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Testimony on Medicare Home Health by Linda Ruiz
Director of Program Integrity
Health Care Financing Administration
U.S. Department of Health and Human Services

Before the House Committee on Commerce, Subcommittee on Oversight and Investigations
March 19, 1998


Chairman Barton and Members of the Subcommittee, thank you for convening this hearing today to talk about one of our highest priorities at the Health Care Financing Administration (HCFA): combating waste, fraud and abuse in Medicare's home health benefit. It is a pleasure to discuss this important topic with you and our other partners in the fight against fraud: the General Accounting Office (GAO) and the Department of Health and Human Services' Office of the Inspector General (OIG).

Congress designed the home health benefit to provide care that is related to the treatment of a specific illness or injury in the course of responding to an acute episode. To receive home health, a beneficiary must be under the care of a physician who has certified that medical care in the home is necessary and who has established a plan of care. Furthermore, the beneficiary must be confined to the home and must need intermittent skilled nursing care, or physical therapy, or speech language pathology services, or have a continuing need for occupational therapy. If these requirements are met, Medicare will pay for:

  • skilled nursing care on a part-time or intermittent basis
  • physical and occupational therapy, speech language pathology services
  • medical social services
  • home health aide services for personal care related to the treatment of the beneficiary's illness or injury, on a part-time or intermittent basis
  • medical supplies and durable medical equipment (DME has a 20 percent beneficiary co-insurance)

Medicare's home health benefit is crucial to the 4 million beneficiaries who receive care at home. Compared to the rest of the Medicare population, home health patients are more likely to be female and to live alone. These patients also tend to be poor; 43 percent have incomes below $10,000. In addition, home health users are more likely to have 2 or more activities of daily living impairments, and rate their health status as poor.

Home health beneficiaries receive services that greatly improve their quality of life. The benefit helps these patients recuperate in their own homes. Sophisticated medical treatments that were once only possible in a hospital are now available to patients at home. Beneficiaries are receiving these services from the Nation's 10,500 home health agencies. The majority of these agencies employ honest, hard-working people who provide top-quality care to our beneficiaries.


Along with the successes of the home health benefit, many problems have been identified. Home health patients are particularly at risk of victimization by bad actors, and spending has grown dramatically by a factor of 5 since 1990. In 1990, Medicare program payments for home health benefits totaled $4 billion (in 1997 dollars) representing 3 percent of all Medicare payments. By 1997, home health payments grew to $20 billion, accounting for almost 10 percent of all Medicare expenditures. During the same time period, average visits per beneficiary more than doubled from 33 to 78. Home health spending grew at an average annual rate of more than 25 percent from 1990-1997. In addition, the number of home health agencies went from 5,700 in 1990 to over 10,500 in 1997. While some of this growth is due to court interpretations, demographics, and medical advances, a significant amount cannot be explained by these factors alone.

The OIG and the GAO have found high levels of inappropriate home health billings in numerous studies. In the July 1997 report, Results of the Operation Restore Trust Audit of Medicare Home Health Services in California, Illinois, New York and Texas, OIG evaluated a sample of 3,745 services in 250 home health claims in four states and estimated that 40 percent of the services did not meet Medicare reimbursement requirements. Similarly, GAO noted significant levels of inappropriate billings in the June 1997 report, Medicare: Need to Hold Home Health Agencies More Accountable for Inappropriate Billings. A review of 80 high-dollar claims in one state revealed that 43 percent of the claims should have been partially or totally denied, and the HCFA contractor subsequently denied them.

Faced with evidence of increasing waste, fraud and abuse in the home health benefit, we took steps to combat the problem beginning in mid 1990s. Only a few years later, we are achieving success in increasing fraud and abuse investigations, indictments, convictions, fines, penalties and restitutions. Operation Restore Trust and the Health Insurance Portability and Accountability Act are early anti-fraud weapons that already are proving very successful.

Operation Restore Trust, launched by President Clinton in 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. During this phase, Operation Restore Trust accomplished measurable successes: identifying $23 in overpayments for every $1 spent looking at home health care, hospices, skilled nursing facilities and suppliers of DME.

Last year, using new Health Insurance Portability and Accountability Act authorities, nearly $1 billion was returned to the Medicare Trust Fund, thanks to our partnership with the OIG, 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.

Despite the successes from Operation Restore Trust and the Health Insurance Portability and Accountability Act, we know that much more remains to be done to combat waste, fraud and abuse in home health. Until these two measures, the Balanced Budget Act and the President's recent anti-fraud initiatives, home health provider requirements, the oversight process and reimbursement policy had not changed significantly since the benefit's creation in 1966. Yet the benefit itself has undergone significant changes throughout this time. It has experienced sizeable growth in the number of beneficiaries receiving the service, and in the amount of expenditures, and undergone various legislative and judicial changes. While the majority of home health agencies continues to be legitimate, this provider group has also experienced changes; an alarming number of unscrupulous agencies have entered the program.

