Introduction
On January 8, 2025, the U.S. Department of Justice (DOJ) announced that a federal grand jury indicted the Chesapeake Regional Medical Center (CRMC) in Virginia for conspiracy to defraud the United States and health care fraud. In this rare move, DOJ seeks to hold a hospital criminally responsible for alleged fraudulent conduct committed by a physician at the hospital. The indictment alleges that from 2010 to 2019, CRMC and a former obstetrician-gynecologist with surgical privileges at CRMC conspired to defraud the government by performing medically unnecessary operations, submitting inaccurate and false bills, and failing to comply with applicable rules and regulations. According to the indictment, CRMC received approximately $18.5 million in reimbursements from health care benefit programs over that time for procedures performed by the former physician at the hospital.
Relevant Statutory and Regulatory Background
Federal law criminalizes conspiracy to defraud the U.S. government.1 It also makes it a crime for any person to "knowingly and willfully" defraud any "health care benefit program,"2 which is defined by statute to include not only public programs such as Medicare for seniors, state-administered Medicaid for low-income individuals, and TRICARE for active-duty service members, but also health care plans administered by private insurers.3 The alleged fraud in this case concerns false information provided to health care benefit programs.
Medical providers may submit claims to health care benefit programs for medically necessary procedures and services provided to the patient.4 In submitting the claim, the provider must certify that the services rendered were medically indicated and necessary to the patient's health.5 This certification is important because health care benefit programs prohibit payment for services that are not reasonable and necessary for the diagnosis and treatment of an illness or injury.6 Providers must also maintain documentation demonstrating that services rendered were medically necessary.
The Centers for Medicare and Medicaid annually releases an "Inpatient Only" list.7 The list reflects procedures that are often more invasive, require longer postoperative recovery time, and are otherwise more complex than outpatient procedures, and thus must be performed in an inpatient setting to be reimbursed by Medicare.8 Similarly, many private health care benefit programs will not reimburse providers for "Inpatient Only" procedures when performed on an outpatient basis or will do so only at a lower rate.
The Indictment
The indictment alleges in detail illegal conduct by Javaid A. Perwaiz, a former obstetrician-gynecologist with privileges at CRMC. In 2020, Perwaiz was convicted of 52 counts of health care fraud and false statements related to health care matters for a "scheme to bill private and governmental insurers millions of dollars for irreversible hysterectomies" and other non-medically necessary procedures.9 The indictment alleges a variety of red flags related to Perwaiz that CRMC deliberately ignored in repeatedly credentialing him to perform procedures at the hospital and billing for those procedures.
The indictment alleges, for example, that CRMC granted Perwaiz privileges in April 1984, despite being notified that Perwaiz's privileges at another nearby hospital had been terminated in 1983 for "performing unnecessary gynecological surgeries, including irreversible hysterectomies on approximately a dozen patients, including young patients of child-bearing age."10 CRMC reviews the credentials of privileged physicians every two years. CRMC re-credentialed Perwaiz every two years between 1984 and 2019 even though Perwaiz had been convicted of felony tax fraud and CRMC had heard from another CRMC physician that an estimated two-thirds of Perwaiz's patients' surgeries were not medically necessary.
According to the indictment, CRMC also knew that Perwaiz "routinely and knowingly" misclassified inpatient-only surgeries as outpatient procedures, but allowed him to continue that practice, knowing that he would bill health care benefit programs for reimbursement.11 And CRMC submitted its own bills for some of the surgeries that it knew Perwaiz had misclassified. Between 2010 and 2019, CRMC allowed Perwaiz to continue practicing even though CRMC employees raised concerns about his billing practices to CRMC executives.
