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Testimony on Fighting Fraud, Waste and Abuse in Medicare by Nancy-Ann Min DeParle
Administrator, Health Care Financing Administration
U.S. Department of Health and Human Services

Before the House Committee on Commerce, Subcommittee on Oversight and Investigations
March 2, 1998


Chairman Barton, thank you for convening this hearing today to talk about one of my highest priorities as Administrator: combating waste, fraud and abuse in Medicare. It is a pleasure to be in Texas, a state which has been a pioneer in the fight against health care fraud.

Medicare has literally changed what it means to be old or disabled and sick in America. Over its 32 years of existence, Medicare has provided access to health care coverage for almost 80 million Americans, many of whom who would otherwise have lacked access to any kind of health care. And very importantly, Medicare is coverage that cannot be lost as you get older or sicker, or if you lose your spouse. Medicare has helped keep many elderly out of poverty status and prevented American families from having to bear the full burden of health care costs for their elderly or disabled parents or relatives. When President Lyndon B. Johnson signed Medicare into law, he predicted that Medicare would "take its place beside Social Security and together they will form the twin pillars of protection upon which an our people can safely build their lives and their hopes."

President Johnson was right. Today, Medicare is serving over 2 million residents of Texas, and more than 39 million beneficiaries nationwide. In Texas, Medicare spends about $11 billion each year, providing the State's elderly and disabled with over 3 million days of hospital care; 2 million days of skilled nursing home care; some 25 million physician visits and providing home health services to about 260 thousand beneficiaries.

We are already achieving record success in increasing fraud and abuse investigations, indictments, convictions, fines, penalties and restitutions. Last year, using new Health Insurance Portability and Accountability Act authorities nearly $1 billion was returned to the Medicare Trust Fund, thanks to our partnerships with the HHS Inspector General, Department of Justice and state and local authorities. Medicare alone saved an estimated $7.5 billion in FY 97 --mostly by preventing inappropriate payments -- through audits, medical reviews, and ensuring that Medicare does not pay for claims owed by private insurers. Health fraud convictions are up nearly 20 percent and the number of civil health fraud cases increased 61 percent.


Operation Restore Trust (Restore Trust), launched by President Clinton in May, 1995, was a two-year comprehensive anti-fraud initiative in five key states designed to test the success of several innovations in fighting fraud and abuse in Medicare. The initiative focused on three specific areas: home health agencies, nursing homes and durable medical equipment (DME) services in California, Florida, Illinois, New York, and Texas.

During its two-year, five-state demonstration phase, Restore Trust accomplished measurable successes: identifying $23 in overpayments for every $1 spent looking at home health care, skilled nursing facilities and suppliers of DME and identifying 2,700 fraudulent health care providers and entities who were excluded from doing business with Medicare and other federal and state health care programs. Because of its successes, in May 1997 Restore Trust was expanded to 12 additional states and all Medicare service areas.

Operation Restore Trust in Texas

Our Dallas Regional Office developed an Operation Restore Trust management plan and has actively pursued fraudulent providers. The Dallas Office designed and implemented a number of projects aimed at reducing fraud, waste, and abuse in Medicare. One example is the Texas Home Health Survey initiative which proved to be one of the most successful in Restore Trust and has since been adopted as a fraud fighting tool by states across the country. As part of the project, the Dallas Office used existing relationships with the Texas Department of Health to have registered nurses conduct claims reviews as part of their regular quality of care reviews in home health agencies. Nurses who visited home health agencies, were given a sample of claims billed by the agencies and paid by Medicare. The nurses, were asked to review those claims at the same time they surveyed the quality of care provided by the agency. The nurses looked for documentation to establish that all billed services were properly ordered and provided and that Medicare coverage requirements were met.

