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Health Care Frau

Health Care Fraud

Statement of Charles L. Owens, Chief Financial Crimes Section, Federal Bureau of Investigation, Before the U.S. House of Representatives Committee on Ways and Means, Subcommittee on Health, Washington, D.C., October 9, 1997.

Good Morning Mr. Chairman and Members of the Subcommittee on Health.

The FBI places a high priority on investigating health care fraud and is committed to working with this committee and all of Congress to ensure that law enforcement has the necessary tools to combat the health care crime crisis. I testified several months ago on this issue to the Senate Permanent Subcommittee on Investigations. I would be delighted to furnish this committee with similar statistics relating to the FBI’s enforcement efforts as well as to update you on some very recent developments. Another FBI representative recently participated in a hearing held by the Senate Special Committee on Aging. At this hearing the FBI representative played a video obtained by use of a closed circuit television, installed under court order, located in the billing area of a doctor’s office. The doctor was captured in the act of altering billing records to facilitate his fraud scheme. Inasmuch as it was previously shown and was the subject of widespread publicity, I chose not to play this tape today but I can certainly make it available to the committee.

As the committee is aware, in addition to providing new statutory tools to combat health care fraud, the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which was passed by the last session of Congress, specified mandatory funding to the FBI for health care fraud enforcement. The last chart accompanying my written statement depicts the incremental increases in FBI appropriations. The law provided the FBI with $47 million in FY 97 for its health care fraud efforts, up from $38 million in FY 96. The FBI used this enhancement, in large part, to fund an additional 46 Agent and 31 support positions for health care fraud and to create several new dedicated Health Care Fraud Squads. This increase in personnel resources brought the number of FBI Agents addressing health care fraud in the 2nd quarter of FY 97 to the equivalent of 350 Agents (356 3rd quarter FY 97) as compared to 112 in 1992. Funding is slated to increase incrementally until the year 2003, when it will reach $114 million and remain at that level each year thereafter. With this additional funding, the FBI will be in a position to continue to increase the number of Agents committed to health care fraud investigations.

As the FBI has increased the number of Agents assigned to health care fraud investigations, the caseload has increased dramatically from 591 cases in 1992, to over 2,300 cases in the first half of 1997 (2,428 3rd quarter FY 97). The FBI caseload is divided between those health plans receiving government funds and those that are privately funded. Criminal health care fraud convictions resulting from FBI investigations have risen from 116 in 1992, to 475 in 1996. As the complexity and long-term nature of our health care fraud investigations increase we anticipate that the number of investigations and convictions will begin to level off.

A considerable portion of this funding increase was utilized to support major health care fraud investigations such as the federal probe of Columbia Healthcare Corporation, reportedly the nation’s largest for-profit health care provider. This investigation has been widely reported in the media and I am sure the committee is aware of the allegations. The coordinated execution of multiple search warrants at Columbia-related facilities required the services of hundreds of FBI Agents and representatives of other cooperating agencies. The expenses associated with the searches, as well as post search document storage and review expenses, were funded in large part through the appropriations made possible through HIPAA. The committee can be assured that HIPAA funding is being used to enhance the staffing level of FBI Field Offices involved in ongoing investigations of national importance.

The funding made available through HIPAA also made possible four regional training conferences for FBI Agents assigned to health care fraud investigations. These one-week training sessions sponsored by the Health Care Financing Administration provided in-depth training on the Medicare program to almost 300 Agents. Other training sessions, to include a session for the Bureau’s financial analysts and an FBI, Defense Criminal Investigative Service (DCIS), and Office of Inspector General-Health and Human Services (OIG-HHS) Managers’ Conference, were also made possible by HIPAA.

As the committee is aware, health care fraud investigations are document intensive. Each of the Bureau’s Health Care Fraud Squads are being provided with newly purchased computer hardware and software and other technical

equipment to aid in their investigations. These purchases were made possible through HIPAA funding.

Our investigations to date have shown that no segment of the health care system is immune from fraud. This morning I would like to discuss briefly three areas of the health care delivery system which FBI investigations have shown to be particularly susceptible to fraud: laboratory billings; home health care; and durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS).

