DOJ Indicts Hospital for Healthcare Fraud: A Rare Occurrence

In June 2024, the U.S. Court of Appeals for the Fourth Circuit affirmed the conviction of a Virginia OB/GYN, Dr. Javaid Perwaiz, on over 50 counts of healthcare fraud and false statements in connection with disturbing allegations that he performed medically unnecessary hysterectomies and other procedures over the course of a decade. The appeals court also affirmed his 59-year prison sentence and $18.5 million restitution judgment payable to public and private healthcare insurers. 

But the case didn’t end there. Last month, a federal grand jury in the Eastern District of Virginia indicted Chesapeake Regional Medical Center (CRMC), the hospital where Dr. Perwaiz practiced, for allegedly enabling and benefitting from his crimes. Indicting a hospital is rare. When a doctor is criminally charged, individuals who might have worked with the physician often face potential criminal or civil liability, and the facility where the doctor practiced should prepare for government investigations under the False Claims Act, federal payor audits, inquiries by commercial healthcare insurers, and other potential civil litigation. But criminal prosecution of a healthcare facility — not its executives, not its doctors, but the hospital itself — on healthcare fraud and conspiracy charges is almost unheard of. So, let’s dig into this case.

The Allegations Against CRMC

The indictment accuses the hospital of (1) conspiracy to defraud federally funded insurers including Medicare, Medicaid, and TRICARE, and to interfere with the government’s administration of these programs, and (2) healthcare fraud against public and private insurers. For both charges, the government has the burden to prove at trial that CRMC, through its agents, acted “willfully” — i.e., with knowledge of unlawfulness — when allegedly seeking payment for Dr. Perwaiz’s procedures. The indictment previews how prosecutors may try to meet that burden.

One area involves the alleged mislabeling of procedures as either “inpatient” or “outpatient,” a distinction that largely rests on whether hospital patients are admitted for overnight stays or discharged the same day as their care. The Centers for Medicare and Medicaid Services maintains a list of inpatient-only (IPO) procedures, which Medicare (as well as some private insurers) will not reimburse if performed on an outpatient basis. According to the indictment, several CRMC officials allegedly knew that Dr. Perwaiz was falsely scheduling IPO procedures as “outpatient,” and they allegedly characterized his practices as a compliance risk. The government alleges that the scheduling of mischaracterized IPO procedures nevertheless continued without interruption and may have led private insurers to pay outpatient rates to CRMC for dozens of inpatient surgeries. Any trial in this case likely will ask the jury to decide whether the payment claims at issue were indeed mischaracterized and whether CRMC, through its representatives, “knew” that it was submitting allegedly false claims to insurers.

Another area where prosecutors will try to show that the hospital acted “willfully” is in seeking payment for alleged early labor inductions. Insurers will not reimburse a medically unnecessary early induction, i.e., one performed before 39 weeks. According to the indictment, Dr. Perwaiz’s office often sent paperwork to CRMC suggesting that the doctor might have altered the due dates of his induction patients so that patients at less than 39 weeks of gestation would be recorded as at more than 39 weeks. The indictment also alleges inadequate documentation of diagnoses and symptoms supporting Dr. Perwaiz’s assertions that early inductions were medically necessary. Nurses at CRMC allegedly shared suspicions with hospital officials that Dr. Perwaiz was lying about patients’ due dates or medical conditions so that he could perform inductions on days that were convenient for him, but prosecutors accuse CRMC of continuing to schedule inductions for Dr. Perwaiz regardless. A jury would thus likely have to decide whether the inductions at issue were in fact too early and medically unnecessary, and whether CRMC, as an entity, “knew” this when seeking reimbursement.

A third area concerns missing or inadequate sterilization consent forms. Prosecutors assert that Medicaid will not reimburse a sterilization procedure without a consent form signed by the patient at least 30 days ahead of the procedure (although the regulations establish certain exceptions). After Dr. Perwaiz’s indictment, CRMC allegedly self-disclosed that it failed to obtain consent from some Medicaid sterilization patients at least 30 days in advance. A third key question at trial will be whether the prosecution has correctly characterized Medicaid’s advance consent requirements and whether the hospital knew of the alleged non-compliance with those requirements when it initially submitted the claims to Medicaid.

