[House Report 104-747]
[From the U.S. Government Publishing Office]
Union Calendar No. 393
104th Congress, 2nd Session - - - - - - - - House Report 104-747
HEALTH CARE FRAUD: ALL PUBLIC AND PRIVATE PAYERS NEED FEDERAL CRIMINAL
ANTI-FRAUD PROTECTIONS
__________
ELEVENTH REPORT
by the
COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
August 2, 1996.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WILLIAM F. CLINGER, Jr.,
Pennsylvania, Chairman
BENJAMIN A. GILMAN, New York
DAN BURTON, Indiana
J. DENNIS HASTERT, Illinois
CONSTANCE A. MORELLA, Maryland
CHRISTOPHER SHAYS, Connecticut
STEVEN SCHIFF, New Mexico
ILEANA ROS-LEHTINEN, Florida
WILLIAM H. ZELIFF, Jr., New
Hampshire
JOHN M. McHUGH, New York
STEPHEN HORN, California
JOHN L. MICA, Florida
PETER BLUTE, Massachusetts
THOMAS M. DAVIS, Virginia
DAVID M. McINTOSH, Indiana
RANDY TATE, Washington
DICK CHRYSLER, Michigan
GIL GUTKNECHT, Minnesota
MARK E. SOUDER, Indiana
WILLIAM J. MARTINI, New Jersey
JOE SCARBOROUGH, Florida
JOHN B. SHADEGG, Arizona
MICHAEL PATRICK FLANAGAN, Illinois
CHARLES F. BASS, New Hampshire
STEVEN C. LaTOURETTE, Ohio
MARSHALL ``MARK'' SANFORD, South
Carolina
ROBERT L. EHRLICH, Jr., Maryland
CARDISS COLLINS, Illinois SCOTT L. KLUG, Wisconsin
HENRY A. WAXMAN, California
TOM LANTOS, California
ROBERT E. WISE, Jr., West Virginia
MAJOR R. OWENS, New York
EDOLPHUS TOWNS, New York
JOHN M. SPRATT, Jr., South Carolina
LOUISE McINTOSH SLAUGHTER, New York
PAUL E. KANJORSKI, Pennsylvania
GARY A. CONDIT, California
COLLIN C. PETERSON, Minnesota
KAREN L. THURMAN, Florida
CAROLYN B. MALONEY, New York
THOMAS M. BARRETT, Wisconsin
BARBARA-ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of Columbia
JAMES P. MORAN, Virginia
CARRIE P. MEEK, Florida
CHAKA FATTAH, Pennsylvania
BILL BREWSTER, Oklahoma
TIM HOLDEN, Pennsylvania
ELIJAH CUMMINGS, Maryland
------
BERNARD SANDERS, Vermont (Independent)
James L. Clarke, Staff Director
Kevin Sabo, General Counsel
Judith McCoy, Chief Clerk
Bud Myers, Minority Staff Director
_________________________________________________________________
Subcommittee on Human Resources and Intergovernmental Relations
CHRISTOPHER SHAYS, Connecticut,
Chairman
MARK E. SOUDER, Indiana
STEVEN SCHIFF, New Mexico
CONSTANCE A. MORELLA, Maryland
THOMAS M. DAVIS, Virginia
DICK CHRYSLER, Michigan
WILLIAM J. MARTINI, New Jersey
JOE SCARBOROUGH, Florida
MARSHALL ``MARK'' SANFORD, South
EDOLPHUS TOWNS, New York Carolina
TOM LANTOS, California
BERNARD SANDERS, Vermont (Ind.)
THOMAS M. BARRETT, Wisconsin
GENE GREEN, Texas
CHAKA FATTAH, Pennsylvania
HENRY A. WAXMAN, California
Ex Officio
WILLIAM F. CLINGER, Jr.,
CARDISS COLLINS, Illinois Pennsylvania
Lawrence Halloran, Staff Director
Kate Hickey, Professional Staff
Member
Thomas Costa, Clerk
Cheryl Phelps, Minority
Professional Staff
LETTER OF TRANSMITTAL
----------
House of Representatives,
Washington, DC, August 2, 1996.
Hon. Newt Gingrich,
Speaker of the House of Representatives,
Washington, DC.
Dear Mr. Speaker: By direction of the Committee on
Government Reform and Oversight, I submit herewith the
committee's eleventh report to the 104th Congress.
William F. Clinger, Jr.,
Chairman.
C O N T E N T S
----------
Page
I. Summary..........................................................1
II. Background.......................................................2
III. Findings.........................................................7
IV. Recommendations.................................................12
Union Calendar No. 393
104th Congress Report
HOUSE OF REPRESENTATIVES
2nd Session 104-747
_______________________________________________________________________
HEALTH CARE FRAUD: ALL PUBLIC AND PRIVATE PAYERS NEED FEDERAL CRIMINAL
ANTI-FRAUD PROTECTIONS
_______
August 2, 1996.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______________________________________________________________________
Mr. Clinger, from the Committee on Government Reform and Oversight,
submitted the following
ELEVENTH REPORT
On July 25, 1996, the Committee on Government Reform and
Oversight approved and adopted a report entitled ``Health Care
Fraud: All Public and Private Payers Need Federal Criminal
Anti-Fraud Protections.'' The chairman was directed to transmit
a copy to the Speaker of the House.
I. Summary
Health care fraud, by some estimates a $100 billion
problem, does not stay within the jurisdictional boundaries
that divide Federal, State and local health care finance and
law enforcement. Sophisticated patterns of fraud and abuse have
been detected operating simultaneously against private insurers
as well as Federal and State health programs. These scams
victimize patients and payers across multiple States, even
nationally.
Faced with increasing health care costs, and the growing
price of health care fraud, Congress and Federal policymakers
are aware of the need for a more coordinated, unified approach
to anti-fraud enforcement.\1\ One essential element of that
approach is the availability of Federal criminal health care
offenses to prosecute frauds against any and all payers
victimized by the same scheme.
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\1\ Fraud and Abuse in Medicare and Medicaid: Stronger Enforcement
and Better Management Could Save Billions, Eighth Report of the
Committee on Government Reform and Oversight, June 27, 1996, pp. 7-10.
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Current Federal enforcement tools are inefficient and
inadequate against increasingly sophisticated patterns of fraud
and abuse. Health care fraud cases, prosecuted mainly under
mail and wire fraud statutes, money laundering and false claims
laws, are complex, costly and time-consuming.
Scarce enforcement resources are wasted when Federal
enforcement efforts to protect Medicare and Medicaid only
result in ``fraud shifting'' to private payers. In that event,
the general public continues to pay the price for health care
fraud in the form of higher insurance premiums and higher costs
for Government health programs.
Support for creation of Federal health care fraud crimes is
both longstanding and bipartisan. The previous and current
administration endorsed making health care fraud a Federal
crime. Legislation in both the 103d and 104th Congress has
enjoyed bipartisan sponsorship and support.
Findings in brief
1. Health care fraud schemes steal billions of dollars from
public and private payers each year.
2. The Department of Justice (DOJ) needs stronger and more
direct statutory authority to deter fraud and abuse against
public and private health care plans.
3. Scarce enforcement resources are wasted in pursuit of
the same fraudulent scheme against public and private health
care plans in multiple jurisdictions.
Recommendation
1. Congress should enact legislation to make health care
frauds against all public and private payers Federal criminal
offenses.
II. Background
Total health care spending in the United States reached $1
trillion \2\ in FY 95. Medicare and Medicaid programs together
represent one-third of all U.S. health care spending. The
remaining $664.5 billion of health care spending are generated
by States and private health care payers.
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\2\ ``National Health Care Expenditures,'' Health Affairs, Project
Hope, p. 1.
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Federal outlays to Medicare in FY 95 were $159.8 billion
\3\ while Federal and State outlays to Medicaid were $156.2
billion.\4\ Other Federal health care programs such as Civilian
Health and Medical Program of the United States (CHAMPUS) and
Federal Employee Health Benefit Plan (FEHBP) cost the Federal
Government $3.3 billion and $16.2 billion \5\ respectively in
FY 95.
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\3\ Historical Tables, Budget of the United States Government,
fiscal year 1997, p. 59.
\4\ Congressional Budget Office (CBO), 3/96 ``Baseline Report:
Medicaid.''
\5\ Appendix, Budget of the United States, fiscal year 1997, p.
923.
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According to the General Accounting Office (GAO), 10% of
every health care dollar spent in this Nation is lost to
fraudulent and wasteful provider claims.\6\ Applying this
estimate to all health care spending means that more than $100
billion, or over $274 million a day, was lost to fraud and
abuse in FY 95.
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\6\ GAO Report: ``Health Insurance: Vulnerable Payers Lose Billions
to Fraud and Abuse,'' GAO/HRD-92-69, 5/7/92, p. 1.
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The need to confront waste, fraud and abuse in the Nation's
health care plans more aggressively is recognized by both
Democrats and Republicans. Previous Congresses and previous
administrations have supported the adoption of more effective
criminal sanctions against those who defraud health care
payers.
In a May 1992 report produced for the Subcommittee on Human
Resources and Intergovernmental Relations, the General
Accounting Office (GAO) found ``that vulnerabilities within the
health insurance system allow unscrupulous health care
providers, including practitioners and medical equipment
suppliers, to cheat health insurance companies and programs out
of billions of dollars annually.'' \7\ GAO reports, ``Health
care fraud has expanded beyond single health care provider
frauds to organized activity affecting health care programs in
both the Government and private insurance sectors.'' \8\
[Emphasis added]
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\7\ Ibid.
\8\ Ibid., p. 2.
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The report stated ``profiteers are able to stay ahead of
those who pay claims because of a variety of factors. These
include (1) independent operations of the various health
insurers that limit collaborative efforts to confront
fraudulent providers . . . Further, efforts to combat the
problems by one insurer can be largely negated when fraudulent
or abusive providers move their operations to other insurers.''
