For Release on Delivery

Expected at

10:00 a.m. EDT

Thursday,

April 6, 2000

GAO/T-OSI-00-9

MEDICARE

Improper Third-Party

Billing of Medicare by

Behavioral Medical

Systems, Inc.

Statement of Robert H. Hast,

Acting Assistant Comptroller General

for Special Investigations

Office of Special Investigations

Testimony

Before the Subcommittee on Oversight and

Investigations, Committee on Commerce

House of Representatives

United States General Accounting Office

GAO
GAO/T-OSI-00-9

Summary

Today’s testimony concerns the results of GAO’s investigation

into the operations of Behavioral Medical Systems, Inc. (BMS) of

Sugarland, Texas. BMS represented itself to Medicare as a

healthcare provider but functioned as a broker of medical services

and contracted with a third-party biller that, in turn, prepared and

remitted claims to Medicare on behalf of providers contracted to

BMS. While doing so, BMS billed Medicare improperly and

violated the U.S. Code.

BMS contracted with nursing homes to provide psychiatric and

related services to their residents. BMS also contracted with

psychiatrists and psychotherapists—as independent contractors,

not BMS employees—to provide those services. BMS then

consistently caused improper Medicare claims, involving services

by six psychiatrists contracted to it, to be submitted to its fiscal

carrier. Of the approximately 4,900 claims that BMS filed in the 20-

month period investigated, 87 percent—or almost 4,300 claims—

were for medical services reportedly not provided. These

Medicare claims for fictional services totaled $1.3 million. In

addition, we believe that BMS violated the general statutory

principle that Medicare payments should be made directly to the

beneficiary or the assigned physician who provided the medical

service. Neither of these situations fit BMS.

As a result of this investigation, the Medicare carrier temporarily

suspended BMS in July 1999. At this time, BMS remains

suspended. The matters have also been referred to the Inspector

General of the Department of Health and Human Services and to

the Department of Justice. However, the founder of BMS is

currently submitting Medicare claims under an old provider

number—unrelated to BMS—issued to her in 1993. We have not

investigated these claims to determine if they are improper.
Page 1 GAO/T-OSI-00-9

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the results of our recent

investigation of the operations of Behavioral Medical Systems, Inc. (BMS)

of Sugarland, Texas, which functioned as a broker of medical services and

contracted with a third-party biller for submitting claims to Medicare.

Third-party billers prepare and remit (electronically or by paper) claims to

Medicare contractors on behalf of health care providers.

You had asked that we undertake the investigation because of your

concern about fraud and abuse within the Medicare program. Such

activities could be involved in a recent estimate, reported by the Office of

Inspector General (OIG), Department of Health and Human Services

(HHS), that $12.6 billion of fiscal year 1998 Medicare payments for fee-forservice claims did not comply with Medicare rules. My testimony today is

based on our recent report of our investigation, which you are releasing

today.1 More specifically, my remarks concern (1) BMS and how it

conducted business, (2) its improper billing of Medicare, and (3) our belief

that BMS violated the U.S. Code.

In brief, we determined that although BMS represented itself to Medicare

as a health-care provider, in fact it functioned as a broker of medical

services and, according to its contracted psychiatrists, a third-party biller.

Further, through the services of the third-party biller with which it had

contracted, BMS consistently caused improper Medicare claims to be

submitted for services by six psychiatrists contracted to it. Indeed, of the

approximately 4,900 Medicare claims that BMS filed in the 20-month

period we investigated, 87 percent—or almost 4,300 claims—were for

services that reportedly were not provided. Those improper Medicare

claims totaled $1.3 million. As another matter, we believe that BMS

violated the general statutory principle2 that Medicare payments should be

made directly to the beneficiary or the assigned physician who provided

the medical service. Neither of these situations pertained to BMS.

On the basis of our investigation, the Medicare carrier temporarily

suspended BMS from Medicare program participation on July 9, 1999. At

1 See Medicare: Improper Third-Party Billing of Medicare by Behavioral Medical Systems, Inc.

(GAO/OSI-00-5R, Mar. 30, 2000).

2 42 U.S.C. section 1395u(b)(6).
Page 2 GAO/T-OSI-00-9

this time, BMS remains suspended. Further, we referred the matter to the

HHS OIG, and it has been referred to the Department of Justice. However,

we recently learned that the founder of BMS—Sandra J. Hunter, Ph.D., a

licensed social worker—is currently submitting Medicare claims under an

old provider number issued to her in 1993. That provider number is not

related to BMS. We have not conducted an investigation to determine if

these claims are improper.

In February 1995, Dr. Hunter applied to a Texas Medicare Part B carrier

for a Medicare billing (provider) number for BMS. Dr. Hunter subsequently

received a group provider number that allowed her to bill for Medicare

services rendered. In the application, Dr. Hunter represented the location

of BMS as a suite at a particular address in Sugarland, Texas. This gave the

impression that BMS was located in a business environment and that

medical services would be provided there. Instead, the stated suite number

and business address consisted of a mailbox number at a local Mail Box

Express.

