Medicaid Fraud in Texas: Federal and State Prosecutions

First things first, it’s important to understand exactly what is involved in the Medicaid program here in Texas.  Bottom line, Medicaid is free or low-cost health insurance provided by the government for those that meet its eligibility requirements. The majority of Medicaid coverage is provided to those with no income or have a low income, as well as to those with qualifying disabilities.  While most assume it is a federal program (and it is), each state is also heavily involved in Medicaid.

Texas, and all its sister states, provide part of the funding for this health insurance program within state boundaries.  State governments manage Medicaid operations for their state.  Accordingly, different states have different qualifications for eligibility and different types of benefits that build upon the cornerstone or foundational standards established by the federal government as overseen by the Department of Health and Human Services (DHHS).  Medicaid in California is different than Medicaid in Texas.

To be eligible for “Texas Medicaid,” as of February 2024, you must be able to show that:

• you are either (1) a resident of the state of Texas; (2) a U.S. national; (3) U.S. citizen; (4) U.S. permanent resident; or (5) U.S. legal alien;
• you are in need of health care/insurance assistance;
• your financial situation is either (a) low income or (b) very low income; and
• you are either (1) pregnant; (2) responsible for a child 18 years of age or younger; (3) blind; (4) have a disability or a family member in your household with a disability; or (5) 65 years of age or older.

How is ‘low income” or “very low income” defined for Texas Medicaid?  Before-tax annual household income has to be below established amounts, which are provided in an online table by the DHHS. Two examples:  only one person in the household is eligible if the maximum gross income is $28,869; and it rises to $100,109 for a household of eight people.

Codes and Claims for Medicaid Reimbursement

For those that qualify for Medicaid, an insurance claim is filed by the provider with the government for Medicaid reimbursement paid directly to that provider.  Specific codes for each service are provided for this purpose.  See, e.g., “Fact sheet: Medicaid and CHIP Coverage and Payment Related to COViD-19,” provided at Medicaid.gov’s Billing and Coding Guidance.

Each code identifies the service provided and correlates to a specific amount that will be paid for that service.  If the provider’s set charges are greater than the code amount, the excess must be disregarded by the provider.  There is a set amount paid for the service regardless of the particulars of the provider or the patient.

Of course, this means that the same exact service provided to a private-pay patient may be much more profitable than for a Medicaid patient.  Another practice consideration:  coding these claims can be very, very complex and complicated for health care providers today.

For more details on how Medicaid health insurance works, read “What Is Medicaid, and Who Is Eligible?” written by Kate Ashford, CSA® and published by NerdWallet on August 20, 2021.

What is Medicaid Fraud?

Given the cost of health care in this country coupled with the hefty expense of paying for health insurance, some might assume that “Medicaid Fraud” is a crime where someone tries to get their medical care paid for by Medicaid when they fail to meet the eligibility requirements.  And that may be true in some instances: “identity theft” of someone else’s Medicaid coverage is a recognized form of Medicaid fraud.   For more, read Medical Identity Theft: Texas Criminal Defense of Health Care Fraud Charges.

But it’s far from the biggest one.  The biggest Medicaid Fraud cases prosecuted in Texas criminal courts don’t involve the patient, but the health care provider.  As Investopedia explains:

Medicare and Medicaid fraud can be committed by medical professionals, healthcare facilities, patients or program participants, and outside parties who may pretend to be one of these parties.

There are many types of Medicare and Medicaid fraud. Common examples include:

• • Billing for services that weren’t provided, in the form of phantom billing and upcoding.
  • Performing unnecessary tests or giving unnecessary referrals, which is known as ping-ponging.
  • Charging separately for services that are usually charged at a package rate, known as unbundling.
  • Abusing or mistreating patients.
  • Providing benefits to which the patients or participants who receive them are not eligible, by means of fraud or deception, or by not correctly reporting assets, income, or other financial information.
  • Filing claims for reimbursement to which the claimant is not legitimately entitled.
  • Committing identity theft to receive services by pretending to be someone who is eligible to receive services.

Read, “Medicare and Medicaid Fraud: Meaning, Examples,” written by Julia Kagan and published by Investopedia on September 27, 2022.

Obviously, from a criminal defense perspective, the bigger the amount in controversy involved in an alleged Medicaid fraud the more likely that investigators and prosecutors will be taking legal action against various health care providers, from clinics or nursing homes, to dentists, doctors, and hospitals.  These cases will pursue not only convictions against professionals but claims against property.

Medicaid and the Budget

But there’s another factor here, as well.  Medicaid takes up a lot of state budgets in this country.  And this is a tremendous incentive for filings against medical defendants, motivated to get back money into state coffers claimed as fraudulent Medicaid payments.

