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02/03/99 01:07:12
FactsLine->
202 456 5557 FactsLine
Page 001
NU
Fax Cover Sheet
INSTITUTE
OF JUSTICE
To:
Jose Cerda III
From: NATIONAL INSTITUTE OF JUSTICE
Re:
Deficiencies Persist in Controlling Health Care Fraud
Date: February 2, 1999, 11:00 PM
For further information on NIJ research and programs,
visit the NIJ Web site at www.ojp.usdoj.gov/nij or call
NIJ's clearinghouse, the National Criminal Justice
Reference Service, at 800-851-3420.
02/03/99'01:07:42
FactsLine->
202 456 5557 FactsLine
Page 002
NU
NIJ "Fax" Sheets
Notice of New NIJ Publication Release
INSTITUTE
February 3, 1999
OF JUSTICE
Washington, D.C.
Deficiencies Persist in Controlling Health Care Fraud
Controlling criminal fraud is cspecially difficult in the health care industry due to a number of factors
including faulty detection systems, ambiguous performance indicators, and a lack of adequate resources to
deal with the problem. These are the findings of a study from the National Institute of Justice (NIJ) that
examined the health care industry's methods of criminal fraud control and asked "Do they work?" and if
not, "Why not?" The study assessed the assumptions, policies, and procedures comprising the health care
industry's approach to criminal fraud control in an effort to understand strengths and weaknesses and to
offer some ideas about how to make controls more effective.
The incidence of health care fraud remains at alarmingly high levels despite unprecedented attention in
recent years from policymakers and law enforcement. Major scams appear to be artfully designed to
circumvent routine controls and may remain invisible for long periods. This study concluded that when
the scams are discovered, it is often more by luck than judgment.
Other factors that make criminal fraud control such a complex challenge:
Maintaining effective fraud controls demands continuous assessment of emerging fraud trends and
constant, rapid revision of controls.
Too much reliance is placed on traditional enforcement approaches-effective investigations do
not necessarily translate into effective control.
The effectiveness of new fraud controls is routinely overestimated by those who put them in place.
This study was conducted by Malcolm K. Sparrow, Ph.D., Professor of Practice, at the John F. Kennedy
School of Government, Harvard University.
For a copy of the Research in Brief Fraud Control in the Health Care Industry: Assessing the State of the
Art (NCJ 172841, 11 pp.), call the National Criminal Justice Reference Service at 800-851-3420. The
Research in Brief also references Dr. Sparrow's book which provides a more detailed account of his
research on fraud. At this number you can also use the automated NCJRS Fax-on-Demand service to have
a copy faxed directly (document 4043). You may download a copy of the report from the NIJ Web site at
www.ojp.usdoj.gov/nij,
1 of 1
MEDICAL
ACPTS
DEPARTMENT OF HEALTH & HUMAN SERVICES
Chief of Staff
$
/
Washington, D.C. 20201
FACSIMILE
DATE: 2/9/99
TO:
Chris Jennings
FAX#: 456-5557
FROM: Mary Beth Donahue
Chief of Staff
Phone:
202/690-7431 Fax: 202/401-5783
COMMENTS:
The Rollowing is qt.a t the press release on
the medicare IG report.
Pages (including this cover]
CHIEF OF STAFF
02/09/99 TUE 11:00 FAX 202 4015783
001
HHS NEWS
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
FOR IMMEDIATE RELEASE
Contact: HCFA Press Office
Tuesday, Feb. 9, 1999
(202) 690-6145
OIG Press Office
(202) 619-1343
AUDIT SHOWS DRAMATIC DECLINE IN MEDICARE OVERPAYMENTS
The U.S. Department of Health and Human Services today reported that improper
Medicare payments to hospitals, doctors and other health care providers declined dramatically
last year to the lowest error rate since the government initiated comprehensive audits three years
ago. The findings are included in an audit report prepared by the Department's Office of
Inspector General.
The error rate for fiscal year 1998 was an estimated 7.1 percent, representing estimated
improper payments of $12.6 billion. This compares with an error rate of 11 percent in FY 1997,
representing an estimated $20.3 billion; and 14 percent in FY 1996, representing an estimated
$23.2 billion in improper payments.
"Today's report by the Inspector General is welcome proof that our zero tolerance policy
against waste, fraud and abuse is paying off," Secretary Shalala said. "We still have a big job to
do in eliminating improper Medicare payments, but with a 45 percent reduction in improper
payments in just two years, we are making real progress."
OIG auditors with the support of medical experts reviewed a comprehensive statistically
valid sample of Medicare fee-for-service claim expenditures and supporting medical records to
determine the accuracy and legitimacy of the claims. They looked at a statistical selection of 600
beneficiaries nationwide with 5,540 claims valued at $5.6 million and determined that 915 of the
claims did not comply with Medicare laws and regulations.
By projecting the sample results over the universe of Medicare fee-for-service benefit
payments, which totaled $176.1 billion during the fiscal year, the OIG calculated that $12.6
billion was the mid point in the estimated range of improper payments.
HHS Inspector General June Gibbs Brown called the 45-percent reduction in
overpayments since FY 1996 "a truly remarkable improvement," and said she was "encouraged
by the determined and concerted effort of the Secretary, the Health Care Financing
- MORE -
CHIEF OF STAFF
4015783 202 PAY 00:11 BUE 02/60/20
7007
-2- -
Administration, the Department of Justice, the Congress and the provider community to
effectively address the overpayment problem. This clearly demonstrates what can be
accomplished when we work cooperatively to solve such significant problems."
She noted that the improper payments, as with past years, could range from inadvertent
mistakes to outright fraud and abuse; the portion of the error rate attributable to fraud could not
be quantified.
The two major problem areas were identified as billing for services that were not
medically necessary and upcoding services to secure a higher reimbursement than justified. They
combined to account for about $9.3 billion of the estimated $12.6 billion in improper payments.
Another $2.1 billion in overpayments was attributed to documentation discrepancies, and the
remaining $1.2 billion to billing for services not covered by Medicare, and other types of errors.
Hospitals, physicians and home health agencies accounted for more than 77 percent of the
improper payments, with approximately 39 percent of the erroneous claims attributable to
hospitals, nearly 26 percent to physicians, and almost 13 percent to home health agencies. Skilled
nursing facilities, non-prospective payment system (PPS) hospitals, laboratories, end stage renal
disease centers, ambulance companies, ambulatory surgical centers, durable medical equipment
suppliers and hospices were responsible for the balance of the improper payments, in that order.
Virtually all major provider groups had significant error reductions from FY 1996.
The overwhelming majority of these improper payments (90 percent) were detected
through medical reviews coordinated by the Inspector General. When these claims were
submitted for payment to Medicare contractors, they contained no visible errors.
Examples of improper payments include a community mental health center that was paid
$21,421 for services later determined by medical reviewers to be medically unnecessary. In
another case, a skilled nursing facility billed Medicare $10,428 for a 51-day skilled-nursing stay
by an elderly patient. Because medical records showed that the patient received only
maintenance-level, nonskilled care. the payment was denied. In a third case, a physician billed
Medicare $871 for 40 hospital visits. The medical records, however, supported only 18 visits. In
each of these instances, and in all other cases where improper payments were specifically
identified, action was taken to deny the claim and to recover the overpayment.
Inspector General Brown attributed the reduction in improper payments to several factors
including improved program oversight and enforcement and greater compliance by health care
providers with Medicare's billing rules. She credited the HCFA for requiring more extensive
prepayment reviews of types of claims identified as vulnerable to improper payments, and the
provider community for working aggressively with the HCFA to better ensure that they
understand and abide by the reimbursement rules.
- MORE -
CHIEF OF STAFF
02/09/99 TUE 11:00 FAX 202 4015783
conta
-3- - -
"We are very pleased with this evidence of our substantial progress over the last year,
even as we continue to accelerate our efforts against waste, fraud and abuse," said HCFA
Administrator Nancy-Ann deParle. "I want to thank the Inspector General and our partners at the
Department of Justice, as well as members of Congress who have helped give us the enforcement
tools and financial resources necessary to turn the tide of waste and fraud in Medicare."
Medicare, the Federal health care program that pays doctor, hospital and other medical
bills for the nation's elderly and disabled, served 39 million beneficiaries in FY 1998 and
incurred about $210 billion in benefit payments, including about $33 billion in managed care
expenditures. More than 860 million claims were processed during the fiscal year by the private
insurance companies that contract with the government to pay Medicare claims.
###
CHIEF OF STAFF
02/09/99 TUE 11:01 FAX 202 4015783
Unf
Q&As--FY 1998 Medicare Fee-for-Service Error Rate
1.
What was the objective of this audit?
A.
Our audit objective was to make an independent assessment of the extent of improper
payments in the Medicare fee-for-service program. Specifically, we determined whether
services were:
furnished by certified Medicare providers to eligible beneficiaries;
reimbursed by Medicare contractors in accordance with Medicare laws and
regulations; and
medically necessary, accurately coded, and sufficiently documented in the
beneficiaries' medical records.
2.
Has the error rate dropped over the years?
A.
Based on our statistical sample, the point estimate of improper Medicare benefit payments
made during FY 1998 was $12.6 billion, or about 7.1 percent of the $176.1 billion in
processed fee-for-service payments reported by HCFA. The estimated range of the
improper payments at the 95 percent confidence level is $7.8 billion to $17.4 billion, or
about 4.4 percent to 9.9 percent, respectively. This year's point estimate is $7.7 billion
less than last year's point estimate of $20.3 billion and $10.6 billion less than the previous
year's point estimate of $23.2 billion.
3.
How were these improper payments determined?
A.
Through detailed medical and audit reviews of a statistical selection of 600 beneficiaries
nationwide with 5,540 fee-for-service claims processed for payment during FY 1998, we
found that 915 claims did not comply with Medicare laws and regulations. Medical
review personnel from HCFA's Medicare contractors and peer review organizations
(PRO) assessed the medical records to determine whether the services billed were
reasonable, medically necessary, adequately documented, and coded in accordance with
Medicare reimbursement rules and regulations.
4.
You say in your report that you cannot quantify what portion of the error rate is
attributable to fraud. What are these errors, and was fraud noted in your sample?
A.
The improper payments identified by our review could range from inadvertent mistakes to
outright fraud and abuse. We did, in fact, refer certain cases to our Office of
Investigations for further development.
However, we did not routinely profile individual providers to the degree needed to
900
CHIEF OF STAFF
02/09/99 TUE 11:01 FAX 202 4015783
develop a fraud case to prove intent or reckless disregard for Medicare rules and
regulations. This would have been beyond the scope of our audit.
5.
Based on your audit, what factors do you believe contributed to the decline in this
year's error rate?
A.
We attribute the decline in the error rate to several factors:
HCFA's efforts under the Medicare Integrity Program,
Fraud and abuse initiatives,
Improved provider compliance with Medicare reimbursement rules,
HCFA/OIG outreach efforts emphasizing provider compliance with Medicare
documentation requirements, and
Implementation of HCFA's corrective action plan.
6.
In your opinion, what fraud and abuse initiatives helped reduce the error rate?
A.
Fraud and abuse initiatives on the part of the Administration and the Congress have had a
significant impact. For example, Operation Restore Trust placed greater emphasis on
more in-depth reviews of HHA claims. Also, the Health Insurance Portability and
Accountability Act has provided both HCFA and OIG with a stable funding source for
Medicare program payment safeguards, as well as fraud and abuse activities, for the next
several years.
The Health Care Fraud and Abuse Control Program, under the joint direction of the
Attorney General and the Secretary (acting through OIG), established a nationwide effort
to coordinate Federal, State, and local law enforcement activities with respect to health
care fraud. Also, the OIG, in consultation with HCFA, the Department of Justice, and the
provider community, has developed guidance for specific health care industry sectors on
how they may improve adherence to Medicare rules by establishing voluntary,
comprehensive compliance programs. The adoption of such programs works to prevent
fraud, waste, and abuse in the health care industry; helps efforts to provide quality care to
patients; and assists health care entities in developing effective internal controls that
reduce or eliminate submission of false or inaccurate claims.
7.
What types of improper payments did you find?
A.
Over the past 3 years we have identified improper payments by these major categories of
errors: (1) documentation errors, (2) lack of medical necessity, (3) incorrect coding, and
(4) noncovered/unallowable services.
Documentation for FY 1998 included two components: (1) insufficient documentation to
determine the patient's overall condition, diagnosis, and extent of services performed and
(2) no documentation to support the services provided.
900
CHIEF OF STAFF
4015783 202 PAX 10:11 BUB
Lack of medical necessity covers situations where the medical records contained sufficient
documentation to allow the medical review staff to make an informed decision that the
medical services or products received were not medically necessary.
Incorrect coding covers situations where the contractor medical review staff determined
that the documentation submitted by providers supported a lower reimbursement code.
We also identified a few instances of downcoding which were offset against identified
upcoding situations.
Unallowable services are defined as those that Medicare will not reimburse because the
services do not meet Medicare reimbursement rules and regulations.
8.
As far as the medical records, exactly what is "sufficient documentation"?
A.
Medicare regulations, 42 CFR 482.24(c), specifically require providers to maintain
medical records that contain sufficient documentation to justify diagnoses, admissions,
treatments performed, and continued care. This documentation includes all providers'
orders, nursing notes, reports of treatment, medication records, radiology, laboratory
reports, vital signs, and other information necessary to monitor the patient's condition.
The medical record must be accurately written, promptly completed, properly filed and
retained, and accessible. Medical records must be retained for a period of at least 5 years.
Let me give you an example of insufficient documentation Medicare paid a physician
$871 for 40 hospital visits. The medical records, however, supported only 18 visits.
Therefore, payment of $479 for the 22 visits without supporting documentation was
denied.
9.
In the category of documentation errors, aren't these problems really more a matter
of form rather than substance?
A.
Medicare, like other insurers, makes payments based on a standard claim form. Medicare
regulation, 42 CFR 482.24(c), specifically requires providers to maintain records that
contain sufficient documentation to justify diagnoses, admissions, treatments performed,
and continued care. If providers failed to provide documentation or submitted insufficient
documentation, the contractors or OIG staff generally requested supporting medical
records at least three times before determining the payment to be improper. Thus, for
these errors, the medical review staff could not determine whether services billed were
actually provided to the Medicare beneficiaries or the extent of services performed. It
should be noted that HCFA subsequently upheld almost 99 percent of all overpayments
identified in our past samples and recovered approximately 94 percent.
10.
Your report notes that of the four principal error categories, the reduction in
documentation errors is most dramatic. Can you explain why?
200
CHIEF OF STAFF
02/08/99 TUE 11:02 FAX 202 4015783
A.
This year, we found an $8.7 billion drop in documentation errors since FY 1996. We
believe that substantial improvement was achieved primarily because of:
HCFA and OIG outreach efforts. With the release of our FY 1996 report, OIG
and HCFA together briefed providers on the audit results and Medicare
documentation requirements.
Implementation of HCFA's corrective action plan. Since the OIG released its FY
1996 audit results, HCFA asked its contractors to perform prepayment reviews on
selected claims for evaluation and management codes. Contractors were also
asked to increase their overall level of claims review (pre-pay and post-pay),
including the review of supporting documentation.
Even with the notable reduction in documentation errors this year, we estimate that these
errors total $2.1 billion. Continued efforts are therefore needed to reinforce to providers
the need to maintain medical records supporting their claims.
11.
Your report mentions that errors due to lack of medical necessity represent the
highest error category in FY 1998. Can you further explain this error category?
A.
This error category covers situations where the medical records contained sufficient
documentation to allow the medical review staff to make an informed decision that the
medical services or products received were not medically necessary. As in past years, the
Medicare contractor or PRO medical staff made decisions on medical necessity using
Medicare reimbursement rules and regulations. They followed their normal claim review
procedures to determine whether the medical records supported the Medicare claims.
For example, a SNF was paid $10,428 for a 51-day skilled nursing stay. However, the
patient's medical records documented that the patient received only maintenance-level
(nonskilled) nursing home care, such as routine occupational therapy and the continuation
of routine medication. Because Medicare does not reimburse for nonskilled services, the
entire payment was denied.
12.
Would you please describe how you requested appropriate medical records from the
providers?
A.
We asked the Medicare contractors to send a letter to each provider in our sample to
obtain copies of all medical records supporting services billed.
We specifically requested that they provide us with applicable office/hospital/medical
records for each identified beneficiary for all services they provided for the specified date.
We requested that copies of pertinent documents be sent to a specified OIG contact on the
premises of the contractor within 30 days of the date of the letter.
CHIEF OF STAFF
02/09/99 TUE 11:02 FAX 202 4015783
800
In the event that a response was not received, a second letter was sent. If the providers
still did not provide adequate documentation after the second formal contact, we made
repeated attempts by letter, phone, and, in some cases, onsite visits.
13.
The report says Medicare is still overpaying by billions of dollars and that Medicare
is still at high risk for payment errors. Do you think additional corrective actions
are needed to curtail this misspending?
A.
The HCFA has made substantial progress in reducing improper payments in the Medicare
program. However, continued efforts are needed to reduce the current estimate of over
$9 billion in errors due to the lack of medical necessity and incorrect coding. Our
recommendations address the need for HCFA to continue its diligence in reducing past
identified problems and to keep abreast of those issues that could negatively affect future
error rates.
14.
You report that 90 percent of improper payments were detected through medical
review. Could these types of errors be detected before claim processing?
A.
The improper payments in our sample were detected through medical record reviews
coordinated by the OIG in conjuction with medical personnel. When these claims were
submitted for payment, they contained no visible errors. The Medicare contractors' claim
processing systems were generally adequate for ensuring beneficiary and provider
eligibility, pricing the claims based on information submitted, and ensuring the services
billed were allowable under Medicare rules and regulations. However, since the OIG
released its FY 1996 audit results, HCFA developed and initiated several corrective
actions designed to reduce Medicare payment errors. For example, in FY 1998, HCFA
asked its contractors to perform prepayment reviews on selected claims for evaluation and
management codes. In addition, HCFA asked contractors to increase their overall level of
claims review (pre-pay and post-pay), including the review of supporting documentation.
600
CHIEF OF STAFF
02/09/99 TUE 11:03 FAX 202 4015783
THE WHITE HOUSE
WASHINGTON
AOT 5783
FAX COVER SHEET
TO:
Nancy ANN
FROM: Jeanne + Chris
ATTACHED ARE:
(1) Summary of MEDICARE MEDICAID
SAVINGS, with "#" INDICATING
THAT THE Policy WAS Recommended
BY 019
(z) THE 0.9 REFERENCE (COOLDN'T FIND
THE EPO. REPORT)
ALTOGE THER, $ 675 m m in 2000
$ 5.4 billion / 5 years -
COME From OIG - Recommended
Program INTEGRITY
PRESIDENT'S CLINTON'S FY 2000 BUDGET:
IMPROVING THE EFFICIENCY AND INTEGRITY OF MEDICARE AND MEDICAID
February 1, 1999
The President's FY 2000 budget proposes a series of Medicare and Medicaid policies to continue
the ongoing effort to put these critical programs on sound financial footing to better prepare for
the challenges of the next century. Since taking office, the President has proposed and
implemented many policies to reduce overpayment and combat fraud and abuse in Medicare and
Medicaid. This no-tolerance approach has yielded billions of dollars in savings, and has
contributed to very low growth rates in the past several years. This budget proposes additional
efforts to strengthen our commitment to eliminate fraud, waste and abuse in the Medicare
program and ensure that payments to hospitals and other providers are reasonable. Together,
they will save an estimated $1.3 billion in the year 2000 and $10.9 billion over 5 years.
MEDICARE
The President's budget contains a series of policies to reduce overpayments and waste, fraud, and
abuse in Medicare. These polices are grounded in studies and research that indicates that they
are not only reasonable but necessary to assure Medicare's fiscal integrity. Together, they save
an estimated $1.265 billion in FY 2000, $9.55 billion over 5 years (including Part B premium
offset and Medicaid effects).
Eliminating overpayments for epogen. This proposal reduces Medicare reimbursement
for Epogen (a drug used to treat anemia) to reflect current market prices. The HHS Office
I
of the Inspector General (OIG) found in a 1997 study that the current Federal
reimbursement rate for Epogen exceeded the market price of the drug by $1 per 1,000
units. (Savings: $70 million in FY 2000; $450 million over 5 years).
Ensuring that Medicare does not pay for claims owed by private insurers. This
proposal would take steps to ensure that Medicare does not pay for claims owed by
2
private insurers, including requiring private insurers to report any Medicare beneficiaries
they cover, allowing Medicare to recoup double the amount owed by insurers who
purposely let Medicare pay claims the group plan should have made, and imposing fines
for failing to report no-fault or liability settlements for which Medicare should have been
reimbursed. Too often, Medicare pays claims that are owed by private insurers because it
has no way to verify that the beneficiary has other insurance that should pay those claims.
(Savings: $10 million in FY 2000; $640 million over 5 years).
Eliminating excessive Medicare reimbursement for drugs. This proposal would
3
eliminate the mark-up for drugs by basing the Medicare reimbursement on the provider's
actual acquisition cost of the drug. A recent report by the OIG found that Medicare
currently pays hundreds of millions of dollars more for 22 of the most common and
costly drugs than would be paid if market prices were used. (Savings: $140 million in FY
2000; $950 million over 5 years).
