Dr. Charlotte Kennedy first became suspicious earlier this year when she received a fax from a medical supply company asking her to authorize a back brace for a 92-year-old patient.
The doctor from Chesterfield, Mo., had recently examined the patient, who’d never mentioned any back problems. In fact, the woman was an avid gardener. “She’s picking up sweet gum balls in her yard every day,” Kennedy said. But the fax said the woman had requested the brace, so Kennedy called her.
“Oh, Dr. Kennedy,” the woman said. “They have been calling me every day for two weeks. I don’t need it. I don’t want it.”
Kennedy soon began noticing more unsolicited faxes, for everything from diabetic testing materials to power scooters. When she checked with her patients, they said they hadn’t requested any of the supplies. “I just don’t think it’s right,” Kennedy said.
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As it turns out, she’d stumbled on a problem that cost Medicare – and taxpayers – $27 billion over the past four years. Now, thanks in part to the doctor’s vigilance, companies that aggressively market pricey home medical supplies to senior citizens are facing increased scrutiny in Washington.
Kennedy fired off a letter to the Department of Health and Human Services, asking officials to investigate the companies that were sending the faxes. She sent a copy to Democratic Missouri U.S. Sen. Claire McCaskill, who opened a congressional investigation.
Within two weeks of a public query from the senator’s office, more than 150 people complained about receiving harassing calls from medical equipment suppliers. One woman from southwest Missouri, Victoria Anderson, and her 87-year-old mother, Carroll Hughes, told McCaskill’s staff that they get three or four calls a day from medical marketing companies even though they’re on the National Do Not Call Registry.
Medical equipment suppliers are explicitly prohibited from cold-calling anyone enrolled in Medicare unless the beneficiary gave written permission or the supplier provided equipment to the beneficiary in the past.
From 2009 to 2012, Medicare paid $43 billion for durable medical equipment such as back braces, sleep apnea monitors and power scooters. More than 60 percent of those payments – $27 billion – may have been improper, according to research by staffers of a Senate subcommittee on financial oversight, which McCaskill leads. The federal government has been able to recover only about 3 percent of overpayments.
At a recent hearing on Capitol Hill, McCaskill said she was concerned that loopholes in the law and poor oversight allowed some unscrupulous companies to exploit Medicare. Taxpayers end up footing the bill, the senator said.
“Most Americans have seen ads on TV or received calls or letters promising medical equipment ‘at little or no cost to you,’ ” McCaskill said. “What is never made fully clear in these materials is that there is always a cost to you, because it is paid for by federal tax dollars.”
To fight fraud and waste, the federal Centers for Medicare & Medicaid Services have introduced competitive bidding and a pilot program that requires approval before Medicare will pay for power wheelchairs and scooters for beneficiaries in seven states with high rates of fraud and errors: California, Illinois, Michigan, New York, North Carolina, Florida and Texas, CMS spokesman Tony Salters said in an email. For now, pre-approvals aren’t required in most states for most equipment.
Medicare officials say the agency also is taking advantage of tools in the new health care law, the Patient Protection and Affordable Care Act, to better screen suppliers and claims using state-of-the-art analytics to identify patterns of fraud.
In an interview after the hearing, McCaskill said those were positive steps but that they might not go far enough.“It may be that some legislation is necessary,” she said, though she didn’t detail specifics. “I want to make sure that Medicare has the tools to stop this problem to bring down these costs.”
McCaskill asked two medical supply companies that had faxed prescriptions to Kennedy’s office to testify before her subcommittee April 24, but no one from either company showed up. The senator is considering compelling testimony by subpoena.
“If your company exists and makes profit because of taxpayer money, then you have an obligation to provide information to the government,” she said.
Together the two companies – Med-Care Diabetic and Medical Supplies Inc., based in Boca Raton, Fla., and U.S. Healthcare Supply, based in Milford, N.J. – have received $168 million in payments from Medicare since 2009, according to a report by subcommittee staff.
