Pervasive Medicare Fraud Proves Hard to Stop
By REED ABELSON and ERIC LICHTBLAU AUG. 15, 2014
Federal agents loading computers seized from a home health agency in Miami in a 2012 crackdown on Medicare fraud. Credit Alan Diaz/Associated Press
BALTIMORE — The ordinary looking office building in a suburb of Baltimore gives no hint of the high-tech detective work going on inside. A $100 million system churns through complicated medical claims, searching for suspicious patterns and posting the findings on a giant screen.
Hundreds of miles away in a strip mall north of Miami, more than 60 people — prosecutors, F.B.I. agents, health care investigators, paralegals and even a forensic nurse — sort through documents and telephone logs looking for evidence of fraudulent Medicare billing. A warehouse in the back holds fruits of their efforts: wheelchairs, boxes of knee braces and other medical devices that investigators say amount to props for false claims.
The Obama administration's declared war on health care fraud, costing some $600 million a year, has a remarkable new look in places like Baltimore and Miami. But even with the fancy computers and expert teams, the government is not close to defeating the fraudsters. And even the effort designed to combat the fraud may be in large part to blame.
Dr. Shantanu Agrawal, center, oversees Medicare's antifraud center, which is looking for ideas. Credit Brandi Gilliam/Centers for Medicare & Medicaid Services
An array of outside contractors used by the government is poorly managed, rife with conflicts of interest and vulnerable to political winds, according to interviews with current and former government officials, contractors and experts inside and outside of the administration. Authority and responsibilities among the contractors are often unclear and in competition with one another. Private companies — like insurers and technology companies — have responsibility for enforcement, often with little government oversight.
Fraud and systematic overcharging are estimated at roughly $60 billion, or 10 percent, of Medicare's costs every year, but the administration recovered only about $4.3 billion last year. The Centers for Medicare and Medicaid Services, which is responsible for overseeing the effort, manually reviews just three million of the estimated 1.2 billion claims it receives each year.
“It's pretty dysfunctional because the contractors don't communicate with each other,” said Orlando Balladares, a fraud investigator who has worked for both the government and private firms.
Dr. Shantanu Agrawal, who oversees Medicare's antifraud center, the Center for Program Integrity, said the administration had made fighting fraud a top priority.
“The focus is higher than it ever has been,” said Dr. Agrawal, an emergency medicine physician and former McKinsey consultant who took the Medicare job this year. But even some of the administration's successes shed light on the crackdown's limitations.
So-called recovery audit contractors, hired to reduce hospital overbilling, have an unparalleled record of returning money to Medicare, accounting for $8 billion in returned money since 2009. But hospital resistance to the contractors and an overburdened appeals process have largely stopped the recovery efforts.
“They've been brought to a halt by their very success,” said Marsha Simon, an expert on health policy and legislative strategy in Washington.
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Just this summer, Medicare shut down a successful hotline in fraud-plagued South Florida, saying it was no longer necessary. The hotline is credited with leading to more than 1,000 fraud investigations and identifying tens of millions of dollars in questionable payments in the last five years. Trained staff members hired by an outside contractor answered calls and passed relevant tips to investigators within 48 hours.
Calls are now being routed to a general Medicare number, where it can take months for a complaint to be addressed, according to the most recent evaluation of the program.
The Obama administration has allocated much of its antifraud money to traditional efforts, including nine federal strike forces that coordinate responses among different government agencies. Earlier this year, for example, teams in Miami, Brooklyn, Detroit and elsewhere announced charges against 90 people accused of a total of $260 million in fraudulent billings.
But the biggest role goes to a network of private contractors that has always been a distinguishing feature of Medicare's operation and sets it apart from so many other huge federal bureaucracies. From its inception in 1965, the program has relied on private insurance companies to handle claims from beneficiaries.
The acronyms by which the contractors are known internally are almost a parody of bureaucratic entanglement. Claim payments are handled by Medicare administrative contractors, or MACs, which are generally divisions of private insurers like WellPoint. Recovery audit contractors, or RACs, concentrate on overbilling rather than outright fraud. They include CGI Federal, the same organization that was criticized for its work on HealthCare.gov .
