From Financial Penalties to Criminal Consequences in Healthcare Billing

In my previous article, I discussed the financial and legal risks tied to misinformation in medical billing, focusing on how incorrect reimbursement guidance can lead to hefty fines, repayments, and reputational damage for hospitals and healthcare providers. However, in many cases, the consequences are even more severe, extending beyond financial penalties to criminal charges.

While mistakes and misinformation can sometimes be resolved through settlements, other cases involve intentional fraud or gross negligence, leading to criminal prosecutions for those involved. These criminal cases highlight the immense risk that healthcare providers, hospital executives, and employees of pharmaceutical and medical device companies face when engaging in fraudulent billing practices.

In this article, I’ll explore several high-profile healthcare billing cases where individuals faced criminal charges, resulting in prison sentences, fines, and lifetime bans from billing federal healthcare programs.

1. Dr. Farid Fata (2014) – A Massive Case of Fraud

Dr. Farid Fata, an oncologist in Michigan, was at the center of one of the largest healthcare fraud cases in recent history. Dr. Fata knowingly administered unnecessary chemotherapy and cancer treatments to hundreds of patients, falsely diagnosing many to defraud Medicare and private insurers.

• Criminal Charges: Dr. Fata was charged with healthcare fraud, conspiracy, and money laundering.
• Outcome: He was sentenced to 45 years in prison for his actions. The fraudulent billing scheme led to $17 million in false claims submitted to Medicare, making this one of the most egregious examples of criminal activity tied to healthcare billing.
• Key Lesson: This case demonstrates how severe the consequences can be when a physician prioritizes profits over patient well-being, committing outright fraud.

2. Sacred Heart Hospital Executives (2014) – A Conspiracy of Kickbacks and Billing Fraud

In 2014, several executives from Sacred Heart Hospital in Chicago, including the hospital’s owner, Edward Novak, were convicted in a massive billing fraud and kickback scheme. They paid kickbacks to physicians for patient referrals, leading to unnecessary hospital admissions and fraudulent Medicare billing.

• Criminal Charges: Edward Novak and other executives faced charges of conspiracy to commit healthcare fraud, kickbacks, and false claims.
• Outcome: Novak was sentenced to 4.5 years in prison, and several physicians involved in the scheme also faced criminal charges. The case led to the closure of Sacred Heart Hospital, as well as massive fines and settlements for those involved.
• Key Lesson: Hospital executives are not immune from criminal prosecution when they engage in fraudulent schemes designed to boost revenues at the expense of patient care and the healthcare system.

3. Orthofix International (2012) – Medical Device Employees Held Accountable

Orthofix International, a medical device company, faced multiple legal actions for encouraging physicians to submit false claims related to the company’s bone growth stimulation devices. While the company itself faced significant financial penalties, several of its employees were also held criminally responsible for their role in the fraudulent billing scheme.

• Criminal Charges: Some Orthofix employees were charged with conspiracy to defraud Medicare, submitting false claims, and wire fraud.
• Outcome: Multiple employees received prison sentences, and the company paid $34 million to resolve civil and criminal claims. Orthofix’s fraudulent practices extended beyond just incorrect billing guidance, with employees actively conspiring to mislead healthcare providers and Medicare.
• Key Lesson: The case shows that employees of medical device companies can be personally prosecuted for their role in billing fraud, especially when the fraud involves a concerted effort to deceive federal healthcare programs.

4. Advanced BioHealing (2011) – Criminal Penalties for Medical Device Sales Practices

Advanced BioHealing’s case involving the wound-care product Dermagraft led to criminal charges for several executives and sales employees. The company encouraged physicians to use incorrect billing codes to maximize Medicare reimbursements for Dermagraft treatments, resulting in inflated claims.

• Criminal Charges: Company executives and sales employees were charged with healthcare fraud, conspiracy, and providing illegal kickbacks to physicians.
• Outcome: Several employees, including sales executives, received prison sentences for their roles in the fraudulent scheme. The company also paid $62 million in a civil settlement.
• Key Lesson: This case highlights the serious consequences that medical device companies and their employees face when engaging in illegal kickback schemes and fraudulent billing practices.

5. Dr. Jorge Martinez (2021) – A Psychiatrist’s Fraudulent Billing Scheme

Dr. Jorge Martinez, a psychiatrist, was involved in a fraudulent billing scheme where he billed Medicare for psychotherapy sessions that were either not provided or were unnecessary. He overbilled Medicare by millions of dollars over several years.

• Criminal Charges: Dr. Martinez was charged with healthcare fraud and providing false claims to Medicare.
• Outcome: He settled for $3 million and was stripped of his Medicare billing privileges. Dr. Martinez avoided prison time but faced severe financial penalties and a lifetime ban from billing federal healthcare programs.
• Key Lesson: Physicians engaging in fraudulent billing practices, even on a smaller scale, can face significant personal and professional consequences.

The Growing Risk of Criminal Prosecution in Healthcare Billing

These cases illustrate that fraudulent billing practices, whether conducted by physicians, hospital executives, or employees of pharmaceutical and medical device companies, can lead to severe criminal penalties. From hefty fines to prison sentences, the stakes are high for those who choose to engage in illegal schemes that defraud the healthcare system.

As healthcare regulations continue to evolve, it's crucial for all parties involved in billing to ensure they are compliant with the law. The consequences of failing to do so are not just financial—they can also include personal criminal liability and a permanent loss of the ability to practice or work in the healthcare sector.