Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

Carrier Fraud Units 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452,


is to protect the integrity of the Department of Health and Human Services programs


as well as the health and welfare of beneficiaries sewed by them. This statutory


mission is carried out through a nationwide program of audits, investigations,


inspections, sanctions, and fraud alerts. The Inspector General informs the Secreta~


of program and management problems and recommends legislative, regulatory, and


operational approaches to correct them.


Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the 

Office of Inspector General. It conducts short-term management and program 

evaluations (called inspections) that focus on issues of concern to the Department, the 

Congress, and the public. The inspection reports provide findings and 

recommendations on the efficiency, vulnerability, and effectiveness of departmental 

programs. 

The OEI’S Chicago Regional Office prepared this report under the direction of 

William C. Moran, Regional Inspector General, and Natalie A. Coen, Deputy 

Regional Inspector General. Principal OEI staff included: 

CHICAGO REGION HEADQUARTERS 

John M. Traczyk, Team Leader Jennifer Antico, Program Specialist 

Suzanne Johnson, Program Analyst Barbara Tedesco, Statistician 

To obtain a copy of this report, call the Chicago Regional Office at (312) 353-4124. 
Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

Carrier Fraud Units 
EXECUTIVE SUMMARY


PURPOSE


To evaluate carrier fraud units and identify factors that contribute to and work against


successful program integrity operations.


BACKGROUND


In 1994, Medicare carriers processed over 615 million claims. That same year, carriers


received about 118,000 complaints alleging fraud or abuse. The Health Care


Financing Administration (HCFA) has charged their contractors with the responsibility


of detecting and deterring program fraud, waste and abuse. Both carriers and


intermediaries have set up fraud and abuse units as one element of HCFA’S overall


benefit integrity program. To help defray the cost of investigating complaints, HCFA


provided the carriers with nearly $23 million to fund their fraud units.


We obtained information from 37 carrier fraud units. We examined selected case files


and obtained documentation relating to program integrity operations. We interviewed


292 employees and visited 6 carrier units to carg out in-person discussions. Based on


the information we obtained, we compared carrier performance using the following


five criteria:


. Accuracy of complaint disposition . Assessing financial damage 

. Case documentation . Internal proactive safeguards 

. External proactive safeguards 

FINDINGS 

V&ryfw caniers weresuccessfulin meeting all of our outcome crhiia. 

Only two carriers consistently ranked high when we analyzed fraud unit performance 

using the five criteria mentioned above. We found that few carrier fraud units follow 

case development procedures. Overpayment information is often inaccurate and 

information concerning frequency and nature of past problems with providers is often 

missing. Despite claims of being proactive in their approach to combating fraud and 

abuse, only 14 carriers could provide evidence that they took steps to correct 

vulnerabilities they identified in their claims processing systems, policies and 

procedures. 

The mast @2dive pmgmm htegnly flo~ arefd in coqpomtions that acconi a high 

@only and adi?quate management attention to the jiaud units. 

Resources and Organization. Strategic organizational placement of most, if not all, 

postpayment functions within the jurisdiction of the fraud units appears to be key to 

i 
better performance. Effective fraud units are part of a corporate culture that supports 

them in hiring and keeping highly motivated and qualified persons. They invested 

more in competitive salaries, technology and ongoing staff training. 

Staffing. Successful fraud units integrate persons with law enforcement backgrounds 

with personnel who have knowledge of claims processes and policies. Analysts, 

auditors and statisticians are hired to meet special needs. No one discipline dominates 

the successful fraud unit. Less successful fraud units employed staff with backgrounds 

primarily from a single prepayment discipline such as provider relations or claims 

processing. 

Training. Staff at better units receive ongoing training from internal and external 

sources. In other fraud units, at least 2 out of every 3 people have had no HCFA, 

Office of Inspector General or other outside training on fraud and abuse since HCFA 

began funding fraud units in the fall of 1992. 

RECOMMENDATIONS: 

Concerns regarding the effectiveness of Medicare carrier fraud units are similar to 

those discussed in our report entitled “WrveiZZmceand Ufi.buion Review Subsystems’ 

Case Refivrd to Medicaid Fraud Contrvl Uiub,” 0EI-07-95-OO030. As a resuh, we 

believe that a concerted effort addressing both Medicare and Medicaid fraud units is 

called for. We are proposing a uniform team approach. We recommend that HCFA, 

in consultation with the Office of Inspector General should: 

Convene a Medicare and Medicaid fraud and abuse task force to plan and implement 

improvements in li-aud unit operations. This would include: 

Clarifying goals and objectives for program integrity efforts. 

Establishing guidelines for developing suspected fraud cases. 

Developing a universal protocol for appropriately referring fraud and abuse 

cases. 

Coordinating data systems to ensure that data are reliable and consistent across 

all entities in the fraud and abuse fighting network. 

Developing a training program designed to educate program integrity personnel 

on procedures, case referrals and best practices. 

ii 
Continue to provide support and technical assistance to carriers so they can emulate 

those carriers operating successful programs. This can include: 

Encouraging carrier commitments that result in increased resources to combat 

fraud and abuse such as investments in technology and people. 

Suggesting ways of organizing a successful program integrity effort. 

Limiting the role of medical review units in program integrity to those cases 

involving issues of abuse, policy, coverage and medical necessity. 

Rewarding carriers for identifying policy, procedure and systems vulnerabilities 

and implementing corrective safeguards. 

Separating the budget for postpayment activity from the budget for claims 

processing and other front-end operations such as provider enrollment and 

provider relations. 

AGENCY COMMENTS 

We appreciate all the positive steps that HCFA has taken thus far to safeguard the 

Medicare program and we recognize the accomplishments of the Program Integrity 

Group. We are pleased that HCFA has concurred with our recommendations and we 

look forward to working with HCFA in their implementation. 

We believe that the best approach would be a collaborative one involving HCFA and 

OIG, with consultation from high performing State Surveillance and Utilization 

Review Subsystem Units (S/URS) and carriers. We suggest that this effort focus on: 

� Developing and implementing model practices. 

