[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
HEALTH CARE WASTE, FRAUD, AND ABUSE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
OCTOBER 9, 1997
__________
Serial 105-33
__________
Printed for the use of the Committee on Ways and Means
----------
U.S. GOVERNMENT PRINTING OFFICE
46-633 cc WASHINGTON : 1998
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Health
BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
JOHN ENSIGN, Nevada GERALD D. KLECZKA, Wisconsin
JON CHRISTENSEN, Nebraska JOHN LEWIS, Georgia
PHILIP M. CRANE, Illinois XAVIER BECERRA, California
AMO HOUGHTON, New York
SAM JOHNSON, Texas
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisories announcing the hearing................................ 2
WITNESSES
U.S. Department of Health and Human Services, Michael F. Mangano,
Principal Deputy Inspector General............................. 55
Health Care Financing Administration, Linda A. Ruiz, Director,
Program Integrity Group, Office of Financial Management........ 64
Federal Bureau of Investigation, Charles L. ``Chuck'' Owens,
Chief, Financial Crimes Section................................ 76
U.S. General Accounting Office, William J. Scanlon, Director,
Health Financing and Systems Issues, Health, Education, and
Human Services Division........................................ 84
______
American Association of Retired Persons, Esther ``Tess'' Canja... 15
SUBMISSIONS FOR THE RECORD
Accent Insurance Recovery Solutions, Omaha, NE, Douglas R.
Wilwerding, statement.......................................... 113
American College for Advancement in Medicine, Laguna Hills, CA,
Dr. L. Terry Chappell, letter.................................. 114
American Hospital Association, statement......................... 115
American Preventive Medical Association, Great Falls, VA,
statement...................................................... 118
Citizens Against Government Waste, statement..................... 121
HEALTH CARE WASTE, FRAUD, AND ABUSE
----------
THURSDAY, OCTOBER 9, 1997
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in
room 1100, Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Subcommittee) presiding.
[The advisories announcing the hearing follow:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
April 29, 1997
No. HL-13
Thomas Announces Hearing on
Health Care Waste, Fraud, and Abuse
Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of
the Committee on Ways and Means, today announced that the Subcommittee
will hold a hearing on waste, fraud, and abuse in the health care
system. The hearing will take place on Tuesday, May 6, 1997, in the
main Committee hearing room, 1100 Longworth House Office Building,
beginning at 10:00 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
Health care fraud accounts for a significant percentage of
national health care costs, by as much as 10 percent, according to GAO.
To fight fraud and abuse, the Congress included landmark reforms in the
Health Insurance Portability and Accountability Act of 1996 (HIPAA)
(P.L. 104-191) . HIPAA establishes and provides funding for the Health
Care Fraud and Abuse Control Program, under the direction of the
Attorney General and the Secretary of Health and Human Services (HHS).
The program combats fraud and abuse committed against both public and
private health plans by coordinating law enforcement efforts among
Federal, State, and local officials. In addition, HIPAA creates new
health care crimes for criminal conduct involving health care programs
and significantly increases penalties for health care fraud and abuse.
At the same time, HIPAA attempts to recognize significant changes
in the marketplace and address some of the confusion in the application
of current fraud statutes. This is done by: (1) providing an exception
to the anti-kickback provisions for arrangements in which providers
assume significant financial risk for their treatment decisions, (2)
requiring HHS to issue binding advisory opinions regarding specific
proposals, and (3) requiring HHS to develop additional broadly
applicable safe harbors and modifications to existing safe harbors.
The Administration has proposed in its budget to fight fraud and
abuse through a number of proposed revisions in the Medicare program.
This includes instituting consolidated billing for nursing homes,
eliminating periodic interim payments for home health providers,
requiring that non-physician practitioners provide diagnostic
information on all claims, and increasing the number of laboratory
tests paid on an automated basis.
In March, President Clinton announced a supplemental package of
additional waste, fraud, and abuse reforms. This proposal includes new
requirements for individuals and companies that wish to participate in
Medicare and Medicaid, technical modifications to HIPAA, and some
increased sanctions.
In announcing the hearing, Chairman Thomas stated: ``Nothing is
more important to the integrity of Medicare than combating fraud. I
look forward to working with the Administration and others who wish to
build on the significant progress we made during the 104th Congress in
passing the landmark anti-fraud and abuse initiatives in the Health
Insurance Portability and Accountability Act.''
FOCUS OF THE HEARING:
The hearing will focus on the implementation of HIPAA, President
Clinton's Medicare waste, fraud, and abuse proposals, and additional
recommendations for combating waste, fraud, and abuse in the health
care system.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit at least six (6)
copies of their statement and a 3.5-inch diskette in WordPerfect or
ASCII format, with their address and date of hearing noted, by the
close of business, Tuesday, May 20, 1997 to A.L. Singleton, Chief of
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515. If those
filing written statements wish to have their statements distributed to
the press and interested public at the hearing, they may deliver 200
additional copies for this purpose to the Subcommittee on Health
office, room 1136 Longworth House Office Building, at least one hour
before the hearing begins.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be typed in single space on legal-size paper and may not exceed a total
of 10 pages including attachments. At the same time written statements
are submitted to the Committee, witnesses are now requested to submit
their statements on a 3.5-inch diskette in WordPerfect or ASCII format.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, full address, a telephone number where the witness or the
designated representative may be reached and a topical outline or
summary of the comments and recommendations in the full statement. This
supplemental sheet will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
NOTICE--HEARING POSTPONEMENT
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
May 2, 1997
No. HL-13-Revised
Postponement of Subcommittee Hearing on
Health Care Waste, Fraud, and Abuse
Tuesday, May 6, 1997
Congressman Bill Thomas, (R-CA), Chairman of the Subcommittee on
Health of the Committee on Ways and Means, today announced that the
Subcommittee hearing on the health care waste, fraud, and abuse,
previously scheduled for Tuesday, May 6, 1997, at 10:00 a.m., in the
main Committee hearing room, 1100 Longworth House Office Building, has
been postponed and will be rescheduled at a later date.
(See Subcommittee press release No. HL-13, dated April 29, 1997.)
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
September 16, 1997
No. HL-16
Thomas Announces Hearing on
Health Care Waste, Fraud, and Abuse
Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of
the Committee on Ways and Means, today announced that the Subcommittee
will hold a hearing on the waste, fraud, and abuse in the U.S. health
care system. The hearing will take place on Tuesday, September 30,
1997, in the main Committee hearing room, 1100 Longworth House Office
Building, beginning at 10:00 a.m.
In view of the limited avaiable to hear witnesses, oral testimony
at this hearing will be from invited witnesses only. However, any
individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
There has been considerable attention focused during the past
several years on the problem of waste, fraud, and abuse in the Medicare
program and in the U.S. health care system generally. The U.S. General
Accounting Office has estimated that waste, fraud, and abuse account
for up to 10 percent of Medicare costs, and the Inspector General of
the Department of Health and Human Services (HHS) announced at a recent
Subcommittee hearing that the Medicare program made improper payments
totaling $23 billion in fiscal year 1996.
In the past two years, Congress has passed significant legislation
designed to address these growing concerns about waste, fraud, and
abuse. The health Insurance Portability and Accountability Act of 1996
(HIPAA) (P.L. 104-191) established and provided funding for the Health
Care Fraud and Abuse Control Program, under the direction of the
Attorney General and the Secretary of HHS. The program is designed to
combat fraud and abuse committed against both public and private health
plans by coordinating law enforcement efforts among Federal, State, and
local officials. In addition, HIPAA created new health care crimes for
criminal conduct involving health care programs and significantly
increased penalties for health care fraud and abuse.
The Balanced Budget Act of 1997 (BBA) (P.L. 105-33) significantly
expands upon HIPPA's anti-fraud and abuse measures. Among other
reforms, the BBA: (1) requires that providers convicted of three
program-related offenses be excluded permanently from Medicare and
other Federal health programs, (2) provides new civil monetary
penalties for violations of the anti-kickback statute, (3) requires
home health agencies, durable medical equipment suppliers, and other
providers to post a surety bond of at least $50,000 in order to provide
items and services to Medicare beneficiaries, (4) requires the
Inspector General to establish a toll-free hotline for Medicare
beneficiaries to report fraud and billing irregularities, (5) requires
hospitals to disclose to beneficiaries requiring post-acute care any
provider in which the hospital has a financial interest, and (6)
provides the Secretary with new authority to reduce or increase
Medicare reimbursement where the current payment amount is ``grossly
excessive or grossly deficient and not inherently reasonable.'' In
addition, the BBA modernized Medicare by establishing prospective
payment systems designed to minimize opportunities for fraud and abuse.
In announcing the hearing, Chairman Thomas states: ``Congress must
assure Medicare beneficiaries and the taxpayers that Medicare is not
frittering away precious program dollars on waste, fraud, and abuse. To
meet our obligations, we passed landmark anti-fraud and abuse
legislation in both the 104th and 105th Congress. Now, we must ensure
that these reforms are implemented and that the Health Care Financing
Administration makes combating fraud and abuse its top priority.''
FOCUS OF THE HEARING:
The hearing will assess implementation of the BBA and HIPPA
initiatives aimed at combating waste, fraud, and abuse in the health
care system. It also will identify those areas of the Medicare program
where waste, fraud, and abuse challenges still lie ahead.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit at least six (6)
single-space legal-size copies of their statement, along with an IBM
compatible 3.5-inch diskette in ASCII DOS Text format only, with their
name, address, and hearing date noted on a label, by the close of
business, Thursday, July 31, 1997, to A.L. Singleton, Chief of Staff,
Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515. If those
filing written statements wish to have their statements distributed to
the press and interested public at the hearing, they may deliver 200
additional copies for this purpose to the Subcommittee on Health
office, room 1136 Longworth House Office Building, at least one hour
before the hearing begins.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be typed in single space on legal-size paper and may not exceed a total
of 10 pages including attachments. At the same time written statements
are submitted to the Committee, witnesses are now requested to submit
their statements on an IBM compatible 3.5-inch diskette in ASCII DOS
Text format.
2. Copies of whole documents submitted as exhibit material will
not be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, full address, a telephone number where the witness or the
designated representative may be reached and a topical outline or
summary of the comments and recommendations in the full statement. This
supplemental sheet will not be included in the printed record.
The above restrictions and limitations apply only to material
being submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at ``http://www.house.gov/ways__means/''.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
NOTICE--CHANGE IN DATE
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
September 25, 1997
No. HL-16-Revised
Change in Date for Subcommittee Hearing
on Health Care Waste, Fraud, and Abuse
Tuesday, September 30, 1997
Congressman Bill Thomas, (R-CA), Chairman of the Subcommittee on
Health of the Committee on Ways and Means, today announced that the
Subcommittee hearing on health care waste, fraud, and abuse, previously
scheduled for Tuesday, September 30, 1997, at 10:00 a.m., in the main
Committee hearing room, 1100 Longworth House Office Building, will now
be held on Thursday, October 9, 1997.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit at least six (6)
single-space legal-size copies of their statement, along with an IBM
compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect 5.1
format only, with their name, address and hearing date noted on a
label, by the close of business, Thursday, October 23, 1997, to A.L.
Singleton, Chief of Staff, Committee on Ways and Means, U.S. House of
Representatives, 1102 Longworth House Office Building, Washington, DC
20515. If those filing written statements wish to have their statements
distributed to the press and interested public at the hearing, they may
deliver 200 additional copies for this purpose to the Subcommittee on
Health office, room 1136 Longworth House Office Building, at least one
hour before the hearing begins.
All other details for the hearing remain the same. (See
Subcommittee press release No. HL-16, dated September 16, 1997.)
Chairman Thomas [presiding]. The Subcommittee will come to
order. I want to welcome you to today's hearing on waste,
fraud, and abuse in our Nation's health care system.
Unfortunately, waste, fraud, and abuse is pervasive in the
system. The General Accounting Office estimates that waste,
fraud, and abuse account for up to 10 percent of Medicare
costs, and the Inspector General of the Department of Health
and Human Services announced at a recent hearing of the Health
Subcommittee that the Medicare Program made improper payments,
perhaps totaling $23 billion in fiscal year 1996 alone.
It's important to point out that these problems have
existed for a long time and they've been exacerbated by the
escalating Medicare costs. The General Accounting Office and
Office of Inspector General have highlighted weaknesses that
made the Medicare system vulnerable to waste, fraud, and abuse
as early as 1986. Nevertheless, these reports were largely
ignored, with some exceptions, for over a decade until the
Health Insurance Portability and Accountability Act of 1996 and
the Balanced Budget Act of 1997, when Medicare had tripled in
outlays from $71 billion to nearly $200 billion.
The new Congress, in a bipartisan fashion, has responded
forcefully by enacting legislation containing 65 concrete steps
to stamp out waste, fraud, and abuse. In the past 2 years, the
Congress has passed significant legislation developed by the
Committee on Ways and Means, and other Committees of
jurisdiction, to address these growing concerns about waste,
fraud, and abuse in the Medicare Program and the health care
system generally.
In HIPAA, Congress dedicated over $5 billion for law
enforcement through fiscal year 2003; it increased civil
penalties fivefold for providers who commit health care fraud,
added new criminal penalties for false statements, theft,
embezzlement, obstruction of justice, and money laundering, and
established new programs to coordinate antifraud efforts among
State, local, and Federal officials, the private sector, and
Medicare beneficiaries.
The recently enacted Balanced Budget Act expands on the
progress made under HIPAA. In addition to other reforms, the
BBA requires the Secretary to kick providers out of the
Medicare Program if they are convicted of three health care
infractions--the so-called three strikes and you're out
provision--and in the case of serious crimes, you only get one
strike. We also required the Inspector General to establish a
new toll-free hotline and put this number on every Medicare
bill, so that Medicare beneficiaries can directly report fraud
and billing irregularities. We'll hear from a witness today who
thinks that's a valuable improvement.
Together, these reforms have increased the number of
Federal fraud investigators on the streets by 31 percent over
the last 2 years. You can see the chart over on the left. I
would tell my colleagues the blue is OIG, the green is FBI, but
in just 2 years we've put almost one-third more investigators
on the streets. We will never ever be able to have enough
investigators without the fundamental reforms in the structure
that we've done as well.
Despite our efforts, there are still examples of blatant
waste, fraud, and abuse in the system. The American people
today still believe, by better than 90 percent, that health
care fraud is widespread, and I couldn't disagree with them.
Just a couple of examples of how outrageous some of these
abuses are:
It is tragic that we have the photo of this woman who
suffers from extreme arthritis and who, through the effort of a
durable medical equipment supplier, received an orthotic body
jacket; the woman is 5 feet tall, weighs 86 pounds. This
orthotic jacket is designed the body, back and front, very
rigidly. This particular model was for a male, well over 6 feet
tall and more than 180 pounds.
She was recruited at an adult recreation center and
supplied with this jacket. Medicare was billed more than $2,000
for this particular item, and the durable medical supplier
under her name billed for an additional $6,000 of equipment the
beneficiary never received. Incidentally, the beneficiary
didn't know how to use the body jacket, didn't think it was
appropriate, and didn't know to whom to return it, and so she
eventually turned it over to the Inspector General. The case
against that particular DME supplier is currently pending.
Let me give you another example. Take a look at this store
in Van Nuys, California. It says ``pawnshop,'' and it looks
fairly familiar in terms of that type of an operation. What you
need to know is that this also happens to be the headquarters
of a home health agency. After responding to complaints,
Federal inspectors found that at this home health agency--which
as you can see bears little resemblance to what one would
expect a home health agency to look like--the previous owner's
health care experience consisted of his ownership in management
of this pawnshop, a cab company, and a restaurant, and that the
home health agency was out of compliance with 11 of 12 required
conditions of participation in the Medicare Program. I have
asked the OIG which one they were in compliance with. I have
not yet received the information back; it may be that there
must be a roof on the building, but we don't know which was the
one that they were in compliance.
Based on this onsite review, the agency's provider number
was revoked. Had it not been revoked, in a single year, more
than $2 million in Medicare billing would have gone through
this ``home health care agency.''
Then, finally, let me give you about as graphic an example
as I can of the kind of graft that is pervasive as part of the
waste, fraud, and abuse. What you will see is a videotape. It's
a videotape with an undercover informer working through the
Office of Inspector General and the FBI. What you will see is a
doctor, and through this, the audio is not as clear as we would
like, apparently sufficiently clear for conviction, but what
you get is a bantering between the informer and the doctor
about his wife, and he inquires of her condition and the
informer then proceeds to provide cash in a relatively obvious
way for the cameras, and in exchange the doctor, Dr. Rafael
Gonzalez Pantaleon, who is a citizen of the Dominican Republic,
signs his name to a number of documents, which of course then
allow for the Medicare billing to go forward.
Incidentally, the good doctor was arrested in New York City
by Federal agents on November 30, 1994, charged with 47 counts
of Medicare fraud. There was a 7-week trial. He was convicted
of defrauding the U.S. Government. He was sentenced to 78
months in prison, fined $3.5 million. However, between the time
of his conviction and his sentencing, Dr. Gonzalez fled the
United States to the Dominican Republic and he now practices
medicine at the Clinica San Rafael in the Dominican Republic.
According to the Inspector General, the administration
knows the exact address where he's practicing medicine today;
and according to the State Department, the U.S. Embassy in the
Dominican Republic and the Department of Justice's Office of
Internal Affairs, no formal extradition request has ever been
made that this fugitive return to the United States.
My concern is that the administration's lack of commitment
in this case is particularly striking, given the fact that in
article II of the bilateral treaty between the United States
and the Dominican Republic, it clearly calls for extradition in
cases of fraud and that 2 months ago the Dominican Republic
agreed to extradite two Dominican nationals involved in drug
trafficking, at the request of the President of the United
States.
The administration has launched Operation Restore Trust in
the area of Medicare waste, fraud, and abuse. I think perhaps
they need to launch Operation Find and Bust when you have
clearly convicted individuals.
Take a look at this tape for absolute gall.
[Videotape played.]
Chairman Thomas. What you saw was the transfer of $1,100
prior to the doctor signing off on a number of requests for
which Medicare was billed and promptly paid.
Today, I'm sending a letter to Attorney General Reno asking
her to initiate a formal extradition process to return Rafael
Gonzalez Pantaleon to the United States to serve his sentence
for bilking the Medicare Program--and therefore the U.S.
taxpayer--of over $3 million.
Unfortunately, the events shown on this tape are not as
unusual as we would like to think. The Inspector General says
that over 50 other cases involving kickback payments and
durable medical equipment suppliers are currently under
investigation.
We recognize that our work is not over. The Ranking Member
in fact will highlight some alleged corporate fraud which will
be another facet of our continued investigation of waste,
fraud, and abuse. Additional legislative changes are going to
need to be made and we need to stay vigilant, and that's one of
the things that this hearing is designed to do; that is, to
provide a report card on those areas where the 65 concrete
steps in our antifraud plan have been most successful, where
these reforms could be strengthened or better implemented, and
where the most significant challenges lie in combatting waste,
fraud, and abuse.
Chairman Thomas. I look forward to today's testimony. I
would recognize my colleague, the Ranking Member gentleman from
California, Mr. Stark.
[The opening statement follows:]
Opening Statement of Chairman Bill Thomas
Welcome to today's hearing of the Health Subcommittee on
waste, fraud, and abuse in the nation's health care system.
Waste, fraud, and abuse are pervasive in our health care
system. The General Accounting Office (GAO) estimates that
waste, fraud, and abuse account for up to 10 percent of
Medicare costs, and the Inspector General of the Department of
Health and Human Services announced at a recent hearing of the
Health Subcommittee that the Medicare program made improper
payments totaling $23 billion in fiscal year 1996 alone.
It is important to point out that these problems have
existed for a long time and that they have been exacerbated by
escalating Medicare costs. The General Accounting Office (GAO)
and the Office of Inspector General had highlighted weaknesses
that made the Medicare vulnerable to waste, fraud, and abuse as
early as 1986. Nevertheless, these reports were largely ignored
until the Health Insurance Portability and Accountability Act
of 1996 (HIPAA) and the Balanced Budget Act of 1997 (BBA) were
passed ten years later, after total Medicare outlays had
tripled from $71 billion to nearly $200 billion.
The Congress has responded forcefully by enacting
legislation containing 65 concrete steps to stamp out waste,
fraud and abuse. In the past two years, Congress has passed
significant legislation developed by the Committee on Ways and
Means, and other committees of jurisdiction, to address these
growing concerns about waste, fraud, and abuse in the Medicare
program and the health care system generally.
In HIPAA, Congress dedicated $5 billion dollars for law
enforcement through fiscal year 2003, increased civil penalties
five-fold for providers who commit health care fraud, added new
criminal penalties for false statements, theft, embezzlement,
obstruction of justice, and money laundering, and established
new programs to coordinate anti-fraud efforts among State,
local, and federal officials, the private sector, and Medicare
beneficiaries.
The recently-enacted Balanced Budget Act expands on the
progress made under HIPAA. In addition to other reforms, the
BBA requires the Secretary to expel providers from the Medicare
program if they are convicted of three health care infractions,
requires home health agencies, durable medical equipment
suppliers and other providers to post surety bonds of at least
$50,000, replaces fraud-ridden cost-based reimbursement with
prospective payment systems, and requires the Inspector General
to establish a new toll-free hotline and puts this number on
every Medicare bill so that Medicare beneficiaries can directly
report fraud and billing irregularities.
Together, these reforms have increased the number of
federal fraud investigators on the streets by 31 percent over
the last two years.
Despite our efforts, we know there are still examples of
blatant waste, fraud, and abuse in the health care system. As
we will hear today, over 90 percent of the American public
still believes that health care fraud is widespread. Here are a
few examples:
Medicare beneficiary receives expensive,
unnecessary orthotic body jacket. This picture shows a woman
who stands 5 feet tall and weighs 86 pounds wearing an orthotic
body jacket that is designed to be custom-fitted for a male
size ``extra large''--who stands about 6 feet tall and weighs
at least 180 pounds.
Orthotic body jackets are designed to be rigid, form-
fitting and customized. They are used to treat patients with
muscular and spinal conditions by holding them immobile.
Just three months ago, this woman--who is a Medicare
beneficiary with arthritis--was recruited at an adult
recreation center by a durable medical equipment supplier,
taken to a clinic for an examination and told she would shortly
receive an orthotic body jacket.
This jacket was not medically indicated for her condition.
Even if it had been, the extra-large size body jacket she
received obviously was inappropriate for this beneficiary.
Regardless, the supplier billed Medicare nearly $2,000 for this
item and another $6,000 for other equipment the beneficiary
never received.
The beneficiary did not know how to use the body jacket, or
where to return it. She eventually turned it over to the
Inspector General. And the case against the DME supplier is
currently pending.
Home health agency/pawn shop. This is a picture
taken last year of a pawn shop in Van Nuys, California that
also happens to be a home health agency. After responding to
complaints, federal inspectors found that this home health
agency was located in a building bearing little resemblance to
what one would expect a home health agency to look like.
Inspectors also found that the owner's previous health care
experience consisted of his ownership and management of the
pawn shop, a cab company, and a restaurant, and that the home
health agency was out of compliance with 11 of 12 required
conditions of participation in the Medicare program.
Based on this on-site review, the agency's provider number
was revoked. If it would have continued billing Medicare, this
one home health agency would have cost Medicare over $2 million
in a single year.
Kickback Videotape. In one of the most blatant
examples of fraud that I have ever seen, we are about to
witness a video taken by an undercover informer who was working
with the Office of the Inspector General and the FBI in an
effort to fight Medicare fraud.
The tape shows the informer bribing a doctor in return for
the doctor's signature on Medicare Certificates of Medical
Necessity. The doctor is seated on the left-hand side of the
screen. These certificates, which bore the names of people who
did not exist, would have allowed the informant to steal
thousands of dollars from Medicare in phony claims.
Because the videotape is somewhat difficult to hear, the
members of the Subcommittee and the press have been provided
with transcripts. Let's follow along.
The doctor in this tape, Rafael Gonzalez--a citizen of the
Dominican Republic--was arrested in New York City by federal
agents on November 30, 1994.
On June 19, 1996, after a seven week trial, he was found
guilty of a total of 45 counts of Medicare fraud conspiracy,
making false statements, and conspiracy to defraud the United
States government. He was sentenced to 78 months in prison and
fined $3.5 million.
However, between the time of his conviction and his
sentencing, Dr. Gonzalez fled the United States for his native
country, the Dominican Republic, where he now practices
medicine at the Clinica San Rafael.
I must also point out that this doctor, this fugitive of
justice, was Ambassador to the United Nations from the
Dominican Republic from 1989-1991 and that, despite his crimes,
he is a free man and a prominent diplomat.
According to the Inspector General, the Administration
knows the exact address where he is practicing medicine today
in Santa Domingo.
And according to the State Department, the United States
Embassy in the Dominican Republic, and the Department of
Justice's Office of International Affairs, no formal
extradition request was ever made to return this fugitive to
justice in the United States. The Administration's lack of
commitment in this case is particularly striking, given that
Article II of a bilateral treaty between the United States and
the Dominican Republic calls for extradition in cases of fraud
and that just two months ago, the Dominican Republic agreed to
extradite two Dominican nationals involved in drug trafficking
at the request of the President of the United States.
Today, I am sending a letter to Attorney General Reno
asking her to initiate a formal extradition process to return
Rafael Gonzalez to the United States to serve his sentence for
bilking the Medicare program and United States taxpayers of
over $3 million dollars.
Let me point out that the events shown on this undercover
tape are not unusual. The Inspector General says that over 50
other cases involving kickback payments and durable medical
equipment suppliers are currently under investigation.
Finally, we recognize that additional legislative changes
need to be made, and that we need to stay vigilant in our
continuing battle against health care fraud. That is what this
hearing is designed to do--to provide a report card on those
areas where the 65 concrete steps in our anti-fraud plan have
been most successful, where these reforms should be
strengthened or better implemented, and where the most
significant challenges lie ahead in combating waste, fraud, and
abuse in the health care system.
We must also ensure that the new fraud-fighting tools and
funds that Congress has provided through HIPAA and the BBA are
used by the Administration to their full potential.
Conclusion. Congress must assure Medicare beneficiaries and
the taxpayers that the Medicare is not squandering precious
program dollars on waste, fraud, and abuse. Congress passed
landmark anti-fraud and abuse legislation in both the 104th and
105th Congress. Now, we must ensure that these reforms are
implemented and that the Administration follows the lead of
Congress to make anti-fraud and abuse its top priority.
I look forward to today's testimony.
Mr. Stark. Thank you very much, Mr. Chairman.
I couldn't help but think that, on this question of leaving
the country, and speculate as to a rumor that if the former
chief executive officer of a major hospital chain were to be
found guilty and happened to have gone to China to study, do we
have an extradition treaty with China, and that may be an
interesting thing for us to speculate on.
I'd also, with the Chair's indulgence, like to call
attention today to the presence in the room of Scott Johnson.
He arrived in Washington earlier this week and traveled by
wheelchair all the way from Congressman Levin's district in
Michigan, and he's come here to meet with us individually and
give us some firsthand information about fraud and abuse in
Medicare and the programs for the disabled. It's quite a
journey for Mr. Johnson to have been here and I want to just
recognize him and hope that he will have a chance to talk with
all of us, but I want----
Chairman Thomas. If the gentleman will yield, Mr. Johnson
raise his hand, please.
Mr. Stark. There he is in the back.
Chairman Thomas. Thank you very much.
Mr. Stark. Thank you. And thank you for this hearing.
We can all be proud of the recent legislative efforts to
fight fraud, waste, and abuse and the recent acts made
significant strides in combating. We're heading in the right
direction. Massive fraud schemes continue, however, and we
heard this week about corporate systems to systematically
defraud the Medicare system. We don't know if that's the case,
but those will be investigated. I guess what we'd all say is
``enough is enough.''
In an August 1997 statement, Mr. Anderson, the director of
corporate financial investigations for Blue Cross and Blue
Shield in Michigan, said it best, that ``Despite increased
enforcement in the publicity of million dollar settlements with
large multistate health corporations, the rewards outweigh the
risks,'' and that's what we've got to change.
I introduced a bill which I sent to all of you, with 35
individual provisions. Some you may like, some you may not, but
they all aggressively increase the pressure against fraud,
waste, and abuse in Medicare. The underlying message should be
clear to all those who do business with Medicare and Medicaid,
and that is, the fight against fraud is just beginning.
For me it's pretty simple. We have zero tolerance--we
should have zero tolerance--for repeat offenders and we
shouldn't hide behind free market language as an excuse for
criminal behavior. If they do wrong, they should go to jail. I
don't think there's much that we need to add to that.
I would like to commend my colleagues to begin to think
about an additional or new format for auditing and reviewing,
or whatever you choose to call it, and I just point out that in
this investigation what the GAO did that turned up all the
fraud, waste, and abuse, a new concept sort of appeared and
that was comparing the medical records with the financial
records. I think in the past you'll find that those have been
done separately. There is a judgment call, as we're hearing, as
we know, and I'm trying to encourage a new brand of
examination.
Now, this comes out of my years of experience in banking,
where we have examiners who are both competent to assess the
medical record as well as the financial records, and, quite
frankly, that the people being audited pay. This is done in the
banking industry; the Controller of the Currency, its complete
auditing staff is covered by the bank. Now, if you do a good
job and your records are up to date, the examiners aren't there
very long; it doesn't cost you much. If you're a bad actor and
don't keep your records up, and you have to have extra
examinations, you pay more. It sounds fair, and I'm going to
try and work with my colleagues on the Subcommittee to see if
we can, along with HCFA and the OIG, begin to increase the
surveillance that is done among the providers and see if that
won't help us save some money.
I commend the Chair and I look forward to hearing our
witnesses this morning and working with you over the next year
to see if we can begin to improve on this and work with the new
administration and HCFA to see if we can't cut that fraud and
abuse figure at least in half during our current tenancy.
That'll be a wonderful goal for us to look forward to, and I'd
like to work with you to do that, Mr. Chairman. Thank you very
much.
[The opening statement follows:]
Opening Statement of Congressman Pete Stark
Mr. Chairman.
Thank you for holding this hearing.
We should be proud of recent legislative efforts to fight fraud,
waste and abuse in the Medicare program. ``The Health Insurance
Portability and Accountability Act'' and the ``Balanced Budget Act of
1997'' made significant strides in combating fraud, waste and abuse in
the Medicare and Medicaid programs. With bi-partisan cooperation, we
enacted unprecedented tools for fighting what has become one of the
favorite crimes of the 90's--cheating the Government of billions of
dollars through health care fraud.
Although we're heading in the right direction, massive fraud
schemes to defraud the government continue. In addidavits unsealed this
week, the FBI allege that they have ``uncovered a systematic corporate
scheme (by Columbia HCA)...to defraud Medicare and other government
health insurance programs.''
Enough is enough.
In a August 19, 1997 statement, Gregory Anderson, Director of
Corporate and financial Investigations for Blue Cross and Blue Shield
of Michigan said it best--despite increased enforcement and the
publicity of million dollar settlements with large, multi-state health
corporations, ``the rewards outweigh the risks today.''
While recent legislation is a good first step, we need to do more.
On Tuesday, I introduced another bill with over 35 new or improved
provisions designed to aggressively continue the fight against fraud,
waste and abuse. My message should be clear to those who do business
with Medicare and Medicaid--the fight against health care fraud is just
beginning.
It's simple for me--individuals found to intentionally,
systematically and repeatedly defraud Medicare and Medicaid should go
to jail. We should have a zero tolerance for repeat offenders. We
should not hide behind ``free market'' language as an excuse for
criminal behavior. The fight against health care fraud should be
aggressive and on-going. Medicare beneficiaries deserve the best we can
offer--quality care at an affordable price with strong protections
against unscrupulous providers.
Chairman Thomas. Thank the gentleman. We're always looking
for new ways to deal with issues, but, frankly, the changes
that were made in the Balanced Budget Act, moving away from the
old cost-plus system, which frankly invited fraud with the
inability to check, and moving as much as possible, as rapidly
as possible, to a prospective payment system in which it is
much more self-correcting will, I think, be a great advance
once we can move forward, but any other tools that we might be
able to come up with we'll certainly take a very careful look
at.
Could I ask the first witness to come to the table. It's
Esther ``Tess'' Canja. She has a personal story to tell, but
she's also vice president of the American Association of
Retired Persons. Ms. Canja, if you have a written testimony,
it'll be made a part of the record. You may address the
Subcommittee any way you see fit.
Normally, we have in front of us a typical stop light,
which has a green light, a yellow caution--amber caution--and a
red light. In California, when the yellow light comes on,
California drivers brake. I found in this area when the yellow
light comes on, these drivers speed up. So what we have done is
simply eliminated the yellow, because of a malfunction. It will
go green and then it'll go red. So, don't be concerned
immediately, but it means that I would move toward the
conclusion of your statement.
With that, if you'll speak directly into the microphone,
because these aren't very good mikes, the Subcommittee would be
interested in your testimony.
STATEMENT OF ESTHER ``TESS'' CANJA, VICE PRESIDENT AND MEMBER,
BOARD OF DIRECTORS, AMERICAN ASSOCIATION OF RETIRED PERSONS
Ms. Canja. Thank you, Mr. Chairman, and good morning. I am
Tess Canja of the American Association of Retired Persons, and
I'm very glad to be here this morning. It is especially
significant to me that I'm here today because of the personal
story I have to share.
My mother, Linda Giovannone, suffered from Parkinson's
disease. In 1994, she was placed in a nursing home, where she
remained for 2\1/2\ years before she passed away. Although
physically she was very disabled, mentally she was very, very
alert. As her daughter, I was very involved in her care. There
are three situations in particular that happened during her
stay at the nursing home that I want to tell you about.
In the first case, my mother became the patient of the
nursing home's new medical director. After receiving notice of
three billings to Medicare, I asked my mother how she liked her
new doctor. Much to my surprise, she said she had never seen
him. I then decided to check her nursing home medical records,
where I found there was a notation of notes on file. I wrote a
letter to the doctor suggesting he had confused my mother with
someone else, because she had never seen him. I also asked if
he could please reimburse Medicare and her supplemental
insurance carrier for the amount billed since a mistake
obviously had been made. Soon afterward I received a reply by
registered mail. The doctor stated he had indeed seen my mother
and that notes from these visits were on file. I did not pursue
the matter further.
A second situation involved care by a podiatrist. Not only
did my mother not need podiatry care, but I regularly clipped
my mother's nails myself. Yet, on two occasions that I
particularly noted, a podiatrist came into the nursing home,
clipped my mother's toenails, and then billed Medicare for
another service that was reimbursable. The first time this
happened, I left word with the nursing home staff that my
mother did not need podiatry care. Yet, it happened again.
Unfortunately, the second Medicare statement for this service
came in after my mother died, and so I did not pursue the
matter further.
The last incident began when I received a Medicare
statement for my mother's participation in a psychotherapy
discussion group. During the time that she was supposed to be
benefiting from this discussion group, she was unable to speak
and, therefore, unable to participate. I discussed the
situation with the social services director and my mother was
removed from the group.
Now, in all three of these situations, I believe the
Medicare payments made were unwarranted. I can't help but
wonder if some of these events may have been conscious acts to
defraud the Medicare Program.
In discussing my story with the staff at AARP, they
informed me that there were several new provisions in the
Balanced Budget Act of 1997 that, had they been in place during
my mother's stay, may have helped me and saved the Medicare
Program money.
For instance, the budget act includes a provision that
requires the inclusion of a toll-free number, 1-800-HHS-TIPS,
on the explanation of Medicare benefits form to report
suspected fraud and abuse. Another provision that should be
helpful is one that allows the beneficiary to request from a
provider an itemized bill for Medicare services. While the
budget act contains a number of other provisions that will
reduce fraud and abuse, more, however, still needs to be done.
Enforcement authorities continue to need additional funding
to detect, investigate, and prosecute unscrupulous providers,
and consumers in particular could be of tremendous assistance
if they only had more guidance. For instance, when I discovered
irregularities in my mother's Medicare bills, I dealt directly
with the providers. I did not notify Medicare of the suspicious
billings for two reasons. First, I didn't know whom to call,
and second, I did not know whether it would be worth it. The
amount of the billings were so small compared to the millions I
had read about in news reports, I believed at the time that my
complaint would not matter. But I've begun to understand
differently. With the limited financial resources enforcement
authorities have, perhaps my phone call alone would not have
made a difference. But my call, plus another's call, and yet
another's call, may have shown a pattern of abuse by a
particular provider, thus triggering an investigation.
One of the best ways, I believe, to keep Medicare
beneficiaries informed is through the new Medicare summary
notice, the MSN. I understand that production of this notice is
currently limited to only a few States as a pilot project. I am
lucky that my State of Florida is one of them. The new Medicare
summary notice is a major improvement over the current EOMB
form in that it encourages beneficiaries to help stop fraud by
providing examples of the types of fraud we should be looking
for and the number to call if we suspect fraud. What consumers
need to know is what they should be suspicious about, such as
double billing, charging for services not performed, or
performing inappropriate or unnecessary services.
Moreover, consumers need to know how to avoid becoming
unwitting participants in a scam. They need to understand that
they should treat their Medicare or private insurance card like
a VISA card--never giving out their beneficiary number over the
phone unless they initiated the call and immediately reporting
their card missing if it's lost or stolen.
