Medicare: Improper Activities by Mid-Delta Home Health (Letter Report,
03/12/98, GAO/OSI-98-5).
Pursuant to a congressional request, GAO investigated allegations of
Medicare improprieties by home health care provider Mid-Delta Home
Health of Belzoni, Mississippi, and affiliated companies, focusing on
allegations that Mid-Delta: (1) routinely requested and received leave
or bonuses back from its employees while charging Medicare their full
amount; (2) paid the owner's daughter a full-time salary and charged it
to Medicare although she was a full-time nursing student; and (3)
conducted unnecessary and excessive home health care patient visits.
GAO noted that: (1) Medicare, through the intermediary, reimbursed
Mid-Delta Home Health for payroll costs between January 1993 and
December 1996 that, in GAO's opinion, were improperly claimed because
they did not represent actual costs to the provider; (2) specifically,
the owner of the company, Clara T. Reed, regularly asked employees to
return to the company the cash value of unused leave and about 20
percent or more of bonuses received; (3) the employees were told that
the returned money was needed for, among other things, a Mid-Delta Home
Health-sponsored indigent care fund; (4) however, rather than use the
fund to provide home health care to those who could not afford it,
Mid-Delta officials stated that the money was used to offset unpaid
bills of private-pay patients of Mid-Delta's affiliated rural health
clinics; (5) Mid-Delta Home Health also improperly claimed and was
reimbursed by Medicare for other costs that did not meet Medicare cost
reimbursement principles since they were not related to patient care;
(6) one example involved salary paid to the owner's daughter as a P&T
Management executive vice president for over half of 1996 while she
attended school full-time; (7) further, GAO questions the reasonableness
of the daughter's $65,000 in 1996 bonuses claimed by Mid-Delta for
Medicare reimbursement; (8) in addition, Mid-Delta was reimbursed by
Medicare for the payroll costs of some P&T Management employees whose
positions appeared to focus on marketing activities; (9) GAO questions
the propriety of these claims because Medicare does not reimburse
providers for marketing costs used to increase patient utilization of
the provider's facilities; (10) in another payroll-cost matter, Mrs.
Reed purchased a business from a third party, hired that individual to
work for P&T Management, and gave the individual a $10,000 bonus that
was considered partial payment of the purchase price; (11) Mid-Delta
then improperly claimed the bonus as part of its payroll costs and was
reimbursed by Medicare for this payment; (12) the purchase of a business
does not qualify as a payroll cost; and morever, Medicare does not
reimburse providers for the cost of purchasing a business; (13) as
alleged by current and former Mid-Delta Home Health nurses, Mid-Delta
staff visited individual Medicare beneficiaries whose eligibility or
need for the visits was questionable; and (14) GAO visited or reviewed
case files for 41 of the patients identified by the nurses and
determined that for at least 14, or 34 percent, of the patients,
eligibility for Medicare-reimbursed services was questionable.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: OSI-98-5
TITLE: Medicare: Improper Activities by Mid-Delta Home Health
DATE: 03/12/98
SUBJECT: Health care programs
Program abuses
Payroll records
Home health care services
Erroneous payments
Medical expense claims
Health care personnel
Medical records
Annual leave
Fraud
IDENTIFIER: Medicare Program
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Cover
================================================================ COVER
Report to the Chairman and Ranking Minority Member, Committee on
Commerce, House of Representatives
March 1998
MEDICARE - IMPROPER ACTIVITIES BY
MID-DELTA HOME HEALTH
GAO/OSI-98-5
Improper Activities by Mid-Delta Home Health
(600435)
Abbreviations
=============================================================== ABBREV
EPSDT - Early and Periodic Screening, Diagnosis, and Treatment
GAO - General Accounting Office
HCFA - Health Care Financing Administration
OSI - Office of Special Investigations
Letter
=============================================================== LETTER
B-279241
March 12, 1998
The Honorable Thomas J. Bliley, Jr., Chairman
The Honorable John D. Dingell, Ranking Minority Member
Committee on Commerce
House of Representatives
This letter responds to your request that we investigate allegations
of Medicare improprieties by home health care provider Mid-Delta Home
Health (now known as Mid-Delta Health Systems, Inc.) of Belzoni,
Mississippi, and affiliated companies. The allegations involved
payroll-cost\1 and patient-care issues. Specifically, we examined
allegations that Mid-Delta (1) routinely requested and received
leave/bonuses back from its employees while charging Medicare their
full amount, (2) paid the owner's daughter a full-time salary and
charged it to Medicare although she was a full-time nursing student,
and (3) conducted unnecessary and excessive home health care patient
visits. As discussed in this report, during our investigation we
received and followed up allegations of other questionable activities
involving payroll-cost and patient-care issues.
