Statement of Lewis Morris 
Chief Counsel 
Office of Inspector General 
Department of Health and Human Services 
 
April 22, 2009 
Before the Senate Subcommittee on Federal Financial Management, Government 
Information, Federal Services, and International Security 
THE FRAMEWORK FOR COMBATING FRAUD, WASTE, AND ABUSE IN FEDERAL 
HEALTH CARE PROGRAMS 
On behalf of Inspector General Levinson and the Office of Inspector General (OIG), I thank you 
for the opportunity to discuss the OIGs health care antifraud strategy; the different ways Federal 
health care programs are vulnerable to waste, fraud, and abuse; and the ways Congress can help 
strengthen the integrity of these critical programs.   
 
Collaboration Is Essential to a Successful Antifraud Strategy  
 
OIG is an independent, nonpartisan agency committed to protecting the integrity of the 300 
agencies and programs administered by the Department of Health and Human Services (HHS).  
Approximately 80 percent of OIGs resources are dedicated to promoting the efficiency and 
effectiveness of the Medicare and Medicaid programs and to protecting these programs and their 
beneficiaries from fraud and abuse.  Thanks to the hard work of our 1,500 employees and our 
law enforcement partners, from FY 2006 through FY 2008, OIGs investigative receivables 
averaged $2.04 billion and its audit disallowances resulting from Medicare and Medicaid 
oversight averaged $1.22 billion per year.  The result was a Medicare-and Medicaid-specific 
return on investment for OIG oversight of $17 to $1.  In addition, in FY 2008, implemented OIG 
recommendations resulted in $16.72 billion in savings and funds put to better use.  
 
OIG is not alone in the fight to combat fraud and preserve the integrity of Federal health care 
programs.  We work closely with the Department of Justice (DOJ) and our State law 
enforcement partners, as well as with our colleagues in the Centers for Medicare & Medicaid 
Services (CMS) and the Food and Drug Administration.  The Governments enforcement efforts 
in FY 2008 resulted in 455 criminal actions against individuals or entities that engaged in crimes 
against departmental programs and 337 civil actions, which included False Claims Act and 
unjust enrichment lawsuits filed in Federal district court, Civil Monetary Penalties Law 
settlements, and administrative recoveries related to provider self-disclosure matters.  Also in FY 
2008, OIG excluded 3,129 individuals and entities for fraud or abuse that affected Federal health 
care programs and/or our beneficiaries.  Common reasons for exclusion included convictions for 
crimes concerning Medicare or Medicaid, patient abuse or neglect, and license revocation. 
 
The collaborative antifraud efforts of HHS and DOJ are rooted in the Health Insurance 
Portability and Accountability Act of 1996, P. L. 104-191 (HIPAA), which directed the 
Secretary of HHS, acting through OIG and the Attorney General, to promulgate a joint Health 
Care Fraud and Abuse Control (HCFAC) Program.  The HCFAC Program and Guidelines went 
  1
  into effect on January 1, 1997.  HIPAA requires HHS and DOJ to report annually to Congress on 
HCFAC Program results and accomplishments.  HCFAC Program activities are supported by a 
dedicated funding stream within the Hospital Insurance Trust Fund.   
 
In its 11th year of operation, the HCFAC Programs continued success confirms the soundness 
of a collaborative approach to identify and prosecute health care fraud, to prevent future fraud 
and abuse, and to protect Medicare and Medicaid beneficiaries.  Since its inception, HCFAC 
Program activities have returned over $11.2 billion to the Medicare Trust Fund.   As I will 
discuss, the Governments efforts to address durable medical equipment (DME) and infusion 
fraud in South Florida and Los Angeles exemplify the benefits of a collaborative approach.  
Although I will highlight fraud in the area of DME and infusion, fraud and abuse occur among 
all types of health care providers and suppliers. 
   
