Shell companies steal millions in Medicare fraud

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Shell companies--sham firms on paper with no real operations--are a prime tool for fraudsters to scam Medicare out of millions of dollars, according to a Reuters investigation. Medicare's current pay-and-chase system has holes that allow providers (or imposter providers) to bill Medicare for services and then steal millions of dollars from the federal health program.

For instance, Florida authorities charged Michel De Jesus Huarte for his role in setting up fake AIDS clinics in Florida, but not before he billed Medicare for more than $4.5 million and formed at least 29 other shell companies in Florida, Georgia, Louisiana, North Carolina and South Carolina, Reuters reports. Huarte and co-conspirators formed clinics purported to treat HIV and AIDS patients and submitted claims for expensive drugs such as Infliximab and Rituxan, costing Medicare as much as $7,800 per dose.

"This is a 'Catch Me If You Can' environment," said Ryan K. Stumphauzer, a former assistant U.S. attorney with the Department of Justice in Miami who prosecuted Huarte. "We had no clue who Huarte was. We had no idea there was some mastermind out there."

The strategy of shell companies can go unnoticed for years. Scam artists use fake names and addresses for corporations or real information from others. In Florida, Federal Bureau of Investigation agents said almost every Medicare fraud case involved a shell company.

Florida, where the fake AIDS clinic scheme took place, is one of five states that tops the list for the most Medicaid fraud activity, according to a recent Office of Inspector General report issued in October; the other states are New York, Texas, California and Ohio.

The Centers for Medicare & Medicaid Services (CMS) last month announced that hospitals soon will be subject to prepayment audits, with aims to fix the traditional pay-and-chase method. Effective January 2012, Medicare recovery audit contractors (RAC) in 11 states will conduct reviews of inpatient claims before payment. Those states will be areas that have high fraud and error-prone providers (Florida, California, Michigan, Texas, New York, Louisiana and Illinois), as well as those states with high claims volumes of short hospital stays (Pennsylvania, Ohio, North Carolina and Montana).

Although the government has expanded its Medicare Strike Force with increased focus on acute-care and critical access hospitals, senators this week are pushing for better assessment of Medicare fraud detection.

CMS plans to launch a new predictive modeling program nationwide this summer, in which the analysis tool will flag common patterns of Medicare fraud, such as suspicious billing patterns or a great distance between the hospital where treatment occurred and the claimant's home address, reports Nextgov.

Senate Federal Financial Management Subcommittee Chairman Tom Carper (D-Del.), Ranking Member Scott Brown (R-Mass.) and Senator Tom Coburn (R-Okla.) on Tuesday requested CMS outline its plans to launch the predictive analytics technology and stated that CMS may not have sufficient metrics and processes in place as part of a comprehensive plan to ensure the success of identifying and preventing fraud.

For more information:
- read the press release on Huarte's charges
- read the Reuters article
- read the Nextgov article
- here's the Senate press release

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