Medicare: Improper Activities by Mid-Delta Home Health (Testimony,
03/19/98, GAO/T-OSI-98-6).

Pursuant to a congressional request, GAO discussed the results of its
investigation into allegations of improper Medicare billings by
Mid-Delta Home Health.

GAO noted that: (1) under the Medicare program, home health care
providers are reimbursed for their reasonable costs of servicing
beneficiaries; (2) costs submitted for reimbursement must be necessary,
proper, actual, and related to patient care; (3) however, in GAO's
opinion, Mid-Delta Home Health improperly claimed, and was reimbursed
for, certain payroll costs that it had not incurred; (4) these costs
included unused leave payments and bonuses that the employees had been
asked to return to Mid-Delta and the full-time salary paid to the
owner's daughter while she attended nursing school in 1996; (5) GAO also
questioned the propriety of certain other costs that Mid-Delta claimed
for Medicare reimbursement; and (6) these questionable costs included:
(a) large bonuses given to the owner's daughter that amounted to 119
percent of her salary; (b) community education costs that were primarily
related to marketing and not patient care; (c) a $10,000 bonus used to
help purchase a business and then claimed to Medicare as a payroll cost;
and (d) claims for apparently unneeded Mid-Delta visits to a number of
patients and for visits to other patients whose eligibility for
homebound status was questionable.

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

 REPORTNUM:  T-OSI-98-6
     TITLE:  Medicare: Improper Activities by Mid-Delta Home Health
      DATE:  03/19/98
   SUBJECT:  Health care programs
             Program abuses
             Payroll records
             Home health care services
             Erroneous payments
             Medical expense claims
             Health care personnel
             Medical records
             Fraud
             Annual leave
IDENTIFIER:  Medicare Program
             
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Cover
================================================================ COVER


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

For Release on Delivery
Expected at
10:00 a.m.  EST
Thursday
March 19, 1998

MEDICARE - IMPROPER ACTIVITIES BY
MID-DELTA HOME HEALTH

Statement of Eljay B.  Bowron
Assistant Comptroller General for Special Investigations
Office of Special Investigations

GAO/T-OSI-98-6

GAO/OSI-98-6T


(600458)


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


MEDICARE:  IMPROPER ACTIVITIES BY
MID-DELTA HOME HEALTH
============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

Thank you for inviting me here today to discuss the results of our
investigation into allegations of improper Medicare billings\1 by
Mid-Delta Home Health, one of the largest home health care providers
in Mississippi.\2

As you know, under the Medicare program, home health care providers
are reimbursed for their reasonable costs of serving beneficiaries. 
Costs submitted for reimbursement must be necessary, proper, actual,
and related to patient care.\3 However, in our opinion, Mid-Delta
Home Health improperly claimed, and was reimbursed for, certain
payroll costs that it had not incurred.  These costs included unused
leave payments and bonuses that the employees had been asked to
return to Mid-Delta and the full-time salary paid to the owner's
daughter while she attended nursing school in 1996.\4

We also question the propriety of certain other costs that Mid-Delta
claimed for Medicare reimbursement.  These questionable costs
included

  -- large bonuses\5 given to the owner's daughter that amounted to
     119 percent of her salary,

  -- "community education" costs that were primarily related to
     marketing and not patient care,\6

  -- a $10,000 bonus used to help purchase a business and then
     claimed to Medicare as a payroll cost, and

  -- claims for apparently unneeded Mid-Delta visits to a number of
     patients and for visits to other patients whose eligibility for
     homebound status\7 was questionable. 


--------------------
\1 See also Medicare:  Improper Activities by Mid-Delta Home Health
(GAO/OSI-98-5, Mar.  12, 1998). 

\2 Mid-Delta Home Health (now known as Mid-Delta Health Systems,
Inc.) is owned and operated by Mrs.  Clara T.  Reed, who is Chief
Executive Officer and Chief Financial Officer. 

\3 42 U.S.C.  sections 1395x(v)(1)(A) and 1395y(a)(1)(A); 42 C.F.R. 
section 413.9(a). 

\4 42 C.F.R.  section 413.9(a). 

\5 The daughter received a $10,000 bonus in July 1996 and a $55,000
bonus in December 1996. 

\6 2 Medicare & Medicaid Guide (CCH) para.  5996B. 

\7 1 Medicare & Medicaid Guide (CCH) para.  1414. 