\9\
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\9\ Ibid., p. 1.
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In discussing the nature and prevalence of fraud and abuse
of health care plans, the May 1992 GAO report stated,
``Instances of fraud and abuse can be found involving all
segments of the health care industry in every geographic area
of the country . . .'' \10\ In addition, GAO found ``schemes
can be quickly replicated throughout the health care system.''
\11\
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\10\ Ibid., p. 2.
\11\ Ibid., p. 3.
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The Bush administration made five specific proposals to
combat health care fraud. On January 13, 1993, the Secretary of
the Department of Health and Human Services (HHS), the Attorney
General and the Director of the Office of Management and Budget
(OMB) announced the recommendations of a task force
commissioned to examine the problem of health care fraud and
abuse.\12\ The recommendations included:
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\12\ ``Administration Announces Task Force Recommendations to
Combat Health Care Fraud and Abuse,'' HHS/OMB/DOJ press release,
January 13, 1993 (in subcommittee files).
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Extending to all public and private payers
the current Medicare and Medicaid prohibition on
kickbacks.
Expanding the current Medicare ban on
payment for self-referrals for clinical lab tests to
additional services where the physician does not
directly render service and where abuses have been
found.
Strengthening the Medicare and Medicaid
civil monetary penalty statutes and the quality of care
sanctions to deter abuses.
Prohibiting the routine waiver of Medicare
Part B (physician and outpatient services) coinsurance.
Establishing databases of all final adverse
actions and certain active fraud investigations against
health care practitioners, with appropriate safeguards
for privacy and access.
In the announcement, OMB Director Richard Darman
emphasized, ``More must be done to combat health care fraud and
waste. Every percent of health care expenses lost to fraud and
abuse annually costs honest Americans $9 billion per year.''
\13\
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\13\ Ibid.
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The Clinton administration, in its FY 1994 Health Care
Fraud Report, called for an ``all-payer'' approach to health
care fraud control and for the creation of criminal health care
fraud offenses. Acknowledging the scope and variety of health
care fraud, the report stated, ``Everyone pays the price for
health care fraud: beneficiaries of Government health care
insurance such as Medicare and Medicaid pay more for medical
services and equipment; consumers of private health insurance
pay higher premiums; and taxpayers pay more to cover health
care expenditures.'' \14\
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\14\ DOJ report: ``Department of Justice Health Care Fraud Report,
Fiscal Year 1994'' p. 3.
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In the 103d Congress, discussions included the widespread
nature of health care fraud. Before the House Committee on
Judiciary's Subcommittee on Crime and Criminal Justice on
February 4, 1993, GAO reported all payers are vulnerable to
fraud and abuse.
Janet Shikles, Director of Health Financing and Policy
Issues, testified ``Criminal prosecution and civil pursuit of
fraud is expensive, slow and has been shown to have little
chance of recovering financial losses. Moreover, private
insurers are largely without access to the administrative
remedies of the public payers, such as the ability to exclude
providers convicted of health care fraud from billing the
public programs.'' \15\
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\15\ GAO Testimony: ``Health Insurance: Legal and Resources
Constraints Complicate Efforts to Curb Fraud and Abuse,'' GAO/T-HRD-93-
3, 2/4/93, p. 1-2.
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Efforts to determine how both public and private health
care plans could be better protected from fraud resulted in the
release on July 7, 1994 of a staff report by Senator William
Cohen (R-ME), ranking member of the Senate Special Committee on
Aging.
The report found current criminal and civil statutes
inadequate to effectively sanction and deter health care fraud.
The report states ``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. [Emphasis added] 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.'' \16\ The report recommended:
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\16\ ``Gaming the Health Care System: Investigative Staff Report,''
Senator William Cohen, ranking member, Senate Special Committee of
Aging, July 7, 1994, p. 3.
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Making all health care fraud and abuse a
violation of Federal law.
Establishing a data base available to all
program administrators, private insurers and law
enforcement groups which will identify persons or
providers who have been found guilty of fraud.
Establishing standard penalties for fraud
which, for a first time offender, require mandatory
exclusion from the programs for a specified period of
time as well as assessment of civil monetary penalties.
Strengthening certification standards and
procedures for providers.
Enhancing provider responsibility and
accountability for electronic media claims.
Requiring contractors to utilize automated
computer screening of provider claims.
Making HCFA's pricing of medical equipment
and services more current, competitive and market
sensitive in its reimbursement of provider claims.
Improving anti-kickback laws.
In the 103d Congress, hearings and legislation dealing with
the deterrence, detection and prosection of health care fraud
enjoyed bipartisan support.
The Subcommittee on Human Resources and Intergovernmental
Relations (HRIR), chaired by Representative Edolphus Towns (D-
NY), held three hearings on waste, fraud and abuse in Medicare
and Medicaid. Two hearings focused on Medicaid fraud and
prescription drug diversion.
As a result of the hearings, the subcommittee recommended
that HCFA develop a strategy to address drug diversion,
including designation of unit within HCFA to provide assistance
to State Medicaid agencies.
