Medicare Fraud is too Easy (and Widespread)

Late last summer Pamela Ludwig, owner of a Franklin, Tennessee firm that goes by the name Pretty in Pink Boutique, began receiving calls from angry Medicare enrollees across the country. The seniors were mad that their Medicare accounts had been charged for urinary catheters they did not need, nor had received. About the same time 1,300 miles away in El Paso, Texas Erika Tavarez too began receiving angry emails and then a visit from the FBI. She had recently sold a durable medical equipment business, also called Pretty in Pink, that provided prothesis for breast cancer survivors. This is what she told the Washington Post:

Then, she said, people began sending her angry emails that called her a fraud, and FBI agents arrived to ask her questions about urinary catheters — a product that she said she’d never offered to patients, but that her former company was now billing to Medicare.

Federal officials believe that seven Medicare-accredited firms are responsible for the rise in urinary catheters fraudulently billed to Medicare, estimated at about $2 billion, according to the Washington Post.

None of the seven companies — all of which changed ownership or leadership in 2023, according to incorporation records — had been major players in the niche field of intermittent urinary catheters.

Durable medical equipment has long been an area of fraud and abuse within Medicare. More from The New York Times:

Catheters and other medical supplies are frequent targets of billing schemes. Last April, the federal government brought criminal charges against 18 defendants who had submitted bills for nonexistent coronavirus tests and other pandemic-related services. And in 2019, the Department of Justice said it had broken up an international fraud ring involving more than $1 billion in phony billing for back and knee braces.

The number of catheters billed to Medicare was nearly 10 times the norm last year (450,000 vs. 50,000). It’s not just catheters, it’s many, many things. It’s not uncommon for seniors to receive calls from companies offering “free” stuff, including back braces, leg braces, knee braces and numerous other things. Advertisements in newspapers and magazines that seniors read offer powered wheelchairs that cost next to nothing for seniors, all paid for Medicare. Long after fraudulent billings were identified complaints from seniors continue to pour in. One lady told The New York Times that in January Medicare was billed $12,000 on her behalf for 2,000 catheters she did not need. State and federal investigators have identified problems in numerous states. That raises an obvious question: why were these frauds not shut down the day firms began billing for items that were many times more than their history?  By contrast, credit card companies have policies in place to detect and shut down fraud in real time.

Credit card issuers use various methods to detect and prevent fraud. Common protocols include:

• Machine learning: This allows computer systems to use past transaction data to learn about patterns of normal and abnormal activity.
• Anomaly detection: Identifies patterns of activity that are well outside the norm. This might include transactions completed at unexpected times or locations or a sudden spike in transaction amounts.
• Real-time scoring: Each transaction receives a risk score based on the issuer’s criteria. High scores may automatically block transactions or require your authorization.
• Social network analysis: Analyzes relationships between cardholders, merchants and devices to detect patterns that may indicate fraud.

Although card issuers often use algorithms, there is usually still human involvement. Fraud analysts review flagged transactions and make adjustments to the system as needed.

There have been times when my credit card company emailed me to ask if I made a specific charge. Medicare doesn’t do that. Credit card companies even triangulate major purchases taking place from far from home and assess them for fraud. Yet, the federal government does none of this. It pays and then tries to chase down fraud months, or even years later. One man identified as having taken over a Florida firm that engaged in fraudulent billing has since fled the country. I assume he had to rent a Boeing 747 freighter to carry all the taxpayer money he looted from Medicare. Fraudulent billings to Medicare for catheters are only the tip of the iceberg. Consider the thousands of small scammers billing a wide variety of small items and settling for mere hundreds of thousands in bogus charges annually rather than billions. They probably are never detected or at least never investigated.