Watchdog Report

August 4, 2008

Nurse takes down phony equipment dealers

The sign on Suite No. 315 says ``Open 9 a.m. to 1 p.m.'' But the Hialeah medical equipment business -- suspected of billing the U.S. government a few million dollars in bogus Medicare claims -- is locked on a recent weekday visit by federal agents.

The sign on Suite No. 315 says ``Open 9 a.m. to 1 p.m.''

But the Hialeah medical equipment business -- suspected of billing the U.S. government a few million dollars in bogus Medicare claims -- is locked on a recent weekday visit by federal agents.

Angel Diaz, a handyman for the property manager, unlocks the door for FBI agent Brian Waterman. He spots a small table with tiny boxes of glucose blood tests for diabetics.

''Does this look like a multimillion-dollar operation to you?'' Waterman says as he scans the nearly empty suite.

''No, sir,'' Diaz says, ``not even $200. I've never seen anybody come into this office.''

The vacant business at 900 W. 49th St., a high-rise notorious for illegal medical equipment providers, is suspected of being among hundreds of healthcare suppliers in South Florida that bilk the nation's healthcare program out of millions of dollars, according to federal agents.

It was flagged by Peggy Sposato, a registered nurse who is part of a 50-person Medicare Fraud Strike Force established in March 2007 by the U.S. attorney's office and U.S. Department of Justice. The strike force, based in Miramar, is responsible for criminal investigations -- not enforcing Medicare's regulations.

In early spring, Sposato, who is trained to spot suspicious claims, noticed the Hialeah business -- approved by Medicare as a diabetic equipment supplier -- billed $2.7 million over two months for equipment that had nothing to do with treating diabetes. Among the suspicious items: tracheotomy suction pumps, canisters and tubing.

''Because of their astronomical number, I jumped on it,'' said Sposato, who is the only nurse in the country working on federal healthcare criminal investigations.

Medicare-approved equipment companies like the Hialeah one have dotted South Florida for decades. For the most part, they've operated under scant scrutiny by federal regulators.

In March 2007, the U.S. Department of the Health and Human Services Office of Inspector General scolded Medicare for allowing questionable medical equipment businesses to bill the government program for hundreds of millions of dollars.


According to a critical report, federal agents made unannounced visits at 1,581 medical equipment businesses in South Florida and found that one-third did not exist or were closed. Those 491 providers, mostly in Miami-Dade, billed Medicare for $237 million and were paid $97 million in 2006.

How do they get away with it? Superficial oversight by the Centers for Medicare and Medicaid Services, which manages the government health insurance program and retains private contractors to process bills.

In South Florida, medical equipment suppliers have invented more and more schemes to dodge detection by law enforcement officers and regulators. Many pay bribes to Medicare patients to use their numbers for bogus billings, but they also buy and sell stolen Medicare patients' lists to bill the healthcare program. Actual business owners pay kickbacks to associates to use their names as straws to cover up their roles in the companies. They also misappropriate physicians' identification numbers on the Internet or pay them kickbacks to write prescriptions.

Another part of the scheme: Medical equipment suppliers in the Southeast, based mainly in Miami-Dade, used the names of 2,454 dead doctors for prescriptions to file Medicare claims and got paid $3.9 million in reimbursements from January 2007 to the end of June, according to records obtained by The Miami Herald.

After billing Medicare for a short period, the equipment owners sell the businesses to others or install more straw owners -- without reporting ownership changes to the federal government. This enables them to collect big bucks over a few months without notice.

''It's such easy money,'' said the FBI's Waterman, who visited the Hialeah equipment supplier with U.S. Health and Human Services agent Julie Rivera. ``It's scary how easy it is.''

In last year's report, Health and Human Services Inspector General Daniel Levinson took Medicare to task for failing to screen medical equipment applicants for criminal backgrounds, conduct regular site inspections and ensure basic operational standards.

In an assessment published in May, Levinson concluded that Medicare had not completed his recommendations to fix the glaring problems in South Florida's medical equipment industry.

