Businessweek Archives

Is Fraud Poisoning Home Health Care?


Social Issues

IS FRAUD POISONING HOME HEALTH CARE?

Tom Henry had a good thing going. By padding bills for services provided through six home health-care agencies he owned in Lebanon, Tenn., he easily collected more than $4.4 million from Medicare and Medicaid over four years. Henry spent much of the money on a new home, cars, and lavish toys, including furs for his wife, a jaunt with friends to Canc n, and a trip to Hollywood to appear on Wheel of Fortune (he lost). Henry was finally caught and convicted of fraud in 1992, after his schemes became too blatant to escape the notice of insurance investigators, who alerted federal authorities.

The case of Tom Henry is only one of countless instances of fraud and abuse plaguing the rapidly expanding $31 billion home health-care industry. Most are purely financial rip-offs, such as one involving a Florida man sent to prison on Feb. 14 for, among other things, billing Medicaid for home care rendered to three people who turned out to be dead. But other crimes involve willful actions of neglect, abuse, and incompetence that jeopardize the lives of the aged and ill people receiving care at home.

Among the myriad scams already uncovered:

-- Kelly Kare, a home-care company in New York, sent "untrained, unqualified, and unlicensed workers" to care for sick and elderly patients. Their competence was so lacking that one client, Ronald Callahan, had to have his sister teach his alleged nurse how to catheterize him. By the time Kelly Kare's owner was convicted, she had billed New York Medicaid more than $1.1 million for fraudulent services.

-- In Miami, a network of eight companies is charged with offering milk supplements and nutritional therapies free to healthy consumers who didn't need them. The companies then allegedly billed Medicare $14 million, claiming that the products were medically essential. This case, pending in federal court, sparked 14 probes nationwide into similar scams.

-- Robert Desrochers, the owner of two home health-care agencies in Alhambra, Calif., paid the salaries of discharge planners at 10 hospitals as part of his service as long as they sent patients to his agencies. He then shifted that cost, among others, to Medicare. He was convicted of fraud last year. Prosecutors say his scheme is not unusual.

Problems in the industry are not limited to newly formed companies or fly-by-night operators. Some of the largest companies in the industry, such as Caremark International Inc. and T2 Medical Inc., are under federal investigation for alleged kickback schemes. Hospital Staffing Services Inc., based in Fort Lauderdale, Fla., is being probed for its Medicare billing practices. All three companies deny wrongdoing.

"NEXT FRONTIER." Predicting how much fraud and abuse costs consumers is tricky. One congressional estimate puts it at 10% of total expenditures, or $3.1 billion. If the current level of malfeasance continues, experts say, it could wipe out some of the anticipated savings from caring for patients outside hospitals. "Home health care is the next major frontier for fraud and abuse," says Edward J. Kuriansky, New York Deputy Attorney General and special prosecutor for Medicaid fraud. "We've just scratched the surface."

Of course, instances of criminal conduct occur in other segments of the health-care industry. But the nature of home care makes it uniquely susceptible. In hospitals, doctors, nurses, and administrators all monitor the quality and cost-effectiveness of care patients receive. But home care is largely unsupervised. With ill-defined or nonexistent pricing guidelines, poorly conceived federal regulations, and a patchwork of uneven state and local laws, the home-care industry is primarily accountable to itself.

Though the industry has tightened its standards, the guidelines have little or no effect on the thousands of home-care companies that don't belong to the trade groups. And federal investigators are far too understaffed to meet the growing caseload. "We've only been dealing with the most blatant cases because of the lack of manpower," says Jeanne K. Damirgian, an assistant U.S. attorney in Miami. "Only now are we moving into more sophisticated schemes."

The fraud epidemic comes at a time when the industry is experiencing exponential growth. More than 7.1 million people are expected to receive some care in their homes in 1994. That's up from 5.9 million in 1987, the industry's trade group says. Home care, which provides the services of nurses and aides, and home infusion therapies, which include delivery of drugs intravenously, are expected to grow 35% in 1994, according to the Commerce Dept.--three times faster than the rest of the health-care industry. The other industry segment, durable medical equipment, such as oxygen tanks and wheelchairs, is also growing fast.

The federal government is picking up a sizable percentage of the tab. Medicare and Medicaid expenditures for home care ballooned to $18 billion last year, from just $8 billion in 1990, according to Home Health Line, an industry newsletter. The Health Care Financing Administration, which manages Medicare expenses, predicts a 166% increase in its home-care spending by 1996.

The boom is being fueled largely by the perception that home care is less costly than more traditional venues. A 1991 industry study compared the average cost of treatment in hospitals with treatment in the home for patients with hip fractures, a common ailment treated through home care. It found that by sending patients home six days earlier than normal, $2,300 was saved. That translates into an annual savings of $575 million to Medicare, the study showed.

Such savings, coupled with pressure from insurers to cut costs, is compelling hospitals to release patients sooner. And advances in treatments and technologies have made it possible to provide sophisticated care, such as chemotherapy and respiratory therapy, almost as easily in living rooms as hospitals.

