When the Medicare and Medicaid programs were created in the 1960s, medical services were paid for almost entirely on a fee-for-service basis. For example, Medicare would pay a certain amount for a checkup in a physician’s office, another amount for a physician’s reading of an X-ray film, and so on (less any applicable co-pay or deductible). Most private insurers paid for medical services this way for generations, and fee-for-service would continue to be the payment method of choice for many more years to come.
This fee-for-service model has been fraught with problems. It provided incentives to health care providers to over-utilize services, encouraged episodic rather than coordinated care, and it has been a significant factor in the ever-escalating costs of health care services. It also gave rise to many varieties of fraudulent and unethical practices that not only harmed patients but drained massive amounts of money from the Medicare and Medicaid programs.
Over the years, Congress provided the federal government with a number of powerful weapons to combat fraud and waste in the Medicare, Medicaid and other government health care benefit programs. Among these weapons are the so-called fraud and abuse laws, which penalize—and in some cases criminalize—certain types of arrangements by and among health care providers. However, many providers and their counsel have complained for years that the broad wording of these fraud and abuse laws has prohibited many arrangements that actually could improve the quality and reduce the costs of health care services paid for by Medicare and other government health care programs.