United States General Accounting Office

GAO Report to the Ranking Minority Member,

Committee on Commerce, House of

Representatives

July 1995 MEDICARE

Allegations Against

ABC Home Health

Care

GAO/OSI-95-17

GAO United States

General Accounting Office

Washington, D.C. 20548

Office of Special Investigations

B-261406 

July 19, 1995

The Honorable John D. Dingell

Ranking Minority Member

Committee on Commerce

House of Representatives

Dear Mr. Dingell:

This letter responds to your request that we investigate specific allegations

regarding ABC Home Health Care’s (now known as First American Health

Care) participation in the Medicare home health care program.

Specifically, the allegations were that (1) ABC employees altered or forged

medical records to ensure continued or prolonged home health care visits;

(2) ABC employees made more visits to patients than were necessary; and

(3) ABC charged Medicare for costs not related to patient care. This report

discusses our findings on each of these allegations. You subsequently

asked that we review ABC’s cost reports regarding legal expenses for

appealing denied claims. As agreed, this issue will be addressed in

separate correspondence.

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

Department of Health and Human Services—administers the Medicare

home health care program. The home health care program has been part

of Medicare since it began in 1965 and serves as an alternative to lengthy

inpatient hospitalization. To be eligible, patients, except when receiving

outpatient services, must be confined to their home (i.e., “homebound”) as

certified by their doctor. Among the services that patients receive in the

home health services are (1) part-time or intermittent skilled nursing care;

(2) physical, speech, and occupational therapy; (3) home health aide

services as an adjunct to skilled nursing or therapy care; (4) medical social

services; and (5) medical equipment and supplies. These services can be

provided by a Medicare-certified home health agency (HHA) or by others

under contractual arrangement with such an agency. ABC is one of some

8,100 Medicare-certified HHAs.

ABC is the largest privately held home health care provider in the United

States, and Medicare reimbursement represents approximately 95 percent

of its total revenues. ABC is headquartered in Brunswick, Georgia. Robert

“Jack” Mills has led ABC since 1978 and is its current Chairman and Chief

Executive Officer (CEO). In the last few years, ABC had grown rapidly. In

1990, ABC had 141 local offices in 10 states. It had 21,431 patients,

Page 1 GAO/OSI-95-17 ABC Home Health Care
B-261406 

performed almost 1.3 million visits, and had Medicare revenues of

$83.5 million. At the end of 1994, ABC had 354 offices in 21 states, made

7.8 million visits to 58,330 patients, and had Medicare revenues totaling

$615.9 million.

In February 1995, the Office of the Inspector General (OIG), U.S.

Department of Health and Human Services, sent ABC an exclusion letter,

seeking to exclude it from participation in the Medicare program for 7

years. (See app. I for a copy of the letter.) The letter charged, in part, that

ABC had submitted false or fraudulent charges to the Medicare program

for patient-related services allegedly rendered during the course of 3 fiscal

years—1987, 1988, and 1992. Among the improper charges, the letter listed

a number of items that were acquired “solely for the personal use or

enjoyment of the Mills family,” e.g., condominium utility expenses, maid

services, and automobile lease payments. The Inspector General charged

that ABC knew or should have known that these costs were not related to

patient care as required by federal law and regulations and that, therefore,

they should not be reimbursed. ABC has appealed the proposed exclusion

letter; an administrative hearing is pending.

We have shared information concerning possible illegal activities with

appropriate law enforcement authorities. Some of these activities are

under investigation. We discussed the nature of the allegations that we

investigated with ABC’s CEO, Mr. Mills, and the principal attorney for ABC.

They replied that ABC has not knowingly violated Medicare law or

regulations. They added that the regulations are vague and subject to

broad interpretation and selective enforcement. As reported previously by

GAO,

1

 a lack of specificity and ambiguity in HCFA guidelines could invite

exploitation of the Medicare system.

Results in Brief In the Medicare program, providers may receive reimbursement only for

those expenses that are reasonable in amount and related to patient care

for eligible patients. Current and former employees told us that local ABC

office managers directed them to alter records to make it appear that

patients continued to need home health visits. Additionally, managers

directed employees to continue visiting patients who, in the employees’

opinion, did not qualify for home health care because they no longer met

1

Medicare: Need to Strengthen Home Health Care Payment Controls and Address Unmet Needs

(GAO/HRD-87-9, Dec. 2, 1986) and Medicare: Better Guidance Is Needed to Preclude Inappropriate

General and Administrative Charges (GAO/NSIAD-94-13, Oct. 15, 1993). A GAO report on another

HCFA program has a similar finding—Medicare: Tighter Rules Needed to Curtail Overcharges for

Therapy in Nursing Homes (GAO/HEHS-95-23, Mar. 30, 1995).

