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Section for Public Management Practice

Fraud Schemes and the Payoff

Medicare is a target of a wide spectrum of fraud, waste, and abuse. This article will focus on fraud against the Medicare program, which comes in many forms. Health care fraud schemes commonly include purposely billing for services that were not provided or were not medically necessary, billing for a higher level of service than what was provided, misreporting costs or other data to increase payments, paying kickbacks, illegally marketing products, and stealing providers’ or beneficiaries’ identities,7 among others.  

Increasingly, members of gangs and other organized crime networks commit Medicare fraud. Criminals believe it is safer and more profitable to steal from the Medicare program than to traffic in illegal drugs.8 Organized fraud schemes are becoming more sophisticated and potentially dangerous. During Medicare fraud investigations, government agents have confiscated assault weapons such as machine guns and sniper rifles, as well as explosive devices.  

One area of Medicare fraud involves suppliers of durable medical equipment (DME).  Criminals set up sham storefronts and illegitimately bill for medical equipment. Preying on unwitting beneficiaries at home, in community centers, and in churches, they deceive beneficiaries by claiming to be Medicare officials. The criminals threaten to terminate Medicare benefits unless beneficiaries disclose their Medicare numbers or accept medical equipment or supplies they do not need. These beneficiaries may receive diabetic supplies, wheelchairs, or other supplies after being deceived or coerced into revealing their Medicare beneficiary numbers. In other DME scams, the beneficiary’s Medicare number is simply stolen, and the beneficiary does not receive any medical equipment.  

Sometimes the Medicare program pays for services based on falsified medical records.  Recently, employees of a home health agency were convicted of conspiracy to commit health care fraud and for soliciting and receiving kickbacks. Part of the scheme was to pay recruiters to collect Medicare beneficiary numbers to make it appear as though those beneficiaries were “enrolled” with the home health agency. At the home health agency, a nurse falsified medical records, and the agency then billed for services not needed, and in many instances not provided.9 Other schemes may include submitting claims for multiple types of supplies or home medical equipment.

Because criminals can receive tens of thousands of Medicare dollars per day in electronic payments, they can make extravagant purchases. They spend these fraudulently obtained Medicare dollars in a variety of ways—for example, by purchasing luxury automobiles, helicopters, and real estate. In one egregious case, members of a family used Medicare dollars to purchase a helicopter, thoroughbred horses, hotels, and a water theme park.10  Sometimes the criminals immediately wire these funds overseas to prevent confiscation by federal authorities.11  

Fraud-Fighting Efforts within the U.S Department of Health and Human Services

Most providers and suppliers of health care services and goods strive to work ethically, render high quality medical care to their patients, and submit proper claims for payment.  Society places enormous trust in health care providers, and the federal government does as well. Medicare, Medicaid, and other federal health care programs rely on health care providers using medical judgment to treat beneficiaries with appropriate services and on their submitting accurate and truthful claims information. The presence of some dishonest health care providers who exploit the health care system for illegal personal gain has created the need for laws that combat fraud and abuse and ensure appropriate quality medical care.

Office of Inspector General

The Office of Inspector General (OIG) is an agency within the U.S. Department of Health and Human Services (HHS) that oversees HHS programs. Its mission is to protect the integrity of these programs, as well as the health and welfare of program beneficiaries.12  OIG carries out this mission through a nationwide network of audits, investigations, evaluations, and compliance activities that touch on all types of providers and suppliers.  In addition, OIG can impose exclusions and civil monetary penalties on medical providers, among other remedies. (See http://oig.hhs.gov/fraud.asp)  

