Once the U.S. Justice Department designated the U.S. attorney's office in Boston in 1994 to lead the healthcare fraud investigation of the world's largest provider of kidney dialysis services, investigators and attorneys there quickly recognized the inevitable.
"People were keenly aware of the magnitude of the undertaking and were looking for ways to manage the voluminous amount of data," says Mark Pearlstein, former first assistant U.S. attorney in Boston, of the investigation that began six years ago.
In that collaborative effort, a team of federal agencies successfully employed high-tech software analytical tools and data-mining techniques to pursue both civil and criminal cases on a grand scale against National Medical Care (NMC), a subsidiary of Fresenius Medical Care North America. In January, their efforts culminated in the largest civil healthcare fraud recovery to date: $385 million, plus $101 million in criminal fines, two criminal convictions and three pending criminal indictments.
To achieve that, the government hired an outside data consultant to retrieve and analyze medical claims data, developed a system for linking 200 million electronic claims records and created randomly drawn Medicare beneficiary samples, according to Justice Department officials.
That effort marked a significant advance from the hunt-and-peck technology and traditional investigative techniques the government had previously relied on.
"Today the government has an enhanced ability to assimilate and analyze data, and now it may investigate matters it might have been previously reluctant to pursue because of the massive amount of data," says Pearlstein, who left government service earlier this year after 11 years and now is a healthcare lawyer with the Boston office of McDermott, Will & Emery.
"We went from a pen-and-paper approach to a more sophisticated methodology for analyzing data," he says.
Assistant U.S. Attorney Suzanne Durrell, who heads the civil division of the Boston U.S. attorney's office, says the challenge the government faced was daunting: NMC was accused of defrauding the government of hundreds of millions of dollars through multiple divisions and hundreds of dialysis clinics that had thousands of Medicare provider numbers.
"We were looking at over 130,000 claims for IDPN (intradialytic parenteral nutrition, a nutritional therapy supplied to patients during dialysis treatments) alone submitted by NMC from May 1988 to December 1996 from a pool of more than 8,000 patients," Durrell explains.
"A claim was submitted each month for each patient, and each claim had several different billing lines seeking reimbursement for different services and tests. We knew that we would need to do data analysis and data mining and use electronic means for deciphering the data we got."
Durrell says the government could not have tackled such a massive investigation without the technology.
"Hand by hand it would take you forever and a day," she says. "With the technology we could see trends in billing one year to the next, from one facility to the next, and get DRG-specific information from the facility, the physician and the patient. We could run a history that would tell every service a patient got over six or seven years. That gave us an accurate snapshot. We found data to be very empowering to us."
She says the outside data consultants and HHS' inspector general designed statistically valid samples proving widespread criminal and civil liability and damages.
Getting results. The new federal fraud-fighting technologies are producing results for government enforcement efforts. In November, the Justice Department announced it collected a record $1.5 billion in civil recoveries, $840 million of which was from healthcare providers. Justice Department officials say healthcare fraud remains a huge problem, draining billions from Medicare.
But prosecutors agree with defense lawyers that the technological tools constitute only a portion of an investigation.
Michael Kendall, a Boston criminal defense lawyer specializing in healthcare, says that while the technology is proving to be a powerful government tool, there is a simple but effective defense strategy in some data-driven fraud cases.
"These reviews alone are not evidence," says Kendall, a lawyer with McDermott, Will & Emery. "The evidence is what witnesses say and the facts show. And sometimes there are valid explanations for aberrant patterns."
For years federal programs were considered prime targets for billing fraud. Lacking the latest software detection tools, employing antiquated computer systems that could not communicate with one another and hampered by understaffed and undertrained investigators, the government often couldn't even determine that it had been defrauded.
That's changing, according to government officials and fraud experts. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) has allocated hundreds of millions of dollars to fighting healthcare fraud and to the federal agencies charged with detecting, preventing and prosecuting it--the Justice Department, HCFA and its contractors, the FBI and HHS' inspector general's office. They are investing heavily in new technology to bolster their efforts.
Validating claims. In June, the Justice Department and HCFA co-sponsored a conference in Arlington, Va., for state and federal investigators, auditors, techies, attorneys, agents and prosecutors.
