Nursing Homes: Too Early to Assess New Efforts to Control Fraud and Abuse
(Testimony, 04/16/97, GAO/T-HEHS-97-114).

GAO discussed the challenges that exist in combatting fraud and abuse in
the nursing facility environment.

GAO noted that: (1) while most providers abide by the rules, some
unscrupulous providers of supplies and services have used the nursing
facility setting as a target of opportunity; (2) this has occurred for
several reasons: (a) the complexities of the reimbursement process
invite exploitation; and (b) insufficient control over Medicare claims
has reduced the likelihood that inappropriate claims will be denied; (3)
GAO is encouraged by a number of recent efforts to combat fraud and
abuse, the pending implementation of provisions in the Health Insurance
Portability and Accountability Act (HIPPA) and a legislative proposal
made by the administration; and (4) while these efforts should make a
difference in controlling fraud and abuse in nursing homes, it is too
early to tell whether these efforts will be sufficient.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-HEHS-97-114
     TITLE:  Nursing Homes: Too Early to Assess New Efforts to Control 
             Fraud and Abuse
      DATE:  04/16/97
   SUBJECT:  Health care programs
             Nursing homes
             Fraud
             Medical expense claims
             Claims processing
             Therapy
             Elderly persons
             Health care cost control
             Program abuses
             Overpayments
IDENTIFIER:  Medicare Program
             HHS Operation Restore Trust
             Medicaid Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Human Resources, Committee on Government
Reform and Oversight, House of Representatives

For Release on Delivery
Expected at 10 a.m.
Wednesday,
April 16, 1997

NURSING HOMES - TOO EARLY TO
ASSESS NEW EFFORTS TO CONTROL
FRAUD AND ABUSE

Statement of Leslie G.  Aronovitz, Associate Director
Health Financing and Systems Issues
Health, Education, and Human Services Division

GAO/T-HEHS-97-114

GAO/HEHS-97-114T


(101563)


Abbreviations
=============================================================== ABBREV

  EOMB - Explanation of Medicare Benefits
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  HIPAA - Health Insurance Portability and Accountability Act
  ORT - Operation Restore Trust

NURSING HOMES:  TOO EARLY TO
ASSESS NEW EFFORTS TO CONTROL
FRAUD AND ABUSE
============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss the challenges that exist in
combatting fraud and abuse in the nursing facility environment. 
While the Medicaid program is the largest single payer for nursing
facility care, Medicare, the national health insurance program for
the elderly and certain disabled people, pays a substantial
proportion of the health care costs of nursing facility residents. 
For the opportunistic provider, a nursing home represents a
vulnerable elderly population in a single location and the
opportunity for multiple billings.  Many nursing home patients are
cognitively impaired, and their care is controlled by the nursing
facility.  Because these patients would probably not realize what
items or special services were billed on their behalf, some providers
may take advantage of the situation by submitting fraudulent claims. 

My comments will draw heavily from reports we have recently issued
that focused on cost growth and fraudulent and abusive billings for
ancillary services and supplies for nursing facility residents.\1 I
will describe how providers have exploited the Medicare program, why
they were able to do so, and what steps have been taken to protect
the program from the recurrence of such reimbursement schemes.  I
will also describe the special vulnerabilities associated with
individuals who are eligible for both Medicare and Medicaid.  They
are poor and are less likely to have family members in the community
to represent their interests. 

In summary, while most providers abide by the rules, some
unscrupulous providers of supplies and services have used the nursing
facility setting as a target of opportunity.  This has occurred for
several reasons: 

  -- the complexities of the reimbursement process invite
     exploitation and

  -- insufficient control over Medicare claims has reduced the
     likelihood that inappropriate claims will be denied. 

We are encouraged by a number of recent efforts to combat fraud and
abuse--the pending implementation of provisions in the Health
Insurance Portability and Accountability Act (HIPAA) and a
legislative proposal made by the administration.  While these efforts
should make a difference in controlling fraud and abuse in nursing
homes, it is too early to tell whether these efforts will be
sufficient. 