Centers for Medicare & Medicaid Services

CMS is the federal agency that administers the Medicare program.  CMS’s Center for Program Integrity serves as the agency’s focal point for integrity, fraud, and abuse issues with all national and statewide Medicare and Medicaid programs and the Children’s Health Insurance Program (CHIP).13 To fulfill its oversight responsibility, CMS uses several categories of contractors to detect and deter fraud under different authorities. For instance, Zone Program Integrity Contractors (ZPICs) are private companies contracted by CMS to detect and deter fraud and abuse in the Medicare program. One purpose of the ZPICs is to refer potential fraud leads to appropriate state and/or federal law enforcement agencies. Other contractors—such as fiscal intermediaries, Medicare Administrative Contractors, Medicare Drug Integrity Contractors, and Recovery Audit Contractors—conduct payment reviews to identify potential fraud. Each has had varying degrees of success contributing to the effort to combat Medicare fraud.14

In addition, CMS administers the Medicare program and implements fraud-fighting measures that reduce opportunities for criminals to commit fraud. For instance, CMS recently finalized a rule that addresses screening requirements, application fees, temporary enrollment moratoria, payment suspensions and compliance plans for providers and suppliers in Medicare, Medicaid, and CHIP.15

Administration on Aging—Senior Medicare Patrol Program

In 1997, the HHS Administration on Aging established the Senior Medicare Patrol (SMP) program to fight Medicare fraud by educating beneficiaries. The SMP program trains retired senior volunteers on how to identify and prevent potential fraud and abuse. These volunteers then go to senior centers and other community settings to educate Medicare beneficiaries, their families, and caregivers on what to do if they suspect fraud. The training focuses on reviewing Medicare Summary Notices—the claims reports for Medicare services—to make sure that beneficiaries know which services Medicare has paid for and they have received. The SMP program also encourages beneficiaries to report any attempts from third parties to solicit or acquire their Medicare numbers.

Fraud-Fighting Efforts within the U.S. Department of Justice

The Department of Justice (DOJ) represents the government in the prosecution of civil and criminal cases in federal court, including health care fraud cases. DOJ includes U. S. Attorneys’ Offices—many of which have Health Care Fraud Coordinators and Health Care Fraud Working Groups— in each judicial district, as well as attorneys specializing in health care fraud at DOJ headquarters in Washington, D.C. The Federal Bureau of Investigation’s (FBI) jurisdiction includes federal health care fraud laws; DOJ prosecutors and the FBI are key partners in the Medicare Fraud Strike Force, discussed below. To focus on specific areas of potential fraud, the FBI established national initiatives such as the Internet Pharmacy Fraud Initiative and the Outpatient Surgery Center Initiative.

Beyond “Pay and Chase”

Historically, oversight entities followed what has been called the “pay and chase” model of fraud enforcement. In this model, claims are paid before they have been examined for indicators of fraud, meaning that if post-payment reviews uncover signs of fraud, oversight agencies must chase after dollars that have already been paid. The “pay and chase” model may work when overpayments are the result of a provider’s honest mistake, and CMS is able to work with the provider to recoup the overpayment. However, in fraud cases like those described above, it has not been an effective model for recovering improper payments from criminals because they typically disappear before the government is able to reclaim improper payments. For instance, the DME fraud schemes described above can be executed within a matter of months. Thus, after billing Medicare for millions of dollars, companies can change ownership, bill Medicare again for millions of dollars, close, and simply take over another company and repeat the process in another location. By the time traditional investigative referral methods come to fruition, criminals would have absconded with millions of taxpayer dollars.

Medicare Fraud Strike Force Collaboration

Created in 2007, the Medicare Fraud Strike Force is a partnership between HHS-OIG; DOJ’s Criminal Division, Fraud Section; U.S. Attorneys’ Offices; the FBI; and other state and local law enforcement partners, including State Medicaid Fraud Control Units.  Although agencies charged with combating health care fraud have always collaborated, the Strike Force formalized and reinforces that collaboration. Strike Force teams consist of HHS-OIG and FBI law enforcement agents and DOJ attorneys. The teams are supported by investigative analysts, as well as by CMS program experts and contractors who analyze claims data to identify individuals and entities that are defrauding the Medicare program and other government health care programs.

