[Congressional Record Volume 140, Number 111 (Thursday, August 11, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: August 11, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. FEINGOLD (for himself and Mr. Kohl):
  S. 2379. A bill to prohibit the use of certain assistance provided 
under the Housing and Community Development Act of 1974 for employment 
relocation activities; to the Committee on Banking, Housing, and Urban 
Affairs.


        THE PROHIBITION OF INCENTIVES FOR RELOCATION ACT OF 1994

  Mr. FEINGOLD. Mr. President, I am today introducing legislation, the 
Prohibition of Incentives for Relocation Act of 1994, with my colleague 
from Wisconsin, Senator Kohl, designed to prevent Community Development 
Block Grant and other HUD funds from being used to assist businesses in 
moving jobs from one State to another. This measure is based upon 
legislation authored in the House of Representatives by Wisconsin 
Representatives Tom Barrett and Jerry Kleczka which was approved in the 
House-passed HUD reauthorization legislation, H.R. 3838. 
Representatives Barrett and Kleczka have been deeply involved in 
developing this approach to curbing what is simply an unacceptable use 
of Federal funds, and I am very pleased to be proposing companion 
legislation in the Senate.
  Mr. President, our concern about this issue was generated by the 
recent announcement that a major Wisconsin employer, Briggs and 
Stratton, was closing a Milwaukee plant and terminating some 2,000 
workers. This devastating news was compounded by the subsequent 
discovery that many of these jobs were being transferred to plants 
which were being expanded in two other States and that Federal 
community development block grant [CDBG] funds were being used to 
facilitate the transfer of these jobs from one State to another.
  This is a totally inappropriate use of Federal funds which this 
legislation is designed to halt. The CDBG program is designed to foster 
community and economic development; not to help move jobs around the 
country. Obviously, during this period of plant closings, downsizing of 
Federal programs, and defense conversion, there is tremendous 
competition between communities for new plants or expansions to offset 
other job losses. State and local communities are doing everything they 
can to attract and retain new businesses. But it is simply wrong to use 
Federal dollars to help one community raid jobs from another State. 
There is no way to justify to the taxpayers in my State that they are 
sending their money to Washington to be distributed to other States to 
be used to attract jobs out of our State, leaving behind communities 
whose economic stability has been destroyed. Thousands of people whose 
jobs are directly or indirectly lost as a result of the transfer of 
these jobs out of our State are justifiably outraged by this misuse of 
Federal funds.
  Mr. President, this legislation is very similar to a provision in the 
Housing and Community Development Act of 1974 which prohibited urban 
development action grants from being used for projects intended to move 
jobs from one community to another. Section 5318(h) of title 42 of the 
United States Code provides that no assistance may be provided for 
urban development action grants ``intended to facilitate the relocation 
of industrial or commercial plants or facilities from one area to 
another'' unless it is determined that the relocation does not 
significantly and adversely affect the unemployment or economic base of 
the area from which the industrial or commercial plant or facility is 
to be relocated.
  This provision, which is referred to as the ``antipirating 
provision'', should be made applicable to all federally-funded economic 
development grant programs. Clearly, the rationale for including such a 
provision when the urban development action program was established is 
equally applicable to other economic development programs. The 
legislation we are proposing would make it applicable to the CDBG 
program and other existing development programs such as empowerment 
zones, enterprise communities, and HUD special purpose grants. When the 
Senate takes up S. 2281, the Housing Choice and Community Investment 
Act of 1994, I intend to offer this language as an amendment to these 
programs and to the new LIFT proposed to be established in S. 2281.
  Mr. President, this is an issue of fairness and sound public policy. 
Federal funding for economic development projects should be directed 
toward projects that expand employment opportunities and economic 
growth, not simply move jobs from one community to another. This 
legislation is designed to ensure that community development funds are 
appropriately used for that purpose. I ask unanimous consent that the 
text of the bill along with an editorial from the Milwaukee Journal 
dated July 3, 1994, discussing this issue be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 2379

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,
       Sec. 1. Short Title. This Act may be cited as the 
     ``Prohibition of Incentives for Relocation Act of 1994''.

     SEC. 2. PROHIBITION OF USE OF CDBG ASSISTANCE FOR EMPLOYMENT 
                   RELOCATION ACTIVITIES.

       (a) Authorizations.--Section 103 of the Housing and 
     Community Development Act of 1974 (42 U.S.C. 5303) is 
     amended--
       (1) by inserting ``(a)'' before ``The Secretary''; and
       (2) by adding at the end the following new subsection:
       ``(b) Prohibition of Use of Assistance for Employment 
     Relocation Activities.--Notwithstanding any other provision 
     of law, no amount from a grant made under section 106 in 
     fiscal year 1994 or any succeeding fiscal year may be used 
     for any activity (including any infrastructure improvement) 
     that is intended, or is likely, to facilitate the relocation 
     or expansion of any industrial or commercial plant, facility, 
     or operation, from one area to another area, if the 
     relocation or expansion will result in a loss of employment 
     in the area from which the relocation or expansion occurs.''.
       Sec. 3. Special Purpose Grants.--Section 107 of the Housing 
     and Community Development Act of 1974 (42 U.S.C. 5307) is 
     amended by adding at the end the following new subsection:
       ``(g) Prohibition of Use of Assistance for Employment 
     Relocation Activities.--Notwithstanding any other provision 
     of law, no amendment from a grant made under this section in 
     fiscal year 1994 or in any succeeding fiscal year may be used 
     for any activity (including any infrastructure improvement) 
     that is intended, or is likely, to facilitate the relocation 
     or expansion of any industrial or commercial plant, facility, 
     or operation, from one area to another area, if the 
     relocation or expansion will result in a loss of employment 
     in the area from which the relocation or expansion occurs.''.
       Sec. 4. Guarantee of Loans for Acquisition of Property.--
     Section 108 of the Housing and Community Development Act of 
     1974 (42 U.S.C. 5308) is amended by adding at the end the 
     following new subsection:
       ``(r) Prohibition of Use of Assistance for Employment 
     Relocation Activities--Notwithstanding any other provision of 
     law, no amount from a loan guaranteed under this section in 
     fiscal year 1994 or in any succeeding fiscal year may be used 
     for any activity (including any infrastructure improvement) 
     that is intended, or is likely, to facilitate the relocation 
     or expansion of any industrial or commercial plant, facility, 
     or operation, from one area to another area, if the 
     relocation or expansion will result in a loss of employment 
     in the area from which the relocation or expansion occurs.''.
       Sec. 5. Economic Development Grants.--Section 108(q) of the 
     Housing and Community Development Act of 1974 (42 U.S.C. 
     5308(q)) is amended by adding at the end the following new 
     paragraph:
       ``(5) Prohibition of use of assistance for employment 
     relocation activities.--Notwithstanding any other provision 
     of law, no amount from a grant made under this subsection in 
     fiscal year 1994 or in any succeeding fiscal year may be used 
     for any activity (including any infrastructure improvement) 
     that is intended, or is likely, to facilitate the relocation 
     or expansion of any industrial or commercial plant, facility, 
     or operation, from one area to another area, if the 
     relocation or expansion will result in a loss of employment 
     in the area from which the relocation or expansion occurs.''.
       Sec. 6. Community Investment Corporation Demonstration.--
     Section 853 of the Housing and Community Development Act of 
     1992 (42 U.S.C. 5305 note) is amended by adding at the end 
     the following new paragraph:
       ``(17) Prohibition of use of assistance for employment 
     relocation activities.--Notwithstanding any other provision 
     of law, no amount from assistance provided under this 
     subsection in fiscal year 1994 or in any succeeding fiscal 
     year may be used for any activity (including any 
     infrastructure improvement) that is intended, or is likely, 
     to facilitate the relocation or expansion of any industrial 
     or commercial plant, facility, or operation, from one area to 
     another area, if the relocation or expansion will result in a 
     loss of employment in the area from which the relocation or 
     expansion occurs.''.
                                  ____


               [From the Milwaukee Journal, July 3, 1994]

                 Don't Let Taxpayers Steal Briggs Jobs

       The use of American tax money to help lure jobs away from 
     Milwaukee is nothing less than an outrage, which the Federal 
     Government must halt. It was revealed last week that federal 
     funds are playing a role in the loss of 2,000 jobs at the 
     Briggs & Stratton Corp. here. For shame.
       When one locality steals jobs from another, the net gain to 
     the United States is zilch. So why should the US subsidize 
     the move? What's more, it's blatantly unfair and absurd to 
     have Milwaukee area taxpayers contribute money to entice jobs 
     away from their own community.
       In its bombshell in May, Briggs said it would relocate the 
     2,000 jobs from Wauwatosa to Poplar Bluff, MO, and Murray, 
     KY, and to three other sites not yet disclosed. Now it turns 
     out that Poplar Bluff is due to get $209,000 in federal 
     community development funds to improve a sewer system to 
     accommodate the expansion of the Briggs plant and workforce 
     there. And in Murray, company and municipal officials have 
     agreed to apply for up to $650,000 in community development 
     funds to help with Briggs' expansion.
       Milwaukee's mayor, John Norquist, and congressional Reps. 
     Tom Barrett and Jerry Kleczka are rightly irate. The US 
     Department of Housing and Urban Development must honor their 
     call to forgo awarding the grant to the Kentucky locale and 
     to rescind the award to the Missouri community. And Congress 
     must bar the use of community development funds to assist in 
     the relocation of jobs from one state to another. When used 
     for economic development, such funds should be confined to 
     the creation of new jobs in pockets of poverty--a purpose 
     much more in the spirit of the Community Development Act.

                                 ______

      By Mr. METZENBAUM (for himself, Mr. Hatch, and Mr. Feingold):
  S. 2380. A bill to encourage serious negotiations between the major 
league baseball players and the owners of major league baseball in 
order to prevent a strike by the players or a lockout by the owners so 
that the fans will be able to enjoy the remainder of the baseball 
season, the playoffs, and the World Series; read the first time.


                THE BASEBALL FANS PROTECTION ACT OF 1994

  Mr. METZENBAUM. Mr. President, the most exciting season in a decade 
is about to come to a crashing halt. Fans everywhere who love baseball 
are about to be bitterly disappointed when the players walk off the 
field because the owners drove them to it. Instead of watching exciting 
pennant races go down to the wire, the fans will all be watching sit-
com reruns. Our national pasttime deserves better; the people of this 
country deserve better.
  I do not think we in the Congress can do anything to prevent the 
baseball players from going on strike tomorrow, But, we can do 
something to get the players back on the field and the owners back in 
line.
  So, in hopes of preserving the pennant race, some pretty exciting 
playoffs and the World Series, I am introducing legislation today with 
Senator Hatch to encourage the players and owners to resolve their 
differences.
  This bill is very simple. It is not complicated.
  It does not eliminate the players right to strike, or the owners 
right to lock them out. Instead, the bill allows the antitrust laws to 
be invoked if the owners impose a salary cap or any other terms and 
conditions on the players. This should take away the owners' incentive 
to play hard ball and impose unilateral conditions on the players. It 
should also relieve the players' fear that they need to strike in order 
to prevent a salary cap from being shoved down their throats when the 
season ends. Once the owners and players resolve their differences and 
sign a new agreement, the bill expires. It comes to an end. It no 
longer is effective.
  As everybody knows, I fought hard for years to lift baseball's 
antitrust exemption. I still believe revoking the owners' antitrust 
immunity is the best long-term solution to the mess the players and the 
owners have made of major league baseball. However, I decided to offer 
this compromise bill with Senator Hatch so that we can bring this 
strike to an end quickly.
  And, no, I am not doing this just because the Cleveland Indians are 
within striking distance of first place. And I am not doing this 
because Roger Maris' home run record could finally be broken this 
season.

  The fact is this legislation has only one purpose--to protect the 
season for all the fans, not just Cleveland fans. It also is not for or 
against: A salary cap, revenue sharing, or any other proposal the 
owners have made to the players, and it does not tip the balance of 
ongoing labor negotiations in favor of the owners or the players.
  The fact is I do not have any special sympathy for the overprivileged 
owners or the overpaid players. I do care about the fans. A strike will 
ruin the season for the fans.
  Right now, the big league players cannot use the antitrust laws. If 
they could, the owners would have to deal with them fairly or face the 
consequences in a court of law. In other words, what this bill does is 
give the players another tool they can use to avoid striking, or to 
bring a strike to a quick end.
  The last seven times the baseball players and owners have met at the 
bargaining table there has been a work stoppage: A strike or lockout. 
This has not happened in other professional sports because those 
players could use the antitrust laws to settle labor disputes. 
Professional basketball players have avoided a strike for 24 years by 
using the antitrust laws. Professional football players have not struck 
since 1987 because they could use the antitrust laws to settle their 
differences. There has never been a strike in professional hockey over 
labor issues.

