Statewide Grand Jury Report
May 6, 1996
IN THE SUPREME COURT OF THE STATE OF FLORIDA -- CASE NUMBER 86,726
(This document has been re-formatted for the Internet)
During the course of our investigation, we have heard testimony from managers, inspectors, and legal counsel with the Agency for Health Care Administration (hereinafter the Agency); investigators with the Attorney General’s Medicaid Fraud Control Unit; a representative of the Florida Association of Medical Equipment Dealers; as well as representatives of the medical community. We have learned that the methods of fraud are varied and innovative, ranging from non-existent providers to forged supporting documentation. This type of fraud is also expensive. Agency representatives estimate that $3.5 million is stolen from the DME program annually.
To date, we have issued ten indictments charging fourteen people, who were involved with ten business entities, with a total of 785 counts of Medicaid provider fraud (third degree felonies) and seven counts of Organized fraud (first degree felonies). These cases represent approximately 5% of the total number of such DME currently under investigation by the Attorney General’s Medicaid Fraud Control Unit. The total dollar amount alleged to have been stolen from the State in these cases alone is $1,820,275.
We believe that aggressive criminal prosecution of these cases and the recovery of the stolen money is of primary importance. It is also essential that the Agency substantially improve its control of access to the system, to insure that only legitimate providers are enrolled and legitimate claims are paid. The Agency should routinely audit the system and cure problems as they occur. We also believe that the medical community should assume more responsibility for improper and often fraudulent actions taken under the names and licenses of physicians and other health care professionals. Legitimate medical equipment providers should also assist in policing their corporate community. Toward these ends, we issue this report to inform all affected parties of the scope of the problem and to recommend solutions for greater control over it.
BACKGROUNDThe Medicaid program is managed by the State of Florida and is funded with both State and Federal funds. It was created in 1967 in order to provide medical services to low income persons. Florida joined the Medicaid program in 1970, and now spends $6.7 billion every year serving 1.6 million recipients. More than 100 million claims are paid each year to some 60,000 medical service providers. A provider is a person or entity which offers medical services or ancillary services to persons eligible for services under the Medicaid program. Both providers and recipients are issued individual identification numbers, which are key to accessing the system.
The Agency for Health Care Administration is responsible for managing Florida’s Medicaid Program. The Agency promulgates rules under which the system and its participants must operate. It sets the qualifications and ultimately approves applications for entry into the system . It enters into contracts with medical providers to provide services and to pay fees associated with the services. The Agency sets the amounts to be paid under any set of given circumstances and contracts with a “fiscal agent” to accept and process claims, and then to issue checks to the providers. All of these activities are performed in accordance with federal rules and regulations. The Agency is also initially responsible for detecting fraud and abuse within the system. When fraud cases are identified, they are referred to the Attorney General’s Medicaid Fraud Control Unit for investigation. This unit may refer the cases for criminal prosecution and/or institute civil enforcement actions. In cases of criminal conviction, the providers or recipients may be fined, imprisoned, and/or barred from further participation in the system.
Of the 60,000 providers in the system, almost 4000 provide durable medical equipment to Medicaid eligible recipients. Durable medical equipment (DME) is equipment that can be used repeatedly, serves a medical purpose, and is appropriate for use in a patient’s home. DME typically consists of, but is not limited to, oxygen delivery systems, wheelchairs, orthotics, bandages, prosthetic devices, hospital beds, crutches, and commodes. In order for the provider to file a claim for Medicaid funds, the equipment must have been ordered by a physician through what is known as a Certificate of Medical Necessity, or CMN. Upon receipt of the CMN, the provider may supply the equipment to the Medicaid recipient and bill the State pursuant to a schedule of allowable costs. The allowable costs are determined by the Agency. In some instances, the cost is in the form of a rental for a particular piece of equipment, such as a hospital bed, but then a cap is imposed on the total number of billings that can be submitted for a specific patient. In other cases, a piece of equipment is purchased outright. In every case, a recipient’s name and Medicaid number, and the provider’s name and number must be supplied to the Agency in the billing process. Billings as well as payments may be transmitted electronically. In addition, a new provider is allowed to bill for three months of services provided prior to the time he or she has been approved as a provider by the Agency. The Agency also has the authority to suspend payment of claims which are deemed to be fraudulent.