Through data analysis, coupled with investigative intelligence, law enforcement is able to identify geographic “hot spots” where suspicious billing patterns are prevalent. Based on such analysis, the Strike Force was launched in Miami in 2007. DOJ and HHS-OIG expanded the Strike Force to Los Angeles in March 2008; to Detroit in June 2009; to Houston in July 2009; to Baton Rouge, Brooklyn and Tampa in December 2009; and to Chicago and Dallas in February 2011.

One unique characteristic of the Strike Force model is the use of real-time data to detect aberrant billing patterns and identify the geographic “hot spots” where potential fraud is occurring. The “pay and chase” model typically relied on claims data that was six months to one year old. By the time the illegitimate provider was identified, the provider had been paid millions of dollars and moved on. In contrast, the “prevent and detect” model based on near real-time data allows law enforcement to stop payment of a significant amount of money and to catch criminals in the act.  

The Strike Force model also uses a streamlined investigative approach.  Individual Strike Force investigations generally follow a model that has proved highly successful in these fraud schemes.  The model includes the following steps:  (1) analyze and evaluate claims data, (2) obtain the Medicare enrollment application, (3) identify the medical biller, (4) identify and obtain bank information, and (5) identify the true owner of the Medicare provider that is under investigation.

During a Strike Force investigation, law enforcement may visit the provider’s place of business in person to further investigate whether fraud is being committed. For instance, law enforcement may begin simply by checking to see if a provider is open for business during its announced operating hours.16 A closed retail space, sitting empty, may be a sign of a “false front” provider that is not a bona fide business. In the case of a suspicious supplier of DME, law enforcement may also note whether inventory commensurate with the billing history of the supplier is visible inside the retail space.  

Frequently, fraud extends beyond the Medicare program to state Medicaid programs, private insurance and other health insurance programs. Billing multiple payers for poor or nonexistent services, the criminals submit as many claims as possible within a short period of time. When multiple payers are involved, the Medicare Fraud Strike Force may collaborate with entities with jurisdiction over other affected health insurance programs.    

Once criminals find a way to defraud the Medicare program, they may further perpetuate the fraud by telling friends and family, who then follow their example. Or, fraud can spread more systematically and extensively by a crime ring. Federal investigators describe this rapid growth as “viral.” The viral nature of the fraud results in expansion to numerous cities, sometimes across numerous states. For instance, a recent investigation uncovered at least 118 fraudulent clinics in 25 states, all run by members of the same crime ring.17

When law enforcement has gathered evidence sufficient to make an arrest or obtain an indictment, defendants can face criminal charges. DOJ prosecutors and Assistant U.S. Attorneys in Strike Force locations represent the government in Strike Force court cases.  These prosecutors are sometimes assisted by designated Special Assistant U.S. Attorneys or Special Trial Attorneys, who have been detailed from HHS-OIG and other agencies.  Defendants found guilty of health care fraud may be sentenced to prison sentences in addition to fines and restitution. In many cases, OIG will “exclude” the providers, preventing them from participating in any federal health care programs. This is intended to be a significant deterrent to health care providers who might otherwise be willing accomplices to organized criminal elements.  

Renewed HHS and DOJ Collaboration:  HEAT

In May 2009, HHS Secretary Kathleen Sebelius and Attorney General Eric Holder built on the success of the Strike Force by spearheading HEAT as a new initiative. Fighting Medicare fraud is a Cabinet-level priority; HEAT is a major collaborative venture between the two federal departments and includes collaboration with their state and local law enforcement partners. HEAT’s mission is:

•  To gather resources across government to help prevent waste, fraud, and abuse in the Medicare and Medicaid programs, and to crack down on the fraud perpetrators who are abusing the system and costing us all billions of dollars.

•  To reduce skyrocketing health care costs and improve quality of care by ridding the system of perpetrators who are preying on Medicare and Medicaid beneficiaries.

•  To highlight best practices by providers and public-sector employees who are dedicated to ending waste, fraud, and abuse in Medicare.  