MANY LIMITS. Perhaps nothing has done more for the industry's bullishness of late than the Clinton Administration's plan for health-care reform. Clinton's proposed package specifically calls for universal coverage of short- and long-term home care. Many insurance companies now offer only limited home-care coverage--or none.

Since Clinton's election, Health Force, an owner and franchiser of nursing and home- aide agencies based in Woodbury, N.Y., says that responses to its newspaper ads seeking franchisees have more than doubled to as many as 125 per week. In Louisiana, the number of Medicare-certified home-health agencies jumped from 270 to 442 in 1992. Growth has been so rapid that Louisiana, along with other states, has placed a moratorium on the opening of new agencies.

Amid the home-care industry's explosive growth, critics are calling for stepped-up enforcement and better guidelines to regulate providers. Although Congress attempted to make some fixes in 1987 by establishing training standards for home health aides and a national hot line for consumer complaints, abuses have proliferated. "There are so many pieces of home care," says Charles P. Sabatino, assistant director of the American Bar Assn.'s Committee on Legal Problems of the Elderly. "Some are state programs. Some are Medicare. There is licensed, unlicensed, and high-tech home care. And there is no comprehensive approach to accountability."

A look at the regulatory landscape makes that all too clear:

-- Only seven states regulate home infusion as a distinct industry, leaving this segment most open to rampant wrongdoing, experts say. "The regulatory environment for these services is a little bit like Dodge City before the marshals showed up," said Representative Ron Wyden (D-Ore.) at a hearing last May.

-- Virtually no state or federal licensing requirements exist for the 10,000 companies providing durable medical equipment. Although the industry's trade group, the National Association of Medical Equipment Suppliers, imposes standards on its members, only 20% of the businesses belong to the group.

-- For the nursing and home-aide agencies, 10 states and the District of Columbia lack special licensing requirements, though certification through a series of inspections is needed to participate in Medicare and Medicaid. Laws that are in place lack consistency in standards, training, or licensing. Independent providers, which make up $3.5 billion, or 17%, of the home nursing business, operate largely outside any regulatory framework. And no federal law requires these agencies to check whether job applicants have criminal records.

Certainly, the concept of home health care is sound and, when implemented correctly, comparatively economical. And the majority of home-care providers do deliver exemplary services. Industry leaders and trade groups have taken it upon themselves to devise rules aimed at ensuring high-quality service. Olsten Corp., based in Westbury, N.Y., the largest provider of nurses and aides for the home, spends close to $2 million annually on compliance programs, which include a criminal background check on job applicants.

But Olsten and some other companies stop short of suggesting that their self-policing mechanisms be applied to the industry at large. Instead, they prefer to rely on a competitive marketplace to wipe out malfeasance.

ETHICS CODE. Trade groups, including the National Association for Home Care, strictly scrutinize their members and have been pushing to expand government oversight. In addition to abiding by Medicare regulations and state laws, members must get the blessing of the Joint Commission on Accreditation of Healthcare Organizations or a similar accrediting body. For accreditation, members must meet stringent standards, including a requirement of 75 hours of training for home-care aides, continuing education for nurses, and agreeing to abide by an ethics code. But these moves only go so far. The standards affect only association members--allowing independent operators to play by their own rules.

So, legislators are readying another try. One bill, scheduled to be introduced in March by Representative Sherrod Brown (D-Ohio) and Senator Howard M. Metzenbaum (D-Ohio), would set limits on prices home infusion firms can charge for their products, establish quality standards for the industry, and require federal licensing. The measure in part responds to protests about extreme disparities in prices for drug therapies offered by home infusion companies (table, page 73). For example, 500 mg of Neupogen, an anti-infection drug, can cost from $266 to $1,128, according to Principal Mutual Life Insurance Co.

C.A. Piccolo, CEO of Caremark, the largest provider of home infusion therapies, concedes that legislation needs to address "escalating costs." But he adds that prices for home-infusion drugs appear high because they reflect numerous overhead costs that must be included in drug charges to get reimbursement from insurance companies. "Insurers won't reimburse us as a line item for services," he says. "They insist that we factor it into the cost of the product."

Another bill, sponsored by Representative Charles E. Schumer (D-N.Y.), would increase funding for health-care fraud investigators as well as provide stiffer penalties for offenders--especially in cases resulting in injury or death to patients. Resources available for uncovering health-care fraud are woefully inadequate. The number of inspectors with the Office of the Inspector General of the Health & Human Services Dept. has been cut to 249 from 298 since 1989, while workloads have multiplied.

On the local level, New York's Erie County set up an employment registry this year to track home-care workers who have criminal records or other troubling pasts. The law was adopted after local police reported a spike in complaints of abuse against senior citizens by home-care workers, including one of an 82-year-old blind woman with Alzheimer's disease who was so badly beaten that her ribs were broken. Other patients were persuaded to transfer bank funds to their caretakers or open credit-card accounts for them.

