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Pierce the Corporate Veil — Are You Personally Liable for a UPIC Overpayment?

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Can the Government Pierce the Corporate Veil?(Updated January 9, 2021): Owners of healthcare companies often wonder whether the government can pierce the corporate veil and try to hold the owners personally liable for overpayment claims when facing a program integrity audit by a Unified Program Integrity Contractor (UPIC). [1] This rarely happens, but assuming that a provider does not prevail in the administrative appeal process, one way for the government to try and collect monies owed by a bankrupt health care entity would be to try and pierce the corporate veil.  A health care entity is usually owned by one or more individual owners. These owners often organize the company into an entity such as a corporation or Limited Liability Company (LLC). This is specifically done to limit each individual owner’s personal liability. Owners of incorporated health care providers can only be found personally liable for their companies’ debts to the Centers for Medicare & Medicaid Services (CMS) in certain very narrow circumstances, one of which is piercing the corporate veil.

I.  Will the Government Seek to Pierce the Corporate Veil?

The legal doctrine of piercing the corporate veil allows creditors to reach through the corporate structure and collect their debts from shareholders or similar owners. This doctrine is not unique to healthcare. In fact it is a potential way for all creditors to collect debts from individual entity owners.

CMS and its contractors rarely seek to pierce the corporate veil, and courts also tend to disfavor the practice. Veil piercing depends on facts that by their nature are difficult to prove in court. The burden of proving the facts is always on the creditor. Even though it may be difficult for a creditor to prove these facts exist, it is still important to know how a creditor could pierce a healthcare corporation’s “veil” to prevent individual owner liability. Creditors must prove specific factors to justify imposing liability on owners for a provider’s debts to CMS, including the following:

  1. Defective Incorporation: If the legal statutory requirements for organizing the corporation or LLC are not met, no corporation exists to shield owners from liability.

  2. Ignoring the Separateness of the Corporation: Entering into contracts and otherwise transacting business variously in a corporate name and an individual name can justify piercing the corporate veil. Commingling corporate and individual assets, transferring assets between the provider and an owner without formalities, or transferring assets between the provider and a sister company, can also suggest the owners did not respect the separate nature of the entity, potentially allowing CMS to pierce the corporate veil.

  3. Significant Undercapitalization: A corporation must have a reasonably sufficient amount of capital to pay its expected debts. Undercapitalization is grounds to impose liability on the owners.

  4. Excessive Dividends or Other Payments to Owners: When owners are actually working for a corporation, they can usually pay themselves fair compensation, as long as it is clearly characterized as salary or wages. However, additional dividends and other non-compensation distributions can only be safely taken out by an owner to the extent the distributions reflect profits. If an owner takes non-compensation distributions exceeding profits, these distributions constitute a return of capital and can give rise to an undercapitalization claim by a corporate creditor. If such distributions are made when the corporation is insolvent, the creditors’ claims against the owner will be almost impossible to defend.

  5. Misrepresentation and other Unfair Dealings with Creditors: Deceptive practices such as dishonesty, false statements to corporate creditors, and asset concealment can make owners liable for corporate debts.

  6. Absence or Inaccuracy of Records: If corporate records are missing or inaccurate, this can form a basis to pierce the corporate veil, especially if they hinder a creditor’s collection efforts against the provider.

  7. Failure to Maintain Ongoing Legal Requirements: Each state’s statutes impose annual franchise fees and report-filing requirements on corporations and similar entities. These usually have grace periods and cure provisions, but if they are neglected long enough the corporation or LLC will legally cease to exist, resulting in owner liability.