Armed with the new weapons forged in the anti-fraud initiatives and recent legislation, HCFA looks forward to continuing our work with Congress, GAO, OIG, federal and State enforcement agencies, and other State and local officials, in the fight against waste, fraud and abuse. Given the scope of the problems, we welcome the assistance and skills of these critical partners to root out fraud in the home health benefit.


In a broad sense, the Administration is pursuing a four-part strategy intended to deter fraud and abuse on every front -- our strategy focuses on prevention, early detection, coordination, and enforcement.

Prevention means paying right the first time, the most desirable approach. Prevention is the best means to guarantee the initial accuracy of both claims and payments, and to avoid having to "pay and chase," a lengthy, uncertain and expensive process.

Early detection is a second key ingredient of our approach. We can identify patterns of fraudulent activity early by using data to monitor unusual billing patterns and other indicators of the integrity and financial status of providers, promptly identifying and collecting overpayments, and making appropriate referrals to law enforcement.

Coordination with our partners is another important way we can maximize our success. Through Operation Restore Trust, we learned the importance of working closely with the States, the Department of Justice, including the FBI, the OIG, the private sector to share information and tactics for fighting fraud and abuse.

Finally, when we find "bad apples" among our many good providers, we must take enforcement action against them, including suspension of payment, referral to the OIG for potential exclusion from the program, disenrollment, collection of overpayments, and imposition of civil money penalties. Investing in prevention, early detection and enforcement has a proven record of returns to the Medicare Trust Fund. Based on HCFA's estimates, every dollar spent by our Medicare contractors using these methods yielded $14 in return in FY 1996.

Prevention, detection, coordination, and enforcement -- these terms are more than just buzzwords or campaign phrases. They are the cornerstones for HCFA's anti-fraud strategy, which we are aggressively applying in the fight against fraud, waste, and abuse in home health.


The Balanced Budget Act of 1997 With the support of many Members of this Committee, the Balanced Budget Act made the most significant changes in Medicare and Medicaid since they were enacted more than 30 years ago. This budget agreement is a major step forward by Congress and the Administration in the effort to preserve the home health benefit, and strengthen Medicare overall. We are pleased to have the new authorities contained in the agreement, and are 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, require home health agencies to bill based on the place the service was provided rather than from a more expensive central office, close a home health eligibility loophole based on blood draws, establish home health payment reforms, 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. Some of these key provisions are described below.

We estimate that the provision closing a loophole which allowed home health agencies to bill in high cost areas, will save the Medicare program millions of dollars. 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, agencies would bill the services from an urban 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 the location of the agency's billing office, typically an urban area. This provision was implemented October 1997.

The Balanced Budget Act closed another loophole in home health. Prior to the budget agreement, venipuncture for a blood draw triggered the potential for virtually unlimited home health visits even when the beneficiary had no skilled medical needs. Medicare still pays for blood draws that are not associated with home health services. This service will be paid under Part B rather than under the home health benefit. If a beneficiary is unable to travel to a laboratory or a physician's office for the blood draw, Medicare Part B will pay for a technician to travel to the beneficiary's residence to draw blood. Alternatively, a physician, nurse practitioner, clinical nurse specialist or a physician assistant can conduct a home visit and draw blood when they examine the beneficiary.

Medical review staff at HCFA's contractors found numerous examples of abuse associated with venipuncture. For example, the contractors discovered cases where beneficiaries were taking a blood thinning drug, but needed no other skilled treatment. Physicians ordered skilled nursing visits to draw blood for laboratory testing (for adjustment of drug dose), and home health aide services for these individuals. In one case, there was no evidence that the patient needed skilled treatment but skilled nursing visits were prescribed 1-2 times per week, and a home health aide was ordered for 12 hours a day, 7 days a week to assist in showering, meal preparation, shopping, laundry, housekeeping, safety supervision, and escorting. The venipuncture provision targets this inappropriate use of home health services. It also ensures that beneficiaries receive care that is covered under law by focusing limited Medicare resources on the mandate to serve persons with medical and remedial care needs, rather than those requiring only supportive services. The venipuncture provision went into effect February 5, 1998.

The Balanced Budget Act also includes major reforms in home health payment. Historically, home health agencies have been paid on the basis of reasonable costs. Within the home health cost limits, HCFA was required to pay the agency the cost it incurred in providing care. This type of payment, known as cost-based reimbursement, has been widely criticized. There is no incentive for operating efficiently, minimizing costs, or controlling the number of visits supplied.

Under the Balanced Budget Act, an interim payment system took effect October 1, 1997, that will pay agencies the lower of their actual costs, or one of two aggregate limits. The first is an aggregate limit based on per visit costs that encourages operating efficiency. The second is a new aggregate per beneficiary limit that encourages efficiency in care planning and delivery. The Balanced Budget Act requires Medicare to move to a prospective payment system to control costs, and ensure quality and access to care by October 1, 1999, a target HCFA is working hard to meet. On this same date, periodic interim payments (PIP), which are made in advance but not justified until the end of each year, will be eliminated. The OIG found these payments to be a source of waste and abuse and recommended elimination of PIP in its July 1997 report, Home Health: Problem Providers and Their Impact on Medicare. The Balanced Budget Act's home health payment reforms target the inappropriate growth in home health spending, and the waste, fraud, and abuse of the benefit.

