Physician Grand Larceny and Insurance Fraud Defense in California: Penal Code § 487 / Penal Code § 550

California prosecutors do not approach physician billing fraud investigations as isolated administrative matters.

When the numbers are large enough or the alleged conduct is sufficiently systematic, they resort to the same statutes used against career criminals: Penal Code § 487 for grand theft and Penal Code § 550 for submitting fraudulent insurance claims.

For a physician, dentist, or clinic operator facing both counts simultaneously, the sentencing exposure climbs fast, and the professional consequences begin before a verdict is ever reached.

Understanding how prosecutors construct these cases, and where the evidence is most vulnerable, is the starting point for any effective defense.

Eisner Gorin LLP is available to assist you. To schedule a consultation, call (818) 781-1570 or fill out our contact form.

What Do Penal Code § 487 and § 550 Each Require?

California Penal Code 487 defines grand theft and applies when money, labor, real property, or personal property is taken and is worth more than $950.

Grand theft is a wobbler, meaning prosecutors can file it as either a misdemeanor or a felony, and the consequences range from county jail time to years of incarceration and lasting damage to career, immigration status, and civil rights.

In the healthcare billing context, prosecutors apply § 487 by treating the total amount of allegedly fraudulent reimbursements as stolen property.

Even outside the employee context, prosecutors can combine smaller thefts into a single grand theft charge, preventing a defendant from escaping liability by pointing to individual low-value transactions.

A series of inflated claims, each modest on its own, becomes a single felony grand theft count when aggregated across a billing period.

Penal Code § 550 operates on parallel tracks. The statute makes it unlawful to:

Knowingly present or cause to be presented any false or fraudulent claim for the payment of a loss or injury under a contract of insurance,
To present multiple claims for the same loss with intent to defraud, or
To prepare any document in support of a false claim.

When the claim amount exceeds $950, the offense is a wobbler:

Prosecutors can charge it as a felony, carrying two, three, or five years in prison, and
A fine of up to $50,000 or double the fraud amount, whichever is greater.
When the claim is $950 or less, the offense is a misdemeanor; but if the total of multiple small claims exceeds $950 within 12 consecutive months, charges can be stacked and prosecuted as a felony.

Why Do Prosecutors Stack These Two Charges?

The tactical logic behind charging § 487 and § 550 together is straightforward.

Each statute captures a slightly different dimension of the same alleged conduct, giving the prosecution two independent theories to present to a jury.

Insurance carriers frequently refer billing disputes to prosecutors, turning what used to be civil or administrative matters into criminal cases.

Many physicians are shocked to learn that routine billing practices, including aggressive coding or high-volume procedures, can lead to PC 550 charges.

When § 487 is added, the case shifts from a fraud narrative to a theft narrative. Jurors who might extend charitable interpretation to billing complexity often respond differently to the word "theft."

The prosecution also gains access to the § 12022.6 sentencing enhancements that attach to grand theft when the dollar amount crosses specific thresholds.

These enhancements are consecutive, stacking onto whatever sentence the court imposes for the underlying grand theft.

Once a case exceeds $3,000,000, the enhancement adds 4 additional years, plus 1 additional year for every additional $3,000,000. In high-volume practice billing investigations, those figures are not hypothetical.

The collateral consequences also multiply, such as:

A PC 550 conviction triggers automatic referral to the Medical Board of California and
A Section 805 report, adverse action reporting to the National Practitioner Data Bank, loss or restriction of hospital privileges, and
Civil penalties under Insurance Code § 1871.7 that can exceed $150,000.
A simultaneous § 487 conviction adds grand theft to a physician's criminal record, which is a crime of moral turpitude with immigration consequences and independent grounds for professional license revocation.

What Must Prosecutors Actually Prove?

Intent is the governing element in both statutes, and it is the element most often genuinely contested in physician billing fraud cases. To convict someone of health care fraud under PC 550, prosecutors must prove beyond a reasonable doubt that:

The defendant knew the claim was false or fraudulent and
Specifically intended to deceive the insurer or program.