U.S. Deputy Attorney General Eric Holder Jr. opened the conference, titled "Combating Health Care Fraud and Abuse: Technologies for the 21st Century." He spoke of the need to collaborate in fraud-fighting efforts and to harness innovative information technologies to bolster and enhance those efforts.
Holder said the team investigating and prosecuting Fresenius used technology to investigate and validate the claims of whistleblowers who informed the government of the fraud, then analyzed the medical claims data to focus the investigation's strategy.
What the government found was rampant fraudulent billing throughout the NMC subsidiary of the former W.R. Grace & Co., which was purchased in 1996 by German-owned Fresenius. By gathering, analyzing and reviewing the data NMC submitted to Medicare, the government found that:
* NMC subsidiary LifeChem submitted thousands of fraudulent billings for medically unnecessary blood-testing claims and claims Medicare had already paid.
* NMC Medical Products paid kickbacks to obtain blood-testing business.
* NMC failed to report millions of dollars in overpayments it had received from Medicare.
"By fully employing technology and data analysis on the front end of an investigation, the Boston team developed evidence of a far-reaching fraud scheme directed by certain company officials that ultimately led to criminal convictions and a criminal fine, as well as a civil settlement," Holder said.
John Bentivoglio, former Justice Department counsel for healthcare fraud and now a healthcare attorney with the Washington office of Arnold & Porter, says that until recently, the Justice Department relied on traditional investigative techniques, waiting for HHS' inspector general audits and inspections, whistleblower lawsuits and audits by HCFA fiscal intermediaries and contractors to detect fraud.
Now those agencies are directly contracting with vendors or purchasing analytical software tools themselves. Limited budgets hampered earlier federal efforts to keep up with technologically savvy fraudulent providers, Bentivoglio says.
He says a combination of greater federal funding under HIPAA and the success of recent cases such as Fresenius have stoked the government's appetite for fraud recoveries. He points out that those innovations have spread to the states, too. Utah's Medicaid Fraud Control Unit, for instance, hired a statistician to use scientific modeling to identify suspect billing practices.
Bentivoglio says the sophisticated technology includes programs allowing analysis of suspicious billing patterns, but across different databases. Another type of software performs more thorough and sophisticated analyses to identify suspect billing practices. He says the government uses programs generated by both commercial vendors and government agencies.
"Fraud-fighting technology is only playing a limited role in healthcare fraud efforts at this time," Bentivoglio acknowledges. "But that will change significantly over the next several years. Once these software systems, equipment and consultants are fully implemented and performing at 100%, they will enhance the ability to detect potential fraud and to do so in a proactive manner."
Increasing productivity. Karen Morrissette, the Justice Department's deputy chief of healthcare fraud enforcement, says insurers and fiscal intermediaries have employed similar technology for years, as has the government. But Morrissette says the use of it has steadily increased.
"We want to increase the use even more and reap the benefits of the productivity that flows from it," she says. Morrissette says the new software analytical tools are enabling government agencies to explore relationships between providers and to fine-tune queries about claims activities.
"From that we're able to make more informed judgments about the nature and scope of the fraud scheme and how best to prosecute it," Morrissette says.
"It gives us starting points for investigations as it detects fraud indicators and allows us to go back and make follow-up inquiries from the claims system to determine what direction the investigation should take. We can also quantify losses with more precision, all the while saving resources."
She says the Justice Department is increasingly hiring auditors and analysts to join its staff attorneys and investigators.
"We're expanding the type of personnel on our payroll to do the fraud work," says Morrissette, who has served in a fraud-fighting role for 10 years.
Joseph Ways, chief of the FBI's Health Care Fraud Unit, says that by year's end, the agency will hire a software development contractor with a new product capable of detecting fraud patterns in ways previously unavailable.
That software, which Ways declined to name because final approvals have not been completed, will identify suspect providers hiding within the billing norms of their peers. Then it will not be just the outliers, or low-hanging fruit, whose billing habits set off alarms.
"Before we'd have to go to HCFA to find who was the highest-billing provider in an area," Ways says. "But this will analyze provider billing data and history and indicate who is sliding through false claims. That gives us a whole new look."
