Florida Fraud Costs Medicare

"Until CMS and other third-party payers differentiate qualified, licensed O&P providers from DME salesmen, this problem is bound to continue," says Paul E. Prusakowski, CPO, FAAOP, president-elect of the American Academy of Orthotists & Prosthetists.

During a four-month period in 2004, something strange happened in Miami-Dade County, Florida. About 21,000 seniors suddenly needed prosthetic arms or legs, according to a story in the Miami Herald May 10. Medicare paid the bill--$122 million.

When federal prosecutors heard from seniors that they didn't need and hadnt received new prostheses, they investigated and filed a civil suit against the 48 small businesses and the billing agency that had submitted the claim.

When US District Judge Cecilia M. Altonaga looked at the case, she asked a logical question: Why had the government paid out so much for 21,000 sudden amputees in one location? "Common sense dictates this is an impossibility," she wrote, as quoted by reporter John Dorschner in the Herald article.

Effect on O&P Profession
How does this affect the O&P profession and legitimate, highly skilled prosthetists and orthotists? "This sort of fraud and abuse gives a black eye to our profession," said Paul E. Prusakowski, CPO, FAAOP, president of the Florida Association of Orthotists & Prosthetists (FAOP) and president-elect of the American Academy of Orthotists & Prosthetists. "Until CMS [Centers for Medicare & Medicaid Services] and other third-party payers differentiate qualified, licensed O&P providers from DME salesmen, this problem is bound to continue.

"In Florida we are working diligently to educate the government and insurance companies about the problem that exists because of this lack of separation, and we are confident that the data will prove that limiting reimbursement for custom O&P care to licensed orthotists and prosthetists will significantly reduce the level of fraud and abuse that is occurring in our state," Prusakowski declared.

The company which paid the fraudulent bills was Palmetto GBA, which is the Durable Medical Equipment Regional Carrier (DMERC) for Region C, which comprises Alabama, Arkansas, Colorado, Florida, Georgia, Kentucky, Louisiana, Mississippi, New Mexico, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, Texas, and the Virgin Islands. Palmetto also acts as a government watchdog nationally to make sure that claims for DMEPOS are legitimate.

"The stakes are huge," pointed out the Herald article. "Experts say billions of dollars are lost annually in Medicare fraud, and south Florida has been home to much of it," the article noted, adding that Palmetto processes more than 110 million Medicare claims a year, which totaled almost $25 billion in 2004.

Why 'Pay and Chase'?
Why didn't Palmetto notice the limb-payments problem sooner? "These patterns are not hard to spot," said Harvard professor Malcolm Sparrow, a former British police investigator quoted in the article. Sparrow has written License to Steal: How Fraud Bleeds America's Health Care System. Sparrow pointed out that a great deal of software is available to spot unusual billing patterns, such as sudden accelerations in claims.

Part of the problem is that Medicare contractors such as Palmetto generally follow a "pay and chase" system--sending out checks, then tracking down fraud, Sparrow said. Part of the reason for this is that the companies payments from the government are "ridiculously low," and do not provide incentive pay for catching fraud. "The cheapest way to process a claim is to pay it without a question," Sparrow said, as quoted in the Herald.

Medicare contractors are not funded or required to perform pre-certification as private insurance does, according to Palmetto spokesperson Elizabeth Hammond, quoted by the Herald. "Medicare relies on post-payment data analysis to spot payment trends," she explained. 'Palmetto GBA reviews and pays claims in line with law and [Medicare] instructions. Palmetto GBA does not have the authority to suspend payments without [Medicare] permission."

According to Alan Sager, a healthcare economics researcher at Boston University, quoted in the article, Medicare spends only about 2 percent on administration, even including it's Washington bureaucratic costs. "That's very low compared to large insurance companies, which spend 8 to 20 percent," he noted. "Now some of that includes extensive marketing and advertising, but they also spend quite a bit more for catching fraud, and so Medicare may not be spending enough."

CMS Administrator Mark McClellan, MD, PhD, told the Miami Herald in an interview that Medicare is working to improve the situation and has opened a satellite office in south Florida, "so that we have a faster and more effective way of seeing unusual billings patterns," such as those in the limb case. "We're trying to be ever more vigilant than in the past through new approaches to analyze data," McClellan said.

Fraud in Custom Devices
A press release from the US Department of Justice (DOJ) shed more light on the problem of fraud--12 defendants in southern Florida were convicted this year for participating in a multi-million dollar Medicare fraud and money laundering scheme involving local DME companies. The companies had submitted false claims to Medicare for expensive custom-made orthotic devices such as knee, shoulder, and hip braces.

"...the conspirators recruited individuals to serve as 'straw owners' of the DME companies in order to conceal the conspirators' involvement in the companies," said the DOJ statement. "The conspirators then used the companies to fraudulently bill Medicare for expensive custom-made orthotic devices, and other medical services that were neither provided to nor needed by Medicare patients. Also alleged was that the defendants paid kickbacks to patient recruiters who would, in turn, bribe Medicare beneficiaries to serve as fictitious patients for the medical equipment companies. From about January 2000 through December 2002, the medical equipment companies received approximately $17 million in Medicare payments, all of which were reimbursements for false claims relating to orthotic devices and other medical equipment such as oxygen tanks and hospital beds."

'Avoid Fraud through Licensure'
Said Prusakowski, "My question to CMS is why do they keep paying unqualified providers for custom O&P services? In Florida, 'Orthotists' and 'Prosthetists' are defined by legislation with a Scope of Practice through licensure. It's about time that Medicare and other third-party payers realized that the profession has already been defined in Florida."

Prusakowski continued, "By limiting payment for custom O&P services to only those who are defined by education and Florida statute as orthotists and prosthetists, millions of dollars of fraud and abuse could be avoided."

He stressed, "O&P and DME are completely different, and when the government finally realizes this fact and separates the two completely, this continual fraud and abuse will be minimized."