.	 Revising current contractor performance measures that reward carriers for 

overpayment recovexy but not for fraud and abuse referrals or efforts to 

improve claims processing safeguards. 

�	 Identi&ing the most effective practices which carrier and State personnel use to 

eliminate claims processing vulnerabilities that enable providers to defraud 

health programs. 

We believe that achieving the goals both HCFA and the OIG have established for 

improving program integrity functions at the carriers and in the States can best be 

accomplished by these kinds of collaborative efforts. We look fon.vard to working with 

HCFA to bring about further measurable change. 

...�

111 
TABLE OF CONTENTS


PAGE 

EXKUTWE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..i


INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1


FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5


. Meeting outcome criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...5


. Resources and strategic organizational


. Staffkg . . . . . . . . . . . . . . . . . . . . . .�

. Adequate and ongoing training . . . . .�

RECOMMENDATIONS . . . . . . . . . . . .�

Agenq Comments . . . . . . . . . . . . . . . . .�

Appendix A Tables Comparing Carriers


Appendix B: HCFA Response . . . . . . . .


placement . . . . . . . . . . . . . . . . . . . . . . 10 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1 
INTRODUCTION


PURPOSE 

To evaluate carrier fraud units and identi~ factors that contribute to and work against 

successful program integrity operations. 

SCOPE 

The Health Care Financing Administration (HCFA) contracts with insurance 

companies to process medical claims incurred by Medicare beneficiaries. Fiscal 

intermediaries process hospital insurance (Part A) claims which cover hospital 

inpatient, skilled nursing facility and home health agency services. Supplemental 

Medical Insurance (Part B) claims are processed by carriers. Part B covered services 

encompass: doctors’ services, diagnostic laborato~ tests, outpatient hospital services, 

outpatient physical therapy, outpatient speech therapy, outpatient speech pathology, 

home health care and many other health services and supplies not covered by hospital 

insurance. 

The HCFA has charged their contractors with the responsibility of detecting and 

deterring program fraud, waste and abuse. Both carriers and intermediaries have set 

up fraud and abuse units as one element of HCFA’S overall benefit integrity program. 

During this study, we contacted 37 of HCFA’S 42 carriers responsible for processing 

Medicare Part B claims. This number includes the four Durable Medical Equipment 

Regional Carriers that process providers’ claims for medical supplies and durable 

medical equipment. 

BACKGROUND 

Medicare losses due to fraud and abuse concern Congress, HCF~ the Office of 

Inspector General (OIG) and others. The HCFA and their carriers work together to 

detect and deter fraud and abuse through various means. Carriers refer their fraud 

and abuse cases to the OIG for development and evaluation and possible referral to 

the Department of Justice. The OIG, in turn, works with the Department of Justice 

to prosecute these cases. 

Medicare carriers process about 615 million claims each year. In 1994, approximately 

118,000 complaints alleging fraud or abuse were received. These complaints were 

assigned to about 400 carrier employees for screening and investigation. According to 

OIG records for 1994, carrier investigations produced approximately 400 cases 

involving 1,300 subjects that were subsequently referred to OIG for in depth 

investigation. 
Since the inception of the Medicare program, HCFA has supported carrier efforts at


safeguarding Medicare payments. Despite these efforts, the General Accounting


Office (GAO) in 1992 reported that the Medicare program was vulnerable to fraud,


waste, abuse and mismanagement. The GAO estimates that nearly $2 million is lost


to fraud and abuse each hour. The GAO report and other recent events have


encouraged HCFA to pursue regulato~ and administrative changes aimed at


correcting flawed payment policies, weak controls and deficient program management.


Most visible of HCFA’S efforts was its financial commitment to supporting carrier


fraud and abuse units. In fiscal year 1994, HCFA provided approximately $23 million


to carriers in benefit integrity funding.


In addition to financial support, HCFA,has undertaken a number of other initiatives in


recent years to correct flawed payment policies and improve program management.


For the first time since the Medicare program began, HCFA established national and


regional positions to focus the Agency’s fraud and abuse efforts and to provide


guidance to the carriers.


One element of HCFA’S revitalized effort to guide carriers to improve their


performance was a change in the way HCFA evaluated carrier performance. Prior to


1994, HCFA evaluated carrier performance by comparing carriers and providing a


numerical score intended to represent how a particular carrier fared against its peers.


In 1994, HCFA took steps to change and improve the process for evaluating carrier


performance. Numerical scores for comparing carrier performance were abandoned


in favor of a new system emphasizing continuous improvement.


The OIG issued a report in 1995 that reviewed HCFA’S new system for monitoring


carrier fraud and abuse unit performance. The report concluded that HCFAS ability


to assess carrier performance had improved but that HCFA had failed to make full


use of the information gathered during the review process to improve carrier ability to


safeguard Medicare payments.1 This current study was undertaken to further


contribute to the improvement of carrier program integrity efforts.


METHODOLOGY


Data and information presented in this report was derived from: (1) a sumey of


carrier fraud and abuse staff, (2) carrier data and other documents, and (3) actual


cases developed by carrier staff involving allegations of fraud and abuse.


Thirty-one carriers were contacted by telephone or mail. We visited six carriers and


talked to fraud and abuse management and staff. Overall, we identified 351


employees whose duties involved the screening of complaints and/or the development


of potential fraud and abuse cases. Of the 351 employees, 292 (83.2%) completed our


written survey, The survey was designed to obtain information about employee work


1 Office of Inspector General, Monitoring Medicare Confracfor f’e~onnunce: A New Approach, DHHS/OIG Office 

of Evaluation and Inspections, OEI-01-93-00160, August 1995. 

2 
experience, the organization of the carrier, its program integrity operations and 

procedures. In addition to the written survey responses, we held discussions about 

carrier operations and procedures with more than 80 carrier employees. 

Survey responses were supplemented with information obtained from managers during 

the initial telephone contact and, in some cases, during subsequent telephone contacts. 