It's a problem for consumers that providers have up to 1
year after providing a service to submit a claim to Medicare.
After 1 year it can be very difficult for an individual to
remember if the services billed were actually received or
appropriate.
Despite the major drive by enforcement authorities in the
past few years, a recent survey by AARP indicates that 80
percent of Americans are unaware of any efforts to combat
health care fraud. Consumers do, however, believe that
something can be done to reduce fraud and are eager to join in
this fight themselves. The most positive findings in the survey
pertain to the strong and nearly universal willingness of
individuals to take personal responsibility for doing something
themselves about health care fraud, as I tried to do in my
mother's situations. But they still need to know what to do.
AARP hopes to take the information learned in this survey and
craft an education campaign to build on the positive attitudes
that were revealed.
I thank you all for inviting me to speak before the
Subcommittee today. If consumers were aware of the types of
fraud being perpetrated, what to look for when reviewing their
claims, and whom to call when they suspect fraud, they would
become valuable partners in the fight to reduce health care
fraud and abuse.
[The prepared statement and attachment follow:]
Statement of Esther ``Tess'' Canja, Vice President and Member, Board of
Directors, American Association of Retired Persons
Good morning. I am Tess Canja from Port Charlotte, Florida.
As Vice President and a member of the Board of Directors of the
American Association of Retired Persons (AARP), I appreciate
the opportunity to testify today about fraud and abuse in the
health care system.
It is especially significant to me that I am here today not
only because of my role as a representative of AARP but also
because of the personal story I have to share.
My Personal Experience with Health Care Fraud
My mother, Linda Giovannone, suffered from Parkinson's
Disease. In 1994, she was placed in a nursing home where she
remained for two-and-a-half years before passing away. Although
physically she was severely disabled, mentally she was very
alert. As her daughter, I was very involved in her care. Not
only did I oversee the providers who cared for her, but I also
received her medical bills--including those from Medicare. I
intervened on her behalf, when necessary, with both providers
and insurance carriers.
None of her stay in the nursing home, with the exception of
the physical therapy she received, resulted in Medicare
payments to the facility. However, separate Medicare Part B
payments were made to providers who came into the nursing home.
It is some of their charges to Medicare that I found troubling.
There are three situations, in particular, that I want to
tell you about.
In the first case, my mother's personal physician no longer
serviced the nursing home, so she became the patient of the
nursing home's new medical director. After receiving notice of
three billings to Medicare of approximately $40 each, I asked
my mother how she liked her new doctor. Much to my surprise,
she had never seen him.
I then decided to check her nursing home medical records
for the dates the physician apparently saw her. In the records,
there was a notation of ``notes on file.'' I wrote a letter to
the doctor suggesting that he had confused my mother for
another patient since she had never seen him. I also asked if
he could please reimburse Medicare and her supplemental
insurance carrier for the amount billed since a mistake had
obviously been made.
Soon afterwards, I received a reply by registered mail. The
doctor stated that he had indeed seen my mother and that his
notes from these visits were on file. By now, I was sure that
there would be notes on file and did not pursue the matter
further. Shortly, thereafter, he resigned as medical director.
A second situation involved care by a podiatrist. Let me
make it clear that my mother did not need podiatry care, nor
was it ordered by her primary physician. In addition, I
regularly clipped my mother's fingernails and toenails. Yet, on
two occasions that I particularly noted, a podiatrist came into
the nursing home, clipped my mother's toenails and then billed
Medicare for another service that was reimbursable.
The first time this happened, I left word with the nursing
home staff that my mother did not need podiatry care. Yet, it
happened again. Unfortunately, the second Medicare statement
for this service about $60--came in after my mother had died,
so I did not pursue the matter further.
The last incident that I would like to share with you began
when I received a Medicare statement for my mother's
participation in a psychotherapy discussion group. During the
time that she was allegedly benefiting from this discussion
group, she was unable to speak, and therefore unable to
participate. I discussed the situation with the social services
director and my mother was removed from the group.
In all three of the situations I described, I believe the
Medicare payments made were unwarranted. I can't help but
wonder whether some of these may have been conscious acts to
defraud the Medicare program.
The Balanced Budget Act of 1997
In discussing my story with the staff at AARP, they
informed me that there were several new provisions in the
Balanced Budget Act of 1997 that, had they been in place during
my mother's nursing home stay, may have helped me during this
difficult time, and probably would have saved the Medicare
program some money.
For instance, the Balanced Budget Act includes a provision
that requires the inclusion of a toll-free number on the
Explanation of Medicare Benefits (EOMB) form to report
suspected fraud and abuse. AARP staff tell me that the hotline
number 1-800-HHS-TIPS has actually been in place and operating
for several years. Yet, many beneficiaries and caregivers, like
myself, have been unaware of its existence. Had this number
been printed on my mother's Medicare bills at the time, I would
have realized that there was someone I could call to report my
suspicions.
Another provision that should be helpful to beneficiaries
is one that allows a beneficiary to request from a provider an
itemized bill for Medicare services. The provider would have 30
days from the date of the request in which to furnish the
beneficiary with an itemized statement. If the statement showed
services not provided or other billing irregularities, the
beneficiary would then be able to request a review of the
statement by the Secretary of Health and Human Services.
Requiring providers to furnish itemized statements upon request
will not only help the beneficiary who, in some instances, may
be making coinsurance payments for services not received but
will benefit the Medicare program as well if beneficiaries can
alert the program to billing irregularities.
The Budget Act also contains a provision that requires
hospitals to include information on their discharge planning
evaluations that would inform beneficiaries of the availability
of Medicare home health services and whether or not the
hospital has a financial interest in any such agencies. By
informing beneficiaries of the options available to them and
the hospital's financial interests, patients will be in a
better position to make the best choice for their care.
While the Balanced Budget Act includes a number of
provisions that will help consumers participate in the fight
against fraud, it also includes a number of provisions that
should make it more difficult for providers to scam the system.
For instance, requiring certain groups of providers such as
durable medical equipment suppliers to post a $50,000 surety
bond if they wish to do business with Medicare should help to
weed out unscrupulous providers from the legitimate ones.
Similarly, requiring providers and suppliers to provide HCFA
with their Social Security numbers and employer identification
numbers to check for past fraudulent activity should cause scam
artists to think twice before setting up business. In addition,
requiring providers who submit claims for services provided in
nursing homes to list the identification number of the nursing
home on their claim form should make it much easier to track--
and hopefully deter--unscrupulous activities.
The budget bill gets tough with fraudulent providers by
establishing a ``three strikes and you're out'' penalty. Any
health care provider convicted of defrauding Medicare or any
other federal health care program for the second time will be
prohibited from participating in any federal health care
program for 10 years. A provider who is convicted for a third
time will be prohibited from participating in any federal
health care program for life.
In addition, the Secretary of Health and Human Services
will now have the option to deny participation in the Medicare
program to any provider convicted of a felony medical or
otherwise.
Other penalties include excluding from participation in the
Medicare program entities controlled by a family member of a
sanctioned individual, and imposing new civil monetary
penalties on persons who contract with an excluded provider, as
well as on health plans which fail to report information on
adverse actions required under the health care fraud and abuse
data collection program.
AARP is pleased with these new ``get tough'' penalties.
They send a strong message to unscrupulous providers that
Medicare will not tolerate those who commit fraud and abuse
against the system.
One aspect of the budget bill, however, that may prove to
have the greatest impact in reducing the ``incentive'' to
commit fraud is the establishment of prospective payment
systems (PPS) for home health care, skilled nursing facility
care, ambulance services and rehabilitation services. In
particular, the new PPS for skilled nursing facility care
should eliminate the incentive to provide unnecessary therapy
services, as occurred in my mother's case.
Up until now, it has simply been too easy for providers of
these types of care to abuse the system. For instance, some
home health care providers have their home offices in high-cost
urban centers while maintaining branch offices in low-cost
rural areas. Since, under current law, payment is based on
where the service is billed and not where the service is
provided, some providers have billed Medicare from their urban
location where the cost is much higher to provide a service
even if the service was actually provided in a rural area. In
addition, the ``reasonable cost basis'' of providing the
service varied greatly from provider to provider, as well as
location to location.
The new payment systems should save the Medicare program
millions by setting a fixed amount for each service regardless
of location, with minor adjustments made for high cost areas.
The new law also requires providers to submit claims based on
the location of where the service is actually furnished, and
not where the main office is located. AARP believes these new
payment systems will be a major factor in reducing fraud and
abuse.
The Need to Educate Consumers
While the Balance Budget Act of 1997 provides significant
legislative resources to aid both enforcement authorities and
consumers in the fight against health care fraud, more still
needs to be done.
Enforcement authorities e.g., the Department of Health and
Human Services Office of Inspector General, the Department of
Justice, the Federal Bureau of Investigation will continue to
need additional financial resources to detect, investigate and
prosecute unscrupulous providers.
Consumers, in particular, could be of tremendous assistance
to the effort to reduce fraud and abuse if they only had more
guidance. For instance, when I discovered irregularities in my
mother's Medicare bills, I dealt directly with the providers. I
did not notify Medicare of the suspicious billings for two
reasons: 1) I didn't know who to call, and 2) I didn't know if
it was worth going to the trouble to find out. The amount of
the billings was so small compared to the millions I had read
about in news reports, I believed at the time that no one would
care. But I've begun to understand differently. With the
limited financial resources enforcement authorities have,
perhaps my phone call alone would not have made that big of a
difference. However, my call plus another consumer's call and
yet another call may have shown a pattern of abuse by a
particular provider, thus triggering an investigation.
Consumers need to know that their suspicions matter and that
the government cares.
One of the best ways, I believe, to keep Medicare
beneficiaries informed is through the new Medicare Summary
Notice (MSN). I understand that production of this notice is
currently limited to only a few states as a pilot project.
Since Florida is one of these states, I am a lucky recipient of
the MSN.
Let me begin by saying that the new Medicare Summary Notice
is a major improvement over the current EOMB form. Though it is
much easier to read and understand, the biggest difference is
the information it contains. Not only does it encourage
beneficiaries to help stop fraud, it provides examples of the
types of fraud we should be looking for.
Consumers need to know how to properly audit their claims
and what types of billing irregularities constitute fraud. Many
beneficiaries consider the $5 aspirin to be fraud while it is
an extraordinary charge, it's not where consumers' attention
should be focused. Rather, what consumers really need to know
is what they should be suspicious about such as double billing,
charging for services not performed, or performing
inappropriate or unnecessary services. Moreover, many do not
know that waiving a Medicare patient's coinsurance is illegal.
Furthermore, consumers need to know how to avoid becoming
unwitting participants in a scam. For example, many do not know
that they should treat their Medicare or private insurance card
like a VISA card. They don't know they should never give their
beneficiary number out over the phone when they haven't
initiated the call, or to someone who comes to their door, or
in exchange for free medical services. They don't know to
immediately report their card missing if it is lost or stolen.
If consumers were more aware of the types of fraud
perpetrated they would be in a better position to avoid and
report them. Yet many remain uninformed of the types of fraud
that exist or whom to call if they suspect fraud.
The new summary notice not only helps educate consumers as
to what types of fraud exist, but it also provides them in bold
type with the HHS Inspector General's fraud hotline number: 1-
800-HS-TIPS. One number they can count on to report their
suspicions. AARP believes the Medicare Summary Notice should
formally replace the EOMB form and be made available beyond the
pilot project to all Medicare beneficiaries.
Another problem, from the consumer's standpoint, that I
would like to alert you to is the current requirement that
providers have up to one year after providing a service to
submit a claim for payment from the Medicare program. While
this may not be a problem for the provider, at times it can
create a problem for the consumer. After a year, it can be
difficult for an individual to remember if the services billed
were actually received or appropriate. For family caregivers,
like myself, it can be difficult to check if a loved one
received the services actually billed if an entire year has
passed. It is especially difficult, as in my mother's case, if
the patient died many months before the claims were received
particularly since the claims reflected services performed the
previous year.
One of the biggest problems in involving consumers in the
fight against health care fraud is the lack of knowledge they
have that anything is being done by the government to root out
fraud. Despite the major drive by enforcement authorities in
the past few years, a recent survey by AARP indicates that 80
percent of Americans are unaware of any efforts to combat
health care fraud. Of those who are aware, nearly one-third
believe that such efforts have had no effect.
Consumers do, however, believe that something can be done
to reduce fraud and are eager to join in this fight themselves.
In the survey, nearly 85 percent said they would be more
inclined to report health care fraud if they only knew more
about it. Interestingly, though, the survey showed that
offering a reward or monetary incentive would do little to
increase the likelihood that consumers would report suspected
fraudulent behavior. Consumers believe reporting fraud is their
personal responsibility.
The public also believes that reducing fraud and abuse will
increase the quality of their care and lower their costs, and
that more can and should be done to reduce fraud in the health
care system. Yet they remain cynical about the government's
ability to fight it. The most positive findings in the survey
pertain to the strong and nearly universal willingness of
individuals to take personal responsibility for doing something
themselves about health care fraud, as I tried to do in my
mother's situation.
AARP is taking the information learned in this survey and
crafting an education campaign to build on the positive
attitudes that were revealed and to dispel the myths and
misperceptions about health care fraud.
AARP does not see itself as acting alone in designing and
implementing such a campaign. The Association plans to work
with both the public and private sectors in this effort.
Educating Americans about the extent of fraud and about efforts
already underway to combat it is one of many steps to reducing
fraud and abuse. This, in itself, is one aspect to lowering
health care costs and increasing the quality of our nation's
health care.
Conclusion
Mr. Chairman, thank you for inviting me to speak before the
Subcommittee today. Clearly, there is a need and a desire for
greater public education on health care fraud and abuse. If
consumers were aware of the types of fraud being perpetrated,
what to look for when reviewing their claims, and whom to call
when they suspect fraud, not only would they be able to avoid
being unwitting participants in a scam, but they would also
become valuable partners in the fight to reduce health care
fraud and abuse.
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Mrs. Johnson of Connecticut [presiding]. Thank you very
much for your excellent testimony. It is very helpful to hear
specific examples and share people's experiences. I know one of
the most frustrating experiences for me as a Member is to have
constituents come to you with very specific examples and then
get the reaction from the fiscal intermediary that we just
can't look at that; we can't get into that; we can't judge
whether the care was actually delivered or whether it was
necessary, as long as it was generally appropriate. I mean it
is scandalous in a sense the way we pay bills through our
intermediaries and the system not only rewards fraud, but
encourages it.
There are a couple of things that you didn't mention in
terms of the recent legislation that will address a lot of your
concerns. The first is that we are bundling the reimbursement
for ancillary services to nursing homes so that there will be a
disincentive to provide inappropriate ancillary services. We're
also requiring that doctors, on their bill, put the number of
the nursing home on it, so that we can see the pattern of
physician action in nursing homes and be sure that it relates
to patient need. So, those are two examples.
We did, however, include 65 different concrete steps to
fight Medicare waste, fraud, and abuse, and with the enormous
experience of the AARP, I wondered if you would want to enlarge
on which of those specific tools you think are most important
or get back to us at a future date.
Ms. Canja. Let us take a look at that and get back to you.
We'd be very happy to do that.
[The following was subsequently received:]
This information can be found on pages 3-7 of our written
testimony.
Mrs. Johnson of Connecticut. Thank you very much.
Mr. Stark.
Mr. Stark. Thank you, Madam Chair.
I want to thank Ms. Canja for her testimony and I hope that
her testimony will encourage others who have similar
experiences to come forward. It's often suggested that we're
dealing with anecdotes here, but it is these anecdotes which
call to our attention many of the abuses that we eventually
have to correct. I appreciate your taking the time and the
effort to come here.
We passed some antifraud bills recently, and as I said, I
think we need to do more. Senator Kyl of Arizona and Chairman
Archer of our Committee have introduced bills to let doctors
privately contract with Medicare anytime they want and, in
effect, force the patients to give up their Medicare benefits
and pay privately on the side. Last week the AARP released a
paper pointing out that this would contribute to fraud, waste,
and abuse of the Medicare system, because there's no way that
Medicare could keep track of these side deals and, what we
call, unbundling of services in the private contracts that
doctors in managed care plans could then enter into. I want to
ask you if you agree with the AARP's position.
And, second, in the press yesterday, Mr. Salido, a
spokesman for Senator Kyl, indicated that we're denying senior
citizens the right to choose any doctor in Medicare, and it's
my understanding--and I wonder if you and AARP would agree--
that under Medicare, currently, a Medicare beneficiary can see
any doctor they want for any Medicare-approved procedure and
that there is currently no restriction on seeing a doctor or
indeed choosing a hospital? Are you in accordance with the
AARP's position in opposition to the Kyl amendment and do you
think it would have an affect on increased fraud and abuse?
And, second, is it your understanding that there is no need for
it because we have the broadest possible choice now under
Medicare?
Ms. Canja. To answer your first question, yes, I do agree
with AARP's concerns about the private contracting bill. There
are opportunities in this measure, we believe, to defraud the
system, because it opens the door to double billing. Whether
it's the physician receiving payment from the beneficiary and
then receiving payment from Medicare or in a managed care
situation, where Medicare would pay the managed care plan and
then the physician would receive a separate payment. So that
does concern us.
For your second question, you asked can beneficiaries now
see doctors of their choice? Under fee-for-service they can.
You're aware that they pay a copayment, a 20-percent copayment,
but under any of the services that Medicare covers, they could
go and be covered by Medicare for those services. For other
services that Medicare doesn't cover, they can still go to the
physician and pay.
Mr. Stark. Thank you.
Ms. Canja. Out of pocket.
Mr. Stark. Thank you very much.
Chairman Thomas [presiding]. Ms. Canja, I apologize, I had
to deal with another issue, but I had read your testimony.
And from personal experience, my parents were in an
automobile accident. My mother was killed instantly, but my
father was in intensive care and then moved into a skilled
nursing facility. I have three sisters and we attended our
parent, as did you, and did a number of personal grooming
routines, just out of kindness and love, and it was a constant
amazement to us the number of professionals who would come by,
and notwithstanding the condition of my father, would,
nevertheless, argue to perform a service and then, of course,
to bill.
One of the reasons I've worked so hard to try to create a
prospective structure which would remove these individual
billing capabilities was because of the firsthand experience. I
guess you can watch things that happen and try to appreciate
it, but until you go through it----
Ms. Canja. Exactly.
Chairman Thomas [continuing]. As you did, you just can't
appreciate, under the old system, how many opportunities there
were to make money in a fraudulent way.
Ms. Canja. Yes, isn't it true, and I'm sorry to hear of
your personal experience.
Chairman Thomas. Well, that's always the best teacher.
Ms. Canja. It is.
Chairman Thomas. The gentleman from Louisiana.
Mr. McCrery. Thank you, Mr. Chairman, and thank you, Ms.
Canja, for your testimony.
Just to follow up on my friend from California's line of
question about the Kyl bill. While I appreciate AARP's
position, I gather that the reason that AARP and you are
concerned about fraud and abuse is that the fraud and abuse
increases the costs to Medicare and the taxpayers, thereby,
diluting the services perhaps, or with the potential to dilute
the services to seniors in the future, if the fraud and abuse
gets so large and takes so much of the available money that we
have to cut back on the services. Is that a fair statement?
Ms. Canja. I think that's a fair statement, yes.
Mr. McCrery. So, if you're concerned about a dilution of
services, one way the services could be diluted is by more and
more providers refusing to take Medicare patients. Isn't that
correct?
Ms. Canja. Yes, if that we're to happen.
Mr. McCrery. And it could happen, couldn't it, if, say, the
reimbursement rates had to be ratcheted down so low that many
providers felt like it wasn't worth their time to see Medicare
patients for the remuneration that they were going to get from
Medicare?
Ms. Canja. AARP has always been concerned that we have fair
reimbursement rates, but also, I see it, and I'm talking
personally here, as a disincentive for physician's to take
Medicare if there's an opportunity to get any kind of money
that the doctor may want to charge.
Mr. McCrery. Well, I, too, am concerned about the dilution
of services and I'm very concerned about the long-term
viability of the Medicare Program under its current structure.
We've done some good things, as you helped us point out, and
Mr. Thomas has pointed out here today, in the last couple of
years in terms of identifying fraud and fighting fraud. Still,
with a program this large and with so many points of contact
between the consumer of services and the provider of services,
there's a huge potential for fraud in this program. I hope that
you will work with us to look at some different ways of
providing this service to seniors in this country and not
simply reject ideas like Mr. Kyl's and Chairman Archer's out of
hand, because I think those ideas, potentially, are the very
building blocks that we will need to put in place to save this
program over the long term and to prevent wholesale rationing
of services, because of the widespread abuse that will always
be in this program in my view, under its current structure.
We can spend billions and billions more on more and more
investigators, but as long as you have a program this big and a
pot of money this big and handled the way it's handled, your
going to have abuse. So, I would just ask you to work with Mr.
Kyl and Chairman Archer and me and others who want to preserve
this program, but want to do it in a fiscally responsible way
and in a way that will continue to provide a high level of
services to the elderly in this country.
Ms. Canja. You know, I think you have all received this
fact sheet that we have that detailed our concerns, and really
I think that you could consider that as the beginning of our
cooperation with you, because it details the things that we are
concerned about, asking you to please look at those things and
see how they might be addressed.
Mr. McCrery. And we appreciate that and I want to thank you
for doing that. Once again, thank you for your testimony here
today and, also, thank you for AARP helping us to advertise
some of the changes that have been made to help consumers fight
fraud and abuse in the system. Thank you.
Ms. Canja. Thank you. We appreciate that.
Chairman Thomas. Does the gentleman from Maryland wish to
inquire?
Mr. Cardin. Thank you, Mr. Chairman. Just very briefly,
following on Mr. McCrery's comments.
Let me, first, thank you and AARP for your presence here
today and your willingness to work with this Subcommittee to
deal with fraud and abuse within the Medicare system. I agree
with the underlying point that, to the extent that we can
reduce fraud and abuse--we'll never get rid of it--we will make
more resources available to deal with the problems that Mr.
McCrery was talking about--access to care and a proper
reimbursement rate for the providers that work within the
Medicare system.
I just really want to at least put on the record a
statement regarding the Kyl amendment. If you wish to comment,
fine. I know neither the Kyl amendment in the Balanced Budget
Act or the new Kyl bill are before us and I understand that.
But, I am concerned that I don't know of any private insurance
company in a managed care environment that would allow its
doctors to receive payment under the managed care program and
then go out and bill the subscriber whatever the subscriber
could pay for services. It seems to me that's a condition of
participating in the program.
Medicare is the largest insurance program in the country,
and why would we be setting a standard different for our
beneficiaries than private health care plans? To me, that would
make little sense. But today we are discussing fraud and abuse.
I think the underlying point here is that if we were to permit
a system where a doctor could participate in Medicare and get
Medicare reimbursements and then for certain services go out
and bill privately whatever the doctor wished to charge,
whatever that doctor could collect from the Medicare
beneficiary, it would seem to me that we could be opening up a
more difficult enviornment in which to battle fraud and abuse.
Ms. Canja. You know, we have that same concern in our
statement.
Mr. Cardin. Thank you. Thank you, Mr. Chairman.
Chairman Thomas. Thank the gentleman. Does the gentleman
from Nevada wish to inquire?
Mr. Ensign. Thank you, Mr. Chairman. I really enjoyed your
testimony although it's not that I enjoyed your testimony on
what happened with your Mom's situation, but I've had a lot of
townhall meetings around southern Nevada, and your testimony
has been repeated so many times, and as Mrs. Johnson talked
about before, it is incredibly frustrating for a Member of
Congress.
First of all, in the last couple of years, finding out
where some of the confusion lies, like you said, you didn't
even know whether it was fraud, whether it was just the way
that the system was set up it was confusing, or did somebody's
orders get taken wrong. It's such an incredibly complex
bureaucracy now that has been set up and the system is so large
that it seems to invite mistakes. Even if they aren't actual
out-and-out fraud, it seems to invite a lot of abuses of the
system simply because of clerical errors, or whatever.
In your membership, how many letters do you get, and when
you get those letters on fraud and abuse, what do you do with
them, because I know you probably get some of the same things
from your membership that we get here in Congress?
Ms. Canja. Obviously, I can't pick out of the air right now
the number of letters that we get, but we did do this survey
that showed that people are enormously concerned about health
care fraud and abuse; they believe that it is tremendously
widespread and if we just did something about fraud and abuse,
we could take care of Medicare. So that gives you some idea of
the dimensions of the educational effort that really is going
to be needed to help people understand what is fraud, what is
abuse, what they can do about it, how they can report it.
You know, I come to you today, as a pretty informed
consumer, and yet, I still had those problems when I saw these
situations: Is this fraud and what do I do about it? I did the
best I could.
This is what we found out in our survey and our focus
groups: People want to do something about it; they want to be
active participants and they will do what they think they can
do, but, you know, you've really done a tremendous job with the
budget bill and the provisions you've put in it, because you're
going to give a lot more guidance to consumers. These examples
of fraud and abuse that I talked to you about, each one of them
is small, but I think that taken in the aggregate, they
probably add up to a great deal of money.
Mr. Ensign. One of the things I would like to encourage
your organization, because your organization does touch so many
seniors and you communicate with them all the time, and that is
to help us educate, because most Members of Congress aren't
even aware of what the new provisions of Medicare are to be
able to answer those questions for their constituents. I would
very much encourage your organization in its communication with
its members, because you touch so many of the seniors in the
country, and that is first of all, to educate them that there
is a 1-800 number to call.
Ms. Canja. Exactly.
Mr. Ensign. And all of the other things that now maybe that
empower seniors, but also will maybe give them a little more
sense that Congress really is doing something up here, because
it does seem that very seldom do we get credit for some of the
good things that we're trying to do to cut out waste, fraud,
and abuse in Medicare. Certainly, some of the things that we've
done: Increasing penalties, whether it's preventing transfer of
illicit businesses to family members or increasing civil
penalties or the help lines that we've set up or whatever, I
think that Congress really has taken the step in the right
direction. We have a long way to go, but we'd certainly like
your help in communicating some of the things that we've done.
Ms. Canja. You know, we are continuing to do a major
educational campaign on health care fraud and abuse. We have a
fact sheet on it; we're now training volunteers on what are
some of the scams and what they can do about it, and we're
going to send them out as a gray patrol to educate others at
senior centers and at other place where seniors congregate. So,
we're really into that. We're working with our members; we're
working with you--that's why I'm here today--we're working with
the law enforcement agencies. We will do whatever we can to
help in this effort.
Mr. Ensign. Thank you. Thank you, Mr. Chairman.
Chairman Thomas. Thank the gentleman. Does the gentleman
from California wish to inquire?
Mr. Becerra. Thank you, Mr. Chairman. I noted in your
written testimony you mentioned that a survey had been done in
which it showed that even if you provided the consumer with the
monetary incentive or some type of reward for reporting waste,
fraud, or abuse, that doesn't really do much to get people to
act.
Ms. Canja. That seems to be what the survey showed. That
incentive really wasn't that necessary.
Mr. Becerra. And you mention in your testimony that it was
your opinion that people consider it their personal
responsibility to try to report that type of activity.
Ms. Canja. Right.
Mr. Becerra. Is there something that we could do that would
be more personal in scope, that would help consumers become
more engaged in trying to report these activities?
Ms. Canja. I think they just need to have some education
about--I mean this is a major thing; they need to know about
fraud and abuse and what it is, because right now, you know,
their example of fraud is the $5 aspirin. They have to have a
better idea of exactly what to look for. So, we all need to do
a good job of trying to get that kind of information out.
Mr. Becerra. Do you or do you know if any of the
individuals you know who receive Medicare have a personal
relationship with anyone who works with the Department of
Health and Human Services that administers the Medicare
Program?
Ms. Canja. I didn't hear the first part of your question,
sir, I'm sorry.
Mr. Becerra. I'm trying to figure out if Medicare
recipients have a personal relationship with the administrative
authority for Medicare. Certainly, you have a relationship----
Ms. Canja. No, I don't believe so. It's pretty far removed
from them probably.
Mr. Becerra. So when it comes to trying to report abuse by
a provider or fraud by a provider, there's no one that you can
naturally turn to within the government or the administrative
office that helps administer Medicare in order to try to report
that abuse?
Ms. Canja. Well, an 800 hotline is a very good help if they
have it in front of them.
Mr. Becerra. I understand the 800 hotline is there, but
you, as a Medicare recipient, don't happen to know anyone that
answers that hotline, for example?
Ms. Canja. No.
Mr. Becerra. Did you ever make use--I believe you said that
you did not make use of the hotline when you found these
problems occurring with your mother?
Ms. Canja. No, and on those earlier Medicare statements
there wasn't even a hotline, I mean, there was not a hotline;
there was no number to call.
Mr. Becerra. OK. Do you believe that consumers of Medicare
services are making use of the hotline well?
Ms. Canja. Well, I think the hotline, I don't think they
know about it, and this is one of the things that's going to
come out of the Balanced Budget Act--that they will know, they
will, that hotline now. I don't think it's been that available
to them.
Mr. Becerra. Do you think the notice that recipients will
be receiving now will be sufficient to give them a sense that
there is a hotline to call if there is abuse or fraud
occurring?
Ms. Canja. Two things are needed: Not just the hotline, but
what to look for so they know what to report. When I was
looking at the form, there is something they could do. They
could make it much more explicit in the back of the form when
they give you some guidance on what kinds of calls to make. It
would be tremendously helpful.
Mr. Becerra. Does the Medicare card itself have the hotline
number on it?
Ms. Canja. Does Medicare?
Mr. Becerra. The Medicare card, your beneficiary card?
Ms. Canja. I have no idea. I never looked at it to see
that.
Mr. Becerra. It might be a good place to put it. It sure
would be handy if you keep the card.
Ms. Canja. It may be there.
Mr. Becerra. What of the issue of individuals not realizing
that they should treat, as you say in your testimony, they
should treat their Medicare card and their beneficiary number
as they would treat any credit card and credit card number, not
to give it to anyone who happens to call them by phone, or
someone who happens to drop by and offer them free medical
services?
Ms. Canja. Well, that number can be used just as a VISA
card number can be used for fraudulent claims, but I don't
think people understand that, so that's going to be a part of
the educational campaign.
Mr. Becerra. Is it your belief that people are actually
using or giving out that card number very liberally?
Ms. Canja. Oh, I couldn't say that; I have no idea. I would
doubt it. I think that there a lot of ways to get a number,
though.
Mr. Becerra. Right. So there----
Ms. Canja. I can't answer that.
Mr. Becerra [continuing]. Probably needs to be a better way
to try to protect that number as well.
Thank you for the time, and thank you very much for coming
and providing testimony.
Ms. Canja. You're welcome.
Chairman Thomas. Ms. Canja, thank you very much. It's clear
that informed patients and informed loved ones know what was
and was not done, and that if you were provided specific
billing records, which we now do, and a phone line to contact
people--oftentimes, there was a phone number on the billing
information, but that was the particular contract agency to
deal with----
Ms. Canja. Exactly.
Chairman Thomas [continuing]. The billing problems. But
what we have assigned is a clear statement that there is fraud
and abuse and that this is the number to call if you suspect
it. It's a 1-800 number tied directly to the Office of
Inspector General, and it will be a centralized collection
structure. That is, I think, a far cry over the real, I won't
say unwillingness, but clear failure to take what I think is a
key frontline of defense--those people who are receiving or not
receiving particular procedures to report their suspicions. We
think over time this will be a useful tool, and I'm pleased
you're willing to support it.
Thank you very much for your testimony.
Ms. Canja. Thank you.
Chairman Thomas. The Subcommittee will stand in recess
before we begin the next panel, so we don't start and then
disrupt us, and will convene again at 11:30 a.m.
[Recess.]
Chairman Thomas. Eleven-thirty having arrived, the
Subcommittee reconvenes and thank you.
The panel in front of us will be Michael Mangano, whose
name tag I cannot see. He's the Principal Deputy, Office of
Inspector General, Department of Health and Human Services;
Linda Ruiz, who is Director, Program Integrity Group, Office of
Financial Management at HCFA; Charles Owens, who is the Chief
of Financial Crimes Section, Federal Bureau of Investigation;
and Dr. William Scanlon, who's been with us a number of times,
Director, Health Financing and System Issues, U.S. General
Accounting Office.
Your written testimony will be made a part of the record. I
would ask that you summarize your testimony in any way that you
see fit within the timeframe that's available to us, and I look
forward to the information you'll provide us on this midterm
report card.
Mr. Mangano.
STATEMENT OF MICHAEL F. MANGANO, PRINCIPAL DEPUTY INSPECTOR
GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
Mr. Mangano. Thank you very much, Mr. Chairman. I'm very
pleased to be here this morning to report to you on the efforts
that we've made to combat fraud, waste, and abuse in the
Medicare Program. The impact of the Balanced Budget Act of 1997
and the Health Insurance Portability and Accountability Act,
and also some areas that we think still warrant some concern.
With the budget exceeding $200 billion this year, it's no
wonder why Medicare is an inviting target for scam artists and
those who want to steal from the Medicare Program and its
beneficiaries. A recently issued report before this
Subcommittee that the Chairman mentioned this morning indicated
that about $23 billion last year was inappropriately spent from
the Medicare Program. Now, while that's not all fraud, it is a
problem that causes us great concern and ought to consume the
attention of the Health Care Financing Administration, as well
as our office and other law enforcement organizations. That is
why we are so delighted with the provisions of both of these
two acts. I want to specially thank this Subcommittee and the
leadership that the Chairman and the Ranking Minority Member
have had in forging these pieces of legislation.
HIPAA provides us with a number of new enforcement tools,
reliable funding, and a management structure in which we can
coordinate the various fraud-fighting units across government.
I want to assure this Subcommittee that we're working with the
Department of Justice, the FBI, and the Health Care Financing
Administration to address a number of these programs, as well
as to conduct a series of investigations, audits and
evaluations.
The question you may ask is, How are we doing? I'm very
pleased to report this morning that we've been successful in
this first year and we anticipate receiving $1.2 billion in
estimated fines, penalties, and restitutions to the program;
this is about five times higher than last year. We've doubled
the number of criminal and civil actions that have come out of
the reviews that we've been doing to over 1,300 this year, and
the number of exclusions exceeds 2,600.
The Balanced Budget Act gives us even more weapons we can
use in this fight, but I think what's most important are the
program reforms that we think will make the Medicare Program a
far more prudent purchaser of goods and services. The chart
attached to my testimony indicates about $58 billion that these
two pieces of legislation will save for the Medicare Program on
the basis of program changes to be made. Scored by the
Congressional Budget Office, we supported a number of these
recommendations and offered them over the years.
Very briefly, I'd just like to mention a couple of the
issues that we still believe warrant close scrutiny. As the
gatekeeper for home health services, we believe that the role
of the physician needs to be strengthened. For example,
Medicare does not require at the current time that a physician
actually examine a patient before ordering home health
services. We think that's a mistake. We also think that the
certification form that the physician signs ought to be more
explicit in terms of what the eligibility requirements are. In
our reviews of home health agencies, we found doctors that
didn't know what the term ``homebound'' meant. We think that
leads to a number of problems.
Second, we're looking at whether or not hospitals are
prematurely releasing patients to reduce their costs and
receive additional reimbursement from the Medicare Program for
nursing homes and home health agencies that they refer those
patients to. In our analysis, we found that patients released
from hospitals to nursing homes that they owned had 2 day
shorter hospital stays and 8 day longer nursing home stays. We
found similar situations, although less pronounced, with home
health.
While the Balanced Budget Act establishes a fee schedule
for ambulance----
Chairman Thomas. Just for the record, Michael, what you
meant to say was the center that cost more got longer days than
the center that costs less. Is that what you we're saying?
Mr. Mangano. Yes.
Chairman Thomas. OK.
Mr. Mangano. Yes, yes.
Chairman Thomas. Surprise, surprise.
Mr. Mangano. With regard to ambulance services, we think
that this was the right approach to take to put that on a fee
schedule, but we think that we may have locked in rates at far
too high a level, and we think that further reductions should
be considered.
Finally, we think for prescription drugs that the provision
establishing a cut of 5 percent below average wholesale price
is a good first start, but once again, I think the
reimbursement levels are going to be far too high. We took a
look at the 22 most prominent drugs that Medicare pays for in
prescriptions and Medicare paid higher than any other provider
that bought those drugs, and in fact, for about one-third, paid
twice as high as anybody else. The AWP, average wholesale
price, is easily manipulated and greatly inflated.
So let me conclude, then, by saying that we pledge our
assistance to watch after potential scams that may be
perpetrated against the Medicare Program in the near future.
Thank you.
[The prepared statement and attachment follow:]
Statement of Michael F. Mangano, Principal Deputy, Office of Inspector
General, Department of Health and Human Services
Good morning Mr. Chairman. My name is Michael F. Mangano. I
am Principal Deputy Inspector General for the Department of
Health and Human Services (HHS). It is my pleasure today to
share with you my assessment of where we stand in our
continuing fight against waste, fraud, and abuse in the
Medicare program.
In summary, we are fully engaged and making good progress.
We have exposed and measured the problem more completely and
accurately than ever before. It is bigger, more complex, and
more formidable than many may have imagined. But we are more
fully armed, have better tools, and are better organized than
in the past. As a result, we have recently had some notable
successes and are confident of favorable outcomes on several
fronts. And we feel fully supported by allies in every branch
and unit of government.
