Reimbursement Schemes Costly for Medicare : Health care: Some medical suppliers find an opportunity for abuse, overcharging for items that beneficiaries do not necessarily need or want.

When a man who said he was from “Medi-Rent” drove up to Louise White’s house in Baltimore and told her that her doctor had prescribed a knee brace for her leg, the disabled, 64-year-old woman believed him.

“I had just had surgery on my leg,” White recalls, and “the next thing I knew this man was knocking on my door. He said, ‘That’s what the doctor prescribed.’ ”

White accepted two knee braces and an ankle brace, with a promise that she would not have to pay the 20% share of the bill that normally would have been required under the Medicare program. The company would pay that part of the tab itself.

“At the time it felt pretty good,” White says of the knee brace, “but when I tried to stand up it was too tight. I finally had to get someone to cut it off, ‘cause it was cutting off the circulation.”

White’s subsequent complaints to Medicare eventually found their way to Pat Gilmore, an investigator at the U.S. attorney’s office in Philadelphia, where “Medi-Rent”--as White recalls the firm--is based.

“We get thousands of complaints like hers,” Gilmore says. “The doctor probably did sign the certificate of medical necessity (required for the sale), but (he) was probably too busy to investigate exactly what it was he was signing for.”

It is not immediately clear in White’s case how “Medi-Rent” knew that the Baltimore woman had just undergone leg surgery--or how it got her physician to sign the form authorizing reimbursement of the sale by Medicare.

But Gilmore says the modus operandi is a familiar one: The medical supplier compiles lists of Medicare beneficiaries by placing ads that offer elderly persons a free pamphlet or gift in return for their names and addresses--and then sends a salesman to call on them.

Often, the salesman “learns” about an operation by coincidence--or during his conversation with the customer. Gilmore says suppliers often obtain needed signatures simply by sending the physicians the forms to sign. Many practitioners do not take time to go over every form.

Perhaps most surprising is that in most cases these practices are perfectly legal--partly, critics say, because the rules under which the huge federal Medicare system operates necessarily must be so flexible that they virtually invite fraud and abuse.

Stories such as White’s are not uncommon. Earlier this month, the Senate Budget Committee began a probe of allegations that some suppliers of medical equipment may be overcharging the Medicare program for products that elderly persons do not need and often do not even want.

“There’s no limit to what an American entrepreneur can conjure up to sell products,” Jack Light, vice president of medical economics for the California Medical Assn., says.

Medicare, a federal program enacted in 1965, finances medical expenses for 33 million Americans who are either disabled or over 65 years old.

With Medicare costs nationally up a staggering 50% over the past five years--and predictions that the Medicare fund may go bankrupt by the year 2005--such abuses by suppliers impose even more financial pressure on an already overburdened system.

Federal officials estimate that abuses of this type may be costing the government hundreds of millions of dollars each year. The General Accounting Office reports that waste, fraud and abuse for the entire Medicare program is running about $4 billion a year.

There are many opportunities for abuses by suppliers. For example, the maximum charges--set by the Heath Care Financing Administration, which runs the Medicare program--for federal reimbursement of private purchases of medical equipment varies widely from state to state.

The limit for a wheelchair seat cushion is $41.93 in Tennessee; in Pennsylvania, it is $248.96.

That, in turn, has prompted equipment suppliers to exploit the differences by setting up their distribution centers in states with higher limits and then selling by mail to buyers in neighboring jurisdictions.

“It appears that all (the medical equipment supplier) needs in Tennessee is an 800 phone number or a mail drop,” says Sen. Jim Sasser (D-Tenn.), chairman of the Senate Budget Committee, who has been looking into Medicare fraud.

Larry Morey, who investigates such activities for the inspector general’s office of the Department of Health and Human Services, says with reimbursement rates that differ by up to 1,400%, such billing practices are costly.

But officials lament that despite the widespread incidence of these practices, such cases often are difficult to prosecute. “What we have to prove is that a supplier misrepresented where the point of sale took place,” says Robert Noble, another HHS investigator.

“Given the new (telephone) technology, with things like call-forwarding,” Noble says, “it’s not always that easy.”

Other technically legal practices that artificially inflate the cost of medical supplies are even harder to prosecute.

In one, known as “unbundling,” suppliers sell an assembled product for which they themselves pay one low price and then charge Medicare for each of its individual components--a practice that can inflate reimbursement costs by up to 1,000%.

Yet, technically, federal policy allows this.

To add to fraud investigators’ woes, the most widespread abuses by Medicare suppliers often are the most difficult to detect--sometimes involving no more than suggestions to beneficiaries that they ought to buy certain kinds of equipment.

One family physician describes how the pressure-tactics work:

“You get a guy who goes in to fill a prescription,” he says, “and the guy behind the counter shows him this really neat seat lift that goes up and down and says, ‘Why not get one? You won’t have to pay a thing--Medicare will pay.’

“So then your patient comes to you and says, ‘I want one.’ There’s a lot of pressure on you to sign the form saying he needs it. Your patients are your livelihood, and if they’re not happy with your not signing the form, they’ll find a new doctor who will.

“You’ve got to make a living by seeing patients. What incentive is there for me to save money for Medicare?”

Other suppliers are more aggressive in trying to persuade beneficiaries to accept their products, using techniques such as telemarketing to sell their wares.

“(Medical equipment) companies will call beneficiaries and manage to convince them that they need all this equipment,” Morey says.

“The next thing you know, you have (certificates of medical necessity) being submitted to doctors. Certain doctors get a reputation in a community for signing these things, and telemarketers are aware of this and target them.”

Some companies will even waive the 20% Medicare deductible in order to induce them to buy.

The suppliers often charge so much for their goods that even when they do not collect the 20%, they still reap a substantial profit, says Sen. William S. Cohen (R-Me.), senior Republican on the Special Committee on Aging.

The problem, doctors say, is that the system is set up to encourage Medicare recipients to purchase needless medical equipment at no cost to themselves. The beneficiaries’ private insurance companies will often pay the 20% deductible if the supplier does not waive it.

Even Health Care Financing Administration officials admit that in many cases companies are just being “entrepreneurial” in trying to sell their products.

“We don’t call what we did ‘criminal activities’ because the present system is at fault,” says an equipment supplier who has been involved in such a scheme. “The problem you have is that the government permits certain suppliers to get higher prices for the same products if they’re in different states. So suppliers who get lower prices and stay in their home states go out of business.”

To help reduce such abuses, the Health Care Financing Administration is considering a new standard for judging whether suppliers’ prices are valid--the doctrine of “inherent reasonableness,” in bureaucratic parlance.

Until 1988, Health Care Financing Administration officials say they were barred from questioning prices on that basis.