Treasury Agent Eliot Ness carved his name into history as the relentless G-man who forced Chicago mobster Al Capone out of business.
Assistant U.S. Attorney James G. Sheehan in Philadelphia could easily double as a Ness protege.
The irony is that Sheehan comes from a family of healthcare workers, giving him plenty of background for probing the industry. The grandson of an internist, Sheehan had two uncles who practiced medicine, a pediatrician and a cardiologist. His father worked for hospital supply giant Baxter and later for a subsidiary of medical supplier Johnson & Johnson.
The Harvard Law School graduate is one lieutenant in a growing army of attorneys, agents, analysts and auditors the federal government is assembling to fight what's being called the crime of the '90s: healthcare fraud.
Armed with settlement demand letters and computers to analyze Medicare billing, these fraud fighters can be as deadly as any G-man with a gun. Combine them with an increasing number of whistleblower actions and hospitals are being hit with a one-two punch.
"The worst isn't over," says Alice Gosfield, a Philadelphia-based healthcare attorney specializing in fraud and abuse and managed-care law. "It's almost just beginning."
The government's progress in the fight against fraud and abuse is escalating from pilot projects such as Operation Restore Trust to a look-see at pneumonia coding to the full-blown investigation of the nation's largest healthcare company, Columbia/HCA Healthcare Corp.
Consider the events of 1997:
The federal government collected more than $1 billion in healthcare fraud fines and settlements. That's about 5.2% of the $23 billion the government says was overpaid by Medicare in 1996 because of fraud, abuse and undocumented claims.
HHS and its inspector general's office beefed up staff to 1,143 from 900, and the inspector general opened nine new field offices. It plans to open six more investigative offices this year.
The Justice Department added 167 new jobs to its healthcare fraud force.
The FBI received more than $50 million from a 1996 federal law for surveillance cameras, recording equipment, computers and 46 additional agents -- all devoted to patrolling the healthcare industry.
More than 2,700 individuals and organizations were excluded from doing business with federal healthcare programs. That's a 93% increase over the 1996 exclusion rate.
The Justice Department's civil division initiated a record-setting 243 new civil cases in healthcare fraud and referred them to local federal prosecutors.
"(That number) is double the actions initiated in 1996, suggesting heightened enforcement emphasis for years to come," said a Justice Department report released in January.
New ammunition. The new law that gave government this added enforcement power is the 1996 Health Insurance Portability and Accountability Act.
The law defined new crimes in connection with healthcare delivery, and made it easier for the government to prosecute alleged offenders.
And Congress put its money where its mouth was, legislating more than $4.5 billion over the next six years to pay for better fraud enforcement.
"HIPAA set up the appropriations and feedback to fund the enforcement of those enactments," Gosfield says. "It's a far better-organized, far better-reaching program than we've seen in 20 years."
Providers have reason to be scared.
"The program has the potential to become a giant, a mammoth self-funding bureaucracy solely against healthcare providers," says Bob McLaughlin, vice president of CompOne Services, a compliance software company in Oklahoma City.
HIPAA puts some powerful tools in the hands of investigators such as Sheehan.
U.S. attorney's offices around the country can prosecute healthcare fraud as a felony. The law also gives U.S. attorneys jurisdiction over private insurers, direct subpoena power and the ability to seize property and assets during an investigation.
The government's tactics in a number of cases are worrisome to Elizabeth Carder, an attorney with Reed Smith Shaw & McClay in Washington. Carder represents healthcare organizations being investigated for billing fraud.
The government, she says, has "a Wild West roundup type of mentality.
"It's such a difficult area because the government is holding so many more cards then anyone else, including the atom bomb of potential exclusion" from federal health programs, Carder says.
In its fight against fraud, the federal government is using a new battle plan: a focused effort by the Justice Department, HHS and the FBI.
The states also are getting involved by cracking down on Medicaid fraud. That lets the states piggyback on some of the major federal investigations, such as the one focusing on Columbia, where states are investigating the nation's largest hospital company for possible improper Medicaid billing.
G-man. Just like Eliot Ness, Sheehan has the money and the muscle of the federal government behind him as he takes on healthcare fraud.
In healthcare legal circles, the investigator is respected, perhaps even feared.
