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Testimony on Prevalence of Health Care Fraud and Abuse by Bruce C. Vladeck
Administrator, Health Care Financing Administration
U.S. Department of Health and Human Services

Before the Senate Committee on Government Affairs, Permanent Subcommittee on Investigations
June 26, 1997

INTRODUCTION

Mr. Chairman and Members of the Subcommittee, I am very pleased to have this opportunity to describe the Health Care Financing Administration's programs to fight fraud and abuse in Medicare and Medicaid. As we stand on the threshold of the twenty-first century, we are faced with the formidable task of ensuring the solvency of the Trust Fund, and preserving Medicare for future generations. In order to do this, we must begin by making sure that every dollar we spend for our beneficiaries is well-spent, and that our goals of efficiency and cost- effectiveness do not compromise the quality of their health care.

Why We Need to Pay Right the First Time

The annals of medicine are replete with case histories demonstrating that prevention is the best antidote to illness. This is equally true in the area of fiscal well-being: in order for our Medicare and Medicaid programs to remain both solvent and strong, we need to prevent improper or fraudulent claims which strain the fiscal and personnel resources of the system. By guaranteeing the initial accuracy of both claims and payments, we avoid having to "pay and chase," and we can prevent opportunities for fraud and abuse.

Incorrectly billed claims can stem not only from fraud, but from confusion and misinformation about the proper billing procedures. For example, if there is a payer primary to Medicare, the Medicare contractor will reject the claim and submit it to the appropriate primary payer. Where Medicare is primary, the Medicare contractor will make payment, then send the paid claims data to the supplemental insurer. HCFA uses many pre-payment mechanisms to determine the primary payer for benefits for a Medicare beneficiary and to ensure Medicare pays in the right order of payers. These mechanisms are part of our Medicare as a Secondary Payer (MSP) Activity, which I will describe in detail later in this testimony. Currently, we are seeking legislation that would improve our ability to verify whether Medicare is the primary or secondary payer.

OVERVIEW: THE ISSUES

The sheer complexity of the health care delivery system virtually guarantees that there will be instances of unscrupulous claims billing. While some high-profile examples of fraud and waste are well-known to the public because of media attention, there are many less visible areas of concern. Some of these include:

Abusive Billing in Nursing Homes --- Aside from the typical kind of fraud that occurs in charging patients for services they have not received, there are other, more difficult- to-detect abuses to which beneficiaries of nursing homes are vulnerable. These include inappropriate designation of nursing home patients as hospice patients, false patient census reports, improper billing of supplies and services for patients eligible for both Medicare and Medicaid ("dual eligibles"), unnecessary or inappropriate services being prescribed for nursing home patients, and billing as therapy services for services paid in the nursing home rate. Unnecessary medical supplies may be ordered for the unsuspecting patient, such as several cases found by the DHHS Inspector General (IG), in which thousands of dollars of surgical tape, hydrogel wound filler, and orthotic devices were inappropriately ordered and made available to other patients. Also, it has been estimated that as much as 32% of mental health services ordered for Medicare nursing home residents were unnecessary or inappropriate. Part of the problem stems from the fact that the nursing home itself is not responsible to coordinate the services, which may be initiated and billed by an outside entity.

Home Health Fraud -- The "invisibility" of the home health setting invites profiteers to prey on disabled and elderly patients who may often be isolated, uninformed, and lacking the support of friends or family. We are finding continuous problems with unnecessary home health services, especially those provided to beneficiaries who are not homebound. Because of the difficulty in monitoring these situations, the patient may be at the mercy of an unethical provider or supplier. Over-prescription and overcharging of oxygen and tube feeding supplies for home health patients have been found in bills submitted to Medicare and Medicaid. Through HCFA's Operation Restore Trust (ORT), we have located and penalized fraudulent home health agency owners across the Nation, and saved millions of dollars.

The 1981 report issued by the Senate's Permanent Subcommittee on Investigations identified several areas of Medicare and Medicaid home health care needing better oversight, and recommended that HCFA notify home health intermediaries in a timely fashion of any regulatory changes. We have acted on this recommendation, and we have developed checks and balances that ensure that this is done. Current HCFA procedures require that intermediaries have at least 90 days to carry out any program actions that may be required of them. Therefore, any legislative/statutory, regulatory, policy, or electronic system changes that directly affect the contractors are published in a quarterly release of HCFA's Task Management Plan, which is then distributed, along with pertinent materials, to intermediaries with a minimum 90 days' implementation deadline. This process alerts intermediaries that they must notify providers of new or revised program procedures or requirements. Intermediaries are also required to communicate program changes to their providers in a communique, usually in the form of a bulletin or similar form of notification. These checks and balances ensure accountability --- of both intermediaries and HCFA.