  If the antitrust laws applied to baseball, the owners could not force 
the players to accept unreasonable terms and conditions of their labor 
negotiations hit impasse. The players could challenge the owners 
unreasonable demands by launching an antitrust suit instead of shutting 
down the season. Frankly, that is a much better deal for the fans.
  Passing this compromise legislation is the best, maybe the only, hope 
we have of saving the season for the fans. But, it is up to the players 
and the owners to come to the bargaining table and work out their 
differences. We, in Congress, cannot make them do that. All we can do 
is level the playing field so that the owners do not have an unfair 
advantage over the players because they are immune from our fair 
competition laws. I, like every other fan in America, want the players 
to play ball and the owners to play fair. I believe that our bill can 
do that.
  It should be noted that when the antitrust bill having to do with 
baseball was in our committee and the vote was taken to report the bill 
out, I voted to report it out. My colleague on the Judiciary Committee, 
Senator Hatch, voted against it. So we certainly were not in accord on 
exactly how to deal with this issue, but we are in accord that possibly 
this legislation may provide a way to get the players back on the field 
and keep the game going.
  Mr. HATCH. Mr. President, I think the Senator from Ohio is 
introducing this bill because the Chicago White Sox fans are probably 
hopeful for this type of legislation as well.
  I am pleased to introduce, along with Senator Metzenbaum today, the 
Baseball Fans Protection Act of 1994. Baseball fans throughout this 
country rightly dread the imminent prospect of a players' strike, 
especially in this season of record-threatening offensive performances. 
I urge baseball owners and players to engage in serious negotiations as 
soon as possible in order to resolve their disputes. The national 
pastime deserves no less; the fans deserve no less.
  Unfortunately, existing law discourages the prompt settlement of this 
labor dispute. On the one hand, professional baseball enjoys a unique 
and longstanding immunity from the antitrust laws. I have opposed 
repeal of this immunity, and I continue to do so. On the other hand, 
the owners retain the right under our current labor laws to impose 
unilaterally new terms and conditions of employment once an impasse in 
the bargaining has been reached.
  I am concerned that the unique combination of these two legal roles, 
which occurs in no other industry, has the effect of inviting delay and 
of discouraging prompt resolution of the pending labor dispute. The 
Baseball Fans Protection Act that Senator Metzenbaum and I are 
introducing would correct this legal anomaly. It would spur owners and 
players to resolve their dispute as soon as possible and without any 
unnecessary interruption of the baseball season.
  This is an important small bill, an important step in the right 
direction. it does not choose one over the other. Frankly, we are not 
taking sides at all. We are just trying to make sure that the unique 
situation of baseball under the antitrust and labor laws does not 
encourage delay. We want the parties to get to the bargaining table, 
and whatever deal they decide to strike is up to them.
  Frankly, as I have made it clear, baseball's unique antitrust 
immunity combines with labor laws to produce a situation that occurs in 
no other industry. This particular legislation is limited to this 
particular labor dispute.
  So this is an important piece of legislation at this time, and we 
hope it will encourage both sides to get together to resolve their 
difficulties. I hope we can get it up as soon as possible.
                                 ______

      By Mr. COHEN:
  S. 2381. A bill to require the Secretary of Health and Human Services 
to provide health care fraud and abuse guidance, and for other 
purposes; read the first time.


                health care fraud and abuse guidance act

  Mr. COHEN. Mr. President, today I am introducing legislation to 
provide health care providers with guidance on how to comply with 
health antifraud and abuse requirements.
  A recent investigation by my staff on the Senate Special Committee on 
Aging found that fraud is rampant throughout the health care system, 
and that our Federal health care programs--particularly Medicare and 
Medicaid--and private health care plans are rife with abuse. As much as 
$100 billion is lost each year to fraud and abuse, driving up the cost 
of health care in America for millions of patients and families--as 
well as for the American taxpayer. Losses over the last 5 years are 
almost four times the total costs to date of the entire savings and 
loan crisis.
  During the health care debate, very little attention has been paid to 
the pervasiveness of health care fraud and how ripping off the system 
has become the way to do business for some providers.
  Our investigation focused on major schemes perpetrated by specific 
health care provider groups and industries. What we learned was that 
defrauding Federal and private health care programs in shockingly 
simple, and that Medicare, Medicaid, and private insurers are leaving 
their doors wide open to abuse, inviting scam artists to rip off the 
system. We lose as much as $275 million each day--or more than $11.5 
million each hour--to health care fraud and abuse.
  Major patterns of fraud that plague our system are: massive 
overbilling for equipment and services; billing for services never 
provided to patients; unbundling one item or procedure--such as 
wheelchair or surgery--and billing separately for individual component 
parts; upcoding, whereby the provider submits a bill to Medicare or an 
insurance company for a more expansive item or service than was 
actually provided; paying kickbacks to doctors for referring patients; 
and submitting claims for ghost patients or providing phantom therapy 
sessions.
  The report I recently released entitled ``Gaming the Health Care 
System: Billions of Dollars Lost to Fraud and Abuse Each Year,'' which 
I am inserting in the Record today, provides 50 case examples of scams 
that have recently invaded our health care system, resulting in higher 
health care costs, higher premiums, and, at times, serious risks to 
patients' health and safety.
  For example, the physician-owners of a clinic in New York stole over 
$1.3 million from Medicaid by billing for more than 50,000 phantom 
psychotherapy sessions never given to patients. Nursing home operators 
charged swimming pools, jewelry, and a family nanny to Medicaid cost 
reports. Six million dollars' worth of pacemakers that were already 
beyond their expiration date or intended for animal use only were 
distributed for use in human patients. Doctors were given 
entertainment, trips, and other inducements for the heart devices in 
the patients. Scam artists set up a phony billing service and billed 
insurance companies for over $2 million in bogus claims for lab 
services that were never performed. The scam artists stole hundreds of 
claims forms, patient's medical information, and doctors' billing 
numbers to perpetrate their scheme and got away with payments of over 
$1.5 million before their scam was detected.

  These types of scams are just the tip of the very large iceberg of 
fraud and abuse that is costing the taxpayers and patients dearly--and 
freezing out millions of Americans from affordable health care 
coverage.
  Since we are losing about $275 million per day on ripoffs like this, 
we cannot afford to wait any longer to crack down on health care fraud 
and abuse. Our investigators have learned that some unscrupulous 
providers are already positioning themselves to take advantage of 
health care reform in even more creative ways.
  There are steps that we can and must take now to curb this abuse, 
such as giving prosecutors stronger tools and tougher statutes to 
combat criminal health care fraud; allowing health care plans and the 
Government to kick the bad apples out of the system; creating tougher 
civil penalties and remedies for fraud and abuse; establishing a more 
coordinated enforcement program and beefing up investigative resources, 
which are now woefully inadequate. While the HHS' Office of Inspector 
General, the FBI and other agencies are trying their best to win the 
battles against fraudulent providers, their forces are sorely 
outnumbered; and tightening up Medicare rules for items they can 
purchase at any drug store for a fraction of the cost that Medicare is 
allowing providers to charge.
  Many of these proposals are included in S. 867, which I introduced 
last year. I am pleased that Senator Dole's health care reform 
proposal, the Mainstream Coalition's proposal, and Senator Mitchell's 
legislation have incorporated these provisions.
  The vast majority of health care providers are honest professionals 
whose highest priority is quality care for patients. Unfortunately, 
health care fraud has become a very lucrative business and some 
dishonest providers will do all they can to game the system. We have to 
act now to beat unscrupulous providers who are bleeding billions of 
dollars from taxpayers, and driving up the cost of health care for all 
Americans.
  There is an additional element, however, that is important to 
complement our efforts to crack down on fraud and abuse. Specifically, 
adequate guidance should be given to health care providers on how to 
comply with antifraud statutes and regulations. I sincerely believe, 
Mr. President, that the broad spectrum of health care providers are 
honest and dedicated professionals and although I strongly believe that 
fraudulent and abusive activity in the health care system is a 
pernicious and costly problem, I also recognize that some providers 
have difficulty in trying to precisely comply with existing regulatory 
and statutory requirements. That is why today I am introducing 
legislation that is designed to augment current guidance procedure on 
compliance issues to health care providers particularly as it relates 
to the Medicare/Medicaid antikickback statute.
  The antikickback statute makes it a criminal offense to knowingly and 
willfully pay or receive anything of value in exchange for the referral 
of Medicare or Medicaid business. The statute requires the Secretary of 
Health and Human Services [HHS], in consultation with the Attorney 
General, to issue safe harbors specifying payment practices that would 
not be treated as an offense under the antikickback statute.
  To date, the HHS' Inspector General has issued 13 final safe harbors 
and solicited comments on 8 additional proposed safe harbors, for a 
total of 21. In addition, the HHS' Inspector General has issued three 
special fraud alerts describing activity which is suspect under the 
antikickback statute.
  The bill I am introducing would provide mechanisms for further 
guidance to health care providers on the scope and applicability of the 
antifraud statutes. The further guidance would be provided by: 
modification of existing safe harbors and promulgation of new safe 
harbors; interpretive rulings providing the HHS' inspector general's 
interpretation of antifraud statutes; and special fraud alerts setting 
forth activities that the inspector general considers suspect under the 
antifraud statutes.
  For modification of existing safe harbors and publication of new safe 
harbors: The bill sets forth a procedure for the modification of the 
existing safe harbors and for the issuance of new safe harbors. The 
Department of Health and Human Services would annually solicit 
proposals from the public for such modifications and new safe harbors. 
The bill sets forth the specific criteria to be considered when 
determining whether the submitted proposals should be adopted.
  In addition to publishing proposed and final rules based on the 
proposals from the public, the Department would be required to report 
to Congress on the proposals and on the Department's response. By 
providing a regularized mechanism for the public to make proposals 
regarding safe harbors, the bill would ensure that the Department is 
informed of the evolving areas which should be considered for safe 
harbors and the reasons why they should be protected.
  For interpretive rulings: The bill would provide the public with an 
opportunity to request interpretive rulings from the inspector general 
on the meaning of provisions of existing antifraud statutes. These 
rulings would represent the inspector general's interpretation of 
specific provisions of the statutes. The interpretive rulings would 
allow the inspector general to provide timely guidance on areas of 
ambiguity or potential conflict.
  For special fraud alerts: The bill sets forth a procedure for the 
issuance of special fraud alerts describing conduct which the inspector 
general considers to be suspect or of particular concern under the 
antikickback statute. The Department would solicit proposals for 
special fraud alerts and be required to consider whether to issue them 
based on specific criteria. The special fraud alerts would provide 
guidance to the public by highlighting activity that the Department 
considers to be potentially illegal and subject to prosecution.
  By creating a triad of procedures devised to assist providers, I 
believe that any concerns over adequate guidance will be addressed. 
With over $275 million being lost each day to health care fraud and 
abuse, we cannot afford to wait to toughen our defenses against those 
unscrupulous providers. Conversely, I believe that we must do all we 
can to try to assist those who are trying to comply with the law and I 
believe that this legislation does just that. I have included this bill 
in the Dole proposal and the mainstream coalition proposal. It is my 
hope that this legislation will be incorporated into the Mitchell fraud 
and abuse section as well.
  Thank you, Mr. President. I ask unanimous consent that a copy of my 
legislation and a copy of the minority staff report of the Senate 
Special Committee on Aging be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

 Gaming the Health Care System: Billions of Dollars Lost Each Year to 
                            Fraud and Abuse

        (Investigative staff report of Senator William S. Cohen)


                           executive summary

       For the past year, the Minority Staff of the Senate Special 
     Committee on Aging under my direction has investigated the 
     explosion of fraud and abuse in the U.S. health care system. 
     This report examines emerging trends, patterns of abuse, and 
     types of tactics used by fraudulent providers, unscrupulous 
     suppliers, and ``professional'' patients who game the system 
     in order to reap billions of dollars in reimbursements by 
     Medicare, Medicaid, and private insurers.
       The consequences of fraud and abuse to the health care 
     system are staggering: as much as 10 percent of U.S. health 
     care spending, or $100 billion, is lost each year to health 
     care fraud and abuse. Over the last five years, estimated 
     losses from these fraudulent activities totaled about $418 
     billion--or almost four times as much as the cost of the 
     entire savings and loan crisis to date.
       Our investigation revealed that vulnerabilities to fraud 
     exist throughout the entire health care system and that 
     patterns of fraud within some provider groups have become 
     particularly problematic. Major patterns of abuse that plague 
     the system are overbilling, billing for services not 
     rendered, ``unbundling'' (whereby one item, for example a 
     wheelchair, is billed as many separate component parts), 
     ``upcoding'' services to receive higher reimbursements, 
     providing inferior products to patients, paying kickbacks and 
     inducements for referrals of patients, falsifying claims and 
     medical records to fraudulently certify an individual for 
     government benefits, and billing for ``ghost'' patients or 
     ``phantom'' sessions or services.
       This report provides 50 case examples of scams that have 
     recently infiltrated our health care system. While these are 
     but a small sampling of schemes that were reviewed during 
     this investigation, they serve to illustrate how our health 
     care system is rife with abuse, and how Medicare, Medicaid 
     and private insurers have left their doors wide open to 
     fraud.
       Patients--and, in the case of Medicare and Medicaid, 
     taxpayers--pay a high price for health care fraud and abuse 
     in the form of higher health care costs, higher premiums, and 
     at times, serious risks to patients' health and safety. For 
     example,
       Physician-owners of a clinic in New York stole over $1.3 
     million from the State Medicaid program by fraudulently 
     billing for over 50,000 ``phantom'' psychotherapy sessions 
     never given to Medicaid recipients;
       A speech therapist submitted false claims to Medicare for 
     services ``rendered to patients'' several days after they had 
     died;
       A home health care company stole more than $4.6 million 
     from Medicaid by billing for home care provided by 
     unqualified home care aides. In addition to cheating 
     Medicaid, elderly and disabled individuals were at risk from 
     untrained and unsupervised aides;
       Nursing home operators charged personal items such as 
     swimming pools, jewelry, and the family nanny to Medicaid 
     cost reports;
       One thousand five-hundred workers lost their prescription 
     drug coverage because a scam drove up the cost of the 
     insurance plan for their employer. The scam involved a 
     pharmacist who stole over $370,000 from Medicaid and private 
     health insurance plans by billing over one thousand times for 
     prescription drugs that he did not actually dispense;
       Large quantities of sample and expired drugs were dispensed 
     to nursing home patients and pharmacy customers without their 
     knowledge. When complaints were received from nursing home 
     staff and patient relatives regarding the ineffectiveness of 
     the medications, one of the scam artists stated ``those 
     people are old, they'll never know the difference and they'll 
     be dead soon anyway'';
       Durable medical equipment suppliers stole $1.45 million 
     from the New York State Medicaid program by repeatedly 
     billing for expensive orthotic back supports that were never 
     prescribed by physicians;
       A scheme involved the distribution of $6 million worth of 
     reused pacemakers and mislabeled pacemakers intended for 
     ``animal use only.'' The scheme involved kickbacks to 
     cardiologists and surgeons to induce them to use pacemakers 
     that had already expired; and
       A clinical psychologist was indicted for having sexual 
     intercourse with some of his patients and then seeking 
     reimbursement from a federal health plan for these encounters 
     as ``therapy'' sessions.
       Our investigation found that scams such as these are 
     perpetrated against both public and private health plans, and 
     that health care fraud schemes have become more complex and 
     sophisticated, often involving regional or national 
     corporations and other organized entities. No part of the 
     health care system is exempt from these fraudulent practices, 
     however, we found that major patterns of fraud and abuse have 
     infiltrated the following health care sectors: ambulance and 
     taxi services, clinical laboratories, durable medical 
     equipment suppliers, home health care, nursing homes, 
     physicians, psychiatric services, and rehabilitative services 
     in nursing homes. Our investigation further concludes that 
     fraud and abuse is particularly rampant in Medicaid, and 
     that many of the fraudulent schemes that have preyed on 
     the Medicare program in recent years are now targeting the 
     Medicaid program for future abuse.

