Fraud in Medicare and Medicaid
August 2013
Contents 1. Medicare and Medicaid................................................................................................................3 1.1 Medicare and Medicaid Spending (2009-2012, USD Billions) .....................................................3 2. Fraud in Medicare and Medicaid ..................................................................................................4 2.1. Annual Healthcare Fraud recovery by the Healthcare Fraud and Abuse Control Program (HCFAC) (USD Billions)..........................................................................................................................5 3. Regulations in the US to Fight Medicare and Medicaid Fraud ........................................................6 4. Fraud Prevention Strategies .........................................................................................................8 5. Challenges: Medicare and Medicaid Fraud Prevention ................................................................11 6. Conclusion .................................................................................................................................14 7. References.................................................................................................................................15
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1. Medicare and Medicaid Medicare and Medicaid are two governmental programs that provide medical and health-related services to specific groups of people in the United States. Although the two programs are different in nature, they both are managed by the Centers for Medicare and Medicaid Services, a division of the US Department of Health and Human Services. Medicare is a social insurance program that serves about 50 million enrollees (as of 2012). The program’s gross spending (excluding administrative costs that are subject to appropriation) was USD551 billion in 2012, representing 4% of the country’s GDP. Medicare is a Federal health insurance program that pays for hospital and medical care for elderly and certain disabled Americans. The program consists of two main parts for hospital and medical insurance (Part A and Part B) and two additional parts that provide flexibility and prescription drugs (Part C and Part D). Medicaid is a social welfare (or social protection) program that serves about 54 million people (as of 2012). It had a Federal spending of about USD251 billion in 2012, representing 2% of the US GDP. It is a means-tested health and medical services program for certain individuals and families with low incomes and few resources. Though the program is primarily handled by the Federal, each state has to perform some functions, as listed below: •
To establish its own eligibility standards
•
To determine the type, amount, duration, and scope of services
•
To set the rate of payment for services, and
•
To administers its own Medicaid program
Give the colossal budgets of Medicare and Medicaid, they are not immune to challenges like fraud. We will get a more detailed understanding of Medicare and Medicaid fraud in the following section.
1.1
Medicare and Medicaid Spending (2009-2012, USD Billions)
600 500
551
469
444
425
400
297
275
251
300
251
200 100 0 2009
2010 Medicare
2011
2012
Medicaid
Source: Department of Health and Human Services
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2. Fraud in Medicare and Medicaid A fraud in Medicare and Medicaid fraud involves making false statements or representations of material facts to obtain some benefit or payment for which no entitlement would otherwise exist with regard to issues pertaining to Medicare and Medicaid. This includes, but is not limited to, •
billing for services that were not provided (phantom billing, upcoding),
•
performing unnecessary tests or giving unnecessary referrals (pingponging), and
•
charging separately for services that are usually charged at a package rate (unbundling)
Violations of laws and regulations governing the Medicare and Medicaid programs may also constitute violations of Federal and State False Claims Acts. The following types of conduct should trigger a red flag regarding false claims: 1. Partially filling prescriptions, but charging as if a full prescription was provided 2. Providing kickbacks to a medical provider inducing him/her to prescribe certain drugs or use certain products 3. Prescribing medications, drugs, or treatments that are not a medically necessary 4. Charging Medicare or Medicaid patients a higher rate than others for the same prescription 5. Knowingly providing defective products or services 6. Falsely diagnosing a more severe ailment than the one the patient actually has, known as “upcoding” a diagnosis, thereby justifying a more expensive drug therapy or other treatment than the one required by the patient 7. Changing patients’ prescriptions inappropriately from one drug to another as a result of kickbacks or for other improper reasons 8. Falsely reporting drug research grant information to government agencies 9. Changing a diagnosis or treatment code to secure a higher reimbursement from a government program Medicare and Medicaid are unusually susceptible to fraud because they use the “pay and chase” model: first, the government pays the provider of a service, then, if the expenditure looks fraudulent, the government can chase the provider.
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No one knows with certainty the amount of Medicare and Medicaid dollars lost each year to waste, fraud, and abuse. However, the Congressional Research Services (CRS) estimates that 10% of the USD2.3 trillion healthcare system, i.e. USD230 billion could be fraudulently diverted from the system annually.