The Federal Health Care Programs Are Vulnerable to Waste, Fraud, and Abuse 
 
The United States spends more than $2 trillion on health care every year.  The National Health 
Care Anti-Fraud Association estimates conservatively that of that amount, at least 3 percentor 
more than $60 billion each yearis lost to fraud.  For Federal health care programs to serve the 
medical needs of beneficiaries and remain solvent for future generations, the Government must 
pursue an aggressive and comprehensive strategy to address waste, fraud, and abuse.  That 
strategy must be broader than investigating and prosecuting detected instances of fraud.  Thus, 
our strategy is also informed by OIG audits, evaluations, and inspections, which have identified 
payments for unallowable services and improper services not rendered, and other types of 
improper claims.  OIG also has found that Medicares reimbursement rates for certain items and 
services are too high, resulting in wasteful expenditures and opportunities for fraud.  
 
OIG reviews have identified payments for unallowable services, improper coding, and other 
types of improper payments for various inpatient and outpatient services.  Improper payments 
range from reimbursement for services provided to inadequately documented and inadvertent 
mistakes to outright fraud and abuse. Expenditures for inpatient services, including those 
provided by inpatient hospitals and skilled nursing facilities, account for one-third of all 
Medicare expenditures. OIG work has uncovered problems with hospitals taking advantage of 
enhanced payments by manipulating billing; hospitals reporting inaccurate wage data, which 
affects future Medicare payments; and inpatient facilities that may be gaming prospective 
payment reimbursement systems by discharging or transferring patients to other facilities for 
financial rather than clinical reasons.  
  
OIG also continues to identify vulnerabilities related to certain types of services provided by 
physicians and other health professionals, including services related to advanced imaging, pain 
management, and mental health.  For example, OIG found that from 1995 to 2005, expenditures 
for advanced imaging paid under the Medicare Physician Fee Schedule grew more than fourfold, 
from $1.4 million to $6.2 million.  Services provided by independent diagnostic testing facilities 
(IDTFs) accounted for nearly 30 percent of this growth.  OIG work has found problems with 
IDTFs, including noncompliance with Medicare requirements and billing for services that were 
not reasonable and necessary. 
 
  2
  While we are continuing to identify vulnerabilities throughout the program, OIG and our law 
enforcement partners also are focusing antifraud efforts in geographic areas at high risk for 
Medicare fraud, including South Florida and Los Angeles.  Our investigations identified 
significant vulnerabilities, including: (1) DME suppliers circumventing enrollment and billing 
controls; (2) high levels of improper Medicare payment for certain types of DME, prosthetics, 
orthotics, and supplies (DMEPOS); and (3) inappropriate reimbursement rates for certain 
DMEPOS.  In 2007, the Government launched in South Florida a Medicare Fraud Strike Force 
(Strike Force) made up of staff from OIG, the U.S. Attorneys Office for the Southern District of 
Florida, the Federal Bureau of Investigation, and DOJ.  The Strike Forces mission is to identify, 
investigate, and prosecute DMEPOS suppliers and infusion clinics suspected of Medicare fraud.  
To date, the Strike Force has opened 137 cases, convicted 146 of its targets, and secured $186 
million in criminal fines and civil recoveries.  
 
The recent investigation and prosecution of Medcore Group LLC (Medcore) and M&P Group of 
South Florida (M&P) illustrates the Medicare programs vulnerabilities.  Medcore and M&P 
operated as Miami-based HIV clinics from approximately 2004 through 2006, billed 
approximately $5.3 million to the Medicare program, and actually received more than $2.5 
million in payments.  From their inception, Medcore and M&P were set up as criminal 
enterprises designed to defraud Medicare.  The scheme was to submit claims for medically 
unnecessary HIV infusion and injection treatments.  The three owners of Medcore and M&P 
included a former gas station attendant, a trained cosmetologist, and an individual currently 
incarcerated for Medicare fraud involving a separate DME company he operated from 2001 to 
2003.  None had more than a high-school education and none had any medical background. 
 
