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Navigator: Medicare Fraud ˆ

Larceny and the Stethoscope

A Misplaced Sense of Entitlement

Compare Medicare in Canada and the USA

Is Medicare dispensed ‘free’ to Canadian citizens? That is a popular perception outside the country, but in fact it is false. In Canada, Medicare represents taxation at work. Canadian citizens pay for their health care – all of it – with hard-earned tax dollars. The difference between Canada and the USA is that, in Canada, the cost is distributed evenly between the healthy and the ill. But the Canadian system also has drawbacks: Avaricious healthcare providers find diverse ways to deceive, defraud, and rook the system. Medicare deserves to have far more checks and balances than it does now.

Be Vigilant With Your Medicare Invoice

Citizens can take a role in curbing Medicare fraud: The patient is the person most closely associated with the health services that are provided. The patient knows and remembers whether he or she met an appointment, had a diagnostic procedure, or went to the lab. The patient can recognize instantly whether a billing invoice makes excessive claims. The most common types of chicanery that consumers might detect on a Medicare invoice are discussed below.

How the Most Common Healthcare Swindles Work


Double Dipping and Double Billing

Double dipping occurs when a doctor bills two separate agencies, such as Medicare and Worker's Compensation, for one service provided to one patient.

Double dipping is similar: A doctor submits two claims to the same agency for a single event. Though the patient had just one appointment, the MD bills for two. How do MDs get away with it? Medicare computers do not automatically flag this pattern, because a doctor is allowed to bill twice if a certain threshold is met: A patient must actually return to the clinic the same day, and that second visit must have substance. Compare:

  • A patient has urgent side-effects from a treatment and requires follow-up care later in the day; in that case the MD can legitimately bill twice.
  • In contrast: Suppose the MD makes a mistake in writing a prescription, the pharmacy catches the error, and within the hour the patient returns to the doctor to have the dosage revised on the written Rx form; this paltry second attendance is not a billable service.

Unbundling / Fragmentation

Some medical procedures are so closely related they are commonly done together. These procedures, done in a predictable series, require less patient evaluation and deserve a lower reimbursement rate. Medicare handles this by assigning a global code for the grouped procedures.

Medicare also assigns individual billing codes for the components, for occasions when they are legitimately done separately. This creates opportunity for code manipulation or code gaming: A dishonest MD will unbundle his group of tests and bill separately for each component. This profits him more than a lump-sum reimbursement. Examples:

  • The fee for surgery is bundled with the fee for suture removal if stitches are removed within 10 days. Within that span, most patients recover normally. If a patient has an infected incision or other complication that delays suture removal, then extra fees are allowed for the extra work. But surgeons take advantage: Even when recovery is uneventful, the MD deliberately calls the patient back one day after the stipulated time span, for the sole purpose of billing separately for small task of suture removal.
  • Diagnostic x-rays often comprise a sequence of pictures summarized in one report. For a limb injury, at least three x-rays of the same limb are taken from different angles. For internal organs, standard practice is to take views before and after injection of a contrast agent to bring out the fine points. A sly MD tries to bill for each view separately.
Towards a Solution
  • Standardize billing codes to remove ambiguity leading to payment disputes.
  • Tighten the claims review process: Instead of random spot-checks, automate the survey and cycle frequently enough to identify repeat offenders.
  • Adopt graduated persuasion: For a first offender, try education. For MDs who cheat a second time, insist on 100% manual claims review and removal from all physician panels (HMO panels, PPOs, second opinions, everything). For a third offence, refer the physician to the fraud and abuse unit. Source: Unbundling Could Cost You a Bundle


One Medicare scam is so subtle it often goes undetected, making it popular. The doctor inflates his bill by using diagnostic codes for medical complications, or treatment codes for expensive services, that exceed actual events. The MD identifies a real patient and bills for a real service, but he pumps up the rate by one or two notches, billing for work that is similar to, but more complex than, what he actually performed. Examples:

