United States General Accounting Office

GAO Testimony

Before the Subcommittee on Oversight and Investigations,

Committee on Commerce, House of Representatives

For Release on Delivery

Expected at

10:00 a.m. EST

Thursday

March 19, 1998

MEDICARE

Improper Activities by

Mid-Delta Home Health

Statement of Eljay B. Bowron

Assistant Comptroller General for Special Investigations

Office of Special Investigations

GAO/T-OSI-98-6

Medicare: Improper Activities by Mid-Delta

Home Health

Mr. Chairman and Members of the Subcommittee:

Thank you for inviting me here today to discuss the results of our

investigation into allegations of improper Medicare billings1

 by Mid-Delta

Home Health, one of the largest home health care providers in Mississippi.2

As you know, under the Medicare program, home health care providers

are reimbursed for their reasonable costs of serving beneficiaries. Costs

submitted for reimbursement must be necessary, proper, actual, and

related to patient care.3

 However, in our opinion, Mid-Delta Home Health

improperly claimed, and was reimbursed for, certain payroll costs that it

had not incurred. These costs included unused leave payments and

bonuses that the employees had been asked to return to Mid-Delta and the

full-time salary paid to the owner’s daughter while she attended nursing

school in 1996.4

We also question the propriety of certain other costs that Mid-Delta

claimed for Medicare reimbursement. These questionable costs included

• large bonuses5 given to the owner’s daughter that amounted to 119 percent

of her salary,

• “community education” costs that were primarily related to marketing and

not patient care,6

• a $10,000 bonus used to help purchase a business and then claimed to

Medicare as a payroll cost, and

• claims for apparently unneeded Mid-Delta visits to a number of patients

and for visits to other patients whose eligibility for homebound status7

 was

questionable.

1

See also Medicare: Improper Activities by Mid-Delta Home Health (GAO/OSI-98-5, Mar. 12, 1998).

2

Mid-Delta Home Health (now known as Mid-Delta Health Systems, Inc.) is owned and operated by

Mrs. Clara T. Reed, who is Chief Executive Officer and Chief Financial Officer.

3

42 U.S.C. sections 1395x(v)(1)(A) and 1395y(a)(1)(A); 42 C.F.R. section 413.9(a).

4

42 C.F.R. section 413.9(a).

5

The daughter received a $10,000 bonus in July 1996 and a $55,000 bonus in December 1996.

6

2 Medicare & Medicaid Guide (CCH) para. 5996B.

7

1 Medicare & Medicaid Guide (CCH) para. 1414.

Page 1 GAO/T-OSI-98-6
Medicare: Improper Activities by Mid-Delta

Home Health

Leave/Bonus

Paybacks

Mid-Delta Home Health, in our opinion, improperly claimed the full

amounts of unused leave payments and employee bonuses. The company

had asked—or, according to some employees, coerced—the employees to

give back to the company all of the leave payments and part of the

bonuses. Mid-Delta’s employees were told that their returned moneys were

for, among other things, a Mid-Delta-sponsored indigent care fund. We

determined that the money had not been used for indigent patient home

health care but was deposited to Mid-Delta’s operating account.

The Paybacks In the 1993-96 period, Mid-Delta Home Health presented about $226,000 in

checks to its employees as payment for unused leave. Mid-Delta’s owner

asked the employees to endorse the checks and give them back to the

company. Some current and former employees told us that they had felt

coerced into returning the checks. The company then, in our opinion,

improperly claimed the full amounts of the leave to Medicare as a payroll

cost and was reimbursed.

The owner also requested—or, again according to some employees,

coerced—employees to return about 20 percent or more of their 1996

bonuses to the company. Those on a “special employee” list received

larger bonuses by agreeing to return certain amounts (on average,

29 percent) of their bonuses to the company. The bonus paybacks totaled

about $170,000, including $80,000 from the owner’s $125,000 bonus.

