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How an Honest Mistake Can Lead to Fraud

Dermatology TimesDermatology Times, November 2021 (Vol. 42. No. 11)
Volume 42
Issue 11
Pages: 10

In this month's Legal Eagle column, David J. Goldberg, MD, JD, discusses coding and billing in physician practices.

Dr Doc has run an honest, reputable, and successful dermatology practice for
15 years. She is respected by her colleagues and loved by her patients. Her usual Medicare office visit charge of $125 is considered reasonable and customary by all the managed care providers in her service area. Unfortunately, her office manager becomes ill, and Doc’s husband, an MBA, takes over as temporary manager.

David J. Goldberg, MD, JD, director of Skin Laser & Surgery Specialists of New York and New Jersey, past director of Mohs and laser research at Icahn School of Medicine at Mount Sinai, and adjunct professor of law at Fordham University School of Law in New York, New York.

David J. Goldberg, MD, JD, director of Skin Laser & Surgery Specialists of New York and New Jersey, past director of Mohs and laser research at Icahn School of Medicine at Mount Sinai, and adjunct professor of law at Fordham University School of Law in New York, New York.

He quickly notes that $125 seems a minimal amount compared to the effort undertaken by his wife. He explains to her that her coding could be done in an honest, yet more aggressive, manner and suggests that she simply upcode with her billing. He shows her how to manipulate her electronic medical records to get higher current procedural terminology codes. This will improve reimbursements, he tells her.

Doc takes her husband’s advice. She continues to provide impeccable care, but her “level of care” documentation is abysmal. In 1 year, she bills 1000 patients in this manner. Doc receives a Medicare audit that suggests fraud on her part. She is convinced that she is innocent. If she used better documentation, she could charge higher fees. Is this really fraud?

A health care provider can be prosecuted under 8 major theories of fraud:

  1. Treatment by fraud (violations of statutes regulating controlled substances).
  2. Billing for services not provided.
  3. Misrepresenting the nature of services provided to patients.
  4. Auto accident scams.
  5. Quackery (misrepresenting credentials or remedies).
  6. False cost reports.
  7. Illegal remunerations.
  8. Providing unnecessary or substandard health services.

The Centers for Medicare & Medicaid Services1 notes that the most common forms of fraud include billing for services not provided

misrepresenting the diagnosis to justify payment; soliciting, offering, or receiving a kick- back; unbundling or “exploding” charges; falsifying treatment plans and medical records to justify payment; and billing for a service not furnished as billed—so-called upcoding.

Both civil and criminal statutes deal with these false claims. Medicaid and Medicare fraud and abuse laws make it a felony to misrepresent the nature of services rendered, which is subject to both fines and imprisonment.

A medical provider is charged with the duty to know and understand proper billing procedures and regulations. An attempted defense is that the regulations or statutes are ambiguous. People of New York v Alizadeh is an unusual case in which this defense worked. In this case, an obstetrician was convicted of fraudulent billing. On appeal, Aliadeh, an MD, successfully argued that the billing system was unfamiliar to him and difficult to interpret. As a result, his billing reflected honest mistakes, not fraud. This defense is almost never successful.

In Michigan v Perez-DeLeon and Velez-Ruiz, Velez-Ruiz, an MD, and her husband/ office manager, Perez-DeLeon, were convicted of filing false Medicaid claims in billing Blue Cross Blue Shield of Michigan for office visits of patients who were not, in fact, in the office. Velez-Ruiz was sentenced to 500 hours of community service; $38,340.63 in fines, restitutions, and costs; and 5 years of probation. Her husband was ordered to pay $17,169.34 in restitution, spend 1 year in jail, and be on probation for 5 years.

On appeal, the physician argued that the statutes under which she and her husband had been convicted were unconstitutionally vague. The court did not accept this argument, noting the persistent nature of the inaccurate claims. The court stated that because the physician received a steady flow of government funds, she had an obligation to check the accuracy of her claims. Mistakes would not be accepted.

Computerized billing makes enforcement easier for investigators; also, HCFA audits can be triggered by increased use of particular services. Confusion over billing records will not be accepted by the government as a defense.

In United States v Krizek, Krizek, an MD, was found guilty of reckless disregard when he delegated the authority to bill for him to his wife and failed to review the bills she submitted. Confusion over the billing procedures is not an effective defense in these cases.

The safest way to assure conformity with the laws is to implement and maintain a compliance program, which offers obvious advantages: Such a program will minimize liability from audits, reduce potential qui tam actions, demonstrate good faith compliance efforts, improve record keeping, improve potential employee screening, reduce potential for fraud and abuse, and minimize imposition of a government-mandated compliance program.

Doc, through her husband’s advice, was guilty of upcoding. Her innocent error and lack of sophisticated coding knowledge will not protect her against prosecution. She is at risk for both civil and criminal penalties. Her “honest mistake” will not be considered honest when evaluated by the courts


1. Centers for Medicare & Medicaid Services. Medicare Fraud & Abuse: Pre-
vent, Detect, Report
. Centers for Medicare & Medicaid Services; January 2021. Accessed October 7, 2021. https://www.cms.gov/Outreach-and-Education/ Medicare-Learning-Network-MLN/MLNProducts/Downloads/Fraud-Abuse- MLN4649244.pdf

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