•  To build upon existing partnerships between DOJ and HHS, such as the Medicare Fraud Strike Force, to reduce fraud and recover taxpayer dollars.18          

The close collaboration between DOJ and HHS creates an effective partnership. The intent is to send the message to criminals that committing Medicare fraud will no longer be so easy. Increases in sentencing guidelines under ACA should also deter criminals from committing Medicare fraud.  HEAT’s proactive approach potentially allows government officials to recoup millions of dollars for the Medicare program. According to Attorney General Eric Holder, “For every dollar we spend combating health care fraud, we’re able to return four dollars to the U.S. Treasury and the American taxpayers.”19  

Collaboration with Multiple Stakeholders

In addition to conducting enforcement activities, the HEAT initiative makes a concerted effort to raise public awareness of Medicare fraud, especially among beneficiaries.  DOJ and HHS have hosted a series of Fraud Prevention Summits that include a panel discussion on beneficiary issues.  

(See http://www.youtube.com/watch?v=iGP9lweNMxs&NR=1)  In addition, HHS and DOJ created www.stopmedicarefraud.gov, a Web site that educates the public on how to recognize Medicare fraud and what to do about the issue. The summits and Web site focus on educational outreach to Medicare beneficiaries who may be the targets of fraud—they give beneficiaries tips on how they can check and report charges for services they do not recognize on their monthly statements (Medicare Summary Notices), and on how to report being approached by people asking for their Medicare numbers. Beneficiaries are encouraged to be proactive and help fight fraud.  

The HEAT summits highlight the work of the Senior Medicare Patrol program, which has approximately 4,500 volunteers spread across the country and has expanded its efforts to increase community policing. Program volunteers educate beneficiaries so that they will forward potential investigative leads to CMS or HEAT.   

As the agency that administers Medicare and Medicaid, CMS partners with OIG to identify potential fraud and areas of fraud risk. CMS’s Center for Program Integrity works closely with OIG, DOJ, state law enforcement agencies, other federal entities and CMS components to detect, deter, monitor and combat fraud and abuse.20 The Center is also applying new technologies to conduct tighter screening of the 19,000 new provider enrollment applications that CMS receives every month.21 To proactively combat fraud, CMS also contracted with Northrop Grumman to develop a predictive modeling system to identify high-risk claims.22

The HEAT Task Force also partners with nonprofit organizations such as AARP (formerly the American Association for Retired Persons), which posts articles on its Web site that address Medicare fraud.23 This grassroots outreach helps fulfill the HEAT Task Force’s goal of educating the public about health care fraud. The HEAT Task Force continues to expand its partnerships with other organizations and agencies whose goals are to prevent fraud in the Medicare program.  

Administration Support and the Affordable Care Act (ACA)

The Obama Administration has continued to support the efforts of the Strike Force. The Administration’s FY 2012 budget request includes $303 million, an increase of

$64 million above the FY 2010 enacted for oversight of the Medicare and Medicaid programs. This request will support the HEAT (Health Care Fraud Prevention and Enforcement Action Team) initiative and related program integrity efforts.”24 (HEAT is discussed in greater detail below.)

The ACA contains many new tools that will help combat Medicare fraud. Several of the relevant provisions are:  

•  The federal government will receive $350 million over 10 years to combat fraud. 

•  Provider enrollment standards have become more stringent. These new standards include mandatory verification of licenses. In addition, depending on a risk assessment, enrollment measures may include criminal background checks, fingerprinting, and site visits before health providers are allowed to bill the Medicare program. Moreover, ACA strengthens fraud prevention tools through enhanced prepayment review, provisional periods of enhanced oversight for new providers, temporary enrollment moratoria, and mandatory compliance plans.

•  HHS can suspend payment to a Medicare provider if an investigation is pending based on credible allegations of fraud.

•  The Federal Sentencing Guidelines are being amended to provide stiffer penalties for health care offenses. 