  Greater opportunities for fraud will exist under health care reform

       As our health care system moves toward a managed care 
     model, opportunities for fraud and abuse will increase unless 
     enforcement efforts and tools are strengthened. The structure 
     and incentives of a managed care system will result in a 
     concentration of particular types of schemes, such as the 
     failure to provide services and quality of care deficiencies 
     in order to cut costs. In addition, while efforts toward 
     simplification and electronic filing of health care claims 
     offer tremendous savings, they also pose particular 
     opportunities for abuse. Thus, it is crucial that any such 
     system be designed with safeguards built in to detect and 
     deter fraud and abuse.


                       findings of investigation

   Deficiencies in the current system expose billions of health care 
                       dollars of fraud and abuse

     A. Current Criminal and Civil Statutes Are Inadequate to 
         Effectively Sanction and Deter Health Care Fraud
       Federal prosecutors now use traditional fraud statutes, 
     such as the mail and wire fraud statutes, the False Claims 
     Act, false statement statutes, and money laundering statute 
     to prosecute health care fraud. Our investigation found that 
     the lack of a specific federal health care fraud criminal 
     statute, inadequate tools available to prosecutors, and weak 
     sanctions have significantly hampered law enforcement's 
     efforts to combat health care fraud. Inordinate time and 
     resources are lost in pursuing these cases under indirect 
     federal statutes. Often, even when law enforcement shuts down 
     a fraudulent scheme, the same players resurface and continue 
     their fraud in another part of the health care system.
       This cumbersome federal response to health care fraud has 
     resulted in a system whereby the mouse has outsmarted the 
     mousetrap. Those defrauding the system are ingenious and 
     motivated, while the government and private sector responses 
     to these perpetrators have not kept pace with the 
     sophistication and extent of those they must pursue.
     B. The Fragmentation of Health Care Fraud Enforcement Allows 
         Fraud to Flourish
       Despite the multiplicity of Federal, State and local law 
     enforcement agencies, and private health insurers and health 
     plans involved in the investigation and prosecution of health 
     care fraud, these enforcement efforts are inadequately 
     coordinated, allowing health care fraud to permeate the 
     system. While some strides have been made in coordinating law 
     enforcement efforts, immediate steps must be taken to 
     streamline and toughen our response to health care fraud.


                            recommendations

       Based on our investigation and findings, we recommend the 
     following to reduce fraud and abuse throughout the health 
     care system:
       1. Establish an all-payer fraud and abuse program to 
     coordinate the functions of the Attorney General, Department 
     of Health and Human Services, and other organizations to 
     prevent, detect, and control fraud and abuse; to coordinate 
     investigations; and to share data and resources with Federal, 
     State, and local law enforcement and health plans.
       2. Establish an all-payer fraud and abuse trust fund to 
     finance enforcement efforts. Fines, penalties, assessments, 
     and forfeitures collected from health care fraud offenders 
     would be deposited in this fund, which would in turn be used 
     to fund additional investigations, audits, and prosecutions.
       3. Toughen federal criminal laws and enforcement tools for 
     intentional health care fraud.
       4. Improve the anti-kickback statute and extend 
     prohibitions of Medicare and Medicaid to private payers.
       5. Provide a greater range of enforcement remedies to 
     private sector health plans, such as civil penalties.
       6. Establish a national health care fraud data base which 
     includes information on final adverse actions taken against 
     health care providers. Such a data base should contain strong 
     safeguards in order to ensure the confidentiality and 
     accuracy of the information data contained in the data base.
       7. Design a simplified, uniform claims form for 
     reimbursement and an electronic billing system, with tough 
     anti-fraud controls incorporated into these designs.
       8. Take several steps to better protect Medicare from 
     fraudulent and abusive provider billing practices and 
     excessive payments by Medicare. Specifically, Revise and 
     strengthen national standards that suppliers and other 
     providers must meet in order to obtain or renew a Medicare 
     provider number;
       Prohibit Medicare from issuing more than one provider 
     billing number to an individual or entity (except in 
     specified circumstances), in order to prevent providers from 
     ``jumping'' from one billing number to another in order to 
     double-bill or avoid detection by auditors;
       Require Medicare to establish more uniform national 
     coverage and utilization policies for what is reimbursed 
     under Medicare, so that providers cannot ``forum shop'' in 
     order to seek out the Medicare carrier who will pay a higher 
     reimbursement rate;
       Require the Health Care Financing Administration to review 
     and revise its billing codes for supplies, equipment and 
     services in order to guard against egregious overpayments for 
     inferior quality items or services; and
       As we revise the health care system, give guidance to 
     health care providers on how to do business properly and how 
     to avoid fraud.
       Adoption of these recommendations will go far in shoring up 
     our defenses against unscrupulous providers, patients, and 
     suppliers who are bleeding billions of dollars from our 
     health care system through fraud and abuse. Since Medicare 
     and Medicaid lose as much as $31 billion annually to fraud 
     and abuse, the savings from reducing fraud in these programs 
     would go far toward paying for much needed reforms in our 
     health care system, such as providing access to health care 
     coverage for the uninsured, prescription drug benefits for 
     the elderly, or long-term care for the elderly and 
     individuals with disabilities.
       We must not wait to fix these serious problems in the 
     health care system until we see what form health care reform 
     takes. We are losing as much as $275 million each day to 
     health care fraud, and effective steps can be taken within 
     the current system to curb this abuse. With billions of 
     dollars and millions of lives at stake, we can no longer 
     afford to wait.--William S. Cohen, United States Senator, 
     July 7, 1994.


               i. introduction and scope of investigation

       When the Senate Special Committee on Aging sought an expert 
     on health care fraud in 1981, it turned to a cardiologist 
     from Philadelphia. His credentials were impeccable; a noted 
     physician, he was also a convicted felon who had defrauded 
     both public and private health insurers in three states for 
     more than $500,000 by submitting $1.5 million in claims for 
     medical services he had never performed.
       ``The problem is that nobody is watching,'' the doctor 
     testified. ``Because of the nature of the system, I was able 
     to do what I did. The system is extremely easy to evade. The 
     forms I sent in were absolutely outrageous. I was astounded 
     when some of those payments were made.''
       Apparently, we did not learn much from this doctor's 
     testimony. For now, thirteen years later, he is allegedly 
     still up to his old tricks. Last month, he was arrested by 
     FBI agents in Philadelphia and charged once again with 
     defrauding health insurers for millions of dollars by filing 
     claims for procedures that were never performed. Bail was set 
     at $2 million, and he is currently awaiting trial.
       According to the U.S. Attorney in Philadelphia, since 1974, 
     this physician has had a total of several arrests and five 
     convictions for fraud in New York, Connecticut, and Texas. 
     Despite his record, four years ago he was able to get his 
     Pennsylvania physician's license reinstated. He might very 
     well still be in business today if a former patient, who was 
     angry about the false billings, hadn't agreed to go 
     undercover.
       How was this physician, with his long record of arrests and 
     convictions for fraud, able to continue to perpetrate the 
     same kinds of schemes against the health care system? Why 
     weren't his blatantly fraudulent activities detected earlier? 
     How could he get a previously suspended license reinstated in 
     one state when he had been convicted for fraud in three 
     others?
       The vast majority of health care providers are honest and 
     dedicated professionals, but the alleged activities of this 
     physician is typical of the ``bad apples'' that threaten to 
     corrupt the entire system.
       Therefore, as Congress continues its work on omnibus crime 
     legislation and crafts health care reform, the answers to 
     these questions reveal flaws in our health care systems that 
     we simply cannot afford to ignore.
       For the past year, under my direction the Minority Staff of 
     the Senate Special Committee on Aging has investigated the 
     growth of fraud and abuse in the U.S. health care system and 
     has worked to identify deficiencies in current federal, 
     state, and private sector efforts to combat these crimes. To 
     demonstrate the scope of the outrageous fraudulent 
     behavior currently plaguing the health care system, this 
     report will detail recent cases in which individuals and 
     companies have been either indicted, convicted or fined. 
     Those cases that have been adjudicated represent the tip 
     of the iceberg of what has to come to light--many more go 
     undetected or are still under investigation. For example, 
     in the area of home health care fraud, the New York 
     Special Prosecutor states that ``We've just scratched the 
     surface.'' The Minority staff is continuing its 
     investigation of the areas of abuse identified in this 
     report, and will issue a series of reports on particular 
     industries engaged in abusive practices.
       In addition, this report will examine emerging trends, 
     patterns of abuse, and types of tactics used by fraudulent 
     providers; the inadequacy of current law and enforcement 
     resources and the need for better coordination; and how the 
     move toward managed care presents new and different 
     opportunities for unscrupulous providers to defraud the 
     system. And finally, the report will offer recommendations 
     for correcting the current deficiencies, in the system that 
     allow fraud and abuse to flourish.
       According to the General Accounting Office, each year as 
     much as 10 percent of total health care costs are lost to 
     fraud and abuse. With annual health care costs in the United 
     States now exceeding $1 trillion, fraud and abuse is costing 
     taxpayers and policyholders about $100 billion each year. 
     Over the last five years, estimated losses from health care 
     fraud and abuse totaled about $418 billion--or almost four 
     times as much as the entire savings and loan crisis has cost 
     to date. With amounts this large at stake, we simply cannot 
     afford to wait any longer to toughen our response to health 
     care fraud.
       We would like to thank, among others, the Office of 
     Inspector General of the Department of Health and Human 
     Services, the Department of Justice, the Federal Bureau of 
     Investigation, the Drug Enforcement Administration, the 
     Postal Inspection Service, the National Association of 
     Attorneys General, the Medicaid Fraud Control Units, and the 
     General Accounting Office, as well as numerous health care 
     industry representatives, for their assistance with this 
     investigation and report.


   II. Background--Current Law: How the Government Investigates and 
           Prosecutes Health Care Fraud and Abuse Violations

     A. Brief overview of health care fraud and abuse statutes
       A number of Government health care programs are regular 
     targets for fraud. Medicaid is financed jointly by the 
     federal and state governments with states contributing up to 
     50 percent of the program's funding. Medicare is a federal 
     program financed by a combination of federal payroll taxes, 
     general revenues and beneficiary premiums. Other government-
     sponsored programs include benefits provided to federal 
     employees, retired and active military and dependents, and 
     veterans. Although government health care programs are often 
     targeted, many unscrupulous providers are indiscriminant 
     about who pays.
       As this report illustrates, health care fraud and abuse 
     encompasses a wide range of practices including overcharging 
     for services, billing for services not rendered, and 
     rendering services that are unnecessary or inappropriate. 
     Paying kickbacks to physicians for referring patients and 
     routinely waiving copayments or deductibles from patients are 
     also considered fraudulent activities by the Medicare and 
     Medicaid programs. Because kickbacks constitute payments to 
     induce services, they increase insurers' vulnerability to 
     claims for unnecessary services. By forgiving patient 
     copayments and billing an insurer directly, unscrupulous 
     providers may be able to misrepresent services rendered 
     without the patient's knowledge.
       While there currently is no specific federal health care 
     fraud statute, Justice Department prosecutors do use 
     traditional criminal and civil authorities, including mail 
     and wire fraud statutes, the False Claims Act, and false 
     statements statutes to prosecute health care fraud and abuse.
       There are also criminal statutes directed specifically to 
     prevent fraud and abuse within Federal health care programs. 
     Such authorities include criminal penalties for false claims 
     and statements specifically involving the Medicare and 
     Medicaid programs, and the Medicare and Medicaid anti-
     kickback statute. The anti-kickback statute prohibits an 
     individual or entity from offering, paying, soliciting, or 
     receiving remuneration with the intent to induce Medicare or 
     Medicaid program business.
       The Department of Health and Human Services' (HHS) 
     Inspector General (IG) is responsible for imposing the 
     majority of health care administrative sanctions authorized 
     under the Social Security Act. The Omnibus Budget 
     Reconciliation Act of 1981 specifically authorized the IG, 
     acting on behalf of the Department, to impose civil monetary 
     penalties and assessments against health care providers who 
     have filed false or improper claims for reimbursement under 
     the Medicare, Medicaid, or Maternal and Child Health Block 
     Grant programs. The law authorizes penalties of up to $2,000 
     for each false claim, and an assessment of up to twice the 
     amount improperly claimed by the health care provider. The 
     law provides a major deterrent to fraudulent and abusive 
     activity.
       The Medicare and Medicaid Patient and Program Protection 
     Act of 1987 further increased the Department's authority to 
     exclude both individuals and entities from participation in 
     Medicare and State health care programs for fraudulent 
     activities. It amended the existing mandatory and enacted new 
     discretionary (permissive) exclusion authorities. The 
     mandatory provisions cover program-related and patient 
     abuse convictions and require program exclusions of no 
     less than 5 years.
       The permissive provisions cover a variety of offenses 
     including convictions for fraud, loss of a license, and 
     kickbacks. Once a decision has been made to impose an 
     exclusion, the provider is given notice and advised of the 
     right to request a hearing before an administrative law judge 
     (ALJ). If the provider is dissatisfied with the ALJ's 
     decision, he may request review by the Departmental Appeals 
     Board and, if still dissatisfied, may take his case to the 
     U.S. District Court.
       Program exclusions or civil penalties are often the 
     appropriate remedy to be utilized to address health care 
     fraud and abuse.
       The HHS Inspector General refers investigative findings 
     directly to the Department of Justice or individual U.S. 
     Attorneys for possible criminal or civil prosecution. Once 
     the Department of Justice has completed or declined criminal 
     or civil prosecution, HHS can consider imposing 
     administrative sanctions. Successful prosecutions may take 
     years, involve an investment of considerable staff time and 
     resources and, in some cases, may never result in actual 
     recovery of federal health care dollars lost to fraud.
     B. ``Divided We Fall''--Law enforcement agencies suffer from 
         overlapping and unclear jurisdiction
       The responsibility for investigating and prosecuting health 
     care fraud and abuse is currently dispersed among many 
     agencies at both the federal and state levels. The HHS IG and 
     the FBI, the two federal law enforcement agencies with 
     primary jurisdiction in health care anti-fraud efforts, each 
     devote between 222 and 228 full-time equivalent (FTE) 
     positions to health care fraud investigations.
       More than 4 billion claims are processed annually. Although 
     the IG has authority over only federal health programs, the 
     FBI has plenary authority for all health care plans--that 
     means less than 450 federal FTE's are devoted to 
     investigating alleged improprieties in federal public health 
     programs, which represent 40 percent of the nation's health 
     care bill, and to investigate over 1,000 private payers. 
     Thus, the two predominant health care anti-fraud enforcement 
     agencies have only one FTE per approximately 8,890,000 
     claims. Agencies with some jurisdiction in anti-fraud and 
     abuse enforcement efforts are as follows:
       The Inspector General of the Department of Health and Human 
     Services audits and investigates health care providers 
     accused of fraud against federally-sponsored programs, 
     primarily Medicare and Medicaid. It is authorized to conduct 
     civil, administrative and criminal investigations of frauds 
     associated with the federal program.
       The Federal Bureau of Investigation has plenary authority 
     to investigate all health care fraud offenses and includes 
     all victims of the crime, whether against Federal programs or 
     private insurance companies, business entities or 
     individuals. Allegations of criminal conduct in the health 
     care industry, at the onset, are presented to the U.S. 
     Attorney's office for a prosecutive opinion. Based on the 
     U.S. Attorney's decision, the FBI either proceeds with the 
     investigation or closes the case.
       The Drug Enforcement Administration monitors and 
     investigates the diversion, misuse, and abuse of 
     pharmaceutically controlled narcotic substances;
       The Department of Justice combats fraud by pursuing 
     criminal or civil proceedings when appropriate. Even if 
     health care fraud does not constitute criminal activity, the 
     Justice Department may try to recover damages by seeking the 
     payment of civil penalties and restitution. Exclusions, 
     suspensions or administrative civil penalties are still 
     within the purview of the Department of Health and Human 
     Services' Inspector General.
       The Food and Drug Administration regulates the prescription 
     drug market for noncontrolled prescription medications as 
     well as certain medical devices.
       The Postal Inspection Service enforces a number of statutes 
     which allow them to take action against fraudulent practices 
     involving the use of the mails (the criminal mail fraud 
     statute and the civil postal false representations statute). 
     Since the majority of claims filed by providers (as well as 
     subsequent payments) flow through the mail, the Postal 
     Inspection Service is an active component of health care 
     fraud investigations.
       The Inspector General of the Department of Labor 
     investigates cases involving workmen's compensation claims or 
     fraud in health plans administered by labor unions.
       The Inspector General of the Office of Personnel Management 
     investigates when fraud is suspected in federal employee 
     health plans, to which the federal government contributes 
     billions of dollars annually.
       The Defense Criminal Investigative Service seeks to ensure 
     the integrity of all Department of Defense programs, 
     including the military health care system (CHAMPUS).
       The Inspector General of the Railroad Retirement Board 
     Office handles cases regarding railroad workers fraud.
       Forty-two States currently operate with Medical Fraud 
     Control Units.
       The Minority committee staff finds that agencies authorized 
     with primary enforcement duty, such as the HHS IG, are 
     seriously underfunded and are urgently in need of additional 
     resources in order to keep pace with the growth in the health 
     fraud crime problem. Many of the agencies dedicated to this 
     effort are stretched thin and are unable to keep pace with 
     the growing number of claims and the evolving relationships 
     of providers and entities as our health care system moves 
     more toward a managed care environment. The committee 
     staff is concerned about the lack of coordination and 
     unnecessary duplication of efforts among agencies with 
     overlapping jurisdiction.
       Historically, turf battles have existed, potentially 
     undermining investigations and cases. A muddled chain of 
     command and the decentralized nature of some health care 
     fraud investigations allow many fraudulent actors to 
     perpetrate their schemes without detection. Recently, health 
     care fraud working groups have formed at the national, 
     regional and local levels. Many of these groups include 
     federal and state prosecutors and investigators from FBI, HHS 
     IG, Medicaid Fraud Control Units, and other agencies. We have 
     found that where a task force or working group exists to 
     coordinate investigations of a specific fraudulent or abusive 
     practice, the overall investigation and prosecutorial effort 
     are positively affected.


