1. INTRODUCTION

On December 7, 1998, the Clinton Administration announced that it would be including in its fiscal year ("FY") 2000 budget proposal a series of initiatives designed to fight fraud and abuse in the Medicare program. The Administration also outlined steps it intends to take administratively to ensure that Medicare contractors are combating fraud and abuse.

These new initiatives follow a "National Fraud, Waste and Abuse Conference" convened by the Health Care Financing Administration ("HCFA") in Washington, D.C. on March 17 and 18, 1998. The purpose of the conference, according to a March 12, 1998 HCFA press release, was to help HCFA "learn how to build on [its] successes and develop a plan for doing even more to protect consumers and taxpayers from health care scams and unscrupulous providers." Invited guests included representatives from private insurers, consumer advocates, health care provider groups, state health officials, and law enforcement agencies. Despite HCFA’s assurances at the time of the conference that information from the proceedings would be available to the public, it was only after Reed Smith filed a lawsuit on behalf of our health affairs analyst, who was denied admission to the conference, that HCFA released portions of this information on the HCFA internet site.

This Memorandum summarizes the Administration’s December 7, 1998 anti-fraud proposals. It also summarizes the major recommendations made by participants at HCFA’s fraud conference, as described in the newly-released HCFA documents. Although HCFA does not necessarily endorse these conference suggestions at this time, the agency will undoubtedly consider these ideas as it formulates new anti-fraud initiatives. If you have any questions about any of these developments, please let us know.

2. CLINTON ADMINISTRATION ANTI-FRAUD PROPOSALS

On December 7, 1998, the Clinton Administration announced that it would be sending to Congress a legislative package designed to combat Medicare fraud as part of its FY 2000 budget proposal. The Administration also announced new administrative efforts to ensure that Medicare contractors are fighting fraud and abuse. These initiatives are described below.

1. Legislative Proposals

According to a White House briefing paper, the Administration will call on Congress to enact legislation to, among other things:

• Eliminate excessive Medicare reimbursement for drugs. The Administration cites a recent Office of Inspector General ("OIG") report that found that Medicare pays hundreds of millions of dollars more for certain drugs than it would if it used market prices. The new Administration proposal would base Medicare payments on the actual acquisition cost of these drugs to the provider, eliminating mark-ups and substantially reducing Medicare costs.
• End overpayments for Epogen. The Administration notes that an OIG report found that the current reimbursement rate for Epogen exceeds the current cost of the drug by at least 10 percent. The new proposal would reduce Medicare reimbursement to reflect current market prices.
• Prevent abuse of Medicare's partial hospitalization benefit. The Administration also cites OIG findings that providers are billing Medicare for partial hospitalization services that were never given or that were provided to fewer patients than billed for by providers. The new proposal would ensure that Medicare only reimburses for services actually given by placing stricter controls on the provision of services.
• Ensure Medicare does not pay for claims owed by private insurers. The Administration proposes to require private insurers to report to HCFA regarding all Medicare beneficiaries they insure. The Administration also wants to give HCFA greater authority to fine insurers that do not comply with rules regarding payment of claims for working Medicare beneficiaries.
• Empower Medicare to purchase cost-effective, high-quality health care. The Administration seeks to expand HCFA's authority to contract out with institutions that have a track record of providing high-quality care at a reasonable price in urban areas that have multiple providers.
• Request new authority to enhance contractor performance. The Administration proposes giving HCFA the authority to contract with a wider range of carriers and to terminate them if necessary for failure to perform their duties effectively. The proposal also would give HCFA greater authority to oversee contractor performance.

1. Administrative Efforts

The President also announced new administrative efforts to ensure that Medicare contractors are cracking down on fraud and abuse. The Administration plans to:

• Contract with special fraud surveillance units to ensure detection of fraudulent activities. The Administration will use authority included in the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") to contract with specialized fraud surveillance units. The first fraud unit will begin in spring of 1999.
• Implement the competitive bidding demonstration for durable medical equipment. HCFA will begin a demonstration this spring that will use competitive bidding to decrease payments for hospital beds and other medical equipment, which will lower Medicare costs.
• Require contractors to report fraud complaints to OIG immediately. According to the Administration, many contractors defer reporting cases of suspected fraud to the OIG when the dollar amounts are low. This month, HCFA will send a memorandum to all contractors requiring them to refer cases of suspected fraud to the OIG immediately, regardless of the amount of money involved.

In addition, by early next year HCFA will release a new "Comprehensive Plan for Program Integrity" to improve efforts to cut down on fraud and abuse. This plan will outline new strategies to fight fraud, including the enhanced use of audits and improved management tools.

1. HCFA FRAUD CONFERENCE
1. Background And RSSM-Employee Lawsuit

On March 17 and 18, 1998, HCFA convened a "National Fraud, Waste and Abuse Conference" in Washington, D.C. Because the recommendations stemming from the proceedings could have a major impact on our clients, our health affairs analyst, Debbie McCurdy, sought to attend the conference. The HCFA press office originally informed Ms. McCurdy that she could attend, but upon attempting to pre-register with HCFA’s Office of Financial Management, Ms. McCurdy was told that the conference was open to invited guests only, and that the proceedings would be covered on HCFA’s internet web site. Reed Smith advised HCFA that the conference was subject to the Federal Advisory Committee Act (5 U.S.C. App. II (1972)) ("FACA") and therefore must be open to the public. Ms. McCurdy then attempted to attend the conference, but was barred from entering.

