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Third Party Billing Company Fraud: Assessing the Threat Posed to Medicare


Date: 4/6/2000
News: Chariman Burr and Distinguished Members of the Committee, my name is Robert B. Burleigh and I am Vice President of PractiCare; I direct my company\'s healthcare consulting practice, known as Brandywine Healthcare Consulting Group, a firm I founded in 1988. Today I have the honor of representing the Healthcare Billing and Management Association (HBMA) as Chairman of the HBMA\'s Ethics and Compliance Committee and Consultant to the Association\'s Board of Directors. HBMA is a voluntary membership organization and the only trade association representing third-party medical billing companies. The Association\'s primary goals are education, the promotion of ethics and compliance and advocacy.

On behalf of HBMA, I would like to thank the Committee for the opportunity to appear today to address your interest in developing methods to identify those who submit claims to federally sponsored healthcare programs. We are pleased that the Commerce Committee, in addition to its responsibilities regarding oversight of Medicare, is also responsible for the Small Business Administration, since almost all of our members are small businesses. Our member companies employ nearly 20,000 nationwide, processing an estimated 650 million claims per year, worth an estimated $55 billion; however, most of our member companies have fewer than twenty-five employees. A one-page profile of our membership is included at the end of our written testimony.


HBMA and its members share your commitment to preventing and detecting fraud and abuse in the Medicare program. Indeed, HBMA takes great pride in our compliance activities, putting us in the forefront of efforts to prevent fraud and abuse in the third party billing industry. Having said that, it is our view that the potential for the commission of fraud by third party billers is no greater than the potential for fraud to be committed by physician\'s offices that bill Medicare directly.

Let me begin by emphasizing that the HBMA strongly supports the goal of protecting the integrity of Medicare and other federally funded health care programs. We have a long and well-established record of working with the House and Senate, HCFA, the HHS OIG, the GAO and the OMB and other government agencies on a wide variety of matters, most of which involve Medicare and compliance in some way. We are currently working with HCFA\'s Office of Program Integrity and OMB on improvements to the provider enrollment form (855) and processes as well as having had meetings last year on the subject of today\'s hearing; we have worked for over four years with HHS\'s OIG on the development and promotion of the Model Compliance Guidance for Third Party Billing Companies; we have testified about and submitted comments on Congressional and HCFA proposals regarding patient privacy and confidentiality; and, of course, we intend to carefully review and comment on the upcoming Model Compliance Guidance for Physicians.

Beginning in February 1999, HBMA began conducting a compliance educational program for HBMA members and non-members to support implementation of the OIG\'s Model Guidance for Third Party Billing Companies released in November 1998. This intense, 3½ day course is based on HCFA\'s model compliance program guidance for third party billers. HHS\'s OIG, U.S. Attorney\'s Office and the FBI have each provided guest speakers for our programs. The response to this program from the third party billing community has been overwhelming. Each of the three conferences presented in 1999 sold-out; the first presentation for 2000 has already shown strong registration. We are pleased to report that several hundred third party billing companies have completed our courses in spite of the fact that the registration fee is more than seven times the fee for our regular educational meetings. Moreover, compliance has been an educational topic at every HBMA National and Chapter meeting since 1995.

Interestingly, had the third party billing company that has been cited in today\'s GAO\'s report been an HBMA member or had they attended our compliance course, they would have known that what their client was doing was improper. Furthermore, had the billing company followed our compliance training, it would have \'fired\' or reported the customer. Indeed, more and more of our members report that they have found it necessary to \'fire\' customer(s) because the client has refused to cease its (apparently) suspect behavior. Our compliance course specifically discusses the need for third party billing companies to be aware of the potential that criminal enterprises, intent on generating fraudulent Medicare claims, may seek out legitimate third party billers to serve as a front for their criminal enterprise. It appears that the conduct cited earlier is exactly such a case.

Every Medicare claim, regardless of its origin or mechanism(s) for delivery to HCFA\'s contractors, carries with it a risk of either being fraudulent or manipulated in such a way as to cause an overpayment by the Medicare program. Our goal, and we believe the goal of this Committee, is to reasonably reduce the extent to which this can happen and create a mechanism where auditors can more readily detect those instances of fraudulent billing that may occur. We also believe that the Medicare program\'s best source of protection is the partnership of a medical practice with an effective compliance program and a billing company with an effective compliance program; rather than increasing risks to the program, this relationship would double the program\'s protection. With two compliance programs at work, the chances of errors, as well as deliberate misconduct are sharply reduced. We are happy to report that such arrangements already exist and are a growing trend as our members encourage their clients to develop and implement their own compliance programs.