Eliminating abuse of Medicare's partial hospitalization benefit. This proposal would
preclude providers from furnishing partial hospitalization services in a beneficiary's
home or in an inpatient or nursing home. It would also authorize the Secretary of Health
and Human Services to set additional criteria for partial hospitalization services furnished
by community mental health centers. Currently, many providers bill Medicare for partial
hospitalization services that do not meet the reimbursement criteria. (Savings $20 million
in FY 2000 and $205 million over 5 years).
Using a competitive pricing process for certain routine surgical procedures. This
proposal would expand HCFA's current "Centers of Excellence" demonstration to allow
Medicare to receive volume discounts on certain routine surgical procedures. In a smaller
scale demonstration that HCFA conducted in the early 1990's, evaluators found that
HCFA was able to reduce its costs by approximately 12 percent per procedure while
improving clinical outcomes. (Savings: $0 in FY 2000 (effective in FY 2001); $690
million over 5 years).
Establish a national limit for all prosthetics and orthotics. This proposal would
establish national payment limits, based upon the median state fee schedule, for
prosthetics and orthotics. Currently, some prosthetics and orthotics are paid on the basis
of regional fee schedules that are subject to floors and ceilings, which is inconsistent with
how other prosthetics and orthotics and durable medical equipment is paid. (Savings:
$70 million in FY 2000; $580 million over 5 years).
Reducing the Medicare lab test fee reimbursement ceiling. This proposal would
5
lower the cap on lab payment amounts from 74 percent of the median of all fee schedules
to 72 percent of the median. HCFA has found that it overpays for numerous lab
compared to the private sector. This policy corrects for this overpayment nationwide
(Savings: $70 million in FY 2000; $550 million over 5 years).
Reducing the hospital market basket. This proposal would reduce the FY 2000
inpatient PPS update by 0.9 percent below the current level provided by the BBA.
Recent data from the Medicare Payment Advisory Commission and other independent
sources confirm that hospitals will have record-high margins in FY 1999 and maintain
these high levels through at least 2002. Hospitals are projected to earn 16 percent
Medicare margins over this time period. This policy would bring Medicare payments
more in line with the current cost structure of the hospital industry. (Savings: $650
million in FY 2000; $3.880 billion over 5 years).
Reducing Medicare bad debt payments. This proposal would reduce Medicare bad
debt payments to hospitals from 45 percent to 55 percent and extend the reductions to
6
other providers. The Congressional Budget Office and the OIG argue that Medicare's
policy to pay for bad debts creates incentives for providers not to collect their unpaid
deductibles and copayments. The Balanced Budget Act took a step towards removing
these incentives, but did not apply the reductions to all providers or reduce payments as
much as recommended. (Savings: $360 million in FY 2000; $2.47 billion over 5 years).
MEDICAID
The President's budget would address two issues in Medicaid that have led to overpayments to
states and providers: administrative cost allocation and rebates for generic drugs. Together, they
save an estimated $74 million in FY 2000, $1.405 billion over 5 years (including interactions
with Medicare policy changes).
Medicaid cost allocation. As an unintended consequence of welfare reform, states'
Medicaid administrative expenditures have increased because of changes in how
administrative costs are shared by TANF and Medicaid. Last year, Congress addressed
this issue for Food Stamps. This proposal would extend the same approach to Medicaid.
Rather than a flat reduction in the Medicaid matching rate, it would determine liabilities
on a state-by-state basis. It would also allow states to use TANF block grant funds to
cover shared TANF-Medicaid costs. (Savings: $59 million in FY 2000; $1.2 billion over
5 years).
Medicaid rebates from generic drug manufacturers. This proposal would revise the
Medicaid drug rebate law to require additional rebates from generic manufacturers when
1
they increase the price of drugs in excess of the CPI-U. Under current law, generic
manufacturers are exempt from the additional Medicaid rebates imposed on brand name
manufacturers. This proposal would treat generic drug manufacturers more like brand
name drug manufacturers. (Savings: $5 million in FY 2000; $125 million over 5 years).
2
IMPROVE MEDICARE SECONDARY PAYER SAFEGUARDS
Current Law:
Medicare is the secondary payer (MSP) to certain group health plans in instances where medical services were rendered to
Medicare-entitled employees or to the Medicare-entitled spouses and other family members of employees. Medicare is
also the secondary payer in situations involving coverage under Worker's Compensation; black lung benefits; automobile
and nonautomobile, no fault, or liability insurance; and Department of Veterans Affairs programs. The HCFA provides
administrative funds to Medicare contractors to monitor and collect incorrect primary benefits paid on behalf of Medicare
beneficiaries.
Proposal:
The HCFA should (1) ensure that contractor resources are sufficient and instruct contractors to recover improper primary
payments from insurance companies other than the Blue Cross and Blue Shield insurance companies,
(2) implement financial management systems to ensure all overpayments (receivables) are accurately recorded,
(3) develop detailed procedures to properly handle employers that refuse to provide other health insurance coverage
information, and (4) resubmit the justification of a legislative proposal that would require insurance companies,
underwriters, and third-party administrators to periodically submit private insurance coverage data directly to HCFA.
Legislative
Regulatory
Other Administrative
Reason for Action:
Although agreement was reached to relieve all Blue Cross and Blue Shield plans of past due MSP overpayments and
although there is a 3-year future plan to identify MSP situations, it applies only to the Blue Cross and Blue Shield plans
and not to other insurance companies. Additional measures are still needed to collect accurate and timely information on
other primary payers. This will help to reduce future Medicare overpayments that result from unidentified MSP cases
and improve the recovery process for overpayments.
Savings (in millions):
FY 1
FY 2
FY 3
FY 4
FY 5
TBD
TBD
TBD
TBD
TBD
Status:
The HCFA is pursuing the recommended administrative actions through improved processes to identify and recover
overpayments related to MSP, as well as improved information systems to guard against making improper Medicare
payments where the Blue Cross and Blue Shield plans are primary payers. However, safeguards are still needed to guard
against improper payments where insurance companies other than the Blues are primary payers.
Report
A-09-89-00100 (Final management advisory report, Mar. 1990)
OEI-07-90-00760 (Final report, Aug. 1991)
OEI-03-90-00763 (Management advisory report, Nov. 1991)
A-09-91-00103 (Final report, Aug. 1992)
A-14-94-00391 (Final report, Dec. 1993)
A-14-94-00392 (Final report, Mar. 1994)
Health Care Financing Administration
Page 43
The 1997-98 Red Book
REVISE MEDICARE PRESCRIPTION
3
DRUG PAYMENT METHODS
Current Law:
Medicare Part B covers prescription drugs for certain medical disorders, such as end stage renal disease and cancer, and
when necessary for the effective use of durable medical equipment. Reimbursement is based on the lower of an estimated
acquisition cost or a national average wholesale price (AWP). Payment for drugs under the Medicaid program varies
among the States but generally includes use of a discounted acquisition cost, as well as a federally mandated
manufacturers' rebate program.
Proposal:
The HCFA should reexamine its Medicare drug reimbursement methodologies with a goal of further reducing payments
as appropriate.
Legislative
Regulatory
Other Administrative
Reason for Action:
Several OIG studies have indicated that Medicare pays more than other payers for prescription drugs. For example, for
three nebulizer drugs in 1994, Medicare and its recipients could have saved substantial amounts by using a discounted
AWP reimbursement formula similar to that used by many Medicaid States. Another review of 17 high-volume
prescription drugs in the Medicare program in 1994 showed the possibility of substantial savings based on a
manufacturer rebate similar to that obtained by the Medicaid program. A more recent review found that manufacturers'
published AWP considerably overstates the actual wholesale cost. For 22 drugs with high Medicare allowance amounts,
Medicare could have saved $447 million in 1996 by using actual wholesale prices rather than the manufacturers'
published AWP. Savings for all Medicare drugs could have been as much as $667 million in 1996.
Savings (in millions)
The savings will depend on the percentage by which the AWP is discounted for Medicare payments. The Balanced
Budget Act of 1997 reduced Medicare payments to 95 percent of the AWP. The following estimates, based on a
Congressional Budget Office estimate of those savings, show the effects of additional 5 and 10 percent reductions.
FY 1
FY 2
FY 3
FY 4
FY 5
90% of AWP
$ 80
$110
$110
$40
$30
85% of AWP
160
220
220
80
60
Status:
The HCFA concurred with our recommendation. As noted above, the Balanced Budget Act of 1997 limited Medicare
payments for drugs to 95 percent of the AWP.
Report:
OEI-03-94-00390 (Final report, Mar. 1996)
OEI-03-95-00420 (Final report, May 1996)
OEI-03-97-00290 (Final report, July 1997)
Health Care Financing Administration
Page 36
The 1997-98 Red Book
LIMIT PROSPECTIVE PAYMENT SYSTEM
REIMBURSEMENT FOR HOSPITAL ADMISSIONS
4
NOT REQUIRING AN OVERNIGHT STAY
Current Law:
Under the prospective payment system (PPS), hospitals are reimbursed for each admission when the patient is discharged
based on established rates which are grouped into diagnosis related groups (DRG). Current Medicare instructions
provide that an admission occurs when it is expected that the patient will occupy a bed and remain overnight. This
applies even if the person is later discharged or transferred to another hospital without actually using a hospital bed
overnight.
Proposal
The HCFA should seek legislation to pay for covered services related to 1-day admissions without an overnight stay as
outpatient services which are paid on the basis of the lower of the actual costs or the customary charges in a locality.
Legislative
Regulatory
Other Administrative
Reason for Action:
Based on Medicare records for 1989, our follow-up review (A-05-92-00006) revealed that the volume of 1-day
admissions on a national basis had increased approximately 150 percent over 1985 levels and that Medicare had paid for
179,500 admissions that did not require overnight stays. Many of these cases related to observations after emergency or
outpatient services, to surgeries later canceled, or to acute care stays of doubtful necessity. In many cases, documentation
revealed that few, if any, services were provided while the patient was an inpatient.
Savings (in millions)
FY 1
FY 2
FY 3
FY 4
FY 5
$210
$210
$210
$210
$210
Status:
The HCFA proposed to implement our recommendation through administrative remedies which would designate whether
specific services are to be covered and paid for as inpatient or outpatient services. No proposal was included in the
President's current budget.
Report:
A-05-89-00055 (Final report, July 1989)
A-05-92-0006 (Final report, Jan. 1992)
Health Care Financing Administration
Page 9
The 1997-98 Red Book
CHANGE THE WAY MEDICARE
PAYS FOR
5
CLINICAL LABORATORY TESTS
Current Law
The amount the Medicare program pays for most clinical lab tests is based on fee schedules. These fee schedules,
effective July 1, 1984, were established by each carrier at 60 percent of the Medicare prevailing rate (the rate most
frequently used by all suppliers). The Congress took action in the Omnibus Budget Reconciliation Act of 1990 to pay
comparable prices by limiting the annual fee schedule increase to 2 percent for 1991, 1992, and 1993 and by reducing the
national cap to 88 percent of the median of all fee schedules. The Omnibus Budget Reconciliation Act of 1993 further
reduced the national Medicare fee cap to 80 percent of the median of carrier prices in 1995 and to 76 percent in 1996.
The law also called for no cost-of-living increases for 1994 and 1995.
Proposal:
The HCFA should (1) develop a methodology and legislative proposal to pay for tests ordered as custom panels at
substantially less than the full price for individual tests and (2) study reinstating the beneficiary coinsurance and
deductible provisions for laboratory services as a means of controlling utilization.
Legislative
Regulatory
Other Administrative
Reason for Action:
The Omnibus Budget Reconciliation Act of 1993, if fully implemented, should reduce the higher profit rates from
Medicare billings. However, although prices on individual tests are being reduced by legislation, panels are still generally
being billed as individual tests to Medicare. Medicare policies are not sufficient to control the billing of profile tests
because there is no requirement that the tests ordered as a panel by the physician be billed only as a panel. The HCFA's
guidelines do not address the problem of panels as a marketing mechanism of the laboratory industry or the problem of
industry billing for the contents of the panels individually. In our opinion, these conditions have contributed to the
significant increase in the use of laboratory services.
Savings n millions)
FY 1
FY 2
FY 3
FY 4
FY 5
Panels
TBD
TBD
TBD
TBD
TBD
Co-payment
$1,130
$1,240
$1,370
$1,520
$1,690
Status:
The HCFA concurred with our first recommendation but not our second. The agency recently added that it is encouraging
the individual ordering of tests to help control utilization and is therefore discouraging the creation of laboratory or
physician specific customized panels.
The Balanced Budget Act of 1997 reduces Medicare fee schedule payments by lowering the cap to 74 percent of the
median for payment amounts beginning in 1998. Also, there will be no inflation update between 1998 and 2002.
Report
A-09-89-00031 (Final report, Jan. 1990)
A-09-93-00056 (Follow-up report, Jan. 1996)
Health Care Financing Administration
Page 32
The 1997-98 Red Book
MODIFY PAYMENT POLICY
FOR MEDICARE BAD DEBTS
6
Current Law:
Under Medicare's prospective payment system (PPS), hospitals are reimbursed for inpatient services rendered to Medicare
beneficiaries by a fixed payment amount based on a diagnosis related group (DRG). However, bad debts related to
unpaid deductible and coinsurance amounts are reimbursed separately as pass-through (i.e., reimbursed outside of DRG)
items under reasonable cost principles.
Proposal:
We presented an analysis of four options for HCFA to consider, including the elimination of a separate payment for bad
debts, the offset of Medicare bad debts against beneficiary Social Security payments, the limitation of bad debt payments
to prospective payment system hospitals which are profitable, and the inclusion of a bad debt factor in the DRG rates.
The HCFA should seek legislative authority to further modify bad debt policies.
Legislative
Regulatory
Other Administrative
Reason for Action:
Our review of HCFA's Hospital Cost Report Information System showed that total Medicare bad debts increased from
$159 million during the second year of PPS (FY 1985) to $398 million during the fifth year of PPS (FY 1988). During
this same period, hospitals continued to earn significant profits. Also, hospital bad debt collection efforts have often been
less than adequate since there is little incentive for a hospital to collect the unpaid deductible and coinsurance amounts
when Medicare pays these amounts.
Savings (in millions)
FY 1
FY 2
FY 3
FY 4
FY 5
TBD
TBD
TBD
TBD
TBD
Status:
Agreeing with our recommendation to include a bad debt factor in the DRG rates, HCFA said that our report should assist
the Congress in understanding the rapid growth in hospital bad debts. The Balanced Budget Act of 1997 provides for
some reduction of bad debt payments to providers, but additional legislative changes are needed to implement the
modifications we recommended.
Report:
A-14-90-00339 (Final report, June 1990)
Health Care Financing Administration
Page 8
The 1997-98 Red Book
Department of Health and Human Services
OFFICE OF
INSPECTOR GENERAL
THE IMPACT OF HIGH-PRICED
GENERIC DRUGS
ON MEDICARE AND MEDICAID
7
HUMAN SERVICES USA
&
HEALTH
JUNE GIBBS BROWN
Inspector General
OF
JULY 1998
OEI-03-97-00510
EXECUTIVE SUMMARY
PURPOSE
To determine the impact of high-priced generic drugs on the Medicare and Medicaid programs.
BACKGROUND
Both Medicaid and Medicare pay billions of dollars each year for prescription drugs. The
Medicaid program paid nearly $10 billion for prescription drugs in 1995. Although Medicare
provides reimbursement for only certain types of drugs, the Part B program still paid more than
$2.3 billion dollars for prescription drugs in 1996.
On January 1, 1998, Medicare Part B began to reimburse covered drugs at 95 percent of the
average wholesale price (AWP). This change in reimbursement was the result of legislation
enacted by Congress. Previously, Medicare carriers determined the amounts that Medicare paid
for prescription drugs based on the lower of the Estimated Acquisition Cost (EAC) or the national
(AWP). Historically, carriers had used 100 percent of AWP and not estimated acquisition cost to
determine Medicare reimbursement allowances for prescription drugs.
For drugs with generic versions, Medicare carriers determine reimbursement based on 95 percent
of the median AWP for all generic versions of the drug. Prior to January 1998, Medicare
reimbursed drugs with generic versions at 100 percent of the median AWP. Medicare
reimbursement amounts include both the amount that Medicare and its beneficiaries pay a drug
supplier.
In general, State Medicaid agencies use either a discounted AWP or estimated/wholesale
acquisition cost method to reimburse prescription drugs. State Medicaid agencies also receive
manufacturer drug rebates.
This inspection report resulted from a Congressional request concerning high-priced generic
drugs. Using the drugs identified in the request, we collected data from three main sources. To
verify NDC codes and average wholesale prices, we reviewed data from the July 1997Red Book
CD-ROM update. We compiled Medicare statistics from the National Claims History (NCH)
File. We collected drug rebate data from the Medicaid Drug Rebate Initiative (MDRI) System.
FINDINGS
Medicare and its beneficiaries could have saved $5 million to $12 million for four drugs if
1997 reimbursement had not been based on higher-priced generic versions.
We found several cases where average wholesale prices for generic products were three to four
times greater than the brand price. For the four drugs reviewed, we determined that the Medicare
program and its beneficiaries could have saved $5 million dollars if 1997 reimbursement had been
based on the average wholesale price of the brand-name products. If reimbursement had been
i
based on the median of generic drugs with prices less than the brands, Medicare and its
beneficiaries could have saved $12 million for the four drugs.
Florida's Medicaid program could have saved half a million dollars for just eight drugs in
1996 if higher-priced generic drugs had been reimbursed at brand prices.
Using the current reimbursement formula, Florida Medicaid in some cases paid three times more
for a generic than it did for the brand version of the eight drugs reviewed. After factoring in
manufacturer rebates, the program paid more than five to eight times more for generics than brand
products. If Florida Medicaid had capped reimbursement for higher-priced generic drugs at the
reimbursement level for the highest-priced brand drug, nearly half a million dollars would have
been saved for just eight drugs in 1996.
RECOMMENDATIONS
There is evidence that high-priced generic drugs have a significant financial impact on Medicare
and Medicaid reimbursement. We found that the inclusion of higher-priced generic drugs in
Medicare payment calculations can raise allowances above the price of brand-name drugs. In the
Medicaid program, utilization of higher-priced generic drugs was widespread among the drugs
reviewed.
We believe further reductions need to be made in Medicare and Medicaid reimbursement for
prescription drugs. We continue to support the Health Care Financing Administration's legislative
proposal to link Medicare reimbursement to the acquisition cost of prescription drugs. However,
until broader legislation is enacted, we believe refinements to the current system are needed.
Since the changes recently enacted by Congress continue to link reimbursement to average
wholesale prices, we believe that mechanisms should be in place to limit the impact that high-
priced generic drugs have on reimbursement. Medicare's new reimbursement methodology for
prescription drugs will not prevent higher-priced generics from increasing Medicare allowances.
Higher-priced generic drugs will still be included in the median calculation. When the median
generic policy was implemented, generic prices were normally less than those of the brand-name
product. However, what may have originally been a cost-saving mechanism has, for certain
categories of drugs, become a losing proposition.
We believe that the Medicare program should take action to prevent these situations. We
recommend that the Health Care Financing Administration 1) not include higher-priced
generic drugs in the median calculation to determine Medicare allowances, or 2) propose
limiting Medicare allowances to brand prices when higher-priced generic drugs are
involved.
In contrast to the Medicare program which pays for brand and generic drugs at the same rate,
Medicaid reimburses based on the specific drug supplied. Therefore, we recommend that the
Health Care Financing Administration limit Medicaid reimbursement of higher-priced
generic drugs to the amount reimbursed (prior to rebate) for lower-priced brand or
appropriately-priced generic drugs.
ii
ID:
DEC 30'99
10:09 No. 002 P.01
Date:
FAX
A
Health Division this
Office of Management and Budget
Executive Office of the President
Washington, DC 20503
To: DEVORAH
From: YVETTE
Number of Pages (excluding cover)
Subject:
Comment:
Voice Numbers:
Fax Numbers:
Health Division (Front Office)
(202) 395-4922
(202) 395-3910
Health & Human Services Br
(202) 395-4925
(202) 395-3910
Health Programs & Services Br
(202) 395-4926
(202) 395-5648
Health Financing Br
(202) 395-4930
(202) 395-7840
ID.
DEC 30'99
10:10 NO 002 P.02
HUMAR
SERVICEP-USA
65557
of
DEPARTMENT
EXPEDITE
FACSIMILE TRANSMISSION
DATE: 10/29/99
TO: ANN KENDRALL and Yvette Shenouda
ADDRESS: OMB
EXPEDITE
PHONE:
FAX NO.: 202-395-4922
FROM:
Gloria Bell
Senior Budget Analyst, Office of Budget, ASMB,
Department of Health and Human Services
ADDRESS: Room 503-H
Hubert H. Humphrey Building
Washington,
200 Independence EXPEDITE
PHONE:
(202) 690-6283
FAX NO.: (202) 690-6896
PAGE 1 of: 4
SUBJECT:
Medicare Integrity Program
MESSAGE: Please review and provide comments/clearance by COB Monday, November 1,
1999. EXPEDITE
EXPEDITE
ID:
DEC 30'99
10:10 No. 002 P.03
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
Medicare Integrity Program
Michael M. Hash
Deputy Administrator, HCFA
DEC
10:10 NO 002 P.U4 .