Intent is the most critical element. If the prosecution cannot prove criminal intent rather than negligence or mistake, the case may fail.

The same intent requirement governs § 487. All theft crimes, including grand theft, require a person to harbor the specific intent to steal.

The defendant must have intended to deprive the owner permanently or for an extended period.

A physician who believed their billing accurately reflected the services provided cannot be convicted of theft, regardless of whether the billing later turns out to have been incorrect.

Submitting a claim that turns out to be wrong is not, by itself, a crime. An accidental error on a complicated medical billing form is not insurance fraud.

The prosecution has to show the defendant deliberately lied, not just that the claim was inaccurate.

Prosecutors build intent circumstantially, through patterns of similar claims, inconsistent statements, record destruction, or evidence that the claimed procedures never occurred. The defense methodically challenges every link in that chain.

Related California Laws

California Penal Code § 550 – Insurance Fraud

Penal Code § 550 criminalizes knowingly submitting, preparing, or supporting false or fraudulent insurance claims. Physicians who face accusations of improper billing are often charged under this statute when prosecutors claim that claims sent to private insurers, Medi-Cal, or other payors were deliberately false.

California Penal Code § 487 – Grand Theft

Penal Code § 487 is invoked when prosecutors claim a physician illegally gained over $950 via fraudulent billing or reimbursements. In healthcare fraud cases, prosecutors frequently combine multiple claims to justify felony grand theft charges.

California Insurance Code § 1871.7 – Civil Insurance Fraud Penalties

This law allows the government and insurance companies to impose large civil fines on individuals accused of insurance fraud. Physicians might also incur substantial financial risks beyond criminal charges, including penalties that surpass the amount claimed.

California Business and Professions Code § 2234 – Unprofessional Conduct by Physicians

Business and Professions Code § 2234 empowers the Medical Board of California to take disciplinary action against physicians for unprofessional conduct, such as criminal convictions related to fraud, dishonesty, or moral turpitude. Penalties can include suspending or revoking a license.

California Penal Code § 532 – Theft by False Pretenses

Penal Code § 532 forbids acquiring money or property through false claims or deception. Prosecutors often invoke this law in healthcare fraud cases where providers are accused of deliberately misstating services, diagnoses, or treatments to secure insurance payouts.

Why These Related Laws Matter

Physician billing fraud investigations rarely involve a single criminal allegation.

What starts as an investigation under Penal Code § 550 can quickly escalate to allegations of grand theft under Penal Code § 487, civil fraud penalties, Medical Board disciplinary actions, and other related fraud offenses.

Since these cases often entail concurrent criminal, administrative, and civil liabilities, physicians should consult qualified legal experts promptly.

Frequently Asked Questions (FAQs)

Can a physician be charged with insurance fraud for billing mistakes?

Not necessarily. Billing errors, coding mistakes, and documentation deficiencies do not automatically amount to criminal fraud. To secure a conviction under Penal Code § 550, prosecutors must demonstrate that the physician knowingly submitted false claims with the intent to defraud an insurance company or healthcare program.

What is the difference between Penal Code § 487 and Penal Code § 550?

Penal Code § 487 concerns grand theft and is invoked when it is alleged that a physician illegally obtained over $950 via fraudulent reimbursements. Penal Code § 550 focuses on insurance fraud, specifically false or fraudulent claims made to insurers. In healthcare fraud cases, prosecutors often charge both statutes simultaneously.

Can I lose my medical license if I am convicted of insurance fraud?

Yes. A conviction for insurance fraud or grand theft can lead to disciplinary action by the California Medical Board. Possible outcomes include suspension or revocation of the license, probation, restrictions on hospital privileges, reporting to the National Practitioner Data Bank, and exclusion from government healthcare programs.

How do prosecutors prove medical billing fraud?