It is also important, Mr. Chairman, as we engage in this dialogue on how to prevent fraudulent billing, that we do so with an understanding that no matter how creative we may be in establishing mechanisms for the prevention and detection of fraud, we realize we will never eliminate deliberate billing fraud. The simple reason is that the creativity of the criminal mind knows no bounds. Just as sophisticated bank vaults do not stop determined bank robbers from their crimes, no system of registration, auditing or oversight, will prevent a criminal from defrauding Medicare.


The analysis prepared by the GAO and the OIG make constant reference to \'third party billing companies\' without attempting to define their use of the term. This is important, as the issue is far more complex than it would appear to the layman. Certainly, a separately incorporated company offering billing services is a billing company. But...

1. What about the medical practice that, for tax reasons, has incorporated its own billing office under another identity?
2. What about the claims clearinghouse to whom claims are sent by medical practices and/or billing companies?
3. What about the billing software vendor serving as a \'collection station\' who then forwards the claims on to a clearinghouse, or the software vendor that serves as a clearinghouse itself?
4. What about the claims editing vendor who edits the claims on their way to the software vendor and/or clearinghouse?
5. What about the collection agency to whom uncollected claims are referred by the practice after the billing process (the practice\'s or their billing company\'s) has failed?
6. What about hospital-owned practices, billed by the hospital under the identity of its MSO (Management Service Organization)?
7. What about insurers who own practice(s) and provide billing?
8. What about the company that provides off-site printing and mailing of paper claims as a subcontractor to the practice and/or the practice\'s billing service?
9. And, of course, what about the Practice Plan providing centralized or de-centralized billing support for medical school faculty?

The number of variations in billing and service relationships is nearly infinite, and they change constantly, usually driven by entrepreneurs, excess operating costs and/or changes in technology. It is impossible to anticipate the number of combinations and variations of claims handling: to register only one party (a billing company, if a clear definition can be constructed) would be unfair and would not achieve the apparent goal of this initiative; to register and track all of the possible combinations could become impossible. We are concerned that any initiative to \'register\' claims submitters would overlook large segments of the industry that regularly handle some part of the claims preparation and/or submissions process.


We have considered the list of potential factors that might be involved in the registration of Medicare claims submitters. Listed below are some of the aspects of this potential process that we consider potentially problematic:

1. How is a \'billing company\' defined?
2. By whom would billers be registered? HCFA, the Carrier(s), or another central source?
3. How would \'registration\' be accomplished? A simple name, address, telephone and FEIN #, or a long, detailed \'855-style\' form? How could a new \'billing company\' begin business without a number, and how could it be a \'submitter\' without one?
4. What would be done when the ownership and/or or management of the \'billing company\' changes? What would be considered a \'reportable\' change?
5. How many \'registration(s)\' would be required? One, or one for each type of claim (Physicians, Hospitals, DME Companies, Home Health Agencies, Nursing Homes, Ambulance Services, etc.)?
6. Would \'registration\' discriminate against billers and discourage their use?
7. How would \'billers\' with multi-state constituents be affected?
8. Would the practice handling its own billing be registered? If not, why not?
9. Where in the Uniform Data Set would the biller registration number be located?
10. Where on the HCFA 1500 form would the number(s) be printed?
11. How much lead time would be required for Carriers, Intermediaries, software vendors, clearinghouses and others to adapt their systems? (We estimate three to five years.)
12. Is a \'submitter\' a company or a person?


We have had an opportunity to perform a preliminary review of the recently released Inspector General\'s report entitled, \"Medical Billing Software and Processes Used to Prepare Claims.\" Before addressing the specific recommendations made by the OIG, I would first like to comment on the information gathering process used to develop these recommendations.

As we read the OIG\'s report, it appears that the sole basis for concluding that the Medicare program is at risk due to claims submissions by third party billers is that an additional party has been added to the claims processing chain between the practice and the Medicare contractor. We found no information presented in the OIG report to demonstrate that there is direct evidence of a third-party billing company problem. The fact that \"more than 30 billing individuals/ entities have been excluded from participation in the Medicare and state Medicaid programs\" is the only thing approaching evidence of a problem.

We noted that the report contains numerous examples of incomplete or incorrect understanding of how the billing industry operates, how practices utilize billing services, how the commercial billing software industry serves practices and billing companies, and the report reaches a number inaccurate conclusions regarding the types and levels of risk associated with claims handled by billing companies, clearinghouses and medical practices. HBMA would be willing to itemize these concerns, although it may be unnecessary, since we agree with the broadest conclusion of all - that knowing the identity of EACH AND EVERY party involved in presenting a claim for payment would be beneficial to reducing fraud and abuse. However, this may not be economically or technically practical.

