Office of Statewide Prosecution

Statewide Grand Jury Report

December 11, 1996
(This document has been re-formatted for the Internet)


In April, 1996, having heard several months of testimony about the extensive fraud associated with durable medical equipment companies in the Medicaid program, we, the members of the Thirteenth Statewide Grand Jury issued a Report addressing the fraud. In that Report, we found significant abuse in the program, from the initial application process to the final payment stage. We said the Medicaid Program needed more controls with respect to its participants and recommended that all participants, from recipients to providers, including physicians, be held strictly accountable for their actions. The Agency for Health Care Administration (hereafter, The Agency) has implemented many of our recommendations as well as some additional reforms. This report will serve to advise the public on the status of these anti-fraud initiatives. In the meantime, we are continuing the task of investigating fraud and abuse in Florida’s Medicaid Program. In furtherance of our investigation into problems involving the sale and rental of durable medical equipment (hereafter DMEs), we have discovered a unique aspect of abuse involving the unnecessary placement of hospital beds with Medicaid recipients residing in Assisted Living Facilities (hereafter ALFs). We have heard testimony from managers of the Agency for Health Care Administration (hereinafter the Agency) and an investigator with the Attorney General’s Medicaid Fraud Control Unit who concentrated on this area for several months. We have learned that the Agency estimates this particular abuse may be costing the State of Florida as much as $200,000 during the twenty-one month period from January 1, 1995 to September 30, 1996 in unnecessary billings for hospital beds in Dade County ALFs alone. This number represents approximately 18% of the $1,136,667 in total billings for hospital beds in all types of placements in Dade County for the same period. The total expenditure for hospital beds throughout the State during this time period was $2,770,948, with Dade County Medicaid providers receiving half of that money. We believe that the Agency can successfully address this abuse by changing billing procedures, initiating spot checks, educating participants on Medicaid Program guidelines for hospital bed placement, and properly maintaining and utilizing existing computer billing edits. This report sets forth our findings and recommendations with respect to this issue.


In our first report on fraud and abuse in the Medicaid Program associated with DME providers, we recommended that the Agency gather more information about prospective providers before allowing them to participate in the system, and that they conduct criminal and financial background checks on an applicant, at the applicant’s expense. If an applicant has a felony criminal record or a conviction for any fraudulent offense, we recommended that the applicant be denied admission into the program. We recommended that the Agency check with the Medicare Program to ensure an applicant’s good standing in that system. In addition, we recommended on-site visits to prospective providers to ensure the existence of a legitimate business and that providers be required to post a bond before being allowed to bill under the Medicaid Program. We also suggested that the Agency’s three-month retroactive billing policy for new providers be discontinued. Furthermore, we strongly recommended that anyone committing fraud on the system should be immediately removed from it. The Agency responded by implementing a re-enrollment initiative in which all existing DME providers in the State were required to submit new provider applications and re-enroll in the program. This re-enrollment process includes criminal background checks conducted by the Florida Department of Law Enforcement (paid for by the enrollee), followed by on-site inspections of DME facilities by the Agency. Around the State, new applicants and any previous provider that was in business for less than one year, are now required to obtain and submit proof of being covered by a $50,000 surety bond. In the South Florida area, all DME providers, regardless of the age of the business or its prior provider status, are being required to post this bond. The Agency is relying on the bonding companies to perform the financial background check. The bond is only required for a year. Failure to obtain a bond, failure to pass a criminal background check, or failure to pass an on-site inspection now results in denial of entry into the Medicaid Program. The Agency has also revised its provider applications and now requires significantly more detailed information from an applicant including the listing of all business partners with greater than a 5% financial interest in the company. The three-month retroactive billing practice has also been eliminated. Although this enrollment process is still on-going, the number of DME providers in the Medicaid Program has already been drastically reduced from 4,000 to 1,560. The Agency tells us this number will fall even further as the process is concluded. It is clear that the front-end controls we recommended have resulted in a significant savings of tax dollars. The Agency estimates this savings in the DME area alone to be $20 million dollars annually. In our first report, we also recommended a closer scrutiny on DME suppliers of oxygen equipment. We recommended that all documentation relative to dispensing oxygen be produced prior to the issuance of a provider number. The Agency is now requiring these vendors to produce their HRS oxygen dispensing license before issuing a Medicaid provider number to them. In the area of billing procedures, we recommended that the prescribing physician’s name be included in a claim and that the physician be notified when their name is used in conjunction with a claim for durable medical equipment. The Agency has rejected this recommendation on the basis that the Medipass system will be able to fill in the accountability gap. Approximately half of Medicaid recipients are on Medipass, wherein they have a primary physician assigned who is held accountable for all billings. Presumably, no treatment or authorization for equipment can occur without this physician’s knowledge. It remains, however, that no mechanism is in place at this time whereby a physician’s verification is required to substantiate a claim. We also asked that recipients be sent a claims verification form similar to the Medicare Program’s “explanation of medical benefits” form. This has not been and continues not to be an Agency practice on anything other than a random basis. Finally, we suggested enhancing the editing mechanisms within the Agency’s computerized claims payment system. The Agency reports that it now has some new edits in place. One such edit allows for payment of only one claim per month per recipient per DME item. The Agency is considering implementing some ninety other edits which are now under review by its staff. At this time, the Agency reports that it is also monitoring and examining claims and disbursements for abnormal billing and payment patterns. Additionally, the Agency has purged its system of inactive providers. We have also learned that the Agency is negotiating for the purchase of a new claims verification computer software program which will be installed on the existing program by the fiscal agent. While we are excited by the potential savings demonstrated by a pilot project conducted by the Agency (an estimated $ 16 million annually), we are very concerned that the taxpayers not be required to pay for this new program. The estimated cost of the program is $2 million dollars. It is our opinion that the contract with the fiscal agent should include provisions requiring the entity to develop on its own, or to acquire and implement fraud detection technology as it develops. We strongly urge the Agency to require the fiscal agent to procure this new software and to install it as expeditiously as possible.


