Fraud, Waste, and Abuse Policies For Mental Health Practices

Mistakes happen. And when they do, the government is ready to inflict penalties. Learn how to show an enforcement agency that your practice works to prevent, detect, and eliminate misconduct.

A psychotherapist consulting a client in an office.

Sting summed it up best: Every breath you take and every move you make, they’ll be watching you. That’s the federal government’s attitude regarding fraud, waste, and abuse in mental healthcare. And in a time when Democrats and Republicans can’t seem to agree on the time of day, prosecuting healthcare fraud is one area where there is true bipartisanship. 

Fortunately, developing a comprehensive fraud, waste, and abuse policy can keep the government off providers’ backs and help them better serve their patients.  

What are Fraud, Waste, and Abuse?

Although often lumped together, fraud, waste, and abuse are distinct concepts. 

Fraud is a deception designed to give the perpetrator a wrongful or illegal gain — such as a financial gain. Commonly, people commit fraud when they misrepresent facts or conceal information in such a way to benefit themselves while harming someone else. For example, submitting insurance claims for payment for services never rendered is a classic example of mental healthcare fraud. 

Waste means the same thing in law as it does when a child doesn’t finish his dinner; it’s the careless or thoughtless abuse of resources. Waste also includes the unnecessary cost that results from inefficient systems or processes. For instance, a pharmacy that overorders a medication and allows it to expire is wasteful. 

Finally, abuse is misusing something or using it illegally. For example, in addition to acting fraudulently, the above provider who submitted the insurance claim for services never rendered abused the billing system. 

Federal Fraud Waste and Abuse Laws

Not only does fraud, waste, and abuse harm patients, but it costs the government money. Thus, multiple government agencies — including the Department of Justice, the Department of Health & Human Services Office of Inspector General (OIG), and the Centers for Medicare & Medicaid Services (CMS) — actively work to stop misconduct in its path. Generally, these federal agencies have five primary laws in their enforcement toolbox. 

The False Claims Act

The False Claims Act (FCA) makes it illegal to submit claims to CMS that the provider knew or should have known were fraudulent. To prove liability, the government must prove:

  1. the provider submitted a claim for payment;
  2.  the claim was false; 
  3. the provider knew the claim was false; and 
  4. the false statement was material to the government’s decision to pay.

If you’re a mental health practice that accepts Medicare or Medicaid, you must be familiar with the FCA and its strict provisions. Moreover, courts have determined that “knowledge” encompasses much more than just actual knowledge — it also includes what courts refer to as deliberate ignorance or reckless disregard for the truth. 

Anti-Kickback Statute

The Anti-Kickback Statute (AKS) imposes civil and criminal penalties against a person who offers or receives remuneration to induce the referral of services covered by a federal health care program (e.g., Medicare). Providers cannot knowingly or willfully solicit, receive, or offer to pay a kickback for referring an item or service reimbursable by a federal healthcare program. Violators of AKS are subject to strict penalties, including fines, exclusion from health programs, license revocation, and even jail. 

What is the Anti-Kickback Statute?

Stark Law

The third is the Physician Self-Referral Law, known as Stark Law. Stark Law prohibits physicians from referring patients to entities with which the physician (or the physician’s immediate family member) has a financial interest. In other words, physicians can’t refer to themselves. Stark law aims to prevent wasteful referral practices. 

Exclusion Statute

The Exclusion Statute requires OIG to exclude providers from federal healthcare programs for certain illegal and improper practices. These practices include fraud and patient abuse. Moreover, OIG has the discretion to exclude providers for other less serious offenses. 

Civil Monetary Penalties Law

Finally, the Civil Monetary Penalties Law empowers OIG to impose fines on providers with civil monetary penalties for a variety of misconduct, including issues with billing and patient care. Penalties are severe and range from $10,000 to $50,000 per violation. 

State Fraud, Waste, and Abuse Laws

In addition to these federal laws, many states have created similar laws to regulate mental health providers’ conduct. Moreover, many state laws are not limited to providers who submit claims to federal healthcare programs — they apply to everybody. 

For example, the Illinois Health Care Worker Self-Referral Act prohibits providers from referring patients for services at a facility or business in which the provider is an investor. Additionally, practices and providers cannot make referrals on the condition that the referee will reciprocate. The Clinical Social Work and Social Work Practice Act — the law that governs all social workers in Illinois — explicitly states that a violation of the Health Care Worker Self-Referral Act is grounds for professional discipline. 

Moreover, Illinois’ Insurance Claims Fraud Prevention Act makes it illegal to knowingly offer something of value to induce someone to obtain services or benefits that will be billed to insurance. The law aims to reduce fraud and waste by eliminating bribes and kickbacks in healthcare. 

Further, in California, a psychologist cannot pay or offer to pay any consideration for the referral of clients. Moreover, the California Board of Psychology clarifies that psychologists cannot create a corporation or other entity to evade this restriction. 

What is a Fraud, Waste, and Abuse Policy?