Many of the home health provisions in the Balanced Budget Act were framed in the light of the benefit's changing nature. The role of the home health benefit has broadened significantly since its inception. The benefit was designed to provide care that is related to the treatment of a specific illness or injury in the course of responding to an acute episode. The Social Security Act contains blanket exclusions of coverage for custodial care (personal care unrelated to skilled treatment of an illness or injury) and personal comfort items. Personal care services, such as help with bathing, covered under the home health benefit are intended to augment skilled care in the overall treatment of a beneficiary who needs skilled medical care.

Finally, it is important to note that the growing population of elderly beneficiaries has caused home health care to be used more widely than before. In addition to the need for home care among individuals who require intermittent skilled nursing, or physical, speech or occupational therapy, there is also a demand for both custodial care and personal care services which are not covered under Medicare. We believe that a good share of the increase in utilization in recent years reflects an attempt to meet these needs, as evinced by the fact that increases mainly have been in home health aide visits for personal care in recent years.

Operation Restore Trust

Operation 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 four areas: home health agency, nursing home, hospice and durable medical equipment services in California, Florida, Illinois, New York, and Texas.

During its two-year, five-state demonstration phase, Operation Restore Trust accomplished measurable successes: identifying $23 in overpayments for every $1 spent looking at home health care, hospices, 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 Operation Restore Trust was expanded to 12 additional states and all Medicare service areas.

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.

In addition to the moratorium, the President announced several other measures to combat fraud. Agencies now must reveal related business interests. This will prevent unscrupulous agencies from funneling fraudulent activities through subsidiaries or "front" companies that do not actually exist. New home health agencies also will be required to serve at least 10 private-pay patients before they are admitted to the Medicare program. Serving private-pay patients will demonstrate experience and expertise before an agency is allowed to serve beneficiaries. Later this year, HCFA will issue regulations requiring home health agencies to re-enroll every three years. The re-enrollment requirement will help us to detect fraudulent practices in the Medicare program. Lastly, we are increasing the number of cost report audits and increasing the number of claims reviewed for medical necessity by about 25 percent.

In January, the moratorium was lifted 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. The regulation also requires new agencies to meet initial capitalization requirements that demonstrate the agency has sufficient available cash to meet expenses for the first 3 months of operation. Because of the success of a surety bond requirement imposed by the Florida Medicaid program, we know that this approach works. This State bond requirement, combined with additional anti-fraud measures, resulted in savings of $200 million over a two-year period for Florida. Although the number of Medicaid home health agencies declined by 32 percent, the State of Florida has received no complaints from physicians or patients regarding access to care problems. The Federal surety bond requirement will help Medicare and Medicaid to recover funds from agencies who have incurred overpayments, or who have had civil monetary penalties or assessments imposed against them.

National Conference to Identify Best Practices

Just this week, HCFA convened a national conference to identify best practices in fighting waste, fraud and abuse. The conference brought together representatives from private industry, law enforcement, health care providers, and beneficiaries to discuss ways to combat fraud. HCFA listened to these experts, and is considering how to incorporate their effective methods into our own program integrity strategy. The people on the front line in the war on fraud, representatives from our Regional Offices, participated in this conference. They will help design a long-range plan to guide the agency in fighting and preventing fraud, waste and abuse.


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 give Medicare and Medicaid the right of first recovery when a provider files for bankruptcy.

These proposals will allow us to stop some of the unscrupulous home health agencies who have "set up shop." For example, in the early 1990's, a home health agency moved to across the country and started serving large numbers of Medicare beneficiaries. HCFA soon became suspicious of their large billings and with the OIG 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, discharged their debt and stopped our ability to recover these Medicare dollars.

In the very near future, HCFA will publish a proposed rule which will allow us more flexibility in contracting with companies who can provide valuable services in the fight against waste, fraud and abuse. The Health Insurance Portability and Accountability Act 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.


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. HCFA hopes to build on the growing momentum to ensure that the Medicare Trust Fund remains solvent for generations to come.

The Balanced Budget Act, Health Insurance Portability and Accountability Act, Operation Restore Trust, and the Administration's anti-fraud initiatives are working. But more remains to be done. Stamping out waste, fraud and abuse, requires help from all of HCFA's partners. We encourage and look forward to further anti-fraud legislation from Congress. HCFA welcomes the skills of the General Accounting Office and the Office of the Inspector General at identifying individual bad actors as well as systemic fraud. We are eager to strengthen coordination with our enforcement partners including the Department of Justice, the Inspector General and State and local officials. Together we can catch, stop and punish existing, fraudulent providers, and at the same time, work toward preventing waste, fraud and abuse in the first place.

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