II.  Case Example Where the Government Sought to Pierce the Corporate Veil of a Home Health Agency:

In United States v. Bridle Path Enterprises, Inc., a Massachusetts Federal district court held the owners of a home health agency personally liable for the provider’s Medicare overpayment debt. The provider, Bridle Path, made payments toward the overpayment until they sold all of their assets to another provider. At the time of the sale, $64,807.84 was outstanding on the overpayment liability. The United States sought to hold Bridle Path’s owners personally liable for the Medicare overpayment, using the piercing the corporate veil doctrine. Due to the number of checks Bridle Path wrote to its owners, their home health agency, and their real-estate holding company, the court found that the owners did not treat Bridle Path as a separate corporate entity and pierced the corporate veil to hold the owners liable for the Medicare debt.

 III.  Final Remarks:

If any of the factors above exist, CMS and its Medicare contractors can seek to pierce the corporate veil of a healthcare provider’s company and collect debts from the provider’s owners. These circumstances are not typical for health care providers and are easily avoided by maintaining personal owner dealings separate from all entity business.  Do your practice’s day-to-day operations expose you to unnecessary liability?  If your business was assessed a huge fine and forced into bankruptcy, are you 100% confident that you, as the owner, will be free of individual liability? If you have any questions about this or any other health law issue, call 1 (800) 475-1906 for a complimentary consultation.

Robert W. Liles is a health care attorney experienced in handling prepayment reviews and audits.The attorneys at Liles Parker, Attorneys & Counselors at Law represent health care suppliers and providers around the country. We specialize in regulatory compliance reviews, UPIC audits of Medicare and Medicaid claims, and the defense of proposed State Medical Board disciplinary actions. Need help?  Call Robert Liles for a free consultation:  1 (800) 475-1906.


[1] For a detailed discussion of the Unified Program Integrity Contractor (UPIC) audits and investigations currently being conducted, please see our page titled: “A UPIC Audit is Serious Business — Is Your Office Prepared?” 

CMS Expands ALJ Appeal Claim Settlement Process to Include Part A Providers

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SCF Process(April 4, 2016) In an effort to reduce the enormous backlog of pending Administrative Law Judge (ALJ) appeals, the Centers for Medicare and Medicaid Services (CMS) recently announced that it has expanded the pilot Settlement Conference Facilitation (SCF) process to include Part A claims. This process, which was previously only available to providers with pending Part B appeals, is conducted by the Office of Medicare Hearings and Appeals (OMHA). OMHA is responsible for adjudicating ALJ hearing requests and is organizationally separate from CMS.  The SCF is performed by an OMHA staff attorney, who will use mediation principles in an effort to help the provider and CMS reach a settlement agreement. Because the SCF process is still a pilot program, OMHA has announced several limitations on SCF eligibility:

  • The provider must have filed its ALJ hearing request on or before 12/31/15, and the request must meet all applicable requirements for a complete and timely ALJ appeal.
  • SCF must include all claims for the same or similar services for which the provider has filed an ALJ appeal.
  • The provider must have at least 50 claims at issue with a total amount in controversy of more than $20,000 but less than $100,000.
  • The claims must not currently be scheduled for an ALJ hearing.

To initiate SCF, a provider may submit an “Expression of Interest” form to OMHA, which will then perform a review of its system to ensure the provider meets eligibility requirements. Alternatively, OMHA may send notice to a provider that it is eligible for the SCF process. The provider and CMS then have 15 days to respond to the notification and agree to participate in the conference. If a settlement conference is conducted and the parties reach an agreement, the provider will be required to stipulate to the dismissal of its pending ALJ appeal(s) as to all claims subject to the settlement. Otherwise, both the provider and CMS may decline to participate in SCF or decline to accept any offer extended by the other party. If no agreement is reached, the provider’s claims will be returned to the hearing process for adjudication before an ALJ.

This expansion of the pilot SCF program appears to be aimed principally at high volume appellants, i.e. individual Medicare providers with dozens or hundreds of pending claim appeals. Aside from those types of providers, it is unclear how many appellants may avail themselves of the expanded SCF process due to the narrow eligibility criteria. For example, many Part A claims can be worth several thousand dollars each. Therefore, it would be difficult for a provider to meet the minimum 50-claim threshold while also not simultaneously exceeding the $100,000 amount in controversy ceiling.

