Pandemic Era Telehealth Fraud Under the False Claims Act

by Jenna Leslie

Pandemic Era Telehealth Fraud

Before the COVID-19 pandemic, Medicare had strict limitations for telehealth service eligibility for beneficiaries. Generally, telehealth services were only covered for beneficiaries in rural regions or areas with scarce availability of healthcare professionals. With emerging trends data from the Center for Medicare & Medicaid Services (“CMS”), the once temporary pandemic-era expansions of telehealth service eligibility under Medicare and Medicaid might turn into more permanent fixtures of the healthcare industry.

The expansion to telehealth services was in response to the COVID-19 Public Health Emergency (“PHE”). Changes occurred nearly overnight, with many different aspects of virtual medical services suddenly eligible for payment from federal health programs: geographic area restrictions were lifted, new and established patients were both allowed, types of services and types of providers were diversified, and audio-only appointments were authorized.

With the pandemic largely in the past, new patterns of Medicare fraud have been exposed. Fraudsters have used new opportunities created by the expansion exploit loopholes related to billing, prescriptions, and even employee misclassification.

Transforming Telehealth and Leaving New Vulnerabilities

The Drug Enforcement Administration (“DEA”) and the Department of Health and Human Services (“HHS”) expanded patient access to healthcare services during the pandemic, creating the “General Telemedicine Notice of Proposed Rule Making (“NPRM”)” in March 2023. This new rule allowed for some types of controlled substances to be prescribed even when patients had not been medically evaluated in-person.

The NPRM has since been extended each year to avoid disrupting continuity of care for patients and to allow providers time to reach compliance with DEA requirements. While this was a necessity during the pandemic, many recent cases of telehealth fraud related to  the substances being prescribed have called the current regulations into question.

In June 2024, the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) claimed that the telehealth company Cerebral Inc. was mishandling sensitive patient information, impersonating patients online, and engaging in deceptive tactics to bill patients before receiving their consent. In the same week, the DOJ arrested the CEO and clinical president of Done Health P.C., a digital health company, for conspiring to commit health care fraud. The DOJ alleged that the CEO and clinical president submitted false and fraudulent claims to receive reimbursements by the government for stimulants, such as Adderall, that were being prescribed for no medically necessary purpose.

Within the same week in 2024, these two cases exemplify that the magnitude of fraudulent healthcare claims. Telehealth’s lack of safeguards around prescription medications allegedly resulted, at least in part, in over $100 million in revenue for Done Health P.C. Cerebral Inc. was also able to become the self-descrived “fastest-growing mental health company” and was valued at $4.8 billion in 2021, apparently at least in part as a result of the lack of safeguards in the industry.

Contractor misclassification is another significant issue with telehealth’s sudden growth across the country. Many physicians, nurses, and patient-facing workers for digital healthcare companies are brought on as contractors rather than traditional employees – which limits their rights under the Fair Labor Standards Act (“FLSA”) and the Family and Medical Leave Act (“FMLA”). The difference in employment status may also restrict contractors’ health insurance, retirement plans, unemployment insurance, and protections under anti-discrimination and whistleblower retaliation laws.

The False Claims Act and Anti-Kickback Statute in Telehealth

The False Claims Act (“FCA”) prohibits any false or misleading information given to the government that results in overcharging the government. Those who become aware of a company violating the FCA may become whistleblowers and submit their concerns to government officials. When FCA investigations lead to successful cases, whistleblowers are often eligible for significant awards – between 15% and 30% of the government’s recovery – and are protected against retaliation from their employers of any kind.

In the healthcare sector, the Anti-Kickback Statute (“AKS”) prohibits payments that would induce patient referrals or generate revenue. Common AKS schemes include: pharmaceutical companies rewarding doctors for prescribing their drugs, speaker programs that pay healthcare providers to attend events unrelated to their work, and improper discounts or rebates for providers that further an outside business. AKS whistleblowers have many of the same protections and incentives to raise their concerns as FCA whistleblowers.

Medicare FCA and AKS Red Flags

The Office of Inspector General (“OIG”) warned providers about the hallmark signs of fraud and abuse in a special fraud alert in July 2022.  Those red flags include:

• Pressure to order or prescribe medically unnecessary items and services;
• Guidance to use preselected items or services, regardless of individual patients’ medical needs;
• Fee systems, discount rates, or compensation structures based on the volume or items or services provided.

Despite the expansion of eligibility for telehealth services for Medicare beneficiaries, the requirements of many services remain the same. Prescriptions, durable medical equipment, and genetic testing are commonly exploited by fraudsters to charge the government for unnecessary goods or services. Healthcare providers working with telehealth companies should approach agreements with some scrutiny to ensure that business arrangements are appropriately established.

Key Takeaways for Telehealth Providers and Whistleblowers

As new industry standards emerge and grow more sophisticated each year, wrongdoers find new ways to infiltrate the system. Though, it is worth noting that the growth of telehealth for Medicare beneficiaries is not entirely a bad thing.

Based on data from CMS, the proportion of Medicare enrollees using telehealth services each quarter has remained between 12% and 16%. Racial and gender minority groups of enrollees also benefit slightly more from telehealth service expansion: Hispanic patients have the highest usage rate at 16.7%; women are more likely than men to use telehealth services (13.3% compared to 11.5%). There are much higher usage rates for people younger than 65 at 25.8%, likely due to higher technology use for younger people.

Additionally, high profile cases like the Done Global and the Cerebral lawsuits signal to the healthcare industry as a whole that the government is paying attention. Regulators everywhere are committed to fighting fraud and abuse in telehealth services, even warning companies about misusing prescriptions for weight loss drugs earlier this year. As more of these cases arise, new compliance standards are developed for legitimate telehealth businesses to operate at the highest standard in the healthcare sector.

Significantly, whistleblowers have been raising the alarm more often and with bigger rewards. In 2025, FCA settlements and judgments exceeded $6.8 billion, the highest amount in a single year, since the FCA’s founding. About 80% of those dollars, roughly $5.7 billion, were recovered thanks to healthcare industry whistleblowers and government investigations.

Miller Shah LLP represents individuals with information about potential fraud against the government, including fraud involving federal healthcare programs such as Medicare and Medicaid. Workers, healthcare professionals, contractors, and others who are concerned about improper billing, kickback arrangements, or other conduct that may violate FCA may contact Miller Shah LLP to learn more about their rights and legal options.