The Medicare and Medicaid programs were established to ensure the health and medical needs of our nation’s aging and disabled populations. Unfortunately, a small number of doctors,hospitals,nursing homes,drug companies, and other health care providers have taken advantage of our tax dollars by making false claims to Medicare and Medicaid.Common fraudulent schemes include billing for unperformed services, upcoding,excessive service levels,questionable medical necessity,or referral kick backs.

Over the past decade,the federal government, led primarily by the Department of Justice (DOJ) and Department of Health and Human Services (DHHS) has heightened its scrutiny of billing by skilled nursing facilities (SNFs).  Some of their efforts have been aided by employee as well as private citizens acting as whistleblowers.  Under the False Claims Act (FCA), 31 U.S.C. §§ 3729–3733, private citizens who disclose to the government the exact elements of the purported fraud receive a percentage of the funds recovered by the government. The FCA was enacted in 1863 as the result of widespread fraud by Civil War suppliers. Nat’l Whistleblower Ctr., False Claims Act/Qui Tam Awards.

The Medicare fee-for-service reimbursement structure and the private, for-profit provider healthcare system has created two problems:  (1) an unintended incentive for over utilization of services,and; (2) an unintended incentive for the over utilization of services, which the government has been unable to audit, primarily as the result of the growing numbers of Medicare beneficiaries and senior health care providers.

Moreover, the Office of Inspector General (OIG) has been hampered by the impact of the sequestration of funds on its ability to root out fraud and ensure quality of care.  A total of $30.6 million was sequestered from the Health Care Fraud and Abuse Control Program (HCFAC) program in FY 2013, despite the fact that audits have been shown to be effective.  See, Dept’ of Health and Human Servs. and Dep’t of Justice Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2013.  In 2009, the OIG’s review of skilled nursing facilities billing practices revealed that 37% of all billings that were paid did not meet Medicare quality-of-care requirements.  In 2012 Medicare spent over$32 billion on SNF services alone, of which $1.5 billion should not have been paid.

What additional amount of fraud or inappropriate billings could remain unidentified due to lack of compliance officers or whistleblowers afraid to come forward?  With billions of dollars in payments made every year and limited enforcement due to sequestration of funds and federal hiring freezes, skilled nursing facilities are staying one step ahead.

In particular, the Federal government has been interested in the over utilization of therapy services provided within the skilled nursing facility (SNF) setting.  Like all astute business people, SNF owners have taken measures to increase the valuations of their facilities by enhancing profitability. “Buyers who have been in the business for a few decades are aghast at the $150K to $300K per bed prices (valuation matrix for buying and selling SNFs) being paid for essentially a building with a skilled nursing license.”  The Senior Care Investor,Vol. 27:10, at 2 (Oct. 2015).

As early as 2012, the government was aware that the Medicare and Medicaid funds paid to SNFs were an attractive opportunity to increase profitability. In a 2012 interview, Jodi Nudelman, inspector general of Department of Health and Human Services Region II, noted that Medicare pays SNFs for the services they provide, but at “different rates for each group . . . that varies between $200 and $800 a day per patient.” One of the reasons that nursing homes were targeted for attention was that “facilities were increasing billing for the highest level of therapy even though the types of patients and their medical conditions had not really changed.” The result? According to Nudelman, SNFs were billing more than 25% of their claims in error, resulting in $1.5 billion that should not have been paid.  See, Interview with JodiNudelman,Region II Inspectorby RobertaBaskin,OIG Directorof MediaCommunications (Nov. 13, 2012).  In other cases, facilities were providing unnecessary services that offered no patient benefits and could actually result in harm. “We have seen this with therapy services,” continued Nudelman, “because facilities have a financial incentive to provide more therapy than a patient needs.  The more therapy a facility provides, the more they are paid.”

In an interview with the New York Times, Andrew Slavitt, the acting administrator of the Centers for Medicare and Medicaid Services,acknowledged that the payment system created an incentive for nursing homes to “provide as much therapy to a resident as that resident can tolerate.” And in March, an influential federal panel, the Medicare Payment Advisory Commission,called on Congress to “thoroughly revamp payments to nursing homes,” noting that Medicare payments to SNFs have been “at least 10 percent higher than the cost of care for fourteen years in a row. . . . Therapy payments are not proportional to costs, but instead rise faster than providers ’therapy costs.” This means, according to the commission, that Medicare “essentially requires tax payers to continue to finance the high margins of this industry.”  Robert Pear, Nursing Homes Bill for More Therapy Than Patients Need, U.S. Says, N.Y. Times (Sept. 30, 2015).

Wall Street Journal article published the previous month reported that the highest level of skilled nursing therapy—at least 720 minutes a week—generated some of Medicare’s largest payments. In 2013, the Journal found, Medicare’s “ultra-high” rate (720 minutes or more per day) averaged roughly $560 a day. “The average was $445 a day for ‘very high’ therapy (500 to 719 minutes) and $325 for the ‘low’ category (45 to 149 minutes).”  Christopher Weaver, et al., How Medicare rewards copious nursing home therapy,Wall St. J. (Aug. 16, 2015, 10:40 P.M.).

Greg Crist, a spokesman for the American Health Care Association (lobbying group for the skilled nursing industry), said that while Medicare may pay nursing homes more than their costs, Medicaid, the program for low-income people, generally pays SNFs much less.“  And on any day,”Mr. Cristsaid, “two-thirds of our residents are on Medicaid.”  Put another way, Medicaid does not facilitate profitability so we drive profitability through the Medicare program.

This has created a ripe environment for whistle blowers and, not surprisingly, the number of cases filed continues to increase. The federal government is now placing greater emphasis on putting wrongdoers in jail as well recouping fraudulently billed services. In September, U.S. Deputy Attorney General Sally Quillian Yates noted that “civil attorneys investigating corporate wrongdoing should maintain a focus on the responsible individuals.” “Absent extraordinary circumstances or approved departmental policy,” she added, “the department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation.” In other words, no plea deals.

The elderly and disabled sector of our society continues to grow. So too will the government’s responsibility to enforce and perhaps change a federal program that is now leaking billions of dollars. At the moment, a few unscrupulous players are winning the race.