Medicare also employs zone program integrity contractors, known as the ZPICs (pronounced ZEE-pix), that specialize in fraud. They include a unit of Hewlett-Packard and a division of Blue Cross of Alabama. Even the contractors have contractors to oversee them. And UPICs (YOU-pix), which represent the combination of fraud contractors specializing in Medicare and Medicaid, are coming.
The decision to outsource major responsibilities has been a longstanding source of frustration even to many of the agency's officials. Ted Doolittle, who worked as a deputy director at the Center for Program Integrity and left in April, described fighting fraud through contractors as being “almost reduced to working with a puppet. You're working the strings above.”
Former and current law enforcement officials and people who have worked with the contractors say there is little sharing of information among the companies or even with the government.
The recovery audit contractors, for example, do not report to the Center for Program Integrity but to another division within Medicare. When they pass on evidence of possible fraud, a rare occurrence, Medicare often fails to follow up, according to a report by the Office of the Inspector General.
Because they are paid on a contingency basis, ranging from 9 to 12.5 percent of the improper billing that they find, recovery audit contractors have been criticized by hospitals as little more than bounty hunters. The high number of hospital appeals has helped create a backlog of an estimated two years for an administrative law judge to hear a disputed case. After Congress halted some of the audits, Medicare suspended the program until new contracts were awarded. This month, because the awards are delayed, the agency began to allow a limited number of reviews.
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The integrity contractors have also been criticized, in part for their ties to the companies responsible for paying claims, creating a significant potential conflict of interest, according to a government report released in 2012. The report also faulted Medicare for not having “a written policy for reviewing conflict and financial interest information submitted.” Medicare officials say appropriate procedures are in place, and that the contractors are investigating providers, not the organizations paying claims.
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5 hours ago
The article says service providers complain about the contractors acting like "bounty hunters", but if a person supports "free market"...
5 hours ago
Upon what is the fraud amount estimate based if it requires so much investigation to find people committing fraud?
5 hours ago
But, of course, we patients are blamed for high costs. Opponents don't want to stop the fraud, they want to stop the Medicare. And, don't...
Last October, a federal Government Accountability Office report faulted Medicare for its lack of oversight, such as not directly rewarding the contractors for helping meet agency goals like aiming at high-risk providers. A new report released this month did the same.
Dr. Agrawal says Medicare is adopting suggestions like these, and he says the agency has improved in setting priorities for its contractors.
Medicare officials also say the new fraud prevention system is a critical way to centralize efforts. In a recent demonstration of how the system works, Medicare officials used the example of an ambulance company in Texas suspected of improperly billing for services. Using a complicated set of formulas, the system was able to identify the company and send an alert to the fraud contractor. The alert assigned a priority level to the case and allowed the contractor to see what kinds of behavior it should be looking at. Within months, Medicare was able to stop payments to the company.
It was an example of stopping “the bleeding from the dollars going out the door,” said one Medicare official, whose name was withheld because only Dr. Agrawal was authorized to speak on the record for the Medicare antifraud center. The company had been paid $312,000 in 2012, before the software that targeted ambulance services was put in place, and billed just $1,800 in 2013 before Medicare was able to stop payments.
Dr. Agrawal acknowledged that some of the leads being generated may have already come to the attention of investigators, but the alerts “give them a significant head start.”
These kinds of alerts are generated by computer daily. But whether the system truly has been successful in fighting fraud remains unclear.
Trying to review the system after its first year, the Office of Inspector General said missing, inconsistent and possibly inaccurate information made it impossible to know whether there were any savings. In a second report, in June, the office said it could verify only $54 million in savings from the new computer system, even though Medicare said it had identified $211 million. A quarter of that amount was actually recovered, according to the Office of Inspector General report.
Medicare says the new system “is successfully doing its job of pointing the spotlight on bad behavior and prioritizing the most egregious situations for investigation.”
Senator Orrin G. Hatch, Republican of Utah, is among those in Congress who have been skeptical of the system's effectiveness. “It is concerning that they have only found $54 million in adjusted savings in its second year,” the senator said. “There is a difference between simply identifying waste and actually taking steps to prevent and recover it.”