It is estimated prescription drug diversion schemes cost
the Medicaid program billions of dollars. New York State alone
estimates that it loses $150 million a year to fraudulent
prescription drug operations.\17\
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\17\ Waste in Human Service Programs: Other Perspectives: Oversight
Hearing Before the Subcommittee on Human Resources and
Intergovernmental Relations of the House Committee on Government Reform
and Oversight, HRIR hearing of 5/23/95. (Testimony of Doug Kennedy, New
York Post investigative reporter) (original transcript p. 82, in
subcommittee files).
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Legislative proposals to strengthen health care anti-fraud
efforts was also offered by both Democrats and Republicans. On
July 27, 1994, the HRIR Subcommittee marked up Section 5401 of
H.R. 3600, the Health Security Act. Subcommittee Chairman
Towns' substitute amendment to Section 5401 directed the
Secretary of HHS and the Attorney General to establish a
program to ``prevent, detect and control health care fraud and
abuse.'' \18\ The substitute amendment, supported by
Representative Steven Schiff (R-NM), the ranking member of the
subcommittee, was adopted and incorporated into H.R. 3600.
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\18\ Activities of the House Committee on Government Operations,
Report 103-884, 1/2/95, p. 218 & p. 294.
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Representative Bob Michel (R-IL), Republican Leader,
introduced H.R. 3080, the Affordable Health Care Now Act of
1993. As the Republican counterproposal to H.R. 3600, H.R. 3080
established an all-payer anti-fraud and abuse program. This
included creating the criminal offense of health care fraud,
extending the application of criminal penalties under Section
1128B of the Social Security Act to private health care plans,
extending penalties for health care fraud and broadening the
application of the mail fraud statute.
In the 104th Congress, the subcommittee, chaired by
Representative Christopher Shays, (R-CT) held eight hearings
which considered waste, fraud and abuse in health care
programs:
1. HRIR Subcommittee hearing on Department of Health
and Human Services, March 1, 1995.
2. HRIR Subcommittee follow-up hearing on Department
of Health and Human Services, March 22, 1995.
3. HRIR Subcommittee hearing on Waste in Human
Service Programs, May 23, 1995.
4. HRIR Subcommittee hearing on Keeping Fraudulent
Providers Out of Medicare and Medicaid, June 15, 1995.
5. HRIR Subcommittee hearing on H.R. 2326, the Health
Care Fraud and Abuse Prevention Act of 1995 and H.R.
1850, the Health Care Fraud and Abuse Act of 1995,
September 28, 1995.
6. HRIR and Government Management, Information, and
Technology Subcommittee joint hearing on the Oversight
and Review of Medicare's Transaction and Information
Systems, November 16, 1995.
7. HRIR Subcommittee hearing on Screening Medicare
Claims for Medical Necessity on February 8, 1996.
8. HRIR and GMIT Subcommittee joint hearing on H.R.
3224, the Health Care Fraud and Abuse Prevention Act of
1996, H.R. 1850, the Health Care Fraud and Abuse Act of
1995 and H.R. 2480, Inspector General for Medicare and
Medicaid, May 2, 1996.
Representative Schiff introduced H.R. 2326, the Health Care
Fraud and Abuse Prevention Act of 1995, along with
Representatives Shays, Clinger (R-PA), Towns and Schumer (D-
NY), on September 13, 1995.
Title I required the Inpectors General of the Departments
of Health and Human Services (HHS), Defense, Labor, Veterans
Affairs, the Office of Personnel Management and the U.S.
Attorney General to establish a joint program to prevent,
detect and control health care fraud which includes State
agencies and local law enforcement; required Federal
enforcement authorities to coordinate their efforts more
effectively; and established a control account, funded by fines
and damages, to help defray Federal and State costs of
prevention and detection of fraud and abuse.
Provisions of H.R. 1850, introduced by HRIR ranking member
Representative Towns, were very similar to those of Title I of
H.R. 2326. However, H.R. 1850 did not include the Attorney
General as part of the health care fraud control program. At
the September 28, 1995 hearing, there was a consensus that the
addition of the Attorney General strengthened the proposed
coordination effort, adding a direct link to criminal
enforcement.
Title II established health care fraud as a crime for
public and private payers, defined health care fraud to include
theft, embezzlement, false statements, bribery, graft, illegal,
remunerations, and obstruction of criminal investigations of
health care fraud, established civil penalties for health care
fraud and established investigative demand procedures.
Title III provided for new tools for the HHS Inspector
General (IG) to better combat Medicare and Medicaid fraud and
abuse.
Major portions of Title II of H.R. 2326 were included in
the Medicare Preservation Act which was passed by the House on
October 19, 1995.
On March 29, 1996, Representatives Schiff and Shays
introduced H.R. 3224, an updated version of H.R. 2326. Again,
most of Title II was included in H.R. 3103, the Health Care
Availability and Affordability Act. H.R. 3103 was passed by the
House on March 28, 1996.