Impact and Outcomes of Collaboration

A number of measurements attest to the effectiveness of the HEAT Strike Forces. Since the creation of the first Medicare Fraud Strike Force in 2007, Strike Force operations in nine districts have charged more than 1,140 defendants who, collectively, have allegedly billed Medicare more than $2.9 billion in false claims. The HEAT operation is part of OIG’s broader work on fighting fraud, waste, and abuse in HHS programs, particularly Medicare and Medicaid. In FY 2010, OIG reported an estimated $25.9 billion in savings and expected recoveries in its fight against fraud, waste, and abuse.25

Conclusion

Federal agencies are often accused of operating in “silos,” i.e., not communicating or interacting with one another. However, trends in enforcement and prevention of health care fraud demonstrate that collaboration is occurring and can make a positive impact with political will, financial support, the proper technology, and proactive solutions that target program vulnerabilities. Effective government oversight requires marshalling all relevant resources.   

Why is this collaborative effort to fight health care fraud important? Health care is one of the major industries in America today, representing more than $2 trillion in the economy.  Fraud drives up the cost of health care no matter where it occurs, whether in the private sector or public sector; everyone pays. Fraud in government programs contributes to the increasing costs and reduced solvency of programs on which millions of Americans depend. It is necessary to reduce fraud to help save Medicare dollars and improve the delivery of quality care for vulnerable beneficiaries. Preventing fraud is good business for everyone.

Linda Min is a program analyst for the Office of Inspector General, Region IX, U.S. Department of Health and Human Services. She can be reached at: Linda.Min@oig.hhs.gov.

1 Centers for Medicare & Medicaid Services (CMS), Brief Summaries of Medicare & Medicaid, p. 7.  Accessed at https://www.cms.gov/MedicareProgramRatesStats/downloads/MedicareMedicaidSummaries2009.pdf on September 14, 2010.

2 Ibid., p. 17.

3 CMS, Brief Summaries of Medicare & Medicaid, p. 21.  Accessed at https://www.cms.gov/MedicareProgramRatesStats/Downloads/MedicareMedicaidSummaries2010.pdf on March 8, 2011.

4 Associated Press, In Shift, Feds Target Top Execs for Health Fraud.  Accessed at http://www.cchrint.org/tag/lewis-morris/  on September 27, 2011.  See also Brad Heath, “Little Progress Seen Against Health Insurance Fraud,” USA Today, January 29, 2010.  Accessed at http://www.usatoday.com/news/washington/2010-01-28-health-care-insurance-fraud_N.htm on December 16, 2010.

5 CMS defines a “provider” as “[a]ny Medicare provider (e.g., hospital, skilled nursing facility, home health agency, outpatient physical therapy, comprehensive outpatient rehabilitation facility, end-stage renal disease facility, hospice, physician, non-physician provider, laboratory, supplier, etc.) providing medical services covered under Medicare Part B.  Any organization, institution, or individual that provides health care services to Medicare beneficiaries. Physicians, ambulatory surgical centers, and outpatient clinics are some of the providers of services covered under Medicare Part B.”  Accessed at http://www.cms.gov/apps/glossary/search.asp?Term=provider&Language=English&SubmitTermSrch=Search on March 23, 2011.

6 Effective March 25, 2011, CMS implemented new regulations designed to enhance enrollment procedures to protect against fraud.  

7 Gerald T. Roy, Deputy Inspector General for Investigations, Office of Inspector General (OIG), U.S. Department of Health and Human Services (HHS), Waste, Fraud and Abuse:  A Continuing Threat to Medicare and Medicaid (testimony before the U.S. House of Representatives Committee on Energy and Commerce, Subcommittee on Oversight and Investigations), March 2, 2011.  Accessed at http://oig.hhs.gov/testimony/docs/2011/roy_testimony_03022011.pdf on March 29, 2011.

8 Lewis Morris, Chief Counsel, OIG, HHS, Reducing Fraud, Waste and Abuse in Medicare (testimony before the U.S. House of Representatives Committee on Ways and Means, Subcommittee on Health and Subcommittee on Oversight).  Accessed at http://www.hhs.gov/asl/testify/2010/06/t20100615c.html on January 5, 2011.  The Affordable Care Act (ACA) increases criminal penalties under the Federal Sentencing Guidelines for Federal health care offenses and expands the types of conduct constituting Federal health care fraud offenses under Title 18 of the United States Code.