If you believe that you may be eligible for this new SCF program, you should carefully consider whether to submit an Expression of Interest to OMHA. On the one hand, the financial strain resulting from non-payment of claims denied on a pre-payment basis or the recoupment of monies for claims denied upon post-payment review could make SCF an attractive option for you. This is particularly true if you are not inclined to wait 27 months for OMHA to process and decide your appeal. On the other hand, there could be some drawbacks to SCF. For example, OMHA has announced that, even if a settlement amount is agreed upon by the parties and payment is made for some claims, those claims will still be considered “denied” in Medicare’s claims processing systems. Furthermore, providers will not be able to selectively submit some claims to SCF while moving forward with ALJ hearing requests for others; SCF must include pending appeals for all claims for the same or similar services from a given provider.

If you have questions regarding the new SCF process, you should contact an experienced attorney to help weigh your options. In the event you elect to move forward in an effort to settle your pending claims, we strongly recommend that you retain counsel to represent you during that process in order to help reach a settlement that is as beneficial to you as possible.

SCF ProcessLiles Parker attorneys assist providers across the country with all matters related to claim appeals, reimbursement, enrollment, compliance, and corporate formation / transactions. If you have questions or concerns about a pending Medicare claim appeal, please contact Adam Bird for a free consultation.  He can be reached at:  1 (800) 475-1906.


Individual Liability for Medicare Overpayment Claims

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Medicare overpayments(February 24, 2015): Medicare recently finalized regulations allowing enrollment as a Medicare provider to be denied if any owner or control person of the enrolling provider is affiliated with another provider which owes money to Medicare. These regulations are based on sections of the 2010 Affordable Care Act (ACA). They provide CMS an indirect means to penalize individual owners for unpaid debts owed to Medicare by their provider companies, but are more narrowly written than the ACA requires, and are likely only a 1st step in implementing the screening required by the ACA. Additionally, owners of health care companies with Medicare overpayments also need to consider whether there is individual liability exposure for the company’s Medicare debt.

I.  Background on the Medicare overpayments Individual Liability Issue:

This article is an update of an earlier article on this website addressing individual liability for Medicare overpayment claims, originally published in April 2012. That article examined the liability that individual owners of provider companies can have for Medicare overpayment claims against their providers, and advised that although CMS and Medicare contractors have limited means to collect providers’ overpayment balances from their owners, they may in the future punish the owners indirectly by sanctioning other provider companies they own. Portions of the Workplan published by HHS’s Office of Inspector General in 2011 clearly pointed in that direction.

II.  Recent Development — Issuance of a New Final Rule:

The Secretary of Health, Education and Welfare published a Final Rule[2] amending Medicare Regulations at 42 CFR 405, 424 and 498 effective Feb 3, 2015. The Final Rule conformed closely to the Proposed Rule published April 29, 2013, despite substantial public comment. While this Final Rule included regulation changes on a number of Medicare topics, of interest here is the provision allowing CMS and its contractors to deny enrollment in Medicare programs to a provider if any owner previously owned another provider having unpaid debts owed to Medicare.

III.  Specific Provisions:

Medicare Regulations at 42 CFR 424.530(a)(6) have now been amended to allow CMS to deny a provider or supplier’s enrollment in the Medicare program if

(a)  The enrolling provider or supplier, or any of its owners was previously the owner, directly or indirectly, of another Medicare enrolled provider or supplier;

(b)   The other provider or supplier’s Medicare enrollment has been terminated or revoked;

(c)   The owner left the provider or supplier with the Medicare debt within 1 year before or after that provider or supplier’s enrollment termination or revocation;

(d)    The Medicare debt has not been fully repaid; and

(e)   CMS determines that the uncollected debt poses an undue risk of fraud, waste, or abuse. In making this determination, CMS considers the following factors:

(1) the amount of the Medicare debt;

(2) the length and timeframe that the enrolling provider or supplier or its owner was an owner of the prior entity;

(3) the percentage of the enrolling provider, supplier, or owner’s ownership of the prior entity;

(4) whether the Medicare debt is currently being appealed; and

(5) whether the enrolling provider, supplier, or owner thereof was an owner of the prior entity at the time the Medicare debt was incurred.