Learning From This Indictment

The answers to the above questions likely will come at trial or a plea hearing. For now, the indictment serves as a strong warning to healthcare facilities and warrants reflection about the types of allegations that will lead federal prosecutors to bring criminal charges rather than civil claims.

The first lesson for healthcare facilities is straightforward: hospitals and other corporations can face criminal consequences. In general, a corporation can incur criminal liability for the crimes its employees commit in its interest while acting within the scope of their employment, and those employees’ knowledge and intent can often be imputed to the corporation as a whole. A court cannot, of course, imprison a corporation, but it can impose other penalties (e.g., fines, limitations, supervision) that might be more stringent or more punishment-oriented than civil ones. Just as serious are the additional consequences that hospitals as institutions can face from federal and state regulatory bodies, including monitorship, suspensions of licensure and credentialing, and debarment.

If this comes as a surprise to many hospital administrators, that’s understandable: criminal prosecution of a hospital is exceptionally rare. Although criminal investigations of hospitals and other healthcare entities are more common, we are hard-pressed to identify a single federal criminal prosecution of a hospital in the past 20 years. The 1990s and early 2000s saw a few such prosecutions involving similar allegations of fraudulent billing (such as United States v. Lofton, No. 2:98-cr-00179 (N.D. Ala. May 28, 1998) and United States v. Northshore Hospital Management Corp., No. 1:94-cr-00269 (D.D.C. June 29, 1994)), as well as allegations of illegal kickbacks for referring patients to the hospital (such as United States v. Goldstein, No. 8:00-cr-00225 (M.D. Fla. June 28, 2000) and United States v. Weinbaum, No. 3:03-cr-01587 (S.D. Cal. June 05, 2003)).

The rarity of hospital prosecutions raises the second lesson of this indictment: concerns about harm to patients can lead the government to bring criminal charges in situations where civil enforcement might otherwise be the generally expected route. When considering corporate misconduct, federal prosecutors consider the factors in the Justice Manual’s Principles of Federal Prosecution (commonly known as the “Filip Factors”), which include “harm to the public” and the “interests of any victims.” Although the “victims” of the charged offenses were the defrauded public and private payors, the allegations of patient harm, in conjunction with allegations that the hospital scheduled Dr. Perwaiz’s surgeries despite supposedly knowing of the compliance risks, were likely aggravating factors that the U.S. Department of Justice (DOJ) considered in deciding to charge CRMC criminally.

The third lesson comes from what makes this case a cautionary tale, regardless of whether any of the allegations are proven at trial: hospitals and other healthcare facilities can take steps to avoid becoming indicted (or even civilly pursued). Compliance programs that train staff to detect problems early are critical to avoid violations of payor requirements (or worse) during patient care and billing. Such programs, when adequately resourced and faithfully executed, can also mitigate punishment at sentencing. Even on the face of the allegations, CRMC’s compliance program was arguably effective, to a point, in detecting the issues. According to the indictment, several employees and solo practitioners raised concerns to hospital management about Dr. Perwaiz, and multiple high-level meetings were held and emails exchanged describing the issues as ones concerning “compliance.” The hospital’s precise response to such alleged reports will be a key factor in determining any knowledge of wrongdoing by CRMC and the severity of any punishment imposed. A compliance plan that encourages reporting and which promptly remedies issues can earn a facility more favorable treatment by regulators and judges — and even prevent it from incurring liability in the first place.

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Whether this indictment is a unique occurrence or the beginning of a renewed willingness by DOJ to indict hospitals for the conduct of employees and partnering doctors remains to be seen. Arnold & Porter will be tracking future developments closely. For now, our team of former high-level prosecutors, experienced litigators, and regulatory attorneys stands ready to counsel healthcare providers and others in the industry on investigative, defense, regulatory, and compliance matters.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.