Under the Medicare program, fiscal intermediaries\2 reimburse home
health care providers their reasonable costs of serving beneficiaries
when those claimed costs are found to be necessary, proper, actual,
and related to patient care.\3
We have previously noted that home health care providers have abused
the Medicare program in numerous, sometimes fraudulent, ways.\4 Such
fraud/abuse has contributed to the recent growth in home health care
costs--from about $2 billion in 1989 to almost $18 billion in 1996.
--------------------
\1 For the purpose of this report, "payroll cost" includes salary,
bonuses, and leave.
\2 An intermediary is an entity under contract with the Health Care
Financing Administration to determine the amount of, and to make,
Medicare payments to medical entities, such as home health agencies
and rural health clinics.
\3 42 U.S.C. sections 1395x(v)(1)(A) and 1395y(a)(1)(A); 42 C.F.R.
section 413.9(a).
\4 See the attached list of related GAO products.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Medicare, through the intermediary, reimbursed Mid-Delta Home Health
for payroll costs between January 1993 and December 1996 that, in our
opinion, were improperly claimed because they did not represent
actual costs to the provider. Specifically, the owner of the
company, Mrs. Clara T. Reed, regularly asked employees to return to
the company the cash value of unused leave and about 20 percent or
more of bonuses received. Mrs. Reed also had a list of "special
employees" to whom she gave larger bonuses if they agreed in advance
to return a certain amount to the company. Mid-Delta then charged
Medicare for these costs. Further, the employees were told that the
returned money was needed for, among other things, a Mid-Delta Home
Health-sponsored "indigent care fund." However, rather than use the
fund to provide home health care for those who could not afford it,
Mid-Delta officials told us that the money was used to offset unpaid
bills of private-pay patients of Mid-Delta's affiliated rural health
clinics. Our analysis of the indigent care fund determined that
moneys deposited to the fund had been transferred to the operating
account of P&T Management, Mid-Delta's administrative services
entity.
Mid-Delta Home Health also improperly claimed and was reimbursed by
Medicare\5 for other costs that, in our opinion, did not meet
Medicare cost reimbursement principles since they were not related to
patient care. One example involved salary paid to the owner's
daughter as a P&T Management executive vice president for over half
of 1996 while she attended school full-time. In our opinion,
Mid-Delta improperly claimed those payroll costs for Medicare
reimbursement because the daughter's salary included payment for the
hours she was in school.\6 Further, we question the reasonableness of
the daughter's $65,000 in 1996 bonuses\7 claimed by Mid-Delta for
Medicare reimbursement. The bonuses represented approximately 119
percent of her base salary.
In addition, Mid-Delta was reimbursed by Medicare for the payroll
costs of some P&T Management employees whose positions appeared to
focus on marketing activities. We question the propriety of these
claims because Medicare does not reimburse providers for marketing
costs used to increase patient utilization of the provider's
facilities, as they are not properly related to patient care.\8
In another payroll-cost matter, Mrs. Reed purchased a business from
a third party, hired that individual to work for P&T Management, and
gave the individual a $10,000 bonus that was considered partial
payment of the purchase price. Mid-Delta then improperly claimed the
bonus as part of its payroll costs and was reimbursed by Medicare for
this payment. The purchase of a business does not qualify as a
payroll cost; and moreover, Medicare does not reimburse providers for
the cost of purchasing a business.