--------------------
\1 See the list of related GAO products at the end of this testimony. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Medicare falls within the administrative jurisdiction of the Health
Care Financing Administration (HCFA) of the Department of Health and
Human Services (HHS).  HCFA establishes regulations and guidance for
the program and contracts with about 72 private companies--such as
Blue Cross and Aetna--to handle claims screening and processing and
to audit providers.  Each of these commercial contractors works with
its local medical community to set coverage policies and payment
controls.  As a result, billing problems are handled, for the most
part, by contractors, and they are the primary referral parties to
law enforcement agencies for suspected fraud. 

Medicare's basic nursing home benefit covers up to 100 days of
certain posthospital stays in a skilled nursing facility.\2 Skilled
nursing facilities submit bills for which they receive interim
payment; final payments are based on costs within a cost-limit cap. 
This benefit is paid under part A, Hospital Insurance, which also
pays for hospital stays and care provided by home health agencies and
hospices. 

Even if Medicare beneficiaries do not meet the conditions for
Medicare coverage of a skilled nursing facility stay, they are still
eligible for the full range of part B benefits.  Although Medicaid or
the resident may be paying for the nursing home, Medicare will pay
for ancillary services and items such as physical and other types of
therapy, prosthetics, and surgical dressings.  Part B is voluntary
part of the Medicare program that beneficiaries may elect and for
which they pay monthly premiums.  Part B also pays for physician care
and diagnostic testing. 

About 6 million people have both Medicare and Medicaid coverage, and,
of these, over 4.8 million represent state "buy-ins" for Medicare
coverage.\3 Dually eligible beneficiaries are among the most
vulnerable Medicare beneficiaries.  They are generally poor, have a
greater incidence of serious and chronic conditions, and are much
more likely to be institutionalized.  As a matter of fact, about 1.4
million reside in institutions, while only 600,000 of the
approximately 31 million Medicare beneficiaries without Medicaid
coverage are in institutions.  Over half of all dually eligible
patients over 85 reside in nursing facilities. 

When a copayment is required, a Medicare beneficiary or a
representative designated by the beneficiary, receives an
"Explanation of Medicare Benefits" (EOMB), which specifies the
services billed on behalf of the individual.  The EOMB is an
important document because beneficiaries and their families can use
it to verify that the services were actually performed.  The dually
eligible population, however, often does not have a representative in
the community to receive and review this document.  In fact, many
nursing home patients actually have the nursing home itself receive
the EOMBs on their behalf. 


--------------------
\2 Under the Medicare part A nursing home benefit, skilled nursing
facilities are nursing homes that maintain a full-time staff of
medical professionals who provide daily care for patients with
complex medical or rehabilitative needs. 

\3 States frequently pay the premium for part B coverage for Medicaid
recipients. 


   MULTIPLE BILLING METHODS FOR
   SERVICES IN NURSING FACILITIES
   LEAVE MEDICARE VULNERABLE
---------------------------------------------------------- Chapter 0:2

In 1996, Medicare spent $11.3 billion on skilled nursing facility
benefits and an undetermined amount on part B ancillary services and
items.  The providers of these services and items can bill Medicare
in a variety of ways.  With this variety comes the opportunity to
blur the transactions that actually took place and inflate charges
for services rendered. 

Ancillary services and items for Medicare beneficiaries in nursing
facilities can be provided by the nursing facility itself, a company
wholly or partially owned by the nursing facility, or an independent
supplier or practitioner.  Our work has shown that

  -- independent providers and suppliers can bill Medicare directly
     for services or supplies without the knowledge of the
     beneficiary or the facility and

  -- companies that provide therapy are able to inflate their
     billings. 


