Rampant Fraud Complicates Medicare Cures

A nursing home operator in Northern California bilks Medicare out of nearly $4 million, and might have gotten away with it if he hadn’t submitted forged invoices from bogus firms listing their addresses as New Hamshire--without a “p”--and Lubbock, Miss.

Senior citizens in southern Florida are duped into giving their Social Security numbers to door-to-door solicitors who say the seniors are eligible for free milk; the conspirators use the numbers to defraud Medicare out of $14 million.

A home health care service with operations in 22 states bills Medicare for $85,000; investigators later learn the money was used to send gourmet popcorn to doctors in order to encourage them to employ the firm’s services.

According to the General Accounting Office, schemes like these added 10%--or roughly $17 billion--to the cost of Medicare last year. That’s more than the federal government’s total bill for providing cash welfare assistance to poor families with children.

As members of Congress wrestle with competing plans for overhauling the massive system that provides health care to the elderly and disabled, they face an uncomfortable reality: Perhaps no other government program is as rife with fraud as Medicare, but the virtual impossibility of rooting it out means that reformers must cut benefits deeper and squeeze providers harder in order to achieve the savings they want.

Republicans and Democrats alike claim that significant savings can be achieved by ridding Medicare of waste, fraud and abuse, and they are competing with each other to prove their prowess as fraud-busters. But nonpartisan government accountants say the proposed reform plans would do little more than scratch the surface of Medi- care fraud.

The Congressional Budget Office, for example, estimates that the House Republican reform blueprint would recover only $2 billion of the more than $120 billion likely to be stolen from Medicare over the next seven years.

Some officials are warning that reform legislation could actually make matters worse. The inspector general of the Department of Health and Human Services contends that the House GOP plan “would cripple the efforts of law enforcement agencies” to control Medicare abuse and prosecute doctors and other medical professionals who take kickbacks by placing an “unsurmountable burden of proof on the government.”

In fact, one section of the House reform package is titled “limiting the imposition of anti-kickback penalties.”

“They know what they’re doing,” said Gerald Stern, special counsel for health care fraud at the Justice Department. The House plan, he said, would “seriously undermine” multi-agency efforts to investigate and prosecute fraud, which have won the government hundreds of millions of dollars in recent settlements.

Congressional Democrats are using the issue to attack their Republican colleagues. At a congressional hearing last week, Sen. Tom Harkin (D-Iowa) said the GOP plan “could be more appropriately called the Scam Artists Protection Act.”

House Republicans argue that their proposals are designed to reduce unnecessary regulation of doctors and would not facilitate fraud. “The Administration is fabricating and inventing reasons why doctors should not be able to have their regulatory burdens reduced,” said Ari Fleischer, spokesman for the House Ways and Means Committee, which drafted the measure.

By contrast, the Administration has praised the anti-fraud provisions contained in the rival reform plan drafted by Senate Republicans. “There are some dramatic additional tools [for fighting fraud] in the Senate bill,” Stern said in an interview. “For example, it makes health care fraud a crime; it gives subpoena authority to the attorney general on health care cases; it expands anti-kickback statutes.”

The Senate measure would permit Justice Department civil fraud attorneys access to grand jury information in health care cases, an authority they already have in cases involving financial institutions. It would earmark $200 million initially--and 10% more each year for seven years--for investigation and prosecution of Medicare fraud.

After being on a legislative back-burner for decades, health care fraud has become a hot issue as medical costs spiral out of control and Congress finds it necessary to harness the rapid growth of Medicare and Medicaid. Many lawmakers now seem convinced that if they hope to sell a skeptical public on the necessity of reduced benefits or higher premiums, they had better do something to seriously attack the problem of fraud at the same time.

Clinton Administration officials have felt the heat.

Two years ago, Atty. Gen. Janet Reno cited health care fraud as her second priority--behind violent crime--and launched a multi-agency effort to crack down on offenders. The FBI has put more agents on health care cases, up from 97 in 1992 to 249 this year, and Director Louis J. Freeh argues that many more are needed to unmask the increasingly intricate scams employed by Medicare and Medicaid crooks.

“The problem is so big and so diverse that we are making only a small dent in addressing the fraud,” Freeh said in testimony before a Senate committee.

Fraud in other federal programs, such as food stamps, is minuscule by comparison. The Agriculture Department estimates that less than $1 billion of the $24 billion paid out in food stamps in 1994 went to ineligible applicants who filled out forms incorrectly, and in only a portion of those cases was there an intent to defraud. While Medicare crooks can walk away with millions of dollars, a typical food stamp cheat ends up with a couple extra months of government subsidized groceries after starting a new job.

Organized crime kingpins view health care fraud as a new frontier, the FBI director said, and cocaine distributors in Southern California and southern Florida are diversifying into Medicare abuse because the profits are greater, the chance of detection is slimmer and the penalties are minor.

“There are all sorts of schemes out there,” said Steve Meagher, a former prosecutor in the U.S. attorney’s office in San Francisco who now represents whistle-blowers in medical fraud cases. “It’s like the Wild West when it comes to Medicare.”

