Health Care Fraud: Schemes to Defraud Medicare, Medicaid, and Private
Health Care Insurers (Testimony, 07/25/2000, GAO/T-OSI-00-15).

Pursuant to a congressional request, GAO discussed the various schemes
used to defraud the Medicare and Medicaid programs and private insurance
companies and how the proposed legislation contained in H.R. 3461 and
S.1231 could strenghten federal and state health care programs.

GAO noted that: (1) in the rent-a-patient scheme, organizations pay
for--or "rent"--individuals to go to clinics for unnecessary diagnostic
tests and cursory examinations; (2) licensed physicians sometimes
participate in the rent-a-patient scheme; (3) Medicare, Medicaid, and
other insurers are billed for those services and often for other
services or medical equipment never provided; (4) in a variation of this
scheme, perpetrators merely buy individual health care insurance
identification numbers for cash; (5) implementing the proposed
legislation will make the purchase, sale, and distribution of two or
more Medicare or Medicaid beneficiary identification numbers a felony
and will establish universal product numbers for identifying the
specific type of medical equipment or supply provided; (6) similarly, in
the pill mill scheme, separate health care individuals and
entities--usually including a pharmacy--collude to generate a flood of
fraudulent claims that Medicaid pays; (7) after a prescription is
filled, the beneficiary sells the medication to pill buyers on the
street who then sell the drugs back to the pharmacy; (8) making the
trafficking in Medicare and Medicaid numbers a felony would also likely
help reduce the number of fraudulent claims submitted to insurance
systems as part of pill mill schemes; (9) the drop box scheme uses a
private mailbox facility as the fraudulent health care entity's address,
with the entity's "suite" number actually being its mailbox number; (10)
the fraudulent health care entity then uses the address to submit
fraudulent Medicare, Medicaid, and other insurance claims and to receive
insurance checks; (11) requiring on-site inspections of the entity's
address and mandating background checks of the owners, as legislation
proposes, should reduce the number of criminals involved in the drop box
scheme; (12) the third-party billing scheme revolves around a
third-party biller--who may or may not be part of the scheme--who
prepares and remits claims to Medicare or Medicaid (electronically or by
paper) for health care providers; (13) it is possible, however, for a
third-party biller to defraud Medicare, Medicaid, and others by adding
claims without the providers' knowledge and keeping the remittances or
by allowing fraudulent claims to be billed to Medicare or Medicaid
through its service; and (14) the proposed legislation will require
unique Health Care Financing Administration  billing numbers to reduce
fraudulent claims filed by third-party billers.

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

 REPORTNUM:  T-OSI-00-15
     TITLE:  Health Care Fraud: Schemes to Defraud Medicare, Medicaid,
	     and Private Health Care Insurers
      DATE:  07/25/2000
   SUBJECT:  Health insurance
	     Health care services
	     Medical expense claims
	     Program abuses
	     Internal controls
	     Organized crime
	     Fraud
	     Proposed legislation
	     Health care programs
IDENTIFIER:  Medicare Program
	     Medicaid Program

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************

GAO/T-OSI-00-15

   * For Release on Delivery
     Expected at 10 a.m., EDT

Tuesday,

July 25, 2000

GAO/T-OSI-00-15

health care fraud

Schemes to Defraud Medicare, Medicaid, and Private Health Care Insurers

        Statement of Robert H. Hast, Assistant Comptroller General for
        Special Investigations

Office of Special Investigations

Testimony

Before the Subcommittee on Government Management, Information and
Technology, Committee on Government Reform, House of Representatives

United States General Accounting Office

GAO

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss various schemes used to defraud the
Medicare and Medicaid programs and private insurance companies and how the
proposed legislation contained in H.R. 3461 and S. 1231 could strengthen
federal and state health care programs. More specifically, I would like to
focus on the schemes characterized as rent-a-patient, pill mill, drop box,
and third-party billing that we have identified through our past
investigations.

As you are keenly aware, health care fraud is a serious financial drain on
our health care system. Large numbers of cases have been investigated and
prosecuted, resulting in the recovery of large dollar amounts. We have
designated health care fraud as a high-risk area. The Department of Health
and Human Services' Office of Inspector General has reported that
$13.5 billion of processed Medicare fee-for-service claim payments for
fiscal year 1999 may have been improperly paid for reasons that ranged from
inadvertent error to outright fraud and abuse.