   LEAVE/BONUS PAYBACKS
---------------------------------------------------------- Chapter 0:1

Mid-Delta Home Health, in our opinion, improperly claimed the full
amounts of unused leave payments and employee bonuses.  The company
had asked--or, according to some employees, coerced--the employees to
give back to the company all of the leave payments and part of the
bonuses.  Mid-Delta's employees were told that their returned moneys
were for, among other things, a Mid-Delta-sponsored indigent care
fund.  We determined that the money had not been used for indigent
patient home health care but was deposited to Mid-Delta's operating
account. 


      THE PAYBACKS
-------------------------------------------------------- Chapter 0:1.1

In the 1993-96 period, Mid-Delta Home Health presented about $226,000
in checks to its employees as payment for unused leave.  Mid-Delta's
owner asked the employees to endorse the checks and give them back to
the company.  Some current and former employees told us that they had
felt coerced into returning the checks.  The company then, in our
opinion, improperly claimed the full amounts of the leave to Medicare
as a payroll cost and was reimbursed. 

The owner also requested--or, again according to some employees,
coerced--employees to return about 20 percent or more of their 1996
bonuses to the company.  Those on a "special employee" list received
larger bonuses by agreeing to return certain amounts (on average, 29
percent) of their bonuses to the company.  The bonus paybacks totaled
about $170,000, including $80,000 from the owner's $125,000 bonus. 
Mid-Delta then, in our opinion, improperly claimed the full bonuses
as actual costs and received Medicare reimbursement for them. 
However, both the Health Care Financing Administration and a court
formally ruled\8 that such returned "contributions" by employees of
an unrelated home health care agency had reduced that agency's costs
and therefore had been improperly claimed for Medicare reimbursement. 
Of interest, we noted that the husband and daughter of Mid-Delta's
owner hadn't returned any of their December 1996 bonuses, $75,000 and
$55,000 respectively. 


--------------------
\8 Sta-Home Home Health Agency, Inc.  v.  Shalala, No.  3:91-CV-23 WC
(S.D.  Miss.  Aug.  25, 1993). 


      INDIGENT CARE FUND
-------------------------------------------------------- Chapter 0:1.2

The employees were told that the returned money was needed for, among
other things, a Mid-Delta Home Health-sponsored "indigent care fund."
However, Mid-Delta officials told us the money had been used to
offset the unpaid balances of patients of its affiliated rural health
clinics.  (See app.  I for flow of employees' moneys.) Although
Mid-Delta categorized these unpaid balances as "indigent pay,"
Mid-Delta's controller told us that the balances were primarily those
of insured private-pay patients.  Further, we determined that money
was transferred from the indigent care fund to the operating account
of Mid-Delta's administrative services entity, P&T Management, Inc. 
Again of interest, we noted that among the patients whose unpaid
balances were categorized as "indigent pay" were several Mid-Delta
employees; the owner's granddaughter; and the owner's daughter, a P&T
Management executive vice president. 


   IMPROPER/QUESTIONABLE PAYROLL
   COSTS OF OWNER'S DAUGHTER
---------------------------------------------------------- Chapter 0:2

Mid-Delta Home Health also improperly claimed other costs that did
not meet Medicare cost reimbursement principles\9 since they were not
related to patient care.  One example involved salary paid to the
owner's daughter as an executive vice president while she attended
nursing school full time from June to December 1996.  The daughter's
employment time sheets showed that about 53 percent of her 40-hour
work week (from June to December 1996) was spent at school and
related activities.  However, Mid-Delta submitted those payroll costs
to Medicare for reimbursement.  Further, after reviewing the
daughter's 1996 compensation, we question the reasonableness of
Mid-Delta's claiming the daughter's $65,000 in bonuses for Medicare
reimbursement.  The bonuses represented approximately 119 percent of
her base salary of about $54,660. 


--------------------
\9 42 C.F.R.  section 413 et seq. 


   QUESTIONABLE MARKETING AND
   PROMOTION ACTIVITIES
---------------------------------------------------------- Chapter 0:3

In another matter, Mid-Delta was reimbursed by Medicare for the
payroll costs of 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, as
they are not properly related to patient care.\10

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 the company.\11 Mid-Delta
officials should have known that its marketing expenses were not
allowable for Medicare reimbursement because the Medicare
intermediary\12 had previously disallowed various expenses, in part,
because they were related to marketing functions.  The intermediary's
review of Mid-Delta's 1993 and 1994 cost reports noted such
disallowed expenses. 