Durable Medical Equipment --- There is widespread concern that Medicare's payments for durable medical equipment are excessive. Medicare payments for DME are based on a fee schedule methodology established by Congress in Omnibus Budget Reconciliation Act (OBRA) 1987, and these fee schedule amounts were based on supplier's "reasonable charges" in the mid-1980s. Unless otherwise specified by Congress, these amounts have been increased annually by the Consumer Price Index-Urban (CPI-U) as required by statute. This statutorily prescribed payment methodology does not consider changes in technology or any other factors impacting suppliers' costs and as a result HCFA's payments for DME are often excessive.

Problems with the durable medical equipment (DME) industry have resulted in stricter controls over who can apply for, and receive, a license as a DME provider. A Notice will be issued this summer by HCFA that will require that DME providers meet certain criteria, including putting up a surety bond for licensure, and greater proof of the bona fide existence of the business. This win prevent abuses such as the case of the Florida man who received a DME license, despite the fact that the only actual supplies he had in stock were stuffed alligator heads and other souvenirs he sold from his garage. He had applied for a DME certification to sell wheelchairs to complement his brother-in- law's business of installing wheelchair lifts in cars. Examples like this are a good argument for DME bonding.

Fraudulent Billing Practices --- Complex claims billing procedures offer multiple ways of cheating the system, from overt inflation and exaggeration of the level of services provided "upcoding") to blatantly false cost reports submitted for reimbursement. A Maryland nursing home operator was prosecuted for adding his personal entertaining and decorating expenses to the facility's Medicaid bill, including a charge for services rendered by the operator's relative who was actually in jail at the time. In another case reported by the GAO, a supplier for a long-term care facility was forging physicians' signatures on certificates of medical necessity, and then billing for items that were either unnecessary, had already been provided to the patient, or were in fact never delivered. The President's FY98 Budget includes provisions to develop prospective payment systems for several services in Medicare. PPS pays a set rate according to the characteristics of the patient, and removes many of the incentives for providers to provide excessive services or submit fraudulent cost reports to receive high reimbursement.

Kickbacks - Providers such as laboratories, ambulance companies, and pharmacies may enter into unethical agreements with nursing home owners and clinical psychologists that may include kickbacks in exchange for being allowed to provide services to the nursing home residents. HCFA's State Medicaid Fraud Control Units have found cases of nursing home owners authoriziny lucrative, with charges as high as $1000 per day. Also, patients hospitalized in psychiatric facilities are sometimes billed for unnecessary and unordered services. The President's FY98 budget has a provision to make Medicare payments less lucrative for these situations; ceilings would be established on reimbursements, so that facilities could not be reimbursed for these costs, if they were much more expensive than other psychiatric hospitals,

This is a particular area of concern for HCFA because of the potential for coercive hospitalization under some State laws, such as a case recently reported in Massachusetts. A child who had been taken to a hospital for a medication adjustment for his epilepsy was forcibly hospitalized, against his parents' wishes, in a psychiatric hospital. Although this situation was due in part to Section 12 of Massachusetts State law, it raises disturbing questions about lack of oversight in psychiatric hospitalizations.

Marketing Abuses - Questionable sales techniques are sometimes used in the marketing of health insurance, especially when the potential customers are elderly and may be ill-equipped to make informed choices. Some marketing representatives may use fear tactics to persuade beneficiaries to sign up for benefits they don't need and can sometimes ill afford. In response to these abuses, HCFA will be issuing National Managed Care Marketing Guidelines this summer, to assure that marketing materials present balanced and accurate informationy lucrative, with charges as high as $1000 per day. Also, patients hospitalized in psychiatric facilities are sometimes billed for unnecessary and unordered services. The President's FY98 budget has a provision to make Medicare payments less lucrative for these situations; ceilings would be established on reimbursements, so that facilities could not be reimbursed for these costs, if they were much more expensive than other psychiatric hospitals,

This is a particular area of concern for HCFA because of the potential for coercive hospitalization under some State laws, such as a case recently reported in Massachusetts. A child who had been taken to a hospital for a medication adjustment for his epilepsy was forcibly hospitalized, against his parents' wishes, in a psychiatric hospital. Although this situation was due in part to Section 12 of Massachusetts State law, it raises disturbing questions about lack of oversight in psychiatric hospitalizations.

