National Heritage Insurance Company, "Total Number of Providers per Provider Type," Austin, Texas, July 26, 1996. (Computer printout.)

s Sanctions Division

Federal law requires each state to designate a single agency to administer Medicaid. Texas' agency is HHSC, whose Sanctions Division is charged with investigating providers suspected of misappropriating Medicaid funds. Sanctions recovers misappropriated money and may impose monetary penalties and fines, as well as various measures including reviews of all client claims prior to payment, withholding of Medicaid payments, and Medicaid contract cancellation.[1]

Despite its large responsibility, the division has only eight employees, including one dental consultant on loan from TDH. Sanctions spent $295,000 in fiscal 1995, and is budgeted for about $467,000 in fiscal 1996.[2] Sanctions only recently hired its first field investigator, with the first field investigation occurring in July 1996. Previously, the division relied on field investigators borrowed from DHS' Utilization and Review Division.

When Sanctions' investigations uncover evidence of intentional fraud or failure to comply with Medicaid program rules, cases are referred to OAG's Medicaid Fraud Control Unit (MFCU).

Medicaid Fraud Control Unit

MFCU investigates and prepares cases concerning criminal Medicaid fraud and patient abuse.[3] The Texas Constitution prohibits OAG from prosecuting criminal cases, so MFCU must rely on local district attorneys to handle prosecution.

MFCU investigations are conducted based on tips and referrals from providers, patients, and other state agencies. MFCU has 27 investigators and five legal staff members, and spent nearly $2 million in fiscal 1995. [4]

To meet federal reporting requirements, MFCU and Sanctions have developed a process for sharing some relevant information. Neither agency, however, reports or tracks all the data needed to ensure the effective resolution of Medicaid fraud or abuse cases.[5] For instance, if MFCU receives a referral from Sanctions that cannot be prosecuted, MFCU may close the case without notifying Sanctions, preventing them from pursuing civil or administrative action.

Elder Law and Public Health Division

A new player in the fight against Medicaid fraud and abuse is OAG's Elder Law and Public Health Division. Elder Law discharges new responsibilities for civil prosecution of Medicaid fraud established by the 1995 Legislature.[6] Unlike MFCU, Elder Law is authorized to prosecute its own cases and pursue civil actions. These powers give it the potential to become a major factor in deterring Medicaid fraud. The division is so new, however, that some other agency divisions responsible for monitoring spending within Medicaid programs are not even aware of its existence.[7]

Elder Law's appropriation in fiscal 1996 was $514,000. The division maintains 11 full-time equivalent (FTE) employees, including seven legal staff members and one investigator. In addition to Medicaid fraud, Elder Law also is responsible for enforcing, among other laws, the Nursing Home Act, the Personal Care Home Act, and the Marketing Practices Act.[8]

Texas Department of Health

TDH has significant resources that can be used to combat Medicaid fraud. TDH's Bureau of Statistics and Analysis (BSA), Bureau of Medical Appeals, and Vendor Drug Program all have responsibilities connected with Medicaid compliance monitoring.

BSA reviews claims paid through the state's Medicaid contractor, National Heritage Insurance Corporation (NHIC), for appropriateness; fraud detection is not a major focus of the effort. BSA is supposed to report any suspicious activity it uncovers to Sanctions. In interviews with TPR, however, BSA staff members could not recall the last time this happened. Instead, BSA typically notifies NHIC to recover improper payments or explain proper billing practices to a noncompliant provider. BSA has 25 FTEs and a budget of $1.2 million in fiscal 1996.[9]

TDH's Bureau of Medical Appeals handles appeals from health care providers and patients concerning denied or disputed claims. In cases involving suspicious behavior, the bureau investigates for patterns of inappropriate billing; if additional investigation is warranted, the case is forwarded to Sanctions. Medical Appeals had 22 FTEs and a budget of just over $1 million in fiscal 1996.[10]

The agency's Vendor Drug Program oversees the delivery of outpatient prescription drugs under the Medicaid program. Vendor Drug reviews these claims to see if prescriptions are appropriate and billed legitimately. Through regional pharmacists, the program performs on-site and desk reviews of all 3,500 contracted pharmacists in Texas to ensure they comply with Medicaid requirements. Vendor Drug also processes all Medicaid payments for outpatient pharmaceutical claims. Vendor Drug can withhold payments to pharmacies to recover inappropriately paid Medicaid claims; the bureau, however, only collects overpayments and cannot levy penalties. Little deterrent exists, therefore, for pharmacies to avoid such practices. Vendor Drug employs 82 FTEs, including 28 regional pharmacists. Its budget in fiscal 1996 was $2.8 million.[11]

