The Health Care Financing Administration (HCFA)—an agency of the Department of Health and Human Services—administers the Medicare home health care program. That program has been part of Medicare since Medicare began in 1965 and serves as an alternative to lengthy in-patient hospitalization. Medicare home health costs averaged about a 33-percent per-year growth from 1989 to 1996—from about $2 billion to almost $18 billion. This occurred primarily because the number of beneficiaries receiving services increased as did the number of services per beneficiary. A fiscal intermediary under contract to HCFA determines if a home health agency’s services are reasonable and necessary and, in turn, which agency costs are reimbursable based on Medicare cost reimbursement principles. These principles authorize Medicare intermediaries to reimburse home health care providers their reasonable costs of serving beneficiaries when those claimed costs are found to be necessary, proper, actual, and related to patient care. In this regard, providers certify that they are familiar with the laws and regulations regarding the provision of health care services and that the services identified were provided in compliance with such laws and regulations. Mid-Delta Home Health is one of the largest home health care providers in Mississippi. It is owned and operated by Clara T. Reed, who is Chief Executive Officer and Chief Financial Officer. At the time of our investigation, Mid-Delta Home Health employed over 600 people and consisted of two corporations (in Belzoni and Charleston, Mississippi) that provided home health care through 16 offices in different parts of the state. Medicare reimbursement to Mid-Delta for home health care and rural health clinic services from January 1993 to December 1996 totaled approximately $77.9 million. Mrs. Reed owned and/or controlled a number of related companies and organizations, including P&T Management, Inc., which provided overall management services for Mid-Delta Home Health and its affiliates (rural health care clinics known as Taylor’s Medical Clinics); Mid-Delta Development League, Inc.—a nonprofit, tax-exempt (Internal Revenue Code section 501(c)(3)) organization; and The Care Associates, Inc., a political action committee formed to aid political candidates interested in “the health and welfare of” the poor and needy. See figure 1. Mid-Delta Home Health, in our opinion, violated Medicare cost reimbursement principles in claiming costs that it had not incurred. First, Mid-Delta Home Health presented approximately $226,000 in checks to its employees, representing payment for unused leave time in the 1993-96 period. Mrs. Reed subsequently asked the employees to endorse the checks and give them back to Mid-Delta. When questioned about this, some current and former employees told us that they had felt coerced into giving back the checks. The company then improperly claimed the full amounts of the leave as part of the employees’ payroll costs and was reimbursed by Medicare. Second, Mrs. Reed requested—or, again according to some employees, coerced—Mid-Delta and P&T Management employees to return a certain amount (about 20 percent or more) of their 1996 bonuses to the company. Those on a “special employee” list received larger bonuses by agreeing in advance to return certain amounts of their bonuses (an average of 29 percent) to the company. The bonus paybacks totaled about $170,000, including $80,000 from Mrs. Reed. Mid-Delta improperly claimed, and received reimbursement from Medicare for, the returned bonuses. Mrs. Reed told the employees that the returned unused leave and bonus moneys would support, among other things, an “indigent care fund” for Mid-Delta’s home health care patients who had exhausted their Medicare and Medicaid visits. However, according to Mid-Delta’s controller, the moneys were used largely to offset unpaid bills of private-pay patients of the affiliated Taylor’s Medical Clinics. We determined that Mrs. Reed deposited moneys to P&T Management’s operating account or to the account of a political action committee that she controlled. See figure 2. According to Mrs. Reed, in 1994 after consulting with legal and tax advisors, she discontinued allowing her employees to roll over unused leave from one year to the next. Thus, as a company practice, employees were given checks for the cash value of their unused leave, then were asked to endorse and return them to the company. Further, former and current employees whom we interviewed complained that between 1993 and 1996, employees had been presented with unsigned (nonnegotiable) checks in payment for their unused leave time and were asked—some employees said coerced—to endorse the checks back to the company. Some also complained that in 1993 and 1994, Mrs. Reed had issued stock certificates instead of paying them for unused leave time. At Mrs. Reed’s request, according to employees we interviewed, employees endorsed the back of their checks