Since March 1995, 83 Texas home health agencies have been reviewed under this project with just under $33 million identified in inappropriate Medicare payments. The most prevalent reasons that claims were denied were because the patients did not meet Medicare homebound requirements, or the services provided to patient were not medically necessary. The project objectives and methodologies were distributed throughout central and regional Restore Trust teams and soon became the model on which other regions developed their own projects to survey home health agencies.

In addition, Restore Trust in Texas made national policy recommendations which HCFA swiftly adopted including: developing a statement for home health agencies to certify their understanding of the Medicare homebound requirements, and revising manual instructions to include the definition of homebound.

In 1997, the Dallas Office initiated a project to review physical, occupational, and speech therapy claims paid by Medicare for patients in skilled nursing facilities. The project adopted the process used successfully in the home health agency projects by combining the resources of the State Health Departments, the Medicare contractors, and the HCFA Regional Office. The overall objective of the project was to use the State Health Department's onsite visit to review a sample of claims Medicare had paid. Nurses looked for documentation that the billed services had been properly ordered and provided and that the services were medically necessary. The Medicare contractor reviewed the nurses' information and began seeking repayment for these inappropriate billings. In 1997, this project identified over $400,000 of inappropriate payments made to skilled nursing facilities in Texas. In addition to recouping, these types of projects prove the importance of partnerships between Federal and State partners to combat fraud, waste, and abuse.

Another Restore Trust project, directed by the HCFAs Dallas Office, identified inappropriate payments for durable medical equipment (DME) furnished to patients in nursing homes. All nursing homes in Texas are responsible for providing DME needed by their patients because payment is considered to be included in the rate paid to the nursing home. In cooperation with the State Medicaid Agency, and the Medicare contractor which processes DME claims, we were able to do identify separately filed and paid DME claims for nursing home residents for both Medicare and Medicaid. The project identified $1.5 million in overpayments which has been recovered from the DME companies.

Anti-Fraud Initiatives in Oklahoma, Louisiana and Arkansas

Building on lessons learned in Texas, our Dallas Regional Office formulated fraud management plans for Oklahoma, Louisiana, and Arkansas, where we have continued to crack down on those who wrongly take monies from Medicare. In Oklahoma, nurses from the State Health Department paid visits to 24 home health agencies last year where they uncovered just under $1 million in Medicare overpayments. Working in conjunction with HCFA, nurses from State Health Departments visited skilled nursing facilities in Oklahoma, Louisiana and Arkansas to verify that speech, physical and occupation therapies that had been billed to Medicare were in fact provided and had been correctly billed. The nurses identified over $1 million that was inappropriately billed to Medicare.

Working in partnership with the HHS Inspector General, the Department of Justice, and state and local authorities, we are achieving record successes in increasing fraud and abuse investigations indictments, convictions, fines, penalties, and restitutions. Our regional offices have been leaders in uncovering schemes used to steal from Medicare and developing initiatives for fighting them. In fact, the efforts of these men and women on the front fines have borne fruit in recent legislation, regulations, or other initiatives.


With the support of many members of this committee, the Balanced Budget Act made the most significant changes in Medicare and Medicaid since the programs were enacted more than 30 years ago. We're already putting in place significant new tools to fight fraud, waste and abuse.

Among these are the authority to: bar felons from participating in Medicare; require a surety bond of at least $50,000 for home health agencies, durable medical equipment suppliers, and certified rehabilitation facilities; impose penalties for services offered by a provider who has been excluded by Medicare and Medicaid; impose penalties for hospitals who contract with providers who have been excluded from Medicare; require home health agencies to bill from the place the service was provided rather than from a more expensive central office; and require health care providers applying to participate in Medicare to provide their Social Security numbers and their employer identification numbers so HCFA can check an applicant's history.

