Industry Reacts to Massive Medicare Fraud Bust

In one of the biggest healthcare frauds in U.S. history, the Feds round up DMEs, telemarketers and medical professionals in a $1.2 billion orthopedic brace scam; various industry insiders share their perspective.

• By David Kopf
• Apr 10, 2019

A joint federal crackdown has broken up one of the largest healthcare fraud rings in U.S. history, involving telemedicine companies, licensed medical professionals, and 130 HME/DME businesses that allegedly bilked $1.2 billion out of Medicare through claims for fraudulent orthopedic brace prescriptions.

The scheme was investigated by the FBI and the Department of Health and Human Services Office of the Inspector General (HHS-OIG), and prosecuted by the Department of Justice.

So far, 24 defendants associated with five telemedicine companies, the owners of dozens of DME companies, and three licensed medical professionals have been charged for their alleged participation in healthcare fraud. Also, the Center for Program Integrity at CMS has taken administrative action against 130 DME companies that allegedly billed Medicare for $1.7 billion in claims, which ultimately cost the Medicare program $1.2 billion. Of that, the DOJ reported the DMEs received $900 million in payment.

How the Scheme Worked

The fraud rotated around a scheme in which DME companies were paying kickbacks to telemarketing companies and lead generation firms after filing claims for back, shoulder, wrist and knee braces that were medically unnecessary.

The telemarketing firms would contact Medicare beneficiaries telling them they could qualify for a brace. Then the companies would engage physicians to interview those beneficiaries over the phone and write prescriptions for braces which a DME involved in the scheme would fill and ship to the beneficiary. The DME would then file a claim with Medicare and pay the telemarketer, which would pay the physician.

“… Ultimately 95 percent of them would result in the physician ordering one, two, sometimes three or four braces for these people, and then writing in the progress notes saying that,” says  Wayne van Halem, president and founder of industry audit consulting firm The van Halem Group, and a veteran of CMS’s program integrity agencies. “But, here's the thing, most of the time, you have to be examined in person for a knee brace, for example. There has to be a test that can only be performed in person.

“So, these doctors were just essentially calling all these people, talking to them for a few minutes and then writing orders for braces for them,” he continues. “And they were getting paid by the marketing companies, and the DME companies were paying the marketing companies. … So, the DME company essentially was paying a kickback because they were paying the marketing company and the marketing company is paying the doctor. Even if it’s indirect, it’s still a kickback.”

Something Smelled Very Rotten

The news did not come as a surprise to many in the industry, because the avalanche of telemarketing calls across the nation indicated to even casual observers that something was amiss.

Craig Rae of Salisbury, N.C. mobility and accessibility provider business Penrod Medical Equipment called the scheme “flagrantly obvious” given the massive phone and marketing outreach.

“These crooks built a scheme that modeled the now defunct, fraudulent Scooter Store,” he said. “They ran a TV campaign ‘Ask how you might qualify for a knee or back brace at little or no cost to you.’ They badgered millions of Americans with telemarketing calls (I know — I got dozens of them), trying to qualify people for ‘free’ back and knee braces.”

The questions on industry minds were who was behind the effort, and what were the authorities doing to stop it? To raise public awareness of the issue, the American Orthotic Prosthetic Association (AOPA) released a statement in late March expressing concerns over the practice of delivery of braces and related equipment via lead generation marketing efforts.

Tom Ryan, president and CEO of the American Association for Homecare said his organization had been preparing a similar public awareness statement in the hopes of prompting a government response when news of the crackdown hit, much to his relief, he said.

“These were people who were crooks from the beginning and crooks to the end, and it's a shame it took this long but I’m sure it was quite a comprehensive operation by all the groups involved, and it couldn't have happened soon enough for me,” Ryan said.

The Tip-Off

What likely alerted Federal authorities that something was wrong was a combination of complaints and data analysis, according to van Halem.

“I think it was most likely initially identified by data analysis, because the volume of claims for back and knee braces has increased drastically over the past several years,” he explained. “Even commercial payers were seeing the same thing and started looking into it.”

Moreover, if CMS sees a recently purchased PTAN or a new PTAN suddenly start billing a high volume of claims for those items for patients all over the country, it’s further confirmation that something is not right. And if all the claims are coming from the same physician, who is nowhere near the majority of those patients, the red flags become that much more glaring.

In addition to the data, complaints from beneficiaries and the industry also alerted Federal authorities. 

“I know a lot of beneficiary complaints come to pass with this,” van Halem said. “So it was likely a combination of internal data analysis, but also complaints that were received.”

As for the gap between when beneficiaries and DME professionals started reacting to the telemarketing tsunami and when arrests were finally announced, it’s important to consider the scale of the fraud. The operation was extensive, according to the DOJ, which reported that some of the defendants allegedly controlled an international telemarketing network involving call centers in locations as far-flung as the Philippines and Latin America. Add to that the network of telemedicine physicians and DME companies, and a complex web of players comes into focus.

“The breadth of this nationwide conspiracy should be frightening to all who rely on some form of healthcare,” said IRS-CI Chief Don Fort. “The conspiracy described in this indictment was not perpetrated by one individual. Rather, it details broad corruption, massive amounts of greed, and systemic flaws in our healthcare system that were exploited by the defendants.”

Staying Vigilant

One industry expert who has regularly reminded providers that they cannot engage in these sorts of practices is industry attorney Jeffrey S. Baird, Esq., the chairman of the Health Care Group at law firm Brown & Fortunato, P.C.

“I'm not surprised at all,” he said. “For several years now, I have stated in webinars that I've given at conferences and in articles that I've written — I have warned anybody who would listen — that this type of arrangement is fraudulent. Going way back to the very beginning when these types of arrangements first started popping up several years ago, I went out publicly and said, ‘You just can't do this.’ But I guess that the allure of making a quick buck is strong and I guess a lot of folks just threw reason and logic to the wind, and said, ‘We're going to do it anyway.’”

While headline-making kickback scams such as Wheeler-Dealer have originated from this industry before, Baird said he believes this recent news might finally see an end to the practice.

“Now that this has come out, where it's obvious that the government is going after the players in this type of arrangement, I think it's going to cause the vast majority of players out there to immediately stop,” he explained. “… It’s a one-two punch: the fact that we have this criminal investigation going on now, plus the fact that the back and knee braces will be part of competitive bidding, I think that this party has come to an end.”

That said, for any providers still unclear on where the “thin ice” of referral relationships begins, Baird offered two key reminders — perhaps it would be better to call them warnings — for providers encountering such arrangements:

“Number one, if a lead generation company or a marketing company — basically the same thing — if they approach a DME supplier about providing leads, the first thing the DME supplier should do is talk to a healthcare attorney to see if this is the type of arrangement the DME supplier should go into,” he advised.

“Number two, if the DME supplier is receiving physician orders basically from geographical areas outside of the DME company's business area, then the DME company needs to ask if these physician orders are a result of telehealth,” Baird explained. “And if the answer is yes, then again, the DME supplier needs to talk to a healthcare attorney that has experience with this area because there is certainly a possibility if not a likelihood that that type of arrangement is legally unacceptable.”

Broader Enforcement

Notably, there was an unexpected bright spot in this recent bust: Ryan, van Halem and Baird all pointed out that HME/DME providers weren’t the only entities that Federal authorities swept up in the operation. Typically in these operations, because the HME provider is at the flashpoint of the fraud, the Feds mainly pursue the provider, which makes it seem like HMEs are the only businesses engaged in such schemes.

“Normally, when you think of a government investigation, you think that the government's going after the suppliers or providers or whoever that clinician is, whoever's billing the Medicare program,” Baird explained. “But here, this is a very wide net. The Department of Justice and other government agencies are going after all of the players in this type of arrangement.”

“I'm really, really happy to see the fact that they're actually going after the lead generation companies and these telehealth doctors,” van Halem said. “This is how this all started.”

“I do think it's important that all the players got caught,” Ryan added. “I mean, it's unfortunate when they talk about telemedicine and it's a very small, unique piece of telemedicine and the fact that these were typically phone calls from physicians trying to quantify an individual for the need for it. But, more often than not, they were just high-pressure salespeople who were intimidating patients into accepting these goods when, in fact, they did not need them.”

The Industry Fallout

The initial conclusion most HME/DME professionals will likely draw from the scandal is that it will tarnish the reputation of the thousands of providers working honestly and diligently within the Medicare system, and that there could be additional grief to come in the form of additional regulatory requirements.

There is some truth to that. For instance, CMS added OTS braces to competitive bidding, and we are sure to see reimbursement for those items drop as a result. Then again, van Halem noted that CMS probably set reimbursement for those items too high to begin with, so OTS braces were likely to have been added to bidding regardless.

“I think it has more to do with the overall utilization and the overall spend,” Ryan added. “So, when you look at the spend, you look at the utilization. They were product categories that, by statute could be included in competitive bidding. … At the end of the day, I think the criteria was overall utilization, overall dollars, and overall spend.”

For providers that are doing legitimate work providing orthopedic braces, Ryan said that they should fight any impulses to fret or worry, and instead rely on their reputations as reliable partners.

“The providers that are working for the normal referral channels — the physicians and physician's offices, that provide these products legitimately — don't really have to do anything because they're not going out looking for the patient and putting a seed in their head that they have a need,” he advised. “They're hearing from the referral source who knows they're a legitimate provider and they get the call and they fulfill the need of the referral source and do all the requirements that are necessary in order to bill the Medicare line.

“So, I don't think they need to be over-reactive,” Ryan continued. “I think that they can just be relieved, like we are, that this bad part of that product category that we've known has existed with extremely aggressive telemarketing maybe has had the wings chopped off of it.”

When asked whether or not the recent news could hurt the industry’s advocacy efforts or undermine relationships on Capitol Hill, Ryan emphatically replied “absolutely not” and added that the industry’s legislative and regulatory positions stood on firm foundations.

“That old, ‘we're all in the same basket and painted with one broad brush’ era is long, long gone,” he said. “Our credibility is solid.”