Earlier this year, agency employees began inspecting Assisted Living Facilities in the State of Florida, with particular emphasis on those facilities in Dade County. Assisted Living Facilities are residential facilities where health care services are provided in a home-like environment for elderly persons and adults with disabilities. These facilities are fully defined in Chapter 400, Part III, Florida Statutes and are licensed by the Agency pursuant to Chapter 58A-5 Florida Administrative Code. Generally speaking, ALFs are for ambulatory patients who are not permanently bed ridden. Medicaid Program guidelines generally require that recipients be completely bed-ridden before a claim will be paid for a hospital bed. Agency inspectors were surprised, therefore, to find many of the ALFs were full of hospital beds, which had been placed with ambulatory recipients by DME suppliers. The DME suppliers were then billing Medicaid for the beds. Suspecting fraud, the Agency referred the cases to the Attorney General’s Medicaid Fraud Control Unit. After vigorous investigation, the Medicaid investigator assigned to this project reached some startling conclusions. Of the eight DME suppliers examined in detail, all had kept meticulous records of each billing and recipient. In each case a signed Certificate of Medical Necessity (hereafter CMN), which is required under the Program for each hospital bed billing, was present and in order. The investigator next approached the prescribing physicians to see if they had in fact signed CMNs for the beds. The general, but reluctant, response was that they had. Their explanations were varied: that they were only trying to make the recipients more comfortable; that they were unaware of Medicaid guidelines for bed placement, or that they were too busy to thoroughly read the CMN forms which were often sent to them already filled out by the DME supplier. No direct evidence of kick-backs, bribery or fraudulent enrichment was uncovered. However, it was determined that some of the DME suppliers were billing Medicaid for beds under circumstances not authorized by the Medicaid guidelines, resulting in Medicaid recipients receiving free medical services to which they are not entitled, and ALFs obtaining beds for free that they would otherwise have had to buy for their residents. It was also determined that the Medicaid Program billing limitation of ten claims per bed per recipient was being violated in some instances, but the investigation did not reveal any intentional pattern of this activity.


Based on the testimony of Agency employees, and the Medicaid Fraud investigator, we doubt that the participants under investigation (either the ALFs, the DME providers, or the physicians) operated with any criminal intent in creating the situations uncovered. Instead, it appears that a standard practice has evolved in this industry due to a lack of adequate controls and accountability in the Medicaid Program which results in unauthorized payments constituting abuse of the system. We have identified, with the assistance of the witnesses, remedial and preventative actions on the part of the Agency necessary to solve this problem. The abusive practice that has evolved over time is this: when residents are admitted to an ALF, they are often visited by their own referring physician or a physician affiliated in some way with the ALF; the resident may request or the physician may decide that a hospital bed is an appropriate health care service to provide to the resident; the physician verbally authorizes the ALF to obtain a hospital bed for the resident; the ALF contacts a DME provider who immediately provides the hospital bed to the resident; the DME provider prepares a written CMN for the physician to sign, or requests that the physician supply the DME provider with a written CMN; and Medicaid Program billing is handled by the DME supplier. In this process, the recipient technically contracts with the DME supplier for the bed, just as he or she would if she were at home. Yet, it is often the ALF that makes the initial contact with the DME supplier for the recipient. The ALF is not responsible for billing under the Medicaid Program for the equipment provided to the residents, and thus has no obligation to ensure compliance with Medicaid regulations regarding payment for hospital beds. The physician may or may not be an enrolled Medicaid provider, and thus may not even be aware of the Medicaid requirement that hospital beds be provided only to non-ambulatory Medicaid recipients. Thus, the DME supplier, it turns out, may be the only participant in this process that necessarily has a copy of Medicaid Program guidelines for billings. The DME supplier therefore knew they must have a CMN signed by a doctor before they could begin billing for the bed. But the question that arises is this: does the DME supplier have any incentive whatsoever to question the prescription of a hospital bed for an ambulatory resident? Of course not! Thus, the abuse takes place: ambulatory Medicaid recipients who are residents of ALF’s are receiving a free medical service that they are not entitled to under the program. The Medicaid Program limits both the number and amount of payment to a DME provider of hospital beds. A DME provider may only bill ten times for the same bed for the same recipient. After the ten payments are made to the DME provider, the recipient becomes the owner of the bed. If the CMN is not produced by the physician immediately, the billings are not contemporaneous with the prescription date and it is difficult to assess the level of compliance with this regulation. Finally, it became clear to us that a major problem in assessing the true magnitude of this abuse is that the neither the records on the Medicaid recipient, nor the records on the DME billings are required to indicate if the recipient is residing in an ALF. If these records reflect this information, it is by happenstance. It therefore becomes a technical nightmare, and perhaps a matter of speculation, to identify those claims falling under this scenario. This fact pattern may have continued uninterrupted for years. We question, therefore, the Agency’s attention to this issue, because its fiscal impact may be greater than is presently realized. It is our considered opinion that the Medicaid Program guidelines, and implementation of them by the Agency, has led to this situation: (1) A conflict of opinion exists within the Agency regarding the authority of a DME supplier to fill out any portion of the CMN and sending it to a doctor for his or her signature. (2) While the DME provider may be thoroughly familiar with the Medicaid guidelines in this area, the physician may not be if he or she is not a Medicaid provider. (3) While the ALF may serve as the conduit for obtaining the hospital bed, by arranging the contact for the resident, there is no obligation on the part of the ALF to see that the Medicaid guidelines are followed. (4) While the bed becomes the property of the Medicaid recipient after the authorized number of payments, there is no enforcement of the requirement that the recipient be notified of this fact, leaving the ALF fully stocked with hospital beds as abandoned property, or back in the hands of the DME provider to resell under the program. (5) The Agency concedes that hospital beds could occasionally be justified for an ALF resident who might be temporarily bedridden due to accident or injury, yet it takes no steps to ensure that the hospital bed is provided only during the time it is needed. (6) The Agency concedes that it did not verify the effectiveness of the computer edit responsible for rejecting claims for payment that exceed the ten payments per hospital bed per recipient rule. An Agency administrator testified that a recent test of this edit revealed that it was not working properly. Without direct evidence of fraud, such as bribes or confessions, there is at best only a circumstantial case of criminal intent against the DMEs, ALFs, and physicians under investigation in these cases. In circumstantial cases, the government must disprove all reasonable hypothesis of innocence for a conviction. It is entirely reasonable that the abuse which has developed in this area is the result of a lack of knowledge regarding Medicaid Program guidelines, a lack of legal obligation to follow the guidelines, and a lack of strong regulation by the Agency.