"He will look for a fact pattern that will make you feel like an idiot to argue against it," Gosfield says. "Then he will extrapolate it in a way that would make it apply to other cases."
For example, Sheehan likes to use the False Claims Act to resolve quality of care issues. He's already doing it in nursing homes and HMOs -- "anywhere you get a bundle of money," he says. "The managed-care organizations' standard answer is to say `no,' until someone makes them say `yes.' "
All this enforcement activity means civil healthcare fraud matters started by the Justice Department last year were up 61% over 1996, according to the first report to Congress on HIPAA-funded activities.
Criminal healthcare fraud convictions also hit a record high of 363 defendants, an increase of 22% from 1996.
"There's a premium on doing things right the first time because the government isn't going to do `pay and chase' anymore," Gosfield says.
In many cases, whistleblowers are lighting the way to fraud and abuse for investigators.
From 1987 to last year, the number of whistleblower lawsuits skyrocketed more than 1,500% to upward of 2,000 cases.
That means a big payoff for whistleblowers, who in 1997 collected more than $33 million of what the government recovered from providers.
Whistleblowers can explain how an organization's computer systems work, where the bills go and what kinds of reports are sent to the chief financial officer on a weekly basis.
"They will tell you who we can convince to put on the Team USA sweatshirt and talk to us," Sheehan says.
Mounting effort. The government's fight against fraud and abuse has been building since 1993.
One blockbuster anti-fraud initiative was Operation Restore Trust, a two-year pilot project started in 1995.
When HHS launched the program in five states, it was to concentrate on the high-growth areas of home healthcare, nursing homes and durable medical equipment suppliers.
In its first two years, Operation Restore Trust identified almost $188 million that such organizations owed the federal government. That includes $67.3 million in criminal fines and restitution; almost $73 million from civil judgments, settlements and fines; and more than $47 million in wrongly billed or medically unnecessary services.
Basking in success, federal officials expanded Operation Restore Trust in 1997 to include a dozen more states. Over time, the investigative techniques honed under the project will be applied in all 50 states.
Using sophisticated statistical methods to target providers for investigations and audits.
Doing reviews of individual facilities with unusually high Medicare reimbursement rates.
Having state officials regularly monitor home healthcare agencies and nursing homes for fraudulent billing.
"(Federal investigators are) really starting to institutionalize the way they go about enforcement initiatives," says Neil Caesar, an attorney with the Health Law Center in Greenville, S.C. "They're passing a lot of the risk and the work to providers." The center does research on significant health law cases around the country.
Deputies. The feds aren't tackling fraud and abuse on their own. Last year HHS awarded almost $2 million in grants to recruit and train retirees to help federal enforcers in their quest. A dozen projects around the country were awarded money at the start of a two-year demonstration project (Aug. 25, 1997, p. 44).
Some of the government's major billing investigations are:
Physicians at Teaching Hospitals, a.k.a. PATH. The 3-year-old nationwide initiative looks at how teaching hospitals bill Medicare.
"The Medicare billing system's vulnerability to upcoding is a longstanding concern," according to the inspector general's office.
Ultimately, the PATH initiative will put 125 medical schools under the microscope, says Judy Holtz, a spokeswoman in the inspector general's office.
A faculty practice plan at the University of Pennsylvania was the first to settle PATH allegations in December 1995. It agreed to pay the government $30 million.
A few months later, the medical faculty practice plan at Thomas Jefferson University in Philadelphia followed suit by agreeing to pay $12 million.
A Charlottesville, Va.-based faculty practice plan of the University of Virginia paid $8.6 million in November 1997. It turned itself in to a local U.S. attorney's office in Alexandria, Va., after finding billing problems in a self-audit.
In another PATH case, the University of Pittsburgh is trying to hammer out a settlement with federal officials over charges that it overbilled Medicare. Expected to total $17 million, the settlement would be the second-highest since the PATH investigation began (Feb. 16, p. 4).
But not all PATH audits have found problems. Teaching physicians at Yale University and Dartmouth College were cleared of any double-billing problems last year. The inspector general's office also dropped PATH audits at 16 schools last summer because Medicare carriers had given unclear guidance. About 50 audits are believed to be ongoing.
