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8/2/00 - Medicare Fraud: Continuing Efforts Testimony Before the House Committee on Government Refor

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11/20/2000

8/2/00 - Medicare Fraud: Continuing Efforts Testimony Before the House Committee on Government Reform, Subcommittee on Government Management, Information and Technology
Date: 11/20/2000
News: Testimony
Before the House Committee on Government Reform,
Subcommittee on Government Management, Information and Technology

Medicare Fraud: Continuing Efforts

Statement of
John E. Hartwig
Deputy Inspector General for Investigations

July 25, 2000

Office of Inspector General
Department of Health and Human Services

Good morning Mr. Chairman and Members of the Subcommittee. I am John E. Hartwig, Deputy Inspector General for Investigations in the Office of Inspector General. Thank you for the invitation to appear today to discuss our efforts and accomplishments in our ongoing fight against waste, fraud and abuse in the Medicare program as well as the challenges that continue to face us. We have made substantial progress in combating these problems but the challenges that confront us are still daunting. We appreciate the interest and support of the Subcommittee and Congress in helping to provide the tools and resources we need to address the problem of Medicare.

Over the years we have made numerous recommendations in our reports that would help prevent fraud and abuse against the Department\'s programs and strengthen the hand of the Department to detect and prosecute each fraud. Congresswoman Judy Biggert and Senator Susan Collins have both introduced bills which contain provisions designed to support our work and recommendations. We very much appreciate this support for health care fraud enforcement and thank Congresswoman Biggert, Senator Collins and the various cosponsors for introducing these bills. We also appreciate the fact that the need for legislative action is being considered by this Subcommittee today. My testimony will provide a broad picture of the conditions underlying the need for enhanced methods and authorities to protect Federal tax dollars, not only for Medicare and our office, but for other offices of Inspectors General as well through such provisions as statutory law enforcement provisions.

With your endorsement and passage of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), our office acquired important and much needed authorities and financial resources which have permitted us to expand and intensify our fight against health care fraud. As a result of this funding, the Office of Investigations has been able to move steadily toward its goal of extending its investigative staff to be physically present in all States in the country particularly those areas that were underserved in lean budget years prior to HIPAA.

As we talk about Medicare fraud today, I must emphasis again that we continue to believe that most health care providers do their best to provide high quality care and are honest in their dealings with Medicare. When we talk about fraud, we are not talking about providers who make innocent billing errors, but rather those who intentionally set out to defraud the Medicare program or abuse Medicare beneficiaries. The importance of our ongoing work is not only to protect the taxpayers and ensure quality healthcare for Medicare beneficiaries, but to also make the Medicare environment one in which honest providers can operate on a level-playing field and do not find themselves in unfair competition with criminals.

As a result of an unparalleled cooperative response to the problem of health care waste, fraud and abuse by the Congress, the Administration, the healthcare community, and senior advocacy groups, we have been able to identify, expose and respond to the problem more completely and accurately than before. It is bigger, more sophisticated, and more formidable than many may have imagined. Twenty years ago, Medicare expended $22 billion, and we were primarily investigating single-subject cases. Back then a million dollar case was considered rather large. Currently, program outlays exceed $200 billion, and multiple-subject cases are commonplace. We see millions of dollars stolen in a single scheme. With today\'s technology, fraudulent providers can bill the system electronically, make quick hits for large amounts of money, and move on before they are detected.

In addition to the change in the nature of health care fraud, we have also noticed a change in the individuals committing health care fraud. In the past, most of our investigations involved individuals with a legitimate reason for being in the health care system, but who misused their positions to fraudulently bill Medicare due to greed. In recent years, we have begun investigating an increasing number of criminals with no medical background, merely in the program to make large amounts of money illegally. Today\'s criminals know where the money is and how to get it. They also know where the radar is and how to fly under it, undetected.

Because we have better tools, and are better organized than in the past, we continue to have successes and are confident of favorable outcomes on several fronts. However, we must temper our optimism and remain vigilant. Due to the complexity of the Medicare program and the tremendous number of dollars flowing through the program, there will always be those who will continue to seek loopholes and look for ways to siphon those dollars earmarked for maintaining and improving the health of the elderly and disabled in this country.

BACKGROUND

The Office of Inspector General (OIG) was created in 1976 and is statutorily charged with protecting the integrity of our Department\'s programs, as well as promoting their economy, efficiency and effectiveness. The OIG meets this statutory mandate through a comprehensive program of audits, program evaluations, and investigations designed to improve the management of the department and to protect its programs and beneficiaries from fraud, waste and abuse. Our role is to detect and prevent waste, fraud and abuse, and to ensure that beneficiaries receive high quality, necessary services, at appropriate payment levels.

