Inspector general chastises Medicare on waste

Jay Weaver

Aug. 25, 2008 (McClatchy-Tribune Regional News delivered by Newstex) -- A federal inspector general denounced Medicare on Monday for its failure to follow policies and laws for auditing medical equipment suppliers's claims -- a blunder that has likely cost taxpayers hundreds of millions of dollars since 2003.

The inspector general at the U.S. Department of Health and Human Services ordered fixes to help assuage fraud, waste and abuse: among them to confirm in its audits that doctors actually prescribed equipment, providers delivered it and patients received it.

Some members of Congress accused Medicare officials of manipulating their 2006 audit to mislead lawmakers about the agency's effectiveness in fighting fraud in the medical equipment industry, which has been a longtime problem in South Florida.

Lawmakers said they felt deceived by the agency managing the huge entitlement program for the elderly and predicted Congress would hold oversight hearings in the fall to grill Medicare officials.

Inspector General Daniel R. Levinson took Medicare to task for ordering its auditors to check on equipment providers' paperwork in 2006 -- but to skip verifying medical and patient records -- violating policies that had been adopted by Congress in 2002.

Medicare officials "orally instructed [auditors] to deviate from written policies by making determinations based primarily on the limited medical records available from [equipment] suppliers, not the full medical records available from physicians," Levinson wrote.

The inspector general's report was issued just weeks after a Miami Herald series exposed rampant corruption in two regional healthcare fields -- medical equipment suppliers and HIV drug-infusion clinics. They fuel South Florida's reputation as the nation's capital of Medicare fraud.

The Miami Herald series underscored Medicare's failure to root out fraudulent claims submitted to the health insurance program, leading to the annual loss of at least $2.5 billion in South Florida and an estimated $60 billion or more nationwide.

Levinson told Medicare officials to strive to ensure accurate audits; the inspector general's report found Medicare's error rate for reviews of medical equipment claims was 28.9 percent, not 7.5 percent, as the agency boasted in 2006. That year, Medicare said its total losses from improper payments for medical equipment claims such as powered wheelchairs, oxygen supplies and prosthetics was $700 million.

Although neither the inspector general, nor Medicare, put a dollar figure on the higher error rate, experts have put the losses due to fraud, waste and abuse in the hundreds of millions of dollars.

Medicare's acting administrator agreed with almost all of the inspector general's findings and recommendations, saying some fixes, such as checking on doctor's patient records, are in place.

"Given its centrality to [Medicare's] financial oversight mission, we are eager to adopt any meaningful changes to the program that will help enhance measurement efforts in particular and our overall program integrity efforts in general," said Kerry Weems.

Medicare officials originally boasted they were gaining control over fraud, waste and abuse in the health insurance program, when in fact the agency's payment error rate was about four times higher than it was touting for medical equipment reimbursements, according to the report.

Sen. Chuck Grassley of Iowa, ranking Republican on the Senate Finance Committee, criticized the Centers for Medicare and Medicaid Services for irregularities cited in the report.

"I want to know what happened, who's responsible, who will be held accountable and what the [Human Services] secretary will do about it," said the senator, who had requested and was briefed on the report. "If people cooked the books, manipulated the methodology or told the contractor to ignore the rules, those individuals need to take the heat."

South Florida lawmakers said Congress needs honest answers from Medicare, which is sharply criticized in the report for advising outside auditors to ignore federal policies that would have accurately measured waste, abuse and fraud.

Rep. Ileana Ros-Lehtinen, R-Miami, predicted that the House Committee on Oversight and Government Reform, headed by California Democrat Henry Waxman, would call for hearings on the issue this fall. Other congressional panels could also have hearings. "Congress is not going to be fooled," she said. "We've been trying to get at these fraudulent claims for a long time."

Her colleague, Rep. Mario Diaz-Balart, R-Miami, agreed.

"If true, this is an outrageous and unforgivable stunt," Diaz-Balart said in a statement Friday. "Cracking down on fraud should be a top priority for Medicare, not fixing numbers to make an agency look better.

"This is taxpayer money and must be treated with integrity and reverence. I expect hearings and I expect answers -- truthful answers -- from Medicare about this report."

Medicare officials denied the allegations.

"While we agree with the inspector general that the [medical equipment] error rate we reported should have been higher, allegations of manipulation of this error rate are preposterous," said Jeff Nelligan, Medicare's director of media affairs.

Among other things, the report says that Medicare officials told private auditors not to compare medical equipment companies' invoices with doctors' records to verify patients received such services.

But Nelligan said Medicare, working with private auditor AdvanceMed, has aggressively targeted fraud and improper payments in the medical equipment field, which accounts for about two to three percent of Medicare's $456 billion annual budget.

In 2006, Medicare said that its overall payment error rate for medical equipment and other healthcare services was 4.4 percent -- a significant decrease from the 5.2 percent reported in 2005 and drastically lower than the 10.1 percent rate reported the previous year.

But the reality is, Medicare officials told The Miami Herald, they don't have a specific amount for the cost of corruption nationwide. Internal audits focus mainly on billing mistakes, excessive payments and other waste with only a fractional measure of fraud. Therefore, the agency estimates its combined loss is $11 billion annually, about half the 2004 amount.

The root of the problem is that Medicare contractors review claims before authorizing payments, but they focus mainly on errors and not outright false bills.

The biggest medical equipment corruption case in South Florida revolved around a pair of Medicare billing experts. Mabel and Abner Diaz, owners of All-Med Billing Corp., submitted a staggering $420 million in false Medicare claims on behalf of 85 medical equipment companies in South Florida.

They collected a 5 percent commission on $148.5 million paid to those businesses by the government's healthcare program between 1998 and 2004.

The Diazes, 37 and 36 respectively, pleaded guilty in federal court earlier this summer and face up to 20 years in prison at their sentencings on Friday. They must turn over between $2 million and $4 million worth of real estate, jewelry and cash as part of their plea agreements. (Their former billing company has no connection to All-Med Services of Florida, Inc., a Miami Lakes equipment provider.)

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