A denial of Medicare enrollment under this paragraph can be avoided if the enrolling provider, supplier or owner agrees to a CMS-approved extended repayment schedule for the unpaid debt, or repays it in full.

IV.  Narrowed Scope of New Regulation:

As discussed below, the statutory language authorizing the new regulation targets all owners of providers who are debtors to Medicare. The resulting regulation, however, contains a provision which limits it effect only to certain owners. This is the requirement that the authority to deny enrollment exits only if the owner left the provider or supplier with the Medicare debt within 1 year before or after that provider or supplier’s enrollment termination or revocation. In this context, the verb left means ceased to be an owner. So, if the owner in question divested himself of his ownership more than a year before the Medicare enforcement process terminates the overpaid provider’s enrollment, or keeps his ownership at least a year after termination of enrollment, both of which are plausible circumstances in an overpayment situation, the authority to deny enrollment will not apply. This requirement was not remarked on by the numerous commenters during the proposal period, or otherwise discussed in any CMS releases; and it is unobvious why it was included.

V.  Subjective Element in Regulation:

The 5th element required to authorize denial of enrollment, namely CMS determines that the uncollected debt poses an undue risk of fraud, waste, or abuse is clearly subjective. CMS’s comments in the Final Rule release explain that this is meant to allow enrollment to proceed if the debt or the ownership in the debtor provider are small, or if similar exonerating circumstances exist. These factors are listed in the regulation as subjects of CMS’s subjective consideration without being hard requirements, to allow CMS discretion in the matter. More notably, however, this text tracks the actual authorizing language of the Federal statute quoted below, which phrased the authority as a subjective determination.

VI.  Statutory Authority; Disclosure and Screening Requirements in Statute:

The authority to deny enrollment because of an affiliated provider’s debt to Medicare is part of Section 6401[3] of the Affordable Care Act[4], which requires Medicare providers and suppliers to disclose any current or previous affiliation (directly or indirectly) with those who owe money to Medicare. Specifically, it provides

(A) DISCLOSURE.—A provider of medical or other items or services or supplier who submits an application for enrollment or revalidation of enrollment …shall disclose (in a form and manner and at such time as determined by the Secretary) any current or previous affiliation (directly or indirectly) with a provider … or supplier that has uncollected debt, has been or is subject to a payment suspension under a Federal health care program, has been excluded from participation under [Medicare], the Medicaid program … , or the CHIP program under title XXI, or has had its billing privileges denied or revoked. [emphasis supplied]

Section 6401 authorizes denial of enrollment based on these disclosures with the following language:

(B) AUTHORITY TO DENY ENROLLMENT.—If the Secretary determines that such previous affiliation poses an undue risk of fraud, waste, or abuse, the Secretary may deny such application. Such a denial shall be subject to appeal in accordance with paragraph (7).

In addition to requiring disclosure of affiliated providers with debts to Medicare, Section 6401 also requires Medicare to conduct certain screening of providers and suppliers. The statute does not state what providers and suppliers must be screened for, but merely gives examples. It requires that

Such screening—

(i) shall include a licensure check, which may include such checks across States; and

(ii) may, as the Secretary determines appropriate based on the risk of fraud, waste, and abuse described in the preceding sentence, include—

(a) a criminal background check;

(b) fingerprinting;

(c) unscheduled and unannounced site visits, including pre-enrollment site visits;

(d) database checks (including such checks across States); and

(e) such other screening as the Secretary determines appropriate[5].

Other parts of Section 6401(a)(3) make clear that the screening is to apply to enrolling providers, previously enrolled providers, and during any periodic revalidation of enrollment.