To determine fraud, the OIG typically obtains information through a combination of investigative techniques tailored to each case. These tools include subpoenas of medical and billing records, use of search warrants, investigative interviews of provider employees, surveillance, and undercover operations. The OIG also receives allegations of wrongdoing from a number of sources, including beneficiaries, ex-employees of providers, competitors, contractors and Qui Tam (False Claims Act) complainants. Because Qui Tams typically are based on insider information, they have proved most useful in terms of identifying large-dollar vulnerabilities. In fact, since calendar year 1996, we have received 1,074 Qui Tam allegations, of which over 300 are under active investigation. The Medicare contractor fraud control units also refer cases to the OIG and other law enforcement authorities for consideration of civil or criminal prosecution and application of administrative sanctions. In FYs 1998 and 1999, 1,600 referrals were made by these fraud units. And finally, many of our leads on potential fraud are developed through our audits, inspections and evaluations of various aspects of the Medicare program.

The Government uses criminal and civil remedies to address health care violations of law. Criminal statutes are used to prosecute health care offenders who willfully intend to commit a crime. The standard of proof in these violations is beyond a reasonable doubt. In addition, the Government uses civil prosecutions against offenses that are committed with the actual knowledge of the falsity of the claim, with reckless disregard or with deliberate ignorance of the truth or the falsity of the claim. The other major civil remedy available to our agency is the Civil Monetary Penalties Law which has the same standard of proof as the civil False Claims Act. Neither the criminal nor civil statutes are used to cover mistakes, errors, misunderstanding of the rules, or simple negligence. Our office is very mindful of the differences between innocent errors (\"erroneous\" claims ) and intentional or reckless conduct (\"fraudulent claims\") and strive to affect appropriate resolutions to these different types of inappropriate claims.

The Health Care Financing Administration (HCFA) is the largest single purchaser of health care in the world. With expenditures of approximately $316 billion, assets of $212 billion, and liabilities of $39 billion, HCFA is also the largest component of the Department. In 1999, Medicare and Medicaid outlays represent 33.7 cents of every dollar of health care spent in the United States. In view of Medicare\'s 39.5 million beneficiaries, 870 million claims processed and paid annually, complex reimbursement rules, and decentralized operations, the program is inherently at high risk for payment errors and fraudulent schemes.

NATURE OF MEDICARE FRAUD AND ABUSE

We in the Office of Inspector General are heartened by the support we have received from the Congress, the Administration, the healthcare community and Medicare beneficiaries in our fight against fraud, waste and abuse in the Medicare program. While our recent error estimates in the fee-for-service part of Medicare shows a general decline, it is still too high; all money improperly paid is wasteful. We recognize these audits do not always detect well known forms of fraud such as kickbacks or deliberate forgery of bills. Whatever the audits reveal or fail to reveal, we know from our investigations and from complaints that we receive that waste, fraud and abuse is still pervasive in the health care sector.

All of this is to say that we cannot let our guard down in our fight against fraud, waste, and abuse. We are still watching all areas of Medicare through our audits, inspections and investigations. And, we are continuing to encourage and receive support from industry and beneficiary groups in our efforts. At this time, however, I would like to single out some areas where we continue to have special concerns and give some examples of the results of several significant evaluations, audits and investigations which exemplify the types of fraudulent and abusive activities we continue to see.

Lack of Physical Address

DME - After sampling 36 new durable medical equipment applicants in the Miami, Florida area, HCFA reported that 32 were not bona fide businesses. Among other problems, some bogus applicants did not have a physical address or an inventory of DME. According to HCFA, those companies should not have been issued a supplier number because they were not operational entities. To determine the prevalence of this problem, we sampled suppliers and applicants in 12 large metropolitan areas in New York, Florida, Texas, Illinois and California at HCFA\'s request. Our inspection found that 1 of every 14 suppliers and 1 of every 9 new applicants did not have a required physical address. When we checked questionable addresses, we usually found that the business had closed or had a questionable presence at the address. Some addresses were merely mail drop locations or were nonexistent or could not be located. These types of problems with physical addresses often indicate potentially illegitimate business arrangements.