Marketing Abuses - Questionable sales techniques are sometimes used in the marketing of health insurance, especially when the potential customers are elderly and may be ill-equipped to make informed choices. Some marketing representatives may use fear tactics to persuade beneficiaries to sign up for benefits they don't need and can sometimes ill afford. In response to these abuses, HCFA will be issuing National Managed Care Marketing Guidelines this summer, to assure that marketing materials present balanced and accurate information to beneficiaries and to discourage fraudulent or deceptive representation of health plans or services.

HCFA'S CURRENT INITIATIVES AGAINST FRAUD AND ABUSE

This Administration is seriously committed to aggressively prosecuting and preventing all forms of waste, fraud, and abuse. Toward this goal, we worked on a bi-partisan basis with the Congress to develop the necessary legislation. The Health Insurance Portability and Accountability Act of 1996 (HIPAA), which was enacted last year, contained important provisions to aid us in our war on waste, fraud and abuse in the Medicare program. Two of the most significant provisions for the Health Care Financing Administration (HCFA) were the implementation of the Medicare Integrity Program (MIP) and the Fraud and Abuse Control Program.

Medicare Integrity Program (MIP)

This program authorizes the Secretary to promote the integrity of the Medicare program by entering into contracts with eligible entities to carry out program integrity activities such as audits of cost reports, medical and utilization review, and payment determinations. MIP provided a stable source of funding for HCFA's program integrity activities, and provided us with the authority to contract for these activities with any qualified entity, not just those insurance companies who are currently our fiscal intermediaries or carriers.

The Medicare Integrity Program (MIP) was enacted to strengthen the Secretary's ability to deter fraud and abuse in the Medicare program in a number of ways. First, it created a separate and stable long-term funding mechanism for program integrity activities. Historically, Medicare contractor budgets had been subject to fluctuations of funding levels from year to year. Such variations in funding did not have anything to do with the underlying requirements for program integrity activities. This instability made it difficult for HCFA to invest in innovative strategies to control fraud and abuse. Our contractors also found it difficult to attract, train, and retain qualified professional staff, including clinicians, auditors, and fraud investigators. A dependable funding source allows HCFA the flexibility to invest in new and innovative strategies to combat fraud and abuse. It will help HCFA shift emphasis from post- payment recoveries on fraudulent claims to pre-payment strategies designed to ensure that more claims are paid correctly the first time.

Second, by permitting the Secretary to use full and open competition rather than requiring that we contract only with the existing intermediaries and carriers to perform MIP functions, the government can seek to obtain the best value for its contracted services. Prior law limited the pool of contractors that could compete for contracts, thus, we were not always able to negotiate the best deal for the government or take advantage of new ways to deter fraud and abuse. Using competitive procedures, as established in the Federal Acquisition Regulations System (FARS), we expect to attract a variety of offerors who will propose innovative approaches to implement MIR.

Third, MIP permits HCFA to address potential conflict of interest situations. We will require our contractors to report situations which may constitute conflicts of interest, thus minimizing the number of instances where there is either an actual, or an apparent, conflict of interest. By invoking the FAR in establishing multi-year contracts with an expanded pool of contractors, we will be able to avoid potential conflicts of interest and obtain the best value. Also, by permitting us to develop methods to identify, evaluate and resolve conflicts of interest, we can create a process to ensure objectivity and impartiality when dealing with our contractors. This is a concern particularly when intermediaries and carriers are also private health insurance companies processing Medicare claims.

To ensure that our resources are used as wisely as possible, we will also gradually reduce the number of contractors performing payment safeguard activities. Prior to the passage of HIPAA, all 72 contractors performed all aspects of program integrity work. With highly specialized contractors focusing solely on fraud and abuse prevention and detection, we will gain a cost-effective and efficient pool of contractors. We plan to focus contractors on program integrity activities for a geographic area, rather than by provider type, as is current practice. That way, contractors will have a more comprehensive picture of activity, and will be able to monitor whether doctor bills match hospital bills, in terms of procedures performed and dates of service. Furthermore, the reduction in the number of contractors performing activities such as medical and fraud review as well as audit does not mean that local presence will be eliminated. Medical directors will continue to play an important role in benefit integrity activities, and we intend to retain locally-based Medical directors as well as to continue our relationship with local physicians by using groups like Carrier Advisory Committees.