The OIG\'s Report notes that \"it is estimated that there are more than 5,000 third party billing companies.\" To date, \"more than 30\" (the OIG\'s online database reports exactly 30 individuals and/or companies) have been excluded from the Medicare and Medicaid programs. That is six tenths of one percent of the number of companies that may be submitting claims to Medicare or Medicaid. To add further context, we noted that according to the OIG\'s web site, more than 40 federal or state employees have been excluded from participation in the Medicare or Medicaid programs. Finally, in terms of the magnitude of this problem within the overall context of Medicare fraud, only 30 of the nearly 18,000 individuals or entities (or .0016) excluded from the Medicare program are classified as third party medical billers. I am pleased to report that none of the excluded individuals or companies is or was an HBMA member.

Incidentally, the only HBMA member ever adjudicated of a claims-related violation was promptly suspended from membership, pending the court\'s determination of the penalties to be imposed. That company is now under a Corporate Integrity Agreement, has had its ownership restructured, and we have asked the new President to apply for and justify reinstatement or face termination of its membership.

Mr. Chairman, we believe it is fair to conclude that every individual or organization that \"touches\" a Medicare claim is in a position to commit fraud with respect to that claim, including the contractors who process them. What is not clear is whether the potential for fraud is any greater at different points in that chain. In other words, is a claim handled by a third party biller any more likely to be used to commit fraud than a claim submitted directly by the physician\'s office?

We believe that there is little or no clear evidence of a problem and we are troubled by the OIG\'s conclusion on page 9 of the report that states: \"Inability to assess whether a claim came directly from a provider or passed through the hands of a third party represents a vulnerability in Medicare program safeguards.\" We suggest that an equally reasonable conclusion - given that there have been so few billing entities excluded from the Medicare program - is that claims submitted by third party billers are less likely to be erroneous and therefore less likely to be fraudulent

Now to the specific recommendations and a preliminary reaction to these proposals: Due to the fact that we only learned of these proposals very recently, the Association leadership has not had an opportunity to discuss these recommendations nor consult with our members. Consequently, the comments I make about these recommendations are the views of someone with over 30 years of experience in health care billing and not those of the Association. We will, however, discuss these proposals with our membership and provide you with an organizational position in the near future.

1. Identification and registration of all clearinghouses and third-party billers.

In concept, we support the idea of identification of clearinghouses and third-party billers. However, we suggest that this should be broadened to include everyone who submits claims to government payers. In other words, the claim should not only identify whether the claim was submitted by a third party billing company, it should identify whether the claim was submitted by an employee of the practice, and all of the (many) others who may have handled the claim prior to submission.

We would also suggest that because many third party billers handle billing for practices located in multiple states, the identification/registration process should be national and not carrier specific. Some of our members have a national clientele spanning dozens of states; the prospect of securing and keeping track of dozens of submitter numbers is daunting, to say the least.

In addition, the majority of our members utilize commercial billing software. None of the programs currently contain a provision for such an identification number. We predict that it will take the software industry two or more years to accommodate a new data element requirement and the transmission of it. Medicare Carriers may need even more time.

2. HCFA should only accept electronic claims from authorized sites and terminals.

Please refer to our comments, above, under THE REGISTRATION PROCESS. In addition, we do not understand the report\'s reference to \'terminals.\'

3. HCFA should educate the provider community concerning their liability for erroneous claims submitted to Medicare using their provider number.

Educating the provider community is laudable and we would welcome HCFA\'s assistance in this area. Our members go to great lengths to educate their clients about their legal responsibilities. These are not the third party billers claims, they are the practices\' claims. We are merely acting as the agent for the practice and we are therefore dependent upon the quality of information we receive from them to prepare and submit their claims. The old saying, garbage in, garbage out, is particularly relevant to third party billers.

On all of these issues, Mr. Chairman, the HMBA is eager to work with HCFA and HHS\'s Office of the Inspector General to develop standards that are fair, equitable and reasonable in view of the scope of the potential problem.

As I mentioned in my description of the third party billing industry, the majority of third party billers are small businesses. For some, this is literally a cottage industry; some third party billers are home-based businesses. If requirements are created that are costly or create an environment that suggests that practices that use third party billers are subject to a higher level of scrutiny, it could reduce the desirability of using a billing company and could put some companies out of business. HCFA staff has indicated that they view third party billing companies as an ally in preventing improper claims rather than being a source of them.

In conclusion, Mr. Chairman, we welcome the support of Congress and the Health Care Financing Administration as the billing industry does its part to prevent fraud and abuse and we appreciate the opportunity to participate in this important matter. Our budget is, of course, more limited than those available to the Medicare program. We believe it is possible to develop a system that provides a higher level of confidence in the third party billing process while at the same time ensuring that a role for billing experts continues to exist. If reforms in this area result in the diminishment or closure of third party billing companies, we believe that the result will be more errors in claims submissions and at least the potential for more fraud and abuse.

