United States General Accounting Office

GAO Report to the Chairman and Ranking

Minority Member, Committee on

Commerce, House of Representatives

March 1998 MEDICARE

Improper Activities by

Mid-Delta Home Health

GAO/OSI-98-5

GAO United States

General Accounting Office

Washington, D.C. 20548

Office of Special Investigations

B-279241 

March 12, 1998

The Honorable Thomas J. Bliley, Jr., Chairman

The Honorable John D. Dingell, Ranking Minority Member

Committee on Commerce

House of Representatives

This letter responds to your request that we investigate allegations of

Medicare improprieties by home health care provider Mid-Delta Home

Health (now known as Mid-Delta Health Systems, Inc.) of Belzoni,

Mississippi, and affiliated companies. The allegations involved payroll-cost1

 and patient-care issues. Specifically, we examined allegations that

Mid-Delta (1) routinely requested and received leave/bonuses back from

its employees while charging Medicare their full amount, (2) paid the

owner’s daughter a full-time salary and charged it to Medicare although

she was a full-time nursing student, and (3) conducted unnecessary and

excessive home health care patient visits. As discussed in this report,

during our investigation we received and followed up allegations of other

questionable activities involving payroll-cost and patient-care issues.

Under the Medicare program, fiscal intermediaries2

 reimburse home

health care providers their reasonable costs of serving beneficiaries when

those claimed costs are found to be necessary, proper, actual, and related

to patient care.3

 We have previously noted that home health care providers

have abused the Medicare program in numerous, sometimes fraudulent,

ways.4

 Such fraud/abuse has contributed to the recent growth in home

health care costs—from about $2 billion in 1989 to almost $18 billion in

1996.

Results in Brief Medicare, through the intermediary, reimbursed Mid-Delta Home Health

for payroll costs between January 1993 and December 1996 that, in our

opinion, were improperly claimed because they did not represent actual

costs to the provider. Specifically, the owner of the company, Mrs. Clara T.

Reed, regularly asked employees to return to the company the cash value

of unused leave and about 20 percent or more of bonuses received.

1

For the purpose of this report, “payroll cost” includes salary, bonuses, and leave.

2

An 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.

3

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

4

See the attached list of related GAO products.

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Mrs. Reed also had a list of “special employees” to whom she gave larger

bonuses if they agreed in advance to return a certain amount to the

company. Mid-Delta then charged Medicare for these costs. Further, the

employees were told that the returned money was needed for, among

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

However, rather than use the fund to provide home health care for those

who could not afford it, Mid-Delta officials told us that the money was

used to offset unpaid bills of private-pay patients of Mid-Delta’s affiliated

rural health clinics. Our analysis of the indigent care fund determined that

moneys deposited to the fund had been transferred to the operating

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

Mid-Delta Home Health also improperly claimed and was reimbursed by

Medicare5

 for other costs that, in our opinion, did not meet Medicare cost

reimbursement principles since they were not related to patient care. One

example involved salary paid to the owner’s daughter as a P&T

Management executive vice president for over half of 1996 while she

attended school full-time. In our opinion, Mid-Delta improperly claimed

those payroll costs for Medicare reimbursement because the daughter’s

salary included payment for the hours she was in school.6

 Further, we

question the reasonableness of the daughter’s $65,000 in 1996 bonuses7

claimed by Mid-Delta for Medicare reimbursement. The bonuses

represented approximately 119 percent of her base salary.

In addition, Mid-Delta was reimbursed by Medicare for the payroll costs of

some P&T Management 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 used to

increase patient utilization of the provider’s facilities, as they are not

properly related to patient care.8

In another payroll-cost matter, Mrs. Reed purchased a business from a

third party, hired that individual to work for P&T Management, and gave

the individual a $10,000 bonus that was considered partial payment of the

purchase price. Mid-Delta then improperly claimed the bonus as part of its

payroll costs and was reimbursed by Medicare for this payment. The

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

5

Medicare pays a portion of the home health agency’s total costs that is equal to Medicare’s portion of

the total services rendered.

6

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

7

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

8

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

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Medicare does not reimburse providers for the cost of purchasing a

business.

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

Mid-Delta staff visited individual Medicare beneficiaries whose eligibility

or need for the visits was questionable. We visited and/or reviewed case

files for 41 of the patients identified by the nurses and determined that for

at least 14, or 34 percent, of the patients, eligibility for

Medicare-reimbursed services was questionable. 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 approximately 5

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

the necessity of Mid-Delta’s home health care visits to this patient as her

activity was unlikely for someone who was unable to leave home without

“a considerable, taxing effort”—a required condition for homebound

status.9

We have shared information concerning these improper

claims/questionable activities with the appropriate authorities.