2.1. Annual Healthcare Fraud recovery by the Healthcare Fraud and Abuse Control Program (HCFAC) (USD Billions) 4.0 3.00
2.86
3.0
2.51 1.94
2.0
2.50
2.40 2.50
1.63
1.00
1.0
2.40
0.68
0.44
0.34
0.84
0.60
0.0
2008
2009
2010
2011
2012
Amount the Federal government won or negotiated over healthcare fraud judgments and settlements Amount of Medicare Trust Funds received in transfers
Amount of Federal Medicaid money transferred Source: Health Care Fraud and Abuse Control Program, Annual Reports for Fiscal Year 2008-2012
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established a national Health Care Fraud and Abuse Control Program (HCFAC) to coordinate Federal, state and local law enforcement activities with respect to healthcare fraud and abuse. It is observed that the national HCFAC has been ramping up its efforts to detect healthcare fraud and recover losses lately. However, they have a long way to go, considering the range of healthcare fraud of about USD80 billion (10% of the annual expenditure of USD802 billion in Medicare and Medicaid for 2012) to USD230 billion (as estimated by the CRS above) occurring annually.
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3. Regulations in the US to Fight Medicare and Medicaid Fraud False Claims Act (FCA) The FCA (31 United States Code [U.S.C.] Sections 3729-3733) protects the Government from being overcharged or sold substandard goods or services. An example may be a physician who submits claims to Medicare for medical services he or she knows were not provided. Anti-Kickback Statute The Anti-Kickback Statute (42 U.S.C. Section 1320a-7b (b)) makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal healthcare program. Physician Self-Referral Law (Stark Law) The Physician Self-Referral Law (Stark Law) (42 U.S.C. Section 1395nn) prohibits a physician from making a referral for certain designated health services to an entity in which the physician (or an immediate member of his or her family) has an ownership/investment interest or with which he or she has a compensation arrangement, unless an exception applies. Criminal Health Care Fraud Statute The Criminal Health Care Fraud Statute (18 U.S.C. Section 1347) prohibits knowingly and willfully executing, or attempting to execute, a scheme or artifice: •
To defraud any healthcare benefit program; or
•
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 healthcare benefit program; in connection with the delivery of or payment for healthcare benefits, items, or services.
Proof of actual knowledge or specific intent to violate the law is not required. Exclusions from participation in all Federal healthcare programs Under 42 U.S.C. Section 1320a-7, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) is required to impose exclusions from participation in all Federal healthcare programs on healthcare providers and suppliers who have been convicted of: •
Medicare fraud;
•
Patient abuse or neglect;
•
Felony convictions for other healthcare related fraud, theft, or other financial misconduct; or
•
Felony convictions for unlawful manufacture, distribution, prescription, or dispensing of controlled substances.
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Exclusion means that for a designated period, Medicare, Medicaid and other Federal healthcare programs will not pay the provider for services performed or for services ordered by the excluded party. The OIG has discretion to impose permissive exclusions on a number of other grounds. Civil Monetary Penalties (CMPs) Under 42 U.S.C. Section 1320a-7a, CMPs may be imposed for a variety of conduct, and different amounts of penalties and assessments may be authorized based on the type of violation at issue. Penalties range from up to USD10,000 to USD50,000 per violation. CMPs can also include an assessment of up to three times the amount claimed for each item or service, or up to three times the amount of remuneration offered, paid, solicited, or received. Examples of CMP violations include: •
Presenting a claim that the person knows or should know is for an item or service that was not provided as claimed or is false and fraudulent,
•
Presenting a claim that the person knows or should know is for an item or service for which payment may not be made, and
•
Violating the Anti-Kickback Statute
Source: CMS
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4. Fraud Prevention Strategies Government and private insurers form public-private partnership to prevent healthcare fraud A partnership among the federal government, State officials, several leading private health insurance organizations, and other healthcare anti-fraud groups to prevent healthcare fraud – this partnership is designed to enhance sharing of information and best practices in order to improve detection and prevent payment of fraudulent healthcare billings. Its goal is to reveal and halt scams that affect a number of public and private payers. Federal investigators and insurers will gather claims data and look for suspicious billing patterns and aberrations. If agents detect possible fraud and begin an investigation, they will provide insurers with the names of doctors, hospitals and suppliers suspected of misconduct. The claims will come from Medicare, Medicaid and private insurance. Among the organizations expected to join the partnership are two lobbies for the industry, America’s Health Insurance Plans and the Blue Cross and Blue Shield Association, as well as big insurers like Amerigroup (now a part of WellPoint), Humana, UnitedHealth and WellPoint. The Federal government will hire a “trusted third party” to analyze the data colle cted from Medicare, Medicaid and dozens of private health plans. This partnership would also result in the following: •