I would be happy to answer any questions you may have.





¨ 2.5 STATES









¨ 352,992 CLAIMS PER YEAR (29,416 PER MONTH, 6,788 PER WEEK)
30.9% Medicare
33.2% Commercial/Indemnity Insurance
23.7% Managed Care
10.3% Medicaid
2.0% Miscellaneous





¨ Hold members to the highest of ethical standards as established by the HBMA Code of Ethics, as well
as to eliminate, to the extent possible, unethical healthcare billers from our industry.
¨ To promote the professional image of the healthcare billing industry.
¨ To educate members.
¨ To cultivate working relationships with local Medicare, Medicaid and other insurance carriers, commercial payer community, as well as state and other relevant government agencies.
¨ To work with Congress, the current Administration and relevant state and federal agencies to communicate \"billing friendly\" policies on behalf of the billing industry.


¨ Member education
¨ Fall Annual Meeting
¨ Spring Educational Conference
¨ Summer and Winter Owners & Managers Conference s
¨ Compliance Education Courses
¨ Regional Chapter Conferences
¨ Professional Certification Program
¨ Certified Healthcare Billing & Management Executive (CHBME)
¨ Monthly Government Relations Update
¨ Monthly newsletter
¨ Discount programs with selected vendors
¨ Web site:
¨ To foster cooperation and networking among HBMA members through its committees and local chapters and other healthcare industry trade associations.


HBMA monitors and lobbies on various medical issues of interest to its members, including but not limited to:
¨ Compliance issues as they effect third party medical billers and their relationship with their clients.
¨ Privacy and confidentiality of ALL medical re c o rd s .
¨ Administrative simplification (i.e., uniformity and computerization of the claims processing system)
and modernization of the health care industry.
¨ Medicare and Medicaid physician reimbursement.
¨ Healthcare Financing Administration (HCFA) issues related to provider identification, enrollment in
¨ Medicare and Medicaid, and reimbursement rules.


Since early 1997, the Healthcare Billing and Management Association has been leading a national effort to establish workable, flexible compliance guidelines for healthcare billing professionals and physicians. That effort bore fruit with the government\'s release of the third party medical billing compliance guidance in November 1998. But no national association, no corporate consultant, no government official can take the next step for you. Turning these government guidelines (developed in partnership between the HBMA and federal government enforcement agencies) into an effective compliance program is a corporate responsibility.
Until now, however, healthcare billing professionals and physicians had no place to turn to obtain the specialized and practical compliance knowledge they need. HBMA has changed that, too.

The association has stepped to the fore again, this time to help healthcare billing professionals and physicians turn the government\'s guidelines into effective compliance programs with a minimum of outside assistance. HBMA\'s Compliance Program Implementation Course, developed by Vincze & Frazer, LLC, is the only comprehensive course of instruction focused exclusively on the compliance needs of healthcare billing
professionals and physicians. It\'s also the only course designed and developed by a former healthcare compliance officer and national compliance expert that will take you step-by-step from compliance risk assessment to effective training and reporting to measuring your newly developed, customized program\'s effectiveness.

HBMA\'s Compliance Program Implementation Course, developed by Vincze & Frazer, LLC, offers a powerful program of basic and enhanced instruction, along with an optional session with one of the most experienced and respected former investigators from the Office of the Inspector General (OIG) in the
Department of Health and Human Services (DHHS).

Led by a faculty of skilled compliance specialists, schooled in both government procedures and private sector needs, this course is the only one of its kind -tailored specifically to the demands of healthcare billing professionals and physicians by the same experts who helped draft the government\'s compliance billing guidance. Due to the intensive nature of this instruction and the need for close interaction between faculty and students, enrollment for this demanding course is limited to 75 participants. In addition to three and a half days of intensive study for those who opt for the complete course package, graduates receive hand-books, manuals and other take-home materials that they can use to further refine their corporate compliance programs. Students successfully completing the course will also receive an official HBMA Certificate of Completion and up to twenty-two (22) hours of Continuing Education Unit (CEU) credits and thirty
(30) hours of national Association of State Boards of Accountancy (NASBA) credits. The course is currently in the process of receiving Continuing Medical Education (CME) accreditation. CME credits should be available in the 2000-2001 academic year.


Students begin with a hands-on, nuts-and-bolts immersion in the basics of healthcare billing compliance. Mentored by L. Stephan Vincze, JD, LLM, participants will emerge from the Basic Course tm with an essential understanding of the fundamentals of designing and implementing a compliance program. This two-day (12-hour) course, organized around the detailed HBMA Compliance Program Implementation Workbook, itself a valuable manual developed exclusively for HBMA by Vincze & Frazer, covers
ten essential subject areas for designing and implementing an effective compliance program: