US Government Targets Health-Care Fraud

THE Clinton administration and Congress are taking aim at health-care fraud, a sleeping giant that experts say costs taxpayers $90 billion a year.

This fraud has been the subject of congressional hearings for years but hasn't gotten the action it deserves, legislative aides and others say.

``White-collar crime isn't easy to prosecute.... What makes health-care fraud worse is people tend to be deferential to doctors.'' said Sidney Wolfe, Public Citizen Health Research Group director.

Now, with health-care costs in the spotlight, the federal government is turning up the heat.

* Attorney General Janet Reno has asked law enforcers to make health-fraud cases a top priority.

* The Justice Department, including the Federal Bureau of Investigation, is directing more staff to investigation and prosecution of health fraud, as well as increasing contacts with the fraud units of insurance companies. (See chart, at right.)

* Fifty pages of the president's health-care bill are devoted to antifraud efforts, for which there is near-bipartisan support, legislative aides say.

The General Accounting Office (GAO) estimates that fraud consumes 10 percent of the health-care budget. A recent review of 21 hospitals by the Office of Inspector General (OIG) turned up $50 million in unallowable costs, including alcohol, entertainment, marketing, and donations.

Complexity abets fraud

``Fraud is a result, in part, of the complexity of the health-care system,'' says Christine Heenan, a White House policy adviser.

More than 4 billion insurance claims are processed each year by a thousand insurers using different reimbursement rules and about a thousand different forms, says GAO official Janet Shikles.

Medicare contracts with 79 insurance firms to process its 600 million claims. Complicating matters further, in cases where Medicare's reimbursement policies are unclear, as when new therapies hit the market, Medicare contractors have significant leeway as to whether they will reimburse the service and at what rates.

In one recent case, the Hospital Corporation of a America (HCA), a Nashville-based firm that owns 74 medical and 54 psychiatric hospitals, received reimbursement from Medicare for $2.6 million in general and administrative expenses in 1991. The GAO found that $1.1 million of it was for services ``unallowable, questionable, or unsupported.'' For example, a charge for $17,755 in alcoholic beverages was ``not related to patient care'' and should not have been reimbursed, the GAO says.

GAO finding contested

The HCA disputes this finding and says that the amount in question is less than $10,000. Moreover, says CEO Jack Bovender. Medicare's rules are murky in terms of which costs are allowable, he adds.

Medicare officials have not asked HCA to reimburse the government for unallowable charges. But the Health Care Financing Administration (HCFA), which runs Medicare, has informed intermediaries that reimbursements for alcohol and political gifts never really have been allowable, but will definitely not be after March 1.

``The law has loopholes you can drive a Mack truck through,'' says Richard Kusserow, a former inspector general for the Department of Health and Human Services (HHS). ``If someone comes up with a new scam, it takes months for the bureaucracy to catch up with them.'' Lawmakers have been soft on Medicare contractors because the businesses operate in legislators' districts, he adds.

Officials have high hopes that a new Medicare billing system being planned will thwart fraud, says Bruce Vladeck, head of the HCFA. One example of an HCFA effort already under way is a project to streamline billing for home-infusion therapy, a process whereby drugs or nutrients are injected intravenously. This industry claims a $4 billion market.

Reports of escalating prices for drugs, nutritional supplements, and intravenous equipment supplied by the industry set off alarms among lawmakers, who called for better monitoring.

``Home health care and home-infusion therapy were supposed to reduce costs by having patients discharged from hospitals earlier than normal and cared for at home,'' said Michael Mangano, HHS principal deputy inspector general at a September hearing of an Energy and Commerce Committee subcommittee.

Instead, the amount Medicare contractors paid per beneficiary for home infusion rose 63 percent from 1990 to 1991, from an average of $4,243 to $6,923, the OIG found.

``Many of these services are virtually unregulated and unaccountable to anyone but the corporate bottom line,'' says Rep. Ron Wyden (D) of Oregon.

Galloping costs are not the industry's only problem.

The OIG uncovered three types of kickback schemes between home-infusion-therapy firms and doctors: direct payment for referrals, stock ownership based on amount of referrals, and payment for falsifying papers declaring a patient needed infusion therapy.

``So lucrative are these schemes that new companies are regularly being established,'' Mr. Mangano said.

In one Florida case last year, elderly, Hispanic residents signed up to get ``monthly government milk supplements,'' a ploy cooked up by the dozen ringleaders as a way to obtain Medicare billing numbers. They told the government they were providing equipment for home infusions and used billing numbers to file false claims. They escaped auditors by creating new firms to bill under.

``Between January 1989 and December 1991, we estimate that the fraudulent billing cost Medicare $14 million,'' Mangano said.

By March, all Medicare bills for home infusion will be processed by just one of four contractors who must strive to maintain consistent reimbursement policies, says HCFA official Gary Kavanaugh.

Congress recently voted to outlaw by 1995 self-referral among most providers - when patients are referred to clinics in which the provider has a financial interest - a practice the American Medical Association has called unethical since 1992.

``Today, instead of seeing schemes which involve only one person or entity, it is now common to see cases involving groups of people intent on defrauding the government,'' Larry Morey, an HHS deputy inspector general, said at a House Ways and Means Committee hearing last March.

One scheme is alleged to have involved 200 providers and 1 billion in fraudulent claims over a 10-year period, says Ms. Shikles of the GAO. In that case, providers rolled labs into California neighborhoods, offering medical tests to patients with insurance. Their billing numbers were used to submit phony claims to insurers, including Medicare. Only $18 million was recovered.

``The same small number of fraudulent providers are taking advantage of the fact that our public and private payers cannot work together, and they are ripping off all of us,'' says Shikles.

Congressional support

Health fraud is one aspect of health reform that ``there is agreement about,'' says a Republican legislative aide.

The Clinton plan would criminalize health-care fraud. Seized assets would go into a trust fund, which would pay the program's way and perhaps permit the hiring of more OIG investigators, says White House adviser Heenan. The bill also would streamline insurance processing in the private sector and require all insurers to use a standardized claims form.

The Republican health-care plan, sponsored by Rep. Robert Michel (R) of Illinois, includes similar antifraud provisions. But the Republican leadership questions whether the Clinton plan, which they say would be more complex and bureaucratic, would be able to keep up with fraud.

``It can hardly police just the Medicare and Medicaid programs now,'' the aide says.