
                          reimbursement in any manner that the consultant knows or should
                          know would result in an overpayment.

     3.    18 U.S.C. § 669 – Theft or Embezzlement in Connection with Health Care.

           As part of the HIPAA, Congress also added a new crime that prohibits theft or
           embezzlement in connection with health care services or items.24 That statute
           provides as follows:

                  Whoever knowingly and willfully embezzles, steals, or otherwise
                  without authority converts to the use of any person other than the
                  rightful owner, or intentionally misapplies any of the moneys,
                  funds, securities, premiums, credits, property, or other assets of a
                  health care benefit program, shall be fined under this title or
                  imprisoned not more than 10 years, or both; but if the value of such
                  property does not exceed the sum of $100 the defendant shall be
                  fined under this title or imprisoned not more than one year, or both.

           It is unclear how the government will attempt to use this statute, if at all, against
           third-party consultants.

B.   Other Statutory Bases For Criminal Liability

     1.    18 U.S.C. § 4 – Misprision of Felony.

     a.    Overview

           Misprision of felony is a federal crime that prohibits the knowing concealment of
           a felony committed by another individual. The specific statutory language is as

                  Whoever, having knowledge of the actual commission of a felony
                  cognizable by a court of the United States, conceals and does not
                  as soon as possible make known the same to some judge or other
                  person in civil or military authority under the United States, shall

            be fined not more than $500 or imprisoned not more than three
            years, or both.25

b.   Elements

     The federal courts interpreting 18 U.S.C. § 4 have held that a person can be
     convicted of misprision of felony if the following four elements are proved: (1)
     that the principal committed and completed the alleged felony; (2) that the
     defendant had full knowledge of that fact; (3) that the defendant failed to notify
     the authorities; and (4) that the defendant took an affirmative step to conceal the

     The critical element for the crime of misprision of felony is the affirmative step to
     conceal the crime. The mere failure to report the crime, without active
     concealment, is not an offense.27

c.   Case Law

     i.     United States v. Goldberg.28

            In Goldberg, a doctor pled guilty to misprision of felony (the felony was
            mail fraud) because he knew that pharmacists were impermissibly altering
            his prescriptions in a manner that caused the Medicaid program to incur
            additional costs. In his plea hearing, Dr. Goldberg testified that he knew
            (1) the pharmacists were altering his prescriptions, (2) the pharmacists
            were billing Medicaid via the mail, and (3) Medicaid was paying for the
            fraudulent claims. Dr. Goldberg also testified that he did not report these
            facts to the federal authorities. When asked whether he concealed his
            knowledge, Dr. Goldberg answered “yes.”

            After the plea was accepted, Dr. Goldberg filed a motion to withdraw the
            plea based on his contention that he did not actively conceal the felony,
            thus making him innocent of the crime of misprision of felony. The
            government argued that Dr. Goldberg did actively conceal the felony by
            continuing to write prescriptions that he knew were being used to defraud
            Medicaid. The Sixth Circuit disagreed and stated that by “continuing to
            write the prescriptions, Dr. Goldberg did nothing more than provide the
            opportunity for the pharmacists to continue with their fraudulent
            conduct . . ..”29 Further, the court found Dr. Goldberg did nothing more
            than fail to report on-going criminal conduct, which is insufficient to
            convict him of misprision of felony.

     ii.    United States v. Gravitt.30

            Court held that defendant who used disguise to retrieve stolen loot for
            bank robbers from hidden location took an affirmative step in the
            concealment of the crime of misprision of felony.

     iii.   United States v. Stuard.31

            Court held that defendant took affirmative steps to conceal felony of grand
            theft by filing a false report to divert attention from a party known to them
            to have committed the grand theft.

     iv.    United States v. Hodges.32

            Court held that defendant took affirmative steps to conceal felony of
            kidnapping because he had full knowledge of the kidnapping but gave an
            untruthful statement to the authorities concerning the whereabouts of the
            victim child.

     v.     State v. Smith.33

            Court noted there is no requirement that there be a conviction of the
            underlying felony as a prerequisite to convict for misprision of a felony. It
            is sufficient if the trier of fact determines that a felony was committed, of
            which the accused had knowledge, and that an opportunity to disclose the
            crime’s commission to the police was presented to the accused.