A fraud, waste, and abuse policy communicates a practice’s commitment to detecting and preventing healthcare fraud, waste, and abuse. It demonstrates a commitment to treating patients ethically and legally. Moreover, it reinforces the practice’s employees’ commitment to professional practice and promotes an overall culture of organizational compliance. 

Each practice should tailor its policy to its own organizational goals. Generally, though, a complete fraud, waste, and abuse policy contains the following elements:

  • a purpose statement 
  • written policies and procedures regarding organizational standards of conduct
  • stated intention to comply with all applicable laws
  • designation of appropriate reporting and leadership personnel
  • information about employee compliance training 
  • internal auditing and monitoring procedures
  • the practice’s discipline and corrective action policies

Why Do I Need a Fraud, Waste, and Abuse Policy?

Many providers wonder if they really need a fraud, waste, and abuse policy. After all, it takes time to draft and often involves paying for professional legal assistance. However, for a mental health practice, a fraud, waste, and abuse policy is much like wearing a jacket in the winter. It’s not required, but it sure is helpful! 

Overall, a fraud, waste, and abuse policy serves two primary functions: it offers legal protection and promotes a practice’s goals to conduct business ethically. 

Legally, the policy demonstrates a lack of ill intent. In other words, it evidences that the practice tried its best to mitigate the risk of illegality. And fortunately, “an A for effort” can be a winning argument in a courtroom. 

A Hypothetical Example

Let’s think back to the False Claims Act. Again, the FCA only punishes providers for knowingly submitting false claims for payment. “Knowingly” means either having actual knowledge or acting in deliberate ignorance or reckless disregard for the truth.  

Imagine two therapists, John and Mary. John decided not to create a fraud, waste, and abuse policy, while Mary created one. If both providers accidentally submit a false claim, Mary will be in a much stronger position to beat the charge. 

Indeed, the government will argue that John didn’t make an effort to mitigate the risk of false claims — he didn’t even have a policy against it. Here, the government has a strong argument that John was deliberately ignorant — he buried his head in the sand and avoided planning for potential mistakes.

Mary, however, can argue that the false claim indeed was a mistake and that she had no knowledge of any wrongdoing. Mary can present her policy to the court or disciplinary board, documenting her efforts to bill appropriately. In healthcare law, enforcement agencies are much more likely to forgive a mistake than something intentional. 

Preventing Fraud, Waste, and Abuse

Beyond being useful when something goes wrong, a comprehensive policy can prevent wrongdoing from ever occurring. For instance, imagine a mental health practice that creates a policy that promotes effective inter-organizational communication. Specifically, the policy — which every employee reviews and signs — outlines a process to report observed misconduct discretely. 

If an employee witnesses a colleague engaging in improper referring practices, this observer will be equipped with the tools and authority to report the issue. Then, the practice can properly educate or discipline the wrongdoer, preventing the issue from escalating.

Finally, if a practice is found liable for illegal activity, a fraud, waste, and abuse policy can mitigate the extent of the punishment. Suppose OIG charges a practice with violating the Anti-kickback Statute. If the practice agrees to adopt and follow a fraud, waste, and abuse compliance policy, OIG may be more willing to reduce fines. 

Do note: merely writing down a good policy is never enough. Practices will benefit from having all employees review their fraud, waste, and abuse policies, ensuring they understand their responsibilities. The practice needs to follow its own standards.

Promoting an Effective, Ethical Culture

In addition to legal protection, a fraud, waste, and abuse policy promotes an ethical organizational culture. It reminds everyone that the practice intends to conduct business efficiently, morally, and in a way that prioritizes patient care. It helps guide and train employees and can serve as a lodestar for the entire organization. 

For example, violators of Stark law often expose patients to unnecessary and excessive procedures. This damages patients’ trust and confidence in their healthcare providers. A strong policy against self-referrals will help reduce this risk. Indeed, the less misconduct within a practice, the better the practice can serve patients.

Moreover, fraud, waste, and abuse cost tens of billions of dollars each year — this raises health costs, like premiums, for all patients. For instance, imagine a psychologist upcodes — that is, bills for a service that exaggerates what the provider performed. The insurer, then, is tasked with investigating and fighting this fraud. This process costs money, and the insurer will pass the bill onto the patient in the form of higher premiums and copayments.  

A detailed fraud, waste, and abuse policy may prevent this upcoding altogether. Indeed, then, it promotes the organization’s commitment to its patients. It reinforces the practice’s intention to improve access to care, serve patients effectively and ethically, and avoid contributing to increased health costs. 


Mental health providers want to focus on helping as many patients as possible. But the truth is, mistakes happen. And when they do, the government will be there to discipline whomever they can. Maintaining a fraud, waste, and abuse policy can show an enforcement agency that your practice is sufficiently working to detect and eliminate misconduct before it occurs. It can also promote an organizational culture of compliance. 

An experienced healthcare attorney can help tailor a fraud, waste, and abuse policy to your practice’s needs. If you’re located in any of the states where we practice, schedule a complimentary consultation to see how we can support you. 

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader and should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

Free Attorney Consultation

Book Now
Skip to content