      OUTSIDE PROVIDERS AND
      SUPPLIERS BILL MEDICARE
      DIRECTLY
-------------------------------------------------------- Chapter 0:2.1

Nursing facilities often do not have the in-house capability to
provide all the services and supplies that patients need. 
Accordingly, outside providers market their services and supplies to
nursing facilities to meet the needs of the facilities' patients. 
HCFA's reimbursement system allows these providers to bill Medicare
directly without confirmation from the nursing facility or a
physician that the care or items were necessary or delivered as
claimed.  As a result, the program is vulnerable to exploitation. 

According to the HHS Inspector General, provider representatives
typically enter nursing facilities and offer to handle the entire
transaction--from reviewing medical records to identify those
patients their products or services can help, to billing
Medicare--with no involvement by nursing facility staff.  Some of
these facilities allow providers or their representatives to review
patient medical records despite federal regulatory standards
prohibiting such unauthorized review.  These representatives gain
access to records not because they have any responsibility for the
direct care of these patients, but solely to market their services or
supplies.  From these records, unscrupulous providers can obtain all
the information necessary to order, bill, and be reimbursed by
Medicare for services and supplies that are in many instances not
necessary or even provided.  In 1996, we reported the following
examples:\4

  -- A group optometric practice performed routine eye examinations
     on nursing facility patients, a service not covered by Medicare. 
     The optometrist was always preceded by a sales person who
     targeted the nursing facility's director of nursing or its
     social worker and claimed the group was offering eye
     examinations at no cost to the facility or the patient.  The
     nursing facility gave the sales person access to patients'
     records, and this person then obtained the information necessary
     to file claims.  Nursing staff would obtain physicians' orders
     for the "free" examinations, and an optometrist would later
     arrive to conduct the examinations.  The billings to Medicare,
     however, were for services other than eye examinations--services
     that were never furnished or were unnecessary. 

  -- The owner of a medical supply company approached nursing
     facility administrators in several states and offered to provide
     supplies for Medicare patients at no cost to the facility. 
     After reviewing nursing facility records, this company
     identified Medicare beneficiaries, obtained their Medicare
     numbers, developed lists of supplies on the basis of diagnoses,
     identified attending physicians, and made copies of signed
     physician orders in the files.  The supplier then billed
     Medicare for items it actually delivered but also submitted
     4,000 fraudulent claims for items never delivered.  As part of
     the 1994 judgment, the owner forfeited $328,000 and was
     imprisoned and ordered to make restitution of $971,000 to
     Medicare and $60,000 to Medicaid. 

  -- A supplier obtained a list of Medicare patients and their
     Medicare numbers from another supplier who had access to this
     information.  The first supplier billed Medicare for large
     quantities of supplies that were never provided to these
     patients, and both suppliers shared in the approximately
     $814,000 in reimbursements. 

We found that nursing home staff's giving providers or their
representatives inappropriate access to patient medical records was a
major contributing cause to the fraud and abuse cases we reviewed. 


--------------------
\4 Fraud and Abuse:  Providers Target Medicare Patients in Nursing
Facilities (GAO/HEHS-96-18, Jan.  24, 1996). 


      REIMBURSEMENT FOR THERAPY
      SERVICES IS COMPLICATED AND
      VULNERABLE TO WASTE AND
      ABUSE
-------------------------------------------------------- Chapter 0:2.2

Many nursing facilities rely on specialized rehabilitation
agencies--also termed outpatient therapy agencies--to provide therapy
services.  These agencies can be multilayered, interconnected
organizations--each layer adding costs to the basic therapy
charge--that use outside billing services, which can also add to the
cost.  In those situations in which the nursing facility contracts
and pays for occupational and speech therapy services for a
Medicare-eligible stay, Medicare might pay the nursing facility what
it was charged because of the limited amount of review conducted by
claims processing contractors.  In practice, however, because of the
difficulty in determining what are reasonable costs and the limited
resources available for auditing provider cost reports, there is
little assurance that inflated charges are not actually being billed
and paid.\5

Until recently, HCFA had not established salary guidelines, which are
needed to define reasonable costs for occupational or speech therapy. 
Without such benchmarks, it is difficult for Medicare contractors to
judge whether therapy providers overstate their costs.  Even for
physical therapy, for which salary guidelines do exist, the
Medicare-established limits do not apply if the therapy company bills
Medicare directly. 