2.   18 U.S.C. § 2 -- Criminal Aiding and Abetting.

a.   Elements

     Under 18 U.S.C. § 2, one who "aids, abets, counsels, commands, induces or
     procures" the commission of a federal offense is punished as a principal. In the
     seminal case of Nye & Nisson v. United States, the Supreme Court, in quoting
     Judge Learned Hand, set the elements as requiring that a defendant: (1) in some
     sort associate himself/herself with the venture; (2) participate in it as something
     he/she wishes to bring about; and (3) seek by his/her action to make it succeed.34

b.   Case Law

     i.     United States v. Raper.35

            There must be a guilty principal before a second party can be found to be
            an aider or abettor. The following elements must also be present: (1) there
            must be specific intent to facilitate the commission of a crime by another;
            (2) guilty knowledge on the part of the accused; (3) that an offense was

            being committed by someone; and (4) that the accused assisted or
            participated in a commission of the offense.

     ii.    Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A.36

            Aiding and abetting liability extends beyond persons who engage even
            indirectly in a proscribed activity; it reaches persons who do not engage in
            the proscribed activities at all, but who give a degree of aid to those who

     iii.   United States v. Sacks. 37

            Evidence must show that the defendant was doing something to forward
            the crime and that he or she was a participant, rather than a mere "knowing

3.   18 U.S.C. § 31 -- Conspiracy to Defraud the United States.

a.   Elements

     Unlike aiding and abetting, the crime of conspiracy is a separate crime from the
     underlying crime committed by the principal. A defendant can be guilty of
     conspiracy even where no other defendants are found guilty. Under 18 U.S.C. §
     371, an individual will be fined and/or imprisoned if it is proven that (1) two or
     more individuals; (2) conspired to commit an offense against the United States or
     any of its agencies; and (3) one or more of those individuals commit an act to gain
     the object of their conspiracy. The essence of a conspiracy is an agreement to
     commit an illegal act.38

b.   Case Law

     i.     United States v. Gold.39

     In affirming the conspiracy convictions of defendants who submitted fraudulent
     Medicare claim forms, the court held that the defendant must be aware of the
     essential nature and scope of the criminal enterprise, although it is not necessary
     that the individual members of the conspiracy know all the details of its

     ii.    United States v. Carlton.40

                 It is immaterial to the commission of the crime of conspiracy whether the
                 object of the conspiracy is ever achieved. There also must be an overt act
                 done in pursuit of the conspiracy, but such act need not constitute the very
                 crime, which is the object of the conspiracy.



          The most utilized statute to impose liability on consultants has been the civil
          United States False Claims Act (“FCA”). This is a civil statute, which can be
          applied by the government directly in an enforcement action, or it can be initiated
          by a whistleblower through its “qui tam” provisions. The use of this statute,
          whether initiated directly by the government or by a whistleblower has often
          resulted in parallel criminal liability arising out of the same facts and
          circumstances forming the basis of the civil action. The main provisions of the
          FCA are as follows:

          1.     31 U.S.C. § 3729(a)(1).

          This section creates liability for any person who knowingly presents, or causes to
          be presented, to an officer or employee of the United States government a false or
          fraudulent claim for payment or approval.

          2.     31 U.S.C. § 3729(a)(2).

          This section creates liability for any person who knowingly makes, uses, or causes
          to be made or used, a false record or statement to get a false or fraudulent claim
          paid or approved by the government.

          3.     31 U.S.C. § 3729(a)(7).

          This section creates liability for any person who knowingly makes, uses, or causes
          to be made or used, a false record or statement to conceal, avoid, or decrease an
          obligation to pay or transmit money or property to the government.

          4.     Knowingly.

          The FCA also requires the government or a qui tam relator prove that a defendant
          knowingly presented, or caused to be presented, to the United States a false or
          fraudulent claim. The term “knowingly is defined in the FCA and means that a
          person: 1) has actual knowledge of the information; 2) acts in deliberate ignorance
          of the truth or falsity of the information; or 3) acts in reckless disregard of the
          truth or falsity of the information and no proof of specific intent to defraud is

       required to establish liability under the FCA. The FCA noted that this standard
       means that one cannot “stick their head in the sand like an ostrich” and escape
       liability under the FCA.

       5.      Damages.

       Violations of any of these sections of the FCA subjects the person to liability for a
       civil money penalty of not less than $5,000.00 and not more than $10,000.00 per
       claim, plus three times the amount of damages which the government sustained
       because of the act. However, if a court finds that the violating party furnished
       officials of the United States responsible for investigating false claims with all
       information known to such person about the violation within thirty (30) days after
       the date on which the defendant first obtained the information, and such person
       fully cooperated with the government, and the person did not have actual
       knowledge of the existence of an investigation into that violation, the court may
       assess not less than two (2) times the amount of damages the government sustains.


