In 2002 and 2003 it emerged that the
United States Attorney for the Western District of Kentucky was investigating Henry for fraudulent Medicare and Medicaid billings while he taught at the
University of Louisville Medical School from 1996 through 2001. Then U.S. Attorney
Steve Pence (R) had previously stated that he would not seek an indictment in regards to a criminal case. The federal government pursued a civil case to attempt repayment. Henry counter sued claiming that the University of Louisville employees had verified his presence at the procedures before he had signed the papers. In 2003, Henry settled the federal lawsuit by paying the federal government $162,000. A 2006 editorial by the state's largest newspaper,
The Courier-Journal of Louisville, questioned Henry's past record of billing errors. In 2000 and 2001 Steve Henry repaid the state for numerous improper charges. He blamed a
Kentucky State Police trooper for his hotel stay during a beauty pageant in
Atlantic City, New Jersey, being charged to a state credit card. Henry was a delegate to the
Democratic National Convention in 2000; Henry ended up repaying $4,327 to the state for personal expenses of his that were charged to the state for him and his wife. Later, he repaid the state $491 for personal telephone calls he made from his state office. Henry also repaid the state $1,804 for almost 1,000 photos and video tapes made of him over a nine-month period, including his wedding, that were made by state employees. He also repaid the state $1,800 for press packets for his wedding that were made by state employees at taxpayer expense. Henry also charged a four night stay during two beauty pageants in a
Lexington, Kentucky, hotel – just 30 miles from the lieutenant governor's mansion – to the state. Henry also repaid the state $1,800 for services related to his wedding rendered to him by state employees. In September 2003, Henry paid the federal government $162,000 to settle allegations that he defrauded Medicare and Medicaid over a period of more than four years while he was a teaching physician at University Hospital. Subsequent to that case, Henry continued to claim that he had made a pledge to donate $100,000 to his alma mater, Western Kentucky University, without explaining that he had withdrawn the pledge and had paid less than $5,900 toward the $100,000 he had pledged. ==Campaign finance problems==