United States General Accounting Office

GAO Testimony

Before the Subcommittee on Human Resources,

Committee on Government Reform and Oversight, House

of Representatives

For Release on Delivery

Expected at 10 a.m.

Wednesday,

April 16, 1997

NURSING HOMES

Too Early to Assess New

Efforts to Control Fraud

and Abuse

Statement of Leslie G. Aronovitz, Associate Director

Health Financing and Systems Issues

Health, Education, and Human Services Division

GAO/T-HEHS-97-114

Nursing Homes: Too Early to Assess New

Efforts to Control Fraud and Abuse

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the challenges that exist in

combatting fraud and abuse in the nursing facility environment. While the

Medicaid program is the largest single payer for nursing facility care,

Medicare, the national health insurance program for the elderly and

certain disabled people, pays a substantial proportion of the health care

costs of nursing facility residents. For the opportunistic provider, a

nursing home represents a vulnerable elderly population in a single

location and the opportunity for multiple billings. Many nursing home

patients are cognitively impaired, and their care is controlled by the

nursing facility. Because these patients would probably not realize what

items or special services were billed on their behalf, some providers may

take advantage of the situation by submitting fraudulent claims.

My comments will draw heavily from reports we have recently issued that

focused on cost growth and fraudulent and abusive billings for ancillary

services and supplies for nursing facility residents.1

 I will describe how

providers have exploited the Medicare program, why they were able to do

so, and what steps have been taken to protect the program from the

recurrence of such reimbursement schemes. I will also describe the

special vulnerabilities associated with individuals who are eligible for both

Medicare and Medicaid. They are poor and are less likely to have family

members in the community to represent their interests.

In summary, while most providers abide by the rules, some unscrupulous

providers of supplies and services have used the nursing facility setting as

a target of opportunity. This has occurred for several reasons:

• the complexities of the reimbursement process invite exploitation and

• insufficient control over Medicare claims has reduced the likelihood that

inappropriate claims will be denied.

We are encouraged by a number of recent efforts to combat fraud and

abuse—the pending implementation of provisions in the Health Insurance

Portability and Accountability Act (HIPAA) and a legislative proposal made

by the administration. While these efforts should make a difference in

controlling fraud and abuse in nursing homes, it is too early to tell whether

these efforts will be sufficient.

1

See the list of related GAO products at the end of this testimony.

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Efforts to Control Fraud and Abuse

Background Medicare falls within the administrative jurisdiction of the Health Care

Financing Administration (HCFA) of the Department of Health and Human

Services (HHS). HCFA establishes regulations and guidance for the program

and contracts with about 72 private companies—such as Blue Cross and

Aetna—to handle claims screening and processing and to audit providers.

Each of these commercial contractors works with its local medical

community to set coverage policies and payment controls. As a result,

billing problems are handled, for the most part, by contractors, and they

are the primary referral parties to law enforcement agencies for suspected

fraud.

Medicare’s basic nursing home benefit covers up to 100 days of certain

posthospital stays in a skilled nursing facility.2

 Skilled nursing facilities

submit bills for which they receive interim payment; final payments are

based on costs within a cost-limit cap. This benefit is paid under part A,

Hospital Insurance, which also pays for hospital stays and care provided

by home health agencies and hospices.

Even if Medicare beneficiaries do not meet the conditions for Medicare

coverage of a skilled nursing facility stay, they are still eligible for the full

range of part B benefits. Although Medicaid or the resident may be paying

for the nursing home, Medicare will pay for ancillary services and items

such as physical and other types of therapy, prosthetics, and surgical

dressings. Part B is voluntary part of the Medicare program that

beneficiaries may elect and for which they pay monthly premiums. Part B

also pays for physician care and diagnostic testing.

About 6 million people have both Medicare and Medicaid coverage, and, of

these, over 4.8 million represent state “buy-ins” for Medicare coverage.3

Dually eligible beneficiaries are among the most vulnerable Medicare

beneficiaries. They are generally poor, have a greater incidence of serious

and chronic conditions, and are much more likely to be institutionalized.

As a matter of fact, about 1.4 million reside in institutions, while only

600,000 of the approximately 31 million Medicare beneficiaries without

Medicaid coverage are in institutions. Over half of all dually eligible

patients over 85 reside in nursing facilities.

