Probing The Medicare Money Trail

The feds widen their crackdown on Medicare overbilling

The letter from the Justice Dept. shocked President James W. Varnum of Mary Hitchcock Memorial Hospital. Alleging that his Lebanon (N.H.) hospital committed fraud in the way it billed Medicare in the early 1990s, the feds demanded $1 million in their January letter, mostly in civil fraud penalties. Varnum says that the overpayments resulted from a mistake-prone billing system. Still, in May, rather than litigate, he settled with Justice by paying $100,000. "Whenever there is any error, the government says it's fraud and abuse," Varnum fumes. "It's not right."

Health-care providers such as Varnum had better get used to it. In the past 10 months, Justice and the Inspector General of the Health & Human Services Dept. recouped $1.1 billion from Medicare providers, compared with $250 million collected over the previous 12 months.

MORE GUMSHOES. That's just the beginning. A new report by the HHS inspector general gives investigators a huge new target: an estimated $23 billion in Medicare overpayments--through fraud or error. On July 28, HHS released another audit in which analysts estimate that 40% of all home health-care payments by Medicare may be unjustified. Two days later, a federal grand jury unsealed indictments against three Columbia/HCA Healthcare Corp. executives as part of a sweeping probe of the chain. They're accused of filing inflated Medicare billings that led to $1.8 million in overpayments to one hospital.

Expect more of the same. Congress has increased funding for health-care investigators. And thanks to new and more sophisticated auditing systems, the probers are finding it easier to spot unusual billing patterns. Health-care probes by the Federal Bureau of Investigation, meanwhile, are rising fast--to 2,300 in the first half of 1997, up from 591 in all of 1992.

One huge target is home health care. Since 1990, annual Medicare payments to home-care agencies have quintupled, to $16.9 billion. Regulators don't check the backgrounds of home-care agency operators, and Medicare allows unlimited home health-aide visits. "People are seeing it as a way to make a fast buck," says Michael F. Mangano, principal deputy inspector general of HHS.

While investigators used to focus on small operators, they're now looking at bigger players in all Medicare programs. In addition to the Columbia/HCA probe, SmithKline Beecham Clinical Laboratories Inc., accused of false billings for laboratory tests in a crackdown called "Labscam," reached a $325 million settlement with Justice earlier this year. And last year, the University of Pennsylvania agreed to pay $30 million after being accused of civil fraud by billing Medicare for services of teaching doctors when residents performed the work.

The hospital industry alone is under three separate HHS and Justice civil-fraud investigations. In the largest, enforcers are accusing 4,600 hospitals of violating a rule banning them from billing Medicare for outpatient services if the patient is admitted for the same condition within three days. So far, 2,000 hospitals, including Varnum's Mary Hitchcock, have paid $47 million, and the government expects to collect $55 million more.

Hospitals are irked by the probe. "Our folks are trying to take care of people, not trying to defraud the government," says Richard J. Davidson, president of the American Hospital Assn. But prosecutors counter that hospitals have long ignored warnings about their billing procedures. "They were put on notice, and they did not correct their systems," says Donald K. Stern, the U.S. Attorney for Massachusetts.

The feds' next target is managed care. Inspectors will look at whether managed-care providers, which get a flat per-patient fee, are providing appropriate care. Their advice to health-care providers of all kinds: Take two aspirin, and expect a house call from federal agents in the morning.

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