On June 11, 1996, Senators Bob Graham (D-FL) and Max
Bacchus (D-MT) introduced S. 1858 to provide for improved
coordination communication and enforcement related to health
care waste, fraud and abuse. S. 1858 would establish health
care fraud as a crime, define false statement, theft,
embezzlement, money laundering and obstruction of
investigations as health care offenses, establish forfeitures
for health care offenses, provide for injunctive relief and
grand jury disclosure.
III. Findings
1. Health care fraud schemes steal billions of dollars from public and
private payers each year
Hearing testimony and supporting documents point to an
increasing awareness on the part of policy analysts, Federal
law enforcement officials and health insurers that public and
private payers share the same vulnerability to abusive
practices and fraud.
In the June 15, 1995 HRIR hearing, William Mahon, executive
director of the National Health Care Anti-Fraud Association
(NHCAA), testified, ``By its nature, the amount lost to any
ongoing fraud can never be quantified to the exact dollar and
thus must be estimated in an educated context. In that context,
NHCAA estimates the loss to outright fraud at between 3% and
perhaps as much as 10% of what we spend as a nation on health
care each year.'' \19\
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\19\ Keeping Fraudulent Providers out of Medicare and Medicaid:
Oversight Hearing Before the Subcommittee on Human Resources and
Intergovernmental Relations of the House Committee on Government Reform
and Oversight, hearing of 6/15/95, p. 84.
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Mr. Mahon enumerated what he viewed as the stark realities
of health care fraud: ``One is that almost never do fraudulent
providers defraud one payer at a time. The only smart way to
commit health care fraud is to spread your activity among
enough payers, so that you remain relatively inconspicuous with
each one for longest possible time.'' \20\
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\20\ Ibid.
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Mr. Mahon continued, ``The second truism of the subject is
that almost never do fraudulent providers defraud either the
private or the public sector exclusively. If they do it to
Medicare, to Medicaid, to CHAMPUS [Civilian Health and Medical
Plan of the United States] they do it to employers health
insurance, to Blue Cross and Blue Shield, and to Aetna and all
the other private payers.'' \21\
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\21\ Ibid., p. 81.
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He also reported ``that multiple-target, private-public
fraud can be addressed most effectively through concerted
private-public efforts . . .'' \22\
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\22\ Ibid., p. 85.
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Gerald Stern, Special Counsel on Health Care Fraud for the
DOJ, agreed, stating, ``Perpetrators of health care fraud will
seek to prey on any health care system the market produces or
Congress adopts. Where there is money, unscrupulous providers
simply shape schemes to fit the particular form of
reimbursement.'' \23\
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\23\ Ibid., p. 56.
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A February 1994 GAO Report, ``Medicaid: A Program Highly
Vulnerable to Fraud,'' found Medicaid is ``. . . highly
vulnerable to fraud because of its size, structure, target
coverage.'' \24\ GAO reports show that medical professionals or
businesses that engage in fraudulent and abusive practices have
targeted both Medicaid and Medicare resulting in unnecessary
expenditures by both programs as well as by private health care
insurers. (Emphasis added)
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\24\ GAO Report: ``Medicaid: A Program Highly Vulnerable to
Fraud,'' GAO/T-HEHS-94-106, 2/25/94, p. 1.
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In addition, Sarah Jagger, GAO's Director of Health
Financing and Policy, reported during the March 22, 1995
oversight hearing on the Department of Health and Human Service
(HHS) the opportunities for fraud and abuse exist because each
program provides incentives to submit claims for services that
are not needed, not provided, or overpriced.\25\
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\25\ Agency Oversight Hearing on HHS: The Mission of HHS: Oversight
Hearing Before the Subcommittee on Human Resources and
Intergovernmental Relations of the House Committee on Government Reform
and Oversight, hearing of 3/22/95. (Prepared written statement of Sarah
Jagger, Director of Health Financing and Policy, General Accounting
Office,) p. 87.
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A January 13, 1993 joint HHS/DOJ/OMB announcement reported
``there is no reason to believe that the overutilization risk
attributable to kickbacks does not apply to private payers.
Most kickback schemes involve federal programs and private
payers as well . . . Some kickback schemes start by avoiding
Medicare and Medicaid business until after referral patterns
are established.'' \26\ Administration officials noted this
type of scheme would no longer be available to evade liability
under the proposed all-payer anti-kickback statute.
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\26\ See Supra note 12 p. 2.
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The Cohen staff report states, ``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 . . .'' \27\
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\27\ See Supra note 16 p. 2.
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Recent high profile prosecutions of health care fraud cases
demonstrate that these schemes target public and private payers
simultaneously.
National Medical Enterprise (NME) operated psychiatric
hospitals and substance abuse facilities nationally. NME plead
guilty to bribing doctors and other referral sources to refer
patients for admission to NME facilities. It was also alleged
NME paid for referrals of patients, improperly waived Medicare
co-payments for patients and then claimed reimbursement from
Medicare for these waived amounts as bad debts, engaged in
other billing fraud, and billed for services not rendered and
for treatment that was not reasonable or necessary.