Most Medicare fraud goes undetected, the country’s top investigators say, because the health care system is based on trust between health care providers and patients.

“Who suspects their physician or hospital of doing something improper?” asked Robert Richardson, regional inspector general for investigations in the San Francisco office of the Health and Human Services Department.

Another reason the system is rife with abuse is that the people who decide what costs are necessary--medical providers--are the same people who benefit monetarily from those decisions. Patients do not pay directly for most services, so they do not have a direct incentive to check up on their doctors.

“Put those two things together and that’s an easy system to target,” said John Hartwig, deputy inspector general for investigations at HHS.

The huge number of Medicare recipients--38 million nationwide--and the sheer volume of claims--700 million per year--also contribute to the problem of fraud.

“One of the difficulties is that there are such a tiny number of people involved in it percentage-wise, but they’re getting so much money,” Richardson said.

Even when investigators believe that they’ve discovered someone cheating the system, it takes considerable time to build a case.

Frank Aiello, owner of a 99-bed Bay Area nursing home, is believed to have stolen as much as $4 million from Medicare from 1990 to 1994, before federal agents wrapped up their case against him.

It took two years to accumulate enough evidence to justify filing charges. The case was finally clinched when Aiello tried to pass off phony invoices for medical equipment he supposedly purchased for his nursing home in Lincoln, Calif.

An investigator in the case, who spoke on condition of anonymity, said Aiello provided invaluable assistance himself by misspelling New Hampshire and transplanting the city of Lubbock from West Texas to Mississippi on invoice letterheads that he faked to try to trick investigators.

During a search of the nursing home’s offices, investigators found two sets of books, one listing the bogus medical supply purchases and another recording the real purchases, which included feed for animals at Aiello’s ranch.

One reason Aiello was able to steal from Medicare for so long was that he paid $500 under the table to a clerk for Mutual of Omaha Insurance Co., which processed the Medicare claims, to speed up his payments. Aiello was found guilty and is in jail awaiting sentencing.

Many Medicare fraud cases are far more difficult to pin down because “the cases we see today are much more complicated,” Richardson said.

A few decades ago, a typical fraud case might have involved a doctor submitting bills for client examinations when he was really in the Bahamas.

Today, many scams take advantage of the fact that most billing is done from computer to computer.

Consider the case of the two sisters from Simi Valley who managed to steal $7 million from Medicare in the early 1990s by describing regular bandages, which cannot be charged to Medicare, as surgical dressings, which can.

One of the sisters cooked up the scheme while working as a low-level billing clerk in a hospital. One day she mistakenly entered the code for surgical dressings instead of for bandages, discovering quite by accident the potential payoff. The mistake grew into a multimillion-dollar scam.

The sisters started out by offering their services as billing experts to a nursing home, promising to recover more money from Medicare than the facility had received in the past. The venture was so successful, the women eventually hired a staff and expanded into a nationwide billing company serving 70 nursing homes.

The scheme was derailed because of a power struggle over the management of one of the nursing homes, the Regency Hill Convalescence Hospital in Pittsburg, Calif. The sisters were hired by the new owners, who were promising to make the operation more cost-effective. The old managers, offended at the suggestion that they were inefficient, brought in a consultant to examine the sisters’ Medicare claims.

The consultant discovered that they were routinely charging for surgical dressings for patients who had not had surgery. By that time, Medicare had already paid out some $7 million in fraudulent claims submitted by the sisters over 10 months.

Both women are now serving prison sentences.

“If they hadn’t done it so much, they might not have been caught,” said the case investigator, who spoke on condition on anonymity. “People are greedy. They don’t get caught the first time out, [so] their sights get bigger and bigger.”

Law enforcement officials say Medicare fraud is so difficult to detect that it will probably never be eliminated. But they argue that significant progress can be made if more investigators are hired--and if taxpayers come to better understand that they ultimately are stuck with the bill.

In some areas, concerted efforts already are under way to beef up enforcement.

Health care crime became so rampant in southern Florida, for instance, that the federal government opened a new office in Miami to concentrate specifically on Medicare and Medicaid fraud. One of the staff’s functions is to meet with older people and tell them what they should look for to make sure they are not victims of a scam.

While such efforts are expensive, many officials see them as necessary. They note that the monetary payoff for health care fraud is much greater than for most types of crime, and the problem will only escalate if authorities fail to respond aggressively.

Some signs of progress are evident. This summer, Caremark International, a Northbrook, Ill., home health care chain, pleaded guilty to giving bonuses to doctors to refer Medicare and Medicaid patients to the company’s facilities. The company agreed to pay $161 million in fines and penalties.

The case is one of several kickback schemes pursued by the Clinton Administration as part of its anti-fraud initiative.

“Kickbacks are pernicious because they corrupt the medical providers’ decision-making, often replacing profit for patient welfare,” said Stern, the Justice Department special counsel. “Kickbacks have led to grossly inappropriate medical care, including unnecessary hospitalization, surgery, drugs, tests and equipment--at great additional expense to the American consumer and taxpayer.”