We estimate that a single provision of the Balanced Budget Act which closes a loophole that allows home health agencies to bill in high cost areas will save the Medicare program millions of dollars in the state of Texas alone. For example, a home health agency currently based in a metropolitan area of South Central Texas provides services to thousands of Medicare beneficiaries throughout that part of the state. Since Medicare reimbursement rates are driven by the cost of doing business in that community, reimbursements are much higher in metropolitan areas than in rural communities. Although many of the Medicare beneficiaries are served by satellite offices of the home health agency in rural areas where the reimbursement rates for their services are much less, the company bills the services from the metropolitan office where the reimbursement rates are much higher. The Balanced Budget Act requires Medicare to pay for home health services based on where the service was provided rather than where the parent office of the home health agency is located. By closing this loophole, we estimate that Medicare will pay $1 million less for home health services in this one instance.

Home Health Initiatives

Over the last several months we have taken steps to make it tougher for home health agencies to enter and remain in the Medicare program. On September 15, 1997, the President announced a moratorium on all new home health agencies entering the Medicare program until HCFA could implement a range of new rules and management tools designed to enhance oversight of home health agencies and ensure that new Medicare home health agencies are not "fly-by-night" or low quality providers.

The moratorium was lifted earlier his year with the publication of a regulation requiring all home health agencies that participate in Medicare to: obtain a surety bond of at least $50,000, reveal "related business interests" that often assist in fraudulent and abusive activities, and serve at least 10 patients before they are admitted to the Medicare program after their quality of care is reviewed. Instructions have been issued to state survey agencies requiring that they must verify a surety bond and directing them to ensure an home health agency is serving its own patients and not those that have not been "borrowed" from an already certified home health agency. Furthermore, later this year HCFA will issue regulations to require home health agencies to re-enroll every three years.

Durable Medical Equipment Initiatives

Just last month we took additional steps to stop waste, fraud and abuse by illegitimate dealers of durable medical equipment (DME). HCFA proposed a regulation to make it more difficult for unscrupulous DME suppliers to enter the Medicare program. Our goal is to make sure Medicare only does business with legitimate firms. In addition to clarifying the law requiring a surety bond of at least $50,000, DME suppliers will be banned from telemarketing, be required to have a physical location and a working business phone at that location, be prohibited from reassigning supplier numbers, be held liable for criminal and civil sanctions for false information on billing number applications and will be required by regulation to re-enroll in Medicare every three years.

HCFA is also taking other actions to ensure that DME suppliers receiving Medicare billing numbers are legitimate. As the HHS IG has recommended, HCFA began requiring periodic training on billing procedures for new and existing suppliers and modified the DME application form to obtain additional information about prospective DME suppliers.

Community Mental Health Center Initiatives

One of the newest and fastest growing areas of fraud and abuse has been associated with Community Mental Health Centers. In January, we began a new initiative to stop the growing amounts of fraud and abuse associated with partial hospitalization services rendered by these types of mental health centers. In the last four years, there has been a dramatic rise in the total reimbursements, the average payment per patient and the number of mental health centers. Reviews conducted jointly with the HHS IG have revealed large scale amounts of fraud, including services being rendered to beneficiaries who are not mentally ill by unqualified, unlicensed staff.

In an effort to ensure that only legitimate mental health centers are permitted to enter and remain in the program, HCFA will conduct onsite reviews of all mental health centers in nine targeted States, including Texas and Arkansas. We will terminate the provider agreements of all entities that do not meet Medicare standards. If this initiative proves successful, each fiscal intermediary will conduct onsite reviews of all new mental health center applicants, stopping illegitimate entities from gaining entry to Medicare and defrauding the Trust Fund.

FY 99 President's Legislative Proposals and Other Initiatives

In January, the President unveiled a legislative package and several initiatives which give us new tools in our fight against Medicare fraud and abuse. The legislative proposals seek authority to collect a fee from providers in order to increase the number of audits; eliminate wasteful excessive reimbursement for certain drugs; eliminate abuse of Medicare's outpatient mental health benefits; and prevent providers from taking advantage of Medicare by declaring bankruptcy.

