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Preventing Medicare Fraud among Health Providers and Organizations:. (Part I): An Overview for Senior Medicare Patrols of Schemes, Scams, and Interventions with Health Organizations and Providers .

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preventing medicare fraud among health providers and organizations

Preventing Medicare Fraud among Health Providers and Organizations:

(Part I):An Overview for

Senior Medicare Patrols of

Schemes, Scams, and Interventions with

Health Organizations and Providers

This presentation was sponsored in part by a grant from the US Administration on Aging. Grantees are encouraged to freely express their findings, therefore, materials and opinions do not represent the position or policy of the US Administration on Aging.

  • Dr. Mark Grey

Professor and Executive Director

Iowa Center on Immigrant Leadership and Integration

University of Northern Iowa

  • Dr. Michele Yehieli

Associate Professor and Executive Director

Iowa EXPORT Center of Excellence on Health Disparities

University of Northern Iowa

outline of topics
Outline of Topics
  • Background on Research
  • Overview of the Extent of Medicare Fraud
  • Defining Fraud and Abuse
  • Contributing Factors to Fraud and Abuse
  • Common Forms of Medicare Fraud Affecting Health Agencies and Providers
  • Strategies for Providers to Prevent Fraud
  • Conclusion
background on research
Background on Research
  • Literature review:
    • Types of fraud, minorities/immigrants and fraud, etc.
  • Interviews with FBI, OIG, NHIC, Attorney General officials, and other law enforcement agents
  • Tours of fraud-prevalent neighborhoods
  • Urban and rural environments
overview of the extent of medicare fraud
Overview of the Extent of Medicare Fraud
  • More than 1 billion annual claims processed nationwide through Medicare
  • $1 out of every $10 of Medicare costs are estimated to be fraudulent; can vary dramatically from 1% to more than 30%, depending on location
  • 2006 estimate: $19 billion lost to fraud, error, and abuse
  • Fraudulent claims skyrocketing out of control
defining fraud and abuse
Defining Fraud and Abuse
  • Fraud: To purposely bill for services that were never given or to bill for a service that has a higher reimbursement than the service produced. Deliberate misrepresentation.
  • Abuse: Payment for items or services that are billed by mistake by providers, but should not be paid for by Medicare. This is not the same as fraud.
beyond the numbers
Beyond the Numbers….
  • A system “ripe for plunder”
  • Why do people defraud Medicare?
    • Fraud is easy
    • Getting caught is rare
    • Prosecution is even rarer
    • In So. California: < 1% is referred to law enforcement
a huge system
A Huge System
  • 40 million beneficiaries
  • 1 million providers
  • A Complex System
    • Multiple layers of bureaucracy
    • Different regulations
medicare has many moving parts
Medicare has many “moving parts.”



Policies and




medicare has a complex organization

Congress creates Health & Human Services as part of the Executive Branch

Centers for Medicare & Medicaid (CMS; Baltimore)


Federal Employees

CMS Regional Offices

ALJ system

Medicare Central Office (CO)



Fee For Service

(80% of Part B)



Hospitals & Institutions; Renal Benefits


Durable Medical Equipm.

CAP (Competitive Acquisition Program; Delivery of office drugs)


Drug Benefit

MEDICARE Managed Care (PART C)

Medicare Advantage (Formerly Medical +Choice)

QIO Quality Improvement Organization

(CA = Lumetra)


PSC “Program Security Contractors” (Fraud)


QIC (Quality Contractors – Appeals)


RAC (Recovery Audit Contractors – Demo Project CA FL NY)

Medicare has a complex organization.
medicare has multiple tiers of regulations
Medicare has multiple tiers of regulations.


US Code (Social Security Act, SSA Title XVIII, Health)


National Coverage Decisions (NCD)

Agency Rulings

Code of Fed RegCFR

Medicare Program Manuals


  • Local Coverage Decisions (LCD)
  • Local public comment
  • Local advisory board

Policies (LCD)


“An LCD is primarily a program integrity tool.”