Introduction
In House Report 104-659, page 102, the Committee requested that the Health Care
Financing Administration (HCFA) submit semiannual reports on the deficit reduction
impact of the Medicare Integrity Program (MIP) of HR 3103, later enacted as Public Law
104-191, the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
The Committee requested the Health Care Financing Administration (HCFA) to provide
separate information on the savings achieved under the assumed funding base. The
committee is particularly interested in:
1.
The actual revenues to the Federal Government as a result of recoveries, increased
secondary payer collections, and audit reviews of providers (postpayment
safeguard activities); and
2.
The actual value of claims paid during the previous 6-month period and the
estimated value of claims denied during the reporting period as a result of
prepayment safeguard activities.
The requirement for this report was again included in House Report 105-635, page 115.
Current Activities
This semiannual report reflects the results of HCFA's Medicare activities under HIPAA
for the 6-month period ending March 31, 1999. It does not include savings to the
Medicaid program. Overall MIP savings totaled $4 billion for the first 6 months of FY
1999. This is an increase of $0.8 billion or 25% from savings reported for the first 6
months of FY 1998 A summary of the savings information contained in this report is
shown below.
Dollars in Billions
6-mo FY96
FY 1997
FY 1998
6-mo FY99
ACTIVITY
4/1/96
10/1/96
4/1/97 -
10/1/97 -
4/1/98 - -
10/1/98 -
9/30/96
3/31/97
9/30/97
3/31/98
09/30/98
3/31/99
Postpayment
$2.2
$1.3
$2.3
$ 0.9
$2.6
$1.4
Prepayment
$1.7
$1.9
$2.3
$ 2.3
$2.7
$2.6
Total Savings
$3.9
$3.2
$4.6
$3.2
$5.3
$4.0
Value of Paid Claims
$88.2
$89.3
$92.2
$ 89.9
$88.2
$ 84.6
ID:
DEC 30'99
10:11 No 002 P.05
Postpayment Activities - Recoveries for the 6-month period ending March 31, 1999,
equaled $1.4 billion. This is an increase of approximately $0.5 billion when compared to
savings from the first 6 months of FY 1998, but a decrease of $1.2 billion when
compared to savings from the llast 6 months of FY 1998 This fluctuation in postpayment
savings is almost entirely attributable to changes in provider audit savings. As mentioned
in our previous semiannual reports, savings from provider audits are not evenly
distributed throughout the fiscal year. In fact, the majority of provider audit savings are
generated during the second half of each fiscal year.
Postpayment audit activities recorded $0.5 billion in savings for the first half of FY 1999.
In addition to these fee-for service audit savings, during the first half of FY 1999 HMO
audit reported savings of $47 million, medical review reported savings of $17 million,
and MSP reported savings of $866 million.
Prepayment Activities - The value of claims paid during the reporting period ending
March 31, 1999, equaled $84.6 billion. The $84.6 billion figure represents the actual
outlays, as confirmed by the Office of the Actuary and the Treasury Department income
statement, for the first 6 months of fiscal year 1999. The value of claims denied during
the reporting period as a result of prepayment safeguard activities were $2.6 billion. This
figure reflects adjustment for any claims reversed on appeal during the period in which
savings are calculated.
HCFA continues to pursue strategies that shift emphasis from postpayment recoveries to
prepayment activities designed to ensure claims are paid correctly. The $2.6 billion
savings is an increase of approximately $0.3 billion when compared to savings from the
first 6 months of FY 1998, but I a decrease of $0.1 billion when compared to savings from
the last 6 months of FY 1998.
We hope the above information is useful. If wc may be of further assistance, please
contact me or have your staff contact Penny Thompson, Director, Program Integrity
Group. Ms. Thompson may be reached on (410) 786-5704.
ID.
DEC su yy
10:09 NO. . 002 P.UI
Date:
FAX
T
Health Division tth
Office of Management and Budget
Executive Office of the President
Washington, DC 20503
To: DEVORAH
From: YVETTE
Number of Pages (excluding cover)
Subject:
Comment:
Voice Numbers:
Fax Numbers:
Health Division (Front Office)
(202) 395-4922
(202) 395-3910
Health & Human Services Br
(202) 395-4925
(202) 395-3910
Health Programs & Services Br
(202) 395-4926
(202) 395-5648
Health Financing Br
(202) 395-4930
(202) 395-7840
ID:
DEC 30'99
10:10 NO. 002 P.02
HUMAR
SERVICES-US
65557
PRIVER
$
EXPEDITE
FACSIMILE TRANSMISSION
DATE: 10/29/99
TO: ANN KENDRALL and Yvette Shenouda
ADDRESS: OMB
EXPEDITE
PHONE:
FAX NO.: 202-395-4922
FROM:
Gloria Bell
Senior Budget Analyst, Office of Budget, ASMB,
Department of Health and Human Services
ADDRESS: Room 503-H
Hubert H. Humphrey Building
Washington, DC 20201
200 Independence Avenue EDITE S.W.
PHONE:
(202) 690-6283
FAX NO.: (202) 690-6896
PAGE 1 of: 4
SUBJECT:
Medicare Integrity Program
MESSAGE: Please review and provide comments/clearance by COB Monday, November 1,
1999. EXPEDITE
EXPEDITE
ID:
DEC su yy
10:10 NO. 002 P.U3
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Health Care Financing Administration
Medicare Integrity Program
Michael M. Hash
Deputy Administrator, HCFA
ID:
DEL
10:10 NO 002 P.04
Introduction
In House Report 104-659, page 102, the Committee requested that the Health Care
Financing Administration (HCFA) submit semiannual reports on the deficit reduction
impact of the Medicare Integrity Program (MIP) of HR 3103, later enacted as Public Law
104-191, the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
The Committee requested the Health Care Financing Administration (HCFA) to provide
separate information on the savings achieved under the assumed funding base. The
committee is particularly interested in:
1.
The actual revenues to the Federal Government as a result of recoveries, increased
secondary payer collections, and audit reviews of providers (postpayment
safeguard activities); and
2.
The actual value of claims paid during the previous 6-month period and the
estimated value of claims denied during the reporting period as a result of
prepayment safeguard activities.
The requirement for this report was again included in House Report 105-635, page 115.
Current Activities
This semiannual report reflects the results of HCFA's Medicare activities under HIPAA
for the 6-month period ending March 31, 1999. It does not include savings to the
Medicaid program. Overall MIP savings totaled $4 billion for the first 6 months of FY
1999. This is an increase of $0.8 billion or 25% from savings reported for the 6
months of FY 1998 A summary of the savings information contained in this report is
shown below.
Dollars in Billions
6-mo FY96
FY 1997
FY 1998
6-mo FY99
ACTIVITY
4/1/96.
10/1/96
4/1/97 -
10/1/97 -
4/1/98 -
10/1/98
9/30/96
3/31/97
9/30/97
3/31/98
09/30/98
3/31/99
Postpayment
$2.2
$1.3
$2.3
$ 0.9
$2.6
$1.4
Prepayment
$1.7
$1.9
$2.3
$2.3
$2.7
$2.6
Total Savings
$3.9
$3.2
$4.6
$3.2
$5.3
$4.0
Value of Paid Claims
$88.2
$89.3
$92.2
$ 89.9
$88.2
$ 84.6
ID:
DEC 10:11 No. 002 P.05
Postpayment Activities - Recoveries for the 6-month period ending March 31, 1999,
equaled $1.4 billion. This is an increase of approximately $0.5 billion when compared to
savings from the first 6 months of FY 1998, but a decrease of $1.2 billion when
compared to savings from the last 6 months of FY 1998 This fluctuation in postpayment
savings is almost entirely attributable to changes in provider audit savings. As mentioned
in our previous semiannual reports, savings from provider audits are not evenly
distributed throughout the fiscal year. In fact, the majority of provider audit savings are
generated during the second half of each fiscal year.
Postpayment audit activities recorded $0.5 billion in savings for the first half of FY 1999.
In addition to these fee-for service audit savings, during the first half of FY 1999 HMO
audit reported savings of $47 million, medical review reported savings of $17 million,
and MSP reported savings of $866 million.
Prepayment Activities - The value of claims paid during the reporting period ending
March 31, 1999, equaled $84.6 billion. The $84.6 billion figure represents the actual
outlays, as confirmed by the Office of the Actuary and the Treasury Department income
statement, for the first 6 months of fiscal year 1999. The value of claims denied during
the reporting period as a result of prepayment safeguard activities were $2.6 billion. This
figure reflects adjustment for any claims reversed on appeal during the period in which
savings are calculated.
HCFA continues to pursue strategies that shift emphasis from postpayment recoveries to
prepayment activities designed to ensure claims are paid correctly. The $2.6 billion
savings is an increase of approximately $0.3 billion when compared to savings from the
first 6 months of FY 1998, but a decrease of $0.1 billion when compared to savings from
the last 6 months of FY 1998.
5
We hope the above information is useful. If we may be of further assistance, please
contact me or have your staff contact Penny Thompson, Director, Program Integrity
Group. Ms. Thompson may be reached on (410) 786-5704.
nano_ool
nor UH
PAGE 01
HEALTH CARE FINANCING ADMINISTRATION
NATIONAL HEADQUARTERS
7500 Security Boulevard
Baltimore, MD 21244-1850
FACSIMILE TRANSMISSION REQUEST
ADDRESSEE: (Name, Organization, Address) FROM: Jennifer Ryan
Devorah Ader
OFFICE OF THE ADMINISTRATOR
C5-26-11-Location
C5-16-03-Mail Stop
Phone: 456-5557
Phone: (410) 786-3151 /Fax (410) 786-8060
TOTAL PAGES:
ADDRESSEE'S FAX MACHINE NUMBER DATE:
Cover +
REMARKS: Just got the report- it turns out that it came
out of the office of special investigations @ GAD, which
usually does not share stuff w/us before release (cuz its
part of a criminal investigation). As you will see, the
report is actually a look behind of 7 investigations
that took place between 1992 i 1997.
IF FAX MACHINE RETRANSMISSION IS NECESSARY CALL:
call me if PLEASE - Jun.
AT:
(Name)
(Phone)
11/04/1999 13:47
410-786-8060
HCFA/OA
PAGE 02
Nov-04-99 12:59pm From-OAS HGQT
2026190545
1-141
certify
GAO
Administry Maliability
United States General Accounting Office
Office of Special Investigations
Washington, DC 20548
H-283695
October 5, 1999
The Honorable Susan M. Collins
Chairman
Permanent Subcommittee on
Investigations
Committee on Governmental Affairs
U nited States Senate
S abject Health Care: Fraud Schemes Committed by Career Criminals and Organized
Criminal Groups and Impact on Consumers and Legitimate Health Care
Providers
D ear Madam Chairman
T is report responds to your July 27, 1998, request that we provide you with information
C incerning the nature and magnitude of illegal activity by career criminal and organized
c minal groups posing as health care providers for the purpose of defrauding federal, state,
a a private insurance systems. Both Medicare and Medicaid programs, because of their
5 and complexity, are vulnerable to fraud and abuse. We have reportedpreviously about
ti importance of controlling health care costs, especially in the federal government
0 introlling fraud is part of the remedy for controlling health care costs. In fiscal year 1998,
the latest year for which statistics/are available, Medicare paid out more than $193 billion
a d Medicaid spent approximately $177 billion
TI Coalition Against Insurance Fraud, using private insurance information provided by the
THIS REPORT IS TEMP ORABIL TEMPORABILY RESTRICTED
H alth Insurance Association of America and public insurance information supplieding the
PENDING RELEASED C RELEASE: It is
not to be GAO without the
approval of the Office of Congressional Relations.
Hi alth Care Financing Administration (HCFA), estimated the dollar amount of nation wide
health care claim fraud for 1997 to be $53.9 billion. Of this amount, approximately
4
Medicars: HCFA's Use of Anti-Fraud-and-Abuse Funding and Authorities (GAO/HEHS-98-160 June 1. 1998);
Private Health Insurance: Continued Erasion of Coverage Linked to Cast Pressures (GAO/HEHS 97-122, July 24
1997): Medicaid Frand and Abuse: Stronger Action Noeded ro Remove Excluded Providers From Federal Health
Programs (GAO/HEHS-97-63, Mar. 31, 1997); High Risk Series: Medicare (GAO/HR-97-10, Fcb. 1997).
14
The most current year for which searistics were available was 1997.
GAO/OSI-00-1R Criminal Groups in Health Care Fraud
11/04/1955 13.47
410-786-8860
MCFA/UA
Nov-04-99 12:59pm From-OAS HGQT
2026190545
PAGE
03
1-141 P.06/11 FROM
B-283695
$20 billion was attributed to fraudulent private insurance claims; and approximately
$34 billion was attributed to fraudulent public insurance claims, including Medicare and
Medicaid. There is a growing trend in health care fraud in which sham providers are
entering the health care system with the sole and explicit purpose of exploiting it Rather
than first providing services at an inflated cost, these criminals often bill Medicare while
providing no or inferior services. As our review determined, however, this trend is not
limited to the Medicare program State Medicaid programs and private insurers throughout
the country are being defrauded the same manner. Within the past several years, state
and federal law enforcement officials in every part of the country have uncovered such
fraud
n.order to address the proliferation of health care fraud on the part of criminals and
organized criminal groups, you asked us to report on (1) the makeup and prior activities of
such groups; (2) how organized criminal groups created medical entities or used legitimate
medical entities or individuals to Tefraud Medicare, Medicaid, and private insurers; (9)
schemes used by such groups to mmit health care fraud; and (4) the impact that illegal
activity by such groups has on consumers and legitimate health care ders
To develop this information, we identified seven criminal health care frau im estigations
for review. In the four cases involving Medicare and Medicaid frand, the eade S of each
criminal group pled guilty to federal or state criminal charges related to ealth care fraud
These charges included conspiracy to defraud the United States, conspirary to commit
money laundering, mail fraud, racketeering, conspiracy to commit racketi ering and/or
organized fraud In the three private insurance cases, the leaders of eacheroup were
indicted: one is awaiting trial while the other two are fugitives. Cases against other roup
members in each of the seven groups are in various stages of completion, with some
members having pled guilty to criminal charges and other members in fugitive status
following indictments.
We interviewed federal and state law enforcement officials associated with the
investigations we reviewed and largely relied upon their investigative findings in preparing
our report. Plea agreements, along with stipulations of fact and/or criminal information
contained in court documents, generally confirmed many of the investigative findings. The
investigations involved criminal groups that were representing themselves as legitimate
providers and, allegedly, hilling public and private insurance systems for medical services
and equipment not rendered or not necessary. The cases we reviewed involved a
combination of Medicare, Medicaid, and private insurance fraud or alleged fraud occurring
in Florida, North Carolina, and Illinois between 1992 and 1998, with the period of fraud or
alleged fraud in each case lasting between 3/months and 4 years. In the seven cases we
reviewed, the fraudulent claims ranged from between $795,000 to more than $120 million,
of which between $72,000 and overi$92 million were actually paid by either Medicare,
3
These figures are estimates of claim fraud They do not include costs related to the detection, investigation, or
presecucion of insurance fraud, nor has there been any attempt to estimate the amount of fraud committed by insurers or
those purported to be in the business of insurance.
2
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Medicaid, private insurers, or a combination thereof. With respect to the cases involving
private insurers, alleged fraudulent claims were filed with between 18 to over 100 insurance
companies and self-insured plans. (See encl I for a more detailed scopeland methodology.)
Results in Brief
While the full extent of the problem remains unknown, we did determine that career
criminal and organized criminal groups are involved in Medicare, Medicaid, and private
insurance health care fraud or alleged fraud throughout the country. In the cases we
reviewed, criminal groups varied in size from 2 or 8 participants to more than 20
participants and generally had one leader. Many group members had prior criminal
histories for criminal activity unrelated to health care fraud, indicating that they moved
from one field of criminal activity/to another. The primary subjects in these cases had little
or no known medical or health care education, training or experience. At least two groups
learned or were suspected of having learned how to commit health care fraud from others
already engaged in such fraud In some of the cases we reviewed, criminal-group members
had relatives or associates in foreign countries who helped them transfer their ill-gotten
health care proceeds.
these groups created as many as 160 sham medical entities-such as medical clinics,
hysician groups, diagnostic laboratories, and durable medical equipment (DME)*
fompanies, often using fictitious names or the names of others on paperwork-or used the
ames of uninvolved legitimate providers to bill for services and equipment not provided or
ot medically necessary. For the most part, these entities existed only on paper. Once the
ructure was in place, subjects used a variety of schemes to submit claims to Medicare,
dedicaid, or private insurance companies.
me scheme used is sometimes referred to as "patient brokering" or "rent-a-patient." Under
this scheme, which was used in one of the Medicare cases, the subjects used "recruiters"
(also known as "Tunners") to organize and recruit beneficiaries (patients)" who visited
clinics owned or operated by such subjects for unnecessary diagnostic testing and/or
medical services. Recruiters received a fee for each beneficiary brought in; hence they
"rented" or "brokered" the beneficiary and/or identifying information to the subjects. In
turn recruiters paid a portion of their fee to each cooperating beneficiary. The
. Durable medical equipment, or "DME" includes such things as iron lungs, oxygen wats, охудец concentrators, hospital
bcds, and wheelehaire used in the parient's home, whether furnished on a rental basis or purchased; blood-testing strips
and blood glucose monitors for individuals with diabetes: and sear-lifting mechanisms.
5
"Rocruiters" are individuals who MTC paid by providers to bring beneficiaries to their clinics or offices for unnecessary
medical services at no charge to the beneficiaries, Recruiters usually share a portion of their fees with cooperating
beneficiarios.
6
Medicano-covered patients are most often referred to as "beneficiaries"; Modiesid-covered patients are referred to as
"secipicate"; and private insurance-covered patients are referred to as "insureds." For the purpose of simplification. we
will m refer to all insured individuals (patients) as "beneficiaries" in this report.
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be eficiaries' insurance was later billed for these and other services or equipment not
vided In addition to the beneficiaries, some physicians were willing to collaborate with
sul jects in exchange for money.
mother successful scheme is commonly referred to as "drop box" or "mail drop." In this
scheme, which was used in six of the seven cases' according to investigators, subjects
re private mailboxes or drop boxes, set up bogus corporations, and opened phony
porate bank accounts. Subjects then used stolen, purchased, or otherwise obtained
be eficiary and provider information to bill insurance plans for medical services and
ipment not provided Members of the criminal groups retrieved insurance checks from
the drop boxes and deposited them into controlled bank accounts. Once deposited,
ceeds were quickly converted to cash or transferred to other accounts and moved out of
the reach of authorities. These activities sometimes continued even after subjects were
in cted, arrested, or jailed.
Th above-described activities affect consumers, beneficiaries, health careproviders, and
lay enforcement officials. Consumers pay increased health care costs in the form of taxes,
be ause taxpayer contributions support Medicare and Medicaid In the case of private
ins nance, insured individuals pay increased premiums. According to investigators and
tors, false medical histories for some beneficiaries could affect the care prescribed, as
thi care could be based on false data Beneficiaries also unknowingly riskerhaustion of
the insurance benefits, due to false information included in the claims that use their
na aes. Legitimate providers may find their reputations tarnished and their provider
rue nbers suspended when investigators look into alleged fraud committed in the names of
the be legitimate providers. Such inquiry may also delay payment of their legitimate claims.
Be ause of the multiplicity of schemes and the ease with which subjects move their
on rations from location to location, law enforcement officials find it difficult to keep up
will this growing and widespread form of fraud and are often unable to seize or recoup
frai dulent proceeds that are quickly moved out of their reach.
Criminals and Other Individuals With No Known Prior Criminal History Have
Minuted to the Health Care Field
minals previously involved in other types of crime are now migrating into the health
care fraud arena. In at least four of the seven cases we reviewed, some of the subjects had
prior criminal records for crimes unrelated to health care, including securities fraud,
nar cotics violations, tax evasion, weapons violations, forgery, grand theft auto, and
criminal boating violations. In one case, twolaf the subjects were on probation for non-
hei lth-care-related crimes at the time they committed the health care fraud In three cases
where there were no known prior criminal records, the individuals had connections to
other criminal groups or individuals reportedly involved in health care fraud.
7
In the seventh case, the basic elements of the drop box scheme were used without the use of private mailboxes. In that
case, the subject received fraudulent modical payments electronically.
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In the Illinois Medicaid case, an individual in New Jersey sent four individuals to Illinois to
open a laboratory. When the group arrived in Illinois and purchased a lab, the previous lab
owner had to teach them how to operate the lab and how to bill Medicaid and Medicare
because the four had no prior experience operating medical laboratories. The group
purportedly cashed the Medicaid insurance checks it received and forwarded them to the
New Jersey individual. The investigator later found out that the New Jersey individual was
under investigation for health care fraud
We found other cases in which health care criminal groups were teaching health care fraud
to others and expanding into other geographical areas. In the North Carolina Medicare
case, three subjects residing in North Carolina traveled to Florida where relatives taught
them how to anonymously file false Medicare claims. They then returned to North Carolina
and began filing such claims. In one of the Florida private insurance cases, the investigator
suspected the subject had learned how to commit health care fraud from two former
employers who had previously been investigated for. Medicaid fraud in South Florida
In the cases we reviewed, according to investigators, the leaders of the groups had little or
no known medical or health care education, training, or experience; and none possessed
medical licenses.
