Healthcare Fraud

Healthcare Fraud

Statute:	18 U.S.C. § 1347
U.S. Code:	Title 18, Chapter 63
Max Prison:	10 years (20 if serious injury; life if death)
Max Fine:	$250,000 ($500,000 for organizations)
Guidelines:	USSG §2B1.1
Base Level:	7
Agencies:	HHS-OIG, FBI, DEA, CMS
Related:	Wire Fraud, False Statements, Anti-Kickback Statute

Healthcare fraud is a federal crime under 18 U.S.C. § 1347, enacted as part of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. 104-191, 110 Stat. 1936. The statute prohibits schemes to defraud healthcare benefit programs or obtain money or property from them through false or fraudulent pretenses, representations, or promises. It covers fraud against both public programs — Medicare, Medicaid, TRICARE — and private health insurance, making it one of the broadest federal fraud statutes in scope.

The penalties are substantial. A conviction carries a maximum of 10 years in federal prison, increasing to 20 years if a patient suffers serious bodily injury, and life imprisonment if the fraud results in death. These enhanced penalties apply with meaningful frequency: healthcare fraud schemes often involve real patient harm, particularly in cases involving unnecessary procedures, dangerous medications, or denial of legitimate treatment.

The scale of the problem is significant. The Department of Justice and HHS Office of Inspector General estimate that healthcare fraud costs the United States approximately $100 billion annually, with Medicare and Medicaid serving as the primary targets. In fiscal year 2023, the Medicare Fraud Strike Force charged over 250 defendants for schemes totaling approximately $1.8 billion in alleged losses, while civil recoveries under the False Claims Act added billions more to federal enforcement totals.

Legislative Background

Prior to HIPAA's enactment in 1996, federal prosecutors pursuing healthcare fraud typically had to rely on general statutes such as mail fraud (18 U.S.C. § 1341) or wire fraud (18 U.S.C. § 1343), which required proof that the defendant used the mail or wire communications in furtherance of the scheme. Congress enacted 18 U.S.C. § 1347 specifically to address the growing scale of healthcare fraud without requiring prosecutors to establish use of any particular communications instrumentality. The statute was part of a broader legislative package that also created the Health Care Fraud and Abuse Control Program, a joint DOJ-HHS initiative designed to coordinate federal, state, and local law enforcement efforts against healthcare fraud.

Elements of the Offense

Federal prosecutors must prove two elements to establish a violation of 18 U.S.C. § 1347.

The first element is a scheme to defraud: the defendant knowingly and willfully executed, or attempted to execute, a scheme or artifice to defraud a health care benefit program, or to obtain money or property from a health care benefit program through false or fraudulent pretenses, representations, or promises.

The second element is a connection to health care: the scheme must have been in connection with the delivery of or payment for health care benefits, items, or services. Courts have construed this connection broadly; the government need not prove that the defendant directly interacted with patients, only that the scheme touched the delivery or payment chain for healthcare services.

Health Care Benefit Program

"Health care benefit program" is defined broadly under 18 U.S.C. § 24 to mean any public or private plan or contract affecting commerce under which any medical benefit, item, or service is provided to any individual. This definition encompasses Medicare, Medicaid, TRICARE (the military healthcare program), Veterans health programs, private health insurance, self-insured employer plans, and workers' compensation medical benefits. The "affecting commerce" requirement is easily satisfied given the interstate nature of insurance payments and federal program funding, and courts have not treated it as a meaningful limitation on the statute's reach.

No Wire or Mail Required

Unlike wire fraud (18 U.S.C. § 1343) and mail fraud (18 U.S.C. § 1341), which each require that the defendant used wire communications or the mail in furtherance of the fraudulent scheme, 18 U.S.C. § 1347 contains no such instrumentality requirement. The crime is complete once a defendant knowingly and willfully executes a fraudulent scheme against a healthcare benefit program. Congress deliberately omitted the instrumentality element to prevent defendants from defeating prosecution by conducting fraudulent billing through hand-delivered claims or in-person transactions. This distinction means that healthcare fraud is often a simpler charge to prove than mail or wire fraud, and it also means the two charges can be brought together when wire or mail communications were in fact used.

