Fraud In Medicare

Defrauding Medicare And Medicaid With Ease

One estimate states that fraud and abuse cost Medicare and Medicaid about $33 billion each year. Worse, it's ridiculously easy to cheat the federal government and taxpayers out of millions of Medicare and Medicaid dollars, according to three convicted felons appearing yesterday before a Senate panel.

  • One witness described how she acquired $7 million by charging $5 to $7 for gauze surgical dressings that cost a penny each.

  • A former nightclub owner revealed that he made millions after he obtained a Medicare license - without a background check - and proceeded to open a crooked home health agency, charging Medicare $86 for each home visit while paying a nurse $16 to $22.

  • An ex-physician told how he sold prescriptions to junkies in a Los Angeles Medicaid mill.

  • Another shakedown practice consisted of submitting bills - $300,000 worth in one case - for treatment of dead patients.

Anti-fraud language in the Senate Medicare and Medicaid legislation would make health care fraud a crime, increase fines and make it easier to kick fraudulent providers out of the system.

Source: Nancy E. Roman and other dispatches, "Medicare Scam Veterans Tell Panel How Easy It Was to Cheat," Washington Times, November 3, 1995.


Hunting For Medicare Dollars Via Computer

Scam artists are using their computers to find holes in Medicare and Medicaid payout systems to commit massive fraud, according to reports.

  • First they register as providers of equipment or services.

  • Then they file a variety of exploratory claims through the payment system to see what happens.

  • Once they hit upon types of claims that are automatically approved by Medicare and Medicaid computers -- with no human scrutiny involved -- they launch a barrage of claims, then sit back and wait for the checks to roll in.

Crime technologists say that the health care industry suffers a rapidly spreading plague of fly-by-night medical businesses that set up in storefronts, register as providers, bill fast and furiously for a short while -- then disappear without a trace.

  • In 1988, a Bronx shoe store owner bilked the New York state Medicaid program for $1.1 million.

  • In a recent Florida case, a business consisting of two rented mailboxes and a beeper phone number was paid $2.1 million by Medicare in five months -- before the owner vanished.

System administrators say that electronic processing saves them from $8 billion to $10 billion annually. But critics say fraud losses may well dwarf the administrative savings.

Medicaid Fraud In Florida

Ripping off the $6.7 billion Medicaid program in Florida is far too easy, reports a grand jury there after an eight-month investigation of the federal-state health program for the poor.

  • The statewide grand jury indicted six doctors and 44 others on criminal fraud charges.

  • The swindles ranged from simple forgery to complicated "ghost operations," kickbacks, patient brokering and money laundering.

  • There were too few procedures to find out if those who sign up as providers are legitimate, and the state paid claims quickly before verifying them.

The state Agency for Health Care Administration has recently implemented anti-fraud measures.

  • With 80 percent of the new procedures in place, the agency's director claims they have prevented $1 billion in payments on crooked claims.

  • The AHCA has suspended payment to 3,300 health care providers until they get surety bonds, which require some screening by bonding agents.

  • The agency now requires a $50,000 surety bond from the types of providers with a high potential for fraud: nonphyscian-owned clinics and companies that supply medical equipment.

Source: Associated Press, "Grand Jury: Florida Must Do More to Stop Medicaid Fraud," American Medical News, September 23/30, 1996.


Theft And Fraud In The Home Health Care Industry

Home health care is now the nation's fastest growing industry. But loose licensing and lax oversight have made it a magnet for thieves and scam artists, according to reports.

  • Some who work as caregivers abuse and steal from elderly and disabled patients.

  • Others set up fraudulent home care businesses.

  • Medicare and Medicaid will pay out an estimated $2.2 billion this year to these fraudulent "businesses" -- with insurance companies losing millions more.

  • And it's easy; in nine states, anyone can open a home health agency without any experience.

According to a General Accounting Office report, Medicare home health care benefit controls are "essentially non-existent." the agency says that "few home health claims are subject to medical review and most claims are paid without question."

The most common scams are billing for fictitious visits, billing for care that is unnecessary, over-billing or using low-skilled caregivers for work that is billed as skilled nursing care.

  • New York, Florida, Illinois, Texas and California are believed to have the most problems.

  • In Florida, a random audit of Medicare claims found that 26 percent of billings were bogus; at just one company, improper claims accounted for 75 percent of its $45 million in claims in 1993.

  • In New York, the owner of a home care company -- one of the nation's largest -- was convicted of submitting more than $14 million in bogus billings to Medicare.

Among private insurers -- who pay about 13 percent or more than $4 billion for home care services -- industry officials say no one knows how much the industry has lost in the scams, but the amounts are growing very fast.

Source: Peter Eisler, "Fraud on the Rise: Those Who Get Caught Say It's Just Too Easy," USA Today, November 12, 1996.


Fraud And Abuse In Medicare

When the government is charged with spending hundreds of billions of taxpayer dollars on massive programs, it would be naive not to expect frauds to attend the party. So it is with Medicare.

  • In 1992, the General Accounting Office estimated that 10 percent of all health-care spending might be lost to fraud and abuse.

  • Some 350 FBI agents are now investigating a record 2,300 potentially fraudulent cases in the medical industry.

  • Various government antifraud units are being allowed to tap into the Medicare trust fund for the first time to fund their budgets -- to the tune of $104 million this year and more than $200 million by 2002.

  • Officials say they are shifting emphasis in the investigations from small-time chiselers to large medical organizations and institutions, some of which have been known to bill Medicare for patient treatments which were never performed or equipment which was never ordered or used.

The tone was set by investigations in the early 1990s when several companies paid more than $100 million apiece in fines and penalties.

Large institutions are crying foul in some cases, contending that the federal government's health-care rules and procedures are so complex that they invite misunderstandings in billing.

Investigators are zeroing in on the fastest growing health programs.

  • Some parts of the Medicare program are growing at rates exceeding 20 percent a year.

  • Medicare's home health-care program -- where bills have tripled in five years -- is a priority target.

  • Proliferating community mental-health centers -- which need not be state certified and are without quality standards -- are another area of potential abuse, investigators say.

Other targets include academic health care centers, hospices and Medicare billing for outpatient tests.

The biggest club the feds have is expulsion from the Medicare program, which can be devastating for business.

Source: George Anders and Laurie McGinley, "A New Brand of Crime Now Stirs the Feds: Health-Care Fraud," Wall Street Journal, May 6, 1997.

Cut Criminals In Medicare Reform, Too

By addressing fraud and abuse in the Medicare program, no one takes a cut except those who deserve it most -- the criminals.

Treasury Secretary Robert Rubin announced in June 1996 that the Medicare program will go broke by 2001. According to economic forecasts, the program's costs are expanding exponentially:

  • Spending for Medicare totaled $160 billion or about $440 million per day in fiscal year 1994.

  • Spending will mushroom to $380 billion -- more than $1 billion per day -- by fiscal year 2003, according to Congressional Budget Office (CBO) estimates.

One place to cut costs is fraud control. According to June Gibbs Brown, Health and Human Services Department Inspector General, up to 10 percent of Medicare's budget is lost to fraud -- $17 billion annually.

A few examples of discovered fraud in the Medicare program:

  • Ben Carroll of Kissimee, Fla., collected $51 million by charging Medicare $8.45 per "female-urinary-collection device," commonly known as an "adult diaper" and sold for 35 cents each.

  • National Medical Enterprises Inc., the nation's largest psychiatric hospital chain, paid the U.S. government the largest settlement ever ($362.7 million) for running a kickback and bribery scam to get patient referrals.

  • This conspiracy included more than 50 doctors.

But the biggest culprits are not the individual rackets, but those who uniformly scam the system through double billing. An attorney at the Justice Department estimates about 4,600 hospitals nationwide are engaging in this fraudulent practice.

Lawrence Criner, "Medicare Con Game Lurking Out of View," Washington Times, June 26, 1997.

Medicare Anti-Fraud Misguided

The federal government's health care anti-fraud campaigns aren't focused on the real criminals, charges Malcolm Sparrow of Harvard University. Sparrow says the government's current anti-fraud measures are ineffective against sophisticated criminals who bill millions of claims to Medicare and Medicaid for services never rendered and patients who don't exist.

No one knows just how much money such "Medicare mills" are draining from federal programs, but Sparrow thinks the government's estimate of 10 percent waste in Medicare spending is far too conservative.

He suggests three steps for enforcement officials to control fraud.

  • Gather valid statistical estimates of the extent of health care fraud.

  • Respond quickly to emerging fraud threats.

  • Develop effective anti-fraud tools such as new penalties, charges and investigatory power.

The 1996 Kassebaum-Kennedy health reform bill emphasized the third step but paid little attention to the routine capacity to spot emerging fraud problems. And that, Sparrow says, is where the most attention is needed.

Source: Julie Johnson, "Expert: Feds Are Aiming Anti-Fraud Efforts At Wrong People," American Medical News, June 9, 1997.

Improper Medicare Payments Astonishingly High

Government auditors have found that irregularities in Medicare payments to providers cost American taxpayers $23 billion in the 1996 fiscal year, according to an unpublished report. That estimate would encompass payments made as a result of outright fraud and abuse, as well as from innocent record-keeping errors.

The audit by the Medicare inspector general's office -- expected to be released in July 1997 -- is based on a detailed bill-by-bill review of about 5,000 Medicare claims involving $5 million in payments. Investigators visited doctors, hospitals, laboratories and other providers to check whether medical records corroborated claims filed with the Medicare system.

  • The $23 billion in erroneous payments represents 12 percent of Medicare's $194 billion budget.

  • Health policy analysts had previously estimated fraud and waste at 3 percent to 10 percent of the agency's budget.

  • Auditors reportedly found irregularities in 30 percent of claims filed.

  • The audit suggests that billing problems are pervasive throughout the entire Medicare system -- rather than being concentrated in a handful of areas.

The audit is being carried out under the Government Management Reform Act, which demands a rigorous review of federal agency bookkeeping using generally accepted accounting principles.

Historically, Medicare has delegated much of its claims-processing to private insurance companies, known as "fiscal intermediaries." Critics, including Harvard University's Malcolm Sparrow, a fraud investigation expert, have contended that the system focuses mainly on making sure that claims are submitted in a standard fashion, rather than checking on whether claims filed are legitimate and appropriate.

Source: George Anders, "Improper Medicare Spending Is Frequent," Wall Street Journal, June 11, 1997.

Medicare And Accountability

The Medicare system has major management problems.

  • In 1995, the inspector general for Health and Human Services (HHS) claimed that 10 percent of Medicare funds were lost to waste, fraud, abuse and mismanagement.

  • The following year, the estimate was raised to 14 percent -- an average of $63 million lost each day.

  • While HHS expects to recover $1.1 billion through criminal and civil cases this year, analysts point out that is but a drop in the bucket.

Citizens Against Government Waste (CAGW) argues in a recent report that the best way to cut fraud in Medicare is to expose it to the discipline of the market. CAGW recommends:

  • Replacing the current system with a program to allow beneficiaries to choose from private health insurance plans.

  • And having the government subsidize insurance purchases through individual premium allowances -- at an amount set by the average price of competing plans and keyed to a benchmark benefits package.

CAGW contends that competition would tend to drive up the quality of medical care while keeping a lid on costs.

  • Being responsible for their own care, beneficiaries would require more detailed information on the type and quality of care they receive from providers.

  • And private insurers would be more attentive than the federal government to possible instances of fraud and abuse.

Source: Perspective, "Waste, Fraud, Abuse," Investor's Business Daily, October 17, 1997.

Regulations Brand Doctors Criminals

Few Americans probably realize that fines of up to $10,000 can be levied on physicians who simply order tests from a lab at no personal profit. If doctors bill Medicare for preventive services that are not recognized by Medicare, the doctor is deemed to have engaged in a criminal offense and he is branded a fraud. The absence of intent to cheat Medicare doesn't matter.

  • Although tests are legal when they are used to confirm a suspected diagnosis, many cases are borderline, medical experts point out.

  • There is a difference between the screening tests Medicare covers and what's recommended by medical authorities.

  • Not surprisingly, the authorities sometimes disagree among themselves as to what is necessary.

  • Many doctors confirm that ordering a lab test on Medicare patients now can be as complicated as obtaining an informed consent for surgery.

Critics say that under the present system patients and doctors are both in trouble; no one knows what to do and everyone is afraid to ask.

The Health Care Financing Administration (HCFA), which oversees Medicare, is being accused of instructing medical labs to "voluntarily" set up programs to spy on physicians and to report "suspicious" test-ordering patterns. Labs that cooperate are told they can expect the HCFA to go easier on them when it is their own turn to be audited.

Source: Dr. Philip R. Alper, "Free Doctors From Medicare's Shackles," Wall Street Journal, November 5, 1997.

Home | Support Us | All Issues | Social Security | Debate Central | Contact Us

Dallas Headquarters: 12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924
Washington Office: 601 Pennsylvania Avenue NW, Suite 900 South Building, Washington, DC 20004 - 202/220-3082 - Fax 202/220-3096
© 2001 NCPA