Healthcare Compliance Guide to Federal Waste, Fraud, and Abuse Requirements

Fraud Waste and Abuse Definitions

Fraud

Fraud is an intentional act to obtain payment or another benefit you are not entitled to. It includes knowingly submitting false claims, falsifying documentation, or misrepresenting services to increase reimbursement.

Waste

Waste is the careless or inefficient use of resources that results in unnecessary cost. It often stems from poor systems, overutilization, or avoidable errors rather than intent to deceive.

Abuse

Abuse involves practices that are inconsistent with sound fiscal, business, or medical standards and that directly or indirectly lead to improper payments. Unlike fraud, abuse may lack specific intent but still violates program rules.

Practical distinctions

Ask three questions: Was there intent to mislead (fraud)? Was care or billing excessive or sloppy (waste)? Did practices violate payment or clinical standards even without intent (abuse)? Document your reasoning and escalate when unsure.

Key Federal Laws Addressing FWA

Federal False Claims Act (FCA)

The FCA prohibits submitting or causing the submission of false or fraudulent claims to the government. It allows treble damages and per-claim civil penalties, and it includes whistleblower protections through qui tam actions that incentivize reporting and protect those who report in good faith.

Anti-Kickback Statute (AKS)

The AKS criminalizes offering, paying, soliciting, or receiving anything of value to induce referrals for items or services payable by federal healthcare programs. Even well-intentioned arrangements can violate the statute unless they meet a safe harbor.

Stark Law

Also known as the Physician Self-Referral Law, Stark prohibits physicians from referring Medicare patients for designated health services to entities with which they (or their immediate family members) have a financial relationship, unless a specific exception applies. Stark is a strict liability law—intent is not required.

Civil Monetary Penalties Law (CMPL)

The CMPL authorizes the Office of Inspector General to impose civil penalties, assessments, and program exclusions for a range of misconduct, including false claims, kickbacks, and beneficiary inducements.

OIG Exclusion Authorities and Corporate Integrity Agreements

The Office of Inspector General can exclude individuals and entities from federal healthcare programs for certain misconduct. In some settlements, organizations agree to Corporate Integrity Agreements that mandate independent oversight and robust compliance enhancements.

Medicare Compliance program obligations

Medicare Compliance expectations include effective training, screening against exclusion lists, first-tier, downstream, and related entity oversight, and prompt investigation and correction of identified issues for Medicare Advantage and Part D participants.

Compliance Program Requirements

1. Written policies, procedures, and standards of conduct

Document how you prevent, detect, and respond to FWA. Align your code of conduct and policies to federal program rules, the Anti-Kickback Statute, Stark Law, the Federal False Claims Act, and the Civil Monetary Penalties Law.

2. Designated compliance leadership and oversight

Appoint a compliance officer with authority and independence, supported by a compliance committee that includes clinical, legal, revenue cycle, and operations leaders.

3. Effective training and education

Provide role-based training on FWA risks, Medicare Compliance requirements, documentation standards, referral restrictions, and reporting options. Refresh training at onboarding and at least annually.

4. Open lines of communication

Offer confidential reporting channels—hotlines, web portals, and email—and publicize non-retaliation protections. Encourage questions before issues become violations.

5. Monitoring and auditing

Use a risk-based plan to test high-risk areas such as coding, medical necessity, referral arrangements, and payments to vendors. Validate controls and verify corrective actions are effective.

6. Enforcement and disciplinary standards

Enforce standards consistently for all workforce members and contracted partners. Tie incentives to compliance metrics, not just volume or revenue.

7. Response and corrective action

Investigate promptly, document findings, implement corrective actions, repay overpayments when due, and consider self-disclosure pathways where appropriate.

Reporting Suspected FWA

Internal escalation steps

Report concerns immediately through your organization’s hotline or compliance inbox. Preserve all relevant records, avoid altering documentation, and limit discussions to those who need to know.

External reporting and self-disclosure

When internal reporting is not feasible or the issue involves potential law violations, you may report to federal authorities such as the Office of Inspector General. Providers may use the OIG Self-Disclosure Protocol, and potential Stark issues may be reported through the CMS self-referral disclosure pathway.

Whistleblower protections

Under the Federal False Claims Act, whistleblower protections and potential awards are available for individuals who report fraud. Your organization should reinforce non-retaliation and document protections in policy and training.

Penalties for FWA Violations

Consequences can include repayment obligations, treble damages under the FCA, per-claim civil penalties, exclusion from federal programs, and Corporate Integrity Agreements requiring ongoing oversight.

Criminal exposure is possible: Anti-Kickback Statute violations can trigger fines and imprisonment, and false statements or obstruction can lead to additional charges. Stark Law violations are civil but can result in significant refunds, penalties, and potential CMPL exposure.

Monitoring and Auditing Practices

Build a risk-based audit plan

Prioritize risks using data on denials, outliers, new services, and OIG and CMS guidance. Define scope, sampling methods, responsible owners, and due dates for each review.

Use data analytics and targeted reviews

Analyze coding intensity, modifier use, place-of-service patterns, and referral relationships. Validate medical necessity and documentation quality through focused chart reviews.

Oversee vendors and referral arrangements

Conduct due diligence, verify fair market value, test payment flows, and confirm arrangements meet applicable AKS safe harbors or Stark exceptions. Screen all parties against exclusion lists before and during the relationship.

Track corrective actions and outcomes

Document findings, root causes, and corrective actions. Monitor key compliance indicators, retrain when needed, and perform follow-up audits to confirm sustained improvement.

Safe Harbor Regulations

Safe harbors under the Anti-Kickback Statute protect specific payment and business practices that would otherwise be at risk, provided every element of the safe harbor is met. Falling short of all elements removes the protection.

Common AKS safe harbors

• Employment and bona fide employee compensation
• Space and equipment rental with fair market value terms
• Personal services and management contracts (including outcomes-based variants)
• Investment interests in certain entities
• Discounts and rebates properly disclosed and reported
• Warranties and group purchasing organization arrangements
• Electronic health records and cybersecurity technology donations
• Value-based enterprise arrangements meeting defined safeguards

Stark Law uses exceptions rather than safe harbors, but the concept is similar: you must satisfy every requirement of an applicable exception to be protected.

FAQs.

How is waste distinguished from fraud in healthcare?

Fraud requires intent to deceive for gain, such as knowingly billing for services not provided. Waste reflects inefficient or careless practices that drive unnecessary costs without intent. Abuse sits between them—violations of payment or clinical standards that cause improper payments, even without a plan to defraud.

What federal laws govern waste fraud and abuse?

Core authorities include the Federal False Claims Act, Anti-Kickback Statute, Stark Law, and the Civil Monetary Penalties Law. The Office of Inspector General also wields exclusion authority and often requires Corporate Integrity Agreements in settlements. Together, these laws form the backbone of Medicare Compliance and broader federal program integrity.

How should suspected FWA be reported?

Use your organization’s hotline or compliance channel immediately, preserve records, and cooperate with the investigation. If internal reporting is not feasible or the issue implicates federal law, you may report to the Office of Inspector General, and appropriate self-disclosure protocols may apply. Whistleblower protections exist for good-faith reporting.

What penalties apply for FWA violations?

Penalties range from overpayment refunds and civil monetary penalties to treble damages under the FCA, program exclusion, Corporate Integrity Agreements, and, for kickbacks and certain false statements, criminal fines and imprisonment. Stark violations are civil but can still result in substantial financial liability.