At trial, one of Medcores owners, Tony Marrero, testified that the scheme was so profitable so 
quickly, that he became concerned about getting caught and decided to set up a second 
fraudulent clinic, M&P, in the name of his wife.  M&P was located in the same building as 
Medcore, had the same employees, submitted claims under the Medicare provider number of the 
same physician, and had six patients in common.  In fact, the same doctor worked at other 
Miami-area infusion clinics, which billed Medicare for more than $60 million between 2004 and 
the end of 2005.  Mr. Marrero testified that when his wife no longer wanted to be associated with 
M&P, he sold the clinic to Gustavo Smith in exchange for $100,000 delivered to him in cash in a 
paper bag.  Mr. Smith was later convicted of health care fraud in connection with a different 
DME scheme and has since fled to Cuba. 
 
Mr. Marerro also testified at trial that he had an arrangement with a pharmaceutical wholesale 
company to buy invoices that showed the purchase of large amounts of medications, when only 
minor amounts were actually purchased.  One of the medical assistants testified that she 
manipulated the patients blood samples to ensure that lab results would appear to support the 
Medicare claims. 
 
On March 17, 2009, a federal jury in Miami convicted two physicians and two medical assistants 
who worked for Medcore and M&P in connection with the $5.3 million fraud scheme.  The 
government obtained six pleas before trial resulting in 10 convictions in total. 
 
 
  3
  EXPLOITATION OF THE SYSTEMS VULNERABILITES 
 
OIGs fraud-fighting efforts in South Florida and Los Angeles also draw on the expertise of our 
auditors and evaluators.  For example, OIG identified weaknesses in Medicares supplier 
enrollment process and its supplier oversight activities.  In 2007, OIG found that 31 percent of 
DMEPOS suppliers in three South Florida counties did not maintain physical facilities or were 
not open and staffed, contrary to Medicare requirements.  Similarly, in 2008, OIG inspected 905 
suppliers in Los Angeles County and found that 13 percent did not have physical facilities or 
were not open during repeated unannounced site visits. 
 
OIG also found that CMS has had limited success controlling aberrant billing by infusion clinics.  
In the second half of 2006, claims originating in three South Florida counties accounted for 79 
percent of the amount submitted to Medicare nationally for drug claims involving HIV/AIDS 
patients and constituted 37 percent of the total amount Medicare paid for services for 
beneficiaries with HIV/AIDS. However, only 10 percent of Medicare beneficiaries with 
HIV/AIDS lived in these three counties. 
 
In additional work, OIG identified strategies that DMEPOS suppliers had used to circumvent 
billing controls and defraud the program.  Medicare regulations require DME suppliers to 
provide the Medicare provider identifier of the physician who ordered the equipment on the 
claim.  Until May 23, 2008, Medicare used unique provider identification numbers (UPIN) and 
then switched to national provider identifiers (NPI).  Requiring the UPIN (or NPI) on claims is 
intended to indicate that a physician has verified the need for the DMEPOS and to enable CMS 
to determine who prescribed the DMEPOS as part of any post-payment reviews.  OIG studies 
have uncovered: (1) the use of invalid or inactive UPINs, (2) the use of UPINs that belonged to 
deceased physicians, (3) the improper use of surrogate UPINs, and (4) the use of legitimate 
UPINs that were associated with an unusually large number of claims.   UPIN vulnerabilities, as 
well as other challenges, may affect the integrity of the new NPI system.  Therefore, OIG has 
planned additional work to examine the accuracy and completeness of NPIs.  
 
OIG also has found that certain types of DMEPOS are particularly vulnerable to improper 
payments.  For example, an investigation of a large wheelchair supplier found that the company 
had submitted false claims to Medicare and Medicaid, including claims for power wheelchairs 
that beneficiaries did not want, did not need, or could not use.  In 2007, the company agreed to 
pay $4 million and relinquish its right to approximately $13 million in claims initially denied for 
payment by CMS.  Nationally, in 2004, OIG estimated that Medicare and its beneficiaries paid 
$96 million for claims that did not meet Medicares coverage criteria for any type of wheelchair 
or scooter and that they spent an additional $82 million in excessive payments for claims that 
could have been billed using a code for a less expensive mobility device.  
 