In his words, they were ``unimplemented.''

Medicare -- along with Congress -- should be more aggressive about safeguarding the fragile program with tougher watchdog regulations, said Christopher Dennis, special agent in charge of Health and Human Services' Office of Investigations in Miami Lakes.

''We're addressing 2008 issues with rules and regulations that are two decades old, but the criminals are getting smarter,'' Dennis said. ``We make [Medicare regulators] aware of the deficiencies. After that, our hands are tied. After that, it's up to Washington.''

Kimberly Brandt, director of program integrity at Medicare, blamed a lack of anti-fraud resources. Of Medicare's $432 billion annual budget, Congress allocates about $720 million to the health insurance program to combat waste and abuse.

''It becomes increasingly difficult each year to stretch those dollars to fight the fraudulent problems confronting the Medicare system,'' Brandt said.

Critics both inside and outside Health and Human Services point to persistent flaws in Medicare's oversight:

 Until recently, almost anyone -- including convicted felons -- could qualify to become a Medicare provider because the agency's criminal background checks, though required by regulation in recent years, were spotty or nonexistent.

In December, the Centers for Medicare and Medicaid, which manages the program, said it would start conducting full background checks on selected medical equipment suppliers in areas with ``high fraud potential.''

Brandt said regulators now conduct those checks on medical equipment applicants in Miami and Los Angeles, the country's worst areas for healthcare fraud.

 Private Medicare contractors review claims before authorizing payment, but they only focus on billing errors and excessive payments.

Contractors now use computer software to block invalid equipment codes used by scofflaw Medicare operators, Brandt said, saving hundreds of millions of dollars yearly. But critics counter that only some dubious claims are caught before payment. The operators are still able to come up with new claims codes to get around the software barriers.

 In a yearly audit, about 1 percent of the 1.2 billion annual claims are verified by the Centers for Medicare and Medicaid. But regulators zero in on billing mistakes and excessive reimbursements more than outright fraud.


Last year, the error rate was about 4 percent, or about $11 billion in ''improper payments'' -- about half Medicare's estimated losses in 2004. Brandt said some of those payments were for fraudulent billing, but she couldn't break it down.

However, experts point out that Medicare's audits don't accurately capture fraudulent claims.

''It's a weak audit that would not detect most fraud,'' said Malcolm K. Sparrow, a professor at Harvard University's John F. Kennedy School of Government and author of the book, License to Steal: How Fraud Bleeds America's Health Care System. ``They only detect claims processing errors, not lies.''

 Government inspections of equipment providers were practically nonexistent until late 2006, when Health and Human Services' Office of Inspector General found almost 500 suppliers were not open for business. Although federal agents shut them down, Medicare allowed 300 of them to reopen after appeals, said Brandt, who called the inspector general's inspections ``cursory.''

Brandt said Medicare now does site inspections more than once a year at every registered equipment supply office in South Florida as well as in Southern California.

Despite such assertions, a Miami Herald reporter accompanied FBI and Health and Human Services agents on unannounced visits to five medical equipment companies in Miami, Hialeah and Doral in May. None was open for business. They were spotted by Sposato, a sleuth-like expert at deciphering code-heavy Medicare claims. In April, she zeroed in on extraordinarily high bills submitted by the Hialeah business and the four others on her computer spreadsheets.

But the FBI is narrowing its focus on only one of those five businesses -- a storefront in a strip center off Calle Ocho -- because the rest didn't receive much in Medicare reimbursements. The Little Havana company, however, filed about $200,000 in false medical equipment claims in March, and Medicare paid it $91,000, according to the FBI.

In her 12 years at the U.S. attorney's office, Sposato said the worst Medicare abusers have been the medical equipment suppliers and HIV infusion clinics billing for bogus services.

But now some in South Florida are branching out into other areas of fraud, including home healthcare assistance and rehabilitation facilities, and into other Florida regions, such as Orlando, Tampa and St. Petersburg.

''The fraud never stops,'' Sposato said. ``Every time you build a better mousetrap, the mouse gets smarter.''

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