In conjunction with the Agency’s actions in recent months to become more proactive in areas of fraud and abuse prevention and detection, this issue is being addressed. As of December 15, 1996, the Agency will require any DME provider contracting with any Medicaid recipient for a hospital bed in any facility to obtain a prior authorization number from an Agency official before the billing can be submitted for payment. This plan requires all DME providers to submit a signed CMN, as well as details about the medical condition of the recipient, the duration of the placement, and the physician’s name, address and telephone number. The Agency official will review the material before assigning an authorization number and will then perform spot checks to insure the accuracy of the information. The Medicaid Program’s fiscal agent will be ordered to withhold payment from any DME provider that does not supply this authorization number with the claim. This prior authorization procedure should drastically reduce the number of hospital beds in ALFs by insuring that the beds are justified. Due to the ambulatory condition of the ALF patients, only rarely should a hospital bed be legitimately placed in an ALF. Also, if a DME supplier forged an authorization number or submitted a bill without one, it would be evidence of criminal intent. The Agency reports that the faulty computer edit responsible for preventing over-payments has been fixed. According to Agency estimates, overpayments attributable to this faulty edit amounted to approximately $24,000 from January 1, 1995 through September 30, 1996 in Dade County ALF’s alone. The Agency agrees that Medicaid recipients who contract with a DME provider should be advised that the hospital bed belongs to them after the ten payments have been made. The Agency believes that this requirement should be imposed on the DME provider. Finally, the Agency recommends legislation to require licensing of all DME suppliers as a means to achieving greater control over this and other practices. The Agency also suggests that licensing is essential to protecting all recipients of durable medical equipment, whether enrolled in Medicaid, privately insured or uninsured, from unscrupulous or unqualified providers.


We commend the Agency for its disclosure regarding the malfunctioning edit in the computerized billing system, and are relieved that it has been resolved. We are also heartened by the Agency’s novel, pre-authorization billing procedure for hospital beds. As we are authorized to do, however, we conclude that additional anti-fraud and abuse measures can and should be taken by the Agency and we recommend them here: (1) The Agency must figure out an efficient way of identifying Medicaid recipients who are residents of ALF’s. If this is not handled, there will never be a complete and accurate assessment of the abuse, and a complete resolution of it. (2) The inspectors in the field charged with the responsibility to monitor ALF’s, must immediately communicate any apparent Medicaid program violations to the appropriate authorities within the Agency. Communication between the right hand and the left is essential. (3) Any instance of abuse must receive as much attention as any instance of fraud. Efforts to recover the money paid out for hospital beds in unauthorized situations must be initiated as expeditiously as possible. (4) The Agency must develop a specific and aggressive system of spot checks during the authorization number request period. (5) The Agency must initiate an education program for all DME providers, physicians, and ALFs for instruction on the Medicaid Program guidelines on the provision of hospital beds to Medicaid recipients. Also, the Agency must ensure that these regulations are exceedingly clear on the issue of proper CMN preparation. It does no good to create regulations if they are unclear or if only some of the participants in a given fact situation are aware of them. (6) The Agency must conduct spot checks of all computer edits as soon as possible. (7) The Agency must enforce a dependable method of notifying recipients that after ten payments, the bed becomes their property.


We have, in the course of our tenure, heard testimony of vast amounts of fraud, abuse and incompetence perpetrated by DME suppliers. We have been shocked by the multitude of scams which unscrupulous DME suppliers inflict upon the public. Our first report addressed this area and called for quick and decisive action by the Agency. This report addresses a new area recently brought to our attention. It likewise requires aggressive action on the part of the Agency, if it is to be resolved. We have not and do not imply that all DME suppliers are dishonest, and in fact we believe that the recent front-end controls implemented by the Agency have and will continue to go a long way toward weeding out the criminal element in the Medicaid Program. In the scope of our work, we have only investigated DME suppliers billing under the Medicaid Program. This program includes 1.5 million recipients. Yet, there are more than 14 million residents in the State of Florida, who are either privately insured or have no health care coverage at all. Now the question occurs to us -- what is being done by the government to ensure that the same scams are not being perpetrated by unscrupulous DME suppliers on these citizens? Sadly, we have learned the answer is this: nothing. Given what we have learned about the nature of criminal behavior, we have no reason to believe that there is any less fraud and abuse in the non-Medicaid DME arena, and we cautiously endorse the Agency’s call for regulation of DME suppliers in this State. If all DMEs were required to be licensed by Agency under Chapter 400, Florida Statutes, the health and safety of the public would benefit. Under the Agency’s proposal, a licensed DME supplier would have to produce a financial statement, get an FDLE background check, state what they sell, identify their wholesaler, have an on-site inspection by the Agency, employ sufficient staff with the proper credentials and training, provide for twenty-four hour access to emergency services, provide information for complaint procedures to recipients, and would be placed on notice that any breach of the licensing requirements is a violation of law, subject to both administrative, civil, and criminal penalties. The Agency has been working closely with the DME trade association representatives to develop the proposed licensing scheme. We are persuaded that if such licensing requirements had existed prior to today, we would not have seen so many illegitimate and unscrupulous DME suppliers taking advantage of the Medicaid Program. Yet, significantly, if a DME supplier is thrown out of the Medicaid Program due to fraud, there is nothing to prevent them from continuing to do business as usual with privately insured recipients or uninsured citizens. We are aware that additional government regulation is not always the answer to every problem. However, when it comes to the health and safety of our elderly and disabled citizens, a certain amount of vigilance is not only desirable, it is the duty of a responsible government. As we have seen, the potential for harm is too great to be ignored. We encourage our lawmakers in the Legislature to give the Agency’s licensing proposal careful and favorable consideration.