Services Not Rendered

DME - A classic example is a case we uncovered in New York. The OIG was drawn into investigating this scheme after numerous Medicare beneficiaries complained to their carriers that claims had been submitted for services that were not actually rendered. These companies billed Medicare for millions in fraudulent claims. In one instance, three of the companies billing for ear implants received checks from Medicare totaling approximately $1 million in less than a month. The bank where the money was being deposited became suspicious and called the carrier which, in turn, stopped payment on the checks. Previously the carrier had placed a system alert on these companies when they had submitted fraudulent claims for MRI services. Because of this alert for improper MRI billings, the fictitious companies then began submitting claims for ear implants instead.
As another example, the OIG investigated a matter involving members of a Russian organized crime syndicate who conspired to defraud the Medicare program by submitting false claims for durable medical equipment that was not prescribed, needed or delivered. One of the subjects of the investigation had a criminal record involving narcotics violations. A search at his home uncovered firearms, drugs and drug paraphernalia. In all, four individuals were found guilty of fraud. The loss to the Medicare program as a result of the scheme was $1.7 million.

Improper Acquisition and Use of Medicare Beneficiary Identification Numbers

DME- In New York, two sales people from two DME companies were arrested and because of statements made, a search warrant was executed on one of the subject\'s residences. Agents found evidence of false Medicare billings. The scheme consisted of the two subjects visiting senior citizen high-rises and conducting health fairs where they coaxed beneficiaries into giving them their Medicare numbers. The subjects then furnished these numbers along with certificates of medical necessity to two DME companies. These companies then billed for equipment, much of which were never supplied, causing payments of more than $750,000 from the Medicare program. Both subjects arrested had recent, lengthy criminal records, including assaults on Federal agents and both DME companies had previously been convicted as a result of OIG investigations. Each of the subjects was found guilty and sentenced to 2 years, 9 months incarceration and 2 years probation.
Excessive Billings for Individual Beneficiaries

DME -We have uncovered another example of the improper use of Medicare beneficiary identification numbers in the Los Angeles area. We have found Los Angeles is permeated with fraudulent health care operations including laboratories, clinics, and DME. In 1997, in concert with the OIG and FBI\'s investigations of these entities, Transamerica Occidental Insurance, the Medicare contractor, reviewed the increased billings attributable to Medicare beneficiaries. We found some very disturbing patterns. Many beneficiaries showed an extremely high Medicare service rate. An example of one beneficiary\'s durable medical equipment history is demonstrated in Chart A.
CHART A

DURABLE MEDICAL EQUIPMENT

BENEFICIARY D (1/98-3/99):
Standard Wheelchair (K0001)
Motorized Wheelchair (K0011)
Semi-Electric Bed (E0260)
Overlay for Mattress (E0372)
Cane (E0100)
Cane-3 prong (E0105)
Walker (E0143)
Foot, Arch Support (L3040)
LSO (L0500)
LSO-Custom (L0565)
Knee Joints (L1832)
Knee Orthosis (L1800)
Knee Guantlet (L1902)
KO-Swedish (L1850)
KO-Custom (L1845)
Cervical Collar (L0180)
Wrist Control (L3908)
Wrist Extension (L3914)
HO-Hip joint (L1686)
Heat Lamp (E0200)
Heat Pad (E0217)
Electric Heat Pad (E0215)
Nebulizer (E0570)
Entereal Formulae (B4150)
Feeding Kit (B4034)

Our review indicated that beneficiaries were being ping-ponged from one entity to another or their billing information was being traded or sold by many alleged medical providers. When we looked at over-utilized beneficiary numbers, we found they represented individuals who were enticed into the scheme by cash or gratuity, were mentally handicapped, and/or were homeless.

In February 1999, pre-pay edits were instituted on 40 beneficiary numbers, denying all Medicare payments. There were no complaints. CHART B illustrates the four month savings to the Medicare program on just 10 of these beneficiaries.

CHART B
OVER-UTILIZED BENEFICIARIES 3/99 - 7/99

#Services BilledAmount PaymentSavings

Beneficiary A 757 $57,894.50 $20,899.00
Beneficiary B 611 $46,518.57 $19,964.00
Beneficiary C 670 $51,957.17 $24,197.00
Beneficiary D 647 $47,318.85 $21,297.00
Beneficiary E 747 $59,066.81 $22,868.00
Beneficiary F 562 $48,393.94 $21,299.00
Beneficiary G 425 $31,168.67 $14,298.00
Beneficiary H 710 $61,144.00 $25,967.00
Beneficiary I 790 $67,498.70 $25,842.00
Beneficiary J 631 $50,144.63 $21,667.00
6,550 $521,105.84 $219,025.00

In August 1999, an additional 120 beneficiary numbers were placed on payment denial screens. There were still no complaints from beneficiaries. Since these screens were implemented the Medicare contractor has denied claims totaling over $7.3 million. We anticipate adding more Medicare beneficiary numbers to this project.