Page 2 GAO/OSI-95-17 ABC Home Health Care
B-261406 

Medicare rules defining homebound status. ABC also reportedly charged

Medicare for the cost of acquiring other HHAs by paying owners a small

sum up front and the balance in the form of salary under employment

agreements. HCFA officials and the Medicare fiscal intermediary2

 believe

that this practice is inconsistent with Medicare regulations for

reimbursement. Finally, according to former employees, some managers

directed employees to market ABC and its services with the intent of

charging Medicare for costs that HCFA does not reimburse.

ABC Modified Medical

Records to Continue

to Provide Services to

Patients Who May Be

Ineligible

Current and former ABC employees told us that medical records were

altered and forged to ensure continued or prolonged home health care

visits. We found instances in which ABC’s records appeared to justify

home visits, but the patient seemed no longer eligible.

Medicare patients qualify for visits if they are confined to their home

(except when receiving outpatient services), under the care of a physician

who approves a plan of home care, and are in need of intermittent skilled

nursing care or physical or speech therapy.3

 Neither Medicare law nor

regulations establish a ceiling on the number of visits a patient may

receive.

Physicians certify the initial need for home health services and recertify

the need for continued services at least every 2 months.4

 However,

physicians are generally not required to see patients to recertify continued

need for home health visits. We found that physicians typically rely on

nurses’ verbal and/or written recommendations, which are part of the

patient’s records. In this regard, nurses and aides are required to make

notes for the services they performed during each patient visit.

At 10 locations, according to current and former employees, ABC office

managers directed staff to alter nursing notes so that they would not

reflect indications of patient improvement. This practice was intended to

create the appearance that continued home health visits were needed. In

one office, a manager highlighted nurses’ notes that the manager wanted

changed to make it appear that continued care was necessary and dictated

what the rewritten language should be. After one nurse declined to

describe the conditions of her patients inaccurately, the manager asked

2

A fiscal intermediary is a private contractor that processes claims and audits HHAs on behalf of

HCFA.

3

42 C.F.R. § 424.22.

4

42 C.F.R. § 424.22(b).

Page 3 GAO/OSI-95-17 ABC Home Health Care
B-261406 

another nurse to change nursing notes although she had not seen these

patients. Another office manager directed a nurse to record visits that

were never made. That manager also forged physicians’ signatures on

plans of care that described the treatment. In another instance, a local

ABC Quality Assurance Coordinator traced physicians’ signatures onto a

physician recertification form. In another office, after plans of care were

signed by physicians, nurses added language that increased the number of

visits, without consulting with the physicians.

Several former ABC nurses and aides said that local ABC managers

stressed “negative charting.” Under this concept, they were encouraged to

include only the negative aspects of a patient’s condition and to ignore any

improvements. This strategy, therefore, highlighted the appearance of the

need for the continued care of patients who were purportedly confined to

the home. Nurses and aides provided the following examples of negative

charting.

In one instance, a diabetic home health care patient walked to church

regularly without assistance, but a manager directed the patient’s nurse to

omit any reference to this fact. Another patient had had an accident,

lacerating a hand, while he was driving; however, a manager told the nurse

to change the cause of the injury to a fall as a result of “a dizzy spell” to

reflect the patient’s need for continued home care. Another patient never

used a cane; however, a nurse was asked to record that the patient

required the use of a cane.

In other cases, patient records simply reflected that the patients continued

to be homebound. The patients continued to receive visits, according to

current and former ABC nurses, even after they were no longer confined

to their homes. For example, we visited one such patient who routinely

drove a vehicle to go grocery shopping. Another patient usually walked

alone once a day to eat at the local senior citizens’ center a few blocks

away.

ABC Managers

Emphasized Need to

Maximize Patient

Visits

Industry officials and current and former ABC employees told us that, for

those patients who were eligible for home health care, ABC visited

patients more frequently than did other HHAs. According to these

individuals, such frequent visits occurred partially because ABC managers

emphasized the need to increase patient visits. Each month the

corporation sent out what it termed “High Rollers Memos” that

congratulated those offices with the largest number of visits for that

Page 4 GAO/OSI-95-17 ABC Home Health Care
B-261406 

month. Employees stated that the primary purpose of the memorandums

was to promote an increase in patient visits and Medicare

reimbursements.

A former manager told us that a senior manager had told local

administrators, “Increase the number of visits. Whatever it takes to get

that done, do it.” Nurses and aides told us they felt pressured to prolong

treatment or to make more frequent visits. In their opinion, they made

frequent visits in order to keep the patient visit count high. When they

expressed their concerns to management about visiting patients who did

not qualify for home visits, they were told by managers either to continue

with the visits or to reduce the frequency of visits to the patients.