In June 1994 NME signed a criminal plea and civil and
administrative settlement with DOJ to pay $379 million in
criminal fines, civil damages and penalties to the Federal
Government and several States for kickbacks and fraud at NME in
more than 30 States.\28\ This included a payment to several
States of a total of $16.3 million for harm caused the State-
funded portion of Medicaid and other State health programs.
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\28\ See Supra note 19 p. 52.
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In addition to this plea arrangement, NME has been the
subject of several civil suits by private payers who were also
defrauded. In the first stage of settlements, NME agreed to pay
$125 million to Aetna Life Insurance, Metropolitan Life
Insurance and CIGNA.\29\ Subsequent settlements included 13
other companies which recouped $90 million.
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\29\ Business Week, ``Put the Head in the Bed and Keep it There,''
October 19, 1993.
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Another well-known health care fraud case, the so-called
``Rolling Labs'' case, involved a billion dollar medical
insurance scheme. A chain of mobile diagnostic testing services
and clinics in the Los Angeles area performed medically
unnecessary tests on unsuspecting patients after promising free
preventive diagnostic tests. Bills for these medically
unnecessary tests were submitted to public and private health
care plans. After a 5-year investigation of this scheme by
multiple Federal and State agencies, two defendants were
convicted of mail and wire fraud, conspiracy, money laundering
and racketeering.\30\
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\30\ See Supra note 19 p. 52.
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Other examples of health care fraud cases include:
In 1991, one of New Hampshire's largest
employers, the Sturm, Ruger Co., canceled its
employees' prescription drug benefit after costs of the
benefit increased so dramatically as to force the
company to raise the employee co-payment from $3 to
$20. It was later discovered that a Newport, NH
pharmacist had defrauded that and other prescription
plans, as well as the State Medicaid program, for a
total of $373,278 between April 1989 and July 1991.
On April 18, 1995, a Bridgeport, CT Federal
grand jury returned an indictment for wire fraud
against an individual who participated in a scheme to
defraud CIGNA and its subsidiary for submitting false
claims.
On May 24, 1995, an FBI initiative was
announced which targeted staged automobile accidents
and related casualty and health insurance fraud. It
resulted in arrests and indictments in 31 States.
On May 25, 1995, the U.S. Attorneys offices
in Columbus, OH and Charleston, SC and the Federal
Trade Commission announced a coordinated attack on
telemarketing health care fraud schemes filing several
actions against companies in Ohio and South Carolina
with deceptive practices in selling medical equipment.
2. The Department of Justice (DOJ) needs stronger and more direct
statutory authority to deter fraud and abuse against public and
private health care plans
Current criminal and civil statutes are inadequate to
effectively sanction and deter health care fraud. According to
the Cohen staff report, ``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 statutes 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.'' \31\
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\31\ See Supra note 16 p. 3.
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Reinforcing that finding, the DOJ's Stern testified
regarding a fraud scheme perpetrated against Medicare and other
health care payers that took many months to prosecute under
mail and wire fraud laws: ``In San Diego, an ophthalmologist
had been billing Medicare and other health care plans more than
$80 million for medically unnecessary cataract and eyelid
surgery. Last March, after a multimonth jury trial, he was
convicted of 132 counts of false claims, mail fraud, and money
laundering.'' \32\
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\32\ See Supra note 19 p. 85.
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He continued, ``On some days, he saw more than 150
patients. On other days, he performed 35 to 45 surgeries, with
each patient receiving six separate surgical procedures,
unrelated to medical need. In 1992, after a search warrant was
executed, Medicare suspended all payments to the physician.
While he was awaiting trial, the State of California revoked
his medical license. The U.S. Attorney General's office
obtained a court order repatriating $7.5 million, which he
shipped offshore.'' \33\
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\33\ Ibid., p. 50.
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In his testimony on June 15, Mr. Mahon supported specific
initiatives to give prosecutors additional tools in the fight
against health care fraud. He suggested ``following the so-
called `all-payer' approach, featured in virtually all of the
legislative proposals on health care fraud, many of them
bipartisan, set forth since 1992--the essence of which is:
to create a Federal crime of health care
fraud, encompassing actions against private and public
third-party payers.
to make illegal in dealings with private and
other government payers what today is illegal only in
dealings with the Medicare and Medicaid programs.
to effectively bar providers guilty of fraud
from dealings with any health insurance plan, private
or public.
to coordinate the activities of Federal and
State law enforcement agencies and to provide for their
coordination of activity with private payers.'' \34\
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\34\ Ibid., p. 85.
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In his September 28, 1995 testimony, Mr. Mahon reemphasized
the importance of the ``all-payer'' approach:
In NHCAA's June 15 testimony, we urged the Subcommittee to
consider that the most effectively way to protect the public
interest in addressing fraud against the nation's health care
payment systems is through a so-called ``all-payer'' approach,
recognizing (1) that the public impact of health care fraud
extends far beyond its effect on the Medicare, Medicaid and
other government programs and (2) that any effective new anti-
fraud effort must be tailored to certain realities of the
crime, specifically:
that private sector health care expenditures
exceed those of government health insurance programs,
representing 57% and 43% respectively, of the nation's
total health care outlays.
that in most cases, dishonest providers who
defraud government programs also defraud private health
insurers, and vice-versa.
that the typical health care fraud scheme is
aimed a multiple private and public payers
simultaneously.
that any deficiencies in current law
notwithstanding, it already is far more dangerous for
dishonest providers to defraud Medicare and Medicaid
than to steal from private payers.