Finally, as alleged by current and former Mid-Delta Home Health
nurses, Mid-Delta staff visited individual Medicare beneficiaries
whose eligibility or need for the visits was questionable. We
visited and/or reviewed case files for 41 of the patients identified
by the nurses and determined that for at least 14, or 34 percent, of
the patients, eligibility for Medicare-reimbursed services was
questionable. One instance involved a Mid-Delta patient receiving
services for about 2 years to monitor her blood pressure and a heart
condition. However, when we visited her, she was providing day care
in her home for four children aged approximately 5 years or younger.
Mid-Delta's Medicare intermediary and we questioned the necessity of
Mid-Delta's home health care visits to this patient as her activity
was unlikely for someone who was unable to leave home without "a
considerable, taxing effort"--a required condition for homebound
status.\9
We have shared information concerning these improper
claims/questionable activities with the appropriate authorities.
--------------------
\5 Medicare pays a portion of the home health agency's total costs
that is equal to Medicare's portion of the total services rendered.
\6 42 C.F.R. section 413.9(a).
\7 The daughter received a $10,000 bonus in July 1996 and a $55,000
bonus in December 1996.
\8 2 Medicare & Medicaid Guide (CCH) para. 5996B.
\9 1 Medicare & Medicaid Guide (CCH) para. 1414.
BACKGROUND
------------------------------------------------------------ Letter :2
The Health Care Financing Administration (HCFA)--an agency of the
Department of Health and Human Services--administers the Medicare
home health care program. That program has been part of Medicare
since Medicare began in 1965 and serves as an alternative to lengthy
in-patient hospitalization. Medicare home health costs averaged
about a 33-percent per-year growth from 1989 to 1996--from about $2
billion to almost $18 billion. This occurred primarily because the
number of beneficiaries receiving services increased as did the
number of services per beneficiary.
A fiscal intermediary under contract to HCFA determines if a home
health agency's services are reasonable and necessary\10 and, in
turn, which agency costs are reimbursable based on Medicare cost
reimbursement principles.\11
These principles authorize Medicare intermediaries to reimburse home
health care providers their reasonable costs of serving beneficiaries
when those claimed costs are found to be necessary, proper, actual,
and related to patient care.\12 In this regard, providers certify
that they are familiar with the laws and regulations regarding the
provision of health care services and that the services identified
were provided in compliance with such laws and regulations.
Mid-Delta Home Health is one of the largest home health care
providers in Mississippi. It is owned and operated by Clara T.
Reed, who is Chief Executive Officer and Chief Financial Officer. At
the time of our investigation, Mid-Delta Home Health employed over
600 people and consisted of two corporations (in Belzoni and
Charleston, Mississippi) that provided home health care through 16
offices in different parts of the state. Medicare reimbursement to
Mid-Delta for home health care and rural health clinic services from
January 1993 to December 1996 totaled approximately $77.9 million.
Mrs. Reed owned and/or controlled a number of related companies and
organizations, including P&T Management, Inc., which provided overall
management services for Mid-Delta Home Health and its affiliates
(rural health care clinics known as Taylor's Medical Clinics);
Mid-Delta Development League, Inc.--a nonprofit, tax-exempt (Internal
Revenue Code section 501(c)(3)) organization; and The Care
Associates, Inc., a political action committee formed to aid
political candidates interested in "the health and welfare of" the
poor and needy. See figure 1.
Figure 1: Organizations Owned
and/or Controlled by Clara Reed
(See figure in printed
edition.)
--------------------
\10 42 C.F.R. section 421.100(a)(2)(ii).
\11 42 C.F.R. section 413 et seq.
\12 42 C.F.R. section 413.9.
IMPROPER CLAIM OF LEAVE/BONUS
PAYBACKS FOR REIMBURSEMENT
------------------------------------------------------------ Letter :3
Mid-Delta Home Health, in our opinion, violated Medicare cost
reimbursement principles in claiming costs that it had not
incurred.\13 First, Mid-Delta Home Health presented approximately
$226,000 in checks to its employees, representing payment for unused
leave time in the 1993-96 period. Mrs. Reed subsequently asked the
employees to endorse the checks and give them back to Mid-Delta.