CMS, 66FR58803, 11/23/01

Internal Guides

a huge system12
A Huge System
  • Patients and providers face variable and inconsistent policy interpretations from various contractors and from different offices with overlapping jurisdictions within the federal government itself.
  • Rules may vary across areas and over time.
  • Providers seeking technical assistance from Medicare are often frustrated because their questions go unanswered.
a huge system13
A Huge System
  • A near-continuous stream of complicated regulations and program changes
  • Medicare regulations “vague” and “unclear”
  • Sometimes Medicare offices disagree if something is “fraud”
  • Sometimes Medicare personnel (inadvertently) instruct providers on how to “up code”
base problem
Base Problem…
  • Medicare fraud is “non-self-revealing”
    • With credit cards
      • Itemized statement
      • Customer pays with his/her funds
      • If there is a discrepancy, it is in the customer’s self-interest to protest the charge
    • With Medicare, the customer/patient never sees the bill before it is paid by the government
    • Only rarely will patient catch fraudulent charges on own statement after the fact
base problem15
Base Problem…
  • Fraud = billing for fictitious services or for services of minimal or no value to patient (eg. unnecessary lab tests)
  • Limited co-payments remove patient incentives to pay attention to the bill
    • or “patients” are paid for their participation
  • Fraud results from separating payer from the recipient of services
    • Patient can only catch fraud after it takes place
seven factors that make fraud control difficult
Seven Factors that Make Fraud Control Difficult*
  • Non-self revealing offenses
  • Performance indicators are at best ambiguous; at worst perverse and misleading
    • More detected fraud can mean improved means of detection or fraud has increased
    • Success in prosecution can be viewed as failures in prevention

*(National Institute of Justice, Malcolm Sparrow 1998: “Fraud Control in the Health Care Industry”)

seven factors that make fraud control difficult17
Seven Factors that Make Fraud Control Difficult
  • Fraud control competes for resources against productivity and service
    • “…the cheapest way to process a claim is to pay it.”
  • Fraud control is dynamic: a game against opponents who are usually one step ahead.
seven factors that make fraud control difficult18
Seven Factors that Make Fraud Control Difficult
  • Too much emphasis on traditional enforcement approaches
    • Difference between investigation (tool) and control (the goal)
  • Effectiveness of new fraud controls “routinely overestimated”
    • Ever changing opponents/scams

Seven Factors that Make Fraud Control Difficult

  • Fraud control efforts reflect the production environment in which they operate
    • Dynamic opponents vs. static filters
    • Fraud schemes are designed so that transactions comfortably fit a legitimate profile and pass through unchallenged
    • Medicare service codes & electronic processing are complicated, with language and bureaucracy all their own
public opinion does not help
Public Opinion Does Not Help
  • To make matters worse:
    • 2 in 3 Americans tolerate insurance fraud to varying degrees
    • 2 in 5 Americans want little or no punishment for insurance cheats; they blame the insurance industry because they “believe insurers are unfair.”*
    • Fraud and waste not always perceived to personally affect patients or taxpayers
    • Similar views about Medicare????

*Coalition Against Insurance Fraud

types of fraud
Types of Fraud
  • Billing for services never rendered
    • Using genuine patient information to fabricate claims or “pad” claims for procedures that never took place
  • Billing for more expensive services than were actually provided
    • “upcoding”
    • Billing for higher-priced treatment than was actually provided
    • Billing for physician care when lower-level provider actually attended
types of fraud22
Types of Fraud

3. Providing medically unnecessary services or products solely to generate insurance payments

Rent-a-patient scams

“sweaty palm syndrome”

sham clinics

durable medical equipment scams

recruit and pay patients to have unnecessary surgery

skeleton pharmacies

types of fraud23
Types of Fraud

4. Misrepresenting non-covered treatments as medically necessary

  • usually cosmetic-surgery schemes such as “nose jobs,” “tummy tucks,” and liposuction
  • But billed as deviated-septum repairs, hernia repairs, lumpectomies, etc.
fraudulent billing it s all in the codes
Fraudulent Billing:It’s all in the codes
  • All Medicare procedures have a code
  • 1,000s of codes
  • Providers are reimbursed X dollars for each code submitted
  • Millions of electronic claims each year
    • Tiny percentage audited
  • Computers may catch “anomalous” codes (if programmed to do so)
socal was attacked by anomalous services beginning in 2003 2004
SoCal was “attacked” by anomalous services beginning in 2003/2004.

91122 Anal Manometry



  • SoCal was “attacked” by anomalous services beginning in 2003/2004.
  • Services for 91122, Anal Manometry, ballooned in 2003. There was no local limit on this code/service per patient.
  • Almost all services were in Southern California.

