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HHS Doled Out $50 Billion to Firms Accused of Medicare Fraud

David Kocieniewski and Caleb Melby

(Bloomberg) -- Paying kickbacks to doctors for referrals. Surgically implanting unneeded heart monitors. Aggravating troubled teenagers during psychiatric sessions to worsen their mental health.

Health-care providers accused of bilking taxpayers by inflating Medicare or Medicaid expenses have paid billions of dollars in settlements with the federal government over the past decade for a variety of transgressions, some of which risked patients’ lives. Now the money is flowing the other way.

Companies that settled cases involving overbilling or fraud -- among them Tenet Healthcare Corp., Universal Health Services Inc. and Beaumont Health -- received more than $36 billion in interest-free loans from a U.S. Health and Human Services Department program to help providers handle cash-flow shortages caused by the pandemic, according to data compiled by Bloomberg and Good Jobs First, a watchdog group that has been monitoring federal relief payments.

That’s more than one-third of the $100 billion distributed through the loan program. In addition, companies accused of wrongdoing got more than $20 billion in grants issued by HHS to stave off coronavirus-related losses. In most of the cases, there was no determination of liability.

Health-care companies applied for the loans based on previous Medicare billings -- the same metric many of them were accused of inflating. Grants were distributed automatically based on patient revenues.

The loans are structured as advances on future payments the companies expect to receive from the government. Borrowers have from seven months to a year to repay them without interest. The rate jumps to 10.25% afterward. Grants don’t have to be repaid.

‘Pay and Chase’

Despite warnings from Congress that HHS hasn’t done enough to avoid paying fraudulent claims, neither program denied coronavirus aid to providers that settled claims in the past.

In November, HHS enacted new regulations intended to replace its “pay and chase” system, which reimburses providers first, then has auditors investigate those it thinks engaged in fraud, an approach it acknowledges is “expensive and inefficient” and leaves billions of dollars unrecoverable. The new guidelines permit HHS to deny Medicare enrollment to providers that have exhibited “a pattern or practice of abusive” charges.

Katie McKeogh, an HHS spokeswoman, said in an email that the agency did screen to determine whether providers were banned from doing business with Medicare, citing guidelines that lay out 20 reasons for revoking billing authority. She also said providers are forbidden from using coronavirus aid to pay legal settlements. But McKeogh declined to answer questions about whether the new regulations were used to vet Covid relief recipients or how large a portion of the aid had been paid to companies that settled fraud claims.

HHS Secretary Alex Azar and Seema Verma, administrator of the Centers for Medicare and Medicaid Services, which oversees the loan program, declined requests to be interviewed.

Medicare Fraud

Medicare covers almost 60 million Americans. It has a budget of more than $740 billion and a decidedly uneven record at deterring fraud. Despite sporadic attempts to crack down on providers who bilk the system, there’s still an estimated $50 billion a year in fraud, according to the Government Accountability Office. Offenders include large hospital systems as well as remote solo practices. Misdeeds range from minor billing errors to systematic mistreatment of patients.Government watchdog groups say the amount of aid that went to companies that paid to settle fraud claims illustrates the rampant abuse in the Medicare and Medicaid system and the government’s failure to enact effective safeguards.“You can’t call it a few bad apples, because it goes across the board from small regional providers to giants of the industry,” said Phil Mattera, research director for Good Jobs First, which is compiling and analyzing HHS data as part of its Covid Stimulus Watch Program. “This problem is systemic. It involves hospitals, dialysis centers, doctors -- everything from nonprofits, to for-profits. They’re all feeding at the trough. There are so many defrauding the government. And we’re making it easier.”

An American Hospital Association spokesman, Colin Milligan, defended the way HHS disbursed the loans and grants. “Congress made it very clear that the provider relief fund was intended for all hospitals on the front lines in the fight against the greatest pandemic of our lifetime as they deal with lost revenue and Covid-related expenses,” he said. “That was Congress’ intent, and we concur with it.”

