U.S. GOVERNMENT PRINTING OFFICE

64–027CC WASHINGTON : 2000

THIRD-PARTY BILLING COMPANY FRAUD:

ASSESSING THE THREAT POSED TO MEDICARE

HEARING

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

APRIL 6, 2000

Serial No. 106–97

Printed for the use of the Committee on Commerce

(

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COMMITTEE ON COMMERCE

TOM BLILEY, Virginia, Chairman

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

MICHAEL G. OXLEY, Ohio

MICHAEL BILIRAKIS, Florida

JOE BARTON, Texas

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

Vice Chairman

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

STEVE LARGENT, Oklahoma

RICHARD BURR, North Carolina

BRIAN P. BILBRAY, California

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

CHARLIE NORWOOD, Georgia

TOM A. COBURN, Oklahoma

RICK LAZIO, New York

BARBARA CUBIN, Wyoming

JAMES E. ROGAN, California

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi

VITO FOSSELLA, New York

ROY BLUNT, Missouri

ED BRYANT, Tennessee

ROBERT L. EHRLICH, Jr., Maryland

JOHN D. DINGELL, Michigan

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RALPH M. HALL, Texas

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

RON KLINK, Pennsylvania

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

TOM SAWYER, Ohio

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

THOMAS M. BARRETT, Wisconsin

BILL LUTHER, Minnesota

LOIS CAPPS, California

JAMES E. DERDERIAN, Chief of Staff

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

FRED UPTON, Michigan, Chairman

JOE BARTON, Texas

CHRISTOPHER COX, California

RICHARD BURR, North Carolina

Vice Chairman

BRIAN P. BILBRAY, California

ED WHITFIELD, Kentucky

GREG GANSKE, Iowa

ROY BLUNT, Missouri

ED BRYANT, Tennessee

TOM BLILEY, Virginia,

(Ex Officio)

RON KLINK, Pennsylvania

HENRY A. WAXMAN, California

BART STUPAK, Michigan

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

3

C O N T E N T S

Page

Testimony of:

Aronovitz, Leslie G., Associate Director for Health Financing and Public

Health Issues, U.S. General Accounting Office .......................................... 13

Burleigh, Robert B., Vice President, PractiCare ............................................ 29

Hast, Robert H., Acting Assistant Comptroller General, Office of Special

Investigations, U.S. General Accounting Office ......................................... 9

Morris, Lewis, Counsel, Office of the Inspector General, Department of

Health and Human Services, accompanied by Steve Lack, Special

Agent .............................................................................................................. 18

Thompson, Penny, Director, Medicare Program Integrity Group, Health

Care Financing Administration ................................................................... 25

Material submitted for the record by:

Bliley, Hon. Tom, Chairman, Committee on Commerce, letter dated

March 14, 2000, to Penny Thompson, Director, Program Integrity

Group, Health Care Financing Administration, requesting response for

the record ....................................................................................................... 62

Thompson, Penny, Director, Medicare Program Integrity Group, Health

Care Financing Administration, letter dated March 30, 2000, to Hon.

Tom Bliley, enclosing response for the record ............................................ 63

(III)

(1)

THIRD-PARTY BILLING COMPANY FRAUD: ASSESSING THE THREAT POSED TO MEDICARE

THURSDAY, APRIL 6, 2000

HOUSE OF REPRESENTATIVES,

COMMITTEE ON COMMERCE,

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2322, Rayburn House Office Building, Hon. Richard Burr (presiding).

Members present: Representatives Burr, Bryant, Stupak, Green,

and Strickland.

Staff present: Chuck Clapton, majority counsel; Amy Davidge,

legislative clerk; and Chris Knauer, minority investigator.

Mr. BURR. The Chair will call this hearing of the Oversight and

Investigations Subcommittee to order.

I would like to take this opportunity to welcome our witnesses

today, some of whom have previously been before us.

The purpose of today’s hearing is to look at the third-party billing company fraud that exists within the Medicare billing process.

We are delighted to have with us a number of witnesses to testify.

This hearing will be limited to one panel. I know that we have got

members who will be in and out, so please be patient with us as

we try to accommodate whatever questions they might have.

For the purposes of an opening statement, the Chair would recognize himself and all members who wish to make one and would

also ask unanimous consent that any member who wishes to enter

an opening statement that is not here would be permitted to do so.

Without objection, that will be so ordered.

Today’s hearing is about determining whether HCFA is doing an

adequate job of protecting Medicare from fraud and abuse by thirdparty billing agencies. Across America, the population of companies

that represent medical providers from the standpoint of processing

their billing information for the purposes of reimbursement to the

Health Care Financing Administration has grown dramatically.

Today we will hear how a woman using one of the third-party

billing agencies in Texas was able to submit $1.3 million in false

claims, which was never detected by the Health Care Financing

Administration. This raises a great question for this subcommittee,

for Congress, and for the American people. The Office of the Inspector General at HHS will also tell us about several cases they

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investigated where a third-party billing agency was able to steal

millions of dollars from Medicare.

I will take this opportunity to say the purpose of this hearing is

not to bash the Health Care Financing Administration. It is to educate us more clearly about this third-party billing industry that has

emerged in America, to determine what additional procedures

should be in place at the Health Care Financing Administration

that have not existed up until this point. We should insure that everybody involved in the process has the comfort level of knowing

that gaming the system is not quite as easy as it seems to be right

now.

Let me say that even the IRS, which is not known for its efficiency, requires the preparers of tax returns identify themselves

with an identifying number. One of the most troubling pieces of

this challenge that we have before us today is that we do not currently have any type of identifier that follows a third-party biller.

A third-party biller can contract with multiple physicians, yet the

identifier that the Health Care Financing Administration sees is,

in fact, the physician’s, and not the third-party biller’s.

One of the questions I hope to get an answer to is how many

third-party billers exist in the country today. Clearly, our hope is

that, between the members of this committee, we can work to make

sure that the right type of procedures are in place at HCFA that

assure us that the future is not one where fraud and abuse is such

an opportunity. In fact, what we can do is shepherd third-party

billing companies to be honest entities providing a very valuable

service for the reimbursement process that many health care entities do not have the manpower, the time or the expertise to do.

I would be remiss if I did not take this opportunity to say that

third-party billers have been created for a number of reasons, but

probably the biggest is because of the confusion and difficulty faced

by physicians attempting to understand the rules and regulations

that HCFA sets out for them. Congress is partly responsible for

that very massive undertaking that each physician is faced with.

I have made the comment many times that physicians in North

Carolina, in the absence of being able to understand the constant

changes in our health care regulations, turn to the business schools

of many universities and hire that MBA student to come in and

run their medical practice from the standpoints of the administrative and billing side.

The biggest problem they have today is now that same MBA is

walking into the physician’s office saying, I can’t do this any more,

because I can’t figure it out. I can’t assure you with any degree of

confidence that I have kept you out of that gray area that somebody might want to chase that we commonly refer to as fraud and

abuse.

I am confident that we can find a satisfactory conclusion to this

current problem, but my hope also is that we can in the future

build a system that is easier to understand, simpler for all involved, and, more importantly, focuses more on the beneficiaries

who are covered under Medicare than the process of paying claims.

At this time, the Chair would recognize Mr. Bryant for an opening statement.

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Mr. BRYANT. I thank the chairman, and I thank the chairman for

conducting this hearing. I thank the panel of witnesses. My statement will be brief.

I have been in Congress as long as the chairman has, but this

is really my first tour of duty on Commerce. It seems to me the

short time I have been on Commerce, we have been at this hearing,

this type of hearing, over the fraud in Medicare and abuse a couple

of times. This may even be the third time we have been up here

on some aspect of it.

I fully appreciate the complexity of everything involved in Medicare, the size, the amounts of money we are dealing with, the number of people necessary to handle this, but I would echo what our

Chairman has said that we are all wanting the same thing out of

this, and it seems to me we ought to be able to get a handle on

this. By bringing in third-party payers and intermediaries, I assume that was done to make this process work better, but it appears that, to some extent, we have just added somebody else in

the system who can cheat and steal from us.

I appreciate very few of the people in the big picture do this, but

the ones that do it do it in significant amounts. It just seems to

me we have got to find a way to better account and oversee all the

parties involved in this.

I know, in reading some of the materials in preparation for this

hearing, it seems we have not done much with this intermediary

group of third-party payers, and, of course, we are now starting to

see the results, or at least catching some of these folks.

Again, I am going to stop now. I know Mr. Stupak is here and

has a statement to make, and I am very interested in hearing what

each one of you has to say. If you have got any comments you can

make in terms of how Congress can help you do your job, particularly from HCFA, we would appreciate it. But, again, I thank all

of you for taking your time to come today. I look forward to your

testimony.

Mr. Chairman, I yield back balance of my time.

Mr. BURR. The gentleman from Michigan.

Mr. STUPAK. Thank you, Mr. Chairman. I will be very brief. I

don’t have an opening statement. I am here interested in hearing

the witnesses today.

I am familiar with this third-party payee system and how sometimes innocent doctors get caught in the billing practices where

they give to a third-party, who then bills Medicare and then, unfortunately, we have some problems. That is what we are going to get

at today and how best to address it. I am not here looking to put

blame on anyone but trying to get answers to the serious situation.

Mr. Chairman, with that thought in mind I would like to enter

into the record, if I may, a GAO report dated June 2, 1999, to the

Honorable John Dingell, ranking minority member on this side of

the aisle. This side, as the majority, has been concerned about the

third-party billing claims, submitting claims, and if there is fraud

and abuse going on in that area. Mr. Dingell has a report from

GAO, and I would like to make that part of the record with your

acceptance of this report.

Mr. BURR. Without objection, so ordered.

[The information referred to follows:]

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6

7

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Mr. STUPAK. I yield back my time. Thank you.

Mr. BURR. I thank the gentleman from Michigan.

[Additional statement submitted for the record follows:]

PREPARED STATEMENT OF HON. TOM BLILEY, CHAIRMAN, COMMITTEE ON COMMERCE

Chairman Upton, thank you for holding this hearing today. This hearing builds

on the work this Committee has done to reduce fraud in the Medicare program. Serious questions have been raised about what the Health Care Financing Administration is doing about third party billers, and whether HCFA is putting Medicare at

unnecessary risk of fraud. I hope that today’s hearing will provide answers to these

questions.

I should note that I believe that the vast majority of third party billers are honest

and reputable small businesses that provide a very valuable service to many health

care providers. In fact, third party billers can play a very important role in insuring

that claims are submitted in an accurate manner that complies with all of the complex billing requirements associated with the Medicare program. Unfortunately, a

very small number of unscrupulous individuals have used third party billing services to take advantage of weaknesses in the current Medicare system to steal millions of scarce program dollars.

At my request, the Office of Special Investigations at the General Accounting Office took a look at a Texas health care provider who was using a third party biller

to submit claims to Medicare. The GAO found that Behavioral Medical Systems, of

Sugarland Texas, was able to submit $1.3 million in false claims that went undetected. It was not until GAO shared their findings with the Medicare contractor that

the provider number being used to submit these false claims was suspended. Last

week we learned that this individual has also been using an old number to submit

additional claims to Medicare. How was this individual able to submit all of these

false claims and avoid detection? How was she able to continue billing Medicare

after her group provider number was suspended?

I was equally shocked to learn of the findings in the report released by the Office

of Inspector General at HHS two days ago. The OIG found that many Medicare contractors have no way of knowing who actually submitted a claim to Medicare, or

how many claims were submitted by a third party biller. In addition they lack even

basic information about who submits a claim. According to the OIG, anyone with

a computer, a modem, access to a provider’s number and a patients health insurance number could send false claims to Medicare.

This seems to me to be a recipe for disaster. How can we expect Medicare’s front

line defenders to fight fraud when they know so little about the claims being submitted by third party billers. These findings all indicate that HCFA is failing to adequately protect Medicare from potential fraud and abuse by third party billers. This

is not a hypothetical risk. The case that the GAO has investigated for the Committee, along with the cases identified and prosecuted by the OIG, clearly show that

fraud by third party billers costs millions of Medicare dollars.

HCFA has indicated that they are taking steps to address these problems. While

any effort to reduce the risk of Medicare fraud is good, I am concerned that these

efforts may not do enough to solve the problems that have been identified. HCFA

proposes to obtain information from health care providers about their use of third

party billers and clearinghouses, but studies show that this information is often out

of date and inaccurate. Additionally, in the time that it takes HCFA to gather this

information, Medicare will continue to be at risk. How many more millions of MediVerDate 11-MAY-2000 13:48 Aug 16, 2000 Jkt 064741 PO 00000 Frm 00012 Fmt 6602 Sfmt 6621 E:\HEARINGS\64027 pfrm03 PsN: 64027
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care dollars do we have to lose before we put in place an adequate system that will

address these problems?

I would like to thank all of the witnesses for testifying today, and will look forward to hearing their views on what can be done to prevent the criminal misuse

of third party services to defraud Medicare.

Mr. BURR. We are pleased today to have a number of witnesses.

We have with us Mr. Robert Hast, Acting Assistant Comptroller

General of the United States General Accounting Office. We have

Mr. Lew Morris, Counsel of the Office of Inspector General. Mr.

Morris is accompanied by Steve Lack, Special Agent. Mr. Robert

Burleigh, Vice President, PractiCare. Ms. Leslie Aronovitz, Associate Director for Health Care Financing and Public Health Issues

from the General Accounting Office; and Ms. Penny Thompson,

from the Health Care Financing Administration.

As I believe most of you are aware, this subcommittee is an investigative subcommittee; and, as such, it has had the practice of

taking testimony under oath. Does anyone have an objection to taking testimony under oath?

You also have the right under the House rules to be advised by

counsel. Is there anybody who chooses to have counsel advise

them?

Hearing none, if I could get all of you to rise.

[Witnesses sworn.]

Mr. BURR. Consider yourselves sworn in and under oath. The

Chair would work from your right, my left.

At this time, I would recognize Mr. Hast.

TESTIMONY OF ROBERT H. HAST, ACTING ASSISTANT COMPTROLLER GENERAL, OFFICE OF SPECIAL INVESTIGATIONS,

UNITED STATES GENERAL ACCOUNTING OFFICE; LESLIE G.

ARONOVITZ, ASSOCIATE DIRECTOR FOR HEALTH FINANCING AND PUBLIC HEALTH ISSUES, UNITED STATES GENERAL ACCOUNTING OFFICE; LEWIS MORRIS, COUNSEL, OFFICE OF THE INSPECTOR GENERAL, DEPARTMENT OF

HEALTH AND HUMAN SERVICES, ACCOMPANIED BY STEVE

LACK, SPECIAL AGENT; PENNY THOMPSON, DIRECTOR,

MEDICARE PROGRAM INTEGRITY GROUP, HEALTH CARE FINANCING ADMINISTRATION; AND ROBERT B. BURLEIGH,

VICE PRESIDENT, PRACTICARE

Mr. HAST. Mr. Chairman and members of the subcommittee, I

am pleased to be here today to discuss the results of our recent investigation in the operations of Behavioral Medical Systems, Incorporated, referred to as BMS. We determined that BMS represented

itself to Medicare as a health care provider. However, BMS functioned as a broker of medical services and contracted with a thirdparty biller for submitting claims to Medicare. In short, BMS prepared claims and had its third-party biller remit them to Medicare

on behalf of the health care providers. My testimony today is based

on the report of our investigation, which you are releasing.

More specifically, my remarks concern BMS and how it conducted business, its improper billing of Medicare, and our belief

that BMS violated the U.S. Code.

In brief, BMS, founded by Sandra Hunter, a Ph.D. and a licensed

social worker, consistently caused improper claims to be submitted

to Medicare. Those claims involved services by six psychiatrists

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contracted to it. Indeed, of the approximately 4,900 Medicare

claims that BMS filed in the 20-month period we investigated, 87

percent, or almost 4,300 claims, were for services that were not

provided. These improper Medicare claims total $1.3 million.

In addition, BMS violated the general statutory principle that

Medicare payments should be made directly to the beneficiary or

the assigned physician who provided the medical service. Neither

of these situations fit BMS.

On the basis of our investigation, a Medicare carrier temporarily

suspended BMS from the Medicare program on July 9, 1999. To

date, BMS remains on suspension.

In addition, we referred the matter to the Inspector General of

the Department of Health and Human Services and also to the Justice Department. However, we recently learned that Dr. Hunter is

currently submitting Medicare claims under an old provider number issued to her in 1993. That provider number is not related to

BMS and we have not conducted an investigation to determine

whether or not these claims are proper.

In regard to BMS and its operations, Dr. Hunter applied for and

received a group provider number for BMS in 1995. That group

provider number allowed her to bill Medicare for services rendered.

In the application, Dr. Hunter represented the location of BMS as

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

impression that BMS was located in a business environment and

that medical services would be provided there. Instead, the stated

suite number and business address consisted of a mailbox number

at a local Mailbox Express.

In addition, on her application for a group provider number, Dr.

Hunter represented BMS as a group practice specializing in psychiatry. We determined, however, that BMS did not directly employ

psychiatrists and was thus not a group practice. Instead, in its

business, BMS contracted with nursing homes to provide psychiatric and related services to the resident. BMS then contracted

with psychiatrists and psychotherapists as independent contractors, not as BMS employees to provide these services. According to

the psychiatrists, they were to use BMS as their third-party biller.

These psychiatrists and psychotherapists prepared monthly activity reports providing necessary Medicare billing information.

These reports were then forwarded to Dr. Hunter for processing.

Dr. Hunter next forwarded them to her contracted third-party biller who, following her directions, submitted them as billings to the

fiscal carrier on behalf of BMS. Medicare sent the claim payments

back to Dr. Hunter, who paid the contracted psychiatrists and

psychotherapists, extracting a 5 percent fee.

Medicare also sent the explanations of benefits detailing these

payments for the services to BMS and not to the psychiatrists.

These psychiatrists stated they were thus unaware of the additional claims being made on their behalf.

However, BMS billed Medicare for fictional visits to patients.

Most, in fact 80 percent, of the claims we analyzed for the period

of September 1997 through April 1999 were for services that the

psychiatrists had not rendered to these patients.

For example, Medicare paid BMS for 90 visits by one psychiatrist

to a patient between September 1, 1997, and February 28, 1998.

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

(GAO/OSI-00-5R, Mar. 30, 2000). 2 42 U.S.C. section 1395u(b)(6).

According to his records, the psychiatrist had not visited the patient at all during that period. In addition, the same psychiatrist

saw a second patient six times between May 23, 1998, and February 16, 1999. Yet carrier records show that BMS billed Medicare

for 70 additional visits by the psychiatrist during that timeframe.

According to another psychiatrist, he made five visits to one patient, yet carrier claims records show BMS billed Medicare for 41

more visits by that psychiatrist.

As another matter, we believe BMS violated the U.S. Code concerning direct Medicare payments. BMS should not have billed

Medicare because it did not directly employ the psychiatrists and

psychotherapists who provided the services to Medicare patients,

and it did not provide a facility in which services were rendered.

Based on the statute and HCFA’s implementing regulations, BMS

was not entitled to bill Medicare directly for the services provided

by the psychiatrists to nursing home patients.

We believe that the statutory language is clear that BMS could

not bill Medicare because it was neither the beneficiary nor the

provider of services to the Medicare patients.

Mr. Chairman, this concludes my prepared remarks, and I would

be pleased to respond to any questions that you or the other members have. Thank you.

[The prepared statement of Robert H. Hast follows:]

PREPARED STATEMENT OF ROBERT H. HAST, ACTING ASSISTANT COMPTROLLER

GENERAL FOR SPECIAL INVESTIGATIONS, OFFICE OF SPECIAL INVESTIGATIONS, GAO

Mr. Chairman and Members of the Subcommittee: I am pleased to be here today

to discuss the results of our recent investigation of the operations of Behavioral

Medical Systems, Inc. (BMS) of Sugarland, Texas, which functioned as a broker of

medical services and contracted with a third-party biller for submitting claims to

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

to Medicare contractors on behalf of health care providers.

You had asked that we undertake the investigation because of your concern about

fraud and abuse within the Medicare program. Such activities could be involved in

a recent estimate, reported by the Office of Inspector General (OIG), Department

of Health and Human Services (HHS), that $12.6 billion of fiscal year 1998 Medicare payments for fee-for-service claims did not comply with Medicare rules. My testimony today is based on our recent report of our investigation, which you are releasing today.1 More specifically, my remarks concern (1) BMS and how it conducted

business, (2) its improper billing of Medicare, and (3) our belief that BMS violated

the U.S. Code.

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

health-care provider, in fact it functioned as a broker of medical services and, according to its contracted psychiatrists, a third-party biller. Further, through the

services of the third-party biller with which it had contracted, BMS consistently

caused improper Medicare claims to be submitted for services by six psychiatrists

contracted to it. Indeed, of the approximately 4,900 Medicare claims that BMS filed

in the 20-month period we investigated, 87 percent—or almost 4,300 claims—were

for services that reportedly were not provided. Those improper Medicare claims totaled $1.3 million. As another matter, we believe that BMS violated the general

statutory principle 2 that Medicare payments should be made directly to the beneficiary or the assigned physician who provided the medical service. Neither of these

situations pertained to BMS.

On the basis of our investigation, the Medicare carrier temporarily suspended

BMS from Medicare program participation on July 9, 1999. At this time, BMS remains suspended. Further, we referred the matter to the HHS OIG, and it has been

referred to the Department of Justice. However, we recently learned that the foundVerDate 11-MAY-2000 13:48 Aug 16, 2000 Jkt 064741 PO 00000 Frm 00015 Fmt 6602 Sfmt 6621 E:\HEARINGS\64027 pfrm03 PsN: 64027
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3Our analysis did not include a review of psychotherapists because their rate of reimbursement was based on an hourly rate for individual services rendered.

er of BMS—Sandra J. Hunter, Ph.D., a licensed social worker—is currently submitting Medicare claims under an old provider number issued to her in 1993. That provider number is not related to BMS. We have not conducted an investigation to determine if these claims are improper.

BMS and Its Operations

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

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

group provider number that allowed her to bill for Medicare services rendered. In

the application, Dr. Hunter represented the location of BMS as a suite at a particular address in Sugarland, Texas. This gave the impression that BMS was located

in a business environment and that medical services would be provided there. Instead, the stated suite number and business address consisted of a mailbox number

at a local Mail Box Express.

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

specializing in psychiatry. We determined, however, that BMS did not directly employ psychiatrists and was thus not a group practice. Instead, in its business, BMS

contracted with nursing homes to provide psychiatric and related services to their

residents. BMS also contracted with psychiatrists and psychotherapists—as independent contractors, not BMS employees—to provide those services and, according

to the psychiatrists, use BMS as their third-party biller.

Then, as was the BMS process, (1) the psychiatrists and psychotherapists prepared monthly activity reports providing necessary Medicare billing information; (2)

the reports were forwarded to Dr. Hunter for processing; and (3) Dr. Hunter forwarded them to her contracted third-party biller for it to submit billings, following

her direction, to Medicare on behalf of BMS. Medicare sent the claims payments to

Dr. Hunter, who paid the contracted psychiatrists and psychotherapists. Medicare

also sent the Explanations of Benefits, detailing the payments for the services, to

BMS and not to the psychiatrists.3 These psychiatrists stated that they were thus

unaware of the additional claims made on their behalf.

BMS Billed Medicare fo Reportedly Fictional Visits to Patients

We compared the service dates that the psychiatrists submitted to Dr. Hunter in

their activity reports and the claims that the BMS contractor submitted for reimbursement to Medicare, under Dr. Hunter’s direction. Most—87 percent—of the

claims that we analyzed from the period September 1997 through April 1999 (the

period that we investigated) were for services that the psychiatrists had not rendered to their patients. For example, Medicare paid BMS for 90 visits by one psychiatrist to a patient between September 1, 1997, and February 28, 1998. However,

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

that period. In addition, the same psychiatrist saw a second patient six times between May 23, 1998, and February 16, 1999. Yet carrier records show that BMS,

through its contractor, billed Medicare for 70 additional visits by the psychiatrist

during that time frame. According to another psychiatrist, he made five visits to one

patient. Yet carrier claims records show that BMS billed Medicare for another 41

visits by that psychiatrist.

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

behalf of the 6 contract psychiatrists for the September 1997-April 1999 time frame.

Of these claims, 4,291—or 87 percent—were reportedly fictitious. According to the

6 psychiatrists and fiscal carrier records, these claims represented 9,854 patient visits that never occurred. Also according to carrier records, the improper claims totaled $1.3 million for unrendered services. We determined that BMS had received

over $362,000 in Medicare payments for the fictional visits and services. The difference of approximately $951,000 is attributable to claims that were disallowed/disputed, co-payments, deductibles, or claims that exceeded allowable Medicare reimbursable amounts.

BMS Violated the U.S. Code Concerning Direct Medicare Payments

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

psychiatrists and psychotherapists who provided the services to the Medicare patients nor (2) provided a facility in which the services were rendered. Based on statVerDate 11-MAY-2000 13:48 Aug 16, 2000 Jkt 064741 PO 00000 Frm 00016 Fmt 6602 Sfmt 6621 E:\HEARINGS\64027 pfrm03 PsN: 64027
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4Title 42 U.S.C. section 1395u(b)(6) states in pertinent part, ‘‘No payment under that part

[B] for a service provided to any individual shall be made to anyone other than such individual

or[,] pursuant to an assignment[,]...[to] the physician or other person who provided the service,

except that (A) payment may be made (i) to the employer of such physician or other person . . .[or] (ii) (where the service was provided in a hospital, rural primary care hospital, clinic,

or other facility) to the facility in which the service was provided if there is a contractual arrangement between such physician or other person and such facility under which such facility

submits the bill for such services . . . .’’ 5 HCFA regulations at 42 C.F.R. section 424.73(a) implement the congressional intent by limiting the extent to which Medicare pays individuals or entities that do not directly provide medical care.

ute 4 and HCFA’s implementing regulations,5 BMS was not entitled to bill Medicare

directly for the services that the psychiatrists and psychotherapists provided for patients in the nursing homes.

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

because it was neither the beneficiary nor the provider of the services to the Medicare patients. The subject statute establishes the general principle that Medicare

payments are to be made to the beneficiary or, under assignment, to the medical

provider who rendered the service. Legislative history indicates that the Congress

was concerned about third-party direct billing because, among other points, ‘‘[s]uch

reassignments have been a source of incorrect and inflated claims for services.’’

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

to eliminate a third party’s incentive to submit claims for unprovided services or to

engage in abusive billing practices.

Mr. Chairman, this concludes my prepared remarks. We would be pleased to respond to any questions that you or other members of the Committee have.

GAO Contacts and Acknowledgements

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

at (202) 512-7455 or Steve Iannucci at (202) 512-6722. Robert Gettings and Harvey

Gold made key contributions to this testimony.

Mr. BURR. Thank you, Mr. Hast.

The Chair would recognize Ms. Aronovitz.

TESTIMONY OF LESLIE G. ARONOVITZ

Ms. ARONOVITZ. Thank you, Mr. Burr, Mr. Stupak and Mr. Bryant.

I am very pleased to be here today. I am very pleased to be here

today to discuss the effectiveness of HCFA’s efforts to detect fraud

by third-party billing companies that submit claims to Medicare on

behalf of their provider clients.

Mr. Hast has just described to you a case of a broker who supplied erroneous information that was ultimately used to fraudulently bill Medicare. This case involved a different entity than a

third-party biller, but our concerns about third-party billers could

actually apply to any entity that acts on behalf of providers to facilitate the submission and payment of medical claims. That is not

to say that all third-party billers should be suspect. In fact, the

vast majority play an important and legitimate role in assisting

providers with billing and management services.

HCFA’s contractors can only manually review a limited number

of claims. Finding fraud among third-party billers is like finding a

needle in a haystack.

Knowing that providers are linked to a problematic third-party

biller is like giving HCFA a magnet to look for the needle. We

found that HCFA’s efforts to comprehensively identify and review

claims associated with third-party billers fell short in several areas.

I would like to briefly discuss some of our concerns.

First, the identity of a third-party biller submitting a claim is

lost on many electronic claims when multiple entities are involved,

14

while on paper claims such information is not recorded at all. For

providers, third-party billers and other entities such as clearinghouses to submit claims to Medicare electronically, they must obtain a submitter number from a Medicare contractor. This number

becomes part of each claim’s submission. However, when a claim

passes through other entities such as one or more clearinghouses

before reaching the contractor for payment, the entity may

overwrite another’s number.

Further, on provider claims, forms only include space to identify

the provider and not the biller. It should also be noted that such

billers do not register with Medicare nor are they linked systematically to the providers they serve. Although the enrollment process

requires providers to identify the name of the billing company, its

address, phone number and a contact person, there is no registration process for third-party billers that would allow HCFA to identify crucial information on the company’s owners, criminal history

record or other identifiers. Without this information, HCFA might

have difficulty identifying an officer or officers of the company if

problems should occur.

We also found that HCFA’s efforts to develop comprehensive data

on all providers, including their use of third-party billers, is still

several years from completion. In May, 1996, HCFA issued a new

enrollment form, but HCFA’s data indicates only about 15 percent

of Medicare providers have enrolled since HCFA began using the

new form. Thus, 85 percent of Medicare providers that enrolled before 1996 likely have not provided this information to HCFA.

Further, even if providers that have completed the new enrollment form—even those providers may not have valid information

in HCFA’s system because HCFA’s contractors depend on providers

to report any changes.

We heard that providers often do not report changes in their billing arrangements and as a practical matter action would rarely be

taken against non-complying providers.

Finally, we are concerned that information HCFA does have

about providers’ use of third-party billers is not reliable because

HCFA’s data base is dependent on a provider’s self-reporting and

does not validate it. HCFA is drafting a regulation effective this

October which would require all providers to update their enrollment information, and we think this is a good thing. Here again,

however, this process involves self-reported data that typically will

not be validated or updated by the contractors.

Mr. Burr, this concludes my statement. I will be happy to answer

any questions you or other members of the subcommittee have.

[The prepared statement of Leslie G. Aronovitz follows:]

PREPARED STATEMENT OF LESLIE G. ARONOVITZ, ASSOCIATE DIRECTOR, HEALTH FINANCING AND PUBLIC HEALTH ISSUES, HEALTH, EDUCATION, AND HUMAN SERVICES

DIVISION, GAO

Mr. Chairman and Members of the Subcommittee: We are pleased to be here

today to discuss the effectiveness of HCFA’s efforts to prevent fraud by third-party

billing companies that submit claims to Medicare on behalf of providers. With 1999

payments of about $208 billion and responsibility for financing health services delivered by hundreds of thousands of providers to almost 40 million elderly and disabled

Americans, Medicare is inherently vulnerable to fraud, waste, and abuse. We, and

the Department of Health and Human Services (HHS) Office of Inspector General

15

1 GAO/HEHS-99-127R, June 2, 1999.

(OIG) have issued several reports addressing the need for sophisticated program

safeguards to identify and detect potentially fraudulent billing practices.

In fiscal year 1999, Medicare’s fee-for-service program covered about 83 percent

of Medicare’s beneficiaries. HCFA administers Medicare’s fee-for-service program

largely through a network of more than 50 claims processing contractors—insurance

companies such as Mutual of Omaha and Blue Cross and Blue Shield plans—that

process and pay Medicare claims. Once enrolled in Medicare, physicians, hospitals,

and other providers may submit claims for payment, sometimes through third-party

billers, to Medicare contractors. Third-party billing companies are businesses that

prepare and submit claims on behalf of health care providers to payers such as

Medicare, Medicaid, and private health insurers. In the first 7 months of fiscal year

1999, Medicare contractors processed over 508 million claims—averaging more than

72 million claims per month.

HCFA’s contractors can only review a limited number of claims. Finding fraud

among third-party billing companies is like looking for a needle in a haystack.

Knowing that providers are linked to problematic third-party billers is like giving

HCFA a magnet to look for those needles. In a GAO report issued last June, we

found that HCFA’s efforts to comprehensively identify and review claims associated

with third-party billers fell short for several reasons.1 First, the identity of a thirdparty biller submitting a claim is lost on many electronic claims when multiple entities are involved, while on paper claims, such information is not recorded at all. Second, such billers do not register with Medicare, nor are they linked systematically

to the providers they serve. Third, HCFA’s efforts to develop comprehensive data on

all providers, including their use of third-party billers, are still several years from

completion. Finally, information HCFA does have about providers’ use of third-party

billers is not reliable because HCFA’s database is dependent on provider self-reporting and is not validated.

BACKGROUND

Although third-party billing services have been part of the U.S. health care system since the 1950s, large billing companies emerged in the 1980s, when Medicare

required that hospital-based physicians’ services be separately billed. In 1990, Medicare required physicians and other providers to submit claims to Medicare on behalf

of all beneficiaries, increasing providers’ billing workloads. Many providers have

turned to third-party billing companies to assist them in submitting claims and to

provide advice regarding reimbursement matters, as well as overall business decision-making. Officials of an industry trade association estimate that there are currently about 5,000 active third-party billing companies in the United States.

Third-party billing companies prepare either paper or electronic claims for submission to Medicare contractors. In fiscal year 1999, about 83 percent of Medicare

claims were submitted electronically. Electronic claims may be submitted directly to

a contractor or may be sent through one or more other entities, known as clearinghouses, before reaching the Medicare contractor. Third-party billers, and even providers, contract with clearinghouses to reformat claims to meet Medicare’s requirements.

Medicare claims administration contractors are responsible for processing and

paying Medicare claims. In addition, they are responsible for payment safeguard activities intended to protect Medicare from paying inappropriately. These activities

include analyzing claims data to identify potentially inappropriate claims, performing medical review of claims to determine whether the services provided were

medically necessary and covered by Medicare, and investigating potential cases of

fraud and abuse. To target program integrity resources, contractors attempt to identify aberrant patterns of claims submitted by providers to determine whether the

claims should be subjected to greater scrutiny. In this connection, the ability to scrutinize the claims being submitted by individual third-party billing companies might

allow HCFA to identify aberrant patterns indicative of fraud and abuse in their submissions.

HCFA CANNOT IDENTIFY CLAIMS SUBMITTED BY THIRD-PARTY BILLERS

Third-party billing companies often have access to billing information about multiple health care providers and many of their patients. As a result, unscrupulous

operators of such businesses have an opportunity to submit false claims. For example, in 1997, a billing company agreed to pay the government $7.75 million to settle

allegations that it had violated the federal False Claims Act when it filed improperly coded claims. In 1998, a different third-party biller was found to have subVerDate 11-MAY-2000 13:48 Aug 16, 2000 Jkt 064741 PO 00000 Frm 00019 Fmt 6602 Sfmt 6621 E:\HEARINGS\64027 pfrm03 PsN: 64027
16

mitted duplicate claims and claims with incorrect diagnosis codes. Although it did

not admit guilt, it agreed to pay the federal government $1.5 million to settle these

allegations. In a third case, a third-party billing company agreed to pay the government almost $415,000 to settle allegations that it improperly filed medical supply

claims with Medicare on behalf of a provider. The provider denied that it knew of,

or participated in, any fraudulent conduct with respect to the submission of the

claims.

Even when HCFA or its contractors suspect that providers’ claims are abusive,

they are often unable to tell that the claims were submitted by a third-party biller.

This is due to limitations in both the systems for processing electronic claims and

the complete lack of identifying information on paper claims. For providers, thirdparty billers, and clearinghouses to submit claims to Medicare contractors electronically, they must obtain a submitter number from a Medicare contractor. This number becomes part of each claim submission. Electronic claim submissions contain

only one submitter number. If a third-party biller submits a claim directly to a contractor, the number identifies the claim as coming from that biller. However, when

a claim passes through other entities, such as one or more clearinghouses, before

reaching the contractor for payment, the third-party biller’s number is not always

present. In some cases, one entity may overwrite another’s number, or entities may

decide among themselves whose number to use.

While HCFA has established this process—albeit imperfect—to monitor the source

of electronic claims, no such process exists for paper claims. Paper claim forms include a section or space to identify the provider but not the biller. In general, contractors would know if a third-party biller submitted a paper claim only if the provider specifically informed the contractor when it first enrolled in Medicare of its

intention to use a third-party biller, or if the contractor identified a biller while investigating a provider. An OIG official who has investigated several cases of Medicare fraud by third-party billing companies told us that when billing companies used

paper claims, it was difficult for the OIG to identify all providers using a given biller. In the case where a third-party billing company was submitting fraudulent

claims for surgical dressings on behalf of many nursing homes across the United

States, there was no indication that the same third-party biller was involved. The

OIG agents pursued the case against one nursing home as an individual fraudulent

provider, when in fact 70 nursing homes were involved. After additional cases were

opened by other OIG offices targeting other individual nursing homes, the agents

met to share lessons learned and realized that all the nursing homes used the same

billing company and that a single company was, in fact, the source of the fraud.

HCFA’S EFFORTS SHOW LIMITED RESULTS

HCFA has no routine registration process to collect comprehensive information

about third-party billers. Although the enrollment process requires providers to

identify the name of the billing company, its address, phone number, and a contact

person, there is no registration process for third-party billers that would allow

HCFA to identify critical information on the company’s owners, criminal history

record, or other identifiers. Without this information, HCFA might have difficulty

identifying an officer or officers of the company if problems should occur. In addition, although providers indicating that they plan to use a billing company must

provide a copy of their contract with the biller, the information in the contract may

be minimal. For example, we reviewed one contract that identified the services the

biller would provide but included no identifying information about the biller other

than its name and a signature. Even if HCFA did have complete information on

third-party billers, it has limited recourse if problems arise. Although HCFA can

refer the biller to the HHS OIG or the Department of Justice, it does not have the

ability to take intermediate administrative actions. According to a HCFA official,

whereas the agency would like to be able to exclude third-party billers from submitting claims to Medicare, it cannot do so because third-party billers do not have to

enroll with Medicare to participate in the program.

HCFA has made efforts to obtain information on third-party billers, but it still

cannot routinely match a third-party biller with all of the providers it represents.

In May 1996, HCFA issued a new enrollment form for providers entering Medicare.

The form requires detailed information, including an identification of the third-party

billing company a provider plans to use, if any. While the enrollment form provides

information about billers that HCFA and its contractors previously did not have,

HCFA data indicate that only about 15 percent of Medicare providers have enrolled

since HCFA began using the new form. Thus, the 85 percent of Medicare providers

that enrolled before May 1996 likely have not provided this information to HCFA.

Further, even providers that have completed the new enrollment form may not have

17

2PECOS’ functions include capturing enrollment data, logging and tracking provider enrollment forms, identifying and profiling provider chains, tracking associations of Medicare providers to these chains, providing inquiry and reporting capability, and providing a data exchange process that forwards enrollment and claim information to other processing systems.

valid information in HCFA’s system. This is due to the fact that HCFA and the contractors depend on providers to report any changes. Providers often do not comply

with the requirement in enrollment instructions to notify their claims processing

contractors when they change or add third-party billers, according to HCFA and

contractor officials we talked with. Although notification is legally required, it is unlikely as a practical matter that any action would be taken against a non-complying

provider.

In an attempt to gather updated and comprehensive information about providers,

HCFA is drafting a regulation to require providers that enrolled in Medicare before

May 1996 to complete the new enrollment form to fill this information gap. Providers would also be required to recertify the information on their enrollment form

every 3 years. HCFA plans to have the regulation in effect by October 1, 2000, and

begin requiring providers to update their enrollment information shortly thereafter.

Here again, this process involves self-reported data that typically will not be validated or updated by the contractors.

To make provider and third-party biller information more accessible to the contractors, HCFA is developing a new automated system to access the provider enrollment database. HCFA intends that the system, known as the Provider Enrollment,

Chain and Ownership System (PECOS) will provide a complete history of a Medicare provider based on the information in the provider enrollment application.2 Initially, HCFA plans to incorporate currently available provider information into the

system, and, according to HCFA officials, will include updated information from all

providers in the future. HCFA plans to implement PECOS for institutional providers, such as hospitals and nursing homes, by June 2000. HCFA’s timeline currently indicates that PECOS will be operational for providers of outpatient services

in January 2002. According to a HCFA official, this timeline was developed prior

to addressing all Y2K concerns ; due to a smooth transition, however, it may be able

to move implementation up to August 2001. Finally, HCFA expects that comprehensive data on durable medical equipment suppliers will be brought into PECOS about

12 months after these other efforts are completed. The system will depend entirely

on providers submitting information to the contractors, without subsequent validation. As a result, PECOS will only be as useful as the accuracy of the information

it receives.

CONCLUSIONS

In an effort to ensure the integrity of Medicare, HCFA and its contractors need

to develop reliable and sophisticated approaches to identifying potentially fraudulent billing practices. In this regard, contractors should be able to easily access information about third-party billers that complete and submit claims to Medicare for

payment. It is especially important to be able to match up third-party billers with

the providers they represent, so that contractors can identify potentially questionable billing patterns and subject these claims to more extensive review. Although

HCFA has various efforts underway to better identify providers’ questionable claims

and their associated third-party billers, there continue to be gaps in its safeguard

program. It is important that HCFA complete its provider recertification program

as soon as possible so that it will have available comprehensive information about

all Medicare providers and their billers. Further, we are concerned about problems

with data reliability inherent in any type of self-reporting program.

Mr. Chairman, this concludes my statement. I will be happy to answer any questions you or the Subcommittee Members may have.

GAO CONTACT AND ACKNOWLEDGEMENTS

For future contacts regarding this testimony, please call Leslie G. Aronovitz, Associate Director, Health Financing and Public Health Issues, at (312) 220-7767. Other

individuals who made key contributions include Shaunessye Curry and Lynn FillaClark.

Mr. BURR. I can assure you we will have some questions. Thank

you for your testimony.

The Chair recognizes Mr. Morris for an opening statement.

18

TESTIMONY OF LEWIS MORRIS

Mr. MORRIS. Good morning, Mr. Chairman, members of the subcommittee.

Mr. Chairman, as you observed, third-party billing companies

that operate ethically can provide great service to both providers

and the Federal health care programs. These companies offer expertise in program reimbursement requirements, help assure

claims are accurately prepared, and free physicians and other practitioners to devote their energy to the care of their patients. Unfortunately, there are system vulnerabilities which an unethical company can take advantage of and exploit for its financial gain.

While the OIG cannot discuss any ongoing investigations, the following cases and others discussed in my written testimony show

easily how dishonest third-party billing companies can generate

millions in fraudulent claims.

A criminal investigation from the early 1990’s aptly demonstrates the vulnerability to our programs. In this case, a thirdparty billing company known as Handle With Care performed lost

charge audits for over 70 nursing homes in eight States. The company referred nursing home resident medical records for services

that supposedly had been provided but not claimed, billed Medicare

in the name of the nursing home for these overlooked charges, and

kept 50 percent of the proceeds. In actuality, Handle With Care

billed for surgical dressings for nursing home patients who had

never had surgery and fraudulently caused Medicare to pay approximately $7.4 million for non-rendered services.

A more recent example of third-party billing fraud can be found

in the Emergency Physician Billing Service case, or EPBS. EPBS

provided coding, billing and collection services for emergency physician groups in 100 emergency departments in as many as 33

States. The investigation and subsequent trial revealed that EPBS

and its principal owner, Dr. J.D. McKean, routinely billed for higher levels of treatment than was provided or supported by medical

record documentation.

The operation of EPBS had a number of characteristics common

to these type of fraud schemes. First, EPBS was paid by its clients

based on a percentage of revenues, either billed or recovered. Coders received a base pay, with bonuses based on the number of

charts processed and were required to process 40 emergency room

charts per hour or the equivalent of a chart every 90 seconds. By

contrast, a competitor of EPBS required 120 charts per day. The

coders at EPBS were able to meet the quotas by taking shortcuts

and disregarding information in the charts. In addition, no coder

at EPBS ever attended training or other informational meetings regarding emergency room decoding requirements other than those

provided by the company, and coders never contacted a physician

who had questions regarding the charts.

EPBS and its owner, Dr. McKean, were found liable under the

False Claims Act and agreed to pay $15.5 million to resolve their

liabilities. In addition, Dr. McKean was excluded from participation

in the health care programs for a period of 15 years, and EPBS entered into a comprehensive corporate integrity agreement. We are

presently pursuing cases against the physician groups that were

clients of the firm.

19

These investigations, as well as studies by the Inspector General’s Office and GAO, highlight the Federal health care program’s

potential vulnerabilities to fraud by unscrupulous third-party billing companies.

Among the insights gained from our efforts are the following:

First, the ability of the Federal health care programs to identify

third-party billers is inadequate. There are approximately 5,000

third-party billing companies in the United States. However, recent

reports indicate HCFA’s ability to identify these companies is limited. Likewise, it is unknown how many of the approximately 700

million claims per year processed by Medicare are submitted by

third-party billers. As the case of Handle With Care demonstrates,

a scam artist can hide behind the identification of a legitimate

health care provider and evade detection.

Another lesson: there are loopholes in the payment reassignment

rules. Medicare will only pay a third-party biller on behalf of its

clients when the agent has no financial interest in how much is

billed or collected. Unfortunately, some billing companies circumvent this rule by having the health care provider agree to automatic transfer of Medicare payments to the billing company’s billing account. Under this lockbox arrangement, as it is called, the restrictions-only reassignment of claims do not apply because the initial Medicare payment is made directly to the physician, not the

agent.

Given the inability to adequately identify those third-party billers, assessing the qualifications of these companies or their personnel is almost impossible. Currently, the Medicare program lacks

any standards or eligibility requirements to allow third-party billing companies to prepare and submit claims to the program.

Based on our experience to date with third-party billers, the IG

has formulated some tentative suggestions for reform measures.

First, those who administer the health care programs need an effective mechanism to identify third-party billers when they participate in our programs. This identification system should allow the

programs to track the third-party billing company’s overall billing

paths earnings, to link specific claims to particular billers, and to

require claims to be submitted only from authorized sites. This

may involve registering third-party billers and clearinghouses so as

to provide an audit trail and ensure that claims entering the system are from authorized sources.

Second, Congress should consider measures to expressly prohibit

the use of payment incentives in third-party billing companies, no

matter how the arrangement is structured. In other words, the

lockbox loophole should be closed.

Finally, mandated minimum training as parts of qualification

standards must be considered as a way to discourage unscrupulous

and ill-informed billers from gaining access to the Federal health

care programs and to ensure high-quality participation by honest

billers who do participate. In the interim, contractor education efforts should be directly to billing companies, rather than indirectly

through providers.

I appreciate the opportunity to share the information and insights of the Office of Inspector General. Special Agent Lack and

I would be pleased to try to answer any questions you may have.

20

[The prepared statement of Lewis Morris follows:]

PREPARED STATEMENT OF LEWIS MORRIS, ASSISTANT INSPECTOR GENERAL FOR LEGAL

AFFAIRS, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Good Morning, Mr. Chairman and Members of the Committee. I am Lewis Morris,

Assistant Inspector General for Legal Affairs in the Office of Inspector General

(OIG), U.S. Department of Health and Human Services (HHS). I am accompanied

by Special Agent Steve Lack from our San Francisco Regional Office who is familiar

with many of the issues and cases I will describe today.

The mission of the OIG is to identify ways to improve HHS programs and operations and protect them against fraud, waste and abuse. We do this by conducting

independent and objective audits, evaluations, and investigations, which provide

timely, useful, and reliable information and advice to Department officials, the Administration, the Congress, and the public. In carrying out our mission, we work

with the Department and its operating divisions, the Department of Justice (DOJ),

other Federal and State agencies, and the Congress to bring about systemic improvements in HHS programs and operations, and to prosecute and/or recover funds

from those who defraud the Government.

I appreciate the opportunity to testify before you today and provide the Committee with the OIG’s perspective on the issues presented by the role of third-party

billing companies in the Federal health care programs. My testimony will provide:

• an overview of the role played by third-party billing companies;

• a description of OIG efforts to promote integrity among third-party billers;

• a look at some specific fraud investigations involving third-party billing companies;

• the insights the OIG has gained from these cases; and

• some suggestions for programmatic reforms.

Role of Third-Party Billing Companies

Billing companies are becoming a vital segment of the health care industry. Increasingly, health care providers rely on billing companies to assist them in processing claims in accordance with applicable statutes and regulations. Additionally,

health care providers consult with billing companies for advice regarding reimbursement matters, as well as overall business decision-making.

Billing companies provide a variety of types of services. For example, some billing

companies only process bills that have already been coded by the provider, while

others take on the added responsibility of assigning billing codes based on the client’s medical documentation. In addition to claims preparation, some billing companies also offer a spectrum of management services, including accounts receivable

management and bad debt collections. Other third-party billing companies specialize

in a particular sector of the health care industry, such as physician services provided in emergency rooms.

In fiscal year 1998, the Medicare program processed over 700 million Part B

claims and 149 million Part A claims, the vast majority of which under both categories were electronic. Even with its enhanced program integrity functions, the

Health Care Financing Administration is able to conduct payment reviews on only

10 percent of these claims. The system must rely on the honesty and good faith of

health care providers, as well as those who process and submit claims on their behalf. Third-party billing companies that operate ethically can provide a great service

to providers and the Federal health care programs. These companies can offer expertise in program reimbursement requirements, help ensure that claims are accurately prepared, and free physicians and other practitioners to devote their energies

to the care of their patients.

OIG Efforts to Promote Integrity among Third-Party Billers

In order to assist honest billers establish internal controls that promote adherence

to Federal health care program requirements, the OIG has taken proactive steps to

promote integrity among the third-party billing industry.

Compliance Guidance. The primary method by which the OIG has reached out to

the billing industry is through the release of the ‘‘Compliance Program Guidance for

Third-Party Medical Billing Companies,’’ in November 1998. Consistent with other

OIG compliance guidance, the Third-Party Billing Compliance Guidance sets forth

the benefits of a compliance program, describes the essential elements of a compliance program, discusses general compliance principles and counsels companies on

how they might use the Guidance. Most importantly, the OIG formulated the Guidance with the input of the third-party billing industry, as well as other interested

parties.

21

The Third-Party Billing Compliance Guidance also identifies the specific risk

areas that should be addressed by all billing companies. Such areas include billing

for items or services not actually documented; unbundling and upcoding of claims;

computer software programs that encourage billing personnel to enter data in fields

indicating services were rendered though not actually performed or documented;

knowing misuse of provider identification numbers which results in improper billing

in violation of rules governing reassignment of benefits; billing company incentives

that violate the anti-kickback statute; and percentage billing arrangements.

In addition, the Guidance describes the risk areas for companies that provide coding services in addition to billing services, including ‘‘assumption’’ coding (the coding

of a diagnosis or procedure without supporting clinical documentation); alteration of

the documentation; coding without proper documentation of all physician and other

professional services; and billing for services provided by unqualified or unlicenced

clinical personnel.

The OIG hopes that providing information and recommendations such as contained in the Guidance will help lead third-party billing companies to voluntarily

embrace corporate compliance programs that fit their individual needs, and thus,

help reduce the level of fraud, waste and abuse in Medicare and Medicaid reimbursement.

Corporate Integrity Agreements (CIAs). Another manner in which the OIG seeks

to promote compliance in the third-party billing industry is through the imposition

of CIAs on certain billing companies involved in fraud schemes. These agreements

are imposed in global settlements in lieu of exclusion from participation in Federal

health care programs. CIAs are imposed on companies to help reorient a corporate

culture that may have previously been prone to fraud and abuse. In this way, the

OIG attempts to directly affect change in third-party billing entities. Such CIAs may

also serve as admonitory examples for others within the industry.

CIAs set forth specific requirements that a provider must meet in establishing a

compliance program or in maintaining an existing compliance program. For instance, the CIAs imposed on third-party billing companies require them to establish

and maintain a compliance officer function, a code of conduct, specific policies and

procedures addressing billing and coding issues, a training program, and annual audits and reviews. Moreover, the companies must make annual reports to the OIG

on their efforts to comply with the CIAs.

Investigations of Third-Party Billing Companies

Unfortunately, there are system vulnerabilities that an unethical billing company

can take advantage of and exploit for its financial gain. The problems associated

with dishonest third-party billing companies are as old as the Medicare program

itself. As early as 1972, the Congress took action to stop ‘‘factoring’’ arrangements,

the practice of physicians and other providers reassigning their Medicare and Medicaid receivables to a collection agency for a percentage of their face value. The

agency in turn prepared and submitted the claims to the health care programs and

received payment in its name. These reassignments were a significant source of incorrect and inflated claims. Cases of fraudulent billings by collections agencies and

payment of substantial overpayments to these ‘‘factoring’’ agencies were also found.

In response, Congress prohibited, with limited exceptions, payment for covered services to anyone other than the patient or the person who provided the service.

Despite the effort to stop factoring of Medicare and Medicaid bills, some individuals and billing companies circumvented the intent of the law by the use of a power

of attorney, allowing the billing company to receive Federal health care payments

in the name of the provider, thus continuing the abuses associated with reassignment of claims. In 1977, the Congress responded by precluding the use of a power

of attorney as a device for reassignment of benefits. However, a billing agency could

continue collecting Medicare or Medicaid payments on behalf of a health care provider, provided that the agency does so pursuant to an agreement under which the

compensation paid to the agency for its services is unrelated to the dollar amount

of the billings or payments, and is not dependent upon the actual collection of any

such payments.

These Congressional efforts to curb program abuses continue to be thwarted by

unethical billing companies. While the OIG cannot discuss any ongoing investigations, the following cases show how easily a dishonest third-party billing company

can establish a scheme that generates millions in fraudulent claims.

Physicians on Call. During the 1980’s, the OIG investigated allegations that a

billing company called ‘‘Physicians on Call’’ used recent medical school graduates to

perpetrate a fraudulent billing scheme. The company hired doctors, obtained Medicare providers numbers in their names, and then contracted with nursing homes for

the provision of monthly physician visits to perform examinations of the residents.

22

Although these monthly examinations generally were brief, the billing company

upcoded the physician’s visits to reflect extensive, and more highly reimbursed,

services. This fraudulent upcoding was done without the knowledge of the doctors,

who received payment from the company based on the services actually rendered.

The scheme was uncovered by the Medicare contractor during a routine review of

claims for physician services. As the named providers of service on the Medicare

claims, the physicians were assessed overpayments. They were not able to seek relief from Physicians on Call because it had gone out of business.

Handle With Care, Inc. A criminal investigation from the early 1990’s provides another example of how vulnerable the Federal health care programs are to the

schemes of dishonest billing companies. In this case, two sisters, Kristina Brambila

and Wendy Desalvo, set up a third-party billing company known as Handle With

Care, Inc. (HWC) to perform ‘‘lost charge’’ audits for nursing homes. The two sisters

persuaded at least 70 nursing homes in 8 states that they would review residents’

medical records and accounts for services that had not been billed to Medicare.

Using ‘‘tricks of the trade’’ known only to HWC, the company billed Medicare on

behalf of the nursing home for these overlooked charges and kept 50 percent of the

proceeds. In actuality, HWC billed for surgical dressings for nursing home patients

who had not had surgery and fraudulently caused Medicare to pay approximately

$7.4 million for nonrendered services.

Because the billing company submitted the fraudulent claims under the nursing

home’s provider number, it took OIG investigators a great deal of time and resources to tie what appeared to be unrelated improper billings by different nursing

homes back to a single third-party billing company. At the conclusion of the investigation, the two sisters were convicted of Medicare fraud and received prison sentences. Additionally, the Government reached False Claims Act (FCA) settlements

with 15 of the involved nursing homes and recovered over $5 million cumulatively.

Medaphis Corporation. While some third-party billing schemes involve a small

group of individuals, they can also involve some of the largest billing agencies. For

example, in 1998, the United States investigated allegations brought by a whistle

blower that the national third-party medical billing companies, Medaphis and

Medaphis Physician Services (Medaphis), was submitting duplicate claims and using

incorrect codes on claims submitted on behalf of a client. During the period of 1992

through 1996, a Medaphis subsidiary was alleged to have improperly submitted

multiple claims for payment for the same service to the same patient on the same

date of service; used incorrect or inapplicable diagnosis codes in resubmitting claims

which had been denied based on the diagnosis originally stated; and submitted other

improper radiology and cardiology-related claims. Medaphis agreed to pay $1.5 million to resolve its civil liability and entered into an extensive five year corporate integrity agreement (CIA) that covers its activities throughout the nation.

Gottlieb Financial Services, Inc. In 1999, the United States resolved allegations

against another wholly-owned subsidiary of Medaphis Physician Services, Gottlieb

Financial Services, Inc. (GFS), that provided emergency department physician billing services. When preparing claims for evaluation and management services, GFS

allegedly used an automated coding software system that routinely upcoded emergency room visits. In this instance, based on an inability to pay more, Medaphis

agreed to pay $15 million to settle its liability, $2.4 million of which went to the

whistleblower who brought the case under the qui tam provisions of the FCA. Moreover, the Medaphis CIA imposed as part of the earlier settlement was made part

of this new settlement, given that GFS’s conducted pre-dated the execution of the

prior CIA.

Professional Medical Billers d/b/a Professional Radiology Billers. Yet another example of the Medicare program’s vulnerability to third-party billing fraud can be

found in a recently prosecuted criminal case. Professional Medical Billers d/b/a Professional Radiology Billers (PRB) provided third-party billing services primarily to

physicians. From 1994 through 1996, PRB added fabricated services to the physician

claims and then submitted the claims to Federal health care programs under the

physicians’ provider number. PRB would reimburse the physicians for the legitimate

claims (less PRB’s percentage for providing billing services) and keep all the payments for the fabricated services. The scheme was uncovered when one of the company’s clients learned that his year-to-date earning from Medicare were double the

amount that had been deposited into his bank account by the billing service.

Nancy Thetford and Tracey Huff, co-owners of PRB, pled guilty to criminal

charges and acknowledged that the scheme cost Medicare and Medicaid over $1 million. Thetford was sentenced to 5 years supervised probation and was excluded from

Federal health care programs for 10 years. Huff was sentenced to 21 months imprisonment and is also subject to mandatory exclusion. The company ceased to operate

in the course of the investigation and is now defunct.

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Emergency Physician Billing Services, Inc. Perhaps the most alarming example of

the systematic abuse of the Federal health care programs by a third-party billing

company can be found in the recent case of Emergency Physician Billing Services,

Inc. (EPBS). At the time of the investigation, EPBS provided coding, billing, and collections services for emergency physician groups in over 100 emergency departments

in as many as 33 states. Based upon allegations presented by a qui tam relator, the

United States charged that EPBS and its principle owner, Dr. J.D. McKean, routinely billed Federal and state health care programs for higher level of treatment

than was provided or supported by medical record documentation.

EPBS was paid based on a percentage of revenues either billed or recovered, depending on the client. EPBS coders received a base pay with bonuses based on the

number of charts processed and were required to process 40 emergency room medical charts per hour, or the equivalent of a chart every 90 seconds. By contrast, a

competitor of EPBS requires 120 charts per day. The EPBS coders were able to

meet these quotas by taking short-cuts and disregarding information in the chart.

As the trial court noted, no coder at EPBS ever attended training or any other informational meeting regarding emergency department coding other than in-house

EPBS training and no coder ever contacted a physician with questions regarding a

chart.

After a trial in which the United States District Court for the Western District

of Oklahoma found EPBS and Dr. McKean liable under the FCA, the defendants

agreed to pay $15.5 million to resolve their civil and administrative monetary liabilities. In addition, Dr. McKean agreed to be excluded from participation in the Federal health care programs for 15 years and EPBS entered into a comprehensive CIA.

Currently, the Government is pursuing physician groups that benefitted from

EPBS’s fraudulent practices.

Insights Gained from these Investigations

These investigations, as well as program evaluations by the OIG and GAO, highlight the Federal health care program’s potential vulnerability to fraud by unscrupulous third-party billing companies. The insights gained from the investigations include:

• payment incentives such as percentage compensation arrangements can encourage abuse; • there is a loophole in the prohibition on reassignment rule; • training of billers and coders may be inadequate; • the ability to identify and track third-party billers is limited at best; and • standards for participation (certifications, qualifications or conditions) to act as

billing agents for Federal health care programs are non-existent.

Payment incentives can encourage abuse. There can be little doubt that payment

arrangements where billing companies are reimbursed on a percentage basis create

an environment ripe for abuse. The temptation to upcode or fabricate additional

services may be irresistible when the billing company’s compensation depends upon

the amount of revenue generated or claims submitted. For instance, EPBS was paid

by its physician clients based on a percentage of revenues, and in turn EPBS paid

its coders a base salary with bonuses based on the number of charts coded. Such

payment incentives discouraged coders from paying close attention to the adequacy

of documentation in charts to support the claim to Medicare.

Improper incentives appear to have been a factor in several of the cases discussed

above. Although we are not certain of the pervasiveness of these types of arrangements, our suspicion is that it characterizes many third-party billing arrangements.

Loophole in prohibition on reassignment rules. Although not addressed specifically

by the court in the EPBS case, the Government determined that the manner in

which EPBS was compensated by its clients undermined Medicare policy on reassignment. As a general matter, Medicare prohibits the reassignment of the right to

payment to persons other than the provider or supplier who delivered the service.

However, as an exception to this general rule, payment may be made to an agent

who furnishes billing and collection services to the health care provider if certain

conditions are satisfied. Among the conditions to be eligible for the reassignment,

the agent’s compensation may not be related to the dollar amounts billed or collected. In other words, Medicare will only pay a third party biller on behalf of its

clients when the agent has no financial interest in how much is billed or collected.

Unfortunately, it appears that some billing companies have constructed payment

arrangements that circumvent the intent of the Medicare rule. Rather than comply

with the prohibition on incentive payments, billing companies arrange for the Medicare payments to be made to the client for deposit in a bank account in the client’s

name, usually at the same financial institution where the billing company maintains an account. The money is typically held in the client’s account for twenty-four

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1Medical Billing Software and Processes Used to Prepare Claims, March 2000 (OEI-05-99-

00100).

hours or less, after which the Medicare funds from the individual provider client account are swept into the billing company’s general bank account. There often is an

agreement between the client and the biller that the former will not remove any

funds during the initial twenty-four hour period. Then the billing company remits

to the client’s account the reimbursement to which the client is entitled, minus its

percentage-based billing fee. And in the case of dishonest billing companies, they

also withhold the proceeds from fabricated, upcoded or other improper claims submitted in the name of the client. Under this ‘‘lockbox’’ arrangement, as it is often

called, the prohibition on reassignment of claims to an incentive compensated billing

agent does not apply because the payment is made directly to the physician and not

the agent.

Training may be inadequate. The OIG is not aware of any studies examining the

quality and extent of training provided by billing companies to their personnel.

However, certain facts are clear. First, the Medicare program does not mandate that

billing companies ensure that their personnel meet minimal training requirements.

While there are certain private organizations that train and certify coders and

Medicare contractors can provide certain coding and billing training, such certifications and outside training are not required by Medicare. Moreover, it is the OIG’s

understanding that to the extent that Medicare contractors issue educational guidance on billing and coding issues, such guidance is only sent to providers and not

to billing companies.

Third-party billing companies that choose to abuse the Medicare program can

take advantage of these system weaknesses. For example, EPBS did not send its

coders to any training or any other informational meeting regarding emergency department coding other than in-house EPBS training. Such in-house training was

highly problematic as it was based on an internal coding manual created by Dr.

McKean and did not incorporate the CPT manual, the primary tool used by Medicare to determine appropriate billing codes.

Ability to Identify third-party billers is limited. There are approximately 5,000

third-party billers in the United States. However, the OIG has just issued a report 1

on computerized billing systems that incidently raised the issue that HCFA’s ability

to identify these companies is limited. Likewise, it is unknown how many of the approximately 700 million claims per year processed by Medicare are submitted by

third-party billers. One reason for this uncertainty is that many billing agencies

submit claims to Medicare using billing and submitter numbers (unique numbers

assigned to billers and providers by HCFA for electronic claim submission) of the

providers for whom they bill. As the case of Handled with Care, Inc. demonstrates,

a scam artist can hide behind the identification numbers of a legitimate health care

provider and evade detection. Even if the billing company uses its own submitter

number, the electronic claims often are passed through clearinghouses that reformat

the claims and then submit them to Medicare. Under this situation, the initial

third-party billing number may no longer appear on the claim.

Standards for participation are non-existent. Given the inability to adequately

identify who is doing third-party billing, assessing the qualifications of these companies or their personnel is almost impossible. Currently, the Medicare program lacks

any standards or eligibility criteria for allowing third-party billing companies to prepare and submit claims to the program.

The magnitude of this vulnerability is highlighted by a recent advertisement for

a ‘‘step-by-step’’ business guide for medical claims processing services found in a

complementary airline magazine. For a mere $69 dollars, ‘‘How to Start a Medical

Claims Processing Service’’ promises that your ‘‘prescription for a healthy income’’

involves no more than owning a computer, printer, modem and claims processing

software. As the ad also notes: ‘‘There’s no training needed and . . . with health care

reform, the need for processors (and the profits to be made) will only increase.’’ In

short, without any type of certification process or minimal standards for third-party

billers, Federal health care programs shall remain vulnerable.

Suggestions for Reform

Based on its experience to date with third-party billing in the Federal health care

programs, the OIG has formulated some tentative suggestions for reform measures.

First, those who administer the Federal health care programs need an effective

mechanism to identify third-party billers when they participate in Federal health

care programs. This identification system should allow the programs to track billing

companies’ overall billing patterns, to link specific claims with particular billers,

and to require claims be submitted only from authorized sites. This may involve regVerDate 11-MAY-2000 13:48 Aug 16, 2000 Jkt 064741 PO 00000 Frm 00028 Fmt 6602 Sfmt 6621 E:\HEARINGS\64027 pfrm03 PsN: 64027
25

istering third-party billers and clearinghouses so as to provide an audit trail and

ensure that claims enter the Medicare system from authorized sources.

Second, Congress should consider measures to expressly prohibit the use of payment incentives in third-party billing contracts, no matter how the arrangement is

structured. In other words, the ‘‘lockbox loophole’’ should be closed.

Third, mandated minimal training as part of qualification standards may be a

way to discourage unscrupulous and ill-informed billers from gaining access to Federal health care programs and to ensure high quality participation by honest billers

who do participate. In the interim, we believe contractor education efforts should be

provided directly to billing companies rather than indirectly through providers.

Conclusion

I appreciate the opportunity to share the views of the Office of Inspector General

on this important subject. Special Agent Steve Lack and I welcome your questions.

Mr. BURR. Thank you, Mr. Morris.

The Chair would recognize Ms. Thompson for an opening statement and welcome.

TESTIMONY OF PENNY THOMPSON

Ms. THOMPSON. Mr. Burr, Mr. Bryant, good morning. Nice to see

you again.

Thank you for inviting us here to talk about this issue. The question of what we should do and what our relationships should be

with third-party billers is an area of growing interest and concern

to us, and we greatly appreciate this subcommittee’s interest and

support, as well as the efforts of the General Accounting Office and

the Office of Inspector General.

As has been said here, but bears repeating, third-party billing

companies who operate ethically can provide a valuable service in

helping providers and suppliers submit claims correctly, and actually they can participate in helping us ensure that those claims are

processed in an ethical and appropriate manner. But improper

third-party billing practices pose a significant threat to the program.

Under current regulations, we review these arrangements when

new providers or suppliers ask that their payments be made directly to an agent. Those reviews have led to an increasing compliance with our requirements around the financial arrangements as

delineated in our existing laws and regulations. But these billing

companies are not regulated when they do not actually receive the

payment for the provider directly and our overall ability to monitor

third-party billing practices is quite limited as discussed by both

the GAO and the OIG.

I would like to take this opportunity also to clarify one statement

in our testimony in our letter to the chairman around paper claims

which, as you have said and as the GAO and OIG have said in

their testimony, do not contain information on submitters or preparers. We are looking into that now to see what should be done

about that. Problems identified by us, by our OIG and GAO colleagues and others make clear we need to do more.

We are now working to strengthen the available safeguards to

better protect the Medicare trust funds from potential third-party

billing abuses. We are developing new provider enrollment regulations and a new enrollment data base, and these will help us gather information on third-party billing companies. The regulations

will require providers to periodically update their billing arrangements; and, in publishing the provider enrollment regulation, we

26

intend to solicit public comments on what we should do to further

strengthen our oversight of third-party billing companies.

In addition to our desire to appropriately collect information on

billers so that we can track claims and know who we are doing

business with, we also need to understand and assess the costs and

benefits of collecting that information, of changing electronic claims

submission standards, of setting and enforcing regulatory standards, and of overseeing private contracts. We also need to think

through what are the rights and expectations we have with the

physician and the suppliers and the providers who are providing

the service and contracting with these entities to help them with

their business functions and what special issues exist for thirdparty billers as opposed to billers employed by physicians, suppliers

and providers.

We also know that we need to consult with private insurers, who

largely treat third-party billers in exactly the same way that Medicare does, and in the interest of administrative simplification understand what changes we want to make to electronic claims transactions so that they apply to all billers and all insurers and not

just the Medicare program.

In the meantime, we will increase our efforts to educate providers and billing agents around the legal requirements for their

relationships, as well as how to file claims correctly, and we are

doing more in that regard every day. We are committed to working

with providers, billing agents, our OIG and GAO colleagues and

Congress as we proceed.

I thank you again for holding this hearing. I am happy to answer

your questions.

[The prepared statement of Penny Thompson follows:]

PREPARED STATEMENT OF PENNY THOMPSON, PROGRAM INTEGRITY DIRECTOR,

HEALTH CARE FINANCING ADMINISTRATION

Chairman Upton, Representative Klink, distinguished Subcommittee members,

thank you for inviting us to discuss our efforts to address concerns with third party

billing agents. This is an area of growing concern, and we greatly appreciate this

subcommittee’s interest and support, as well as the efforts of the General Accounting Office and HHS Inspector General.

Third party billing companies who operate ethically can provide a valuable service

to providers and suppliers who seek out their help in submitting claims correctly

and efficiently. These firms vary greatly, performing a wide variety of services from

simply formatting claims for submission to Medicare and private insurance companies to managing the entire ‘‘business end’’ of provider practices.

Improper third party billing practices can pose a significant threat to Medicare.

Under current regulations, we review these arrangements only when new Medicare

providers or suppliers ask that their payments be made to an agent. These reviews

have led to an increase in the number of third party billing contracts that are in

compliance with existing laws and regulations.

However, when billing companies assist in preparing bills or coding, but do not

actually receive payment, they generally are not regulated. Billing arrangements for

providers who entered the program before 1996 are not reviewed, and our overall

ability to monitor third party billing practices is quite limited. Problems identified

by us, our HHS Inspector General and General Accounting Office colleagues, and

others make clear that we need to do more.

We are working to strengthen the available safeguards to better protect the Medicare Trust Fund from waste, fraud and abuse. We are developing new enrollment

regulations and a new enrollment database for all providers. This database will

gather information on third-party billing companies. The new enrollment regulations will require providers to periodically update information, including their billing arrangements.

27

And, in publishing the provider enrollment regulation proposal this spring, we intend to invite public comments on how to address challenges in better oversight of

third party billing companies. For example, the costs and benefits of collecting additional information, changing electronic claims submission standards, setting and enforcing regulatory standards, overseeing private contracts, and other possible risk

mitigation strategies must be weighed. There also may be unintended consequences

and marketplace responses to any actions that should be carefully assessed and considered.

Background

Third party billing companies can take on many different forms, structures, operations, functions and relationships with providers. Billing companies vary significantly in both the size and reach of their organizations and functions, from small

‘‘mom and pop’’ organizations who only facilitate the electronic submission of claims

to large business organizations providing coding, claims submission and consulting

services. As the U.S. Department of Health and Human Services Office of Inspector

General noted,

‘‘It is important to note the tremendous variation among billing companies in

terms of the types of services and the manner in which these services are provided to their respective clients. For example, some billing companies code the

bills for their provider clients, while others only process bills that have already

been coded by the provider.

‘‘Some billing companies offer a spectrum of management services, including

accounts receivable management and bad debt collections, while others offer

only one or none of these services.’’ (HHS OIG, ‘‘Compliance Program Guidance

for Third-Party Medical Billing Companies,’’ page 3.)

False Claims

Billing companies that engage in behavior that gives rise to false claims can be

held accountable under the False Claims Act. One such case was brought through

qui tam or ‘‘whistleblower’’ lawsuits. The firm, Emergency Physicians Billing Service, had promised its clients it would increase their reimbursements by 10 to 25 percent. Unfortunately, it did so by ‘‘upcoding,’’ or filing claims for a higher level of

service than was actually delivered. Reassignment violations and misrepresentations on Medicare enrollment applications were also identified.

In a settlement agreement last fall with the federal government and 28 individual

states, the firm and its owner, and J. D. McKean, Jr., M.D., agreed to pay $15.5

million. In addition, McKean is excluded for 15 years from participation in any federal health care program. The firm has entered into a comprehensive Corporate Integrity Agreement with the Inspector General. And the federal government is negotiating additional settlements with approximately 25 emergency physician groups

that were clients of the firm.

This case serves as a national example of improper billing perpetrated by third

party billers. We, along with staff from five Medicare contractors, participated in

this investigation, performing data analysis directed at detecting the improper billing, suspending Medicare payment, and calculating the losses to the program.

In fact, one of the contractor employees received a commendation for their exemplary performance during the investigation from the Department of Justice.

Current Oversight

Our current ability to detect such abuses is limited. Medicare does not have a direct business relationship with such entities, and the only oversight authority we

have is to review arrangements for new fee-for-service providers who have entered

the Medicare program since 1996 and requested that their payments be made directly to a third party billing agent.

Medicare claims processing contractors conduct reviews for these requests to ensure compliance with the statutory requirement that the provider’s compensation to

such an agent not be related in any way to the dollar amounts billed or collected.

These reviews have led to an increasing number of such agreements coming into

compliance with the statute and regulations. As the health care and billing communities have become more aware of these requirements and our enforcement of them,

we see more contracts expressly containing language supporting our requirements.

However, thorough assurance of compliance with the law is hampered by:

• the resource-intensive process for reviewing lengthy, complicated legal documents;

• the capacity of contractors to accurately and fully understand such documents;

• variability in the nature and scope of agreements and the complicated corporate

structure reflected in such agreements, where it is not unusual to find a number of subcontractors involved in various functions;

28

• lack of penalties for failure to inform Medicare when such agreements change;

and

• the limited number of providers and suppliers required to submit such information.

Our ability to identify when third party billers have been involved in submitting

claims is also limited. Paper claims include a space for listing the ‘‘source’’ or ‘‘preparer’’ of the claim. And electronic claims differentiate whether the claim was sent

by a third party agent or directly by a provider. However, we are not able to identify

all entities that may have had a role in processing and filing a claim.

For example, if a third party billing company coded the claim and sent it to a

clearinghouse that formatted the claim for electronic submission to the Medicare

program, only the clearinghouse information would be evident on the claim.

New Enrollment Process

We are taking steps to improve our oversight of third party billing arrangements.

We plan to issue this Spring a proposed rule that would, among other things, require periodic verification of provider enrollment data and reporting of changes in

third party billing arrangements. Once the proposed rule is finalized, we will begin

an ‘‘enrollment clean up’’ process and require providers and suppliers to confirm and

update their information, including information on third party billing arrangements.

We also are developing a new national database, the Provider Enrollment, Chain

and Ownership System, that will include extensive information on providers, including information on providers’ billing arrangements and any reassignment of benefits. It also will include information on chain ownership and related organization information, which is essential because it allows us to identify when a provider or supplier is part of a larger organization, and to view the entire line of business. This

will also allow a local contractor to view national data about an individual or entity

rather than simply the data that appears on a local provider file. And it will better

identify providers and suppliers who have been denied privileges, or subject to revocations or exclusions.

Even with this new system and our enrollment ‘‘clean-up’’ process, outstanding

issues remain. These include:

• identifying common ownership among billing entities or ‘‘linking’’ agencies that

might operate in different jurisdictions;

• regulating billing agents to ensure adherence to professional standards; and

• our lack of information on third party billers who do not negotiate checks or submit claims directly to the program.

We are seeking to answer many of these questions through comments to proposed

regulations.

In our proposed provider enrollment regulation, we will solicit comments on several approaches to better oversight of third party billing agents. Among the issues

we are considering in regulation billing agents:

• Should we register billing companies, and/or set standards for them?

• Would we need additional legislative authority to do so?

• Should such standards apply only to entities that actually submit claims and receive negotiated checks on behalf of providers?

• Should such standards apply to all entities that might advise, consult, prepare,

support, staff, or otherwise influence the selection of codes and claims to be submitted to the Medicare program?

• How should such standards reflect the diversity in capability, organization, mission, functions, and relationships in the industry?

• How would we enforce such standards?

• What staffing and skill set needs would we require in order to ensure billing companies met standards and agreements were properly executed?

• How should claims properly reflect the preparer’s identifying information? What

if there are multiple preparers or submitters?

• To what extent would providers, suppliers, and physicians support Medicare regulation of their business contracts and partners?

• To what extent is surveillance and assessment of billing patterns a better approach to ensure compliance than registration or standard setting?

• What information would be needed to accurately group claims handled by a common third party billing company?

• If Medicare were to regulate business arrangements with third party billing companies, what impact would such regulation have on the private sector and the

arrangements between providers and third party billers in submitting claims to

private insurance companies and, overall, would those effects be positive or negative?

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Answers to these questions are necessary before we can proceed in taking further

action to address third party billing concerns.

Education Efforts

In the meantime, we will increase our efforts to educate providers and billing

agents about legal requirements for their relationships, as well as how to file claims

correctly. One of the task orders we have for our special new program integrity contractors specifically focuses on developing educational strategies for third party billers.We want to build on the success we achieved in working to educate billing agents

about how to be prepared for the Year 2000 information system challenge. These

efforts helped to ensure that these billers were aware of our format requirements,

Y2K compliance standards, and testing standards. Our claims processing contractors aggressively pursued testing with these submitters to assure their systems

were ready for Y2K. And these billers helped us in setting up a major conference

to bring together these organizations and Medicare contractors to discuss testing

and implementation strategies and timetables.

We intend to pursue similar avenues of education on other issues of importance

to third party billing initiatives. For example, we have already contacted a major

association to invite key billers to participate in education sessions for the new outpatient prospective payment system. We will continue dialogue with these organizations on future, significant changes to Medicare’s claims processing systems. And

these relationships should help contribute to a climate of cooperation in all our efforts, including those related to program integrity.

CONCLUSION

We are making some progress in addressing concerns about third party billing.

Our new provider enrollment system and database will help us make additional

progress. However, we clearly have much more to do to fully protect program integrity in this area. We are committed to working with providers, billing agents, our

IG and GAO colleagues, and Congress as we proceed. I thank you again for holding

this hearing, and I am happy to answer your questions.

Mr. BURR. Thank you, Ms. Thompson.

The Chair would recognize Mr. Burleigh for his opening statement.

TESTIMONY OF ROBERT B. BURLEIGH

Mr. BURLEIGH. Chairman Burr, distinguished members, I have

the honor of representing the Healthcare Billing and Management

Association today as Chairman of HBMA’s Ethics and Compliance

Committee and consultant to the Association’s Board of Directors.

HBMA is a voluntary membership organization and is the only

trade association representing third-party billing companies. The

Association’s primary goals are education, promotion of ethics and

compliance and advocacy.

On behalf of HBMA, I would like to thank the committee for the

opportunity to appear today to address your interest in developing

methods to identify those who submit claims to federally sponsored

health care programs. We are pleased that the Commerce Committee, in addition to its responsibilities regarding oversight of

Medicare, has some interest in the Small Business Administration,

since almost all of our members are small businesses. Our member

companies employ nearly 20,000 nationwide processing and an estimated 650 million claims per year, worth an estimated $55 billion.

However, most of our member companies have fewer than 25 employers. We have attached a one-page profile of our membership to

our testimony.

HBMA and its members share your commitment to preventing

and detecting fraud and abuse in the Medicare program. Indeed,

HBMA takes great pride in our compliance activities, putting us in

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the forefront of efforts to prevent fraud and abuse in third-party

billing. Having said that, it is our view that the potential for the

commission of fraud by third-party billers is no greater than the

potential for fraud committed by physicians’ offices that bill Medicare directly.

Let me begin by emphasizing that HBMA strongly supports the

goal of protecting the integrity of the Medicare program and other

federally funded health care programs. We have worked for over 4

years with HHS’s Department of OIG on the development and promotion of the Model Compliance Guidance for Third-Party Billing

Companies.

Beginning in February 1999, HBMA began conducting a compliance education program for its members and non-members to support implementation of the Model Compliance Guidance for ThirdParty Billing Companies released the previous November.

We are pleased to report that several hundred third-party billing

companies have completed our course, in spite of the fact that our

registration fee is seven times higher than the fee charged for national meetings.

Interestingly, had the third-party billing company cited in today’s

GAO report been a HBMA member or had they attended our compliance course, they might have known that what their client was

doing was improper. Our compliance course specifically discusses

the need for third-party billing companies to be aware of the potential that criminal enterprises, intent on generating fraudulent

Medicare claims, may seek out legitimate third-party billers to

serve as a front for their criminal enterprise. It appears that the

conduct cited earlier is exactly such a case.

Every Medicare claim, regardless of its origin or mechanisms for

delivery to HCFA’s contractors, carries with it a risk of either being

fraudulent or manipulated in such a way as to cause an overpayment by the Medicare program.

It is also important, as we engage in this dialog on how to prevent Medicare fraud and fraudulent billing, that we do so with an

understanding that, no matter how creative we may be in establishing mechanisms for prevention or detection of fraud, we realize

that we will never be able to eliminate deliberate billing fraud.

The analysis prepared by the GAO and the OIG made constant

reference to third-party billing companies without attempting to

define the use of that term. This is important because the issue is

far more complex than it would appear to the layman. Certainly a

separately incorporated company offering billing services is a billing company. Our full testimony outlines the variations that illustrate the complexity of the issue.

The number of variations in billing service relationships is nearly

infinite and they change constantly, usually driven by entrepreneurs, concerns over excess operating costs by billing companies

and/or changes in technology. We are concerned that any initiative

to register claim submitters would overlook large segments of the

industry that regularly handle some part of the claims preparation

and/or submission process.

We have considered the list of potential factors that might be involved in the registration of Medicare claims submitters, and our

31

full testimony outlines 12 potential problematic concerns relating

to how a billing company or submitter would be registered.

As we read the OIG’s report, it appears the sole basis for concluding that the Medicare program is at risk due to claim submission by third-party billers is that an additional party has been

added to the claim’s processing chain between the practice and the

contractor. The fact that more than 30 billing individual/entities

have been excluded from participation in the Medicare and State

Medicaid programs seems to be the only thing of evidence that

there is a problem.

We noted that the report contains numerous examples of incorrect understanding of how the industry operates, how practices use

billing services, how the software industry serves practices and billing companies; and the report reaches a number of inaccurate conclusions regarding the types and levels of risk associated with

claims handled by billing companies, clearinghouses and medical

practices. HBMA would be willing to itemize these concerns, although it may be unnecessary, as we know that the identity of each

and every party involved in presenting a claim for a party would

be beneficial to reducing fraud and abuse. This may not be economically or technically practical.

Of the companies identified by the OIG in their data base, we are

pleased to report that none of the excluded individuals or companies is or was a HBMA member. What is not clear is whether the

potential for fraud is any greater at different points in that chain.

In other words, is a claim handled by a third-party biller any more

likely be used to commit fraud than a claim submitted directly by

a physician’s office? We suggest an equally reasonable conclusion,

given that we have so few billing entities excluded from the Medicare program. It is that claims submitted by third-party billers are

less likely to be erroneous and therefore less likely to be fraudulent.

We have made a number of specific comments regarding our reaction to these proposals.

In the interest of time, I would like to conclude by thanking the

committee for inviting us to participate in this very important process, and we look forward to your questions and to further participation in this important matter.

[The prepared statement of Robert B. Burleigh follows:]

PREPARED STATEMENT OF ROBERT B. BURLEIGH, VICE PRESIDENT, PRACTICARE

Chairman Burr and Distinguished Members of the Committee, my name is Robert

B. Burleigh and I am Vice President of PractiCare; I direct my company’s healthcare

consulting practice, known as Brandywine Healthcare Consulting Group, a firm I

founded in 1988. Today I have the honor of representing the Healthcare Billing and

Management Association (HBMA) as Chairman of the HBMA’s Ethics and Compliance Committee and Consultant to the Association’s Board of Directors. HBMA is

a voluntary membership organization and the only trade association representing

third-party medical billing companies. The Association’s primary goals are education, the promotion of ethics and compliance and advocacy.

On behalf of HBMA, I would like to thank the Committee for the opportunity to

appear today to address your interest in developing methods to identify those who

submit claims to federally sponsored healthcare programs. We are pleased that the

Commerce Committee, in addition to its responsibilities regarding oversight of Medicare, is also responsible for the Small Business Administration, since almost all of

our members are small businesses. Our member companies employ nearly 20,000

nationwide, processing an estimated 650 million claims per year, worth an estiVerDate 11-MAY-2000 13:48 Aug 16, 2000 Jkt 064741 PO 00000 Frm 00035 Fmt 6602 Sfmt 6621 E:\HEARINGS\64027 pfrm03 PsN: 64027
32

mated $55 billion; however, most of our member companies have fewer than twentyfive employees. A one-page profile of our membership is included at the end of our

written testimony.

INTRODUCTION

HBMA and its members share your commitment to preventing and detecting

fraud and abuse in the Medicare program. Indeed, HBMA takes great pride in our

compliance activities, putting us in the forefront of efforts to prevent fraud and

abuse in the third party billing industry. Having said that, it is our view that the

potential for the commission of fraud by third party billers is no greater than the

potential for fraud to be committed by physician’s offices that bill Medicare directly.

Let me begin by emphasizing that the HBMA strongly supports the goal of protecting the integrity of Medicare and other federally funded health care programs.

We have a long and well-established record of working with the House and Senate,

HCFA, the HHS OIG, the GAO and the OMB and other government agencies on

a wide variety of matters, most of which involve Medicare and compliance in some

way. We are currently working with HCFA’s Office of Program Integrity and OMB

on improvements to the provider enrollment form (855) and processes as well as

having had meetings last year on the subject of today’s hearing; we have worked

for over four years with HHS’s OIG on the development and promotion of the Model

Compliance Guidance for Third Party Billing Companies; we have testified about

and submitted comments on Congressional and HCFA proposals regarding patient

privacy and confidentiality; and, of course, we intend to carefully review and comment on the upcoming Model Compliance Guidance for Physicians.

Beginning in February 1999, HBMA began conducting a compliance educational

program for HBMA members and non-members to support implementation of the

OIG’s Model Guidance for Third Party Billing Companies released in November

1998. This intense, 31⁄2 day course is based on HCFA’s model compliance program

guidance for third party billers. HHS’s OIG, U.S. Attorney’s Office and the FBI have

each provided guest speakers for our programs. The response to this program from

the third party billing community has been overwhelming. Each of the three conferences presented in 1999 sold-out; the first presentation for 2000 has already

shown strong registration. We are pleased to report that several hundred third

party billing companies have completed our courses in spite of the fact that the registration fee is more than seven times the fee for our regular educational meetings.

Moreover, compliance has been an educational topic at every HBMA National and

Chapter meeting since 1995.

Interestingly, had the third party billing company that has been cited in today’s

GAO’s report been an HBMA member or had they attended our compliance course,

they would have known that what their client was doing was improper. Furthermore, had the billing company followed our compliance training, it would have

‘‘fired’’ or reported the customer. Indeed, more and more of our members report that

they have found it necessary to ‘‘fire’’ customer(s) because the client has refused to

cease its (apparently) suspect behavior. Our compliance course specifically discusses

the need for third party billing companies to be aware of the potential that criminal

enterprises, intent on generating fraudulent Medicare claims, may seek out legitimate third party billers to serve as a front for their criminal enterprise. It appears

that the conduct cited earlier is exactly such a case.

Every Medicare claim, regardless of its origin or mechanism(s) for delivery to

HCFA’s contractors, carries with it a risk of either being fraudulent or manipulated

in such a way as to cause an overpayment by the Medicare program. Our goal, and

we believe the goal of this Committee, is to reasonably reduce the extent to which

this can happen and create a mechanism where auditors can more readily detect

those instances of fraudulent billing that may occur. We also believe that the Medicare program’s best source of protection is the partnership of a medical practice with

an effective compliance program and a billing company with an effective compliance

program; rather than increasing risks to the program, this relationship would double the program’s protection. With two compliance programs at work, the chances

of errors, as well as deliberate misconduct are sharply reduced. We are happy to

report that such arrangements already exist and are a growing trend as our members encourage their clients to develop and implement their own compliance programs.

It is also important, Mr. Chairman, as we engage in this dialogue on how to prevent fraudulent billing, that we do so with an understanding that no matter how

creative we may be in establishing mechanisms for the prevention and detection of

fraud, we realize we will never eliminate deliberate billing fraud. The simple reason

is that the creativity of the criminal mind knows no bounds. Just as sophisticated

33

bank vaults do not stop determined bank robbers from their crimes, no system of

registration, auditing or oversight, will prevent a criminal from defrauding Medicare.

DEFINITIONS AND CLASSIFICATIONS

The analysis prepared by the GAO and the OIG make constant reference to ‘‘third

party billing companies’’ without attempting to define their use of the term. This

is important, since the issue is far more complex than it would appear to the layman. Certainly, a separately incorporated company offering billing services is a billing company. But...

1. What about the medical practice that, for tax reasons, has incorporated its own

billing office under another identity?

2. What about the claims clearinghouse to whom claims are sent by medical practices and/or billing companies?

3. What about the billing software vendor serving as a ‘‘collection station’’ who then

forwards the claims on to a clearinghouse, or the software vendor that serves

as a clearinghouse itself.

4. What about the claims editing vendor who edits the claims on their way to the

software vendor and/or clearinghouse?

5. What about the collection agency to whom uncollected claims are referred by the

practice after the billing process (the practice’s or their billing company’s) has

failed?

6. What about hospital-owned practices, billed by the hospital under the identity of

its MSO (Management Service Organization)?

7. What about insurers who own practice(s) and provide billing?

8. What about the company that provides off-site printing and mailing of paper

claims as a subcontractor to the practice and/or the practice’s billing service?

9. And, of course, what about the Practice Plan providing centralized or de-centralized billing support for medical school faculty?

The number of variations in billing and service relationships is nearly infinite,

and they change constantly, usually driven by entrepreneurs, excess operating costs

and/or changes in technology. It is impossible to anticipate the number of combinations and variations of claims handling: to register only one party (a billing company, if a clear definition can be constructed) would be unfair and would not achieve

the apparent goal of this initiative; to register and track all of the possible combinations could become impossible. We are concerned that any initiative to ‘‘register’’

claims submitters would overlook large segments of the industry that regularly handle some part of the claims preparation and/or submissions process.

THE REGISTRATION PROCESS

We have considered the list of potential factors that might be involved in the registration of Medicare claims submitters. Listed below are some of the aspects of this

potential process that we consider potentially problematic:

1. How is a ‘‘billing company’’ defined?

2. By whom would billers be registered? HCFA, the Carrier(s), or another central

source?

3. How would ‘‘registration’’ be accomplished? A simple name, address, telephone

and FEIN #, or a long, detailed ‘‘855-style’’ form? How could a new ‘‘billing company’’ begin business without a number, and how could it be a ‘‘submitter’’ without one?

4. What would be done when the ownership and/or or management of the ‘‘billing

company’’ changes? What would be considered a ‘‘reportable’’ change?

5. How many ‘‘registration(s)’’ would be required? One, or one for each type of claim

(Physicians, Hospitals, DME Companies, Home Health Agencies, Nursing

Homes, Ambulance Services, etc.)?

6. Would ‘‘registration’’ discriminate against billers and discourage their use?

7. How would ‘‘billers’’ with multi-state constituents be affected?

8. Would the practice handling its own billing be registered? If not, why not?

9. Where in the Uniform Data Set would the biller registration number be located?

10. Where on the HCFA 1500 form would the number(s) be printed?

11. How much lead time would be required for Carriers, Intermediaries, software

vendors, clearinghouses and others to adapt their systems? (We estimate three

to five years.)

12. Is a ‘‘submitter’’ a company or a person?

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THE OIG’S REPORT

We have had an opportunity to perform a preliminary review of the recently released Inspector General’s report entitled, ‘‘Medical Billing Software and Processes

Used to Prepare Claims.’’ Before addressing the specific recommendations made by

the OIG, I would first like to comment on the information gathering process used

to develop these recommendations.

As we read the OIG’s report, it appears that the sole basis for concluding that

the Medicare program is at risk due to claims submissions by third party billers is

that an additional party has been added to the claims processing chain between the

practice and the Medicare contractor. We found no information presented in the

OIG report to demonstrate that there is direct evidence of a third-party billing company problem. The fact that ‘‘more than 30 billing individuals/entities have been excluded from participation in the Medicare and state Medicaid programs’’ is the only

thing approaching evidence of a problem.

We noted that the report contains numerous examples of incomplete or incorrect

understanding of how the billing industry operates, how practices utilize billing

services, how the commercial billing software industry serves practices and billing

companies, and the report reaches a number of inaccurate conclusions regarding the

types and levels of risk associated with claims handled by billing companies, clearinghouses and medical practices. HBMA would be willing to itemize these concerns,

although it may be unnecessary, since we agree with the broadest conclusion of all—

that knowing the identity of EACH AND EVERY party involved in presenting a

claim for payment would be beneficial to reducing fraud and abuse. However, this

may not be economically or technically practical.

The OIG’s Report notes that ‘‘it is estimated that there are more than 5,000 third

party billing companies. To date, ‘‘more than 30’’ (the OIG’s online database reports

exactly 30 individuals and/or companies) have been excluded from the Medicare and

Medicaid programs. That is six tenths of one percent of the number of companies

that may be submitting claims to Medicare or Medicaid. To further put this in context, we noted that according to the OIG’s web site, more than 40 federal or state

employees have been excluded from participation in the Medicare or Medicaid programs. Finally, in terms of the magnitude of this problem within the overall context

of Medicare fraud, only 30 of the nearly 18,000 individuals or entities (or .0016) excluded from the Medicare program are classified as third party medical billers. I am

pleased to report that none of the excluded individuals or companies is or was an

HBMA member.

Incidentally, the only HBMA member ever adjudicated of a claims-related violation was promptly suspended from membership, pending the court’s determination

of the penalties to be imposed. That company is now under a Corporate Integrity

Agreement, has had its ownership restructured, and we have asked the new President to apply for and justify reinstatement or face termination of its membership.

Mr. Chairman, we believe it is fair to conclude that every individual or organization that ‘‘touches’’ a Medicare claim is in a position to commit fraud with respect

to that claim, including the contractors who process them. What is not clear is

whether the potential for fraud is any greater at different points in that chain. In

other words, is a claim handled by a third party biller any more likely to be used

to commit fraud than a claim submitted directly by the physician’s office?

We believe that there is little or no clear evidence of a problem and we are troubled by the OIG’s conclusion on page 9 of the report that states: ‘‘Inability to assess

whether a claim came directly from a provider or passed through the hands of a

third party represents a vulnerability in Medicare program safeguards.’’ We suggest

that an equally reasonable conclusion—given that there have been so few billing entities excluded from the Medicare program—is that claims submitted by third party

billers are less likely to be erroneous and therefore less likely to be fraudulent.

Now to the specific recommendations and a preliminary reaction to these proposals: Due to the fact that we only learned of these proposals very recently, the

Association leadership has not had an opportunity to discuss these recommendations nor consult with our members. Consequently, the comments I make about

these recommendations are the views of someone with over 30 years of experience

in health care billing and not those of the Association. We will, however, discuss

these proposals with our membership and provide you with an organizational position in the near future.

1. Identification and registration of all clearinghouses and third-party billers.

In concept, we support the idea of identification of clearinghouses and third-party

billers. However, we suggest that this should be broadened to include everyone who

submits claims to government payers. In other words, the claim should not only

35

identify whether the claim was submitted by a third party billing company, it

should identify whether the claim was submitted by an employee of the practice,

and all of the (many) others who may have handled the claim prior to submission.

We would also suggest that because many third party billers handle billing for

practices located in multiple states, the identification/registration process should be

national and not carrier specific. Some of our members have a national clientele

spanning dozens of states; the prospect of securing and keeping track of dozens of

submitter numbers is daunting, to say the least.

In addition, the majority of our members utilize commercial billing software. None

of the programs currently contain a provision for such an identification number. We

predict that it will take the software industry two or more years to accommodate

a new data element requirement and the transmission of it. Medicare Carriers may

need even more time.

2. HCFA should only accept electronic claims from authorized sites and terminals.

Please refer to our comments, above, under THE REGISTRATION PROCESS.

In addition, we do not understand the report’s reference to ‘‘terminals.’’

3. HCFA should educate the provider community concerning their liability for erroneous claims submitted to Medicare using their provider number.

Educating the provider community is laudable and we would welcome HCFA’s assistance in this area. Our members go to great lengths to educate their clients about

their legal responsibilities. These are not the third party billers claims, they are the

practices’ claims. We are merely acting as the agent for the practice and we are

therefore dependent upon the quality of information we receive from them to prepare and submit their claims. The old saying, garbage in, garbage out, is particularly relevant to third party billers.

On all of these issues, Mr. Chairman, the HMBA is eager to work with HCFA

and HHS’s Office of the Inspector General to develop standards that are fair, equitable and reasonable in view of the scope of the potential problem.

As I mentioned in my description of the third party billing industry, the majority

of third party billers are small businesses. For some, this is literally a cottage industry; some third party billers are home-based businesses. If requirements are created

that are costly or create an environment that suggests that practices that use third

party billers are subject to a higher level of scrutiny, it could reduce the desirability

of using a billing company and could put some companies out of business. HCFA

staff has indicated that they view third party billing companies as an ally in preventing improper claims rather than being a source of them.

In conclusion, Mr. Chairman, we welcome the support of Congress and the Health

Care Financing Administration as the billing industry does its part to prevent fraud

and abuse and we appreciate the opportunity to participate in this important matter. Our budget is, of course, more limited than those available to the Medicare program. We believe it is possible to develop a system that provides a higher level of

confidence in the third party billing process while at the same time ensuring that

a role for billing experts continues to exist. If reforms in this area result in the diminishment or closure of third party billing companies, we believe that the result

will be more errors in claims submissions and at least the potential for more fraud

and abuse.

I would be happy to answer any questions you may have.

Mr. BURR. Thank you, Mr. Burleigh. Thank you for your reminder to those of us on this committee that when that pendulum

on the clock swings from one direction to the other, we have a tendency to let it go too far. I think you raise a good warning to us as

it relates to some things I am sure members will ask questions on.

Let me thank all of our witnesses for their testimony.

Let me especially thank the OIG for making Special Agent Lack

available. The OIG has a policy that generally prohibits field

agents from appearing in congressional hearings, and we very

much appreciate their accommodating our request to have Agent

Lack here accompanying Mr. Morris. Given that they prefer that

special agents do not directly testify, I will let my first question go

to Mr. Lack so that he can answer a question versus testifying.

I would ask you, if you would, to share with us anything about

the third-party billing cases that you have investigated and also

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comment on the vulnerabilities that exist in the Medicare program

relating to third-party billing, Agent Lack.

Mr. LACK. Well, the case that was highlighted in Mr. Morris’s

testimony was Handle With Care. What exemplifies the vulnerability to the program is that Handle With Care billed under the

premise of different nursing homes. They would go to a nursing

home and they would tell them what appeared to be a legitimate

pitch—that they were missing charges that they could legitimately

recover. The company said to the nursing homes, ‘‘It would be no

loss to you, we will bill on your behalf, and the government will

pay you, and then you just cut us a check for 50 percent.’’ So, it

seemed like no loss to the nursing home. It seemed legitimate,

since the check would come from Medicare to the nursing home.

The billing company proceeded to prepare a claim for surgical

dressings, using a surgical diagnostic code, and the computer logic

went: ‘‘Surgical dressing, surgical code, pay,’’ and then paid the

nursing home, and eventually ended up paying 70 nursing homes

in the same way.

We didn’t know that there was a billing company out there. It

ended up we had several cases in the United States open on this

kind of problem, not realizing we were dealing with one company.

One thing about companies that are questionable is they want to

get in; they want to get the money; and they want to get out fast;

and that is what happened with Handle With Care.

By the time we determined that it wasn’t the nursing homes’

fault, it was this company, the company ceased to exist. In fact, it

had split into two companies. The sisters had a disagreement and

each went her way forming her own billing company, now billing

other nursing homes. We knew Handle With Care, but were figuring out we got a new company.

We then attempted to find out who this new company was. Our

problem was there was no data base with which to determine this.

We were lucky in being able to determine what codes were being

used and queried the system on those codes. We found, in fact, one

of the sisters was actively engaged in this fraud as we were working. We were able to mount an undercover operation and get her

to pitch us and find out, one, how this pitch worked; and, two, how

the mechanism worked that they got it through.

The highlight of the vulnerability was this billing company was

masquerading as nursing homes. That is a particular problem

highlighted by that.

Another case called ‘‘Physicians on Call’’ from the late 1980’s,

that was my first experience with billing companies. In that case,

the company recruited brand new medical graduates and said, ‘‘We

will start you up with a medical practice visiting nursing home patients, because they have to be seen every 30 days. We will get you

a Medicare number. We will take care of the hassle for you, because, I think the regulations are somewhat difficult.’’ Both Handle

With Care and Physicians on Call oversold the difficulty of it and

got people to say, ‘‘Well, if it is too difficult, you know what you

are doing.’’ These doctors gave permission to use their number or

to get a number and use it to bill. What they didn’t realize was the

usual fee for an intermediate visit was padded by Physicians on

Call as an extensive visit. The Medicare contractor sent the check

37

to Physicians on Call, thinking it was going to the doctor. Physicians on Call cut a check back to the doctor for what should have

been billed and kept the remainder, which was the fraudulent portion of it.

The Medicare system actually worked in its analysis of utilization by these physicians. The system found these physicians were

billing high for these types of services and did an analysis, finding

the payments were not typical. The Medicare contractor called the

physician in. The physician said, ‘‘I didn’t bill you; somebody else

billed you.’’ But Medicare said, ‘‘This is your number on the check;

you are the one we paid; it is an overpayment; and you are eligible

to be excluded from the program.’’ This surprised the brand new

physicians. They called Physicians on Call, and, like Handle With

Care, Physicians on Call said, ‘‘We would like to help you, but we

are out of business; we have no money; and good luck.’’

So that also highlighted the masquerading of a billing company.

Mr. BURR. Let me say, for the purposes of the witnesses and

members, it is the intent of the Chair not to keep a clock on members and to be a little more informal because of the few number

of members that are here. I would just ask all members not to

abuse that, including myself.

Ms. Thompson, would you like to comment on what you have just

heard from the standpoint of the Health Care Financing Administration?

Ms. THOMPSON. Well, as I mentioned in the testimony, we do believe and agree with all that the GAO and the OIG have said about

what we don’t know about third-party billers. My question is, what

is the right set of solutions to respond to that? As I hear some of

the cases described, for example, I wonder to what extent, had we

registered billing agents, that that would have really addressed the

problem, for example.

In a lot of instances, for example in the case that Mr. Hast talks

about, it seems to me there is a person masquerading as a provider

that really isn’t a provider. That is something that we should be

catching and dealing with in our provider enrollment process.

In the cases that Mr. Lack is describing, it seems to me one of

the issues is providers or suppliers or physicians basically delegating their responsibilities and saying I am not going to worry

about this, I am not going to pay attention to what is going on, I

am going to have my contractor deal with all of these issues, not

looking at the information that is being submitted, not looking at

the kinds of claims that are being submitted, not doing any doublechecking, not asking about what are the credentials of the people,

what are your quality control procedures, do you have ways of ensuring that claims that are being submitted are correct.

So I worry a little bit about rushing to a false solution that

makes it appear as though we have really addressed the problem,

but the fundamental vulnerabilities still remain.

Again, that is one of the reasons I raised the question about

what is the right set of expectations for the physicians and the suppliers and providers who are doing business with some of these

companies. What should they be doing? What are the right set of

expectations for us to place on them to say, you can’t simply delegate away this responsibility and decide you are not going to worry

38

about it anymore, you are not going to care about it anymore, you

are not going to look at information being submitted to the program on your behalf?

Mr. BURR. Let me share with you a personal frustration on the

part of this member. With only 6 years of experience at serving on

this committee and looking at our health care delivery system as

it is currently designed, I think one of the frustrations that I have

is that it seems that the fraud and abuse initiatives of the Health

Care Financing Administration are, in fact, the results of congressional hearings and the investigations of GAO and OIG. It is not

an internal evaluation of the vulnerabilities that exist in our system and a proactive initiative by the Health Care Financing Administration to make sure that we have a system in place that does

not require Special Agent Lack to, in fact, be on the job. I am not

trying to put him out of business. I can assure you we have got

plenty for him to stay after.

But I share that with you in an open way, to tell you that this

is a frustration. It seems that our level of interest in fraud and

abuse is driven based upon the threat of a possible congressional

hearing on a specific area. I would hope that, in the future, those

initiatives are something that can be determined prior to fraud and

abuse being committed, to the degree that it can be.

I would also take this opportunity to tell you this is not a member that believes that we will increase the solvency of Medicare by

another 50 years because we can squeeze out fraud and abuse. I

think that publicly that is sometimes the belief that is conveyed

from this institution to the American people. But clearly we have

a responsibility for the fiscal integrity of Medicare regarding how

the money is being spent.

The Chair would recognize Mr. Bryant for questions.

Mr. BRYANT. Thank you, Mr. Chairman.

I was going to start with Mr. Lack on a question, but I want to

start with Ms. Thompson, because I think you hit on a good point,

something that I am sitting here thinking about, and you partially

answered my question. But in this relationship that is set out,

where the health care provider is entitled to be paid, and a lot of

these health care providers have actual employees on the payroll

where they are responsible for the billing process and getting the

right codes, and I assume they take great care to properly train

these people and make sure, for instance, that they are not upcoded, that they are coded properly—we will talk about that in a

minute. There are those out there like that.

Then we have got this situation where many use the intermediary, the third-party people that Mr. Burleigh represents in his

Association.

You talk about the expectation thing. Let’s talk about legalities

here. What is the legal relationship, in your view, between a health

care provider and this third-party person I assume they contract

with to handle the administration of their claims?

Ms. THOMPSON. Largely we have treated that as a private transaction, like how any provider or supplier or physician might decide

to arrange their practice in a way that makes sense to them in

terms of their employment practices or in terms of whether they

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39

ploy auditors to look at their practices, whether they employ compliance training firms to come in and help them develop compliance

programs and so forth.

So we have seen that as sort of a subcontract type of arrangement, where the provider, the supplier, the physician is basically

our prime contractor, and they have subcontractors who may specialize in certain areas or assist them in certain areas, but ultimately they are the ones responsible, they are the ones making

those selections, they are the ones assessing the qualifications and

capabilities of those kinds of entities.

Mr. BRYANT. Okay, you said something at the end that may have

answered my question. You said, ultimately, the buck stops there;

they are responsible. Do you accept the premise that the providers

have legal liability, legal exposure, for the fraud and abuse that

person they have contracted with, their subcontractor, perpetrates

on the United States Government? Do you take that position? If so,

do you go back after the health care providers in a civil fashion to

recover the dollars? Does that happen?

Ms. THOMPSON. Yes. But I would offer perhaps Mr. Morris to expound more on that.

Ultimately, yes, the payments are made to the provider, regardless of whether or not they select an agent who helps them collect

that payment and post accounts receivables and so forth. If there

is an overpayment, it does get taken back from that provider.

Whether or not they are legally culpable, of course, in a civil or

criminal matter will in some part depend upon whether or not they

meet the legal standards for reckless disregard and so forth.

Mr. BRYANT. One angle we are talking about today where it is

not the provider cheating, it is the provider’s third-party subcontractor, there are all kinds of answers to this; and we can talk

about maybe HCFA ought to set some standards and requirements

for these third-party payers to come in and be qualified. But it

seems to me the simple solution is to look back to the health care

provider with whom we have the contract with, who has deep pockets. If they can’t be any more careful in who they subcontract with

or who they oversee or check, some of the people where they are

being cheated, they don’t catch that, if they can’t be more responsible, then they are the ones that owe us the money.

I am wondering why we are here trying to find a solution at the

Federal level in overseeing this, when it is just a simple matter of

going back to that provider and saying, I am sorry, but the folks

you trusted abused the system and committed fraud or abuse, and

we had to overpay them, so therefore you owe us this.

Maybe by making some examples—and I have friends that are

health care providers, and I hate to lay it on them, but they are

the ones responsible. By letting them know in a clear, visible, financial way that then maybe they will be more careful in who they

hire and be more careful in overseeing and making sure that these

folks they hired are not cheating. To me, that is the simple solution

to this aspect of third-party fraud and abuse.

Mr. BURR. Would the gentleman yield for 1 second? I know Mr.

Morris wants to answer the question you asked, but let me turn

to Mr. Lack for just a second. Because you got on the inside. You

understand—you got pitched.

40

Mr. LACK. Yes.

Mr. BURR. I guess my question would go right at the heart of

what Mr. Bryant is raising. Did you find that the pitch really did

feed off of the difficulty that doctors have any assurance that they

are in compliance with what the rules and regulations are?

Mr. LACK. Yes. As a matter of fact, with the pitch that we received, we portrayed ourself as a nursing home chain seeking the

assistance of Handle With Care. As part of it, we had an agent acting as a medical records technician, saying, ‘‘Why can’t we do this

ourselves? Why do we need you?’’

And what we got pitched back was, ‘‘Medicare doesn’t want you

to know how to bill. It is a secret. It is a trade secret. And you

know how difficult this is, and we have been at this for years. We

used to work for an intermediary.’’ Which was not true. Most of it

was puffery and fabrication. But we would not have known that as

a company. We would have had to check their references.

And they had very good references, by the way, extremely good

references. Because of all the other nursing homes—the nursing

homes didn’t know they had been defrauded originally. The first

one they went to in Seattle, they went to work for a week, and

Medicare cut a check to the hospital—the nursing home was owned

by a hospital—for half a million dollars. The hospital would say,

‘‘This came from Medicare. How can it be fraudulent? It went

through the system. Everything is fine.’’

It wasn’t until those claims were reviewed at our request 2 years

later that the fraud became evident. Medicare processed those because the computer thought they were fine. It is surgical dressing,

surgical diagnosis. The computer didn’t ask the critical question:

‘‘What are surgeries being done for in a nursing home?’’ The computer just did what it was told to do.

In that case, it appeared to be a legitimate transaction. This

nursing home was very happy. Actually, they enlisted the help of

a large law firm, a law firm that specialized in health care matters,

and they underwrote Handle With Care for the tune of a couple

million dollars, saying this is great. This law firm was then representing Handle With Care and getting clients for it. When they

come to us, they come to us with representatives from the Seattle

hospital, which is a legitimate major concern, and representatives

from this legal firm that was legitimate. So, for all intents and purposes, it appeared legal.

Mr. BRYANT. But it seems to me again we are chasing the wrong

horse here. It is a simple matter that the health care provider is

liable for the subcontractors, at least in terms of not going to jail,

but in terms of paying that money back if we put that onus to pay

money back on the provider, that sounds good.

These folks are doctors. They go to medical school. They have

MBAs running their hospitals and clinics and so forth. These are

smart people. They are going to have to get the message that, yes,

if these folks cheat, we are going to ultimately be responsible, as

they would be in any such legal relationship. This is not an exceptional case for doctors and hospitals. It seems like, anyway, that

would be the simplest solution.

Those people, like the third-party payers who commit fraud,

criminal fraud—and my question to you was going to be, do you

41

ever see any of these people go to jail? Or is it always just they

are on a list somewhere and they can’t do this for a while or they

have to pay the money back? But do any of them go to jail?

Mr. LACK. In the Handle With Care case we were successful in

all avenues. One of the sisters went to prison for 3 years. The other

went to prison for 5 years. We brought civil actions against the

nursing homes because we held them responsible for not looking at

nine claims. They should have asked more questions. The main

question is, ‘‘If I get a check for $500,000, I don’t want to miss that

in the future. What did we do wrong?’’

So we recovered—of the $7 million that was offered paid, we recovered $5 million of it in civil settlements against 15 of the nursing homes.

Mr. BRYANT. Without being abusive, let me just thank you for

your answer and commend you for sending some people to jail that

need to be in jail for a while, and let Mr. Morris make your comment.

Mr. MORRIS. Although you are correct that both the provider, in

this case the nursing home or the physician and the third-party

billing company, are responsible for the claim and the False Claims

Act specifically addresses those who submit or cause to be submitted a false claim, there are three potential challenges to the solution you proposed.

The first is that ofttimes we cannot find all the providers that

a third-party billing company has enlisted, wittingly or unwittingly, in its scheme. As Mr. Lack explained in his case, we did not

realize that there was a common thread to separate investigations.

So it may be, even when we close down a crooked third-party billing company, we never learn all of those who intentionally or otherwise benefited from its scheme.

The second problem is that, many times, the amount of money

that a particular provider receives as a result of these schemes is

relatively small. When we are talking about millions of dollars in

fraud taking place in our programs, we obviously have to allocate

resources. So a $15,000, $20,000, $30,000 fraud, although not insignificant and is money that should come back to the trust fund, may

not warrant the sort of attention that a $1 million fraud has. Even

if we know who the health care provider is that benefited from a

crooked third-party biller, it may not be an appropriate use of our

resources to go after that one. Finally, we are always mindful of

providers’ ability to pay.

If we take money back from a provider who thought it was receiving legitimate payment for legitimate service, that is money

that comes off of their bottom line. Ofttimes we are confronted with

the situation of having to ask whether it is better to walk away

from a known debt and allow a provider to continue to provide

quality services to needed patients or to insist on that money being

repaid.

So both the challenge of finding these people in a timely fashion

and actually getting the money back in a cost-effective way makes

the idea of just going back to the provider and holding them accountable have some challenges to it.

Mr. BRYANT. If I might just respond, I understand the economies

of scale on this, and I appreciate that, but I think, again, if we put

42

the burden on the—where it should be, we could accomplish a great

deal. We are not going to get every case, obviously, but issues like

small amounts, relatively small amounts like $30,000, it seems to

me if you know that money is owed, send a letter to them, like in

overpayments in the past we have done that. Of course, I hear from

my hospitals and doctors when you do that. I say, why are you all

being so hard on them? But that is what you might need to do, particularly if there is a pattern there.

Again, I think I am interested in sending a message out there

that we have to—this is a problem and we have to be careful about

this. I am not so sure it is HCFA and those of us sitting in the

room that have to be that careful, we should, but the legal burden

is on the people in the contract with them, to check them out better

and to monitor what they are doing better, and maybe the way to

get their attention to do this is through the pocketbook.

Mr. MORRIS. If I could add one last point—and we agree with

that approach, we have issued a number of compliance guidelines,

one in particular to third-party billing companies. We are now

working on a compliance guideline, a voluntary guideline, for physician practices. One of the issues we will be addressing in that set

of best practices is the need to make sure they know who they are

contracting with, consultants, third-party billing companies and the

like.

Mr. BRYANT. We will let Mr. Burleigh speak after a while on

this.

Mr. BURR. I think Ms. Aronovitz would like to add something.

Let me say as I move to it, I have been sitting here thinking as

Mr. Bryant has talked about physicians entering into this agreement and what Mr. Lack said trying to figure out what drives

them, with my belief that we do have a very confusing system. I

don’t quite give the credit to physicians. They are educated, they

are intelligent up to a point. I think business is not a course that

they teach in medical school, nor was tax preparation.

I sit here waiting for my taxes to come back. I contracted with

somebody that I thought was capable, reputable, and the fact is

that I am at the mercy of the calculations they come to. They will

ask me to look them over. If I was smart enough to catch the mistake, I would have done the damn thing myself. But the fact is that

I am not capable of doing it because of the confusion and the difficulty of wading through a Tax Code that I am not educated

enough to do.

I don’t know that that is necessarily——

Mr. BRYANT. When the IRS comes back and you underpaid, who

pays that?

Mr. BURR. They come to me.

Mr. BRYANT. You get a different accountant next year.

Mr. BURR. I am not questioning that fact. But the same way I

would look at the Tax Code and say does it have to be this difficult,

I would look at your quarterly booklet of new regulations and say,

does it really have to be this difficult.

Ms. THOMPSON. If I may make a comment about that, in these

cases, as is often the case, because often we hear this, our rules are

complex, and some of them are—but these are services that weren’t

rendered, every claim submitted was submitted at a higher code.

43

These are things, if anybody had been paying one degree of attention to the claims submitted, they would have known they were

wrong.

Mr. BURR. Clearly, you are right. I think my point was more on

the motivational factor of the contract being entered into originally.

I think when we choose somebody who has the references, who we

have the confidence in, we tend, because we are not experts, to

trust the conclusions that they come to. I think Mr. Burleigh said

it. We will never weed out all the bad apples.

Ms. Aronovitz.

Ms. ARONOVITZ. I think we are talking about an issue that is—

this a fundamental issue in terms of the way HCFA uses very limited and valuable safeguard resources to identify problems that

arise.

I think Mr. Morris said the key thing when you talked about how

we could get HCFA to systematically identify providers that have

been either victimized or a part of a situation where one problem

third-party biller has engaged in erroneous or fraudulent billing.

The problem right now, and one of the concerns we have, is that

HCFA, in identifying a situation where there is a third-party biller

and going after one provider, it can do that. But what it cannot do

is link that third-party biller with all the other providers who

might have been involved and systematically deal with them as one

case.

I think Special Agent Lack and Mr. Morris both described the

extra resources and intellect it took to finally realize that this one

third-party biller was behind quite a few different fraud schemes

around the country. That is unacceptable. If there could be a way

to link in either a data base or some automated approach which

would then get to identifying individual providers or third-party

billers in a more systematic and constructive way——

Mr. BURR. Hopefully—we all hope the outcome of this hearing is

to stimulate the thought processes as to whether this is a way to

design that, and clearly I think we can.

Before I recognize Mr. Stupak, let me just ask one question of

Ms. Thompson. You said to Mr. Bryant that you consider this to

be one entity, the physician and the contractor as one. We have

new proposed regulations as it relates to health care privacy. Do

you consider that the third-party billing agent is under the guidelines that you extend to the physician as it relates to health care

privacy?

Ms. THOMPSON. I am not the privacy expert, and I know that

those are fairly complicated rules. We will get you an answer for

the record. I believe that is the case.

[The following was received for the record:]

Yes, the proposed rule, which implements the privacy provisions of the Health Insurance Portability and Accountability Act of 1996, would apply to the third-party

billing agent of the physician.

The third-party billing agent, who is under contract to perform services for the

physician, is a contractor. While the proposed privacy rule applies to three types of

covered entities (e.g., health plans, health care clearinghouses, and health care providers who transmit any health information in electronic form), its provisions also

pertain to the business partners of covered entities. Section 160.504 of the regulation describes a business partner as a person to whom the covered entity discloses

protected health information to assist in the performance of a function or activity

and includes ‘‘contractors or other persons who receive protected health information

44

from the covered entity... including lawyers, auditors, consultants, third-party administrators, health care clearinghouses, data processing firms, billing firms, and

other covered entities.’’ Clearly, the third-party billing agent falls within the purview of a business partner.

In section 160.506(e)(1) of the regulation, covered entities are required to have

contracts with their business partners to ensure that the business partners appropriately safeguard protected health information. This means that business partners

of covered entities are required to comply with the same privacy rule standards for

the use and disclosure of protected health information as covered entities.

Therefore, the proposed privacy rule requirements for protecting health information would apply to the physician’s third-party billing agent.

Mr. BURR. So wouldn’t that really compel you to want to know

who that third-party billing agent is?

Ms. THOMPSON. Our instincts are to want to know who the thirdparty billing agent is. That is why we are collecting that information on our enrollment forms. When we have fully implemented our

new enrollment process, it will do it.

Miss Aronovitz has talked about collecting information on thirdparty billers, to be able to allow us to make some linkages about

which providers third-party billers are associated with, for the purposes of looking at claims and doing analysis and supporting investigations and so forth and so on. There are some issues with that.

Ms. Aronovitz talks about the fact it is self-reported data. That is

true. We are going to be setting out requirements asking for periodic updates of that information. It is also true, though, if someone

fails to do that, our recourses are somewhat limited. People will

say, well, I overlooked it. I didn’t update the information. But it

was an oversight.

So I think that there are some issues with that, but I think it

is going to provide a lot richer data for us in order to be able to

aggregate and analyze claims that are being handled by a thirdparty source.

Mr. BURR. I just want to make sure I understood you. As director

of the Medicare Program Integrity Group, you weren’t consulted in

an integral way about the privacy regulations that HHS was proposing?

Ms. THOMPSON. Yes, I was, but I am not the privacy expert, and

I don’t have in front of me all of the answers to who falls under

what rubric.

Mr. BURR. Mr. Stupak is on a very tight schedule, I know, and

I don’t want to take away from that, but I am going to come back

to this, because I think the implications of the privacy issue are

enormous. I saw Mr. Burleigh start writing. I think I have raised

an issue that he should be very interested in, too, in taking your

interpretation and understanding of how these two tie together.

Mr. Stupak.

Mr. STUPAK. Ms. Thompson, in response to Mr. Bryant you said

something like, this case was very simple. No one was paying attention. They were overpaying false claims. I think 87 percent of

the claims filed were false by this BMS. Who should have been

paying attention? Who should have been overlooking the data that

comes in?

Ms. THOMPSON. Well, clearly, it is one of our responsibilities, in

terms of analyzing the claims, that we receive to assess whether

or not those claims are correct and appropriate for payment. Obviously, with 1 billion claims, it is very difficult for us to collect a

45

medical record on each one of those claims or to go out to the providers or the beneficiaries onsite and document that those claims

were actually rendered.

Mr. STUPAK. If you have the responsibility, then where is the accountability then? Who do we hold accountable when we get cases

like this?

This isn’t something that just happened. I entered Mr. Dingell’s

report from GAO, which was June 1999, but I know this has been

on the radar screen for several years now and doesn’t seem like we

are any closer to a solution to this problem.

So while maybe people are willing to accept responsibility, I

guess we are still not getting accountability here. How do we go

about implementing this so it doesn’t continue to happen?

Ms. THOMPSON. I have to say that I always want to caution people about the idea of how do we fix the problem of people submitting claims that aren’t true, and there isn’t an easy, silver-bullet

answer to that. If there was, we would do it, and we would put the

OIG out of business, and they could go home and move on to other

areas of fraud.

Mr. STUPAK. That is not realistic. I said it has been going on for

a couple of years. The GAO report in June 1999 put forth conclusions that it should be done. What has been done to implement the

conclusions of almost 10 months ago? Anything?

Ms. THOMPSON. We have had many conversations about what

steps we need to take, and I think that part of my testimony is

pointing out that two sentences saying you should register billing

agents who collect this data doesn’t quite reflect the complexity

which Mr. Burleigh discusses, about the kinds of questions we need

to answer so we are not imposing a regulation on the industry, that

really doesn’t accomplish what any of us want it to accomplish and

creates administrative burdens and new requirements without

really addressing the underlying vulnerability.

Mr. STUPAK. You said you have had some conversations, and the

two lines you put out in your statement there, those suggestions

have been around even before June 1999, even before that report.

So how many more years are we going to have conversations before

we actually get some implementation of something?

Ms. THOMPSON. Mr. Stupak, implementation of what? What

would you like us to do?

Mr. STUPAK. Just start with the third-party billing. Let’s start

with the identifications and identify who they are.

Ms. THOMPSON. So what are the answers to the questions that

Mr. Burleigh and I have raised in our testimony about who we

should classify as a third-party biller, and what standards should

be set for them, and what is the registration process so that we can

validate the information that we receive?

Mr. STUPAK. Well, the rule of law under HCFA says the person

who receives it is the provider, right? You have to have a provider

number, right?

Ms. THOMPSON. Right.

Mr. STUPAK. Someone applies to you. They are either a provider

or not. So if they are not, I think they would fall into third-party

billing.

46

Ms. THOMPSON. We don’t enroll third-party billers. We enroll providers. I think the question is whether or not we should enroll——

Mr. STUPAK. Hasn’t the recommendation been for some time now,

even before the June 1999 report, that it is time to enroll these

third-party billers?

Ms. THOMPSON. Yes.

Mr. STUPAK. So other than just having discussions among yourselves, what have you been doing to get the process off the ground?

Ms. THOMPSON. We are not prepared to say that we agree that

that is the right solution.

Mr. STUPAK. If that is not the right solution, then what is your

suggestion as the right solution?

Ms. THOMPSON. What we are inclined to do is say, yes, we need

to have a process for tracking claims so that we can understand

who is associated with the preparation of those claims. Again, the

response to that—I think we also need to be clear about what that

information is going to give us, and whether or not we can be confident about the reliability of the information—to the extent we

have collected information from providers, for example, on who

their third-party billers are, as Ms. Aronovitz points out, how confident are we that information is being updated and that information is correct, or in absence of a registration process, how well we

link commonly owned, say, third-party billers from one to another.

Mr. STUPAK. To summarize, you are really not sure what you

should be doing yet. You haven’t made a decision yet.

Ms. THOMPSON. That is one of the reasons we are very happy to

have this hearing and work with the committee on what are the

proper responses.

Mr. STUPAK. Let me ask Ms. Aronovitz and Mr. Morris. Each of

you know the GAO report was completed for Mr. Dingell in June

of last year highlights a number of weaknesses regarding the way

HCFA tracks third-party billing. Since that report was issued, can

you tell me of any material changes HCFA has made to corrects

these problems?

Ms. ARONOVITZ. I think in our report last June we did not actually take on the idea of registration. We were concerned with some

other fundamental problems about activities that HCFA had

agreed to do, and that was to update its provider enrollment data

base and to develop its automated system. We see that there are

some real gaps in reliable and complete and timely information in

those two efforts, and our hope is that, at a minimum, HCFA will

consider ways to deal with those gaps.

Mr. STUPAK. Those two gaps——

Ms. ARONOVITZ. Those still exist right now.

Mr. MORRIS. In a report we issued earlier this week entitled

Medical Billing Software and Processes Used to Prepare Claims,

one of our conclusions was there was a need for identifying and

registering all clearinghouses and third-party billers, and there

was a need for improving safeguards. HCFA agreed with those recommendations. I don’t think we are finding resistance from HCFA.

As Ms. Thompson indicated, the question is how to do that effectively.

One of the problems we have seen, not just in the third-party

billing context but all of the interfaces we have with providers or

47

their representatives, is how do we know the information is accurate and updated? So one of the balances is, if you get all this information in, can you rely on it and what do you do with it?

We do think there are vulnerabilities. I think Ms. Thompson

made it clear she acknowledged that as well. To answer your specific question, I am not aware of any changes from the summer.

Mr. STUPAK. Mr. Burleigh?

Mr. BURLEIGH. Well, I think that this is probably a good point

to make several comments on, but to respond specifically to your

question, the idea that a third-party billing company is a thirdparty billing company oversimplifies this.

For example, a medical practice might, for tax reasons—and

there are a number of examples of this—incorporate a separate

identity to employ all of the staff involved in its billing, and they

do that because they can have separate pension funds and so forth.

Is that a billing company? Their only customer is the owner of the

billing company. It is a different name.

Some of those organizations provide billing services to other

practices. Gee, I am having trouble with my billing, and my colleague tells me they are doing pretty well, so I will hire my colleague and their practice to do my billing. They use commercial

software. Because of the aggregation and sort of critical mass required for claims submission, it is not unusual for the software

vendor that provided the software to become a collection point for

the claims. They then forward that to a clearinghouse.

Mr. STUPAK. That may all be true, but, again, if you rely on 42

USC 1395, it says that payments made to a beneficiary or under

assignment to the medical provider who provides the service——

Mr. BURLEIGH. That is how it works.

Mr. STUPAK. [continuing] whether they set up a corporation to do

their billing or anything else, it if it is supposed to be to the provider, if it is not the provider, then I think it is a third-party.

Mr. BURLEIGH. The payments are not made to the third-party.

The payments are made to the practice.

Mr. STUPAK. The third party does the billing, right?

Mr. BURLEIGH. That is right.

Mr. STUPAK. So they should have a separate identification number, separate from the doctor or the hospital providing the medical

service.

Mr. BURLEIGH. The complication is the number of third parties

involved in that process explodes. The practice hires a third-party

biller. The biller is a relatively small organization. They transmit

the claim that they have prepared to the software company whose

software they are using. The software company aggregates them

with others, forwards it to a clearinghouse.

Mr. STUPAK. That may be all true. Maybe I am taking a little

hardheaded approach here, but this has been going on for some

time. I don’t think it is that difficult to identify a provider and

third-party biller. I mean, we just were talking about our taxes.

Most of us probably have someone else do our taxes. That person

who prepares our taxes has his identification or her identification

number on there. I still have to sign it. I still have to put my John

Hancock on there. If there is a problem, I am still responsible.

48

But, you know what? There is a provider number for that accountant or CPA firm or H&R Block or if Burr is doing my taxes,

heaven forbid, he has to have one. The point being, I don’t think

it is that difficult to identify these third parties if we get at it instead of continue discussions and make up excuses—you know, different scenarios how we could get around it. If we do it with the

Tax Code, which everyone says is the worst thing in the world to

deal with, why can’t we do it with something like this?

Mr. BURLEIGH. We agree conceptually identifying who we are is

not a problem. The concern is that, in terms of the practical process, if the billing company has touched a claim, put their number

on it, if the software company that they sent it to has touched the

claim and could theoretically participate in some fraudulent

scheme, put their number on it also, it then goes to a clearinghouse, and they have the same opportunities, you have got to put

their number on it as well. There are additional variations of that.

There are billing companies and practices alike who subcontract to

have their paper claims handled by a third-party, even though they

do their own electronic claims, or they have other contractors do

that. The industry has become very, very complicated.

Mr. STUPAK. Probably with all the rules, we made it more complicated. Why don’t we just call a summit between all the stakeholders next month and have them come in and get a grip on this

thing and fix the thing?

Mr. BURLEIGH. We would be happy to do that.

Mr. STUPAK. That is one positive thing I heard. Go ahead, Ed.

Mr. BRYANT. I thank my friend from Michigan.

Before you arrived, we were talking about this issue, and I think

it has become even more complicated.

Mr. Burleigh, I appreciate your explanation in terms of the way

the system works sometimes. It appears we have got multiple layers now of subcontractors, and that subcontractor is subcontracting, and as many as maybe two or three, which seems to be

something of a defense here, that, well, that is part of the problem.

That is why there is abuse and fraud. We don’t know who is doing

it, but we are not doing it. Somebody else is doing it.

I am not saying HCFA doesn’t have an obligation and others

don’t have an obligation at the top end to look down. But, ultimately, all of these layers of subcontractors—the legal responsibility goes back to the provider who hires the first subcontractor.

And it seems to me that is—I know it is an oversimplification, but

if we start going back against some of my colleagues back home

who operate clinics and doctors’ offices and hospitals and really letting them know I think they have a legal obligation to the taxpayers to be more responsible in who they bring on and monitoring

who they bring on so we don’t get hit with this fraud and abuse—

this is not to say you don’t have a responsibilities, too, but I think

we are missing a key component here. I know we are doing it some,

but I think we could do a better job of getting that message out.

I yield back.

Mr. STUPAK. Mr. Burleigh, has HCFA contacted you, your business, PractiCare, on your input on the problem?

Mr. BURLEIGH. We have had an ongoing dialog with Ms. Thompson’s office and with the Office of the Inspector General and others

49

in the government. Because, as an association, we viewed this as

an obligation that we have to be proactive, to have a clean house,

to be a strong advocate for compliance in every respect, to promote

it with our members and our members’ customers.

You will see in my written comments that we have even advised

our members that it may become necessary for them to fire a customer if they have a problematic practice who has asked them to

do things that they are not comfortable with. So we are very much

in favor of keeping a clean process and supporting compliance, as

long as it is realistic and practical, and as long as it really is not

a false solution, as Ms. Thompson said. Because you can know who

we are, and there are so many others involved in the process that

you really have not addressed the issue.

Mr. STUPAK. Well, you know, as I think Ed pointed out in his

opening statement, he has only been on here—he is in his first

term. Mr. Burr and I have been on here for some time, 6 years at

least, and it seems like we are always dealing with the same thing,

always getting the answer we are working on it, and nothing gets

done. From this end of the dais, it gets frustrating. When I suggested a summit between the stakeholders next month to fix it, I

hope HCFA picks that up. Is there any objection to having a summit and getting it resolved?

Ms. THOMPSON. I think that is a wonderful idea. As we noted in

our testimony, we plan—our upcoming provider enrollment regulation asks for public comments on what steps we should be taking

to strengthen the oversight of third-party billers. That could be, actually, a very helpful sort of precursor to wider opportunity for

public comment on what steps we should be taking.

Mr. STUPAK. Thank you, Mr. Chairman.

Mr. BURLEIGH. If I could just add one thing, last year we met—

our immediate past president and our current treasurer, two of our

board members met with Ms. Thompson and her staff to talk about

this specific issue; and we also participated in a conference call

with the GAO staff, who were also exploring this on behalf of Congressman Dingell. So we have been active and wish to continue to

be active in assisting the committee and developing a solution.

Mr. STUPAK. Active discussions are great, but we want active,

concrete action.

Mr. BURR. I thank the gentleman.

I see that we have been joined by several more of our colleagues.

The Chair would recognize Mr. Green for the purposes of questions.

Mr. GREEN. Thank you, Mr. Chairman. I ask unanimous consent

to have a statement placed in the record.

[The prepared statement of Hon. Gene Green follows:]

PREPARED STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF TEXAS

Thank you, Mr. Chairman for scheduling today’s hearing. The problems of waste,

fraud and abuse in the Medicare program is a continuing one and this Committee

must remain vigilant if we are to ever start making progress toward diminishing

it.

Today, we are examining the role of third party billers in the Medicare system.

Because of their access to billing information from the health care providers and

their patients, these companies, should they be inclined, are in a unique position

to commit fraud with a low chance of discovery.

50

Part of the difficulty in tracking this fraud is that HCFA currently has no way

to determine whether or not providers are submitting claims themselves, or if they

are using a third party billing company.

In the example that the GAO will present to us today, a woman from Sugarland,

Texas added a new twist. She operated as a broker between doctors providing mental health services to nursing homes and another, reputable third party billing company, using her access to doctor and patient information to improperly bill Medicare

for $1.3 million dollars.

This case, currently under review by the U.S. Attorney’s office in Houston, should

serve as a call to action, not just to this Committee, but to HCFA, to implement

regulations that will put an end to this type of behavior.

Again, I commend the Chairman for calling this hearing and look forward to the

testimony of the witnesses before us today.

Mr. GREEN. Mr. Morris, your office, the OIG, released a report

suggesting that HCFA register all claims and clearinghouses and

all third-party billers. Following up on my colleague from Michigan, in that report OIG suggested HCFA cannot identify most of

the clearinghouses and billing agencies. I think that is what we

heard in the last series of questions.

First, what are the implications of this finding; and, second, Ms.

Thompson, after Mr. Morris, does HCFA agree with the IG’s findings in that it cannot identify most of the clearinghouses and most

much the billing agencies and all of the people that may touch

those? Mr. Morris?

Mr. MORRIS. The implications of that recommendation are we

would have then a data base by which we could draw patterns and

identify overarching practices and individuals. I think the analogy

of a needle in the haystack, this would allow us to use a magnet

to pull that needle out. It would give us another tool to be able to

identify problems which are broader than a single provider. So it

would be very helpful to us.

Mr. GREEN. Ms. Thompson?

Ms. THOMPSON. We did concur with the OIG recommendation as

we have been discussing. We do believe we need to develop more

information and have more information on the clearinghouses and

third-party billers involved in our process and have some plans and

efforts under way to increase the amount of information that we

collect on those billers.

Mr. GREEN. Okay. That includes the whole gambit, as Mr.

Burleigh talked about, of people who—everyone that may touch

that particular claim?

Ms. THOMPSON. I think that is one of the issues that we need to

sort out a bit better. Because there is a question, for example, as

to whether or not we would want to reach in to, say, a small practice environment in one of our rural States where there is a parttime contractor who comes in perhaps on a weekly basis to prepare

a claim. Do we really want to regulate that kind of person and set

standards for that kind of person? Does that kind of person need

to register? So we do need to have some conversations about where

to draw these lines and who we want to define as a third-party biller and who we really want to know about and track.

Mr. GREEN. If that part-time contractor all of a sudden from that

rural State that does it part-time all of a sudden started billing

three or four times what is expected, you need to have some mechanism to identify that.

51

Ms. THOMPSON. That is right. There are some available mechanisms where we might be able to see that. In fact, at least in one

of the cases that was discussed here today it was a contractor actually performing focused medical review, which is one of our program safeguard activities, that actually identified the vulnerability

and identified the improper payments and actually triggered the

investigation. So I think, again, the question is, do we—you know,

where do we want to draw the line? Is it on everyone who may influence or who may participate in a coding decision? And to what

extent, for example, would we want to set standards if we are

doing that for employees, say, of a physician’s office?

Mr. GREEN. Mr. Morris?

Mr. MORRIS. If I could just add, there is a way of looking at this

that expands the analysis beyond just clearinghouse registration.

As we note in our written testimony, Congress recognized as early

as the early 1970’s paying billing companies based on a percentage

of the revenues they bring back to the client is an incentive to

cheat, because the more you bill the program, the more you can

take off the top.

This is what we have seen in Handle With Care. They took 50

percent of the receivables. It is what we see with physician billing

practices. If you can inflate claims because you are going to get a

percentage of each claim that goes in in dollars, that creates an incentive. Anonymity creates an incentive to cheat, because, if no one

knows what you are doing in the dark corners, it is one more temptation. Registering third-party billing companies addresses the

issue of anonymity, but we should also be thinking about whether

there should be an expressed, clear prohibition against incentive

billing.

The way the Congress set the reassignment requirements up,

there is such a prohibition. But, as we note in our written testimony, there is a very easy way that one can circumvent that by

having the payment first go to the physician who then promptly reassigns it to the third-party billing company.

What happens is physicians will have all the money come into

an account and authorize its third-party billing company to sweep

that account every 24 hours. So from the appearance of HCFA, it

is making a payment to a physician and thus none of the reassignment rules apply. Yet, in reality, the third-party billing company

has swept that account, taken all the money out and, if operating

on a percentage basis, has every incentive to inflate the claims that

went into that account. So as we think about this, it is not just a

question of registering third-party billing companies and facing the

challenges of dealing with small providers and the like, but it is

also going to the fundamental incentive that anybody has to inflate

services in order to get a greater share of the fraud.

Mr. GREEN. Again, from what we have heard today and the suggestion of my colleague, Mr. Stupak, do you think HCFA is moving

forward with what they are talking about, just from the little bit

of time here?

By the way, Mr. Chairman, I apologize. I was at the telecom

hearing downsize. Governor Gilmore was there, and very seldom

does a lowly Member of Congress get to question a Governor of a

State.

52

Mr. BURR. My only hope is I can touch you before you go.

Mr. GREEN. But do you think HCFA is on the road to drafting

new regulations or addressing the concerns that the OIG has?

Mr. MORRIS. I think so. I think, as Ms. Thompson indicated, this

hearing, our reports, the GAO reports, all add logs to that fire. I

think certainly they intend to try to address this as best they can.

Mr. GREEN. Do you have any other suggestions that HCFA could

do? Obviously, hopefully you communicate with each other more

often than when we have these congressional hearings every 6

months.

Mr. MORRIS. One other suggestion we would offer, and it is in

our written testimony, is, in addition to knowing who we are dealing with and cutting out the incentive to cheat through these incentive payments, is that there be efforts made to ensure that

third-party billing companies are adequately trained and know

what they are doing.

In my written testimony I reference an advertisement we came

across in an airline magazine, where for $69 you could get into the

business of medical billing company services. It is quite remarkable, if I could read from it.

For a mere $69 you can pick up a book called ‘‘How to Start a

Medical Claims Processing Service’’ that promises that your prescription to a healthy income involves nothing more than owning

a computer, a printer, a modem and claims processing software.

The ad goes on: ‘‘There is no training needed; and with health care

reform, the need for processors and the profits to be made will only

increase.’’

We think that kind of inducement to bring people in who don’t

know what they are talking about to this line of work creates another vulnerability.

Mr. BURR. Would the gentleman yield for a second? I just want

to take this opportunity to point out, I am sure this is not an ad

that the association took out.

Mr. BURLEIGH. That is right.

Mr. BURR. I don’t want there to be any link there. That ad just

on its face suggests that you have to have some type of application

or ID number or something that eliminates an ad like that from

filtering anybody into this business it can.

One real specific question: In your proposals, your No. 1 was you

have got to have an ID. I heard Ms. Thompson say we are not convinced that that is a necessity. I understand Mr. Burleigh’s reluctance, because sometimes our actions to tighten an opening that is

there becomes very onerous, and we are going to stay focused on

that as we look for solutions to make sure it is not overburdening

on stakeholders.

But there is a distinct difference. You are making a specific proposal with a great deal of confidence that this is one of the things

we need to do. You are saying we don’t know. I am hearing that

you are talking to OIG. I don’t think you didn’t know that he would

make this proposal. I think you have probably shared it with him.

Mr. MORRIS. We talk frequently.

Mr. BURR. Had you ever seen that ad?

Ms. THOMPSON. No, although it was very scary to me, because it

was very reminiscent of some ads we used to see for home health

53

agencies about 15 years ago. We don’t see them any more. But it

is a very scary kind of ad.

Again, I want to clarify, we do believe conceptually that registering billing agents is something that we should do. The question is less what than how.

Appreciating all the kinds of issues that Mr. Burleigh brings to

the table, as we have discussions about how would you react to

that and would you be supportive of that kind of an approach—and

the general answer again is, conceptually, yes, but now what information are we collecting? Some of this gets down to the details

about how onerous is this going to be. How high is the bar going

to be? Can you decline to register me? On what basis would you

decline to register me and basically then sort of make me unable

to do business with providers who are billing the program?

Mr. BURR. Clearly, based upon our reimbursements, if that were

a home health ad today, we could bring them up on false advertising. They can’t aspire to making a profit being in the business.

Mr. GREEN. I just have one last question.

Mr. Burleigh, you remarked in your testimony that your Association is concerned with, and in the last line of questioning, any initiative to register claim submitters would overlook large segments

of the industry that regularly handle some parts of the claims preparation and submission process. Mr. Burleigh, how do you achieve

accurate accountability over the entire Medicare payment chain

without your having to register each and every participant involved

in handling or submitting a Medicare claim? In other words, what

is the best solution for tracking ancillary or third-party billers that

play some role in preparing these Medicare claims?

Mr. BURLEIGH. The methodology has to be divided, first, between

electronic claims and paper claims, because there continues to be

claims that require attachments and other documents that have to

be go on paper, and there are still insurers who will not accept

claims electronically. So on the tracking electronic claims, our view

is it would require there be an identification number or an identification mark of some kind that would be attached by each party

that handled the claim, and that would require space for probably

five or six possible additions to the claim before it got to the payer.

The physical aspects of that, the technological aspects of that—

there is a very well-established data set, and the time required to

reprogram the contractor’s computers to receive the information,

the vendor’s computers to transmit the information, the practice to

keep track of all of that information, would be very time-consuming, and we have to begin wondering to what benefit?

To go back to what Ms. Thompson said about the possibility that

we have a false solution, we agree that identifying all the parties

that have handled the claim will make the OIG’s job easier, and

we don’t disagree with that. We support that as well. We believe

in compliance. Our members are not concerned about having anyone know who they are. Most of the examples that have been discussed today describe a criminal enterprise and not ordinary business being done by billing companies.

So, you know, again, we have no problem with it. We do have

concerns about how it would be done and whether it is technically

feasible and whether it is economically practical.

54

Mr. BURR. If the gentleman would yield, let me say it is the hope

of this committee that our policy won’t be to make Special Agent

Lack’s job easier. It would be that we discourage people from committing the type of fraudulent claims that Mr. Lack goes out and

investigates. I think you just misstated what you meant to——

Mr. BURLEIGH. Thank you for that suggestion. I think, too, that

Mr. Lack will never be out of work, just because there are criminals in every walk of life, and some of them decide to come down

in the medical billing arena or in health care in general.

Mr. BURR. There seems to be an attraction to that anywhere

there is a large pot of money. Clearly, this is one of the largest that

we can identify.

Mr. BURLEIGH. Let me just make a comment on an example that

Mr. Morris gave related to the $69 get-into-the-billing business.

That ad and others like it, there is an example that $695, another

one at $895, all of those represent essentially consumer fraud and

not billing fraud. What is really going on there is the separation

of the unaware from their money. No billing ever occurs.

The people who respond to those ads are buying basically an

empty bag, because they get what they think is software that will

allow them to be in the billing business, and they are misinformed

as to the amount of money that they can get paid by practices to

provide those services, and they never get any customers. So really

what that describes is a consumer fraud. No one ever really ends

up in the billing business as a result of those ads, as far as we

know. We have had a number of people who after buying the package contact our association to join, and months later come back

saying they can’t find any customers. They were told how to do

this, and it isn’t working. It is because they really don’t know.

Mr. BURR. Let me go back to you, Mr. Morris, because I think

the Office of Inspector General has done some studies on providers

that have identification now. You have looked at those that—you

know who some of the third-party billers are now at HCFA. Have

you looked at the data that they have got?

Mr. MORRIS. On electronic claims, there is a field for the submitter which could be one of potentially many third-party billers.

I don’t believe we have done any studies specifically analyzing

what that submitter data field means.

Mr. BURR. I was hoping to get a feel for the accuracy of the information that they currently have or that exists about these people.

Mr. MORRIS. I don’t believe we have done any work to determine

what is on the electronic claim form, if it matches present reality,

for example, whether the number on the electronic claim form for

a submitter actually represents who is doing the submitting of the

claim.

Mr. BURR. Let me go to you, Mr. Burleigh. Prior to my question

to Ms. Thompson about privacy, did you know that HCFA considered your members covered under the new proposed privacy legislation exactly in the same way that the doctors are?

Mr. BURLEIGH. We interpreted the proposal differently. We prepared official comments to the proposal and submitted those. Our

reading of it was that a billing company would be a business partner, although one of our criticisms of the regulations was that the

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55

house or a business partner or both or neither. So I think that the

regulations require considerable effort to clarify that question.

We are quite aware of the confidential nature of the data we possess on a regular basis, and we regularly inform our members on

what they have as a responsibility to protect the privacy of the

data.

Mr. BURR. Ms. Thompson, who is responsible under the proposed

privacy legislation to purge the physician worlds on any breach of

medical data?

Ms. THOMPSON. Well, as a general rule, all electronic claims that

we are dealing with and that are dealt with within the insurance

world in general are going to be subject to the privacy rule protections.

Mr. BURR. If there is a breach by a physician of medical data,

is it HCFA’s responsibility——

Ms. THOMPSON. There are various penalties laid out, some of

which we have responsibility for and some of which may be enforced by law enforcement.

Mr. BURR. That would be also the same penalty that would go

to the third-party billers?

Ms. THOMPSON. Correct.

Mr. BURR. How do we enforce that if we don’t know who they

are? Mr. Burleigh said earlier we will never eliminate all the bad

apples. I believe that. Medical data is, I think, an issue that all of

us have taken on as a very big responsibility of the Congress for

the American people. We have attacked this issue in a way that,

though I haven’t been in full agreement how we have done it, we

have erred on the side of protection, in some cases when some of

us thought it limited our capabilities for research and development

of future drugs, devices and other things. But with that said, can

we take it that seriously and have an entity out there that has full

access of medical data that we are not concerned with knowing who

it is?

Ms. THOMPSON. One comment that I would make about that is

that, in any kind of surveillance or enforcement mechanism, there

are going to be various layers of detail and attention. One of the

issues that we always face, of course, in program safeguard activity, is figuring out where to place those resources and knowing we

are not going to be able, for example, to look underneath every

claim that we process to assess the medical record and the necessity of the service and whether the service is coded correctly based

on what we see in the medical record, or even then to go below the

medical record to say to the beneficiary or to the provider, was this

service actually rendered? Was it rendered in the way described in

the record?

So the question is always one of balancing how much information

do we want to collect and receive and deal with at the Federal

level, what do we want to enforce as an ongoing, every-case kind

of basis, what do we want to pursue on an exception basis, and

what should that entire surveillance network look like.

I think that is one of the issues that we have to face with the

Privacy Act issues or the privacy rule issues, as well as many of

the other sets of rules that we establish.

56

Mr. BURR. I remember in the privacy debate—and correct me if

I am wrong, because I think you are closer to it than we were. At

a point of that debate we discussed whether we should limit what

insurance companies got about procedures performed because we

were concerned about what could happen to that patient. And we

got to the point where we were talking about could it just be one

lump sum. And the question that arose is, how can an insurance

company pay based upon not knowing what was performed?

So I know how tightly we were in this debate and in the negotiations. This seems to be an area that we have just disregarded any

concern about privacy and just said, well, they are covered. I mean,

it is an automatic link.

Whether Mr. Burleigh knew it or whether every member of the

Association knows it or whether the 5,000 individuals out there

know it, I think there is a question and probably an honest effort

to make sure that they do. But then we go back around the circle

and say, if HCFA is responsible for the integrity and Congress ultimately, I believe, because we go back to our constituents and say

you don’t have to worry, we have got things in place, can I confidently with 5,000 individuals, or potentially 5,000 individuals, can

I go home and tell them that all of the information they are using

to bill these Medicare claims, that none of that medical data gets

out?

Mr. THOMPSON. One of the issues that we are addressing in developing the proposed regulation actually goes back to HIPAA,

which established certain requirements for administrative simplification of electronic claim submission standards, some of which

have to do particularly with security, with things like the protection of data at rest, the protection of data in motion, the encryption

of data, the possibility for digital signatures to authenticate who

actually created or prepared the claim. So some of those issues are

being addressed as well through that venue.

Mr. BURR. Let me go back to you, Mr. Morris, because I was trying to work off my memory, which on a Thursday when we are getting ready to adjourn—as you can tell, I am in travel clothes. Nothing matches. I am just trying to reallocate these to the right spot,

whether it is North Carolina or Washington. In the OIG report it

said this: Studies have shown that information on provider applications concerning billing agencies is often outdated and inaccurate.

Can you expand on that at all?

Mr. MORRIS. You are referring to the reports we issued earlier

this week?

Mr. BURR. Yes.

Mr. MORRIS. Well, this is a concern that we have that I think

Ms. Thompson touched on. If it is the self-reporting obligation with

no sanctions associated with failure to keep the information current, you don’t know that the data that you have, the data base

you developed, has any value to you, because it may be so outdated

that you are dealing with companies that no longer exist.

We have come across this in other contexts as well. Ofttimes we

will go out to the provider address which payments have been

made for and discover it is now a pizza parlor, because we have

not, nor has the Health Care Financing Administration nor its conVerDate 11-MAY-2000 13:48 Aug 16, 2000 Jkt 064741 PO 00000 Frm 00060 Fmt 6602 Sfmt 6602 E:\HEARINGS\64027 pfrm03 PsN: 64027
57

tractors, been given updated data about who it is we are dealing

with.

So the vulnerability we have—and I think this is what Ms.

Thompson was getting at. If we put this data field together, if we

compel billing companies to provide us with their identification,

how are we going to make sure that it is accurate, updated and reflects all the players? Because it is very easy to put a number in

a field. The computers are set up generally to say look for a number in this field. If it is there, move on.

Mr. Lack gave a good demonstration of it in the Handle With

Care case. If you put the right procedure code number into the

computer, it will say, ‘‘Oh, surgical dressing, surgery, fine, I will

pay.’’ The computer doesn’t then ask questions like, ‘‘What is a patient in a nursing home doing with surgery?’’ Unless we have the

computers ask, do we know that this biller number is accurate, and

when was the last time it was updated, and has someone gone out

actually onsite and knocked on a door, that information sits there,

but it has no value. So that is the risk you face.

Mr. BURR. We update physician information how often?

Ms. THOMPSON. Our proposed regulation will address that. It is

supposed to be updated with any material changes within 30 days.

The difficulty, of course, is that, as Mr. Morris and Ms. Aronovitz

have talked about, if we find that the information is not updated,

what is our response? Sometimes what a physician might say is,

well, I just forgot to update the information. It was an oversight

on my part. Here is the updated information.

Mr. BURR. Don’t physicians who participate in Medicare as well

get an annual notification?

Ms. THOMPSON. No. But that is one of the issues that we are addressing in our proposed rule. How frequently should we go back,

even if we haven’t heard—No. 1, a provider, a supplier physician

should be updating their information on an ongoing basis. But how

often should we ourselves go back and ask them to recertify to

what we have currently in our data base? Physician groups basically don’t think that we need to go back to them very frequently.

They believe that physicians will update it and fulfill their responsibilities as required.

There may be some higher risk versus lower risk kinds of groups

where we want to go back to some folks more frequently than other

folks. Maybe you could postulate, for example, that a hospital, a

large hospital, would be more apt to keep their information updated, or perhaps even have fewer changes, than some other kinds

of providers or suppliers or physicians. But we do believe that we

have to have a sort of reasonable process to go back to people

where we haven’t heard from them over some period of time and

make sure——

Mr. BURR. We might go back to physicians more frequently that

use third-party billing as a way to reimburse.

Ms. THOMPSON. Yes.

Mr. BURR. But we wouldn’t know which ones use third-party billing today, would we?

Ms. THOMPSON. In our enrollment form that we instituted in

1996, it contained a space for completing information on thirdparty billers. When we go back and do our enrollment clean-up

58

process, we will be getting that information from everyone. I think

that is an excellent idea.

One of the things we are looking at is, what are some of the risk

triggers or categories that would make us want to go back more

frequently to certain providers than others, knowing that we don’t

necessarily want to go back to 1 million different providers every

6 months or every year to ask them to update their information.

Maybe the presence of a third-party biller is sort of an additional

risk factor that could trigger more frequent requests for updated

certifications.

Mr. BURR. I don’t want to put words in your mouth, but did you

just tell me you are interested in knowing who the third-party billers are?

Ms. THOMPSON. Yes. We are collecting that information now and

collecting that going forward. That is a different question than

whether or not you want to register or set standards for third-party

billers.

Mr. BURR. Our debate is over how we want to know who they

are.

Ms. THOMPSON. Right. And how much information we should collect to know who they are. Right now, we collect information on a

company name and address and contact name. We don’t collect as

we do on providers’ and owners’, Social Security numbers.

Mr. BURR. You have that on how many third-party billers?

Ms. THOMPSON. We have that on all providers that have come

into our system since the institution of the new form, which is

since 1996. That is about 15 percent of the providers that we do

business with now.

Mr. BURR. That is how many?

Ms. THOMPSON. 150,000.

Ms. ARONOVITZ. 150,000.

Mr. MORRIS. The only drawback or challenge to that approach is

all you have to do is put down the name of a third-party billing

company. You can create a name of a third-party billing company

as quickly as getting lunch. Handle With Care could be Handle

with Diligence overnight. All of a sudden we have two different

billing companies. Well, no, we don’t. We have one billing company

with two names.

So, one of the things that it speaks to having a unique identifier,

similar to physicians, is to say if you are going to be in business,

you are going to have, like an employment identification number,

a single number that identifies you, regardless of what you call

yourself, so we can then match data based on a common element.

Whereas, if you are free to put down whatever the company chooses to call itself this week, you have got a data field completed, but

it tells you nothing about the commonality of that named party to

others that, in this case, scam artists have set up.

The Handle With Care case demonstrates that once the two scam

artists parted ways, two sisters in this case, they set up two different companies with two different names. Neither of those names

presumably would have had any linkage to the first company

name. So having a field that gives you just a name isn’t requesting

to help you try to figure out where there is commonality in the

third-party billing companies.

59

Mr. BURR. Does the fact that they are registered, with no degree

of confidence as to who they are, bring credibility in any way to

their operation?

Mr. MORRIS. The mere fact of registering?

Mr. BURR. Yes.

Mr. MORRIS. I guess you would have to ask what are you registering.

Mr. BURR. What are they registering?

Mr. MORRIS. Well, that is the question. Right now, I think the

answer is nothing. For the third-party billing company, nothing is

registered. So the provider, the physician, will say, ‘‘When I filled

out this form, the name of the company that I did my third-party

billing through was X. I made no representations about who it is,

what they do, what their skill levels are, or who their head is and

whether he or she——’’

Mr. BURR. So from a standpoint of an investigative agency, what

is that worth to you?

Mr. MORRIS. If you are focusing on intent to defraud, not much.

Mr. BURR. Let me go back to Special Agent Lack. I don’t want

to take anything away from your investigative skills——

Mr. LACK. Sure.

Mr. BURR. [continuing] but the connection that was made between these two companies, as I understand it, was the result of

more than one agent getting together, agents working on different

cases——

Mr. LACK. Right.

Mr. BURR. [continuing] and through the exchange of what each

was doing, a light bulb went off and said this is all connected.

Mr. LACK. Correct. It was the name of one of the sisters. When

we had this conference call, I threw out the name, and the others

said, ‘‘That is the owner of mine. That is the owner of mine. That

is the owner of mine.’’ That is what tied it together as a national

problem.

Mr. MORRIS. Coincidence.

Mr. BURR. I didn’t want to use that.

Mr. LACK. I got the case as an individual case. As a matter of

fact, when the nursing home in question found out about it, they

went to their legal counsel; and their legal counsel said, ‘‘You’ve got

to be careful, because they might hold you responsible. Send a

check for the overpayment.’’ This nursing home, to their credit,

agreed with that and called us up. I got there, and, sure enough,

those claims were false. They said, this company told us they are

out at a lot of different places. We don’t know how many.

If I had been able to go to a data base and pull up that number,

I would have found Massachusetts, Florida, Ohio, and we could

have immediately pulled it altogether. But it wasn’t until 2 years

later that we knew the full extent. We knew when we had that conference call we had maybe four or five nursing homes. We didn’t

realize the extent was 70 nursing homes, and this all occurred in

the space of 10 months. She went from No. 1 to number 70 in 10

months.

Mr. BURR. Ms. Thompson, whose responsibility was it to have

caught this?

60

Ms. THOMPSON. I think there is some shared responsibilities. I

mean, I think the program itself has significant responsibility in

analyzing the claims that it receives to make sure they are—there

is no doubt we consider that to be our responsibility and our job.

I think the nursing homes have responsibility for knowing what

has been submitted on their behalf. I think that they had some responsibility for perhaps not being as tempted as perhaps they were

for the idea that there was some easy money that was going to require no outlays on their part and that magically some money

would show up and it would be good money they were entitled to

and they decided to take that money and not ask any questions.

So I think there is also some responsibility on the nursing home.

Of course, ultimately, the actual, ultimate accountability lies

with the people themselves who decide the way to make some

money and be successful in life is to defraud the program.

Mr. BURR. Let me be more specific in how I can ask the question.

Where should we have detected it, if it isn’t in Special Agent Lack’s

investigation?

Ms. THOMPSON. I think that we probably should have detected it

if we had had some more information on the commonality amongst

the claims themselves.

One of the best ways that we use to detect potential fraud or

payment errors is by aggregating claims and making comparison

among different kinds of sets of claims. For example, if you can

look at various kinds of physician specialists, for example, and you

can see that in a certain community every physician specialist has

a kind of bell curve in their billings, some high coded, some

lower——

Mr. BURR. Does that happen at the Medicare carrier level or at

HCFA?

Ms. THOMPSON. It happens at the contractor level. But it is

under our direction, and we tell them the kinds of things that we

want them to do, and we give them the resources.

Mr. BURR. Are there contractors sitting in on these discussions

as to how we close this hole?

Ms. THOMPSON. Yes. We discuss with our contractors on an ongoing basis issues of importance to us and how to address potential

program vulnerabilities.

Mr. BURR. Let me just stipulate, there is a huge difference between a discussion and an inclusion. If you see the Medicare carrier as the point that we should be catching, detecting, some improprieties, then they should play a substantive role in the design of

what it is we are trying to institute to close that. Are they playing

such a role?

Ms. THOMPSON. I would characterize it, yes, as a substantive

role. We do look to them to help us understand what it is they are

seeing as they conduct these activities. But we are also aware that

we are the ones that have the responsibility and the contractors

have the responsibility to implement our instructions. So, ultimately, we have to be the decisionmakers about where we want to

place resources and what expectations we want to place on what

we want our contractors to do. We can’t, again, delegate that responsibility to the contractors and say, well, this contractor did a

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good job, this contractor did a bad job, and it is all the contractors.

We have to take that responsibility ourselves.

Mr. BURR. I don’t think the intent of this oversight hearing was

to reach conclusions today. I think it was clearly to make sure that

we provided the correct amount of stimulus so that we could reach

some type of conclusion.

Mr. Hast, I want to apologize to you, because we have neglected

you at that end of the table. Let me also make the assurance that

from a standpoint of an oversight investigative committee, that is

a good thing.

I want to take this opportunity to thank each of you for your

willingness and openness to discuss this particular issue. The lack

of involvement by all of the members of the subcommittee is not

a lack of interest in the challenge that we have got before us in

finding a solution to this, it is more indicative of its schedule today

and the fact that they are probably also trying to book some flights

for tonight since we weren’t expected to leave.

Let me extend to anybody that would like to, if there is any follow-up comments that you would like to make, anybody that would

like to make additional comments? Mr. Burleigh?

Mr. BURLEIGH. Well, once again, we very much appreciate becoming part of this hearing and having the opportunity to contribute to this process. The vast majority—we think 99 percent of,

at least, the members of our Association and more billers who may

not yet be members are honest and improve the system, and we

want to make sure that any changes that are made continue to

contribute to strengthening the system and provide a practical solution to these very appropriate concerns that the committee is investigating.

Mr. BURR. As do we. Any other members?

Let me once again thank you and say to you, Mr. Morris, with

your comment relative to the incentive that we create on a percentage billing, it has made me also think about my choice of tax preparers and wondering, had somebody been out there and said, you

know, I will set your cost based upon how much I save you over

last year, I wonder what my reaction would be. Clearly, it would

get my attention. Whether it would get a business relation between

the two of us, probably as a Member of Congress, it wouldn’t. As

a member of the private sector, it probably would have an influence

on who I chose. I might on the back end be a little more prudent

at my review of what they came up with, which I think is something that Mr. Bryant expressed about your members and consequently the physicians that contract with them.

But, clearly, there are some ways that we can set it up or that

could be allowed to be set up that create incentives for people to

cheat. Health care is the largest challenge that we will deal with

for the next decade, and the primary piece of that will be how we

pay for it. The work that each one of you has before you will play

a very important role in how long or whether in the future we can

continue to afford what it is we have in this country. I thank you

for your commitment.

This hearing is now adjourned.

[Whereupon, at 12:15 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

62

U.S. HOUSE OF REPRESENTATIVES

COMMITTEE ON COMMERCE

March 14, 2000

Ms. PENNY THOMPSON

Director

Program Integrity Group

Health Care Financing Administration

7500 Security Blvd.

Baltimore, MD 21244

DEAR MS. THOMPSON: I am writing to ascertain what actions the Health Care Financing Administration (HCFA) has taken to respond to the problems associated

with third party billing companies, which were identified in a June 2, 1999 General

Accounting Office (GAO) letter. The Committee on Commerce is very concerned

about possible misconduct by third party billing companies, which may result in the

loss of millions of Medicare program dollars due to undetected fraud and abuse. As

part of the Committee’s ongoing efforts to assess the efforts of HCFA to combat

fraud and abuse within the Medicare program, I wish to learn what specific steps

have been taken to insure that scarce Medicare dollars are not being wasted due

to fraud committed by third party billing companies.

As you know, acts of fraud committed by third party billing companies are an insidious form of health care fraud which is, by many accounts, particularly difficult

to detect. It has been estimated that there are currently over five thousand third

party billing companies currently operating in the United States, which prepare and

submit claims on behalf of health care providers to Medicare, Medicaid and other

health insurers. In doing so, they provide a valuable service to many doctors and

other health care providers, by freeing them from the sometimes onerous administrative requirements of submitting claims for the health care services they provide.

However as third party billing companies often have wide access to the billing information of multiple health care providers and many of the patients they treat, unscrupulous individuals operating such companies are uniquely situated to be able

to submit fraudulent medical claims.

Given the threat that such activities could pose, the Committee was particularly

disturbed to learn of GAO’s findings regarding this issue. The GAO determined that

HCFA and its Medicare contractors are unable to determine, when Medicare claims

are submitted in a paper format, whether the claim was prepared by a third party

billing company. In addition, where claims are submitted electronically, Medicare

contractors are still not always able to identify claims submitted by third party billing companies. For the overwhelming majority of providers, HCFA has not sought

information about whether they utilize third party billing companies to prepare and

submit their claims, nor has HCFA made any effort to gather information about the

third party billing companies themselves.

Such a lack of basic safeguards provides an open invitation for fraud. Further, according to the GAO, HCFA has taken only limited steps to address this problem.

Since 1996, HCFA’s new provider enrollment form has required these new providers

to identify which third party billing company, if any, that they will use to prepare

their claims. This change has no impact, however, on the 96% of all Medicare providers who enrolled in the program prior to 1996. In addition to modifying the enrollment form, HCFA is also developing a new automated database system, to provide Medicare contractors with provider enrollment data. It has been reported that

this data will include the identity of any reported third party billing company used

by that provider. This database, the Provider Enrollment Chain and Ownership System (PECOS), will depend upon the information submitted by providers, who often

fail to report when they change billing services.

These changes, while individually possessing some merit, fail to address the systemic problems associated with third party billing company fraud. It is imperative

that HCFA and its contractors be able to immediately identify all claims submitted

by a third party billing company, whether such claims are submitted electronically

or in paper format. Additionally, HCFAs should at least obtain basic background information on all persons who are submitting Medicare claims. Failure to do so needlessly exposes the Medicare program to additional risks of fraud and abuse.

In order for the Committee to better assess HCFA’s response to this emerging

problem, we request pursuant to Rules X and XI of the U.S. House of Representatives, that you provide the following information no later than March 30, 2000.

1. Please identify what actions have been taken to date to enable HCFA and its contractors to identify all paper claims prepared and submitted by third party billing companies. In your answer, please also separately identify all actions that

63

HCFA prospectively plans to take relating to this issue, including the specific

type of action planned and when such action will occur.

2. Please identify what actions have been taken to date to enable HCFA and its contractors to identify all electronic claims prepared and submitted by third party

billing companies. In your answer, please also separately identify all actions

that HCFA prospectively plans to take relating to this issue, including the specific type of action planned and when such action will occur.

3. Please identify what actions have been taken to date to gather basic background

information relating to third party billing companies. In your answer, please

also separately identify all actions that HCFA prospectively plans to take relating to this issue, including the specific type of action planned and when such

action will occur.

4. Please analyze all actions taken to date by HCFA and its contractors relating to

third party billing companies and provide to the Committee your assessment of

whether these actions have sufficiently addressed the concerns raised in the

June 2, 1999 GAO letter and thereby minimized the risk of third party billing

company fraud.

5. Please identify when the regulation requiring all Medicare providers to complete

a new enrollment form, which will identify any third party billing companies

they utilize, will be completed.

6. Please specifically identify when the PECOS system will be made available to

Medicare fiscal intermediaries and carriers.

7. Please provide to the Committee your assessment of whether these additional actions, along with any others HCFA may be planning, sufficiently address the

concerns raised in the July 2, 1999 GAO letter and thereby minimize the risk

of third party billing company fraud.

If you should have any questions relating to this request, please contact Charles

M. Clapton, Committee Counsel at 226-2424. We appreciate your cooperation in this

matter.

Sincerely,

TOM BLILEY

Chairman

DEPARTMENT OF HEALTH AND HUMAN SERVICES

HEALTH CARE FINANCING ADMINISTRATION

March 30, 2000

The Honorable TOM BLILEY

Chairman

Committee on Commerce

U.S. House of Representatives

Washington, DC 20515-6115

DEAR CHAIRMAN BLILEY: Thank you for your letter of March 14, 2000, asking

about our activities with respect to third party billing companies and issues raised

by the U.S. General Accounting Office in a June 2, 1999 letter on this subject. We

appreciate your interest in this important subject and for giving us the opportunity

to express our views.

Third party billing companies who operate ethically can provide a great service

to providers, suppliers and physicians who seek out their expertise and help in submitting claims that are consistent with Medicare laws and regulations. However,

unethical third party billing practices pose a significant threat to Medicare’s program integrity. Our efforts to review third party billing arrangements have led to

an increase in the number of third party billing contracts that are in compliance

with existing laws and regulations. Though our ability to monitor third party billing

practices is now limited, we are working to strengthen the available safeguards to

better protect the Medicare Trust Fund from waste, fraud and abuse. We intend to

ask for public comments on how to strengthen our oversight of third party billing

entities in the proposed provider enrollment regulation that we anticipate issuing

this spring. And we look forward to working further with you, as well as our colleagues at the General Accounting Office and HHS Inspector General to address

this important issue.

Our efforts involving third party billing practices represent one part of our overall

strategy to protect the integrity of Medicare today and for the future. We continue

to work to ensure that providers are paid appropriately while we protect beneficiaries and taxpayers from improper payments caused by both honest errors and

unscrupulous activity. Our efforts to date have shown real results. As you know,

Medicare has reduced its improper payment rate sharply from 14 percent four years

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ago to less than 8 percent last year, and we are committed to achieving further reductions in the future.

General Background

As you know, we consider our provider enrollment function central to our program

integrity activities. In fact, we focused on provider integrity and enrollment functions in our comprehensive plan for program integrity, which we released last year.

Since then, we have accomplished a number of important tasks which have

strengthened the Medicare program by ensuring that only qualified entities enter

the program and have billing privileges. For example, we have implemented:

• New standards for testing facilities. Because of evidence of widespread problems

in enrolling qualified entities to perform physiological testing, we implemented

new standards for supervisory physicians, technicians and equipment. We required all entities previously enrolled as independent physiological laboratories

(IPLs) to reenroll in the program and establish their qualifications to meet the

new, enhanced standards as independent diagnostic testing facilities. We

verified their status through site visits. Hundreds of IPLs did not even submit

new applications or failed their assessments, and are now off our rolls. As a result, we now have much better assurance that the entities doing business with

us are legitimate, qualified health care suppliers. • New scrutiny of Community Mental Health Centers. Likewise, we have stepped up

our scrutiny of CMHC applicants as part of our 10-point plan for addressing

vulnerabilities in this area. We now conduct site visits to all new applicants to

verify the representations made in their applications and ensure that they are

qualified to enter the program. We have also moved to terminate noncompliant

providers, beginning with the most egregious providers, and have clarified to

our regional offices and to state survey agencies the statutory and regulatory

requirements applicable for participation in the Medicare program.

• Continued vigilance over durable medical equipment supplies. We have continued

to fund the work of the National Supplier Clearinghouse, which conducts site

visits for suppliers. In fiscal year 1999, the NSC completed over 22,000 site visits on new and reenrolling suppliers, resulting in 227 denials of initial applications and 2,848 revocations of existing numbers.

• Work on new regulations and national database. We plan to issue this spring a

proposed rule on provider enrollment, and are currently developing a national

database including extensive information on providers as they enroll in our program. Once the proposed rule is finalized, we will begin an ‘‘enrollment clean

up’’ process. As part of this process, we will go back to providers, suppliers and

physicians now billing the program and require them to confirm and update

their information, including information on third party billing companies they

use. Providers and suppliers will be required to periodically update this information, and inform us of any changes to their billing agreements. Information

collected will be entered in our new enrollment system, known as the Provider

Enrollment, Chain and Ownership System (PECOS). PECOS is integral to our

enrollment approach, because it will be a central source of provider/supplier enrollment information. In addition, to chain ownership and related organization

information, it will include information on providers’ billing arrangements and

any reassignment of benefits. The chain organization/related organization information is essential, because it allows contractors to identify when a provider or

supplier is part of a larger organization, and to view the entire line of business.

PECOS will also allow a local contractor to view national data about an individual or entity rather than simply the data that appears on a local provider

file. PECOS will also identify provider/suppliers who have been denied privileges, or subject to revocations or exclusions.

Third Party Billing Companies

Your letter specifically asks about third party billing companies, our efforts to

identify them as claims are submitted or as providers are enrolled, and the risks

and vulnerabilities we see.

Health care providers look to billing companies to assist them in processing claims

in accordance with applicable statutes and regulations, and many claims received

by Medicare, Medicaid and private insurance companies involve such companies.

Third party billing companies can take on many different forms, structures, operations, functions and relationships with providers. Billing companies vary significantly in both the size and reach of their organizations and functions, from small

‘‘mom and pop’’ organizations who only facilitate the electronic submission of claims

to large business organizations providing coding, claims submission and consulting

services. They can be employed by providers, suppliers and physicians to manage

65

the ‘‘business end’’ of the practice or simply to format claims for submission to insurance companies. As the U.S. Department of Health and Human Services Office of

Inspector General noted,

At this juncture, it is important to note the tremendous variation among billing

companies in terms of the types of services and the manner in which these services are provided to their respective clients. For example, some billing companies code the bills for their provider clients, while others only process bills that

have already been coded by the provider. Some billing companies offer a spectrum of management services, including accounts receivable management and

bad debt collections, while others offer only one or none of these services. (HHS

OIG, ‘‘Compliance Program Guidance for Third-Party Medical Billing Companies.)

Medicare contractors review billing agreements when Medicare payments are

made to a billing agent rather than a provider. However, when billing companies

assist in preparing-bills or coding, but do not actually receive payment, as a general

rule, they are not regulated.

Yet, it is absolutely true that the Medicare program can be inordinately harmed

by the poor business practices or unethical or even illegal behavior of such companies, even though the program does not have a direct business relationship with

those entities or regulate them in any fashion. If a billing company engages in behavior that gives rise to false claims, however, they can be held accountable under

the False Claims Act.

For example, On September 27, 1999, the United States, through the Department

of Justice, HHS, TRICARE, and OPM, as well as 28 individual states, entered into

a Settlement Agreement with Medical Consultants, Inc., d/b/a Emergency Physicians Billing Service (‘‘EPBS’’) and J.D. McKean, Jr., M.D. (‘‘McKean’’). EPBS provided billing and coding services to emergency physician practice groups and was

owned and operated by McKean.

Emergency Physicians Billing Service (‘‘EPBS’’) and its owner, Jack McKean, were

the subjects of a qui tam lawsuit. The lawsuit alleged that the parties engaged in

deceptive practices resulting in significant Medicare, Medicaid, and CHAMPUS

overpayments. The allegations of fraud have now been confirmed by a Federal

Judge in Oklahoma City, Oklahoma. On August 10, 1998, EPBS and Mr. McKean

were found liable for the submission of false claims to various federal and state

health insurance programs.

EPBS and McKean were found liable for upcoding emergency room services, reassignment violations, and misrepresentations on Medicare enrollment applications.

EPBS promised its clients it would increase their reimbursements by a range of 10-

25 percent and was able to deliver on this promise by upcoding emergency services

to higher complexity levels than were provided. Nearly all of EPBS’ clients saw increased billings in the range of 10-25 percent as a result of EPBS’ services.

As part of the settlement McKean and EPBS have agreed to pay $15.5 million

to resolve their civil and administrative liabilities arising out of the allegations in

the qui tam lawsuit. In addition, McKean is being excluded for 15 years from participation in the Federal health care programs, and EPBS has entered into a comprehensive Corporate Integrity Agreement with the OIG. In addition to the settlement with EPBS and McKean, the United States is currently negotiating additional

settlements with approximately 25 emergency physician groups which were clients

of EPBS.

This case was developed by the FBI and HHS OIG, with assistance provided by

various Medicare contractors. HCFA and staff from five Medicare contractors participated in the EPBS investigation, performing data analysis directed at detecting

the improper billing, suspending Medicare payment and the calculation of the losses

(overpayment) to the Trust Fund. One such contractor employee received a commendation for their exemplary performance during the investigation from the Department of Justice’s Assistant U.S. Attorney responsible for the case.

This case served as a national example for improper billing perpetrated by third

party billers and was presented at the Department of Justice’s quarterly Health

Care Fraud Working Group meeting in February 2000. This working group consists

of federal staff from law enforcement agencies, U.S. Attorney’s offices, HCFA, Medicaid State law enforcement offices, and Medicare contractors’ anti-fraud units.

As this case demonstrates, unethical third party billing companies can cause significant damage to the Medicare program.

At the same time, there are challenges and costs involved in stricter oversight of

third party billing companies. In addition to the simple resource costs of collecting

additional information on companies, changing electronic claims submission standards, setting and enforcing regulatory standards, overseeing private contracts, and

66

other possible risk mitigation strategies, there may be unintended consequences and

marketplace responses that should be carefully assessed and considered.

You asked us to identify actions taken or planned to enable HCFA to identify all

paper claims and electronic claims submitted by third party billers.

Ninety-seven percent of claims submitted to intermediaries are submitted electronically and 81% of claims submitted to carriers are submitted electronically.

For electronic claims, we can differentiate whether the claim was sent by a third

party agent or directly by a provider. Each of the electronic claims formats we support for Medicare (UB-92 flat file for institutional claims, National Standard format

for professional claims, and the X12.837 format for professional and institutional

claims) have fields that separately identify the submitter and the provider of the

care being billed. A comparison of these fields would clearly indicate when the submitter was other than the provider.

However, this identifying information goes to the submitter only, and may not

contain a ‘‘history’’ of all entities who may have contributed to the claims data or

information. For example, if a third party billing company coded the claim and sent

it to a clearinghouse which formatted the claim for electronic submission to the

Medicare program, only the clearinghouse information might be obtainable from the

claim.

Paper claims include an item for ‘‘source’’ or ‘‘preparer’’ information.

We believe the new provider enrollment regulations, the enrollment clean-up initiative, and our PECOS database will gather information on third-party billing companies, identify such companies for contractors, and provide significant protections

for beneficiaries and taxpayers.

You asked us to identify actions taken to date and those planned to gather basic

background information relating to third party billing companies, and to analyze all

actions taken to date by HCFA and its contractors relating to third party billing companies. You further asked whether those actions, taken and planned, have addressed

the issues raised by the GAO’s June 2, 1999 letter and minimized the risk of third

party billing company fraud.

Presently the HCFA provider enrollment process collects some information about

third party billers for new fee for service providers. The current form collects the

name of the billing agency/management service organization, the employer identification number, a contact name, the business street address, telephone and fax

numbers. Contractors review billing agent agreements when they involve agents

who negotiate checks payable to the provider, supplier or physician.

Current law prescribes who may be paid by the Medicare program for services

provided to Medicare beneficiaries, generally stipulating that payment must be

made to the individual performing such services, or their employer, facility, or plan.

However, the statute also provides for payment to be made to agents under assignment ‘‘if (but only if) such agent does so pursuant to an agency agreement under

which the compensation to be paid to the agent for services for or in connection with

the billing or collection of payments due . . . is unrelated (directly or indirectly) to the

amount of such payments or the billings...(42 U.S.C. 1395g.) Under regulations we

established at 42 CFR 424.73 implementing the statute, payments to an agent who

furnishes billing and collection services to a provider may be made if:

• the agent receives the payment under an agreement; • the agent’s compensation is not related in any way to the dollar amounts billed

or collected; • the agent’s compensation is not dependent on the actual collection of payment; • the agent acts under payment disposition instructions that the provider may modify or revoke at any time; and • the agent, in receiving the payment, acts only on behalf of the provider.

Our instructions to Medicare contractors reiterate these requirements, explaining

that ‘‘the primary purpose . . . is to permit computer and other billing services to

claim and receive Medicare payment in the name of a physician (or other supplier

or eligible party). The conditions for payment are designed to ensure that the billing

agent has no financial interest in how much is billed or collected and is not acting

on behalf of someone who has such an interest, other than the physician himself/

herself.’’ (Medicare Carriers Manual 3060.10.)

Medicare contractors’ review of billing agreements has led to an increasing number of such agreements coming into compliance with the statute and regulations. As

the health care and billing community has become more aware of these requirements and our enforcement of them, we see more contracts expressly containing language supporting our requirements. However, thorough assurance of compliance

with these requirements is hampered by:

• the resource intensive process for review of sometimes lengthy and complicated

legal documents;

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• the capacity of Medicare contractors to accurately and fully understand such documents; • the variability in the nature and scope of agreements, depending on the size of

the third party billing company and the services they perform; • the complicated corporate structure reflected in such agreements, where it is not

unusual to find a number of subcontractors involved in various functions; • lack of sanctions or intermediate penalties for failure to update the Medicare program when such agreements change or arrangements are altered; • the limited number of providers, suppliers, or physicians who have been required

to submit such information (only those who have newly enrolled in the program

since implementation of the new national enrollment form in 1996).

Furthermore, until implementation of our enrollment ‘‘clean-up’’ process, a major

undertaking, and the availability of PECOS to all contractors, consistent information on third party billers will not be available for easy search and retrieval. Even

then, significant limitations remain (in addition to the first five points identified

above, which are not solved by PECOS or enrollment clean up), such as our limited

ability to identify common ownership or to ‘‘link’’ agencies which might operate in

different jurisdictions, the absence of regulation of such entities to ensure adherence

to professional standards, or our lack of information on third party billers who do

not negotiate checks or submit claims directly to the program. These information

or programmatic gaps are not easily solved. We continue to consider to what extent

direct Federal regulatory action should be taken to address these issues.

In our proposed rule to be issued this spring, we will be soliciting comments on

the question of whether we should register third party billing agents, and/or set

standards for them. Such an approach could significantly strengthen our protection

of the Medicare program and address some of the problems cited above. However,

there are also significant challenges and costs to be carefully weighed and considered. We discuss these in more detail in response to your last question.

We continue to train Medicare contractor fraud units in identification and analysis of third party billing company fraud. Medicare contractors have also received

specific training to combat this problem. During fiscal year 1999, HCFA sponsored

Benefit Integrity Training Conferences at which contractor staff were provided with

detailed explanations on appropriate billing arrangements and examples of inappropriate arrangements. HCFA is also planning additional contractor training during

this year’s Benefit Integrity training conferences. This year’s training session will

focus on the improper billing perpetrated by Emergency Physicians Billing Service

and J.D. McKean Jr., M.D.

You asked when regulations requiring all Medicare providers to complete a new

enrollment form will be completed. We expect to publish a proposed rule this spring.

You asked when the PECOS system will be made available to Medicare fiscal

intermediaries and carriers. Our current schedule calls for PECOS to be running for

fiscal intermediaries this summer, with carriers following in January 2002.

You asked us to provide an assessment of whether our actions, taken and planned

as a whole, will address the GAO’s concerns and minimize the risk of third party

billing company fraud.

While we believe that our ‘‘enrollment clean up’’ and PECOS implementation will

address a number of vulnerabilities, we believe that additional threats may remain.

We continue to consider how to best to respond to risks posed by third party billing

companies while not impeding the activities of ethical companies, in light of the substantial assistance they can provide to providers in submitting proper claims.

Among the questions we are considering are:

• Should HCFA register billing companies, and/or set standards for them? As noted

above, we plan to pose this question in our proposed rule this spring. • Would HCFA need additional legislative authority to do so? • Should such standards apply only to entities who actually submit claims on behalf

of providers? • Should such standards apply only to entities who actually submit claims and receive negotiated checks on behalf of providers? • Should such standards apply to all entities who might advise, consult, prepare,

support, staff, or otherwise influence the selection of codes and claims to be submitted to the Medicare program?

• How should such standards reflect the diversity in capability, organization, mission, functions, and relationships in the industry?

• How would HCFA enforce such standards?

• What staffing and skill set needs would HCFA require in order to ensure billing

companies met standards and agreements were properly executed?

• How should claims properly reflect the preparer’s identifying information? What

if there are multiple preparers or submitters?

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• To what extent would providers, suppliers, and physicians support HCFA regulation of their business contracts and partners?

• To what extent is surveillance and assessment of billing patterns a better approach to ensure compliance than registration or standard setting?

• What information would be needed to accurately group claims handled by a common third party billing company?

• If Medicare were to regulate business arrangements with third party billing companies, what impact would such regulation have on the private sector and the

arrangements between providers and third party billers in submitting claims to

private insurance companies? Overall, would those effects be positive or negative?

We look forward to working closely with your Committee and the Congress as we

consider this important topic. We hope the information and analysis we have supplied is useful. Please feel free to contact me should you have any questions or wish

to discuss our responses further.

Sincerely,

PENNY THOMPSON

Director, Program Integrity Group

cc: The Honorable John D. Dingell