NCA = $500,000 SCA = $40,000,000

the code game
The Code Game
  • What is anal manometry?
    • A test performed to evaluate patients with constipation or fecal incontinence. This test measures the pressures of the anal sphincter muscles, the sensation in the rectum, and the neural reflexes that are needed for normal bowel movements.
the code game27
The Code Game
  • Why were so many more people getting anal manometry?
    • “medically unbelievable care”
    • Few patients underwent procedure
      • Majority didn’t: their names and Medicare numbers were used for fraudulent billing in sham clinics
      • Recruited in ethnic press:
        • Recruit Medicare or Medicaid patients only
        • No private insurance/private pay
    • “Doc-in-a-box”
    • Crime syndicates
medically necessary
“Medically necessary…”
  • “medically unbelievable”
  • Vs. “medically necessary…”
    • But how to tell the difference?
    • Requires audit of patient files
      • (but how audit thousands of files?)
      • Only 2,000 random case reviews in each state per year
  • Anomalous Codes
most anomalous services are diagnostic tests

$600M / Yr

PULM $24

PT $182M

U/S $25

MISC $26


SKIN $27

VASC $65

UROL $43

LAB $55

ALL $58

Most anomalous services are diagnostic tests.

Anomalous codes were defined as 3X utilization and >$1M excess spending.

Raw data: based on 1H 2005 but annualized (doubled).

most anomalous services are diagnostic tests30
Most anomalous services are diagnostic tests.

$600M / Yr

PULM $24

  • 15% of claims in SCA
  • 1-2% in NCA
  • 1-2% at NHIC NE

PT $182M

U/S $25

MISC $26


SKIN $27

VASC $65

UROL $43

LAB $55

ALL $58

tale of two problems independent diagnostic testing facilities idtf vs sham clinics
Tale of Two Problems: Independent Diagnostic Testing Facilities (IDTF) vs. sham clinics




“Sham clinic”


These are “mock up” numbers for general discussion. These are not concrete numbers.

IDTF: $100-125M based on fractions of 2005 IDTF payments by service type.

Sham Clinic: $300M based on “extremely anomalous providers” in 1Q 2005

idtf versus sham clinic billings
IDTF versus Sham Clinic billings

Physician (right) was real (under law enforcement now). The mirror-image IDTF shown here is fictitious.