Mid-Delta then, in our opinion, improperly claimed the full bonuses as

actual costs and received Medicare reimbursement for them. However,

both the Health Care Financing Administration and a court formally ruled8

that such returned “contributions” by employees of an unrelated home

health care agency had reduced that agency’s costs and therefore had been

improperly claimed for Medicare reimbursement. Of interest, we noted

that the husband and daughter of Mid-Delta’s owner hadn’t returned any of

their December 1996 bonuses, $75,000 and $55,000 respectively.

Indigent Care Fund The employees were told that the returned money was needed for, among

other things, a Mid-Delta Home Health-sponsored “indigent care fund.”

However, Mid-Delta officials told us the money had been used to offset the

unpaid balances of patients of its affiliated rural health clinics. (See app. I

for flow of employees’ moneys.) Although Mid-Delta categorized these

unpaid balances as “indigent pay,” Mid-Delta’s controller told us that the

balances were primarily those of insured private-pay patients. Further, we

8

Sta-Home Home Health Agency, Inc. v. Shalala, No. 3:91-CV-23 WC (S.D. Miss. Aug. 25, 1993).

Page 2 GAO/T-OSI-98-6
Medicare: Improper Activities by Mid-Delta

Home Health

determined that money was transferred from the indigent care fund to the

operating account of Mid-Delta’s administrative services entity, P&T

Management, Inc. Again of interest, we noted that among the patients

whose unpaid balances were categorized as “indigent pay” were several

Mid-Delta employees; the owner’s granddaughter; and the owner’s

daughter, a P&T Management executive vice president.

Improper/

Questionable Payroll

Costs of Owner’s

Daughter

Mid-Delta Home Health also improperly claimed other costs that did not

meet Medicare cost reimbursement principles9

 since they were not related

to patient care. One example involved salary paid to the owner’s daughter

as an executive vice president while she attended nursing school full time

from June to December 1996. The daughter’s employment time sheets

showed that about 53 percent of her 40-hour work week (from June to

December 1996) was spent at school and related activities. However,

Mid-Delta submitted those payroll costs to Medicare for reimbursement.

Further, after reviewing the daughter’s 1996 compensation, we question

the reasonableness of Mid-Delta’s claiming the daughter’s $65,000 in

bonuses for Medicare reimbursement. The bonuses represented

approximately 119 percent of her base salary of about $54,660.

Questionable

Marketing and

Promotion Activities

In another matter, Mid-Delta was reimbursed by Medicare for the payroll

costs of employees whose positions appeared to focus on marketing

activities. We question the propriety of these claims because Medicare

does not reimburse providers for marketing costs, as they are not properly

related to patient care.10

Medicare reimbursement is available for expenses associated with

educating the community on home health care; it is not available for the

expenses of promoting and marketing the company.11 Mid-Delta officials

should have known that its marketing expenses were not allowable for

Medicare reimbursement because the Medicare intermediary12 had

previously disallowed various expenses, in part, because they were related

9

42 C.F.R. section 413 et seq.

102 Medicare & Medicaid Guide (CCH) para. 5996B.

1142 C.F.R. section 413.85(c); 2 Medicare & Medicaid Guide (CCH) para. 5996B.

12An intermediary is an entity under contract with the Health Care Financing Administration to

determine the amount of, and to make, Medicare payments to medical entities such as home health

agencies and rural health clinics. Under 42 C.F.R. section 421.100(a)(2)(ii), an intermediary determines

if a home health agency’s services are reasonable and necessary.

Page 3 GAO/T-OSI-98-6
Medicare: Improper Activities by Mid-Delta

Home Health

to marketing functions. The intermediary’s review of Mid-Delta’s 1993 and

1994 cost reports noted such disallowed expenses.