  iii. ``tip of the iceberg''--select cases of fraudulent and abusive 
                                schemes

       As stated above, the GAO estimates that fraud and abuse 
     accounts for as much as 10 percent of U.S. health care 
     spending. With health care costs approaching $1 trillion, 
     approximately $100 billion will be lost to fraud and abuse 
     annually. The FBI calculates that fraud accounts for between 
     3 percent and as much as 15 percent of total health care 
     spending, costing the United States tens of billions of 
     dollars each year. Despite the enormity of the problem, GAO 
     concludes that only a small fraction of the fraud and abuse 
     committed against the health care system is identified.
       Those instances that have been detected have involved 
     substantial sums of money, risked patients' health and lives, 
     diverted scarce resources, and contributed significantly to 
     national health care costs. In addition to these tangible 
     costs, health care fraud and abuse by providers can 
     dangerously erode the trust of patients in the quality and 
     integrity of the health care system. The cases described in 
     this report are cases which are based on either recent 
     convictions, indictments or fines so as to not disrupt or 
     prejudice ongoing investigations which may result in future 
     convictions. The committee staff is, however, continuing its 
     investigation of ongoing cases.
     A. Durable Medical Equipment (DME)
       Over the past several years, the durable medical equipment 
     industry has been repeatedly cited as a major source of 
     fraudulent and abusive practices in the health care system. 
     Ongoing investigations by the Minority committee staff 
     revealed shocking evidence of unscrupulous DME sales 
     practices, often resulting in the sale of unnecessary, 
     overpriced, and even dangerous equipment to Medicare 
     beneficiaries.
       While the DME industry has recently taken steps to stamp 
     out abuse, our current investigation of health care fraud 
     cases has concluded, unfortunately, that major abuses 
     continue to occur within this industry. The overwhelming 
     majority of the nation's more than 160,000 DME suppliers are 
     dedicated and honest professionals, but the rapid growth and 
     sheer size of the industry has greatly increased the 
     potential for fraud and abuse. Our investigation reveals that 
     not only do these problems continue to plague the Medicare 
     program, but they are being replicated not only in Medicaid, 
     but in private insurance programs as well.
       DME providers are not required to be certified or licensed. 
     In fact, until recently, they have not had to meet any kind 
     of standards whatsoever. Medicare carrier oversight of 
     suppliers has also been lax. Most carriers do not keep track 
     of their suppliers, and their billing numbers are rarely 
     canceled, even when the supplier has been excluded from the 
     Medicare program. Insufficient carrier oversight also enables 
     suppliers to be issued multiple billing numbers, allowing 
     them to double bill, overbill, or avoid being caught for 
     fraudulent activities.
       Largely as a result of Congressional pressure, the Health 
     Care Financing Administration (HCFA) has taken some action to 
     curb fraud and abuse in the Medicare DME program. HCFA has 
     reduced the number of Medicare carriers processing DME claims 
     from 34 to 4, which should bring greater uniformity and 
     consistency to coverage and payment decisions. In addition, 
     all claims must now be submitted to the carrier serving the 
     area where the beneficiary resides and uses the item, thus 
     eliminating the ability of suppliers to engage in ``carrier 
     shopping'' to locate the carriers paying the highest 
     reimbursement rates in order to get the best price for their 
     overpriced items.
       These new requirements are a step in the right direction, 
     however, Medicare and Medicaid clearly remain vulnerable to 
     abuse, and there is more that we can and should do to 
     strengthen the participation requirements and administrative 
     and payment policies for durable medical equipment.
       Specific areas of abuse by DME suppliers include billing 
     Medicare and Medicaid for inferior products, billing for 
     items never provided, paying kickbacks to physicians for 
     referring patients to DME suppliers, forging physician 
     signatures or falsifying prescriptions for equipment, and 
     tainting health care products.
       Inferior Products.--The problem of selling inferior 
     products at inflated prices is an ongoing problem that this 
     industry still has not cleaned up.
       A DME supplier in Texas defrauded Medicare of over $1 
     million by charging Medicare for ``body jackets,'' when what 
     he actually provided were wheelchair pads. Legitimate custom-
     fit orthotic body jackets are used to treat injuries such as 
     vertebra fractures and compressions or to aid in healing 
     following surgery on the spine. A wheelchair pad is a 
     cushioned seating support for the wheelchair. This supplier 
     billed Medicare close to $1,300 for each pad, which 
     actually cost between $50 to $100 to manufacture--
     representing a mark-up to Medicare of as much as 2,500 
     percent.
       Body jacket scams have become increasing popular, prompting 
     the HHS IG recently to conduct an inspection to determine 
     whether Medicare was being appropriately billed for orthotic 
     body jackets. The Medicare claims paid remained relatively 
     steady until 1990. Then, the number of claims submitted to 
     Medicare skyrocketed 6,400 percent by the end of FY 1992--
     from 275 claims in 1990 to 17,910 claims in 1992. Total 
     allowed charges also increased significantly, from $217,000 
     in 1990 to $18 million in 1992--an 8,200 percent increase.
       The IG found that 95 percent of the jacket claims filed in 
     a one year period were for ``jackets'' which did not meet the 
     construction and medical necessity requirements to be 
     reimbursed by Medicare. According to the IG, an orthotic body 
     jacket costs only approximately $100 to manufacture, while 
     Medicare pays approximately $800 for this item. In 1991, 
     total Medicare payments for jackets that did not meet 
     construction and medical necessity requirements exceeded $7 
     million.
       Medicare requires that a patient's physician complete a 
     prescription--known as a ``Certificate of Medical Necessity'' 
     (CMN) before a DME can be approved for payment. The IG found 
     that the body jackets were marketed by salespersons before 
     the CMN's were completed by physicians. Typically, DME 
     salespersons marketed their devices to nursing homes for use 
     by their residents.
       The IG found that salesperson presented their products to 
     nursing home directors and physical therapists as restraint 
     alternatives to help patients sit upright in wheelchairs. 
     When a patient agreed to purchase a device, salesmen either 
     completed the CMN or gave nursing home staff the proper 
     wording to use and they completed the CMN. The nursing home 
     staff then sent it to a physician for signature. This 
     practice in itself is strictly illegal because, under current 
     law, physicians--not suppiers--are required to complete the 
     CMN.
       To market this non-legitimate device as an ``orthotic body 
     jacket,'' DME suppliers took advantage of nursing homes' 
     desires for restraint alternatives. They also took advantage 
     of the fact that these primarily Medicare and Medicaid 
     patients did not have to pay out-of-pocket for the products 
     and also of the fact that physicians are often far too lax in 
     their attention to the CMN requirements.
       Billing for items never provided.--Our investigation found 
     that there are still many cases of sham companies billing for 
     products that are never delivered. This is particularly a 
     problem when nursing home residents are targeted for the sale 
     of items that they never receive and, in some instances, 
     never even ordered.
       The manager of a California DME company billed Medi-Cal, in 
     just less than seven months, for more than $500,000 for 
     merchandise allegedly delivered to needy beneficiaries. In 
     fact, the company was supplying nothing and the beneficiaries 
     had no actual medical need for any of the supplies. An audit 
     revealed that the operation was a virtual sham from its 
     inception, and that the company had never even purchased an 
     inventory of supplies from which deliveries could have been 
     made. All Medi-Cal monies that were received were pocketed by 
     the owner who used the funds to support a heavy gambling 
     habit.
       A search warrant was recently issued in New York after a 
     number of Medicare beneficiaries complained to their local 
     carrier that they never received durable medical equipment 
     listed on their Explanation of Medicare Benefits form as 
     having been delivered to them by a New York DME company. 
     Instead the company often provided non-reimbursable 
     substitute items, such as angora underwear, power massagers, 
     air conditioners and microwaves, in order to induce the 
     beneficiaries to give them their Medicare number.
       Medicare beneficiaries would contact the DME company and 
     its sales representatives to learn how they could obtain the 
     ``free'' household items. After receiving telephone calls 
     from the beneficiaries, the sales representatives would then 
     visit them in their homes and show them household items from 
     a catalog. More expensive reimbursable durable medical 
     equipment, such as hospital beds, wheelchairs, and patient 
     lifts, which were never delivered would then be billed to the 
     carrier using the beneficiaries' Medicare numbers.
       It is estimated that Medicare overpaid $1.5 million for the 
     items, but this figure is only based on those beneficiaries 
     who complained to their carrier. The DME company is also 
     accused of conducting an elaborate money laundering scheme in 
     order to obscure the proceeds of the Medicare fraud.
       Kickbacks.--Under the Medicare and Medicaid anti-kickback 
     statute, it is illegal to offer or pay a profit distribution 
     to physicians to deliberately induce them to refer business 
     under Medicare or any State health care program. However, the 
     practice continues.
       A cardiologist has been charged with receiving $125,000 in 
     kickbacks from a DME company for referrals that enabled the 
     company, which supplied oxygen and respiratory aids, to bill 
     government programs for hundreds of thousands of dollars. 
     The indictment claims the doctor received kickbacks in the 
     form of cash payments, jewelry, and other gifts in 
     exchange for referrals.
       A group of Florida DME companies supplied respiratory 
     equipment to Medicare beneficiaries without any prior 
     physical examinations of the patients or authorization for 
     the equipment. After the companies delivered the equipment, 
     they paid kickbacks to physicians who agreed to write 
     prescriptions for the equipment and medication, without ever 
     seeing the patients. The companies then used the 
     prescriptions as supporting documentation to obtain over $5.2 
     million in Medicare reimbursements.
       Item not medically necessary/forging or falsifying 
     certificates of medical necessity.--Durable medical equipment 
     is reimbursable by Medicare and Medicaid only if prescribed 
     by physicians as medically necessary. Unscrupulous suppliers 
     circumvent physicians into signing CMN's, persuading 
     physicians to act in complicity with a fraudulent scheme, or 
     forging physician signatures.
       Two New York DME owners stole $1.45 million from the New 
     York State Medicaid program by repeatedly billing for 
     expensive orthotic back supports that were never prescribed 
     by physicians. The DMI sales force used an aggressive 
     personal solicitation and telemarketing campaign, offered 
     free ``angora underwear'' to Russian immigrants in Brooklyn, 
     in exchange for their Medicaid I.D. numbers. The State was 
     then charged for costly medical supplies that were never 
     authorized by doctors and only rarely, if ever, delivered to 
     patients. As described in a previous case, angora underwear 
     was again used as an inducement to obtain beneficiaries' 
     Medicaid numbers.
       The sales team recruited the Medicaid recipients in the 
     streets with promises of the free underclothes, and then 
     billed Medicaid for high-priced, medically unnecessary 
     orthotic back supports--charging nearly $400 per claim. One 
     of the owners also pleaded guilty to stealing an additional 
     $300,000 over two years by submitting numerous false 
     reimbursement claims from another DME company by stating that 
     the company had provided hundreds of Medicaid patients with 
     oxygen concentrators and nebulizers that were similarly, in 
     fact, never ordered by physicians.
       The owner of a DME company in New York was sentenced to 
     five months in jail for Medicare fraud and ordered to pay 
     $100,000 in restitution for falsifying blood tests to justify 
     claims for oxygen equipment and inflating hours of oxygen use 
     to obtain higher reimbursement.
       In Florida, an investigation of physicians, middlemen and 
     DME companies involved in selling and buying Certificates of 
     Medical Necessity led to indictments and imprisonment. One 
     physician was sentenced for selling the certificates for 
     patients he neither examined nor treated, knowing full well 
     they would be used in filing Medicare claims. Other 
     individuals and companies are also under indictment as part 
     of the overall investigation.
     B. Other Practices of Suppliers
       Unbundling and upcoding.--Unbundling is the practice 
     through which providers submit bills piecemeal rather than 
     for the procedure or product as a whole. These illegal 
     practices add enormous costs to the public health care 
     programs. Upcoding is the process of billing for a service by 
     using a reimbursement code for a similar but more complicated 
     service. This results in a higher reimbursement to the 
     provider.
       The case of a Pennsylvania DME company illustrates how 
     providers have used the techniques of ``unbundling'' and 
     ``upcoding'' to defraud Medicaid. The DME company billed 
     Medicaid for ``incontinence liners'' when it was in fact 
     providing residents of a youth home and elderly nuns in a 
     convalescent home with disposable washcloths. The supply 
     company misrepresented the products supplied in order to 
     receive a higher reimbursement. During interviews at the 
     homes, investigators also discovered considerable amounts of 
     durable medical equipment supplied by the same DME outfit, 
     including wheelchairs, geriatric chairs, and accessories.
       A review of the Medicaid bills submitted revealed that the 
     wheelchairs, particularly the motorized ones, had been 
     ``unbundled'': the supplier was billing separately for 