We are currently developing regulations to implement MIP, and we are also working on a scope of work for competitive contracts. As we transition work from one of our contractors, Aetna (which is terminating its Medicare work), we are testing a new contracting relationship in several Western States that will separate out (and consolidate) payment integrity activities from claims processing. This will give us valuable experience as we prepare to implement MIP.

Operation Restore Trust (ORT)

The Operation Restore Trust (ORT) project was the first comprehensive effort at collaboration between HCFA and law enforcement agencies. This two-year demonstration project, which was launched by the President in May 1995 and concluded on March 31, 1997, was designed to demonstrate new partnerships and new approaches in finding and minimizing fraud in Medicare and Medicaid. As a demonstration project, ORT targeted four areas of high spending growth: home health agencies, nursing homes, DME suppliers, and hospices. Since more than a third of all Medicare and Medicaid beneficiaries are located in New York, Florida, Illinois, Texas, and California, ORT efforts were targeted at these five states.

Fraud and Abuse Control Program

The program integrity activities of the Medicare contractors initiate many of the cases subsequently developed by the Office of Inspector General and Federal Bureau of Investigation, and support their prosecution by the Department of Justice. Using monies made available through the Fraud and Abuse Control Fund, established in HIPAA, we expanded our successful ORT efforts using the State survey agencies to be our "eyes and ears" in the field and to report back to the contractors whether providers are meeting Medicare billing as well as quality requirements. We have used this model successfully with our expanded home health surveys in the 5 Operation Restore Trust (ORT) States.

Through HCFA's expanded efforts, approximately $1.8 million has been allocated to HCFA for "Project ORT" through HIPAA's Fraud and Abuse Control Program, to enhance the program integrity activities that involve collaboration with State certification agencies. Eighteen States win participate in a total of 26 HIPAA funded projects, allowing us to survey approximately 300 providers for both certification and reimbursement issues. These enhanced surveys will be made of providers of home health services, skilled nursing services, outpatient physical therapy services, and laboratory services, as well as psychiatric services in both hospitals and community mental health centers. Many of these surveys will be modeled after the home health agency and skilled nursing facility surveys conducted during ORT. This collaboration, which is being institutionalized through the Fraud and Abuse Control Program established in HIPAA, establishes a funding stream for health care fraud and abuse activities, and requires DoJ and HHS to establish priorities jointly.

Medicare as a Second Payer (MSP)

This "front end" activity takes a proactive approach to identifying the correct payer before the claim is processed, so that Medicare does not pay inappropriately or unnecessarily. There are multiple areas that are scrutinized to ensure that the appropriate payer is billed:

Initial Enrollment Questionnaire (IEO) - The IEQ is used to gather Medicare Secondary Payer (MSP) information for most new beneficiaries approximately three months before they become entitled to Medicare. For beneficiaries who do not apply for Medicare entitlement until after becoming eligible, HCFA conducts MSP development at the time the Medicare application is filed. This function is currently performed by an independent contractor.

First Claim Development - For all claims, the individual completing the Medicare claim for payment should indicate if there is other insurance that is primary to Medicare. If the beneficiary has not responded to the IEQ, and MSP information is not included on the first claim submitted for that beneficiary, the Medicare contractor submitting the first claim is responsible for mailing a questionnaire to the beneficiary or the provider to gather the required information. This function is currently performed by all Medicare fiscal intermediaries (FIs) and carriers.

Trauma Code Development - When a claim is received for Medicare primary payment and the claim contains one of certain specific trauma codes (which could indicate Worker's Compensation, automobile accidents, or other liability situations), the claim is scrutinized to determine if another insurer is the correct primary payer. Currently, this function is performed by the Medicare FIs and carriers.

MSP Litigation Settlement - HCFA has entered into agreements to settle MSP litigation with several health insurance companies. As part of these settlements, the affected private health care plans are required to periodically submit MSP information on their enrollees to HCFA. This activity is estimated to result in additional $540 million in MSP savings for Fiscal Year 1997. The settlement agreements require tins mandatory reporting for 5 years. GM a Medicare Part B carrier, is currently processing this information to the Common Working File (CWF).