Tougher sentences for people convicted of health care fraud. Criminals will receive 20- 50% longer sentences for crimes that involve more than USD1 million in losses
•
Enhanced screenings of Medicare and Medicaid providers and suppliers to kee p fraudsters out of the program
•
Suspended payments to providers and suppliers engaged in a suspected fraudulent activity
The Centers for Medicare & Medicaid Services (CMS) organizes its antifraud activities into four categories: •
Fraud Prevention: The National Fraud Prevention Program provides enrollment and screening, engages Medicare beneficiaries, educates state Medicaid program integrity staff, markets antifraud efforts and works to improve payment accuracy
•
Fraud Detection: The CMS partners with providers and law enforcement on Parts C and D compliance, data analytics and audit activities and other enhanced analytics
•
Transparency and Accountability: These activities work toward increased coordination and collaboration with law enforcement, the private sector and states
•
Recovery: Collaboration with law enforcement (HEAT) and implementation of the Medicaid and Medicare Part C/D Recovery Audit Contractor (RAC) programs
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Medicare Integrity Program (MIP) The CMS Medicare Integrity Program (MIP) works through its administrative contractors to identify and address fraud, waste, and abuse, which are all causes of improper payments. CMS pays MIP funds to its Medicare contractors to conduct five activities to safeguard Medicare payments. These activities include: 1. audits of required annual cost reports 2. reviews of medical claims to determine whether services are medi cally reasonable and necessary 3. determinations of who, between Medicare and other insurance sources, have primary and secondary responsibility for payment 4. benefit integrity, which is identification and investigation of potential fraud cases 5. education to inform providers about appropriate billing procedures Health Care Fraud Prevention and Enforcement Action Team (HEAT) In 2009, HHS and the DOJ created a special Health Care Fraud Prevention and Enforcement Action Team (HEAT). HEAT was organized to crack down on people and organizations that financially abuse the health care system, taking the fight against Medicare fraud to a Cabinet-level priority. Till 2011, HEAT actions have led to a 75% increase in individuals charged with criminal healthcare fraud. In 2011, HEAT coordinated the largest-ever Federal healthcare fraud takedown, involving USD530 million in fraudulent billing. Medicare Fraud Strike Force Medicare Fraud Strike Force was created in 2007 as a multijurisdictional team bringing together federal, state and local investigators. Each Medicare Fraud Strike Force team is led by a Federal prosecutor from the local US Attorney’s office or the HHS OIG Criminal Division’s Fraud Section, and includes the investigative support of the FBI and the OIG. The task force achieved 251 guilty pleas and guilty verdicts against 29 defendants in jury trials in 2012. Senior Medicare Patrols Senior Medicare Patrols (SMPs) work towards fraud prevention at the recipient level. The patrols include groups of highly trained volunteers who teach Medicare and Medicaid recipients how to detect and report fraud and protect themselves from the economic and health-related consequences of Medicare and Medicaid fraud, error and abuse. SMP members also help resolve beneficiary complaints of potential fraud in partnership with state and national fraud control/consumer protection entities, including Medicare administrative contractors, state Medicaid fraud control units, state attorneys general, the OIG and the CMS.
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CMS proposes new safeguards and incentives to reduce Medicare fraud CMS is proposing to increase the potential reward amount for information that leads to a recovery of Medicare funds from 10% to 15% of the final amount collected. The current program caps the reward at USD1,000, which means CMS pays a reward on the first USD10,000 it collects as a result of a tip. CMS is also proposing to increase the portion of the recovery on which CMS will pay a reward to up to the first USD66 million recovered – this means an individual can receive a reward of USD9.9 million if CMS recovers USD66 million or more. In 1998, CMS began paying rewards to individuals who reported tips that led to the recovery of funds. To date, CMS has recovered approximately USD3.5 million as a result of this program and paid just USD16,000 for 18 rewards. The proposed changes are similar to the IRS whistleblower program that has resulted in recoveries of over USD2 billion since 2003.
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5. Challenges: Medicare and Medicaid Fraud Prevention US Department of Health & Human Services faces multiple challenges in preventing and detecting Medicare and Medicaid fraud, including: •
effectively using CMS’s provider enrollment and payment suspension authorities against those providers and suppliers that have exploited weaknesses to commit fraud rather than provide legitimate patient care;
•
managing the Department’s expanding use of data analysis;
•
collecting and maintaining complete and accurate data, particularly Medicaid data from diverse State programs and systems, to support CMS and OIG oversight and enforcement activities;
•
monitoring Medicare and Medicaid benefits delivered by private plans for fraud; and
•
excluding individuals and entities from Federal healthcare programs to protect the programs and beneficiaries.