VII.  Affiliated Debt Disclosure via Form 855:

The CMS Final Order release mentions that CMS Form 855 is the form affected by this regulation. This is the multi-use form required to be filed by providers for initial enrollment, to report changes of certain organization information including ownership, to request CMS approval of any change of ownership, to re-validate enrollment or terminate it. Form 855 is the obvious place to require the disclosure mandated by ACA Sec. 6401. As of this writing (February 20, 2015) Form 855 contains no questions about debts owned by other providers and suppliers under common ownership with the signer of the form. Very probably such a question will be added, but even without it CMS could probably rely on its own ability to “connect the dots” between information already called for in this form, and data it has on providers and suppliers which owe it money, to learn of any debts owed by affiliates.

In this regard, the existing language of Form 855 requires that all direct and indirect owners of each provider and supplier be identified by name and Taxpayer Identification Number, or (as applicable) Social Security Number. If the owners are enrolled in Medicare themselves, their NPI and enrollment numbers are required. With this information in CMS’s hands from the enrolling provider or supplier, it must be a simple matter to conduct database searches comparing it with the identifiers of providers and suppliers owing money to Medicare, to determine if any of the enroller’s affiliates are among these debtors. If a connection is established this way, the enrollment denial rules in the regulation could then be applied to deny the enrollment.

VIII.  Practical Application of New Regulation:

As of this writing, there is no public report of any application of the new provisions of 42 CFR §424 to an actual provider enrollment situation, so no one knows how strictly it will be enforced once a debt to Medicare owed by an affiliate of an enrolling provider is identified. Particularly, it is not known how the factors in the subjective 5th element of the new provision will be interpreted, for example, what dollar amounts of affiliate debt, or what ownership percentages in the debtor, will be judged too small to “pose an undue risk of fraud, waste and abuse.” It will also be instructive to learn if such judgments will be made by enrollment contractors or an organ of CMS.

IX.  Future Enforcement Against Owners of Debtors to Medicare:

What is clear is that this new regulation and authority is not the final step in CMS efforts to sanction owners and affiliates of medicare overpayment debtors. Considering the portions of ACA Section 6401 requiring screening of existing as well as enrolling Medicare providers and suppliers, it is likely that future regulations will authorize revocation of enrollment of existing providers and suppliers under common ownership with such debtors. The database searches mentioned above could be conducted on the owner identification information CMS already maintains on its current enrollees, comparing it to the identifiers of providers and suppliers owing Medicare money, to terminate their enrollment when a connection is found, and thus extend Medicare’s efforts to punish owners of debtors to its program. We note that the current-year Work Plan published by CMS’s Office of Inspector General provides, under a section captioned “Provider Eligibility”:

We will determine the extent to which and they way in which CMS and its contractors have implemented enhanced screening procedures for Medicare providers pursuant to the ACA, § 6401[6].

This new regulation, and the clear announcements by CMS officials, suggest that efforts by the agency and its contractors to reach beyond its debtor companies, and sanction their owners and affiliates, will continue.

David Parker Healthcare AttorneyDavid Parker practices in the business transaction and healthcare areas. In the health law area, Mr. Parker represents providers in Medicare, Medicaid, and private payor administrative proceedings involving Medicare Overpayment, revocation and other audit matters, and buyers and sellers in healthcare related transactions. He also gives advice on False Claims Act, Stark, and Anti-Kickback Statute issues.  For a free consultation, call:  1 (800) 475-1906.

[1]. David Parker is a founder and managing member of Liles Parker PLLC, a health care law firm in Washington D.C. Mr. Parker was formerly a partner at Dickstein Shapiro in Washington, DC, and before that the in-house general counsel of Allied Capital, a publicly-traded group of companies in Washington.

[2]. The Final Rule was published Dec 5, 2014 in Vol. 79, No. 234 of the Federal Register at page 72500.

[3]. Now codified at 42 USC §1395cc(j).