Internal Revenue Service (IRS)/Social Security Administration (SSA)/HCFA Data Match - Information on employers and employees provided by the IRS and SSA is analyzed by HCFA for use in contacting employers concerning possible insurance coverage of Medicare beneficiaries.

Voluntary Insurer/Employer Reporting for MSP - As an alternative to responding to the IRS/SSA/HCFA data match employer questionnaires, employers may enter into a voluntary agreement with HCFA to report primary payer information on a current basis. Likewise, other health insurance companies are encouraged to report on their insured who are Medicare eligible on a current basis. HCFA Central Office is currently negotiating its first such voluntary agreement.

Hospital Admissions Procedures Review - Institutional providers such as hospitals, as part of their Medicare participation agreements, are required to conduct admissions interviews to determine if another primary payer exists. FIs are required to review a sample of their hospitals annually to determine if their admissions procedures are complete and are routinely followed. MSP information thus acquired during hospital intake ensures that Medicare pays in the appropriate order of financial liability.

Claims Submission - Medicare claims submission instructions require that the existence of a primary payer other than Medicare be indicated on the claim. This information is also checked with HCFA's own insurance information obtained from other sources.

DATA SYSTEMS TO FIGHT FRAUD AND ABUSE

Single Integrated Database System - HCFA is in the process of developing an automated Medicare claims processing and information system, which will, among other things, assist in our program integrity and provider exclusion efforts. This integrated system is being designed to consolidate the currently fragmented Medicare claims processing into one standardized system. Although we are currently re-examining the specific implementation strategy for this system-4 we believe a fully operational integrated system will assist us in preventing fraud. A significant advancement for HCFA will be the use of advanced technology to detect fraud and abuse at the outset -- before Medicare pays health care providers. The single system will facilitate identification of data files containing aberrant patterns and data discrepancies, and alert Medicare contractors to review more cautiously selected Medicare claims.

Full implementation of an integrated database will aid us in preventing fraud and abuse because it will greatly improve HCFA's ability to profile data on a National or regional basis by type of service. We plan to use these profiles to identify and review aberrant billing patterns and to prevent inappropriate claim from being paid in the first place, thus avoiding the need to chase down those fraudulent claims that have already been paid. The single system will integrate data from Medicare Part A, Part B, and managed care and provide the opportunity to have a comprehensive view of billing practices and to incorporate new technology to facilitate innovative investigative techniques. We plan to use artificial intelligence in an analysis of patterns of care, auto-adjudication, and other analytic tools that will permit improved identification of payments that should not be made -- prior to payment.

One way in which the new system will provide an enhanced ability to fight fraud is through the use of the National Provider Identifier, which is an industry wide unique identifier for providers and suppliers created under the authority of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). This identifier will be used to create an integrated database that will contain a record of all providers and suppliers who are certified to bill Medicare for medical supplies or equipment provided to our beneficiaries. The integrated database will contain a record of all providers and suppliers who are certified to bill Medicare for medical services or equipment provided to our beneficiaries. Our legislative proposal for authorization to require social security numbers from Medicare providers will enhance our ability to identify fraudulent providers and keep them from further defrauding the program. If a provider is excluded from the Medicare program, or has been identified as fraudulent, that provider will be flagged in the database, which must be accessed before the claim is paid. A single system will also enable us to flag providers who are excluded from Medicaid and other Federal health programs as well.

An integrated information system will improve our abienrollment data.

Los Alamos National Laboratories - In September 1996, HCFA signed an interagency agreement with the Los Alamos National Laboratory (LANL) to develop mathematical models which identify potentially fraudulent and abusive patterns. The agreement, which arose out of Operation Restore Trust, is for the two-year period, FY96 through FY97. Its purpose is to provide analytical and computer support to develop improved approaches to operating the Medicare program. The ultimate goal is the development of prepayment software to detect and deter fraudulent and improper claims. To date, LANL has made considerable progress. By the end of 1998, we will be able to better assess if their initial work with specific beneficiary and provider populations can be repeated and applied more broadly to other beneficiary and provider populations. LANL is also exploring new ways their technology can assist in our fight against Medicare fraud and abuse. Within the next few months, they will submit for our consideration a proposal for future fraud detection work. LANL is also under contract with HCFA to determine when the contractors and the computer systems should transition into the integrated database environment.