This is why Medicare has been charged $150 for 15 minutes of therapy
when surveys show that average statewide salaries for therapists
employed by hospitals and nursing facilities range from $12 to $25
per hour.  Our analysis of a sample drawn from a survey of five
contractors found that over half of the claims they received for
occupational and speech therapy from 1988 to 1993 exceeded $172 in
charges per service.  Assuming this was the charge for 15 minutes of
treatment--which industry representatives described as the standard
billing unit--the hourly rate charged for these claims would have
been more than $688.  It should be noted that neither HCFA nor its
contractors could accurately tell us what Medicare actually paid the
providers in response to these claims.  The amount Medicare actually
pays is not known until long after the service is rendered and the
claim processed.  Although aggregate payments are eventually
determinable, existing databases do not provide actual payment data
for any individual claim. 


--------------------
\5 Medicare reimbursement in these instances is supposed to be based
on the providers' "reasonable costs."


   LAX OVERSIGHT PROVIDES LITTLE
   CHANCE OF TIMELY DETECTION OF
   EXCESSIVE MEDICARE
   REIMBURSEMENTS
---------------------------------------------------------- Chapter 0:3

HCFA pays contractors to process claims and to identify and
investigate potentially fraudulent or abusive claims.  We have long
been critical of the unstable funding support HCFA's contractors have
to carry out these program integrity activities.  We recently
reported that funding for Medicare contractor program safeguard
activities declined from 74 cents to 48 cents per claim between 1989
and 1996.  During that same period, the number of Medicare claims
climbed 70 percent to 822 million.\6 Such budgetary constraints have
placed HCFA and its contractors in the untenable position of needing
to review more claims with fewer resources. 

While Medicare contractors do employ a number of effective automated
controls to prevent some inappropriate payments, such as suspending
claims that do not meet certain conditions for payment for further
review, our 1996 report on 70 fraud and abuse cases showed that
atypical charges or very large reimbursements routinely escaped those
controls and typically went unquestioned.\7 The contractors we
reviewed had not put any "triggers" in place that would halt payments
when cumulative claims exceeded reasonable thresholds.  Consequently,
Medicare reimbursed providers, who were subsequently found guilty of
fraud or billing abuses, large sums of money over a short period
without the contractor's becoming suspicious.  The following examples
highlight the problem: 

  -- A supplier submitted claims to a Medicare contractor for
     surgical dressings furnished to nursing facility patients.  In
     the fourth quarter of 1992, the contractor paid the supplier
     $211,900 for surgical dressing claims.  For the same quarter a
     year later, the contractor paid this same supplier more than $6
     million without becoming suspicious, despite the 2,800-percent
     increase in the amount paid. 

  -- A contractor paid claims for a supplier's body jackets\8 that
     averaged about $2,300 per quarter for five consecutive quarters
     and then jumped to $32,000, $95,000, $235,000, and $889,000 over
     the next four quarters, with no questions asked. 

In other instances, we found that providers that were subsequently
investigated for wrongdoing billed and were paid for quantities of
services or supplies that were unnecessary or could not possibly have
been furnished: 

  -- A contractor reimbursed a clinical psychology group practice for
     individual psychotherapy visits lasting 45 to 50 minutes when
     the top three billing psychologists in the group were allegedly
     seeing from 17 to 42 nursing facility patients per day.  On many
     days, the leading biller of this group would have had to work
     more than 24 uninterrupted hours to provide the services he
     claimed. 

  -- A contractor paid a podiatrist $143,580 for performing surgical
     procedures on at least 4,400 nursing facility patients during a
     6-month period.  For these services to be legitimate, the
     podiatrist would have had to serve at least 34 patients a day, 5
     days a week. 