In addition to these investigations, we found several other problems in the area of durable medical equipment.

OIG Evaluations of Specific DME Services -

We found that Medicare paid an estimated $20.6 million in 1997 for services that started after a beneficiary\'s date of death. Almost half of this was for durable medical equipment claims.
We recently reported that 42 percent of claims for orthotic body jackets were for more expensive items than the one actually provided.
We reported that nearly 25 percent of certificates of medical necessity for home oxygen were inaccurate or incomplete. In addition, 13 percent of beneficiaries reported never using their portable oxygen systems.
We found that 57 percent of documentation for therapeutic shoe claims were missing or inaccurate.
We found that Medicare allowed an estimated $79 million in 1997 in claims for blood glucose test strips, of which the appropriate documentation was flawed or missing. Of this, $16.5 million in claims were for beneficiaries who were not eligible to receive test strips because they did not receive insulin. In 18 percent of the claims, reviewers could not find documentation indicating that the product was delivered.
Partial Hospitalization and Community Mental Health Centers

In collaboration with HCFA, we examined the growth of Medicare expenditures to community mental health centers for partial hospitalization services (highly intensive psychiatric services). We found that Medicare was paying for services to beneficiaries who had no history of mental illness and for therapy sessions that consisted of only recreational and diversionary activities, such as watching television, dancing and playing games. Our review in five States, which accounted for 77 percent of partial hospitalization payments to mental health centers nationally during 1996, disclosed that over 90 percent of the services, or $229 million in Medicare payments, were unallowable or highly questionable. From that review, we were able to identify potentially abusive centers for in-depth audits and, based on our results, referred all of these centers for investigation of potential fraud. Currently, investigations are underway at 18 centers identified from this work and other sources.

Hospital Outpatient Psychiatric Services

The OIG conducted a 10-State review of outpatient psychiatric services, which accounted for 77 percent of the value of the partial hospitalization program and other outpatient psychiatric claims at acute care hospitals nationally. We estimated that almost 60 percent of the $382 million in 1997 outpatient psychiatric claims made by hospitals did not meet Medicare reimbursement requirements. These unallowable services included: services not reasonable and necessary for the patient\'s condition; services not authorized and/or supervised by a physician; services not adequately documented or not documented at all; and services rendered by unlicenced personnel. Our reviews at individual hospitals found similar problems, as well as alteration of medical record after we selected the records for review. To determine whether fraud was a factor in these cases, additional work is being performed. Overall, we have 69 ongoing investigations.

Medicare Contractors

The Medicare program is administered by the Health Care Financing Administration (HCFA) with the help of 64 contractors that handle claims processing and administration. The contractors are responsible for paying health care providers for the services provided under Medicare fee-for-service, providing a full accounting of funds and conducting activities designed to safeguard the program and its funds. There are two types of contractors -- fiscal intermediaries and carriers. Intermediaries process claims filed under Part A of the Medicare program from institutions, such as hospitals and skilled nursing facilities; carriers process claims under Part B of the program from other health care providers such as physicians and medical equipment suppliers.

Of all the problems we have observed, perhaps the most troubling has to do with contractors\' own integrity -- misusing government funds and actively trying to conceal these actions and altering documents and falsifying statements that specific work was performed. In some cases, contractors prepared bogus documents to falsely demonstrate superior performance for which Medicare rewarded them with bonuses and additional contracts. In other examples, contractors adjusted their claims processing so that system edits designed to prevent inappropriate payments were turned off, resulting in misspent Medicare Trust Fund dollars. We have also encountered problems associated with financial management and accounting procedures and longstanding weaknesses in internal controls, including deficiencies related to the receivable amounts reported in HCFA\'s financial statements and electronic data processing.

In addition, there have been numerous allegations that contractors have falsified statements that specific work was performed, and had altered, removed, concealed and destroyed documents to improve their ratings on Medicare performance evaluations. Wrongdoing has been identified and we have entered into civil settlements with 13 Medicare contractors since 1993, with total settlements exceeding $350 million. In addition, two contractors have entered into guilty pleas for obstruction of a federal audit.