  • A patient sees his GP for a cholesterol and blood-pressure check: In Saskatchewan this is called a partial assessment with service code 5B for a fee of $48. But a dishonest doctor will claim he performed a full assessment (a complete checkup) with service code 3B for a fee of $97. This gambit is callous because Medicare is dinged for a rigorous level of care that patients need but do not get.
  • A patient is hospitalized for a simple pneumonia requiring basic care but not admission to the Intensive Care Unit. An unethical MD will bill the case as complex pneumonia, defined as needing ICU care, mechanical ventilation, and various advanced skills.
  • A patient is billed for brand-name medication when only a cheaper generic version is provided.

Mythical Patients

In this audacious fraud, the MD bills for patients that do not exist or for appointments that never took place. A phantom patient (1) consumes none of the doctor's time, and (2) has no real-life variations to tax the doctor’s skill. It is all profit and no work. Enter the slippery slope:

The doctor tests the waters with a few illicit claims. If these are flagged, the fraud stops; but they are not flagged. As months pass, the doctor submits an escalating number of false bills, slipping these in manually, perhaps with a compliant secretary at his side. So easy, the MD thinks, and next he decides to automate the false claims.

But when the automating software is too primitive, the computer spits out bills for office consults on statutory holidays such as New Year's Day. And the doctor's private billing software cannot cross-correlate his claims with the claims made by other MDs who treat the same patient. Location paradoxes are inevitable: a single patient gets placed at two sites, miles apart, on the same day for the identical service – by two different MDs.

A prime example is the Dr. Nayar fraud in Saskatoon, Canada. Greed drove this doctor; hubris exposed him – and electronic footprints induced a confession.


Services Not Rendered

In this scam the provider bills for services or products never delivered. This MD uses genuine patient information either to falsify entire claims, or to pad claims with add-ons that are not asked for and not received. Examples:

  • An MD bills for two cardiac tests (Holter Monitor and ECG) although he only performed a basic ECG;
  • A nursing home bills for linens, walkers, and other geriatric supplies which were never actually purchased or used;
  • A physiotherapy clinic bills for sessions performed by unlicensed, untrained personnel;
  • A laboratory tests a blood specimen for CBC and CBC-Indices, even though your MD requisitioned only the CBC test; or
  • A transport provider bills for ten rides for a non-ambulatory patient instead of the one ride that actually took place.

Durable Equipment Fraud

This lucrative fraud has several variations: The medical equipment supplier bills Medicare for new equipment, then gives the unwary patient used equipment. Or bills for state-of-the-art equipment, then substitutes spartan cheap equipment. Some bills to Medicare and Medicaid are an outright mirage, claiming for equipment never ordered by a doctor and never delivered to any patient.

Cost coverage of durable medical equipment is contingent on a physician completing a Certificate of Medical Necessity, but sometimes the supplier takes control of the form – a clear conflict of interest. One impudent company brokered the purchase of a fully-assembled wheelchair, but billed as if the mechanical parts were sold individually. The profit margin was 500% beyond the legal price.


Alteration of Medical Charts

Clinical Charts:  Altered for Financial Gain

Doctors, physiotherapists, and nursing home directors bent on fraud may fabricate clinical charts to create a sketchy history of symptoms and illusory treatments for a patient population. This cloak of respectability shields the scam against the day insurance carriers might demand substantiating records.

Hospital Charts:  Altered to Mask Malpractice

When an adverse event occurs, medical charts may be altered to whitewash the medical error. The MD performs a real surgical procedure but is negligent, causing long-term damage to the patient. When a lawsuit is on the horizon, documents such as the operative report and physician progress-notes often disappear or are rewritten. It is an attempt to weaken a patient's case because civil courts put the onus on the plaintiff to prove cause and effect, and to prove the MD did not meet the average standard of care for the region.

