Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

HOME HEALTH: PROBLEM PROVIDERS 

AND THEIR IMPACT ON MEDICARE 

JUNE GIBBS BROWN 

Inspector General 

JULY 1997 

I OEI-09-96-00110 
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 served 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 Secretary 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. 

OEI’s San Francisco Regional Office prepared this report. Principal staff included: 

Paul A. Gottlober, Deputy Regional Inspector General 

Kaye D. Kidwell, Regional Inspector General 

Don Loeb, Lead Analyst 

Kathy Dezotte, Program Assistant 

Cynthia Lemesh, Consultant 

Celeste Anderson and Associates, Consultant 

Jennifer Antico, Program Specialist 

To obtain a copy of this report, call the San Francisco Regional Office at 415-437-7900. 
EXECUTIVE SUMMARY 

PURPOSE 

This report identifies and describes the common characteristics of problem home health 

agencies and how these agencies contribute to Medicare fraud, abuse, and waste. 

BACKGROUND 

Medicare covers home health care to homebound beneficiaries who need intermittent skilled 

nursing care and/or physical or speech therapy. Medicare does not limit the number of visits 

or the length of home health coverage. Services are covered for as long as reasonable and 

necessary to treat the patient’s illness or injury. There are no beneficiary copayments or 

deductibles for home care visits. 

While the majority of Medicare providers are complying with the home health benefit 

requirements, recent work by the Office of Inspector General and the General Accounting 

Office has shown that this benefit is very susceptible to abuse. Furthermore, it is sometimes 

extremely difficult, and often impossible, for the program to recover overpayments. To gain 

greater insight about these problems, we examined a stratified random sample of 60 home 

health agencies from a universe of 698 providers that were identified by the fiscal 

intermediary, the Health Care Financing Administration (HCFA), or the Office of Inspector 

General as having met our definition of a “problem” home health agency. We define a 

problem home health agency as one that has abused or defrauded Medicare or 

misappropriated Medicare funds through the cost report or claims process. The providers 

were chosen from five States--New York, Florida, Illinois, Texas, and California--that were 

the focus for the special Medicare anti-fraud initiative known as Operation Restore Trust. 

FINDINGS 

One quarter of home health agencies in the five Operation Restore Trust States are 

“problem” providers, and they receive almost 45 percent of all Medicare expenditures for 

home health services in these States 

Of the $5.7 billion paid to home health agencies in the five Operation Restore Trust States in 

1995, problem agencies received $2.5 billion. Nationally, 8949 Medicare-certified home 

health agencies received $15.4 billion. 

Problem home health agencies share ownership and operational characteristics that can 

thwart overpayment recovery and undermine sanctions 

Most problem home health agencies are closely-held corporations. Their owners are 

frequently involved in related organizations and complex businesses relationships. Some of 

them have used their corporations to misappropriate Medicare funds and incur substantial 

Medicare overpayments that cannot be recovered. The owners of problem agencies 

i 
frequently rely on family members and consultants to help them run their agencies. Relying 

almost exclusively on Medicare for income and assets, entrepreneurs are able to open and 

operate home health agencies without fixed assets or startup costs. The owners and 

principals can continue to receive Medicare money, because HCFA has few preventive 

measures. 

Expansion of the benefit and the lack of any restrictions on certification have led to 

ever-increasing administrative problems with littleprospect of mitigation 

The number of home health agencies has almost doubled, and Medicare home health costs 

have more than quadrupled since 1989. Thorough review of cost reports and claims can 

uncover a wide variety of unallowable costs and non-covered services, but submission 

requirements and limited resources hamper fiscal intermediaries’ oversight efforts. 

RECOMMENDATIONS 

To protect the Medicare home health benefit, HCFA needs to develop and implement 

additional program safeguards that would (1) strengthen it’s ability to identify problem 

providers, (2) prevent problem HHAs from entering the program, and (3) prevent the 

Medicare trust fund from incurring further losses due to the activities of problem 

HHAs. 

In order to accomplish this, HCFA should take administrative action or, if necessary, seek 

legislative authority to: 

require surety bonds of new and existing home health agencies; 

require user fees to cover the cost of certifications, comprehensive reviews, and 

recertifications; 

require that agency principals have prior health care experience; 

develop a data bank of owners, principals, and related organizations; 

require that agency principals and owners provide their Social Security and Employer 

Identification numbers prior to certification; 

require that home health agencies are fiscally sound prior to certification; 

deny certification to owners and principals of current or defunct agencies who are not 

financially responsible and trustworthy; 

preclude the discharge of Medicare debts through bankruptcy. 

11 
We also reiterate our previous recommendation that HCFA should: 

0 tighten controls over the periodic interim payment method of reimbursement and seek 

legislation that would eliminate it entirely. 

PROPOSED LEGISLATION 

The President has announced legislative proposals to fight fraud and abuse in health care. 

Many of the provisions in the President’s “Medicare and Medicaid Fraud, Abuse, and Waste 

Prevention Amendments of 1997” would strengthen HCFA’s ability to address our findings 

regarding problem HHAs. Several of these provisions are also contained in Medicare antifraud legislation that has been proposed by Congress. The President’s proposals include: 

b 

denying participation in Medicare for any person convicted of a felony, 

requiring providers to furnish Social Security and Employer Identification numbers of 

all owners and managing employees prior to certification, 

collecting user fees to perform certifications and recertifications, 

excluding entities controlled by family members of sanctioned individuals, 

penalizing anyone who relies on sanctioned individuals to authorize or provide 

services, 

prohibiting providers from using bankruptcy to stay the recovery of overpayments or 

discharge Medicare debts, 

clarifying the definitions of homebound and part-time or intermittent services, and 

eliminating PIP through the implementation of prospective payment in the year 2000. 

AGENCY COMMENTS 

We received comments on the draft report from the Assistant Secretary for Planning and 

Evaluation and the Assistant Secretary for Management and Budget. Based on their 

comments we modified the report to more fully describe recent anti-fraud legislative 

proposals which have been sent to the Congress by the President and to clarify that not all of 

the increase in home health services in recent years is the result of illegitimate billings by 

problematic providers. 

We also received comments from the HCFA Administrator. The HCFA concurs with the 

majority of our recommendations, although only partially with two of them that concern the 

financial stability of HHAs. Furthermore, HCFA does not support our recommendation for 

a moratorium on certifying new home health agencies until new program controls are put into 

effect. 

We continue to believe that the financial management integrity should be an important 

criterion in certifying them as suitable for participation in the Medicare program. 

With respect to a moratorium, HCFA states that it has the responsibility to establish and 

implement adequate program requirements and safeguards and that if a home health agency is 

able to comply with these requirements, it should be allowed to enter the program. We 

. . . 

111 
agree that HCFA does have such a responsibility. We are also aware that numerous 

legislative proposals similar to those we recommend in this report are now pending before 

the Congress. If enacted, these proposals would greatly strengthen HCFA’s ability to curb 

abuses. For these reasons, we have withdrawn our recommendation for a moratorium at this 

time. 

However, we remain very concerned about this program. Current program requirements are 

woefully inadequate to prevent financially irresponsible or fraudulent home health agencies 

from becoming Medicare providers. On the same day that we are issuing this report, we are 

issuing another one that shows that, in four of the five States reviewed in this report, 40 

percent of Medicare payments for home health should not have been made, resulting in 

losses of approximately $2.6 billion over a 15-month period. We believe that Medicare 

cannot continue to sustain losses of this magnitude. If, even after enactment of new 

legislation and stronger administrative action, there is no major reduction of improper 

payments, then more dramatic action will need to be taken by HCFA and the Congress. 

This should include the establishment of strict criteria relating to the trustworthiness of 

applicants, adequate resources to allow for a thorough review of applicants, and a concurrent 

decertification of problem providers already certified in the program who are responsible for 

a disproportionate share of Medicare losses. Under these circumstances, a brief moratorium 

could be appropriate while HCFA tools up its review mechanisms and reexamines the 

suitability of previously certified problem providers. 

The full text of each agency’s comments appears in Appendix D. 

iv 
TABLE OF CONTENTS 

PAGE 

EXECUTIVE SUMMARY 

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

FINDINGS ............................................... . 

� One-fourth are problem providers ............................... 6 

� Ownership and operational characteristics .......................... 7 

� Expansion created administrative problems ........................ 12 

RECOMMENDATIONS ..................................... 18 

APPENDICES 

A: Comparison of ORT and non-ORT States ........... ........... A-l 

B: A Complex Corporate Web .................... ............ B-l 

C: Synopsis of Additional Fraud and Abuse Cases ....... ............ C-l 

D: Agency Comments ......................... ........... D-l 
INTRODUCTION 

PURPOSE 

This report identifies and describes the common characteristics of problem home health 

agencies (HHAs) and how these agencies contribute to Medicare fraud, abuse, and waste. 

BACKGROUND 

The Medicare Home Health Benefit 

Medicare covers home health care to homebound beneficiaries who need intermittent skilled 

nursing care and/or physical or speech therapy. Medicare home health benefits include 

(1) part-time or intermittent nursing care provided directly by or under the supervision of a 

registered nurse; (2) physical, occupational, and speech therapy; (3) medical social services if 

related to the patient’s health problems; and (4) part-time or intermittent home health aide 

services when provided as an adjunct to skilled nursing or therapy care. To be covered by 

Medicare, home health services must be furnished under a plan of care that is signed and 

reviewed by a physician every 62 days. 

Medicare does not limit the number of visits or the length of home health coverage. Services 

are covered for as long as reasonable and necessary to treat the patient’s illness or injury. 

As a Part A benefit, there are no beneficiary copayments or deductibles for home care. 

To be eligible for Medicare reimbursement, HHAs must be certified Medicare providers. 

The Health Care Financing Administration (HCFA) administers the Medicare program. 

HCFA contracts with State licensing and certification agencies who are responsible for 

determining if providers meet and continue to meet the Medicare conditions of participation. 

Once certified, providers may furnish home health services using their own staff or others 

under a contract arrangement. Reimbursement is based on the costs (subject to 

geographically-based cost limits) incurred in providing covered visits to eligible beneficiaries. 

Medicare-certified HHAs are either proprietary (private, for-profit), voluntary (private, 

nonprofit), or Government owned and operated. 

The HCFA contracts with eight regional home health intermediaries, referred to throughout 

this report as fiscal intermediaries, to process home health claims, set reimbursement rates, 

make payments, educate providers, audit cost reports, and maintain payment safeguards. 

Rapid Growth in Home Health 

The home health care industry is the fastest growing segment of health care in the United 

States. This growth began in 1989, when, as a result of a lawsuit, changes in Medicare 

regulations expanded eligibility and eliminated the cap on the number of visits. Since that 

time, the number of Medicare-certified HHAs has risen from 5730 in 1990 to 8949 in 1995. 

1 
While the number of beneficiaries receiving HHA services has grown, costs to the Medicare 

program have increased disproportionately. Total annual Medicare expenditures for home 

health grew from $3.7 billion in 1990 to $15.4 billion in 1995. As detailed in the following 

chart, home health visits more than tripled and payments more than quadrupled in 6 years. 

NATIONAL MEDICARE HOME HEALTH UTILIZATION STATISTICS 

Total Medicare Beneficiaries 

Beneficiaries Who Received HHA Services 

Total HHA Reimbursement 

HHA Percentage of Total Medicare Program 

Dollars 

Average HHA Reimbursement per Patient 

Total HHA Visits 

Average HHA Visits per Patient 

Percentages may not be exact due to rounding 

1.98 million I 3.48 million I +76% 11 

$3.7 billion I $15.4 billion I +316% 11 

3.7% 8.7% 1 +135% 11 

$1,892 1 $4,4381 +135% 11 

70 million I 250 million I +2x% 11 

Many of these increases can be traced to the influx of for-profit HHAs. According to a 

1996 General Accounting Office (GAO) report, proprietary agencies are not only the highest 

utilizers of HHA services, they have undergone the most rapid growth. In 1993, proprietary 

agencies provided an average of 78 visits annually per beneficiary, while the number of visits 

provided by voluntary and government agencies averaged 46. Furthermore, in 1989, 

35 percent of all HHAs were proprietary, but, by 1995, approximately 50 percent were. 

In a 1995 study of variation in Medicare payments for home health services, the Office of 

Inspector General (OIG) found that proprietary for-profit HHAs receive higher 

reimbursement per visit and provide significantly more visits per patient than either voluntary 

non-profit or government owned and operated HHAs. 

Inadequacy of Current Safeguards 

While the majority of Medicare providers are complying with the home health benefit 

requirements, recent work by both the OIG and the GAO has shown that the home health 

benefit is very susceptible to fraud and abuse. For example, the OIG recently completed 

audits of eight HHAs in Florida, Pennsylvania, and California. These audits revealed that 

between 19 and 64 percent of the home health visits that had been billed by the HHAs did 

not meet Medicare coverage guidelines. Patients were not homebound and visits that had 

been billed to Medicare were not medically reasonable or necessary, not documented or 

provided, and not authorized by physicians. Preliminary data from Statewide audits in New 

York, Texas, Illinois, and California show similar problems. 

2 
The OIG has investigated numerous cases of home health fraud during the last several years. 

Appendix C contains a synopsis of some fraud cases that were not included in the sample we 

selected for this inspection. 

Definition of Problem Home Health Agency 

For purposes of this inspection, we tentatively defined a “problem” HHA as one that has 

been identified by HCFA, a fiscal intermediary, the State certification and/or licensing 

agency, or the OIG as meeting one or more of the following conditions: 

has incurred significant uncollected overpayments; 

routinely submits cost reports with significant inappropriate and unallowable costs; 

files a cost report that is determined to be unauditable; 

routinely does not file cost reports within a reasonable time; 

has submitted multiple claims for services that are not medically necessary; 

has submitted multiple claims for services that were not rendered; 

continues to submit problem claims despite educational contacts; 

has significant certification deficiencies; 

has been referred to the fiscal intermediary’s program integrity unit; or 

has been referred to the OIG by the fiscal intermediary. 

As noted in the methodology section which follows, prior to selecting our sample, we further 

refined our definition to assure that we included only those HHAs with significant and/or 

multiple problems. 

Operation Restore Trust 

Operation Restore Trust (ORT) began as a 2-year a new health care anti-fraud demonstration 

initiative. The ORT is a crackdown on Medicare and Medicaid fraud, waste, and abuse in 

HHAs, nursing homes, and durable medical equipment suppliers in five States--California, 

New York, Florida, Texas, and Illinois--that account for 40 percent of the nation’s Medicare 

beneficiaries and program expenditures. As part of ORT, the OIG has undertaken a number 

of national program inspections aimed at identifying and eliminating systemic weaknesses that 

allow fraud, waste, and abuse to occur in the Medicare program. We conducted this 

inspection as part of ORT. 

The fiscal intermediaries serving the five ORT States are Blue Cross of California, Blue 

Cross of Illinois, Aetna (Florida), Palmetto Government Benefits Administrators (Texas), 

United Government Services (New York), and IASD Health Services Corporation (Iowa, 

national alternate intermediary). 

METHODOLOGY AND SCOPE 

In June 1996, the California Operation Restore Trust Steering Committee convened a 

meeting of representatives from the OIG, HCFA, and the fiscal intermediaries to discuss 

participants’ concerns about fraud, abuse, and waste in the Medicare home health benefit. 

3 
Based on that meeting and additional analysis, we developed our initial definition of a 

“problem” HHA. 

From July through September, we visited the five Medicare fiscal intermediaries who serve 

the ORT States as well as the backup intermediary in Iowa. In addition to conducting 

interviews with fiscal intermediary audit, medical review, and program integrity staff, we 

reviewed selected files to determine how and what information is routinely maintained by 

intermediaries. Based on the visits, we were able to refine our working definition of a 

problem HHA and develop a list of characteristics to look for during the inspection. 

In addition to the fiscal intermediary staff, we conducted visits and telephone interviews with 

the State licensing and certification agencies and HCFA regional offices to determine what 

information could be retrieved from their files to help us identify common characteristics. 

These discussions led us to investigate the use of commercial databases to obtain information 

about corporations and individuals who either own or manage HHAs. While none of these 

database systems are comprehensive and all of them have their limitations, we chose CDB 

Infotek to help validate and complement information we collected. 

Although each organization maintains much information, we learned that there is little 

consistency and considerable variation in the nature and type of information as well as the 

way the information is maintained and retained. As might be expected, we found 

considerable duplication of information and data among the various organizations. 

Universe and Sample Selection: The universe for this inspection consists of all 

Medicare-certified HHAs in the ORT States which meet one or more of the conditions listed 

in our definition of a problem HHA. The list of 698 providers was compiled from lists of 

problem providers identified by fiscal intermediaries serving the ORT States during the 

fourth quarter of fiscal year 1996. Our original list had approximately 800 providers, but we 

refined the list to include only HHAs with significant and/or multiple problems. 

PROBLEM MEDICARE HHAs BY ORT STATE 

State Certified HHAs Problem HHAs 

California 653 145 

11Florida 1 

IITOTAL I 2729 I 698 

We selected 60 providers using a simple random sample, stratified by fiscal intermediary. 

Our sample consisted of 10 providers for each of the 6 fiscal intermediaries serving the 

4 
5 ORT States. For Iowa, we selected 10 HHAs from the ORT States with the proportions 

based on the total number of agencies per State: 3 from California, 4 from Texas, 1 from 

Illinois, 1 from New York, and 1 from Florida. For all but one fiscal intermediary, we used 

spares because file information was missing or an audit was in progress at the time of our 

visit. 

Data Collection: We gathered data from the following sources: (1) the audit, medical 

review, and program integrity files maintained by the six fiscal intermediaries; (2) public 

records regarding business ownership, criminal convictions, and related information 

maintained on-line by CDB Infotek; and (3) files and databases maintained by the OIG, 

HCFA, and State licensing and certification agencies. 

The inspection team conducted on-site visits to the fiscal intermediaries to review their files 

for the 60 sample HHAs. We combined the information from the on-site reviews with data 

and information from CDB Infotek as well as HCFA and the OIG. We used a database 

software program for analysis. 

Many of the percentages and statistics mentioned in the report findings are understated for 

the following reasons: 

�  We relied on information contained in fiscal intermediary files, and these files are not 

consistently and uniformly maintained; 

0 State and national databases are dissimilar and not always thorough; 

�  Many of these home health agencies are under current investigation and therefore the 

fiscal intermediary files lack valuable information; 

�  Many of the HHAs are so new that fiscal intermediary files do not include detailed 

audit information; and 

0 Some of the HHAs had not billed Medicare in 1995 because they had filed bankruptcy 

in a previous year. 

5 
FINDINGS 

~~~~~~~~~~~~~~~~~~~.....~~~~~~~~...,..,.,.,.,.,.,.,.,.,.,.,.........,.,...,.,...,.,.~.....,.,...,.,.,.,.,.,.,.,.,.,.,.,.,.,... t :‘:‘:‘:‘:‘:‘:‘:‘:‘:‘.‘.~.......r................‘.‘.‘................................ ... ..i.. i,.. ......................,.,...,.,....., .., .., ..__._. __. _. ,.. ,........._.__._. ,. ,. _......... ,.. ,.. _. ., ., 

One quarter of home health agencies in the five Operation Restore Trust States are 

“probIem” providers, and they receive almost 45 percent of all Medicare 

expenditures for home health services in these States 

More than 25 percent of the home health agencies in ORT States are problem providers 

Of the 2729 HHAs in the 5 ORT States, our list of problem providers totalled 698, or 

approximately one-fourth of the total number of HHAs. Nationally, there were 8949 

Medicare-certified HHAs in 1995. 

Of the 676 problem HHAs for which we have ownership information, 80 percent are 

for-profit with an additional 10 percent designated as non-profit but private. Nationwide, 

slightly less than 50 percent of all Medicare-certified HHAs are for-profit. 

Problem home health agencies received nearly 45 percent of Medicare home health 

payments in the ORT States 

Although the problem providers represented approximately 25 percent of the total number of 

HHAs in the ORT States, they received $2.5 billion of the $5.7 billion paid to HHAs in 

these States in 1995.’ Nationally, Medicare paid $15.4 billion for home health services. 

For-profit problem HHAs received $1.74 billion or almost 70 percent of the total Medicare 

payments that were made to problem providers in the five ORT States. While this represents 

a smaller percentage of total reimbursement than their numbers might indicate, their average 

reimbursement per patient is approximately $6000 which is almost 50 percent more than 

nonprofit problem HHAs. 

Our sample providers received more than $440 million in 1995. This is almost 8 percent of 

the total reimbursement in the ORT States for home health services, even though the number 

of providers represents only 2 percent of the total number of HHAs in these States. 

HHAs in ORT States mirror the nation 

Thirty percent of all Medicare-certified HHAs are located in ORT States, and they receive 

almost 40 percent of all Medicare payments for home health services. Despite the fact that 

’ These totals do not include total dollar amounts for some of the chain providers, but rather the individual 

agencies. Furthermore, these represent total expenditures and is not intended to imply that all of the payments 

were inappropriate. 

6 
. 

they represent a disproportionate share of the national figures, their per patient statistics 

mirror those for all HHAs. 

VISITS AND REIMBURSEMENT PER PATIENT 

1995 

100 

80 

60 

40 

20 $looo 

ORT States 0 $0 

Visits per Patient Reimbursement per Patient gg Nationwide 

Although the ORT States are some of the largest in the nation, they represent a variety of 

characteristics. For example, Texas is the State with the largest number of HHAs, highest 

Medicare expenditures, and greatest number of total visits. While Texas also ranks near the 

top in reimbursement and number of visits per patient, several non-ORT States exceed it. In 

comparison, Florida is slightly above the national average in these categories. California is 

close to the national average in reimbursement per patient and below the average in visits per 

patient. New York and Illinois are considerably below average in both of these categories. 

See appendix A for more detailed State rankings. 

. . . . . . . . . . . . ..A..>...,.........i,..,.....,.,,,,,,,.......,,,,,,,....,.,,.,,.,......,,,,,,,,.... . . I,>_.......... . . . . . . . . . . . . . . . ..I......... ,,,,,...... ,_..,,.,,, . :.i:.:.:.:.:.:.:.:.~:.: .A...... ... ..A.......>. . . ,../i. . . . . . . . . . . . . . . . . . . . .

,.. . . . ./i.. .....,A.. ..A. ..a....A. ..... ..,.. A.. A.. I ..I............C.,...A.... ‘,.,‘,‘,.,‘,‘,.,)):.:..,:.: ..,.,:.,._.((....(....,.,.(,.,.((,.,.....,. 

Problem home health agencies share ownership and operational characteristics that 

can thwart overpayment recovery and undermine sanctions 

Most problem home health agencies are closely-held corporations whose owners are 

involved in related organizations and complex business relationships 

Problem HHAs are typically for-profit corporations owned by one, two, or, at the most, 

five individuals. Almost 40 percent of the HHAs in our sample are family-owned, usually 

by husband and wife teams, Many others are owned by siblings, a sole individual, or 

two unrelated persons. While many of these closely-held corporations are simple “mom and 

pop” operations, their annual Medicare revenue ranges from $50,000 to as much as 

$33 million. 

For the most part, the owners of these HHAs are neither health care professionals nor do 

they have any prior health care business experience. In fact, of the 31 sampled providers for 

whom ownership background information is readily available, only 14 have an owner who is 

a health care professional. This is usually a nurse. Those owners who have previous health 

7 
care business experience usually gained it at another problem HHA. More commonly the 

owners came to home health from such unrelated businesses as investment banking, trucking, 

real estate, accounting, the beauty industry, and even jai alai. 

More than half of the problem HHAs have ownership interests in related companies which do 

business with the home health agency. The related companies frequently own the office 

space and lease it to the HHA. Some exist merely to provide the HHA with office 

equipment or lease automobiles for the owners’ use. Separate but related companies also 

provide billing, consultant, and/or administrative services to the HHA. 

It is not unusual for owners of problem agencies to have links with other HHAs and 

questionable relationships with physicians. Nearly one quarter of the owners in our sample 

own other HHAs, while another quarter have informal links with other HHAs. Fiscal 

intermediaries have identified numerous situations where a problem HHA has sold patients, 

shared employees, and used the same referral physicians. They have also discovered 

potential kickback situations where referring physicians routinely “rubber stamp” plans of 

care for one or more problem HHAs. 

During the course of our inspection, we identified several situations where the owners of 

problem HHAs are involved in other businesses which they did not disclose as related 

organizations for Medicare reimbursement purposes. These businesses included durable 

medical equipment, health consulting, board and care facilities, hospices, retirement homes, 

and nurse registries which may be providing services directly to the HHA or acting as 

referral and recruitment sources for the HHA. 

The complex web of interrelated businesses enables the owners of some problem HHAs to 

maximize their Medicare reimbursement while claiming that the HHA itself barely breaks 

even or operates at a loss. Some owners receive full-time salaries from the HHA despite 

having ownership interest and concomitant responsibilities in other companies. Others may 

be paid twice for the same service, as in the case of HHA owners who also own board and 

care facilities. The HHAs are paid to provide home health aide services to the board and 

care residents while the board and care facility receives per diem that is intended to include 

aide services. Still others may own property or equipment that is worth far less than the 

amount they are charging the HHA and the HHA is reporting on its cost report as a 

Medicare patient-related expense. (See appendix B for an illustration of these issues.) 

The owners of problem home health agencies frequently rely on family members and 

consultants to help them run the agency 

Problem HHAs typically employ or contract with relatives to serve in key positions. More 

than half of the HHAs in our sample paid spouses, siblings, children, nieces, nephews, 

and/or in-laws to perform services for the HHA. One-quarter of the agencies have 4 or 

more relatives who serve as owners and employees and 4 of the agencies employ, or contract 

with, 10 or more family members. 

8 
Family members rarely have any health care experience. Rather, they come from such 

diverse backgrounds as military service, engineering, and teaching. We also noted that 

several family members were college students with no prior work experience. 

Some relatives are on the HHA’s payroll but perform little or no work. One HHA, for 

example, contracted with the owner’s nephew to maintain the agency’s computers for 

$250,000. The nephew was a full-time college student at the time, and his services were not 

commensurate with the amount of money he was paid. In another situation, the HHA’s 

payroll included three relatives. The checks that were issued to these relatives were not 

cashed by the relatives but instead were returned to the agency and cashed by the HHA’s 

owners. These relatives were “ghost employees” whose existence allowed the agency to 

claim costs that were never really incurred. 

While many consultants provide valuable services for start-up agencies, a few have earned 

their reputations as inside experts who can help HHAs “maximize their Medicare 

reimbursement. ” They claim to have intimate knowledge of each fiscal intermediary’s 

operations and promise to “work the system” to increase the HHA’s reimbursement rate and 

the owner’s compensation allowance as well as to insulate the owner from personal liability. 

Three-fourths of the HHAs in our sample use management or reimbursement consultants who 

specialize in home health. We identified 13 consultants who each work for 2 or more of the 

problem HHAs in our sample. We were able to ascertain that nearly half of these 

consultants were former fiscal intermediary, State agency, or HCFA employees. 

Following the advice of these consultants, problem HHAs realize even higher reimbursement 

than their counterparts. For the sampled HHAs, reimbursement per beneficiary was more 

than 20 percent higher when 1 of the 13 consultants was involved ($7042 vs. $5787). These 

HHAs also consistently make exorbitant claims for administrative overhead, such as owner’s 

salary. For example, one HHA claimed $200,000 salaries each for the husband and wife 

owners, plus an additional $100,000 for their daughter owner. Another claimed a total of 

$350,000 for husband and wife owner salaries. 

Use of these consultants is not always a “guarantee” of success. Each of the five HHAs in 

our sample that was involuntarily terminated based on an expanded certification survey had 

contracted with one of these consultants. 

Relying almost exclusively on Medicare for income and assets, entrepreneurs are able to 

open and operate home health agencies without fixed assets or startup costs 

Problem HHAs rarely treat non-Medicare patients. For more than three-quarters of the 

sampled providers, greater than 90 percent of their income is derived from Medicare. In 

Texas, where there has been a marked increase in the number of HHAs in the last few years, 

the sample HHAs average an astonishing 98 percent of income from Medicare. Few, if any, 

of them have contracts with health maintenance organizations or Medicaid, both of whom 

frequently restrict the number of home health services, limit payment, or more closely 

monitor services than does Medicare. 

9 
If it were not for Medicare accounts receivable, problem agencies would have almost nothing 

to report as assets. Agencies tend to lease their office space, equipment, and vehicles. They 

are not required by Medicare to own anything, and they are almost always undercapitalized. 

On average, cash on hand and fixed assets amount to only one-fourth of total assets for the 

HHAs, while Medicare accounts receivable frequently equal 100 percent of total assets. 

These agencies are almost totally dependent on Medicare to pay their salaries and other 

operating expenses. 

For a home health agency, there are virtually no startup costs or capitalization requirements. 

In many instances, the problem agencies lease everything without collateral. They do not 

pay user fees to Medicare, they do not reimburse Medicare for the cost of the State agency 

survey, and they do not even have enough cash on hand to meet their first payroll. 

More than half of the agencies in our sample claimed that they lost money. The average net 

income was less than $7500. So why and how do they stay in business and why do they 

keep expanding ? Because they are able to manipulate the Medicare cost reimbursement 

system and provide the owners and other principals with personal income that far exceeds the 

concept of “reasonable cost. ” 

The owners and principals of problem home health agencies can continue to receive 

Medicare money, because HCFA has few preventive measures 

Problem HHAs can accumulate substantial and uncollectible Medicare overpayments. When 

overpayments are determined by the fiscal intermediary, or even before it has a chance to do 

so, many HHAs file bankruptcy or merely cease business to avoid the debt. After these 

HHAs declare bankruptcy or disappear, Medicare has little chance of recovery because the 

debts apply only to the defunct corporation, not to individual owners or their other 

businesses. 

Approximately one-third of the agencies in our sample receive periodic interim payments 

(PIP) from Medicare. For those HHAs, payments are made on a regular basis without 

regard for the services they provide or the claims they submit. The PIP payments are 

reconciled against actual expenses when the cost report is submitted, which may be as long 

as 5 months after the end of the HHA’s fiscal year. The other agencies in our sample 

receive interim payments based on the claims they submit during the course of the year. 

These are also reconciled when the cost report is submitted. Under either payment method, 

overpayments can accrue. The PIP method, however, leaves the program more vulnerable 

because there may not even be claims to substantiate the payments that have been made. 

One-third of the sample HHAs incur significant overpayments every year. These 

overpayments range from $100,000 to several million annually. For the providers in our 

sample on PIP, the overpayments are greatest. In fact, seven of the PIP providers account 

for $56 million in outstanding overpayments. In a 1995 report, the OIG noted that PIP 

providers accumulate a disproportionate share of Medicare overpayments and recommended 

that HCFA more closely monitor the PIP program and seek legislation that would eliminate it 

entirely. 

10 
The 60 HHAs in our sample have a combined outstanding Medicare debt exceeding $321 

million. Of that amount, at least $63 million will never be recovered, because the HHAs are 

no longer in business, have no assets, or have filed bankruptcy. Almost all of these HHAs 

are repeat offenders, who maintain consistently high overpayment balances and regularly 

request, and sometimes are granted, extended repayment plans. 

The HCFA can terminate a problem provider, but like closing the barn door after the horse 

runs off, the action comes too late to recover Medicare’s losses. Nine HHAs in our sample 

have been terminated involuntarily, and two others had branches that were terminated. 

Three providers, who were involuntarily terminated, left the program owing a total of 

$47 million. 

Owners of problem HHAs find ingenious ways to make money even when their businesses 

are terminated. For example, one HHA profited by selling its patients to another HHA for 

$1,000 each. Another sold its branches to its employees who then proceeded to obtain 

Medicare certification. 

Problem providers don’t let termination or bankruptcy interfere with taking advantage of 

Medicare. Many reorganize and open a new HHA, often joining forces with key individuals 

from other problem providers. Owners and key staff, especially nurses and administrators, 

move from one problem provider to another, often bringing their patients and unscrupulous 

practices with them. 

Even when Medicare terminates an HHA, other HHAs owned by the same individual through 

different corporations continue to operate. For example, the principals of one family-owned 

HHA operate several related HHAs, each established as a separate corporation; one HHA 

filed for bankruptcy without affecting the others. When Medicare terminated another HHA, 

its owners simply discharged the patients and then readmitted them to another HHA they 

owned in a city nearby. 

Some problem HHAs simply cease doing business after receiving hundreds of thousands or 

even millions in reimbursement, often without bothering to inform HCFA or the fiscal 

intermediary. Still others undergo a change of ownership where the new owner does not 

assume the prior owner’s assets or liabilities. 

The HCFA does not require fiscal solvency through secured assets or surety bonding. This 

leaves Medicare holding the bag when a problem provider goes out of business. Under the 

Medicare conditions of participation, HCFA may require HHAs to meet “such additional 

requirements (including conditions relating to bonding or escrow accounts, as the Secretary 

finds necessary for the financial security of the program). . . . ” However, HCFA has not 

enforced this provision. 

11 
Expansion of the benefit and the lack of restrictions on certification have led to 

ever-increasing administrative problems with little prospect of mitigation 

The number of agencies and Medicare costs have grown dramatically since 1989 

In 1989, based on a lawsuit (Duggan v. Bowen), HCFA implemented regulatory changes that 

expanded eligibility for home health services and eliminated the cap on the number of visits. 

Since that time, the number of HHAs nationally has almost doubled. During the same 

period, the percentage of beneficiaries receiving home health services has increased but not 

nearly as significantly as the number of visits and reimbursement per patient, each of which 

has more than doubled. 

Certain States have expanded more than others. In Texas and California, the number of 

Medicare-certified agencies has increased by more than 50 percent in just 2 years. In terms 

of reimbursement, Texas has gone from approximately $750 million to $1.8 billion total 

home health reimbursement and from $4300 in average per patient reimbursement to 

$7100 per patient in the same time period. While California has had a similar growth 

pattern, Texas has surpassed the other ORT States in each of these categories while still 

serving fewer beneficiaries than either California or Florida. 

Some States limit the number of HHAs, but Medicare costs still rise 

In contrast to the uncontrolled growth in Texas and California, in New York and Florida the 

number of agencies has grown by less than 10 percent. Since HCFA does not limit the 

number of certified HHAs, controls are at the State’s discretion. Both Florida and New 

York require new HHAs to go through a Certificate of Need process before they can be 

licensed. Unfortunately, the mere existence of a Certificate of Need requirement does not 

guarantee that all new HHAs are actually needed. In response to questions about the value 

of the Certificate of Need, some of our contacts believe that it is “just another way for the 

State to make money” without really addressing or controlling the need for new HHAs. 

In Florida, because of the way the Certificate of Need is administered, the number of HHAs 

continues to rise, albeit at a slower rate than in States without this requirement. New York, 

on the other hand, decided to stop processing new HHA applications early in 1994, 

effectively imposing an informal “moratorium” on new agencies. 

One effect of limiting the number of new HHAs is that existing HHAs grow larger. For 

New York and Florida, the two sample States with a Certificate of Need requirement, the 

1995 average reimbursement per HHA was $3.3 million and $4.6 million respectively. The 

next highest State averaged $1.9 million per agency. 

Another effect in States which limit new HHAs is that the existing agencies have larger 

beneficiary patient loads. In Florida and New York, for example, the average number of 

beneficiaries per agency is over 900; HHAs in Texas average only 200 beneficiaries each. 

12 
CA 

FL 

IL 

NY 

TX 

Problem HHAs Statewide HHAs 

89 53 

87 78 

73 54 

61 49 

143 116 

In States like New York and Florida, having fewer HHAs to monitor has made the fiscal 

intermediary’s, HCFA’s, and the State agency’s oversight responsibilities much more 

manageable. Despite their increased size, each HHA’s modus operandi remains the same so 

the government and its contractors need not deal with all of the problems inherent in new 

agencies, particularly ones that are just entering the business to “get rich quick.” 

In States where the number of new HHAs has increased dramatically during the last few 

years, fiscal intermediaries estimate that as many as 50 percent of the new agencies are 

problem providers. 

Problem agencies frequently exceed national and State averages in several areas 

Compared to their respective States and the rest of the nation, problem agencies typically: 

(1) have a higher average number of visits per patient, 

(2) receive higher average reimbursement per patient, 

(3) see more chronic patients, 

(4) are relatively newer, and 

(5) are located in dense population areas where few, if any, new agencies are needed. 

b Problem H&Is perform significantly more visitsper patient. Sample agencies ranged 

from as low as 20 visits per patient for the newest providers to as high as 285 visits 

per patient for older agencies. Forty percent of the problem HHAs exceeded an 

average 100 visits per patient. As shown in the following chart, problem HHAs 

routinely exceed the statewide average number of visits per patient: 

COMPARISON OF AVERAGE NUMBER OF VISITS PER PATIENT 

CA 

FL 

IL 

NY 

TX 

Problem HHAs Statewide HHAs 

89 53 

87 78 

73 54 

61 49 

143 116 

According to HCFA data, problem HHAs significantly exceed other HHAs in average 

number of visits per patient even when case mix, based on age, race, primary 

diagnosis, and gender, is taken into consideration. Furthermore, three-quarters of our 

sample providers rank in the top third of the nation for total number of visits per 

agency. Almost half of the sample providers also rank in the top third for average 

number of visits per patient. 

13 
b Problem HHAs have a higher average reimbursement per patient. Nearly two-thirds 

of our sample providers have an average reimbursement per patient that is higher than 

the national average which is $4438. One-third have patients whose average 

reimbursement exceeds $7000, and six of them have average reimbursements that 

exceed $12,000 per patient. For six of the HHAs in our sample, their average 

reimbursement per patient grew between 150 and 340 percent in 1 year. 

b Problem HI&Is serve more chronic patients. The majority of the HHAs in our sample 

specialize in patients who are rarely discharged. Although these patients may need 

fewer skilled nursing visits, they may need routine visits by both nurses and home 

health aides for the rest of their lives. Diabetes and hypertension are two of the most 

common diagnoses for these types of patients. 

b Problem HHAs are newer. One-third of the sample HHAs have been certified for less 

than 4 years. 

b Problem HHAs tend to be located in saturated markets. Nearly one quarter of our 

sample have solicited patients, swapped patients (ping ponging), sold patients or 

provided medically unnecessary services. Because they operate in markets where 

there are enough HHAs to serve the Medicare population, they use these strategies to 

enlist and retain patients. The fiscal intermediaries serving these HHAs have even 

received allegations that a patient does not need skilled nursing care, so the HHA is 

supplying someone to mow the lawn, shop, chauffeur, or keep the beneficiary 

company. 

The lack of requirements for background checks, credit checks, and prior health care 

experience allows anyone, even those with questionable pasts, to receive Medicare 

certification 

The current certification process does not take into account HHA owners’ credit and financial 

history, criminal records, or past work experience. This allows certification to he granted to 

just about anyone. Bankruptcies, unpaid Federal debts (including Medicare overpayments), 

even criminal convictions (that are not specifically related to Medicare and Medicaid), do not 

preclude individuals from obtaining Medicare certification for their HHAs. 

By utilizing a readily available commercial database, we were able to determine that more 

than one-third of the HHAs we researched had questionable backgrounds. We found 

instances where the HHAs and their owners had filed bankruptcy, defaulted on loans, failed 

to pay Federal or State taxes, and had been found guilty of criminal wrongdoing. Many of 

these existed before the HHA became certified. For example: 

0 The owner of one of the HHAs in our sample, who was listed as a co-debtor on two 

Federal tax liens against a nursing service, opened another Medicare-certified HHA a 

few years later. The latter HHA went out of business in mid-1996 and did not inform 

HCFA, its fiscal intermediary, or the State agency. As a result, the HHA continued 

14 
to receive Medicare checks, never submitted a cost report, and, a few months later, 

filed bankruptcy. 

�  The owner of another HHA went bankrupt twice and had a felony conviction prior to 

opening the HHA. 

Some fiscal intermediaries have begun using online services to verify information supplied by 

HHAs. However, since HCFA does not preclude certification in these situations, any 

negative information that is discovered is of limited value. At present, the most common use 

of the online service is to identify undisclosed related organizations for cost report audit 

purposes. 

Thorough review of cost reports and claims can uncover a wide variety of unallowable 

costs and noncovered services, but submission requirements and limited resources hamper 

fiscal intermediaties ’ oversight efforts 

Fiscal intermediary resources for oversight have not kept pace with the rapid increase in the 

number of HHAs. In California, 80 new HHAs opened in a recent 4-month period, but the 

fiscal intermediary’s oversight resources were not increased proportionately. In fact, their 

resources for fiscal year 1997 were decreased. Furthermore, fiscal intermediaries are funded 

to perform only a few on-site audits. For example, one fiscal intermediary is funded to 

perform less than 12 percent of its home health agency audits on-site, while another is 

funded to perform approximately 20 percent. The on-site audit is usually very limited in 

scope, and less than 5 percent of all audits are comprehensive reviews of all the costs 

claimed by an individual HHA. 

v HHAs can receiveMedicare payments for 18 months or more before any improperly 

claimed costs are identified and disallowed by a fiscal intermediary. HHAs are 

required to submit cost reports within 5 months after the close of their fiscal year. 

This means that an HHA can operate for up to a year and a half before the fiscal 

intermediary has an opportunity to review costs and make adjustments. Some 

problem HHAs have billed and received large Medicare payments for 12 to 

16 months and then gone out of business without filing cost reports. When this 

happens, Medicare has no way to identify unallowable costs, let alone collect any 

overpayments. Three HHAs in our sample went out of business without filing cost 

reports. One of these had incurred $6 million in overpayments that are now 

uncollectible. 

When problem HHAs do submit cost reports, fiscal intermediaries frequently find 

significant unallowable costs during on-site audits. However, because the number of 

on-site audits is limited, we cannot measure the full extent of the problems. The 

following examples, which represent audit adjustments from our sampled providers, 

illustrate the types of adjustments that could be made only through on-site audits: 

Unreasonable Owner’s Comnensation: The allowable amount for owner’s 

compensation is based on the time and type of work that the owner does for 

15 
the HHA. One HHA owner, who also runs a major home health consulting 

business, claimed a full-time salary from the HHA. The owner of another 

HHA is a full-time school teacher who claimed a full-time salary from the 

HHA. Yet another owns a private duty nursing service, a retirement home, a 

health care facilities construction company, a durable medical equipment 

company, and an automobile rental agency and still claimed a $182,000 salary 

from the HHA. 

Undisclosed Related Organizations: These entities typically (1) lease office 

space, equipment, or automobiles to the HHA, (2) provide financial, 

management consulting, or maintenance services, or (3) contract with the 

HHA to provide direct patient services or supplies. HHA owners profit 

through their interest in the related organizations which they do not mention on 

the cost report. 

For example, one HHA had six or more related agencies that provided 

everything from nursing services and medical supplies, to maintenance, 

construction, and property leasing. None of the companies were disclosed on 

the cost report even though they were owned by the HHA owner or his family. 

In this agency’s case, the four principals claimed salaries of $152,000 each on 

the HHA’s cost report. Another agency claimed costs for a medical supply 

company whose address was actually a Seven-Eleven convenience store. This 

medical supply company did not exist, and the convenience store was, in fact, 

owned and operated by one of the HHA owner’s relatives. 

Ghost Employees: To inflate the cost of providing patient care services, the 

HHA maintains records that indicate salaries were paid to employees who do 

not exist. In one case, the fiscal intermediary discovered that salary or 

compensation checks were written to nonexistent employees, the checks were 

cashed, and the money was returned to the owners. 

Nonpatient-related Expenses: Because Medicare reimburses HHAs only for 

the costs associated with patient care, some agencies lump nonpatient-related 

expenses with patient-related ones in an attempt to bury the nonreimbursable 

costs. For the HHAs in our sample, auditors have become aware of such 

“buried” items as trips to resorts, the purchase of liquor for a national HHA 

association meeting, promotional items such as T-shirts, home remodeling, 

purchase of real and personal property, health club dues, and even 

maintenance of a horse. 

Discrepancies in Visit Counts: This situation has been discovered during 

on-site audits, when there were no records to substantiate patient visits that had 

been billed to Medicare. When this is discovered, the fiscal intermediary puts 

the HHA on prepayment review. In response, one problem provider simply 

increased claims volume to compensate for the increased denial rate. 

16 
Unreasonable Contractor or Related Organization Costs: Both of these 

practices are ways for owners of problem providers to maximize 

reimbursement. High payments to contractors can be an indication of 

kickbacks, while high payments to related organizations end up back in the 

owner’s pocket. 

F By conducting on-site medical reviews, fiscal intermediaries can discover a variety of 

fraudulent and abusive practices that can’t be identified during routine claims 

processing. Fiscal intermediaries often uncover illegal or questionable patient-related 

practices during on-site medical reviews of problem providers. Many of these 

practices are discovered only during on-site reviews, because problem HHAs often 

know how to document claims to make them look legitimate. Some of the most 

common fraudulent and abusive practices include: 

billing for services not rendered; for example, padding visits, 

billing for noncovered services; for example, where the patient does not 

qualify because he is not homebound, 

providing services that are not medically necessary; for example, therapy 

services or durable medical equipment, 

favoring one or two chronic diagnoses from which the patients will never 

recover; for example, hypertension and diabetes, 

ping ponging; for example, sharing beneficiaries with other agencies, and 

using rogue doctors or nurses; for example, doctors who sign plans of care 

without seeing the patient or nurses who contract with several agencies and 

cannot possibly make all of the visits for which they bill, e.g., the full-time 

owner of 1 HHA who billed 32 visits in a single day through another agency. 

While on-site medical reviews can be invaluable oversight tools, problem providers 

know that limited fiscal intermediary resources mean there is little chance they will be 

selected for review. Also, since fiscal intermediaries notify providers well in advance 

of planned visits, problem HHAs have plenty of time to make sure that their 

“documentation” is complete. They know that fiscal intermediaries rarely contact 

beneficiaries for verification. 

Under Operation Restore Trust, the fiscal intermediaries servicing at least two of the ORT 

States have participated in HCFA regional office initiatives to conduct multidisciplinary onsite HHA reviews. These reviews, which include medical, accounting, and certification 

areas, have resulted in numerous investigations and terminations of HHAs that should not 

have been certified in the first place. In California, 47 expanded surveys were conducted 

and, as a result, 23 HHAs have been terminated or voluntarily withdrew from the Medicare 

program. 

17 
RECOMMENDATIONS 

To protect the Medicare home health benefit, HCFA needs to develop and implement 

additional program safeguards that would (1) strengthen it’s ability to identify problem 

providers, (2) prevent problem HHAs from entering the program, and (3) prevent the 

Medicare trust fund from incurring further losses due to the activities of problem 

HHAs. 

In order to accomplish this, HCFA should take administrative action or, if necessary, seek 

legislative authority to: 

require that each HHA obtain a surety bond equal to the amount of anticipated 

Medicare billings during its fiscal year. Should the HHA’s claims exceed the amount 

of the bond before a cost report has been filed and audited, the HHA should be 

required to increase the amount of the surety bond accordingly. The cost of the bond 

should not be considered reimbursable for Medicare cost reporting purposes. 

require “user fees, ” so that new and existing HHAs are required to pay for their 

initial certifications, comprehensive on-site reviews, and recertifications. If this is not 

possible, we believe that the allocation of additional resources to the certification and 

monitoring effort by the fiscal intermediaries, State agencies, and HCFA regional 

offices will pay for itself, because it will substantially reduce or even eliminate the 

continued accrual of uncollectible overpayments as well as payments for noncovered 

and medically unnecessary services. 

require that the majority of the HHA’s principals have prior health care experience 

directly related to the provision of home health services in order to receive Medicare 

certification. 

develop a data bank of owners, principals, and other HHA officials and related 

organizations so that their activity can be monitored, tracked, and cross-referenced. 

require that all HHA owners and principals provide their individual Social Security 

numbers and Employer Identification numbers when they submit an application to 

become Medicare providers. 

prior to certification, assure that new HHAs are financially sound and have adequate 

fiscal recordkeeping capabilities and that their owners and principals are qualified and 

trustworthy. This should be accomplished through a comprehensive on-site review by 

an interdisciplinary team of auditors, medical reviewers, and State surveyors. 

refuse to enter into a provider agreement with any HHA whose owners or principals: 

owe money to the Federal government in the form of Medicare overpayments, 

tax liens, or unpaid loans; 

18 
have filed bankruptcy or have negative credit ratings; 

have prior criminal records; and/or 

have been associated with, or are the relatives of the owner of, a Medicare 

provider who was found to defraud, abuse, or otherwise misappropriate 

Medicare dollars. 

�  preclude the discharge of Medicare debts through bankruptcy. 

We also reiterate our previous recommendation that HCFA should: 

�  tighten controls over the PIP program, more closely monitor HHAs that are on PIP, 

and seek legislation to eliminate this method of reimbursement. 

Proposed Legislation 

The President has announced legislative proposals to fight fraud and abuse in health care. 

Many of the provisions in the President’s “Medicare and Medicaid Fraud, Abuse, and Waste 

Prevention Amendments of 1997” would strengthen HCFA’s ability to address our findings 

regarding problem HHAs. Several of these provisions are also contained in Medicare antifraud legislation that has been proposed by Congress. The President’s proposals include: 

b denying participation in Medicare for any person convicted of a felony, 

F requiring providers to furnish Social Security and Employer Identification numbers of 

all owners and managing employees prior to certification, 

b collecting user fees to perform certifications and recertifications, 

b excluding entities controlled by family members of sanctioned individuals, 

b penalizing anyone who relies on sanctioned individuals to authorize or provide 

services, 

b prohibiting providers from using bankruptcy to stay the recovery of overpayments or 

discharge Medicare debts, 

b clarifying the definitions of homebound and part-time or intermittent services, and 

b eliminating PIP through the implementation of prospective payment in the year 2000. 

Agency Comments 

We received comments on the draft report from the Assistant Secretary for Planning and 

Evaluation and the Assistant Secretary for Management and Budget. Based on their 

comments we modified the report to more fully describe recent anti-fraud legislative 

proposals which have been sent to the Congress by the President and to clarify that not all of 

the increase in home health services in recent years is the result of illegitimate billings by 

problematic providers. 

We also received comments from the HCFA Administrator. The HCFA concurs with the 

majority of our recommendations, although only partially with two of them that concern the 

19 
financial stability of HHAs. Furthermore, HCFA does not support our recommendation for 

a moratorium on certifying new home health agencies until new program controls are put into 

effect. 

We continue to believe that the financial management integrity should be an important 

criterion in certifying them as suitable for participation in the Medicare program. 

With respect to a moratorium, HCFA states that it has the responsibility to establish and 

implement adequate program requirements and safeguards and that if a home health agency is 

able to comply with these requirements, it should be allowed to enter the program. We 

agree that HCFA does have such a responsibility. We are also aware that numerous 

legislative proposals similar to those we recommend in this report are now pending before 

the Congress. If enacted, these proposals would greatly strengthen HCFA’s ability to curb 

abuses. For these reasons, we have withdrawn our recommendation for a moratorium at this 

time. 

However, we remain very concerned about this program. Current program requirements are 

woefully inadequate to prevent financially irresponsible or fraudulent home health agencies 

from becoming Medicare providers. On the same day that we are issuing this report, we are 

issuing another one that shows that, in four of the five States reviewed in this report, 40 

percent of Medicare payments for home health should not have been made, resulting in 

losses of approximately $2.6 billion over a 15-month period. We believe that Medicare 

cannot continue to sustain losses of this magnitude. If, even after enactment of new 

legislation and stronger administrative action, there is no major reduction of improper 

payments, then more dramatic action will need to be taken by HCFA and the Congress. 

This should include the establishment of strict criteria relating to the trustworthiness of 

applicants, adequate resources to allow for a thorough review of applicants, and a concurrent 

decertification of problem providers already certified in the program who are responsible for 

a disproportionate share of Medicare losses. Under these circumstances, a brief moratorium 

could be appropriate while HCFA tools up its review mechanisms and reexamines the 

suitability of previously certified problem providers. 

The full text of each agency’s comments appears in Appendix D. 

20 
APPENDIX A 

The following 5 tables represent summary data of all home health agencies in all 50 States, 

the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. We obtained the 

information from the HCFA Customer Information System. The five charts contain the same 

information, sorted by five important variables. The ORT States are at or near the top when 

looking at aggregate numbers of claims, total reimbursement, total patients, and total visits. 

The ORT States tend to drop to average or below average, however, when looking at per 

patient statistics. 

NOTE: The five ORT States are shaded for emphasis. 

A-l 
-- 

-- 

HHA SUMMARY DATA STATES SORTED BY TOTAL REIMBURSEMENT 

FOR 1995 

Total I Total Total 1 Average Reimbursement 1 Average Visits 1 

I 

60,483 1 7,796,641 $7,452 129 

^^ ’ 7,374,113 $5,969 124 

5,534,482 $3,329 56 

94,108 1 4,946,663 $3,385 53 

$4,399 

_, $2 _-,_ 987 t s-it I I =- -9, ’ 4,562;117 1 $4,707 79 

J7,“rr _I,/, I,“,., 

. ’ 3,180,825 $3,850 

3,579,627 $3,757 79 

34,883 2,293,206 $4,564 66 

49,829 1,854,381 $2,953 37 .-

1,914,602 $4,197 57 

1,744,537 $2,988 38 

35,640 I 1,739,504 1 $2,429 I 49 

NlC , I IL,““J Ll,bj, , I,JW,,L,,J , W,b4/ I I" 

19,195 1 1,211,596 1 $4,055 63 

1,410,561 I $1,583 I 37 

11,960 1 787,453 1 $4,732 66 II 

817,159 $4,169 65 

)7,869 1 17,524 748,666 $2,705 43 

12,626 827,436 $2,953 66 

13,264 1 415,050 1 $4,540 I 79 II 

7,768 1 326,003 $2,518 42 

1,974 1 90,338 $4,800 46 

I 

10,207 $4.594 60 

A-2 

II 

II 

II 

II 
-- 

MO NJ 1 I 369.893 1 1 $293.786.448 98,482 

, Qmi 

$371 

1 

-- 

104 

HHA SUMMARY DATA STATES SORTED BY TOTAL PATIENTS 

FOR 1995 

State Total I Total Total Total I Average Reimbursement I Average Visits 1 

MA 

TN , ~, ,- , 

NC 468,223 1 $330,0 28,822 1 991146 1 5.534.482 1 $3,329 56 

11 I GA I 418 561 QlR 

II LA II 897.294 ---7---1 _-_-(IL. 518,153 

180 1 

94,108 1 

101209,736 1 

4,946,663 1 

$5,480 

$3,385 I 

106 

53 II ___-,_604,845 1 84,095 1 12.064.526 I- $7,808 143 

AL 1 549,376 1 $453,834,415 81,565 1 9:766:686 1 $5,564 120 

VA 1 31X987 __-,___ I $245,974,060 72,8 29 1 3,758,603 1 $3,377 52 

588:527 I $525,999,053- 1 95.9 1 4:188:451 1 $2,983 43 

372,097 1 $312,954,991 71,141 5,592,118 i4.199 ,___ 19 

11 OK 1 495.363 1 $450 74’ --, .J,746 60,483 7,796,641 I.452

334,927 1 $211,726,968 1 59,6213 3,977,675 ‘,551 

II .__,

II KY ! 

MS I 

I 422495._- I $355,159,176 1 59,503 7,374,113 ,969 E ~- ,--- 695.871 1 57,721 4.562.117 T4,707 79 

MD 163,397 $147,-1:22,944 1 49,829 1 1,854,381 1 $2,953 37 

SC 216,685 $182,528,625 1 47,4104 1 3,180,825 1 $3,850 67 

WI 183,638 $127,119,783 1 46,720 1 1,981,404 1 $2,721 42 

WA 167.805 I $137248,931 1 45.926 , 1.744.537 1 $2,988 38 

II AR 1 273,556 1 $l70,554,835 1 45,393 1 3.579.627 1 $3,757 79 

II PR I 184,272 1 $60375,397 1 38,332 1 (410,561 1 $1,583 37 

IA 1 

co 1 

144,491 1 

160,774 1 

$86,559,442 1 

$159,199,686 1 35,640 

34,883 

1,739,504 

2,293,206 

$2,429 ! 49 

ll 

11 AZ 1 124.257 1 $141.433.666 _ I 33,697 1.914.602 

MN 1131175 $86,935,663 31,7: 

11 CT I 267.681) 1 __._(. ’ 

, 

KS 138,376 $111,786,864 29,900 1 1,821,852 1 

WV 155,911 $84,849,043 28,151 1 1,542,992 1 $3,014 I 55 II 

ME 112,663 $78,920,340 21,637 1 1,504,263 1 $3.647 70 

RI 92,245 $77,826,643 19,1!35 1 1,211,596 1 $4,055 63 

UT 106.5xn I $118,925,525 1 19,147 1 1.998.036 1 $6.211 .-7-m. I -_. 

OR 112,281 $90,4f 51,850 I 29.338 I ’ --,--- I 

NH 1 95,963 1 $56,346,863 1 17,558 1 1:162:998 1 $3.209 I 66 II 

NE 1 69.127 1 $47.397.869 1 17.5: 

A-3 
-- 

$3,014 55 

17.558 I 1.162.998 I -- I -- 

-- 

HHA SUMMARY DATA STATES SORTED BY TOTAL VISITS 

FOR 1995 

$6,744 I 119 

$7.808 143 II 

$5,480 106 II .- I 

81,565 1 9,766;686 1 $5:564 I 120 II 

7,374,113 1 $51969 I 124 II 

’ I __,__ 

7 1 $312,954;991 1 711141 I 5,592,118 1 $4,399 79 

NC 468:i23 $330,028,822 99,146 1 5,534,482 1 $3,329 56 

MO 438,561 $318,538,153 94,108 1 4,946,663 1 $3,385 53 

CT 267,680 $271,695,871 57,721 1 4.562.117 1 $4,707 79 

NJ 369,893 $293,7E16,448 1 98,482 1 411881451 1 $2.983 43 

KY 334,927 $211,726,968 1 59,623 1 3,977,675 1 $31551 6711 

VA 318 982 I “.-.-,-. $345 974 .,-..-nhn I 77 ,I,“-l wa I 174~ .,,,_IY,““d c;n~ I 421277 WJ,J, I 52 

AR 1 273,556 1 $170,554,835 1 45,393 3,579,627 $3,757 79 

47,404 3,180,825 $3.850 67 

.- I 

13,666 1 33,697 1 119141602 1 ii41197 I 57 II 

$21953 371 

$3,739 61 

$2.988 I 3x II 

$2:429 4911 

II ME 1 112,663 1 $78,920;340 1 21,637 ' 1 1,504,263 $3,647 70

PR 184,272 $60,675,397 1 38,332 1 1.410.561 $1.583 37 

MN 113,175 $86,935,663 31,721 1 1,342;319 1 $2:741 42 

RI 92,245 $77,826,643 19,lS15 1 1,211,596 1 $4,055 63 

NH 95,963 $56.346.863 291338 I l-109.631 I 1 $3.209 7--- I hfi II 

OR 112.281 I $90,461;850 1 $3.083 I 3x II IINM 1 88,288 1 $63,197,547 1 15,760 1 110441356 1 s4:010 I 66 ! II 

VT 76,165 $37,284,37x _,- ' 

' 

17 -I,vIy 67~. 1 

877,159 1 

II"27,436 

$4,169 

$2,953 

65 

66 

II 

NV 43.171 ~~~ $56.590.' _mm,_--7722 11,960 787,453 $4,732 66 

NE 69,127 $47,397,869 17,524 748,666 R? -_,. 7114 _I I A?.< 

MT 46,152 $32,342,351 10,351 540,432 $3.125 .~, 52 

DE 38,376 $28,865,907 9,843 478,895 $2,933 I 49 I 

WY 23,882 $23,883,264 5.261 415 nsn 

ND 34,782 $20,619,203 8,485 382,079 $2,430 I 45 

SD 32,855 $19,557,153 7,768 326,003 $2.518 42 II 

ID 68,267 $56,047,308 1 13.4413 1 

.__,I__ $4 5AO I 70 II 

DC 21,029 $21,439,998 6,717 258,496 $31192 I 38 II 

HI 18,207 $20,154,084 4,702 244,968 $4,--- I I286 I 57 II 

AK“1 fz<c; 7,638 $9.475.697 1.974 90.338 $4.800 I 46.- II I 

$780,953 1 '170 1 lo:207 1 i4:594 60 

A-4 
-- 

. . . . . . . . . . . 

__. 

AiT HI 1 174757 -- 1 - - - 1 71697 244,968 $4,286 52 

HHA SUMMARY DATA STATES SORT‘ED BY AVERAGE REIMBURSEMENT 

PER PATIENT FOR 1995 

“L&.&ITotal I Total 1 Total 1 Total 1 Average Reimbursement I Average Visits 

Claims Reimbursement Patients Visits per Patient per Patient 

II LA I 897.294 I~~ 1 $656.604.845 ..- ~,.. ,- .- 1 X4 - .,- 095 12,064,526 $7,808 143

OK 495,363 $450,743,746 60.4183 , 7.796.641 , $7.452 I , , 129

.:; ,.... I,.,.....,,.... .. .. . .... . . . 

TN 741,475 $747,043,282 110,771 13,157,404 $6,744 119 

UT 106,580 $118,925,525 19,147 1,998,036 $6,211 104 

MS 422,495 $355,159,176 59,503 7,374,113 $5,969 124 

AL 549,376 $453,834,415 1 81,565 1 9,766,686 1 $5,564 1 120 II $5 480 I 106 II 

.,..,.,.j,.....,., ji.j~~~~Biiiii~,i~~~~~R:~~~~~~~~~ .\.:.......... iiaijii*g$ ~~~i:~~~~~~~~~~ ~~;~~~~~~~~~~~~~~~~ :ir:iii-iii-;:i,~~~:i:.ii~~:a9l’i.iiiiiiiiiiiiiiiiii~ ..s::.: .,.. . ... ...A ..,,...... 

AK 7.638 $9.475.697 1.974 I 90.338 1 $4.800 , I 46 II ,I IINV 1 43,171 I $56,590,722 1 11,960 787,453 $4,732 66 

CT 267,680 771 _,___,_ h9T X71_ 1 _ 57 , 721 . 4,562,117 $4,707 79

194 11.231.546 $4.696 93 

II v1 ! 

II 

656 1 $780,953 1 170 1 10,207 1 $4,594 60 II 

co 160,774 $159,199,686 34,883 I 2.293.206 l $4.564 I 66 II 

WY 23,882 $23,883,264 5,2.. , ._- ,___ , _ .,_ . I 

IN 372,097 $312,954,991 71,141 1 5,592,118 1 $4,399 I 79 II 

.-- 1 --18,207 , I _6141 $20,154,084 - -,AZ?"-(hhh 1 -4,702 I). 1,914,602 $4,197 57

ID 68,267 $56,047,308 13,4143 , 877.159 ,~~.$4.169 

_ ,~~ 65

RI 92,245 $77,826,643 19,195 1 1,211,596 1 $4,055 I 63 

NM 88.288 $63.197.547 15.760 1 1.044.356 1 .+ ed .,“..-nln hh YI II I 

$3,850 I 67 

$3.757 79 II 

V”,Y, . I 

I RZ 647 I 713 II 

MO 438,561 $318,538,153 94,108 4,946,663 $3,385 I 53 II 

VA 318,982 $245,974,060 72,829 3,758,603 $3,377 52 

NC 468,223 $330,028,822 99,146 5,534,482 $3,329 56 

NH 95,963 $56,346,863 17,558 I”_ ’ 1 

_,___, 167 998 __- I w I”,___ 309 I hh 

__ II I 

121 ,I 777n724 I $3,198 I OH 642,806 $466,023,099 145,;-_ ,. _,._ 53

DC 21,029 $21,439,998 6,717 1 258,45 $3.192 38 I 

167,805 1 $137,248,931 1 45,926 1 1,744,537 1 $2,988 38 II 

$37,284,27q 12,626 ] 827,436 1 $2,953 66 II 

,119,783 1 46,720 1,981,404 $2,721 42 

17 524 748,666 $2,705 43 

lh8 ‘32h M? m51x 42 

A-5 
-- 

415,050 1 $4,540 

HHA SUMMARY DATA STATES SORTED BY AVERAGE VISITS 

PER PATIENT FOR 1995 

1 Otal Total Total Average Reimbursement Average Visits 

I Llalrns Reimbursement Patients Visits per Patient per Patient 

II LA 1 897 394 $656,604,845 84,095 12.064.526 $7.808 lA? 

‘86 1 $5,564 I 120 

110,771 I 13:157.404 I $6.744 114 II 

$6,211 I 104 II 

79 

51 1 3,579,627 1 $3,757 I 79 II 

Y 3.850 I 67 II II VT ~~ i 7hIhS I

NV 1 

_-,_-- II co~~i lfirl774 I __ 

877,159 1 $41169 I 65 II 

---,-,” Y $3,739 61 II ~~~ VT i 0 10,207 $4,594 60 

17 1,914,602 $4,197 57 

$330,028,822 1 99,146 5.534.482 $3.329 

_-

I 52 II 

10,351 1 ‘540,432 , $3,125 

__,_. 52

~~i 38 

-, 

376 I ’ 

126,675 1 6,268,031 $3,694 49 II DE 478,895 $2.933 49 

AK 7,638 $9,475,697 1,974 90,338 $4,800 46 

PA 921,427 $697,116,831 223,913 10,108,911 $3,113 45 

ND 34,782 $20,619,203 8,485 382,079 $2,430 45 

NE I 69 v,,Ie, 177 ‘647.39;1,869 1 17,524 1 748,666 1 $2,705 43 

NJ 1 369,893 1 $l!93,786,448 98.48 2 1 4,188,451 1 $2,983 43 

SD I 32.855 ,~~. 1 9

319,557,153 7,768 326,003 $2,518 42 

MN 1 113,175 I $86,935,663 31,721 1,342,319 $2,741 42 

WI - - I I 1x1 - - - , h?R I v.QI27,119,783 46,720 1,981,404 $2.721 42 

OR 112,281 1;90,461,850 29.338 1,109,631 $31083 38 

DC 21,029 $21,439,998 6.717 258,496 $3,192 38 

WA 167,805 $137,248,931 45,926 1,744,537 $2,988 38 

MD 163,397 $147,122,944 49,829 1,854,381 $2,953 37 

PR 184,272 $60,675,397 38,332 1,410,561 $1,583 37 

A-6 
----- 

APPENDIX B 

ACOMPLEXCORPORATEWEB 

Own CDE Home 

Health 

TERMINATJZD 

Own a medivan Owners came fern 

mmpany XYZ Home Health

Owners: Husband, wife 

and three friends TERMINA’IED 

Hired relatives 

SAMPLEHomeHealth 

Uses consultants Contracts with 

similar therapy 

companies 

IJK 

Home Health 

Referring physicians 

refer to other 

problem providers 

LMN 

Home Health 

B-l 
APPENDIX C 

The OIG, in conjunction with other Federal, State, and local law enforcement agencies, has 

conducted numerous successful fraud investigations and audits regarding the home health 

benefit before and during Operation Restore Trust. A synopsis of some of the cases that 

were completed during the past 2 years follows. The summaries are in no particular order. 

They represent cases that were not included in our sample of 60 problem home health 

agencies. 

b An employee of an HHA in Missouri was sentenced to 21 months imprisonment and 

2 years of probation and was ordered to pay $6000 in restitution after pleading guilty 

to making false Medicare claims. Over a 2-year period, the employee misrepresented 

herself as a licensed social worker. The HHA owner allowed the employee to 

perform psychiatric services on nursing home patients, but billed Medicare as if the 

owner had performed the services. Overpayments amounted to $23,000. 

b The co-owner of a Washington D.C. HHA was sentenced to 27 months in prison and 

ordered to pay full restitution of $100,000. The HHA defrauded the Medicare and 

Medicaid programs by billing for 1450 skilled nursing visits in a lo-month period for 

which there were neither time slips nor nurses’ notes. It also billed for hospitalized 

patients. Another co-owner was also convicted disappeared after escaping from a 

detention center assignment. 

b The former owner of a Texas HHA was sentenced to 27 months incarceration after 

pleading guilty to presenting false claims to Medicare. The owner was indicted for 

billing for visits which the HHA did not make. This combined with the owner’s prior 

State conviction for embezzlement led to the lengthy sentence. The HHA billed for 

$49,000 in fal se claims during the first 6 months of business. 

b Two owners/operators of a Las Vegas HHA pleaded guilty for attempting to defraud 

the Medicare program. The owners tried to set up an Arizona HHA by offering a 

physician an arrangement for compensation, They agreed to hire the physician’s 

husband in exchange for Medicare referrals. The owners also submitted false 

information during the Medicare certification process. 

F The owner and owner’s brother/employee of a Texas HHA agreed to pay $20,000 to 

resolve civil liability for submitting fraudulent Medicare cost reports. They conspired 

to include false expenses for medical supplies, office supplies, and automobile leases 

on the cost reports. The brother was president of a medical supply company that sold 

products to the HHA at a 100 percent markup. The brother also altered invoices for 

supplies that weren’t purchased and fabricated automobile lease contracts from 

vendors who did not lease automobiles. 

b In Utah, HCFA obtained $149,490 from an asset seizure related to an earlier civil 

judgment against the owner of nine HHAs in seven States. The owner had pleaded 

C-l 
guilty to criminal charges related to false claims, kickbacks, and income tax fraud. 

The owner set up a billing company for the HHA without revealing the relationship 

between the two companies, claimed costs for ghost employees, paid kickbacks, and 

omitted income on tax returns for 1990 through 1994. The Medicare overpayment 

totaled $3.5 million. Sentencing will be in June 1997. 

F The owner of two Texas HHAs pleaded guilty to one count of making false 

statements in a Medicare cost report. Charges against the spouse and son were 

dismissed. The owner agreed to pay $794,700 in restitution and to forfeit the 

building housing one of the HHAs. Sentencing is scheduled for May 1997. 

F Both the president and administrator of a California HHA pleaded guilty to fraud and 

conspiracy in a Medicare scheme. Over a 17-month period, they submitted false 

claims totaling up to $2.5 million, paid kickbacks for Medicare referrals, created 

fraudulent medical records documenting home visits, and submitted false cost reports. 

Altogether the two had billed Medicare more than $9.9 million for more than 

88,900 visits to 680 beneficiaries, some of whom were deceased, and were paid 

$5.6 million by Medicare. The president did not have a health care background, but 

was instead a former nightclub owner. The president started the agency with a 

registered nurse friend who left soon after Medicare certification. The administrator 

was also a former nightclub manager. 

b The former owner of a Michigan HHA pleaded guilty to defrauding the Medicare 

program. The owner failed to disclose related organizations on the cost report and 

lied during the certification process, saying that the agency had a medical director. 

Medicare paid the agency a total of $3.4 million. 

b The owner/president, the vice president, and the risk manager for a Georgia HHA 

were sentenced to Medicare, Medicaid, and other fraud. The founder and CEO, who 

pleaded guilty to charging Medicare and Medicaid for campaign contributions, ghost 

employees, and personal vacation trips, was sentenced to 33 months incarceration 

followed by 200 hours community service. He also was fined $25 million and 

ordered to pay $11.5 million in restitution. The vice president was sentenced to 

151 months incarceration and 3 years of probation, fined $75,000, and ordered to 

repay $710,000. The vice-president was convicted of making false statements about 

salaries for ghost employees and a related organization, converting worker’s 

compensation premiums to personal funds, using Medicare funds to support a 

consulting business, embezzling employee health insurance and benefit plan funds, 

committing bank fraud, and laundering money. The risk manager was sentenced to 

97 months incarceration and 3 years of probation after being convicted of mail fraud 

and conspiracy to defraud the Medicare and Medicaid programs. The risk manager’s 

consulting business was sentenced to 5 years of probation, fined $250,000, and 

ordered to pay restitution of $710,000. 

c-2 
F The owner of a now-defunct HHA was arrested in Texas after being indicted for 

charges related to Medicare fraud. The owner had written off more than $3.5 million 

in fraudulent expenses in cost reports from 1991 through 1994. 

F An accountant pleaded guilty to submitting fraudulent cost reports to Medicare. A 

joint investigation by 01 and the FBI led to a negotiated plea by the accountant. He 

agreed to cooperate with the Government in investigating the HHAs involved. One 

HHA owner reported being approached by the accountant with a scheme in which 

employee bonuses would be counted on the cost report and then kicked back to the 

owner. 

b A Michigan HHA owner was sentenced to 5 months house arrest and ordered to pay 

$18,000 for h’is part in a Medicare fraud scheme. The owner sold the HHA to 

another HHA, but all documents relating to the sale and employees were backdated. 

The backdating allowed the acquiring HHA to bill Medicare for all care provided by 

the original owner’s HHA, thereby covering all acquisition costs. In addition, the 

original owner received a salary of $5,000 a month, although the owner did not 

perform services commensurate with the payments. This salary was charged to 

Medicare. 

b A Missouri HHA owner/operator was indicted for mail fraud, forgery, and Medicare 

fraud. The former owner allegedly submitted false statements to HCFA to obtain a 

Medicare provider number. Between 1991 and 1994, the owner used the provider 

number to accrue $1.5 million in Medicare overpayments. The owner has also been 

charged with submitting inflated expenses on cost reports and forging a physician’s 

signature in order to receive Medicare payments totaling $100,000. 

b The owner of two Pennsylvania HHAs was sentenced to 2 years probation, assessed 

$50, and ordered to perform 100 hours of community services. The owner submitted 

claims for personal expenses, such as hotel stays, meals, flowers, clothing, and 

placing her husband and nanny on the company payroll. Because of the owner’s 

financial situation, no civil action will be taken. However, on the basis of a Medicare 

carrier review, $300,000 was withheld and retained by the program. 

b Blue Cross of Illinois disallowed $454,220 in consulting costs claimed by a consulting 

company. The intermediary also disallowed compensation costs claimed by two 

HHAs for services rendered by individuals associated with the consulting company. 

It also is reopening the 1991 cost report looking to disallow $175,000. Blue Cross of 

California and Iowa have already disallowed costs totally $636,800. Intermediaries in 

Pennsylvania and Florida are also looking into the situation. The costs have been 

disallowed because the providers cannot demonstrate that services were rendered to 

the extent billed, that they were related to patient care, or that the providers actually 

worked at the site. This is an on-going ORT case. 

�  The owner of a Louisiana HHA was sentenced to 5 years probation and ordered to 

repay $119,000. The owner listed expenses of a costume shop and a magazine that 

c-3 
the individual owned in the HHA’s cost report. Expenses included payroll, leases, 

telephone services, and advertising. 

b The owner of a Louisiana HHA, four employees, and one personal friend defrauded 

Medicare by submitting false cost reports, concealing financial transactions with 

fictitious corporations, forging physician signatures on certificates of medical 

necessity, claiming services that were never rendered, and submitting claims for 

services to non-Medicare qualifying individuals. The owner was sentenced to 

37 months in prison and ordered to make restitution of $221,220 to the Department 

for conspiracy, false statements, and mail fraud. The administrator, quality assurance 

coordinator, staff coordinator, and licensed practical nurse were also sentenced to 

prison, with terms ranging from 3 to 18 months and ordered to pay restitution and 

fines totaling $67,370. A personal friend who allowed the owner to use the friend’s 

name in the fraud scheme was sentenced to 3 months and ordered to make $62,270 in 

restitution. All were given 3 years supervised release following their prison terms. 

w A recently issued audit, conducted by the OIG and Blue Cross of California, reviewed 

a sample of 100 claims for which a California HHA received Medicare monies. The 

100 claims represented 1,895 visits to 92 beneficiaries. Of those, 1,214 visits, or 

64.1 percent, were deemed unallowable. Reasons included beneficiaries who were 

not homebound, services claimed that were not reasonable and necessary, services 

provided without valid physician orders, and services without supporting 

documentation. Approximately $2.2 million were estimated to be unallowable. 

c-4 
APPENDIX D 

AGENCY COMMENTS 

The full text of comments received from the Health Care Financing Administration, 

the Office of the Assistant Secretary for Planning and Evaluation, and the Office of the 

Assistant Secretary for Management and Budget. 
DEPARTMENT OF HEALTH & HUMAN SERVICES 

JUL 2 I 199-i' 

DATE: 

TO: June Gibbs Brown 

Inspector General 

FROM: Bruce C. Vlade 

Administrator 

Health Care 

Financing-Administration 

Memorandum 

SUBJECT: Office of Inspector General (OIG) Draft Report entitled: “Hom&Ieahh 

Problem Providers and Their Impact on Medicare,” (OEI-09-96-00110) 

We reviewed the above-referenced report that identifies and describes the common 

characteristics of problem home health agencies, and how these agencies, contribute to 

Medicare fraud, abuse, and waste. 

Our comments are attached for your consideration. Thank you for the opportunity to 

review and comment on this report. 

Attachment 
Health Care Financing Administration (HCFA) Comments on 

the Office of Inspector General (OIG) Draft Reuort entitled: “Home Health 

Problem Providers and Their Impact on Medicare.” (OEI-09-96-00 1101 

OIG Recommendation 

To protect the Medicare home health benefit, HCFA needs to develop and implement 

additional program safeguards that would (1) strengthen its ability to identify problem 

providers; (2) prevent problem home health agencies (HHAs) from entering the program; 

and (3) prevent the Medicare trust fund from incurring further losses due -tothe activities 

of problem HHAs. HCFA should take administrative action or, if necessary, seek 

legislative authority to: 

Require that each HHA obtain a surety bond equal to the amount of anticipated Medicare 

billings during its fiscal year. Should the HHA’s claims exceed the amount of the bond 

before a cost report has been filed and audited, the HHA should be required to increase 

the amount of the surety bond accordingly. The cost of the bond should not be 

considered a reimbursable expense for Medicare cost reporting purposes. 

HCFA ResDonse 

We concur. Bonding provides a higher level of scrutiny before HHAs are permitted to 

participate in the Medicare program. 

OIG Recommendation 

Require “‘userfees,” so that new and existing Has are required to pay for their initial 

certifications, comprehensive on-site reviews, and recertifications. If this is not possible, 

we believe theallocation of additional resources to the certification and monitoring effort 

by the fiscal intermediaries, state agencies, and HCFA regional offices will pay for itse& 

because it will substantially reduce, or even eliminate, the continued accrual of 

uncollectible overpayments as well as payments for noncovered and medicallyunnecessary services. 

HCFA Response 

We concur. HCFA agrees and supports such a proposal. 
2 

OIG Recommendation 

Require the majority of the HHA’s principals have prior health care experience directly 

related to the provision of home health services in order to receive Medicare certification. 

HCFA Response 

We concur. The current HHA conditions of participation at 42 CFR 484.4 prescribe the 

personnel qualifications for the administrator. The CFR states: “Administrator, home 

health agency. A person who: (a) Is a licensed physician; or (b) Is a registered nurse; or 

(c) Has training and experience in health service administration and at least 1 year of 

supervisory or administrative experience in home health care or related home health 

programs.” HCFA published in the Federal Register on March 10,1997, a proposed 

revision to the conditions of participation at 42 ‘CFR484.4 to read: “The administrator of 

a home health agency must: (i) Be a licensed physician; or (ii) Hold an undergraduate 

degree and (A) Be a registered nurse; or (B) Have education and experience in health 

services administration, with at least 1 year of supervisory or administrative experience in 

home health care or a related health care program, and in financial management.” 

OIG Recommendation 

Develop a data bank of owners, principals, and other HHA officials and related 

organizations so their activity can be monitored, tracked, and cross-referenced. 

HCFA Response 

We concur. The new provider enrolhnent process, which includes a new national 

enrollment application for Part A and Part B providers, will provide HCFA with a 

comprehensive profile of all Medicare providers. It will allow Medicare to screen 

applicants before they are authorized to receive payments for services because it requires 

contractors to verify all data provided on the application; e.g., licensure information, prior 

sanction or exclusion information, place of business, ownership information, billing 

contracts, tax identification data, etc. The new application will collect information on 

owners, principals, and managing and directing employees of HHA organizations. The 

revised enrollment application will be implemented for initial use by Part A providers in 

July 1997. In conjunction with the new application, HCFA will develop and implement 

the Provider Enrollment, Chain, and Ownership System. This database will consolidate 

ownership data collected on the enrollment application by Medicare contractors and the 

National Supplier Clearinghouse. Similar to the enrollment application, this database will 

contain national data on Part A (owners and managing employees) and Part B providers. 

We expect to implement this system by the end of calendar year 1997. 
3 

OIG Recommendation 

Require all HHA owners and principals to provide their individual Social Security 

numbers and Employer Identification numbers when they submit an application to 

become Medicare providers. 

HCFA ResDonse 

We concur. We support this recommendation. 

OIG Recommendation 

Prior to certification.,ensure that new HHAs are financially sound and have adequate 

fiscal recordkeeping capabilities and their owners and principals are qualified and 

trustworthy. This should be accomplished through a comprehensive on-site review by an 

interdisciplinary team of auditors, medical reviewers, and state surveyors. 

HCFA Response 

We partially concur. While we agree with the intent of the recommendation, we believe 

the provisions in the President’s Medicare and Medicaid Fraud, Abuse, and Waste 

Prevention Amendments of 1997, take a more appropriate approach in addressing 

problem HHAs. 

: 

OIG Recommendation 

Refuse to enter into a provider agreement with any HHA whose owners or principals: 

-...ZS--’ 

owe money to the Federal Government in the form of Medicare 

overpayments, tax liens, or unpaid loans; 

have filed bankruptcy or have negative credit ratings; 

have prior criminal records; and/or 

have been associated wi9 erg are the relatives of the owner of a Medicare 

provider who was found to defraud, abuse, or otherwise misappropriate 

Medicare dollars. 
4 

H&A Resnonse 

We partially concur. While we agree we should refuse to enter into provider agreements 

with HHAs whose owners and principals do not live up to certain financial standards, we 

believe the provisions in the President’s Medicare and Medicaid Fraud, Abuse, and 

Waste Prevention Amendments of 1997take a more appropriate approach in addressing 

problem HHAs. 

OIG Recommendation 

Preclude the discharge of Medicare debts through bankruptcy. 

HCFA Rewonse ---. 

We concur. The President announced legislative proposals to fight fraud and-abuse in 

health care, including precluding individuals and entities from discharging Medicare 

debts through bankruptcy. 

OIG Recommendation 

Impose a moratorium on any new HHA certifications until adequate program safeguards 

are implemented, unless the HHA can demonstrate that it will be operating in an 

underserved area. 

HCFA Resoonse 

We nonconcur. HCFA has the responsibility to establish and implement adequate 

program requirements and safeguards. Ifan HHA is able to comply with these 

requirements, it should be allowed to enter the Medicare program. 

OIG Recommendation 

We also reiterate our previous recommendation that HCFA should: 

Tighten controls over the periodic interim payment (PIP) program, more closely monitor 

HHAs that are on PIP, and seek legislation to eliminate this method of reimbursement. 
5 

HCFA Response 

The President announced, as part of his Balanced Budget Act of 1997, the elimination of 

PIP for HHAs effective on or after the implementation of HHA Prospective Payment on 

October 1, 1999. We support the President’s Medicare and Medicaid Fraud, Abuse, and 

Waste Prevention Amendments of 1997. 

: 

---.-..-_. 
DEPARTMENT OF HEALTH & HUMAN SERVICES Office of the Secretary 

Washingtpn, D.C. 20201 

JUN 1 0 1997 

TO: June Gibbs Brown 

Inspector General , 

FROM: David F. Garrison 

Principal Deputy Assistant Secret& 

for Planning and Evaluation 

SuE3JECT: OIG Draft Report: “Home Health: Problem Providers and Their Impact on 

Medicare,” OEIO9-96-00110 -- CONCUR WITH COMMENTS. 

I concur with this report and submit the following comments. 

My staffmet with your staff in March of 1997 to discuss this report. Though ASPE is quite 

pleased with the changes that the IG has made, we continue to be concerned that the report can 

be confusing if the reader is not familiar with the history and evolution of the home health 

benefit. 

Specifically, we are concerned that one might conclude that all post-1989 home health visits by 

the sampled problem providers in the five ORT states were fraudulent. ASPE recommends that 

the IG make the following changes: 

1. The fmdings on page ii of the Executive Summary that refers to the home health program 

benefit expansion and the lack of restrictions on certification could be contusing to the 

reader. The report implies that all post-1989 utilization is suspect when in fact the 

Duggan settlement liberalized the home health eligibility criteria and the availability of 

services. The Duggan case is relevant to the post-1989 growth in costs, utilization and the 

number. of Medicare-certified HHAs. A sentence should be inserted here that explains 

how the home health benefit changed substantially as a result of the Duggan v. Bowen 

lawsuit. 

2. Similarly, in describing that 45 percent of all Medicare expenditures for home health 

services went to the problem providers in the five ORT states, the reader might conclude 

that the provision of these services were somehow fraudulent or unnecessary. The IG 

should insert a sentence explaining that though it is clear that problem providers may 

have taken advantage of the liberalization in the benefit since 1989, this does notmean 

that all visits provided to these patients by these providers were “problem” or 

unnecessary visits. 
�  . 

Page 2 - June Gibbs Brown 

3. The first sentence on page 12 of the report -- “In 1989, Congress enacted changes...” is 

not correct. Please insert the following sentence: 

“On July 1,1989, regulatory revisions to the home health benefit as a result of the 

Duggan v. Bowen lawsuit became effective. The Duggan decision resulted in easing 

barriers-to program participation and expanding the types of services provided to 

beneficiaries.” 
DEPARTMENT OF HEALTH & HUMAN SERVICES Office of the Secretary 

Washingtqn, DC. 20201 

JUN I7 1997 

iii; i-,,: :. ;.)(‘i~‘T~*‘* MEMORANDUM TO: The Inspector General GEf:lE14,f,L 

Attention: June Gibbs Brown 

FROM : John J. Callahan 

Assistant Secretary for Management and Budget 

SUBJECT : Concur with Comment: OIG Draft Report: “Home Health: 

Problem Providers and Their Impact on Medicare” 

- ac,i-~9-9&-6twO _-_. 

ASMB commends the OIG for its strong recommendations for combating Medicare 

fraud, waste, and abuse in the home health benefit , as outlined in this draft report. 

However, since this draft report was written, Congress has offered several proposals.as 

part of Medicare reconciliation legislation that would address some of the OIG’s 

concerns. Furthermore, the current draft does not completely recognize all the 

President’s legislative proposals to address home health fraud. In order to ensure that 

the OIG final report is as timely as possible, ASMB suggests that OIG rewrite its 

recommendations section to acknowledge the following: 

�  Both the President and Congress are recommending elimination of periodic 

interim payments (PIP) upon implementation of a home health prospective 

payment system in FY 2000. 

0 The President has proposed giving the Secretary authority to exclude Medicare 

certifications to provider applicants convicted of a felony. 

0 Congress has proposed Medjcare legislation that would require surety bonds for 

home health agencies. 

0 . Congress has proposed Medicare legislation that would exclude health entities 

from participating in Federal health programs if ownership of the entity is 

transferred to an immediate family member in anticipation of, or following, a 

conviction