In addition to our employee surveys, we requested each carrier to provide data and 

documentation. We asked for documentation of fraud and abuse unit procedures and 

information on the unit’s workload and accomplishments. Other information was 

obtained from HCFA and the OIG, Office of Investigations headquarters and regional 

staff. In addition to interviews with HCFA personnel, we also obtained and analyzed 

HCFA carrier performance evaluations. 

We asked our survey respondents what criteria they felt should be used to evaluate 

their fraud unit’s performance. Of the 19 criteria suggested by respondents, we 

selected the following 5 criteria to judge each carrier’s performance: 

(1) Accuracy of complaint disposition.


(2) Adherence to procedures for developing and projecting overpayments.


(3) Adherence to procedures for documenting frequency of complaints in


referrals to OIG. 

(4) Number of internal proactive measures initiated by the fraud unit that 

result in carrier payment safeguards. 

(5) Number of external proactive measures initiated by the fraud unit that 

increase awareness of schemes to defraud government programs. 

We considered two additional performance measures: return on investment and 

overpayment recoveries. Although final action to obtain convictions, assess fines and 

return overpayments rests with entities other than the fraud units, we thought these 

measures were important as a reflection of the units’ contributions to final disposition 

of cases and outcomes. We collected data on these measures from the units. 

However, after consultation with HCF~ we determined that the data reported might 

be unreliable and invalid. Since no uniform reporting requirements for these data 

exist, it is reasonable to assume that carrier units might not have the systems in place 

to veri~ and validate the data. As a result, we have included no information on these 

measures or the data reported to us in this report. 

We used the above criteria and ranked each carrier’s performance using information 

each carrier provided. When all of the information had been analyzed, we combined 

the results in a single table to determine if any carrier(s) had consistently scored better 

in each of our five criteria. 

We focused on outcomes that had resulted from each carrier’s program integrity 

efforts. For example, when carriers claimed to be aggressive in preventing fraud 

through systems’ safeguards, we looked for identifiable accomplishments they had 

initiated that would decrease Medicare vulnerabilities to fraud and abuse. Whenever 
possible, we validated carrier responses by examining other information and data 

available to us from the carrier, OIG and HCFA. 

We looked for attributes that may have contributed to good performance and then 

ascertained the presence or absence of these traits at all the carriers. We looked for 

consistency in what carriers told us they did and what they actually did in the more 

than 120 case files we reviewed. Whenever possible we have used examples to 

illustrate the types of problems we repeatedly obsemed in our review of carrier case 

development. Given limited space, we are unable to provide extensive examples of 

problems. The examples used in this report were those that we felt best illustrate the 

problems. 

4

FINDINGS


OUTCOME CRITERIA Few carriers were successful in meeting all of 

our outcome criteria. 

Cri&ria1: Accuracy of Cbm@int Dhpudik 

The cases we reviewed show that carriers differ significantly in their ability to properly


identi~ potential fraudulent activity. Of the cases-we reviewed, we found- that-2 out of


3 cases referred to the OIG were inadequately developed or did not involve a


violation of criminal or civil statute. We also found that 58 percent of the reviewed


cases resolved by carriers administratively were incorrectly handled. Cases handled


administratively were frequently inadequately developed. Cases that we felt showed


strong evidence of fraud or abuse were not referred or discussed with the OIG.


Carriers routinely sought to resolve complaints by contacting providers.


Our case reviews show that carrier procedures for noti&ing providers of a potential


overpayment need to be examined so as to avoid the loss of millions of dollars in


potential overpayments. Particularly troublesome were significant overpayment


recove~ cases that were not discussed with OIG before the carrier init;ated recovery


action and which appeared to involve fraud. For example, consider the following case:


The case file showed extensive documentation of contacts with beneficiaries, thew 

relatives, the vast majority of whom claimed not to have received the service billed and not 

to have any of the conditions indicated on claims submitted to Medicare. Contact with 

the benejiciatis’ attending physicians also indicated that the beneficiaries had none of the 

conditions stated on the claims. Further development by the cam-er revealed that none of 

the physicians whose names appeared on the cerhjicates of medical necessity had heard of 

the patieng or the provider. All denied having signed the cernjicates of medical necessi~. 

The carrkr’s development also dkclosed ‘unverifiable- tiformation on the provklerb 

applican”onfor a billing number. 

i%e case was never dkussed with the OIG, instead the carrier sent a letter 

requesting the provkkr rejimd the calculated overpayment. The letter was sent to the 

providerk out-of%tate post o~e box articulating the information mentioned above as the 

bases for the cam”er’sovequayment decision. A second notice regarding the overpayment 

was sent several weeks later. When the second notice was returned indicating the 

addressee had moved and lejl no forwarding address, the case was then referred to the 

OIG. The premature alert of the provider makes it extremeiy dificult for the OIG, or any 

law enforcement agenq, to pursue thk case. 

The above case illustrates a problem we encountered repeatedly during our case file 

reviews. The case development clearly shows false statements, billing for sewices not 

rendered and other criminal statute violations. Carriers are to refer cases involving 

potential fraud to the OIG for possible criminal action if the case meets OIG referral 

criteria. Carriers should contact the OIG and discuss all cases involving fraud issues 

before initiating recovery action. 

J 
Critaia2 Asse&tg Fiiumcia1Damages. 

Carriers didnotconsistently develop payment information. One fourth of the cases


we reviewed contained no information about the total payments made to the provider.


In nearly half of the cases, carrier staff did not accurately determine the amount


overpaid. The data suggests that carriers may not be doing expanded reviews and


projecting overpayments accurately when an allegation is substantiated. The cases we


reviewed provided further evidence that expanded sampling was not always done when


an allegation of fraud or abuse was substantiated.


Of the cases we reviewed, only 1 out of every 3 cases referred to the OIG contained


accurate overpayment information. One out of every 5 cases either over or under


stated the actual overpayment, and 1 of 5 cases did not provide any information about


the potential dollars lost by the program or dollars paid to a provider in a specified


time period. In one case the carrier reported total dollars paid to a provider as the


potential overpayment. At issue in the case were specific procedure codes, not the


entire practice. If the carrier had properly determined the potential overpayment for


the procedure codes in dispute, the amount reported would have been considerably


less than stated on the referral to the OIG and the case would not have met OIG


regional office criteria for referral.