Our previous investigations have provided evidence that, in addition to some
legitimate health care and health care-related providers, career criminal
and organized criminal groups have become involved in health care fraud
across the country. Indeed, the emergence of an organized class of criminals
who specialize in defrauding and abusing Medicare and Medicaid has increased
program vulnerabilities for the Health Care Financing Administration (HCFA).
In general, career criminals and organized criminal groups have little or no
medical or health care education, training, or experience. Many group
members have prior criminal histories for criminal activity unrelated to
health care fraud-such as securities fraud, narcotics and weapons
violations, grand theft auto, and forgery-indicating that the individuals
have moved from one field of criminal activity to another.

To counter many of the fraudulent schemes used by such individuals,
H.R. 3461 and S. 1231, both entitled "Medicare Fraud Prevention and
Enforcement Act of 1999," were introduced to amend title XVIII of the Social
Security Act. Both bills are designed to establish additional provisions to
combat fraud, waste, and abuse within the Medicare program and for other
purposes by strengthening the Medicare enrollment process, expanding certain
standards of participation, and reducing erroneous payments.

Results in Brief

Similarly, in the pill mill scheme, separate health care individuals and
entities-usually including a pharmacy-collude to generate a flood of
fraudulent claims that Medicaid pays. After a prescription is filled, the
beneficiary sells the medication to pill buyers on the street who then sell
the drugs back to the pharmacy. Making the trafficking in Medicare and
Medicaid numbers a felony would also likely help reduce the number of
fraudulent claims submitted to insurance systems as part of pill mill
schemes.

The drop box scheme uses a private mailbox facility as the fraudulent health
care entity's address, with the entity's "suite" number actually being its
mailbox number. The fraudulent health care entity then uses the address to
submit fraudulent Medicare, Medicaid, and other insurance claims and to
receive insurance checks. For example, while the insurer sends payments to
"Suite 478" at a certain address, payments are actually going to "Box 478"
at a privately owned mailbox facility. The perpetrator then retrieves the
checks and deposits them into a commercial bank account that he/she has set
up. Requiring on-site inspections of the entity's address and mandating
background checks of the owners, as the legislation proposes, should reduce
the number of criminals involved in the drop box scheme.

The third-party billing scheme revolves around a third-party biller-who may
or may not be part of the scheme-who prepares and remits claims to Medicare
or Medicaid (electronically or by paper) for health care providers. It is
possible, however, for a third-party biller to defraud Medicare, Medicaid,
and others by adding claims without the providers' knowledge and keeping the
remittances or by allowing fraudulent claims to be billed to Medicare or
Medicaid through its service. The proposed legislation will require unique
HCFA billing numbers to reduce fraudulent claims filed by third-party
billers.

The bills also give the Department of Health and Human Services' Office of
Inspector General additional enforcement tools to pursue health care
swindlers.

Rent-a-Patient Scheme

Even a few licensed medical doctors and medical school graduates-including
physician assistants-collaborate with rent-a-patient clinics in exchange for
money. Medical school graduates perform actual procedures on the
beneficiaries, including noninvasive medical tests, and fill out medical
charts. Licensed physicians are generally paid $50 or more per medical chart
to periodically sign the chart for services they neither perform nor
supervise or to provide certificates of medical necessity for medical
equipment that is not needed.

Under the proposed legislation, Medicare claim forms will require a UPN for
medical equipment and supplies instead of a billing code that covers a wide
variety of items. Using the UPN, HCFA would be able to track the specific
type of equipment that was allegedly provided to ensure that a lower-cost
product had not been substituted. This provision may aid in reducing the
number of claims submitted for medical equipment that is not provided as
billed. Use of a UPN could also help investigators determine if a supplier
had purchased sufficient stock of a particular item it supposedly supplied
to beneficiaries.

In other instances, only beneficiary and/or identifying information is
rented or brokered to the criminals. For example, some recruited
beneficiaries provide only their insurance identification number in exchange
for cash. Clinic owners nonetheless send blood samples-fraudulently labeled
as being from the beneficiary-to labs for testing and the labs bill for the
tests. The labs then kick back some of the payment they receive to the
clinic owners. According to law enforcement officials, cooperating
beneficiaries sometimes go to a private apartment to have x-rays taken with
a portable x-ray unit or to have blood drawn. The beneficiaries receive cash
or unneeded prescriptions, which they later fill and sell on the street.
Their insurance plans are billed for x-rays, blood tests, or other
unnecessary services or equipment. Under the proposed legislation, the
purchase, sale, or distribution of two or more Medicare or Medicaid
beneficiary identification numbers will be a felony.