2

Under the Medicare part A nursing home benefit, skilled nursing facilities are nursing homes that

maintain a full-time staff of medical professionals who provide daily care for patients with complex

medical or rehabilitative needs.

3

States frequently pay the premium for part B coverage for Medicaid recipients.

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Efforts to Control Fraud and Abuse

When a copayment is required, a Medicare beneficiary or a representative

designated by the beneficiary, receives an “Explanation of Medicare

Benefits” (EOMB), which specifies the services billed on behalf of the

individual. The EOMB is an important document because beneficiaries and

their families can use it to verify that the services were actually performed.

The dually eligible population, however, often does not have a

representative in the community to receive and review this document. In

fact, many nursing home patients actually have the nursing home itself

receive the EOMBs on their behalf.

Multiple Billing

Methods for Services

in Nursing Facilities

Leave Medicare

Vulnerable

In 1996, Medicare spent $11.3 billion on skilled nursing facility benefits

and an undetermined amount on part B ancillary services and items. The

providers of these services and items can bill Medicare in a variety of

ways. With this variety comes the opportunity to blur the transactions that

actually took place and inflate charges for services rendered.

Ancillary services and items for Medicare beneficiaries in nursing facilities

can be provided by the nursing facility itself, a company wholly or partially

owned by the nursing facility, or an independent supplier or practitioner.

Our work has shown that

• independent providers and suppliers can bill Medicare directly for services

or supplies without the knowledge of the beneficiary or the facility and

• companies that provide therapy are able to inflate their billings.

Outside Providers and

Suppliers Bill Medicare

Directly

Nursing facilities often do not have the in-house capability to provide all

the services and supplies that patients need. Accordingly, outside

providers market their services and supplies to nursing facilities to meet

the needs of the facilities’ patients. HCFA’s reimbursement system allows

these providers to bill Medicare directly without confirmation from the

nursing facility or a physician that the care or items were necessary or

delivered as claimed. As a result, the program is vulnerable to exploitation.

According to the HHS Inspector General, provider representatives typically

enter nursing facilities and offer to handle the entire transaction—from

reviewing medical records to identify those patients their products or

services can help, to billing Medicare—with no involvement by nursing

facility staff. Some of these facilities allow providers or their

representatives to review patient medical records despite federal

regulatory standards prohibiting such unauthorized review. These

Page 3 GAO/T-HEHS-97-114
Nursing Homes: Too Early to Assess New

Efforts to Control Fraud and Abuse

representatives gain access to records not because they have any

responsibility for the direct care of these patients, but solely to market

their services or supplies. From these records, unscrupulous providers can

obtain all the information necessary to order, bill, and be reimbursed by

Medicare for services and supplies that are in many instances not

necessary or even provided. In 1996, we reported the following examples:4

• A group optometric practice performed routine eye examinations on

nursing facility patients, a service not covered by Medicare. The

optometrist was always preceded by a sales person who targeted the

nursing facility’s director of nursing or its social worker and claimed the

group was offering eye examinations at no cost to the facility or the

patient. The nursing facility gave the sales person access to patients’

records, and this person then obtained the information necessary to file

claims. Nursing staff would obtain physicians’ orders for the “free”

examinations, and an optometrist would later arrive to conduct the

examinations. The billings to Medicare, however, were for services other

than eye examinations—services that were never furnished or were

unnecessary.

• The owner of a medical supply company approached nursing facility

administrators in several states and offered to provide supplies for

Medicare patients at no cost to the facility. After reviewing nursing facility

records, this company identified Medicare beneficiaries, obtained their

Medicare numbers, developed lists of supplies on the basis of diagnoses,

identified attending physicians, and made copies of signed physician

orders in the files. The supplier then billed Medicare for items it actually

delivered but also submitted 4,000 fraudulent claims for items never

delivered. As part of the 1994 judgment, the owner forfeited $328,000 and

was imprisoned and ordered to make restitution of $971,000 to Medicare

and $60,000 to Medicaid.

• A supplier obtained a list of Medicare patients and their Medicare numbers

from another supplier who had access to this information. The first

supplier billed Medicare for large quantities of supplies that were never

provided to these patients, and both suppliers shared in the approximately

$814,000 in reimbursements.