According to nurses and aides, managers were more likely to decrease the

visit frequency for patients no longer eligible for home care rather than to

discontinue visits altogether.

We found that some patients and their families complained that ABC

visited too often. In Florida, for example, the family of a patient

complained that ABC nurses continued to come to their home despite

their objections. On some days, the family would complete a certain task

that the nurse or aide was scheduled to do before the individual arrived at

the home; therefore, for that day, a visit would not be needed.

Nevertheless, the nurse or aide would ask the family to sign a form so that

they could get paid for the task that they were scheduled to perform.

Similarly, in Pennsylvania, a former ABC nurse recalled that a patient

questioned her as to why she was being seen. The nurse acknowledged

that, in her opinion, the woman did not require home care.

In various locations, former employees told us that office managers

directed nurses and home health aides to visit new patients for a specified

number of consecutive days regardless of their condition. For example,

some employees told us that managers told nurses to visit new patients the

first 5 days regardless of condition, while other employees stated that ABC

stressed visiting new patients daily for the first 14 or 21 days of care

regardless of condition. Generally, HCFA will not question daily visits

during the first 21 days of care.

Page 5 GAO/OSI-95-17 ABC Home Health Care
B-261406 

ABC Reportedly

Charged Medicare for

Costs of Purchasing

Home Health

Agencies and for Gifts

Given to Physicians

ABC reportedly charged Medicare for questionable costs when ABC

included expenses associated with the purchase of other HHAs in its cost

reports. Allowable costs of an acquisition are primarily depreciation, over

a period of years, of the value of the business assets acquired and interest

expense for necessary borrowing related to acquiring those assets.

Typically, HHAs own a limited number of assets, such as office furniture,

equipment, and leases. We found that this was true for those ABC

acquisitions that we reviewed. Therefore, the amount that ABC could

reasonably include in its Medicare cost reports would be minimal.

According to former corporate officials and owners we interviewed, ABC

would pay owners a small amount to cover asset values and enter into an

employment agreement with the owners to cover the remainder of the

purchase price. In some cases, former owners worked for their salaries; in

other instances, they performed minimal work or no work for their

salaries. Additionally, former employees told us that, with the intent of

obtaining Medicare reimbursement, ABC managers directed employees to

incur “educational” expenses that were actually gifts made to physicians in

return for patient referrals.

Employment Agreements

With Former HHA Owners

to Fund Agency Purchases

HCFA officials and the Medicare fiscal intermediary do not view ABC’s

reported method for charging Medicare for the overall purchase price of

other HHAs as appropriate. Former owners who had sold their HHAs to ABC

maintain that ABC masked the total price of purchasing their HHAs by

paying HHA owners a small sum up front and the balance in the form of

salary under employment agreements over a number of years. As a result,

former owners and former managers concluded that ABC had charged

most of the purchase price to Medicare by claiming that the salary paid

under the employment agreements was not for the HHA acquisition price

but for work performed by the former owners.

Since the late 1980s, at least 20 former home health care agency owners

signed employment agreements with ABC. The terms of the employment

agreements stated that the former owners would devote their “working

time to the affairs of the company,” as specified, and report directly to

Mr. Mills. One of the seven former owners that we contacted stated that

she had signed the employment agreement with the understanding that she

would perform no work for ABC. The other six indicated that when they

signed the agreements, they understood that ABC was expecting them to

work under the terms of the employment agreement. However, in these

seven cases, ABC gave the former owners minimal duties and/or

prohibited them from entering the office to do any work, although they

Page 6 GAO/OSI-95-17 ABC Home Health Care
B-261406 

continued to draw a salary. Additionally, ABC later terminated these

employment agreements and removed the former owners from the payroll

before their agreements expired, alleging that the former owners had

failed to fulfill the terms of their agreements. After they had been

prohibited from working, these former owners questioned whether the

employment agreements were merely a way for ABC to have Medicare

unknowingly pay for the HHA purchase price.

One former owner signed a 5-year employment contract that specified that

his duties would be limited to part-time community affairs. There was no

purchase price for his agency; however, ABC paid him $12,000 for used

furniture, signed a 5-year lease for his building, and provided him with a

5-year employment contract at $35,000 a year plus fringe benefits with a

salary escalator clause. However, he told us that he worked less than 1

month a year under his employment contract because he was occupied

with his other businesses and ABC did not want him to interfere with its

operation. A former ABC manager told us that when other employees told

Mr. Mills that this former owner was trying to help run the HHA, Mr. Mills

asked, “Why doesn’t he just stay home?” When this former owner learned

that ABC was charging his salary to Medicare, he became concerned that

he might be targeted for fraud because of his minimal work. He told us

that he then negotiated a buyout slightly over 2 years into the employment

agreement. According to ABC’s attorney, ABC negotiated the buyout

because the former owner had refused to report to a female supervisor.

A second former owner entered into an employment agreement with ABC

for 5 years with an automatic extension for another 5 years at a salary rate

of $50,000 per year. Although he was supposed to do community affairs

work under the terms of his agreement, he acknowledged that he did so

only a few hours a day. In addition to the work he performed for ABC for

more than 5 years, he ran another business and had a part-time position

elsewhere. He stated that his employment agreement also provided for a

bonus if he increased the number of patients for ABC. He indicated that

after receiving a bonus at the conclusion of the first year of his agreement,

Mr. Mills told him that Medicare would not pay for bonuses in the future.

According to ABC’s attorney, ABC released the former owner because he

had declined to give up a part-time position outside ABC.

A third former owner signed an employment agreement which stated that

she would receive $10,000 per month for 5 years. The former owner, who

understood that there would be no work required of her, said Mr. Mills

told her she could spend her time tending to her garden and her antiques.

Page 7 GAO/OSI-95-17 ABC Home Health Care
B-261406 

During the 23-month period in which she remained on the payroll, she did

not perform any work but received her full salary. ABC subsequently

terminated her employment, citing her inability to perform any work. A

former ABC corporate official stated that he believed she had sold her

business in good faith to Mr. Mills with the understanding that there would

be very little “up front” money and that the salary stipulated in the

employment agreement was her form of reimbursement for the buyout of

the business. When the former official objected to the generous salary

provided to the former owner for doing no work, the former official

quoted Mr. Mills as replying, “You just don’t understand. I am paying her

for the purchase price of her agency through the employment contract.”

In another instance, a physician entered into a contract with ABC for the

purchase of his HHA. Terms of the agreement provided for hiring the

physician as a consultant at a fee of $5,000 per month for a 6-month

period. Despite the physician’s objections, Mr. Mills prohibited the

physician from performing any kind of active role in the operation of the

business once the sale had been consummated and did not pay him

anything. According to ABC’s attorney, this former owner had “personality

problems” and had not disclosed the true financial condition of his HHA.

A former ABC manager told us of hearing Mr. Mills state on several

occasions that the high price of salaries paid to former owners under the

employment agreements was, in part, the purchase price of the HHAs.

Referring to the former owners, the former ABC manager quoted Mr. Mills

as making such statements as the following: “I don’t care if they don’t do a

thing.” “I would really rather they not work.” “I don’t care if they come into

the office or not.” “I don’t care what they do.” The former manager added

that after he and another management official became concerned about

the impropriety of charging Medicare for such salaries, Mr. Mills replied,

“Medicare won’t pay to buy agencies but will reimburse for salaries.”

Mr. Mills told us that some owners did not abide by the terms of their

agreements; thus, he subsequently released them for due cause. In

response, some of the former owners pursued legal action against ABC.

Some of these cases are still being litigated.

ABC Reportedly Charged

Nonallowable Marketing

Expenses to Medicare

According to former employees, ABC directed them to market its services

to physicians and the community with the intent of charging Medicare for

these nonallowable expenditures. Although Medicare reimbursement is

available for the expenses of educating health professionals and the

Page 8 GAO/OSI-95-17 ABC Home Health Care
B-261406 

community at large, HCFA regulations on cost reimbursement do not

provide for payment for marketing home health care services.

The primary responsibility of certain ABC employees was to solicit patient

referrals from physicians. In return for referrals, the employees gave

physicians gifts and other items of value. Former employees stated to us

that ABC managers told them not to use the term “marketing” when

identifying the nature of such expenses but rather to disguise it as a

“health education” expense. According to the former employees, they

purchased meals or gifts for physicians on a regular basis and gave gifts to

physicians and their spouses in recognition of special events, e.g.,

birthdays and new births. On at least one occasion, a physician received

golf tickets to a Professional Golf Association tournament.

ABC also instructed employees to promise extra services for those

physicians making numerous referrals. For example, according to

individuals who attended one national ABC employee conference, a

corporate official suggested that employees tell physicians, “Give us your

next two patients, and here is what we can do for you.” The official then

told the employees to elaborate on the different services the corporation

could provide at no cost in exchange for referrals, such as the services of

nurses for blood pressure screening and lab work. According to a former

employee who attended another conference, Mr. Mills remarked that it

was “. . . great to see all my salespeople, I mean educators.” Mr. Mills also

said, “We don’t market here. Whatever we do is education or in-service.”