Utilization and Assessment Review Division

DHS' Medicaid fraud-related function is administered by its Utilization and Assessment Review (UAR) Division, which examines a sample of all Medicaid claims submitted by nursing homes and hospitals and inspects nursing homes and hospitals in Texas on an annual basis. The division reviews the overall quality of care and relevant records to determine if hospital stays were appropriate and medical treatments were necessary. UAR occasionally helps Sanctions and MFCU in their investigations, spending about 10 percent of its annual budget for this purpose. In fiscal 1996, UAR had a budget of $2.8 million and a staff of 65.5 full-time equivalent employees. UAR does not, however, refer suspicious cases on questionable hospital practices to Sanctions or MFCU, nor does it impose its own penalties; instead, UAR simply intensifies its own review the next time it examines the provider. [12]

Although these TDH and DHS programs have combined resources and personnel considerably in excess of those held by MFCU and Sanctions, their employees are not trained or expected to detect fraud. Nonetheless, their extensive day-to-day interaction with Medicaid claims affords them an excellent opportunity to detect fraud and abuse.

National Heritage Insurance Corporation

NHIC, Texas' Medicaid contractor, processes all Medicaid claims through its computerized Surveillance Utilization Review Subsystem, which weighs each provider's claims against those of his or her peers. Sanctions requires NHIC to forward lists of providers whose claims history deviates substantially from their peers to Sanctions for investigation. Until recently, NHIC had discretionary authority to decide whether the facts of a case justified forwarding it to Sanctions.

Before this change, NHIC relied on "education" to address provider abuse. In both fiscal 1994 and 1995, NHIC instructed about 150 providers in proper billing practices. NHIC may review all provider claims prior to payment when the provider's payments have previously been identified as inaccurate; in all of 1994 and 1995, however, NHIC placed only 13 providers on prepayment review. As of July 26, 1996, Texas had more than 121,000 providers in its Medicaid program.[13]

Other state and federal efforts

In November 1995, the Comptroller's office initiated its Medicaid Fraud Detection Project, designed to improve the quantity and quality of fraud and abuse referrals gleaned from Medicaid claims information TDH processes. This project uses advanced pattern recognition and artificial intelligence technology to detect fraud and abuse in Medicaid claims and other relevant data. Preliminary results from the project indicate that the number of computer-generated leads from the Comptroller's office will significantly increase the number of referrals to Sanctions and MFCU.

The federal government also has recently escalated its efforts to combat fraud in health care. The U.S. Department of Health and Human Services (HHS), Department of Justice, and Federal Bureau of Investigation all have made health-care fraud and abuse high priorities. Coordinating Texas' activities with these federal efforts will become increasingly important.

One of the federal government's most prominent efforts is Operation Restore Trust. This program is directed at detecting fraud and abuse in five states, including Texas, that account for 40 percent of all Medicare and Medicaid participants. According to HHS, the program's focus is on "fighting fraud in home health care, nursing home care and durable medical equipment--three of the fastest growing cost areas in Medicare and Medicaid."[14]

Recommendations

A. State law should be amended to require the Health and Human Services Commission (HHSC) and Office of the Attorney General (OAG) to report annually on their efforts to fight Medicaid fraud, waste, and abuse to the governor, lieutenant governor, and speaker of the Texas House of Representatives.

HHSC and OAG should prepare a memorandum of understanding requiring the agencies to collaborate in developing a formal, written process for making and tracking interagency and internal referrals concerning cases of suspected fraud, waste, and abuse. HHSC should keep detailed records on the number and nature of these referrals, to whom they were made, and on what date.

HHSC's Sanctions Division and OAG's Medicaid Fraud Control Unit (MFCU) should automatically notify OAG's Elder Law and Public Health Section of all referrals they receive. MFCU should also be required to automatically share information with Sanctions and Elder Law on any case it closes because it could not get the case prosecuted or a criminal prosecution was unsuccessful.

HHSC and OAG should be required to meet at least quarterly to share new referrals, review progress on open cases and cases not yet opened, and to determine which organization is better suited to pursue the case. The agencies should set priorities and guidelines for assigning cases to enhance deterrence and maximize funds recovery, prosecutions, and civil penalties.

Information on resolved cases should be sent to the Medicaid Fraud Detection project to help improve fraud detection.

HHSC should be required to report annually to the governor, the lieutenant governor, and the speaker of the House on their progress and findings.

B. State law should be amended to direct HHSC to provide sufficient training to enable Texas Department of Health (TDH) and Texas Department of Human Services (DHS) staff members to identify potential cases of fraud.

This training should increase the number of fraud and abuse referrals made to Sanctions and OAG. Training should include clear criteria for reporting potential fraud and abuse to Sanctions and the time frame in which information should be reported. Each agency, in conjunction with HHSC, should set a target for the number of referrals to be sent to Sanctions. Status reports on these targets should be included in the annual report recommended above.