When questioned about this, some current and former employees told us
that they had felt coerced into giving back the checks. The company
then improperly claimed the full amounts of the leave as part of the
employees' payroll costs and was reimbursed by Medicare. Second,
Mrs. Reed requested--or, again according to some employees,
coerced--Mid-Delta and P&T Management employees to return a certain
amount (about 20 percent or more) of their 1996 bonuses to the
company. Those on a "special employee" list received larger bonuses
by agreeing in advance to return certain amounts of their bonuses (an
average of 29 percent) to the company. The bonus paybacks totaled
about $170,000, including $80,000 from Mrs. Reed. Mid-Delta
improperly claimed, and received reimbursement from Medicare for, the
returned bonuses.
Mrs. Reed told the employees that the returned unused leave and
bonus moneys would support, among other things, an "indigent care
fund" for Mid-Delta's home health care patients who had exhausted
their Medicare and Medicaid visits. However, according to
Mid-Delta's controller, the moneys were used largely to offset unpaid
bills of private-pay patients of the affiliated Taylor's Medical
Clinics. We determined that Mrs. Reed deposited moneys to P&T
Management's operating account or to the account of a political
action committee that she controlled. See figure 2.
Figure 2: Flow of Mid-Delta
Employees' Leave /Bonus Moneys
(See figure in printed
edition.)
--------------------
\13 42 C.F.R. section 413.9(a).
UNUSED LEAVE
---------------------------------------------------------- Letter :3.1
According to Mrs. Reed, in 1994 after consulting with legal and tax
advisors, she discontinued allowing her employees to roll over unused
leave from one year to the next.\14 Thus, as a company practice,
employees were given checks for the cash value of their unused leave,
then were asked to endorse and return them to the company. Further,
former and current employees whom we interviewed complained that
between 1993 and 1996, employees had been presented with unsigned
(nonnegotiable) checks in payment for their unused leave time and
were asked--some employees said coerced--to endorse the checks back
to the company. Some also complained that in 1993 and 1994, Mrs.
Reed had issued stock certificates instead of paying them for unused
leave time.
At Mrs. Reed's request, according to employees we interviewed,
employees endorsed the back of their checks and returned them.
Mid-Delta Home Health officials deposited most of the checks in an
account for the indigent care fund and some to the bank account of a
political action committee, both controlled by Mrs. Reed. (See fig.
2.) For the 1993-96 period, records show that Mid-Delta employees
returned approximately $226,000 in payment for unused leave. Some of
the moneys from the account for the indigent care fund were
subsequently deposited to P&T Management's operating account; and
Mid-Delta's Director of Finance confirmed that Medicare had
reimbursed the amount claimed for employee payroll costs, including
the unused leave.
Current and former employees told us that in some instances employees
who refused to surrender to what they termed as coercion and return
payments for leave faced retaliatory measures, such as demotion or
firing. Indeed, two former employees who had been fired from
Mid-Delta Home Health believed that they had been fired because they
had not returned payments for leave as requested. Mrs. Reed denied
this allegation. However, 20 of the 29 employees we interviewed
about unsigned leave checks stated that they had endorsed the checks
and returned them because they feared losing their jobs if they did
not.
In some cases in 1993 and 1994, Mrs. Reed gave employees a stock
certificate representing an IOU for the monetary value of the checks
they had endorsed and returned to the company.\15 She told those
employees, according to her statement to us, that she would remember
that they had leave coming from the previous year and that they could
take a day or so when they needed it. Some former employees
complained to us that they had never been paid for their unused
leave.
When we asked Mrs. Reed about the unsigned checks, she said that she
could not cover the employees' leave checks without causing a cash
flow problem. She said that if she had presented signed checks to
the employees, they would have cashed them instead of returning them
to the company. Mrs. Reed stated that no one was coerced--the
employees voluntarily returned money to the company.
--------------------
\14 Mid-Delta employees could accrue 33 days of leave annually
including, among other types, holidays, sick leave, and vacation
time.