We found that nursing home staff’s giving providers or their

representatives inappropriate access to patient medical records was a

major contributing cause to the fraud and abuse cases we reviewed.

4

Fraud and Abuse: Providers Target Medicare Patients in Nursing Facilities (GAO/HEHS-96-18, Jan. 24,

1996).

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Nursing Homes: Too Early to Assess New

Efforts to Control Fraud and Abuse

Reimbursement for

Therapy Services Is

Complicated and

Vulnerable to Waste and

Abuse

Many nursing facilities rely on specialized rehabilitation agencies—also

termed outpatient therapy agencies—to provide therapy services. These

agencies can be multilayered, interconnected organizations—each layer

adding costs to the basic therapy charge—that use outside billing services,

which can also add to the cost. In those situations in which the nursing

facility contracts and pays for occupational and speech therapy services

for a Medicare-eligible stay, Medicare might pay the nursing facility what it

was charged because of the limited amount of review conducted by claims

processing contractors. In practice, however, because of the difficulty in

determining what are reasonable costs and the limited resources available

for auditing provider cost reports, there is little assurance that inflated

charges are not actually being billed and paid.5

Until recently, HCFA had not established salary guidelines, which are

needed to define reasonable costs for occupational or speech therapy.

Without such benchmarks, it is difficult for Medicare contractors to judge

whether therapy providers overstate their costs. Even for physical therapy,

for which salary guidelines do exist, the Medicare-established limits do not

apply if the therapy company bills Medicare directly.

This is why Medicare has been charged $150 for 15 minutes of therapy

when surveys show that average statewide salaries for therapists

employed by hospitals and nursing facilities range from $12 to $25 per

hour. Our analysis of a sample drawn from a survey of five contractors

found that over half of the claims they received for occupational and

speech therapy from 1988 to 1993 exceeded $172 in charges per service.

Assuming this was the charge for 15 minutes of treatment—which industry

representatives described as the standard billing unit—the hourly rate

charged for these claims would have been more than $688. It should be

noted that neither HCFA nor its contractors could accurately tell us what

Medicare actually paid the providers in response to these claims. The

amount Medicare actually pays is not known until long after the service is

rendered and the claim processed. Although aggregate payments are

eventually determinable, existing databases do not provide actual payment

data for any individual claim.

5

Medicare reimbursement in these instances is supposed to be based on the providers’ “reasonable

costs.”

Page 5 GAO/T-HEHS-97-114
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Efforts to Control Fraud and Abuse

Lax Oversight

Provides Little

Chance of Timely

Detection of

Excessive Medicare

Reimbursements

HCFA pays contractors to process claims and to identify and investigate

potentially fraudulent or abusive claims. We have long been critical of the

unstable funding support HCFA’s contractors have to carry out these

program integrity activities. We recently reported that funding for

Medicare contractor program safeguard activities declined from 74 cents

to 48 cents per claim between 1989 and 1996. During that same period, the

number of Medicare claims climbed 70 percent to 822 million.6

 Such

budgetary constraints have placed HCFA and its contractors in the

untenable position of needing to review more claims with fewer resources.

While Medicare contractors do employ a number of effective automated

controls to prevent some inappropriate payments, such as suspending

claims that do not meet certain conditions for payment for further review,

our 1996 report on 70 fraud and abuse cases showed that atypical charges

or very large reimbursements routinely escaped those controls and

typically went unquestioned.7

 The contractors we reviewed had not put

any “triggers” in place that would halt payments when cumulative claims

exceeded reasonable thresholds. Consequently, Medicare reimbursed

providers, who were subsequently found guilty of fraud or billing abuses,

large sums of money over a short period without the contractor’s

becoming suspicious. The following examples highlight the problem:

• A supplier submitted claims to a Medicare contractor for surgical

dressings furnished to nursing facility patients. In the fourth quarter of

1992, the contractor paid the supplier $211,900 for surgical dressing

claims. For the same quarter a year later, the contractor paid this same

supplier more than $6 million without becoming suspicious, despite the

2,800-percent increase in the amount paid.

• A contractor paid claims for a supplier’s body jackets8 that averaged about

$2,300 per quarter for five consecutive quarters and then jumped to

$32,000, $95,000, $235,000, and $889,000 over the next four quarters, with

no questions asked.

In other instances, we found that providers that were subsequently

investigated for wrongdoing billed and were paid for quantities of services

or supplies that were unnecessary or could not possibly have been

furnished:

6

High Risk Series: Medicare (GAO/HR-97-10, Feb. 1997).

7

GAO/HEHS-96-18, Jan. 24, 1996.

8

A body jacket is a custom-fitted spinal brace made of a rigid plastic material that conforms to the

body and largely immobilizes it.

Page 6 GAO/T-HEHS-97-114
Nursing Homes: Too Early to Assess New

Efforts to Control Fraud and Abuse

• A contractor reimbursed a clinical psychology group practice for

individual psychotherapy visits lasting 45 to 50 minutes when the top three

billing psychologists in the group were allegedly seeing from 17 to 42

nursing facility patients per day. On many days, the leading biller of this

group would have had to work more than 24 uninterrupted hours to

provide the services he claimed.

• A contractor paid a podiatrist $143,580 for performing surgical procedures

on at least 4,400 nursing facility patients during a 6-month period. For

these services to be legitimate, the podiatrist would have had to serve at

least 34 patients a day, 5 days a week.

The Medicare contractors in these two cases did not become suspicious

until they received complaints from family members, beneficiaries, or

competing providers. The EOMB was critical in identifying the specific

items and services being billed to Medicare. Although EOMBs have in the

past only been required when the beneficiary had a deductible or

copayment, HIPAA now requires HCFA to provide an explanation of Medicare

benefits for each item or service for which payment may be made, without

regard to whether a deductible or coinsurance may be imposed. This

provision is still of limited value, however, for nursing home residents who

designate the nursing home to receive the EOMBs—which is more common

for the dually eligible population.

In other cases, contractors initiated their investigations because of their

analyses of paid claims (a practice referred to as “postpayment medical

review”), which focused on those providers that appeared to be billing

more than their peers for specific procedures. One contractor, for

instance, reimbursed a laboratory $2.7 million in 1991 and $8.2 million in

1992 for heart monitoring services allegedly provided to nursing facility

patients . The contractor was first alerted in January 1993 through its

postpayment review efforts when it noted that this laboratory’s claims for

monitoring services exceeded the norm for its peers.

In all these cases, we believe the large increases in reimbursements over a

short period or the improbable cumulative services claimed for a single

day should have alerted the contractors to the possibility that something

unusual was happening and prompted an earlier review. People do not

usually work 20-hour days, and billings by a provider for a single

procedure do not typically jump 13-fold from one quarter to the next or

progressively double every quarter.

Page 7 GAO/T-HEHS-97-114
Nursing Homes: Too Early to Assess New

Efforts to Control Fraud and Abuse

Initiatives Now Under

Way to Address

Long-Standing

Problems

Initiatives on various fronts are now under way to address fraud and abuse

issues we have discussed here today. Several of these initiatives, however,

are in their early stages, and it is too soon to assess whether they will, in

fact, prevent fraud and abuse in the nursing facilities environment.

HHS Initiatives Last year, we recommended that HCFA establish computerized prepayment

controls that would suspend the most aberrant claims. HCFA has since

strengthened its instructions to its contractors, directing them to

implement prepayment screens to prevent payment of billings for

egregious amounts or patterns of medically unnecessary services or items.

HCFA also authorized its contractors to deny automatically the entire line

item for any services that exceed the egregious service limits.

In regard to therapy services, after a lengthy administrative process, HCFA

proposed salary guidelines last month for physical, occupational, speech,

and respiratory therapists who furnish care to beneficiaries under a

contractual arrangement with a skilled nursing facility. The administration

estimates these changes will result in savings to Medicare of $1.7 billion

between now and the year 2001, and $3.9 billion between now and the year

2006. The proposed rule would revise the current guideline amounts for

physical and respiratory therapies and introduce, for the first time,

guideline amounts for occupational therapy and speech/language

pathology services.

In March 1995, the Secretary of HHS launched Operation Restore Trust

(ORT), a 2-year interagency, intergovernmental initiative to combat

Medicare and Medicaid fraud and abuse. ORT targeted its resources on

three health care areas susceptible to exploitation, including nursing

facility care in five states (California, Florida, Illinois, New York, and

Texas) with high Medicare and Medicaid enrollment and rapid growth in

billed services.

To address the root cause of the problems cited here today, the

administration has also announced an initiative to change the way

Medicare reimburses for services and supplies in skilled nursing facilities:

consolidated billing. More specifically, the administration has announced

that it will propose requiring skilled nursing facilities to bill Medicare for

all services provided to their beneficiary residents except for physician

and some other practitioner services. We support this proposal. We and

the HHS Inspector General have reported on problems, such as

Page 8 GAO/T-HEHS-97-114
Nursing Homes: Too Early to Assess New

Efforts to Control Fraud and Abuse

overutilization of supplies, that can arise when suppliers bill separately for

services for nursing home residents.

A consolidated billing requirement would make it easier to control

payments for these services and give nursing facilities the incentive to

monitor them. The requirement would also help prevent duplicate billings

and billings for services and items not actually provided. In effect, outside

suppliers would have to make arrangements with skilled nursing facilities

so that they would bill for suppliers’ services and would be financially

liable and medically responsible for the care.

Legislative Initiatives HIPAA established the Medicare Integrity Program, which ensures that the

program safeguard activities function is funded separately from other

claims processing activities. HIPAA also included provisions on

“administrative simplification.” A lack of uniformity in data among the

Medicare program, Medicaid state plans, and private health entities often

makes it difficult to compare programs, measure the true effect of changes

in health care financing, and coordinate payments for dually eligible

patients. For example, HIPAA requires, for the first time, that each provider

be given a unique provider number to be used in billing all insurers,

including Medicare and Medicaid.

The new provisions also require the Secretary of HHS to promulgate

standards for all electronic health care transactions; the data sets used in

those transactions; and unique identifiers for patients, employers,

providers, insurers, and plans. These standards will be binding on all

health care providers, insurers, plans, and clearinghouses.

Conclusion The multiple ways that providers and suppliers can bill for services to

nursing home patients and the lax oversight of this process contribute to

the vulnerability of payments for the health care of this population. As a

result, excessive or fraudulent billings may go undetected. We are

encouraged, however, by the administration’s recent proposal for

consolidated billing, which we believe will put more responsibility on

nursing home staff to oversee the services and items being billed on behalf

of residents. As more details concerning these or other proposals become

available, we will be glad to work with the Subcommittee and others to

help sort out their potential implications.

Page 9 GAO/T-HEHS-97-114
Nursing Homes: Too Early to Assess New

Efforts to Control Fraud and Abuse

This concludes my prepared remarks. I will be happy to answer any

questions.

Contributors For more information on this testimony, please call Leslie G. Aronovitz on

(312) 220-7600 or Donald B. Hunter on (617) 565-7464. Lisanne Bradley

also contributed to this statement.

Page 10 GAO/T-HEHS-97-114
Page 11 GAO/T-HEHS-97-114
Related GAO Products

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

Cost Growth and Proposals for Prospective Payment (GAO/T-HEHS-97-90,

Mar. 4, 1997).

Skilled Nursing Facilities: Approval Process for Certain Services May

Result in Higher Medical Costs (GAO/HEHS-97-18, Dec. 20, 1996).

Medicare: Early Resolution of Overcharges for Therapy in Nursing

Facilities Is Unlikely (GAO/HEHS-96-145, Aug. 16, 1996).

Fraud and Abuse: Providers Target Medicare Patients in Nursing Facilities

(GAO/HEHS-96-18, Jan. 24, 1996).

Fraud and Abuse: Medicare Continues to Be Vulnerable to Exploitation by

Unscrupulous Providers (GAO/T-HEHS-96-7, Nov. 2, 1995).

Medicare: Excessive Payments for Medical Supplies Continue Despite

Improvements (GAO/HEHS-95-171, Aug. 8, 1995).

Medicare: Reducing Fraud and Abuse Can Save Billions (GAO/T-HEHS-95-157,

May 16, 1995).

Medicare: Tighter Rules Needed to Curtail Overcharges for Therapy in

Nursing Facilities (GAO/HEHS-95-23, Mar. 30, 1995).

(101563) Page 12 GAO/T-HEHS-97-114
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