April 24 (Bloomberg) -- The patient smoked cigarettes in the passenger seat of the ambulance every week, chatting with the driver while taxpayers foot the $1,000 bill to drive him four blocks for his dialysis treatment.
The routine was part of a $1.5 million scheme to defraud Medicare by Penn Choice Ambulance Inc., according to an indictment against the Philadelphia company. The case helps explain part of why Medicare paid $5 billion to ambulance companies in 2012, more than went to cancer doctors or orthopedic surgeons, according to newly released federal data.
The U.S. Department of Health and Human Services has identified ambulance service as one of the biggest areas of overuse and abuse in Medicare -- companies billing millions for trips by patients who can walk, sit, stand or even drive their own cars.
“It’s a cash cow,” said Assistant U.S. Attorney Beth Leahy, who prosecuted Penn Choice and five other ambulance fraud cases. “It’s basically like a taxi service except an extremely expensive one that the taxpayers are financing.”
Penn Choice received $833,000 from Medicare in 2012, the year before it was indicted, according to the new data for the U.S. government health program for the elderly and disabled. The company went out of business after the indictment. Founder Anna Mudrova pleaded guilty to fraud charges and is facing more than five years in prison, said Thomas Kenny, her lawyer.
Federal regulators and investigators have ramped up efforts in the past year to fight ambulance fraud and overuse, with rides to dialysis centers one of the problem areas. HHS estimates Medicare overpaid ambulance providers by $314 million last year, a third of it for medically unnecessary claims to the U.S. government health program for the elderly and disabled.
Once dominated by local fire departments, volunteers, or hospitals, ambulances are increasingly being operated by private companies as local governments outsource the service to cut costs, said Sarah Turk, an analyst with research firm IBISWord Inc.
About a third of ambulances billing Medicare are for-profit suppliers, according to the Medicare Payment Advisory Commission, or Medpac, which counsels Congress.
Cases of fraud seem to be isolated within certain regions, said Leahy. She said most of the companies she has prosecuted were started by Russian or Eastern European immigrants in the Philadelphia area with the intent of being an illegal operation.
The American Ambulance Association “condemns Medicare fraud in any form” and supports preventive measures such as preauthorization for dialysis trips, a review for new providers of dialysis transports, and unannounced site reviews, the trade group said in a statement.
There have been relatively few barriers for those starting an ambulance company, making the industry susceptible to illegal activity, Kenny said. In the case of Penn Choice, Mudrova, a Russian immigrant with no medical training or advanced degree, was doing administrative work at a doctor’s office when she got a loan from her family to start the ambulance company, according to Kenny.
“The threshold to get into the system is basically that you have to have a driver’s license and take a safety course,” Kenny said. “Medicare is letting these ambulances sign up and the threshold is very easy -- you or I could do it tomorrow and we don’t know a thing about ambulances.”
HHS is conducting additional screenings of ambulance operators to step up enforcement, including license and database checks, and announced and surprise site visits, said Aaron Albright, a spokesman for the Centers for Medicare and Medicaid Services.
A large amount of fraudulent ambulance spending is coming from rides to and from dialysis treatment, according to a Medpac report last year. Dialysis patients must get treatment three days a week for years while they await a kidney transplant, making them a predictable, stable source of revenue for fraudsters, Leahy said.
While Medicare will pay for a non-emergency ambulance ride for someone so ill they couldn’t get to their medical appointments or treatment any other way, it is not supposed to be used by patients who can walk, sit or ride in a wheelchair.
Of the $5 billion Medicare spent on ambulance trips in 2011, $700 million was for rides to dialysis centers, a 20 percent increase since 2007, according to Medpac. Medicare could save more than $400 million a year if the states spending the most on ambulance rides per dialysis patient were brought down to the average levels, it said.
Those states include West Virginia, Massachusetts, South Carolina, New Jersey and Pennsylvania, where ambulance operators are paid 50 percent more than the average payment per Medicare beneficiary, according to data analyzed by Bloomberg.
Authorities have taken action against at least a dozen ambulance operators for alleged Medicare fraud over the past 12 months, according to reports by the federal Office of the Inspector General for HHS.
Rural/Metro, the second-largest ambulance provider in the U.S., has paid $8.2 million in settlements with the government since 2012 over its Medicare billing practices. In one case, the company settled U.S. allegations that Medicare paid it for ambulance trips for dialysis patients that weren’t provided or weren’t medically necessary. In December, it reached a second settlement over allegations that it charged Medicare for emergency rides when there was no emergency. Rural/Metro didn’t admit nor deny the allegations in the settlement.
The alleged wrongdoing went on for several years through 2011. In 2012, providers listed under the Rural-Metro or Rural/Metro names were paid more than $60 million by Medicare, according to the recently released data. Company spokesman Tom Milton didn’t return a phone call and e-mail seeking comment. Warburg Pincus LLC, a private-equity investor, bought Rural/Metro Corp. for $677 million in 2011.
In the case of Penn Choice, the company billed Medicare for $3.6 million, $1.5 million of which was paid, for transporting patients who federal investigators observed walking and climbing unassisted into the company’s ambulances. Sometimes two people would ride together in the back of the ambulance and Medicare would be billed as if the company had made two separate trips, according to court documents.
Penn Choice recruited ambulatory patients outside dialysis centers, telling them they could get Medicare to pay for rides. The company also acquired patients from another ambulance provider, Brotherly Love, which was closed by law enforcement in 2011 for billing Medicare for patients who could have safely been transported by other means and paying them kickbacks, according to Leahy. Brotherly Love sold names and addresses of its passengers to Penn Choice for $2,000 each, she said.
To keep them coming back, Penn Choice ambulance drivers would hand out envelopes with $100 to $400 in cash every month to the passengers, many of whom were poor and unable to work because of their health condition, the government said. Leahy said she hasn’t prosecuted any of the patients since all have cooperated with the investigation.
“They are patients with health issues and a lot are very poor and they are easy prey for these types of schemes,” Leahy said. “It is wrong, there is nothing right about it, but you have to make a decision on a case-by-case basis.”
Employees of Penn Choice also transported patients to dialysis in their personal vehicles and billed the trips as ambulance rides. One employee billed Medicare $38,000 for rides for a relative, who was able to travel by car, court records showed. The ambulances were in serious disrepair, unsanitary, and passengers complained that the exhaust was so bad it would make them gag, Leahy said.
In the Houston and Philadelphia regions, U.S. regulators have gotten so concerned about the potential for fraud they’ve blocked new ambulance companies from enrolling in Medicare and Medicaid. Ambulance suppliers in Philadelphia are being paid $1,300 per user per year, 64 percent more than the average payment in similar areas, according to the Centers for Medicare and Medicaid Services. In the first two months of the moratorium in Houston, CMS has revoked the billing privileges of 15 ambulance suppliers there.
“In the community, everyone involved in this knew everyone else and shared patients,” Leahy said. “If one was under investigation and one got wind, the company would shut down and another would pop up.”
--With assistance from Phil Kuntz and Caroline Chen in New York and Anita Kumar in Princeton.