C. TDH should adopt a rule allowing the Vendor Drug Program to impose civil monetary penalties on pharmacists who submit improper Medicaid claims.

This rule could be implemented under current statutory authority found in the Texas Human Resources Code and the Texas Administrative Code.[15] In establishing criteria for these penalties, TDH should model its penalties after Section 36.004 of the Human Resource Code.[16] Vendor Drug should coordinate with Sanctions before applying penalties to ensure consistent application of penalties and other actions across all Medicaid programs.

Every participating pharmacist should be informed of these new penalties. Vendor Drug can collect these penalties by withholding payments, just as overpayments are recovered at present. Vendor Drug should apply new civil monetary penalties to any pharmacy that has failed more than twice to comply with program billing practices.

D. HHSC, in conjunction with OAG's MFCU, should enter into an agreement with all members participating in Operation Restore Trust to share information about providers excluded from the Texas Medicaid Program and to receive similar information from the other participants.

Coordinated fraud prevention efforts among Operation Restore Trust participants will improve efforts to keep fraudulent providers out of these programs.

Fiscal Impact

Specific savings or increases from an improved referral process cannot be estimated at this time, but should provide better information with which to allocate limited state resources.

Footnotes

[1] Texas Department of Health, "Texas State Medicaid Program; Claims Review Operations," Austin, Texas, February 27, 1996, section 5. (Information packet.)

[2] Fax communication from Sharon Thompson, director, Medicaid Provider Sanctions Division, Health and Human Services Commission, Austin, Texas, August 9, 1996.

[3] U.S. Code of Federal Regulations, Chapter 42, SS1007.11.

[4] Fax communication from Beth Taylor, director, Medicaid Fraud Control Unit, Office of the Attorney General, Austin, Texas, August 7, 1996.

[5] Interview with Beth Taylor, director, Medicaid Fraud Control Unit, Office of the Attorney General, Austin, Texas, August 1996.

[6] Acts 1995, 74th Legislature, Chapter 824, SS1.

[7] Interviews with Curtis Burch, director, Vendor Drug Program, Texas Department of Health, Austin, Texas, August 16, 1996; and Pam Coleman, director, Utilization and Assessment Review Division, Texas Department of Human Services, Austin, Texas, August 28, 1996.

[8] Letter from George Noelke, director, Elder Law and Public Health Division, Office of the Attorney General, Austin, Texas, August 20, 1996.

[9] Fax communication from Steve Scarborough, director, Bureau of Statistics and Analysis, Texas Department of Health, Austin, Texas, August 19, 1996.

[10] Fax communication from Gerry Dube, director, Bureau of Medical Appeals, Texas Department of Health, Austin, Texas, August 19, 1996.

[11] Fax communication from Joe Branton, director, Bureau of Policy and Operations, Texas Department of Health, Austin, Texas, August 22, 1996.

[12] Fax communication from Pamela Coleman, director, Utilization and Assessment Review Division, Texas Department of Human Services, Austin, Texas, August 30, 1996.

[13] National Heritaumber of computer-generated leads from the Comptroller's office will significantly increase the number of referrals to Sanctions and MFCU.

The federal government also has recently escalated its efforts to combat fraud in health care. The U.S. Department of Health and Human Services (HHS), Department of Justice, and Federal Bureau of Investigation all have made health-care fraud and abuse high priorities. Coordinating Texas' activities with these federal efforts will become increasingly important.

One of the federal government's most prominent efforts is Operation Restore Trust. This program is directed at detecting fraud and abuse in five states, including Texas, that account for 40 percent of all Medicare and Medicaid participants. According to HHS, the program's focus is on "fighting fraud in home health care, nursing home care and durable medical equipment--three of the fastest growing cost areas in Medicare and Medicaid."[14]

Recommendations

A. State law should be amended to require the Health and Human Services Commission (HHSC) and Office of the Attorney General (OAG) to report annually on their efforts to fight Medicaid fraud, waste, and abuse to the governor, lieutenant governor, and speaker of the Texas House of Representatives.

HHSC and OAG should prepare a memorandum of understanding requiring the agencies to collaborate in developing a formal, written process for making and tracking interagency and internal referrals concerning cases of suspected fraud, waste, and abuse. HHSC should keep detailed records on the number and nature of these referrals, to whom they were made, and on what date.

HHSC's Sanctions Division and OAG's Medicaid Fraud Control Unit (MFCU) should automatically notify OAG's Elder Law and Public Health Section of all referrals they receive. MFCU should also be required to automatically share information with Sanctions and Elder Law on any case it closes because it could not get the case prosecuted or a criminal prosecution was unsuccessful.