\15 Mrs. Reed said that employees were told that the stock
certificate was a nonvoting, nonparticipating certificate in
Mid-Delta.
BONUSES
---------------------------------------------------------- Letter :3.2
Mid-Delta Home Health paid bonuses to its employees based on various
criteria, such as length of employment and annual salary. However,
according to some Mid-Delta employees, a bonus's amount was also
determined by the employee's willingness to return about 20 percent
or more of the bonus to the company. Further, Mid-Delta then
claimed, and received, the amount of the bonuses for Medicare
reimbursement. (See fig. 2.)
Sources informed us that when bonus checks were distributed to
employees, Mrs. Reed essentially coerced employees to pay back
approximately 20 percent or more of their bonuses. Although several
employees told us they had returned their bonuses voluntarily and
that they had not felt threatened or coerced, other employees stated
that they had complied with Mrs. Reed's requests for fear of losing
their jobs. Mid-Delta and P&T Management employees in December 1996
received over $933,000 in bonuses and returned about $170,000 to the
indigent care fund. (See fig. 2.) At least $155,000 was then
transferred from that fund to the P&T Management operating account.
The $170,000 included $80,000 that Mrs. Reed returned from a
$125,000 bonus she had received in December 1996.
Further, according to one knowledgeable employee, Mrs. Reed had a
list of "special employees" who received larger bonuses than did
others if they agreed in advance to give back a certain amount. The
source explained that Mrs. Reed talked to each employee on the list
personally; and as each employee agreed to return the set amount to
the company, she initialed by the employee's name on the list.
Indeed, according to one employee,
Mrs. Reed said, "I will give you a larger bonus if you agree to give
some of it back." Further, another employee told us that when she did
not return the bonus money immediately, she received a telephone call
from Mrs. Reed asking, "Where's my money?" When the employee
answered that she had thought the donation was voluntary, Mrs. Reed
responded, "That was never your money in the first place. I want my
money." The employee told us that when she returned her bonus in the
form of four checks, asking (for personal financial reasons) that
each be deposited at a later date,
Mrs. Reed deposited all of them immediately. Other employees
confirmed similar experiences.
Our review of a "special employees" list, containing 38 employees'
names, showed that 35 had returned an average of 29 percent of their
original bonuses and that the range of return from these employees
was between 18 percent and 57 percent. We verified with Mid-Delta's
Director of Finance that the employees had returned the amounts and
that Mid-Delta had claimed the full bonus amounts to Medicare for
reimbursement. Table 1 lists details of bonus paybacks by some of
the 35 employees.
Table 1
Sample of Bonus Paybacks by "Special
Employees"
Em
pl Original bonus Net bonus Bonus amount Bonus amount Percent of
oy claimed to after returned to received by original bonus
ee Medicare withholding\a company employee returned
-- -------------- -------------- -------------- -------------- --------------
1 $9,269.04 $6,335.39 $3,000.00 $3,335.39 32%
2 9,500.00 6,322.25 3,000.00 3,322.25 32%
3 10,000.00 6,555.00 3,000.00 3,555.00 30%
4 10,000.00 7,455.00 3,000.00 4,455.00 30%
5 9,112.26 6,228.23 3,000.00 3,228.23 33%
6 3,500.00 2,392.25 1,992.25 400.00 57%
7 4,750.00 3,246.63 1,200.00 2,046.43 25%
8 7,397.88 5,026.45 2,530.00 2,526.45 34%
9 5,600.00 3,670.80 1,500.00 2,170.80 27%
10 4,803.82 3,283.41 1,500.00 1,783.41 31%
----------------------------------------------------------------------------------
\a Amount of bonus after federal, state, and other withholding.
In contrast, although Mrs. Reed paid back part of her $125,000
bonus, her family members did not pay back any of their bonuses. In
December 1996, Mrs. Reed's husband received a $75,000 bonus and
returned none; their daughter received a $55,000 bonus and returned
none.