Employees who attended the conference stated that attendees laughed at

Mr. Mills’ comment, because they knew that their jobs were to market

ABC.

ABC used the title “Coordinator of Field Management Development”

(CFMD) for marketing employees. ABC believed that HCFA would not

reimburse the expenses for marketing but would be more likely to

reimburse the costs of a CFMD, because the latter implied community

education. When local administrators declined to submit expenses of

CFMDs for Medicare reimbursement, citing that they were not patient

care-related, Mr. Mills directed that CFMDs report their expenses to

corporation managers other than the local administrators. However,

according to HCFA and the Medicare fiscal intermediary, these expenses

are not allowable because they are not patient-related.

According to former employees, ABC managers told employees to conceal

the cost of items given to physicians in their expense reports so that HCFA

Page 9 GAO/OSI-95-17 ABC Home Health Care
B-261406 

would reimburse the cost without question. Managers wanted these costs

to be labeled as “educational,” “training,” “luncheon,” or “mileage” costs.

Further, they told employees that to be reimbursed, they should charge

certain expenditures, such as liquor for physicians, on their personal

credit cards. This would make tracing the true expenditures more difficult.

One former employee disclosed that his supervisor recommended

purchasing a restaurant receipt book from a stationery store for use when

submitting these types of expenses for reimbursement.

Methodology We conducted our investigation from January 1994 through May 1995. It

addressed issues involving ABC’s participation in the Medicare home

health care program. The issues we examined included ABC’s policies and

practices regarding patient eligibility and visits and the appropriateness of

certain expenses to the Medicare program. To examine these issues, we

reviewed applicable laws and regulations, HCFA directives, correspondence

between HCFA and ABC, documents presented by ABC and its employees,

and ABC and HCFA patient file information for select locations. Finally, we

reviewed court documents and evidence presented by ABC, HCFA, a

Medicare fiscal intermediary, and individuals associated with civil

litigation issues involving ABC.

We interviewed current and former ABC employees and patients and their

families in selected locations, state regulatory officials in several of the

states in which ABC does business, federal investigators and regulatory

officials at HCFA, representatives from two fiscal intermediaries that

process Medicare claims, various home health practitioners, and

representatives of home health care trade associations. We conducted our

work in Colorado, Florida, Georgia, Illinois, Maryland, Michigan,

Pennsylvania, Tennessee, Texas, Virginia, and Washington, D.C.

Page 10 GAO/OSI-95-17 ABC Home Health Care
B-261406 

If you have questions concerning this report, please contact me or

Assistant Director Barney Gomez of my staff at (202) 512-6722.

Sincerely,

Richard C. Stiener

Director

Page 11 GAO/OSI-95-17 ABC Home Health Care
Appendix I 

Exclusion Letter

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Appendix I 

Exclusion Letter

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Appendix I 

Exclusion Letter

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Appendix I 

Exclusion Letter

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Appendix I 

Exclusion Letter

Page 16 GAO/OSI-95-17 ABC Home Health Care
Appendix I 

Exclusion Letter

Page 17 GAO/OSI-95-17 ABC Home Health Care
Appendix I 

Exclusion Letter

Page 18 GAO/OSI-95-17 ABC Home Health Care
Appendix I 

Exclusion Letter

Page 19 GAO/OSI-95-17 ABC Home Health Care
Appendix I 

Exclusion Letter

Page 20 GAO/OSI-95-17 ABC Home Health Care
Appendix I 

Exclusion Letter

Page 21 GAO/OSI-95-17 ABC Home Health Care
Appendix I 

Exclusion Letter

Page 22 GAO/OSI-95-17 ABC Home Health Care
Appendix I 

Exclusion Letter

Page 23 GAO/OSI-95-17 ABC Home Health Care
Appendix I 

Exclusion Letter

Page 24 GAO/OSI-95-17 ABC Home Health Care
Appendix II 

Major Contributors to This Report

Office of Special

Investigations,

Washington, D.C.

Barney L. Gomez, Assistant Director for General Crimes and Health Care

Robert J. Gettings, Special Agent

Barbara W. Alsip, Communications Analyst

Resources,

Community, and

Economic

Development Division

Richard E. Chervenak, Assistant Director

Health, Education,

and Human Services

Division

Paul C. Wright, Evaluator

Office of the General

Counsel, Washington,

D.C.

Barry L. Shillito, Senior Attorney

(600335) Page 25 GAO/OSI-95-17 ABC Home Health Care
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