Reed Smith Client Alerts

The State of New Jersey has furnished prosecutors with an important new weapon through the enactment of far-reaching legislation. On January 15, 1998, the new crime of "health care claims fraud" was established under P.L. 1997, Chapter 353 (the "Act"). The Act, which became effective immediately, is intended to enable more effective criminal prosecution of individuals who knowingly or recklessly submit false or fraudulent claims for payment for health care services.


The Dilemma

According to the Senate Health Committee Report, the existing Code of Criminal Justice did not address health care claims fraud in a manner permitting "efficient prosecution and effective punishment." For example, under existing law, a second degree conviction was not possible unless the amount at issue exceeded $75,000. Thus, a prosecutor might be forced to prove hundreds of separate claims as fraudulent in order to obtain a second degree conviction. The Act removes this obstacle.


Key Features

The Act revolves around two pivotal definitions:

  • "Health care claims fraud" is defined as "making, or causing to be made, a false, fictitious, fraudulent, or misleading statement of material fact in, or omitting a material fact from, or causing a material fact to be omitted from, any record, bill, claim or other document, in writing, electronically or in any other form, that a person attempts to submit, submits, causes to be submitted or attempts to cause to be submitted for payment or reimbursement for health care services."
  • "Practitioner" is defined as "a person licensed in this State to practice medicine and surgery, chiropractic, podiatry, dentistry, optometry, psychology, pharmacy, nursing, physical therapy, or law; any other person licensed, registered or certified by any State agency to practice a profession or occupation in the State of New Jersey or any person similarly licensed, registered, or certified in another jurisdiction."(fn1)

The degree of offense committed under the Act depends principally on whether the perpetrator is a practitioner and whether the offense was knowingly committed or recklessly committed. Liability can attach in each case, but the level of penalty varies considerably. In particular:

  • A practitioner is guilty of a crime of the second degree if he or she knowingly commits health care claims fraud in the course of providing professional services.(fn2) However, the practitioner is guilty of a crime of the third degree if he or she recklessly commits the offense.(fn3)
  • A non-practitioner is guilty of a crime of the third degree if he or she knowingly commits health care claims fraud, although the offense could be upgraded to a crime of the second degree if the person knowingly commits at least five (5) proscribed acts and the aggregate pecuniary benefit involved is at least one thousand ($1,000) dollars. A non-practitioner is guilty of a crime of the fourth degree if the person recklessly commits the offense.(fn4)

The Act provides that a person acts "recklessly" with respect to a material element of the crime if he or she "consciously disregards a substantial and unjustifiable risk that the material element exists and will result from his conduct." That is, the person (whether practitioner or lay person) will be considered to have acted recklessly where such disregard involves "a gross deviation from the standard of conduct that a reasonable person would observe in the actor’s situation."


Proof Standards

The Act provides direction to the trier of fact on certain issues of inference and proof. For example, the falsity or misleading nature of a statement may be inferred where the practitioner submits the claim without directly, or through an associate, assessing "the physical or mental condition of the patient or client [that is] necessary to determine the appropriate course of treatment." Falsity may also be inferred where a person submits a claim "for more treatments or procedures than can be performed during the time in which the treatments or procedures were represented to have been performed." Finally, proof that a practitioner has signed or initialed a record or claim gives rise to the inference that the practitioner has read and reviewed the record or claim.


Sanctions

In addition to the penalties imposed for a conviction of a second, third or fourth degree crime, the Act imposes other sanctions. For example, the law authorizes the imposition of a fine of up to five (5) times the "pecuniary benefit obtained or sought to be obtained" through the commission of the offense. Also, a practitioner’s license may be suspended (upon the practitioner’s first conviction for recklessly committing health care claims fraud) or forfeited (upon the practitioner’s second conviction for recklessly committing health care claims fraud or the first conviction for knowingly committing health care claims fraud). The Act also allows for licensure suspension or forfeiture if the practitioner is convicted of a "substantially similar crime" under federal law or the laws of another state. However, even where the Act calls for license forfeiture, the court may reduce the penalty to a suspension where it "finds that such license forfeiture would be a serious injustice which overrides the need to deter such conduct by others."

Furthermore, if a court declines to order license forfeiture or suspension, the appropriate licensing agency is not precluded from suspending or revoking the practitioner’s license. Additionally, the Act recognizes that the New Jersey Supreme Court may revoke the license of a lawyer who is convicted of health care claims fraud if the Supreme Court issues rules pursuant to the Act. Moreover, a court is prohibited by the Act from granting a stay pending appeal of a license forfeiture or suspension "unless the court is clearly convinced that there is a substantial likelihood of success on the merits."

Finally, the Act is not intended to constitute the sole basis for prosecuting health care fraud in New Jersey. To the contrary, the Act states that nothing therein shall preclude indictment and conviction for any other state criminal offense.


Problems for the Future?

Although the Act became effective immediately, the Attorney General is given one hundred twenty (120) days in which to disseminate prosecution guidelines to the county prosecutors. Consequently, the thrust and effectiveness of the Act cannot be assessed for some time.

It is anticipated that courts will be called upon to resolve several issues under the Act, including the extent to which the new law may apply to lawyers. In addition, the intent requirement will likely be further refined as courts wrestle with the level of knowledge and intent sufficient to comprise a "reckless" submission of a false statement.

Finally, while the Committee report recited that the legislation was directed primarily at abuses in the treatment of patients stemming from automobile accidents and meant to function cooperatively with the New Jersey Fraud Prevention Act, there are no specific limitations to that field. Thus, it is not clear to what extent this law may be wielded to attack problematic billing practices in other situations, such as the careless submission of incorrect or incomplete claims in a host of settings from hospitals and nursing homes to family practice clinics. What may have simply been a harmless error in the past may now have completely unexpected and harsh results.


Warning Shot

The passage of the Act should serve as a warning shot to those engaged in billing for medical treatments, and provides an opportunity for practitioners to re-examine current practices.

 

(fn1) It is worth emphasizing that lawyers are included in the scope of the term "practitioner." Presumably, the legislature intends for this law to promote the prosecution of lawyers who, in managing their clients’ health care claims, submit, or cause to be submitted, false or fraudulent medical claims. However, the extent to which the Act will apply to lawyers is uncertain at this time. A key issue is whether this feature of the Act may impose upon the New Jersey Supreme Court’s exclusive authority to regulate the practice of law and to discipline lawyers.

(fn2) Although the Act does not provide for a specific penalty, under New Jersey criminal law conviction of a second degree offense carries a fine of up to $100,000, and five to ten years imprisonment.

(fn3) A third degree offense is generally punishable with a fine of up to $7,500, and from three to five years imprisonment.

(fn4) A fourth degree offense is generally punishable with a fine of up to $7,500 and up to eighteen months imprisonment.