     components of a wheelchair that are generally provided as 
     standard items. The supplier also billed for more expensive 
     equipment than was actually provided. Company owners were 
     convicted for this fraud.
       Our investigation revealed several fraudulent billing 
     schemes involving reimbursement for incontinence supplies. 
     For example, a husband and wife in Michigan allegedly stole 
     more than $25 million from Medicare in false claims for 
     providing incontinence supplies for nursing home patients. 
     Each time the Medicare carrier initiated proceedings to 
     review claims before paying them, the couple allegedly 
     incorporated a new billing company in order to avoid 
     detection by Medicare.
       Tainting of health care products.--Our investigation also 
     revealed instances in which Medicare and private insurers 
     have been billed for products that pose potentially serious 
     risks to patients, such as through the sale of ``tainted'' 
     products.
       A former pharmaceutical salesman who was the owner of a 
     company that distributed human heart cardiac pulse generators 
     and human heart pulse generator leads was convicted of 
     altering and misbranding expired pacemaker boxes to make the 
     product appear new. By the owner's estimate, over an eight-
     year period, he sold about $6 million worth of pacemakers.
       Former employees testified he often acquired low cost older 
     models that were near expiration and relabeled them--a 
     process that meant not only implanting pacemakers with older 
     batteries but also jeopardizing the devices' sterility and 
     putting the patient at risk of infection. In addition, 
     accounts stated when authorities raided the owner's office, 
     they found a number of bloody pacemakers, raising suspicions 
     he was reselling devices that had been surgically removed 
     from other patients or even from corpses. One former employee 
     said he saw him wash off a pacemaker battery with tap water. 
     Other problems discovered included implanting devices with 
     lapsed expiration dates, improper sterilization, recycling 
     pacemakers, mislabeling pacemakers intended for ``animal use 
     only'' and mislabeling standard units as ``high output'' 
     units.
       The owner also provided a variety of kickbacks to attending 
     physicians, cardiologists and surgeons to induce them to 
     implant adulterated, misbranded, or expired pacemakers into 
     their patients. The physicians were given entertainment 
     tickets, vacation trips, office medical equipment, the 
     services of prostitutes and cash for using the heart devices.
       According to the Department of Health and Human Services' 
     Inspector General, a retired electrician from Chicago had a 
     ``mystery pacemaker'' implanted in his chest. The brand 
     serial number, and even the expiration date of his pacemaker 
     or the lead attached to his heart could not be determined. 
     The patient did not know his pacemaker was subject to 
     failure, which might require a pacemaker replacement 
     operation with all the accompanying risks of further surgery. 
     The patient's cardiologist admitted that he received the 
     services of a prostitute, a trip to Hawaii and other types of 
     kickbacks from the pacemaker dealer. To date, ten individuals 
     have pleaded guilty to the scheme and the owner has been 
     given a 6 year term of imprisonment.
     C. Psychiatric Services
       Our investigation has concluded that a growing area of 
     health care fraud exists in the delivery of psychiatric and 
     psychotherapy services, including those provided by 
     hospitals, clinics and private practitioners. Our review of 
     recently completed and ongoing criminal investigation 
     indicates that psychiatric and psychological services are 
     rife with abuse, particularly in the following areas: billing 
     for ``phantom'' psychotherapy sessions; billing for 
     excessively long hospital stays for inpatient psychiatric 
     care; providing kickbacks to physicians; and grossly 
     inflating the number of psychotherapy hours provided in order 
     to reap thousands of dollars in overpayments from Medicare or 
     private insurers.
       Phantom sessions.--We have found a significant increase in 
     cases involving the illegal practice of billing for 
     psychiatric and psychotherapy sessions that never took place.
       A New York Community Center director was indicted for 
     stealing almost $800,000 by fraudulently billing the State 
     for over 25,000 ``phantom'' psychotherapy sessions Medicaid 
     recipients never actually participated in and for falsifying 
     patients' medical records to cover up the theft. To 
     perpetrate the scheme, the center director offered 
     inducements like free food to attract thousands of Medicaid 
     beneficiaries to the Center.
       After obtaining the Medicaid recipients' names and I.D. 
     numbers, the director allegedly used the Medicaid provider 
     number of a psychiatrist to bill for tens of thousands of 
     these ``phantom'' sessions. The billings were so excessive 
     that the staff psychiatrist would have had to work well over 
     24 hours a day to handle the number of visits claimed, yet 
     the scheme continued for over three years before being 
     detected and stopped.
       In a similar case, physician-owners of a psychiatric clinic 
     in New York were sentenced for stealing more than $1.3 
     million from the State Medicaid program by fraudulently 
     billing the State for over 50,000 ``phantom'' psychotherapy 
     sessions never given to Medicaid recipients. They were also 
     charged with conspiring to falsify patient medical records to 
     cover up the theft.
       The doctors had paid neighborhood ``steerers'' illegal 
     kickbacks of $10 to $15 per session to bring in new patients. 
     Once inside the clinic, the Medicaid beneficiaries (often 
     drug addicts) would sit together in a big room, watch 
     television, fill out so-called homework assignments, eat a 
     meal, sometimes talk briefly to a doctor, and then, before 
     leaving, receive a few dollars cabfare and prescriptions for 
     drugs like Valium. The physicians saw patients on a twice-
     weekly basis, but billed Medicaid for four to seven visits 
     per week, as well as for dates before the recipients ever 
     even set foot in the clinic. They also billed for visits 
     when the only licensed psychiatrist on staff was absent 
     from the office--often on vacation in France and 
     California.
       Billing for excessive or unnecessary sessions.--A Minnesota 
     psychiatrist was sentenced to prison for defrauding Medicare, 
     Medicaid and the Department of Veterans Affairs by billing 
     for extensive psychotherapy sessions with individual patients 
     in nursing homes and board and care facilities when he either 
     did not see them or saw them only in groups at meals. In 
     addition, his medical license had been suspended for sexual 
     improprieties with patients and for overprescribing 
     medications.
       A Hawaii clinical psychologist, working as a marriage and 
     family counselor, was accused of defrauding the Civilian 
     Medical Health Program of the Uniformed Services (CHAMPUS). 
     He was indicted for having sexual intercourse with some of 
     his patients and then seeking payment for these encounters as 
     ``therapy'' sessions. He also claimed payment for therapy 
     sessions which never took place; for billing individual 
     sessions as joint sessions in order to receive higher 
     reimbursements; and for falsely certifying to CHAMPUS that he 
     billed and collected a required 20% copayment from his 
     patients when he had, in fact, advised them they were not 
     responsible for the fee. As a result, his patients had no 
     incentive to scrutinize his billings, allowing him to 
     continue his fraud against CHAMPUS.
       A Virginia psychiatrist was recently convicted for billing 
     different insurers for patient counseling sessions that never 
     occurred or whose length was inflated on reimbursement 
     claims. He is accused of defrauding seven insurers including 
     Medicare, Medicaid and CHAMPUS. He was sentenced to home 
     confinement for six months, ordered to perform community 
     service, fined $10,000 and put on probation.
       A record $379 million in fines, damages and penalties will 
     be paid by a large health care corporation for kickbacks and 
     fraud at its psychiatric and substance abuse hospitals in 
     over 30 states. The corporation agreed to plead guilty to six 
     counts of making unlawful payment to induce doctors to refer 
     Medicare and Medicaid patients to the hospitals and one count 
     of conspiracy to defraud the United States. Fraudulent 
     practices included admitting and treating patients 
     unnecessarily, keeping patients hospitalized longer than 
     necessary in order to use up insurance coverage, billing 
     insurance programs multiple times for the same service and 
     billing when no service was actually provided, and billing 
     Medicare for payments made to doctors that were solely 
     intended to induce referrals of patients to the facilities.
     D. Nursing homes
       The investigation revealed a considerable number of cases 
     involving direct targeting of nursing home patients in which 
     both the industries that supply products and services to the 
     homes and the owners and administrators of the home are 
     involved in fraudulent and abusive practices. Nursing home 
     owners have been convicted of charging personal luxury items 
     like swimming pools to Medicaid cost reports. HCFA, the HHS 
     IG, and the Minority committee staff are continuing to 
     investigate nursing homes and the providers of rehabilitative 
     services to nursing homes.
       A Minnesota speech therapist submitted false claims to 
     Medicare for services provided to nursing home residents. The 
     therapist also received Medicaid payments for speech therapy 
     he never actually performed--and the investigation revealed 
     that he had been paid for services ``rendered to patients'' 
     several days after they had died. He was also observed using 
     flash cards with a blind resident, and then billing for 
     reimbursement
       The owner of a Pennsylvania rehabilitation service was 
     indicted for allegedly operating a scheme to defraud Medicare 
     by submitting false claims for speech therapy provided to 
     patients in nursing homes. The owner allegedly told speech 
     therapists to recruit Medicare clients even though he knew 
     their therapy would not be covered under Medicare.
       Before submitting the paperwork for reimbursement, the 
     speech therapists would rewrite their patient reports so that 
     they would appear to be medically necessary rehabilitation 
     services. The employees then allegedly falsified bills 
     submitted to Medicare, including certifications by doctors 
     that patients needed continued speech therapy, and also 
     falsified patients' medical records.
       A Connecticut nursing home owner allegedly overstated 
     expenses in reports for Medicaid reimbursement over a five-
     year period resulting in an overpayment by the State of 
     almost $400,000. The nursing home owner allegedly arranged a 
     beneficial financial arrangement with a leasing corporation 
     to procure equipment. The leasing company then sold or leased 
     the equipment back to the owner for a far greater cost than 
     its purchase price. The nursing home was accused of passing 
     on these costs to the State by submitting inflated cost 
     figures and in order to obtain a higher rate of Medicaid 
     reimbursement.
       A supply company in California billed Medicare for $5 
     million for post-surgery surgical dressings for nursing home 
     patients who had never even had surgery. Medicare paid 
     numerous nursing homes in several States for the surgical 
     dressings, and the homes, in turn, paid a percentage to the 
     supply company.
       Nursing home operators in North Carolina and Pennsylvania 
     have been convicted of charging personal items such as 
     swimming pools, jewelry, and the family nanny to Medicaid 
     cost reports.
     E. Clinical Laboratories
       Some of the largest health care fraud convictions and 
     settlements to date have involved major national clinical 
     laboratories. These providers have come under intense 
     scrutiny by the FBI, the HHS IG, the Medicaid fraud units, 
     and private insurers for such practices as ``sink testing,'' 
     by which patients' lab samples are dumped down the sink 
     without having had the requisite tests performed, providing 
     and billing for bogus test results; performing extra tests in 
     order to obtain excessive reimbursements; providing kickbacks 
     to physicians for patient referrals; and ``unbundling'' so 
     that Medicare will pay individually for each test that should 
     be billed as part of a series of tests. Our investigation 
     reveals that clinical labs continue to be a major potential 
     area of abuse, posing the threat of significant losses to 
     Medicare, Medicaid, CHAMPUS, and private insurers, as well as 
     a threat to patients' health care due to faulty or 
     unperformed lab tests.
       Three of the nation's largest clinical laboratories paid 
     over $150 million to settle allegations that they submitted 
     claims for unnecessary blood tests. Part of these cases arose 
     from allegations by a whistleblower who charged that the 
     three companies had submitted thousands of false Medicare and 
     Medicaid claims. The labs were accused of manipulating 
     doctors into ordering additional medically unnecessary tests 
     when the doctors ordered basic automated blood tests. This 
     probe is continuing and several other lab companies have 
     acknowledged receiving subpoenas.
       One of the labs, which pleaded guilty to the submission of 
     false claims to the CHAMPUS program and to Medi-Cal, was 
     accused of revising its order form so that doctors ordered 
     additional tests as part of a standard test without realizing 
     that Medicare would be charged separately for them. The 
     unnecessary tests allegedly cost Medicare millions of 
     dollars.
       In New York, a laboratory that had billed Medicaid more 
     than $39 million over six years was indicted for fraudulently 
     billing for bogus ultrasound and blood tests. It was also 
     indicted for illegally laundering over $1 million in Medicaid 
     profits through the lab in order to generate kickback money. 
     The sales manager of the lab was accused of submitting 
     thousands of false reimbursement claims stating that blood 
     tests and sonograms had been provided to Medicaid recipients, 
     when, in fact, the tests were never medically required. 
     Further, to the extent that services were actually provided, 
     they were done solely to maximize the Medicaid 
     reimbursements.
       The lab sales manager then allegedly laundered the Medicaid 
     proceeds by writing checks to fictitious employees and 
     converting the funds to cash in order to pay kickbacks to 
     others and also to make the fraud more difficult for Medicaid 
     to detect.
     F. Physicians/practitioners
       When physicians and health care practitioners engage in 
     fraudulent practices they not only violate their own code of 
     ethics but also deceive their patients, add enormous costs to 
     an already beleaguered system, possibly endanger lives and, 
     ultimately, betray the public trust.
       A physician in Hawaii who specialized in internal medicine 
     and oncology used fake diagnoses to justify billings for 
     treatments never provided to patients. Some examples of the 
     physician's billing practices included: billing for treatment 
     of appendicitis in patients who previously had their 
     appendixes removed; billing for office visits that never took 
     place; and billing for laboratory tests that were not 
     performed. The physician is currently under indictment.
       An Arizona physician who practiced as a radiologist is 
     under indictment for obtaining admission into the Medicare 
     Screening Mammography Program by falsely stating that he was 
     certified in radiology by the American Board of Radiology, 
     which is specifically required of interpreting physicians 
     before admitting them to the program. This is done to ensure 
     that a physician meets the requisite conditions for 
     certification such as the necessary experience, continuing 
     education, and written reports requirements.
       The physician was also indicted for certain billing 
     practices involving a mobile CT (computerized tomography) 
     scanning service. In addition to performing CT scans of 
     patients, the physician ordered technicians to perform 
     reconstructions of the CT images. He is accused of directing 
     the billing clerk to bill for reconstructions on all CT scans 
     even when he knew that in many cases no reconstruction was 
     done by the technicians.
       Over a two-year period, a Maryland physician's billing to 
     Medicaid quadrupled, prompting an investigation. The 
     physician was subsequently accused of double-dipping both 
     Medicaid and the State Department of Social Services for 
     giving physical examinations to disability applicants. 
     Undercover investigators witnessed an office overflowing 
     with drug addicts, disability papers in hand, being 
     examined in four minute intervals. ``Comprehensive'' exams 
     lasted no more than two to four minutes. Records showed 
     that the physician sometimes saw upwards of 100 patients 
     per day, even though he only spent six hours a day at his 
     practice.
       Patients were told to drop off disability forms one day and 
     come back the next day to pick them up, and it was obvious 
     that the forms were being completed before the patients even 
     met with the physician. The physician was certifying 
     ``inability to work'' without verifying or treating the 
     complaints. He had a rubber stamp with the diagnosis ``lumbar 
     spine arthropathy'' created to stamp all the ``bad back'' 
     disabilities. By courting addicts and other potential 
     disability recipients, the doctor built, in a very short 
     time, a practice which billed Medicaid and the State 
     Department of Social Services almost $450,000 a year for 
     services that were so superficial as to be relatively 
     useless. In 1993, the physician filled out more than 9,900 
     disability forms. Another physician who at one time was in 
     the same practice acknowledged the false certifications, 
     stating that ``these people could work.''
       Unfortunately, the poor care rendered by the physician as a 
     result of his assembly line approach resulted in horror 
     stories of poor patients care--one patient suffered a weight 
     loss of fifty pounds in three months and received no 
     treatment. The physician falsified the blood pressure 
     readings of patients suffering hypertension and these 
     patients often went untreated even though this dangerous 
     problem existed. The physician was eventually convicted of 
     Medicaid fraud and given a suspended sentence.
       Minority staff investigators found numerous cases involving 
     kickbacks for sonograms, ultrasound, and other diagnostic 
     imaging tests. For example, a New York radiologist allegedly 
     stole more than $1 million from the New York State Medicaid 
     program during a two-year period by fraudulently billing for 
     thousands of ultrasound tests he never reviewed. His Medicaid 
     claims jumped from $28,000 in one year to more than $1 
     million two years later. The radiologist allegedly made 
     kickbacks of 75 percent of his billings to so-called 
     ``salesmen'' who regularly arrived at his office toting 
     shopping bags full of sonograms collected at Medicaid clinics 
     throughout the city.
       The physician has been charged with billing Medicaid for 
     reading and interpreting over 11,000 patients' sonograms and 
     echocardiograms, that, in fact, he never reviewed.
       A New York podiatrist stole more than $200,000 from 
     Medicaid by repeatedly billing for orthotics made from high-
     priced custom foot molds never provided to Medicaid patients. 
     The podiatrist filed thousands of false reimbursement claims 
     stating that Medicaid recipients had received expensive 
     custom orthotics--foot molds reimbursable at $46 each--
     fabricated from actual foot castings when, in fact, the 
     doctor had furnished patients with cheaper devices which 
     should have been reimbursed at only $18 each.
       This case is part of an ongoing statewide investigation 
     into Medicaid abuse involving podiatrists, orthotic labs and 
     orthopedic shoe vendors which has resulted in criminal 
     charges against more than 200 individuals for stealing more 
     than $30 million from the New York Medicaid program. To date, 
     185 convictions have resulted in more than $25 million in 
     court-imposed fines and restitutions.
       A Georgia chiropractor, his wife and 15 former patients, 
     were ordered to pay a total of $3.2 million in fines after 
     being convicted of Medicare and private insurer fraud. The 
     couple recruited patients for their clinic by promising 
     kickbacks of up to one third the amount that Medicare or the 
     insurance companies reimbursed. Bills were submitted for 
     patients and their families regardless of whether they had 
     been treated. In one instance, bills were submitted for 169 
     patients supposedly treated in a single day.
       A Utah physician operating a clinic was charged with 34 
     counts of mail fraud and seven counts of false claims. He had 
     previously been convicted of filing false Medicaid claims in 
     the 1980's. He was to be suspended from the program for a 
     period of ten years.
       Following his conviction, however, there was no change in 
     his billing practices. He continued to bill private insurance 
     companies and Medicare and Medicaid (in the names of employed 
     physicians) in the same excessive manner. When he was 
     `flagged' by insurance companies, he would then set up dummy 
     billing companies to disguise his identity on claim forms. He 
     was recently indicted on, among other things, unbounding 
     services, identifying false diagnoses on claim forms, 
     duplicate billings, misrepresenting the level of service, and 
     billing for services without the knowledge or consent of 
     patients. A jury convicted him on 32 counts.
       A Maryland physician-owned corporation was convicted of 
     Medicaid fraud and ordered to pay $190,000 in restitution for 
     submitting false invoices to Medicaid. The corporation sought 
     payment for several different types of medical services, 
     including office visits and laboratory tests, which had not 
     been done and were not medically necessary. The corporation 
     billed Medicaid repeatedly for unnecessary laboratory tests.
       In one instance, a young boy was rushed to the physician's 
     office with a lacerated chin. The boy's chin was sutured but, 
     in addition to this procedure, Medicaid was billed for a 
     throat culture, a nasal culture, a non-specific culture, and 
     three hearing tests, despite the fact that there was no 
     reason to perform these services and that the boy's mother 
     stated that none of the tests billed to Medicaid were 
     performed by the physician. The investigation also revealed 
     that the corporation had not purchased sufficient laboratory 
     supplies to have been able to perform the laboratory tests 
     for which Medicaid was billed.
       A Pennsylvania physician was convicted of illegal 
     prescribing controlled substances. The physician, also known 
     as ``Dr. Xanax,'' prescribed prescriptions for non-legitimate 
     medical purposes to abusers and dealers. It is estimated that 
     he diverted in excess of 20,000 dosage units of controlled 
     substances per month. He was convicted on 59 counts of 
     illicit distribution of Valium, Adipex, Darvocet, and 
     Vicodin.
       A scheme in New York defrauded Medicaid by conducting 
     unnecessary medical tests on drug addicts. The addicts, who 
     were using multiple identities and Medicaid cards, were 
     recruited from the street and given prescriptions for drugs 
     they abused in exchange for participating in the tests.
       The insurance billings generated from these tests were made 
     possible by an agreement between the owners of the clinics 
     and staff physicians. For the use of their provider numbers, 
     the physicians received a 40 to 50 percent kickback for all 
     accrued medical charges. Loss to the Medicare and Medicaid 
     programs in this case is estimated at $10 million. Twenty-one 
     individuals, including seven physicians, have been charged or 
     have entered plea agreements. This was one of the first 
     health care fraud investigations in which Racketeer Influence 
     Corrupt Organizations (RICO) charges were levied. Money 
     laundering violations served as the predicate offense for the 
     RICO charge.
       A New York physician who operated a methadone treatment 
     center stole more than $1.5 million by fraudulently charging 
     the state for over 25,000 methadone treatments never given to 
     Medicaid recipients. In his illicit four-year billing scheme, 
     the physician not only used the Medicaid numbers of patients 
     who had not yet begun the program or had died, but brazenly 
     appropriated the names and I.D. numbers of patients at a 
     hospital with which he was affiliated who were neither in his 
     care nor even on methadone.
       The physician systematically filed thousands of false 
     reimbursement claims stating that he had provided methadone 
     maintenance treatment (reimbursable at almost $60 per week) 
     to over 1,100 Medicaid recipients at his office.
       In New York, nine persons involved in a conspiracy in which 
     Medicaid was defrauded of more than $8 million in a little 
     over a year were given prison sentences. The owner of several 
     medical clinics was sentenced to five years imprisonment and 
     five other doctors were sentenced to lesser terms. The 
     doctors were hired by the clinics for the sole purpose of 
     using their Medicaid provider numbers.
       The physicians wrote prescriptions for drugs that have a 
     high street value and that ended up being diverted. The scam 
     included rounding up ``patients'' for the clinics who had 
     valid Medicaid cards, drawing blood and taking blood 
     pressures, and then billing Medicaid for extensive diagnostic 
     tests. The ``patients'' were also directed to specific 
     pharmacists who filled prescriptions and billed Medicaid for 
     drugs which were then sold on the street.
     G. Non-physician providers and professional patients
       Pharmacists and pharmaceuticals.--The investigation has 
     found that the diversion of prescription drugs continues to 
     be a major criminal problem. The buying and selling of 
     prescription drugs on the street poses enormous problems for 
     law enforcement, already stretched to its limits, as well as 
     adding immense costs to society by fueling an addicted 
     population and facilitating illegal drug trafficking.
       In one of the largest fraud cases ever in New Hampshire, a 
     pharmacist stole almost $375,000 from the State's Medicaid 
     program and private health insurance plans. Over a two-year 
     period, the pharmacist systematically billed over one 
     thousand times for prescription drugs that he did not 
     actually dispense.
       The pharmacist fabricated prescriptions to justify his 
     billings. According to State officials, he used insurance 
     information provided by his customers to submit false 
     billings to their insurance companies and also double-billed 
     Medicaid and private insurance for the same services.
       This case illustrates how health care fraud can have 
     devastating effects on insurance companies far beyond the 
     actual losses. In addition to violating the trust and 
     confidentiality of his customers, the acts of this pharmacist 
     resulted in the loss of prescription drug benefits to many 
     individuals: because the pharmacist's fraudulent activity 
     caused a local company's health plan to insure high costs, 
     the company was forced to drop its prescription drug 
     converge for about 1500 workers. The loss of the drug card 
     benefit to hundreds of employees is a striking example of 
     how health care fraud victimizes not only insurers, but 
     also employers, employees and their families alike.
       In Michigan, several pharmacists obtained large quantities 
     of sample and expired drugs and dispensed them to nursing 
     home patients and pharmacy customers. Pharmacy technicians 
     were instructed to remove sample drugs from their packages, 
     scrape or rub off the word ``sample'' on the tablet, and 
     place these drugs in the general stock for dispensing 
     prescriptions. Expired drugs generally acquired from the 
     purchase of other pharmacy inventories were handled in a 
     similar manner. The samples and expired drugs were dispensed 
     to nursing home patients and the Medicaid program was 
     fraudulently billed.
       Pharmacy technicians had received complaints from nursing 
     home staff and patient relatives regarding the 
     ineffectiveness of the medications delivered. According to 
     testimony at trial, when the technicians confronted the 
     pharmacy owner with these complaints the owner stated ``those 
     people are old, they'll never know the difference and they'll 
     be dead soon anyway.''
       In Florida, a pharmacist was caught purchasing and selling 
     diverted drugs that were samples provided to representatives 
     of drug manufacturers. The pharmacist, the owner of a Broward 
     County pharmacy, was accused of dispensing samples of 
     Feldens, an arthritic drug, and Naprosyn, an anti-
     inflammatory drug, which had been adulterated by scraping off 
     the mark ``Sample'' on the capsules. The pharmacist stated 
     that he bought them for cash from a friend who delivered them 
     in plastic bags on a weekly basis. This was in direct 
     violation of the Prescription Drug Marketing Act which 
     provides penalties for selling drug samples in order to 
     ensure that the prescription drugs purchased by consumers are 