Home Health

Looking behind the explosive growth in Medicare expenditures for home health care since 1990, OIG, using claims data from 1995 through part of 1996, found a high percentage of the payments were improper. We also determined that many home health agencies shared characteristics that could undermine the Department\'s ability to recover overpayments or levy sanctions. Our recommendations to strengthen the Medicare certification process and to otherwise protect the Trust Fund were adopted in the Balanced Budget Act of 1997. Conducted at the Department\'s request, our follow-up work, which examined 1998 claims data, noted that the payment error rate had fallen to 19 percent. Additional reviews at individual home health agencies have led to 420 investigations of potential fraud since October of 1997, and 130 of these investigations are ongoing.

Improper Billing and Potential Abuse - A particularly egregious case of misappropriated Medicare funds and potential abuse of Medicare patients was noted at St. John\'s Home Health Agency, the highest paid home health agency in South Florida. We found that St. John\'s billed Medicare for nonrendered or upcoded home health services, that nurses and home health aides permitted subcontracting groups to use their names and/or create fraudulent documents to support nonrendered services, and that some nursing visits were provided by unlicensed persons. Further, subcontractors paid kickbacks to St. John\'s employees in order to do business with them. In December 1999, 26 people were indicted for racketeering, conspiring to racketeer, conspiring to launder money and conspiring to submit false claims against the Medicare program. Subsequent to plea or trial, there were 24 guilty verdicts (1 individual became a fugitive and 1 was acquitted); all 24 of those found guilty are in the process of being excluded from Federal health care programs.
Ghost Employees and Lack of Medical Credentials - A married couple, neither of whom had medical certification, portrayed themselves as physical therapists and even contracted with several home health agencies to provide services to beneficiaries. One of the subjects began her own HHA using ghost employees and assuming the identities of six licensed therapists. Through this company and claims submitted by other HHA\'s for the couple\'s services, the Medicare program and private insurers were defrauded of over $400,000. Both husband and wife were found guilty of fraud and four home health agencies entered into civil settlements with the Government on their failure to check the credentials of contracted physical therapists.
Use of Deceased Physician\'s Billing Number

A subject in Florida was sentenced to 13 months incarceration for impersonating a physician and submitting false claims to Medicare, the Civilian Health and Medical Program of the Uniformed Services(CHAMPUS) and private insurance programs. A pharmacist reported that a doctor was prescribing large amounts of controlled substances. After some inquiries, it was found that the prescribing doctor had been dead since 1986. The subject, who was a friend and attorney of the deceased doctor, had intercepted a letter from Florida querying the doctor\'s application to practice medicine. The subject then received the deceased doctor\'s renewed license and practiced medicine at several clinics in Florida. He acted as medical director of the clinics and then opened another with his wife as office manager. The subject was ordered to pay $113,800 in restitution, $45,800 of that to Medicare.

Dialysis Company

A case that began with a Qui Tam complaint centered on misconduct perpetrated by National Medical Care, a nationwide dialysis company, and several of its subsidiaries before its 1996 merger with Fresenius Medical Care Holdings Inc. (FMCH), the Nation\'s largest provider of kidney dialysis products and services. The Government recently reached a record-breaking Medicare fraud settlement with Fresenius. As a result of a joint investigation by OIG and multiple law enforcement agencies and an OIG audit, FMCH agreed to a global resolution under which three subsidiaries pled guilty, and the company agreed to pay $486 million to resolve the criminal and civil aspects of the case. As part of the civil settlement agreement for credit balances, the company paid directly to HCFA $11 million for overpayments which were previously reported to the fiscal intermediaries but never recouped. The alleged criminal misconduct involved illegal kickback activity, submission of false claims for dialysis-related nutrition therapy services, improper billing for laboratory services and false reporting of credit balances. As part of the settlement, the company also entered into the most comprehensive corporate integrity agreement ever imposed by the OIG.

RECENT ACCOMPLISHMENTS

Many specific, positive changes have been made to shore up the over $200 billion Medicare program and its payment methods. Thanks to increased resources provided through recent legislation, our Department, the Department of Justice (DoJ), and related agencies at the State and Federal levels now have increased authority and capacity to fight fraud and to reduce waste in all federally-funded health care programs. These new tools have facilitated our efforts to prevent fraud, waste and abuse from occurring in the first place.

HIPAA Accomplishments - Increased Recoveries, Exclusions, Convictions and Settlements

The Fraud and Abuse Control Program (the Program), a key part of the Health Insurance Portability and Accountability Act of 1996, enabled us to boost our efforts in identifying and preventing waste, fraud and abuse in Medicare. This legislation has provided much needed resources, stronger enforcement tools, and a management structure to coordinate the efforts of numerous fraud fighting units of Federal, State and local governments.