IMPROPRIETY OF MID-DELTA'S
CLAIMS FOR REIMBURSEMENT FOR
RETURNED LEAVE/BONUSES
---------------------------------------------------------- Letter :3.3
Although Medicare allows a provider to pay reasonable bonuses,
Mid-Delta Home Health's Medicare intermediary was unaware that
Mid-Delta employees were returning a portion of their bonus money to
the company. The intermediary stated that Mid-Delta claims for the
payroll-cost amounts were improper if Mid-Delta had received back
part of the employees' salaries. The intermediary also informed us
that intermediaries look at an entire employee compensation package
to determine if the costs claimed are reasonable and that it had not
conducted a detailed audit of any Mid-Delta cost report. Moreover,
cost reports, which home health agencies submit to their intermediary
for Medicare reimbursement, do not break down employees' total
compensation by such components as base salary, bonuses, and leave.
Therefore, the amounts claimed are not likely to be questioned
without an audit.
It is our opinion that Mid-Delta Home Health's claims for Medicare
reimbursement of the returned leave moneys were also not proper
because Mid-Delta had not incurred the costs. In a similar case
involving an unrelated home health agency, HCFA formally ruled that
"contributions" returned to the provider in the form of deductions
from employees' salaries had reduced the provider's costs and
therefore had been improperly claimed for Medicare reimbursement.
Following the provider's appeal, the U.S. District Court for the
Southern District of Mississippi upheld\16 HCFA's decision,
concluding that, under Medicare regulations, the contributions
qualified as refunds of salary, thus reducing the company's salary
expense. The court also noted that Medicare reimbursement was
limited to costs incurred. The court in this case further determined
that (1) the employee contributions created at least "a perception of
impropriety" and (2) the home health agency had no safeguards in
place to ensure that coercion was not involved.
--------------------
\16 Sta-Home Home Health Agency, Inc. v. Shalala, No. 3:91-CV-23
WC (S.D. Miss. Aug. 25, 1993).
INDIGENT CARE FUND
---------------------------------------------------------- Letter :3.4
According to a former Mid-Delta Home Health management official and
other former and current employees, Mrs. Reed told employees that
their returned funds would support, in part, a Mid-Delta "indigent
care fund." Those employees who complied with the bonus payback,
returned the money through personal checks or money orders made
payable to the indigent care fund. Further, as previously stated,
Mid-Delta Home Health officials deposited most of the employees'
returned unused-leave checks to the fund.
Mrs. Reed told us that this fund was to assist in continuing the
care of home health patients who needed it but who were no longer
eligible for Medicare or Medicaid visits. However, according to one
former Mid-Delta nurse, she was not paid at all for indigent-patient
visits, much less from the indigent care fund. She questioned where
the fund's money was going if it was not used to pay for charity
visits to indigent home health care patients. When we questioned
Mrs. Reed about this, she responded that she tells the nurses, "If I
don't get paid, you don't get paid."
Indeed, Mid-Delta's controller told us that the indigent care fund
was used to offset unpaid bills of patients of the company's rural
health clinics, Taylor's Medical Clinics. In support of this
statement, the controller provided us with records showing that
approximately $418,000 in patients' unpaid balances had been
attributed to the "indigent pay" category for the 1994-96 period.
Mrs. Reed told us, however, that she would transfer money from the
indigent care fund account to the P&T Management operating account to
alleviate cash flow problems or to cover payroll costs.
Our review of the "indigent pay" category records showed that the
unpaid bills belonged mostly to private-pay patients of Taylor's
Medical Clinics. Mid-Delta's controller stated that the clinics'
charges were too high for most self-pay and private insurance
patients whose insurance companies reimbursed the clinics only for
"reasonable and customary charges." She further stated that the fund
was used to cover instances in which such patients did not pay the
clinics' full charges. We noted that among the patients listed in
the records were several Mid-Delta employees;
Mrs. Reed's granddaughter; and Mrs. Reed's daughter, who was
Executive Vice President for Operations of P&T Management.