Unnecessary Admissions

As a result, Prime Healthcare Services Inc., an Ontario, California-based hospital system with 45 acute care centers in 14 states, was free to collect almost $600 million in relief grants and loans despite its history of overbilling Medicare.

In 2018, the company and its chief executive officer agreed to pay $65 million in penalties to settle a lawsuit alleging that they had for years run a “deliberate corporate-driven scheme” to overcharge Medicare by unnecessarily admitting more than 35,000 patients to 14 California hospitals for overnight stays that weren’t medically warranted.

Prime Healthcare, which didn’t admit to wrongdoing, said in an email Tuesday that it has been in full compliance with federal guidelines. Elizabeth Nikels, a spokeswoman for the company, said its hospitals have been caring for thousands of Covid patients. “The expenses greatly exceed our revenues due to the tremendous costs incurred and loss of volume,” she said. “Therefore these payments help subsidize losses and allow us to continue to care for patients, employ nearly 36,000 staff and keep our hospitals open to serve communities in their times of greatest need.”Among the biggest recipients of HHS loans and grants are large health-care companies that have settled multiple cases. Dallas-based Tenet, which owns 65 hospitals around the country, received at least $700 million in loans and $300 million in grants from the programs.

Tenet has paid more than $530 million in fines over the past decade, including $513 million in October 2016 to resolve criminal charges and civil claims that it offered kickbacks to doctors to refer pregnant women to its hospitals, reaping hundreds of millions of dollars. Two subsidiaries pleaded guilty to conspiracy to defraud the government and paying kickbacks and bribes. The parent company entered into a non-prosecution agreement with the Justice Department, promising to improve compliance.

Earlier this year, Tenet paid $1.4 million to settle allegations that it had implanted cardiac monitors in patients who didn’t need them. It had previously been among a group of companies that paid $250 million in 2015 to settle claims about cardiac implants that violated Medicare requirements. In both cases, liability wasn’t determined.

Tenet declined to comment on the settlements or the Covid aid it has received.

‘Drive-by’ Therapy

Universal Health Services, which received at least $320 million in loans and grants, paid $6.85 million in 2012 to settle a case involving allegations that two Virginia subsidiaries provided substandard psychiatric counseling to adolescents and submitted false Medicaid claims. Among the complaints investigated by the Justice Department were that teenage patients were provoked so their reactions could justify longer stays and that staff conducted “drive-by” therapy sessions in hallways that were billed as longer appointments.

The youth center’s CEO denied the allegations, and by the time a settlement was reached, the facility was closed. Jane Crawford, a spokeswoman for the company, which acknowledged no wrongdoing in the case, didn’t respond to calls or emailed questions.In August 2018, Beaumont Health, Michigan’s largest health-care system, with eight hospitals and more than 38,000 employees, paid $84.5 million after the federal government alleged it had paid kickbacks to eight physicians in exchange for patient referrals. From 2004 to 2012, Beaumont provided office space and employees to doctors who referred patients to the hospital system. Beaumont then billed the government for the patients. The company didn’t admit wrongdoing in its settlement.

Beaumont declined to comment on the settlement. But Mark Geary, a spokesman for the company, said the offenses occurred before the company’s 2014 reorganization, which has spawned “a new mission, vision and values.”

The number of providers that have settled fraud claims with Medicare is so large, and comprises such a big segment of the health-care system, that barring them from receiving Covid aid would have been impractical, Mattera of Good Jobs First said.

“There literally wouldn’t be enough providers to care for people because so many hospitals and clinics and doctors have engaged in these activities,” he said. “But the least they could do would be to put in some additional safeguards to make sure the CARES Act money doesn’t get abused too.”

(A previous version corrected comments from HHS spokeswoman in ninth paragraph.)

(Updates with HHS’s reasons for revoking Medicare bill authority in ninth paragraph)

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