This positive assessment, even in the face of staggering
affronts, is the result of an unparalleled coordinated and
cooperative response to the problem by the Administration and
the Congress, particularly through the passage of two landmark
pieces of legislation--the Health Insurance Portability and
Accountability Act of 1996 and the Balanced Budget Act of 1997.
This new legislation has so greatly strengthened our hand
that most of our efforts now are directed to proving that
implied trust in us is well founded. Thus, we are now focused
on implementing the new laws. As a result, at this time we only
have a few potential proposals to call to your attention, while
assessing new ideas being presented from several sources.
While treating ourselves to a brief moment of self re-
assurance, we remain on guard, watching certain facets of the
Medicare program which we believe remain particularly
vulnerable to waste, fraud, or abuse--especially home health,
durable medical equipment, and ambulance services. And while we
see advantages to the evolving integration of the health care
industry at large, we are wary of some inappropriate incentives
this may create in service referrals, especially to nursing
homes and home health agencies. Managed care programs of all
kinds present new risks in both the Medicare and Medicaid
programs. We also remain generally concerned about upcoding of
all kinds, and are analyzing new technologies now available
both to automate billings and to detect inappropriate
manipulation of the billing system.
I will now describe in greater detail the basis for our
simultaneous confidence and wariness.
New Ways to Fight Fraud
Since 1993, the Department has been emphasizing the need to
stem losses to the Medicare program by preventing fraud and
prosecuting unscrupulous fraud perpetrators. Operation Restore
Trust, initiated by the Administration in 1995, laid a stronger
foundation by promoting the development of new techniques to
ferret out and combat fraud and abuse and to cultivate
effective partnerships of fraud fighting organizations within
the Department of Health and Human Services, the Department of
Justice, and the States. It demonstrated the effectiveness of
these new approaches in three programmatic areas--home health,
nursing homes, and durable medical equipment--in New York,
Texas, Florida, Illinois, and California. On an experimental
basis it provided steady, reliable funding for fraud fighting,
anticipating a fair return on investment through reduced
spending and recoveries of lost trust fund dollars. This
planning assumption proved to be correct. The demonstration
program identified $183 million dollars in overpayments, fines,
and penalties.
Stronger Anti-Fraud Authorities
Meanwhile, both the Congress and the Administration were
developing far more sweeping and fundamental reforms to address
waste, fraud, and abuse in the Medicare program. As noted
above, these are embodied in the Health Insurance Portability
and Accountability Act and the Balanced Budget Act. This
Subcommittee, under both the Chairman and the Ranking Minority
Member, played a crucial role in encouraging the bipartisan
support and responsible public policy-making that brought both
pieces of legislation to passage.
In this effort, the Congress and Administration did more
than just pass laws. The legislative process brought about an
attitudinal change--not only within the branches of Government,
but in the quality of consciousness with which taxpayers, the
media, and the health care industry are viewing Medicare.
Beginning with the momentum of HIPAA in 1996 and continuing
through the debates on the Balanced Budget Act in the current
Congress, much needed attention has been drawn to the purpose
and management of the Medicare program and how to make it more
effective, efficient, and less vulnerable to waste, fraud, and
abuse. Much has been accomplished.
Many specific, positive changes have been made to shore up
the $200 billion Medicare program and its payment methods; and,
thanks to increased resources provided through the new
legislation, our Department, the Department of Justice, and
related agencies at the State and Federal levels now have
better authority and capacity to fight fraud and to reduce
waste in all federally-funded health care programs.
Health Insurance Portability and Accountability Act of 1996
Last year we got a major boost in our efforts through the
Health Care Fraud and Abuse Control Program, a key part of the
Health Insurance Portability and Accountability Act. This
program provides much needed resources, stronger enforcement
tools, and a management structure to coordinate the efforts of
numerous fraud fighting units of Federal, State, and local
governments. The Health Care Fraud and Abuse Control Program is
a creative and far-reaching program to root out fraud and abuse
in the nation's health care system.
The program is under the joint direction of the Attorney
General and the Secretary of Health and Human Services, working
through the Inspector General. It is designed to provide the
framework and resources to coordinate Federal, State, and local
law enforcement efforts. It mandates a comprehensive program of
investigations, audits, and evaluations of health care
delivery; authorizes new criminal, civil, and administrative
remedies; requires guidance to the health care industry about
potentially fraudulent health care practices; and establishes a
national data bank to receive and report final adverse actions
imposed against health care providers. The Act also provides an
innovative mechanism to fund these new anti-fraud efforts,
thereby assuring that needed resources are always available for
the effort.
We are already reaping the benefits of the additional
resources and authorities from this new legislation. Based on
projected usage of 1022 FTE for fiscal year 1997, OIG on-board
staffing increased from a little over 900 to 1143 by the end of
the fiscal year. In addition, we are opening 6 new
investigative offices, bringing from 26 to 31 the number of
States in which we will have an investigative presence. We plan
to open 6 more in fiscal year 1998. Three new audit offices are
also being opened. We have generally intensified and expanded
all our activities in the health care field and are now able to
coordinate a more effective effort to curb those who exploit
the Nation's health care systems, particularly Medicare.
The total of fines, restitutions and settlements accruing
from judicial and administrative processes that resulted from
OIG civil and criminal actions totaled $1.2 billion in 1997.
This is five times higher than the recoveries for fiscal year
1996 and over three times higher than the previous best year
for recoveries. Many of the larger settlements were related to
improper marketing and billing of laboratory services. Criminal
and civil prosecutions totaled 1,340 cases in fiscal year 1997.
This was double the number for fiscal year 1996 and more than
five times the total number in fiscal year 1995. Over 2,600
individuals and entities were excluded from doing business with
Medicare, Medicaid and other Federal and State health care
programs because of violations of the law--an 86 percent
increase from the 1,400 exclusions in fiscal year 1996.
Balanced Budget Act of 1997
The Balanced Budget Act provides a number of provisions to
help prevent Medicare fraud and abuse and to promote
responsible program enforcement. For example, it authorizes the
Secretary to collect social security numbers and employer
identification numbers from entities paid under Medicare (Part
B), Medicaid, and Child Services Block Grants. The OIG, the
Health Care Financing Administration (HCFA), and the General
Accounting Office (GAO) have been in general agreement in
recent years that this authority is critical to monitor
provider billing activities effectively and to keep excluded or
other problematic providers from coming back into the program
under the cloak of new business arrangements. These numbers are
required from the entity, persons with ownership or control
interest (5 percent or more), its managing employees, and
subcontractors.
The Act provides several enhanced penalty authorities; for
example a $50,000 civil money penalty for kickback violations;
a penalty for institutional providers who employ or contract
with excluded providers; and a penalty to be imposed when a
health plan or other designated entity fails to report required
information to the Adverse Action Data Bank established under
the Health Insurance Portability and Accountability Act.
Included too are general improvements to the Medicare
payment system. For example, the Act streamlines the process
for adjusting by up to 15 percent the amount paid by Medicare
for unreasonably priced Part B services (except physician
services); it authorizes up to 5 projects, including one for
oxygen, to demonstrate the efficacy of competitive bidding as a
way to procure Medicare services and supplies. All of these are
consistent with broad policies which the OIG has been
advocating and strongly supporting for several years, and we
are grateful to see legislation enacted along these lines.
Related to the payment system is a general pros from the
definition of ``reasonable cost'' payments for costs not
related to patient care including entertainment, gifts, and
donations, education expenses, personal use of automobiles, and
costs for fines and penalties. This new provision addresses
problems encountered repeatedly in OIG audits and
investigations.
The Act also addresses serious vulnerabilities in the
process whereby Medicare enrolls health care professionals or
agencies to provide services to Medicare beneficiaries. Quite
fundamentally, the new law authorizes HCFA to refuse to enter
into contracts with felons. The Secretary could stipulate, for
example, that individuals convicted of embezzlement not be
allowed to enroll as a Medicare provider even if the conviction
did not occur in connection with a health care business. HCFA
will also be able to exclude from the Medicare program entities
owned or controlled by the family or household members of
excluded individuals. This latter provision prevents an
excluded individual from continuing to do business with
Medicare through a company allegedly owned by a family or
household member. Some excluded providers have been able to
escape the impact of their sanctions by expediting transfers on
paper of their ownership and control interests in health care
entities to family or household members while retaining true,
silent control of the businesses.
In addition, we were pleased to see the new ``Three
Strikes, You're Out'' provision that mandates a lifelong
exclusion from participation in any Federal health care program
for any provider who is found guilty of health care fraud for
the third time. We thank you for your leadership on that.
Programmatic Reforms
Broad Sweep of the Balanced Budget Act
The Balanced Budget Act went a lot further in reducing
fraud and abuse than is reflected in the specific section of
the Act dealing with fraud. It reformed underlying Medicare
program areas to reduce their vulnerability to fraud, abuse, or
waste. Included in this category are provisions to: reform
Medicare payments systems for home health and skilled nursing
care; eliminate payment for losses upon the sale of a hospital
or nursing home (by ignoring accounting adjustments that
misrepresented the profit or loss of the entities engaged in
the sale); reduce excessive payments for oxygen, prescription
drugs, capital expenses, laboratory tests, and outpatient
medical services; more frequently recertify eligibility for
hospice care (which will improve quality of care while also
eliminating a vulnerability in the hospice eligibility
determination system); permanently authorize systems and
protocols to ensure that Medicare pays as secondary payer when
other insurance provides first payer coverage for Medicare
beneficiaries; restructure Medicare payments for bad debt,
disproportionate share allowances, and indirect medical
education; reform Medicare payment methods for ambulance
services; establish better controls and improved policy making
procedures for laboratory services.
The attached table shows the 5 year savings as scored by
the Congressional Budget Office for these provisions. All of
them are items which have been highlighted through the years in
the OIG's Cost Saver Book (also known as the Red Book), audits
and inspection reports, and testimony, and in various
publications of the General Accounting Office, and other
organizations as being vulnerable to fraud or abuse or as
embodying unnecessary, excessive, or wasteful spending. As the
table indicates, the total savings for these provisions over 5
years exceeds $58 billion.
Home Health and Skilled Nursing Facilities
Of these programmatic reforms, two stand out as outstanding
examples of coonalism of numerous organizations desiring to
deal with complex but important policies and where reforms were
sorely needed to prevent waste, abuse, and fraud while
improving the quality of care of Medicare beneficiaries. These
are the provisions relating to home health and skilled nursing
facilities. The savings from these two areas alone amount to
almost $26 billion. The OIG testified before this Subcommittee
on these subjects and worked with the subcommittee's staff to
iron out crucial sections of the prospective payment systems,
interim cost and utilization control systems, and accounting
provisions which were eventually passed into law. These two
reforms are the ``successes'' which truly have many parents--
especially the Health Care Financing Administration and many
professional organizations who had come to support the concepts
embodied in the final law. I must say that we were particularly
impressed by and appreciative of the work of the subcommittee
staff in working through the many details of these reforms.
In both cases, the fundamental approach was to establish a
prospective payment system. In the case of home health, speed
is of the essence. The new law recognized the difficulties
inherent in implementing such a system, and so provides for
interim price and utilization controls. It also begins to
address the problem of unscrupulous individuals and companies
who exploit or cheat the program through sham companies and
irresponsible business practices. It requires home health
agencies and others to post a surety bond of a minimum of
$50,000 as a condition of participation. We have recommended
this in the past as one method for reducing the number of
``providers. Other general fraud provisions mentioned
previously especially apply in this case.
The Balanced Budget Act simplifies Medicare payments for
services provided to nursing home residents. It phases in a
prospective payment system for skilled nursing facility care
covered by Medicare Part A. Covered services not only include
all payments previously made to the facility under Part A but
also all services for which payment may be made under Part B
(except physician and certain other professional services)
during the period when the beneficiary is provided covered
Skilled Nursing Facility (SNF) care. The Act also requires
consolidated billing of Part B items and services when a
beneficiary is in a nursing home but is not covered under a
skilled nursing facility stay paid for by Medicare Part A.
These provisions related to Part B services are responsive to
recommendations the OIG has frequently made with regard to
things like incontinence supplies, wound care, enteral
nutrition, durable medical equipment and supplies, and orthotic
body jackets. Not only will these new provisions make Medicare
less vulnerable to improper marketing, excessively high prices,
unnecessary use, and over utilization, but they will be more
conducive to a higher quality of care for nursing home
residents. This is because the nursing home administrators will
now be more responsible for monitoring, approving, and
justifying the services that are provided for individuals under
their care. This will also bring about a greater protection of
privacy of the medical records of the nursing home residents.
The records were sometimes reviewed by providers of equipment
and supplies who wished to market their goods to these
patients.
Future Concerns
We in the Office of Inspector General are heartened by the
support we have received from the Administration and the
Congress in our fight against fraud, waste, and abuse in the
Medicare program. At the same time, our new authorities and
resources have enabled us to see more clearly just how
pervasive and overwhelming these problems are. Our audit of the
financial statements of the Medicare program as required by the
Chief Financial Officers Act of 1990 as amended by the
Government Management Reform Act of 1994 was released at a
hearing before this Subcommittee on July 17. We reported that
the estimated range of Medicare fee for service payments that
were made incorrectly was $17.8 billion to $28.6 billion, or
about 11 percent to 17 percent. This estimate is at the 95
percent confidence level. We do not know how much of these
payments were due to fraud or abuse or just common errors. All
the money improperly paid is wasteful, though. And these audits
would not detect well known forms of fraud such as kickbacks or
deliberate forgery of bills or supporting documents. Whatever
the audits reveal or fail to reveal, we know from our
investigations and from complaints that we receive that fraud
and cheating are still pervasive in the health care sector.
Nor would the audits reveal wasteful spending due to high
prices, which are properly billed and legally paid even if
excessive. For example, none of the savings that Medicare will
achieve through reduced prices for oxygen, which were mandated
by the Balanced Budget Act, would have been classified as
improper payments under the audit protocols we used for the
financial statement audit.
All of this is to say that we cannot take much time out of
our fight against fraud, waste, and abuse. We are still
watching all areas of Medicare through our audits, inspections,
and investigations. And we are continuing to encourage and
receive support from industry and beneficiary groups in our
efforts. However, as you requested for this hearing, I would
like to single out some areas where we continue to have special
concerns. Some of them are follow-ups to matters addressed in
the recent legislation--areas where we want to watch closely
the implementation of the new provisions.
Home Health
As you know, the President has recently announced a major
initiative to crack down on abuse in the home health program. A
recent audit of Medicare home health services in four large
States found that 40 percent of them were incorrectly paid. A
related study identified weaknesses in the system used to
enroll providers and demonstrated how vulnerable the home
health program is to cheating.
The initiative places a temporary moratorium on enrollment
of new providers while HCFA strengthens the process to keep
untrustworthy agencies out of the program. The moratorium is an
approach we had suggested. We have been advising HCFA about a
number of the procedures that could be used to screen out
unworthy providers. These include criteria related to recent
bankruptcies, Federal program debt, and bad credit ratings.
Many of the procedures they will use are the ones which were so
carefully included in the Balanced Budget Act for this very
purpose. The enactment of the new legislation combined with the
strong administrative action is a dual effort that should go a
long way to address the problems in this crucial area.
One additional aspect of the home health program that
requires attention is the role of physicians in approving the
plans of care for homebound patients. Our studies show that
physicians are sometimes not familiar with the patients whose
plans of care they approve, are not aware of Medicare's home
health eligibility requirements, or rely too much on the home
health agencies which provide the care and get reimbursed for
it to prepare detailed plans which they sign. We have
recommended in the past that physicians be required to
physically examine all patients whose home health care plans
they certify before they do so. We still believe this is a good
idea. Other ideas we are now considering are to modify the
certification forms which physicians sign to spell out more
clearly what Medicare requirements are and provide an
attestation by the physician that they are aware of these
requirements and of the patient's condition, and possibly to
include on the form the amount of money that Medicare will pay
for the patient if the plan of care which the physician
certifies is implemented. We are beginning to solicit other
ideas from physician groups on how to strengthen the
physician's role. We believe that everyone will gain from
that--patients, physicians, and taxpayers--through better
quality of care and less waste.
We also previously recommended that a fee be charged to new
provider applicants to help defray some of the cost of
conducting background checks and conducting on-site reviews of
their operations before enrolling them into the program. We
continue to support this proposal.
Integration of Health Care Businesses
We have become increasingly concerned about the effect of
financial incentives on care and billings made in connection
with services owned by a health care entity that has authority
and opportunity to refer patients for services to another
entity, especially one in which it has a financial stake. One
area in particular is the case of a hospital which owns or has
some other financial interest in a nursing home or home health
agency to which it can refer patients when they are discharged
from the hospital. We have prepared a draft report on this
subject, which was provided to members and staff of this
Subcommittee at their request prior to the enactment of the
Balanced Budget Act. We hope to release the final as soon as we
complete our internal reviews.
The study addresses several issues, including: whether or
not hospitals prematurely release patients from the hospital to
reduce costs and receive additional cost-based reimbursement
under Medicare's skilled nursing facility or home health
programs; whether hospitals restrict freedom of choice for
patients by explicitly or subtly steering them to their own
nursing facilities and home health agencies; and whether the
continuity and quality of care is affected by such referrals.
The study does indeed provide a basis for concern. The
premature release of patients to nursing homes seems to be in
evidence, with patients referred to a hospital's nursing home
being released 2 days sooner than those referred to a nursing
home not owned by the hospital. A similar phenomenon seems to
affect home health agency referrals too, but only by one day.
And this result for home health agencies is not conclusive
because of the small sample size. In the case of steering,
there is clear evidence that hospitals do steer patients to
their home health agencies; the evidence is less clear about
steering discharged patients to the hospital's own nursing
homes.
On the positive side, home health patients believe that
their continuity of care is better when discharged to the
hospital owned home health agency. Patient satisfaction and
perceived quality of care seem to be unaffected.
The Balanced Budget Act addressed the problems which our
report raised. It requires that a hospital notify beneficiaries
of all available home health agencies during the discharge
planning process and identify those entities in which hospitals
have an ownership interest. Further, the statute requires that
hospitals report information to the Secretary on referrals to
post-hospital facilities in which the hospital has a financial
interest. It also allows the Secretary to specify certain
diagnostic review groups for which discharges to nursing homes
and home health agencies will be treated like hospital
transfers for billing purposes.
These new requirements and procedures should help to reduce
abuses. But this is an evolving field, part of the larger
phenomenon of medical care integration. We will watch it
closely and are conducting additional studies to determine how
serious and pervasive it is. We are wary as well of the
possibility of shifting costs among owned entities. This was
revealed by a problem in an investigation of at least one home
health agency whose owner was convicted of Medicare fraud.
These problems with home health illustrate issues that can
arise in the evolving environment of services integration in
the health care industry. We are also watching other spects of
this such as hospital purchasing of physician practices. We
have concerns about possible increases in Medicare expenditures
that might result from the application of different accounting
rules under these circumstances. We are now beginning to study
this.
Ambulance Services
We recently issued a draft report on Medicare ambulance
services, the results of which we shared with this subcommittee
before enactment of the Balanced Budget Act. It shows that
Medicare payments for ambulance services appear to lack common
sense. In 26 States, Medicare pays more for routine, non-
emergency basic life support transportation than it does for
advance life support emergency transportation. Ambulance
payment policies are vulnerable to fraud and abuse. Medicare
contractors report wide-spread abusive situations involving
unnecessary transports, oxygen, EKGs and other services. In the
last five years, the OIG has had more than 100 convictions
involving ambulance providers. Problems result from the
extremely complex payment methods and inconsistent policies. We
recommended establishment of a fee schedule for ambulance
services to correct these problems.
The report supported the work of the congressional staff
who had also concluded that a fee schedule was needed. The
Balanced Budget Act makes interim reductions in ambulance
payments by limiting the allowed rate of increase and mandates
the establishment of a fee schedule by January 1, 2000. The fee
schedule is to be set so that aggregate payments are reduced by
1 percent.
We are concerned that even with the one percent reduction
the new fee schedule will lock in unreasonably high payment
rates in some cases. For example, our study shows that some
base rates and mileage payment levels could be reduced
significantly. We were able to reach this conclusion by
examining only some of the illogical payment variations which
our study uncovered. No doubt others could be reduced as well.
We hope to provide more information on this subject.
Previous studies by our office also showed that payments
for routine, scheduled ambulance trips, easily identifiable for
dialysis trips, for example, could be reimbursed much more
cheaply than the rate for on-call trips now being charged. We
also found that many trips for these dialysis patients were not
medically necessary. The patients could have been transported
by car, for example. All this leads us to believe that even
with the new fee schedule mandated by the Balanced Budget Act
Medicare costs for ambulance services will be excessive. We
intend to continue our reviews of this area.
Prescription Drugs
The Balanced Budget Act reduces Medicare payments for
prescription drugs, which are paid based on the average
wholesale price, by 5 percent. Our work supports taking this
step. We issued two reports in 1996 recommending that HCFA
reexamine its Medicare drug reimbursement methodologies, with a
goal of reducing payments as appropriate. In a recent review,
we found that Medicare allowances for prescription drugs
increased 25 percent from $1.8 billion in 1995 to $2.3 billion
in 1996. However, the number of services allowed increased only
9 percent between the two years. While Medicare pays for only a
narrow range of prescription drugs, it is a cost that is
increasing rapidly and needs to be controlled.
The newly enacted reduction is a good first step. We have
found, however, that the published wholesale prices that are
currently being used by Medicare-contracted carriers to
determine reimbursement bear little or no resemblance to actual
wholesale prices that are available to the physician and
supplier communities that bill for these drugs. For more than
one-third of the 22 drugs we reviewed, Medicare paid more than
double the average price available to physicians and suppliers.
Not only did Medicare pay more than the average price, the
program reimbursed more than even the highest wholesale price
for every drug. We also found there is no consistency among
Medicare contractors in establishing and updating Medicare drug
reimbursement amounts. We believe this variance is not
appropriate.
It is likely that new regulations to be issued by HCFA to
implement the provisions of the Balanced Budget Act will
correct the problems we have found. But some of the problems
will not be within HCFA's control if the industry publications
upon which the prices are based are inaccurate or misleading.
We intend to watch this closely and will recommend additional
legislative remedies if we find problems in this regard.
Additional Authorities
As mentioned earlier, the Congress enacted most of the
legislative proposals that the President requested in his anti-
fraud bill, the ``Medicare Fraud, Abuse, and Waste Prevention
Amendments of 1997,'' and, in some cases, went further. We are
grateful for the additional support this has provided to us.
Some provisions were not accepted, however, and we would like
to reiterate our support for them.
One deals with the bankruptcy code. It is still possible
for wrong doers to use bankruptcy protection as a way to avoid
responsibility for repayment of overpayments, fines, or
penalties. Many of the cases we deal with are not those where a
legitimate business declares bankruptcy because of unfavorable
economic or business conditions. Rather, the bankruptcy is used
on the heals of a fine or penalty to avoid completely any
responsibility for wrong doing. We are also concerned about
using the bankruptcy law to prevent the Secretary from
suspending Medicare payments to a provider under investigation
for fraud. We hope the Congress will reconsider these proposals
soon.
We also continue to support our proposal to authorize the
Secretary to exclude from Federal health care programs anyone
who furnishes medical items or services ordered or prescribed
by an excluded individual or entity if the person furnishing
the services knows or should have known of the exclusion.
Planning New Work
We are continuing to set our priorities and develop our
work plans for the coming year. We look forward to consulting
with the Subcommittee and its staff about our planned
activities. We welcome your ideas and will gladly consider new
projects of interest to you.
Conclusion
Again Mr. Chairman, we would like to thank you and the
Ranking Minority Member for the role this subcommittee played
in working with the Administration to steer Medicare's payment
and enforcement activities in a positive direction. The many
provisions targeted at more realistic reimbursements and the
increased authorities and enforcement resources found in the
Health Insurance Portability and Accountability Act and the
Balanced Budget Act of 1997 have put the program back on
course. Medicare can now begin to move forward to serve the
Nation's retired and disabled at a price we can afford. We will
continue to remain vigilant to current abuses and any future
fraud schemes that emerge. I welcome your questions.
[GRAPHIC] [TIFF OMITTED] T6633.001
Chairman Thomas. Thank you very much, Michael. We adopted a
number of your suggestions and this exactly what we want as we
take a look at what we've done. Kind of like the Sears list of
items: Good, better, best. We're moving in the right direction.
Mr. Mangano. Absolutely.
Chairman Thomas. But we could move some more.
Ms. Ruiz.
STATEMENT OF LINDA A. RUIZ, DIRECTOR, PROGRAM INTEGRITY GROUP,
OFFICE OF FINANCIAL MANAGEMENT, HEALTH CARE FINANCING
ADMINISTRATION
Ms. Ruiz. Good--I guess I was going to say, ``Good
morning,'' but it's now good afternoon, Mr. Chairman and
Members of the Subcommittee. My name is Linda Ruiz and I'm the
Director of Program Integrity for the Health Care Financing
Administration. I appreciate the opportunity to be here today
to describe our program integrity initiatives.
Program integrity is very important to HCFA. It is taken
into account throughout the agency as we make policy, seek
legislation, and implement new operational procedures in both
fee-for-service and managed care. One of the jobs I have is to
make sure that program integrity is considered by all parts of
the agency. We recognize that we need to be a prudent purchaser
of services for beneficiaries, and program integrity is one of
the ways in which we can do that. I'd like to spend a few
minutes on the progress we've made in combating fraud and
abuse.
I'd also like to extend my thanks to you, Mr. Chairman, and
to the other Subcommittee Members for your efforts in helping
us improve Medicare and Medicaid Program integrity. Both HIPAA
and the BBA have given us an unprecedented amount of Medicare
legislation that will be very helpful to us in our fight
against fraud and abuse. The passage of these two pieces of
legislation is a milestone for health care, and we look forward
to working with you in the future to implement them.
One of the most important HIPAA provisions is the fraud and
abuse control program which provides resources and tools
primarily to our law enforcement partners. We already see a
major improvement in the programs ability to get cases brought
against bad providers. The Medicare Integrity Program, which is
also part of HIPAA, provides increased resources over a 5-year
period and stabilizes funding for the Medicare contractor
payment safeguard activities. We expect to have a notice of
proposed rulemaking out on the street later this fall which
would out the rule for competing these contracts and more
clearly define what we consider to be a conflict of interest.
The Balanced Budget Act of 1997 really strengthens our
antifraud and abuse capabilities to implement the program
integrity strategy. Our program integrity strategy uses four
basic approaches: Prevention, early detection, coordination,
and enforcement. These may seem like buzzwords or campaign
phrases, but they really mean a great deal to HCFA and we have
taken a number of concrete actions to implement them.
We agree with you, Mr. Chairman, that postpayment
enforcement efforts alone will not do the job. This is why a
key part of our effort is prevention. The BBA contains several
helpful preventive actions, including barring felons from
getting into the program, improving our provider enrollment,
the PPS and other payment reforms, and having definitions for
home health.
We have also completed some activities in HCFA that we'd
like you to know about. We've completed a national revision of
our provider enrollment form and procedures, and as the
President's recent announcement on home health demonstrated,
we're continuing to reform our provider enrollment requirements
to maximize the likelihood that those billing Medicare are
legitimate and are offering value to our beneficiaries.
Starting in 1996, we implemented the correct coding
initiative, which has resulted in approximately $200 million in
savings in fiscal year 1996 and another $128 million for the
first half of fiscal year 1997. We're also evaluating the GMIS
product group from the field of commercial off-the-shelf
software to test software applications.
Also, for early detection, we have databases both at the
national level and at the contractor level, and we have a
statistical analysis contractor for durable medical equipment
that has saved us a great deal of money and to start some
important fraud investigations.
I guess the last thing I'd like to mention is Operation
Restore Trust, which is our finest example of coordination with
the people who sit with me at the table today and with others.
I'd like to mention that one of the things that we are doing in
terms of cooperation is working with our beneficiaries. Part of
Operation Restore Trust is partnering with the Administration
on Aging and getting the word out to beneficiaries. We are now
working on some of the projects that AARP is participating in
with the Office of Inspector General and the Administration on
Aging. We look forward to working with a more knowledgeable and
aware beneficiary population who can continue to help us find
fraud and abuse.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Linda A. Ruiz, Director, Program Integrity Group, Health
Care Financing Administration
Introduction
Good morning, Mr. Chairman and Members of the Subcommittee.
My name is Linda Ruiz and I am the Director of Program
Integrity in the Health Care Financing Administration (HCFA). I
appreciate the opportunity to be here today to describe HCFA's
program integrity initiatives. The location of the Program
Integrity Group, which is housed in the Office of Financial
Management, reflects our stewardship responsibility for the
Medicare and Medicaid programs. Program integrity efforts
permeate every corner of HCFA and are the result of a conscious
decision to extend our mission's focus throughout the
organization. In our newly reorganized HCFA, program integrity
is no longer viewed as the responsibility of one department,
one office, or one individual. It is a vital element of every
policy decision.
This Administration can be proud of its success in
combating waste, fraud, and abuse. Because health care has
become a target for unscrupulous individuals, both private
industry and government are employing a variety of tools to
combat fraud and abuse. Since 1992, we have made tremendous
progress in protecting the fiscal integrity of the Medicare
program. An example is the HCFA-initiated partnership with the
enforcement agencies targeting fraud and abuse in the five
States that account for nearly 40 percent of all Medicare and
Medicaid beneficiaries. This two-year project, Operation
Restore Trust, encompassed a wide range of projects aimed at
eliminating fraud schemes and identifying vulnerabilities in
the Medicare programs. The reforms enacted in the Balanced
Budget Act of 1997 and the Health Insurance Portability and
Accountability Act of 1996 provide significant new tools to
further assist us, but I think we all know that equally
tremendous challenges lie ahead. Our goal is to ensure that the
Medicare and Medicaid programs have the necessary arsenal to
combat fraud and abuse.
I want to highlight the substantial progress we have made
in combating fraud and abuse and discuss some recent events
affecting our anti-fraud and abuse efforts, including the
reforms enacted in the Health Insurance Portability and
Accountability Act of 1996, the Balanced Budget Act of 1997,
and the home health agency moratorium announced earlier this
month by President Clinton. I would also like to extend my
thanks to you, Mr. Chairman and the other Members of this
Subcommittee, for your efforts in helping us improve Medicare
and Medicaid program integrity.
Legislative Achievements
Both 1996 and 1997 have been key legislative years, with
the passage of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) and the Balanced Budget Act
of 1997. The impact of these two Acts is dramatic. In
particular, the changes generated by the BBA, are the most
significant in the history of Medicare. It is our hope that
implementation of the provisions contained in this legislation
will take us a step further toward eliminating fraud, waste,
and abuse in Medicare and preserving the Medicare Trust Fund
for future generations.
HIPAA--Key Fraud and Abuse Provisions
Fraud and Abuse Control Program--The program integrity
activities of the Medicare contractors initiate many of the
cases subsequently developed by the Office of Inspector General
and Federal Bureau of Investigation, and support their
prosecution by the Department of Justice. Using monies made
available through the Fraud and Abuse Control Fund, established
in HIPAA, we expanded our successful two-year Operation Restore
Trust (ORT) demonstration using the State survey agencies to be
our ``eyes and ears'' in the field and to report back to the
contractors whether providers are meeting Medicare billing as
well as quality requirements. As you know, ORT was designed to
demonstrate new partnerships and new approaches in finding and
minimizing fraud in Medicare and Medicaid. We have used this
model successfully with our expanded home health surveys in the
five Operation Restore Trust (ORT) States.
Approximately $1.8 million was allocated to HCFA for
``Project ORT'' through HIPAA's Fraud and Abuse Control
Program, to enhance the program integrity activities that
involve collaboration with State certification agencies.
Eighteen States are participating in a total of 26 HIPAA funded
projects, allowing us to survey approximately 300 providers for
both certification and reimbursement issues. These enhanced
surveys will be made of providers of home health services,
skilled nursing services, outpatient physical therapy services,
and laboratory services, as well as psychiatric services in
both hospitals and community mental health centers. Many of
these surveys are modeled after the home health agency and
skilled nursing facility surveys conducted during ORT.
Medicare Integrity Program (MIP)--This program, enacted in
the Health Insurance Portability and Accountability Act of
1996, authorizes the Secretary to promote the integrity of the
Medicare program by entering into contracts with eligible
entities to carry out activities such as audits of cost
reports, medical and utilization review, and payment
determinations. MIP provides a stable source of funding for
HCFA's program integrity activities, and gives us authority to
contract for these activities with any qualified entity, not
just those insurance companies who are currently our fiscal
intermediaries or carriers.
The Medicare Integrity Program strengthens the Secretary's
ability to deter fraud and abuse in the Medicare program in a
number of ways. First, it creates a separate and stable long-
term funding mechanism for program integrity activities.
Historically, Medicare contractor budgets had been subject to
fluctuations of funding levels from year to year. Such
variations in funding did not have anything to do with the
underlying requirements for program integrity activities. This
instability made it difficult for HCFA to invest in innovative
strategies to control fraud and abuse. Our contractors also
found it difficult to attract, train, and retain qualified
professional staff, including clinicians, auditors, and fraud
investigators. A dependable funding source allows HCFA the
flexibility to invest in new and innovative strategies to
combat fraud and abuse. It helps HCFA shift emphasis from post-
payment recoveries on fraudulent claims to pre-payment
strategies designed to ensure that more claims are paid
correctly the first time.
Second, by permitting the Secretary to use full and open
competition rather than requiring that HCFA contract only with
the existing intermediaries and carriers to perform MIP
functions, the government can seek to obtain the best value for
its contracted services. Because prior law limited the pool of
contractors that could compete for contracts, we were not
always able to negotiate the best deal for the taxpayers or
take advantage of new ways to deter fraud and abuse. Using
competitive procedures as established in the Federal
Acquisition Regulations System (FARS), we expect to attract a
variety of offerors who will propose innovative approaches to
implement MIP.
Third, MIP permits HCFA to address potential conflict of
interest situations. We will require our contractors to report
situations which may constitute conflicts of interest, thus
minimizing the number of instances where there is either an
actual, or an apparent, conflict of interest. By invoking the
FAR in establishing multi-year contracts with an expanded pool
of contractors, we will be able to avoid potential conflicts of
interest and obtain the best value. Also, by permitting us to
develop methods to identify, evaluate and resolve conflicts of
interest, we can create a process to ensure objectivity and
impartiality when dealing with our contractors. This is a
concern particularly when intermediaries and carriers are also
private health insurance companies processing Medicare claims.
We are currently developing regulations to implement MIP
and we are also working on a statement of work for competitive
contracts. As we transition work from one of our contractors,
Aetna (which is terminating its Medicare work), we are testing
a new contracting relationship in several Western States that
will separate out (and consolidate) payment integrity
activities from claims processing. This will give us valuable
experience as we prepare to implement MIP.
Beneficiary Notification--An equally important program
integrity priority for HCFA is beneficiary information. As a
product of our claims payment system, HIPAA requires that HCFA
send each beneficiary an Explanation of Medicare Benefits
(EOMB) statement. These statements detail actions that Medicare
has taken on claims filed on their behalf. We have learned that
better-informed customers can actually help fight fraud and
abuse, and we currently receive and investigate an overwhelming
number of inquiries from beneficiaries alerting us to
questionable services on their statements. All of our carriers
have 1-800 numbers which appear at the bottom of the EOMB,
encouraging beneficiaries to call with questions about their
claims. By expanding our consumer information programs, we are
ensuring that Medicare beneficiaries receive current, easy-to-
understand, and unambiguous information in a timely manner, so
that they may assist us in identifying improper claims and
erroneous bills. A well-informed beneficiary can save us
Medicare and Medicaid funds by alerting our investigators and
claims reviewers to potential fraud, waste, and abuse of
taxpayers' dollars. HCFA is in the process of formulating a
proposed rule for the program to encourage beneficiaries to
report fraud and abuse. EOMBs were sent for select items and
services beginning in June 1997.
The National Provider Identifier (NPI) is another key
initiative which will help in the prevention of fraud and
abuse. NPI is an industry wide unique identifier for providers
and suppliers created under the authority of the Health
Insurance Portability and Accountability Act of 1996. This
identifier will be used to create databases that will contain a
record of all providers and suppliers who bill Medicare. This
database will be available to the Medicare contractors
processing claims so they can automatically deny or give
greater scrutiny to claims associated with abusive billers. We
plan to publish a proposed regulation defining the NPI as the
national standard later this fall. We will then begin issuing
NPIs to providers in late 1998 or early 1999 and phase in
national implementation over the next few years.
Sanction of Providers for Fraud and Abuse--HIPAA also
requires the Secretary to exclude from Medicare and Medicaid
providers with felony convictions related to health care fraud
or controlled substances, and gives the Secretary greater
flexibility to exclude providers convicted of misdemeanors or
who violate Medicare quality rules. The DHHS Inspector General
has the lead on implementation of this provision.
Adverse Action Data Base--To ensure that our computer
capabilities are commensurate with our program integrity goals,
HIPAA establishes a data base, the Adverse Action Data Base,
which coordinates with but does not duplicate the National
Practitioner Data Bank. The data base will include providers,
suppliers and practitioners against which final adverse actions
have been taken.
The Health Resources and Services Administration (HRSA) is
taking action to coordinate this data base.
Transfer of Assets to Obtain Medicaid Eligibility--HIPAA
makes knowing and willful transfer of assets to gain
eligibility for Medicaid subject to criminal penalties--
including civil monetary penalties or prison--if the transfer
resulted in a period of ineligibility. This was amended by BBA
to clarify that the penalties apply to the advisor, not the
beneficiary. Implementation of this initiative rests with the
Department of Justice.
The Balanced Budget Act of 1997
The recently enacted Balanced Budget Act of 1997 builds on
the anti-fraud and abuse provisions of HIPAA and gives HCFA
more authority through its anti-fraud and pro-efficiency
measures. Planning and implementation are already under way for
these anti-fraud and abuse provisions. It is a very ambitious
schedule and one we are committed to achieving. We will keep
you informed of our progress and will alert you if we encounter
any barriers to meeting a particular deadline.
Surety Bond Requirements for DME and Other Suppliers--This
provision gives HCFA the authority to require durable medical
equipment (DME) suppliers, home health agencies and other types
of provider facilities to post a surety bond of at least
$50,000 before they are certified for both Medicare and
Medicaid. We hope to publish a supplier standard regulation,
requiring a $50,000 surety bond for DME suppliers soon in the
Federal Register. We are contemplating a graduated sliding
scale based on the amount of Medicare billings, either a
$50,000 minimum or 15 percent of the amount shown on the IRS
1099 for each supplier. We are also developing a regulation,
which should be published in the next six months, to implement
the surety bond requirement for home health agencies and
provide important programmatic protections. The home health
agency moratorium will remain in effect until we strengthen
these requirements. HCFA is also preparing a regulation to
require a $50,000 minimum bond for comprehensive outpatient
rehabilitation facilities as required by the BBA. We may adopt
a surety bond requirement for other types of providers as
deemed necessary.
Barring Felons and Improvement of the Provider Enrollment
Process--The BBA provides the ability to bar convicted health
care felons from ever receiving Medicare and Medicaid payments
again, and to exclude the family members of sanctioned
providers so that such providers can't simply transfer the
business to a relative and continue operation. The Office of
the Inspector General has the lead on implementing this
provision through regulation. HCFA will then modify its
provider enrollment application and contractor manual
instructions to ensure that convicted health care felons no
longer bill and receive payment from the Medicare program.
The authority granted by the BBA to require providers and
suppliers to report their Social Security and Employer
Identification Numbers is a significant factor in identifying
fraudulent providers. First, the Secretary must report to the
Congress on the privacy and protection of Social Security
numbers. HCFA will be working closely with SSA to define the
privacy and protection guidelines, which the Secretary will
present to the Congress. Continued cooperation with SSA and
assistance from the IRS will also be needed for successful
implementation.
The BBA gives HCFA the authority to require providers and
suppliers to report their Social Security and Employer
Identification Numbers in order to verify the information on
the provider enrollment form and evaluate whether or not a
provider number should be awarded. The exact mechanism for
verifying Social Security numbers is now being worked out with
the Social Sen. This provision gives the Secretary authority to
deny Medicare entry for provider applicants who have been
convicted of a felony. If an application is denied, a 6-month
waiting period must be completed before the provider may
reapply.
Home Health Prospective Payment System--This provision
provides the ability to establish a prospective payment system
that will pay providers a flat rate, in advance, for a
patient's care, eliminating incentives for providing
unnecessary care. It also will end ``periodic interim
payments'' that are made in advance and not justified until the
end of each year. The law establishes October 1, 1999 as the
date by which the prospective payment system must begin, and we
are working hard to meet that date with the necessary research
and infrastructure development. Meanwhile, the interim system
established in the Balanced Budget Act went into effect on
October 1 of this year.
Clarification of Home Health Care Definition--This
provision provides a clear definition specifying the hours and
days that home care must be needed or provided in order to be
covered by Medicare. We have just issued an instruction that
announces the new requirements for this provision. Regulations
and additional instructions will follow.
Clarification of the Definition of Skilled Service for the
Purposes of Home Health Eligibility--Previously, venipuncture
qualified as skilled nursing care and enabled a beneficiary to
meet the eligibility criterion for intermittent skilled nursing
services under the home health benefit. Thus, if the other
criteria were met (homebound, etc.), then a beneficiary who
only required venipuncture would have been entitled to all of
the other covered home health services including home health
aide services. Now, if venipuncture for the purpose of
obtaining a blood sample is the only skilled service that is
needed by the beneficiary, that individual will not qualify for
home health. This provision is self-implementing and is
effective for services furnished 6 months after August 5, 1997.
Home Health Agency/Hospice Billing Based on Location of
Services--This provision will require billing to be based on
the location of service delivered rather than the location of
the agency, so providers will no longer get high urban
reimbursement rates for care delivered in low-cost areas.
Programs are being developed to implement and administer this
provision. We expect to pay claims under the current system and
adjust payments when the system is completed in January to
assure that agency reviews are not interrupted by the
programming effort.
Development of Payment Standards--This provision gives HCFA
the authority to develop normative utilization standards and
deny payment to agencies that bill for services in excess of
these standards. We are currently considering how most
effectively to implement this critical provision.
Home Health Moratorium--The steadily increasing volume of
investigations, indictments, and convictions against home
health agencies has led to a great deal of publicity and
concern about home health care fraud. In response to this
concern, earlier this month President Clinton and Secretary
Shalala announced an unprecedented moratorium on the entry of
any new home health agencies into Medicare. The current
moratorium on entry of new home health agencies is designed to
reduce the likelihood of ``fly-by-night'' operators entering
the program while HCFA strengthens its requirements, thus
preventing fraud, waste and abuse.
While the temporary moratorium is in effect, the Department
of Health and Human Services will implement program safeguards
included in the Balanced Budget Act, and work on important
changes in requirements for home health agencies. For example,
DHHS will implement the statutory requirement that home health
agencies post at least a $50,000 surety bond before they are
certified. Additionally, a related rule will require new
agencies to have enough funds on hand to operate for the first
three to six months. These requirements will establish the
financial stability of home health providers.
During this six-month moratorium, the Department will also
develop more stringent standards against fraud. New regulations
will include requirements for more business information from
home health agencies; recertification every three years with
independent audits each time; and, experience based on serving
a minimum number of patients prior to Medicare certification.
We are in the process of completing a final regulation to
require home health agencies to conduct criminal background
checks of the aides they hire, and to be more accountable for
the care they provide. In conjunction with this regulation, new
videos and brochures will be designed to teach beneficiaries
how to detect and report fraud and abuse.
These changes will not only strengthen the payment
safeguards we already have in place, but will expand and
enhance them. There will always be unscrupulous providers and
questionable billing practices--but with the tools provided to
us in the BBA and our new, stricter standards, we will have the
ability to be one step ahead of them.
HCFA's Program Integrity Strategy
The Administration is pursuing a strategy intended to deter
fraud and abuse on every front--prevention, early detection,
collaboration and enforcement. Prevention is the best means we
have to guarantee the initial accuracy of both claims and
payments, and to avoid having to ``pay and chase,'' a lengthy,
uncertain and expensive process. Early detection is a second
key ingredient of our approach. We can identify patterns of
fraudulent activity early by using data to monitor the billing
patterns and other indicators of the financial status of
providers, promptly identifying and collecting overpayments,
and making appropriate referrals to law enforcement.
Close collaboration with our partners in the law
enforcement arena is one way we can maximize our success. A
lesson learned through Operation Restore Trust is the
importance of working closely with the States, the Department
of Justice, including the FBI, the Inspector General and the
private sector to share information and tactics about fighting
fraud and abuse.
Finally, when we find ``bad apples'' among our many good
providers, we must take enforcement action against them,
including suspension of payment, exclusion from the program,
disenrollment, collection of overpayments, and imposition of
civil money penalties. Investing in prevention, early detection
and enforcement has a proven record of returns to the Medicare
Trust Fund. In FY 1995, every dollar spent by our Medicare
contractors using these methods yielded $14 in return.
Our prevention, early detection and enforcement strategies
are aided by using the best technology available. In combating
fraud and abuse in Medicare, HCFA needs to rely on the best
technology available to detect fraudulent providers and deter
them from abusing the Medicare Trust Funds.
Prevention, detection, coordination, and enforcement--these
terms are more than just buzzwords or campaign phrases. They
are the actual cornerstones for the variety of anti-fraud
mechanisms that HCFA currently has at its disposal. I would
like to highlight some of these.
PREVENTION means paying right the first time through such
measures as:
Conducting prepayment medical review and on-site
reviews;
Developing local medical review policies that
articulate when we will pay for services;
Evaluating our national policy for vulnerabilities
and loopholes;
Changing Medicare payment methodologies and
billing procedures to make it harder for fraud to occur;
Keeping convicted criminals out of the program;
Requiring surety bonds; and,
Collecting identifying information on providers.
Currently, HCFA has a variety of concrete actions underway
to facilitate the prevention piece of our vision. Our
contractors currently have state-of-the-art systems that enable
us to make proper payments and prevent fraudulent claims from
being paid. We are constantly searching for ways to update and
improve our claims processing technologies.
Extensive Use of Edits--Our contractors process over 800
million claims a year. Using our standard systems, these claims
are subjected to a rigorous prepayment electronic screening
process to verify beneficiary information, provider
information, utilization history, procedure and diagnosis, and
coordination of benefits. Each computer instruction which
verifies information on a claim is called an edit.
These edits are performed to determine beneficiary
information, such as whether the patient is enrolled in
Medicare and if all co-payments and deductibles have been met.
Our contractors also perform a series of edits to determine if
the provider is eligible and is in good standing with the
Medicare program. Claims are then edited for utilization
history. For example, our contractor's systems will only pay
one claim in a patient's lifetime for an appendectomy. Many
claims are also checked to verify if the procedure being billed
is appropriate for the diagnosis. Finally, our contractors
coordinate benefits to determine if a beneficiary has other
coverage that is primary to Medicare. In total our contractors
have thousands of these edits in place which perform a
comprehensive review of each claim before Medicare payment is
made for a service.
Correct Coding Initiative--Implemented in 1996, the Correct
Coding Initiative began with a contract to evaluate all
physician coding and recommend policy for how codes should be
billed, including which codes should be bundled prior to
payment when separately billed. Unbundling occurs when
physicians incorrectly use multiple procedure codes when
describing individual components of a service instead of a
single, comprehensive procedure code which describes the entire
service. Our carriers have installed approximately 93,000
computerized coding edits which check each claim for
``unbundled'' services and prevent a payment from being made.
The project has resulted in approximately $200 million in
savings in the first year of implementation.
Commercial Off-the-Shelf Software (COTS)--We are currently
studying COTS to do some of this editing and it may become a
part of our arsenal. In 1996, HCFA selected GPG (GMIS Products
Group) to test a commercially available software application
know as ``Claims Check'' which is designed to evaluate
physician claims and reduce erroneous or abusive billing on a
prepayment basis.
We are currently testing this software at one of our
contractors to evaluate the underlying policy of edits, the
customization needs, savings, and the installation and
integration issues. Our goal when we began this evaluation was
to achieve maximum savings by integrating the COTS claims
editing software into the Medicare claims processing system.
When our final evaluation is completed later this fall, we will
make a decision about how we can best use claims editing
technology to ensure that claims are paid correctly and cost-
effectively.
Los Alamos National Laboratory--Those who prey on the
Medicare Trust Funds are ever-resourceful. As a result, HCFA
must seek out new ways of detecting fraudulent claims and
preventing their payment. One effort on this front is the 2-
year interagency agreement that HCFA established with the
Department of Energy in 1995 to use the expertise of Los Alamos
National Laboratory. The purpose of this research agreement is
to develop a ground-breaking new claims review approach that
differs from existing methodologies. The ultimate goal of this
new technology is to know on a prepayment basis the likelihood
that a claim is suspect. This kind of research is bold and
promising, but like all basic research, one whose ``payoff'' is
not certain. Our hope is that the product of this project will
be a prototype system of dynamic algorithms and features, that
has been tested and refined to detect fraud, waste, and abuse
in prepayment environments.
Prospective Data Sharing--This is an initiative involving
agreements with major insurance companies to exchange
enrollment information that permits us to identify Medicare
Secondary Payor situations before we pay. Our preliminary
analysis indicates that this initiative will save Medicare
approximately $720 million in fiscal year 1997. Later in my
testimony, I will address how HCFA is seeking to make data
sharing mandatory by law.
National Medicaid Fraud and Abuse Initiative--This past
summer, HCFA's Southern Consortium of regional offices has
assumed the leadership role for the National Medicaid Fraud and
Abuse Initiative. This project is unique in HCFA and I believe
that it illustrates the flexibility of our new organization and
a willingness to do business in a more efficient and responsive
way.
One of the primary goals of this initiative is prevention
of fraud and abuse. Administering this initiative at the
Federal level and assisting the States in implementing proper
program safeguards, will prevent fraud and abuse. Under this
initiative we will continue to assist the Office of the
Inspector General, the Medicaid Fraud Control Units and Program
Integrity Units in their role of prosecuting fraudulent
providers. We will also ensure all States are aware of
fraudulent activities and scams occurring nationwide and
promote consistency by developing national standards.
Some of the primary functional areas the team will be
focusing on are formation of a National Fraud and Abuse
Technical Advisory Group (TAG) composed of HCFA and State
agencies; the development of a model legislative fraud and
abuse package that takes the best of legislation from States
that already have it and shares it for consideration with
States that don't; the encouragement of greater State
involvement in Project Operation Restore Trust (ORT); and a
general strengthening of our partnerships with the States, OIG
and other entities. This initiative is a pilot project which
will run for approximately one year, at which time we will
evaluate the results and reassess our approach if indicated.
EARLY DETECTION is the second part of our program integrity
strategy--
HCFA is constantly seeking means to assure that we avoid
paying for improper claims. Early detection includes using data
to monitor the billing patterns and other indicators of the
financial status of providers and promptly identify and collect
overpayments. For example, we are continuing to promote
efficiency in overpayment collection through the review of a
statistically valid sample of claims where overpayments are
then projected to the universe. Also, we are supporting several
other initiatives to assist in our detection efforts--
Enhanced HCFA Customer Information System (HCIS)--The HCIS
has been used in one of our most successful anti-fraud
programs, Operation Restore Trust, which began as a
collaborative demonstration project with the Department of
Justice and State Medicaid Anti-Fraud Units. The HCIS enables
HCFA and its contractors to view provider or service
utilization data at several levels including the national, the
state, contractor, provider type, or individual provider. For
example, if I were trying to find out how many times a certain
service had been billed in a state, I could obtain that
information through the HCIS database immediately. This
capability allows the rapid identification and analysis of
factors contributing to aberrant data. As a result, audits or
reviews can be focused, rapidly and inexpensively, on a
particular level.
HCFA first used HCIS last year to identify a number of
skilled nursing facilities with potential problems in Miami,
Florida. The project identified over $2 million in overpayments
and mandated corrective action plans from the problem
providers. To date, over $24 million in overpayments have been
identified in these reviews. The OIG and the DOJ also both
routinely request information from HCIS to assist them with
their cases.
Statistical Analysis Contractors--Since 1993, HCFA has
supported a dedicated statistical analysis contractor, Palmetto
Government Benefits Administrator, Inc., to support our four
Durable Medical Equipment Regional Contractors (DMERCs). The
contractor produces ongoing analysis of trends, utilization
rates, billing patterns, referral patterns and related
information at the national and regional levels. As an example,
through their analysis the contractor has identified fraudulent
billing practices for nebulizers and related drugs, and many
abusive practices for incontinence supplies, surgical
dressings, parenteral & enteral nutrition and urological
supplies. The DMERCs have made changes in their payment
policies that have saved the Medicare program in excess of $200
million.
HCFA Contractor Tools--HCFA's development of early
detection tools at the national level has been complemented by
continuing investment in analytic tools used by HCFA
contractors. The Service Tracking, Analysis and Reporting
System (STARS) and the Super Operator are two other software
packages which are used by a number of contractors. These
programs compile and analyze claims data and use statistical
analysis to identify aberrant utilization profiles.
COORDINATION is the third key part of our strategy--
Coordination includes inter-agency collaboration and
cooperation, case support for enforcement, development of fraud
alerts and fraud databases, and working with beneficiaries and
providers who make complaints. The importance of coordination
cannot be overemphasized. The complexity of the Medicare and
Medicaid systems requires information sharing and partnership
among all segments of the health care environment in order for
the fight against fraudulent providers to be successful.
Operation Restore Trust (ORT)--This project, which I
mentioned earlier in the testimony, is probably the best
example of coordination where HCFA and its contractors worked
hand in hand with the Office of Inspector General, the
Department of Justice and State agencies to attack fraud. As
you know, in 1997 these efforts have been expanded into
additional states and we look forward to the results of this
combined effort. ORT has given us a new way to accomplish our
work, one that takes advantage of the expertise and common
goals that we share with our partners.
Fraud Investigation Database--Since 1996, the Fraud
Investigation Database has provided a comprehensive nationwide
system devoted to accumulating fraud and abuse information. It
represents all cases Medicare contractors have referred to law
enforcement, chronology of events for each case, and
disposition of each case. The database also contains the Office
of the Inspector General excluded provider list. Currently this
database is available to HCFA, the Office of the Inspector
General, Department of Justice, including the FBI, U.S. Postal
Inspector, and Medicaid Fraud Control Units.
The effectiveness of FID is illustrated by two cases that
became national investigations, one involving a provider of
diagnostic services and the other involving ambulance services.
Local Medicare contractors queried the FID and noticed that
diagnostic and ambulance services were under investigation in
several jurisdictions across the country. The contractors were
able to consolidate their investigative efforts and pursue
these two national cases. The FID has also served as a valuable
resource to investigators and attorneys as they begin new
cases. Through the FID, they can search for past, similar
cases, and gather information about the investigation,
prosecution and disposition of similar cases. HCFA will use
this database as another tool for analyzing patterns to help in
prevention and detection activities.
CFO Audit--Another example of how HCFA is working with its
partners is reflected in the Chief Financial Officer's Act
audit, which was released to Congress in July. The audit,
conducted by the DHHS OIG, provides HCFA with an opportunity to
identify areas needing work. The audit showed that Medicare
contractors' claims processing systems work well. The actions
taken, based on the information submitted on the claim, were
accurate 99 percent of the time.
The audit also identified some key areas where we must work
harder to ensure program integrity. When the OIG did a ``look-
behind'' review of those claims, which were accurate on the
surface, errors were identified. When the OIG reviewed
supporting documentation not originally submitted with the
claim, they found cases of no documentation or insufficient
documentation to support the claim, instances where services
provided were not medically necessary, billings for non-covered
services, incorrect coding, and services billed but not
performed. These findings led to the projected error rate of 14
percent or an estimated $23 billion in improper payments in
fiscal year 1996.
Although some of these instances could be fraudulent, this
error rate does NOT reflect a rate of fraud and/or abuse in the
Medicare program. it did identify some key areas where we must
work harder to ensure program integrity. We are currently
implementing a Corrective Action Plan to reduce the claims
payment error rate through more comprehensive review of the
underlying documentation.
ENFORCEMENT is the final link in HCFA's strategy--
These enforcement activities include suspension,
verification of program exclusions, disenrollment, collection
of overpayment, and civil monetary penalties. Clearly,
enforcement is an area in which HCFA will continue to work
closely with its partners. New provisions in the Balanced
Budget Act of 1997, as well as those provided for in HIPAA,
will strengthen our enforcement capabilities.
In the chain of activities that comprise fraud detection
and prevention, enforcement is the final link. It is the
tangible result of a series of collaborative actions taken by
HCFA and its interagency partners, Medicare contractors, and
ultimately, beneficiaries. This is why cooperation and
collaboration among HCFA and its partners is so critical to
protecting Medicare--it takes the efforts of all of our
partners to successfully thwart potential fraud, waste, and
abuse.
Remaining Tasks and Future Challenges
Some of the anti-fraud proposals in the President's Bill
were not included in the Balanced Budget Act of 1997, and we
believe it is important to identify them and explain why they
are critical to the overall success of our program integrity
efforts. We would especially like to acknowledge Mr. Stark's
efforts in introducing proposed legislation which would include
some of these proposals.
Civil Monetary Penalties--We think it is of the utmost
importance to have the appropriate penalties for providers
found guilty of defrauding Medicare. Without appropriate
sanctions, anti-fraud laws will have little effect. There a
several proposals that would create new civil monetary
penalties for: false certification of Medicare eligibility,
prior knowledge of claims submitted by excluded providers; and
acceptance of requests from excluded providers (i.e. pharmacy
services). In addition, specific dollar amounts would be
specified for cases of repetitive overbilling and unallowed
charges.
Kickback Penalties--Subsequent to the 1995 Hanlester
Network v. Shalala decision, a very high burden of proof was
put on the government in proving the existence of kickbacks. To
ensure that our fraud detection efforts are not in vain,
legislation is needed to establish the same burden of proof
under the anti-kickback laws as with other criminal statutes.
In addition, there is a proposal to expand the criminal
penalties by extending Federal anti-kickback criminal sanctions
to all public and private health care programs and plans.
Medicare Provider and Supplier Agreement Fee--This proposal
would authorize the Secretary to collect a fee for enrollment
or re-enrollment of Medicare providers or suppliers. The fee
would cover administrative costs and generate considerable
savings for the Medicare and Medicaid programs.
Extension of Subpoena and Injunction Authority--This
proposal would extend the testimonial subpoena power and
injunctive authority that the Secretary has for civil money
penalties to other administrative sanctions such as exclusions
against Federal health care program providers. These
investigative tools are needed in the complex investigations of
fraud, kickbacks and other prohibited activities.
Liability of Physicians in Speciality Hospitals--Under the
anti-dumping statute, this proposal would clarify that
physicians who are ``on call'' to specialty hospitals must
respond to a call from the hospital to come in to the specialty
unit (e.g. a burn center) in order to examine and stabilize the
emergency medical condition of an individual who is proposed to
be transferred to that unit. This proposal would close a
loophole in the coverage of the anti-dumping statute.
Prospective Payment System for Rural Health Center Services
(RHCs)--The Secretary would develop a prospective payment
system for RHCs no later than December 31, 2000. A prospective
payment system would remove the incentives for providers to
inflate their charges and would work to ensure that Medicare
was only paying appropriate costs.
Decreased Beneficiary Cost Sharing for Rural Health Center
Services--Under a prospective payment system, beneficiary cost
sharing would be based on 20 percent of the PPS amount.
Beneficiary cost sharing (prior to the development of a PPS
system) could not exceed 20 percent Medicare's payment limit. A
20 percent cost-sharing limit would be consistent with current
Administration policy to ensure that beneficiaries do not pay
more than 20 percent of the amount that the provider receives
from Medicare.
Partial Hospitalization Services Not to be Furnished in
Residential Settings--This proposal would preclude providers
from furnishing partial hospitalization services in a
beneficiary's home or in an inpatient or nursing home. This
proposal would discourage development of partial
hospitalization programs targeted to patients in their homes or
in settings where there is a residential population, such as
nursing facilities and assisted living facilities.
Additional Requirements for Community Mental Health Centers
(CMHCs)--This proposal would provide authority for the
Secretary to establish through regulation Medicare
participation requirements for CMHCs (health and safety
requirements, provider eligibility standards). Additionally, it
would provide authority for CMHCs to be surveyed by state
agencies to determine compliance with Federal requirements or
investigate complaints upon request. This proposal will be
accompanied by a user fee or specific appropriation for survey
money. It would also prohibit Medicare-only CMHCs. Currently, a
CMHC is defined as an entity that provides certain mental
health services that are listed in the Public Health Service
Act and meets applicable state licensing or certification
requirements. Since 2/3 of the states do not license or certify
CMHCs, this definition is insufficient to ensure that
appropriate organizations become Medicare providers.
Prohibiting Medicare--only CMHCs would discourage establishment
of programs targeted to Medicare beneficiaries.
CMHC Prospective Payment System--It would also provide the
Secretary broad authority to establish through regulation a
prospective payment system for partial hospitalization services
that reflects appropriate payment levels for efficient
providers of service and payment levels for similar services in
other delivery systems. (The current cost reimbursement system
would stay in place until the Secretary exercises this payment
authority.) The partial hospitalization benefit was intended to
be a less-costly alternative to inpatient psychiatric care. The
current reasonable cost reimbursement methodology has resulted
in excessive payment and inappropriate payment for items and
services that are excluded from the definition of partial
hospitalization services.
Bankruptcy Provisions--These proposals would protect
Medicare and Medicaid interests in bankruptcy cases. A provider
would still be liable to refund overpayments and pay penalties
and fines even if he filed for bankruptcy. Quality of care
penalties could be imposed and collected even if a provider was
in bankruptcy. Medicare suspensions and exclusions (including
for not re-paying scholarships) would still be in force even if
a provider files for bankruptcy. If Medicare law and bankruptcy
law conflict, Medicare law would prevail. Bankruptcy courts
would not be able to re-adjudicate our coverage and/or payment
decisions.
Insurer Information Reporting--This proposal would build on
HCFA's prospective data sharing initiative to clarify that
Medicare can require information from all group health plans in
order to ensure that Medicare is paying the appropriate amount
for beneficiaries who may be covered by private insurance. The
problem of Medicare's initially paying and then attempting to
recover payment (or not having enough time to recover payment)
from a group health plan could largely be eliminated if all
group health plans were required to report to us information
about the insurance coverage of Medicare beneficiaries. We
would then know from the start what our payment obligations are
(i.e., if Medicare is responsible for paying most of a claim or
whether Medicare is responsible only for the co-payment and
deductible). The appropriate payments could be made in a timely
fashion and resources would not need to be spent to recoup
mistaken payments.
Conditions for Double Damages--This proposal would provide
that when a third party payer is required to reimburse
Medicare, double damages are payable unless the third party
payer can demonstrate that it did not know, and could not have
known, of its responsibility to pay first. This would reduce
gaming of the system by third party payers.
Clarification of Time and Filing Limitations--This proposal
would clarify that Medicare can recover mistaken payments from
all entities that make insurance payments, without a time limit
upon when Medicare can file a claim. Unfortunately, because we
must utilize information from tax returns, which is then
matched against information from the Social Security
Administration (in the HCFA/IRS/SSA Data Match), by the time we
receive data it is already one and a half, and sometimes two
years old. We must then match this information against Medicare
files before a questionnaire can be sent to identified
employers to determine if a Medicare beneficiary (or their
spouse) had coverage through the group health plan of an
employer. Thus, the current three-year limit for recovery of
erroneous Medicare payments effectively means that no erroneous
primary payments are collected. Consequently, private insurance
companies (whose obligation it is to pay before Medicare when
the beneficiary has a primary policy) receive substantial
windfalls at the expense of the Medicare Trust Fund.
Technical Changes Concerning Minimum Sizes of Group Health
Plans--This proposal would make technical changes concerning
the minimum sizes of group health plans so that the Social
Security Act and the IRS Code would not be contradictory.
Eliminate Exception to Anti-kickback Statute for Certain
Managed Care Plans--The term ``substantial financial risk'' is
undefined and somewhat broad. This proposal would eliminate the
broad new exception (created in HIPAA) to the anti-kickback
statute when providers are at ``substantial financial risk.''
The Congressional Budget Office assigned a considerable cost to
this provision precisely because it could be easily abused by
those wishing to profit from referrals.
Repeal of Clarification Concerning Levels of Knowledge
Required for Imposition of CMPs: This proposal would reinstate
the reasonable diligence standard that the OIG used to levy
civil money penalties on Federal health care program providers
who violated the law. HIPAA eliminated the standard for use of
reasonable diligence and made providers subject to civil money
penalties only if they acted with deliberate ignorance or
reckless disregard.
We believe that these provisions are needed to address
areas of vulnerability that are not covered by existing
legislation, and that they will provide us with additional
valuable weapons in the war against fraud and abuse. We need
the support of Congress in order to add these important tools
to our current efforts.
Conclusion
As the nation's largest purchaser of health care services
and as the health care insurer for one in four Americans, we
know that it is the most vulnerable--the oldest, the frailest,
the least able--who are the first to be victimized. Program
integrity measures not only protect these individuals; they
build a strong base for Medicare, as we know it today, and as
it will evolve to meet HCFA's program needs as we face the next
century.
Building on the principles of our program integrity
vision--Prevention, Early Detection, Coordination, and
Enforcement--it is our intention to strengthen the fight
against waste, fraud and abuse in the Medicare and Medicaid
programs. We are gaining on the agents of fraud. Now is the
time to increase the pressure, not reduce it. I look forward to
working with all of you in this endeavor.
Chairman Thomas. Thank you, Ms. Ruiz.
Mr. Owens.
STATEMENT OF CHARLES L. ``CHUCK'' OWENS, CHIEF, FINANCIAL
CRIMES SECTION, FEDERAL BUREAU OF INVESTIGATION
Mr. Owens. Thank you, Mr. Chairman, for inviting me to
testify at this hearing today.
Mr. Chairman, the FBI has conducted health care
investigations for several years now, but it was only in 1991
that we first designated health care fraud as a national
priority. Since that time we've continued to increase the
commitment of resources to these investigations and frankly,
the HIPAA legislation and the resulting funding that came from
that to the FBI was a real shot in the arm.
I brought some charts with us today I'd like to show you. I
think some points of interest which will clearly indicate what
the FBI's doing in health care fraud investigations. The first
chart reflects that, prior to enactment of the HIPAA
legislation, we had designated and dedicated health care fraud
squads in a number of our field offices around the country, but
with the legislation and the additional agents we were able to
allocate to our field offices, we were able to add about seven
new dedicated squads throughout the country, including adding
one-third squad, one-third full dedicated health care squad in
Miami, and a second full dedicated squad in New York.
The second chart reflects our resource utilization again--
special agents dedicated to this area. It clearly shows from
1992 through, on the chart, the second quarter of 1997, how
we've continuously increased our commitment there. Through the
third quarter, which is the latest figures I have, it's up now
to about 365 agent positions.
The next chart reflects the pending caseload. Again, you
see a continual increase in the number of investigations that
we're conducting there, and frankly, I expect that that will
now start to level off as we've continued to do more and more
cases here. We've gotten involved in more complex cases, many
times cases that are national in scope, and the very difficult
cases, so we wouldn't expect to see an increase in this area.
We do think we'll work the cases that will make more impact.
The next chart reflects a breakdown of the cost of health
care in the country. As you know, the FBI has jurisdiction to
investigate both fraud against the private payor plans as well
as the government-sponsored plans. The inset in the left corner
indicates that in 60 percent of the investigations we conduct,
they're in the federally sponsored programs with the remaining
40 in the private sector. However, what we've seen in most
instances, if the providers are defrauding the Medicare Program
and Medicaid, their also defrauding the private payors as well.
The last chart I have shows the convictions, and I want to
point out, as Mike did, that many of these are joint
investigations that we've conducted with the Inspector
General's Office, IRS, other Federal agencies, and State and
locals as well. Again, through the third quarter we were up to
about 400, so I would expect this year we will exceed what we
did last year.
In the interest of time, I'll be brief. I just wanted to
make a couple of points. In my statement, I indicated a number
of successful investigations that we've conducted, but I just
want to highlight one very briefly. That's a recent home health
care investigation that we conducted in the Miami division. In
that instance, we actually established a home health care
agency ourselves and operated it and we went overt just a few
weeks ago and arrested the first two individuals. We anticipate
numerous additional arrests in that case. But we were able to
make those arrests, we focused not only on the health care
fraud that was apparent there, but also the money laundering
activity that was associated. I think this case is particularly
important because of the high incidence of home health care
fraud that we're seeing and this shows our efforts to attack
it. Also, because of the techniques used--we think by using
these type of techniques we can really get on the inside of
some of these operations and develop evidence of the broad
nature of the frauds that are occurring.
Mr. Chairman, I believe that economic losses to the
American public are now greater from health care fraud than
from any other form of white-collar crime and that is why we
are placing such an important emphasis in this area. We're
working closely with several other agencies to conduct these
matters; there are numerous task forces and working groups
established throughout the country with the prosecutors and
investigators, and we think we are beginning to make some real
impact. We're using, as I've indicated, undercover operations
and proactive techniques to address this. We're being
encouraged to do more and more civil investigations as well as
criminal, and we've done that. We've applied the RICO statute
in some instances, and we're certainly willing to do that if
the circumstances warrant. We're also, as I indicated,
investigating more and more cases that are national in scope.
With that, at the appropriate time, I'd be happy to answer
any questions.
[The prepared statement follows:]
Statement of Charles L. ``Chuck'' Owens, Chief, Financial Crimes
Section, Federal Bureau of Investigation
Good Morning Mr. Chairman and Members of the Subcommittee
on Health.
The FBI places a high priority on investigating Health Care
Fraud and is committed to working with this Committee and all
of Congress to ensure that law enforcement has the necessary
tools to combat the health care crime crisis. I testified
several months ago on this issue to the Senate Permanent
Subcommittee on Investigations. I would be delighted to furnish
this Committee with similar statistics relating to the FBI's
enforcement efforts as well as to update you on some very
recent developments. Another FBI representative recently
participated in a hearing held by the Senate Special Committee
on Aging. At this hearing the FBI representative played a video
obtained by use of a closed circuit television, installed under
court order, located in the billing area of a doctor's office.
The doctor was captured in the act of altering billing records
to facilitate his fraud scheme. Inasmuch as it was previously
shown and was the subject of widespread publicity, I chose not
to play this tape today but I can certainly make it available
to the Committee.
As the Committee is aware, in addition to providing new
statutory tools to combat health care fraud, the Health
Insurance Portability and Accountability Act of 1996 (HIPAA),
which was passed by the last session of Congress, specified
mandatory funding to the FBI for Health Care Fraud Enforcement.
The last chart accompanying my written statement depicts the
incremental increases in FBI appropriations. The law provided
the FBI with $47 million in fiscal year 1997 for its health
care fraud efforts, up from $38 million in fiscal year 1996.
The FBI used this enhancement, in large part, to fund an
additional 46 agent and 31 support positions for health care
fraud and to create several new dedicated Health Care Fraud
Squads. (see chart 1 attached). This increase in personnel
resources brought the number of FBI agents addressing health
care fraud in the 2nd quarter of FYER fiscal year 1997) as
compared to 112 in 1992. (see chart 2 attached). Funding is
slated to increase incrementally until the year 2003, when it
will reach $114 million and remain at that level each year
thereafter. With this additional funding, the FBI will be in a
position to continue to increase the number of agents committed
to Health Care Fraud investigations.
As the FBI has increased the number of agents assigned to
health care fraud investigations, the caseload has increased
dramatically from 591 cases in 1992, to over 2,300 cases in the
first half of 1997 (2,428 3rd quarter fiscal year 1997). (see
chart 3 attached). The FBI caseload is divided between those
health plans receiving government funds and those that are
privately funded (see chart 4 attached). Criminal health care
fraud convictions resulting from FBI investigations have risen
from 116 in 1992, to 475 in 1996. (see chart 5 attached). As
the complexity and long-term nature of our health care fraud
investigations increase we anticipate that the number of
investigations and convictions will begin to level off.
A considerable portion of this funding increase was
utilized to support major health care fraud investigations such
as the federal probe of Columbia Healthcare Corporation,
reportedly the nation's largest for-profit health care
provider. This investigation has been widely reported in the
media and I am sure the Committee is aware of the allegations.
The coordinated execution of multiple search warrants at
Columbia related facilities required the services of hundreds
of FBI agents and representatives of other cooperating
agencies. The expenses associated with the searches, as well as
post search document storage and review expenses, were funded
in large part through the appropriations made possible through
HIPAA. The committee can be assured that HIPAA funding is being
used to enhance the staffing level of FBI field offices
involved in ongoing investigations of national importance.
The funding made available through HIPAA also made possible
four regional training conferences for FBI agents assigned to
Health Care Fraud Investigations. These one week training
sessions sponsored by the Health Care Financing Administration
provided in-depth training on the Medicare Program to almost
300 agents. Other training sessions, to include a session for
the Bureau's Financial Analysts and an FBI, Defense Criminal
Investigative Service (DCIS), and Office of Inspector General-
Health and Human Services (OIG-HHS) Managers' Conference, were
also made possible by HIPAA.
As the Committee is aware, Health Care Fraud Investigations
are document intensive. Each of the Bureau's Health Care Fraud
Squads are being provided with newly purchased computer
hardware and software and other technical equipment to aid in
their investigations. These purchases were made possible
through HIPAA funding.
Our investigations to date have shown that no segment of
the Health Care System is immune from fraud. This morning i
would like to discuss briefly three areas of the Health Care
Delivery System which FBI investigations have shown to be
particularly susceptible to fraud: Laboratory billings; Home
Health Care; and Durable Medical Equipment, Prosthetics,
Orthotics, and Supplies (DMEPOS).
Eight months ago, Damon Clinical Laboratories Inc. agreed
to pay the Federal government $119 million in civil and
criminal penalties for submitting false claims to various
Federal Health Care Programs, including the Medicare Program
and a number of Medicaid Programs. In November of last year,
the Laboratory Corporation of America agreed to pay the Federal
government $182 million in civil penalties associated with
submitting false claims for medically unnecessary tests. As
part of this agreement, Allied Clinical Laboratories, a labcorp
subsidiary, pled guilty to a criminal charge and will pay a $5
million criminal fine. In February of this year, Smithkline
Beecham Clinical Laboratories Inc. agreed to pay $325 million
to settle fraud charges.
These multi-agency investigations and settlements were the
result of the cooperative efforts of a number of agencies and
resulted in significant restorations to the hospital insurance
trust fund--which funds the Medicare and Medicaid Programs--as
well as other Federal Health Care Programs. The fraud schemes
include bundling certain lab tests with blood panels, causing
physicians to order tests that were not medically necessary;
billing for hemogram indices each time a complete blood count
was ordered; ``Code Jamming'' on screening tests to ensure
Medicare payment; and providing inducements to physicians to
obtain their Medicare business. Investigations into other
allegations involving the laboratory industry are continuing.
The home health industry has grown tremendously during the
last few years. In 1993, Home Health Agencies were reimbursed
by Medicare in the amount of $9.7 billion for services provided
to 2.8 million Medicare beneficiaries. By 1996, Medicare paid
$17.2 billion to providers of Home Health Care for services
rendered to 3.8 million beneficiaries. The number of Home
Health Agencies billing Medicare has grown from just over 7,000
in 1993, to an estimated 9,500 in 1996.
Investigations conducted by the FBI and OIG-HHS have
uncovered fraud schemes in the Home Health Area involving cost
reporting fraud; billing for services not rendered; up-coding
visits to a higher reimbursement code, such as a skilled
nursing visit; and billing for services rendered to persons not
``Home Bound'' as required by medicare. A number of factors may
contribute to the high rate of fraud detected in the Home
Health Industry. Less than 4 percent of the agencies receive
on-site audits by Medicare contractors and the beneficiaries
are not required to make a co-payment, making it less likely
that a beneficiary will complain about the extent of service or
what's being billed to Medicare. As the committee is aware, the
President recently announced that the Government will be
doubling its audits of Home Health Agencies. It can be expected
that more audits will result in the predication of more
criminal investigations and the FBI applauds this effort.
Just last month a Federal grand jury in Miami returned a
102 count indictment of twelve defendants, including two
administrators and five physicians, from one of the Nation's
largest Home Health Care Agencies. allegedly, this is a $15
million fraud and one of the Nation's largest Home Health Care
Fraud indictments ever. Two of the defendants are charged with
creating a large network of bogus nursing groups and then using
these groups to fraudulently bill the Medicare System for Home
Health Care Services that were not provided or for persons they
knew were not qualified to receive the service. They also
allegedly instructed employees to fabricate the records
necessary to support these billings and then ``Laundered'' the
proceeds through accounts set up through the secret owners of
the bogus nursing groups, who were either family members or
friends of the defendants. The money laundering charges carry a
maximum of twenty years in prison and a fine of twice the
amount laundered. The conspiracy, false claims and wire fraud
counts are punishable by up to five years imprisonment each and
a $250,000 fine, per count. This indictment was a culmination
of a four and one half year investigation by the FBI, IRS, and
United States Attorney's Office.
Another area of Health Care that has been shown to be
particularly vulnerable to fraud is durable medical equipment.
Recently, five midwest residents pled guilty to racketeering
charges in connection with more than $25 million in fraudulent
billings to Medicare through the marketing of durable medical
equipment to Medicare reimbursement for products they did not
provide, receiving payment for non-reimbursable supplies,
providing unnecessary items to patients, misrepresenting the
quantities of supplies actually provided, and engaging in
billing activities to avoid detection by the Medicare
contractor. Part of the scheme included adding unnecessary
items in urinary incontinence kits and marketing those items to
nursing homes for reimbursement from Medicare. The two
principle subjects were each sentenced to 57 months in prison
and agreed to the forfeiture of $12 million.
In a highly unusual case, just last week two individuals
were arrested and charged in connection with a two-year fbi
sting operation addressing Medicare fraud and money laundering.
The FBI set up its own Home Health Care Agency and participated
with the subjects in laundering $1.2 million in what the
subjects thought was drug money through the subjects Home
Health Agency. The investigation is still ongoing and efforts
are underway to freeze the subjects assets and prevent further
Medicare billings. The subjects Home Health Agency received
over $8 million in Medicare payments over the last two years.
The HIPAA of 1996 (The Act) established the Health Care
Fraud and Abuse Control Account which provided funding to HHS
as well as the Department of Justice. This funding increase for
the Department of Justice provides great support for the
Department's decision, from approximately five years ago, to
make Health Care fraud Prosecution one of its top priorities.
Through the funding provisions of this Act, the Department was
able to hire an additional 90 Assistant United States Attorneys
(AUSAS), 60 criminal and 30 civil, to support Health Care Fraud
Prosecutions. The assignment of these AUSAS To various
districts was closely coordinated with the Bureau's staffing
increases in an effort to ensure adequate prosecutive support
for the anticipated increase in criminal matters under
investigation.
The Act also created a Federal health care fraud offense,
which covers any Health Care Plan, whether Government or
privately funded, and empowers the Attorney General or her
designee to issue investigative demands to obtain records
pertaining to Federal criminal health care offenses. Records
obtained pursuant to this method are not subject to the same
constraints applicable to records obtained through the use of a
Grand Jury subpoena. A number of investigative demands have
already been issued in connection with ongoing criminal
investigations.
As the committee is well aware, the Balanced Budget Act of
1997 goes even further than HIPAA'S efforts to combat Health
Care additional anti-fraud measures continues to exist. The
Bureau strongly supports provisions requiring the permanent
exclusion of individuals with multiple convictions of program
related offenses and the posting of surety bonds. The Bureau
also supports efforts to require providers to furnish social
security and employer identification numbers of all owners and
managing employees prior to certification.
Despite the great strides made by the last session of
Congress, additional legal tools are still needed if law
enforcement is to make even more of an impact on this estimated
$100 billion a year crime problem.
The FBI concurs with the Department of Justice that there
should be a liberalization of F.R.CR.P. 6(E) to facilitate the
sharing of information among criminal and civil attorneys in
health care cases. Often, investigations which are initiated on
complaints of criminal allegations fall short of the burden of
proof required to sustain criminal convictions and the
appropriate remedy becomes civil enforcement. Information
currently obtained through the Grand Jury cannot be routinely
used by civil attorneys, absent a court order.
Secondly, while Section 204 of the Act extends Title 42
criminal provisions relating to kickbacks in all health plans
receiving Federal funds, except the Federal Employees Health
Benefit Plan (FEHBP), it does not apply illegal remuneration
prohibitions to the private health care industry. Congress has
also not included violation of the anti-kickback statute in the
definition of Federal Health Care Offense. Thus, in an
investigation based solely on illegal kickbacks, the new health
care violations and new procedural tools, such as investigative
demand authority and injunctive relief, will not be applicable.
Statistical analysis of billing data typically reflects
high usage peaks during certain time periods for various
procedure codes. Reimbursement for these procedures or tests
require certification from a medical provider stating the
procedure or test was medically necessary. Typically, after law
enforcement activity is initiated based partly on the
statistically aberrant usage of a particular code, usage
decreases and another procedure exhibits higher than normal
usage. One cannot help but assume that these aberrant billing
patterns are due in part to monetary incentives paid to
providers to certify that the tests or procedures were
medically necessary. When the medical judgement of providers
becomes obscured by the motive for profit, all americans
seeking medical care become potential victims. The FBI and
other Department of Justice components would support an
amendment to the Federal criminal code to create a new
generalized offense against kickbacks paid in connection with a
``Health Care Benefit Program'' as defined in 18 U.S.C. Sec. 24
(B). This provision would fill the gap in the law by extending
Federal anti-kickback criminal sanctions to all Health Care
Benefit Programs, public and private.
An ongoing FBI undercover investigation has determined that
the payment of illegal kickbacks for referral of Medicare
business is a widespread and accepted practice in the segment
of health care under investigation. At this time I am unable to
share with the Subcommittee audio and visual confirmation of
this assertion but I would be happy to share these tapes with
the Subcommittee when this investigation is concluded. These
recorded Acts will serve as a compelling argument for further
expansion of the anti-kickback statute.
This ongoing undercover investigation now involves
investigators from, in addition to the FBI, agents from the
OIG-HHS, IRS, and DCIS and is but one example of the
cooperative Federal effort to combat health care fraud.
That concludes my prepared remarks and at this time I would
be pleased to answers any questions that you may have.
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Chairman Thomas. Thank you, Mr. Owens. My assumption is you
didn't operate your home health care agency through a pawnshop
front arrangement. Did it look more like a home health care?
Mr. Owens. Actually, it wasn't too different than the one
you showed. It just shows the----
Chairman Thomas. Careful.
Mr. Owens [continuing]. Egregious nature of this activity,
I think.
Chairman Thomas. And still they came.
Mr. Mangano, to begin the discussion. What we did was,
again, to give people an idea of how--I'm sorry, Dr. Scanlon.
Mr. Scanlon. That's OK.
Chairman Thomas. You're here so often.
Mr. Scanlon. Beg your pardon?
Chairman Thomas. You're here so often.
Mr. Scanlon. Right. [Laughter.]
Chairman Thomas. But I do want to hear from you.
STATEMENT OF WILLIAM J. SCANLON, DIRECTOR, HEALTH FINANCING AND
SYSTEMS ISSUES, HEALTH, EDUCATION, AND HUMAN SERVICES DIVISION,
U.S. GENERAL ACCOUNTING OFFICE
Mr. Scanlon. Thank you very much. It's a pleasure to be
back again. In particular, I'm pleased to be here as you
discuss the recent legislative efforts to address fraud and
abuse in the Medicare Program.
As you indicated at the start, as well as what you've heard
from my fellow panelists, the Congress has squarely faced the
mounting concerns that exist about Medicare fraud and abuse and
has responded very decisively in HIPAA and the Balanced Budget
Act. Indeed, the broad scope of this response is demonstrated
by the fact that these acts address the bulk of the waste,
fraud, and abuse recommendations that have been made by the
Inspector General and ourselves over the years. At your
request, we have issued correspondence to the Subcommittee
today elaborating on how well you have addressed those
recommendations.
Today, I would like to focus in my statement on the work
that lies ahead to realize the potential benefits of these
pieces of legislation. As you know, the success of any reform
legislation is contingent upon its implementation. This new
Medicare legislation is no exception. Take, for example, the
mandates under BBA to replace cost-based reimbursement with
prospective payment systems to eliminate the financial
incentives for providers to deliver more services than
necessary. HCFA will have to bring to a speedy conclusion years
of data-intensive research to develop prospective payment
methods and settle on methods that, first of all, avoid
building excessive payments of the past into future rates.
Second, they will have to compensate providers fairly for
their sicker or healthier-than-average patients, and finally,
they will have to avoid creating incentives for underservice
that could put beneficiaries at risk. Then, under the standard
regulatory process, HCFA will need to develop implementing
regulations, seek public comments, and ultimately issue final
regulations.
For the expectations of BBA to be realized, this process is
going to have to be accelerated significantly. Under the
Balanced Budget Act, HCFA will have to develop concurrently
separate prospective payment methods for inpatient
rehabilitation facilities, home health agencies, skilled
nursing facilities, and hospital outpatient departments.
Medicare's new Choice plans also present implementation
challenges. For example, in setting standards for planned
participation, HCFA will need to strike a judicious balance
between encouraging plan growth and adequately protecting
beneficiaries quality of and access to care. In addition, HCFA
may face extraordinary challenges in overseeing compliance with
participation standards. The newly authorized higher HMO rates
for rural areas, plus the options for preferred provider
organizations, provider-sponsored organizations, and private
fee-for-service plans may well increase substantially the total
number of participating plans. If that anticipated growth
occurs, HCFA may not be equipped to make the site visits at the
current rate of once every other year or to give adequate
scrutiny to the marketing material that plans are submitting
for HHS approval.
Another implementation concern is related to HCFA's
information management systems. As you know, HCFA's major
project to modernize its information system, the Medicare
Transaction System, was terminated about 2 months ago. This is
a significant setback for HCFA's efforts to intercept fraud and
abuse. MTS was expected to provide an online database that
could integrate data on part A and part B services and
payments. This information is currently stored separately,
limiting contractors' efforts to detect double billing for the
same service or supply or other patterns of suspicious billing.
HCFA's other antifraud and abuse software development projects
are also years away from implementation nationwide.
I'd like to conclude by reiterating that these acts, the
Balanced Budget Act and HIPAA, offer HCFA great potential to
combat Medicare fraud and abuse. Some provisions, however, will
require extensive time and resources to implement effectively.
Additional congressional oversight, encouragement, and possibly
action will be needed to achieve timely and effective
implementation and to realize the potential of this
legislation. At the same time, HCFA's management information
difficulties undermine the agency's abilities to perform the
high-tech investigative work needed to scrutinize Medicare
bills effectively. Medicare's program managers and their
Federal law enforcement partners will certainly have to work
diligently to keep pace with the persistent attempts to defraud
the program.
Thank you, Mr. Chairman. I'd be happy to answer any
questions you or other Members of the Subcommittee have.
[The prepared statement follows:]
Statement of William J. Scanlon, Director, Health Financing and Systems
Issues, Health, Education, and Human Services Division, U.S. General
Accounting Office
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here as you discuss recent legislative
efforts to address fraud and abuse in the Medicare program. In
response to heightened concern about the exploitation of
Medicare, the Congress enacted as part of the Balanced Budget
Act of 1997 (BBA) (P.L. 105-33) a number of provisions designed
to control fraud and abuse. At your request, we have sent
correspondence to the Subcommittee today that discusses the
provisions of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) (P.L. 104-191) and BBA that
address anti-fraud-and-abuse recommendations that we and the
Inspector General of the Department of Health and Human
Services (HHS) have made.\1\ We also included in the
correspondence our remaining open recommendations and those
from the Inspector General.
---------------------------------------------------------------------------
\1\ Medicare Fraud and Abuse: Summary and Analysis of Reforms in
the Health Insurance Portability and Accountability Act of 1996 and the
Balanced Budget Act of 1997 (GAO/HEHS-98-18R, Oct. 9, 1997).
---------------------------------------------------------------------------
In noting the comprehensive legislation that the Congress
enacted, in part, to grapple with program fraud and abuse, my
statement today focuses on the work it will likely take to
realize the potential benefits of HIPAA and BBA in three
areas--in traditional fee-for-service Medicare, the new
Medicare+Choice plans, and information management systems. My
remarks are based on the work we have done to prepare today's
correspondence and relevant GAO studies. (See the list of
related products at the end of this statement.)
In summary, both HIPAA and BBA directly address Medicare
fraud and abuse and provide opportunities to improve program
management. Both acts offer civil and criminal penalties. They
also introduce opportunities to deploy new program safeguards.
For example, on the fee-for-service side of the program, BBA
introduces prospective payment methods for skilled nursing
facility and home health services, in part to halt opportunists
from overbilling Medicare. These are among Medicare's fastest-
growing components: From 1989 to 1996, spending for home health
care and skilled nursing facility care averaged, respectively,
a 33-percent and 22-percent annual rise. HIPAA also ensures a
stable source of funding for anti-fraud-and-abuse activities,
authorizes HCFA to contract for improved claims reviews,
enhances law enforcement coordination, and calls for data
collection improvements. On the managed care side, BBA's
Medicare+Choice program, which broadens beyond health
maintenance organizations (HMO) the private health plans
available to Medicare beneficiaries, includes several
provisions addressing the marketing, enrollment, and quality of
care issues raised in our reports and those of the Inspector
General.
As always, however, the success of any reform legislation
is contingent on its implementation. The Congress has provided
HHS and the Health Care Financing Administration (HCFA), the
Department's administrator of the Medicare program, with many
new statutory requirements governing traditional fee-for-
service Medicare; some require little effort to carry out,
whereas others, such as prospective payment system development,
will require extensive time and resources to implement
effectively. In addition, the Medicare+Choice program will add
considerably to HCFA's private plan monitoring workload.
Finally, the project to modernize Medicare's claims processing
systems, which are at the core of many fraud and abuse
detection efforts, has recently been halted. This brings into
question the ability of HCFA and its contractors to perform
expeditiously the data-intensive analyses needed to spot and
counteract abusive billing schemes. HCFA agrees that the tasks
associated with implementing HIPAA and BBA mandates are
considerable and plans to report routinely to HHS officials and
to the Congress on HCFA's progress implementing the
legislation.
As we stated in our 1997 High-Risk Series report on
Medicare, fraudulent and abusive schemes are inherently
dynamic, as unprincipled entrepreneurs continually seek ways to
dodge program safeguards.\2\ As a result, fortifying Medicare
against fraud and abuse will require a concerted and ongoing
effort by Medicare program managers and federal law enforcement
agencies to keep pace with new attempts to exploit the program.
It will also likely require additional congressional oversight
to encourage timely and effective program management.
---------------------------------------------------------------------------
\2\ High-Risk Series: Medicare (GAO/HR-97-10, Feb. 1997).
---------------------------------------------------------------------------
Background
Established under the Social Security Amendments of 1965,
Medicare is a two-part program: (1) ``hospital insurance,'' or
part A, which covers inpatient hospital services and skilled
nursing facility, hospice, and home health care services, and
(2) ``supplementary medical insurance,'' or part B, which
covers physician and outpatient hospital services, diagnostic
tests, and ambulance and other medical services and supplies.
In fiscal year 1997, part A will have covered an estimated 38.1
million aged and disabled beneficiaries, including those with
chronic kidney disease. Total outlays for parts A and B are
estimated at $212 billion for fiscal year 1997.
In Medicare's fee-for-service program, which is used by
almost 90 percent of the program's beneficiaries, physicians,
hospitals, and other providers submit claims for services
rendered to Medicare beneficiaries. HCFA administers the fee-
for-service program largely through claims processing
contractors. Insurance companies--like Blue Cross and Blue
Shield plans, Mutual of Omaha, and CIGNA--process and pay
Medicare claims, which totaled an estimated 900 million in
fiscal year 1997. As Medicare contractors, these companies use
federal funds to pay health care providers and beneficiaries
and are reimbursed for the administrative expenses incurred in
performing the Medicare work. Over the years, HCFA has
consolidated some of Medicare's operations, and the number of
contractors has fallen from a peak of about 130 to about 65 in
1997.
Generally, intermediaries are the contractors that handle
claims submitted by ``institutional providers'' (hospitals,
skilled nursing facilities, hospices, and home health
agencies); carriers generally handle claims submitted by
physicians, laboratories, equipment suppliers, and other
practitioners. HCFA has guarded against inappropriate payments
largely through contractor-managed operations, leaving the
intermediaries and carriers broad discretion over how to
protect Medicare program dollars. As a result, contractors'
implementation of Medicare payment safeguard policies varies
significantly.
Medicare's managed care program covers a growing number of
beneficiaries--more than 5 million as of September 1997--who
have chosen to enroll in a prepaid health plan rather than
purchase medical services from individual providers. The
managed care program, which is funded from both the part A and
part B trust funds, consists mostly of risk contract HMOs that
enrolled nearly 5 million Medicare beneficiaries as of
September 1997.\3\ Medicare pays these HMOs a monthly amount,
fixed in advance, for each beneficiary enrolled. In this sense,
the HMO has a ``risk'' contract because regardless of what it
spends for each enrollee's care, the HMO assumes the financial
risk of providing health care in return for the payments
received. An HMO profits if its cost of providing services is
lower than the predetermined payment but lose if its cost is
higher than the payment.
---------------------------------------------------------------------------
\3\ The Medicare managed care program also includes cost contract
HMOs and health care prepayment plans. Cost contract HMOs allow
beneficiaries to choose health services from their HMO network or
outside providers. Health care prepayment plans may cover only part B
services. Together, both types of plans enroll fewer than 2 percent of
the Medicare population.
---------------------------------------------------------------------------
Implementing New Laws Affecting Fee-for-Service Medicare Will Require
Sustained Effort to Realize Benefits
The Congress provided important new resources and tools to
fight health care fraud and abuse when it enacted HIPAA and
BBA. To address problems in traditional fee-for-service
Medicare, various provisions require HCFA to change outmoded
payment methods, largely by establishing new prospective
payment systems and by imposing fee caps, reductions, and
updates to contain unnecessary expenditures. Certain provisions
offer the potential to improve claims reviews--mandating
specific increases in reviews and providing HCFA new
contracting authority to acquire technical expertise.
Enactment of the legislation represents an important first
step toward the realization of program integrity goals. As we
have noted in previous testimony, the legislation process sets
forth the broad concepts while the administering agencies
implement the legislation through planning, design, and
execution.\4\ In the case of HIPAA, now more than a year old,
HCFA and the HHS Inspector General have been developing plans
on many fronts, but actual implementation is just beginning. In
the case of BBA, less than 3 months old, the ``to-do'' list is
long. Three examples relating to both acts illustrate the
situation.
---------------------------------------------------------------------------
\4\ ``Administration's Proposed Budget Cuts Affecting the Medicare
Program,'' hearing before the House Subcommittee on Health, Committee
on Ways and Means, March 2 and June 15, 1982, serial 97-53, pp. 331-38.
---------------------------------------------------------------------------
First, HIPAA, enacted over a year ago, grants HCFA the
authority to use contractors other than the insurers serving as
Medicare intermediaries and carriers to conduct medical and
utilization review, audit cost reports, and carry out other
program safeguard activities. The purpose is to enhance HCFA's
oversight of claims payment operations by increasing contractor
accountability, enhancing data analysis capabilities, and
avoiding potential contractor conflicts of interest.
HCFA's target date for awarding the first program safeguard
contract is in fiscal year 1999, more than a year from now.
HCFA officials are preparing for public comment a notice of
proposed rulemaking that would ultimately govern the selection
of contractors to perform safeguard functions, but they are not
able to specify when the contract award rules will be final.
Second, to allow greater information-sharing among federal
and state government agencies and health plans, HIPAA mandates
the creation of a national data collection program under which
information on final adverse actions against health care
providers will be maintained. Officials from the Office of the
Inspector General are working with the Health Resources and
Services Administration to develop the database. On the basis
of past experiences with database development, it could be
several years before the system can be fully operational.
Distinct from its predecessor system, the National Provider
Data Bank, this data collection program is expected to maintain
information on civil judgments, criminal convictions, licensing
and certification actions on suppliers and providers,
exclusions, and other adjudicated adverse actions--involving
the collection of data from state and local governments. The
program must also be self-supporting, requiring market research
to assess the needs and preferences of potential users.
Finally, because existing federal and state statutes and
regulations may impede the collection and dissemination of the
information required, new federal regulations may be necessary,
requiring the publication of proposed rules, a 60-day period
for receipt of public comments, and an indeterminate period for
making the regulations final.
Third, BBA requires the implementation of several
prospective payment systems to replace cost-based reimbursement
methods. Depending on their design, prospective payment systems
can remove the incentive to provide services unnecessarily. For
example, prospective payment for skilled nursing facilities
(SNF) should make it more difficult to increase payments by
manipulating Medicare's billing rules for ancillary services
provided to beneficiaries in these facilities, an issue often
raised in our reports and testimonies. However, a considerable
amount of work will be involved. Establishing rates that will
enable efficient providers to furnish adequate services without
overcompensating them will require (1) accounting for the
varying needs of patients for routine and ancillary services
and (2) collecting reliable cost and utilization data to
compute the rates and the needed health status adjustment
factors. Earlier this year in testimony before this Committee
on prospective payment proposals, we suggested that HCFA use
the results of audits of a projectable sample of SNF cost
reports when setting base rates to avoid incorporating the
inflated costs found in the HHS Inspector General's reviews of
SNF cost reports. We also discussed the need for systems to
adequately monitor prospective payments to help ensure that
providers do not skimp on services to increase profits at the
expense of quality care.\5\
---------------------------------------------------------------------------
\5\ Medicare Post-Acute Care: Cost Growth and Proposals to Manage
It Through Prospective Payment and Other Controls (GAO/T-HEHS-97-106,
Apr. 9, 1997).
---------------------------------------------------------------------------
In general, reforming payment methods entails developing
payment methodology components that require data-intensive
studies, developing the implementing regulations, publishing
the proposed regulations for public comment, and issuing final
regulations. For example, it took HCFA 4 years--from the time a
task force was established in 1993--to issue proposed salary
guideline regulations for rehabilitation therapy services. To
meet the requirements of BBA, HCFA will have to develop,
concurrently, separate prospective payment systems for services
delivered through inpatient rehabilitation facilities, home
health agencies, skilled nursing facilities, and hospital
outpatient departments.
Developing prospective payment systems, moreover,
represents only a fraction of the design and implementation
work that HIPAA and BBA require. Conducting demonstration
projects and reporting to the Congress constitute another
portion of work mandated by the legislation.
Medicare's New Choice Plans Present Unknown Challenges for Program
Managers
Among the more challenging of BBA's provisions to implement
are those establishing the Medicare+Choice program, which
expands beneficiaries' private plan options to include
preferred provider organizations (PPO), provider sponsored
organizations (PSO), and private fee-for-service plans. It also
makes medical savings accounts (MSA) available to a limited
number of beneficiaries under a demonstration program. The
reforms the Congress embodied in these provisions are major,
helping Medicare adapt to and capitalize on changes in the
health care market.
However, each of these options will have to be carefully
monitored to identify and correct vulnerabilities. Our
observations of HCFA's oversight of Medicare's risk contract
HMOs, which have been the chief alternative to traditional fee-
for-service Medicare, raise concerns. In our 1997 High-Risk
Series report, we noted that HCFA's monitoring of HMOs has been
historically weak. HCFA has allowed some plans with a history
of abusive sales practices, delays in processing beneficiaries'
appeals of HMO decisions to deny coverage, and patterns of
poor-quality care to receive little more than a slap on the
wrist. We also noted that HCFA had done little to inform
beneficiaries of HMO performance and did not publish available
data on such satisfaction indicators as rapid disenrollment
rates compared across Medicare HMOs within a given market.\6\
---------------------------------------------------------------------------
\6\ Our in-depth study on this subject is entitled Medicare: HCFA
Should Release Data to Aid Consumers, Prompt Better HMO Performance
(GAO/HEHS-97-23, Oct. 22, 1996).
---------------------------------------------------------------------------
BBA addresses many of these problems. For example, the
legislation calls for all Medicare+Choice plans to, among other
things, obtain external review from an independent quality
assurance organization, such as a peer review organization,
that would assess such factors as the quality of the plan's
inpatient and outpatient services and the adequacy of the
plan's response to written complaints about poor-quality care.
These and other mandates should help improve oversight. The act
also requires HHS to disseminate to all beneficiaries within a
market area consumer information on the area's Medicare+Choice
plans, including, for example, disenrollment rates, health
outcomes, and compliance with program requirements.
Collectively, these consumer information requirements enlist
market forces to help improve HMO performance.
We remain concerned that HCFA will have to be attentive to
new issues raised by expanded choice for beneficiaries. The
implementation challenge for HCFA will be to strike a judicious
balance between encouraging plan growth and development and
adequately protecting beneficiaries' quality of care. For
example, under BBA, requirements for minimum enrollment
levels--aimed at achieving an adequate spreading of risk to
ensure a plan's financial solvency--can be waived for new
Choice plans in their first 3 years of operation. In addition,
the recent authorization of higher HMO rates in rural areas may
well increase the total number of risk contract HMOs. If the
number of Medicare managed care organization grows, HCFA may
not be equipped to make site visits at the current rate of
every other year. Finally, all the Medicare+Choice plans,
including PPOs, PSOs, and private fee-for-service plans, will
have to submit new marketing materials for HHS approval; with
an escalating workload, however, these materials could be
approved without adequate scrutiny. Under the law, marketing
materials are approved automatically if HHS does not disapprove
them within 45 days of their submission to the Department.
Delays in Modernizing Medicare's Claims Processing Systems Could Hamper
Program Integrity Efforts
Another implementation concern is related to HCFA's
information management systems. As you know, HCFA's major
project to modernize its information systems--the Medicare
Transaction System (MTS)--all but collapsed as of August 15,
1997.\7\ This is a significant setback for HCFA's efforts to
prevent and detect fraud and abuse. For example, HCFA intended
MTS to replace nine separate automated information systems with
a single, unified system. It was expected to provide an on-line
database that could integrate data on part A and part B
services and payments that are currently stored separately.
Ideally, such a system would enable the comparison of claims
against other claims already submitted on behalf of the
beneficiary, other claims submitted by the provider, and other
claims for the same procedure or item. Work is still underway
to develop a new system for collecting payment and other
information related to risk contract HMOs, but the MTS contract
has been terminated.
---------------------------------------------------------------------------
\7\ On that day, an internal HCFA memo was issued stating, ``Today,
HCFA formally notified GTE of our decision to close down the contract
by January 1998. This contract action results from the stop work order
that we issued to GTE on April 4, 1997.''
---------------------------------------------------------------------------
HCFA is in the process of consolidating its nine separate
systems into one part A claims system and one part B claims
system. While having a single system for each part should allow
better claims editing, it would not provide all the benefits
that had been expected from MTS, including the ability to
ensure routinely, before payments are made, that an item or
service billed to part A has not also been billed to part B and
vice versa. Other anti-fraud-and-abuse software development
discussed in our High-Risk report--namely, algorithms under
development by the Los Alamos National Laboratory for
generating prepayment claims screens and commercial off-the-
shelf software controls being tested at one contractor--are
years away from implementation nationwide.\8\
---------------------------------------------------------------------------
\8\ For a more detailed discussion of this work, see Medicare
Automated Systems: Weaknesses in Managing Information Technology Hinder
Fight Against Fraud and Abuse (GAO/T-AIMD-97-176, Sept. 29, 1997).
---------------------------------------------------------------------------
HCFA Dedicates Staff to Implement BBA Mandates
Aware of the need for agencywide coordination and planning
to implement BBA's multiple provisions, HCFA has established an
infrastructure to track and monitor the tasks associated with
BBA mandates. Staff organized into functional teams will be led
by a project management team tasked with reporting to agency
executives, including the HCFA Administrator. According to a
HCFA official, the agency has plans to keep Department
officials and the Congress routinely informed of the agency's
progress.
Conclusions
With the enactment of HIPAA and BBA, the Congress has
provided significant opportunities to strengthen several of
Medicare's areas of vulnerability. How HHS and HCFA will use
the authority of HIPAA and BBA to improve its vigilance over
Medicare benefit dollars remains to be seen. The outcome
largely depends on how promptly and effectively HCFA implements
the various provisions. HCFA's past efforts to implement
regulations, oversee Medicare managed care plans, and acquire a
major information system have often been slow or ineffective.
Now that many more requirements have been placed on HCFA, we
are concerned that the promise of the new legislation to combat
health care fraud and abuse could at best be delayed or not be
realized at all without sustained efforts at implementation.
Mr. Chairman, this concludes my statement. I will be happy
to answer your questions.
Related GAO Products
Medicare Automated Systems: Weaknesses in Managing Information
Technology Hinder Fight Against Fraud and Abuse (GAO/T-AIMD-97-176,
Sept. 29, 1997).
Medicare Home Health Agencies: Certification Process Is Ineffective
in Excluding Problem Agencies (GAO/T-HEHS-97-180, July 28, 1997).
Medicare: Control Over Fraud and Abuse Remains Elusive (GAO/T-HEHS-
97-165, June 26, 1997).
Medicare: Need to Hold Home Health Agencies More Accountable for
Inappropriate Billings (GAO/HEHS-97-108, June 13, 1997).
Medicare Transaction System: Success Depends Upon Correcting
Critical Managerial and Technical Weaknesses (GAO/AIMD-97-78, May 16,
1997).
Nursing Homes: Too Early to Assess New Efforts to Control Fraud and
Abuse (GAO/T-HEHS-97-114, Apr. 16, 1997).
Medicare Post-Acute Care: Cost Growth and Proposals to Manage It
Through Prospective Payment and Other Controls (GAO/T-HEHS-97-106, Apr.
9, 1997).
Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded
Providers From Federal Health Programs (GAO/HEHS-97-63, Mar. 31, 1997).
High-Risk Series: Medicare (GAO/HR-97-10, Feb. 1997).
Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better
HMO Performance (GAO/HEHS-97-23, Oct. 22, 1996).
Medicare: Home Health Utilization Expands While Program Controls
Deteriorate (GAO/HEHS-96-16, Mar. 27, 1996).
Medicare Transaction System: Strengthened Management and Sound
Development Approach Critical to Success (GAO/T-AIMD-96-12, Nov. 16,
1995).
Medicare: Commercial Technology Could Save Billions Lost to Billing
Abuse (GAO/AIMD-95-135, May 5, 1995).
Chairman Thomas. Thank you, Dr. Scanlon. Normally, we refer
to economics as the dismal science, but your outline of the job
of trying to get HCFA to do its job sounds fairly dismal as
well, and I hope you're painting a darker picture than is
necessary. When the agent from the FBI makes a statement that
he believes that Medicare waste, fraud, and abuse is the number
one white-collar crime in the United States, I would have to
think that $23 billion-and-growing is more than a sufficient
incentive to make sure that people are as creative as possible
in doing the job. If they can't do it, one of the things I can
assure you is that we will provide you with more tools and we
will investigate who's doing it and we'll find somebody who
will do it, and we've appreciated your work.
Before I go to other questions, I'd like to ask Mr. Mangano
to come up front and talk about some of the devices that we
have here because perhaps some people are not as fully
appreciative of the creativeness that went on in the system,
and, unfortunately, may be still more pervasive that we would
like.
In dealing with the very thing you talked about, Dr.
Scanlon, prior to the prospective payment--and we're quite sure
that there will be some creative folk under prospective payment
who will continue to try to figure out how to scam the system--
Mr. Owens' comment that apparently these crooks are not scam-
specific; once they understand that it is high reward and
little risk, they move clear across the taxpayer-supported
health care and prey on individuals with their own money as
well.
So would you please come up, Mr. Mangano?
Mr. Mangano. Mr. Chairman, if it's OK, I could have my
assistant hold some of these items while I talk about it.
Chairman Thomas. Sure. Just explain to us what it is and
how Medicare got billed, and if possible, why maybe there's
less the chance of it occurring now than there was prior to the
passage of HIPAA or the BBA.
Mr. Mangano. Great. I'd be happy to do that. I'd like to
just give a little bit of the background and just say that most
of the time some of these scams come to our attention, they
come to us largely in two formats. One, allegations of fraud
that come either directly to our office or through the Health
Care Financing Administration carriers, or through other
sources. The other is through reviews that we do to analyze
some of the reimbursements that are coming into Medicare for
billing. The first thing I want to talk about----
Chairman Thomas. Do you think the new hotline and the more
specific billing given to the patients themselves will provide
you with another resource that was always there but not tapped
as adequately as it should be?
Mr. Mangano. We think that will help. We're working with
the AARP to go out and do public education across the country.
The Administration on Aging is sending their ombudspersons out
to nursing homes as well as the senior centers to get the
message out and we're going to be using other forms to get the
message out. So, I think the hotline will be a help.
Chairman Thomas. Well, just let me underscore that as a
public agency responsible for getting the information out, I
would certainly think the AARP would be a useful group, but
they are not exclusive, and I would be concerned that, if there
was too close a working relationship there, there might be some
assumptions made that weren't warranted.
Mr. Mangano. Yes, we're also going to other groups in the
industry to talk with them about assisting us as well.
Chairman Thomas. Thank you.
Mr. Mangano. But the first item I would mention is the
orthotic body jacket. You had the poster up this morning and
actually the device that the woman was wearing actually was a
legitimate device and that was a device that would run about
$1,300 in Medicare reimbursement. When we began to look at
this, we found that there was a meteoric rise in Medicare
reimbursements over 3 years. It went up 8,200 percent. The
first year Medicare reimbursements were $217,000; it went up to
$18 million in 3 years. That's what caused us to take a look at
it. What we found is that 95 percent of the cases that we
reviewed were fraudulent. They were billing for things that
we're not covered. That $1,300----
Chairman Thomas. Would you repeat that?
Mr. Mangano. Sure. We found that in our sample, 95 percent
of the claims were for fraudulent items. They were
nonreimbursable items.
Chairman Thomas. So, if you denied 100 percent of the
claims, you'd only have a 5-percent error rate?
Mr. Mangano. That's correct. Yes.
Chairman Thomas. Do you ever think about approaching it
that way?
Mr. Mangano. Yes, that's true, that's true. Well, for this
device it was. Instead of that $1,300 device which was billed,
the providers were supplying any one of these three items on
display or other devices like it. Two of them look like
wheelchair pads and another one looks like a bib, to be honest
with you. None of those items at the time we first started this
would have cost more than $50. The good news is that the
Medicare Program got onto this very quickly and actually right
now the reimbursements have dropped from $18 million to about
$5 million. We still have more work to do, and we're working on
it.
The second issue is a glucose monitor which most people
know a diabetic would use to monitor their blood sugar. When we
first took a look at this, the Medicare fee schedule was
allowing $114 to $211 for these. We sent our investigators into
pharmacies across the country and found out we could buy them
for about $50. A number of them even had rebates that would
drive the price down further. The Medicare Program jumped on
this, and the only method they had at that time was to change
the rules for the fee schedule, and they did change it. It took
about 2 years and reduced the Medicare reimbursement rate to
$58.
Chairman Thomas. Mr. Mangano, on that point, because you do
have some products that are being identified by name, this in
no way is to imply that any of these products are not capable
of performing the service that their indicated, except perhaps
for the bib and it may have some use, but it was the misbilling
that is the problem, and the overbilling. So, I don't want
anyone to assume that these products are not capable of doing
what they claim to do. It is the billing process and the amount
that's being paid for them that is of primary concern.
Mr. Mangano. Absolutely correct. Any one of these devices
could be useful. The rulemaking occurred and it was----
Chairman Thomas. For something.
Mr. Mangano. Yes. The rulemaking changed it to a $58
reimbursement, and we think that will help a great deal. The
Balanced Budget Act does give the Secretary authority now to
reduce things that are inherently unreasonable. So, that
authority could be used in the future to reduce some of these
costs.
The third item was incontinence supplies. This is another
one of these meteoric rises in reimbursements for Medicare. It
almost tripled in 4 years, up to $230 million. So, that
captured our interest, and we wanted to go out and find out
what was going on. These are devices for persons who have
bladder or bowel control problems. This was the scam of all
scams. Durable medical equipment suppliers would go largely to
nursing homes and tell the nursing homeowners, we can take care
of your patients' incontinence problems, and by the way, it
isn't going to cost you anything, because we're going to bill
Medicare directly. So, one of the schemes that they were doing
was to bill for covered items not provided. They were supplying
the adult diapers at about 35 cents a diaper and billing
Medicare for what was called a female urinary collection pouch
which costs about $7.38; so you can see the profit margin here
was enormous.
A diaper is never reimbursable in the Medicare Program.
Medicare got their durable medical equipment regional carriers,
working on this, and in 1 year, reduced the incontinence
reimbursement by $100 million. It's absolutely fascinating.
Let me mention one other thing, a lymphedema pump. This is
for persons who have lymph nodes removed, and their arms and
legs are swelling. In some cases, a lymphedema pump will help a
great deal. I will give you some examples:
In 1990, Medicare was reimbursing $6.3 million for these;
by 1995 it was up to $118 million. What we found were two
schemes. One, these pumps were being supplied when people
really didn't need them, but even more important than that,
lower-level $500 to $600 pumps were being supplied to the
persons, but they were billing Medicare for $4,600--a
tremendous scam. Since then, Medicare has taken care of that.
The reimbursements in 1996 were under $20 million.
I think the Balanced Budget Act helps a great deal with
nursing homes, because now we have this consolidated billing.
The durable medical equipment companies can't come in and
individually work with patients and bill Medicare directly.
Chairman Thomas. Any other comments?
Mr. Mangano. There are other items up there--a TENS unit,
that is, a transcutaneous nerve stimulator. This is a
nonnarcotic, pain-relieving device. Once again, it has good
reliability for certain people. Medicare required
beneficiaries, though, to try it out for a trial period to see
if it works, and then if it does, they would then purchase the
item. Medicare was getting billed $450 for this. With our
investigators going to Radio Shack, we were able to put
together another one that resembled that for about $50. One-
third of the people that we looked at in our sample did not
have that trial period, so we thought there was a gross number
of TENS units being sold inappropriately.
There are some other items there--wound care kits that were
being provided to patients in their homes. There we found about
two-thirds of the reimbursements were inappropriate. For
example, Medicare was billed $5,800 for 1 inch tape over 6
months for one patient. This tape, if you put it end to end,
would have stretched 12.5 miles. Clearly, it was a fraudulent
example of the way they wanted to do business.
Chairman Thomas. Might have been an appropriate bill for an
NFL football team.
Mr. Mangano. Maybe, for the whole team.
Chairman Thomas. Certainly, not a single individual at
home. Well, and, of course, the problem is that the old system
simply invited this, but the one statistic that I find just
absolutely incredible is 95 percent false billing--just
amazing.
Mr. Owens indicated that the number of cases that they're
going to initiate probably is going to drop because they're
getting into more complex cases. My assumption is that the more
complex cases perhaps would bring larger dollar amounts if
they're more sophisticated, but it just seems to me that
there's a whole lot of stuff that can be done that's normally
under the heading of common sense and ordinary followup that
could save enormous amounts of money as well. With $23 billion
at stake, there are a whole lot of ways to get at it.
What we did do is provide you, as you indicated, with a
more stable funding source, which means if you're going to have
a piece of that $5-plus billion between now and 2003, it might
lend itself to more long-range planning. Could you just give us
a flavor over where you think you might be looking in going
over the next 2 to 5 years?
Mr. Mangano. Well, you're absolutely right. This reliable
funding source helps us a great deal. The health care industry
itself is one that is going to occupy our time for a
considerable number of years. We've been working together with
the Health Care Financing Administration and the FBI to plan a
number of investigations, audits and evaluations. We're doing
more work this year in the hospital arena; we think there are a
number of areas that need to be paid attention to there.
Prior to about a year ago, the work that we were doing in
hospitals had pretty much languished for a number of years and
we're getting back into that area and quite heavily. We're
going to be doing much more work in the managed care area as
well, and physician services. So those will be the three areas
I'd say were most involved.
Chairman Thomas. Thank you very much.
Ms. Ruiz, you mentioned Operation Restore Trust. I'd
indicated earlier before we recessed on the votes that I'm
hopeful we can initiate ``Operation Find and Bust'' of
criminals who have been convicted but we aren't willing to go
get them. I was looking at the flowchart and I do note that you
are director of the program integrity group, but according to
the HCFA chart, the program integrity group is under the Chief
Finance Office, Office of Financial Management. Wouldn't you,
if you were doing your job, and you discovered a number of
these items as an integrity program, partially reflect on the
performance of your chief financial officer and the department
of financial management? I found oftentimes when people are out
looking for problems, if they have a degree of independence to
report to the actual head of the operation, for example, the
administrator, that you sometimes get better results. This is a
difficult question and so I don't want to put it on any kind of
a personal basis, but do you think that now we've given you
some new tools, that perhaps a degree of independence in some
agencies might produce better results than the current
structure?
Ms. Ruiz. I think we actually have provided for that under
the reorganization. What doesn't show up on that flowchart is a
dotted line between my position and the Administrator of HCFA.
I have the ability, and regularly exercise it, to talk directly
with the Administrator and make known the problems that are
identified and the issues that are going on. For a person in my
position, it presents a challenge because there are a lot of
people to keep in the loop in terms of communication. However,
at the moment, it seems to be working.
Chairman Thomas. I prefer solid lines to dotted lines. In
the legislation that we passed, Congress asked for, by October
1, an estimate from the Secretary of expected Medicare outlays
for fiscal years 1998 through 2002 in terms of the home health
services and of course the administration has suspended the
creation of new home health care agencies. When are we going to
get the work product?
Ms. Ruiz. Yes, sir. I was just made aware this morning that
this report has not yet arrived on your desk. It's my
understanding that it has been prepared and we're in the stages
of finalizing it. We expect to get it to you very shortly.
Chairman Thomas. Dr. Scanlon outlined his concerns about
HCFA's ability to perform. Given all the responsibility that
you've been given, I'm disappointed to find out that some of
the earlier hurdles that were placed in front of you for
information that will allow us to make some at least
monitoring, if not decisions, haven't been met. So, I hope we
can take a look at what we asked for and that you set up some
timeliness that allow us to get what we asked for----
Ms. Ruiz. Yes, sir.
Chairman Thomas [continuing]. In the timeframe that we
asked for it.
Let me stop there and turn to the gentleman from Louisiana
if he has any--
Mr. McCrery. Thank you, Mr. Chairman.
Let me begin by saying how much I appreciate Mr. Mangano
bringing to us today the hammers and toilet seats of HCFA. I
hope the media will spend as much time highlighting the abuses
of Medicare spending as they did Defense spending, and I hope
the public is as outraged as I am, and you are, at the abuses
that have taken place in this program.
Mr. Owens, in your testimony, you state that the following
health care industries are particularly susceptible to fraud
and we've seen examples of some of this today: Laboratory
billings, home health care, and durable medical equipment,
prosthetics, orthotics, and supplies. How will the reforms
addressing waste, fraud, and abuse included in both the HIPAA
and the Balanced Budget Act, enhance the FBI's ability to
combat the most egregious health care fraud in these particular
industries?
Mr. Owens. I think in two ways, Congressman. One, certainly
the additional funding that was provided has enabled us to add
a lot more agents on the street investigating these types of
crimes, and as I indicated, we're attempting to go into the
higher levels now and address the more egregious type of
frauds. The other certainly is the new statutes that were
provided to us to give us a particular health care statute
which we can begin to employ, and I think that's going to be
helpful to us. So, we should be able to benefit tremendously
from that.
Mr. McCrery. Good. I understand that the FBI and the OIG
worked well together on the Gonzalez case and that this kind of
collaboration is not uncommon. Can you elaborate, Mr. Owens, on
the extent to which the FBI coordinates their investigations
with other agencies, such as the OIG and HCFA, to ensure
consistent interpretation of the law?
Mr. Owens. Yes, at the headquarters level, we actually have
an exchange program where we have a supervisory special agent
from the FBI detailed to the Inspector General's Office, and
conversely, they have one of their Deputy Assistant Inspector
Generals detailed to the FBI, so that we can coordinate
virtually any issue that arises. Throughout our field offices,
there's a tremendously good working relationship. I'm not sure
of the numbers, but I want to say, something like 41 of our 56
field offices, we have either task forces or working groups
established that include Inspector General representation, as
well as U.S. Attorney's Office representatives, and in many
instances, local investigators, people from Medicaid fraud
control units, and so forth. This is a highly complex area and
again, as we particularly get into the complex activities that
are occurring, so we are committed to this type of a
cooperative effort and we think it's essential.
Mr. McCrery. Do you have any thoughts or suggestions on how
coordination could be improved among the various agencies?
Anything that we can do to help you with that?
Mr. Owens. I think it's very good we're doing joint
training now. For instance, we do rely on the expertise, the
technical expertise, even of the HCFA representatives as well
as people from HHS. We constantly look at that sort of thing
and certainly we have the type of relationship, if new things
develop, that we think can improve our efforts we attempt to
work on it, and I think it's very good.
Mr. McCrery. Dr. Scanlon, your agency's been making
recommendations to the Congress for quite some time on fraud
and abuse in the Medicare system; is that right?
Mr. Scanlon. That's correct.
Mr. McCrery. Were a lot of the recommendations that you've
been making over the years finally included in the HIPAA
legislation and in the Balanced Budget Act?
Mr. Scanlon. They definitely were. The vast bulk of the
recommendations that we've made are reflected in one part or
another of either act. In addition, the Congress went somewhat
further in terms of recommendations that we had made over the
years to HCFA and to the department in terms of including them
in the act, as well as certain of the act's unique provisions
indicating both the priority and importance that you attach to
using those tools and those mechanisms to attack fraud and
abuse.
Mr. McCrery. Were there any major areas of your
recommendations that were not addressed in the legislation that
we could look at?
Mr. Scanlon. The recommendations that were either in the
IG's Red Book of open recommendations or our open
recommendation report that were not addressed directly involved
Medicare as a secondary payor program, both reports on the
effectiveness of those programs as well as the use of the State
Medicaid Programs actions to try to recover funds from other
third-party payors, and then another recommendation related to
home health care. But relative to the recommendations we've
been making, these are very small compared to sort of what
you've accomplished. But we think, though, that what you've
done is laid out a clear path that you would like for HCFA and
the Medicare Program to follow to eliminate waste, fraud, and
abuse, but the agency may need your assistance in the future as
we discover sort of how well we can navigate that path to try
to accomplish that task.
Mr. McCrery [presiding]. Thank you, Dr. Scanlon.
Mr. Ensign.
Mr. Ensign. Thank you. I would like--I only have a couple
minutes before we adjourn--one quick question and that is for
Mr. Owens and Dr. Scanlon. That is, Medicaid and Medicare, two
separate programs, but yet Federal dollars going to both of
them. The example is on ambulances and there are abuses that
happen and fraud that happens in Medicare with ambulances and
the one thing that happens on Medicaid, from what I understand,
is with ambulance transports a lot of Medicaid patients, a
tremendous percentage at least what have been told to me
anecdotal in my State, a lot of ambulance rides are taken to
the hospital by Medicaid patients to get these prescriptions
filled; that it's cheaper than a cab ride and Medicaid patients
get, I think, three hospital rides a year, or whatever, and
many of them take advantage of these hospital rides. You can
talk to people just generally in the emergency rooms, the
people who work there, and everyone that I've ever talked to
confirms that the same thing happens. I've talked to ambulance
drivers; I've talked to emergency room people, and they've
confirmed this.
FBI, GAO, do you get into the combination of Medicare/
Medicaid abuses together, because it's not just happening in
one of the systems?
Mr. Owens. I think from my perspective in the past that we
worked several of the ambulance cases, and I can't give you
specific details on that, but throughout the programs what
we've seen is providers, or service providers or medical
providers, when they're defrauding one program, they're
defrauding others, even private insurance companies. So my
suspicion is that those ambulance service are doing that sort
of thing, but I could certainly check and get back to you if
you'd like.
Mr. Ensign. OK, please.
[The following was subsequently received:]
Reply from Mr. Owens.
It is the rule rather than the exception that those engaged
in committing health care fraud do not discriminate against any
particular health care plan. Most FBI investigations have
multiple health care plans, such as Medicare and Medicaid, as
victims of the fraud scheme.
In the area of medical transportation fraud the schemes
include billing for a higher reimbursement code, such as
advanced life support vs. basic life support, inflated mileage,
billing round-trip vs. one way, paying kickbacks for patient
referrals, billing for supplies not used and billing for trips
not made or for trips which were not medically necessary.
Medicare will only cover medically necessary ambulance
transportation from the residence to a hospital or skilled
nursing facility when the use of other methods of
transportation would endanger the patient's health. Medicaid
will reimburse for a variety of reasons for transportation by
taxi or other means of conveyance.
ABC World News Tonight aired a segment on 3/6/95 regarding
ambulance fraud in the San Diego, CA area. (Tape available upon
request) The targeted ambulance company was defrauding all
insurance carriers, including Medicare, Medicaid and the
private insurance companies.
The Medicare reimbursement system is very complex which
only encourages fraud and abuse. The Medicaid reimbursement
systems very with each state. In most instances, when an
ambulance company is defrauding one, they are defrauding both.
In those instances the FBI has been known to work jointly with
the State Medicaid Fraud Control Units. With the new Health
Insurance Portability and Accountability Act (HIPAA)
regulations regarding coordination of Federal, State and local
law enforcement programs to combat fraud and abuse, working
together is becoming even more common.
Reply from Mr. Scanlon.
We have not done any recent work regarding that.
Mr. Scanlon. We're also very concerned about the fraud and
abuse that occurs within the Medicaid Program as well as
Medicare and are looking into especially the issues of dual
eligibles. We haven't looked specifically at the question of
ambulance services, but to the extent that Medicaid is
operating fee-for-service programs within each State, similar
to Medicare, it faces some of the same difficulties. We're
talking about large populations of beneficiaries and large
numbers of providers who can bill directly, and as a result,
have many opportunities to take advantage of it.
Mr. Ensign. This today may have been more focused on the
providers, but we also have to look at the beneficiaries
sometimes. Sometimes somebody is taking advantage of something
that they can do under the system that's given to them, and
that should not be allowed. So, I think we have to look for
every way that we can cut out, and that's why I always like to
call it waste, fraud, and abuse of the system because they all
go together, and sometimes it's fraud, sometimes it's just
abuse, or sometimes it's just waste from a bureaucracy.
I just want to thank all of you, and give that some thought
when you're looking into these type programs.
Mr. McCrery. Thank you all very much for your testimony.
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Mr. McCrery. The hearing's adjourned.
[Whereupon, at 12:41 p.m., the hearing adjourned subject to
the call of the Chair.]
[Submissions for the record follow:]
Statement of Douglas R. Wilwerding, Chief Operating Officer, Accent
Insurance Recovery Solutions, Omaha, Nebraska
Mr. Chairman, I want to thank you and the Members of the
Committee for the opportunity to testify today.
My name is Doug Wilwerding. I am Chief Operating Officer of
Accent Insurance Recovery Solutions headquartered in Omaha,
Nebraska. Accent was founded in 1986 as a cost containment
recovery firm. Accent recovers overpaid insurance claims on
behalf of healthcare payors and administrators of healthcare
insurance.
First, I would like to praise this Committee for addressing
the issues of waste, fraud and abuse in the Medicare program.
Today, I will specifically address overpayments and the lethal
condition in which it is placing the healthcare program for our
senior citizens. Medicare overpayments represent a diversion of
resources that are badly needed by aging beneficiaries who
require quality care; they also lead to higher taxes and
increased insurance premiums.
``$23 Billion Overpaid By Medicare'' read the headline of
virtually every newspaper in the country earlier this summer as
the Inspector General of HHS announced that the ``records of
the Medicare agency and its contractors were in such disarray
that they could not be thoroughly audited.'' The $23 billion is
only for Fiscal Year 1996 and does not account for the
additional billions unrecovered going back to the boundary of
the federal statute of limitations. Nor will the figure stay at
the same level going forward as demographics inexorably
increase the load on Medicare.
HCFA officials acknowledged that a substantial number of
erroneous payments had been made. Contractors have mixed up
Medicare's two trust funds; other contractors have confused
amounts owed to the federal government with amounts owed by the
federal government, and serious coding errors accounted for
billions of dollars in overpaid claims. What is more, nearly
everyone involved agrees that Medicare documentation
requirements are confusing and convoluted.
As ``fraud and abuse'' become everyday words to those of us
in the healthcare indat is estimated as being responsible for a
third of the $23 billion overpaid--the waste of unrecovered
claims that have been overpaid through error.
Overpayment recovery is no secret to healthcare--nor is it
a newfound concept. It is an entire industry. Commercial
healthcare payors have been either utilizing internal recovery
units or contractors like my company, Accent, to recover their
overpaid claims for years.
The overpayment recovery industry is capable of returning
between 50 and 85 cents on the dollar. Imagine what that would
do for increased care for our seniors, as well as tax and
premium relief based on an annual overpayment loss of at least
$7 billion per year.
What is the difference between private group health claims
and Medicare claims? Virtually nothing. In fact, the
similarities are startling. The same administrators that are
paying Medicare claims are paying the rest of the country's
claims. Those same companies are contracting with overpayment
recovery vendors like Accent, to recover hundreds of millions
of dollars in overpayments to return to the private sector
employers. Leaders responsible for health benefits for private
groups would never ignore the savings found in overpayment
recovery. Neither should Medicare.
HCFA currently provides no incentive for Medicare
contractors to recover overpaid claims. Further, the current
Medicare system lacks the expert systems, trained personnel and
years of nationwide experience to systematically address this
problem. Now, safeguards, criminal investigations and audits
are being created to attempt to put a dent in fraud. Meanwhile,
obvious cost savings are being ignored--those claims being paid
in error. They are not fraudulent, just recoverable.
HCFA and Medicare policymakers need to acknowledge and
adopt the cost containment techniques used by the private
sector. These techniques should not only be investigated, but
also administered to assuage the continuing drainage of federal
funds because of simple, yet recoverable, errors. We in the
health insurance recovery industry stand ready and eager to
assist this Committee in accomplishing this task.
Thank you.
American College for
Advancement in Medicine
October 10, 1997
For consideration by the Committee and for inclusion in the printed
record of the hearing.
As President of a rapidly growing medical society that is dedicated
to research and teaching about innovative therapies, I am greatly
concerned about the huge burden threatened by current legislation on
those physicians who want to provide non-covered services to their
patients.
Either to require them not to treat any patients under Medicare or
to impose wasteful, useless reporting requirement for services not
covered is unacceptable.
We as a country need to encourage innovative approaches to find
dramatically improved, cost-effective treatments for chronic
degenerative diseases. Otherwise, we will never escape from the medical
quagmire that is sucking our health care system into bankruptcy.
Further, the rights to choose the type of medical care one desires
and to make contracts should be freedoms that are diligently preserved
in our country. Loosing these would be a severe blow to American
Society.
Requiring that physicians who provide noncovered services to be
excluded from Medicare will stifle innovation and substantially impede
medical progress. Such restrictions would be a serious blow to medical
freedom and the right to make contracts.
Sincerely,
L. Terry Chappell, M.D.
President
LTC/jla
Statement by the American Hospital Association
On behalf of the American Hospital Association (AHA) and
its 5,000 member hospitals, health care systems, networks and
other providers of care, and the patients we serve, we are
pleased to submit this statement regarding health care waste,
fraud, and abuse. In recent years, and particularly these past
several months, the federal government has dramatically stepped
up its efforts to crack down on what it calls health care fraud
and abuse.
Ridding the health care system of fraudulent operators
should be applauded and a high priority for all. But we should
not paint as fraud every billing error or misinterpretation of
what are often vague and complicated regulations--regulations
so ambiguous that they are often misunderstood by Medicare's
own bureaucracy. The vast majority of health care services are
provided ethically and appropriately. Those who intend to
defraud the system are a small segment of the health care
community. Our goal is to develop a system which prevents fraud
in the first place, separates real fraud from mismanagement or
error, and finally imposes penalties to deter those who might
consider cheating the system from doing so.
Hospitals and health systems are rooted in a tradition of
ethics and caring. We are strongly opposed to fraud and abuse
and we support efforts to prosecute those who knowingly and
willfully take illegal actions. We deeply regret that the
health care industry is tainted by a minority of bad apples. As
a result, the people who Americans rely on to provide emergency
and often life-saving health care are also being compelled to
keep voluminous records that explain, defend and validate their
actions. Both hospitals and health care professionals are being
forced to divert valuable resources from patient care.
As our institutions face unprecedented scrutiny from all
segments of society--government, media, business community, and
the public in general--it is vital that we continue to act in
ways that strengthen both public confidence and the bonds we
have forged with our patients and communities. This is
particularly important as hospitals and health systems face
challenges of complying with the many conflicting and ambiguous
rules governing Medicare, Medicaid, and other federal programs.
The challenge is made even more difficult for us when the
government characterizes unintentional errors in billing as
intentional fraud.
Prevention:
The AHA board recently endorsed voluntary adoption of
regulatory compliance programs by hospitals and health systems
as a way to minimize errors in conforming to highly technical
and complicated rules. The AHA urges all hospitals and health
systems to develop and implement a strong, formal compliance
program to ensure that regulations are accurately followed.
The Department of Health and Human Services (HHS) Office of
Inspector General (OIG) is in the process of developing model
compliance plans for the health care field. The AHA submitted a
draft hospital model compliance plan for the OIG's
consideration last April. The OIG circulated its first draft in
July. Hospitals expected to see the OIG issue a final
compliance plan this fall. Unfortunately, it appears that they
will not release a revised draft until 1998. Hospitals wanting
to establish a compliance plan are anxiously awaiting its
release.
Nevertheless, responding to our members' strong desire to
adopt compliance plans, the AHA is developing a Health Care
Compliance Service. It will be available in early November.
This service will help health care organizations develop a
system that achieves the best possible compliance with
government payment policies. We anticipate that compliance
programs will move toward universalizing best practices and
help enforcement agencies distinguish between error and true
fraud. The law should recognize and provide incentives for
institutions to adopt effective compliance plans. Hospitals who
take the measures to implement compliance programs should be
deemed protected from qui tam (whistle blower) challenges and
have damages limited.
However, even the most comprehensive compliance plan will
not enable providers to fully comply with the letter of the
law, if providers cannot obtain more timely and clear
regulations from the Health Care Financing Administration
(HCFA) and instructions from government contractors. Further
payment system refot against fraud and abuse. The Balanced
Budget Act of 1997 mandated the implementation of four new
prospective payment systems by 2002. These reforms modify
incentives making the system more efficient.
Enforcement:
Congress vastly increased the number of tools enforcers may
use to attack health care fraud and funding for investigations
and other enforcement activities. In the largest-ever
investigation of Medicare and Medicaid billing practices, the
HHS has allocated more than $1 billion through 2002 to target
every type of provider. The Federal Bureau of Investigation
(FBI) has tripled the number of investigators dedicated to
health care fraud enforcement since 1992, and the OIG has
increased its staff by about 250 in one year's time. Indeed,
the OIG and FBI indicated that they have yet to meet their
staffing capacity as already funded by Congress. Additionally,
these agencies can tap into approximately 55 new enforcement
tools and 53 new payment safeguards under the Balanced Budget
Act of 1997 and Health Insurance Protection and Affordability
Act of 1996 to detect fraud. Before new remedies are considered
by Congress, the current arsenal of laws should be tested.
We do agree with some of the witnesses that the laws used
to enforce health care fraud and abuse need to be reformed to
reflect the current health care market. For example, we believe
that the HHS should be required to use a materiality standard--
based on American Institute of Certified Public Accountants
guidelines--when referring Medicare overpayment cases to the
Department of Justice (DOJ) for prosecution.
Many of the settlements arise from claim disputes involving
less than one percent of an institution's total claims. In
determining whether a pattern of incorrect claims submission
exists, or if the hospital intended to defraud the government,
the HHS secretary should be required to consider whether the
total amount of the incorrect submissions by a health care
provider is material to the total claims submitted by that
provider. If the number of disputed claims is less than a
certain percentage, then the issue should be resolved through
direct repayment--with interest--to HHS. If the disputed claims
exceed an acceptable number, the secretary would be free to
refer the case to the DOJ for further investigation.
The AHA is also looking at ways in which to address the use
of the False Claims Act. The False Claims Act was first passed
in the 1860s to outlaw certain practices in the trade of horses
and manufacture of weapons for the government during the Civil
War. Although it was revised in 1986, it remains a very broad
law which allows the federal government to file suit against
anyone submitting a false claim to the government for payment
of goods and services. The statute does not require proof that
the defendant actually intended to defraud the government or
that the government actually suffered any loss.
The DOJ, using the False Claims Act, is targeting 4,700
hospitals nationwide for fraud and abuse. That means that
virtually every hospital paid under the Medicare prospective
payment system will be the target of a federal investigation.
It simply defies logic to assume that every one of these
institutions should be a Medicare fraud suspect. But, until the
law differentiates between fraud and error, every institution
will be liable for honest mistakes and misunderstandings.
Fraud vs. Error:
It is commonly understood that there is waste in the health
care system. But, waste--albeit unacceptable--is not, by
definition, the intent to defraud. The OIG estimates that about
$17.8 billion to $28.6 billion is inappropriately paid by
Medicare each year. But, the OIG admits that, ``We do not know
how much of these payments were due to fraud and abuse or just
common errors.'' Billing errors are unacceptable, but they do
not constitute intentional fraud.
Medicare itself is a massive federal program that grows
larger every year. The number of claims increases by about 3
million each year. In 1995, hospitals and health systems
submitted on average nearly 200,000 claims a day and provided
care to a total 38.2 million individuals in the inpatient
setting and 483.2 million outpatient visits. Hospitals have to
comply with 3,000 pages of statutes and regulations with 14,277
instructions to interpret the regulations. At the same time,
hospitals, health systems, and other care givers are expected
to comply with rules from 43 different Medicare Part A fiscal
intermediaries, and 28 Medicare Part B carriers. Given the
number of claims generated under so many different systems, it
is not surprising that honest errors will be made.
All components of the reimbursement stream--providers,
patients, and intermediaries--should be responsible for
controlling fraud and abuse in the system. Fiscal
intermediaries (private organizations, usually an insurance
company, that serves as an agent for HCFA) are on the front
line of the Medicare reimbursement stream. Intermediaries make
initial coverage determinations and handle the early stages of
beneficiary appeals. The federal government pays fiscal
intermediaries approximately $1.5 billion each year to process
Medicare claims.
In the FY 1996 Chief Financial Office Audit, the OIG
estimated that $11.6 billion in claims payments, or about half
of all ``fraud and abuse'' is actually billing error or
incomplete claims. If all of these claims have been billed
incorrectly by providers, they have been paid incorrectly by
fiscal intermediaries. We believe more attention should be
directed to HCFA and the performance of its contracted fiscal
intermediaries who fail to instruct hospitals in a clear
manner.
Hospitals receive incomplete, inadequate, and often,
conflicting information from their fiscal intermediaries. We
found in the hospital lab unbundling case that fiscal
intermediaries instructed hospitals to bill laboratory tests
separately, because their computer system had the ability to
group (or bundle) the payments together as required by HCFA.
However, the Justice Department is now holding hospitals liable
for not bundling tests and threatening penalties equal to
triple the cost of each test plus $10,000 per claim in
accordance with the False Claims Act. Here is a clear example
of inconsistent standards and lack of accountability on the
part of the intermediaries. Hospitals in several states are the
subject of similar Catch-22 situations.
The AHA, together with the Ohio Hospital Association,
brought suit against the secretary for improperly and
retroactively enforcing new coding and billing standards in
connection with Medicare reimbursement for certain medical
laboratory tests. In the opinion issued by U.S. District Court
Judge Kathleen M. O'Malley in Ohio Hospital Association v.
Shalala, she expressed the ``understandable concern over the
secretary's and attorney general's investigative tactics [of
hospitals].'' She stated that ``despite the very real
possibility that the secretary's position regarding the
hospitals'' billing practices is wrong, the practical barriers
of challenging the secretary leave the hospitals with little
choice and no bargaining room.'' She further criticized the
government for its `heavy-handed tactics.' The case was
dismissed on jurisdictional grounds and will be appealed.
An example of retroactive application of reimbursement
rules, inadequate notice by the government and their fiscal
intermediaries and lack of instruction by the HHS is the
physicians at teaching hospital (PATH) audits. In 1996, HCFA
revised and clarified its guidelines on billing for teaching
physician services. Teaching hospitals are now being audited as
far back as 10 years and are held responsible for claims made
while the reimbursement rules covered by the PATH audits were
in many instances highly ambiguous. The HHS General Counsel
acknowledged that such ambiguity existed and halted audits in
several states after receiving letters of inquiry from members
of Congress. However, the Department of Justice continues to
issue subpoenas to teaching hospitals demanding years of
records, raising questions of fundamental fairness.
We must all share responsibility for reducing waste and
billing errors in the system. The rules must be clear, and all
parties involved in rulemaking, implementation, interpretation,
and claims processing must be held accountable--not just
providers, but regulators and fiscal intermediaries too.
Summary:
Government resources should be used to attack true fraud.
However, a continuous stream of investigations and recoveries
using the False Claims Act ignores the underlying complexity
and confusion of the Medicare payment system, defers important
time and dollars away from patient care and erodes public
confidence in their public institutions. We will do our part to
improve provider compliance, but that's not enough. We must all
share the responsibility of preventing errors from occurring in
the first place through clear regulations and guidelines and
their consistent application. We also need to make sure the
laws enforcing these provisions do not label hospital billing
error as fraud.
Thank you for considering these comments and we are eager
to work with the Committee toward eliminating fraud and abuse
in the American health care system.
Statement of American Preventive Medical Association
Thank you for this opportunity to present our sentiments
regarding the Health Insurance Portability and Accountability
Act of 1996 (``HIPAA'') and, what we believe to be the
precarious and potentially detrimental effects it may have on
those medical practitioners who engage in alternative or
complementary medical techniques. As the law stands now, there
is the possibility that HIPAA could be employed by those who
are ignorant of alternative medicine; and further, certain
elements of HIPAA may actually encourage so-called ``quack
busters'' to instigate a ``witch hunt'' of alternative
medicine, one of the growing branches of medicine. This
testimonial attempts to address the most threatening effects
which HIPAA has prompted.
The most important and controversial aspect of this new law
is that concerning the federalization of health care crimes.
This area is important because of the number of persons
affected by it and the radical changes which it makes; it is
controversial because the intentions behind its inception are
dubious, and the effects of its imposition have the potential
to seriously impact the practices and lives of every
alternative medicine practitioner in the country. It is not
reactionary or inciting to say that alternative medicine
practitioners have much to fear from HIPAA. HIPAA portends
serious legal implications for those physicians practicing
alternative medicine; namely, federal criminalization for what
is loosely defined as ``health care fraud.''
The relevant portion of the newly enacted HIPAA is Title
II, entitled ``Preventing Health Care Fraud and Abuse;
Administrative Simplification.'' Title II of HIPAA is therein
broken down into numerous sections; some of which have
legitimate purposes, many of which are suspect.
The first important area is section 201: ``Fraud and Abuse
Control Program.'' This section provides for the establishment
of a program to coordinate Federal, State and local law
enforcement programs to control ``fraud and abuse with respect
to health plans,'' and thereby any and all measures needed to
reach that end, including ``investigations, audits,
evaluations, and inspections relating to the delivery of and
payment for health care in the United States.'' \1\ The
important point to take from this section is that hereafter all
types of supposed ``fraud'' or ``abuse'' are now under the
microscope of federal investigators. This impliedly suggests
that both staff and physicians themselves are at risk of FBI
agents appearing at their homes to ``investigate'' federal
crimes; this investigation may include rummaging through
personal property to look for diagnoses and then comparing them
with CPT codes, as well as other billing and insurance
information. Whereas before the state would most likely make
inquiries and arrange for hearings, the federal government now
has authority to coordinate with state governments in the
investigation; and since federal matters inevitably preempt
state or local matters, the federal government will ultimately
be the driving force behind these ``investigations,'' and their
modus operandi may take an ominous manner.
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\1\ Health Insurance Portability and Accountability Act of 1996,
Public Law 104-191 (H.R. 3103), Title II, Subtitle A, sections
201(1)(A),(B).
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Another way in which HIPAA may be used in the alternative
medicine hunt is through the expansion of the health care fraud
and abuse data collection program. This program will expand the
``data bank'' to include the reporting of final adverse actions
against health care providers, suppliers, or practitioners.\2\
For the purposes of this section, a final adverse judgment
includes criminal convictions, civil judgments, licensing and
certification decisions, or ``any other negative action or
finding by [a] Federal or State agency,'' including ``[a]ny
other adjudicated actions or decisions the Secretary may
establish by regulation.'' \3\ This leaves quite a bit of
uncertainty in the determination of what type of information is
entered into the data bank; for instance--an adverse Medicare
audit might be includable. Furthermore, though HIPAA uses the
term ``final,'' actions which may still be on appeal are also
includable. This means that even though a physician may still
be awaiting appeal of an action against him, the action is
nonetheless entered into the data bank. It is unjust to
penalize those who are still awaiting a further determination
on an issue of this type. Also, the reporting of ``negative
findings'' leaves far too much discretion to the government;
only those negative findings that are part of a final,
unappealable action should be reportable. To do otherwise
allows for abuse and prejudice to run rampant; those who may
harbor ill-will toward a physician can permanently scar their
record by the reporting of ``negative findings'' which may or
may not be legitimate.
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\2\ Title II, Subtitle C, section 221(a).
\3\ Title II, Subtitle C, sections 221(g)(1)(A)(i)-(v).
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The question then becomes, who is it that is responsible to
give this information to the data bank? Certainly, government
agencies should be responsible for this type of reporting. In
fact, in the past, government plans such as Medicare and
Medicaid were under affirmative duties to do so. However, it is
now also the duty of all ``health plans,'' meaning private
companies, to also report such information.\4\ That is,
whenever any health plan learns of any ``adverse action''
against a health care provider, it is its duty to report that
to the government. This implies that anybody associated with a
health plan can report a physician's actions to the government;
and, in fact, has a duty to do so. While an alternative
medicine physician may be doing nothing wrong, this provision
allows for a much greater amount of discretion on the part of
the reporting entity. For example, suppose a traditional
medicine HMO decides to report that an alternative medicine
practitioner is practicing an allegedly non-approved
treatment-- though that physician may have done nothing
illegal, that information will put up red flags as to that
physician's practice, and the subject physician may be exposed
to investigations or audits by federal agents, as well as have
a State inquiry into that physician's legitimate practice.
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\4\ Title II, Subtitle C, section 221(b)(1). (``Health plans'' is
defined by Title II, Subtitle A, sections 201(c)(1)-(3) as ``a plan or
program that provides health benefits, whether directly, through
insurance, or otherwise, and includes--(1) a policy of health
insurance; (2) a contract of a service benefit organization; and (3) a
membership agreement with a health maintenance organization or other
prepaid health plan.'').
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In addition to being at risk of reporting from health plan
entities, HIPAA actually gives monetary incentives for
individuals to report to the government ``information on
individuals and entities who are engaging in or who have
engaged in acts or omissions which constitute grounds for the
imposition of sanctions. . .or who have otherwise engaged in
fraud or abuse against the Medicare program.'' \5\ This
provision now allows any member of the general public to
receive compensation for whistleblowing. Again, while
alternative medicine practitioners are not doing anything
illegal, this provision permits further exposure to an
investigation; and the government now has a statutory duty to
``look into'' the reports of individuals who, for all we know,
may be traditional medicine doctors, or so-called ``quack-
busters.'' This additional attention will further complicate
the lives of alternative medicine physicians, who will now have
to use precious time and money defending and explaining their
actions against a governmental investigation brought on because
of individual reports, elicited for dually recognizable gains--
money and vengeance. Inevitably, a new market will emerge,
filled with complainants who have nothing to lose; if, in fact,
their complaint is successful, they are awarded a pecuniary
gain, yet they have expended no expense in making the complaint
since the one who files the complaint does not have to
investigate or prosecute. Why not make as many complaints as
possible, with the hope that even if a few are successful they
may present some monetary gain, without having to put out any
expense in return? This type of reward system needs some
measure of regulation to curb the potential for abuse.
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\5\ Title II, Subtitle A, section 203(b)(1).