Pill Mill Scheme

In general, the scheme works as follows. As in the rent-a-patient scheme,
brokers locate beneficiaries who are often homeless or indigent individuals
or drug addicts and take the beneficiaries to clinics for unnecessary
examinations, blood tests, and prescriptions. Clinics and, subsequently,
laboratories bill the insurer who pays the claims. In like manner,
pharmacists involved in the scheme bill the insurer for the prescriptions
they fill for the beneficiaries, and the beneficiaries sell the prescribed
drugs to middlemen (pill buyers) in exchange for cash or illicit drugs. The
middlemen, on behalf of the colluding parties, resell the drugs back to the
pharmacies. Funds obtained through fraudulent billings are often moved to
offshore banks to avoid recovery by law enforcement entities.

Then the cycle is repeated, with the diverted drugs being collected and
resold at lower-than-wholesale prices to pharmacies. There they are
repeatedly dispensed and billed to the insurer and may eventually be
dispersed to legitimate patients, who could be subjected to potential harm
through drugs that were not handled or stored properly or whose potency may
have altered or expired.

The proposed legislation will make it a felony for a person to knowingly,
intentionally, and with the intent to defraud, purchase, sell, or distribute
two or more Medicare or Medicaid beneficiary identification numbers. This
may aid in reducing the distribution of beneficiary identification numbers
between clinics, laboratories, and other providers with the intention of
defrauding insurance systems, as in the pill mill scheme.

Drop Box Scheme

In furtherance of the drop box scheme, criminals also open corporate bank
accounts to deposit insurance payments for the fraudulent health care claims
they submit. They then steal, purchase, or otherwise obtain beneficiary and
provider information and bill insurance plans for medical services and
equipment that was not provided. A member of the group retrieves insurance
payment checks from the drop boxes and deposits them in controlled bank
accounts. Once deposited, proceeds are quickly converted to cash or
transferred to other accounts and moved out of the reach of authorities.

While some drop boxes are set up using the name of a group leader or names
of co-conspirators, others are set up with phony identification cards
containing fictitious names or assumed identities together with the
criminals' photographs. In another variation, criminals use the basic
elements of a drop box scheme but receive the medical payments
electronically in their bank accounts rather than through a private mailbox.

The proposed legislation will make the purchase, sale, or distribution of a
Medicare or Medicaid provider number or two or more beneficiary
identification numbers a felony. This proposal addresses the growing trend
of the purchase, sale, and distribution of Medicare and Medicaid provider
numbers and beneficiary identification numbers for the purpose of defrauding
health insurance systems.

Source: Florida Department of Insurance, Division of Insurance Fraud

Third-Party Billing Scheme

A variation of this scheme involves a company that represents itself as a
health care provider but also functions as a broker of medical services. In
other words, the company submits health insurance claims on behalf of
contracted physicians through a legitimate third-party biller and adds
claims for services not provided. The legitimate biller submits billings to
the insurer. The insurer then sends claim payments and the explanation of
benefits to the company owner who is acting as a broker. Since the
physicians receive no explanation of benefits, they are unaware that the
broker is adding fraudulent claims to services provided and keeping the
additional money.

The proposed legislation requires that all billing entities be registered
and have a unique HCFA billing number. This number will allow HCFA to
identify the specific billing entities and make them more responsible for
claims they file. This should act to reduce the number of upcoded,
unbundled, and fictitious claims filed through billing agencies.

Finally, with the enactment of the legislation, criminal investigators in
the Department of Health and Human Services' Office of Inspector General
will have full law enforcement authority to conduct investigations; obtain
and execute warrants; and, under certain circumstances, make arrests without
warrant.

Contacts and Acknowledgements

(600672) Orders by Internet

        For information on how to access GAO reports on the Internet, send
an e-mail message with "info" in the body to:

[email protected]

or visit GAO's World Wide Web home page at:

http://www.gao.gov

        Contact one:

Web site: http://www.gao.gov/fraudnet/fraudnet.htm

E-mail: [email protected]

1-800-424-5454 (automated answering system)
  
*** End of document. ***