However, according to company records and knowledgeable former

employees, Community Education staff primarily promoted and marketed

the services of Mid-Delta Home Health and its affiliated rural health clinics

to other providers and the public. Indeed, according to a former P&T

Management vice president, “Community Education is a euphemism for

marketing.” Further, according to Community Education staff, Mid-Delta’s

owner changed documents and receipts for marketing-related activities to

make it appear that the activities were related to Community Education

and were therefore Medicare-reimbursable. For example, in

December 1995, the owner had staff purchase about $4,000 in Christmas

gifts for physicians. When an employee noted the purpose of the gifts on

the receipt, the owner changed the note to show that the gifts were for

Mid-Delta employees, which could qualify for Medicare reimbursement.

Bonus Improperly

Used to Purchase

Business

In another matter related to payroll costs, Mid-Delta’s owner initiated the

purchase of a business from a third party; hired that individual as an

employee; and in December 1996, gave the individual a $10,000 bonus as

partial payment of the purchase price. Mid-Delta then improperly claimed

the bonus as a payroll cost and was reimbursed for it by Medicare. The

purchase of a business does not qualify as a payroll cost, and Medicare

does not reimburse providers for the cost of purchasing a business. When

we asked her in July 1997, Mid-Delta’s owner confirmed that the $10,000

bonus was a payment toward the purchase of the business. But after

consulting her controller and her Director of Finance, the owner informed

us that the bonus should not have represented partial payment for the

business and that she still owed the individual $10,000. As of

February 1998, the individual had not received that $10,000 payment.

Questionable

Mid-Delta Home

Health Services

Finally, as alleged by current and former Mid-Delta Home Health nurses, in

their professional opinions, Mid-Delta claimed costs for visits to individual

Medicare beneficiaries whose need or eligibility for the visits was

questionable.13 We coordinated our work in this area with Mid-Delta’s

Medicare intermediary, asking the intermediary to review patient-related

information. In addition, we visited and/or reviewed case files for 41 of the

13Medicare patients qualify for home visits if they are confined to their home, i.e., homebound (except

when receiving outpatient services); are under the care of a physician who prescribes and periodically

reviews a plan of home care for them; and need intermittent skilled nursing care or physical or speech

therapy. 42 C.F.R. section 424.22. See also 1 Medicare & Medicaid Guide (CCH) para. 1414.

Page 4 GAO/T-OSI-98-6
Medicare: Improper Activities by Mid-Delta

Home Health

patients identified by the nurses. The intermediary and we questioned the

necessity of Mid-Delta’s Medicare-reimbursed services for at least 14—or

34 percent—of the patients. In addition, we both question the eligibility of

some of these Mid-Delta patients for homebound status.

One instance involved a Mid-Delta patient receiving services for about 2

years to monitor her blood pressure and a heart condition. However, when

we visited her, she was providing day care in her home for four children

aged 5 years or younger. Mid-Delta’s Medicare intermediary and we

question the necessity of Mid-Delta’s home health care visits to this

patient. Her activity was unlikely for someone who was unable to leave

home without “considerable, taxing effort”—a condition for homebound

status.14 In another instance, a Mid-Delta Home Health patient was moving

a 5-foot section of a telephone pole in his yard when we visited. The

patient’s actions contradicted Mid-Delta’s patient records, relied on by the

intermediary to determine eligibility, that indicated that the patient had

poor endurance, walked with a cane, and appeared homebound. A third

Mid-Delta patient who received home health care visits told us that he

regularly walked 2 to 3 miles a day.

Mr. Chairman, this completes my prepared statement. I would be happy to

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

may have.

141 Medicare & Medicaid Guide (CCH) para. 1414.

Page 5 GAO/T-OSI-98-6
Appendix I 

Flow of Mid-Delta Employees’ Leave/Bonus

Moneys

Employees Medicare

Payroll Benefits

Claims for Payroll Cost

Reimbursement

Indigent Care

Fund

Political Action

Committee

P&T Management, Inc.

Operating Account

Paybacks Paybacks

Mid-Delta

Home Health

(600458) Page 6 GAO/T-OSI-98-6
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