THE AGENCY’S RESPONSEIn response to the increasing amount of fraud in the system, the Agency has taken action in recent months to become more proactive in the areas of fraud prevention and detection. For example, the Agency has changed some of its procedures with respect to provider enrollment and billing procedures in order to gain more control over who is using the system and the fraud that has resulted. In December 1995, the Agency instituted new policies for the registration of new DME providers, and began re-enrolling existing DME providers under the revised criteria. These new measures require more detailed information from prospective and re-enrolling providers in the application process. Providers in business for less than a year, as well as new applicants must now post a $50,000 surety bond with the Agency. The Agency has begun conducting on-site inspections of prospective DME facilities to ensure the existence of a legitimate business prior to approving an application.
Interestingly, the Agency reports that no new DME providers have been approved for admission into the program since December. Three potential DME providers posted a bond, but their applications were denied following an on-site inspection of their facilities by the Agency. The re-enrollment process is still on-going and is expected to be completed at the end of April, 1996. If a DME provider does not respond during the re-enrollment process, it will be automatically terminated from the system. In addition, instead of paying multiple claims each month on the same recipient for the same service, Medicaid is now only paying the first claim submitted in a particular month under the same recipient number and service code.
OUR FINDINGS AND RECOMMENDATIONSWe have found significant abuse in this program, from the initial application process to the final payment stage. Our investigations have revealed the following scenarios: Billing for services not provided, delivering and billing for unnecessary equipment, and overbilling. In order to falsify the billing information, the criminals buy Medicaid identification numbers from recipients or brokers, and may also pay physicians for the use of their signatures on certificates for medical necessity.
We strongly commend the recent enforcement and prevention actions of the Agency as both positive and necessary. The Agency has the authority to revise the provider qualification requirements and to enter into new contracts as the need arises, and it must continue to diligently exercise this authority in order to be an effective regulator.
While we believe that much has recently been done to prevent fraud and abuse in the DME area, we also believe there is room for further improvement. As additional measures to assure the integrity of the program, we strongly suggest that the Agency take the following corrective and preventative steps:
1. The Agency should require a complete criminal and financial background investigation of a prospective provider, at the expense of the applicant. The investigation should extend to all the persons listed as principals of a business entity on the application. In the case of the sale of a DME company, a new application to become a provider should be made by the DME purchaser. If an applicant has a felony criminal record or a conviction for any fraudulent offense, the applicant should not be allowed to enter the program. The background check should also include contact with the Medicare system to insure an applicant’s good standing in that system. Each applicant for provider status should be required to pay an application fee to help defray the cost of on-site inspections and enforcement actions.
2. While we believe that the Agency’s on-site visits of provider applicants will help eliminate the possibility of contracting with a “provider” who has nothing more to offer than a post office box as a business location, we also think that on-site inspections should be mandatory anytime a DME reports an address change, to detect unreported sales of provider numbers.
3. The bond amount required of new DME medical providers should be commensurate with the potential for fraud, and of sufficient magnitude to protect the State of Florida against future losses. In one of our cases, we found that, in just six months, a fraudulent provider can steal more than $50,000 in Medicaid money. We also recommend stopping the practice of allowing a new provider to bill three months retroactively. Without the proper documentation, this practice has allowed fraudulent providers an extra three month free ride on the system.
4. All provider billings should contain the authorizing physician’s name and personal identification number, and the written CMN should be attached to the written claim. (We recognize that claims are routinely filed electronically, but written documentation can easily be mailed on a regular basis for the purpose of claims verification. We note with some amazement that a recent rash of commercial burglaries in the Dade County area have allegedly resulted in the unfortunate loss of supporting documentation in some of these cases.) All CMNs should be standardized to contain the same information regarding providers, recipients, and physicians.
5. Physicians should be routinely notified by the Agency of the claims submitted under their name and asked to verify these claims. Failure to verify should result in administrative action by the Agency. The authorizing physician should also be required to retain a copy of the CMN containing his or her signature regardless of whether they are in possession of the patient file.
