Nursing Homes: Too Early to Assess New Efforts to Control Fraud and Abuse

Published by the Government Accountability Office on 1997-04-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          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.
                          NURSING HOMES
April 16, 1997

                          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

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.

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

                 Page 1                                                                GAO/T-HEHS-97-114
             Nursing Homes: Too Early to Assess New
             Efforts to Control Fraud and Abuse

             Medicare falls within the administrative jurisdiction of the Health Care
Background   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

             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.

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

             Page 2                                                                            GAO/T-HEHS-97-114
                              Nursing Homes: Too Early to Assess New
                              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.

                              In 1996, Medicare spent $11.3 billion on skilled nursing facility benefits
Multiple Billing              and an undetermined amount on part B ancillary services and items. The
Methods for Services          providers of these services and items can bill Medicare in a variety of
in Nursing Facilities         ways. With this variety comes the opportunity to blur the transactions that
                              actually took place and inflate charges for services rendered.
Leave Medicare
Vulnerable                    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         Nursing facilities often do not have the in-house capability to provide all
Suppliers Bill Medicare       the services and supplies that patients need. Accordingly, outside
Directly                      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
•   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.

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

    Page 4                                                                        GAO/T-HEHS-97-114
                          Nursing Homes: Too Early to Assess New
                          Efforts to Control Fraud and Abuse

Reimbursement for         Many nursing facilities rely on specialized rehabilitation agencies—also
Therapy Services Is       termed outpatient therapy agencies—to provide therapy services. These
Complicated and           agencies can be multilayered, interconnected organizations—each layer
                          adding costs to the basic therapy charge—that use outside billing services,
Vulnerable to Waste and   which can also add to the cost. In those situations in which the nursing
Abuse                     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.

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

                          Page 5                                                                        GAO/T-HEHS-97-114
                         Nursing Homes: Too Early to Assess New
                         Efforts to Control Fraud and Abuse

                         HCFA pays contractors to process claims and to identify and investigate
Lax Oversight            potentially fraudulent or abusive claims. We have long been critical of the
Provides Little          unstable funding support HCFA’s contractors have to carry out these
Chance of Timely         program integrity activities. We recently reported that funding for
                         Medicare contractor program safeguard activities declined from 74 cents
Detection of             to 48 cents per claim between 1989 and 1996. During that same period, the
Excessive Medicare       number of Medicare claims climbed 70 percent to 822 million.6 Such
                         budgetary constraints have placed HCFA and its contractors in the
Reimbursements           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

                          High Risk Series: Medicare (GAO/HR-97-10, Feb. 1997).
                          GAO/HEHS-96-18, Jan. 24, 1996.
                          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 on various fronts are now under way to address fraud and abuse
Initiatives Now Under   issues we have discussed here today. Several of these initiatives, however,
Way to Address          are in their early stages, and it is too soon to assess whether they will, in
Long-Standing           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.

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

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