The Program is under the joint direction of the Attorney General and the Secretary of Health and Human Services, working through the Inspector General. HIPAA mandates a comprehensive program of investigations, audits and evaluations of health care delivery; authorizes new criminal, civil and administrative remedies; requires guidance to the health care industry about potentially fraudulent health care practices; and establishes a national data bank to receive and report final adverse actions imposed against health care providers. The Act also provides an innovative mechanism to fund these new anti-fraud efforts, thereby assuring that needed resources are always available for the effort.

We are grateful to the Congress in passing this landmark legislation and we are pleased to report that we are already reaping substantial benefits from the additional resources and authorities. In the past three years under HIPAA (FY 1997 through FY 1999), we have reported overall savings of $31.0 billion. This is comprised of $226 million in audit disallowances, $2.1 billion in investigative receivables, and $28.7 billion in savings from implemented legislative or regulatory recommendations and actions to put funds to better use. The savings that result from our recommendations that are implemented into law or regulation, and independently scored by the Congressional Budget Office or HCFA, represent taxpayer or Medicare Trust Fund dollars that will not be spent for fraudulent gain.

During this same period, we excluded more than 8,697 abusive or fraudulent individuals and entities from doing business with Medicare, Medicaid and other Federal and State health care programs. Additional accomplishments include 1,085 convictions of individuals or entities that engaged in crimes against departmental programs, including Medicare. We increased convictions by nearly 20 percent in 1997, another 16 percent in 1998 and by almost 54 percent in 1999.

Medicare Fee-For-Service Payment Error Rate

The OIG issued its fourth report on the Medicare fee-for-service payment error rate and recently testimony before this Subcommittee on our findings. Based on a statistically valid sample, improper payments totaled an estimated $13.5 billion, or about 8.0 percent of the $169.5 billion in FY 1999 processed fee-for-service payments. Improper payments include those for: unsupported services, medically unnecessary services, errors due to incorrect coding and noncovered services. Over the four years we have conducted this audit, the improper payment rate declined by 42 percent, from a midpoint of $23.2 billion (14 percent) in 1996, to $13.5 billion (8.0 percent) in FY 1999--a drop of $9.7 billion.

Many Medicare watchers attribute at least part of this downward trend to the increased oversight and enforcement efforts of our office, HCFA, DoJ and the FBI that were made possible by the steady funding stream created by HIPAA. According to the Medicare Trustees and the Congressional Budget Office, these waste, fraud and abuse efforts contributed to Medicare\'s lowest inflation rate in history and to the extension of the viability of the Trust Fund until 2025 -- a 26 year extension brought about over the last three years.

Waste, Fraud and Abuse Prevention

The OIG has continued to expand activities designed not just to uncover existing waste, fraud and abuse, but to prevent it. A cornerstone of our prevention efforts has been the development of compliance program guidance to encourage and enlist the private health care industry in the fight against waste, fraud and abuse. The guidance is developed in cooperation with the provider community and identifies steps that health care providers may voluntarily take to improve their compliance with Medicare and Medicaid rules. We have published eight compliance guidance documents covering hospitals, clinical laboratories, home health agencies, third-party billing companies, durable medical equipment, hospices, Medicare + Choice organizations and nursing facilities. We have recently invited comments on our draft guidance related to individual physicians and small group practices.

The OIG has also increased its activities with respect to monitoring settlement agreements with integrity provisions and corporate integrity agreements that have been entered into by health care providers as part of a global settlement of OIG investigations and audits. The current caseload of approximately 440 is expected to increase to over 475 by the end of 2000. Our efforts to focus on preventing health care fraud also includes guidance to the industry on the propriety of health care transactions. The OIG has published two significant final regulations creating 10 new safe harbors to the Federal anti-kickback statute. Finally, the OIG continues to promote beneficiary involvement in identifying fraudulent activities. This includes operating our HHS hotline which currently receives approximately 48,000 calls per month.

UNDERCOVER OPERATIONS

We occasionally conduct undercover operations to identify potential fraud. Past undercover operations have investigated podiatrists, ophthalmologists, chiropractors, medical doctors, DME companies, billing companies and laboratories for various Medicare billing fraud schemes, such as billing for medically unnecessary services, billing for services not provided, soliciting and receiving kickbacks, upcoding services, unbundling services and misusing provider Medicare billing numbers. Many of these undercover operations are conducted jointly with other Federal agencies including the Federal Bureau of Investigations (FBI), the Internal Revenue Service (IRS), and the Drug Enforcement Administration (DEA), since violations often fall within their jurisdictions as well.