9 United States Attorney’s Office, Southern District of Florida, Miami Home Health Patient Recruiter Convicted of Conspiracy to Commit Health Care Fraud and Soliciting and Receiving Kickbacks.  Accessed at http://miami.fbi.gov/dojpressrel/pressrel10/mm091610.htm on October 21, 2010.

10 Jay Weaver, “Criminals Bilk Medicare of Billions Each Year,” AARP Bulletin, August 19, 2010.  Accessed at http://www.aarp.org/health/medicare-insurance/info-11-2009/criminals_bilk_medicareofbillionseachyear.html on February 4, 2011.

11 Federal officials are working on ways to retrieve funds wired overseas.

12 OIG, About the Office of Inspector General.  Accessed at http://oig.hhs.gov/organization.asp on October 27, 2010.

13 CMS, Center for Program Integrity.  Accessed at https://www.cms.gov/CMSLeadership/30_Office_CPI.asp on March 23, 2011.

14 For an example, see OIG, Recovery Audit Contractors’ Fraud Referrals (OEI 03-09-00130).  Accessed at http://oig.hhs.gov/oei/reports/oei-03-09-00130.pdf on September 14, 2011.

15 42 CFR pts. 405, 424, 447, 455, 457, 498, 1007.

16 42 CFR § 424.57(c)(30).  DME suppliers are required to be open to the public a minimum of 30 hours per week, except for those suppliers who are working with custom-made or fitted orthotics and prosthetics.  42 CFR § 424.57(c)(7).  The supplier location must be accessible during posted business hours and must maintain a visible sign and posted hours of operation.  

17 Daniel R. Levinson, Inspector General, HHS, Preventing Health Care Fraud:  New Tools and Approaches to Combat Old Challenges (testimony before the United States Senate Committee on Finance).  Accessed at http://www.hhs.gov/asl/testify/2011/03/t20110302i.html on May 20, 2011.

18 HEAT, HEAT Task Force Success.  Accessed at http://stopmedicarefraud.gov/heattaskforce/index.html on September 15, 2010.

19 HEAT, Remarks for Attorney General Eric H. Holder, Jr., National Health Care Fraud Summit.  Accessed at http://www.stopmedicarefraud.gov/HEATnews/holderremarks.html on October 26, 2010.

20 CMS, Center for Program Integrity.  Accessed at https://www.cms.gov/CMSLeadership/30_Office_CPI.asp on October 26, 2010.

21 OIG, HEAT Provider Compliance Training.  Accessed at http://oig.hhs.gov/compliance/provider-compliance-training/index.asp on July 7, 2011.

22 OIG, HEAT Provider Compliance Training.  A. Allyson Jones Labban, “Is There a Statistician in The House?  CMS Implements Its Predictive Modeling Program,” Health Care Law Note.  Accessed at http://www.healthcarelawnote.com/articles/pdfs/hcln_july2011.pdf on September 6, 2011.cessed at http://oig.hhs.gov/compliance/provider-compliance-training/index.asp on July 7, 2011.

23 See AARP North Carolina, We All Have to Fight Medicare Fraud.  Accessed at http://www.aarp.org/money/scams-fraud/info-06-2010/we-all-have-to-help-fight-nc.html on January 21, 2011.

24 OIG, Department of Health and Human Services Fiscal Year 2012 Office of Inspector General Justification of Estimates for Appropriations Committees.  Accessed at http://www.hhs.gov/about/FY2012budget/fy2012_hhsoig_congressional_justification_revised.pdf on September 16, 2011.

25 OIG, OIG Reports $25.9 Billion in Savings and Recoveries in FY 2010.  Accessed at http://oig.hhs.gov/publications/docs/press/2010/sar2010press.pdf on February 28, 2011.