Fraud Waste and Abuse: DME edition

The Sins of the Few...

A few weeks ago, I outlined the (very) high-level view of Durable Medical Equipment (DME), the players, and who pays for it. And, like many of other parts of the American healthcare apparatus, DME is an industry rife with out-dated and opaque process, consumer-hurting consolidation, and excessive administrative burden. If you’re wondering how it got this way, I can give you at least some of the answer - decades of massive Medicare fraud.

Medicare fraud is and will continue to be a costly problem - and not just in the world of DME. Various 2019 studies estimate that “incorrect payments” to Medicare and Medicaid amounted to roughly $40B and $60B respectively. That’s right, $100,000,000,000 of your taxpayer dollars fund criminal activity in US healthcare every year. That’s the equivalent of the State of Massachusetts signing away its annual budget AND next year’s annual budget - to cover one year of fraud.

If you’re like me, those numbers, while GIGANTIC, are hard to wrap your head around. Just what is DME fraud - what does it look like on the ground? I’ve decided to highlight some real-life DME fraud scams to give you some more color and context. Enjoy!

Provider’s Inc. (1995)

In 1995, an employee of Tennessee based DME supplier Provider’s Inc. pled guilty to defrauding Medicare for more than $20M. There were two major fraud plays here - for one, “carrier shopping”. Medicare and Medicaid pay different rates for the same things in different states, depending on various factors. In this case, Provider’s Inc. would actively search for the states that would pay the most for certain incontinence products, set up dummy shops in those states, and then falsely claim they had shipped these items within those higher paying states.

The other fraud play here was a bit more morbid - delivering incontinence supplies to dead people. In reality, Provider’s would scrape the Medicare numbers of patients who had died in nursing or long-term care facilities and “ship” goods to those poor, needy corpses. Fraud of the Living Dead doesn’t just involve dead patients. In other cases, DME fraudsters have been known to acquire the NPIs of recently deceased doctors in order to forge prescriptions for their services. Yuck.

The SCOOTER Store (2007, 2013)

Sometimes, DME fraud is less about point-blank deceit and lies. Take the SCOOTER Store, for instance. The former TX-based DME institution started in 1991, selling power wheelchairs and mobility scooters. This was no small-time shop like Provider’s - at the height of their reign as wheelchair king, the SCOOTER store had distribution centers in 47 states, and claimed to have served 700,000 lives with their mobility needs.

So how did the SCOOTER Store get so big? Primarily, an aggressive salesforce. The company’s salespeople would hound doctors day after day to prescribe wheelchairs that patients did not need, and in many cases, did not want. This strategy clearly succeeded - if success is defined as “diverting millions of taxpayer dollars to pay for frivolous wheelchairs that patients didn’t need”. These sustained assaults on medical practices continued even after an initial $4M settlement with the government in 2007. From 2009-2011, Medicare estimates that it overpaid the SCOOTER Store nearly $100M.

After more than two decades of these practices, the SCOOTER Store received its just desserts. In 2013, US law enforcement agents raided the company’s HQ in New Braunfels, TX. Shortly thereafter, CMS canceled their federal contract for reimbursement - which effectively cut off the company’s main source of revenue. The SCOOTER Store filed for Chapter 11 Bankruptcy, with roughly $1M in assets remaining, and $100M in liabilities.

While none of the SCOOTER Store executives were ever charged with fraud, this aggressive sales culture clearly came from the top down. Unfortunately, this isn’t the only time that aggressive sales cultures in the medical field have led to less-than-optimal outcomes for payors or patients. Just researching this brought to mind synthetic fentanyl manufacturer Insys Therapeutics, whose own aggressive marketing to doctors caused irreparable harm to thousands of patient lives, as well as substantial prison sentences for its executives.

Operation Brace Yourself (2019)

A great medical pun to tackle not-so-great medical ethics! You’d think that after 15+ years of exposing these cases and developing a bevy of DME-specific insurance hurdles, DME fraud would take a modest hit, but you would be wrong.

As part of the aptly named “Operation Brace Yourself”, the FBI arrested 24 defendants on $1.2 billion dollars worth of DME fraud, while simultaneously halting claim payments for 130 DME companies. As of today (fingers crossed), this is the largest DME fraud scheme uncovered in Medicare history, spanning DME suppliers, telehealth providers, medical professionals, and corporate executives across multiple continents.

Individual cases are still going, but here’s the gist of the operation: first, overseas call centers tricked 1,000s of US senior citizens to give up their respective Medicare/Medicaid identification numbers. These operators then paid corrupt medical practitioners to write DME prescriptions “for” the seniors who had their identities ripped off. The call center operators would then sell these orders to willing DME companies, who would turn around and bill Medicare and Medicaid for undelivered, unnecessary DME.

In Conclusion

DME documentation requirements and reimbursement policies are confusing, complicated and ever-changing. However, thanks to DME fraudsters like those above, you can see why they came to be this way. Hope you enjoyed reading this week - next piece will dive into some of the measures that CMS and commercial payors used to make DME fraud more difficult to pull off, while inadvertently making DME harder to procure for honest folks who needed it.