Posted: Oct 16, 2011 10:26 AM by AP
Updated: Oct 16, 2011 12:27 PM
MIAMI (AP) - Regulators fighting an estimated $60 billion to $90
billion a year in Medicare fraud frequently suspend Medicare
providers, then quickly reinstate them after appeals hearings that
government employees don't even attend, according to an Associated
Federal prosecutors say the speedy reinstatements - though
helpful to legitimate suppliers who get snagged on technicalities
or minor violations - amount to a missed chance to cut off the flow
of taxpayer dollars to bogus companies that in many cases wind up
under indictment. Some store owners have collected tens of
thousands of dollars even after conviction, prosecutors told the
Making matters worse, Medicare officials have failed to collect
a single cent from the security bonds that were instituted two
years ago specifically to discourage crooked providers from
vanishing at the first sign of trouble from regulators. Millions of
dollars sit unrecovered; officials blame the delay on personnel
The gaps in the system grow out of poor communication between
one set of contractors paid to inspect Medicare providers and alert
officials to suspicious activity; a separate set of contractors
that handles payments; and the agency that runs Medicare.
Often, neither the government nor its private contractors attend
the initial hearings when suspended companies appeal, allowing them
to win practically by default. Officials at the Centers for
Medicare and Medicaid Services declined to say why - be it staffing
concerns or other issues - they aren't part of the process, even
though it's overseen by contractors the agency hires.
For years, Medicare has paid claims first and reviewed them
later - a process that worked when providers were mostly hospitals
because quick payments meant few lapses in service. But the "pay
and chase" method has become a boon for criminals, allowing them
weeks of lag time to bill for fraudulent claims, receive payment
and skip town before authorities catch on.
Medicare fraud has grown so lucrative and so easy that drug
dealers and organized crime rings are tapping into it: Drug dealers
and mobsters have moved into Medicare scams because it affords
greater payoffs and carries shorter prison sentences than drug
trafficking or robbery.
"If Medicare wants to stop fraud, it can't keep pretending
these are real providers," said attorney Kirk Ogrosky, former head
of the Justice Department's division that investigates health care
fraud. "Medicare is adept at enforcing technicalities because the
system has been designed for real providers, but outright crooks go
undetected because their claims appear legitimate."
Officials revoked the licenses of 3,702 medical equipment
companies in the fraud hot spots of South Florida, Los Angeles,
Baton Rouge, La., Houston, Brooklyn, N.Y., and Detroit between 2006
and 2009, according to data provided to the AP under a public
records request. Those areas represent the highest concentrations
of Medicare fraud in the country, according to federal authorities
who have set up task forces there.
Of the providers who lost their licenses in those cities, about
37 percent, or 1,371, were eventually back in business, sometimes
within days and often within months.
In one notable case, Medicare contractors revoked Simon Seruya's
license in 2007 after inspectors visited the Miami address listed
for his medical equipment company, only to find no employees or
Seruya appealed, was reinstated the same day and resumed billing
Medicare. One of his companies was still billing Medicare for
several months even after he was indicted for racking up $15
million in bogus charges.
Federal health officials eventually revoked Seruya's provider ID
in November 2007 - six months after his arrest. He pleaded guilty
and was sentenced to roughly four years in prison the next month.
Now 78, he was released last month, but his attorney declined
requests for an interview.
Some companies specialize in helping providers pass inspection,
arranging for someone to sit at the front desk, ensure the phone
has a valid number and display a few medical supplies, said Omar
Perez, an agent for the Department of Health and Human Services'
"And then they pick up all their stuff and they leave. How do
we really address that? Is it fraud? It's certainly part of
fraud," Perez said.
When Medicare began in 1965, Congress mandated that private
contractors would process and pay claims. Under 1996 legislation,
Medicare hired a separate set of contractors to monitor fraud,
reasoning it was wise to separate claims payments from the fraud
detection side. The agency has worked to consolidate claims
contractors, dropping from 50 to 15 in the past few years, and is
in the process of streamlining its fraud contractors and
centralizing its claims and fraud databases so that contractors and
authorities will be working off the same information.
Still, as the program has burgeoned to pay 4.4 million claims
worth more than $1 billion per day, that layered contractor system
has evolved into an expensive - some contracts are worth nearly
$500 million for five years - and time-consuming patchwork process.
"You've got a dizzying array of contractors that are supposed
to be fighting fraud ... obviously all these contractors that were
supposed to be doing all this, it hasn't worked out as well as we
hoped," U.S. Sen. Claire McCaskill, D-Mo., noted at a Capitol Hill
hearing this summer.
Here's how the revocation process works:
Medicare hires Contractor A, which is in charge of fraud
detection, to inspect a medical equipment company. Under the law,
providers are required to have an office that is open and staffed
during regular working hours - but some have empty storefronts and
some have only a post office box.
Contractor A recommends revoking the company's Medicare license
to Contractor B. But Contractor B ultimately decides whether to
revoke and often does not have the same information that Contractor
Sometimes one subcontractor without firsthand knowledge of the
case or the necessary medical expertise will overturn a suspension
made by the contractor that had direct evidence of fraud, said Ryan
Stumphauzer, a former Miami federal prosecutor who specializes in
health care fraud.
A revocation does not automatically start a criminal
investigation - that's also a separate process.
So the company appeals, and an independent third party known as
a hearing officer decides whether to reinstate the license. If the
provider disagrees with that decision, the appeal can be kicked up
to an administrative law judge.
But federal prosecutors say it rarely gets to the second level,
in part because truly fraudulent providers tend to walk away once
their licenses are revoked - they often simply obtain new licenses
under associates' names and keep right on operating, said Ogrosky,
the former Justice official.
It's also because Medicare doesn't send lawyers to defend the
decision in the first round of appeals.
"Nobody from (the government) bothers to attend the appeal
hearing, so the judge hears a one-sided story and the government is
virtually guaranteed to lose," Stumphauzer said. "Every taxpayer
should be outraged."
Federal prosecutors say every durable medical equipment company
they've indicted has had a site inspection - in other words, an
opportunity to have stopped the fraud sooner. Authorities seize
assets after indictments, but what's left is usually only a
fraction of what was taken.
In 2009, Medicare began requiring medical equipment providers to
post surety bonds, typically around $50,000, to ensure the agency
could recoup some money in case the company was fraudulent and
fled. Yet two years later, the agency hasn't recovered any funds
from the bonds and hasn't finalized a system to do so, according to
a report last month by the HHS inspector general.
Medicare officials could have recovered $15 million just from
South Florida medical equipment companies based on fraudulent
payments in 2007 if the surety bonds were in place, according to
Last year in Miami, investigators visited independent diagnostic
facilities, another sector prone to fraud, and found that many were
not open during business hours and did not have a physical
facility. Twenty-seven of 92 facilities, more than one in four,
didn't meet standards, and contractors moved to revoke many of
their billing privileges.
Yet three of the companies continued to receive Medicare
payments during the revocation process, according to another
inspector general's report.
Chris Parrella, a Miami attorney who specializes in health care,
said most revocations hamper legitimate providers and have little
to do with fraud. He estimated that about 75 percent of clients at
his firm are successfully reinstated.
"A percentage will not appeal and a percentage will lose and a
percentage will get their number back," he said. "It's just a
numbers game to diminish the volume of providers in the Medicare