The problem of billing Medicaid for unnecessary hospital beds in Assisted Living Facilities is largely the result of unclear guidelines, ineffective controls, and weak enforcement. We believe that actions are being taken which will reduce the abuse in this area. Once again, we also believe that greater accountability on the part of physicians is essential to the proper operation of the program. Finally, we also believe that the Agency’s licensure initiative will go a long way toward resolving this issue as well as the many other DME scams we have investigated. We urge the implementation of our suggestions, and adoption of the Agency’s proposed legislation.


We have received updates from the Agency at almost every session since the issuance of our first report. We have been frustrated by the pace of bureaucratic change, which often seems to be slower than it would be if it were the bureaucrats’ own money being frittered away on fraud and abuse. We heard that some of this perceived delay was due in part to complaints from the provider community that the reforms would preclude them from being able to participate in the program. The Agency tried to address these concerns, while at the same time pushing forward in the implementation of our suggestions. We are gratified by the positive effects of the Agency’s actions. We are also pleased that the Agency has taken bold and imaginative steps, such as the bonding and re-enrollment requirements, despite opposition from the provider community. We note with disappointment however, that the duration of the bond is only one year. On the positive side, we have been told by federal officials that Florida’s initiatives will be pursued in the Medicare Program, and that the State’s efforts are serving as a model for other states as well. It is this kind of attention to fraud and abuse that will bear fruit in the form of tremendous savings in the Program. Regardless of how the Program got into the shape it was in when we first began to examine it, and we are continuing to investigate that question, we are certain that the Program is on the road to recovery. We oppose using tax dollars to purchase additional computer claims editing programs. We believe that the fiscal agent should be required to deliver state of the art claims processing equipment under the existing contract. While all of the Agency’s anti-fraud initiatives are positive and effective ones, we caution that fraud and abuse control in any financial program is a high-maintenance activity. The Agency and lawmakers must be ever vigilant, ever innovative, and always quick to respond to emerging issues. By way of illustration, a one time application of pesticide does not forever eliminate destructive insects and pests. Likewise, if the State relaxes its anti-fraud enforcement efforts, the criminals will simply lurk in the shadows like cockroaches, and when the light of regulatory scrutiny is dimmed by the pull of other priorities, they will quickly scurry back into action, feasting on the taxpayers’ dollars, leaving us all to wonder why we can’t get rid of them.

THIS REPORT IS RESPECTFULLY SUBMITTED to the Honorable N. Sanders Sauls, Presiding Judge of the Thirteenth Statewide Grand Jury, this ____ day of November, 1996.

JAY H. KEISER Foreperson Thirteenth Statewide Grand Jury of Florida

I, MELANIE ANN HINES, Statewide Prosecutor and Legal Adviser, Thirteenth Statewide Grand Jury of Florida, hereby certify that I, as authorized and required by law, have advised the Grand Jury which returned this Report, this day of November, 1996.

Statewide Prosecutor
Legal Adviser
Thirteenth Statewide
Grand Jury of Florida

THE FOREGOING Report of the Thirteenth Statewide Grand Jury was returned before me this _________ day of November, 1996, and is hereby sealed until further order of this Court, upon proper motion of the Statewide Prosecutor.

Presiding Judge
Thirteenth Statewide
Grand Jury of Florida