Prior OIG work also has found that Medicare pays too much for certain pieces of DMEPOS and 
related supplies, such as power wheelchairs, hospital beds, diabetic supplies, and home oxygen 
equipment.  For example, in a 2006 report, OIG found that Medicare had allowed, on average, 
$7,215 for the rental of an oxygen concentrator that costs about $600 to purchase new.  
Additionally, beneficiaries incurred, on average, $1,443 in coinsurance charges.  We determined 
that if home oxygen payments were limited to 13 months rather than the current 36 months, 
  4
  Medicare and its beneficiaries would save $3.2 billion over 5 years.  In other work related to 
Medicare pricing, OIG currently is conducting work to examine the appropriateness of prices 
that Medicare pays for wheelchairs by comparing Medicare prices to suppliers purchase prices.  
 
OIG recently found that Medicare reimburses suppliers for negative pressure wound therapy 
pumps based on a purchase price of more than $17,000 but that suppliers paid an average of 
$3,600 for new models of these pumps.  Negative pressure wound therapy pumps are a type of 
DME used to treat ulcers and other serious wounds.  When Medicare first started covering 
wound pumps in 2001, it covered only one model, which was manufactured and supplied by one 
company.  Medicare paid for this pump based on the purchase price as identified by that 
company.  In 2005, Medicare expanded its coverage to include several new pump models 
manufactured by other companies.  However, Medicare reimburses suppliers for these new 
pumps based on the original pumps purchase price, which is more than four times the average 
price paid by suppliers.     
 
An Effective Antifraud Strategy Should Embrace Five Principles 
 
Based on the Governments investigation and prosecution of health care fraud and oversight of 
Federal health care programs, we believe an effective strategy to combat health care waste, 
fraud, and abuse must embrace five principles:  
 
1.  Scrutinize individuals and entities that want to participate as providers and suppliers prior to 
their enrollment in health care programs. 
 
2.  Establish payment methodologies that are reasonable and responsive to changes in the 
marketplace. 
 
3.  Assist health care providers and suppliers in adopting practices that promote compliance with 
program requirements, including quality and safety standards. 
 
4.  Vigilantly monitor the programs for evidence of fraud, waste, and abuse. 
 
5.  Respond swiftly to detected frauds, impose sufficient punishment to deter others, and 
promptly remedy program vulnerabilities. 
 
These principles are equally applicable to OIGs enforcement strategy, CMSs program integrity 
efforts, and Congresss legislative agenda.  When OIG provides CMS with the results of its 
audits, inspections, and investigations, these principles are often reflected in OIGs 
programmatic recommendations and suggested corrective actions.  We offer the following ideas 
if Congress is considering strengthening the integrity of Federal health care programs.           
Scrutinize individuals and entities that want to participate as providers and suppliers prior to 
their enrollment in health care programs. 
As the Medcore and M&P case demonstrates, a lack of effective screening measures gives 
dishonest and unethical individuals access to a system that they can easily exploit.  Even after 
  5
  Medcore had billed Medicare for $4 million in fraudulent claims, it was easy for the clinics 
owner to obtain a provider number in his wifes name for a second clinic, M&P, operating in the 
very same building as Medcore, with the same medical director, employees, and patients.  When 
one of the owners, Mr. Marrero, ultimately sold M&P for $100,000 in cash, he testified that he 
went to a lawyers office so the lawyer could fill out paperwork to put ownership of the clinic in 
the name of two nominee ownersrather than Gustavo Smiths name.  Although it involved 
cash exchanged in a paper bag in a parking lot, the sale was structured as a stock sale so the new 
owners would have 90 days to notify Medicare of the change in ownership, allowing a window 
of time for the fraud to continue under new ownership.  In our experience, it too easy for 
organized crime to recruit nominee owners of fraudulent companies. 
 