These proposals will allow us to stop some of be unscrupulous home health agencies who have set up shop in Texas. In the early 1990's, a home health agency moved to Texas from the Midwest and started serving large numbers of Medicare beneficiaries. HCFA soon became suspicious of their large billings and with the HHS IG initiated an audit which found that the agency had wrongly billed Medicare for $30 million. Before we could recoup these monies, the agency filed for bankruptcy, discharging their debt and stopping our ability to recover these Medicare dollars.

The President also announced that HCFA has increased the number of on-site visits to DME suppliers. Restore Trust initiatives have found many purported DME suppliers whose addresses are the sixth floor of a five story building or are only mail drops in places like Laundromats and night clubs. Site visits to two thousand suppliers five states with the most DME fraud problems resulted in 650 suppliers being ejected or rejected by Medicare in 1997. Site visits began in an additional 10 states this month and will be expanded nationwide. These measures will make it more difficult for unscrupulous suppliers to enter the Medicare program.

Additionally, the President announced an unprecedented effort to involve Medicare beneficiaries in identifying waste, fraud and abuse. Over the next few months the Medicare toll-free fraud hotline -- 1-800-HHS-TIPS -- will appear on the statements beneficiaries receive that list the services that have been billed to Medicare on their behalf . Later this year, provisions in HIPAA will be implemented to give beneficiaries rewards for reporting fraud.

We simply cannot tolerate those who would cheat our beneficiaries and the taxpayers. That is why just last month I announced that Medicare will open an office in New Orleans that will coordinate anti-fraud activities in Louisiana. The New Orleans field office will open this spring. It's the latest step of the crackdown that President Clinton began in 1993. It will operate in the same way as our highly successful office in Miami. Medicare staff based in New Orleans will coordinate efforts among federal and state officials, law enforcement, private insurance and consumer advocacy groups. Working together, we will do an even better job of finding, prosecuting and preventing fraud and abuse.

Our experience with the Miami field office proved that onsite presence makes a considerable difference in raising public awareness of the Medicare fraud and abuse problems. The Miami office helped detect new types of fraud and proposed steps to stop it. We expect that this new field office too will make major inroads against fraud and abuse here in this region. Medicare beneficiaries of today and tomorrow deserve no less.

In the very near future, HCFA will publish a proposed rule which will allow us more flexibility in contacting with companies who can provide valuable services in the fight against waste, fraud and abuse. The Health Insurance Portability and Accountability Act (HIPAA) provided HCFA with new authority to contract with private organizations to perform program safeguard activities like audits and site visits. We hope to start enlisting these private entities by the end of the year.

National Conference to Identify Best Practices

In a few weeks, I will be convening a national conference to identify best practices in fighting waste, fraud and abuse. This conference will bring together about 200 representatives of private industry, law enforcement, health care providers, and beneficiaries to discuss what is being done to combat problems like credit card fraud, insurance fraud, and telecommunications fraud in addition to health care fraud. Representatives from our Regional Offices will also be present and following the conference will help design a long-range plan to guide the agency in fighting and preventing fraud, waste and abuse.


We have stopped a great deal of unscrupulous dealings over the last 4 years. However, the nature of health care fraud demands that we must continuously identify new measures in order to stay a step ahead of those whose intention is to misuse Medicare Trust Fund dollars. Each Medicare dollar spent fraudulently is a direct drain on the resources which provide health care for our nation's seniors. I hope to build on the growing momentum to ensure that the Medicare Trust Fund remains solvent for generations to come.

As I said in my confirmation hearing, fighting fraud is a top priority for me. My tenure as HCFA Administrator will build upon the anti-fraud and abuse efforts that have already been initiated under the Clinton Administration. The Congress provided the Administration with significant new tools in HIPAA and the BBA. Coupled with a number of new legislative proposals we are requesting for FY 99, we believe we have a strong new arsenal to remove bad actors from our roll. I look forward to working with you in our efforts to stamp out fraud and abuse.

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