Background The Health Care Financing Administration (HCFA)—an agency of the

Department of Health and Human Services—administers the Medicare

home health care program. That program has been part of Medicare since

Medicare began in 1965 and serves as an alternative to lengthy in-patient

hospitalization. Medicare home health costs averaged about a 33-percent

per-year growth from 1989 to 1996—from about $2 billion to almost

$18 billion. This occurred primarily because the number of beneficiaries

receiving services increased as did the number of services per beneficiary.

A fiscal intermediary under contract to HCFA determines if a home health

agency’s services are reasonable and necessary10 and, in turn, which

agency costs are reimbursable based on Medicare cost reimbursement

principles.11 These principles authorize Medicare intermediaries to

reimburse home health care providers their reasonable costs of serving

beneficiaries when those claimed costs are found to be necessary, proper,

9

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

1042 C.F.R. section 421.100(a)(2)(ii).

1142 C.F.R. section 413 et seq.

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actual, and related to patient care.12 In this regard, providers certify that

they are familiar with the laws and regulations regarding the provision of

health care services and that the services identified were provided in

compliance with such laws and regulations.

Mid-Delta Home Health is one of the largest home health care providers in

Mississippi. It is owned and operated by Clara T. Reed, who is Chief

Executive Officer and Chief Financial Officer. At the time of our

investigation, Mid-Delta Home Health employed over 600 people and

consisted of two corporations (in Belzoni and Charleston, Mississippi) that

provided home health care through 16 offices in different parts of the

state. Medicare reimbursement to Mid-Delta for home health care and

rural health clinic services from January 1993 to December 1996 totaled

approximately $77.9 million.

Mrs. Reed owned and/or controlled a number of related companies and

organizations, including P&T Management, Inc., which provided overall

management services for Mid-Delta Home Health and its affiliates (rural

health care clinics known as Taylor’s Medical Clinics); Mid-Delta

Development League, Inc.—a nonprofit, tax-exempt (Internal Revenue

Code section 501(c)(3)) organization; and The Care Associates, Inc., a

political action committee formed to aid political candidates interested in

“the health and welfare of” the poor and needy. See figure 1.

1242 C.F.R. section 413.9.

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Figure 1: Organizations Owned and/or

Controlled by Clara Reed

Clara T. Reed

P&T Management,

Inc.

Mid-Delta

Development

League, Inc.

---

Indigent Care Fund

The Care 

Associates, Inc.

---

Political Action

Committee

Non-Medicare

Mid-Delta 

Home Health

(Belzoni & Charleston

Corporations)

Taylor's Medical

Clinics

---

Rural Health Clinics

Non-Medicare

Improper Claim of

Leave/Bonus

Paybacks for

Reimbursement

Mid-Delta Home Health, in our opinion, violated Medicare cost

reimbursement principles in claiming costs that it had not incurred.13 First,

Mid-Delta Home Health presented approximately $226,000 in checks to its

employees, representing payment for unused leave time in the 1993-96

period. Mrs. Reed subsequently asked the employees to endorse the

checks and give them back to Mid-Delta. When questioned about this,

some current and former employees told us that they had felt coerced into

giving back the checks. The company then improperly claimed the full

amounts of the leave as part of the employees’ payroll costs and was

reimbursed by Medicare. Second, Mrs. Reed requested—or, again

according to some employees, coerced—Mid-Delta and P&T Management

1342 C.F.R. section 413.9(a).

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employees to return a certain amount (about 20 percent or more) of their

1996 bonuses to the company. Those on a “special employee” list received

larger bonuses by agreeing in advance to return certain amounts of their

bonuses (an average of 29 percent) to the company. The bonus paybacks

totaled about $170,000, including $80,000 from Mrs. Reed. Mid-Delta

improperly claimed, and received reimbursement from Medicare for, the

returned bonuses.

Mrs. Reed told the employees that the returned unused leave and bonus

moneys would support, among other things, an “indigent care fund” for

Mid-Delta’s home health care patients who had exhausted their Medicare

and Medicaid visits. However, according to Mid-Delta’s controller, the

moneys were used largely to offset unpaid bills of private-pay patients of

the affiliated Taylor’s Medical Clinics. We determined that Mrs. Reed

deposited moneys to P&T Management’s operating account or to the

account of a political action committee that she controlled. See figure 2.

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Figure 2: 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

Unused Leave According to Mrs. Reed, in 1994 after consulting with legal and tax

advisors, she discontinued allowing her employees to roll over unused

leave from one year to the next.14 Thus, as a company practice, employees

were given checks for the cash value of their unused leave, then were

asked to endorse and return them to the company. Further, former and

current employees whom we interviewed complained that between 1993

and 1996, employees had been presented with unsigned (nonnegotiable)

checks in payment for their unused leave time and were asked—some

employees said coerced—to endorse the checks back to the company.