Two out of 5 reviewed cases developed for overpayment recovery and not referred to


the OIG were incorrectly handled. During our review we noted that the overpayment


on these cases was frequently understated because the carrier did not conduct a


sample upon which to project additional payments, or did not develop for additional


overpayments when the provider was the member of a group or had multiple provider


numbers.


Failure to provide accurate payment and overpayment information can waste limited


carrier and law enforcement resources. With current emphasis on presenting cases to


the Justice Department early to determine interest in a case, one can readily see the


consequences of inaccurate payment and overpayment information on resources.


Likewise carrier failure to adequately audit all related billing numbers and failure to


utilize adequate sampling methodologies results in inappropriate overpayment


recovery actions that should have been referred to law enforcement agencies.


During our discussions with OIG special agents, we were told of carriers pursuing


overpayments on cases that had not been discussed with the OIG and that they


believed had significant prosecutive merit. The cases we reviewed support what we


heard from OIG special agents. In many of the cases, the OIG was not consulted


before overpayment actions were initiated.


Cri@ia 3: Case DoamemZtim


Of the 37 carriers participating in this study, only 5 consistently indicated information


about frequency of problems with a specific provider. Documentation on the number


6 
of complaints alleging fraud or abuse is required by HCFA. Furthermore, 9 out of 10 

sumey respondents indicated that this information was readily apparent when a case 

was assigned to them. 

Despite written procedures and claims that documentation on the number of 

complaints against a provider is readily available, such information is not surfacing in 

cases being developed by carriers. The absence of this information may affect law 

enforcement agency decisions on whether to pursue a full scale investigation of a 

provider. Furthermore, failure to mention previous problems may prove detrimental 

to an investigation or prosecution if the existence of other carrier files surface at a 

later date and are found to contain information that compromises the case. We were 

told by OIG, Office of Investigations respondents that this has happened on more than 

one occasion. Not only is this embarrassing to law enforcement agencies, it damages 

relations with Assistant United States Attorneys and the relationship between the 

carrier and law enforcement agencies. 

We frequently found contradictory statements in the files we reviewed concerning 

frequency of complaints. To illustrate, consider the following statements found in one 

carrier’s case development file: “This is our first problem with Doctor X.” Among the 

other information in the file we came across this statement: “Doctor X and problems 

with his patterns of practice are well known to us.” On the other end of the spectrum 

are cases where the frequency is stated but no information is provided about the issues 

involved and their resolution. 

Ctieria 4: In&mal Reactive Safkgmwrls 

Our fourth criteria compared carriers by the number of internal proactive measures 

initiated by their fraud units. We considered an action by the fraud unit to be 

proactive if 

�	 it identified a specific policy, system function or procedure vulnerable to fraud 

or abuse, and 

�	 made specific recommendations on how to eliminate or reduce the identified 

vulnerability. 

Our analysis of internal proactive measures indicates that less than half of the 37 

carriers (4296) that participated in this study had identified vulnerabilities and initiated 

changes in their claims processing and other operations. Since October 1992, there 

have been less than 100 such changes recommended by 14 of the 37 carrier fraud units 

in this study. As Table A shows, the majority of the recommendations designed to 

make it harder to defraud government programs were initiated by one carrier. While 

many carriers claim to have initiated steps designed to reduce the likelihood that their 

systems will be defrauded, only 14 could provide evidence of an identifiable action 

designed to curb a specific vulnerability in their system. 
Of the 37 carriers in this study, only 3 had initiated more 

than 3 corrective actions. Five fraud units mentioned 

strengthening the process for assigning provider numbers 

to independent physiological laboratories. Four reported 

implementing prepayment edits upon discovering how a 

provider, or providers, were circumventing their system 

safeguards. 

Our case review indicates that procedure, policy and 

system shortcomings are often identified by fraud unit 

staff during case development. We documented 19 such 

vulnerabilities, including payments to nop certified 

laboratories and duplicate payments that were not 

addressed. We are unsure as to why these vulnerabilities 

are not being addressed. 

Oiteria 5: lhlemal hnzctive Safeguanis 

Our final criteria measured the number of fraud alerts that 

had been generated by each carrier. We chose to measure 

fraud alerts because they were a quantifiable, proactive 

product containing information helpful to other carriers in 

safeguarding program funds.2 

Of the 37 carriers in this study, 19 reported to us that they 

had submitted at least one fraud alert to their HCFA 

regional office for consideration. Our review of carrier 

files and other information collected during this inspection 

found that many of the cases involved issues and problems 

that we felt should have been, but were not, brought to the 

attention of the regional HCFA office and other carriers. 

As with other criteria we evaluated, more successful fraud 

units also are more prolific producers of fraud alerts. These 

Table A 

Table B 

II FF 11211 

4 

units not only identify 

internal weaknesses ‘but als; actively seek to disseminate information about their 

findings to HCFA and other carriers. 

We were told by a number of respondents that the current process for submitting and 

getting a fraud alert issued is so cumbersome and lengthy that it discouraged them 

from initiating such efforts. Respondents indicated that a less formal vehicle is needed 

so that carriers can communicate information quicker about problems they are 

experiencing. 

2 Our evaluation of proactive measures did not take into consideration beneficiary, provider and employee education 

programs being conducted by all carriers. The HCFA requires carriers to conduct education prograrny therefore, we 

considered them to be the baseline on which proactive measures designed to prevent fraud and abuse should be built. 

8 
Surnnuuy of the Five CMeria Used to iUeasiue Pe&mancc 

The five outcome criteria we used to compare carrier performance are summarized in 

Table C. The table shows that some carrier program integrity efforts are consistently 

better than their peers. More importantly, the table shows that only a few carriers 

have well rounded and successful program integrity efforts. We compared 

these carriers with others and analyzed information available to us in an effort to 

determine why their performance is better. Tables showing how all of the carriers in 

this study ranked can be found in Appendix A. 

