Medicare: Improper Third-Party Billing of Medicare by Behavioral Medical
Systems, Inc. (Testimony, 04/06/2000, GAO/T-OSI-00-9).

Pursuant to a congressional request, GAO discussed the results of its
investigation of the Behavioral Medical Systems' (BMS) Medicare billing
practices, focusing on: (1) BMS and how it conducted business; (2) its
improper billing of Medicare; and (3) GAO's belief that BMS violated the
U.S. Code.

GAO noted that: (1) although BMS represented itself to Medicare as a
health-care provider, in fact it functioned as a broker of medical
services and, according to its contracted psychiatrists, a third-party
biller; (2) further, through the services of the third-party biller with
which it had contracted, BMS consistently caused improper Medicare
claims to be submitted for services by six psychiatrists contracted to
it; (3) of the approximately 4,900 Medicare claims that BMS filed in the
20-month period GAO investigated, 87 percent--or almost 4,300
claims--were for services that reportedly were not provided; (4) those
improper Medicare claims totalled $1.3 million; (5) as another matter,
GAO believes that BMS violated the general statutory principle that
Medicare payments should be made directly to the beneficiary or the
assigned physician who provided the medical service; (6) neither of
these situations pertained to BMS; and (7) on the basis of GAO's
investigation, the Medicare carrier temporarily suspended BMS from
Medicare program participation on July 9, 1999.

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

 REPORTNUM:  T-OSI-00-9
     TITLE:  Medicare: Improper Third-Party Billing of Medicare by
	     Behavioral Medical Systems, Inc.
      DATE:  04/06/2000
   SUBJECT:  Health insurance
	     Health care programs
	     Health care services
	     Claims processing
	     Internal controls
	     Fraud
	     Program abuses
	     Erroneous payments
IDENTIFIER:  Medicare Program

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   * For Release on Delivery
     Expected at
     10:00 a.m. EDT

Thursday,

April 6, 2000

GAO/T-OSI-00-9

Medicare

Improper Third-Party Billing of Medicare by Behavioral Medical Systems, Inc.

        Statement of Robert H. Hast,

Acting Assistant Comptroller General

for Special Investigations

Office of Special Investigations

Testimony

Before the Subcommittee on Oversight and
Investigations, Committee on Commerce
House of Representatives

United States General Accounting Office

GAO

Summary

Today's testimony concerns the results of GAO's investigation into the
operations of Behavioral Medical Systems, Inc. (BMS) of Sugarland, Texas.
BMS represented itself to Medicare as a healthcare provider but functioned
as a broker of medical services and contracted with a third-party biller
that, in turn, prepared and remitted claims to Medicare on behalf of
providers contracted to BMS. While doing so, BMS billed Medicare improperly
and violated the U.S. Code.

BMS contracted with nursing homes to provide psychiatric and related
services to their residents. BMS also contracted with psychiatrists and
psychotherapists-as independent contractors, not BMS employees-to provide
those services. BMS then consistently caused improper Medicare claims,
involving services by six psychiatrists contracted to it, to be submitted to
its fiscal carrier. Of the approximately 4,900 claims that BMS filed in the
20-month period investigated, 87 percent-or almost 4,300 claims-were for
medical services reportedly not provided. These Medicare claims for
fictional services totaled $1.3 million. In addition, we believe that BMS
violated the general statutory principle that Medicare payments should be
made directly to the beneficiary or the assigned physician who provided the
medical service. Neither of these situations fit BMS.

As a result of this investigation, the Medicare carrier temporarily
suspended BMS in July 1999. At this time, BMS remains suspended. The matters
have also been referred to the Inspector General of the Department of Health
and Human Services and to the Department of Justice. However, the founder of
BMS is currently submitting Medicare claims under an old provider
number-unrelated to BMS-issued to her in 1993. We have not investigated
these claims to determine if they are improper.

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the results of our recent
investigation of the operations of Behavioral Medical Systems, Inc. (BMS) of
Sugarland, Texas, which functioned as a broker of medical services and
contracted with a third-party biller for submitting claims to Medicare.
Third-party billers prepare and remit (electronically or by paper) claims to
Medicare contractors on behalf of health care providers.

You had asked that we undertake the investigation because of your concern
about fraud and abuse within the Medicare program. Such activities could be
involved in a recent estimate, reported by the Office of Inspector General
(OIG), Department of Health and Human Services (HHS), that $12.6 billion of
fiscal year 1998 Medicare payments for fee-for-service claims did not comply
with Medicare rules. My testimony today is based on our recent report of our
investigation, which you are releasing today. More specifically, my remarks
concern (1) BMS and how it conducted business, (2) its improper billing of
Medicare, and (3) our belief that BMS violated the U.S. Code.