An ongoing multiagency undercover project investigated certain DME providers. The DME companies offered cash kickbacks to undercover operatives (Federal agents) in exchange for patient referrals. In addition, some companies billed Medicare and/or Medicaid for medically unnecessary services, services not provided, and/or upcoded services. The operation also identified physicians involved in the scheme. To date, this project has resulted in 20 convictions with nearly $1 million in restitutions, fines and savings. Additional cases are currently being adjudicated, and more convictions are expected.

STATUTORY PROVISIONS

We appreciate the hard work of this Subcommittee, and in particular Congresswoman Biggert (and Senator Collins), to craft legislation designed to help the law enforcement community. Such efforts will further strengthen the HHS Office of Inspector General to detect and investigate Medicare fraud and we recognize that many of the provisions that Congresswoman Biggert has included in H.R. 3461 will facilitate a more efficient and effective anti-fraud effort. We look forward to having a dialogue today about the provisions in this important legislation.

LAW ENFORCEMENT AUTHORITY

Statutory law enforcement authority is and has been a top priority for the HHS-Office of Inspector General, as well as the inspector general community, for a number of years. We appreciate the recognition that H.R. 3461 gives to this very important issue. Currently, we operate through temporary grants of law enforcement authority, granted by the United States Marshals Service. The HHS-OIG conducts lengthy and complex investigations that require the exercise of law enforcement powers (arrests, search warrants, undercover and consensual monitoring activities). In order to carry out these responsibilities, the HHS-OIG needs a permanent, not conditional, grant of law enforcement authority.

In support of IG law enforcement authority, earlier this year the Administration submitted to the Congress a legislative proposal that would amend the Inspector General Act to authorize criminal investigators in the offices of 23 presidentially-appointed Inspectors General to exercise law enforcement powers-- namely authority to seek and execute search and arrest warrants, make an arrest without a warrant for offenses committed in their presence and to carry a firearm -- in the course of their official duties.

Further details on this statutory law enforcement issue are attached to this statement.

CONCLUSION

As I stated at the beginning of my testimony, I believe a concentrated effort by a large number of people has resulted in tangible progress in combating fraud, waste and abuse in recent years. I particularly appreciate the strong partnerships that we have formed with the Congress, program managers and the law enforcement community. But as I have also discussed with you today, the problems that remain are serious, complicated and have profound consequences. I am particularly concerned about the deliberate fraud which we cannot always precisely measure but that we know continues. We must never let down our guard, and we must continue to dedicate the resources and make the concerted effort to reduce these problems and continue to ensure the integrity of the Medicare program..

We in the Office of Inspector General continue to actively oversee the new resources and safeguards provided in the HIPAA and to ensure their effectiveness in preventing and combating criminal activities. For true criminals, the only effective safeguards are effective program measures to prevent fraud and a strong law enforcement presence with equally strong penalties applied to defrauders. In addition, we believe that granting statutory law enforcement authority would be a very positive and important step in providing continuity and permanence for our enforcement activities.

I greatly appreciate the opportunity you have given me today to focus attention on the types of fraud and abuse that still confront the Medicare program, the opportunity to share with you our progress as a result of some of our recent initiatives, and the ability to have a discussion on legislation vital to the inspector general community. I would be happy to answer any questions.


ATTACHMENT

Earlier this year, the Department of Justice submitted to the Congress a legislative proposal that would amend the Inspector General Act to authorize criminal investigators in the offices of 23 presidentially-appointed Inspectors General to exercise law enforcement powers in the course of their official duties -- authority to seek and execute search and arrest warrants, make an arrest without a warrant for offenses committed in their presence, and to carry a firearm.

It is important to emphasize that this grant of statutory law enforcement authority would extend no new authorities, but would simply recognize in statute authorities that are already being exercised. Criminal investigators in the covered OIGs have exercised law enforcement powers for many years under designations as Special Deputy U.S. Marshals. Beginning in the mid-1980s the Department of Justice approved these deputations on a case-by-case basis. As the role of Inspectors General evolved, the need for such appointments was so consistent and the volume of requests so large that \"blanket\" deputations evolved. Since approximately 1995, virtually all criminal investigators in the offices of the 23 covered Inspectors General have exercised law enforcement authorities under office-wide deputations.

Although OIGs are already exercising law enforcement powers, both the Department of Justice and the OIGs believe that statutory recognition of these authorities is vital. Under the current arrangement, the U.S. Marshal\'s Service confers law enforcement authority upon over 2,500 OIG agents across the Federal government. However, day-to-day supervision and control over the exercise of those authorities rests with each Inspector General. The Marshals cannot and do not monitor the thousands of pending OIG investigations in which law enforcement authorities are being exercised. The proposed statutory grant of law enforcement authority would appropriately place all responsibility for law enforcement authorities to the Inspectors General, themselves, with important oversight by and accountability to the Attorney General.