The provision of the FCA at 31 U.S.C. § 3729(a)(7) is referred to as the “Reverse False
Claims” provision. The “Reverse False Claims” provision is the newest basis for
liability, added through the 1986 amendments to the FCA. The “Reverse False Claims”
provision has been interpreted by the majority of courts to require that a person must
have some existing obligation – such as one under a contract or lease- to pay to the
United States a readily ascertainable sum to be liable under this statute. The application
and interpretation of this provision of the FCA is the most instructive when
contemplating liability for third parties who may not have an obligation or known legal
duty under the law. Courts have limited the application of this provision of the FCA to
instances where the defendant had a clear legal obligation arising under contract or law to
pay a clearly ascertainable amount to the government. American Textile Manufacturers
Institute, Inc. v. Limited, Inc., No. 98-3889, 1999 U.S. App. LEXIS 22047 (6th Cir. Sept.
14, 1999). For example, the Sixth Circuit stated:

“We hold that a reverse false claim action cannot proceed without proof that the
defendant made a false record or statement at a time that the defendant owed to the
government an obligation sufficiently certain to give risk to an action of debt at common
law. Whatever the scope, the False Claims Act clearly encompasses specific and legal
duties to pay or transmit money or property to the government. A defendant risks
liability when making a false statement to conceal, avoid or decrease obligations such as
his prior acknowledgment of indebtedness, a final court or administrative judgment that
the defendant owes money or property to the government, or a contractual duty to pay or
transmit money or property to the government.” Id.

Similarly, in U.S. ex rel Bryant v. Williams Bldg. Corp.41 the court held for the
government to recover under the False Claims Act, the government must demonstrate
that it was owed a specific, legal obligation at the time the alleged false record or
statement was made, used, or caused to be made or used. The obligation cannot be
merely a potential liability: instead a defendant must have had a present duty to pay
money or property that was created by a statute, regulation, contract, judgement, or
acknowledgment of indebtedness. The district court in United States ex. rel S. Prawer &
Co. v. Verrill & Dana, 946 F. Supp. 87 (D. Me. 1996) also stated that the FCA expressly
penalizes the making of a false statement to conceal or avoid an “obligation to pay or
transmit money.”


This interpretation of this statutory provision is also evident from the legislative history
of the FCA. The Senate Judiciary Committee Report (“Report”) recognized that courts
were split as to whether a person’s fraudulent attempt to reduce the amount payable by
him to the United States was considered a violation of the False Claims Act. The Report
referenced cases involving disputes over taxes, contracts, and leases. Congress thereafter
created subsection (a)(7) to reverse judicial decisions that held that the government could
not establish a violation of the FCA when the defendant had submitted false records or
statements to reduce (rather than inflate) its obligation to pay money. However, in
creating the provision, Congress never indicated that it intended to subject broader
categories of persons to potential FCA liability (such as consultants). Congress only
intended to clarify that those who “fraudulently reduce an obligation owed” or “avoid
paying money owed” should be just as liable as those who fraudulently attempt to induce
the government into paying an inflated amount of money.

The requirement that an obligation must be owed for FCA liability to attach remains
clear. As the court in American Textile stated, an “obligation under the FCA includes
those arising from acknowledgments of indebtedness, final judgments, and breaches of
government contracts, and that the definition certainly does not include those contingent
obligations that arise only because the government has prohibited an act, or arising after
the exercise of government discretion. Id. at 741.


Generally, in order to have liability under the FCA, a defendant must have knowingly
submitted false claims to the federal government for reimbursement. In the health care
context, where providers must interpret complex regulations, an important question is
whether the claim submitted is actually false. Several courts have held that if a provider
has complied with the applicable regulations, the claim, as a matter of law, cannot be
false.42 Further, in a case where a hospital contacted its Medicare fiscal intermediary to
verify that the amount of payments it had received was proper, a court held that it did not
“knowingly” receive an inflated amount even though it was later determined that the
hospital had in fact been paid an inflated amount because the intermediary had applied an
incorrect geographical factor.43 However, the question remains open as to whether a

      provider has “knowingly” submitted a false claim when it submits the claim in
      accordance with a consultant’s recommendations.