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Additionally, those who will be investigating and auditing
these complaints are funded, in part, by a new Health Care
Fraud and Abuse Account program. Its goal is to collect as much
money from alleged violators of HIPAA. In fact, it is through
the collection of fines and forfeitures which provide
sustenance to the program. The organizational expenditures and
salaries are dictated by the amount of collections. This plan
creates a precarious conflict of interest. The program
administration's objectivity will be greatly obscured through
the lure of easy money. The cycle is vicious: the more
prosecution, the more money made--the more money made, the more
prosecution. All of this with no procedural safeguards against
potential abuse.
Furthermore, HIPAA has now ``federalized'' all health care
program violations.\6\ This means that if in fact a violation
took place against a state health program, it is now a federal
violation, and the federal government can now become involved
in the investigation.
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\6\ Title II, Subtitle A, section 204(a).
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The issues examined above only detail what the possible
effects are of the underlying mechanism for identifying
violators--that is, how problems will be created for
alternative medicine from only the procedures which have been
implemented to catch ``fraud and abuse'' perpetrators. However,
the actual substantive laws which are newly created under HIPAA
have as many potential problems as the infrastructure
implemented to effectuate them. These new violations, and the
corresponding penalties, drive a chill through all alternative
medicine practitioners.
The most prominent of the new federal health care offenses
is that of health care fraud, defined as ``knowingly and
wilfully'' executing or attempting to execute a plan or scheme:
(1) to defraud any health care benefit program; or
(2) to obtain, by means of false or fraudulent pretenses,
representations, or promises, any of the money or property
owned by, or under the custody or control of, any health care
benefit program, in connection with the delivery of or payment
for health care benefits, items, or services.\7\
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\7\ Title II, Subtitle E, sections 242(a)(1).
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These crimes are punishable by fines and up to ten (10)
years in prison.
The reason alternative medicine practitioners worry is
derived from an examination of another statute which defines
what courts may attempt to use to determine what a new type of
fraud is.
Under HIPAA, civil penalties may be assessed against any
person who:
[E]ngages in a pattern or practice of presenting or causing
to be presented a claim for an item or service that is based on
a [CPT] code that the person knows or should know will result
in greater payment to the person than the code the person knows
or should know is applicable to the item or service actually
provided[.] \8\
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\8\ Title II, Subtitle D, section 231(e)(1).
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Furthermore, penalties may be assessed against any person
who submits a claim which is for ``a pattern of medical or
other items or services that a person knows or should know are
not medically necessary'' (emphasis added).
This one line addition which HIPAA mandates may unleash a
flood of litigation. Alternative medicine practitioners may
have immediate fines and penalties assessed against them
because, under HIPAA, many will state that their treatments are
not ``medically necessary''--a term which is not defined in
HIPAA, and which even the Social Security Act has never
specifically outlined. Until the government puts into place
some scheme of approved and medically necessary treatments
verses those that are non-medically necessary, there is no
standard with which to apply equally. This in turn hurts both
physicians and patients. Physicians will have to guess at what
treatments they may use, in the hope that they do not violate
HIPAA. Meanwhile, those patients who may wish novel or
experimental treatments are at a loss because physicians will
be unlikely to treat them for fear of inducing liability.
Furthermore, the price that physicians will have to pay, both
in time and expense, hurts their patients. The cost of
defending potential numerous actions will be passed on to their
patients; either through higher costs or fewer treating
physicians.
Further, if this standard is accepted by courts as a
``fraudulent'' activity, it would immediately subject
practitioners to criminal penalties for health care fraud. That
is, if courts were to conclude that this type of activity, that
is--submitting claims for non-``medically necessary''
treatments, is fraudulent, then the practitioner could be
fined, have his personal property forfeited \9\, and could go
to jail for ten (10) years.
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\9\ Title II, Subtitle E, section 249(a).
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The idea that courts could adopt the civil penalty standard
to the criminal definition of ``fraud'' is not just a paranoid
delusion; especially if there are hundreds of traditional
medicine ``quack busters'' jamming the government's phone lines
with reports of the fraudulent activity of alternative medicine
practitioners who are submitting claims for non-``medically
necessary'' treatments.
There are numerous problems which HIPAA creates for those
medical practitioners that specialize in alternative medicine.
It is necessary for action to be taken in order to clarify and
delineate specific language which may be employed in the
activation of HIPAA, so that this new law is not abused by
those with anti-alternative agendas, who may attempt to gain
personal reward from the destruction of legitimate alternative
medical practitioners.
Apart from inducing fear in the alternative medicine
community, HIPAA recreates George Orwell's ``1984.'' Everyone
is against fraud but you cannot find it under every rock. This
bill creates a negative atmosphere for all physicians.
Statement of Citizens Against Government Waste
Medicare Fraud: The Symptoms and the Cure
Executive Summary
Citizens Against Government Waste's (CAGW) 1995 Medicare
Fraud: Tales From the Gypped exposed and detailed many avenues
of Medicare fraud. Since then, numerous hearings have been
held, and legislation, the Health Insurance Portability and
Accountability Act (HIPAA), was passed in 1996 to further
expose and punish those responsible for gaming the system by
giving the Department of Health and Human Services (HHS)
Inspector General's (IG) office additional resources to
aggressively combat Medicare fraud. CAGW's new report, Medicare
Fraud: The Symptoms and the Cure, not only documents new and
unsavory examples of fraud and abuse, but offers long-term
solutions to improve the Medicare system itself.
The report addresses major questions surrounding Medicare,
including: Who's at fault for the waste, fraud, and abuse--the
system itself, those who use it, or both? Who are the real
victims--the taxpayers, the seniors who rely on Medicare, or
those who are expecting to draw down benefits in the future?
What is the best way to cure Medicare's afflictions in the long
run? Should the current course of treatment be continued; i.e.,
attacking fraud, reducing payments to hospitals and doctors,
and marginally increasing choices for seniors in Medicare
services? Or, is the country ready to embrace more innovative
approaches that will allow seniors to regain control of their
healthcare choices, rather than deferring to third parties and
the federal government?
This report identifies dozens of examples of waste, fraud,
and abuse, which can be characterized as: civil penalties,
criminal penalties, kickbacks, home healthcare, nursing home
fraud, laboratory fraud, durable medical equipment fraud,
hospital fraud, and program exclusions. These examples are
further graphic proof that, as long as funds flow generously
and indiscriminately from this impersonal and nebulous source
called the government, Medicare will continue to be plagued by
scam artists and crooks, as well as garden variety bureaucratic
snafus and misunderstandings.
In 1995, HHS IG June Gibbs Brown estimated that up to $17
billion, or 10 percent of Medicare funds, were lost each year
because of waste, fraud, abuse and mismanagement.\1\ In 1996,
following the first comprehensive audit of Medicare since its
inception 32 years ago, the IG was forced to revise that
staggering figure upward, estimating that the true losses due
to fraud, waste, and abuse were closer to $23.2 billion a year.
That is $63 million per day, or about 14 percent of total
program costs, in net overpayments by Medicare in fiscal year
1996.\2\ Almost half (46 percent) of the $23 billion was the
result of insufficient or absent documentation. The IG admitted
that her staff was unable to determine exactly how many of the
improper payments occurred as a result of outright fraud and
how many were simply honest human errors.\3\
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\1\ Congressional Quarterly, Congressional Monitor, August 1, 1995,
p. 7.
\2\ Department of Health and Human Services (HHS), Office of the
Inspector General (OIG), Report on the Financial Audit of Health Care
Financing Administration for fiscal year 1996 (HCFA Financial Audit),
July 1997, p. 5.
\3\ June Gibbs Brown, Inspector General, Department of HHS, Audit
of HCFA Financial Statements--Testimony before House Committee on Ways
and Means, Subcommittee on Health, June 17, 1997.
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Recent high-profile Medicare investigations indicate that
the system may be as much, if not more, to blame as healthcare
providers. While there are certainly plenty of unscrupulous
individuals bilking Medicare--and the examples offered in this
report will rightly outrage the public--there are genuine
disagreements between the Health Care Financing Administration
(HCFA) and providers, and a significant number of these
discrepancies grow directly out of misinterpretation of vague
and sometimes conflicting HCFA guidelines.
HCFA has admitted that ``the best hospitals can do is to be
paid for their costs of furnishing services; they can also be
paid less than costs, but they cannot make a profit even if
they are extremely efficient.'' \4\ This no-win situation
naturally drives Medicare providers to seek the highest
possible reimbursements and encourages even the most law-
abiding among them to stretch the rules as far as possible.
Some providers conjure up ever more creative techniques to
fraudulently squeeze out additional dollars. Further,
Medicare's price control system is ineffective and may reduce
the quality of healthcare services available to beneficiaries.
In fact, the Balanced Budget Act of 1997, with its short-term
``fix'' of further lowering reimbursement rates for providers,
will only exacerbate this problem.
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\4\ Susan Horn and Robert Goldberg, ``A Sickly Approach to
Medicare,'' The Washington Post, July 1994.
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This helps explain why attacking fraud alone, although a
laudable goal and the government's only bulwark against the
appalling abuses of the system, will never solve Medicare's
problems entirely. Medicare needs much more than a vigilant IG
to ensure its long-term viability.
Seniors are not the only players in the Medicare debate.
Legislators, law enforcement officials, lawyers, healthcare
providers, healthcare consultants, accountants, and bureaucrats
all have a stake in the outcome. Ironically, two groups--
members of Congress and HCFA employees--wield a
disproportionate percentage of power over which healthcare
procedures will be covered by Medicare and at what cost,
despite the fact that few of them are healthcare professionals.
Their decisions are heavily influenced by the well-
organized and well-financed lobbying efforts of hundreds of
special interest groups. Members of Congress are under a
constant barrage from groups demanding changes to the Medicare
laws that address their special causes, diseases, or
constituencies. Expensive legal advisors must, in turn, be
retained by hospitals, healthcare professional associations,
trade groups and other organizations to interpret the impact of
these new laws on their ability to deliver quality healthcare
to their patients. And finally, accountants, consultants and
healthcare insurers must also pore over the 45,000 pages of
convoluted Medicare regulations to determine which medical
procedures they can bill for and for how much.
Medicare not only encourages providers to stretch the
limits of reimbursement to recapture as many of their costs as
possible, it also offers patients little incentive to question
excessive costs or report overpayments. Because there are no
rewards for delivering high quality healthcare or improving
efficiency, there are no ``up front'' incentives for providers
to control costs. Instead, there are ``back-end''
investigations and billing disputes, well after the money has
disappeared, and lack of attention to the root causes of the
problems. In this insidious cycle, more dollars are
reprogrammed and committed to investigations, and regulations
are constantly made more complex and vulnerable to
misinterpretation, abuse, and litigation. This, in turn, leads
to still more insistent calls for crackdowns and
investigations.
These problems will multiply as technology and advances in
medicine continue to outpace the government's ability to write
and enforce new rules and regulations. Many of the newest and
most innovative medical techniques are not even recognized or
covered by Medicare, which means that seniors do not have
access to all of the same high quality treatments under
Medicare as patients under the age of 65. Medicare trails the
private sector in using both managed care and healthcare
outcomes to control unnecessary medical spending. The only way
to control expenditures in this type of entitlement program is
to specify in advance exactly what price the government will
pay for each and every service rendered. A lumbering,
monopolistic bureaucracy like Medicare is simply not nimble
enough to keep up with a rapidly evolving industry that offers
many different types of services, products, and treatments.
Real change in Medicare will only come about when the power
to make healthcare decisions is taken away from politicians,
bureaucrats, lawyers, consultants, and accountants, and placed
into the hands of those who depend upon the program. The
Balanced Budget Act of 1997 was a good start in providing
seniors with more choices and more control. But it does not
address the core problem: Medicare will begin to slide into
bankruptcy in 10 years, as the baby boomers begin flooding the
program. The commission created by the Balanced Budget Act must
confront this immediate crisis head-on by taking bold steps.
CAGW concurs with U.S. Rep. Pete Stark (D-Calif.), who recently
wrote ``Medicare beneficiaries deserve the best we can offer--
quality care at an affordable price with strong protections
against unscrupulous providers.'' \5\
---------------------------------------------------------------------------
\5\ Congressman Pete Stark, ``Letter to the Editor,'' The Wall
Street Journal, September 11, 1997.
---------------------------------------------------------------------------
Waste, Fraud and Abuse--The Continuing Saga
Medicare was created in 1965 to provide healthcare
insurance benefits to the aged and other eligible populations
who might not otherwise be able to afford decent health
insurance coverage in the event of injury or illness.
Medicare Part A provides hospital and other institutional
coverage for eligible disabled persons and persons 65 or older.
This coverage is premium-free and is financed through mandatory
payroll taxes. Part A is commonly referred to as the hospital
insurance program.
Medicare Part B, Supplementary Medical Insurance (SMI), is
an optional program that covers most of the costs of medically
necessary physician and other services. All persons 65 years or
older can choose to enroll in the SMI program by paying a
monthly premium. Even though this is a voluntary program, non-
participating taxpayers finance approximately 75 percent of the
spending.
HCFA administers Medicare through more than 70 private
claims processing contractors (who are really in control of the
system). Healthcare providers and beneficiaries are paid by
these companies, which also receive tax dollars to cover
administrative expenses (approximately $1.2 billion in 1996).
According to the General Accounting Office (GAO), HCFA
processed more than 800 million claims in 1996.\6\ The sheer
volume of the claims processed allows incidents like the
following to occur:
---------------------------------------------------------------------------
\6\ GAO, High Risk Series: Medicare (GAO/HR-97-10), February, 1997,
p. 15.
---------------------------------------------------------------------------
After unsuccessfully pleading insanity (claiming
psychotic delusions caused him to overbill), a Boston,
Massachusetts, psychiatrist was sentenced to 46 months
imprisonment and fined $1 million for Medicare and private
insurer fraud, obstructing justice, and intimidating a witness.
The psychiatrist attempted to get patients to lie for him and
even threatened to make public the medical records of a family
member of one of the patients if she didn't lie to the
government. The witness refused to be intimidated and testified
against him.\7\
---------------------------------------------------------------------------
\7\ Department of Health and Human Services (HHS), Office of
Inspector General (OIG), Semiannual Report, April 1, 1996-September 30,
1996, p. 15.
---------------------------------------------------------------------------
In 1995, the GAO warned that, ``Medicare pays more claims
with less scrutiny than at any other time over the past five
years.''\8\ Two years later the situation is not much better:
---------------------------------------------------------------------------
\8\ GAO, High Risk Series: Medicare Claims, February, 1995, p. 7.
---------------------------------------------------------------------------
[P]roblems in funding program safeguards and HCFA's limited
oversight of contractors continue to contribute to fee-for-
service program losses. While HCFA expects a major system
acquisition project to reduce certain weaknesses, the project
itself has several risks that may keep HCFA from attaining its
goals. In addition, the managed care program suffers from
excessive payment rates to HMOs and weak HCFA oversight of the
HMOs it contracts with.\9\
---------------------------------------------------------------------------
\9\ GAO, High Risk Series: Medicare, February, 1997, p. 8.
---------------------------------------------------------------------------
The 1996 HHS audit identified HCFA's four internal control
weaknesses that hinder Medicare from tracking its money: there
is no process to estimate a national error rate for improper
payments; no acceptable method for estimating Medicare accounts
payable; no integrated financial reporting system to properly
account for Medicare accounts receivable or other financial
management and reporting issues; and deficient electronic data
processing and controls relating to security access, system
application development, and service continuity.\10\
---------------------------------------------------------------------------
\10\ Department of HHS, OIG, HCFA Financial Audit 1996, July 1997,
p. 2.
---------------------------------------------------------------------------
The anti-fraud provisions passed by Congress in fiscal year
1996 made significant changes in the oversight of Medicare
fraud. HIPAA (also referred to as Kassebaum-Kennedy, after its
Senate co-sponsors) contained increased funding for IG
activities, along with provisions that will enable the
government to recoup more of its losses. The Balanced Budget
Act also contained measures to stave off Medicare's financial
failure until 2007. Congress chose to carve out the bulk of the
savings over the next five years, $115 billion, by once again
reducing payments to doctors, hospitals, and other healthcare
providers.
Combating Health Care Fraud
Since 1995, the HHS IG's office has stepped up its attacks
on Medicare fraud. That year, the department established
Operation Restore Trust in California, Florida, Illinois, New
York, and Texas, to target areas of waste, fraud, and abuse.
HHS joined forces with multiple federal and state agencies to
examine the activities of home healthcare agencies, nursing
homes, and durable medical equipment suppliers. According to
Michael Mangano, HHS's principal deputy inspector general, the
IG eventually expects to recover about $1.1 billion through
criminal cases and civil settlements.\11\ This is an enormous
increase over last year's collections, which totaled $205
million (the IG collected $69.8 million five years ago). That
figure does not include any collections that may accrue as a
result of the IG's ongoing investigation of Columbia/HCA, the
largest tax-paying hospital chain in the country.\12\
---------------------------------------------------------------------------
\11\ David S. Hilzenrath, ``Bold Scams Bilk Medicare of Billions,''
The Washington Post, August 8, 1997.
\12\ Greg Jaffe and Eva Rodriguez, ``In Hospital Probes, a New
Focus on Bottom Line,'' The Wall Street Journal, September 12, 1997.
---------------------------------------------------------------------------
In May 1997, the IG's office reported that for every dollar
spent on Operation Restore Trust, $23 was recovered. It
identified more than $187.5 million in fines, recoveries,
settlements, audit disallowances, and civil monetary penalties.
There are still hundreds of pending cases. Because of the
program's success, HIPAA will double the IG's appropriation
over the next seven years and the operation will be expanded to
include specific targets in all 50 states. Eventually, it will
be applied in all 50 states and throughout all Medicare program
areas.
Tracking and punishing fraud, of course, are vital parts of
administering any government program. And, as a result of some
of new laws governing Medicare, they have also become more
lucrative. But there are risks. Recent congressional hearings
on the Internal Revenue Service (IRS) should serve as a
cautionary tale about what can happen when federal law
enforcement officials exceed their authority in response to
financial or other incentives.
According to The Wall Street Journal, almost all 187
hospitals in Ohio recently received letters from federal
officials accusing them of overbilling Medicare for blood and
urinalysis tests. The letters then offered settlements in lieu
of prosecution.\13\ Investigations and audits must not become
institutionalized government shakedowns.
---------------------------------------------------------------------------
\13\ Idem.
---------------------------------------------------------------------------
Civil Penalties for False Claims
Congress enacted the Civil Monetary Penalties Act to
empower the IG to impose penalties and assessments against
healthcare providers who submit false or improper claims to
Medicare and state healthcare programs. The law allows the
government to try to recover money lost through illegitimate
claims and to impose additional penalties, if necessary. The IG
may now also direct companies found to have engaged in improper
billing or other transgressions to enter a corporate integrity
program and submit to increased scrutiny in order to remain in
Medicare.
The IG is currently monitoring 70 such corporate integrity
programs, from small physician offices to large laboratory
corporations. Most supervision lasts for 5 years and compels
active participation by the provider to certify that it is
operating within HCFA regulations and the parameters
established by the plan. Failure to comply may result in
lengthy, or permanent, exclusion from participation in
Medicare.
The following are recent examples of civil cases and their
settlements:
A Massachusetts laboratory agreed to pay $6.67
million to settle charges that it overbilled Medicare.
According to the IG, the laboratory routinely billed Medicare
for a serum iron test whenever a physician requested a standard
panel of tests, even though the iron test was not specifically
requested. The laboratory improperly collected more than $3.35
million from Medicare for the unnecessary tests.\14\
---------------------------------------------------------------------------
\14\ HHS, OIG, Semiannual Report, April 1, 1996-September 30, 1996,
p. 12.
---------------------------------------------------------------------------
A New Jersey corporation performing X-ray and
electrocardiographic services used subsidiaries in
Massachusetts and Pennsylvania to illegally bill in regions
where reimbursement rates were higher. The corporation agreed
to pay $2.1 million to settle the case, and the president and
vice president of one subsidiary pled guilty for their
involvement in the scheme.\15\
---------------------------------------------------------------------------
\15\ HHS, OIG, Semiannual Report, October 1, 1995-March 31, 1996,
p. 14.
---------------------------------------------------------------------------
After submitting false claims to the Medicare and
Medicaid programs for experimental cardiac devices that were
not FDA-approved, a California hospital paid nearly $1.3
million to resolve its civil liability.\16\
---------------------------------------------------------------------------
\16\ Idem.
---------------------------------------------------------------------------
In early 1997, four Georgia healthcare providers
agreed to pay $2 million to settle allegations of Medicare
fraud. According to the Justice Department, California-based
Apria Healthcare Group Inc. used sham consulting contracts to
give kickbacks to physicians in exchange for referrals of
Medicare patients. Apria, one of the nation's largest suppliers
of medical equipment and oxygen, agreed to pay $1.65 million.
The other companies involved were Georgia Lung Associates,
which agreed to pay $346,000; Pasa del Norte Health Foundation
of El Paso, Texas, which agreed to pay $20,000; and Physicians
Pharmacy Inc. of Georgia, which agreed to pay $4,000.\17\
---------------------------------------------------------------------------
\17\ Bill Rankin, ``Medicare Fraud Case Settled for $2 million,''
Atlanta Journal-Constitution, February 6, 1997.
---------------------------------------------------------------------------
Between 1991 and 1993, a Philadelphia psychiatrist
and his wife filed numerous false Medicare and Medicaid claims
by billing for therapy that was not provided, for unsupervised
treatments, and for more therapy units than were provided. The
psychiatrist attempted to destroy records when federal
investigators searched his office. The couple agreed to pay a
$500,000 settlement and entered a corporate integrity
program.\18\
---------------------------------------------------------------------------
\18\ HHS, OIG, Semiannual Report, October 1, 1995-March 31, 1996,
p. 15.
---------------------------------------------------------------------------
A New Jersey medical supply company paid $330,000
to settle charges that it billed Medicare for expensive,
custom-fitted ``spinal body jackets'' that were actually little
more than seat cushions provided to nursing home residents.\19\
---------------------------------------------------------------------------
\19\ Alice Ann Love, ``Medicare Crackdown to Target 12 New
States,'' The Orange County Register, May 21, 1997.
---------------------------------------------------------------------------
Pennsylvania-based Mediq Inc. and its subsidiary,
ATS Inc., agreed to a settlement in which ATS and its president
pled guilty to concealing a felony and ATS agreed to pay $2.1
million in fines. The settlement was the result of a
whistleblower lawsuit, which exposed illegal cross-billing of
portable EKGs and portable X-rays. ATS billed services
performed in one carrier's jurisdiction to a carrier in another
jurisdiction where reimbursement rates were higher.\20\
---------------------------------------------------------------------------
\20\ U.S. Department of Justice, Department of Justice Health Care
Fraud Report: Fiscal Years 1995-1996, p. 25.
---------------------------------------------------------------------------
Criminal Penalties
Medicare fraud is often tried as a criminal offense, and a
conviction can lead to jail time for the perpetrators. Recent
criminal convictions for Medicare fraud include the following
cases:
A former Colorado heart surgeon was convicted of
Medicare and Medicaid fraud for billing for heart bypasses he
never performed. The surgeon was sentenced to 30 days'
incarceration, 3 years' probation, and 200 hours of community
service. Total restitution, fines, and damages recovered
totaled $30,000.\21\
---------------------------------------------------------------------------
\21\ HHS, OIG, Semiannual Report, April 1, 1996-September 30, 1996,
p. 16.
---------------------------------------------------------------------------
An Oregon opthamologist pled guilty and was
sentenced to 2 years' probation and fined $10,370 for
submitting false claims for medically unnecessary cataract
surgeries. Though his patients had near-perfect vision prior to
surgery, the opthamologist gave the hospital false information
about the patients' true visual abilities. He subsequently
surrendered his medical license and declared bankruptcy.\22\
---------------------------------------------------------------------------
\22\ Idem.
---------------------------------------------------------------------------
The owner and chief executive officer of Georgia's largest
home healthcare agency pled guilty to charging Medicare and
Medicaid for campaign contributions, phantom employees, and
personal vacations. She was sentenced to 33 months in prison,
followed by 3 years' supervised work release, including 200
hours of community service. She was fined $25 million and
ordered to pay $11.5 million in restitution. The company's
former vice president was fined $75,000, had to repay $710,000,
and was sentenced to 151 months incarceration followed by 3
years' probation. The agency's former risk manager was ordered
to repay $710,000 and received 97 months' incarceration and 3
subsequent years of probation.\23\
---------------------------------------------------------------------------
\23\ HHS, OIG, Semiannual Report, October 1, 1995-March 31, 1996,
p. 19.
---------------------------------------------------------------------------
A joint audit and investigation revealed that a
California nursing home owner had billed Medicare for
nonexistent medical supplies and filed false cost reports. The
former owner was sentenced to more than 11 years in prison and
was ordered to pay more than $3.5 million in fines,
restitution, and special assessments. Two former Medicare
carriers and two former employees also pled guilty and were
sentenced after they testified against the owner.\24\
---------------------------------------------------------------------------
\24\ Ibid., pp. 19-20.
---------------------------------------------------------------------------
A laboratory clerk and her husband (the president
of the laboratory) used a fraudulent passport to set up a
laboratory. The clerk and her husband submitted more than 700
claims for 416 beneficiaries (many of whom were already dead)
and collected $330,000 over a 60-day period. One of the
``referring physicians'' had been dead for 2 years. The wife
was sentenced in Florida to 9 months in prison, 2 years'
supervised release, and ordered to pay a $50 special
assessment. The husband was arrested after trying to withdraw
$200,000 from the corporate account and was sentenced to 10
months in prison, 3 years probation, and ordered to make
restitution of $115,800.\25\
---------------------------------------------------------------------------
\25\ Ibid., p. 21.
---------------------------------------------------------------------------
After pleading guilty to submitting false claims
for complex procedures that he did not perform, a California
urologist was sentenced to 24 months in prison. Before the
sentencing, he agreed to pay $440,000 in damages and penalties.
The urologist will be barred from participation in Medicare for
10 years due to the egregious nature of his crimes. For
example, he performed invasive procedures that he admitted were
not medically necessary. He has also surrendered his medical
license.\26\
---------------------------------------------------------------------------
\26\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
pp. 21-22.
---------------------------------------------------------------------------
While employed by a doctor as an office manager, a
Texas woman submitted false claims for a personal friend, even
though no services were performed. The two split the proceeds
when the checks came in. The office manager was sentenced to a
year and a day in prison and ordered to make restitution of
$41,500. The friend was sentenced to one year probation and
fined $2,550.\27\
---------------------------------------------------------------------------
\27\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
p. 23.
---------------------------------------------------------------------------
A former IRS mail clerk was sentenced to five
months in prison and five months' home confinement with
electronic monitoring, followed by one year supervised release,
for impersonating a federal officer, intimidating a witness,
and obstructing a Medicare fraud investigation. Before becoming
an IRS employee, he had worked for an ambulance company that
was being investigated for fraudulent Medicare billing. During
that investigation, several company employees revealed that the
man had claimed to be an IRS agent and had threatened at least
one of them with a tax audit if he cooperated with
authorities.\28\
---------------------------------------------------------------------------
\28\ Idem.
---------------------------------------------------------------------------
A psychologist in Pennsylvania was sentenced to 6
months' home detention, 12 months' probation, and 300 hours of
community service for mail fraud. Over a 4-year period, she
billed Medicare for more than 700 services that were never
provided. The Medicare loss was estimated at $113,000.\29\
---------------------------------------------------------------------------
\29\ Idem.
---------------------------------------------------------------------------
Blake Alan Wimpee was sentenced to 18 months in
prison for submitting false claims to Medicare. Between 1994
and 1996, Mr. Wimpee billed Medicare for 28 power wheelchairs
when he actually provided electric scooters instead. As a
result, Medicare overpaid the San Angelo, Texas businessman by
more than $82,000.\30\
---------------------------------------------------------------------------
\30\ Associated Press, ``Medicare Supplier Gets Prison Time for
Fraud,'' San Antonio Express-News, June 8, 1997.
---------------------------------------------------------------------------
In 1996, Ronald W. Nemeroff pled guilty in U.S.
District Court in Newark, New Jersey, to paying kickbacks of
$36,000 to get $145,000 worth of Medicare-funded orders for
equipment.\31\
---------------------------------------------------------------------------
\31\ Jerry DeMarco, ``Guilty Plea in Kickback Scheme,'' The Record,
September 25, 1996.
---------------------------------------------------------------------------
Kickbacks
Many businesses use referrals as an integral part of their
day-to-day operations to meet customer needs and provide
specialized medical services that are not part of their
expertise. The healthcare system is especially dependent on
referrals because there are so many medical specialty areas. A
referral becomes a kickback when patients are referred in
exchange for anything of value. Both parties, the giver and the
receiver, share culpability under the law. Medicare requires
that referrals be made in the best interest of the patient and
without financial gain by either party.
Medicare's anti-kickback statute ``penalizes anyone who
knowingly and willfully solicits, receives, offers or pays
remuneration in cash or in kind to induce or in return for:
referring an individual to a person or entity for
the furnishing, or arranging for the furnishing, of any item or
service payable under the Medicare or Medicaid programs; or
purchasing, leasing or ordering, or arranging for
or recommending the purchasing, leasing, or ordering of any
good, facility, service or item payable under the Medicare or
Medicaid programs.'' \32\
---------------------------------------------------------------------------
\32\ HHS, OIG, Semiannual Report, April 1, 1996-September 30, 1996,
p. 17.
---------------------------------------------------------------------------
The following are recent examples of Medicare kickback
schemes:
In the first case initiated under the anti-
kickback law, a group of cardiologists in a Massachusetts
hospital, who are not permitted to bill Medicare for
interpreting coronary angiograms and ventriculograms, gained
the illicit cooperation of a group of radiologists, who agreed
to pass the bills through to Medicare. The hospital paid agreed
to pay $177,000 in restitution.\33\
---------------------------------------------------------------------------
\33\ Idem.
---------------------------------------------------------------------------
Tony Abad, a 43-year-old Florida X-ray and
ultrasound technician who owned and operated Physicians Choice
Diagnostic Service Inc., was charged with 24 counts of paying
illegal kickbacks for Medicare business.\34\
---------------------------------------------------------------------------
\34\ Mark Albright, ``Medicare Fraud Inquiry Spreads,'' St.
Petersburg Times, August 1, 1997.
---------------------------------------------------------------------------
Two brothers were found guilty by a New York jury
for conspiracy related to fraudulent Medicare claims. The
brothers visited senior citizen highrises and conducted health
fairs where they coaxed Medicare beneficiaries into revealing
their Medicare identification numbers. The brothers then used
the numbers to forge certificates of medical necessity to two
durable medical equipment (DME) companies. The companies then
billed for equipment, much of which was never supplied, costing
Medicare $750,000. The brothers received ``commissions'' based
upon the cost of each piece of equipment.\35\
---------------------------------------------------------------------------
\35\ HHS, OIG, Semiannual Report, October 1, 1995-March 31, 1996,
p. 22.
---------------------------------------------------------------------------
Five owners of licensed branches of the Florida
Impotence Clinic Inc. were indicted for receiving kickbacks for
referring Medicare patients to medical equipment manufacturers
and service providers.\36\
---------------------------------------------------------------------------
\36\ Mark Albright, ``Medicare Fraud Inquiry Spreads,'' St.
Petersburg Times, August 1, 1997.
---------------------------------------------------------------------------
A former salesman for a New York DME company was
sentenced to four months in prison, followed by 2 years'
probation, and $13,500 in restitution fines for Medicare fraud
conspiracy. The salesman recruited patients for his father, a
semi-retired podiatrist, in return for the patients' Medicare
identification numbers and signed certificates of medical
necessity. The salesman then turned around and sold the
certificates to his employer. The father was sentenced to three
years probation and four months home confinement for billing
Medicare and private health insurance for treatments not done
and visits not made.\37\
---------------------------------------------------------------------------
\37\ HHS, OIG, Semiannual Report, October 1, 1995-March 31, 1996,
p. 23.
---------------------------------------------------------------------------
Physicians First Choice and Somed Company, both
owned by Frank J. Lopez of Clearwater, Florida, are accused of
paying clinics for Medicare patient referrals and then
including the payments in their charges to Medicare. The
government is seeking triple damages on 17,000 false claims
that Lopez's companies submitted, for a total of $170 million
in punitive damages.\38\
---------------------------------------------------------------------------
\38\ Mark Albright, ``Medicare Fraud Inquiry Spreads,'' St.
Petersburg Times, August 1, 1997.
---------------------------------------------------------------------------
Home Healthcare
Home healthcare is a rapidly growing industry that allows
seniors to receive care in their own homes for less than the
cost of hospitalization or nursing home care. Unfortunately, it
has become rife with fraud and abuse. A recent government audit
found that 40 percent of home healthcare visits reimbursed by
Medicare in California, Illinois, New York, and Texas do not
qualify for reimbursement. Another IG report uncovered the fact
that 25 percent of home healthcare agencies certified to
participate in Medicare have defrauded or exploited the program
at one time or another. Medicare spends $17 billion per year on
home healthcare services.\39\
---------------------------------------------------------------------------
\39\ Testimony of George F. Grob, Deputy Inspector General for
Evaluation and Inspections HHS Office of Inspector General, Hearing
before the Senate Special Committee on Aging, July 28, 1997, p. 1.
---------------------------------------------------------------------------
Ironically, it was Medicare's policies that helped spawn
the huge explosion into home healthcare spending. Much of the
technology that has been developed in recent years allows many
medical procedures to be performed at home, often by patients
themselves. Medicare deliberately offered generous payments for
home healthcare, based upon the fact that caring for someone at
home is less expensive and more desirable for seniors than
admitting them to a hospital. But in the process, Medicare
allowed for unlimited payments for a wide variety of home
healthcare services instead of capping prices as it has for in-
hospital care.
The Balanced Budget Act passed this year by Congress will
require home healthcare agencies and other post-acute
healthcare providers to move from Medicare's current cost-based
reimbursement system to the prospective payment system (PPS) by
1999. It is believed that under PPS, hospitals will no longer
have the incentive to shift acute-care costs to home healthcare
operations.\40\
---------------------------------------------------------------------------
\40\ Charlotte Snow, ``Home Health Heats Up,'' Modern Healthcare,
August 18, 1997, p. 30.
---------------------------------------------------------------------------
After years of promoting the expansion of home health care
agencies and then failing to exercise oversight, the Clinton
Administration has finally taken steps to address the problem
by announcing a moratorium on the acceptance of new home
healthcare agencies and by a doubling of the number of
investigators assigned to examine agencies' activities. This is
the first time since Medicare was implemented that a whole
section of the healthcare industry has been barred from
admission to the program. The moratorium will put the brakes on
what has been one of the fastest growing segments of the
healthcare industry--Medicare was accepting an average of 100
new home healthcare companies each month. Furthermore,
currently certified home healthcare companies will be required
to reapply for admittance to remain eligible to receive
Medicare reimbursements.\41\
---------------------------------------------------------------------------
\41\ Amy Goldstein, ``President Acts to Curb Home Health Care
Fraud,'' The Washington Post, September 16, 1997.
---------------------------------------------------------------------------
In Florida alone, the IG found that:
In Miami Lakes, 24 percent of claims did not meet
guidelines: 11 percent were for 145 services that were not
reasonable or necessary, 9 percent were for 177 services that
physicians either denied authorizing or authorized improperly,
and 4 percent were for 24 services that were not provided.\42\
---------------------------------------------------------------------------
\42\ HHS, OIG, Semiannual Report, April 1, 1996-September 30, 1996,
p. 18.
---------------------------------------------------------------------------
In Miami, 40 percent of claims did not meet
Medicare guidelines: 25 percent of the claims were for 466
services made to individuals who were not homebound; 8 percent
of the claims were for 200 services that were not reasonable or
necessary; 5 percent of the claims were for 127 services that
were not provided; and 2 percent of the claims were for 53
services that physicians denied authorizing.\43\
---------------------------------------------------------------------------
\43\ Idem.
---------------------------------------------------------------------------
In Dade County, 32 percent of claims did not meet
Medicare guidelines: 16 percent were for 208 services that were
not reasonable or necessary; 9 percent of the claims for 129
services were provided to beneficiaries who were not homebound;
4 percent were for 18 services that were not provided; and 3
percent were for 48 services that physicians either denied
authorizing or authorized improperly.\44\
---------------------------------------------------------------------------
\44\ Idem.
---------------------------------------------------------------------------
In one Florida home healthcare agency (HHA), 32
percent of claims did not meet Medicare guidelines: 23 percent
were for 262 services that were not reasonable or necessary; 5
percent were for 69 services provided to beneficiaries who were
not homebound; 3 percent were for 17 services that physicians
did not authorize; and 1 percent were for 5 services that were
not provided. During this fiscal year period, the HHA claimed
$12 million in 8,700 claims representing 151,015 services.\45\
---------------------------------------------------------------------------
\45\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
pp. 24-25.
---------------------------------------------------------------------------
Other examples of home healthcare fraud include:
Some people in the home healthcare business are
very generous to their relatives. One HHA hired the owner's
nephew to maintain its computer system. The nephew was a full-
time college student and was paid $250,000 for the work.\46\
---------------------------------------------------------------------------
\46\ HHS, OIG, Home Health: Problems and Their Impact on Medicare,
July 1997, p.9.