     safe and effective.
       A black market scheme in New York has allegedly defrauded 
     the Medicaid program by illegally buying and selling costly 
     prescription drugs, including the AIDS medication AZT. The 
     drug diverters are accused of warehousing an inventory of 
     drugs pending resale for cash to pharmacies and other 
     diverters at greatly discounted prices. The medications had 
     originally been dispensed to Medicaid recipients in New 
     Jersey and Connecticut.
       In this illicit underground economy, Medicaid recipients--
     often addicts who are seeking to abuse the system--visit 
     unscrupulous doctors and obtain prescriptions for a laundry 
     list of costly brand name drugs. They then either sell the 
     prescriptions to accommodating druggists or have the 
     prescription filled and peddle their goods to street buyers 
     who, in turn, recycle them to other pharmacies.
       New York official stated that this scam was particularly 
     insidious because the ultimate users of the recycled goods--
     the public--could well be taking drugs that had lost their 
     potency or had been improperly stored and handled. One of 
     those arrested stated that the had just made a $40,000 deal 
     with a New Jersey pharmacy for similar prescription drugs. 
     This case was part of a broader investigation into a vast 
     network of physicians, pharmacists and Medicaid recipients 
     who are engaged in dealing drugs and prescriptions for cash 
     on the black market.
       An Illinois illegal narcotics distribution ring containing 
     three ringleaders and a group of nineteen people was charged 
     with diverting over 60,000 Dilaudid pills. According to the 
     Drug Enforcement Administration, Dilaudid, a synthetic, 
     morphine-like substance, is considered the most powerful 
     prescription pain killer sold today.
       The group diverted Dilaudid from legitimate channels by 
     using professional patients who visited doctors on a daily 
     basis. Some of the professional patients who were recruited 
     had cancer. One ringleader collected the Dilaudid and then 
     sold it to individuals who took it out of the State of 
     resale. It costs approximately $.40 a tablet at the pharmacy 
     counter, yet demands a street price of $20 to $80 a tablet 
     depending on availability.
       Home health care.--The aging of the population, the 
     increasing preference for home and community-based long term 
     care, and major advances in the development of out-patient 
     technology has resulted in the explosive growth for the home 
     care industry in the United States. Unfortunately, 
     commensurate with the growth of this industry has been an 
     increase in home care fraud. Our investigation has revealed 
     that there are two major pockets where some abusive practices 
     have become problematic: in the home health agencies and in 
     home infusion companies (home infusion is an industry that 
     provides intravenous drugs and nutritional therapy for 
     patients who are receiving care at home).
       Several patterns of fraud have emerged in home health 
     agencies, such as billing for services not rendered, use of 
     unlicensed or untrained staff, kickbacks to referring 
     physicians, and falsified plans of care for patients. Home 
     health care has tremendous potential to decrease costs of 
     both acute and long-term care and to enhance patients' 
     quality of life. It also, however, presents a 
     disproportionate opportunity for abusive practices, hidden 
     from medical professionals and overseers who cannot watch 
     delivery of care at home.
       The home infusion industry has been rocked with charges of 
     kickbacks and overcharging. Some companies have allegedly 
     charged patients fees at much as 2,000 percent higher than 
     hospital charges. An examination by the HHS Inspector 
     General has revealed three types of kickback schemes used 
     by home infusion companies to defraud the federal 
     government: direct payment of money to a physician for the 
     referral of patients; stock bonuses based on the amount of 
     referrals; and companies, through the use of recruiters, 
     soliciting beneficiaries rather than doctors.
       At the end of 1994, new legislation will prohibit Medicare 
     payment for referrals by physicians to home infusion 
     companies in which they have a financial interest. However, 
     this payment prohibition only applies to physicians and will 
     not correct the potential kickback violations with the 
     referral of patients for IDPN, and infusion used for 
     nutrition at the same time a patient is undergoing dialysis. 
     The HHS IG has ongoing investigations in six regions 
     targeting home infusion companies. In addition, it has a 
     national case pending against one of the major home infusion 
     companies in the nation. 1993 total revenues for home 
     infusion therapy topped $4 billion.
       The owners of a large New York home health care company 
     stole more than $4.6 million from the New York State Medicaid 
     program by systematically billing, over a three-year period, 
     for services rendered by untrained and unqualified home care 
     aides. The company was accused of grossly inflating, by as 
     much as 30,000 hours, the amount of time these employees 
     actually worked. The company recruited untrained employees 
     who were often immediately assigned to care for homebound 
     Medicaid recipients, assisting them with such personal chores 
     as bathing, dressing and feeding, and other support 
     functions.
       This scheme not only cheated Medicaid out of millions of 
     dollars, but it also recklessly sent untrained health care 
     workers--including a 14 year-old girl to care for a 4-year-
     old child with Down's syndrome--into the homes of disabled 
     and elderly residents. According to New York officials, home 
     care has become the fastest-growing part of the New York 
     Medicaid program--ballooning from $400 million to over $2 
     billion a year since 1986.
       A vivid example of kickbacks for home care patient 
     referrals involved a family in South Florida that established 
     four companies to distribute liquid nutritional supplements, 
     including a milk supplement, to Medicare beneficiaries. These 
     nutritional supplements are reimbursable by Medicare if a 
     physician signs a Certificate of Medical Necessity indicating 
     that the supplement is appropriate for the patient. The 
     companies hired recruiters to go into South Florida 
     communities with heavy concentrations of elderly residents 
     and other ``free medical milk.'' The senior residents then 
     were signed on as new patients, monthly deliveries of 
     nutritional supplements were made and Medicare was billed for 
     these services.
       The recruiters had made arrangements with Miami-area 
     physicians to certify the medical need for the supplement. 
     The company made kickback payments of $100 to the recruiters 
     for the ``Certificate of Medical Necessity'' obtained, and 
     the recruiters, in turn, paid kickbacks to the physicians who 
     had signed the certifications. In less than two years, the 
     companies had billed Medicare for over $14 million.
       None of the elderly residents interviewed by the FBI during 
     the investigation was qualified for the nutritional 
     supplement, which is currently reimbursed by Medicare at a 
     rate of $600 per month per beneficiary. Twelve individuals, 
     including several physicians were indicted.
       A Ohio girl who suffered from cerebral palsy was able to 
     live at home with the help of intravenous drugs and 
     nutritional therapy. Bills generated from her treatments 
     ranged from $95,000 to $120,000 a month. The family filed a 
     lawsuit against the home infusion company alleging 
     overcharging and poor quality of care. In less than a year, 
     the family's two private insurance policies' limit of $1 
     million was used up. Comparisons showed that it cost close to 
     $1,000 a day more to treat the little girl at home than it 
     would have cost to treat her in a hospital. When the 
     insurance lapsed, a court order was needed to compel the 
     supplier to keep the supply of treatment items coming to the 
     house. The girl's mother was eventually forced to quit her 
     job in order to qualify for Medicaid, ironically to pay for 
     the treatment which was supposed to save money compared to 
     the more expensive inpatient hospital fees.
       Medical billing services.--The investigation found that the 
     administrative complexity of the current health system has 
     spawned a growth industry of billing companies to file 
     reimbursement claims to both private insurers and federal 
     health care programs. A consequence of this complexity is 
     that billing firms at times falsify claims information with 
     elaborate fraudulent schemes.
       The recent case of a California medical billing service 
     illustrates how easy it is under the current health care 
     system to be reimbursed for services which are never actually 
     provided.
       In August 1992, state and federal agents began an 
     investigation into a sham medical billing service that was 
     submitting claims to insurance companies nationwide for 
     laboratory services. The owners of the billing service first 
     gained entry to the system when they were previously employed 
     by another billing service. Without the knowledge of their 
     former employer or coworkers, the con artists photocopied and 
     smuggled home hundreds of claim forms, doctors' billing 
     numbers, and patients' medical information. Armed with this 
     information, the operators set up their own phony billing 
     service, and submitted over $2.3 million in bogus claims for 
     lab services that were never actually performed.
       By the time federal investigators arrested the owners of 
     this company, the operators had set up several ``billing 
     services,'' under at least five separate names. Each of these 
     bogus entities had its own billing address and false business 
     licenses.
        Committee staff is concerned that the scheme only came to 
     light after subscribers began to notify their insurance 
     companies that they had received Explanations of Benefits 
     (EOB) for services they had never received or for services 
     performed by a physician they did not even know. Since many 
     subscribers never reviewed their EOB's, some insurance 
     companies continued to pay claims without question. As 
     complaints from subscribers began to mount, however, 
     insurance company investigators began to notice a pattern of 
     fraud, and realized that the companies had each been paid 
     hundreds of thousands of dollars in fraudulent billings.
       At the time of arrest, the sham billing company's owners 
     had stolen over $1.5 million from insurance companies across 
     the country, and had submitted additional false bills for a 
     total of $2.3 million in bogus bills.
       Ambulance and taxi services.--Medicaid-paid transportation 
     services is an area ripe for abuse. For example, a common 
     practice is routinely inflating the amounts billed to the 
     program by overstating the miles travelled. There is also 
     fierce competition among operators in these industries to 
     obtain Medicaid business. In one Maryland operation, for 
     example, an unscrupulous taxicab owner violently beat a 
     competitor who was waiting outside a clinic looking for 
     riders.
       In New York, Medicaid pays for a patient's transportation 
     to a medical provider either when mass transit is unavailable 
     in the recipient's area or when the patient, because of a 
     debilitating physical or mental condition, cannot use mass 
     transit.
       The owner of a New York taxi firm allegedly stole over 
     $100,000 from the State by fraudulently billing for thousands 
     of taxi rides never given to Medicaid patients. The president 
     of the taxicab company was charged with filing more than 
     3,000 false reimbursement claims stating that his two taxi 
     firms had provided over 300 Medicaid recipients with taxi 
     service on days when, in fact, no transportation at all was 
     provided.
       This case is part of ongoing investigation of New York's 
     medical transportation industry which, to date, has resulted 
     in convictions against 66 individuals.
       The owner of a Massachusetts taxi company was recently 
     indicted on Medicaid provider fraud and state tax violations. 
     He is accused of charging Medicaid for separate rides when 
     two or more recipients shared the same taxi. State Medicaid 
     regulations require that taxi firms split the fare when two 
     or more share the ride. Employees of the company were also 
     indicted for failing to file tax returns over a three-year 
     period.
       A Virginia Medicaid transportation service was convicted of 
     a criminal violation of the federal False Claims Act. The 
     owner of the company submitted claims to Medicaid with 
     inflated mileage for transporting indigent patients to and 
     from health care centers. The owner was sentenced to one year 
     probation.
       Professional patients.--Our investigation found that health 
     care providers are not the sole abusers of the health care 
     system. Conversely, our investigation found significant abuse 
     by so-called ``professional patients'' who scam the system by 
     providing their own medical histories, blood or lab samples 
     as the basis for fraudulent claims. In some instances these 
     patients are provided kickbacks or inducements by health care 
     providers to participate in schemes, while in other instances 
     the patients themselves are the originators of the scams.
       The owner of a New York medical clinic was accused of 
     submitting bills to Medicaid for medical services, blood 
     analysis, drug prescriptions, and laboratory tests which were 
     medically unnecessary. Physician assistants who worked at the 
     clinic said that little medical treatment was actually 
     administered at the clinic. A scheme was allegedly devised in 
     which ``patients'' would routinely demand certain prescribed 
     drugs, submit to a battery of unnecessary tests, and give 
     blood in order to receive the drugs, which the ``patients'' 
     would later sell on the street. The owner allegedly paid 
     doctors and physicians assistants five dollars per blood 
     sample as a kickback. He then billed New York Medicaid to pay 
     for the analysis the clinic conducted on the blood samples.
       A New York woman, who had four different aliases, was 
     arrested on mail fraud charges for making false claims 
     seeking reimbursement for medical treatment that was never 
     actually rendered. Over a four-year period, the woman had 
     submitted approximately 48 claims for direct reimbursement 
     from her private insurance carrier. The carrier contacted the 
     treating physicians named on the claims and learned that 
     virtually all the claims were false. In one instance, she 
     claimed that she was treated by a dermatologist on a date 
     when he was actually on vacation.