and now the really bad news
And now the (really) bad news…
  • Insurers (like NHIC) are not incented to do anything about fraud (even if they find it)
  • There is a “firewall” between the insurer and the BISC (Benefit Integrity Support Center)
  • The BISC can only build a case and refer to law enforcement
    • In small states these are often pursued
    • In big states, the majority are not pursued
      • Threshold in SoCal? “seven figures”
a thumb in the dike
A thumb in the dike…
  • As one law enforcement official told us:
    • “You think you’re a vaccine and then you learn you’re just a white corpuscle.”
  • But what can Senior Medicare Patrol Volunteers teach health providers and organizations to do to prevent fraud?
prevention strategies changing the mindset
Prevention Strategies: Changing the Mindset
  • Must recognize that prevention of Medicare fraud is significantly more cost effective than fighting it through law enforcement and crime prosecution
  • Must embrace new paradigm that massive abuse is NOT just the cost of doing business; may need realistic compromise
  • Must prevent Medicare fraud through coordination and cooperation at multiple levels simultaneously:
      • Physicians and other providers
      • Hospitals, clinics, pharmacies, and other agencies
      • Equipment, drug, and service suppliers
      • Patients and their families
      • The Centers for Medicare & Medicaid Services (CMS)
      • Medicare contractors and auditing agencies
      • State/federal agencies like DHHS, OIG, FBI, & DOJ
prevention strategies systemic changes advocated by providers
Prevention Strategies:Systemic Changes Advocated by Providers
  • Make Medicare payments directly to patients, in order to prevent separation of payer & provider
  • Make medical savings accounts available to Medicare patients to reduce pre-payment and encourage risk sharing & co-pays
  • Eliminate price controls and out-dated use of “resource-based relative value scale” that may result in artificial prices being charged and honest providers being forced out of system
prevention strategies additional recommendations for providers
Prevention Strategies:Additional Recommendations for Providers
  • Train staff at all levels of health organization about prevention
  • Avoid accepting employment positions in clinics or settings that seem suspicious, are “too good to be true”, or have little contact with patients
  • Maintain strict confidentiality of patient information and social security numbers; follow proper procedures for storing and destroying private information of clients
  • Make sure that the identity of deceased, as well as living, providers is protected, and that duplicate records are not given out, in order to prevent criminals from charging Medicare for services under those names
  • Store and destroy records properly of laboratory workers, therapists, technicians, and other medical support personnel as well. Keep information sealed, locked, or shredded.
prevention strategies additional recommendations for providers38
Prevention Strategies:Additional Recommendations for Providers
  • Maintain tight control over blank charts, empty forms, and other such documents in the organization
  • Protect electronic information and records, and be aware of access issues to computer databases at the worksite. Protect passwords, and watch traffic flows of employees or patients that might be able to gather information off a computer screen
  • Conduct background checks on the people that are employed at a health agency. Pay special attention to billing clerks, receptionists, and other lower paid workers that can gain access to records and patient/provider information
  • Be careful in employing contractors such as cleaning crews, third-party billers, and others, who can access sensitive information and blank forms
  • Make sure medical providers are legitimate, and have the training, licenses, and education they say they do
prevention strategies additional recommendations for providers39
Prevention Strategies:Additional Recommendations for Providers
  • Be suspicious as a provider or health agency if approached to:
    • Offer free tests, procedures, equipment, consultations, or products to patients, in exchange for their social security numbers or personal records
    • Work with or employ someone that “knows how to bill Medicare for a service that is not usually covered”
    • Promote a certain item or service to clients that “Medicare wants them to have”, particularly in large quantities
    • Get more patients and referrals, without checking ability to pay
    • Bill Medicare for services that are not provided
    • Use “creative coding” on procedures to get a higher level of reimbursement from Medicare
prevention strategies additional strategies for providers
Prevention Strategies:Additional Strategies for Providers
  • Review reimbursements from Medicare for mistakes
  • Do not encourage or allow patients to have medically unnecessary procedures, tests, or equipment
  • Do not accept health supplies, equipment, or other such items that were paid for by Medicare, especially from “door-to-door” salesmen, that were not ordered
  • Don’t allow anyone in agency, except medical professionals, to review patient records and recommend services
  • Be cautious if approached to work with other providers or staff that maintain they have been endorsed by the Federal government or by Medicare
  • Report suspected instances of fraud
reporting resources
Reporting Resources

Center for Medicare/Medicaid Services (CMS): 1-800-Medicare or

Office of Inspector General: 1-800-HHS-TIPS or 1-800-447-8477

The National Consumer Technical Resource Center: 1-877-808-2468

  • Timothy Fives, California Department of Justice
  • Scott James, Federal Bureau of Investigation
  • Bruce Quinn, M.D., National Heritage Insurance Company
  • Stephen Opferman, Los Angeles County Sheriff’s Department
  • Tatiana Rodzinek, West Hollywood City Hall
  • Kory Ihnken, United States Office of Inspector General
  • LeAnn Hansen-Kai, Cahaba Safeguard Administrators
  • Kevin Kohler, Federal Bureau of Investigation
  • Robert Butler, United States Attorney’s Office
  • Shirley Merner, National Consumer Protection Technical Resource Center
  • Scott Cooley, National Consumer Protection Technical Resource Center
selected bibliography
Selected Bibliography
  • Thomas H. Stanton (2001). Fraud-and-Abuse Enforcement in Medicare: Finding Middle Ground. Health Affairs 20(4)
  • Malcolm K. Sparrow (2000). License to Steal: How Fraud Bleeds America’s Health Care System. Westview Press.
  • Brandon Bailey (2003). For Medicare, Signs of Fraud Difficult to Spot. Mercury News, November 23, 2003.
  • What Asian Americans Should Know about Insurance Fraud. A Training Manual for Community-Based Organizations (
selected bibliography continued
Selected Bibliography (continued)
  • National Health Care AntiFraud Association (2005). “Health Care Fraud: A Serious and Costly Reality for All Americans.” (
  • DHHS Centers for Medicare and Medicaid Services. (2003). Pay It Right! Protecting Medicare from Fraud.
  • Association of American Physicians and Surgeons. AAPS Report on Medicare Fraud.

( May 26, 2006.