Table C 

II OIG SELECTED OU’KOME ~ 

9


II 
RESOURCES & ORGANIZATION. The most effective program 

integrity efforts are found in corporations that provide adequate resources 

and strategic organizational placement. 

Increused Resoumes 

Successful fraud units have access to corporate resources. These resources include the 

support of the highest levels of management from all sectors of the carrier’s business. 

Corporate support enables successful units to obtain adequate financial support which 

appears essential to establishing a stable and effective program integrity effort. 

Adequate program integrity budgets enable fraud and abuse managers to create 

higher paid positions that help attract and keep highly motivated and qualified staff in 

the unit. As one of our survey respondents commented: “Well-trained analysts will be 

less likely to leave this position for a better paying job if more attention is given to 

maintaining salaries at a level equal to the importance of this job.” More successful 

fraud and abuse units operate in an environment where each person working in 

program integrity can advance their careers and salary potential without leaving the 

unit. 

Effective fraud units occupy a distinct and secure space within carrier operations that 

serves, not only as a constant reminder to all employees of the carrier’s corporate 

commitment to fraud and abuse, but also protects the confidentiality of sensitive work. 

Clearly defined, distinct and secure space also seines to differentiate 

postpayrnent/program integrity activities from front-end, customer oriented claims 

processing areas. 

Among the resources available to successful fraud units is state-of-the-art technology 

that enables them to do their job efficiently and effectively. They have access to online semices, beepers and cellular telephones. They have their own facsimile machines 

and reproduction equipment. Each fraud unit and program integrity employee has 

their own personal computer. In addition to personal computers, successful fraud 

units have invested in mainframe hardware and powerful user-friendly software that 

enables them to analyze large data sets quickly and easily. Coupled with on-line 

access to claims processing information and their own historical claims processing data 

on storage media, successful fraud units have the capacity to run their own data for 

analysis. 

At some less successful carriers, fraud unit staff share telephones and/or personal 

computers. Some fraud units send and receive sensitive facsimile information and 

reproduce documents at a central mail room. Sharing these resources with other 

carrier operations may result in the loss of essential information or compromise 

evidence chain of custody. Furthermore, the ability to analyze data at many carriers is 

limited not only by the lack of hardware and user-friendly software, but also by the 

lack of access to the raw data. 

10

Slwt?gikOlganhltbnal Rlcenlent 

Carrier operations can be viewed as falling into two distinct groups: prepayment and 

postpayment operations. Prepayment operations have a customer service orientation 

with functions geared to assist patients and providers. Postpayment operations, on the 

other hand, consist of investigations, audits and other program integrity initiatives 

designed to protect the Medicare trust funds. Inquiries and audits designed to ensure 

that proper payments are made generally are not well received by providers. 

The most successful fraud units operate in an environment where most, if not all, 

postpayment functions have been consolidated into the carrier’s overall program 

integrity efforts. The fraud unit, through the fraud unit manager, has the primary 

responsibility for overseeing and directing all carrier postpayment and program 

integrity efforts, including all staff responsible for: 

conducting routine or mandated audits of providers; 

identifying, analyzing and resolving systems’ vulnerabilities that enable providers 

to circumvent payment safeguards; 

the analysis of claims data aimed at detecting potentially aberrant providers; 

and, 

receiving, controlling and resolving allegations of fraud and abuse. 

Successful fraud units report directly to the highest levels of corporate management. 

Recognized experts in health care fraud, and many of the people we spoke to during 

this inspection, believe that this arrangement provides for a more objective assessment 

of the needs and recommendations of postpayment/program integrity. It recognizes 

the dichotomy that exists between program integrity goals and front-end claims 

processing goals. It provides the highest levels of management with information that 

can be used to improve day-to-day operations from the divergently different 

perspectives of front-end operations and postpayment operations. 

More effective fraud units have established a clearinghouse or other specialized unit 

responsible for controlling and for triaging all postpayment activity. Clearinghouses, 

under the control and guidance of the fraud unit, determine whether referrals to the 

program integrity unit are appropriate. Inappropriate referrals are returned to the 

originators for resolution (i.e., beneficiary/customer service). Case controls and files 

are established for appropriate referrals and an initial analysis is conducted to 

determine whether the issues involved are fraud, abuse or both. Allegations involving 

only medical necessity are referred to medical review for development. Allegations 

involving fraud and abuse are developed to determine whether or not the allegation 

can be substantiated. Substantiated allegations involving providers with whom the 

carrier has had previous problems are referred to investigators if they meet frequency, 

monetary and other guidelines. 

11 
Effective program integrity programs use their fraud unit investigators to develop or 

direct the development of cases involving issues of fraud or abuse. Case development 

conducted outside the fraud unit is done at the discretion and under the direction of 

the fraud unit. Control over the sensitive information developed during carrier 

investigations, and the proper conduct of all carrier employees involved in developing 

such information, is critical to prosecution and overpayment recovery. At one 

successful carrier, employees outside the fraud unit who are asked to assist in 

evaluating or developing a case with potential for referral to the OIG must sign a 

statement that the information they gain will not be discussed or otherwise divulged to 

anyone. 

Fraud units that do not control case development and the role played by other carrier 

operating components in developing potential fraud and abuse cases, run a high risk of 

having these cases compromised. During our case review, inappropriate development 

of cases with potential prosecutive merit occurred frequently when prepayment and 

claims processing components became involved in the development of complaints 

alleging fraud. Medical review units in particular appeared to routinely make contact 

with potential subjects and readily accept provider explanations. Medical review units 

often initiated recoupment action before the case was discussed with, or declined by, 

the OIG. The following case summary illustrates a common problem: 

This case was assigned to the fraud unit and involved an ophthalmologist 

misrepresenting services and billing for services not rendered 7%ej?aud unit developed 

information on 37 claims and determined a potential overpayment of $1 ~ 000.00. 

Following internal procedures, the case was sent to medical review for medical necessiq 

development. 

The medical review unit report states that thti ophthalmologzkt has a histo~ of 

miwepresenting services and undocumented services dating back to 1988. The eract 

number of prior problems is not stated in the file nor k there any information about any 

prior educational contacts. 