---------------------------------------------------------------------------
The former owner of a Michigan HHA was sentenced
to 5 months house arrest and ordered to pay $18,000 for his
participation in Medicare fraud. He sold his agency in December
1994 to a Georgia agency but backdated the sale to November 12,
1994. This sleight-of-hand allowed the corporation to bill
Medicare for all the services provided by the former owner's
HHA, thereby covering nearly all of the corporation's
acquisition costs. Although the former owner provided no
services, he received a $5,000 a month salary from December
1994 to June 1995.\47\
---------------------------------------------------------------------------
\47\ HHS, OIG, Semiannual Report, April 1, 1996-September 30, 1996,
p. 19.
---------------------------------------------------------------------------
The former owner of a Texas HHA was handed a
sentence of 27 months after he pled guilty to filing false
Medicare claims totaling more than $49,000 in only 6 months.
The harsh sentence was partly due to a previous state
conviction for embezzlement.\48\
---------------------------------------------------------------------------
\48\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
pp. 26-27.
---------------------------------------------------------------------------
Two brothers in Texas conspired to include phony
expenses for medical supplies, office supplies, and automobile
leases on Medicare claims forms. One brother was the president
of a medical supply company, which sold equipment to the other
brother's agency at a 100 percent markup. The two then altered
invoices for supplies not purchased and fabricated automobile
lease contracts from vendors who never leased vehicles. They
agreed to pay $30,000 to resolve their civil liabilities.\49\
---------------------------------------------------------------------------
\49\ Ibid., p. 27.
---------------------------------------------------------------------------
In 1996, John Watts, Jr. pled guilty to defrauding
Medicare of at least $1.5 million. He started his company,
United Care Home Health Services Inc., just 13 months after
finishing a prison term for dealing cocaine. Watts paid
kickbacks to local doctors to get his first patients, but later
decided it was easier just to bill for services never provided,
in some cases using the names of dead people. Watts sent his
claims via computer. When investigators asked for documentation
of the services, Watts and his partner forged the documents,
hoodwinking investigators for several months. Watts made so
much money with the scam that he was able to put a $1.2 million
cash down payment on a $2.5 million house.\50\
---------------------------------------------------------------------------
\50\ Peter Eisler, ``Fraud On the Rise,'' USA Today, November 12,
1996.
---------------------------------------------------------------------------
In less than one year, Urgent Home Health Care of
Washington, D.C., billed for 1,450 visits its nurses never
made, often leaving patients waiting for needed care. The
owners of the company, Pauline Bapack and Pierre Yopa,
collected about $100,000 for those fraudulent billings. Bapack
was sentenced to three years in jail. Yopa is wanted for
failing to show up for sentencing.\51\
---------------------------------------------------------------------------
\51\ Brooke A. Masters, ``Investigators Try to Keep up with Growing
Problem of Health Care Fraud,'' The Washington Post, April 6, 1997.
---------------------------------------------------------------------------
Nursing Home Fraud
Most nursing home staffs are trustworthy providers of care
and comfort for seniors who are unable to care for themselves.
When nursing home doctors, nurses, suppliers, or staffs defraud
the Medicare system for personal gain, they break that trust.
The GAO identified two reasons why nursing homes are so
vulnerable to fraud:
First, because a nursing facility locates individual
Medicare beneficiaries under one roof, unscrupulous billers of
services can operate their schemes in volume. Second, in some
instances, nursing facilities make patient records available to
outside providers who are not responsible for direct care of
the patient, contrary to federal regulations that prohibit such
inappropriate access.\52\
---------------------------------------------------------------------------
\52\ GAO, Fraud and Abuse: Providers Target Medicare Patients in
Nursing Homes (GAO/HEHS-96-18), January, 1996, p. 2.
---------------------------------------------------------------------------
As the baby-boom generation matures and more seniors enter
the nursing home system, the potential for fraud will explode.
The following cases are recent examples of fraudulent schemes
involving nursing home facilities:
An Ohio hospital agreed to pay the federal
government $1.45 million to settle charges of defrauding the
Medicare and Medicaid programs. False claims for geriatric
psychiatric services that were non-therapeutic or unnecessary
were submitted while the hospital was operating an outpatient
clinic for nursing home patients. Many of the patients suffered
organic brain disorders that did not call for psychiatric
treatments, resulting in an overpayment to the hospital of more
than $600,000. The hospital agreed to enter a corporate
integrity program.\53\
---------------------------------------------------------------------------
\53\ HHS, OIG, Semiannual Report, April 1, 1996-September 30, 1996,
pp. 22-23.
---------------------------------------------------------------------------
A company in New Jersey that employed
psychologists to provide services to nursing home residents
agreed to pay $700,000 to settle allegations it submitted false
Medicare claims. The company billed for 45 to 50 minutes of
psychotherapy to nursing home residents when only 20 to 30
minute sessions were held. Some of the company's psychologists
billed for more than 14 hours of therapy a day, and one billed
for the equivalent of more than 24 hours in one day. The
company has entered a corporate integrity program.\54\
---------------------------------------------------------------------------
\54\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
pp. 29-30.
---------------------------------------------------------------------------
An Illinois ambulance company owner and one of his
employees pled guilty to Medicare and Medicaid fraud for filing
false and inflated claims for same-day, round-trip transfers of
nursing home patients, many of whom were in fact bed-confined.
The company owner was sentenced to 5 months' incarceration,
ordered to sell his business, and fined $10,000. He had
previously agreed to a $367,000 civil settlement. The employee
was given two years probation and fined $500.\55\
---------------------------------------------------------------------------
\55\ Ibid., pp. 30-31.
---------------------------------------------------------------------------
A podiatrist received $143,580 for performing
unneeded surgical procedures on at least 4,400 nursing home
patients during a six-month period. A doctor would have to
operate on at least 34 patients per day, five days a week in
order to perform surgery at that volume.\56\
---------------------------------------------------------------------------
\56\ GAO, Fraud and Abuse in Nursing Homes, p. 4.
---------------------------------------------------------------------------
A Florida therapy company provided free services
to nursing homes, then billed group activities such as sing-
alongs and arts-and-crafts classes as individual therapy for
each patient. The sing-alongs were billed as speech therapy.
The arts-and-crafts classes were billed as occupational
therapy. The company offered the services to the nursing homes
in exchange for information from the patients' charts, which
they then used to bill Medicare.\57\
---------------------------------------------------------------------------
\57\ Lindsay Peterson, ``Medicare Swindlers Exposed,'' The Tampa
Tribune, June 23, 1996.
---------------------------------------------------------------------------
Laboratory Fraud
HHS determined in 1993 that many independent clinical
laboratories were billing Medicare for millions of tests that
were medically unnecessary. Many individual lab tests are
included in a routine screen, or panel, of tests. Some
laboratories, however, were leading physicians to believe that
the tests were free of charge and then billed Medicare for them
anyway. The government ordered a national investigation
involving the HHS IG auditors, HCFA staff, U.S. attorneys, and
federal law enforcement agencies to examine clinical
laboratories.\58\ What follows are some examples of fraud
uncovered during those investigations:
---------------------------------------------------------------------------
\58\ U.S. Department of Justice, Health Care Fraud Report, Fiscal
Years 1995-1996, p. 7.
---------------------------------------------------------------------------
In one of the biggest financial settlements
involving healthcare fraud in the history of the False Claims
Act, one laboratory agreed to a $325 million settlement and
entered a corporate integrity agreement to ensure stringent
compliance in its future billing practices.\59\
---------------------------------------------------------------------------
\59\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
p. 32.
---------------------------------------------------------------------------
A laboratory owned by SmithKline Beecham allegedly
programmed computers to fabricate information for Medicare
claims when missing or incomplete data would have delayed
payment and, in some cases, substituted a false diagnosis that
would assure payment instead of submitting one that would be
rejected. The company has also been accused of unbundling
tests, charging for tests that doctors never ordered, and
offering physicians kickbacks for patient referrals.\60\
---------------------------------------------------------------------------
\60\ David S. Hilzenrath, ``Medicare Scams Easy, Officials Say,''
The Florida Times Union, August 10, 1997.
---------------------------------------------------------------------------
Another major clinical laboratory agreed to pay
$187 million to resolve its civil liabilities and to enter a
corporate integrity program with comprehensive training and
monitoring. One of its constituent laboratories also pled
guilty to fraud, paid a $5 million criminal fine, and was
excluded from participation in federal and state healthcare
programs.\61\
---------------------------------------------------------------------------
\61\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
p. 32.
---------------------------------------------------------------------------
A fourth major independent laboratory fell victim
to ``successor liability'' for the conduct of laboratory
companies that it had purchased during its growth in the early
1990s. Two settlements were reached amounting to $130 million,
bringing the total amount recouped in this case thus far to
$185 million.\62\
---------------------------------------------------------------------------
\62\ Idem.
---------------------------------------------------------------------------
In early 1997, Medicalab Inc. and its owners
agreed to pay $1.3 million to settle allegations that it
defrauded Medicare by overbilling for mileage traveled by
workers and charging for duplicate radiology services.\63\
---------------------------------------------------------------------------
\63\ Associated Press, ``Lab Settles Medicare Fraud Allegations
with Feds for $1.3 Million,'' The Boston Globe, July 1, 1997.
---------------------------------------------------------------------------
Durable Medical Equipment
DME is one of the more prevalent and long-standing areas of
fraud. Medicare is often billed for higher-cost equipment than
that which is actually delivered, equipment that never arrives
at all, medically unnecessary equipment and supplies, or
equipment delivered in one state but billed in a state where
the reimbursement rates are more generous. The HHS IG's office
has made investigating DME scams one of its highest priorities.
There are a number of ingenious scams used by unscrupulous
companies and individuals in order to squeeze more money out of
Medicare, including the following cases:
A New York physician, who was sentenced to 12
months' imprisonment and ordered to pay $87,000 in restitution,
was one of 19 people participating in a scam involving a
medical supply company which ended up costing Medicare more
than $13 million over an 18-month period. Without ever seeing
patients, the physician signed medical necessity forms, then
falsified medical charts to indicate treatment.\64\
---------------------------------------------------------------------------
\64\ HHS, OIG, Semiannual Report, April 1, 1996-September 30, 1996,
pp. 24-25.
---------------------------------------------------------------------------
Ben Carroll, owner of Bulldog Medical of Kissimmee
Inc. and MLC-Geriatric Health Services, was sentenced to 10
years in prison for overbilling Medicare by $71 million. Mr.
Carroll billed Medicare for urinary-collection pouches costing
$8.45 each, when what he actually supplied were adult diapers
costing only 35 cents each. He also pled guilty to defrauding
Medicare of $2.3 million in Kansas City, Kansas.\65\
---------------------------------------------------------------------------
\65\ Maya Bell, ``Medicare Easy Target for Thieves,'' Orlando
Sentinel, June 15, 1997; and Associated Press, ``$71 Million Medicare
Overbilling Alleged Against Medical Supplier,'' The Washington Post,
October 13, 1996.
---------------------------------------------------------------------------
Alfredo Lazaro Borges of Miami set up two phony
DME supply companies and, using the Medicare identification
numbers of patients and the names and identification numbers of
several licensed physicians, filed falsified Medicare claims
between August 1993 and June 1994. He stole $2.6 million in the
course of one year. He never saw a patient, nor did he ever
provide anyone with any medical equipment.\66\
---------------------------------------------------------------------------
\66\ ``Man Sentenced for Fraud,'' Fort Lauderdale Sun-Sentinel,
March 22, 1997.
---------------------------------------------------------------------------
The FBI is investigating complaints that several companies
in the Tampa Bay area offered free motorized wheelchairs to
residents of a seniors' housing complex, but delivered motor
scooters instead. The scooters sell for around $1,700 each;
Medicare was billed and paid nearly $5,000 each for what it
thought were wheelchairs.\67\
---------------------------------------------------------------------------
\67\ Lindsey Peterson, ``Scooter Bills Spur Probe,'' Tampa Tribune,
July 27, 1997.
---------------------------------------------------------------------------
In Charlotte, North Carolina, federal prosecutors
have charged five men and one woman with filing more than
11,000 fraudulent Medicare claims for medical supplies and
equipment.\68\
---------------------------------------------------------------------------
\68\ Harvey Burgess, ``Fraud Suspect Strikes Deal,'' The Herald
Rock Hill, April 25, 1997.
---------------------------------------------------------------------------
On December 13, 1996, Arthur Schinitsky, a
supplier of medical equipment based in Bradenton, Florida, pled
guilty to charges that he defrauded Medicare by submitting
claims for services he never delivered. On some of the claim
forms, he used the Social Security numbers of dead people. His
network of transactions involved at least 15 real or fictitious
businesses in three states, and relied heavily on mail
services, which helped delay his capture. Two of his employees
have also been charged with complicity in the scams. In all,
Mr. Schinitsky is accused of stealing $9 million from the
government.\69\
---------------------------------------------------------------------------
\69\ Sara Langenberg, ``Medicare Fraud Charges Spread,'' Sarasota
Herald-Tribune, April 16, 1997.
---------------------------------------------------------------------------
As part of a plea bargain agreement, a Texas DME
company paid restitution of $450,000 and was sentenced to one
year probation for supplying wheel chair pads to nursing home
patients and then fraudulently billing Medicare for a more
expensive lumbar sacral support system.\70\
---------------------------------------------------------------------------
\70\ HHS, OIG, Semiannual Report, October 1, 1995-March 31, 1996,
p. 26.
---------------------------------------------------------------------------
A physician fled to the Dominican Republic and his
cohort in crime fled to Sierra Leone for preparing and signing
fraudulent certificates of medical necessity for DME. A New
York judge sentenced the Dominican refugee in absentia to 78
months in prison and ordered him to pay $3.5 million. His
partner waived extradition to return to the United States.\71\
---------------------------------------------------------------------------
\71\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
p. 34.
---------------------------------------------------------------------------
A New York DME company used a sham subsidiary to
submit claims in Pennsylvania for equipment sold in Western New
York. In addition to a criminal fine of $300,000, the
subsidiary also pled guilty and agreed to make full restitution
of $1.1 million and to pay a civil penalty of $2.5 million.\72\
---------------------------------------------------------------------------
\72\ Ibid., p. 35.
---------------------------------------------------------------------------
A Pennsylvania DME company agreed to pay $110,000
to settle criminal and civil liabilities for submitting false
claims to Medicare for marketing and distributing lower-quality
body jackets to long-term care facilities than those actually
delivered. The company and its president were barred for life
from participation in any HHS programs.\73\
---------------------------------------------------------------------------
\73\ Ibid., p. 36.
---------------------------------------------------------------------------
Lymphedema Pumps--A Special Look
A significant area of abuse in DME has been the purchase of
lymphedema pumps. Lymphedema is the swelling of an arm, leg, or
other part of the body, a condition that can occur when lymph
nodes and vessels in the armpit or the groin have been removed
or damaged by surgery, radiotherapy, or blocked by a tumor.
This condition is most common in cancer patients whose lymph
nodes have been removed. Although there is no cure for
lymphedema, several treatments are available to control
swelling, including pumps. These pumps vary in complexity and
range in price from $600 to $6,000 each. HCFA recognizes the
pumps as a treatment of last resort.\74\
---------------------------------------------------------------------------
\74\ Idem.
---------------------------------------------------------------------------
Several medical supply companies have settled charges that
they defrauded Medicare for marketing and selling lymphedema
pumps for $500 while billing Medicare $5,000 each. The
allegations of fraud were first made by Ron Wells, the owner of
a medical supply company. In 1991, Wells was approached by
Huntleigh Technology Inc., an American subsidiary of Huntleigh
Technology of Great Britain, and asked to participate in a
network of retailers offering the pumps for the marked-up
price. Wells realized that the pumps were identical to a
version that cost only $600 and reported the company's
improprieties to authorities. The government's investigation
led to a settlement with Huntleigh in which the company agreed
to repay $4.9 million.\75\
---------------------------------------------------------------------------
\75\ Robert Rudolph, ``U.S. To Reward Whistleblower for Diagnosing
Medi-Fraud,'' The Star-Ledger, May 24, 1997, p. 1.
---------------------------------------------------------------------------
Many of the medical supply companies that purchased the
pumps from Huntleigh have also reached settlements with the
government. The latest settlement came in May 1997, when
Mediserv Inc. of Texas agreed to pay $1.35 million and Medico
International Inc. of New Jersey agreed to pay $150,000. In
all, the federal government has garnered $15 million from
settlements of such charges. None of the companies were
required to admit wrongdoing, however. Between 1990 and 1992,
Medicare claims for the pumps jumped from $4.8 million to $49.1
million.\76\ A few specific examples:
---------------------------------------------------------------------------
\76\ Idem.
---------------------------------------------------------------------------
The former owner of New Jersey's largest Medicare
supplier of lymphedema pumps was sentenced to 35 months in
prison followed by 3 years supervised release, fined $7,500,
and ordered to pay a total of $220,100 in restitution for a
scheme involving beneficiaries in Florida and New Jersey. The
owner billed Medicare for pumps reimbursable at $4,000 per pump
when cheaper quality pumps were actually delivered. In
addition, many of the pumps were medically unnecessary, and
overpayments totaled more than $200,000.\77\
---------------------------------------------------------------------------
\77\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
p. 37.
---------------------------------------------------------------------------
A Maryland DME company agreed to pay $1.5 million
and enter a corporate integrity program to prevent future
incorrect billing after submitting claims for lymphedema pumps
under an improper code. The company was overpaid approximately
$690,000.\78\
---------------------------------------------------------------------------
\78\ HHS, OIG, Semiannual Report, October 1, 1995-March 31, 1996,
p. 25.
---------------------------------------------------------------------------
Bernice Tambascia, owner of MedFast Inc., forged
physicians' signatures for prescriptions of lymphedema pumps
and billed Medicare in New Jersey and Florida for the
equipment. She was sentenced to 2 years and 11 months in jail,
and ordered to make immediate restitution of nearly $200,000 to
Medicare carriers and to a private insurance company.\79\
---------------------------------------------------------------------------
\79\ Joseph D. McCaffrey, ``Cherry Hill Woman Gets Prison in Med-
Fraud,'' The Star-Ledger, September 20, 1996.
---------------------------------------------------------------------------
In October 1995, National Medical Systems agreed
to a $1.5 million settlement for billing the government for 200
top-of-the-line lymphedema pumps when it provided much cheaper
equipment. Public Integrity Inc., a watchdog group for the
medical equipment industry, received $225,000 for bringing the
qui tam suit that led to the settlement.\80\
---------------------------------------------------------------------------
\80\ John Rivera, ``Health Care Fraud Cases on the Rise,'' The
Baltimore Sun, August 19, 1996.
---------------------------------------------------------------------------
The former owner/operator of a DME company in the
state of Washington was sentenced to a year and a day in
prison, 3 years' supervised release, and ordered to pay
$294,860 in restitution, fines, and penalties. He billed
Medicare and private insurance companies for lymphedema pumps
at $4,500 each, but delivered pumps that were only worth $600
and pocketed the difference.\81\
---------------------------------------------------------------------------
\81\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
p. 37.
---------------------------------------------------------------------------
Hospital Fraud
Recent headlines demonstrate that Medicare fraud is also
occurring in some of the nation's most prestigious hospitals.
The chief executive officer of the largest investor-owned
hospital chain in the U.S., Columbia/HCA, was forced to resign
after three employees at a Columbia hospital in Florida were
indicted for Medicare fraud. Now, the government has expanded
its investigations and says the entire company has become a
target of the probe. Investigators want to know whether
Columbia illegally passed on to Medicare the costs it incurred
during the acquisition of hospitals and other healthcare
facilities. The government is also investigating Columbia's
home healthcare division to determine if the company engaged in
cost-shifting of non-reimbursable items such as gift shop
merchandise and cafeteria expenses. The investigation could
ultimately cost Columbia a record $1 billion.\82\
---------------------------------------------------------------------------
\82\ Greg Jaffe and Eva Rodriguez, ``In Hospital Probes, a New
Focus on Bottom Line,'' The Wall Street Journal, September 12, 1997.
---------------------------------------------------------------------------
HHS officials are also examining the billing practices of
many of the nation's 125 teaching hospitals. These audits,
commonly referred to as PATH audits (Physicians at Teaching
Hospitals), aim to find out if some hospitals billed Medicare
for the treatment of patients by senior doctors when medical
records show the work was actually performed by residents. Not
surprisingly, politics are seeping into the act. Several
members of Congress, under heavy pressure from teaching
hospital lobbyists, are trying to persuade HHS to suspend the
audits pending the release of a congressional study that will
try to determine whether the complexity and vagueness of HCFA's
regulations contribute to the problem.
While many of Medicare's billing foul-ups certainly occur
as a direct result of confusion, it is also clear that some
teaching hospitals have erroneously billed for a senior
physician's services even when the physician was not physically
in the hospital at the time. HHS IG June Gibbs Brown recently
explained in a letter to CAGW that:
In order to claim reimbursement from Medicare Part B for a
service rendered to a patient, the teaching physician must have
personally provided the service or have been present when the
intern or resident furnished the care. Physicians claiming
reimbursement for services only provided by the intern or the
resident are making a duplicate claim--since that service has
already been paid for under Part A through the Graduate Medical
Education Program.
The following recent incidents are only the tip of the
iceberg. More are sure to be uncovered as HHS auditors go
forward.
A former controller and vice president of finance
at a New Jersey medical center was ordered to make restitution
of more than $1 million to the hospital and $24,870 to Medicare
after he was sentenced to 25 months in prison for tax evasion,
embezzlement, and fraud. The official agreed to aid in the
investigation of other hospital officials accused of kickbacks
and false billing schemes that cost the hospital nearly $3.8
million. The executive vice president was also sentenced to 55
months in prison and ordered to repay $21,000. Three others
executives who pled guilty await sentencing.\83\
---------------------------------------------------------------------------
\83\ HHS, OIG, Semiannual Report, October 1, 1996-March 31, 1997,
pp. 7-8.
---------------------------------------------------------------------------
Part of a Pennsylvania university healthcare
system agreed to pay $30 million to settle charges of
defrauding Medicare. An audit and investigation revealed that
false Medicare bills (totaling approximately $10 million) were
submitted for physician services, and that many of the claims
improperly reported the level of care provided or falsely
reported the involvement of attending physicians.\84\
---------------------------------------------------------------------------
\84\ HHS, OIG, Semiannual Report, October 1, 1995-March 31, 1996,
p. 13.
---------------------------------------------------------------------------
The FBI and the Justice Department are currently
investigating whether 4,600 hospitals have been routinely
billing twice for blood tests, X-rays, and other outpatient
services performed during pre-admission workups. Those services
are supposed to be included in the fee Medicare pays for a
related inpatient stay.\85\
---------------------------------------------------------------------------
\85\ David S. Hilzenrath, ``Medicare Scams Easy, Officials Say,''
The Florida Times Union, August 10, 1997.
---------------------------------------------------------------------------
Program Exclusions
One method of deterring fraud is to bar perpetrators from
participation in the Medicare program, temporarily or
permanently.
According to the IG, such program exclusions can be imposed
for ``conviction of fraud against a private health insurer,
obstruction of an investigation, distribution of a controlled
substance, revocation or surrender of a healthcare license, or
failure to repay health education assistance loans.'' The
following are only a few of the thousands of program exclusions
issued by HHS over the past several years:
The owner and operator of eight Florida DME
companies was excluded from Medicare for 30 years after being
convicted of conspiracy to defraud, filing false and fraudulent
claims, and paying kickbacks for the referral of Medicare
patients. One employee was also convicted of conspiracy and
excluded from Medicare for 10 years.\86\
---------------------------------------------------------------------------
\86\ HHS, OIG, Semiannual Report, October 1, 1995-March 31, 1996,
p. 12-13.
---------------------------------------------------------------------------
Two officers in two different Florida DME
companies were excluded from Medicare for 20 years each after
selling liquid nutritional supplements to beneficiaries who
didn't need them. The companies paid fees to several doctors to
sign certificates of medical necessity authorizing the
supplements, even though the doctors never examined the
patients. Once the companies had the certificates, they billed
Medicare about $400 each month for the supplements and an
additional $250 each month for tubal feedings.\87\
---------------------------------------------------------------------------
\87\ HHS, OIG, Semiannual Report, April 1, 1996-September 30, 1996,
p. 10.
---------------------------------------------------------------------------
After convictions for defrauding Medicare of more
than $108,000, a Florida DME company owner and its sales
manager were both barred from the program for 10 years. The two
had submitted false claims for X-ray tests that had not been
ordered or were determined to be medically unnecessary, and for
equipment that had never been provided.\88\
---------------------------------------------------------------------------
\88\ HHS, OIG, Semiannual Report, October 1, 1997-March 31, 1997,
p. 16.
---------------------------------------------------------------------------
Time for Real Change
The current crusade against Medicare fraud is long overdue.
Unscrupulous providers who game the system must be punished.
However, it is striking to note that the $23 billion in losses
identified by the IG are referred to as ``improper payments''
rather than ``fraud,'' and that more than half of that estimate
is based on insufficient or total lack of documentation.
Criminalizing and exacting restitution for paperwork snafus and
honest misunderstandings will certainly replenish government
coffers. The real question is: Will it improve the quality of
healthcare for Medicare beneficiaries?
Under the current system, greedy providers motivated to
prey on Medicare's inherent vulnerabilities have shown almost
limitless creativity in ripping off the system, sometimes
repeatedly and for long periods of time. At the same time, law-
abiding healthcare providers must engage in expensive anti-
fraud education and retain professionals to help them
constantly retool their billing systems, as well as to figure
out how to recoup some of their costs. As Congress reflexively
returns again and again to providers, squeezing them as a
short-term fix for Medicare's financial problems, it is almost
inevitable that they will, at times, skirt the bounds of
``proper'' reimbursements.
The Clinton Administration recently suspended a contract
for the design of an advanced computer system that would have
accelerated payments, improved service, and reduced fraud. The
idea was to create a single national database, which would pay
all doctors and healthcare facilities that serve Medicare
beneficiaries. Government officials finally concluded that
Medicare's payment system was far more anachronistic and
impenetrable than they had anticipated. They were unable to
even reconcile the current system. Estimates on how much this
fiasco cost taxpayers vary between $30 to $43 million.\89\
---------------------------------------------------------------------------
\89\ Robert Pear, ``Modernization for Medicare Grinds to a Halt,''
The New York Times, September 16, 1997.
---------------------------------------------------------------------------
Medicare teems with perverse incentives that drive both
providers and beneficiaries to spend money that contributes
nothing to individual health. Many of the features designed to
control costs actually compromise well-being, force seniors to
spend billions out-of-pocket, and encourage wasteful spending.
The new wave of price controls included in the Balanced Budget
Act passed by Congress is yet another politically facile, stop-
gap measure that will simply compound Medicare's problems.
Medicare's Price Controls
Medicare was initially an open-ended entitlement program
that promised to pay for every medical service and procedure
for every eligible beneficiary on a reasonable cost basis. By
1982, the explosive costs of this approach became politically
and financially unsustainable. So Congress and President Reagan
agreed to squeeze the ``fat'' out of Medicare by instituting
strict price controls, known today as the prospective payment
system (PPS).
The PPS established fixed prices for hospitals for
treatment of different types of illnesses. In 1989, Congress
went a step further and created the Resource-Based Relative
Value Scale (RBRVS) for doctors serving Medicare patients.
Supporters at the time, including CAGW, argued that price
controls would force hospitals and doctors to be more
efficient. But, instead, price controls in Medicare actually
increased costs and barriers to healthcare.
In the 1980s, healthcare costs in the private sector rates
exceeded Medicare's rates. For example, in 1996 Medicare costs
grew at a rate of 8.5 percent per year, while private sector
costs increased at an annual rate of only 3.2 percent.
According to the January 1997 Congressional Budget Office (CBO)
baseline budget estimates, Medicare is projected to continue to
grow at 8.5 percent per year over the next 5 years, while
federal budget outlays will grow at an average annual rate of
5.2 percent and the gross domestic product at an average of 4.8
percent.\90\
---------------------------------------------------------------------------
\90\ Gail Wilensky, Ph.D., Testimony before Senate Finance
Subcommittee on Health Care, February 12, 1997, p. 3.
---------------------------------------------------------------------------
Indeed, rather than promoting efficiency, price controls
have only led to rationing of healthcare services as a way of
reducing costs. As health analyst J.D. Kleinke points out,
``Medicare's prospective payment system effectively rewards the
rapid discharge of patients, many of whom are not well enough,
relapse, are re-admitted-- and the meter starts running all
over again.'' \91\ In other words, Medicare gets people out of
hospitals quicker, but sicker.
---------------------------------------------------------------------------
\91\ Susan Horn and Robert Goldberg, ``A Sickly Approach to
Medicare,'' The Washington Post, September 17, 1995.
---------------------------------------------------------------------------
How Price Controls Promote Waste, Fraud, and Abuse
The causes of fraud and waste in Medicare are deeply rooted
in the program's structure itself. The absence of any
incentives to deliver high-quality, low-cost healthcare greatly
contributes to the problem. First, price controls have
encouraged doctors and hospitals to ``cost shift,'' or recoup
their losses by increasing their prices to unregulated, or
privately insured, patients. Second, providers have resorted to
``unbundling'' medical procedures, separating a course of
treatment into individual, more expensive elements. Third, they
will often ``upcode'' a diagnosis to maximize reimbursement.
Fourth, even though Medicare caps the price it will pay for a
medical procedure, it will also pay for any procedure for which
a claim is filed. It is common to hear seniors complain about
their Medicare bills being loaded up with lots of unnecessary
procedures. Fifth, a whole new industry has sprung up to
educate physicians and other healthcare providers on how to
understand, and work around, Medicare's labyrinthine payment
systems.\92\ Of the $23 billion in improper payments uncovered
by the HHS IG, 36 percent were for services deemed medically
unnecessary after the fact. This steady increase in losses
attributable to improper billing is not surprising when the
system is set up to reward quantity of care, rather than
quality of care.
---------------------------------------------------------------------------
\92\ Edmund Haislmaier, ``Why Global Budgets and Price Controls
Will Not Curb Health Costs,'' Heritage Foundation Backgrounder, No.
929, March 8, 1993, pp. 18-19.
---------------------------------------------------------------------------
Enforcement Alone Will Never Eliminate Fraud and Waste
Will more aggressive oversight make a difference? Yes, but
it will come at a tremendous cost, both in dollars and in
further corrosion of the doctor-patient relationship. Every
action taken by a doctor or hospital will increasingly be
subject to second-guessing and third-party monitoring. Medical
judgments made and services rendered will become, in
retrospect, grounds for civil and criminal action. Even today,
doctors and hospitals practice the art of medicine with the
knowledge that even an honest billing error could set off chain
of events that could threaten their livelihoods and even land
them in prison. It remains to be seen, for example, how much of
this is true and the government's unprecedented investigation
of Columbia/HCA. These unfavorable trends will only continue
and grow under the current system.
This post hoc criminalization of medicine is a direct
outgrowth of Medicare's archaic system. Because it is an
entitlement, the Medicare bureaucracy in Washington, D.C., has
only the most tenuous control over the program as a whole.
Hence, no amount of enforcement will have an impact on the real
reason providers inflate medical bills. Medicare cannot capture
quality-based savings, because it cannot measure quality, and
it will pay for any healthcare, regardless of whether it is
good, bad, or indifferent.
Even now, despite a push to improve the quality of the
healthcare purchased through Medicare, the program lacks
accurate information on how the treatments it pays for relate
to the patient's true medical needs or the patient's ultimate
well-being. Until recently, even private insurers did not
demand, and did not receive, up-to-date medical information.
However, under the lash of market competition, private
healthcare providers have begun to recognize the value of
fresh, accurate data and are spending more money to capture,
store, and analyze the information needed to generate quality
healthcare. Medicare has no such market forces to reward
quality.
In fact, Medicare lags so far behind the private sector in
the inevitable rush toward the information age that a recent
GAO report stated:
HCFA's efforts in distributing comparative performance data
lag behind those of state agencies and many employers in the
private sector. Furthermore, GAO's analysis of HCFA's previous
implementation efforts raises concerns about how well HCFA will
implement comprehensive programs to deal effectively with
poorly performing providers and improve all providers'
performance.\93\
---------------------------------------------------------------------------
\93\ GAO, Medicare: Federal Efforts to Enhance Patient Quality of
Care, April 10, 1996.
---------------------------------------------------------------------------
Even if Medicare tried to improve quality, spending money
on anything other than Medicare's benefits package must first
be approved by HCFA, a process that takes years. As a result,
Medicare is also unable to compete with the private sector in
using both managed care and healthcare outcomes to measure and
control unnecessary medical spending.
Similarly, Medicare has been notoriously slow to recognize
and adopt new medical treatments and innovative technologies
that provide better healthcare. For example, cochlear implants,
which are widely accepted as a superior treatment for hearing
loss, are not reimbursed under Medicare. Consequently, patients
must pay between $3,000 and $5,000 out-of-pocket for this
state-of-the-art technology, and physicians may be reluctant to
recommend the treatment to low-income patients. Overall, the
Medicare bureaucracy conducted only 10 assessments of new
technologies and innovations for coverage under Medicare in
1991, and only eight in 1992. Some ongoing assessments have
been under consideration for over three years.\94\
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\94\ Peter Ferrara, ``A Proposal for Reform: Resolving the Medicare
Crisis,'' United Seniors Association, Fairfax, Virginia, 1996.
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The Impact on the Elderly
Medicare's antiquated approach to medicine does more than
compromise patient care. Seniors tend to spend more on
healthcare than the general population and they also spend more
on co-payments and deductibles. But studies show that seniors
who purchase Medigap insurance (in addition to Parts A and B)
to cover these costs spend 70 percent more on healthcare than
those who do not, with little measurable increase in their
well-being.\95\
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\95\ Michael Morrisey, ``Retiree Health Benefits,'' Annual Review
of Public Health, 1993, Volume 14, pp. 271-292.
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The Impact on Future Beneficiaries
In spite of the reforms made to Medicare in the 1997
Balanced Budget Act, Medicare will only remain solvent for 10
years. The program will begin to accrue losses just as the baby
boomers begin to retire.
For the last 15 years, Medicare has grown faster than any
other federal program. The Medicare tax has increased from 0.7
percent of the first $6,000 in wages to 2.9 percent of every
dollar in wages. In 1965, there were 5.5 workers for every
beneficiary. Today, there are 3.9 workers for the current
number of beneficiaries. The number of retirees will increase
by 800 percent in the next 15 years, leaving only 2.2 workers
to support every beneficiary.\96\ The system foments
intergenerational competition for resources and will, if left
unchecked, rob future workers--along with their children and
grandchildren--of their livelihoods.
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\96\ Senator Phil Gramm, ``How to Avoid Medicare's Implosion,'' The
Wall Street Journal, February 4, 1997.
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Reducing Fraud by Reforming Medicare
To paraphrase Friedrich Hayek, the Nobel Prize-winning
economist, there are only two ways of holding men accountable:
prices and prisons. Enforcing price controls requires throwing
people in jail. Unfortunately, some of the people who get
thrown in jail may have honestly misunderstood the regulation
they needed to follow. But, when prices are set by free-market
forces, overcharging for a product is simply punished by the
loss of market share.
Eliminating fraud in Medicare calls for reducing the
incentives and opportunities to profiteer. Medicare is
currently rife with such enticements. Only the discipline of
the free market and the creation of a patient-centered
healthcare market will allow Medicare patients to choose care
based on cost and quality. Providers will then have to compete
for patients based upon their ability to provide a variety of
quality medical outcomes.
The following changes would go a long way toward
establishing such a system:
1. Medicare would be changed from a government-run, fee-
for-service health insurance plan to a system in which Medicare
beneficiaries would choose among publicly available private
health insurance plans. The government would subsidize
insurance purchases through individual premium allowances, at
an amount set by the average price of competing plans, keyed to
a benchmark benefit package.
2. Healthcare plans, physician groups, and health insurers
would have to provide consumers with information on the quality
of their care. Recent studies show that beneficiaries value
such information because they want to be informed, cost-
conscious consumers of healthcare services, rather than passive
recipients.
3. Direct competition between provider systems would be
based on quality and cost. Providers would no longer go to
Medicare for their payments. How much money to spend and what
to spend it on would be the responsibility of Medicare program
participants. The Medicare bureaucracy would simply serve to
collect and disseminate up-to-date, patient-friendly healthcare
information and stimulate the universal adoption of the best
available medical practices. Rooting out and eradicating fraud
would be the responsibility of the private sector.
Leaders in healthcare policy from all sides of the
political spectrum are now providing sound ideas and solutions
for transforming Medicare into a program that responds to the
needs of the elderly by providing the best possible healthcare
at a reasonable price. Many of these ideas have originated in
think tanks and public policy organizations.\97\ The Medicare
commission, which will be established pursuant to the Balanced
Budget Act, should give careful consideration to these
proposals, and be bold in its final recommendations. The future
health of Medicare, our economy, and our people depends upon
true reform.
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\97\ Senator Phil Gramm, ``How to Avoid Medicare's Implosion,'' The
Wall Street Journal, February 4, 1997; Dowd, Feldman, and Christianson,
``Competitive Pricing for Medicare,'' American Enterprise Institute,
July 1996; Butler and Moffit, ``Congress's Own Health Plan as a Model
for Medicare Reform,'' Heritage Foundation Backgrounder, June 1997;
Dave Kendall, ``The Phony Medicare Debate,'' The Progressive Policy
Institute, April 1996.
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