Health & Welfare | Daily Report

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The inspector general overseeing the Medicare program delivered jaw-dropping testimony to Congress yesterday, describing widespread fraud in the Medicare program meant to supply wheelchairs, artificial limbs and pacemakers to seniors.

In prepared remarks during a hearing held by the House Committee on Energy and Commerce, Subcommittee on Health, Inspector General Daniel Levinson cited the example [PDF] of a Southern California street gang that managed to bilk the government of at least $11 million before they were caught.

Nine gang members – with prior narcotics and assault charges – have been indicted on health care fraud. They took advantages of loopholes in Medicare regulations that make it easy to set up a fake medical device company and bill the government for high-ticket items like wheelchairs and oxygen supply systems.

Levinson described how and why people are defrauding Medicare through its program to supply medical devices and supplies to seniors, a program that costs $10 billion a year.

For starters, the ‘why.’

Levinson said that Medicare is basically paying suppliers too much money for some devices, making medical supply an attractive field for fraudsters. For example, he said, it costs about $1,000 for a supplier to buy a wheelchair. However, Medicare reimburses the middlemen $4,000 for the device.

In another example, he said Medicare in 2007 was paying suppliers $17,000 to provide patients with a wound-care pump that cost them about $3,600.

Levinson also described how easy it is [PDF] for fraudulent suppliers to set up shop. They are supposed to follow 26 standards, like operating a bricks-and-mortar store, putting up a sign with the business name and keeping regular hours.

When inspector general agents checked in on 905 Southern California medical suppliers in 2007, though, they found that 13 percent of suppliers had no open-and-operating storefront.

Things were even worse in South Florida. Agents found that 31 percent of suppliers there had no operating storefront.

Even more startling, when Levinson’s office and federal prosecutors set up a fraud-fighting “Strike Force” in South Florida, Medicare bills for wheelchairs and other medical supplies fell by 63 percent, or $1.7 billion, compared to the prior year.

Those seeking to bilk the government also benefit from lax checks and balances, Levinson testified. Medical suppliers routinely provided the government with proof of the legitimacy of an order that was actually no proof at all. Yet they still got checks in the mail. Medicare paid $34 million to medical supply companies that provided either invalid or inactive numbers linked to doctors approving the order.

Levinson went on to describe how the Office of Inspector General anti-fraud efforts have been undercut when Medicare appeals reviewers overwhelmingly let apparently fraudulent suppliers back into the program:

For example, as a result of the OIG site visits in south Florida, CMS revoked the billing numbers of 491 suppliers. However, OIG found that nearly half of these suppliers appealed and received hearings; hearing officers reinstated the billing privileges for 91 percent of these suppliers. Two-thirds of suppliers whose billing privileges were reinstated have subsequently had their privileges revoked or inactivated. Further, the U.S. Attorney’s Office has indicted 18 individuals connected to 15 of the 222 reinstated suppliers.

The hearing focused on competitive bidding as a possible solution to the ills facing the medical supply program. The initiative, according to testimony during the hearing by the Government Accountability Office [PDF], still has its owns problems to address.