The Medicare contractors in these two cases did not become suspicious
until they received complaints from family members, beneficiaries, or
competing providers.  The EOMB was critical in identifying the
specific items and services being billed to Medicare.  Although EOMBs
have in the past only been required when the beneficiary had a
deductible or copayment, HIPAA now requires HCFA to provide an
explanation of Medicare benefits for each item or service for which
payment may be made, without regard to whether a deductible or
coinsurance may be imposed.  This provision is still of limited
value, however, for nursing home residents who designate the nursing
home to receive the EOMBs--which is more common for the dually
eligible population. 

In other cases, contractors initiated their investigations because of
their analyses of paid claims (a practice referred to as "postpayment
medical review"), which focused on those providers that appeared to
be billing more than their peers for specific procedures.  One
contractor, for instance, reimbursed a laboratory $2.7 million in
1991 and $8.2 million in 1992 for heart monitoring services allegedly
provided to nursing facility patients .  The contractor was first
alerted in January 1993 through its postpayment review efforts when
it noted that this laboratory's claims for monitoring services
exceeded the norm for its peers. 

In all these cases, we believe the large increases in reimbursements
over a short period or the improbable cumulative services claimed for
a single day should have alerted the contractors to the possibility
that something unusual was happening and prompted an earlier review. 
People do not usually work 20-hour days, and billings by a provider
for a single procedure do not typically jump 13-fold from one quarter
to the next or progressively double every quarter. 


--------------------
\6 High Risk Series:  Medicare (GAO/HR-97-10, Feb.  1997). 

\7 GAO/HEHS-96-18, Jan.  24, 1996. 

\8 A body jacket is a custom-fitted spinal brace made of a rigid
plastic material that conforms to the body and largely immobilizes
it. 


   INITIATIVES NOW UNDER WAY TO
   ADDRESS LONG-STANDING PROBLEMS
---------------------------------------------------------- Chapter 0:4

Initiatives on various fronts are now under way to address fraud and
abuse issues we have discussed here today.  Several of these
initiatives, however, are in their early stages, and it is too soon
to assess whether they will, in fact, prevent fraud and abuse in the
nursing facilities environment. 


      HHS INITIATIVES
-------------------------------------------------------- Chapter 0:4.1

Last year, we recommended that HCFA establish computerized prepayment
controls that would suspend the most aberrant claims.  HCFA has since
strengthened its instructions to its contractors, directing them to
implement prepayment screens to prevent payment of billings for
egregious amounts or patterns of medically unnecessary services or
items.  HCFA also authorized its contractors to deny automatically
the entire line item for any services that exceed the egregious
service limits. 

In regard to therapy services, after a lengthy administrative
process, HCFA proposed salary guidelines last month for physical,
occupational, speech, and respiratory therapists who furnish care to
beneficiaries under a contractual arrangement with a skilled nursing
facility.  The administration estimates these changes will result in
savings to Medicare of $1.7 billion between now and the year 2001,
and $3.9 billion between now and the year 2006.  The proposed rule
would revise the current guideline amounts for physical and
respiratory therapies and introduce, for the first time, guideline
amounts for occupational therapy and speech/language pathology
services. 

In March 1995, the Secretary of HHS launched Operation Restore Trust
(ORT), a 2-year interagency, intergovernmental initiative to combat
Medicare and Medicaid fraud and abuse.  ORT targeted its resources on
three health care areas susceptible to exploitation, including
nursing facility care in five states (California, Florida, Illinois,
New York, and Texas) with high Medicare and Medicaid enrollment and
rapid growth in billed services. 