Statutory Penalties

Category	Maximum Imprisonment	Maximum Fine (Individual)	Maximum Fine (Organization)
Standard healthcare fraud	10 years	$250,000	$500,000
Healthcare fraud resulting in serious bodily injury	20 years	$250,000	$500,000
Healthcare fraud resulting in death	Life imprisonment	$250,000	$500,000
Conspiracy (18 U.S.C. § 1349)	Same as underlying offense	Same as underlying offense	Same as underlying offense

Prison time and fines represent only a portion of the consequences a convicted defendant faces. Individuals convicted of healthcare fraud are subject to mandatory exclusion from participation in federal healthcare programs, including Medicare and Medicaid, under 42 U.S.C. § 1320a-7. This exclusion effectively ends a healthcare professional's ability to practice in any setting that receives federal reimbursement. Convicted defendants also face civil monetary penalties under the Civil Monetary Penalties Law, treble damages and per-claim penalties under the False Claims Act, loss of state medical or professional licenses, and restitution orders requiring repayment of all fraudulently obtained funds.

Federal Sentencing Guidelines

Healthcare fraud is sentenced under USSG §2B1.1, the general fraud and theft guideline, which structures sentences primarily around the amount of financial loss caused by the offense.

Base Offense Level

The starting offense level under §2B1.1 is 7 for fraud and deceit offenses. From that baseline, the guidelines apply a series of upward adjustments based on the dollar amount of loss, the number of victims, and offense-specific characteristics.

Loss Amount Enhancements

The loss table in §2B1.1(b)(1) adds levels based on the amount of loss attributable to the offense. For healthcare fraud, loss is typically calculated as the amount fraudulently billed to healthcare programs, minus any legitimate value of services actually and appropriately provided. Courts have sometimes disagreed on how to calculate loss in healthcare fraud cases — particularly when some services were rendered but billed at fraudulent rates — and the government's loss calculation is frequently contested at sentencing. The loss table adds between 2 and 30 levels depending on loss amount, meaning that large-scale schemes can produce guideline ranges well above the statutory maximum, with courts often imposing sentences at or near the cap.

Healthcare-Specific Enhancements

Several enhancements apply specifically to healthcare fraud cases. Two levels are added if the offense involved 10 or more victims, four levels for 50 or more victims, and six levels for 250 or more victims. An additional two levels apply if the offense involved vulnerable victims, a category that frequently encompasses elderly Medicare patients. Two levels are added if the defendant misrepresented that they held a professional credential such as a medical license. Two levels apply for sophisticated means, and four levels are added if the offense involved a conscious or reckless risk of death or serious bodily injury to a patient.

Departure for Patient Harm

When patients suffer actual physical harm, the guidelines authorize courts to impose sentences above the otherwise applicable guideline range. If the offense resulted in death, serious bodily injury, or life-threatening bodily conditions, judges may depart substantially upward. The Farid Fata case — in which a Michigan oncologist received 45 years — illustrates how patient harm departures can produce sentences that far exceed what the financial loss table alone would generate.

Common Healthcare Fraud Schemes

Healthcare fraud takes many forms, ranging from straightforward billing schemes to complex multi-party arrangements involving physicians, marketers, and durable medical equipment suppliers.

Billing for Services Not Rendered

The simplest form of healthcare fraud involves billing Medicare, Medicaid, or private insurers for medical services, procedures, or equipment that were never provided to the patient. These phantom billing schemes can be operated by providers who submit claims for patients they never saw, or by fraudulent entities that enroll in Medicare using stolen provider credentials and then submit volume claims before disappearing — a practice sometimes called "churn and burn."

Upcoding

Upcoding involves billing for a more expensive service than was actually performed. A provider might bill Medicare for a comprehensive office visit evaluation when only a brief medication check occurred, or code a routine outpatient procedure under a code reserved for a significantly more complex surgery. Because healthcare reimbursement rates are tied to standardized codes under the Current Procedural Terminology (CPT) system, even modest upcoding applied across thousands of claims can result in millions of dollars in fraudulent billings.

Unbundling

Unbundling involves billing separately for component services that healthcare programs require to be billed as a single bundled procedure at a lower composite rate. By submitting separate claims for each component, providers can collect substantially more than the bundled reimbursement rate allows. Unbundling is particularly common in laboratory and surgical billing, where complex procedures carry many identifiable component steps.

Kickbacks

Paying or receiving compensation in exchange for patient referrals is prohibited by the Anti-Kickback Statute (42 U.S.C. § 1320a-7b), which bars offering or receiving anything of value to induce referrals of Medicare or Medicaid patients. Kickback arrangements in healthcare fraud cases often involve payments to physicians who order unnecessary tests, prescriptions, or equipment, with the payments disguised as consulting fees, medical director stipends, or speaking honoraria.