A recent review of Med-Care’s claims showed that in a sample of 590, more than 400 were improper, or 68 percent, for a total of $146,689 in overpayments, the report said. If the same error rate exists for all Med-Care’s claims, the company could owe as much as $57 million to the federal government.
Med-Care didn’t respond to a request for comment.A sample of U.S. Healthcare claims showed an even higher error rate, 92 percent. More than 5,600 of the 6,100 U.S. Healthcare claims auditors reviewed were improper, the report said. Applying the same error rate to the rest of U.S. Healthcare’s claims suggests that the company could owe up to $50 million in overpayments to Medicare.
U.S. Healthcare questioned the report’s findings, saying the data doesn’t match information it provided to the subcommittee or any audits of which it was aware.
Industry groups have followed the latest developments in Washington with alarm.
“Please don’t convict the entire industry,” said Rose Schafhauser, the executive director of the Midwest Association for Medical Equipment Services, a trade association that represents more than 300 members in seven states, including Kansas and Missouri.
Schafhauser said the vast majority of medical equipment companies saved money by helping people stay in their homes. Now some suppliers will have to get out of the business because of increased audit activities and competitive bidding, she said.
“Durable medical equipment expenditures make up just 1.4 percent of the Medicare budget,” Schafhauser said. “You’re just attacking us like we were 50 percent of the Medicare budget, but in reality even if we went away we won’t solve the Medicare problem.”
McCaskill said honest companies had no reason to fear greater supervision.
“If you’re a medical supply company and you’re doing it right, you’ve got nothing to worry about,” she said.
Medicare officials couldn’t say what proportion of improper payments for medical equipment result from fraud as opposed to simple paperwork errors, but in Florida, where people older than 65 make up more than 17 percent of the population, medical equipment fraud is so prevalent that it prompted the U.S. Department of Justice to create a Medicare Fraud Strike Force in Miami in 2007. The strike force has since expanded to eight other cities: Los Angeles, Houston, Dallas, Detroit, Chicago, Tampa, Fla., Brooklyn, N.Y., and Baton Rouge, La.
A quarter of the fraudulent billings to Medicare are tied to durable medical equipment, said Mythili Raman, acting assistant attorney general for the Justice Department’s criminal division.
“It remains a very significant problem,” Raman said. “We’re talking about things like power wheelchairs and braces that are expensive, and you can see why fraudsters see those as an area where they can profit.”
Last month, the owner of Las Tunas Medical Equipment Inc., in San Gabriel, Calif., pleaded guilty to conspiring with others to defraud Medicare. Tigran Aklyan admitted that he’d paid the owners of fraudulent medical clinics to write prescriptions and provide documentation for power wheelchairs and other durable medical equipment. He submitted $910,377 in fraudulent claims to Medicare, which paid $653,461.
Another recent scheme in Southern California reportedly lured Medicare beneficiaries to clinics with the promise of free vitamins and juice, only to sign them up for power wheelchairs that weren’t medically necessary. An employee for a medical equipment company, Godwin Onyeabor, reportedly had paid cash to a doctor, Sri J. Wijegunaratne, and a health care professional, Heidi Morishita, to provide fraudulent prescriptions for $1.5 million worth of claims. A federal jury in Los Angeles found all three guilty April 24 for their roles in the scam.
In one of the most high-profile cases involving durable medical equipment this year, the FBI raided the headquarters of the Scooter Store in New Braunfels, Texas, after a federal audit found the company had overbilled Medicare by as much as $87 million from 2009 to 2011. Known for its TV ads informing Medicare recipients, “You may qualify for a power chair or scooter at little or no cost to you,” the Scooter Store was the largest scooter seller in the country.
The company filed for bankruptcy last month. Court papers say the company had $1 million to $10 million in assets, and up to $100 million in debt, including $19.5 million owed to Medicare, the Scooter Store’s largest creditor.