      A.     Some Advice Provided by Consultants Could Result in Violations of Law

      In a recent report by the General Accounting Office, consultants were investigated during
      two workshops and one seminar. The purpose of the workshop and seminar was to offer
      advice to health care providers on ways to enhance revenue and avoid audits or
      investigations. During the GAO’s investigation, a licensed physician and criminal
      investigator was hired and posed as a member of the physician’s staff, to assist the GAO
      in identifying consultants who provide advice on billing practices and compliance
      programs. Advice the consultants provided during the seminars could result in violations
      of both civil and criminal statutes, because certain consultants advocated not reporting or
      refunding overpayments received from insurance carriers after they were discovered.
      The consultants also encouraged the performance of tests and procedures that are not
      medically necessary to generate documentation in support of bills or evaluation and
      management services at a higher level of complexity than actually confronted during
      patients’ office visits.44 Such advice could result in violations of criminal and civil

      B.     Creating Documentation to Support Higher-Than- Warranted Code Levels

      The practice of billing for services that are not medically necessary or that lack sufficient
      diagnostic justification is a serious problem in the health insurance system. Based on an
      investigation, the GAO is concerned insurers may be paying for tests and procedures that
      are not medically necessary, because physicians may be intentionally using such services
      to justify billing for evaluation and management services at higher code levels than actual
      circumstances warrant.

      An example of such billing practice occurred during a workshop the GAO attended.45 A
      consultant urged practitioners to enhance revenues by finding creative ways to justify
      bills for patient evaluation and management services at high code levels. He advised that
      one means of justifying bills at high code levels is to have nonphysican health
      professionals perform numerous procedures and tests. Another consultant focused on
      how to develop the highest code level for health care services and create documentation
      to avoid having an insurer change the code to a lower one. His emphasis was not that the
      code selection be correct or even that the services be performed, but rather that it is
      important to create documentary basis for the codes billed in the event of an audit. He

           explained that in the event of an audit, the documentation created is the support for
           billing for services at higher code levels than warranted.46

           C.           Limiting Services to Medicaid Patients

           One workshop consultant encouraged physician practices to differentiate between
           patients based on the level of benefits paid by their insurance plans. He sent a clear
           message to his audience that a patient’s level of care should commensurate with the level
           of insurance benefits available to the patient. The consultant also recommended that
           providers limit the number of scheduled appointment slots available to Medicaid patients
           on any given day and that Medicaid patients be offered appointments only in hard-to-fill
           time slots rather than in the best or convenient time sots. The GAO noted that even if the
           conduct promoted is not unlawful, it raises serious concerns about whether it would result
           in depriving Medicaid patients of medically necessary services, and whether better-
           paying insurance plans are billed for services that are not medically necessary but
           performed for the purpose of affiliating patients to a particular medical practice.


         Third-party consultants do not have a legal duty to report to government officials
overpayments received by their clients or misconduct being perpetrated by their clients.
However, if a third-party consultant discovers the overpayment or misconduct and affirmatively
attempts to conceal the facts from government officials, the consultant could face criminal and
civil liability under a variety of theories. Furthermore, guidance from the OIG suggests that if
the consultants do not wish to report their clients’ misdeeds, then they must terminate their
relationship with those clients. The failure to do so could result in the consultant being named as
a defendant in a criminal or civil action. The consultant may ultimately prevail in defending
against such allegations, but the consultant may have to pay a substantial price along the way.

GLI jc 3/7/03

    United States v. Anderson, 55 F. Supp. 2d 1163 (D. Kan. 1999).
    The District Court Judge later overturned the conviction as to one of the hospital executives.
   Gabriel L. Imperato, Fraud Conviction Offers Lessons For Health Care Providers And Counsel, Legal
Backgrounder – Washington Legal Foundation, Vol. 14, No. 34 (Sept. 3, 1999).
  ABA Model Rule 1.2(d) (emphasis added).
    Id., Rule 1.6(a).
   Id., Rule 1.6(b)(1) (emphasis added). However, some states have adopted ethical rules that require attorneys to
disclose information to authorities when the attorney reasonably believes the client will commit such a crime. See,
e.g., New Jersey Rule 1.6(b)(2).
  For a more detailed treatment of the proper course of conduct for attorneys faced with difficult ethical dilemmas in
representing health care providers that may be engaging in criminal conduct, see Best Practices Handbook,
American Health Lawyers Association, June 1999.