Shortage of manpower in the department and budget crunch is likely lead to further staff shrinkage The Department of Health and Human Services Office of Inspector General is set to lose a total 400 staffers that are deployed nationwide as a primary defense against healthcare fraud and abuse. The existing staff is already stretched, which has resulted in the agencies failing to act on 1,200 complaints alleging wrongdoing over the past year and this number is expected to rise. The OIG began shedding staff beginning 2013. Of the remaining staffers, 200 will depart by the end of 2013 and 200 more by the end of 2015. Other forms of challenges may arise due to healthcare information privacy breach or identity theft. Loss or theft of patients’ healthcare information including medical "A thief downloading and stealing data can get USD50 on the street fo r a records, social security medical id entification number co mpared to just USD1 for a Social Security number, insurance details and number. For those receiving the medical ID numb er and using it to other financial information defraud a health ca re o rganization, th e averag e payout is mo re than result in healthcare fraud such $20,000” as Medicare/Medicaid fraud. - Pam Dixon, Executive Dir ector, World Privacy Forum
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Some examples of Medicare and Medicaid fraud handled by the Department of Justice Health Care Fraud and Abuse Control Program (grouped into various categories) Type of Organization / Entity
Fraud Consequences
Date / Year
Fraud Description
Hospi ce Provi der (A Texas based hospice provider)
Feb'2012
Between Janua ry 2006 and Janua ry 2009, the Hospice Provider submi tted claims for hospice servi ces tha t were medi cally unnecessary. Inves tiga tion found tha t the provider billed Medica re for continuous or crisis ca re servi ces when the pa tients were not experiencing a crisis. “Continuous or crisis” ca re is reimbursed by Medi ca re a t a higher ra te than routine ca re.
Agreed to pa y USD25 million to resol ve FCA allega tions . As pa rt of the settlement, they entered i nto a 5-yea r CIA with HHS/OIG.
Hospi tal (A New York based hospital )
Ma rch'2012
Manipulation of i ts fee structure to make it appea r as though i ts trea tment of certain patients was unusuall y cos tl y, when in fa ct i t was not. As a resul t, i t obtained millions of dolla rs in Medica re outlier pa yments to whi ch it was not entitled during the relevant time peri od.
Paid over USD13 million to resol ve FCA claims .
Physician (A Penns yl vania physi cian)
Ma rch'2012
Submitted fraudulent claims and caused more than USD1.8 million in pa yments to be paid by Medi ca re and 31 other heal th insurers . He submi tted claims for servi ces rendered to pa tients whom he did not personall y see or eval uate. The pa tients had been seen by other physi cians in the offi ce, but the physi cian falsified the charts by making nota tions indi ca ting tha t he had personally seen and evalua ted the pa tients .
Sentenced to over 7 yea rs in prison for a heal thca re fra ud s cheme.
Pha rma ceuti cal and Devi ce Manufa cturers and Related Indi vidual (A San Fra ncisco based drugs wholesaler)
April '2012
Violati on of the FCA by reporting infla ted pri cing information for a la rge number of pres cription drugs, causing Medi caid to overpa y for those drugs.
Paid USD190 million to resol ve claims .
Other Healthca re Providers (A la rge inves tor owned heal thca re deli very s ys tem)
April '2012
The provider’s inpa tient rehabilita tion fa cilities (IRF) unlawfull y admitted Medi ca re pa tients who did not meet the Medi ca re s tanda rds for IRF admissions. IRFs are desi gned for pa tients who requi re a more intense inpatient rehabilita tion progra m than is generall y provided in other settings , such as a cute ca re hospitals or skilled nursing facili ties.
Paid USD42.75 million to resol ve allega tions .
Pha rma cies (Illinois-based corpora tion opera ting a na tional retail pha rma cy chain)
April '2012
The retail pha rma cy chain offered illegal inducements to benefi cia ries of government heal thca re progra ms , incl uding Medica re, Medicaid, TRICARE and the Federal Employees Heal th Benefi ts Progra m (FEHBP), in the form of gi ft ca rds , gift checks and other similar promotions tha t are prohibi ted by law, to transfer thei r pres criptions to the pha rma cy chain. The government i nves tiga tion found tha t the pha rmacy chain had offered government health benefi cia ries USD25 gi ft ca rds when they tra nsferred a pres cription from another pha rma cy to this pha rma cy chain. The company’s advertisements tha t promoted gi ft ca rds and gi ft checks for transferred pres criptions typicall y a cknowledged that the offer was not valid wi th Medi caid, Medica re or any other government program.
Paid the Uni ted Sta tes and pa rti cipa ting s ta tes USD7.9 million to resol ve allega tions vi olation of the FCA.