Some of the individuals involved with the criminal groups investigated used relatives and
associates in other countries to help them transfer fraudulently obtained money.
Criminal Groups Created Sham Medical Entities or Used Legitimate Medical
Entities to Defraud Public and Private Health Insurance Systems
In six of the seven cases we reviewed, individuals in the criminal groups incorporated or
otherwise set up as many as 160 medical clinica, physician groups, diagnostic labs, and/or
DME companies to submit fraudulent or allegedly fraudulent public and/or private health
insurance claims. In the seventh case, the subject used the names of four real clinics, but
he changed their addresses on allegedly fraudulent claims so that payments would be
mailed to private mailboxes that he controlled.
Typically, the leader of the group, in conjunction with others, would set up the medical
facility by filing incorporation documents and obtaining state and federal certifications and
provider numbers, where required, and, in some cases, taxpayer identification numbers
(TIN). In two of the cases we reviewed, an actual physical location was set up for at least
one of the companies established For example, in the Illinois Medicaid case involving a
laboratory, the subject paid 1 month's lease on office space and state-of-the-art medical
testing equipment to obtain the certification needed to bill Medicaid for complex lab tests.
Afterward, no patients were ever seen in the lab. In the Florida Medicare case, some clinics
were opened to perform unnecessary diagnostic procedures on cooperating beneficiaries.
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In most cases, however, the medical entities existed only on paper. To maintain
anonymity, leaders of the groups frequently set up medical entities using fictitious names
or the names of other group members, including relatives or associates. They sometimes
fabricated identification cards by using their own picture but the name and identifying
information of an uninvolved, unsuspecting individual. In one instance, the leader of the
group opened companies in the names of individuals he met while serving time in prison
In the North Carolina Medicare case, the subjects searched for and found two individuals
who wanted to leave the United States. The subjects paid each of the individuals $100,000
for the use of their identities to set up corporations, bank accounts, and mail boxes and to
obtain TINs, Medicare supplier numbers, and local licenses. Both individuals later left the
country.
Once the framework was in place, subjects in the cases we reviewed used a variety of
schemes to file claims with Medicare, Medicaid, and/or private insurance plans for medical
services and/or equipment not provided or not medically necessary.
C fininal Groups Collaborated With or Used Beneficiaries, Physicians, and Clinics
to Commit Alleged Health Care Fraud
In a scheme sometimes referred to as "rent-a-patient recruiters organized beneficiaries to
go to subjects' clinics for unnecessary diagnostic tes ing and/or medical services. The
beneficiaries' insurance was billed for those service and often for other services or
medical equipment never provided Licensed physicians sometimes participated in such
schemes, typically exchanging their signatures on medical records for cash, without
actually performing or overseeing any medical services, orproviding Certificates of
Medical Necessity (CMN)" for DME equipment not provided or necessary.
In addition to recruiting willing beneficiaries and providers, members of these criminal
groups purchased, stole, or otherwise obtained beneficiary, physician, and clinic
information to bill insurance plans for medical services or equipment never provided in
another scheme, referred to as "drop box," because the groups used private mailboxes to
effectuate the scheme. In some cases, subjects attached fictitious doctor names to claims.
Use of Recruiters and Cooperating Beneficiaries
In two of the South Florida cases we analyzed involving Medicare and Medicaid fraud,
recruiters organized and recruited thousands of beneficiaries from, among other places,
low-income housing projects and retirement communities and drove them to area clinics
for rote examinations and unnecessary testing, treatment, or DME referrals Recruiters,
predominantly elderly women in one case, generally received a fee of $100 to $135 for each
a
valid CMN is required for the payment of Medicare claims for DME A valid CMN is one that the treating physician
has attented to and signed, supporting the medical need for the DME imm, and on which appropriate individuals have
completed the medical portion.
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beneficiary they brought in In tum, recruiters paid 2 portion of their fee to each
cooperating beneficiary. Cooperating beneficiaries participated to "make a few bucks" and
understood that if they needed "a real doctor," they were to go elsewhere.
In some cases, according to law enforcement officials, cooperating beneficiaries were
known to have been solicited to go to a private apartment to have x-rays taken via portable
x-ray units or to have blood drawn. The beneficiaries received cash or unneeded
prescriptions, which they later filled and sold on the street Their insurance plans were
billed for x-rays, blood tests, or other unnecessary services or equipment.
In some cases, beneficiaries have been known to provide only their insurance (i.e.,
Medicaid) number in exchange for cash A laboratory would later bill their insurance for
blood tests it conducted using someone else's blood Also, clinic owners would send blood
samples to labs to conduct tests and bill Medicare or Medicaid, and the labs would "kick
back" some of the money to the clinic owners. An official from the New Jersey State
Attorney General's Office, Medicaid Fraud Section, stated, "Most [beneficiaries] know that
their Medicaid card is better than a VISA card for getting money." In essence, under this
scheme, beneficiary and/or identifying information is "rented" or "brokered" to subjects.
(See fig 1.)
Figure 1: "Rent- Patient" Scheme
400
PAD BY
CLINIC
OWNERS
To GO TO DREFRONT CLINICS
PATIENTS SIGN
RECRUIT FELLOW EMPLOYEES
FOR PHYSICALS SOR THERAPY
TREATMENT FORMS
WITH SHORTROMISES OF:
AND ASSIGN BENEFITS
SERVICE WITHOUT DEDUCTIBLES
CLINICS: PRODUCE BILLS
FOR UNNECESSARY DIAGNOSTIC
SERVICES AND THERAPY OFTEN
SALARIED DOCTORS WITH NO
BILLING ADDITIONAL DATES WHEN
INTEREST IN THE CUNIC OR
SERVICES WERE NOT RENDERED
H
PATIENT ORDER DIAGNOSTIC
TESTING AND THERAPY
BILLS ARE SUBMITTED BY
THE CLINICS OR THROUGH
BELLING SERVICES TO:
CLAIMS DEPARTMENTS PROCESS
INSURANCE CARRIER
BILLS AND ISSUES CHECKS TO
UNSCRUPULOUS CLINIC
CLINIC OWNERS
OWNERS GET RICH
Source: Florida Department of Insurance, Division of Insurance Fraud
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Use of Cooperating Physicians and Physician Assistants
In two South Florida cases involving Medicare and Medicaid, some licensed medical
doctors and several foreign medical school graduates, some of whom were certified
physician assistants, cooperated in the schemes. In the Florida Medicare case, which
involved clinics and DME companies, the medical school graduates and/or physician
assistants performed the actual procedures, including administering noninvasive medical
tests and filling out medical charts. Licensed physicians were then paid $60 to $100 per
medical chart to periodically sign medical records for services they neither performed nor
supervised or to provide referrals or CMNs for DME that was not needed. (See also fig 1.)
Although they signed for services purportedly performed by them or under their direction
or observation, they were, in fact, not present when the services were performed
In the Florida Medicaid case involving DME companies, two clinic doctors were
compensated for providing CMNs, which allowed the subjects to bill for unneeded oxygen
concentrators through their DME companies.
Identities of Beneficiaries, Physicians and Legitimate Clinics Used on Claims Without
Their Authorization or Knowledge
Victim Beneficiaries
In all cases we reviewed, subjects used at least some "victim"" beneficiary information that
was purchased, stolen, or otherwise obtained to file false Medicare, Medicaid, and/or
privatedinsurance claims. These victim beneficiaries received no medical services or
supplies, were not involved in the fraudulent and alleged fraudulent activity, were not
aware their names had been used on the claims, and did not authorize the use of their
identities on such claims. According to law enforcement authorities, the identities of an
estimated 35 to 2,500 victim beneficíaries were compromised in each of the seven cases.
Some beneficiaries learned of the fraudulent and alleged fraudulent claims when they
received Explanation of Benefits (EOB), Explanation of Medical Benefits (EOMB), or
Medical Summary Notice (MSN)" forms in the mail from the relevant insurer showing
services or equipment they did not receive. Others learned of the fraud and alleged fraud
when their insurer notified them about questionable claims filed or investigators contacted
them looking into such claims. In the MinoisiMedicaid case and one of the Florida private
a
The Medicare Cerrier's Manual, Title BI, Section 2050 requires that the physician be physically present on the premises
during the time of medical service for the service to be covered by Medicare.
10
In this letter, the terms "victim" beneficiaries, "victim" physicians, and "viction" clinics refer to uninvolved individuals
authorization or entities whose identities wate used on Gaudulent health care claims or other documents without their knowledge or
"
The relevant payer sends EOB1, EOMBs, and MSNs to beneficiaries after a claim has been processed. Such surgements
list charges that have been billed to the insurer on the insured's behalf Beneficiaries are encouraged to check such
statements to be sure they were not billed for services, medical supplies, or oquipment they did not receive
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insurance cases, claims were filed for more than 17 beneficiaries who had died prior to the
purported dates of medical service as shown on such claims. The claims were not paid.
In some of the cases we reviewed, investigators told us they were able to tie several
victim beneficiaries to a common hospital where all the beneficiaries had previously
been treated, suggesting that someone in the hospital released beneficiary information
to criminals.
Providers in Charlotte, North Carolina, submitted Medicare claims for supplies and
equipment purportedly provided to beneficiaries residing in South Florida upon orders
of Charlotte-area physicians. In that case, the group leader had paid a relative-a
physician at a Miami hospital-to obtain beneficiary lists from the Miami hospital The
relative was paid $5 to $7 per patient name
In the Illinois Medicaid case, the subjects frandulently billed Medicaid using parient
billing information they had legitimately obtained when they purchased a clinical
laboratory from another individual
In the Florida Medicare case, an informant purchased copies of Medicare identification
cards from a records clerk employed by legitimate doctors. The records clerk had Dest.
approached the informant about selling the identification cards when they became
acquainted at a local bingo hall
During our review, a doctor in Miami, Florida, told us that his billing discs were stolen
in an office burglary, while cash was left behind The doctor told us that after the
burgiary, he received phone calls from patients about suspicious EOBs with his name
attached to them for services he had not rendered He further stated that other doctors
in the same building and in another nearby professional building were burglarized in
the same manner.
In the Florida Medicaid case, the group leader's sister-in-law, who worked for a
company that transported Medicaid patients, provided him/with lists of beneficiary
information
In addition to the above examples, an investigator with a private insurance company told us
that lists of beneficiary names and identifying information are known to have been sold
illegally for $50,000. We were also told that beneficiary information is sometimes stolen
from hospitals or providers, taken from trash bins, or obtained by computer hackers.
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Victim Physicians and Clinics
In the same way that victim beneficiary information was used, victim provider information
was also used in fraudulent health care claims. Victim physicians and clinics were not
aware of the false claims; had not treated or referred the beneficiaries in question for the
services or equipment shown; had not authorized the use of their identities; and, in many
cases, did not even know the beneficiaries shown on the claims. Victim providers often
became aware of such claims filed in their names when they received telephone calls from
beneficiaries inquiring or complaining about EOBs they received showing medical services
or equipment they had not received In other cases, they learned about such claims only
after being contacted by criminal investigators. In each of the 7 cases we reviewed,
subjects used the names and identifying information of berween 2 and more than 120 victim
physicians as either the providing physician or the referring physician on the claims they
submitted and on CMNs.
In one of the Florida private insurance cases, the leader of the group allegedly used the
names of four legitimate clinics as the providers of service on insurance claims He
simply changed the addresses of the clinics on the claim forms to a private mailbox he
controlled
In a Florida private insurance case, the leader of the group allegedly used a victim
doctor's name to file clairus and to open a bank account the group leader controlled
To open the account, he presented the bank with a resident alien identification card
hearing his photograph and the victim doctor's name; he also had a social security card
bearing the victim doctor's name- Checks from this bank account were made payable
to the leader of the group.
In addition, in the case of one of the Florida private insurance investigations, victim
doctors listed on claims as the "treating" physicians told investigators that they were
not affiliated with the clinic or the physician group listed on such claims.
Subjects sometimes obtained physician names and unique physician identification
numbers (UPIN)* from unscrupulous hospital employees. In the North Carolina
Medicare case, for example, a coconspirator who worked as an accounts receivable
manager at a local hospital provided physician names and UPINs to the leader of the
group. While executing a search warrant relative to the same investigation,
investigating agents found a nationwide provider directory, which listed physician
names and UPINs.
12 Physicians and nonphysician providers who order or refer services, including lab work, for beneficiaries must submit
their names and their UPINs or HCFA-1500 (Health Insurance Claim Form).
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An investigator from the Florida Division of Insurance Fraud told us that physician names
and UPINs are readily available and showed us a physician telephone directory known as
"The Little Blue Book," which lists physician names, addresses, specialties, and UPINs by
county. The back of the directory includes an order form and a listing of all counties for
which the directory is available, including metropolitan areas in most states. The
investigating agents in the North Carolina Medicare case learned that nationwide provider
names and UPINs can also be found on the Internet
Fictitious Doctor Names Used on Claims
In two of the Florida private insurance cases, the investigators told us that the subjects also
used the names of fictitious doctors on the claims they submitted According to the
investigator in one of the cases, the designation "MD." followed fabricated names shown as
the providers of services/billing entiries on claims. The investigator determined there was
no record of medical licensure under those names in the state of Florida
Criminal Groups Used Third-Party Billing Companies, Private Mailboxes, and Bank
Accounts to Defraud Medicare, Medicaid, and Private Insurance
In at least three of the investigations we reviewed, subjects used third-party billing
companies to file fraudulent claims and receive payment In one case, a factoring
company" was also used. Subjects sometimes defrauded more than one system. In six of
the seven cases we reviewed, subjects used a "drop box" scheme, that is, they set up phony
corporations, private mailboxes, and corporate accounts. Members of the criminal group
would retrieve the insurance checks from the private mailboxes and deposit them into the
bank accounts that they controlled. Once deposited, proceeds would quickly be converted
to cash or moved to other accounts and moved out of the reach of authorities. Some of the
subjects had associates or relatives who helped them transfer the ill-gotten proceeds. In
the seventh case, subjects used the basic elements of the drop box scheme but received
medical payments electronically rather than through the use of private mailboxes.
Submission of Claims
In the Florida Medicare case involving the use of clinics and recruited beneficiaries, the
suspect's employees generated computerized Medicare claims using biographical dara and
the names of recruited beneficiaries. They then downloaded the information to tapes and
delivered the tapes to a third-party billing company that entered the information into its
own computer and sent it electronically to Medicare. Medicare generated a confirmation
receipt that was forwarded to a factoring company, and the factoring company
electronically advanced a predetermined percentage of the anticipated Medicare payment
to the subject's bank account. The investigator on this case stated that although he
13 Factoring companies purchase the accounts reseivable of A firm at a discount price, thereby providing the firm with
immediate working espital.
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believes the third-party billing company started out as a legitimate company, the owner
began to understand that it was more profitable to bill nonlegitimate claims. He ignored
questionable claims from the subject even when the third-party billing company's
employees raised concerns about the same beneficiary names repeatedly showing up on
claims.
The Florida Medicaid case involved the use of two third-party billing companies to submit
fraudulent claims for DME, namely oxygen concentrators. Individuals known to the
subject operated both third-party billing companies and were aware that the claims were
fraudulent One of the third-party billing companies filed claims for DME for the subject
based/solely on beneficiary names and Medicaid numbers without required CMNs. When
investigators asked the owner of the third-party billing company to produce the CMNs, she
contacted the primary subject who, along with his associates, created the required CMNs.
These|fabricated CMNs were turned over to investigators the following day. (Subjects in
one of the Florida private insurance cases used the same third-party billing company to file
claims.)
Other subjects prepared fraudulent paper claims without the use of third-party billing
companies. In the North Carolina Medicare case, the leader of the group prepared
Medicare claims and related documents. After investigators questioned him about his
retrieval of Medicare payments from a private mailbox, he disassembled the typewriter he
had used to prepare the claims and instructed his daughter to dispose of the pieces. Later,
when he thought he was no longer being closely scrutinized, he had his daughters and other
neighborhood girls generate paper claims to private insurance plans from a home
computer.
Billing of More Than One Insurance System
In at least three of the seven cases we reviewed, career and organized criminal groups
defrauded more than one system (Le, Medidare, Medicaid, or private insurance systems)
simultaneously or moved from one system to another after they were caught in one area
For example, in the Florida Medicare case, subjects had filed in excess of $120 million in
fraudulent Medicare claims and $1.5 million in fraudulent Medicaid claims. Because the
investigator in the Medicare case had made a referral to Medicaid, Medicaid was able to
stop the payment of the $1.5 million in fraudulent Medicaid claims filed by the group.
In the North Carolina Medicare case, the leader of the group fled the country after being
questioned by investigators about fraudulent Medicare claim payments. He returned to the
United States a few weeks later and began submitting fraudulent health care claims to
private insurance systems. This subject later told investigators that it was easy to get
money from Medicare However, according to the same individual, getting money from
private insurers was so easy, it was "hke stealing candy."
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Use of Private Mailbox Facilities
To gain possession of insurance checks in payment of fraudulent health care claims,
subjects in 6 of the 7 cases we reviewed had the checks sent to as many as 80 private
mailboxes, or drop boxes. These mailboxes were opened at privately owned commercial
mail receiving agencies (CMRA), including, among others, Mail Boxes Etc, A Mailbox for
Less, and Pakmail Centers of America Fraudulent and allegedly fraudulent claims listed
the addresses for providers/billing entities as the CMRA addresses, with the actual mailbox
numbers generally appearing on claims as suite numbers, building numbers, or office
numbers." The group leader or other group members retrieved mail from these boxes.
While some mail drop boxes were set up using the names of the group leader or
cooperating coconspirators, others were set up using phony identification cards containing
fictitious names or assumed identities along with photographs of the subjects. (See fig. 2.)
Figure 2: "Drop Box" Scheme
awns ISSUED
LAMI
PHONE CORP DATE
STEALE INDIRANCE
PRESENTION
MASSACHUSETTS EURN
MONEY KEEPS
POURING IN
CLASS
THE DATE 1000
OPEN REM ACCOUNTS
AMERICANCE THEY
o
HIRES N WATERS
THEM HC's EL
Source: Florida Department of Insurance, Division of Insurance Fraud
" There is no indication that these CMRAS were involved in the fraud except for the North Carolina Medicare case. In
the ease, the subject purchased his own Mail Boxes Etc franchise and began using its mailboxes to furthar his traudulent
activity while also retaining mailboxes at other uninvolved franchises.
15
A new CMRA regulation adapted by the U.S. Postal Service on Apr. 26. 1999. requires that all mail delivered to
CMRAS be identified on its face as 4 private mailbox. or -PMB" (39 C.F.R. part 111 and Domesric Mail Menual
DO42.20. This regulation is meant to keep criminals from using CMRA addresses for credit card fraud and other seams.
All CMRA customers must be in compliance by Apr. 26. 2000.
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In one of the Florida private insurance cases where subjects operated within the
Miami/Dade County area, 7 of 10 mail drop boxes were set up in other counties. The leader
of the group paid the owners of the CMRAs in those locations to forward incoming mail,
including checks representing payment of alleged fraudulent claims, to Miami/Dade County
area mail drop boxes. The investigator explained that insurance companies know Miami is
a "hot spot" for health care fraud activity and are less suspicious of claim payments going
to addresses outside the Miami area. Mail drop boxes in other states were also tied to this
group.
Use of Corporate Bank Accounts and Individuals to Transfer Money
In the cases we reviewed, fraudulently obtained funds were transferred in a variety of
ways Checks received at mail drop box locations and funds received electronically
through billing companies were deposited into bank accounts that had been set up in
(1) the names of the corporations, the subjects, the associates, or coconspirators or
(2) fictitious or assumed names. Subjects then moved the money by cashing the insurance
checks, writing checks to cash or individuals from bank accounts where insurance checks
were deposited, and transferring funds between various corporate and individual bank
accounts. Subjects sometimes used family members, friends, or associates in other
countries to help them transfer their proceeds. In one case, a factoring company deposited
claim payments electronically into bank accounts controlled by the subjects. According to
an official of the New Jersey State Attorney General's Office, Medicaid Fraud Section,
money Laundering is the end result of most health care scams. Law enforcement officials
find that assets are placed out of the government's reach before the fraud is discovered and
documented and that money is sometimes moved out of the country.
In the North Carolina Medicare case, for example, the leader of the group opened corporate
bank accounts in the names of two individuals to whom he had paid $100,000 apiece for the
use of their identities. He then transferred funds between bank accounts, with the majority
of funds ultimately negotiated in the form of business checks to fictitious individuals. He
had the checks shipped in blocks to family members and mends in Mexico via Federal
Express and cashed by accomplices at banks in Mexico, including a Casa de Cambia
(money exchange) where bank representatives converted the checks to U.S. and Mexican
traveler's checks for a 5-to 8-percent fee. After deducting 10 percent for themselves, the
accomplices shipped the remainder of the traveler's checks to the subject in the United
States via Federal Express. The traveler's checks were subsequently spent or deposited to
business or personal bank accounts. According to investigators, one of the subject's
relatives in Mexico had a friend who worked in a Mexican bank The friend would cash
checks regardless of whose name was on them. In the same case, some of the funds sent to
Mexico were converted to jewelry that was brought to the United States and resold by the
group leader from his home.
In the Florida Medicaid case, the leader of the group paid family members and friends,
including some he met while serving time in prison, to cash checks for him. In two of the
Florida private insurance fraud cases, the leaders of the groups opened bank accounts in
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the names of legitimate, uninvolved providers, including a physician and four medical
clinics whose names were used on allegedly fraudulent claims.
In another Florida private insurance fraud case, subjects deposited insurance checks to
approximately 40 corporate bank accounts and then wired the money to European
locations, through investment accounts. In the same case, an insurance official stated that
her insurance company received cancelled insurance checks that had been cashed at a
bank in Europe.
One subject in the Florida Medicare case directed his wife to send $4.5 million overseas.
The money was then transferred back into the United States through an alleged mortgage
fraud scam involving politicians in Florida. Subjects in this case would not cooperate with
government officials who were trying to determine the disposition and location of the ill-
gotten proceeds.
Legal Actions Often Ineffective in Halting Fraud
Legal actions against suspects do not guarantee that the criminal activity will stop. An
official of the New Jersey State Attorney General's Office, Medicaid Fraud Section, stated
that organized criminal groups tend to be quite transient. He provided examples, unrelated
to the seven cases we reviewed, that demonstrate this point In one case, suspects fled to
California and started new operations before they could be arrested for violations that had
occurred in New Jersey. In other cases, his office closed down New Jersey clinics only to
find out that the New York Medicaid Fraud Control Unit was investigating the same
individuals for different schemes.
In the Florida Medicare case we reviewed, the subject conducted business from the federal
detention center while awaiting sentencing by using the detention center's telephone
system and personal identification numbers assigned to other inmates. From the phone, he
directed his wife on how to run the health care fraud business in his absence.
In one of the Florida private insurance fraud cases, three indicted subjects are believed to
have fled the country and are considered fugitives. Investigators received information,
however, that indicates that this group continued to submit allegedly fraudulent medical
insurance claims from Panama through a freight-forwarding company in Miami, Florida,
which acts as a private mail facility and intermediary.
Impacts of Health Care Fraud Perpetrated by Career Criminal and Organized
Criminal Groups
Consumers pay increased health care COSTS as a result of health care fraud Taxpayer
contributions support the Medicare and Medicaid programs, so all tarpayers are paying for
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fraudulent claims paid by these programs. Also, additional health care costs to private
insurers are passed on to insured individuals through increased premiums. Finally, self-
insured companies risk going our of business when their health care costs become
overwhelming due to fraudulent claims filed
Beneficiaries, whose names are used on fraudulent claims, acquire false medical histories
and risk exhaustion of their insurance benefits. Legitimate providers, whose identities are
used on fraudulent claims without their authorization, may experience a variety of
problems, such as delays in the payment of their legitimate claims, the receipt of IRS Forms
1099 for income never received, suspension of their providernumbers, or uneamed
tarnished reputations. Law enforcement officials find it difficult to keep up with this
growing and widespread form of fraud and are often unable to seize or recoup fraudulent
proceeds that are quickly moved out of their reach
As agreed with your office, unless you release its contents earlier, we plan no further
distribution of this letter until SO days after the letter's date. At that time, we will send
copies of this letter to interested congressional committees and will make copies available
to others on request. If you have questions concerning the report, please contact Assistant
Director Stephen V. Iannucci at (202) 512-6722 Special Agent Mary Balberchak was a key
contributor on this assignment.
RACHILL Sincerely yours,
Robert H Hast
Acting Assistant Comptroller General
for Special Investigations
Enclosure
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Enclosure I
Scope and Methodology
During this review, we examined the details of seven investigations wherein criminal groups
representing themselves as legitimate providers fraudulently billed public and private insurance
systems for medical services and equipment not rendered or not medically necessary. The
investigations concerned fraud or alleged fraud committed in Florida, North Carolina, and
Illinois with, in some cases, ties to other states and included two cases primarily involving
Medicare, two cases primarily involving Medicaid, and three cases primarily involving private
insurance systems, with some of these cases involving both public and private insurance
systems. We selected these cases because they involved fraud and alleged fraud encompassing
public and private insurance, different parts of the country, and significant dollar amounts in
terms of fraudulent and allegedly fraudulent claims filed and paid and the significant number of
victim beneficiaries.
We also interviewed federal and state law enforcement officials from the Federal Bureau of
Investigation; Internal Revenue Service; U.S. Postal Inspection Service; Florida Division of
Insurance Fraud; Office of the Florida State Attorney General/Medicaid Braud Control Unit;
Office of the New Jersey Attorney General/Medicaid Fraud Section; and State of
Illinois/Medicaid Fraud Control Unit
In addition, we interviewed officials of a private insurance company, including a health care
fraud investigator, as well as two beneficiaries and two doctors whose identities were used on
fraudulent claims without their authorization or knowledge. Further, we reviewed case-related
and public-record documents and reports, as well as reports and statistical information relaring
to this type of health care fraud.
We conducted our review from August 1998 through September 1999, insecordance with quality
standards for investigations set forth by the President's Council on Integrity and Efficiency.
(600487)
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GAO/OSI-00-1R Criminal Groups in Health Care Frand
E
U.S. Department of Justice
Office of the Deputy Attorney General
Special Counsel for Health Care Fraud
Washington, D.C. 20530
August 13, 1999
To:
Chris Jennings
Deputy Assistant to the President
From:
John T. Bentivoglio
Subject:
GAO report on the Department's use of the civil False Claims Act in civil health
care fraud matters
As you may know, the General Accounting Office recently released its report on the
Department's use of the civil False Claims Act in health care fraud matters. Although the report
acknowledged that the Department had made progress in implementing the June 1998 guidelines
issued by the Deputy Attorney General, the report also criticized the Department's continuing
investigations in the Lab Unbundling project. Significantly, most of the criticisms focus on
actions taken before the issuance of the June 1998 guidelines.
While the Department agrees with some of the findings in the GAO report, we disagree
with others. For example, GAO criticizes the Department for the slow pace of the Lab
Unbundling investigations, yet the pace of the investigations has been delayed because DOJ
generally has given hospitals the option to perform self audits, and many hospitals have taken
advantage of this option.
Nonetheless, the Department has agreed to implement the two recommendations in the
GAO report (relating to our evaluation and review system for US Attorneys' Offices) and to take
additional steps - above and beyond the GAO recommendations - to improve our oversight
process. Appendix III of the GAO report contains the Department's written response to the
GAO findings. I have also enclosed a brief press statement, which provides further comment on
the GAO report.
Finally, we understand the American Hospital Association has called on Congress to hold
hearings on the GAO report in the fall. To date, we have not received formal notice of hearings,
but we believe a hearing in the House is likely.
I hope this information is helpful. If you have any questions, please do not hesitate to
contact me at (202) 514-2707.
U.S. Department of Justice
Washington, D.C. 20530
FOR IMMEDIATE RELEASE
Monday, August 9, 1999
STATEMENT BY DEPARTMENT OF JUSTICE
SPECIAL COUNSEL FOR HEALTH CARE FRAUD JOHN BENTIVOGLIO
General Accounting Office report issued on DOJ implementation
of False Claims Act guidance in national health care initiatives
"The Department of Justice concurs with many of the findings in the GAO report. The
report documents the substantial progress we have made in providing strong oversight of our
national enforcement projects. Each working group has developed a factual and legal review as
required by the Deputy's June 3rd guidance, and is working closely with U.S. Attorneys' Offices.
The GAO report also contains constructive recommendations with regard to our evaluation
process, and we intend to implement these recommendations. In fact, we are taking additional
steps -- above and beyond the GAO recommendations -- to enhance our oversight of national
enforcement projects.
"With respect to the lab unbundling investigations, the GAO's findings about the pace of
these investigations is not surprising. We have encouraged U.S. Attorneys' Offices to work
cooperatively with hospitals in resolving these investigations, including providing hospitals with
the option of conducting self audits. Many hospitals have chosen to conduct self audits. In
addition, generally we have not relied on the use of traditional investigative methods -- including
the issuance of civil investigative demands compelling the production of documents and
testimony -- to establish evidence that false claims were submitted knowingly. We believe this
more cooperative approach is the appropriate approach for resolving these investigations in a fair
and even-handed manner."
####
99-346
United States General Accounting Office
GAO
Report to Congressional Requesters
August 1999
MEDICARE FRAUD
AND ABUSE
DOJ's Implementation
of False Claims Act
Guidance in National
Initiatives Varies
GENERAL UNITED ACCOUNTING STATES OFFICE
GAO
Accountability * Integrity * Rellability
GAO/HEHS-99-170
Printed copies of this document will be available shortly.
GAO
United States
General Accounting Office
Washington, D.C. 20548
Health, Education, and
Human Services Division
B-282251
August 6, 1999
The Honorable Ted Stevens
Chairman
The Honorable Robert C. Byrd
Ranking Minority Member
Committee on Appropriations
United States Senate
The Honorable Orrin G. Hatch
Chairman
The Honorable Patrick J. Leahy
Ranking Minority Member
Committee on the Judiciary
United States Senate
The Honorable C. W. Bill Young
Chairman
The Honorable David R. Obey
Ranking Minority Member
Committee on Appropriations
House of Representatives
The Honorable Henry J. Hyde
Chairman
The Honorable John Conyers, Jr.
Ranking Minority Member
Committee on the Judiciary
House of Representatives
Improper billings to Medicare have been a longstanding threat to the fiscal
integrity of the program. The Office of Inspector General (OIG) of the
Department of Health and Human Services (HHS) estimates that
overpayments due to billing errors, fraud, medically unnecessary services,
and other problems totaled $12.6 billion in fiscal year 1998.
With the increased attention to health care fraud and abuse in recent
years, the Department of Justice (DOJ) has been using the False Claims Act
(31 U.S.C. sec. 3729(a)-3733) for practices that in the past might have been
dealt with by seeking repayment. The act's damages and penalties make it
a powerful enforcement tool.
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DOJ'S efforts have included a series of nationwide investigations of
hospitals. These national initiatives-as they are termed by DOJ-have
been widely criticized by the hospital community.¹ Hospitals have alleged
that they have been unfairly targeted and that DOJ has been overzealous in
its application of the act. Responding to hospital and congressional
concerns, DOJ issued guidance in June 1998 on the appropriate use of the
act in civil health care matters, including national health care initiatives.
Concerns about DOJ'S implementation of the guidance prompted the
Congress to add a provision to the Omnibus Consolidated and Emergency
Supplemental Appropriations Act of 1999 (P.L. 105-277) requiring us to
monitor DOJ'S and the U.S. Attorneys" compliance with the guidance,
including any revisions. We are required to issue two reports on the results
of our work.
Our first report, issued in February 1999, focused on DOJ'S early
implementation of the guidance.³ We reported that DOJ had designated four
national initiatives involving hospitals-Laboratory Unbundling, 72-Hour
Window, Prospective Payment System (PPS) Transfer, and Pneumonia
Upcoding-and had established work groups for each. We also noted that
DOJ had begun taking steps intended to ensure that the 93 U.S. Attorneys
comply with the guidance.⁴ For example, we reported that DOJ had
incorporated the guidance into its training programs and was planning to
include an assessment of compliance with the guidance in its ongoing
reviews of the U.S. Attorneys' Offices. We also reported that the work
groups-consisting of representatives from DOJ and selected U.S.
Attorneys' Offices-had been established to support the four ongoing
national initiatives. These work groups were then in various stages of
preparing documentation, such as legal analyses and investigative plans,
required by the guidance to assist the U.S. Attorneys' Offices participating
in the initiatives. Our survey of all 93 U.S. Attorneys found that the
majority were participating in at least one national initiative. Our survey
'DOJ defines a national initiative as a nationwide investigation stemming from an analysis of national
claims data, indicating that numerous similarly-situated health care providers have engaged in similar
conduct to improperly bill government health care programs.
U.S. Attorneys are supervised by the Attorney General but exercise a large degree of independence
and discretion in the handling of their cases.
3See Medicare Fraud and Abuse: Early Status of DOJ's Compliance With False Claims Act Guidance
(GAO/HEHS-99-42R, Feb. 1, 1999).
"These 93 U.S. Attorneys serve the nation's 94 federal judicial districts. One U.S. Attorney serves both
the District of Guam and the District of the Northern Mariana Islands.
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also found that several offices had closed a large number of investigations
related to one initiative without taking actions against the providers.
This report summarizes the results of our monitoring of DOJ'S and selected
U.S. Attorneys' Offices' compliance with the guidance. Specifically, we
(1) determined the status of the work groups' efforts and reviewed the
initiative-specific guidance they prepared, (2) evaluated DOJ'S efforts to
assess U.S. Attorneys' compliance with the guidance, (3) examined
implementation of the guidance at selected U.S. Attorneys' Offices, and
(4) identified state hospital associations' concerns regarding DOJ'S use of
the False Claims Act.
In preparing this report, we conducted work at DOJ'S Civil Division and its
Executive Office of U.S. Attorneys and visited 10 U.S. Attorneys' Offices.
Eight of the 10 offices were participating in at least one national initiative.
Four of the 10 had been involved in large numbers of Laboratory
Unbundling investigations but had closed them after DOJ'S guidance was
issued; we visited these offices to determine the reasons they had closed
the investigations. The results of our visits to these four offices are
described in appendix I. Finally, we surveyed state hospital associations
regarding their views on DOJ'S guidance and its implementation.
DOJ officials restricted our access to certain types of information at U.S.
Attorneys' Offices because they believed public disclosure of this
information could adversely affect pending law enforcement matters. For
example, DOJ preselected materials from pending investigations, limiting
these materials to those they considered relevant to our review.
Furthermore, because investigations were pending, we could not obtain
complete information about how the offices were planning and conducting
their initiatives. We conducted our work between February and July 1999;
except for the access limitations noted above, our work was performed in
accordance with generally accepted government auditing standards. These
limitations, however, did not have a material effect on the conclusions we
reached in this report. For a complete discussion of our scope and
methodology, including the limitations on our access to information
needed to conduct our review, see appendix II.
Results in Brief
DOJ'S national initiative work groups have made further progress in
implementing the Department's False Claims Act guidance since we issued
our February 1, 1999, report. All four work groups have completed their
examination of the legal and factual basis for their initiatives and have
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prepared initiative-specific guidance for the U.S. Attorneys' Offices
participating in the initiatives. The guidance prepared by these work
groups is consistent with the requirements in DOJ'S guidance. For example,
the guidance addresses the legal basis underlying each initiative and
includes suggestions for conducting investigations of individual hospitals.
While DOJ officials told us compliance with its False Claims Act guidance is
an ongoing priority for the Department, we believe DOJ'S process for
assessing the U.S. Attorneys' Offices' compliance may be superficial. In
February 1999, DOJ began to include in its periodic reviews of U.S.
Attorneys' Offices assessments of compliance with the guidance. These
assessments, however, appear to involve little more than reviewers asking
supervisors what they have done to ensure compliance with the guidance.
Such limited efforts will not provide the information needed to adequately
assess actual compliance. While we were not given access to the review
results, DOJ officials told us that, as of June 25, only 2 of the 15
assessments that had been done contained any information about these
offices' compliance with the guidance. DOJ'S plans for strengthening the
assessment process, such as adding more questions, may not be enough to
effectively assess compliance. In our view, these additional questions will
not provide more substantive information than the original question and
are only a starting point for an effective assessment. Accordingly, we are
recommending that DOJ take additional steps to improve its oversight of
national health care initiatives.
We also found that the implementation of DOJ'S False Claims Act guidance
varied among the eight U.S. Attorneys' Offices we visited that were
participating in the national initiatives. Five of these offices were
participating in the Laboratory Unbundling initiative and had begun their
involvement before DOJ'S guidance was issued. We found that their actions
were, to varying degrees, inconsistent with the guidance. Our limited
review also raised questions about whether four of these offices were
promptly incorporating the guidance into their ongoing investigations.
While the 72-Hour Window initiative also started before DOJ'S guidance
was issued, our work at the one office that was conducting this initiative
indicated that the office's actions were consistent with the subsequent
guidance. We could not fully assess compliance at the offices we visited
that were participating in DOJ'S two newest national initiatives-PPS
Transfer and Pneumonia Upcoding-because few investigations had
started for either initiative nationwide. Nevertheless, based on our
discussions with representatives from the two work groups and the
offices, it appears that the initiatives are being developed in accordance
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with the guidance. Restrictions on our access at all offices prevented us
from conducting a complete and independent review.
Our survey of state hospital associations indicated that the issuance of
DOJ'S False Claims Act guidance has lessened their concerns about
national initiative investigations. Half of the associations expressing
concerns with DOJ'S use of the False Claims Act prior to the issuance of the
guidance said that the guidance had fully addressed their concerns.
Background
The False Claims Act provides that anyone who "knowingly" submits
false claims to the government is liable for damages up to three times the
amount of the erroneous payment plus mandatory penalties between
$5,000 and $10,000 for each false claim submitted. The act defines
"knowingly" to mean that a person (1) has actual knowledge of the false
claim, (2) acts in deliberate ignorance of the truth or falsity of the
information, or (3) acts in reckless disregard of the truth or falsity of the
information. In the health care setting, where providers submit thousands
of claims each year, the potential damages and penalties provided under
the False Claims Act can add up quickly.
DOJ'S use of the False Claims Act currently includes four national
initiatives involving hospitals. The 72-Hour Window initiative, which began
in 1995, centers on separate payments for outpatient services received
within 72 hours of a hospital admission, which are paid as part of
Medicare's inpatient reimbursement to hospitals. The Laboratory
Unbundling initiative, which began in 1994 by U.S. Attorneys' Offices in
Ohio, identifies excess payments for laboratory tests that were performed
concurrently on automated equipment but improperly billed or
"unbundled" as separate tests. In January 1999, DOJ announced two new
national initiatives. The PPS Transfer initiative focuses on overpayments to
hospitals that incorrectly report transfers to other hospitals as discharges
in order to receive higher Medicare payments.⁵ The Pneumonia Upcoding
initiative targets inappropriate coding of inpatient hospital billings for a
form of the disease more costly to treat and paid at a higher rate than was
supported by a patient's medical records.
⁵Under Medicare PPS, payment rates are established in advance and hospitals treating Medicare
beneficiaries must generally accept the rate as full payment, regardless of the patient's length of stay.
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In 1998, we reported that hospital groups had criticized DOJ'S use of the
False Claims Act in the two older national initiatives. 6 They alleged that in
both the 72-Hour Window and the Laboratory Unbundling initiatives, DOJ
subjected many of the nation's hospitals to unwarranted investigations,
resulting in large penalties for unintentional errors. In particular, the
Laboratory Unbundling initiative provoked considerable controversy. The
hospital groups complained that the initiative lacked a sufficient legal
basis and relied on flawed data. They also charged that some U.S.
Attorneys' Offices had issued demand letters threatening prosecution
without sufficient evidence that the hospitals had submitted false claims.
On June 3, 1998, DOJ issued "Guidance on the Use of the False Claims Act
in Civil Health Care Matters." The guidance emphasizes the fair and
responsible use of the act in all civil health care matters, including all
current and future national health care initiatives. It also instructs all DOJ
attorneys to determine, before they allege violations of the act, that the
facts and the law sufficiently establish that a claimant knowingly
submitted false claims. The guidance requires them to take a number of
steps, including reviewing relevant statutes and regulations and verifying
the accuracy of the data relied on, to ensure that they support the
allegations.
The guidance also contains new requirements specifically applicable to
national initiatives. The guidance generally requires the U.S. Attorneys to
use "contact letters" to notify providers of their potential exposure under
the False Claims Act and to offer providers an opportunity to discuss the
matter before a specific demand for payment is made. The new
requirements also specify that a work group must be established for each
current and future initiative. Work groups of Civil Division attorneys and
Assistant U.S. Attorneys with expertise in health care fraud are expected
to coordinate the development and implementation of the initiatives. The
work groups are also expected to prepare "initiative-specific" guidance,
such as a legal analysis of pertinent issues, a summary of relevant claims
data, and an investigative plan to guide the U.S. Attorneys' Offices
participating in the initiatives.
DOJ'S False Claims Act guidance provided that it would be subject to
review within a 6-month period. This review, completed in February 1999,
clarified a number of issues in the guidance and also described how
providers under investigation could elevate their concerns within the
⁶See Medicare: Application of the False Claims Act to Hospital Billing Practices (GAO/HEHS-98-195,
July 10, 1998) and Use of False Claims Act to Target Hospitals (B-279893, July 22, 1998).
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Department if they believed the guidance was not being followed. It also
announced that national initiative work groups would be required to
solicit and consider the views of HHS' OIG and other relevant agencies in
conducting the initiatives. The review concluded that no major revisions to
the guidance were necessary.
Work Groups Have
At the time we issued our first report, only the Laboratory Unbundling and
PPS Transfer work groups had completed preparing the required
Completed
initiative-specific guidance. Since that time, the 72-Hour Window and
Initiative-Specific
Pneumonia Upcoding work groups have also finished their guidance. We
Guidance
examined the initiative-specific guidance prepared by the work groups and
found that this guidance was consistent with the requirements outlined by
DOJ for False Claims Act investigations. The confidential nature of these
work group documents precludes us from discussing them in detail.
However, we can make some general observations about each work
group's initiative-specific guidance.
All the work groups have developed model contact letters for notifying
providers that they were the subjects of False Claims Act investigations.
We noted that these letters were carefully worded to avoid any inference
that the providers had violated the False Claims Act. Unlike the demand
letters previously used by some U.S. Attorneys' Offices, the new contact
letters did not include a specific demand for payment nor, in our opinion,
did they contain the type of language that many hospitals had found to be
intimidating and coercive.
We found similarities between the documentation prepared by the
Laboratory Unbundling, PPS Transfer, and Pneumonia Upcoding work
groups. All three sets of documents elaborated on DOJ'S general guidance
and provided detailed steps for planning and conducting the initiatives.
The documentation included an analysis of the legal basis underlying each
initiative; however, we did not evaluate these analyses. All three sets of
documentation included investigative plans containing specific
suggestions for conducting investigations of individual hospitals. These
plans also outlined procedures for determining whether claims submitted
by these hospitals were false and, if so, whether the hospitals knowingly
submitted them. In addition, the work group materials addressed the
source, limitations, and reliability of the claims data to be used in the
investigations. In our opinion, the documentation prepared by these three
work groups was consistent with the requirements in DOJ'S guidance.
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The 72-Hour Window work group prepared a report that assessed the
initiative's activities in light of DOJ'S guidance, rather than the detailed
guidance prepared by the Laboratory Unbundling, PPS Transfer, and
Pneumonia Upcoding work groups. Unlike the other three national
initiatives, which are being conducted by multiple U.S. Attorneys' Offices,
a single U.S. Attorney's Office is conducting the 72-Hour Window initiative.
For this reason, and because the initiative was more than two-thirds
complete at the time DOJ'S guidance was issued, this work group did not
develop the same step-by-step instructions that were' developed by the
other three work groups. Nevertheless, we believe the report showed that
the work group, as directed, had considered whether the initiative met the
requirements established by DOJ'S guidance. Among other things, it
evaluated the accuracy of the data used in the initiative, the clarity of the
relevant billing rules, and the appropriateness of the office's approach for
completing the initiative. In our view, this report satisfies the requirement
that work groups prepare initiative-specific guidance.
DOJ's Assessments of
According to DOJ officials, the U.S. Attorneys' Offices' compliance with the
guidance is an ongoing priority for the Department. However, DOJ'S
U.S. Attorneys'
process for assessing compliance may be superficial. As we described in
Offices' Compliance
our first report, DOJ said that beginning February 1, 1999, it would include
With the Guidance
assessments of the offices' compliance with the guidance as part of the
reviews it conducts at each office every 3 years. DOJ'S assessments of
May Be Superficial
compliance with the guidance during these periodic reviews of offices
consists of a single interview question in which supervisors are asked to
identify the steps being taken to ensure compliance. We believe these
assessments provide little assurance that offices comply with the
guidance.
According to DOJ officials, as of June 25, 1999, reviews incorporating this
assessment were completed at 15 U.S. Attorneys' Offices. DOJ officials told
us the reports on these offices were not yet complete; thus, they were
unwilling to share them with us. They said that they had reviewed the draft
reports or, if no draft report had yet been prepared, the reviewers'
submissions. DOJ officials said that reviewers typically only report negative
information. They also told us that the 15 draft reports or reviewer
submissions contained no negative information about the offices'
compliance with the guidance; in two cases, positive comments were
made. For example, according to DOJ, one reviewer's report consisted of
the following:
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This [office] is in compliance with the requirements of the Deputy Attorney General's
guidance on the use of the False Claims Act in health care fraud cases and matters.
Training on the requirements has been provided to all ACE unit personnel.⁷
In response to our concerns about these reviews, officials told us that they
would require reviewers to comment both negatively and positively on
offices' compliance with the guidance in all future reviews. We do not
believe that the two "positive responses," however, provided much
insight about either of the offices' efforts to comply or their actual
compliance because the comments were not specific. In our view, if the
new requirement results in the reporting of similar information on all the
offices assessed, these reports would not be meaningful.
In addition, the officials told us that, due to the importance of ensuring
compliance, they had instructed reviewers to ask additional questions in
future reviews. These questions ask whether an office has participated in
any national initiatives since the office's last review and whether the office
has complied with the guidance and the work groups' recommendations
for conducting investigations. While these additional questions are
relevant, we believe that they are only a starting point for an effective
assessment and will not provide a more meaningful assessment of
compliance than the original question.
DOJ officials told us that they were taking other steps, such as the
following, to ensure that the guidance is followed.
The Deputy Attorney General has emphasized the necessity of compliance
both orally and in writing on a number of occasions and has encouraged
U.S. Attorneys' Offices to document their compliance in investigative case
files. We noted that three of the offices we visited had developed forms to
document their compliance.
Compliance with the guidance is a top priority of the Subcommittee on
Health Care Fraud of the Attorney General's Advisory Committee. In this
regard, the national initiative work groups are required to update the
subcommittee on the status of each initiative on a regular basis.
Work groups are expected to maintain regular contact with U.S. Attorneys'
Offices participating in an initiative, monitor their progress, and provide
guidance throughout the investigative and litigative processes.
DOJ has assigned an experienced Civil Division attorney to each work
group. DOJ officials believe that because these representatives specialize in
Most U.S. Attorneys' Offices have ACE (Affirmative Civil Enforcement) units, which pursue civil
actions to recover money lost due to fraud and other misconduct.
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False Claims Act matters, their presence on the work groups helps ensure
consistent adherence to Department policies concerning False Claims Act
matters.
Implementation of
DOJ'S False Claims Act guidance applies to all national initiative health care
investigations-including those ongoing at the time the guidance was
Guidance by U.S.
issued. Our limited review showed that the offices' implementation of the
Attorneys' Offices'
guidance varied among national initiatives. Eight of the offices that we
visited were participating in at least one of the national initiatives. Five of
Varies Among
these offices began participating in the Laboratory Unbundling initiative
National Initiatives
before DOJ'S guidance was issued. Our review raised questions about how
promptly four of them were incorporating the guidance into ongoing
investigations. While the 72-Hour Window initiative also started before DOJ
issued its guidance, the one office conducting this initiative did not appear
to be having difficulty implementing the guidance, and we were more
convinced that this office was conducting the initiative in compliance with
the guidance. We could not fully assess compliance at the offices
participating in DOJ'S two newest national initiatives-PPS Transfer and
Pneumonia Upcoding-because few U.S. Attorneys' Offices, including
those we visited, had started investigations for either initiative nationwide.
Table 1 shows the participation in the national initiatives for the eight U.S.
Attorneys' Offices at the time of our visits. We are not identifying these
offices or the exact number of their investigations because DOJ is
concerned that doing so could compromise open investigations.
Table 1: U.S. Attorneys' Offices Visited
Participating in National Initiatives
Number of
National initiative
offices
Laboratory Unbundling
5
72-Hour Window
1
PPS Transfer
3
Pneumonia Upcoding
5
Two of the eight offices had terminated their involvement in the
Laboratory Unbundling initiative by the time of our visits. We also visited
two other offices that decided to discontinue their participation in this
project. These two additional offices were not involved in any other
national initiative at the time of our visit. (For a discussion of the four
offices' participation in the Laboratory Unbundling initiative and their
decisions to terminate their involvement, see app. I.)
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Implementation of
The five offices participating in the Laboratory Unbundling initiative had
Guidance Slow at U.S.
taken actions in their investigations prior to the issuance of DOJ'S False
Attorneys' Offices'
Claims Act guidance that, to varying degrees, were inconsistent with the
Participating in Laboratory
subsequent guidance. Generally, the five U.S. Attorneys' Offices we visited
sent demand letters to large numbers of hospitals that alleged or implied
Unbundling
violations of the False Claims Act. The letters warned that the hospitals
could be liable for three times the amount of any overpayment plus
penalties of between $5,000 and $10,000 for each false claim. The letters
also presented the hospitals with an option: volunteer to conduct an
independent self-audit and pay two times the amount of overpayments
identified. However, contrary to the subsequent guidance, at the time
these allegations were made, most of the offices had not sufficiently
analyzed the claims data to determine if the pervasiveness and magnitude
of the apparent errors were sufficient to warrant alleging a False Claims
Act violation. Moreover, they also lacked evidence that each of the
hospitals had submitted the alleged false claims knowingly.
Because DOJ'S guidance applies to all health care investigations, including
those ongoing at the time it was issued, these offices were faced with the
task of determining what needed to be done to bring their investigations
into compliance. We found that, more than 1 year after the guidance was
issued, four of these offices had not completed actions to address the
shortcomings in their ongoing Laboratory Unbundling investigations.
Allegations that over 100 hospitals violated the False Claims Act remain
unresolved at these four offices. The following provides more details
related to our observations at these offices.
In late 1997, one U.S. Attorney's Office notified about two dozen hospitals
that they were under investigation because the office had identified
certain claims that may have been submitted in violation of the False
Claims Act. However, officials told us in March 1999 that these hospitals
had actually been selected primarily because they were the largest billers
of Medicare in the state, not because the office had evidence that they
were unbundling laboratory claims. They acknowledged that their
selection methodology was inconsistent with DOJ'S guidance but told us
that they had subsequently obtained data showing that all of these
hospitals had submitted significant numbers of unbundled laboratory
claims to Medicare. We could not verify their statement because, citing the
pending nature of the investigations, officials declined to share the data
with us. In June 1999, more than a year and a half after beginning their
investigations and 1 year after DOJ'S guidance was issued, these officials
told us that they had recently begun a detailed analysis of billing data on
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each of the hospitals. The analysis, while not completed, indicated that at
least one of the hospitals should not be pursued for violating the False
Claims Act. Other hospitals could be dropped from the investigation once
their analysis is completed, they said. In addition, DOJ officials told us in
July that the office, which had never before provided the hospitals with
any of the evidence it had compiled against them, planned to share
excerpts of the data indicating they had improperly billed Medicare.
Officials at another U.S. Attorney's Office acknowledged making False
Claims Act allegations against 75 hospitals in 1997 before obtaining
sufficient evidence to support the allegations, as the guidance now
requires. Officials told us that they did not know if these hospitals had
knowingly submitted false claims at the time they made the allegations.
Investigations against some of the hospitals were dropped after further
analysis by the office indicated that the estimated overpayments to them
were small. In addition, responding to the hospitals' concerns about the
cost of the proposed self-audits, most hospitals were later given the
opportunity to accept the office's estimate of the false claims plus
damages in lieu of an audit. At the time of our visit in April 1999, however,
over 60 of the investigations remained unresolved. Because the
investigations were pending, officials would not discuss them. They did
indicate, however, that opening so many investigations at the same time
had strained their resources and, as a result, establishing whether all of
these hospitals had knowingly submitted false claims-a step now
required before alleging False Claims Act violations-would be
time-consuming and difficult. In July 1999, officials told us that all of the
investigations were still pending and they did not know how long it might
take to resolve them.
In 1997, another U.S. Attorney's Office alleged that about 10 hospitals had
violated the False Claims Act, but the office lacked evidence that the
claims were false-let alone that the hospitals were knowingly submitting
false claims. The allegations were based on a computer analysis of claims
data that indicated these hospitals had received the largest overpayments
from unbundling laboratory services. At the time of our May 1999 visit, all
these investigations were pending. The majority of the hospitals had
completed self-audits, but self-audits of the remaining hospitals had not
yet started. According to the officials, all of the completed audits found
insignificant billing errors that could not, in their view, support a False
Claims Act case. Officials conceded that investigations against some,
maybe all, of these hospitals might not have been started had they done a
better analysis of the claims data, as now required by DOJ'S guidance.
Nevertheless, a DOJ official told us in July 1999 that investigations of the
remaining hospitals will continue.
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In 1997, another U.S. Attorney's Office sent letters to about three dozen
hospitals in the state alleging that the hospitals might have submitted false
claims and asking them to volunteer to conduct self-audits of their
laboratory billings. At this time, however, the officials had not verified the
accuracy of the data they were relying on to support this allegation, nor
did they have information showing that false claims were knowingly
submitted. The office did not initially respond to hospital requests that it
provide the data supporting its allegations of false claims. When some
hospitals did not promptly decide whether to volunteer for self-audits,
they were warned that the government would seek the full penalties of the
False Claims Act if the office did the audits itself. The office continued to
assert that hospitals had submitted false claims. For example, in a late
1997 letter to an attorney representing one of the hospitals, the office said
it did not consider the matter to be a mere overpayment case. Rather, the
letter said that the office would agree to settle the case for an amount
equal to twice the overpayment, absent extenuating circumstances.
Ultimately, the office obtained additional data that revealed that the
original data used to select the hospitals for investigations had apparently
overstated the hospitals' billing errors. In late 1998, more than a year after
the investigations had begun, the office concluded that about one-fourth of
the hospitals should not be pursued for False Claims Act violations. At the
time of our May 1999 visit, officials told us that they were developing
overpayment estimates for the remaining hospitals. In July 1999, a DOJ
official told us that a few additional investigations had been resolved but
the office was attempting to collect evidence from the remaining hospitals
in order to prove the "knowing" element necessary to establish that the
claims were false.
The fifth U.S. Attorney's Office sent letters to about 75 hospitals-virtually
all the acute care hospitals in the office's jurisdiction-alleging that they
had submitted false claims. Based on our review, this office appeared to
have stronger evidence than the other offices that some of these hospitals
had knowingly submitted false claims because they had been repeatedly
identified in Medicaid audits and investigations as having unbundled
laboratory services. At the time of our visit, the majority of the office's
investigations had been settled and over $5 million had been recovered.
However, over 40 percent of these settlements involved only the recovery
of the overpayments without False Claims Act damages or penalties being
assessed.
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Implementation of
The 72-Hour Window initiative, like Laboratory Unbundling, began before
Guidance at U.S. Attorney's
DOJ issued its False Claims Act guidance. Officials at the one office
Office Leading 72-Hour
conducting the 72-Hour Window initiative told us that they believed that
Window Initiative Appears
actions taken in their investigations were consistent with the guidance.
Our review of selected closed case files found no compelling evidence to
Appropriate
dispute the officials' assertions. Consequently, despite limitations on our
access, we were more convinced that this office was conducting the
initiative in compliance with the guidance than we were at offices involved
in the Laboratory Unbundling initiative.
Our review of closed files showed that the office had sent letters to the
hospitals alleging that they had violated the False Claims Act and
providing an estimate of their total financial exposure under the act. The
hospitals were offered an opportunity to settle these matters before
litigation by paying lesser amounts. The case files contained overpayment
data that the officials told us had been developed from an audit conducted
by HHS' OIG. These data formed the basis for the office's allegations that the
hospitals had submitted false claims. Moreover, this audit was the fourth
in a series of audits going back to 1983 that showed that thousands of
hospitals had repeatedly violated the 72-Hour Window. In addition, they
told us that the three prior audits along with the recovery of overpayments
identified in those audits clearly put the hospitals on notice of the billing
rule. The officials believed that the hospitals' continued submission of
improper claims after these audits was a strong indicator that the hospitals
were "knowingly" submitting false claims.
We did note, however, that some investigations that were pursued as False
Claims Act violations before DOJ'S False Claims Act guidance was issued
involved small dollar amounts. The guidance requires offices to consider
the pervasiveness and magnitude of the improper billings in assessing
whether the false claims were knowingly submitted rather than mere
mistakes. Officials told us that the pervasiveness and magnitude of
improper billings would be taken into account in future investigations.
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Implementation of
We could not fully assess compliance with DOJ'S False Claims Act guidance
Guidance Cannot Be Fully
at the U.S. Attorneys' Offices we visited that were participating in the two
Assessed at U.S. Attorneys'
newest national initiatives-PPS Transfer and Pneumonia Upcoding. Most
Offices' Participating in the
investigations related to these initiatives were pending at the time of our
visits and, consequently, our access to information related to both
PPS Transfer and
initiatives was restricted. Moreover, only a few PPS Transfer investigations
Pneumonia Upcoding
had been started and none of them had progressed very far. Further, many
Initiatives
of the pending Pneumonia Upcoding investigations were related to a qui
tam lawsuit,⁸ which we agreed to exclude from the scope of our review.
While we could not fully assess compliance with the guidance, based on
our work, it appears that these two initiatives are being developed in
accordance with DOJ'S guidance.
While DOJ'S PPS Transfer national initiative has been under development
since late 1997, only a few U.S. Attorneys' Offices are currently
participating in the initiative, and investigations of individual hospitals by
these offices are just beginning. We visited three of these offices. Shortly
before our visits, two of the offices had sent several hospitals contact
letters notifying them that they were under investigation. Officials at the
third office told us they had recently completed analyzing data on one
hospital, had concluded an investigation was warranted, and planned to
send the hospital a contact letter soon. Other than showing us redacted
copies of the contact letters and, in one instance, a redacted copy of the
hospital's response, officials at the three offices told us they could not
provide any other information about these pending investigations.
DOJ'S Pneumonia Upcoding initiative was established to determine whether
certain hospitals referred by HHS' OIG had violated the False Claims Act by
upcoding pneumonia claims. But investigations of hospitals referred by
the OIG had not started at the offices we visited. Five of the offices,
however, were involved in investigations of pneumonia upcoding at 19
other hospitals. All but two of these investigations were pending at the
time of our visits; therefore, our access to information about these cases
was restricted. Moreover, many of the pending investigations were related
to a qui tam lawsuit and thus, as discussed further in appendix II, these
were outside the scope of our review. At two offices, we were provided
some documents related to several pending investigations that did not
involve qui tam lawsuits. At a third office we examined materials
associated with one of the closed investigations-not enough information,
8A qui tam lawsuit involves an action brought by an individual on behalf of the United States alleging
that false or fraudulent claims have been submitted to the government.
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in our opinion, to be able to reach conclusions regarding these offices'
implementation of the DOJ guidance.
DOJ's Guidance
Of the 39 state hospital associations responding to our survey, 34 indicated
they were concerned with DOJ'S use of the False Claims Act prior to the
Appears to Have
issuance of the guidance. Seventeen of the 34 reported that the guidance
Lessened State
fully addressed these concerns, and 2 said they were not sure. The
Hospital Associations'
remaining 15 reported concerns reflecting a range of issues. But no single
concern was shared by a majority of these associations. For example, six
Concerns
associations told us that they believed that the guidance should have
established a minimum threshold of alleged overpayments before a False
Claims Act investigation would be initiated. One association charged that
the guidance is vague enough to allow DOJ to characterize intimidating and
unfair use of the act as compliance with the guidance.
Eight state hospital associations reported that they did not believe the
guidance was being followed in an ongoing national initiative in their state.
In all but one of these responses, the concerns raised were related to the
Laboratory Unbundling initiative. The most often voiced criticism was that
this initiative lacked a legal basis.⁹ These eight state hospital associations
also mentioned a variety of other concerns related to the Laboratory
Unbundling initiative. For example, they criticized U.S. Attorneys' Offices
for using questionable data, alleging False Claims Act violations based on
these data, and requesting the hospitals to assist in the investigations by
conducting self-audits.
Conclusions
One of DOJ'S most important weapons in the fight against health care fraud
is the False Claims Act. As with all enforcement tools, it is important that
the law be fairly applied. Questions about the appropriateness of DOJ'S use
of the act in national initiatives led to the issuance of DOJ'S False Claims
Act guidance. DOJ has made progress in implementing the guidance since it
was issued last year. The materials the work groups have prepared to
guide U.S. Attorneys' Offices provide detailed steps for planning and
conducting the initiatives. In our view, these materials are consistent with
the guidance and are designed to avoid actions that offices previously took
that would not have met the guidance's requirements. DOJ also appears to
be developing the two newest national initiatives-PPS Transfer and
Pneumonia Upcoding-in a manner that is consistent with the guidance. In
9As previously stated, we did not evaluate the legal merits of any of DOJ's national initiatives, but we
did verify that DOJ has performed a legal analysis for the Laboratory Unbundling initiative.
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addition, our limited review at the one office conducting the 72-Hour
Window initiative suggested that little would need to be changed to
incorporate the guidance into the initiative. However, four of the five U.S.
Attorneys' Offices we visited that were participating in the Laboratory
Unbundling initiative had not completely incorporated the guidance into
investigations they had started before the guidance was issued.
DOJ'S assessments of the U.S. Attorneys' Offices' compliance with the
guidance, as now performed, appear superficial. Although DOJ intends to
enhance these reviews, we do not believe that the proposed enhancements
will provide more useful information about the offices' compliance. Given
the importance DOJ says it places on the guidance, we believe that its
monitoring of U.S. Attorneys' Offices should provide DOJ management with
specific information on the offices' compliance efforts and the results of
these efforts. Such assessments should involve more than asking questions
about an office's compliance; it should also include verification of this
compliance.
Recommendation
We recommend that DOJ improve its oversight of U.S. Attorneys' Offices
participating in national health care initiatives. Specifically, DOJ should
develop guidance for reviewers that includes specific steps for
determining whether offices appropriately follow the guidance and
require reviewers to independently determine whether the offices are
complying with the guidance.
Agency Comments
We provided DOJ a draft of this report. In written comments, the
Department generally agreed with our findings and said it would
implement our recommendations. In addition, DOJ said it would give
special attention to U.S. Attorneys' Offices where the Laboratory
Unbundling initiative was ongoing at the time its False Claims Act
guidance was issued. As an initial step, DOJ plans to require these offices to
document their compliance with the guidance.
DOJ also offered comments in response to our concerns about the
Laboratory Unbundling initiative. These comments revolved around two
issues: (1) the timeliness of incorporating the guidance into ongoing
investigations and (2) the adequacy of the evidence used as a basis for
alleging False Claims Act violations.
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Concerning the first issue, DOJ said that a number of factors have affected
the speedy resolution of Laboratory Unbundling investigations. In
particular, it said that investigations have proceeded with caution to
ensure that errors made in the past are not repeated. DOJ also explained
that, in many cases, hospitals have requested extensions to allow for
further review of claims data and that these requests have been granted.
While we agree that offices should proceed cautiously and that it is
reasonable to grant time extensions, we are uncertain about the extent to
which the slow progress in these investigations is attributable to these
factors. For example, as we described in the report, more than 1 year after
the guidance was issued, one office had only recently begun a detailed
analysis of hospital billing data. Also, as mentioned in the report, officials
at another office attributed their slow progress to having opened too many
investigations at the same time. According to these officials, the volume of
pending investigations had strained their resources, making it difficult and
time-consuming to bring these investigations in compliance with the
guidance.
Concerning the second issue, DOJ questioned our contention that some of
the offices we visited had alleged violations of the False Claims Act before
obtaining sufficient evidence. DOJ acknowledged that one office had sent
letters to hospitals discussing possible False Claims Act violations prior to
obtaining evidence that false claims had been submitted by these
hospitals. However, DOJ said that the other offices contacted hospitals only
after examining several years of claims data that had suggested claims
were improperly submitted. We agree these offices had some data that
suggested that unbundling of laboratory services could be occurring.
However, the offices used these data as a basis for alleging that numerous
hospitals had violated the False Claims Act. As discussed in the report, at
the time these allegations were made, most offices had not adequately
analyzed the data to determine if the apparent errors were sufficient to
warrant a false claims violation, as DOJ guidance now requires. We also
found that these offices lacked evidence that each of the hospitals had
submitted false claims knowingly.
Finally, DOJ said that self-audits have always been, and remain, a voluntary
option for hospitals. DOJ expressed concern with a statement in our draft
report that one office was requiring hospitals to conduct self-audits. We
recognize that the self-audit approach is a voluntary option and we revised
the report accordingly. We have included the Department's comment letter
as appendix III.
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We are sending copies of this report to the Honorable Janet Reno,
Attorney General of the United States, officials from the organizations we
visited, and other interested parties. We will also make copies available to
others upon request. Please call me at (202) 512-7114 or Leslie G.
Aronovitz at (312) 220-7600 if you or your staff have any questions about
this report. Other major contributors to this report include Paul D.
Alcocer, Barry R. Bedrick, Stefanie G. Weldon, Robert T. Ferschl, and
Geraldine Redican-Bigott.
JScarlon
William J. Scanlon
Director, Health Financing and
Public Health Issues
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Contents
Letter
1
Appendix I
22
Data Problems Led to
Termination of
Laboratory
Unbundling in Illinois
and Texas
Appendix II
24
Scope and
Methodology
Appendix III
26
Comments From the
Department of Justice
Table
Table 1: U.S. Attorneys' Offices Visited Participating in National
10
Initiatives
Abbreviations
ACE
Affirmative Civil Enforcement
DOJ
Department of Justice
EOUSA
Executive Office for U.S. Attorneys
HHS
Department of Health and Human Services
OIG
Office of Inspector General
PPS
prospective payment system
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Appendix I
Data Problems Led to Termination of
Laboratory Unbundling in Illinois and Texas
In our February 1999 report, we discussed the results of our survey of all
the U.S. Attorneys' Offices. We reported that some offices closed large
numbers of Laboratory Unbundling investigations after DOJ'S False Claims
Act guidance was issued, without taking adverse actions against providers.
We also said we planned to determine the reasons for the seemingly large
number of Laboratory Unbundling declinations in preparation for this
report. The majority of these declinations-more than 85 percent-
involved U.S. Attorneys' Offices in Illinois and Texas. These offices had
also reported they were no longer involved in Laboratory Unbundling.
The three U.S. Attorneys' Offices in Illinois and the four U.S. Attorneys'
Offices in Texas pursued Laboratory Unbundling investigations on a
coordinated basis in their respective states. The investigations began in
1996 in Illinois and in 1997 in Texas. At their peak, more than 100
investigations were under way against Illinois hospitals, while about 300
hospitals were under investigation in Texas. We visited two offices in each
of these states.
We observed that these four offices-like the other offices we visited that
were continuing with their Laboratory Unbundling investigations as
discussed in our letter-had taken actions during their investigations that
would no longer be permitted by DOJ'S guidance. For example, the offices
sent demand letters to the hospitals alleging that the hospitals had
unbundled laboratory claims in violation of the False Claims Act.
However, the offices had not adequately verified or analyzed the data they
were relying on as a basis for their allegations and they also lacked
evidence that any false claims had been "knowingly" submitted by the
hospitals. The key difference between the Illinois and Texas offices and
the offices that are continuing with Laboratory Unbundling appeared to be
related to the accuracy and reliability of the data supporting the False
Claims Act allegations. In Illinois and Texas, these data were seriously
flawed. The other offices did not appear to have such serious data
problems, but we could not be sure in all instances because of limitations
on our access to this information.
The allegations against Illinois and Texas hospitals were based on claims
data obtained from the local fiscal intermediaries, 10 and the hospitals were
provided with either computer disks or printouts listing claims the offices
believed had been unbundled. This claims data, however, had not been
adequately analyzed and verified before the offices made their allegations.
¹⁰Fiscal intermediaries are private insurance companies that contract with the government to pay
Medicare claims for services from hospitals and certain other health care providers.
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Appendix I
Data Problems Led to Termination of
Laboratory Unbundling in Illinois and Texas
When hospitals reviewed the data, they found what they believed to be a
variety of errors. Follow-up by the U.S. Attorneys' Offices confirmed that
the data were indeed flawed. Offices in both states made adjustments to
their overpayment estimates on the basis of partially corrected fiscal
intermediary data, but not all of the errors could be readily corrected.
Primarily because of the unreliability of the data, both the Illinois and
Texas offices ultimately concluded they had no alternative but to
withdraw their allegations of False Claims Act liability against the
hospitals and terminate their involvement in the initiative. 11
"Three of the offices told the hospitals they were referring the matters to the local fiscal intermediary
for possible collection of some of the amounts. The other office reached an agreement with the
hospitals it was investigating whereby the hospitals agreed to repay an adjusted amount to the fiscal
intermediary without damages or penalties. At the four offices we visited, hospitals that had previously
settled-5 in Illinois and 19 in Texas-were refunded the amounts they had paid as part of their
settlement agreements. In addition, one Texas hospital opted not to rescind its settlement agreement.
A refund to another Texas hospital, which was involved in bankruptcy proceedings, had not been
made at the time of our visit.
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Appendix II
Scope and Methodology
To monitor DOJ'S compliance with its False Claims Act guidance, we met
with officials from the Civil Division and the Executive Office for U.S.
Attorneys (EOUSA). In addition, we met with representatives from the work
groups that have been established to support the four national health care
initiatives. We also visited 10 U.S. Attorneys' Offices to discuss the offices'
participation in the national initiatives; their implementation of the
guidance; and, in four cases, their decisions to terminate their involvement
in the Laboratory Unbundling initiative.
We used the results of our survey of all U.S. Attorneys' Offices, discussed
in our first report, to judgmentally select the 10 locations. Six of the 10
offices were chosen because they had significant numbers of pending
investigations related to at least one of the national initiatives. In addition,
four offices were selected primarily because they reported closing large
numbers of Laboratory Unbundling investigations without adverse action
against the providers. These four offices were no longer participating in
the Laboratory Unbundling, but two of them were participating in other
national initiatives at the time of our visit. Thus, in total, we visited eight
offices that were actively involved in at least one of the national initiatives.
We stated in our first report that DOJ was unwilling to give us access to
information relating to its use of the False Claims Act that we needed to
assess compliance with the guidance. At that time, DOJ would not give us
access to certain work group documents and deleted or "redacted"
portions of other documents. In addition, DOJ would not allow us access to
documents related to ongoing investigations. DOJ deemed this information
confidential and feared that public disclosure could potentially
compromise these investigations.
For this review, DOJ officials agreed to expand our access, provided that
we not disclose the contents of these documents. We agreed and,
consequently, were permitted to examine unredacted versions of the work
group documents. We were also allowed access to some documents
related to pending national initiative investigations at U.S. Attorneys'
Offices. However, DOJ officials preselected these documents and limited
them to those that they considered relevant to our review. In addition,
while we routinely obtain copies of documents in our reviews, DOJ would
not permit us to have copies of any of these materials. In most cases, we
were allowed to take handwritten notes, but this was a time-consuming
process that may have interfered with our ability to monitor the offices
while we were there. Moreover, while we normally have independent
access to officials outside of an agency's headquarters, DOJ would not
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Appendix II
Scope and Methodology
permit us to interview or contact officials from U.S. Attorneys' Offices
unless a representative from EOUSA was present. Likewise, we were not
permitted to meet with work group representatives without an EOUSA
official in attendance. For these reasons, we cannot say with certainty that
we have all of the information necessary to conduct a complete and
independent review of U.S. Attorneys' compliance with the guidance.
Our access was also limited by the existence of qui tam or
"whistleblower" lawsuits, which, DOJ officials told us, involved the
majority of pending investigations related to one of the national
initiatives-Pneumonia Upcoding. Such lawsuits are typically filed under
seal allowing DOJ to investigate without the defendant's knowledge. DOJ
officials told us the seal prohibits them from disclosing information about
such cases. Consequently, we excluded pending qui tam investigations
from the scope of our review. By doing so, however, our ability to monitor
U.S. Attorneys' Offices' compliance with the Pneumonia Upcoding
initiative was limited.
In performing our work, we did not attempt to assess DOJ'S legal basis for
alleging that hospitals had violated the False Claims Act, nor did we
attempt to verify the accuracy of the data used by DOJ in making these
allegations. In addition, while DOJ'S False Claims Act guidance applies to
all civil health care fraud and abuse investigations, we limited our review
to those investigations that were related to the four designated national
initiatives.
We surveyed hospital associations from all 50 states as well as the District
of Columbia and Puerto Rico to obtain their views on DOJ'S False Claims
Act guidance and its implementation in national initiatives. We also met
with representatives from a state association and from the American
Hospital Association.
We performed our work between February and July 1999. Except for the
access restrictions discussed above, our work was performed in
accordance with generally accepted government auditing standards. These
limitations, however, did not have a material effect on the conclusions we
reached in this report.
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GAO/HEHS-99-170 DOJ's False Claims Act Guidance
Appendix III
Comments From the Department of Justice
U.S. Department of Justice
Office of the Deputy Attorney General
Special Counsel for Health Care Fraud
Washington, D.C. 20530
July 30, 1999
Mr. Paul Alcocer
Assistant Director
Health Financing and Public Health Issues
United States General Accounting Office
Washington, D.C. 20548
Dear Mr. Alcocer:
Thank you for sharing with the Department of Justice (DOJ) the draft report prepared by
your office entitled Medicare: Variations in DOJ's Implementation of Its False Claims Act
Guidance in National Health Care Initiatives (GAO/HEHS-99-170). We appreciate the
opportunity to provide comments.
Generally, we agree with many of the findings outlined in your report. In particular, as
you indicate, since the General Accounting Office (GAO) issued its initial report on February 1,
1999, DOJ's national initiative working groups have made substantial progress in implementing
the Department's June 3, 1998, False Claims Act guidance (June 3rd guidance). All four working
groups have conducted a comprehensive analysis of the legal and factual basis for its national
initiative and prepared initiative-specific guidance for use by participating United States
Attorneys' offices (USAOs). We concur with GAO's finding that the working group materials
for each of the four national initiatives are consistent with the requirements in the June 3rd
guidance
As noted in your report, the Department has taken a number of affirmative steps to ensure
that USAOs are complying with the June 3rd guidance. The Deputy Attorney General has
emphasized the importance of following the guidance on a number of occasions and remains
committed to ensuring that the False Claims Act is applied in a fair and responsible fashion. In
supplemental guidance issued December 4, 1998, and February 3, 1999, the Deputy Attorney
General emphasized again that all Departmental attorneys are expected to comply with the June
3rd guidance. Moreover, the Attorney General's Advisory Committee, through its Subcommittee
on Health Care Fraud, actively monitors the progress of each initiative and regularly meets with
national initiative working groups for status updates. Working groups comprised of Assistant
United States Attorneys (AUSAs) and Civil Division Trial Attorneys are working closely with
USAOs participating in national initiatives and are providing guidance throughout the
investigative and litigative process.
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Appendix III
Comments From the Department of Justice
-2-
Additional steps have also been taken by the Department to ensure that the June 3rd
guidance is followed. For example, the Department has provided substantial assistance to its
attorneys on the application of the June 3rd guidance in more than twelve formal training courses
or seminars. Both the Civil Division and the Executive Office for United States Attorneys
(EOUSA) have incorporated the June 3rd guidance into their training curriculum. Additionally,
experienced Health Care Fraud Coordinators in the Civil Division and in EOUSA are available to
respond to questions regarding application of the guidance. Further, members of the working
groups speak regularly with USAOs that work on national initiative investigations, obtain
updates on the progress of those investigations, and provide advice and guidance on subjects
such as data analysis, investigative process and settlement issues.
The report contains several constructive suggestions for strengthening our efforts to
ensure that all matters and cases are handled in accordance with the June 3rd guidance.
Specifically, the report recommends that DOJ improve its oversight of USAOs by (1) developing
guidance for reviewers that includes specific steps for determining whether offices appropriately
follow the guidance, and (2) requiring reviewers to independently determine whether the offices
are complying with the guidance. The Department will take steps to implement both of these
recommendations. Moreover, we recognize that the transition districts discussed in the report,
i.e., the districts where the laboratory unbundling national initiative was ongoing at the time of
the June 3rd guidance, require special attention. We will be taking additional steps above and
beyond those recommended by GAO to ensure that these transition districts are in full
compliance with the June 3rd guidance. As an initial step, these districts will be required to
document their compliance with that guidance, as suggested in the Deputy Attorney General's
memorandum on compliance with the June 3rd guidance, issued December 4, 1998.
With regard to the districts participating in the laboratory unbundling project discussed on
Now on pp. 11-14.
pages 10 - 12 of the draft report, we appreciate the opportunity to address the primary concerns
outlined in your report. Your report indicates that some offices have not completed actions to
address shortcomings in laboratory unbundling investigations.
Districts have diligently worked to allow hospitals every opportunity to analyze data and
present mitigating evidence and/or defenses for consideration. With respect to GAO's
perception that some offices have not moved expeditiously to conclude ongoing investigations
and reach settlements, a number of factors have impacted the speedy resolution of laboratory
unbundling investigations. In part, the progress of these investigations resulted from a change in
the direction that the initiative has taken since the creation of the unbundling working group and
implementation of the June 3rd guidance. In particular, Department attorneys and USAOs have
proceeded with caution in unbundling investigations in order to ensure that errors made in the
past are not repeated and do not mar ongoing investigations. Additionally, in many cases,
hospitals have requested extensions of time to further review claims data or obtain additional
information for analysis. Districts have readily agreed to requests for additional time by
hospitals.
Page 27
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Appendix III
Comments From the Department of Justice
-3-
In four of the five districts discussed, you indicate that hospitals were alleged to have
violated the False Claims Act before knowledge of actual violations was obtained. It is true that
one district sent contact letters discussing possible False Claims Act violations to certain
hospitals prior to obtaining detailed claims data for those hospitals. However, these letters were
sent before the June 3rd guidance, and this oversight has since been corrected. For all of the
other districts cited, the districts invariably contacted hospitals only after having examined
several years of claims data suggesting the submission of improper claims. Upon receiving letters
from USAOs, hospitals were informed that certain claims had been identified that might
constitute false claims and were given information regarding the areas of identified concern.
Districts are still in the investigative stage of the laboratory unbundling initiative and the
investigations are proceeding cooperatively. This cooperative approach to these investigations is
consistent with the careful analysis of potential False Claims Act cases required by the June 3rd
guidance.
Districts investigating unbundling cases have obtained varying degrees of evidence that
false claims were submitted knowingly by hospitals. In a few instances, evidence of knowing
unlawful conduct has been acquired through conventional means such as subpoenas or
interviews. Other indicia of knowledge may have been obtained through detailed analysis of
claims data. Generally, districts have taken a measured, cooperative approach to conducting
unbundling investigations. The districts have attempted to work with hospitals to minimize the
use of discovery tools - such as subpoenas - that are traditionally employed to determine the
extent to which improper billings are knowingly submitted.
With respect to claims data audits being undertaken by the hospitals in the transition
districts you visited, self-audits have always been, and remain, a voluntary option for hospitals.
One district that is continuing to work with hospitals on voluntary self audits is mentioned in the
report as lacking evidence that the hospitals' claims were false or that the False Claims Act was
violated. In fact, however, the district raised the self-audit option only after acquiring evidence
suggesting that improper claims were submitted. In the absence of evidence that the hospitals
knew these claims to be false, this district followed the June 3rd guidance and chose not to pursue
these matters under the False Claims Act. Rather, the district entered into settlement discussions
with hospitals simply to enable the United States to be made whole from the improper payments
that the hospitals received. The pending investigations are being examined on an individualized
basis and, while the hospitals are pursuing self-audits, they are not being required to do so.
Finally, the Department recognizes the difficulties GAO encountered in conducting this
review in light of the Department's longstanding policy of protecting the confidentiality and
integrity of pending investigations. We greatly appreciate GAO's agreement to protect the
confidential nature of documents reviewed by GAO auditors. As you know, the Department
made every possible attempt to facilitate the GAO review. For example, we provided access to
information sought by GAO regarding closed cases. We also facilitated discussions with
supervisory USAO personnel in the districts GAO visited. In some instances, we were able to
provide GAO access to redacted materials in pending cases because they already had been
Page 28
GAO/HEHS-99-170 DOJ's False Claims Act Guidance
Appendix III
Comments From the Department of Justice
-4-
provided to the hospitals. Unfortunately, pursuant to the Department's longstanding policy
regarding pending matters - which is designed to protect the integrity of our law enforcement
efforts - we could not provide complete access to some information sought by GAO.
Thank you very much for the opportunity to comment on this draft report. The
Department remains committed to the fair and responsible use of the False Claims Act in civil
health care matters.
Sincerely
Was John T. Bentivoglio
(101799)
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MAR-02-1999 20:11
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HEALTH CARE
FINANCING ADMINISTRATION
ADDRESSEE:
FROK: Marve Mah
Dearch
OFFICE OF THE ADMINISTRATOR
200 INDEPENDENCE AVE., S.W.
ROOM 314G
WASHINGTON, DC 20201
PHONE: 202-690-6726
PHONE:
FAX : 202-690-6262
TOTAL PAGES:
ADDRESSEE'S FAX MACHINE NUMBER:
DATE:
REMARKS:
Don't know if you
Shill Leed This -
Frand Fact Shet.
ma
MAR-02-1999 20:11
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HHS FACT SHEET
U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
January 4, 1999
Contact:
HHS Press Office
(202) 690-6343
A COMPREHENSIVE STRATEGY
TO FIGHT HEALTH CARE FRAUD, WASTE AND ABUSE
Overview: Since 1993, the Clinton Administration has focused unprecedented attention on
the fight against fraud, abuse and waste in the Medicare and Medicaid programs. Today, the
result is a series of investigations, indictments and convictions, as well as new management
tools to identify wasteful mispayments to health care providers.
The heightened focus on fraud and abuse since 1993 by the HHS Inspector General, the
FBI and Department of Justice, HHS' Health Care Financing Administration (HCFA) and
others throughout government is yielding a new, more detailed picture of fraudulent activities
aimed at the Medicare and Medicaid systems. New surveys and audits have helped
investigators pinpoint areas of vulnerability and ongoing patterns of abuse, which in turn are
leading to changes in law enforcement and administrative actions. In addition, beneficiaries
themselves are being trained to spot and report fraud and misspending.
At HHS, Secretary Shalala launched Operation Restore Trust, a ground-breaking project
aimed at coordinating federal, state, local and private resources and targeting them on areas
most plagued by abuse. During its two-year demonstration phase, the project identified $23 in
overpayments for every $1 of project costs. In addition, the Secretary led the way toward
steady, guaranteed funding for anti-fraud efforts by the HHS Inspector General, included in the
Health Insurance Portability and Accountability Act of 1996 (HIPAA).
Under the Health Care Fraud and Abuse Control Program, also created under HIPAA,
HHS has reported more than $1.2 billion in fines and restitution returned 10 the Medicare Trust
Fund during fiscal years 1997 and 1998. During these years, HHS also excluded more than
5,700 individuals and entities from doing business with Medicare, Medicaid, and other federal
and state health care programs for engaging in fraud or other professional misconduct -- up
from 2,846 in the previous TWO years. In addition, HHS increased convictions by nearly 20
percent in 1997 and another 16 percent in 1998. Since 1993. actions affecting HHS health
care programs have saved taxpayers more than 535 billion. and have increased convictions
and other successful legal actions by more than 240 percent.
In December 1998. President Clinion announced that his Year 2000 budget proposal will
include an anti-fraud and abuse legislative package that would save Medicare another $2
billion over 5 years by eliminating excessive Medicare payments for drugs, ensuring that
Medicare doesn't pay for claims owed by Private Insurers, and other measures.
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FIGHTING FRAUD, WASTE, AND ABUSE IN MEDICARE AND MEDICAID
Operation Restore Trust. In May 1995, President Clinton launched Operation Restore Trust (ORT), a
comprehensive anti-fraud initiative in five key states designed to test the success of several innovations
in fighting fraud and abuse in the Medicare and Medicaid programs. HCFA, the HHS Inspector General,
and the HHS Administration on Aging are working in partnership to carry out ORT. During the two
year demonstration, ORT identified $23 in overpayments for every $1 spent looking at suspected trouble
spots in Medicare, including home health care, skilled nursing facilities, and providers of durable
medical equipment. In May 1997, Secretary Shalala announced that with its successes demonstrated,
ORT techniques would be expanded nationwide and applied to additional areas of fraud and abuse.
Fraud and Abuse Hotline. HHS has expanded the 1-800-HHS-TIPS hotline started in 1995 to report
fraud and abuse in Medicare and Medicaid programs. Some 32,000 complaints that warranted
follow-up action have been received since it began service. Assistance is available in both English
and Spanish.
Administration on Aging Ombudsman Program. As a partner in Operation Restore Trust. the
Administration on Aging has trained thousands of paid and volunteer long term care ombudsman
and other aging services providers to recognize and report fraud and abuse. including problems in
nursing homes and other long term care settings.
Guaranteed and Expanded Funding. In August 1996, President Clinton signed the Health Insurance
Portability and Accountability Act (HIPAA) legislation into law, which for the first time created a stable
source of funding for fraud control. This law established the Health Care Fraud and Abuse Control
Account, a key proposal of the Clinton Administration, to which money is deposited annually from the
Medicare Part A Trust Fund to help finance expanded fraud and abuse control activities The additional
funding began with $104 million in FY 1997, and will total $137.5 million in FY 1999. divided berween
HHS and the Department of Justice. The special funding is used to coordinate federal. state and local
health care law enforcement programs, conduct investigations, provide guidance 10 the health care
industry on fraudulent health care practices, and establish a national data bank to receive and report final
adverse actions against unscrupulous health care providers and suppliers.
Expanded Office of the Inspector General (OIG). Funding from the Health Care Fraud and Abuse
Control Account has enabled the OIG to place personnel in an additional 12 states to carry out
enforcement actions, increasing from 26 to 38 the number of states in which the OIG is present
Increased Efforts by the Department of Justice (DOD. Funding from the Health Care Fraud and
Abuse Control Account has also enabled the Department of Justice, including the FBI, to step up its
efforts to investigate health care fraud. DOJ has increased resources, focused investigative
strategies, and improved coordination among law enforcement agencies. The number of successful
legal action against fraud and other crimes in the health care field has increased by more than 240
percent since FY 1992.
Rewards for Fraud and Abuse Information. The Incentive Program for Fraud and Abuse
Information, which was also created under HIPAA, was implemented in July 1998. Under this program,
rewards can be paid to Medicare beneficiaries and others who report fraud and abuse in the Medicare
program. Their information must lead directly to the recovery of Medicare money for fraudulent
activity, and the provisions can only apply for cases not already under investigation by federal or state
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agencies or Medicare's contractors. Rewards will be for 10 percent of the recovered overpayment or a
$1,000 maximum, and will be financed from the collected overpayments.
Tightening Standards for Home Health Care Providers. Because of extensive evidence of abuse,
home health was one of the initial targets of Operations Restore Trust:
In September 1997, HHS imposed a four-month moratorium on enrollment of new home health care
providers in the Medicare program while new regulations were developed to keep unscrupulous and
unqualified providers from entering the program. The new regulations included provisions requiring
home health agencies to post surety bonds of at least $50,000 before they can enroll or re-enroll in
Medicare, requiring a minimum number of patients to establish an agency's experience prior to
seeking Medicare enrollment, and requiring agencies to submit detailed information about all
businesses they own to prevent the use of improper financial transactions. With the new regulations
in place, the moratorium was lifted in January 1998.
Medicare also has doubled the number of home health audits and increased claims review by 25
percent. It has also increased survey frequency for problem agencies and secured authority to
exclude providers convicted of health care-related fraud, as well as establishing minimum
capitalization requirements to ensure that new agencies have enough funds on hand to operate
responsibly. HHS also now requires home health agencies to be more accountable for the care they
provide, and to conduct criminal background checks on the aides they hire.
HHS is also developing a new payment system for home health services that includes incentives to
provide for care efficiently and avoid unnecessary visits. The new system will pay providers
prospectively, similar to the way Medicare pays hospitals.
Savings from home health anti-fraud initiatives have been projected by the Congressional Budget Office
at $8.8 billion over five years, in addition to further savings to be realized from payment reforms.
New Requirements for Durable Medical Equipment Suppliers. Payment for durable medical
equipment was another area targeted by Operation Restore Trust because of evidence of extensive abuse.
In 1998, HHS proposed new regulations for suppliers of DME (including wheelchairs, canes, and other
medical supplies), aimed at assuring that beneficiaries would be served by legitimate businesses. The
new regulations would require suppliers to obtain surety bonds and would ban DME supplier
telemarketing. It would also require suppliers to have a physical office and a listed phone number, and
would codify a requirement that suppliers reenroll in Medicare every three years. In addition, it would
prohibit suppliers from reassigning a supplier number, and would apply criminal and civil sanctions for
misrepresentations on billing number applications. At the same time, Medicare began conducting on-
site inspections of all medical equipment suppliers when they apply to participate in the program and
when they re-enroll, to assure that beneficiaries are served by legitimate businesses.
Targeting fraud in Community Mental Health Centers. In September 1998, HHS announced new
actions to ensure that Medicare beneficiaries with acute mental illness receive quality treatment in
community mental health centers and that Medicare pays appropriately for those services. As part of a
comprehensive action plan, HHS began termination actions against centers that were unable to provide
Medicare's legally required core services, and required others to come quickly into compliance, HHS
also demanded repayment of money that had been paid inappropriately for non-covered services or
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4
ineligible beneficiaries. The actions came after HCFA and the HHS Inspector General found providers
enrolled in the program who were not qualified to deliver psychiatric services, as well as enrollment of
patients who were ineligible for the Medicare benefit, and services billed to Medicare that were not
appropriate. As part of Operation Restore Trust, HCFA had begun in 1997 to identify patterns of fraud
and abuse of the benefit at community mental health centers. In 1998, HCFA followed up with site visits
to about 700 Medicare-participating centers and applicants. Many met few, if any, of the statutory
requirements for Medicare participation, raising doubts about their ability to care properly for
beneficiaries.
The Medical Integrity Program (MIP) and Payment Safeguards. This system of payment
safeguards, also authorized by HIPAA, identifies and investigates suspicious claims throughout
Medicare, and ensures that Medicare does not pay claims other insurers should pay. MIP also
ensures that Medicare only pays for covered services that are reasonable and medically necessary.
HCFA's current payment safeguards are already paying dividends in COSI savings. These safeguards
comprise a comprehensive system which attempts to identify improper claims before they are paid,
to prevent the need to "pay and chase." HCFA's current strategy for program integrity focuses on
prevention and early detection. Some of the payment safeguard activities include the Medicare
Secondary Payer Program, medical review, cost report audits and anti-fraud activities. The payment
safeguard activities returned $14 for every $1 spent, and saved an estimated $7.5 billion for FY
1997. The Secondary Payment Program alone, which is identifying whether insurers should pay
claims that in the past have inappropriately been paid by Medicare, saved more than $1.1 billion in
1997.
Improving Health Care Industry Compliance. The HHS Office of the Inspector General has issued
compliance program guidance for hospitals to assist in developing measures to combat fraud and abuse
in the hospital industry. In addition, the OIG released guidelines identifying steps for clinical
laboratories, hospitals, home health agencies, and third-party billers to undertake to improve adherence
to Medicare and Medicaid statutes, regulations, and program directives. The guidelines are part of the
Inspector General's continuing efforts to work with health care providers to promote voluntary
compliance with the applicable statutes, regulations, and program requirements pertaining to federal and
other health care programs. In addition, the OIG has issued fraud alerts, advisory opinions and other
guidance as part of an ongoing effort to promote the highest level of ethical and lawful conduct by the
health care industry.
Correct Coding Initiative. In 1994, HCFA began the Correct Coding Initiative by awarding a
contract for the development of correct coding policy for all physician billing codes referred to as
current procedural terminology (CPT) codes. Implemented in 1996. this enhanced pre-payment,
control and associated software update resulted in $215 million in savings in FY 1997. So far,
Medicare has developed more than 100,000 edits to detect improper claims. In addition, HCFA has
begun using commercial off-the-shelf data processing products.
Substantive Claims Testing. HCFA is now working to develop a substantive testing process to help
determine not only whether claims are paid properly, but also whether services are actually rendered and
medically necessary.
Education Efforts. HCFA's contractors educate the provider billing community, including hospitals,
physicians, home health agencies and laboratories about Medicare payment rules and fraudulent activity.
This education covers current payment policy, documentation, requirements and coding changes through
quarterly bulletins, fraud alerts, seminars and, more importantly, through local medical review policy.
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Tough New Requirements for Medicare and Medicaid Participants. President Clinton's FY 1998
budget proposal included several additional anti-fraud provisions. In addition, President Clinton
introduced new legislation in March 1997, the "Medicare/Medicaid Anti-Waste, Fraud and Abuse Act of
1997," that established tough new requirements for individuals and companies that wish to participate in
Medicare and Medicaid. Most of the Clinton Administration's recommendations were included in the
budget bill signed by the President on August 5, 1997, including:
Penalties for services billed by a provider who has been excluded by Medicare and Medicaid.
Penalties for hospitals who contract with providers who have been excluded by Medicare and
Medicaid.
Civil monetary penalties levied on providers that violated the anti-kickback statute, under which the
physician received some kind of incentive for referring patients.
Requiring health care providers applying to participate in Medicare or Medicaid to provide their
Social Security numbers and their employer identification numbers so HCFA can check an
applicant's history for past fraudulent activity.
Barring convicted felons from participating in Medicare and Medicaid.
Budget 2000 Anti-Fraud and Abuse Legislative Package. To build on unprecedented success in
fighting health care fraud, waste, and abuse, President Clinton's FY 2000 budget proposal will include
further anti-fraud and abuse legislative package that would save Medicare some $2 billion over five
years. The package includes measures that would eliminate current requirements in federal law which
require Medicare to make excessive payments for certain drugs; prevent abuse of Medicare's "partial
hospitalization" benefit; ensure that Medicare does not pay for claims owed by private insurers; expand
HCFA contracting authority to purchase high-quality and cost-effective health care; and expanding
HCFA's authority to terminate contractors who do not perform effectively.
Administration on Aging "Fraud Buster Projects." The Administration on Aging (AoA) has trained
thousands of paid and volunteer long-term care ombudsman, insurance counselors and other aging
service providers to recognize and report fraud and abuse in nursing homes and other service settings.
The AoA also awarded $2 million in grants to 12 states to recruit and train thousands of retired
professionals to serve as health care "fraud busters" who works with older persons in their communities
to review benefits statements and report potential cases of waste, fraud, and abuse. Millions of persons
have been reached through the projects' public service announcements, community education events,
train sessions, and informational materials.
###
TOTAL P.06
APR-06-1999 17:26 TO:488 ADLER D
FROM:JONES, R.E.
P. 1/4
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
ROUTE SLIP
TO: SACAH Rosen- Wartell
Take necessary action
Chres Jenning
Approval signature
Sarah Beinch
Comment
Dearah adler
Prepare reply
Jeanne Lambur
Discuss with me
For your information
See remarks below
Ron JONES
FROM: 395-3386
DATE: 4/6/99
REMARKS
attached is a bartreyday - related proposal
from HHS They would like to include it in the
Dru crime bill now in clearance.
Please let me know you 4 you object to 4/7
this provision ASAO.C preferably prior to NOON, Webreday)
that
Pm Joes
APR-06-1999 17:26 TO:488 ADLER D
FROM:JONES, R.E.
P.2/4
SEC.
APPLICATION OF CERTAIN PROVISIONS OF THE BANKRUPTCY
CODE.
(a) RESTRICTED APPLICABILITY OF BANKRUPTCY STAY, DISCHARGE,
AND PREFERENTIAL TRANSFER PROVISIONS TO MEDICARE AND MEDICAID
DEBTS.-Title XI of the Social Security Act is amended by
inserting after section 1143 the following new section:
"APPLICATION OF CERTAIN PROVISIONS OF
THE BANKRUPTCY CODE
"Sec. 1144. (a) MEDICARE AND MEDICAID-RELATED ACTIONS NOT
STAYED BY BANKRUPTCY PROCEEDINGS.-Th commencement or
continuation of any action against a debtor under this title or
title XVIII or XIX (other than an action with respect to health
care services for the debtor under title XVIII), including any
action or proceeding to exclude or suspend the debtor from
program participation, 289999 civil money penalties, recoup or
set off overpayments, or deny or suspend payment of claims shall
not be pubject to the provisions of nection 362 (a) of title 11 of
the United States Code.
" (b) MEDICARE- AND MEDICA1D-RELATED DEBT NOT DISCHARGEABLE
IN BANKRUPTCY.-A debt owed to the United States or to a State
for an overpayment under title XVIII or XIX (other than an
overpayment for health care services tor the debtor under title
XVIII), or for a penalty, fine, or assessment under this title or
title XVIII or XIX, shall not be dischargeable under any
provision of title 11 of the United States Code.
(c) REPAYMENT OF CERTAIN DEBTS CONSIDERED FINAL.-Payments
made to repay a debt to the United States or to a State with
APR-06-1999 17:26 TO:488 ADLER D
FROM:JONES, R.E.
P.3/4
2
respect to itemo or services provided, or claims for payment
made, under title XVIII or XIX (including repayment of an
overpayment (other than an overpayment for health aare services
for the debtor under such Litle XVIII) ) or to pay a penalty,
fine, or assessment under this title or title XVIII or XIX, shall
be considered final and not preferential transfers under section
547 of title 11 of the United States Code "
(b) MEDICARE RULES APPLICABLE TO BANKRUPTCY
PROCEEDINGS -Title XVIII of the Social Security Act is amended
by adding at the end the following new section:
"APPLICATION OF PROVISIONS OF THE BANKRUPTCY CODE
"Sec. 1897. (a) USE OF MEDICARE STANDARDS AND
PROCEDURES.-Notwithstanding any provision of title 11 of the
United States Code or any other provision of law, in the case of
claims by a debtor in bankruptcy for payment under this title,
the determination of whether the claim is allowable, and of the
amount payable, shall be made in accordance with the provisione
of this title and title XI and implementing regulations.
" (b) NOTICE TO CREDITOR OF BANKRUPTCY PETITIONER. In the
case of a debt owed to the United States with respect to items or
services provided, or claims for payment made, under this title
(including a debt arising from an overpayment or a penalty, fine,
or assessment under title XI or this title), the notices to the
creditor of bankruptcy petitions, proceedings, and relicf
required under title 11 of the United States Code (including
under section 342 of that title and section 2002 (j) of the
APR-06-1999 17:26 TO:488 ADLER D
FROM:JONES, R.E.
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3
Federal Rules of Bankruptcy Procedure) shall be given to the
Secretary. Provision of such notice to a fiscal agent of the
Secretary shall not be considered to satinfy this requirement.
" (c) TURNOVER OF PROPERTY TO THE BANKRUPTCY ESTATE.-For
purposes of section 542 (b) of title 11 of the United States Code,
a claim for payment under this title shall not be considered to
be a matured debt payable to the estate of a debtor until such
claim has been allowed by the Secretary in accordance with
procedures under this title. "
APR-06-1999 17:24 TO:204 - C. JENNINGS
FROM:JONES, R.E.
P. 1/4
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
ROUTE SLIP
TO: SACAH Rosen- Wartell
Take necessary action
Chris Jennings
Approval signature
Sarah Beingh
Comment
Devorah adler
Prepare reply
Jeanne Lambur
Discuss with me
For your information
See remarks below
RON JONES
FROM: 395-3386
DATE: 4/6/99
REMARKS
attached is a bartreystay - related proposal
from HHS They would like to include it in the
Dru crime bill now in clearance.
Please let me know you 4 you object to 4/7
this provision ASAP.C preferably prior to NOON, Webreday)
that
for Joes
APR-06-1999 17:24 TO:204 - C. JENNINGS
FROM:JONES, R.E.
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SEC.
APPLICATION OF CERTAIN PROVISIONS OF THE BANKRUPTCY
CODE.
(a) RESTRICTED APPLICABILITY OF BANKRUPTCY STAY, DISCHARGE,
AND PREFERENTIAL TRANSFER PROVISIONS TO MEDICARE AND MEDICAID
DEBTS.-Title XI of the Social Security Act is amended by
inserting after section 1143 the following new section:
"APPLICATION OF CERTAIN PROVISIONS OF
THE BANKRUPTCY CODE
"Sec. 1144. (a) MEDICARE AND MEDICAID-RELATED ACTIONS NOT
STAYED BY BANKRUPTCY PROCEEDINGS.-The commencement or
continuation of any action against a debtor under this title or
title XVIII or XIX (other than an action with respect to health
care services for the debtor under title XVIII), including any
action or proceeding to exclude or suspend the debtor from
program participation, 289899 civil money penalties, recoup or
set off overpayments, or deny or suspend payment of claims shall
not bc oubject to the provisions of Lection 363 (a) of title 12 of
the United States Code.
" (b) MEDICARE- AND MEDICAID-RELATED DEBT NOT DISCHARGEABLE
IN BANKRUPTCY. -A debt owed to the United States or to a State
for an overpayment under title XVIII or XIX (other than an
overpayment for health care services tor the debtor under title
XVIII), or for a penalty, fine, or assessment under this title or
title XVIII or XIX, shall not be dischargeable under any
provision of title 11 of the United States Code.
(c) REPAYMENT OF CERTAIN DEBTS CONSIDERED FINAL.-Payments
made to repay a debt to the United States or to a State with
APR-06-1999 17:24 TO:204 - C. JENNINGS
FROM:JONES, R.E.
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2
respect to itemo or services provided, or claims for payment
made, under title XVIII or XIX (including repayment of an
overpayment (other than an overpayment for health aare services
for the debtor under such Litle XVIII) 1, or to pay a penalty,
fine, or assessment under this title or title XVIII or XIX, shall
be considered final and not preferential transfers under section
547 of title 11 of the United States Code "
(b) MEDICARE RULES APPLICABLE TO BANKRUPTCY
PROCEEDINGS.-Title XVIII of the Social Security Act is amended
by adding at the end the following new section:
"APPLICATION OF PROVISIONS OF THE BANKRUPTCY CODE
"Sec. 1897. (a) USE OF MEDICARE STANDARDS AND
PROCEDURES.-Notwithstanding any provision of title 11 of the
United States Code or any other provision of law, in the case of
claims by a debtor in bankruptcy for payment under this title,
the determination of whether the claim is allowable, and of the
amount payable, shall be made in accordance with the provisions
of this title and title XI and implementing regulations.
" (b) NOTICE TO CREDITOR OF BANKRUPTCY PETITIONER. In the
case of a debt owed to the United States with respect to items or
services provided, or claims for payment made, under this title
(including a debt arising from an overpayment or a penalty, fine,
or assessment under title XI or this title), the notices to the
creditor of bankruptcy petitions, proceedings, and relief
required under title 11 of the United States Code (including
under section 342 of that title and section 2002 (j) of the
APR-06-1999 17:24 TO:204 - C. JENNINGS
FROM:JONES, R.E.
P.4/4
3
Federal Rules of Bankruptcy Procedure) shall be given to the
Secretary. Provision of such notice to a fiscal agent of the
Secretary shall not be considered to satinfy this requirement.
" (c) TURNOVER OF PROPERTY TO THE BANKRUPTCY ESTATE. -For
purposes of section 542 (b) of title 11 of the United States Code,
a claim for payment under this title shall not be considered to
be a matured debt payable to the estate of a debtor until such
claim has been allowed by the Secretary in accordance with
procedures under this title "