Fraud Investigation Database - One of HCFA's most promising initiatives in excluding fraudulent providers is the Fraud Investigation Database (FID). We began implementing the FID in May 1996, and we have been pleased with the success of the system. The FID is a case-tracking sysenrollment data.

Los Alamos National Laboratories - In September 1996, HCFA signed an interagency agreement with the Los Alamos National Laboratory (LANL) to develop mathematical models which identify potentially fraudulent and abusive patterns. The agreement, which arose out of Operation Restore Trust, is for the two-year period, FY96 through FY97. Its purpose is to provide analytical and computer support to develop improved approaches to operating the Medicare program. The ultimate goal is the development of prepayment software to detect and deter fraudulent and improper claims. To date, LANL has made considerable progress. By the end of 1998, we will be able to better assess if their initial work with specific beneficiary and provider populations can be repeated and applied more broadly to other beneficiary and provider populations. LANL is also exploring new ways their technology can assist in our fight against Medicare fraud and abuse. Within the next few months, they will submit for our consideration a proposal for future fraud detection work. LANL is also under contract with HCFA to determine when the contractors and the computer systems should transition into the integrated database environment.

Fraud Investigation Database - One of HCFA's most promising initiatives in excluding fraudulent providers is the Fraud Investigation Database (FID). We began implementing the FID in May 1996, and we have been pleased with the success of the system. The FID is a case-tracking system to record and disseminate information regarding exclusions, and contains extensive national Medicare and Medicaid fraud data as well as comprehensive information on all excluded providers. The database is intended to assist HCFA and our partners in identifying excluded providers, as well as those who are allegedly defrauding the programs. For example, a Medicare contractor in one area can use this information to ensure that the providers it is reimbursing have not been excluded through the actions of another contractor.

In an effort to enhance coordination of the exclusion process, the FID is also accessible to the Medicaid anti-fraud agencies such as the Medicaid Fraud Control Units and the Surveillance and Utilization Review Systems. We expect very soon to be able to obtain data from these Medicaid entities on cases and information related to the providers that they suspect to be fraudulent. The FID is also designed to ensure the coordination of anti-fraud activities undertaken by our law enforcement Partners and to facilitate the monitoring of cases referred to the OIG, the FBI or the U. S. Attorneys.

As other Federal government agencies acquire access to the FID, we will be able to prevent a provider who defrauds one Federal program from ever repeating the fraud in another program.

Utilizing the combined forces of all of the programs and technology cited thus far, HCFA has succeeded in preventing millions of dollars in Medicare and Medicaid losses due to fraud and abuse. However, there are still some areas where we can become more effective in these efforts, with the help of additional legislation proposed by the President's Budget.

THE PRESIDENT'S LEGISLATIVE PROPOSALS

HIPAA provided a solid foundation on which to build program integrity activities. The President is proposing a number of additional fraud and abuse proposals in his FY98 Budget and the Medicare and Medicaid Fraud, Abuse, and Waste Prevention Amendments of 1997.

THE PRESIDENT'S FY98 BUDGET

The President's budget contains a number of proposals to reduce waste, fraud and abuse in the Medicare program. They include provisions to require insurance companies to report the insurance status of beneficiaries to ensure that Medicare pays appropriately. Private insurance is the primary payer when Medicare beneficiaries have such coverage and Medicare is required to be the secondary payer. Having insurance companies report information on Medicare beneficiaries they insure would greatly reduce the costly "pay and chase" method that we are forced to use.

In addition, we have several proposals to prevent excessive and inappropriate billing for home health services. We are proposing to close a loophole in the current payment calculation by linking payments to the location where care is actually provided, rather than the billing location. When we implement a home health prospective payment system (PPS), we are proposing to eliminate home health agency (HHA) periodic interim payments, which were originally established to encourage HHAs to join Medicare by providing a smooth cash flow. Since over 100 new agencies join Medicare each month, such financial inducements are no longer needed. We also propose to work with the medical community to develop more objective criteria for determining the appropriate number of visits for specific conditions, so that we can prevent excessive utilization.