The medical review unit informed the fraud unit that they should not pursue the 

fraud ikues because they know the ophthalmologist and when problems have suflaced in 

the past they have always been clerical errorsfor which the provider has always willing~ 

made restitution. The medical review unit undertook no additional development. l%e 

OIG was not consulted about potential j?aud issues. The case was resolved with a request 

for repayment of the overpayment determined by the j?aud unit. 

The involvement of medical review staff sometimes changed the complexion of the 

case from the initial allegations of fraud to issues involving medical necessity. 

Fraudulent activity was not addressed, inadequately addressed or subverted by raising 

immaterial abuse, medical necessity or overutilization issues that overshadowed or 

obscured the more serious fraudulent activity. Effective fraud units prevent this from 

happening by controlling and directing development of all cases alleging fraud or 

abuse. 
STAFFING. Successful fraud units have an effeetive mix of investigators, 

auditors, statisticians and analysts. 

Successful fraud unit staff bring diverse backgrounds and skills to the job. They have


a good mix of disciplines. Successful fraud units and program integrity efforts


integrate persons with law enforcement backgrounds with personnel who have


knowledge of claims processes and policies. They also add analysts, accountants and


statisticians to compliment their staff. No one discipline dominates the program


integrity or fraud unit. Personnel recruited from carrier front-end operations such as


claims processing are selected not only for their knowledge of front-end operations


and polices, but for their commitment to aggressively combat fraud and abuse.


Program integrity units that can keep employees perform better than units with


constant turnover. Turnovers, according to people we interviewed, have severely


hampered fraud and abuse efforts. We heard complaints about the replacement of


persons considered to have a grasp of the job and with good working relationships


with OIG and other law enforcement agencies. It is alleged that some carriers


perpetually reorganize staff, thereby, never developing a cadre of individuals proficient


at the job. At one carrier, five different people have headed up the fraud unit in the


past 12 months.


Fraud unit staffing turnovers adversely affect the quality of case development.


Carriers have been required to dedicate some staff to combat fraud and abuse


virtually from the inception of the Medicare program nearly 30 years ago. Given how


long carriers have played a program integrity role in the Medicare program, the


current fraud unit staff at many carriers appears to lack investigative experience.


Our analysis indicates that half of the fraud unit staff have less than 2 years experience


in the unit. A third of the staff have less than 1 year’s experience and nearly 1 in 5


employees has less than 6 months experience. The average fraud unit employee has


been employed by the carrier for about 9 years.


The number of people working in the fraud units varies by carrier, ranging from 1


employee to over 50 employees. Nine units have two or less employees and a third of


the units have five or less employees. We found little or no relationship between the


size of the fraud unit and claims processed, dollars paid or operating budget.


The variance in fraud unit size reflects a number of factors including the carrier’s


organizational structure and the number of program integrity related functions being


carried out by, or under the direction of, the fraud unit. The number of employees


and the placement of postpayment activities in the carrier’s organizational structure


appears to have an effect on the quality of a carrier’s program integrity efforts.


Successful prevention, detection, deterrence and prosecution efforts clearly require


adequate staff.


13

Nine out of 10 people working in the fraud units came to the unit from the carrier’s 

front-end operations. At some less successful fraud units, all of the employees come 

from front-end operations. Sixty percent came to the fraud unit with only beneficiary 

service and/or provider relations experience. Less than a third of the fraud unit 

employees have experience in the fraud and abuse unit’s predecessor called program 

integrity or in Federal, State or local law enforcement. 

The inability of fraud units to attract and keep staff may affect the quality of their 

referrals. We have heard that positions in the fraud unit and other postpayrnent 

areas are among some of the lowest paying jobs at some carriers. One carrier 

employee told us that a position in the fraud unit is a “dead end job.” Another 

remarked that “you get what you pay fqr.” And still another commented that “Welltrained analysts will be less likely to leave this position for a better paying job if more 

attention is given to maintaining salaries at a level equal to the importance of this job.” 

More successful fraud units have stable management and have policies designed to 

keep staff long enough to become proficient at their job. One carrier requires new 

fraud unit employees to sign an agreement that they will remain with the unit for at 

least 3 years. 

Constant staff and management turnover also appears to hamper training initiatives. 

Some people responsible for training carrier fraud unit managers and staff expressed 

frustration at the frequency of staff turnovers. They felt that the time and effort they 

had spent in preparing for training was lost when staff were re-assigned shortly after 

attending the training course. 

TRAINING. Successful fraud units provide their staff with adequate and 

ongoing training. 

Our survey respondents had, on average, 9 years of experience working for the carrier, 

however, half have less than 2 years experience working in the fraud unit and a third 

have less than 1 years experience. Though knowledgeable about Medicare coverage, 

billing and reimbursement criteria, and carrier operations, they may lack training and 

experience in investigative techniques. Their short time on the job deprives them of 

the experiences and the insights investigators develop through years of working myriad 

fraud and abuse situations. 

Better fraud and abuse units not only have more stable staff but better trained staff. 

Staff at better units receive more training each year than their peers at other carriers. 

They often have formal training plans that document past training and identi@ 

individual training needs. Forty percent of our survey respondents have had less than 

8 hours of training since January 1, 1994. That equates to less than 1 hour of training 

a month. Only 1 out of every 4 persons working in the carrier fraud units has had 

more than 40 hours of training since Janua~ 1994. 

14

More than half of the employees who responded to our survey believe that their 

training needs have not been adequately met. Two out of every 3 people working in 

the carrier fraud and abuse units have had no HCF~ OIG or other outside training 

on fraud and abuse since HCFA began funding fraud units in October of 1992. This is 

a marked difference from responses we received from employees of more successful 

fraud units. 

Staff turnover may explain why 25 percent of the fraud unit employees have had no 

training. Staff at better units receive training from internal and external sources while, 

at least 2 out of 3 employees at other units have no training from outside sources. 

Our sumey responses indicate that 75 percent did receive in-house training. At some 

carriers this training is conducted by medical review, provider relations and other 

operating component staff. 

Better performing fraud units ensure that all of their employees receive direct training 

from inside and outside sources. Staff are required to participate in a fixed number of 

hours of training each year. Whenever possible staff are sent to outside training and 

conferences designed to provide information on how others have: prevented abuse of 

their systems, educated providers, detected fraudulent and abusive providers within 

their system, and successfully prosecuted providers. Better fraud units encourage 

hands on experience, conference attendance, peer training and participation in 

meetings with OIG investigators and other law enforcement personnel. 

Analysis of survey responses shows that half of the people currently working in the 

fraud units expressed no interest in training related to skills needed to combat fraud 

and abuse. Of the half who did express an interest in training related to fraud and 

abuse skills, they indicated a desire for training in the following areas: (1) 

investigative knowledge and techniques (i.e., rules of criminal evidence, analysis 

techniques), (2) interviewing techniques, and, (3) State and Federal laws and 

regulations (i.e., the Stark bills and Safe Harbor regulations involving joint ventures). 

About 10 percent of our survey respondents indicated they had not received training 

and that they had no desire to take such training. 

15

RECOMMENDATIONS


Efforts by the OIG and HCFA to identi& and combat Medicare and Medicaid fraud 

and abuse have intensified over the past several years. As part of these efforts, the 

Department is piloting a demonstration program entitled Operation Restore Trust 

(ORT). Under ORT the OIG, in partnership with HCF& emphasizes interdisciplinary 

teamwork with other State and Federal agencies as an important component for 

enhancing fraud and abuse activities. 

Concerns regarding the effectiveness of Medicare carrier fraud units are similar to 

those discussed in our report entitled “Szuveillance und ZX&ation Review Suhystemr’ 

Case Refemdh w iUidicakl Freud Control Uni@” OEI-07-954XW30. As a result, we 

believe that a concerted effort addressing both Medicare and Medicaid fraud units is 

called for. We are proposing a uniform team approach. We recommend that HCF~ 

in consultation with the Office of Inspector General should: 

Convene a Medicare and Medicaid fraud and abuse task force to plan and implement 

improvements in fraud unit operations. This would include: 

Clari&ing goals and objectives for program integrity efforts. 

Establishing guidelines for developing suspected fraud cases. 

Developing a universal protocol for appropriately referring fraud and abuse 

cases. 

Coordinating data systems to ensure that data are reliable and consistent across 

all entities in the fraud and abuse fighting network. 

Developing a training program designed to educate program integrity personnel 

on procedures, case referrals and best practices. 

Continue to provide support and technical assistance to carriers so they can emdate 

those carriers operating successful programs. This can include: 

�� Encouraging carrier commitments that result in increased resources to combat 

fraud and abuse such as investments in technology and people. 

Provide sufficient resources to support program integrity efforts including 

secured space, facsimile and photocopy equipment, computer hardware 

and software and other technologies. 

Pay persons working in program integrity salaries comparable to those in 

other areas of carrier operations. 

16

Suggesting ways of organizing a successful program integrity effort. 

Develop an independent program integrity organization within their 

operations that reports directly to a sufficiently high level of corporate 

management. 

Consolidate all postpayment functions under the control of the fraud 

unit manager. 

Triage all allegations of fraud and abuse through a centralized 

clearinghouse, properly trained to identi~ fraud and abuse and under 

the control of the fraud unit. 

Limiting the role of medical review units in program integrity to those cases 

involving issues of abuse, policy, coverage and medical necessity. 

Medical review units should not be involved in cases alleging fraud 

unless they are requested to assist in the development of a fraud case by 

the fraud unit. In no fraud case should the medical review unit be 

responsible for settling or determining the closing action. 

Rewarding carriers for identi&ing policy, procedure and systems vulnerabilities 

and implementing corrective safeguards. 

Separating the budget for postpayment activity from the budget for claims 

processing and other front-end operations such as provider enrollment and 

provider relations. 

17

AGENCY COMMENTS


We appreciate all the positive steps that HCFA has taken thus far to safeguard the 

Medicare program and we recognize the accomplishments of the Program Integrity 

Group. We are pleased that HCFA has concurred with our recommendations and we 

look forward to working with HCFA in their implementation. 

We believe that the best approach would be a collaborative one involving HCFA and 

OIG, with consultation from high performing State Surveillance and Utilization Review 

Subsystem Units (S/URS) and carriers, to improve program integrity activities at the 

carrier and State level. We suggest that this effort focus on: 

.	 Developing and implementing model practices to help carriers and S/URS 

decide which cases should be developed for medical review and overpayment 

recovery or for referral for fraud. In addition, existing protocols should be 

implemented for referral of fraud cases to appropriate investigative entities (the 

OIG for Medicare cases and Medicaid Fraud Control Units for Medicaid 

cases). We believe that together we can increase overpayment recovery 

amounts and increase the number of successful prosecutions by law 

enforcement agencies. 

.	 Revising current contractor performance measures that reward carriers for 

overpayment recovery but not for fraud and abuse referrals or efforts to 

improve claims processing safeguards. 

�	 Identifying the most effective practices which carrier and State personnel use to 

eliminate claims processing vulnerabilities that enable providers to defraud 

health programs. 

We believe that achieving the goals both HCFA and the OIG have established for 

improving program integrity functions at the carriers and in the States can best be 

accomplished by these kinds of collaborative efforts. We look forward to working with 

HCFA to bring about further measurable change. 

The full text of HCFA’S comments is contained in Appendix B. 

18

APPENDIX A 

Tables 

COmparing Carriers 

A-1 
A-2 
Ilcarrierl I somdilnes I Never 

A-3 
A-4 
A-5 
L I 4 

A I 2 

D I 2 

G I 1 

v I 1 

Q I 1 

Wrierfmldunitsinitiatedl mextemal Umacbve “ siikmlardlL 

A-6 
APPENDIX B 

Health Care Financing Administration 

Response to Report 

B-1 
,*5E*.mr ,,, 

/+ > .

DEPARTMENT OF HEALTH & HUMAN SERVICES ‘~ ,

‘“+>\ -%.,,a~% 

DATE: 

TO; 

FROM: 

SUBJECT: 

SEP 26 1996


June Gibbs Brown 

Inspector General 

Bruce C. Vladec 

Administrator e“ 

OffIce of Inspector General (OIG) Drafi Report: “Carrier 

(OEI-05-94-O0470) 

We reviewed the above-referenced repo~ concerning Medicare/Medicaid 

fraud and abuse. The report identifies specific factors which contribute 

against successfid program integrity operations. 

Health Care Flnancrng Admlnlstratlon 

The Admln@rator 

Washington, D.C. 2(J20] 

Fraud Units” 

losses due to 

to and work 

Our detailed comments are attached for your consideration. Thank you for the


opportunity to review and cornrnent on this report. Please contact us if you would like to


discuss our comments.


Attachment


B-2

---

A) Ccm.un@s on 

e of Qector G4 (01 cd.. cc d Uni@_>> 

f?~l 0594 00470) 

HCFA should convene a Medicare and Medicaid fraud and abuse task force to pkm and 

implement improvements in fi-aud unit operations. This would include: -

Clar@-ing goals and objectives for program integrity efforts. 

o Establishing guidelines for developing suspected fraud cases. 

o Developing a universal protocol for appropriately referring fraud and abuse cases. 

o	 Coordinating data systems to ens&e that data are reliable and consistent across all 

entities in the fraud and abuse fighting network. 

o	 Developing a training program designed to educate program integrity personnel on 

procedures, case referrals and best practices. 

We concur. HCFA established the Program Integrity Group (PIG) to address fraud and


abuse issues within the Medicaid/Medicare programs. The goals of this group are


consistent with the report recommendations. The group’s overall responsibilities include


completing and monitoring the activities of short and long term projects, such as,


changing the conditions of participation for home health agencies, developing a strategic


plan with our law enforcement partners, clari&i.ng program integrity language contracts,


and determiningg how to better use data to reduce waste, iiau~ and abuse. In additioq


HCFA is working to address issues common to both programs. For example, Medicaid


Surveillance and Utilization Review Subsystems Units are (or are planned to be) users of


the recently developed Fraud Investigation database. The database ensures that


information on cases developed by Medicare carriers is shared across a number of


program and law enforcement organizations. Inputting fraud cases developed by the


Medicaid program would allow tracking both Medicare/Medicaid fraud cases on the same


system. The OIG suggests that there is a need to develop standard guidelines for the


development and refemal of fraud cases; however, the OIG has already developed such


guidelines. HCFA has provided these guidelines for case development and referral to the


B-3


0 
Page 2 

carrier fraud units and contractors. We encourage the use of these OIG guidelines by the 

states. 

OIG Recommendation 

HCFA should continue to provide support and technical assistance to carri-ers so they can 

emulate those carriers operating successful programs. This can include: 

o	 Encouraging carrier commitments that result in increased resources to combat 

fraud and abuse such as investments in technology and people. 

o Suggesting ways of organizing a successful program integrity effort. 

o	 Limiting the role of medical revidw units in program integrity to those cases 

involving issues of abuse, policy, coverage, and medical necessity. 

o	 Rewarding carriers for identi&ing policy, procedure and systems Vulnerabilities 

and implementing corrective safeguards. 

o	 Separating the budget for postpayment activity from the budget for claims 

processing and other front-end operations such as provider enrollment and 

provider relations. 

HCFA Response


We concur. HCFA actively encourages carriers with effective fraud units to operate and


share best practices with other carrier fraud units and will continue to do so.


Additionally, each region has a Medicare Fraud Information Coordinator to coordinate


information about fraud cases, alerts, etc., to ensure the sharing of information between


regional office, central office, and other interested parties. Further, the OIG suggests that


the budgets for program safeguard activities be separated fkom that of other contractor


activities. This modification is a feature of pending legislation and HCFA supports it.


This legislatio~ if enacte~ woul~ over the next several years, signiilcantly increase the


resources devoted to these activities.


B-4

Page 3 

Technical Comments 

o	 On page 8, the report states that a number of respondents complained that the current 

process for submitting and getting a fraud alert issued is so cumbersome and lengthy 

that it discourages them from initiating such efforts. The report indicated that a less 

formal vehicle is needed to allow them to communicate information quicker about 

problems they are experiencing. Formal procedures are also important to ensure that 

alerts are not disseminated to inappropriate parties or that inaccurate or misleading 

information is not distribute~ making later prosecution efforts difficult or impossible. 

HCFA already has a less formal procedure in place to allow carriers and 

intermediaries to quickly communicate information about potentkd fraud and abuse 

situations. In April of 1995, we implemented a process which allows carriers and 

intermediaries to prepare “Significant Investigation Reports” which are forwarded to 

HCFA Regional Offices for immediate distribution to all carriers and intermediaries 

and other appropriate parties. 

o	 On page 10, the report states that “effective fraud units occupy a distinct and secure 

space within carrier operations” and notes the importance of protecting the 

confidentiality of sensitive work. This is a ve~ important element of fraud unit 

operations an~ for this reaso~ we included specific security procedures in the most 

recent revisions to the fraud sections of the carrier and intermed.ky manuals. These 

are identified in section 14032 of the Medicare Carriers Manual (MCM) and include 

sections related to the privacy of fraud operations, appropriate handling of sensitive 

informatio~ and other security guidelines that carriers are expected to follow to the 

greatest degree possible. 

o	 On page 12, the report points out the importance of maintaining control over sensitive 

information. It notes that one successfi.d carrier utilizes employees outside the fraud 

unit to assist in fraud development and requires these employees to sign a statement 

that the information they gain will not be discussed or otherwise divulged to anyone. 

Ag@ we fhlly support this type of requirement and have included instructions to 

address this in our contractor manuals. Specifically, section 14032 E of the MCM 

states that persons hired to work in the fraud unit should be required to fill out a 

conflict of interest declaration as well as a conildentiality statement. 

B-5