Representatives of the IG community have been meeting with congressional staff to discuss statutory law enforcement authority for designated OIGs. During these discussions, some concern has been expressed that a statutory grant of authority -- instead of a renewable administrative deputation -- might result in decreased oversight of law enforcement. Exactly the opposite is true.

First, under this proposal, law enforcement powers must be exercised in accordance with guidelines promulgated by the Attorney General. These guidelines will govern issues such as use of force, consensual interception of communications, coordination with other Federal investigators and prosecutors, adherence to personnel and training standards, and periodic reporting. Where an Inspector General fails to adhere to guidelines for exercise of law enforcement authorities, the Attorney General is authorized to suspend or rescind such authorities. Thus, the Justice Department retains oversight of the exercise of law enforcement powers.

In addition, for the first time, Inspectors General would be subject to \"peer reviews\" of their exercise of law enforcement powers, to be conducted by another Inspector General or committee of Inspectors General. The results of each review will be communicated directly to the Attorney General. With these DoJ guidelines and peer reviews, the Justice Department\'s bill would actually result in enhanced accountability by OIGs in their exercise of law enforcement authorities.

A statutory grant of authority would also provide certainty and permanence for OIG enforcement activities. The OIGs regularly conduct complex investigations that require the ongoing exercise of law enforcement authorities (arrests, search warrants, and undercover activities) during investigations that often last for years. As members of numerous national and local task forces, other Federal, State and local law enforcement officers depend on OIGs\' uninterrupted participation in the enforcement activities of the task force. Administrative deputations, which must be periodically renewed, cannot offer such a guarantee of continuity.

In this regard, we have learned that the Justice Department is considering not renewing all OIG blanket deputation authorities as of January 31, 2001. If blanket deputations to the 23 OIGs covered in the bill are terminated, without passage of a statute granting law enforcement authority to IGs, it would jeopardize literally thousands of open investigations of fraud against agency programs across government. Investigations of fraud in health care, Federal procurement, telecommunications, Federal construction, bribery of public officials, crimes in subsidized housing, corruption in highway construction, child support enforcement and a host of other cases would simply cease. Moreover, if we were forced to return to a process in which we sought deputation for each individual case, the administrative burden for both the Department of Justice and the Inspectors General would, indeed, be enormous. We ask that the Congress foreclose this possibility with a grant of statutory law enforcement.

Statutory law enforcement authority would also be consistent with and promote the continued independence of the Inspectors General. Under the current arrangement, delay or non-renewal of a deputation could be perceived as an attempt to influence and OIG, or even derail an investigation. We emphasize that we know of no instance in which such interference has occurred; however, a statutory grant would foreclose this perception.

The Department of Justice\'s legislative proposal would also ensure the consistency of law enforcement powers among OIGs. Some Inspectors General already exercise law enforcement powers under statutory authority unique to their offices (e.g., the OIGs at the Departments of Defense and Agriculture). Pending bills would confer law enforcement authority on other specific OIGs. The proposal sent by the Justice Department would ensure that all statutory Inspectors General operated under the same law enforcement authorities and with the same accountability and oversight.

Congressional staff have also asked whether the proposed legislation would broaden the authority of the Inspectors General or expand the categories of those authorized to exercise law enforcement powers. It would not. Law enforcement authority could only be exercised by trained, qualified law enforcement officers who report to the Assistant Inspector General for Investigations (auditors could not exercise these authorities), and only in connection with investigations that are already in the jurisdiction of the Inspector General to conduct. Thus, the proposal would have no impact on the jurisdiction of the various Inspectors General. Moreover, the proposal would carry with it no additional costs, since OIG agents are already exercising these authorities, are already fully trained in their exercise, and are already Federal law enforcement officers for purposes of the law enforcement retirement system, and otherwise.

The OIGs have achieved impressive successes in law enforcement. We regularly face situations which pose dangers to ourselves, our fellow law enforcement officers, and members of the public. For many years, we have exercised law enforcement authorities to further our statutory responsibilities to investigate fraud in our respective agency programs and operations. We have achieved these successes with an impressive record of professional and responsible conduct.

The Department of Justice has recognized this evolving role of Inspectors General by submitting to the Congress a legislative proposal that offers reliable, permanent law enforcement authorities to qualifying OIGs. On behalf of the entire OIG community, we urge you to endorse this proposal.