     KPMG Complaint at 1-2.
  The complaint alleges that KPMG prepared and filed the cost reports for these two companies. However, it is
unclear what role KPMG played in actually filing those cost reports. If it did not file the cost reports, arguably
KPMG could not be construed as submitting any statements to the federal government.
     2001 The Inspector General, Practices of Business Consultants (June 2001)
     The OIG’s compliance guidances are available on the OIG’s webpage at
   Plan at 47-50 (footnotes omitted). With respect to the last sentence of the quoted passage, the Plan cites to 42
U.S.C. § 1320a-7b(a)(3) as the statute requiring the disclosure.
    One commentator argues that the word “secure” is sufficiently ambiguous to preclude prosecution of any
individual or entity that is not continuing to receive benefits from a federal health care program. See Ronald J.
Nessim, Health Care Disclosure Statute: What Does It Mean?, Criminal Justice 37 (Winter 1999).
   It is interesting to note that a few cases have held 42 U.S.C. § 1320a-7b unconstitutional, with respect to
counseling an individual to dispose of assets in order to become eligible for Medicaid benefits. New York Bar Ass’n
v. Reno, 999 F. Supp. 710 (N.D. N.Y. 1998). The decision in Barcay v. United States, 93 F. Supp. 2d 161 (D.C. R.I.
2000), addressed Section 4734 of the Balanced Budget Act of 1997 (42 U.S.C. §1320a-7b), which makes it a crime
to counsel an individual to dispose of assets in order to become eligible for Medicaid benefits. Plaintiff in Barclay
contended Section 4734 violated her First Amendment right to freedom of speech. The United States found Section
4734 is “plainly unconstitutional”. Id., at 162. In addition, Janet Reno wrote to the presiding officers of both houses
of Congress informing them that the Department of Justice would not enforce or defend the constitutionality of
Section 4734, because “the counseling prohibition in that provision is plainly unconstitutional under the First
Amendment.” Id., at 163. Similarly, the court in Rainey v. Guardianship of Mackey, 773 So. 2d 118 b(Fla. 4th DCA
2000) recognized 42 U.S.C. §1320a-7b is unconstitutional.
     Oscar Klein, M.D. v. The Inspector General, DAB Docket No. C-92-142, Dec. No. CR253 (March 4, 1993).

      42 U.S.C. § 408(a)(4).
     Untied States v. Baumgardner, 85 F.3d 1305 (8th Cir. 1996).
     Id., at 1311.
    In a recent criminal case against Columbia/HCA executives in the Middle District of Florida, defendant
employees of Columbia/HCA were convicted of knowingly making false statements on Fawcett Hospital’s cost
reports to conceal known overpayments received by Fawcett Hospital for earlier cost reports. The defendants in that
case failed to disclose material facts years after the first erroneous cost reports were submitted, and they repeatedly
submitted false statements to conceal the existence of the prior overpayments. Such concealment resulted in
additional overpayments. The defendants were ultimately convicted.
      18 U.S.C. § 1035.
     United States v. Calhoon, 97 F.3d 518 (11th Cir. 1996).
     Id., at 526.
     Id., at 528.
     18 U.S.C. § 669.

     18 U.S.C. § 4.
     United States v. Ciambrone, 750 F.2d 1416 (9th Cir. 1984); United States v. Cefalu, 85 F.3d 964 (2nd Cir. 1996).
     United States v. Warters, 885 F.2d 1266 (5th Cir. 1989).
     United States v. Goldberg, 862 F.2d 101 (6th Cir. 1988).
     Id., at 105.
     United States v. Gravitt, 590 F.2d 123 (5th Cir. 1979).
     United States v. Stuard, 411 F.2d 556 (10th Cir. 1969).
     United States v. Hodges, 566 F.2d 674 (9th Cir. 1977).
     State v. Smith, 2002 WL 130671 (S.C. App. Feb. 4, 2002).
     Nye & Nisson v. United States, 336 U.S. 613, 619 (1949).
     United States v. Raper, 676 F.2d 841, 848 (D.C. Cir. 1982).
     Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 176 (1994).
  United States v. Sacks, 620 F.2d 239, 241 (10th Cir. 1980) (citing King v. United States, 402 F.2d 289, 291 (10th
Cir. 1968)).
     United States v. Andrade, 788 F.2d 521, 525 (8th Cir. 1986).
     United States v. Gold, 743 F.2d 800, 824 (11th Cir. 1984).
     United States v. Carlton, 475 F.2d 104, 106 (5th Cir. 1973) (citing United States v. Rabinowich, 238 U.S. 78).
     U.S. ex rel Bryant v. Wiliams Bldg. Corp., 158 F. Supp. 2d 1001 (D.S.D. 2001).
   See, e.g., United States, ex rel. Gathings v. Blue Nose’s, Inc., 54 F.Supp. 2d 1252 (N.D. Ala. 1999) (holding that
there can be no falsity for purposes of an FCA action when defendants’ practices conform with Medicaid
requirements); accord United States, ex rel. Hochman v. Mackman, 145 F.3d 1069, 1075 (9th Cir. 1998);
   Covington v. Sisters of the Third Order of St. Dominic of Hanford, Cal., No. 93-19594, 1995 WL 418311 at 4
(9th Cir. July 13, 1995).
     2001 United States Gen. Accounting Office, GAO-01-818 (June 2001).
     Id., at 6
     Id., at 7


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