In that context, we noted, any legislative efforts that
focuses solely on increasing enforcement activities and the
legal penalties related to fraud against government health
insurance programs--without addressing the private sector side
of the fraud equation--is likely to result in a ``fraud-
shifting'' analogous to the familiar cost-shifting phenomenon.
That is, rather than risk even more severe penalties by
defrauding the government, dishonest providers will follow the
safer path of intensifying their fraudulent billing activity
against private payers.\35\
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\35\ H.R. 2326, the Health Care Fraud and Abuse Prevention Act of
1995 and H.R. 1850, the Health Care Fraud and Abuse Act of 1995, HRIR
Subcommittee hearing of 9/28/95, (prepared written statement of William
Mahon, executive director, NHCAA, p. 1).
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3. Scarce enforcement resources are wasted in pursuit of the same
fraudulent scheme against public and private health care plans
in multiple jurisdictions
During the June 15, 1995 hearing, Representative Towns said
he ``was very concerned about, even when we try and go after
fraud and abuse, it seems we waste manpower and womanpower
hours with various agencies stumbling over each other.'' \36\ A
more coordinated, unified enforcement approach to health care
fraud, including the availability of Federal criminal health
care offenses to prosecute frauds against any and all payers
victimized, would address the problem.
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\36\ See Supra note 19 p. 3.
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Sarah Jaggar, Director of GAO's Health Financing Division,
in the March 1995 hearing said that ``. . . numerous
jurisdictions have responsibility over Medicaid fraud and abuse
matters. It is not unusual for a prescription drug fraud case
[for example] to involve five or more State, local and Federal
agencies in its investigation, prosecution and resolution.''
\37\
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\37\ See Supra note 25 p. 84.
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In her testimony before the House Committee on Judiciary's
Subcommittee on Crime and Criminal Justice on February 4, 1993,
Ms. Shikles raised the issue of the dollar threshold fraud
cases usually need to reach before prosecutors will consider
committing scarce resources. She reported that ``investigative
and prosecutorial resources and priorities vary by
jurisdiction, often constraining state and Federal prosecutors
from pursuing health care cases involving relatively small
dollar amounts. In several jurisdictions, for example, Federal
prosecutors told us that they generally accept only criminal
health care cases that are clear-cut and involve $100,000 or
more . . .'' \38\
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\38\ See Supra note 15 p. 2.
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IV. Recommendation
1. Congress should enact legislation to make health care fraud against
public and private payers a Federal criminal offense
In his opening statement on June 15, 1995, HRIR ranking
member Representative Towns asked, ``Are there changes that
must be made to current criminal and civil statutes to improve
their effectiveness in sanctioning and deterring health care
fraud?'' \39\
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\39\ See Supra note 19 p. 4.
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The answer to Representative Towns' question was yes.
Gerald Stern testified that DOJ ``endorses efforts to
strengthen criminal, civil and administrative remedies for
health care fraud, which will give prosecutors new tools in
their efforts to stop health care fraud, punish its
perpetrators and recover funds for the Government and other
victims. These provisions create a general health care fraud
offense prohibiting schemes to defraud health plans or persons
in connection with the delivery of or payment for health care,
establishment of a criminal and civil bar on kickbacks in any
Federal health care program, authorizing administrative
subpoenas in health care cases, and permitting use of grand
jury material by civil health care prosecutors. Such measures
would give us additional critical tools to combat this scourge
on our nation's health care plans.'' \40\
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\40\ Ibid., p. 56.
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NHCAA's William Mahon stressed ``in trying to address
Medicare and Medicaid fraud, Congress and law enforcement have
an obligation and an opportunity to do it most effectively by
addressing both sides of the equation. My outspoken comment, if
you will, is that if Congress feels it has addressed Medicare-
Medicaid fraud, but does not go beyond that into private payer
fraud, it is shortchanging the taxpayers, shortchanging all the
people who pay for private health insurance in this country.''
\41\
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\41\ Ibid., p. 82.
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In a September 21, 1995 letter to the subcommittee, Martin
Corry, director of Federal Affairs for the American Association
of Retired Persons (AARP) concluded, ``Creating a new criminal
code provision that specifically addresses health care fraud,
establishing a health care fraud and abuse control program, and
creating a health care fraud and abuse control account are all
measures that should significantly assist authorities in
investigating and prosecuting fraudulent providers.'' \42\
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\42\ Letter of September 21, 1995 to Representative Christopher
Shays, chairman, Subcommittee on Human Resources and Intergovernmental
Relations, from Martin Corry, director, Federal affairs, American
Association of Retired Persons (in subcommittee files).