Some also complained that in 1993 and 1994, Mrs. Reed had issued stock

certificates instead of paying them for unused leave time.

14Mid-Delta employees could accrue 33 days of leave annually including, among other types, holidays,

sick leave, and vacation time.

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At Mrs. Reed’s request, according to employees we interviewed,

employees endorsed the back of their checks and returned them.

Mid-Delta Home Health officials deposited most of the checks in an

account for the indigent care fund and some to the bank account of a

political action committee, both controlled by Mrs. Reed. (See fig. 2.) For

the 1993-96 period, records show that Mid-Delta employees returned

approximately $226,000 in payment for unused leave. Some of the moneys

from the account for the indigent care fund were subsequently deposited

to P&T Management’s operating account; and Mid-Delta’s Director of

Finance confirmed that Medicare had reimbursed the amount claimed for

employee payroll costs, including the unused leave.

Current and former employees told us that in some instances employees

who refused to surrender to what they termed as coercion and return

payments for leave faced retaliatory measures, such as demotion or firing.

Indeed, two former employees who had been fired from Mid-Delta Home

Health believed that they had been fired because they had not returned

payments for leave as requested. Mrs. Reed denied this allegation.

However, 20 of the 29 employees we interviewed about unsigned leave

checks stated that they had endorsed the checks and returned them

because they feared losing their jobs if they did not.

In some cases in 1993 and 1994, Mrs. Reed gave employees a stock

certificate representing an IOU for the monetary value of the checks they

had endorsed and returned to the company.15 She told those employees,

according to her statement to us, that she would remember that they had

leave coming from the previous year and that they could take a day or so

when they needed it. Some former employees complained to us that they

had never been paid for their unused leave.

When we asked Mrs. Reed about the unsigned checks, she said that she

could not cover the employees’ leave checks without causing a cash flow

problem. She said that if she had presented signed checks to the

employees, they would have cashed them instead of returning them to the

company. Mrs. Reed stated that no one was coerced—the employees

voluntarily returned money to the company.

Bonuses Mid-Delta Home Health paid bonuses to its employees based on various

criteria, such as length of employment and annual salary. However,

15Mrs. Reed said that employees were told that the stock certificate was a nonvoting, nonparticipating

certificate in Mid-Delta.

Page 8 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
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according to some Mid-Delta employees, a bonus’s amount was also

determined by the employee’s willingness to return about 20 percent or

more of the bonus to the company. Further, Mid-Delta then claimed, and

received, the amount of the bonuses for Medicare reimbursement. (See fig.

2.)

Sources informed us that when bonus checks were distributed to

employees, Mrs. Reed essentially coerced employees to pay back

approximately 20 percent or more of their bonuses. Although several

employees told us they had returned their bonuses voluntarily and that

they had not felt threatened or coerced, other employees stated that they

had complied with Mrs. Reed’s requests for fear of losing their jobs.

Mid-Delta and P&T Management employees in December 1996 received

over $933,000 in bonuses and returned about $170,000 to the indigent care

fund. (See fig. 2.) At least $155,000 was then transferred from that fund to

the P&T Management operating account. The $170,000 included $80,000

that Mrs. Reed returned from a $125,000 bonus she had received in

December 1996.

Further, according to one knowledgeable employee, Mrs. Reed had a list

of “special employees” who received larger bonuses than did others if they

agreed in advance to give back a certain amount. The source explained

that Mrs. Reed talked to each employee on the list personally; and as each

employee agreed to return the set amount to the company, she initialed by

the employee’s name on the list. Indeed, according to one employee, 

Mrs. Reed said, “I will give you a larger bonus if you agree to give some of

it back.” Further, another employee told us that when she did not return

the bonus money immediately, she received a telephone call from Mrs.

Reed asking, “Where’s my money?” When the employee answered that she

had thought the donation was voluntary, Mrs. Reed responded, “That was

never your money in the first place. I want my money.” The employee told

us that when she returned her bonus in the form of four checks, asking

(for personal financial reasons) that each be deposited at a later date, 

Mrs. Reed deposited all of them immediately. Other employees confirmed

similar experiences.

Our review of a “special employees” list, containing 38 employees’ names,

showed that 35 had returned an average of 29 percent of their original

bonuses and that the range of return from these employees was between

18 percent and 57 percent. We verified with Mid-Delta’s Director of

Finance that the employees had returned the amounts and that Mid-Delta

Page 9 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
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had claimed the full bonus amounts to Medicare for reimbursement. Table

1 lists details of bonus paybacks by some of the 35 employees.