He notes that the HIPAA statute allocated $88 million to the FBI in fiscal 2001 for fighting fraud, $400,000 of which will be spent on the new software technology.
Ways says the information gleaned from the new data-mining programs will enable the FBI to extrapolate across a wide billing universe for any provider.
"You can see from the results of these trials that when providers or companies are shown the figures, they generally don't try to fight them in court, knowing they present an accurate representation of their wrongdoings," he says.
Ways cites the $175 million February civil settlement and criminal plea agreement with Fort Smith, Ark.-based nursing home chain Beverly Enterprises as another example of the effectiveness of fraud-detection technology.
"That was an extensive investigation, but certain analytical processes were applied to those investigation areas that showed them what would have been their overall culpability," says Ways. He explains that because of the data analysis, government attorneys could show Beverly hard data confirming the alleged fraud.
"That saved the investigative steps necessary to go through every claim form and piece of paper available. The extrapolation done saved a lot of tedious paperwork and number-crunching by the investigators."
Getting popular. The Justice Department, FBI and HHS' inspector general's office aren't the only federal agencies upgrading technical skills.
HCFA, which also has invested heavily in technology, is looking to some of its Medicare Integrity Program contractors to use advanced fraud-detection technology to ferret out false billing (Aug. 16, 1999, p. 36).
Brent Saunders, an attorney with the Washington office of PricewaterhouseCoopers, says that in recent years state and federal agencies have used the software tools to develop provider profiles and identify outliers.
"But it's become increasingly sophisticated, now employing technology and data-mining techniques to evaluate whether or not to bring healthcare fraud investigations," says Saunders, a co-founder and past president of the Philadelphia-based Health Care Compliance Association.
He says the government had to step up its technological acumen, not just because providers were, but because the big, easy cases of greedy providers were becoming less and less frequent.
"The low-hanging fruit fell first from the trees," Saunders recounts. "Then the whistleblower cases hit. Now they have to shake the tree harder to get something to fall and needed more sophisticated techniques to do that."
Saunders cited a whistleblower lawsuit brought by Richard Newbold, a nonpracticing physician, software developer and entrepreneur who sued 100 hospitals for allegedly upcoding pneumonia diagnosis cases based on information he gleaned from HCFA claims data (Nov. 22, 1999, p. 38).
"Newbold used the technology to file suit," Saunders says. "And now the government can employ the same techniques he used and cut out the middleman."
Saunders says one of his healthcare provider clients was investigated for allegedly upcoding DRGs in an isolated, rural locale. The provider wondered how anyone could have discovered his billing irregularities.
"We ran (HCFA Medicare) data against the client's DRGs, and it was plain as day to see how he was discovered," Saunders says. "The government caught him. It didn't require a tipster. The message is: If you're engaging in noncompliant behavior, you're not safe. Eventually you'll land on the desk of HCFA and data will be run."
Saunders says his experience tells him that if the government is using new technology to pursue different kinds of cases, within a year those cases will become public.
"There's definitely a lag period before we see it in the marketplace, a calm before the storm."
Not perfect. But Boston defense attorney Kendall urges caution. He characterizes the government's recent forays into technology as "more evolutionary than revolutionary. The government has been talking for some time about using technology, particularly in seeking out suspicious billing patterns. The government thinks that whatever the computer spits out is fraud. But if you don't talk to witnesses, you have nothing."
He says the HHS inspector general was investigating an ophthalmologist client billing Medicare for a large number of sophisticated and expensive eye surgeries, a figure out of whack with his specialty and isolated rural location.
"Turns out he served as a regional center for that procedure and was drawing patients from around the state," Kendall explains. "It took an effort to persuade the government that its statistical analysis was inconsequential and illustrates the pitfalls of thinking that this technology is infallible. It isn't."
Kendall says if the government views technology as a starting point, that's fine.
"The problem is when it thinks technology is the end point of the investigation. This is just old technology in new press releases."
Durrell says the NMC-Fresenius case demonstrates that the government can unravel the most complicated healthcare fraud schemes.
But she also cautioned against basing everything on complex data interpretation.
"In the NMC case we had good expert witnesses who made the data come alive. Nobody makes a case based on data alone," Durrell says. "It is a critical piece of evidence, but it isn't your entire case."