According to the Cato Institute, “Medicaid is consistently among the top two categories in all state budgets. In 2022, states spent a whopping $804 billion of federal and state tax revenues on Medicaid programs. And this spending shows little sign of slowing down: by 2031, the Center for Medicare and Medicaid Services (CMS) projects that Medicaid and the closely- related Children’s Health Insurance Program will cost over $1.2 trillion annually.”  Read, Joffe, M. & Chanwong, K., 2024. Medicaid Is Still Breaking State Banks, and It’s Only Going to Get Worse, Cato Institute.

Federal and State Prosecutions for Medicaid Fraud

Medicaid fraud investigations may proceed in either the federal or state systems.  These cases will involve either agents and attorneys employed in (1) the Health Care Fraud Unit of the United States Department of Justice Fraud Section for federal matters; or in (2) the Medicaid Fraud Control Unit of the State of Texas’ Office of the Attorney General for cases being pursued in Texas courts.

Often, they will tag team in both investigation and prosecution of these cases.  See, e.g., Texas Attorney General’s Medicaid Fraud Control Unit Helps Secure 49-Month Sentence and Over $5 Million Restitution in Orthopedic Supplies Fraud Case, and “Texas man to pay $5 million in restitution for role in medical equipment fraud scheme,” written by Mary Claire Patton and published by KSAT-12 on July 31, 2023.

Medicaid Fraud is a crime under both federal and state statute.  Criminal prosecutions for Medicaid Fraud can proceed under things like the False Claims Act; the Stark Law; and the Anti-Kickback Statute.

For details, read our earlier discussions in:

• Texas Physicians’ Risk of Arrest: Criminal Defense Overview of Federal Anti-Kickback Statute (AKS);
• Texas Health Care Fraud Arrests: The Physician Self-Referral Law aka Stark Law, a Criminal Defense Overview; and
• Health Care Fraud Arrests for Violation of Federal False Claims Act: Criminal Defense Overview.

There are also civil statutes that can be used in tandem with criminal proceedings, which target recovery of funds (together with penalties) via execution of a civil judgment on the subject property, such as the Texas Medicaid Fraud Prevention Act (TMFPA).

From a criminal defense lawyer’s viewpoint, it is vital to prepare for cases to be brought forth that involve both the government’s desire to recoup money proven to be fraudulently paid by Medicaid as well as the prosecution’s zeal in trying to convict one or more health care providers for felony crimes that can involve monetary fines and the possibility of imprisonment.  Defense strategies must dovetail to both the individual defendant’s freedom and their property holdings. 

For more detail on Health Care Fraud defense considerations involving Medicaid, as well as Medicare and TriCare, read our earlier discussions in:

• Health Care Fraud Defense: Arrests Based Upon Medicare, Medicaid, or TriCare Insurance Claims; and
• Arresting Texas Doctors for Health Care Fraud: What You Need to Know.

Medicaid Fraud Prosecutions are Current Focus of Texas Attorney General

Here in Texas, there is the Medicaid Fraud Division operating as part of the Office of the Texas Attorney General, Ken Paxton.  It has nine regional offices, including one here in Dallas, dedicated to the investigation and prosecution of “… allegations of unlawful acts against the Medicaid program to prosecute meritorious claims and recover taxpayer dollars. Most of the cases derive from private whistle-blower lawsuits under seal in which the state is allowed to intervene.”

Texas Medicaid Fraud investigations are defined by the Texas Attorney General as involving any one or more of the following, involving a health care provider “…submitting a claim for Medicaid health care reimbursements that they are not entitled to in order to dishonestly collect money” through one or more of the following practices:

• Outright False Charges (made up services);
• Upcoding (coding the service on the claim as more expensive service than what was done);
• Unbundling (coding each stage of a single procedure as if they are each individual or independent services);
• Fake Diagnosis in order to Provide Unnecessary Services (false diagnosis followed by services that are not medically necessary);
• Taking Kickbacks for referring patients to another health care provider; and
• Over-billing services on the claim form.

Texas Attorney General’s January 2024 Report on Medicaid Fraud

In January 2024, Attorney General Paxton released a statement regarding Medicaid Fraud investigations by his office.  Alongside the release of his year-end report, Paxton pointed to victories in retrieving around $203,000,000 as well as obtaining over 60 convictions of people charged with Texas Medicaid Fraud violations.

That averages out to more than one Medicaid Fraud defendant being convicted of the crime each week during 2023.

Specifically, his news release states that in 2023 “… the Office of the Attorney General (“OAG”) recovered more than $200 million from entities and individuals who defrauded the Texas Medicaid system or were accused of doing so… obtained 79 indictments and 61 convictions averaging 4.6 years on various Medicaid fraud charges.” Paxton also pointed to pending major Medicaid Fraud cases against (1) Pfizer and Tris Pharma and (2) Gilead Sciences.

January 2024 Tribune – ProPublica Exposé

However, criminal defense lawyers are extremely interested in what is going on within the Texas Medicaid Fraud prosecutions, as reported in stories published by Pro Publica and the Texas Tribune within days of Paxton’s press release.