We advocate strengthening enrollment standards and making participation in Federal health care 
programs as a provider or supplier a privilege, not a right.  All providers and suppliers applying 
for enrollment in Medicare or Medicaid should be screened before they are granted billing 
privileges.  Heightened screening measures for high-risk items and services could include 
requiring providers to meet accreditation standards, requiring proof of business integrity or 
surety bonds, periodic recertification and onsite verification that conditions of participation have 
been met, and full disclosure of ownership and control interests.  New providers and suppliers 
should be subject to a provisional period during which they are subject to enhanced oversight, 
such as prepayment review and payment caps.  The cost of this screening could be covered by 
charging application fees. 
 
Establish payment methodologies that are reasonable and responsive to changes in the 
marketplace. 
OIG has conducted extensive reviews of Medicare payment and pricing methodologies and has 
determined that the program pays too much for certain items and services.  When reimbursement 
methodologies do not respond effectively to changes in the marketplace, the program and its 
beneficiaries bear the cost.  As the experience of South Florida illustrates, excessive payments 
are a lucrative target for criminals.  These criminals also can reinvest some of their profit in 
kickbacks for additional referrals, thus using the programs funds to perpetuate the fraud scheme.  
We support efforts to pay appropriately for the items and services covered by Federal health care 
programs.  Although CMS has the authority to make certain adjustments to fee schedules and 
other payment methodologies, for some changes, congressional action is needed.  Medicare and 
Medicaid reimbursement systems should be aligned to ensure that payments are reasonable and 
responsive to market changes.   
Assist health care providers and suppliers in adopting practices that promote compliance with 
program requirements.  
Health care providers and suppliers must be our partners in ensuring the integrity of Federal 
health care programs and should adopt internal controls and other measures that promote 
compliance and prevent, detect, and respond to health care fraud, waste, and abuse.  Requiring 
health care providers and suppliers to incorporate integrity safeguards and tools into their 
organizations is an essential component of a comprehensive antifraud strategy.  In many sectors 
  6
  of the health care industry, such as hospitals, compliance programs are widespread and often 
very sophisticated; other sectors have been slower to adopt internal compliance practices.  
Compliance programs benefit industry stakeholders by improving their business practices, by 
fostering early detection and correction of emerging problems, and by reducing the risk that they 
will become the subject of a fraud prosecution.  
States also have begun to recognize the value of compliance systems.  For example, New York 
now requires providers and suppliers to implement an effective compliance program, as defined 
by OIG, as a condition of participation in its Medicaid program.  Medicare Part D also requires 
that prescription drug plan sponsors have compliance plans that address eight required elements.  
Although compliance programs do not guarantee reduced fraud and abuse, they are an important 
component of a comprehensive government-industry partnership to promote program integrity.   
We recommend that providers and suppliers should be required to adopt compliance programs as 
a condition of participating in the Medicare and Medicaid programs.  As part of its effort to 
promote compliance with program requirements, OIG has extensive experience in the 
development of compliance program guidance and could assist in this important integrity 
initiative. 
Vigilantly monitor the programs for evidence of fraud, waste, and abuse. 
The health care system compiles an enormous amount of data on patients, providers, and the 
delivery of health care items and services.  However, Federal health care programs often fail 
effectively to use claims-processing edits and other information technology to identify improper 
claims before they are paid.  To state the obvious, Medicare should not pay a clinic for HIV 
infusion when the beneficiary has not been diagnosed with the illness, pay twice for the same 
service, or routinely process a claim that relies on the UPIN of a deceased physician.  Like many 
infusion fraud schemes, Medcore and M&P gained the cooperation of patients by giving them 
kickbacks of up to $200 per visit.  Four patients testified that they took kickbacks and never 
received any medication at the clinics.  One patient testified that he used his payments from the 
clinics to support his cocaine addiction.  Another patient testified that he did not have HIV, even 
though the clinics documents showed he was being infused with medication to treat HIV.  By 
the patients own admission, they had been receiving kickbacks from numerous Miami clinics for 
many years.  The Medicare data showed they had received millions of dollars in infusion 
treatment, DME, and other services they did not require.  Had the government been vigilantly 
monitoring the claims submitted on behalf of these beneficiaries, the scheme might have been 
detected more quickly. 
CMS has taken significant steps to enhance payment accuracy and internal controls.  For 
example, CMS proposed a centralized data repository, known as One Program Integrity System 
Integrator (One PI), which would warehouse data on Medicare Parts A, B, and D and on 
Medicaid.  However, the target implementation date for One PI has been delayed, and CMS has 
not provided a new expected timeframe for completion and operability.   
In addition to structural improvement to the data systems, real-time access to all relevant 
Medicare and Medicaid data by law enforcement is critical to the success of the antifraud effort.  
  7
  Currently, law enforcement receives data weeks or months after claims have been filed, making 
it more difficult to detect and thwart new scams.  We advocate that law enforcement have real-
time access to Medicare and Medicaid program data.  In addition, we recommend that Congress 
authorize OIG to streamline the process for matching Medicare data to other relevant databases, 
such as Medicaid data obtained from States and data from the Social Security Administration.  
We also recommend the consolidation and expansion of the various provider databases, 
including the Health Care Integrity and Protection Data Bank, the National Practitioner Data 
Bank, and OIGs List of Excluded Individuals/Entities.  Providing a centralized comprehensive 
database of adverse actions and other sanctions imposed on individuals and entities would be an 
effective means of preventing providers and suppliers with problem backgrounds from moving 
from State to State unnoticed by licensing, government, and health plan officials.  
Respond swiftly to detected fraud, impose sufficient punishment to deter others, and promptly 
remedy program vulnerabilities. 
 