Prosecutors usually depend on billing records, patient charts, insurance claims, emails, audit results, witness testimonies, and expert evaluations of coding practices. They often try to identify a pattern of supposed fraudulent billing to suggest that the conduct was deliberate, not accidental.

What should I do if I learn I am under investigation for physician billing fraud?

You should consult an experienced healthcare fraud defense attorney without delay. Acting early can safeguard your rights, preserve crucial evidence, handle interactions with investigators, and potentially dissuade prosecutors from pursuing criminal charges. Physicians must refrain from engaging with investigators, insurers, or licensing authorities unless accompanied by legal counsel.

Defense Strategies That Systematically Dismantle the Government's Case

Attacking the Valuation Underlying Both Charges

Grand theft requires that the property taken exceed $950 in fair market value. Insurance fraud penalties scale with the amount of the fraudulent claims.

If the prosecution cannot prove the value reached $950, charges may be reduced to petty theft. In healthcare billing cases, "value" is contested territory.

What the provider billed, what the insurer paid, what the service was worth, and what a compliant billing submission would have yielded are four different numbers.

A defense-retained medical billing expert can challenge the government's loss calculation at every point, often reducing the dollar figure that anchors both the charge and the enhancement.

Separating Billing Errors from Knowing Fraud

Doctors and clinics often make honest mistakes due to extensive paperwork and confusion. You cannot be convicted of health care fraud unless the prosecutor can prove you knew the claim you were submitting was fraudulent or a duplicate claim.

It must also be proven that you intended to defraud the insurance company or program.

The defense examines the billing infrastructure: who prepared the claims, what training staff received, what documentation supported each code, and whether discrepancies are consistent with error rather than a scheme.

When a billing company or staff member generates submissions without physician review or approval, the intent element faces a harder road.

Suppressing Evidence Gathered Improperly

Grand theft cases often involve financial records, digital evidence, and cooperating witnesses. Evidence obtained in violation of the Fourth Amendment may be suppressed.

Insurance fraud investigations typically involve subpoenas for patient records, billing data, and financial accounts.

When those subpoenas exceeded their authorized scope, or when investigators gathered materials through unlawful means, suppression motions became a primary defense tool that can hollow out the government's evidentiary case before trial begins.

Seeking Prefiling Resolution

The period between investigation and formal charging is not passive waiting time. In some cases, defense counsel may persuade the District Attorney to resolve the matter short of criminal charges.

Presenting the billing context, the absence of fraudulent intent, and a documented record of good-faith compliance practice can change a prosecutor's calculation about whether the evidence supports the intent element necessary for conviction.

Stacked Charges Reduced Through Billing Expert Analysis

A Southern California orthopedic surgeon was referred to the District Attorney's office by a major commercial insurer following an internal audit that identified a pattern of procedure codes billed at higher complexity levels than the insurer's review team deemed appropriate.

The DA filed counts under both PC 487 and PC 550, alleging $380,000 in fraudulent reimbursements over a three-year billing period.

Defense counsel retained an independent orthopedic billing specialist who conducted a procedure-by-procedure review of the flagged claims.

The expert found that 71 percent of the disputed codes were within the acceptable documentation range, based on the complexity of the underlying cases and the operative notes in each file.

The remaining 29 percent reflected a documentation gap: the surgeon's notes were sufficient to support the procedures performed, but did not capture all elements required to justify the higher code in the insurer's internal guidelines.

Counsel presented the expert analysis to the DA before the preliminary hearing, alongside evidence that the surgeon had used a third-party billing company whose coders applied the elevated codes based on their own review of the operative reports, without the surgeon's input on individual claims.

The DA agreed to dismiss the PC 487 count entirely and reduce the PC 550 count to a single misdemeanor based on the insufficiency of the intent evidence.

The Medical Board investigation that had run concurrently was also closed without discipline, in part because no criminal felony conviction had resulted.

For help, contact Eisner Gorin LLP to schedule a free consultation today.

Physician Billing Fraud