Eight months ago, Damon Clinical Laboratories Inc. Agreed to pay the federal government $119 million in civil and criminal penalties for submitting false claims to various federal health care programs, including the Medicare program and a number of Medicaid programs. In November of last year, the Laboratory Corporation of America agreed to pay the federal government $182 million in civil penalties associated with submitting false claims for medically unnecessary tests. As part of this agreement, Allied Clinical Laboratories, a Labcorp subsidiary, pled guilty to a criminal charge and will pay a $5 million criminal fine. In February of this year, Smithkline Beecham Clinical Laboratories Inc. agreed to pay $325 million to settle fraud charges.

These multi-agency investigations and settlements were the result of the cooperative efforts of a number of agencies and resulted in significant restorations to the Hospital Insurance Trust Fund - which funds the Medicare and Medicaid programs - as well as other federal health care programs. The fraud schemes include bundling certain lab tests with blood panels, causing physicians to order tests that were not medically necessary; billing for hemogram indices each time a complete blood count was ordered; "code jamming" on screening tests to ensure Medicare payment; and providing inducements to physicians to obtain their Medicare business. Investigations into other allegations involving the laboratory industry are continuing.

The home health industry has grown tremendously during the last few years. In 1993, home health agencies were reimbursed by Medicare in the amount of $9.7 billion for services provided to 2.8 million Medicare beneficiaries. By 1996, Medicare paid $17.2 billion to providers of home health care for services rendered to 3.8 million beneficiaries. The number of home health agencies billing Medicare has grown from just over 7,000 in 1993, to an estimated 9,500 in 1996.

Investigations conducted by the FBI and OIG-HHS have uncovered fraud schemes in the home health area involving cost reporting fraud; billing for services not rendered; up-coding visits to a higher reimbursement code, such as a skilled nursing visit; and billing for services rendered to persons not "home bound" as required by Medicare. A number of factors may contribute to the high rate of fraud detected in the home health industry. Less than 4 percent of the agencies receive on-site audits by Medicare contractors and the beneficiaries are not required to make a co-payment, making it less likely that a beneficiary will complain about the extent of service or what’s being billed to Medicare. As the committee is aware, the President recently announced that the government will be doubling its audits of home health agencies. It can be expected that more audits will result in the predication of more criminal investigations and the FBI applauds this effort.

Just last month a Federal Grand Jury in Miami returned a 102 count indictment of twelve defendants, including two administrators and five physicians, from one of the nation’s largest home health care agencies. Allegedly, this is a $15 million dollar fraud and one of the nation’s largest home health care fraud indictments ever. Two of the defendants are charged with creating a large network of bogus nursing groups and then using these groups to fraudulently bill the Medicare system for home health care services that were not provided or for persons they knew were not qualified to receive the service. They also allegedly instructed employees to fabricate the records necessary to support these billings and then ‘laundered’ the proceeds through accounts set up through the secret owners of the bogus nursing groups, who were either family members or friends of the defendants. The money laundering charges carry a maximum of twenty years in prison and a fine of twice the amount laundered. The conspiracy, false claims and wire fraud counts are punishable by up to five years imprisonment each and a $250,000 fine, per count. This indictment was a culmination of a four and one-half year investigation by the FBI, IRS, and United States Attorney’s Office.

Another area of health care that has been shown to be particularly vulnerable to fraud is durable medical equipment. Recently, five Midwest residents pled guilty to racketeering charges in connection with more than $25 million in fraudulent billings to Medicare through the marketing of durable medical equipment to nursing homes. The defendants were charged with receiving Medicare reimbursement for products they did not provide, receiving payment for non-reimbursable supplies, providing unnecessary items to patients, misrepresenting the quantities of supplies actually provided, and engaging in billing activities to avoid detection by the Medicare contractor. Part of the scheme included adding unnecessary items in urinary incontinence kits and marketing those items to nursing homes for reimbursement from Medicare. The two principle subjects were each sentenced to 57 months in prison and agreed to the forfeiture of $12 million.

In a highly unusual case just last week, two individuals were arrested and charged in connection with a two-year FBI sting operation addressing Medicare fraud and money laundering. The FBI set up its own home health care agency and participated with the subjects in laundering $1.2 million in what the subjects thought was drug money through the subjects home health agency. The investigation is still ongoing and efforts are underway to freeze the subjects assets and prevent further Medicare billings. The subjects home health agency received over $8 million in Medicare payments over the last two years.