Reports are that while there may be nine different field offices, not only was the chief of the TMFD “forced out last year,” according to the exposé “…two-thirds of attorneys have quit the unit, leaving it at its smallest size since Paxton took office.”

For all this tea, read “Under Ken Paxton, Texas’ civil Medicaid fraud unit is falling apart,” written by Vianna Davila, The Texas Tribune and ProPublica and published by the Texas Tribune on January 31, 2024.

Criminal defense lawyers must expect these positions to be filled, of course.  Things are not going to halt in Texas Medicaid Fraud prosecutions here.  However, understanding there has been a fruit-basket turnover of that entire office is worthy of some thought when defending health care providers in these cases.

Will Texas Supreme Court Reverse Medicaid Fraud Summary Judgment Against Dr. Richard Malouf?

Of some importance to those involved in Medicaid Fraud defense is the pending case brought against a Texas dentist named Richard Malouf who owned All Smiles Dental Clinics. This dentist was found to have violated Section 36.002(8) of the Texas Medicaid Fraud Prevention Act by “knowingly failing to “indicate the type of license and the identification number of the licensed health care provider who actually provided the service” in claims his practice submitted to Medicaid.“

A Travis County District Court entered summary judgment in favor of the State, and the dentist was faced with an award of over $16.5 Million.  Dr. Malouf has sought review of this trial court decision with the Texas Supreme Court (which hears civil matters, while the Texas Court of Criminal Appeals is the high court for criminal cases).

Key here is that so far, Dr. Malouf has not been charged with a criminal act.  There is no criminal case here where he is alleged to have done bad things like submitting outright false charges; upcoding; unbundling; faking a diagnosis in order to provide unnecessary services; or taking kickbacks.  He is staring down the barrel of a multi-million dollar civil judgment with its power to take his non-exempt property in execution of that judgment.  There is no threat of jail time, incarceration, or monetary fines.

The summary judgment was granted on the argument that other dentists in his practice (a dental office chain) used his Medicaid number for approved treatment to patients in his practice.  It is a coding controversy.

Dr. Malouf claims to not know anything about this use of his Medicaid identification number.  His petition for review by the state high court was granted with oral arguments held on January 31, 2023.

• For more, read the Case Summary provided by the Texas Supreme Court as well as the Docket for Case 22-1046 where the briefing may be found as well as watch video of the oral argument. Also read, “ Richard Malouf Gets Hearing Before Texas Supreme Court on Medicaid Fraud Judgment,” written published by Texas Dentists for Medicaid Reform on November 18, 2023.

Medicaid Fraud Defense in Texas

Today anyone involved at any level of health care must be aware of the zealous investigation and prosecution by the government of alleged frauds involving claim submissions for Medicaid payment.  Employees, staff, business owners, providers, administrators:  everyone needs to know they have a risk of coming into the suspicions of state or federal health care fraud investigators.  See, Doctor’s Risk of Arrest: Popular Bases for Texas Health Care Fraud Prosecutions.

The amount of money involved in annual Medicaid budgets is staggering.  It’s a big deal, this fight for Medicaid dollars.  Both civil and criminal penalties can be sought that can forever alter the lives of people who have had no prior contact with law enforcement, much less facing allegations of Medicaid Fraud.

These cases usually involve a number of defendants.  The total dollar amount of the alleged fraudulent claims can form the basis of both civil judgments as well as sentences involving years of imprisonment, along with fines and penalties.

There are other risks, too. There is the damage to professional reputations from even the rumor of being investigated for Medicaid Fraud, and there is the danger of losing professional licensure upon conviction.

Anyone who has a concern that they, or others with who they work are being targeted for investigation into Medicaid Fraud is wise to seek the guidance of an experienced Medicaid Fraud attorney at the earliest.

• Please consider the concerns voiced in our earlier discussion, which includes the example of a 71-year-old OB-GYN doctor being convicted on federal charges involving Medicaid Fraud and receiving a sentence of four (4) years in a federal prison.

These matters deserve an aggressive and strategic defense as soon as possible.  For those facing charges under state law (Texas Penal Code 35A.02), convictions can result in sentences for felony crimes and years behind bars in a state facility.  Those prosecuted for federal fraud will face the complication of the United States Sentencing Guidelines with their strict sentencing standards.

For more, read:

• Federal Crimes and Sentencing Guidelines: Health Care Fraud;
• Loss Amounts in Federal Sentences: Calculating Economic and Financial Losses in Federal Felonies;
• Safe Harbor Defenses to Health Care Fraud Kickback Charges; and
• Federal Structuring Case: Lowest Possible Guideline Sentence up to 58% Reduction.

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For more information, check out our web resources, read Michael Lowe’s Case Results, and read his in-depth articles ”Pre-Arrest Criminal Investigations” and “How Criminal Charges Get Dropped in State and Federal Cases.”