MEDICARE AND MEDICAID FRAUD, ABUSE AND WASTE PREVENTION AMENDMENTS OF 1997

In March, the President presented an additional set of legislative proposals titled the "Medicare and Medicaid Fraud, Abuse, and Waste Prevention Amendments of 1997." Some of these proposals build on the provisions enacted in HIPAA. Others seek to close loopholes or weaknesses in the Medicare statute that allow providers to take advantage of Medicare payment. Some of the provisions in the bill include: vImproving the Provider Enrollment Process - We propose to clarify the provider enrollment process, and strengthen HCFA's ability to combat fraud and abuse by not allowing "bad actors" to become Medicare providers or suppliers. These provisions would provide the Secretary the authority to deny Medicare entry for those provider applicants who have been convicted of a felony, and the authority to collect a fee for all Medicare and Medicaid applicants when they apply for enrollment or re-enrollment. The fee would cover administrative costs in processing applications and administering the HIPAA National Provider Identification program requirements. If an application is denied, a six-month waiting period must be completed before the provider could reapply.

This Subcommittee recommended in its 1981 Home Health Report that HCFA develop a data bank of owners, principals, and related organizations. We responded to this recommendation by developing a National provider enrollment application (HCFA 855) that captures that specific data for all Medicare providers, and the application will be available and effective on July 1, 1997. In conjunction with this data collection, we also intend to implement an electronic system (Provider Enrollment, Chain, and Ownership System) that will consolidate data collected by the enrollment application from fiscal intermediaries, carriers, and the National Supplier Clearinghouse. This system will maintain all existing provider data in one National repository.

Value of Capital When Ownership of an Institution Changes- This proposal, which would apply to all providers, would deem the sales price of an asset to be its net book value. There have been instances in which SNFs or hospitals currently game the system by creating specious "losses" in order to be eligible for additional Medicare payments. For example, a seller might claim that a significant portion of the purchase price of a hospital is attributable not to the value of the hospital building and other capital assets, but to the value of the certificate of need, the already assembled hospital staff, or some other intangible asset. By minimizing the value attributable to the capital assets, the seller is able to record a lower sales price, and a greater "lose' on the sale. The seller is then entitled to partial reimbursement for the loss from Medicare. This existing loophole is especially problematic in the case of hospitals paid under PPS for capital because the prospective capital payments to the new owner are unaffected by the low valuation of the hospital (prior to PPS, the new owner would be somewhat disadvantaged by the gaming because their cost-based capital payments would have been lower because of the low sales price). Further, this proposal would eliminate the need for any payment adjustments for gains or losses.

Bankruptcy Provisions - These proposals would protect the public's interests in bankruptcy situations. - A provider would still be liable to refund overpayments and pay penalties and fines even if it filed for bankruptcy.

Quality of care penalties could be imposed and collected, and Medicare suspensions and exclusions (including educational loan defaults) would still be in force even if a provider files for bankruptcy. Bankruptcy courts would not be able to re-adjudicate our coverage or payment decisions.

Clarify the Definition of Skilled Service for the Purposes of Rome Health Eligibility Venipuncture, which currently qualifies as skilled nursing care and therefore meets the eligibility criterion for intermittent skilled nursing services under the home health benefit, would be excluded. Under current law, if the other criteria are met (homebound, etc.), then a beneficiary who only requires venipuncture for the purpose of obtaining a blood sample as his/her qualifying skilled need would be entitled to all of the other covered home health services including home health aide services.

Hospice Benefit Modifications - This proposal would revise Medicare hospice coverage and payment policies in certain cases. First, after the two initial 90-day periods, this proposal would replace the current unlimited fourth hospice benefit period with an unlimited number of thirty-day periods. This change would help HCFA ensure that the hospice benefit is used for those beneficiaries with a terminal illness, but it would not end hospice care for those fortunate to survive longer than expected. Thirty-day re-certifications would, in fact, help ensure that only terminally ill patients continue to receive hospice care. Second, as the President's FY98 budget bill proposed for home health, this proposal would fink payment for hospice services provided in the home to the geographic location of the site where the service was furnished. Third, this proposal would also limit beneficiary liability under hospice care. Currently, the major cause for denial of hospice claims is the fact that the beneficiary was not terminally ill within the meaning of the law (i.e., did not have a prognosis of six months or less of life expectancy at the time the services were rendered). If a hospice claim is denied because the patient was not terminally ill, the patient's liability for payment would be waived and the hospice would be liable for the overpayment unless it could prove that it did not know or have reason to know the claim would be disallowed. The standard of proof would be high since both the law and HCFA instructions are explicit as to the requirement and there are well established protocols for documentation of medical prognosis. Fourth, this proposal would create a new civil money penalty for physicians who certify that an ineligible individual meets Medicare requirements for hospice services eligibility, while knowing that the individual does not meet the requirements.