Table 1: Sample of Bonus Paybacks by “Special Employees”

Employee

Original bonus

claimed to Medicare

Net bonus after

withholdinga

Bonus amount

returned to

company

Bonus amount

received by

employee

Percent of original

bonus returned

1 $9,269.04 $6,335.39 $3,000.00 $3,335.39 32%

2 9,500.00 6,322.25 3,000.00 3,322.25 32%

3 10,000.00 6,555.00 3,000.00 3,555.00 30%

4 10,000.00 7,455.00 3,000.00 4,455.00 30%

5 9,112.26 6,228.23 3,000.00 3,228.23 33%

6 3,500.00 2,392.25 1,992.25 400.00 57%

7 4,750.00 3,246.63 1,200.00 2,046.43 25%

8 7,397.88 5,026.45 2,530.00 2,526.45 34%

9 5,600.00 3,670.80 1,500.00 2,170.80 27%

10 4,803.82 3,283.41 1,500.00 1,783.41 31%

aAmount of bonus after federal, state, and other withholding.

In contrast, although Mrs. Reed paid back part of her $125,000 bonus, her

family members did not pay back any of their bonuses. In December 1996,

Mrs. Reed’s husband received a $75,000 bonus and returned none; their

daughter received a $55,000 bonus and returned none.

Impropriety of Mid-Delta’s

Claims for Reimbursement

for Returned

Leave/Bonuses

Although Medicare allows a provider to pay reasonable bonuses,

Mid-Delta Home Health’s Medicare intermediary was unaware that

Mid-Delta employees were returning a portion of their bonus money to the

company. The intermediary stated that Mid-Delta claims for the

payroll-cost amounts were improper if Mid-Delta had received back part of

the employees’ salaries. The intermediary also informed us that

intermediaries look at an entire employee compensation package to

determine if the costs claimed are reasonable and that it had not

conducted a detailed audit of any Mid-Delta cost report. Moreover, cost

reports, which home health agencies submit to their intermediary for

Medicare reimbursement, do not break down employees’ total

compensation by such components as base salary, bonuses, and leave.

Therefore, the amounts claimed are not likely to be questioned without an

audit.

Page 10 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
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It is our opinion that Mid-Delta Home Health’s claims for Medicare

reimbursement of the returned leave moneys were also not proper

because Mid-Delta had not incurred the costs. In a similar case involving

an unrelated home health agency, HCFA formally ruled that “contributions”

returned to the provider in the form of deductions from employees’

salaries had reduced the provider’s costs and therefore had been

improperly claimed for Medicare reimbursement. Following the provider’s

appeal, the U.S. District Court for the Southern District of Mississippi

upheld16 HCFA’s decision, concluding that, under Medicare regulations, the

contributions qualified as refunds of salary, thus reducing the company’s

salary expense. The court also noted that Medicare reimbursement was

limited to costs incurred. The court in this case further determined that

(1) the employee contributions created at least “a perception of

impropriety” and (2) the home health agency had no safeguards in place to

ensure that coercion was not involved.

Indigent Care Fund According to a former Mid-Delta Home Health management official and

other former and current employees, Mrs. Reed told employees that their

returned funds would support, in part, a Mid-Delta “indigent care fund.”

Those employees who complied with the bonus payback, returned the

money through personal checks or money orders made payable to the

indigent care fund. Further, as previously stated, Mid-Delta Home Health

officials deposited most of the employees’ returned unused-leave checks

to the fund.

Mrs. Reed told us that this fund was to assist in continuing the care of

home health patients who needed it but who were no longer eligible for

Medicare or Medicaid visits. However, according to one former Mid-Delta

nurse, she was not paid at all for indigent-patient visits, much less from the

indigent care fund. She questioned where the fund’s money was going if it

was not used to pay for charity visits to indigent home health care

patients. When we questioned Mrs. Reed about this, she responded that

she tells the nurses, “If I don’t get paid, you don’t get paid.”

Indeed, Mid-Delta’s controller told us that the indigent care fund was used

to offset unpaid bills of patients of the company’s rural health clinics,

Taylor’s Medical Clinics. In support of this statement, the controller

provided us with records showing that approximately $418,000 in patients’

unpaid balances had been attributed to the “indigent pay” category for the

1994-96 period. Mrs. Reed told us, however, that she would transfer money

16Sta-Home Home Health Agency, Inc. v. Shalala, No. 3:91-CV-23 WC (S.D. Miss. Aug. 25, 1993).

Page 11 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
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from the indigent care fund account to the P&T Management operating

account to alleviate cash flow problems or to cover payroll costs.

Our review of the “indigent pay” category records showed that the unpaid

bills belonged mostly to private-pay patients of Taylor’s Medical Clinics.

Mid-Delta’s controller stated that the clinics’ charges were too high for

most self-pay and private insurance patients whose insurance companies

reimbursed the clinics only for “reasonable and customary charges.” She

further stated that the fund was used to cover instances in which such

patients did not pay the clinics’ full charges. We noted that among the

patients listed in the records were several Mid-Delta employees; 

Mrs. Reed’s granddaughter; and Mrs. Reed’s daughter, who was Executive

Vice President for Operations of P&T Management.