However, according to company records and knowledgeable former
employees, Community Education staff primarily promoted and marketed
the services of Mid-Delta Home Health and its affiliated rural health
clinics to other providers and the public.  Indeed, according to a
former P&T Management vice president, "Community Education is a
euphemism for marketing." Further, according to Community Education
staff, Mid-Delta's owner changed documents and receipts for
marketing-related activities to make it appear that the activities
were related to Community Education and were therefore
Medicare-reimbursable.  For example, in December 1995, the owner had
staff purchase about $4,000 in Christmas gifts for physicians.  When
an employee noted the purpose of the gifts on the receipt, the owner
changed the note to show that the gifts were for Mid-Delta employees,
which could qualify for Medicare reimbursement. 


--------------------
\10 2 Medicare & Medicaid Guide (CCH) para.  5996B. 

\11 42 C.F.R.  section 413.85(c); 2 Medicare & Medicaid Guide (CCH)
para.  5996B. 

\12 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.  Under 42 C.F.R.  section
421.100(a)(2)(ii), an intermediary determines if a home health
agency's services are reasonable and necessary. 


   BONUS IMPROPERLY USED TO
   PURCHASE BUSINESS
---------------------------------------------------------- Chapter 0:4

In another matter related to payroll costs, Mid-Delta's owner
initiated the purchase of a business from a third party; hired that
individual as an employee; and in December 1996, gave the individual
a $10,000 bonus as partial payment of the purchase price.  Mid-Delta
then improperly claimed the bonus as a payroll cost and was
reimbursed for it by Medicare.  The purchase of a business does not
qualify as a payroll cost, and Medicare does not reimburse providers
for the cost of purchasing a business.  When we asked her in July
1997, Mid-Delta's owner confirmed that the $10,000 bonus was a
payment toward the purchase of the business.  But after consulting
her controller and her Director of Finance, the owner informed us
that the bonus should not have represented partial payment for the
business and that she still owed the individual $10,000.  As of
February 1998, the individual had not received that $10,000 payment. 


   QUESTIONABLE MID-DELTA HOME
   HEALTH SERVICES
---------------------------------------------------------- Chapter 0:5

Finally, as alleged by current and former Mid-Delta Home Health
nurses, in their professional opinions, Mid-Delta claimed costs for
visits to individual Medicare beneficiaries whose need or eligibility
for the visits was questionable.\13 We coordinated our work in this
area with Mid-Delta's Medicare intermediary, asking the intermediary
to review patient-related information.  In addition, we visited
and/or reviewed case files for 41 of the patients identified by the
nurses.  The intermediary and we questioned the necessity of
Mid-Delta's Medicare-reimbursed services for at least 14--or 34
percent--of the patients.  In addition, we both question the
eligibility of some of these Mid-Delta patients for homebound status. 

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 5 years or younger.  Mid-Delta's Medicare
intermediary and we question the necessity of Mid-Delta's home health
care visits to this patient.  Her activity was unlikely for someone
who was unable to leave home without "considerable, taxing effort"--a
condition for homebound status.\14 In another instance, a Mid-Delta
Home Health patient was moving a 5-foot section of a telephone pole
in his yard when we visited.  The patient's actions contradicted
Mid-Delta's patient records, relied on by the intermediary to
determine eligibility, that indicated that the patient had poor
endurance, walked with a cane, and appeared homebound.  A third
Mid-Delta patient who received home health care visits told us that
he regularly walked 2 to 3 miles a day. 


--------------------
\13 Medicare patients qualify for home visits if they are confined to
their home, i.e., homebound (except when receiving outpatient
services); are under the care of a physician who prescribes and
periodically reviews a plan of home care for them; and need
intermittent skilled nursing care or physical or speech therapy.  42
C.F.R.  section 424.22.  See also 1 Medicare & Medicaid Guide (CCH)
para.  1414. 

\14 1 Medicare & Medicaid Guide (CCH) para.  1414. 


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

Mr.  Chairman, this completes my prepared statement.  I would be
happy to respond to any questions that you or other members of the
Subcommittee may have. 


FLOW OF MID-DELTA EMPLOYEES'
LEAVE/BONUS MONEYS
=========================================================== Appendix I


*** End of document. ***