   iv. findings of investigation--deficiencies in the current system 
      impede law enforcement's ability to combat health care fraud

       While the cases included in this report represent only a 
     small sample of fraud and abuse perpetrated against public 
     and private health care programs, they serve to illustrate 
     the vulnerability of our health care system. The 
     investigation of these and other cases and our extensive 
     review of current federal and state enforcement efforts lead 
     us to conclude that major deficiencies exist in our defenses 
     against health care fraud, allowing billions of dollars to be 
     lost each year to fraud and abuse. We further conclude that 
     as our health care system moves toward a managed care model, 
     even greater opportunities for fraud will occur, exposing our 
     health care system to even greater dollar losses.
     A. Major patterns of fraud exist throughout the entire health 
         care system and patterns of fraud within some provider 
         groups have become particularly problematic
       Our investigation concluded that vulnerabilities to fraud 
     exist throughout the entire system, affecting federal, state, 
     and private health care plans alike. Major patterns of abuse 
     that continue to plague the health care system are 
     overbilling, billing for services not rendered, unbundling 
     and upcoding services to receive higher reimbursements, 
     providing inferior products, paying kickbacks and inducements 
     for referrals of patients, falsifying claims and medical 
     records to receive excessive reimbursement or to fraudulently 
     certify a patient's eligibility for Medicaid, Social Security 
     disability, or state welfare programs.
       While these practices exist throughout the health care 
     system and are perpetrated against both public and private 
     health plans, our investigation found that health care 
     schemes used to victimize payers and patients have become 
     more complex and frequently involve regional or national 
     corporations and other organized entities. No part of the 
     health care system is exempt from these fraudulent practices, 
     however, our investigation raises concerns that major 
     patterns of fraud and abuse have existed in the following 
     health care sectors: ambulance and taxi services, clinical 
     laboratories, durable medical equipment suppliers, home 
     health care, nursing homes, physicians, psychiatric services, 
     and rehabilitative services in nursing homes. Our 
     investigation further concludes that fraud and abuse is 
     particularly rampant in Medicaid, and that many of the 
     fraudulent schemes that have preyed on the Medicare program 
     in recent years are now targeting the Medicaid program for 
     further abuse.
       We are continuing to investigate specific fraudulent 
     schemes, particularly with regard to Medicaid and Medicare 
     fraud.
     B. Greater opportunities for fraud will exist under health 
         care reform
       As our health care system moves toward a managed care 
     model, opportunities for fraud and abuse will increase unless 
     enforcement efforts and tools are strengthened. Our 
     investigation concludes that the structure and incentives of 
     a managed care system will result in a concentration of 
     particular types of schemes, such as failure to provide 
     services; quality of care deficiencies; falsification or 
     misrepresentation of professional credentials by providers; 
     subcontractor fraud; submission of false costa data to obtain 
     higher capitation rates; fraudulent or deceptive enrollment 
     practices by health plans; and kickbacks, rebates, and other 
     illegal economic arrangements to increase market share of 
     health care services.
       The experiences of several states' Medicaid programs 
     illustrate that managed care systems often provide greater 
     incentives and opportunities for providers to engage in 
     health care fraud.
       For example, the Arizona Health Care Cost Containment 
     System Fraud Unit has found that Arizona's Medicaid managed 
     care-style program has been subject to embezzlement of funds 
     paid by the state for client services; fraudulent 
     subcontracts; wire and mail fraud; fraudulent related party 
     transactions; and kickbacks among physicians, osteopaths, 
     home health care facilities, DME suppliers, and physical 
     therapists.
       The AHCCCS Fraud Unit concluded that the managed care 
     structure of the Arizona Medicaid program offered 
     opportunities for kickbacks and other types of health care 
     fraud. Similarly, many other states' Medicaid Fraud Control 
     Units have found that states which require their Medicaid 
     beneficiaries to participate in managed care programs have 
     experienced significant incidences of fraud, such as 
     fraudulent marketing techniques and falsification of 
     enrollments of new members to plans, reduced quality of care, 
     improper disenrollment practices, deceptive marketing 
     practices to potential enrollees, and providing substandard 
     care to enrollees in the managed care plans.
       These state experiences with HMO's and managed care plans 
     illustrate that comprehensive health care reform 
     incorporating the principles of managed care will exacerbate 
     the opportunities and incentives for providers to engage in 
     fraud and abuse.
       Moreover, two other key aspects of health care reform could 
     affect enforcement efforts. First, while uniform, standard 
     claims forms will go far in reducing the complexity of the 
     health care system, these revised claims forms must be 
     designed with enforcement in mind, so that factors can be 
     built in to detect fraud and abuse more easily. Second, 
     electronic billing systems, while again reducing complexity, 
     will eliminate the paper trail that enables law enforcement 
     to track fraudulent practices. Any such system must be 
     designed with safeguards built in to detect and deter fraud 
     and abuse.
     C. Current criminal and civil statutes are inadequate to 
         effectively sanction and deter health care fraud
       Both the Department of Justice and the Department of Health 
     and Human Services endorse strengthening the tools available 
     to prosecute criminal and civil cases. Currently, Federal 
     prosecutors use traditional fraud statutes, such as the mail 
     and wire fraud statutes, the False Claims Act, false 
     statement statutes, and money laundering statute to prosecute 
     health care fraud.
       Additional tools, such as penalties for false claims, anti-
     kickback statutes, and the authority to exclude providers 
     from participation in Medicare and Medicaid, are now 
     available to redress fraud and abuse in the Medicare and 
     Medicaid programs.
       Despite the availability of these criminal and civil 
     remedies, our investigation has concluded that several 
     deficiencies exist in the tools available to law enforcement 
     to combat fraud and abuse most effectively in the health care 
     system. For example: Inordinate time and resources are 
     devoted to apply traditional fraud and money laundering 
     statutes to health care fraud.
       While many egregious cases of health care fraud have been 
     successfully prosecuted under the mail and wire fraud 
     statutes, because there is currently no specific federal 
     health care fraud criminal statute available to federal 
     prosecutors, excessive time and resources must be devoted to 
     developing a nexus to the mail and wire fraud statutes in 
     order to pursue clear cases of fraud. Similarly, extensive 
     resources are spent trying to track the cash flow from health 
     care fraud schemes in order to prosecute under federal money 
     laundering statutes. Relying on these more generic federal 
     criminal statutes for prosecution results in an inefficient 
     use of scarce law enforcement resources.
       The case of the bogus medical billing service in California 
     which stole over $1.5 million from insurance companies 
     nationwide before they were arrested by federal agents 
     provides a prime example of how extensive resources are spent 
     on proving a nexus to traditional fraud statutes: the FBI 
     estimates that hundreds of additional investigative staff 
     hours were devoted to proving the trail of expenditures in 
     order to prove money laundering, because a federal health 
     care fraud statute does not exist.
       Creation of a new, general health care fraud offense 
     prohibiting schemes to defraud federal or private health 
     plans or persons in connection with the delivery of or 
     payment for health care is necessary to provide a direct 
     response to intentional acts to defraud the health care 
     system.
       In addition to providing a more efficient response to 
     health care fraud, the establishment of a federal health care 
     fraud offense sends an important message that health care 
     fraud will be pursued with the same rigor as financial 
     institution fraud, securities fraud, computer fraud, and 
     other areas of white collar crime in which the federal 
     government plays a prominent enforcement role. This type of 
     provision is included in an amendment currently pending on 
     the omnibus crime legislation, as well as in several 
     comprehensive health care reform proposals.
     D. Improvements are necessary in the current medicare and 
         medicaid fraud statutes
       Based on our investigation, we find that additional tools 
     are necessary to curb abuse in the Medicare and Medicaid 
     programs. For example, the current remedies for violations of 
     the anti-kickback statute (for kickbacks made to induce the 
     referral of Medicare and Medicaid business) are criminal 
     prosecution and exclusion from the Medicare and Medicaid 
     programs.
       It is important to deter kickbacks in order to deter 
     overutilization of health care services, inappropriate 
     ``steering'' of Medicare or Medicaid patients to more 
     expensive, unqualified, or poorly equipped providers, and 
     giving an unfair advantage to providers who offer kickbacks. 
     When only criminal prosecution and exclusion from 
     participation in Medicare and Medicaid are available as 
     remedies, however, federal law enforcement may be reluctant 
     to impose such sanctions, consequently allowing the illegal 
     activity to go unaddressed.
       Therefore, we conclude that civil monetary penalties should 
     also be available as intermediate sanctions for anti-kickback 
     violations in order to ensure that enforcement actions are 
     taken against anti-kickback violations.
       Similarly, it is important to provide a range of sanctions 
     for other fraudulent or abusive activities against the 
     Medicare or Medicaid programs, such routine waivers of 
     copayments (except in appropriate circumstances), and the 
     practice of knowingly submitting claims for a higher 
     reimbursement rate than allowed under Medicare (so-called 
     ``upcoding''). Providing a full array of enforcement tools 
     against health care fraud will better enable swift, fair 
     responses to health care abuse.
     E. Due to flaws in enforcement efforts of private payers, 
         billions of health care dollars are vulnerable to fraud 
         and abuse
       While the federal government has many authorities available 
     to it to combat fraud and abuse in the Medicare and Medicaid 
     programs, private sector payers are at a greater disadvantage 
     in fighting health care fraud, because they have a more 
     limited set of tools available in their enforcement arsenal.
       For example: Generally, insurers do not have civil monetary 
     penalties or false claims statutes available to them to 
     sanction claims submitted for reimbursement, false 
     advertising, or false statements made to private health 
     plans.
       Further, despite the fact that kickbacks are a common 
     element of many health care frauds against private insurers 
     and health plans, many states do not have adequate anti-
     kickback statutes in place.
       Another major obstacle facing private health plans is the 
     lack of information available on whether a health care 
     provider has been sanctioned for fraud in other parts of the 
     health care system, thus leaving the plans exposed to further 
     fraud and abuse. When a provider has been excluded from 
     participation in Medicare or Medicaid for defrauding the 
     programs, for example, they continue to participate--and may 
     continue fraudulent activities--in private health plans.
       Finally, private payers generally have less authority to 
     recover overpayments than is available under the Medicare or 
     Medicaid programs.
       In addition to these statutory obstacles facing private 
     enforcement efforts, the sheer number of different payers in 
     the current health care system--now numbering over 1,000--
     results in a multiplicity of different rules, reimbursement 
     policies, claim forms, multiple identification numbers, 
     coding systems, and billing procedures. The complexity of the 
     current health care system allows fraud and abuse to flourish 
     and go undetected, resulting in billions of health care 
     dollars lost to fraud and abuse each year.
     F. The fragmentation of current health care fraud enforcement 
         encourages exploitation of the system by fraudulent 
         providers
       A multiplicity of Federal, State, and local enforcement 
     agencies, as well as private health insurers and health 
     plans, are involved in various aspects of the investigation 
     or prosecution of health care fraud. Since fraudulent 
     providers often infiltrate many different health care plans, 
     it is crucial that law enforcement efforts be as coordinated 
     as possible in order to detect emerging trends in health care 
     fraud, fully shut down fraudulent schemes, and prevent them 
     from recurring in other parts of the health care system.
       Inadequate collaboration in combating health care fraud 
     takes a particular toll on the ability of private sector 
     insurers to reduce fraud, and results in higher premiums for 
     all insured. The costs for an individual insurer to 
     investigate fraud and abuse act as a substantial disincentive 
     to investigate--instead, it is much simpler to increase the 
     overall premiums to cover the losses from health care fraud.
       Recently, major efforts have been undertaken to better 
     coordinate federal and state agencies involved in combating 
     health care fraud and abuse. For example, the Department of 
     Justice and the HHS Inspector General have established an 
     Executive Level Health Care Fraud Policy Group to identify 
     new methods to proceed against health care fraud, identify 
     priority areas for fraud enforcement, and remove bureaucratic 
     obstacles to enforcement efforts. Similarly, the Inspectors 
     General from federal agencies have begun to better coordinate 
     their responses to health care fraud in programs within their 
     jurisdictions.
       Our investigation concluded that substantial progress has 
     been made toward coordinating health care fraud enforcement, 
     but that additional steps are necessary to streamline 
     enforcement procedures, share information among public and 
     private health care agencies, and ensure that health care 
     fraud is reported and referred for appropriate enforcement 
     actions.
     V. Recommendations
       Based on our investigation and findings, we recommend that 
     several reforms be adopted to reduce fraud and abuse 
     throughout the health care system. Specifically, we recommend 
     the following:
       1. Establish an all-payer fraud and abuse program to 
     coordinate the functions of the Attorney General, Department 
     of Health and Human Services, and other organizations to 
     prevent, detect, and control fraud and abuse, and to 
     coordinate investigations, and share data and resources with 
     federal, state, and local law enforcement and health plans.
       2. Establish an all-payer fraud and abuse trust fund to 
     finance enforcement efforts. Establishing a ``revolving 
     fund'' to finance enforcement efforts would go far in 
     addressing the current resource problems that plague federal 
     health care fraud enforcement efforts. Fines, penalties, 
     assessments, and forfeitures collected from health care fraud 
     offenders would be deposited in this fund, which would in 
     turn be used to fund additional investigations, audits, and 
     prosecutions. Amounts in this fund would increase, not 
     supplant, the operating budgets of federal law enforcement 
     agencies with jurisdiction over health care fraud.
       3. Toughen federal criminal laws and enforcement tools for 
     intentional health care fraud. Specifically, create a federal 
     health care fraud offense; provide criminal forfeiture and 
     civil injunctive relief for health care fraud offenses; 
     establish hear care fraud as a predicate to the Racketeer 
     Influenced Corrupt Organizations Act (RICO); and expand the 
     civil False Claims Act to cover claims to health plans.
       4. Improve the anti-kickback statute and extend 
     prohibitions of Medicare and Medicaid to private payers. 
     Specifically, expand current Medicare and Medicaid anti-
     kickback statute to private payers and to all federal health 
     care programs; provide civil monetary penalties for anti-
     kickback violations; and provide injunctive relief for anti-
     kickback violations.
       5. Provide a greater range of enforcement remedies to 
     private sector health plans, such as civil penalties.
       6. Establish a national health care fraud data base that 
     includes information on final adverse actions taken against 
     health care providers. Such a data base should contain strong 
     safeguards in order to ensure the confidentiality and 
     accuracy of information contained in this system.
       7. Design a simplified, uniform claims form for 
     reimbursement and an electronic billing system, with tough 
     anti-fraud controls incorporated into these designs from 
     their inception.
       8. Take several steps to better protect Medicare from 
     fraudulent provider billing practices, such as:
       Revise and strengthen national standards that suppliers and 
     other providers must meet in order to obtain or renew a 
     Medicare provider number;
       Prohibit Medicare from issuing more than one provider 
     billing number to an individual or entity (except in 
     specified circumstances), in order to prevent providers from 
     ``jumping'' from one billing number to another in order to 
     double-bill or avoid detection by auditors;
       Require Medicare to establish more uniform national 
     coverage and utilization policies for what is reimbursed 
     under Medicare, so that providers cannot ``forum shop'' in 
     order to seek out the Medicare carrier who will pay a higher 
     reimbursement rate;
       Require the Health Care Financing Administration to review 
     and revise its billing codes for supplies, equipment and 
     services in order to update, clarify, and standardize billing 
     codes. HCFA should be required to improve the descriptions 
     used for reimbursement codes so that they accurately reflect 
     the items being furnished and to make them sufficiently 
     explicit to distinguish between items of varying quality and 
     price. Such an updating of the billing codes used by HCFA 
     would be a major step toward eliminating excessive 
     reimbursements for poor quality items and Medicare 
     reimbursement that far exceed a fair price for the item; and
       Provide adequate guidance to health care providers on how 
     to comply with anti-kickback and other health care fraud 
     prohibitions. We recognize that due to the complexity of the 
     health care market, many providers have difficulty 
     interpreting reimbursement policies of public and private 
     health plans, as well as difficulty in determining whether 
     specific relationships with other providers or billing 
     practices are prohibited under anti-fraud provisions. If 
     comprehensive health care reform proposals are enacted, 
     further confusion over what constitutes prohibited activity 
     may result. Therefore, we recommend that the Secretary of 
     HHS, working with the HHS Inspector General and the 
     Department of Justice, develop a system to provide better 
     guidance to health care providers on how to comply with anti-
     kickback and other health care fraud provisions.
       Many of these recommendations are included in health care 
     reform proposals now pending before Senate and House 
     committees. Additionally, the Senate-passed version of 
     omnibus crime legislation, now pending in conference, 
     includes provisions to facilitate criminal prosecution of 
     health care fraud.
       While we are pleased that many of these proposals are now 
     under consideration by the Congress, we are deeply concerned 
     that the huge magnitude of health care fraud and the critical 
     importance of improving enforcement efforts immediately has 
     not received adequate attention during the course of the 
     health care reform debate.
       With over $275 million being lost each day to health care 
     fraud and abuse, we can no longer afford to wait to toughen 
     our defenses against unscrupulous providers and others who 
     are bleeding our health care system. Accordingly, we 
     recommend a two-step process;
       First, action should be taken immediately to strengthen 
     criminal laws and enforcement tools to stop abuses of our 
     current health care system. Too many dollars and lives are at 
     stake to delay what can and should be done now to reduce 
     health care fraud; and
       Second, tough anti-fraud and abuse provisions must be built 
     into the foundation of any health care reform plan enacted by 
     the Congress so that unscrupulous providers will not take 
     advantage of health care reform to further game the system.

                          ____________________