To address the root cause of the problems cited here today, the
administration has also announced an initiative to change the way
Medicare reimburses for services and supplies in skilled nursing
facilities:  consolidated billing.  More specifically, the
administration has announced that it will propose requiring skilled
nursing facilities to bill Medicare for all services provided to
their beneficiary residents except for physician and some other
practitioner services.  We support this proposal.  We and the HHS
Inspector General have reported on problems, such as overutilization
of supplies, that can arise when suppliers bill separately for
services for nursing home residents. 

A consolidated billing requirement would make it easier to control
payments for these services and give nursing facilities the incentive
to monitor them.  The requirement would also help prevent duplicate
billings and billings for services and items not actually provided. 
In effect, outside suppliers would have to make arrangements with
skilled nursing facilities so that they would bill for suppliers'
services and would be financially liable and medically responsible
for the care. 


      LEGISLATIVE INITIATIVES
-------------------------------------------------------- Chapter 0:4.2

HIPAA established the Medicare Integrity Program, which ensures that
the program safeguard activities function is funded separately from
other claims processing activities.  HIPAA also included provisions
on "administrative simplification." A lack of uniformity in data
among the Medicare program, Medicaid state plans, and private health
entities often makes it difficult to compare programs, measure the
true effect of changes in health care financing, and coordinate
payments for dually eligible patients.  For example, HIPAA requires,
for the first time, that each provider be given a unique provider
number to be used in billing all insurers, including Medicare and
Medicaid. 

The new provisions also require the Secretary of HHS to promulgate
standards for all electronic health care transactions; the data sets
used in those transactions; and unique identifiers for patients,
employers, providers, insurers, and plans.  These standards will be
binding on all health care providers, insurers, plans, and
clearinghouses. 


   CONCLUSION
---------------------------------------------------------- Chapter 0:5

The multiple ways that providers and suppliers can bill for services
to nursing home patients and the lax oversight of this process
contribute to the vulnerability of payments for the health care of
this population.  As a result, excessive or fraudulent billings may
go undetected.  We are encouraged, however, by the administration's
recent proposal for consolidated billing, which we believe will put
more responsibility on nursing home staff to oversee the services and
items being billed on behalf of residents.  As more details
concerning these or other proposals become available, we will be glad
to work with the Subcommittee and others to help sort out their
potential implications. 


-------------------------------------------------------- Chapter 0:5.1

This concludes my prepared remarks.  I will be happy to answer any
questions. 


   CONTRIBUTORS
---------------------------------------------------------- Chapter 0:6

For more information on this testimony, please call Leslie G. 
Aronovitz on (312) 220-7600 or Donald B.  Hunter on (617) 565-7464. 
Lisanne Bradley also contributed to this statement. 


RELATED GAO PRODUCTS
=========================================================== Appendix 1

Medicare Post-Acute Care:  Facility Health and Skilled Nursing
Facility Cost Growth and Proposals for Prospective Payment
(GAO/T-HEHS-97-90, Mar.  4, 1997). 

Skilled Nursing Facilities:  Approval Process for Certain Services
May Result in Higher Medical Costs (GAO/HEHS-97-18, Dec.  20, 1996). 

Medicare:  Early Resolution of Overcharges for Therapy in Nursing
Facilities Is Unlikely (GAO/HEHS-96-145, Aug.  16, 1996). 

Fraud and Abuse:  Providers Target Medicare Patients in Nursing
Facilities (GAO/HEHS-96-18, Jan.  24, 1996). 

Fraud and Abuse:  Medicare Continues to Be Vulnerable to Exploitation
by Unscrupulous Providers (GAO/T-HEHS-96-7, Nov.  2, 1995). 

Medicare:  Excessive Payments for Medical Supplies Continue Despite
Improvements (GAO/HEHS-95-171, Aug.  8, 1995). 

Medicare:  Reducing Fraud and Abuse Can Save Billions
(GAO/T-HEHS-95-157, May 16, 1995). 

Medicare:  Tighter Rules Needed to Curtail Overcharges for Therapy in
Nursing Facilities (GAO/HEHS-95-23, Mar.  30, 1995). 


*** End of document. ***