As noted above, despite HCFA’s assertion that conference information would be available to the public, it was only after Reed Smith filed a lawsuit under FACA on behalf of Ms. McCurdy that HCFA released portions of this information on the HCFA internet site -- more than six months after the conference. Specifically, HCFA has released a "Summary of Major Themes" from the conference and a transcript of four speeches made during the first day of the conference. Detailed notes from discussion sessions and other related information have not been released, however.

2. Summary Of Conference Themes

Participants at the fraud conference suggested a variety of methods to prevent and detect health care fraud and to improve enforcement efforts. These recommendations are summarized below. The complete list of suggestions are available on the internet at http://www.hcfa.gov/medicare/fraud/default3.htm, or you can get a copy from our office.

1. Prevention

Conference attendees suggested the following "best practices" for improving health fraud and abuse prevention efforts:

• Improving provider enrollment processes, including: using site visits, an in-person application process, and application forms developed with the U.S. Attorney’s office to insure that false statements can be prosecuted; reporting on provider employees and financial backers; and monitoring billing patterns of new providers.

• Promoting education, including educating beneficiaries and providers about fraud issues, targeting particularly vulnerable beneficiary populations, and encouraging review of Explanations of Medicare Benefits.

• Encouraging and supporting development of corporate compliance programs, including more consistent guidance and interpretation from HCFA and oversight groups about proper practices.

• Promoting administrative simplification by making Medicare and Medicaid rules more understandable and making it easier for beneficiaries to report fraud.

• Adopting a zero-tolerance policy for fraud that is enforced and emphasized throughout the provider community and government.

• Changing contractor incentives to encourage fraud and abuse detection.

• Encouraging a "fear" of prosecution and punishment for unscrupulous providers by publicizing punishments and increasing use of random, on-site reviews and unannounced auditor visits.

• Eliminating provider fear and foster ability for honest providers to do what's right, such as through "educational review," forgiving past transgressions, and provider self-policing.

• Initiating Administrative Law Judge ("ALJ") reform, including changing regulations to reduce improper reversals.

1. Detection

• Fostering beneficiary involvement by requiring physicians to provide beneficiaries with a detailed receipt at the time of service.

• Developing individual, unique provider number to detect multiple billings.

• Developing and using software to catch billing aberancies.

• Developing and using normative standards.

• Coordinating best practices with partners, including data-sharing between private and public health insurers (which may require reexamining the Privacy Act).

• Conducting more data analysis to look for trends.

1. Enforcement

Participants suggested that enforcement efforts and tools could be improved by:

• Implementing mechanisms for private entities to sue fraudulent providers.

• Providing fraud training for beneficiaries and providers.

• Reevaluating sentencing guidelines by allowing longer jail sentences and higher monetary penalties.

• Changing the approach to prosecuting white collar crime, including intensifying the investigative processes.

• Promoting a more consistent approach to developing and prosecuting health care fraud cases.

1. Coordination

Participants suggested fostering more coordination between various entities involved with fighting health care fraud through the following mechanisms:

• Increasing communication between and among beneficiaries, advocacy groups, providers, and state and federal government.

• Engaging providers to educate beneficiaries.

• Contracting with advocacy groups to educate beneficiaries.

• Ending "turf battles" among agencies.

• Allowing peer review organizations, carriers, and fiscal intermediaries to hold meetings without requiring HCFA approval.

1. Future Challenges

Conference participants noted the following "future challenges" facing anti-fraud efforts, and health care programs more generally:

• Expanding preventative services.

• Differentiating between the terms fraud, waste, and abuse (including in the managed care context), and using different technology and law-enforcement strategies to address each one.

• Recognizing the extent to which fraud and abuse efforts impact quality of patient care.

• Staying abreast of rapid changes in technologically based fraud.

• Increasing partnering with providers.

• Finding consensus and "buy in" on problems, perhaps using the Medicare Commission as a vehicle for discussion.

• Reducing the predictability of audit programs.

• Allowing time to enhance workforce training and education.

• Developing ways to objectively and quantitatively evaluate contractors.

• Building trust with providers and beneficiaries.

• Acquiring and retaining sufficient funds and personnel to combat fraud and abuse.

• Resolving ALJ and appeals process issues.

1. Strategies

Strategies identified by conference participants to reach stated goals include:

• Increasing oversight of contractors.

• Coordinating data and use of systems.

• Viewing systems improvement as a short term cost with the long-term savings.

• Developing and coordinating strategies among all entities involved.

• Developing compliance and ethics control system.

• Re-examining current incentive systems for insurers and providers.

• Educating providers about fraud, waste, and abuse, starting in medical school.

1. CONCLUSION

As health care fraud and abuse continues to be a high priority for the Clinton Administration, providers and others in the health care industry can expect ongoing efforts by HCFA and the Office of Inspector General to seek innovative ways to expand prevention, detection, and enforcement efforts. We will continue to keep our clients apprised of major developments in this area.

Please do not hesitate to contact our health affairs analyst, Debbie McCurdy (202/414-9388), or any other member of the Reed Smith health care group with whom you work if you would like additional information or if you have any questions.