Federal effort to target medical fraud

Times Staff Writers

Fraudulent Medicare billings submitted by medical equipment suppliers in the Los Angeles area and south Florida are the target of a pilot program to be announced today by the Department of Health and Human Services.

The two-year program, which was developed by the Centers for Medicare and Medicaid Services, will concentrate on fake bills and overcharges sent by suppliers of prosthetic limbs, orthotics, diabetic supplies and durable medical equipment, which includes such items as wheelchairs and nebulizers.

The nationwide figure for such fraud could reach several billion dollars a year, according to Medicare. If the pilot program is successful in reducing fraud in the two regions, it probably will be rolled out nationwide.


“In the Los Angeles area, there are over 4,800 durable medical equipment suppliers. Because there are so many suppliers and such a high number of beneficiaries, it creates an opportunity for this kind of fraud,” said Kimberly Brandt, Medicare’s director of program integrity.

Federal authorities have long raised concerns about the level of Medicare fraud in Southern California. The U.S. attorney’s office in Los Angeles has a special unit of four prosecutors devoted to filing criminal cases. The office also uses civil lawsuits to seek reimbursements for improper billing.

A U.S. attorney’s office spokesman said that most cases involve defendants accused of overcharging the federal health insurance program or billing for unnecessary or undelivered services.

In February, a federal grand jury in Santa Ana indicted 18 people, including nine doctors, on charges that involved an alleged scheme to defraud Medicare of more than $12 million. Prosecutors allege that the doctors worked with board-and-care administrators to bill the federal government for respiratory treatment for elderly, sick and mentally ill patients that was unnecessary or not provided.

“Medicare fraud is a huge problem across the country but particularly here in Southern California,” said Thom Mrozek, a U.S. attorney’s office spokesman. “It’s a problem we’ve been battling for over 10 years now.”

The program set to be unveiled by the Centers for Medicare and Medicaid Services will focus on companies that supply medical equipment.

In recent years, Southern California has experienced a steady increase in the number of the suppliers, along with a surge in the amount of money that they have billed Medicare.

At the start of the current fiscal year, 5,097 suppliers operated in Los Angeles, Orange, Riverside and San Bernardino counties -- up from 4,417 at the start of the 2002 fiscal year. Meanwhile, the amount billed to Medicare by local suppliers rose from $614 million in the 2002 fiscal year to $945 million in 2006.

Federal health authorities said investigations of suppliers frequently have turned up problems.

Last year, the agency responsible for vetting companies that bill Medicare for supplies started visiting hundreds of sites in Los Angeles. The effort resulted in 95 suppliers losing their billing privileges.

In an interview Friday, Mike Leavitt, secretary of Health and Human Services, described how, in May, he accompanied a fraud investigation task force to southern Florida, where he saw some of the scams firsthand. In a two-story office building with nearly 60 providers of durable medical equipment, Leavitt said, it was hard to find a legitimate company.

“It was a long web of hallways with doorways on each side, and each would have a small marquee with a list of business hours and a contact number,” he said. “But when I’d knock on the door, no one was there.

“There were hundreds of thousands of dollars being billed by these sham companies,” he said.

Leavitt said he asked the building manager about renting space for a diabetic supplies company. He said the manager told him that he would need only a minimal amount of space and gave him the name of a consultant who could help him set up a fake company.

“In my mind it was clear that there was something really wrong here,” he said.

Of 1,500 dealers the task force visited that week, Leavitt said, about 300 were being terminated from the Medicare program because they were not active businesses, but shell companies that were charging for fictional services. Similar investigations in the Los Angeles area resulted in the revocation of Medicare privileges for 108 companies between January and April.

“We believe there are easily hundreds of millions of dollars that we can save and recover being lost from fraud and abuse,” Leavitt said.

Most of the cases that were investigated by the task force came from poring over billing information and interviewing physicians or Medicare patients who found that something didn’t seem right on a bill.

The program, she said, will try to weed out nonexistent shell companies -- dealers that pass through a series of requirements to get a Medicare billing number, which is the key to sending Medicare claims, and close up shop after submitting several claims.

Others offer money to low-income Medicare recipients for their program numbers and bill the government for services the patients don’t need or were never prescribed. Still others do provide the prescribed equipment, but bill Medicare for upgrades or more expensive equipment the patient never receives.

The government also will strengthen the requirements for new dealers to obtain Medicare billing numbers, including stringent background checks for company owners and managers. Companies already enrolled in the program will be required to reapply for billing privileges annually instead of every three to five years. And area equipment providers also can expect to see a lot more of the Medicare staff, program integrity director Brandt said.

“A lot of the ways the program is targeting fraud is by being very aggressive about having more on-site inspections,” she said.

Brandt said the program would not be a problem for legitimate businesses.

“The extra burden is really going to be on the government to make the effort to check in with these businesses more often. For legitimate businesses, the extra paperwork is more like filling out a driver’s license renewal form,” she said.

If companies or individuals are found to be committing billing fraud, their Medicare billing privileges are suspended and their billing number could eventually be revoked.

From there, the Department of Justice can file criminal charges or help patients and doctors file civil charges against the companies.