In addition, on her application, Dr. Hunter represented BMS as a group

practice specializing in psychiatry. We determined, however, that BMS did

not directly employ psychiatrists and was thus not a group practice.

Instead, in its business, BMS contracted with nursing homes to provide

psychiatric and related services to their residents. BMS also contracted

with psychiatrists and psychotherapists—as independent contractors, not

BMS employees—to provide those services and, according to the

psychiatrists, use BMS as their third-party biller.

Then, as was the BMS process, (1) the psychiatrists and psychotherapists

prepared monthly activity reports providing necessary Medicare billing

information; (2) the reports were forwarded to Dr. Hunter for processing;

and (3) Dr. Hunter forwarded them to her contracted third-party biller for

it to submit billings, following her direction, to Medicare on behalf of BMS.

Medicare sent the claims payments to Dr. Hunter, who paid the contracted

psychiatrists and psychotherapists. Medicare also sent the Explanations of

Benefits, detailing the payments for the services, to BMS and not to the

psychiatrists.3 These psychiatrists stated that they were thus unaware of

the additional claims made on their behalf.

3 Our analysis did not include a review of psychotherapists because their rate of reimbursement was

based on an hourly rate for individual services rendered.

BMS and Its

Operations
Page 3 GAO/T-OSI-00-9

We compared the service dates that the psychiatrists submitted to

Dr. Hunter in their activity reports and the claims that the BMS contractor

submitted for reimbursement to Medicare, under Dr. Hunter’s direction.

Most—87 percent—of the claims that we analyzed from the period

September 1997 through April 1999 (the period that we investigated) were

for services that the psychiatrists had not rendered to their patients. For

example, Medicare paid BMS for 90 visits by one psychiatrist to a patient

between September 1, 1997, and February 28, 1998. However, according to

his records, the psychiatrist had not visited the patient at all during that

period. In addition, the same psychiatrist saw a second patient six times

between May 23, 1998, and February 16, 1999. Yet carrier records show

that BMS, through its contractor, billed Medicare for 70 additional visits by

the psychiatrist during that time frame. According to another psychiatrist,

he made five visits to one patient. Yet carrier claims records show that

BMS billed Medicare for another 41 visits by that psychiatrist.

We analyzed the 4,922 claims that the BMS contractor submitted to

Medicare on behalf of the 6 contract psychiatrists for the September 1997–

April 1999 time frame. Of these claims, 4,291—or 87 percent—were

reportedly fictitious. According to the 6 psychiatrists and fiscal carrier

records, these claims represented 9,854 patient visits that never occurred.

Also according to carrier records, the improper claims totaled $1.3 million

for unrendered services. We determined that BMS had received over

$362,000 in Medicare payments for the fictional visits and services. The

difference of approximately $951,000 is attributable to claims that were

disallowed/disputed, co-payments, deductibles, or claims that exceeded

allowable Medicare reimbursable amounts.

BMS should not have billed Medicare because it neither (1) directly

employed the psychiatrists and psychotherapists who provided the

services to the Medicare patients nor (2) provided a facility in which the

services were rendered. Based on statute4 and HCFA’s implementing

regulations,5 BMS was not entitled to bill Medicare directly for the services

4 Title 42 U.S.C. section 1395u(b)(6) states in pertinent part, “No payment under that part [B] for a

service provided to any individual shall be made to anyone other than such individual or[,] pursuant to

an assignment[,]...[to] the physician or other person who provided the service, except that (A)

payment may be made (i) to the employer of such physician or other person...[or] (ii) (where the

service was provided in a hospital, rural primary care hospital, clinic, or other facility) to the facility in

which the service was provided if there is a contractual arrangement between such physician or other

person and such facility under which such facility submits the bill for such services....”

5 HCFA regulations at 42 C.F.R. section 424.73(a) implement the congressional intent by limiting the

extent to which Medicare pays individuals or entities that do not directly provide medical care.

BMS Billed Medicare

for Reportedly

Fictional Visits to

Patients

BMS Violated the U.S.

Code Concerning

Direct Medicare

Payments
Page 4 GAO/T-OSI-00-9

that the psychiatrists and psychotherapists provided for patients in the

nursing homes.

We believe that the statutory language is clear that BMS could not bill

Medicare because it was neither the beneficiary nor the provider of the

services to the Medicare patients. The subject statute establishes the

general principle that Medicare payments are to be made to the

beneficiary or, under assignment, to the medical provider who rendered

the service. Legislative history indicates that the Congress was concerned

about third-party direct billing because, among other points, “[s]uch

reassignments have been a source of incorrect and inflated claims for

services.” (H.R. No. 92-231, at 104 (1971)) Through the subject statute, the

Congress sought to eliminate a third party’s incentive to submit claims for

unprovided services or to engage in abusive billing practices.

Mr. Chairman, this concludes my prepared remarks. We would be pleased

to respond to any questions that you or other members of the Committee

have.

For further information regarding this testimony, please contact Robert H.

Hast at (202) 512-7455 or Steve Iannucci at (202) 512-6722. Robert

Gettings and Harvey Gold made key contributions to this testimony.

(600655)

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