[4]. Public Law 111-148 enacted March 23, 2010. It may be noted that the provision of law under discussion was enacted 2 years before this writer’s article predicting it, but like much of that statute, was completely unknown to the writer or the public at the time.

[5]. ACA §6401(a)(3).

[6]. HHS OIG Work Plan, FY 2015, Medicare Program section, pg. 22.

Dental Fraud Investigation Results in $5.05 Million Recovery

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Dental Fraud Investigations are Increasing Around the Country.

 (November 10, 2014):  Has your dental practice been the subject of a dental fraud investigation?  Medicaid dental audits are becoming increasingly prevalent throughout the United States.  An Oklahoma-based dental practice has recently agreed to pay $5.05 million in civil claims stemming from allegations that the practice committed Medicaid dental fraud, submitting false claims to Medicaid from January 2005 through September 2010. The Oklahoma practice provides dental care to Medicaid-eligible children through multiple clinics located in a number of states. Each dentist draft visit notes that outlines the services performed on each individual patient. The practice then submits claims for reimbursement to the Oklahoma Health Care Authority (OHCA) based on dentists’ documentation. After OHCA reimburses the practice for those claims, the dentists are then reimbursed a certain percentage.

I.  Dental Practice Submits Claims For Work Never Performed or Coded at Higher Levels:

According to a practice spokesperson, the allegations arose with respect to a dentist who last worked at a dental office in September 2010. Specifically, this dentist has been accused of submitting treatments notes for services that were never performed, which is a clear example of Medicaid dental fraud.  Notably, this individual has already been sentenced to 18 months in Federal prison for fraud in a separate matter. She was released earlier this year but must still pay more than $375,000 in restitution.

II.  Effect of the Dental Fraud Settlement Agreement:

This settlement agreement resolves allegations that the dental practice violated the Federal and State False Claims Acts by submitting false Medicaid claims for dental restorations that were never performed or were billed at a higher rate than allowed. The agreement also releases the practice and its owner from any civil liability in the underlying case. Nevertheless, the practice must still adhere to additional record-keeping, reporting, and compliance requirements.

Settlement agreements such as this have become a useful tool in False Claims Act cases. They allow the government and individual parties to avoid the expense and uncertainty involved in actually litigating a case. Moreover, as seen in this case, prosecuting authorities do not generally make any concessions about the legitimacy of the alleged Medicaid dental fraud.

III.  Conclusion:

Identifying and combating fraud in both the federal Medicare and joint State/Federal Medicaid program has been a high priority for government health care enforcement agencies. Effective enforcement measures help ensure that instance Medicare and Medicaid dental fraud are identified, ensuring that the dollars are provided to care for individuals who truly need assistance.

We continually strive to protect government programs, such as Medicaid, from fraud and abuse by ensuring they are used properly and only by those who are in need and are eligible,” U.S. Attorney Sanford C. Coats said. “This case is a good example of the value of coordination between state and federal law enforcement, as well as the coordinated use of parallel proceedings, to achieve a successful civil and criminal resolution.”

Dental practices can help avoid allegations of fraud, waste, and abuse through the development, implementation and adherence to an effective compliance program. A compliance program can go a long way towards enabling a dental practice to identify potential improper or fraudulent practices before they occur. It is a strategic and vital tool that will assist you in following recognized best practices in the dental industry. Have you implemented a compliance program for your dental practice? If not, you may be placing your organization at significant risk. Give us a call today at and we would be more than happy to assist you in developing an effective compliance program for your dental practice.

Saltaformaggio, RobertRobert Saltaformaggio, Esq., serves as an Associate at Liles Parker, Attorneys & Counselors at Law.  Liles Parker attorneys represent health care providers around the country in connection with Medicare, Medicaid and private payor audits.  The firm also represents health care providers in connection with HIPAA Omnibus Rule risk assessments, privacy breach matters, State Licensure Board inquiries and regulatory compliance reviews.  For a free consultation, call Robert at:  1 (800) 475-1906