OTHER IMPROPER OR QUESTIONABLE
PAYROLL-COST/REIMBURSEMENT
ISSUES
------------------------------------------------------------ Letter :4
Additional Mid-Delta Home Health payroll-cost issues resulted in
either improper or questionable claims to and reimbursement by
Medicare: Mid-Delta improperly claimed Medicare reimbursement for
the total 7-month salary that Mrs. Reed's daughter received while
she attended school full-time and worked part-time. We question
Mid-Delta's (1) claiming $65,000 in bonuses to the daughter, which
equated to about 119 percent of the daughter's base salary and (2)
claiming the payroll costs of "Community Education" staff who were
marketing Mid-Delta and other affiliated operations. Finally,
Mid-Delta purchased an employee's business in part through a salary
bonus to the employee that was later improperly claimed as a payroll
cost and reimbursed as such by Medicare.
IMPROPER OR QUESTIONABLE
CLAIMS OF DAUGHTER'S PAYROLL
COSTS
---------------------------------------------------------- Letter :4.1
DAUGHTER'S SALARY
IMPROPERLY CHARGED TO
MEDICARE
-------------------------------------------------------- Letter :4.1.1
Mrs. Reed's daughter, Ms. Pamela Redd, attended nursing school
full-time at a local community college from June to December 1996.
At the same time, she held the job title of Executive Vice President
for Operations at P&T Management, Inc. and received a full-time 1996
salary of approximately $54,660.\17 An analysis of Ms. Redd's
employment time-and-attendance sheets showed that 53 percent of her
8-hour work day (from June to December 1996) was spent at school and
related activities. Yet, according to Mid-Delta's Director of
Finance, Ms. Redd's full-time salary was charged to Medicare for
reimbursement. This was, in our opinion, an improper claim.
According to the intermediary, Mid-Delta should not have been
reimbursed for salary--approximately $16,900 by our
calculation--incurred while Ms. Redd attended school. According to
Mrs. Reed and Ms. Redd, Ms. Redd was not the only employee
attending school full-time; however, Ms. Redd was the only employee
being paid a full-time salary for the time spent in school.
--------------------
\17 According to the 1996 Employee Listing of Mid-Delta Home Health
(and P&T Management, Inc.),
Ms. Redd's base salary was $54,662.40.
DAUGHTER'S BONUSES
QUESTIONABLY CLAIMED FOR
MEDICARE REIMBURSEMENT
-------------------------------------------------------- Letter :4.1.2
We learned that in addition to her approximately $54,660 base salary,
Ms. Redd received two bonuses totaling $65,000 in 1996, equal to
approximately 119 percent of her base salary. This was reflected in
Ms. Redd's 1996 W-2 form, which showed that she had been paid almost
$122,000.
When we asked Ms. Redd about the amount of the bonuses in relation
to her base salary, she did not explain why she had received the
large bonuses. However, the Mid-Delta controller stated that in
addition to using various company criteria (e.g., length of
employment and annual salary), Mrs. Reed determined bonus amounts
largely at her discretion.
According to Mid-Delta's Director of Finance, Ms. Redd's payroll
costs, including the bonuses, were claimed to Medicare for
reimbursement. In our opinion and that of the intermediary,
Mid-Delta's claim to Medicare for Ms. Redd's 1996 bonuses was
questionable because of the disparity between her base salary and the
bonus amounts and because she was not working full-time in 1996.
QUESTIONABLE SUBMISSION FOR
MEDICARE REIMBURSEMENT OF
PAYROLL COSTS OF PERSONNEL
WHO MARKETED/PROMOTED
MID-DELTA HOME HEALTH
---------------------------------------------------------- Letter :4.2
Under Medicare cost reimbursement principles, all payments to
providers of services must be based on the reasonable cost of
services covered under Medicare and related to patients' care.
Although Medicare reimbursement is available for expenses associated
with educating the community on home health care, it is not available
for the expenses of promoting and marketing home health care services
in order to increase patient utilization of a provider's facility.\18
We noted the unavailability of Medicare reimbursement for marketing
activities for this purpose in our 1995 report regarding another home
health care agency.\19
In the intermediary's review of Mid-Delta's 1993 and 1994 cost
reports, it noted that it had disallowed various expenses, in part,
because they were related to marketing functions. These disallowed
expenses included the purchase of, among others things, radio and
television advertisements; 1,100 fund-raising cookbooks; and an
exhibit booth to recruit staff at a physicians convention.