The government's probe isn't going unchallenged.
A cadre of providers and healthcare trade groups sued last November, charging the government with wrongly applying new billing rules retroactively. The suit also complains the government is treating unintentional billing errors as fraud (Nov. 3, 1997, p. 4).
Diagnosis Related Group Payment Window Project, a.k.a. 72-hour Window Project. This started in 1995 after the inspector general's office identified more than $115 million in improper Medicare billing.
At issue is how hospitals bill Medicare for tests done within three days of a patient being admitted to the hospital. Under Medicare billing rules, tests done within 72 hours of an admission are considered part of the inpatient stay and should be reimbursed in the hospital's DRG payment. But hospitals have billed separately for these tests and that amounts to double-billing, according to the government.
Leading the charge to recoup money for the government's coffers is David Barasch, the U.S. attorney in Harrisburg, Pa.
By the time the project is over sometime next year, it will have involved 4,660 hospitals, nearly every hospital in the country.
The government expects to recoup more than $120 million -- more than twice what was lost to overbilling. As of Jan. 31, about $53 million had been recovered in settlements with almost 2,000 hospitals.
Barasch says the nationwide projects teach federal investigators to better understand how hospitals work, which improves their ability to ferret out fraud.
He adds that the goal of the investigations goes beyond collecting money. Another motive is to force the industry to begin policing itself through compliance plans and self-disclosure practices.
The government requires compliance plans when it settles false billing charges with providers. And that emphasis is starting to sink in.
"Just look at the `help wanted' page in the Sunday New York Times and see all the compliance positions now being created by hospitals," Barasch says.
Project Bad Bundle. What started out in Ohio in 1996 has grown into a nationwide probe that targets how hospitals bill Medicare for certain laboratory tests.
The government contends hospitals should be billing for those tests collectively rather than unbundling them and billing Medicare separately.
According to a government report, about 40 hospitals around the country have settled billing charges and the government has recouped more than $15 million.
James Bickett, an assistant U.S. attorney in Akron, Ohio, was a driving force behind the investigation in that region.
He says some hospitals told federal regulators they had never read the laboratory billing guidelines and others didn't even have a copy of the billing rules.
"I simply will not put up with the argument that these things are all vague when they simply have never bothered to read them to start with," Bickett says.
Bickett disputes hospital arguments that government officials are going after obscure billing violations.
"I don't even have to take on questionable items," Bickett says. "There are still so many clear items sitting out there."
But like PATH, the government's efforts to clean up hospital laboratory billings aren't going unchecked.
The American Hospital Association and the Ohio Hospital Association sued in 1996 to stop the investigation, arguing the government was retroactively applying new Medicare rules. They also argued that the hospitals were wrongly being held liable under the federal False Claims Act.
However, a U.S. District Court judge in Cleveland threw out the lawsuit in September, agreeing with HHS that the court had no standing to interfere with the government's investigation of individual hospitals. She told the associations they either needed to get legislative relief or work their problems out with HHS administratively.
In December the hospital groups appealed the lawsuit's dismissal.
Other crackdowns. The government also is looking into overpayments for patient transfers.
The inspector general's office initially identified $227 million in recoveries and savings, but a second report in November 1996 identified an additional $165 million in overpayments.
The government touts success in its investigation of independent clinical laboratories in what is known as LabScam, a multi-agency campaign against widespread billing fraud.
Three large labs paid $642 million to federal and state governments to settle potential civil and criminal liability.
Once the government begins investigating, it can be onerous for providers.
For example, Carder says the government has asked one of her clients for copies of 200 patient charts, and each chart is five to six inches thick.
In another case she knows of, a provider was asked to turn over copies of 800 patient charts.
The sheer volume of records can fill stacks of boxes and sometimes even trucks. When the government wants records, organizations typically will rent a copy machine and set up a "war room" to begin the document reproduction.
"Healthcare is very paper-intensive," Carder says. "It's a very expensive thing to be under investigation."
But Sheehan counters that the government doesn't ask for truckloads of paperwork just for fun: It has reason to suspect wrongdoing.
"Every fraud case needs a bad act and proof of intent," he says. "Otherwise, it's just a box of documents."