The indictment further alleges that CRMC employees reported concerns that Perwaiz's medical records did not support the medical necessity of the operations and that he repeatedly performed sterilizations on Medicaid patients at CRMC without valid consent forms, or altered patients' consent forms after the operation was initiated. Citing "independent, post-arrest analyses by health care benefit programs Anthem and Optima," the indictment alleges that between 2015 and 2019, approximately 80% of the surgeries Perwaiz performed were medically unnecessary.12 And CRMC allegedly conducted "an internal audit" identifying sterilization procedures for which patient consent was not obtained 30 days in advance.13
Finally, according to the indictment, it was an open secret in CRMC's labor and delivery unit that Perwaiz scheduled patients for elective inductions before 39 weeks in order to ensure that he could perform (and bill for) the patients' deliveries during his surgical block at CRMC on Saturdays. To schedule elective inductions, Perwaiz submitted "OB flowsheets" with dates he falsified to make it look like a delivery was after 39 weeks of pregnancy when it was not.14 In a tip to the FBI, another obstetrician-gynecologist with privileges at CRMC flagged concerns that Perwaiz was "falsify[ing] charts" to allow him to perform elective deliveries "when it was convenient for him to induce labor" because he was scheduled to be in the hospital.15
On January 28, 2025, CRMC entered a plea of not guilty on all charges.16 The same day, CRMC moved to dismiss the indictment on the ground, among others, that CRMC is an "arm of the Commonwealth" of Virginia and therefore immune from federal criminal prosecution.17 CRMC also asserts that it could not have formed the criminal intent necessary for the government to prove the charged conspiracy and health care fraud.18 CRMC has requested an evidentiary hearing on its sovereign immunity defense.19
Takeaways
The indictment of CRMC has a number of significant implications for hospital and larger provider groups.
- While the egregious nature of the allegations underlying this indictment may have contributed to DOJ's decision to charge CRMC criminally, the indictment demonstrates DOJ's increased focus on pursuing criminal action against hospitals and healthcare providers. This is not the only instance in which DOJ appears more willing to pursue less common types of fraud charges criminally. In 2023, DOJ announced a rare criminal indictment involving the Medicare Advantage program on the heels of its pledge to increase its investigations of fraud in the program. And its decision to charge CRMC comes only six months after DOJ announced the 2024 National Health Care Fraud Enforcement Action, which resulted in criminal charges against 193 defendants.20
- Hospitals and other large healthcare providers are expected to have compliance programs in place to detect and swiftly respond to illegal conduct by doctors, particularly those with surgical privileges. To promote detection and response, hospitals and other large healthcare providers should maintain strong internal reporting mechanisms that encourage employees to report alleged wrongdoing, including anonymously. Additionally, compliance programs should ensure that doctors maintain sufficiently detailed documentation surrounding the medical necessity of the procedures performed.
- A hospital's knowledge of illegal conduct by a doctor—coupled with the hospital's billing of government health care programs for related procedures by that doctor—can give rise to allegations that the hospital itself is criminally liable for the misconduct. Proactive investigations and self-disclosure may help to secure a more favorable outcome under DOJ's Corporate Enforcement and Voluntary Self-Disclosure Policy. As evidenced by the CRMC case, it is also critically important for companies to maintain a robust system for encouraging the internal reporting of issues. Companies must follow up on reports timely and effectively.
Footnotes
1. 18 U.S.C. § 371.
2. Id. § 1374.
3. Id. § 24(b).
4. For example, National Coverage Determinations (NCDs) are made by the Secretary of Health and Human Services and reflect which items or services are covered by Medicare. 42 CFR § 405.1060. As set out on the Centers for Medicare & Medicaid Services (CMS) website, "[m]edicare coverage is limited to items and services that are reasonable and necessary for the diagnosis or treatment of an illness or injury.... The NCDs are developed by CMS to describe the circumstances for which Medicare will cover specific services, procedures, or technologies on a national basis." See also Medicare Program; Revised Process for Making Medicare National Coverage Determinations, 68 Fed. Reg. 55635 (Sept. 26, 2003); Health Insurance Claim Form OMB-0938-1197, Form 1500.
5. Health Insurance Claim Form OMB-0938-1197, Form 1500.
6. See, e.g., Medicare Learning Network, Items & Services Not Covered Under Medicare 3 (July 2024).
7. See 42 C.F.R. § 419.22; see also 42 C.F.R. § 419.23 ("CMS maintains a list of services and procedures that the Secretary designates as requiring inpatient care under § 419.22(n) that are not paid under the hospital outpatient prospective payment system. This list is referred to as the Inpatient Only List.").
8. See 42 C.F.R. § 419.23.
10. Indictment ¶ 23, United States v. CRMC, No. 2:25-cr-1 (Jan. 8, 2025), ECF No. 1.
11. Id. ¶ 35.
12. Id. ¶ 51.
13. Id. ¶ 60.
14. Id. ¶ 67.
15. Id. ¶ 84.
16. Arraignment Minute Entry, United States v. CRMC, No. 2:25-cr-1 (Jan. 28, 2025), ECF No. 9.
17. Motion to Dismiss, United States v. CRMC, No. 2:25-cr-1 (Jan. 28, 2025), ECF No. 12.
18. Id.
19. Id.
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