6. The fiscal agent for the State should be required to implement a system of auditing mechanisms within its computerized claims payment system. For example, where the schedule of allowable costs authorizes a maximum number of claims per patient, the system should automatically track and flag those items to prevent the overpayment. We should never again receive testimony, as we have during our term, about claims and payments for thirty times over the allowable amounts. Additionally, the system should be designed to identify instances where several DME providers are billing for the same recipient, for the same piece of equipment in the same month. We should never again receive testimony that this kind of blatant fraud is being rewarded. If a company submits claims for amounts outside of a range that is consistent with its established normal business operations, then the fiscal agent should alert the Agency. Finally, all claims should be evaluated at month’s end prior to payment in order to insure that the legitimate provider is paid as opposed to the provider who happens to submit the first claim of the month and may not be legitimate.
7. A number of the cases in which we issued indictments arising out of the South Florida area involve fraudulent billing for oxygen systems. In most cases, billing occurs for more than a year when a new prescription is required by Medicaid after three months. We recommend that payments for oxygen should end after three months unless a new prescription is received by the Agency. Additionally, DME providers of oxygen should produce required Health and Rehabilitative Services (HRS) and Food and Drug Administration (FDA) licenses as well as submit proof of liability insurance before being approved as a provider. No application should be approved without these documents.
8. Recipients should be required to sign a document verifying that they actually received the medical equipment from the provider. This could assist in eliminating the filing of claims for services not provided, or the use of Medicaid recipient numbers that have been bought by the provider.
9. The Agency should immediately remove any Medicaid recipient or provider from the program who is found to have allowed fraud to be committed under his/her name. In our opinion, people who receive kickbacks are as culpable as the perpetrators of the fraudulent scheme.
10. Provider applications should include the provider name, with business and home addresses and phone numbers, as well as bank account information. The application should also contain a listing of all other companies owned or operated by the principals, the provider’s assets and equipment, and identifying data on the provider’s suppliers or subcontractors.
11. Annual provider financial statements should also be required, along with any changes to the original application information, as well as updated identifying data regarding the provider’s suppliers.
12. Unannounced physical inspections of DME provider facilities should be performed by the Agency with sufficient regularity to ensure the legitimacy of the company.
With respect to the medical profession, we find it unacceptable and disingenuous for physicians to claim, which a few of them have, that they were unaware of the content of a CMN because their practice was of such a volume they did not have enough time to study a document, the preparation of which they delegated to their staff, or, even worse, that they signed CMN’s in blank form for the sake of expediency. We strongly urge the medical community to examine the standards to which physicians should conform their practices in this area. We believe that if a physician’s signature is on a CMN, then he or she should be fully accountable for the legitimacy of the claim. If a physician is alerted to the fraudulent use of his/her signature, he/she should make every effort to prevent repetition of the fraud and abuse.
As with the prosecution of the individuals and entities charged with committing the fraudulent billings, we believe the individuals receiving any kind of “kickback” for the use of their Medicaid provider or recipient number should be prosecuted to the fullest extent of the law.
CONCLUSIONThe area of durable medical equipment is but one in which Medicaid fraud has been easily committed. We know that the Agency is aware of the significance of the problem, because its own representatives brought this issue to our attention. We believe that actions are being taken which are consistent with the spirit of our recommendations. However, we also strongly believe that the system needs more controls with respect to all participants, and all participants must be held strictly accountable for their actions. We urge the implementation of our suggestions, and request a follow-up report on their progress.
We would like to thank the Florida Association of Medical Equipment Dealers for its assistance with this problem and hope that the dialogue generated by this report will foster a public-private partnership approach to reducing fraud.
THIS REPORT IS RESPECTFULLY SUBMITTED to the Honorable Philip J. Padovano, Presiding Judge of the Thirteenth Statewide Grand Jury, this _____ day of _______________, 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 _____________________, 1996.
MELANIE ANN HINES Statewide Prosecutor Legal Adviser Thirteenth Statewide Grand Jury of Florida
I, BETH BLECHMAN, Assistant Statewide Prosecutor and Assistant 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 _____________________, 1996.
BETH BLECHMAN Assistant Statewide Prosecutor Assistant Legal Adviser Thirteenth Statewide Grand Jury of Florida
THE FOREGOING Report of the Thirteenth Statewide Grand Jury was
returned before me this _______ day of ____________________, 1996, and
is hereby sealed until further order of this Court, upon proper motion
of the Statewide Prosecutor.
PHILIP J. PADOVANO Presiding Judge Thirteenth Statewide Grand Jury of Florida