Rural Health Clinic (RHC) Benefit Reforms - Recognizing the importance of the rural health clinics, reforms are needed to strengthen Medicare policy and better target assistance. It should be emphasized that the inclusion of RHC proposals in the Fraud and Abuse Prevention bill is not meant to imply that we believe these providers are engaged in fraudulent or abusive activities. We do believe, however, that the RHC program could be better targeted to serve truly under-served rural areas, and as such, we have included several proposals to address this issue. These proposals would hold provider-based RHCs to the same payment limits as independent RHCs. The Secretary would also develop a prospective payment system for RHCs no later than December 31,2000. Under such a system, beneficiary cost sharing would be based on 20 percent of the PPS amount. Prior to the development of a PPS system, beneficiary cost sharing would not be allowed to exceed 20 percent of Medicare's payment limit. The proposal would also include provisions to better target the placement of RHCs in under-served areas and still provide access to clinic services.

Clarify the Partial Hospitalization Benefit -- A partial hospitalization program uses a multidisciplinary team to provide coordinated services within an individualized treatment plan to severely mentally ill individuals; partial hospitalization may occur in lieu of an inpatient psychiatric hospitalization or continued psychiatric hospitalization. These intensive outpatient day programs include individual and group therapy, family counseling, occupational and activity therapy, diagnostic services, and drugs that cannot be self-administered. These programs are intended for patients who would be likely to be hospitalized without these services.

This proposal would establish Medicare coverage requirements and limitations to minimize program abuse, and would also preclude providers from furnishing partial hospitalization services in an individual's home or in an inpatient or residential setting. It would provide the Secretary broad authority to establish through regulation a prospective payment system for partial hospitalization services that reflects appropriate payment levels for efficient providers of service and payment levels for similar services in other delivery systems. The current cost reimbursement system would stay in place until the Secretary exercises this payment authority. In addition, this proposal would provide authority for the Secretary to establish (through regulation) Medicare participation requirements, such as health and safety requirements and provider eligibility standards for community mental health centers (CMHCs). Additionally, it would provide authority for CMHCs to be surveyed upon request by state agencies to determine compliance with Federal requirements or investigate complaints. It would also prohibit Medicare-only CMHCs. Finally, the bill includes a provision (which parallels the authority created in HIPAA for false certification of home health services) to penalize physicians for inappropriate admissions to partial hospitalization programs; this provision would create a strong incentive for physicians to certify need for partial hospitalization services only for those individuals who meet Medicare requirements.

FUTURE CHALLENGES

Health care delivery systems, like every other aspect of society, evolve over time. The current trend toward managed care as an alternative to the traditional fee-for-service system is a phenomenon which promises to change the face of the health care environment. This is because the type of integrated health care network that managed care provides can be a boon --- or a bane --- to elderly Medicare and Medicaid beneficiaries. Currently, we have only 12% of our beneficiaries in managed care, but in the future we will need to take a fresh look at our strategy to fight fraud and abuse, because the incentives are different in this type of delivery system. The emphasis on cost-effectiveness prevalent in managed health care delivery systems ensures fiscal soundness and value for the customer, but in some instances, unethical plans and providers may discourage or withhold needed care from beneficiaries.

In the same way, the growth spurt we are witnessing in the home health care industry indicates that as innovative new health care arrangements flourish, so will new opportunities for fraud and abuse. Growing numbers of the elderly, and especially of dual eligibles, also means increasing opportunities for those who seek to defraud Medicare and Medicaid patients, providers, and health plans. In home health settings, the physical isolation of the beneficiary is often an open invitation to unethical providers seeking ways to provide care based on financial incentives, rather than care that is actually needed. Not surprisingly, this problem also exists in nursing homes. The vulnerability of home health and nursing home patients suggests that very ill or elderly patients may be targeted because they may not be able to monitor their own bills for fraudulent charges. There is evidence that wherever there are concentrations of the frail elderly, there are providers seeking to provide unnecessary services.

CONCLUSION