Uncovering health care fraud proves elusive

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BALTIMORE — The ordinary-looking office building in a Baltimore suburb gives no hint of the high-tech detective work going on inside. A $100 million system churns through complicated medical claims, searching for suspicious patterns and posting the findings on a giant screen.

Hundreds of miles away, in a strip mall north of Miami, more than 60 people — prosecutors, FBI agents, health care investigators, paralegals and even a forensic nurse — sort through documents and phone logs seeking evidence of fraudulent Medicare billing. A warehouse in the back holds fruits of their efforts: wheelchairs, boxes of knee braces and other medical devices that investigators say amount to props for false claims.

The Obama administration’s self-declared war on health care fraud, costing some $600 million a year, has a remarkable new look in places such as Baltimore and Miami. But even with the fancy computers and expert teams, the government is not close to defeating the fraudsters. And the system designed to combat the fraud may be in large part to blame.

An array of outside contractors used by the government is poorly managed and fraught with conflicts of interest, according to interviews with current and former government officials, contractors and experts inside and outside of the administration.

Authority and responsibilities among the contractors are often unclear and in competition with each other. Private companies — such as insurers and technology companies — have responsibility for enforcement, often with little government oversight.

Fraud and systematic overcharging are estimated at roughly $60 billion, or 10 percent, of Medicare’s costs every year, but the administration recovered only about $4.3 billion last year. The Centers for Medicare and Medicaid Services, which is responsible for overseeing the effort, manually reviews just 3 million of the estimated 1.2 billion claims it receives each year.

“It’s pretty dysfunctional because the contractors don’t communicate with each other,” said Orlando Balladares, a fraud investigator who has worked for both the government and private firms.

Shantanu Agrawal, who oversees Medicare’s anti-fraud center, the Center for Program Integrity, said the administration had made fighting fraud an unprecedented priority. “The focus is higher than it ever has been,” said Dr. Agrawal, an emergency medicine physician and former McKinsey consultant, who took the Medicare job earlier this year.

But even some of the administration’s successes shed light on the crackdown’s limitations. So-called recovery audit contractors, hired to reduce hospital overbilling, have an unparalleled record of returning money to Medicare, accounting for $8 billion in returned money since 2009. But pushback against the contractors from the hospitals and an overburdened appeals process have largely stopped the recovery efforts. “They’ve been brought to a halt by their very success,” said Marsha Simon, an expert on health policy and legislative strategy in Washington.

Just this summer, Medicare shut down a successful hotline in fraud-plagued South Florida, saying it was no longer necessary. The hotline is credited with leading to more than 1,000 fraud investigations and identifying tens of millions of dollars in questionable payments in the last five years. Trained staff hired by an outside contractor answered calls and passed relevant tips to investigators within 48 hours. Calls are now being routed to a general Medicare number, where it can take months for a complaint to be addressed, according to the most recent evaluation of the program.

The Obama administration has allocated much of its anti-fraud money to traditional efforts, including nine federal strike forces that coordinate responses among different government agencies. Earlier this year, for example, teams in Miami, Brooklyn, Detroit and elsewhere announced charges against 90 people accused of a total of $260 million in fraudulent billings.

But the biggest role goes to a network of private contractors that has always been a distinguishing feature of Medicare’s operation and sets it apart from so many other huge federal bureaucracies. From its inception in 1965, the program has relied on private insurance companies to handle claims from beneficiaries.

The decision to outsource major responsibilities has been a longstanding source of frustration, even to many of the agency’s officials. Ted Doolittle, who worked as a deputy director at the Center for Program Integrity and left in April, described fighting fraud through contractors as being “almost reduced to working with a puppet. You’re working the strings above.”

Former and current law-enforcement officials and people who have worked with the contractors say there is little sharing of information among the companies, or even with the government. The recovery audit contractors, for example, do not report to the Center for Program Integrity, but instead to another division within Medicare. When they pass on evidence of possible fraud, a rare occurrence, Medicare often fails to follow up, according to a report by the Office of the Inspector General.

Because they are paid on a contingency basis, ranging from 9 percent to 12.5 percent of the improper billing that they find, recovery audit contractors have been criticized by hospitals as little more than bounty hunters. The high number of hospital appeals has helped create a backlog of an estimated two years for an administrative law judge to hear a disputed case. After Congress halted some of the audits, Medicare paused the program until new contracts were awarded. Earlier this month, because the awards are delayed, the agency began to allow a limited number of reviews.

The integrity contractors have also been criticized, in part for their ties to the companies responsible for paying claims, creating a significant potential conflict of interest, according to a government report released in 2012. The report also faulted Medicare for not having “a written policy for reviewing conflict and financial interest information submitted.” Medicare officials say appropriate procedures are in place, and that the contractors are investigating providers, not the organizations paying claims.

Last October, a federal Government Accountability Office report faulted Medicare for its lack of oversight, such as not directly rewarding the contractors for helping meet agency goals such as aiming at high-risk providers. A new report released this month did the same. Dr. Agrawal says Medicare is adopting suggestions like these, and he says the agency has improved in setting priorities for its contractors.

Medicare officials also say the new fraud prevention system is a critical way to centralize efforts. In a recent demonstration of how the system works, Medicare officials used the example of an ambulance company in Texas suspected of improperly billing for services. Using a complicated set of formulas, the system was able to identify the company and send an alert to the fraud contractor. The alert assigned a priority level to the case and allowed the contractor to see what kinds of behavior it should be looking at. Within months, Medicare was able to stop payments to the company. But whether the system truly has been successful in fighting fraud remains unclear.

Trying to review the system after its first year, the Office of Inspector General said missing, inconsistent and possibly inaccurate information made it impossible to know whether there were any savings. In a second report, in June, the office said it could verify only $54 million in savings from the new computer system, even though Medicare said it had identified $211 million. Only a quarter of that amount was actually recovered, according to the Office of Inspector General report.

United States - North America - United States government - Florida - United States Congress - United States Senate - Miami - Orrin Hatch


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