In the private sector, insurance companies have launched their own crackdown. They more frequently decline to pay bills as submitted, citing unsubstantiated or inflated claims. Principal Mutual is demanding more proof that services billed for were actually delivered and necessary. At Northwestern National Life Insurance Co., a full-time investigator has been assigned solely to reviewing bills submitted for home nursing services.

HUGE BILLS. Perhaps nothing illustrates the potential perils of home care better than the story of Sarah Weber, a little girl in Cleveland Heights, Ohio, who suffered from cerebral palsy. From the age of 5 until her death last July at age 10, Sarah was able to live at home with the help of intravenous drugs and nutritional therapy.

In congressional hearings last May, Sarah's mother, Marie Kostos-Weber, testified that Sarah's bills for her extensive treatments ranged from $95,000 to $120,000 a month--an amount that ate up the family's $1 million private insurance policy limit in less than a year. She stated that after checking with a health-care consultant, she estimated it cost close to $1,000 a day more to treat Sarah at home than in the hospital. When her insurance lapsed, it took a court order to prevent Critical Care America Inc., Sarah's home-infusion provider, based in Westborough, Mass., from cutting off Sarah's supply of medicine, according to congressional records.

But Sarah had other problems. According to a lawsuit Kostos-Weber filed last September against Critical Care, which alleges overcharging and poor quality of care, she contends that the company mistakenly delivered a lethal dose of the wrong drug for Sarah's intravenous therapy. Fortunately, Kostos-Weber caught the mistake, she says. But when she tried to complain to the state health department, she was referred to the Attorney General's office, which in turn referred her to the National Alliance for Infusion Therapy, an industry lobbying group based in Washington. "There was no one to turn to," says Kostos-Weber. "This is a totally unregulated industry. The health department didn't even know what infusion therapy is." Critical Care, which was recently acquired by Caremark for $175 million, declined to comment on the pending litigation except to say that it "will vigorously defend itself."

It's clear that as health care moves further into the home, it is bringing a whole new set of problems for providers, insurers, regulators, and consumers. Although greater regulation is essential, lawmakers must be careful not to overregulate. According to a yet-to-be-released study by the George Washington University Health Policy Project, North Carolina, Virginia, and Minnesota have come up with the best regulatory mix. Their laws defining home-health agencies are flexible enough to make most services fall under some regulation. The marketplace, too, will impose more scrutiny and reform, and industry trade groups are trying to improve quality.

CASE MANAGERS. Experts say one of the most effective ways to curtail abuses is to increase the role of doctors. "If there is a power broker in home health-care services, it's the doctor," says William Dombi, director of the Center for Health Care Law in Washington, D.C. The American Medical Assn. has advocated using doctors as case managers for home health-care services. That position is backed by an independent study Aetna Life Insurance Co. concluded in 1993. It found that more physician involvement would curb abusive practices. It noted that in many cases it reviewed, doctors had not even seen the patients for whom they were prescribing treatment.

As the law stands now, doctors have little incentive to take a hands-on approach to home health care. They are not paid by insurers for work relating to home health-care planning.

The eventual shape of health-care reform will likely have the greatest impact on the industry. The Clinton plan does include new criminal penalties for bribes and kickbacks in the home health-care industry as well as tougher civil penalties for falsified billing claims. But these provisions--though they go a long way toward separating the good from the bad players--are only a starting point. The architects of health-care reform must address all the present-day abuses and problems before they inadvertently create a whole host of new ones for the future.

MOST COMMON FRAUDS

IN HOME CARE

PHANTOM SERVICES Charges assessed for services never rendered or visits never made by nurses or aides.

PADDING BILLS Home health-care providers include improper overhead expenses in their charges for nursing or drug-therapy treatments. Also, home aides are billed out at rates for registered nurses.

TELEMARKETING/DOOR-TO-DOOR SCHEMES Home nursing and durable medical equipment agencies offer "free" services or equipment to consumers in order to get their Medicare billing numbers, which are then used for fraudulent billings.

KICKBACKS Doctors, social workers, and hospital discharge planners refer patients to agencies in exchange for payments.

DATA: BUSINESS WEEKTABLE:

THE PRICE ISN'T RIGHT

Range of costs for drugs charged

by home-infusion companies*

GANCICLOVIR $150 to $800

(480 MILLIGRAMS)

Used as antiviral treatment for AIDS

NEUPOGEN $266 to $1,128

(500 MILLIGRAMS)

Anti-infection drug

PENTAMIDINE $180 to $450

(300 MILLIGRAMS

IN SYRINGE)

Antipneumonia drug

GAMMAGARD $1,100 to $3,300

(23 GRAMS)

AIDS treatment to boost immune system

ROCEPHIN $147 to $384

(2 GRAMS)

Treatment for Lyme disease

ZINACEF $135 to $338

(1.5 GRAMS)

Treatment for various infections

*Charges include certain overhead costs such as delivery and mixing of drug compounds

DATA: PRINCIPAL MUTUAL LIFE INSURANCE CO.

Linda Himelstein in New York, Gail DeGeorge in Miami, and Eric Schine in Los Angeles, with Ann Therese Palmer and Richard A. Melcher in Chicago


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus