Rampant Fraud and Abuse of Medicare Funds Alleged at Community Mental Health Care Centers

The Health Care Financing Administration (HCFA), the agency responsible for administering the burgeoning Medicare program for the elderly, announced a nationwide crackdown on community mental health care centers (CMHCs) in September, signaling increased efforts to curtail fraud, error and abuse.

Charging gross misconduct-reminiscent of accusations against psychiatric hospitals in the late 1980s and early 1990s-HCFA said it plans to terminate 80 CMHCs from the Medicare partial-hospitalization program by the end of 1999. At the same time, HCFA unveiled a 10-point program to stem the losses.

The 1990 law that established the partial- hospitalization program for the elderly was supposed "to improve or maintain the individual's condition and functional level and prevent relapse or hospitalization," according to the U.S. Department of Health and Human Services (HHS). To participate, facilities had to assure HCFA that they could provide outpatient services to the elderly, children and the severely mentally ill; offer 24-hour-a-day emergency care, including day treatment or other partial-hospitalization services; and screen patients to determine whether they would be better off in state mental health care facilities.

A facility authorized under Medicare, however, did not have to be one of the nonprofit providers usually associated with the "community mental health care center" mantle. In fact, private health care companies saw a lucrative opportunity to profit from the $600 to $700 a day they could bill for services. Conducting the investigation under the aegis of Operation Restore Trust, a multiyear government effort to target and eradicate health care fraud and abuse, HHS's Office of the Inspector General (OIG) reported that some of these for-profit companies took advantage of the system, and of the patients they were supposed to treat.

"The evidence gathered during Operation Restore Trust, HCFA site visits and other reviews shows that CMHCs too often bill Medicare for services that aren't covered, aren't provided or aren't medically necessary," the OIG reported. "Some CMHCs offer bingo and other entertainment, which Medicare does not cover, but not the full range of psychiatric services that they legally must provide in order to receive Medicare payments."

"This is an important benefit for Medicare beneficiaries who need outpatient psychiatric services," said HHS secretary Donna E. Shalala. "We need to move in a deliberate, targeted manner to assure that beneficiaries' needs are met, and, at the same time, that fraud and abuse in this program is eliminated."

Between 1993 and 1996, annual payments for the Medicare partial-hospitalization program rose from an annual $60 million to $265 million, a 342% increase. The average payment per beneficiary during this same period rose from $1,642 to $6,874, while preliminary figures for 1997 show total payments climbing to $349 million and average payment per beneficiary topping $10,000. If government estimates prove to be correct, 11 cents out of every dollar spent on Medicare reimbursements are the result of fraud, error or abuse. Thus, $38.5 million dollars are diverted from the elderly into the pockets of noncomplying clinic operators.

There are 1,150 CMHCs nationwide, but the bulk of the problems to date have occurred in nine southern states-Texas, Florida, Louisiana, Georgia, Mississippi, Arkansas, Tennessee, Alabama and South Carolina. These nine states alone account for 85% of Medicare's costs associated with CMHCs.

Acknowledging that expenditures for CMHCs "account for only a small fraction of Medicare's overall budget," HCFA administrator Nancy-Ann DeParle said that "it's still crucial that every dollar goes to legitimate services. By acting now, we protect beneficiaries, taxpayers and the trust fund from growing abuse."

In Texas, one of the worst spots for fraud according to the OIG, the HCFA announcement is already having repercussions. "It's clearly going to be presented in the same way as the psychiatric hospital scandal was earlier," said Deborah Peel, M.D., secretary-treasurer of the Texas Society of Psychiatric Physicians (TSPP) and a consultant on the APA's joint commission on government relations. TSPP officials are investigating the allegations, hoping to stop a potential broad-brush denunciation of mental health care services.

Peel charges that Medicare has generated some of its own problems by "systematically driving patients from seeing psychiatrists" as a result of "discriminatory and inadequate reimbursement." Peel said expliotative programs then mushroom to fill the void left behind.

In some instances, there are no psychiatrists available at these CMHCs to care for patients and monitor their progress. Instead, corporate profiteers hire poorly trained and low-salaried nonphysician employees to deliver services as a way of cutting costs. However, when patients are given access to proper psychiatric care, Peel said the programs are effective in helping the elderly cope with mental illnesses.

Nevertheless, if there are psychiatrists participating in fraudulent, abusive or expliotative conduct, Peel said, officials should take criminal and administrative action. "We're taking the high road," said Peel, "and psychiatrists [who] misdiagnose or mistreat patients, and who don't carry out their Hippocratic oath, should be investigated to see if their licenses should be jerked."

The allegations linking psychiatric facilities with patient abuse is creating concerns in other sectors, too. "We are very concerned about waste, fraud and abuse by some community mental health centers providing Medicare partial-hospital programs," said Mark Covall, executive director of the Washington, D.C.-based National Association of Psychiatric Health Systems, whose members comprise 400 behavioral health care provider organizations. Like Peel, he expressed reservations about HCFA's approach to managing government health care programs.

"Recognizing that all care needs to be medically necessary, we are concerned about micromanagement and the ever-increasing, heavy administrative burden to provide and receive payment for partial-hospitalization services," said Covall. "We think it is important to establish national standards to ensure that only providers who can deliver cost-effective care are in the program, rather than creating undue administrative burdens on those who have demonstrated they can deliver quality care."

Nevertheless, Covall supports HCFA's 10-point plan to alleviate the human and economic costs of fraud. In addition to terminating the worst offenders and increasing the scrutiny of new applications, officials will intensify their medical review of claims and will suspend payments to providers who do not bill properly for services. Among other proposals, HCFA is also planning to implement a prospective payment system for hospital outpatient services that will apply to partial-hospitalization benefits. The agency claims the change will "eliminate the financial incentives to provide inappropriate, unnecessary or inefficient care."

Whether a prospective payment system will help solve the problem is unclear. Lately, HMOs throughout the country have been bailing out of their Medicare programs, saying that medical costs were higher than expected. Thus far, over 300 counties in 18 states have been affected by the termination of Medicare HMO programs.