Nursing Home Charts:  Altered to Mask Neglect

Fear of lawsuits drives some nursing home administrators to embroider medical records to mask neglect. The chief prosecutor for the California Bureau of Medi-Cal Fraud and Elder Abuse has experience that mirrors the nation. Says Mark Zahner: They chart things before they happen or make things up after the fact if something hits the fan – those things are familiar to prosecutors; they occur with regularity. Common patterns:

  • Covering up bad outcomes:  Phony paperwork may be hurriedly produced after an injury or death. Nursing home staff rewrite the records to minimize blame or liability.
  • Fill-in-the-blank charting:  A nursing home that is understaffed is a chaotic environment. Overworked employees take shortcuts, filling out charts en masse, not knowing whether treatments or assessments even took place. But a medical chart follows a patient for life: inaccurate entries can mask serious conditions and put the patient at severe risk.
  • Missing medicines:  Medications are checked off as being given, but later, investigators find unopened boxes or discrepancies with pharmacy records. Sometimes medications are unavailable in the facility, and the staff make no attempt to order it. Nursing homes have failed to give patients critical meds for Parkinson's disease, glaucoma, thyroid disorders and severe bedsores – despite charts indicating they did.
  • Excess medicines:  Staff and doctors are known to falsify consent forms, or subvert the judgment of relatives, in order to sedate a resident. Often it is done for convenience, not to treat a resident's medical symptoms. A sedated resident is passive and untaxing. The expedient is called chemical restraint or pharmaceutical restraint, and is just as unlawful as physical restraint.

Lack of Medical Necessity

The FBI advises that lack of medical necessity is directly related to service volume. In America the 1996 Health Insurance Portability and Accountability Act (HIPAA) introduced penalties for unnecessary medical procedures. Prosecutors need not prove intent. Criminal sanctions apply if an MD claims for a pattern of medical services that he knows or should know are unnecessary.

As to how MDs should know, peer review organizations provide the standards. A medical test should be ordered only to establish a diagnosis, or to provide input to modify a course of treatment, or as preventive care. Prosecutors will ask: Did the MD order the same tests for cash patients and insurance patients? Did the MD receive a fee or gratuity from the agency performing the test?

In 1997 the Balanced Budget Act introduced a provision requiring MDs to provide clinical information when ordering a procedure, as a means to inspect claims for medical necessity. Despite this legislation enacted in 1996-1997, the OIG says today: “Lack of medical necessity is the number one reason for improper Medicare payments.” Some examples:

  • Tustin Hospital / City of Angels Medical Center / LA Metro Medical Center – Doctors and chief executive officers from these three Los Angeles hospitals were charged with fraud for using homeless people as human pawns to bilk tens of millions of dollars from the Medicaid and Medi­Cal programs. Homeless people were offered food, cigarettes, and cash to travel by ambulance to hospital, where they received medical treatments whether they needed them or not. Court papers list thousands of unnecessary, and sometimes risky, treatments. Recruiters of the patients were also arrested.
  • Health Fraud Take-Down – The FBI charged 94 people with collectively submitting $251 million in fraudulent Medicare claims. The scheme involved treatments that were medically unnecessary and often never provided. The scam migrated across Brooklyn, Detroit, Houston, Miami, and Baton Rouge.
Towards a Solution

The FBI and the Office of the Inspector General (OIG) advise: Medicare pilfering has reached epidemic proportions. Legislation is not enough. Citizens need to be vigilant.


Kickback Schemes

A disturbing aspect of health care involves hidden financial ties between doctors and manufacturers of medical products. Legislation pending in the USA – the Sunshine Law – will require pharmaceutical and medical device companies to publicly reveal on the web what they pay their doctor consultants.