and returned them. Mid-Delta Home Health officials deposited most of the checks in an account for the indigent care fund and some to the bank account of a political action committee, both controlled by Mrs. Reed. (See fig. 2.) For the 1993-96 period, records show that Mid-Delta employees returned approximately $226,000 in payment for unused leave. Some of the moneys from the account for the indigent care fund were subsequently deposited to P&T Management’s operating account; and Mid-Delta’s Director of Finance confirmed that Medicare had reimbursed the amount claimed for employee payroll costs, including the unused leave. Current and former employees told us that in some instances employees who refused to surrender to what they termed as coercion and return payments for leave faced retaliatory measures, such as demotion or firing. Indeed, two former employees who had been fired from Mid-Delta Home Health believed that they had been fired because they had not returned payments for leave as requested. Mrs. Reed denied this allegation. However, 20 of the 29 employees we interviewed about unsigned leave checks stated that they had endorsed the checks and returned them because they feared losing their jobs if they did not. In some cases in 1993 and 1994, Mrs. Reed gave employees a stock certificate representing an IOU for the monetary value of the checks they had endorsed and returned to the company. She told those employees, according to her statement to us, that she would remember that they had leave coming from the previous year and that they could take a day or so when they needed it. Some former employees complained to us that they had never been paid for their unused leave. When we asked Mrs. Reed about the unsigned checks, she said that she could not cover the employees’ leave checks without causing a cash flow problem. She said that if she had presented signed checks to the employees, they would have cashed them instead of returning them to the company. Mrs. Reed stated that no one was coerced—the employees voluntarily returned money to the company. Mid-Delta Home Health paid bonuses to its employees based on various criteria, such as length of employment and annual salary. However, according to some Mid-Delta employees, a bonus’s amount was also determined by the employee’s willingness to return about 20 percent or more of the bonus to the company. Further, Mid-Delta then claimed, and received, the amount of the bonuses for Medicare reimbursement. (See fig. 2.) Sources informed us that when bonus checks were distributed to employees, Mrs. Reed essentially coerced employees to pay back approximately 20 percent or more of their bonuses. Although several employees told us they had returned their bonuses voluntarily and that they had not felt threatened or coerced, other employees stated that they had complied with Mrs. Reed’s requests for fear of losing their jobs. Mid-Delta and P&T Management employees in December 1996 received over $933,000 in bonuses and returned about $170,000 to the indigent care fund. (See fig. 2.) At least $155,000 was then transferred from that fund to the P&T Management operating account. The $170,000 included $80,000 that Mrs. Reed returned from a $125,000 bonus she had received in December 1996. Further, according to one knowledgeable employee, Mrs. Reed had a list of “special employees” who received larger bonuses than did others if they agreed in advance to give back a certain amount. The source explained that Mrs. Reed talked to each employee on the list personally; and as each employee agreed to return the set amount to the company, she initialed by the employee’s name on the list. Indeed, according to one employee, Mrs. Reed said, “I will give you a larger bonus if you agree to give some of it back.” Further, another employee told us that when she did not return the bonus money immediately, she received a telephone call from Mrs. Reed asking, “Where’s my money?” When the employee answered that she had thought the donation was voluntary, Mrs. Reed responded, “That was never your money in the first place. I want my money.” The employee told us that when she returned her bonus in the form of four checks, asking (for personal financial reasons) that each be deposited at a later date, Mrs. Reed deposited all of them immediately. Other employees confirmed similar experiences. Our review of a “special employees” list, containing 38 employees’ names, showed that 35 had returned an average of 29 percent of their original bonuses and that the range of return from these employees was between 18 percent and 57 percent. We verified with Mid-Delta’s Director of Finance that the employees had returned the amounts and that Mid-Delta had claimed the full bonus amounts to Medicare for reimbursement. Table 1 lists details of bonus paybacks by some of the 35 employees. In contrast, although Mrs. Reed paid back part of her $125,000 bonus, her family members did not pay back any of their bonuses.