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Type of Organization / Entity
Date / Year
Fraud Description
Fraud Consequences
Clini c (A durable medi cal equipment supplier based in Tennessee)
April '2012
Violati on of the Medi ca re Cold Call Rule by offering covered supplies, such as diabetes tes ting supplies, to Medica re benefi cia ries who called the medi cal equipment supplier to request non-covered supplies , such as diabetes cookbooks, tha t the supplier advertised as free. The United Sta tes also alleged tha t the supplier unlawfull y retained refunds owed to Medica re and TennCa re for returned medi cal supplies.
Paid USD17.5 million to the Uni ted Sta tes and USD439,003 to the State of Tennessee
Mana ged Ca re Organiza tions (A Fl orida-based ma naged ca re organi zati on)
April '2012
(1) Falsely infla ted the amount i t claimed to be spending on medi cal ca re to a void returning money to Medi caid and other progra ms in va ri ous s ta tes ;
Agreed to pa y the Uni ted Sta tes a nd nine States a total of USD137.5 million to resol ve FCA allega tions . It will ma ke pa yments over a period of three yea rs .
(2) Knowingl y retained overpa yments i t had recei ved from Fl orida Medi caid for infant ca re; (3) Falsified da ta tha t mis represented the medi cal condi tions of pa tients and trea tments they recei ved; (4) Engaged in certain ma rketing abuses, including the "cherrypi cking" of healthy pa tients to a void future cos ts ; (5) Manipulated "grades of servi ce" or othe r performance metri cs rega rding i ts call center; and (6) Opera ted a sham special inves tiga tions unit.
Transporta tion Provider (Ambulance servi ce providers )
June'2012
The company i mproperl y billed Medi ca re for pa yment on ambulance servi ces tha t were never provided or were medi cally unnecessary. In pa rti cula r, the Uni ted Sta tes alleged tha t the defendants represented tha t tra nsported pa tients were ei ther bed-confined or that transporta tion by a mbulance was , otherwise, medi call y requi red. Many of those patien ts , however, were nei ther bed-confined nor needed to be moved on s tretchers, and did not require ambulance transporta tion or qualify for ambulance transport under the a pplicable Medi ca re requi rements.
Paid USD5.4 million to settle FCA claims
Nursing Home (A nursing home opera tor in Georgia)
Augus t'2012
The Nursing Home owner and his wife were cha rged of conspi ring to defraud the Medi ca re and Georgia Medi caid progra ms between Jul y 2004 and September 2007. Medica re and Medicaid paid the opera tor more than USD32.9 million during that time for food, medi cal ca re, and other servi ces for nursing home residents , but evidence presented a t trial showed tha t condi tions in the nursing home were so poor tha t any servi ces provided were of no value.
Sentenced to serve 20 yea rs in the Federal prison a nd ordered to pa y USD6.7 million
Source: Health Care Fraud and Abuse Control Program, Annual Report for Fiscal Year 2012
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6. Conclusion Fraud and abuse in healthcare programs like Medicare and Medicaid cannot be seen as only a financial problem since it often results in the degrading or denial of care to patients who depend on these programs.
Medicare and Medicaid annual spending in the US is quite big, about 6% of its GDP, which makes it prone to fraudulent activities. Medicare and Medicaid fraud is difficult to predict and causes huge revenue losses to the payers – both Federal and private. The Federal government has made efforts to curb such fraudulent activities by means of regulations and setting up teams to detect and recover lost revenue. Public-private partnerships have been formed to discover and implement the best practices to prevent such fraud. In addition, third-parties are also roped in to develop software and systems to help payers reduce loss arising from fraudulent claims. Till date, government agencies have made some headway in recovering revenue loss from fraud. However, they still have a long way to go, considering the mammoth size of Medicare and Medicaid fraud and lack of manpower to prevent the fraud. The challenge to prevent fraud and recover losses will grow bigger with the Medicaid Expansion starting early next year. Collaboration among the various industry players to prevent such fraud by means of information sharing and use of technology such as analytics will help in further reducing the burden of revenue loss and waste of tax-payer money. These efforts become all the more important as the US healthcare industry is desperately looking to reduce the heightened cost of healthcare.
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7. References •
Medical News Today
•
Investopedia
•
www.wistleblowerlaws.com
•
Health Care Fraud and Abuse Control Program Annual Reports for Fiscal Year 2008 – 2012
•
CMS
•
www.hss.gov
•
www.cms.gov
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www.oig.hss.gov
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www.publicintegrity.org
•
www.kaiserhealthnews.org
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www.coburn.senatae.gov
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Healthcare IT News
•
Healthcare Payer News
•
WellPoint
•
Health Information Designs
•
The Medicare Newsgroup
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