HHSC and OAG should be required to meet at least quarterly to share new referrals, review progress on open cases and cases not yet opened, and to determine which organization is better suited to pursue the case. The agencies should set priorities and guidelines for assigning cases to enhance deterrence and maximize funds recovery, prosecutions, and civil penalties.

Information on resolved cases should be sent to the Medicaid Fraud Detection project to help improve fraud detection.

HHSC should be required to report annually to the governor, the lieutenant governor, and the speaker of the House on their progress and findings.

B. State law should be amended to direct HHSC to provide sufficient training to enable Texas Department of Health (TDH) and Texas Department of Human Services (DHS) staff members to identify potential cases of fraud.

This training should increase the number of fraud and abuse referrals made to Sanctions and OAG. Training should include clear criteria for reporting potential fraud and abuse to Sanctions and the time frame in which information should be reported. Each agency, in conjunction with HHSC, should set a target for the number of referrals to be sent to Sanctions. Status reports on these targets should be included in the annual report recommended above.

C. TDH should adopt a rule allowing the Vendor Drug Program to impose civil monetary penalties on pharmacists who submit improper Medicaid claims.

This rule could be implemented under current statutory authority found in the Texas Human Resources Code and the Texas Administrative Code.[15] In establishing criteria for these penalties, TDH should model its penalties after Section 36.004 of the Human Resource Code.[16] Vendor Drug should coordinate with Sanctions before applying penalties to ensure consistent application of penalties and other actions across all Medicaid programs.

Every participating pharmacist should be informed of these new penalties. Vendor Drug can collect these penalties by withholding payments, just as overpayments are recovered at present. Vendor Drug should apply new civil monetary penalties to any pharmacy that has failed more than twice to comply with program billing practices.

D. HHSC, in conjunction with OAG's MFCU, should enter into an agreement with all members participating in Operation Restore Trust to share information about providers excluded from the Texas Medicaid Program and to receive similar information from the other participants.

Coordinated fraud prevention efforts among Operation Restore Trust participants will improve efforts to keep fraudulent providers out of these programs.

Fiscal Impact

Specific savings or increases from an improved referral process cannot be estimated at this time, but should provide better information with which to allocate limited state resources.

Footnotes

[1] Texas Department of Health, "Texas State Medicaid Program; Claims Review Operations," Austin, Texas, February 27, 1996, section 5. (Information packet.)

[2] Fax communication from Sharon Thompson, director, Medicaid Provider Sanctions Division, Health and Human Services Commission, Austin, Texas, August 9, 1996.

[3] U.S. Code of Federal Regulations, Chapter 42, SS1007.11.

[4] Fax communication from Beth Taylor, director, Medicaid Fraud Control Unit, Office of the Attorney General, Austin, Texas, August 7, 1996.

[5] Interview with Beth Taylor, director, Medicaid Fraud Control Unit, Office of the Attorney General, Austin, Texas, August 1996.

[6] Acts 1995, 74th Legislature, Chapter 824, SS1.

[7] Interviews with Curtis Burch, director, Vendor Drug Program, Texas Department of Health, Austin, Texas, August 16, 1996; and Pam Coleman, director, Utilization and Assessment Review Division, Texas Department of Human Services, Austin, Texas, August 28, 1996.

[8] Letter from George Noelke, director, Elder Law and Public Health Division, Office of the Attorney General, Austin, Texas, August 20, 1996.

[9] Fax communication from Steve Scarborough, director, Bureau of Statistics and Analysis, Texas Department of Health, Austin, Texas, August 19, 1996.

[10] Fax communication from Gerry Dube, director, Bureau of Medical Appeals, Texas Department of Health, Austin, Texas, August 19, 1996.

[11] Fax communication from Joe Branton, director, Bureau of Policy and Operations, Texas Department of Health, Austin, Texas, August 22, 1996.

[12] Fax communication from Pamela Coleman, director, Utilization and Assessment Review Division, Texas Department of Human Services, Austin, Texas, August 30, 1996.

[13] National Heritage Insurance Company, "Total Number of Providers per Provider Type," Austin, Texas, July 26, 1996. (Computer printout.)

[14] U.S. Department of Health and Human Services, "Operation Restore Trust," Washington, D.C., May 3, 1995 (http://www.sbaonline.sba.gov/gopher/ignet/ignews/ort/ortover.txt). (Internet document.)

[15] V.T.C.A., Human Resources Code SS32.039; and T.A.C., Title 25, Part 1, Chapter 35, Subchapter A, SS35.108.

[16] V.T.C.A., Human Resources Code SS36.004.

Texas Comptroller of Public Accounts Window on State Government Contact Us Privacy and Security Policy

Texas Comptroller of Public Accounts Window on State Government Contact Us Privacy and Security Policy

Carole Keeton Strayhorn
Texas Comptroller of Public Accounts Window on State Government
Contact Us
Privacy and Security Policy