MDs have received exorbitant amounts of money via ‘consulting’ contracts, free trips, honorariums for speaking, free rent payments, cars, computers, and other gifts. A doctor with clouded judgment cannot advise a patient on the most appropriate treatment for his conditions. The tragedy is: Kickbacks often result in medically unnecessary or medically damaging procedures. For example:

  • Family physicians lured by profits have prescribed statins (new cholesterol-lowering drugs) without informing patients of the risks and side-effects.
  • Specialists have lied to patients, saying they will collapse without prompt surgery, using scare tactics to bring the patient into the operating theatre for implantation of a costly but inappropriate device ‒ such as a coronary-artery stent, a hip or knee implant, a metal plate for spinal fusion, or off-label use of Infuse Bone Graft.

Kickbacks also influence the play given to medical devices in journals. We are not talking about advertising; we refer to scientific papers heralded as unbiased research. Example:

  • Million Dollar Lies and the Surgeons Who Tell Them:  A think tank compared disclosure statements from journal authors, to independent payout reports from 5 medical-device makers. They found 41 orthopedic surgeons who each collected between $1 million and $8.8 million from the manufacturer of the very device under review in their scientific paper. Only half the orthopods disclosed the relationship, and none even hinted at the dollar amount.
Towards a Solution

Medical journals now scrutinize the payments physicians collect from industry. Before a research paper is accepted, MDs must disclose their commercial relationships and/or patent royalties, if these relate in any way to the topic of study. The disclosure statements in journals therefore begin to provide a useful pool of company payment data.


Diversion of Funds

Be alert for unusual patterns on your billing statement, which in Saskatchewan is called a Statement of Practitioner Services. Consider it a red flag if you see a wrong address in the Provider Correspondence column. Typically, a clinic Administrator expects to process the Medicare cheques of the MDs employed there, to allow the clinic to deduct overhead (the cost of medical equipment, the rental lease and utilities, and salaries for nurses).

When the clinic address is replaced by a private address stipulated by, and known only to, the MD, then his Medicare cheques no longer reach the clinic. The funds get diverted to an outside location, possibly for deposit into the doctor's own bank account. This is how a doctor hides income from his employer.


Information Technology Fraud

Medicare's computer system is a trust-based operation designed to quickly pay claims to doctors and medical suppliers. In the USA, by law, payouts must be made within 15 to 30 days. But consider: thousands of claims are processed daily and manpower is limited.

The prevailing attitude was: pay first and send an auditor later if problems appear. Striking a balance between proper service, and criminal detection, is a challenge for regulators. At present, the automated claims procedure is easily exploited. For example:

  • Medicare often gets claims for medical tests or procedures ordered by dead doctors, or ordered for dead patients. Many of said doctors and patients have been dead for over ten years, yet their names and health numbers do not trip the Medicare computer.
  • Contradicting anatomy and common sense, claims sometimes arrive that do not fit with the patient's age or gender, such as a prostate exam for a woman, or a pregnancy exam for a man. Instead of raising eyebrows, these bills are quietly paid.
  • Electronic Medical Records, though useful to streamline a business, open up new vistas for fraud. Citizens need to become partners in the overhaul of the health system.
Towards a Solution
  • Auditing needs to be done in real-time.
  • The most important contribution a citizen can make is review your billing statement on a routine basis. Canadians call this document a Statement of Practitioner Services, while Americans call it a Statement of Benefits.
  • To curb payments on behalf of dead doctors and dead patients in the USA, the Obama Administration constructed a ‘Do Not Pay’ database .
  • Fraud investigator Harry Markopolos urges information technology leaders to learn how to Fight IT Health Fraud.
Georgena S. Sil
Saskatoon, Canada
Physicist & Technical Writer
Alumnus: University of British Columbia
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Tiger Lily

Emblem of Saskatchewan

To gild refined gold, to paint the lily,

To throw a perfume on the violet,

To smooth the ice, or add another hue

Unto the rainbow, or with taper-light

To seek the beauteous eye of heaven to garnish,

Is wasteful and ridiculous excess.

Shakespeare, King John

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