Other Improper or

Questionable

Payroll-Cost/

Reimbursement

Issues

Additional Mid-Delta Home Health payroll-cost issues resulted in either

improper or questionable claims to and reimbursement by Medicare:

Mid-Delta improperly claimed Medicare reimbursement for the total

7-month salary that Mrs. Reed’s daughter received while she attended

school full-time and worked part-time. We question Mid-Delta’s

(1) claiming $65,000 in bonuses to the daughter, which equated to about

119 percent of the daughter’s base salary and (2) claiming the payroll costs

of “Community Education” staff who were marketing Mid-Delta and other

affiliated operations. Finally, Mid-Delta purchased an employee’s business

in part through a salary bonus to the employee that was later improperly

claimed as a payroll cost and reimbursed as such by Medicare.

Improper or Questionable

Claims of Daughter’s

Payroll Costs

Daughter’s Salary Improperly

Charged to Medicare

Mrs. Reed’s daughter, Ms. Pamela Redd, attended nursing school full-time

at a local community college from June to December 1996. At the same

time, she held the job title of Executive Vice President for Operations at

P&T Management, Inc. and received a full-time 1996 salary of

approximately $54,660.17 An analysis of Ms. Redd’s employment

time-and-attendance sheets showed that 53 percent of her 8-hour work day

(from June to December 1996) was spent at school and related activities.

Yet, according to Mid-Delta’s Director of Finance, Ms. Redd’s full-time

17According to the 1996 Employee Listing of Mid-Delta Home Health (and P&T Management, Inc.), 

Ms. Redd’s base salary was $54,662.40.

Page 12 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
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salary was charged to Medicare for reimbursement. This was, in our

opinion, an improper claim. According to the intermediary, Mid-Delta

should not have been reimbursed for salary—approximately $16,900 by

our calculation—incurred while Ms. Redd attended school. According to

Mrs. Reed and Ms. Redd, Ms. Redd was not the only employee attending

school full-time; however, Ms. Redd was the only employee being paid a

full-time salary for the time spent in school.

Daughter’s Bonuses

Questionably Claimed for

Medicare Reimbursement

We learned that in addition to her approximately $54,660 base salary, 

Ms. Redd received two bonuses totaling $65,000 in 1996, equal to

approximately 119 percent of her base salary. This was reflected in 

Ms. Redd’s 1996 W-2 form, which showed that she had been paid almost

$122,000.

When we asked Ms. Redd about the amount of the bonuses in relation to

her base salary, she did not explain why she had received the large

bonuses. However, the Mid-Delta controller stated that in addition to using

various company criteria (e.g., length of employment and annual salary),

Mrs. Reed determined bonus amounts largely at her discretion.

According to Mid-Delta’s Director of Finance, Ms. Redd’s payroll costs,

including the bonuses, were claimed to Medicare for reimbursement. In

our opinion and that of the intermediary, Mid-Delta’s claim to Medicare for

Ms. Redd’s 1996 bonuses was questionable because of the disparity

between her base salary and the bonus amounts and because she was not

working full-time in 1996.

Questionable Submission

for Medicare

Reimbursement of Payroll

Costs of Personnel Who

Marketed/Promoted

Mid-Delta Home Health

Under Medicare cost reimbursement principles, all payments to providers

of services must be based on the reasonable cost of services covered

under Medicare and related to patients’ care. Although 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 home health care services in order to increase

patient utilization of a provider’s facility.18 We noted the unavailability of

Medicare reimbursement for marketing activities for this purpose in our

1995 report regarding another home health care agency.19

In the intermediary’s review of Mid-Delta’s 1993 and 1994 cost reports, it

noted that it had disallowed various expenses, in part, because they were

1842 C.F.R. section 413.85(c); 2 Medicare & Medicaid Guide (CCH) para. 5996B.

19Medicare: Allegations Against ABC Home Health Care (GAO/OSI-95-17, July 19, 1995).

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related to marketing functions. These disallowed expenses included the

purchase of, among others things, radio and television advertisements;

1,100 fund-raising cookbooks; and an exhibit booth to recruit staff at a

physicians convention.

However, according to company records and knowledgeable former P&T

Management employees, Community Education staff primarily promoted

and marketed Mid-Delta Home Health and Taylor’s Medical Clinic services

to other providers and the public. Mid-Delta’s Director of Finance also

confirmed that Medicare reimbursed the salaries of the Community

Education employees. Further, according to Community Education staff,

Mrs. Reed changed receipts and documents for marketing-related

activities to reflect that the activities were associated with Community

Education and were therefore Medicare-reimbursable. For example, in

December 1995, Mrs. Reed told staff to purchase about $4,000 in Christmas

gifts for physicians. When an employee noted “Gift items for referral

sources” on the receipt, Mrs. Reed changed the receipt to show that the

gifts were for employees, which could be Medicare reimbursable. We

question the propriety of Mid-Delta’s submitting payroll and other costs

related to marketing activities for Medicare reimbursement because the

costs involved marketing and promoting the company.