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Following the September 28, 1995 HRIR hearing, Thomas
Schatz, president of Citizens Against Government Waste, wrote
to Ways and Means Committee Chairman Bill Archer (R-TX) urging
adoption of tough measures to eliminate waste, fraud and abuse
in health care programs. ``The information uncovered by the
[CAGW] report and our research, and the testimony before the
subcommittee today,'' Schatz said, ``show that the problems in
Medicare are indicative of the problems in health care in
general.'' \43\
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\43\ Letter of September 28, 1995 to Representative Bill Archer,
chairman, House Committee on Ways and Means, from Thomas A. Schatz,
president, Citizens Against Government Waste (in subcommittee files).
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Making health care fraud against public and private payers
a Federal criminal offense will end prosecutors' reliance on
antiquated criminal statutes. Prosecutors should not have to
jump through evidentiary hoops to develop mail or wire fraud
cases when the real crime is health care fraud. Scarce
resources should be focused on indicting and convicting those
who knowingly and willfully defraud public and private health
care plans.
Currently, private insurers are often frustrated by
prosecutors' unwillingness or inability to take on cases that,
while significant to the insurer, fall short of certain dollar
thresholds. In an all payer environment, enforcement resources
can be focused on significant, high cost fraud schemes if
losses to both public and private payers can be aggregated to
reach dollar thresholds considered worthy of prosecution.
Congress has examined this critical issue of combating
fraud and abuse in public and private health care plans since
1992. The problem has been clearly defined through
congressional hearings, testimony and audits. Bipartisan
legislation providing for a refined tool to attack this problem
has made its way through committees to the floor of the House
and has been passed by Congress.
The most recent legislative initiative passed by the House,
the Health Care Availability and Affordability Act of 1996,
H.R. 3103, carefully defines health care fraud offenses. It
establishes health care fraud as a Federal felony for both
public and private payers.
Under H.R. 3103, a person is guilty of health care fraud
who ``having devised or intending to devise a scheme or
artifice, commits or attempts to commit an act in furtherance
of or for the purpose of executing such scheme or artifice to
defraud any health care benefit program; or to obtain, by means
of false or fraudulent pretenses, representations, or promises,
any of the money or property owned by, or under the custody or
control of, any health care benefit program . . .'' \44\ A
health care benefit program is ``any public or private plan or
contract under which any medical benefit, item or service is
provided to any individual, and includes any individual or
entity who is providing a medical benefit, item or service for
which payment may be made under the plan or contract.'' \45\
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\44\ H.R. 3103, the Health Care Accessibility and Affordability Act
of 1996.
\45\ Ibid.
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The bill also authorizes forfeitures, injunctive relief,
and investigative demand procedures.
Like H.R. 3103, any final legislation should require proof
of a knowing and willful pattern of behavior for the
application of these health care offenses by prosecutors. This
would assure honest mistakes by health care providers would not
result in criminal conviction or imprisonment.
``All payer'' provisions should also carefully limit or
exclude illegal remuneration, bribery or graft as health care
offenses. While applicable to fee for service arrangements like
Medicare, these offenses would have, at best, an uncertain
impact on managed care programs. Strengthened anti-fraud
provisions, particularly those aimed at intentional
overutilization, need not, and should not be in conflict with
legitimate managed care arrangements.
Nor should expanded Federal criminal health care offenses
\46\ interfere with the practice of medicine or the use of
alternative procedures or therapies permissible under
applicable State and Federal laws.
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\46\ Regarding the permissible scope of federalization of criminal
activity, see, memorandum of July 18, 1996 to the Subcommittee on Human
Resources and Intergovernmental Relations from Charles Doyle, senior
specialist, American Public Law, American Law Division, Congressional
Research Service, U.S. Library of Congress (in subcommittee files). The
U.S. Constitution vests Congress with the authority to ``regulate
commerce . . . among the several States,'' U.S. Const. Art. I, sec. 8,
cl. 3, and to enact legislation ``necessary and proper'' to implement
that authority, U.S. Const. Art. I, sec. 8, cl. 18. Congress may
proscribe the use of the facilities of interstate commerce to
accomplish health care fraud, United States v. Lopez, 115 S.Ct. 1624,
1629 (1995) (``Congress may regulate the use of the channels of
interstate commerce''). Congress may also enact legislation to protect
those ``directly engaged in the production, distribution, or
acquisition of goods and services in interstate commerce,'' United
States v. Robertson, 115 S.Ct. 1732, 1733 (1995). Moreover, should
Congress determine on the basis of its studies and evidence presented
to it that health care fraud has a substantial impact upon some aspect
of interstate commerce, the commerce clause empowers it to outlaw such
misconduct, United States v. Lopez, 115 S.Ct. at 1629 (``Congress'
commerce authority includes the power to regulate those activities
having a substantial relation to interstate commerce.'') Based upon
evidence of interstate attributes of health care fraud comparable to
that upon which it based the Controlled Substances Act and the Access
Act, Lopez and the subsequent lower court cases indicate it may
prescribe health care fraud under its commerce clause powers.
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