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The Intractable Problem of Medicare Fraud

medicareYou have to admire the vigilance and dedication of prosecutors and law enforcement investigators who fight Medicare fraud. There is no question that they have ramped up enforcement and promoted a strong message of deterrence.

Consider the nature of the problem. The FBI estimates that between five and ten percent of all healthcare expenditures (government and private) are fraudulent. Medicare suffers huge annual losses from fraud. In 2013, Medicare paid for approximately 51 million individuals at a cost of roughly $600 billion. Approximately $50 billion was lost to improper payments, about $5 billion higher than 2012.

Since 1990, the Government Accountability Office (GAO) has warned about the high risk of fraud against Medicare because of the program’s size, complexity, decentralization, and administrative requirements. With the advent of electronic medical records, Medicare risks have increased.

The most common types of fraud include: billing for services that were not performed; billing for a higher level of service than was performed; billing for equipment that was not delivered; fraudulent use of an individual’s Medicare card; and improper billing for home medical equipment.

The problem of Medicare fraud has been highlighted with payments made to beneficiaries who obtain their Medicare number for fraudulent billing purposes. According to the HHS Office of Inspector General (OIG), between 2009 and 2011, CMS mistakenly paid $190 million in health care payments, including: $23 million to dead people;$92 million to “unlawfully present” persons;$34 million to service providers for beneficiaries who were in jail, even though prisons typically provide for the medical care of inmates.medicare4

The OIG announced that in FY 2013, its fraud, waste, and abuse prevention and enforcement efforts resulted in a record-breaking recovery of $4.3 billion for healthcare fraud. Over the last 5 years, these enforcement efforts have recovered $19.2 billion, up from $9.4 billion over the prior five-year period.Over the last 3 years, the average investment return is $8.10 for every dollar spent.

However, OIG has suffered significant funding reductions, resulting in a hiring freeze and loss of over 200 people in the last few years. As a result, OIG has closed over 2,200 investigative complaints, and is reducing its oversight of the Medicare program by 20 percent.

The Department of Justice, working with Medicare fraud task forces, continues to pursue significant criminal health care prosecutions. In FY 2013, DOJ prosecuted over 800 defendants, and convicted just over 700 defendants for healthcare fraud crimes.

Sophisticated criminal networks are growing in healthcare fraud. Organized criminal elements are become a pervasive problem in durable medical equipment, home healthcare services, outpatient clinics, and pharmacies. Criminal schemes involve kickbacks, shell companies, nominee owners, patient recruiters and money laundering through financial institutions.

Criminal and civil prosecutions will not solve the problem of Medicare fraud, although targeted prosecution programs in geographic areas and specific product markets has had a significant impact on fraud in that area or product market. In the end, the model of paying money and chasing criminals and civil recoveries will not solve the entire problem.

The Center for Medicare Services (“CMS”) has been devoting more resources to proactive strategies to combat fraud, waste, and abuse in the Medicare program.

CMS implemented enhanced risk-based screening of providers and suppliers who want to participate in the Medicare program starting in March 2011.Certain categories of providers and suppliers that historically have a higher risk of fraud to undergo greater scrutiny prior to their enrollment or revalidation in Medicare.

medicare2During the last year, CMS has used its authority to temporarily cease enrollment of new providers or suppliers to impose temporary moratoria on the enrollment of new home health agencies and ambulance companies in several “fraud hot spot” metropolitan areas of the country.

CMS also has been using the Fraud Prevention System (FPS) to apply advanced analytics on all Medicare fee-for-service claims on a streaming, national basis. In its first year of implementation, the FPS stopped, prevented, or identified an estimated $115.4 million in improper payments. CMS has touted the Fraud Prevention System as a way of ending “pay and chase.”

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