Pill Mill Operations

Pill mills are pain management clinics or medical practices that prescribe controlled substances without a legitimate medical purpose, billing insurers for office visits while functioning primarily as drug distribution operations. Pill mill prosecutions frequently involve both healthcare fraud charges and violations of the Controlled Substances Act, and they are investigated jointly by the DEA and HHS-OIG. The opioid epidemic substantially expanded federal enforcement attention to pill mill schemes beginning in the 2010s.

Durable Medical Equipment (DME) Fraud

DME fraud involves fraudulently billing for wheelchairs, hospital beds, oxygen equipment, orthotic braces, and other durable medical equipment. These schemes often involve marketers who contact Medicare beneficiaries by phone or in person, obtain their Medicare numbers, and submit claims for equipment the beneficiaries did not request, do not need, or never receive. DME fraud has been a persistent enforcement priority for the Medicare Fraud Strike Force.

Home Health Care Fraud

Home health fraud involves billing for services not provided, or billing for skilled care when only unskilled services were rendered, or enrolling patients who do not meet the eligibility requirements for home health benefits. These schemes may involve falsifying physician certifications of homebound status or fabricating nursing visit records.

Laboratory Fraud

Laboratory fraud includes billing for medically unnecessary tests, upcoding laboratory procedures to higher-reimbursed codes, and submitting claims for tests that were never performed. Laboratory fraud schemes frequently incorporate kickback arrangements with referring physicians who are compensated for ordering the unnecessary tests. The compounding pharmacy fraud schemes that emerged in the early 2010s represented a variation on laboratory fraud, with pharmacies billing federal programs at premium rates for compounded medications that patients did not need.

Telemedicine Fraud

The COVID-19 pandemic dramatically expanded the use of telemedicine and relaxed certain regulatory requirements that had previously limited telehealth reimbursement. Fraud schemes quickly followed, involving billing for telemedicine consultations that never occurred, using brief telemedicine calls to authorize expensive durable medical equipment or genetic tests for patients the provider had never clinically evaluated, and billing in-person reimbursement rates for remote services. In April 2023, the Department of Justice announced charges against 18 defendants in a nationwide telemedicine fraud scheme involving more than $250 million in alleged Medicare billings, based on a model that used telemarketing calls to recruit Medicare beneficiaries followed by brief telemedicine contacts to authorize equipment and genetic testing orders. A telemedicine company owner was separately sentenced to seven years in federal prison for a $56 million Medicare fraud scheme involving fraudulent telemedicine prescriptions and DME orders.

Notable Cases

Dr. Farid Fata (2015)

Michigan oncologist Farid Fata received 45 years in federal prison after pleading guilty to administering unnecessary chemotherapy to patients who did not have cancer, administering chemotherapy at excessive doses to patients who did have cancer, and misdiagnosing patients as terminally ill to qualify them for hospice benefits. He billed Medicare for over $17 million, and approximately 550 patients received medically unnecessary or harmful treatments. The case is among the most serious healthcare fraud prosecutions in terms of direct patient harm, and the 45-year sentence — which included a significant upward departure based on that harm — exceeded sentences imposed in cases involving far larger financial losses.

Philip Esformes (2019)

Miami nursing home operator Philip Esformes was convicted following one of the largest healthcare fraud prosecutions in American history. His scheme billed Medicare and Medicaid for approximately $1.3 billion in fraudulent claims, of which roughly $200 million was actually paid, through a network of assisted living facilities and nursing homes in Florida. Esformes received a 20-year sentence. In 2020, President Trump commuted his sentence, a decision that drew criticism from federal prosecutors who noted the scale and duration of the fraud.

Martin Shkreli (2017)

Martin Shkreli, the pharmaceutical executive who became publicly known for dramatically raising the price of the antiparasitic drug Daraprim, was convicted in 2017 of securities fraud related to a separate scheme involving his hedge funds. His federal conviction did not involve healthcare fraud under 18 U.S.C. § 1347; rather, it involved defrauding investors in MSMB Capital Management and related entities. He was sentenced to seven years in federal prison. The case is frequently referenced in discussions of pharmaceutical pricing and healthcare industry misconduct, though technically it falls outside the healthcare fraud statute.<ref name="shkreli-conviction">U.S. Department of Justice, "Martin Shkreli Sentenced to Seven Years in Prison," March 9, 2018.