Minutes from staff and other meetings in December 1996, January 1997,

and May 1997 noted that the Community Education staff continued to

market Mid-Delta services to schools, nursing homes, and hospitals. For

example, December 1996 minutes noted that staff had met with a

physician “about referring patients to the agency” who had diabetes and

that cards had been placed in waiting rooms “of physicians who indicated

that they would refer patients to us [Mid-Delta].” January 1997 minutes

noted that the Community Education staff had “sold contracts to nursing

homes and other providers; . . . [and] marketed psych services to

physicians in [the] Yazoo City area. . . .” Minutes from May 1997 stated that

by operating booths at various outside meetings, Community Education

staff were “promoting the Center for Specialized Diabetic Foot Services”

and that the Community Education department would help to market

Mid-Delta Home Health’s cardiac program.

Indeed, according to a former P&T Management vice president,

“Community Education is a euphemism for marketing.” Further, according

to former Community Education managers, the primary responsibilities of

Community Education staff were to promote and market on behalf of

Mid-Delta and Taylor’s Medical Clinics. In discussions with us, a former

Page 14 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
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manager said that the duties of P&T Management’s Community Education

staff were “for the purpose of developing business” for Mid-Delta Home

Health and Taylor’s Medical Clinics, generating physician referrals, and

attracting managed care contracts and for other sales functions.

Bonus Used to Purchase

Business Improperly

Claimed as Payroll Cost

and Reimbursed by

Medicare

According to a former Mid-Delta employee, Mrs. Reed used the bonus

system as a means, in part, to purchase a business and be reimbursed by

Medicare. We learned that Mrs. Reed had purchased a business called

Warren’s Children’s Services for $125,000. This business provided services

under Medicaid’s Early and Periodic Screening, Diagnosis, and Treatment

(EPSDT) program for children from birth to age 18 years.

In February 1995, Mrs. Reed hired Ms. Betty Martin, owner of Warren’s

Children’s Services, as P&T Management’s Director of EPSDT at a

$70,000-a-year salary. Ms. Martin was to educate the nursing staff on the

EPSDT program. Mrs. Reed gave Ms. Martin a $25,000 check as a down

payment for Warren’s Children’s Services in March 1995 and a second

check for $25,000 in December 1995. (See table 2.)

Table 2: Payments Made to Purchase

Warren’s Children’s Services

Date

Payment

amount

Payment

returned Character of payment

March 1995 $25,000 Purchase payment

December 1995 25,000 Purchase payment

December 1996 10,000a Bonus

June 1997 $5,000b Advance bonus

June 1997 5,000b Pay raise

June 1997 35,000 Purchase payment

July 1997 30,000 Purchase payment

Total paid $125,000

aMid-Delta claimed a December 1996 bonus of $12,099 as a payroll cost for Medicare

reimbursement, while $10,000 of the bonus was represented to Ms. Martin as a payment toward

purchase of her business.

bMs. Martin returned the payment check to Mrs. Reed.

A year later, in December 1996, Ms. Martin received a P&T Management

bonus for about $12,000. However, Mrs. Reed told Ms. Martin that $10,000

of the bonus was partial payment for Ms. Martin’s business. Ms. Martin

stated to us that she was concerned because P&T Management withheld

Page 15 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
B-279241 

taxes from bonuses. We determined that the $10,000 portion of the bonus

had been claimed improperly as part of Ms. Martin’s payroll costs.

In June 1997, according to Ms. Martin, she received two more checks for

$5,000 each, in partial payment for the business. One check was presented

as an advance bonus; and the other, as a salary advancement, or pay raise.

Ms. Martin returned the checks to Mrs. Reed and demanded the remainder

of the money owed her for the business. According to Ms. Martin, 

Mrs. Reed replied, “I’m not going to employ you and pay you [for the

business] too.” Shortly thereafter, Ms. Martin left the company.

Ms. Martin subsequently received a check for $35,000 with a note, signed

by Mrs. Reed, that said, “Before July 17, 1997, I will pay the $30,000 I owe

you.” We confirmed that Ms. Martin received an additional check for

$30,000.

When we asked Mrs. Reed about the payments to Ms. Martin, she

confirmed that she had given Ms. Martin $10,000 in bonus as a payment

toward the purchase of Warren’s Children’s Services. She also confirmed

that taxes had been withheld from the bonus. After we had questioned

Mrs. Reed about the matter, she talked with her controller and her

Director of Finance. Mrs. Reed then informed us that the controller and

the Director of Finance had determined that she still owed Ms. Martin

$10,000 because the bonus should not have represented partial payment

for the business. As of February 1998, Ms. Martin had not received the final

$10,000 payment.

Questionable Nature

of Some Mid-Delta

Home Health Services

Mid-Delta Home Health nurses and other professionals voiced concerns to

us that Mid-Delta was providing Medicare-reimbursed home health care

services to patients who, in their professional opinions, were ineligible for

the services.20 In response, we visited and/or reviewed patient documents

of 41 home health care patients. In this regard, the intermediary—whom

we requested to also review patient documents—and we question the

reasonableness and necessity of Mid-Delta services received by at least

34 percent of those patients. Our questions involve (1) Mid-Delta actions to

ensure continued home health services to Medicare patients, (2) excessive

home visits by Mid-Delta staff, and (3) the lack of documentation to justify

20In the past, we and the Office of the Inspector General, Department of Health and Human Services

have noted continuing problems involving home health care agencies in which (1) home health care

visits were made to individuals who, in our respective opinions or the opinion of medical experts, were

not homebound; (2) visits were either not provided or provided less often than claimed; (3) visits were

not documented; and (4) claims were made for unnecessary visits or services.

Page 16 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
B-279241 

home visits. The intermediary and we also question Mid-Delta’s provision

of Medicare-reimbursable home health services to some apparently

ineligible patients as they did not appear to meet HCFA’s requirement that

their condition create an inability to leave home without “considerable,

taxing effort.”21

Questionable Mid-Delta

Home Health Care Services

After interviewing a number of Mid-Delta Home Health’s patients, patients’

friends, and relatives and evaluating the patients’ plans of care (HCFA Form

485) and other case material, we question the reasonableness and/or

necessity of the Medicare-reimbursable home health care services

provided to 14 of the 41 patients reviewed during our investigation. The

intermediary stated that in these cases, the claim would not be allowed.

For example, the intermediary and we noted that Mid-Delta was providing

services that were not covered in the plans of care. The situations giving

rise to these questionable Mid-Delta services included the following:

• Exaggerated severity of patient conditions in patient-care documents to

ensure continued home health services. For example, the May-July 1997

plan of care for a patient, being seen for over 2 years for recurring

seizures, stated that he had had a seizure in June 1997. However, the

physician’s narrative report for that patient indicated that this was

untrue—the patient had not had a seizure during the plan-of-care period.

For another patient, the intermediary in its review of the patient’s plan of

care noted that the Mid-Delta Home Health documentation “seem[ed] to

exaggerate the patient’s condition.”

• Excessive use of skilled nursing visits. For example, a Mid-Delta patient

had been seen for 5 years for hypertension-related conditions. For the

June-August 1997 period, Mid-Delta nurses visited the patient twice a week

for these conditions. However, the intermediary noted that the patient’s

condition as noted in the plan of care showed the necessity for only one

visit a month. In addition, the June-August 1997 plan of care for a diabetic

patient with hypertension ordered weekly skilled nursing visits for these

conditions. However, the intermediary noted in the review of the patient’s

plan of care that the patient needed only monthly skilled nursing visits for

bloodwork. Weekly visits were not reasonable and necessary.

• Lack of documentation in plans of care to justify the need for home health

services. The plan of care for a diabetic Mid-Delta patient stated that the

patient was unable to fill his syringes accurately, necessitating skilled

21Medicare 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 17 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
B-279241 

nursing visits. However, the intermediary could find no documentation to

support a reason for the patient’s inability. In addition, another patient,

having been visited for 6 years, was prescribed a new drug in late

April 1997, necessitating twice-a-week visits for 4 weeks. However, the

intermediary’s review noted that the patient’s June-August 1997 plan of

care still called the medication “new.” The plan of care, according to the

intermediary’s review, included no documentation to indicate the need for

continued skilled nursing visits.

Provision of Services to

Patients With Questionable

Eligibility

Mid-Delta nurses; the intermediary, after a preliminary review of patient

data; and we concluded that Mid-Delta was providing services to patients

whose eligibility was questionable.

Some of the Mid-Delta Home Health patients we visited or whose cases we

reviewed did not appear to meet HCFA requirements that they be

homebound. According to patient interviews and our observations, the

efforts that the patients needed to leave home were neither considerable

nor taxing. Yet, Mid-Delta provided them Medicare-reimbursable home

health care services.

For example, one elderly Mid-Delta Home Health patient was in his yard

moving a 5-foot section of a telephone pole when we visited. The patient’s

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

intermediary for eligibility determinations, that indicated that the patient

had poor endurance, ambulated with a cane, and appeared homebound.

Another Mid-Delta patient, under home health care for about 2 years,

received skilled nursing visits twice a week to monitor her blood pressure

and a heart condition. However, when we visited her, she was conducting

a child care service in her home with four children, aged approximately 2

to 5 years. The intermediary stated, when we asked about this situation,

that such activity meant that the Mid-Delta patient was most likely

ineligible for home health care. A third homebound patient told us that he

regularly walked 2 to 3 miles a day. Some other patients in our

investigation also left their homes on a regular basis—whether walking or

driving—for such activities as visits to a neighbor, store, bank, or post

office.

With regard to issues of home health care eligibility and services, we have

reported in the past that few Medicare home health claims are subject to

medical review, Medicare beneficiaries are rarely visited by fiscal

intermediaries, and the physicians of record have limited involvement in

Page 18 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
B-279241 

home health care. Indeed, our 1995 report, Medicare: Allegations Against

ABC Home Health (GAO/OSI-95-17), discussed questionable activities

regarding the ABC Home Health Agency that were similar to those in our

investigation of Mid-Delta Home Health.

Scope and

Methodology

We conducted our investigation during 1997, following up allegations

made by former and current employees of P&T Management and

Mid-Delta Home Health. Our inquiry covered those organizations’

participation in the Medicare home health program.

We reviewed applicable laws and regulations, HCFA directives, and

documents presented by these organizations and by their former and

current employees. We also reviewed Mid-Delta Home Health patient files

and cost records, cost reports submitted to the Medicare intermediary, and

those provided by the organizations’ accountant and controller.

Records/documents reviewed fell primarily between January 1, 1993—the

first year that the intermediary audited the Mid-Delta Home Health cost

report—and December 31, 1996. In addition, we reviewed court

documents cited in this report and various other records provided by the

intermediary, P&T Management, Mid-Delta Home Health, Mid-Delta

Development League, and other affiliated companies.

We interviewed over 67 current and former employees of P&T

Management and Mid-Delta Home Health and met with state regulatory

officials at selected locations in Mississippi. We also interviewed a number

of Mid-Delta Home Health patients, their relatives, and their friends and

visited some Mid-Delta patients at their residences. In addition, we met

with intermediary officials, investigators, and regulatory officials at HCFA in

Florida and Maryland.

As arranged with your offices, unless you announce its contents earlier,

we plan no further distribution of this report until 30 days after the date of

this letter. At that time, we will send copies of this report to interested

congressional committees; the Secretary of Health and Human Services;

the Inspector General, Department of Health and Human Services; and

other officials of the Department. Copies will also be made available to

Page 19 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
B-279241 

other interested parties on request. If you have any questions regarding

this investigation, please contact me on (202) 512-7455 or Assistant

Director Barney Gomez of my staff on (202) 512-6722. Major contributors

to this report are listed in appendix I.

Eljay B. Bowron

Assistant Comptroller General

 for Special Investigations

Page 20 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
Page 21 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
Appendix I 

Major Contributors to the Report

Office of Special

Investigations,

Washington, D.C.

Robyn D. Stewart-Murray, Senior Special Agent

Harvey D. Gold, Senior Evaluator

M. Jane Hunt, Senior Communications Analyst

Health, Education,

and Human Services

Division

Thomas G. Dowdal, Assistant Director

Mary Ann Curran, Senior Evaluator

Office of the General

Counsel, Washington,

D.C.

Barry L. Shillito, Senior Attorney

Page 22 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
Page 23 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
GAO Related Products

Medicare Home Health: Success of Balanced Budget Act Cost Controls

Depends on Effective and Timely Implementation (GAO/T-HEHS-98-41, Oct. 29,

1997).

Medicare Home Health Agencies: Certification Process Is Ineffective in

Excluding Problem Agencies (GAO/T-HEHS-97-180, July 28, 1997).

Medicare: Need to Hold Home Health Agencies More Accountable for

Inappropriate Billings (GAO/HEHS-97-108, June 13, 1997).

Medicare Post-Acute Care: Cost Growth and Proposals to Manage It

Through Prospective Payment and Other Controls (GAO/T-HEHS-97-106, Apr. 9,

1997).

Medicare: Home Health Cost Growth and Administration’s Proposal for

Prospective Payment (GAO/T-HEHS-97-92, Mar. 5, 1997).

Medicare Post-Acute Care: Home Health and Skilled Nursing Facility Cost

Growth and Proposals for Prospective Payment (GAO/T-HEHS-97-90, Mar. 4,

1997).

Medicare: Home Health Utilization Expands While Program Controls

Deteriorate (GAO/HEHS-96-16, Mar. 27, 1996).

Medicare: Allegations Against ABC Home Health Care (GAO/OSI-95-17,

July 19, 1995).

(600435) Page 24 GAO/OSI-98-5 Improper Activities by Mid-Delta Home Health
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