In brief, we determined that although BMS represented itself to Medicare as
a health-care provider, in fact it functioned as a broker of medical
services and, according to its contracted psychiatrists, a third-party
biller. Further, through the services of the third-party biller with which
it had contracted, BMS consistently caused improper Medicare claims to be
submitted for services by six psychiatrists contracted to it. Indeed, of the
approximately 4,900 Medicare claims that BMS filed in the 20-month period we
investigated, 87 percent-or almost 4,300 claims-were for services that
reportedly were not provided. Those improper Medicare claims totaled
$1.3 million. As another matter, we believe that BMS violated the general
statutory principle that Medicare payments should be made directly to the
beneficiary or the assigned physician who provided the medical service.
Neither of these situations pertained to BMS.

On the basis of our investigation, the Medicare carrier temporarily
suspended BMS from Medicare program participation on July 9, 1999. At this
time, BMS remains suspended. Further, we referred the matter to the HHS OIG,
and it has been referred to the Department of Justice. However, we recently
learned that the founder of BMS-Sandra J. Hunter, Ph.D., a licensed social
worker-is currently submitting Medicare claims under an old provider number
issued to her in 1993. That provider number is not related to BMS. We have
not conducted an investigation to determine if these claims are improper.

BMS and Its Operations

In addition, on her application, Dr. Hunter represented BMS as a group
practice specializing in psychiatry. We determined, however, that BMS did
not directly employ psychiatrists and was thus not a group practice.
Instead, in its business, BMS contracted with nursing homes to provide
psychiatric and related services to their residents. BMS also contracted
with psychiatrists and psychotherapists-as independent contractors, not BMS
employees-to provide those services and, according to the psychiatrists, use
BMS as their third-party biller.

Then, as was the BMS process, (1) the psychiatrists and psychotherapists
prepared monthly activity reports providing necessary Medicare billing
information; (2) the reports were forwarded to Dr. Hunter for processing;
and (3) Dr. Hunter forwarded them to her contracted third-party biller for
it to submit billings, following her direction, to Medicare on behalf of
BMS. Medicare sent the claims payments to Dr. Hunter, who paid the
contracted psychiatrists and psychotherapists. Medicare also sent the
Explanations of Benefits, detailing the payments for the services, to BMS
and not to the psychiatrists. These psychiatrists stated that they were thus
unaware of the additional claims made on their behalf.

BMS Billed Medicare for Reportedly Fictional Visits to Patients

We compared the service dates that the psychiatrists submitted to Dr. Hunter
in their activity reports and the claims that the BMS contractor submitted
for reimbursement to Medicare, under Dr. Hunter's direction. Most-87
percent-of the claims that we analyzed from the period September 1997
through April 1999 (the period that we investigated) were for services that
the psychiatrists had not rendered to their patients. For example, Medicare
paid BMS for 90 visits by one psychiatrist to a patient between September 1,
1997, and February 28, 1998. However, according to his records, the
psychiatrist had not visited the patient at all during that period. In
addition, the same psychiatrist saw a second patient six times between
May 23, 1998, and February 16, 1999. Yet carrier records show that BMS,
through its contractor, billed Medicare for 70 additional visits by the
psychiatrist during that time frame. According to another psychiatrist, he
made five visits to one patient. Yet carrier claims records show that BMS
billed Medicare for another 41 visits by that psychiatrist.

We analyzed the 4,922 claims that the BMS contractor submitted to Medicare
on behalf of the 6 contract psychiatrists for the September 1997-April 1999
time frame. Of these claims, 4,291-or 87 percent-were reportedly fictitious.
According to the 6 psychiatrists and fiscal carrier records, these claims
represented 9,854 patient visits that never occurred. Also according to
carrier records, the improper claims totaled $1.3 million for unrendered
services. We determined that BMS had received over $362,000 in Medicare
payments for the fictional visits and services. The difference of
approximately $951,000 is attributable to claims that were
disallowed/disputed, co-payments, deductibles, or claims that exceeded
allowable Medicare reimbursable amounts.

BMS Violated the U.S. Code Concerning Direct Medicare Payments

We believe that the statutory language is clear that BMS could not bill
Medicare because it was neither the beneficiary nor the provider of the
services to the Medicare patients. The subject statute establishes the
general principle that Medicare payments are to be made to the beneficiary
or, under assignment, to the medical provider who rendered the service.
Legislative history indicates that the Congress was concerned about
third-party direct billing because, among other points, "[s]uch
reassignments have been a source of incorrect and inflated claims for
services." (H.R. No. 92-231, at 104 (1971)) Through the subject statute, the
Congress sought to eliminate a third party's incentive to submit claims for
unprovided services or to engage in abusive billing practices.

GAO Contacts and Acknowledgements

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