Our investigations have shown an increase in organized crime in health care.  Health care fraud 
is attractive to organized crime because the penalties are lower than those for other organized-
crime-related offenses (e.g., offenses related to illegal drugs); there are low barriers to entry (e.g., 
a criminal can easily obtain a supplier number, gather some beneficiary numbers, and bill the 
program); schemes are easily replicated; and there is a perception of a low risk of detection. We 
need to alter the cost-benefit analysis by increasing the risk of swift detection and the certainty of 
punishment.  
As part of this strategy, law enforcement must accelerate the Governments response to fraud 
schemes.  The Governments strike force model has proved highly successful.  In addition to 
prosecuting criminals and recovering funds for the Medicare Trust Fund, the South Florida Strike 
Force has had a powerful sentinel effect.  Medicare claims data show that during the first 12 
months of the Strike Force (March 1, 2007, to February 29, 2008), claim amounts submitted for 
DME decreased by 63 percent to just over $1 billion from nearly $2.76 billion during the 
preceding 12 months (a drop exceeding $1.7 billion).   
Although resource intensive, the strike force is a powerful antifraud tool and represents a 
tremendous return on the investment.  Building on the success of the South Florida Strike Force, 
in March 2008, DOJ and OIG created a second Strike Force in Los Angeles.  Since operations 
began, the Strike Force has opened 46 cases and indicted individuals and organizations that 
collectively have made almost $13 million on fraudulent claims to the Medicare program.  The 
schemes include false claims for wheelchairs, orthotics, and other DME that was medically 
unnecessary and/or was not provided to the beneficiaries identified in claims.   
OIG uses a range of administrative sanctions, including civil money penalties (CMPs) and 
program exclusions, as an adjunct to criminal and civil enforcement.  We have identified a 
number of enhancements to these administrative authorities that, if mandated by Congress, 
would increase our ability to address emerging schemes, such as authorizing CMPs for the 
submission of erroneous data used as the set Medicare payment and a CMP for the ordering or 
prescribing of items or services by an excluded person.   
  8
  Conclusion 
OIG and its law enforcement partners have implemented a comprehensive strategy to combat 
waste, fraud, and abuse in Federal health care programs.  However, sophisticated health care 
fraud schemes increasingly rely on falsified records, elaborate business structures, and the 
participation of health care providers, suppliers, and even patients to create the false impression 
that the Government is paying for legitimate health care services.  Applying the principles 
described above as the framework will identify new ways to protect the integrity of the 
programs, meet needs of beneficiaries, and keep Federal health care programs solvent for future 
generations. 
  9