However, according to company records and knowledgeable former P&T
Management employees, Community Education staff primarily promoted
and marketed Mid-Delta Home Health and Taylor's Medical Clinic
services to other providers and the public. Mid-Delta's Director of
Finance also confirmed that Medicare reimbursed the salaries of the
Community Education employees. Further, according to Community
Education staff, Mrs. Reed changed receipts and documents for
marketing-related activities to reflect that the activities were
associated with Community Education and were therefore
Medicare-reimbursable. For example, in December 1995, Mrs. Reed
told staff to purchase about $4,000 in Christmas gifts for
physicians. When an employee noted "Gift items for referral sources"
on the receipt, Mrs. Reed changed the receipt to show that the gifts
were for employees, which could be Medicare reimbursable. We
question the propriety of Mid-Delta's submitting payroll and other
costs related to marketing activities for Medicare reimbursement
because the costs involved marketing and promoting the company.
Minutes from staff and other meetings in December 1996, January 1997,
and May 1997 noted that the Community Education staff continued to
market Mid-Delta services to schools, nursing homes, and hospitals.
For example, December 1996 minutes noted that staff had met with a
physician "about referring patients to the agency" who had diabetes
and that cards had been placed in waiting rooms "of physicians who
indicated that they would refer patients to us [Mid-Delta]." January
1997 minutes noted that the Community Education staff had "sold
contracts to nursing homes and other providers; . . . [and]
marketed psych services to physicians in [the] Yazoo City area. . .
." Minutes from May 1997 stated that by operating booths at various
outside meetings, Community Education staff were "promoting the
Center for Specialized Diabetic Foot Services" and that the Community
Education department would help to market Mid-Delta Home Health's
cardiac program.
Indeed, according to a former P&T Management vice president,
"Community Education is a euphemism for marketing." Further,
according to former Community Education managers, the primary
responsibilities of Community Education staff were to promote and
market on behalf of Mid-Delta and Taylor's Medical Clinics. In
discussions with us, a former manager said that the duties of P&T
Management's Community Education staff were "for the purpose of
developing business" for Mid-Delta Home Health and Taylor's Medical
Clinics, generating physician referrals, and attracting managed care
contracts and for other sales functions.
--------------------
\18 42 C.F.R. section 413.85(c); 2 Medicare & Medicaid Guide (CCH)
para. 5996B.
\19 Medicare: Allegations Against ABC Home Health Care
(GAO/OSI-95-17, July 19, 1995).
BONUS USED TO PURCHASE
BUSINESS IMPROPERLY CLAIMED
AS PAYROLL COST AND
REIMBURSED BY MEDICARE
---------------------------------------------------------- Letter :4.3
According to a former Mid-Delta employee, Mrs. Reed used the bonus
system as a means, in part, to purchase a business and be reimbursed
by Medicare. We learned that Mrs. Reed had purchased a business
called Warren's Children's Services for $125,000. This business
provided services under Medicaid's Early and Periodic Screening,
Diagnosis, and Treatment (EPSDT) program for children from birth to
age 18 years.
In February 1995, Mrs. Reed hired Ms. Betty Martin, owner of
Warren's Children's Services, as P&T Management's Director of EPSDT
at a $70,000-a-year salary. Ms. Martin was to educate the nursing
staff on the EPSDT program. Mrs. Reed gave Ms. Martin a $25,000
check as a down payment for Warren's Children's Services in March
1995 and a second check for $25,000 in December 1995. (See table 2.)
Table 2
Payments Made to Purchase Warren's
Children's Services
Payment Payment
Date amount returned Character of payment
---------------------- -------- -------- -- ----------------------
March 1995 $25,000 Purchase payment
December 1995 25,000 Purchase payment
December 1996 10,000\a Bonus