The HIPAA of 1996 (the Act) established the Health Care Fraud and Abuse Control Account which provided funding to HHS as well as the Department of Justice. This funding increase for the Department of Justice provides great support for the Department’s decision, from approximately five years ago, to make health care fraud prosecution one of its top priorities. Through the funding provisions of this act, the Department was able to hire an additional 90 Assistant United States Attorneys (AUSAS), 60 criminal and 30 civil, to support health care fraud prosecutions. The assignment of these AUSAS to various districts was closely coordinated with the Bureau’s staffing increases in an effort to ensure adequate prosecutive support for the anticipated increase in criminal matters under investigation.

The act also created a Federal Health Care Fraud Offense, which covers any health care plan, whether government or privately funded, and empowers the Attorney General or her designee to issue investigative demands to obtain records pertaining to federal criminal health care offenses. Records obtained pursuant to this method are not subject to the same constraints applicable to records obtained through the use of a grand jury subpoena. A number of investigative demands have already been issued in connection with ongoing criminal investigations.

As the committee is well aware, the balanced budget act of 1997 goes even further than HIPAA’s efforts to combat health care fraud. It is our assessment, however, that the need for additional anti-fraud measures continues to exist. The Bureau strongly supports provisions requiring the permanent exclusion of individuals with multiple convictions of program related offenses and the posting of surety bonds. The Bureau also supports efforts to require providers to furnish social security and employer identification numbers of all owners and managing employees prior to certification.

Despite the great strides made by the last session of Congress, additional legal tools are still needed if law enforcement is to make even more of an impact on this estimated $100 billion a year crime problem.

The FBI concurs with the Department of Justice that there should be a liberalization of F.R.CR.P. 6(e) to facilitate the sharing of information among criminal and civil attorneys in health care cases. Often, investigations which are initiated on complaints of criminal allegations fall short of the burden of proof required to sustain criminal convictions and the appropriate remedy becomes civil enforcement. Information currently obtained through the grand jury cannot be routinely used by civil attorneys, absent a court order.

Secondly, while section 204 of the Act extends Title 42 criminal provisions relating to kickbacks in all health plans receiving federal funds, except the Federal Employees Health Benefit Plan (FEHBP), it does not apply illegal remuneration prohibitions to the private health care industry. Congress has also not included violation of the Anti-kickback Statute in the definition of federal health care offense. Thus, in an investigation based solely on illegal kickbacks, the new health care violations and new procedural tools, such as investigative demand authority and injunctive relief, will not be applicable.

Statistical analysis of billing data typically reflects high usage peaks during certain time periods for various procedure codes. Reimbursement for these procedures or tests require certification from a medical provider stating the procedure or test was medically necessary. Typically, after law enforcement activity is initiated based partly on the statistically aberrant usage of a particular code, usage decreases and another procedure exhibits higher than normal usage. One cannot help but assume that these aberrant billing patterns are due in part to monetary incentives paid to providers to certify that the tests or procedures were medically necessary. When the medical judgement of providers becomes obscured by the motive for profit, all Americans seeking medical care become potential victims. The FBI and other Department of Justice components would support an Amendment to the Federal Criminal Code to create a new generalized offense against kickbacks paid in connection with a "Health Care Benefit Program" as defined in 18 U.S.C. Sec. 24 (b). This provision would fill the gap in the law by extending Federal anti-kickback criminal sanctions to all health care benefit programs, public and private.

An ongoing FBI undercover investigation has determined that the payment of illegal kickbacks for referral of Medicare business is a widespread and accepted practice in the segment of health care under investigation. At this time I am unable to share with the subcommittee audio and visual confirmation of this assertion but I would be happy to share these tapes with the subcommittee when this investigation is concluded. These recorded acts will serve as a compelling argument for further expansion of the anti-kickback statute.

This ongoing undercover investigation now involves investigators from, in addition to the FBI, Agents from the OIG-HHS, IRS, and DCIS and is but one example of the cooperative federal effort to combat health care fraud.

That concludes my prepared remarks and at this time I would be pleased to answers any questions that you may have.


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Directeur de la publication : Joël-François Dumont
Comité de rédaction : Jacques de Lestapis, Hugues Dumont, François de Vries (Bruxelles), Hans-Ulrich Helfer (Suisse), Michael Hellerforth (Allemagne).
Comité militaire : VAE Guy Labouérie (†), GAA François Mermet (2S), CF Patrice Théry (Asie).