Janet Stubbs was delighted when her elderly Aunt Midge was recommended for transfer from a nursing home to a hospice. One might think Stubbs was happy because terminally ill patients often live longer and enjoy better quality of life when treated in hospices rather than hospitals.1 Only Aunt Midge wasn’t dying. She was old—around 100. But otherwise, she was fine. She was being transferred to hospice care because the doctor who saw her in the nursing home was willing to certify that she was terminally ill when, in fact, she wasn’t. The phony certification meant that Aunt Midge would receive better care, including Medicare-paid hospice visits from a nurse and chaplain, plus an extra weekly bath. That’s what made Janet Stubbs happy. The offer of free services for Aunt Midge was too good to pass up.2
Why was the nursing home doctor willing to falsely certify that Aunt Midge had less than six months to live, the cutoff for being admitted to a hospice? Financial incentives may have had something to do with it. Hospice Care of Kansas (HCK) was holding a “Summer Sizzle” promotion—we are not making this up—during which the company paid its employees bonuses of up to $100 per referral.3 The nursing home doctor who referred Aunt Midge moonlighted as a medical director at HCK. By sending Aunt Midge to hospice, the doctor made money.
Giving bonuses for referrals wasn’t the only way HCK drummed up business from nursing homes. It also gave salespeople $500 a month to buy lunches and other treats for nursing home employees.4 Other hospices use similar tactics. Some even sponsor trips and family vacations for medical directors they view as good sources of referrals. According to Roger Megli, a former chaplain and marketer for HCK, the company paid nursing home doctors up to $4,000 a month to consult for a day or so per week on patients’ conditions and to sign treatment orders. He thought that the practice corrupted doctors’ judgment. “If I’m getting $3,000 or $4,000 a month from a hospice to work one day a week,” Megli said, “I’m going to refer my patients to hospice, too.”5
HCK was not alone in adopting aggressive marketing tactics, and these tactics paid off. By 2007, about 1 million Medicare beneficiaries were enrolled in hospices—more than double the enrollment of a decade earlier.6 By 2015, hospices cared for 1.38 million people, almost half of the Medicare beneficiaries who died that year.7 Between 2007 and 2015, Medicare spending on hospice services rose 52 percent, from $10.4 billion to $15.8 billion.8
The trouble is, there are a lot of Aunt Midges. According to a recent report by the Office of the Inspector General (OIG) for the Department of Health and Human Services, “82 percent of hospice claims for beneficiaries in nursing facilities did not meet Medicare coverage requirements.”9 Why so high? Because the way Medicare pays for hospice care intensifies the incentive to commit fraud.
Most hospice revenue comes from Medicare, which pays a fixed amount per patient per day.10 This arrangement makes very long stays in hospice profitable for providers.11 The expensive parts of hospice stays are intake (when patients need to be enrolled and evaluated) and exit (when dying patients require extra care). The time in between is cheap because it requires only routine monitoring and medication. Consequently, hospices benefit when doctors refer patients with long life expectancies, even though this conflicts with Medicare’s “six months to live” regulation.
And hospices got what they wanted. In 2000, the average length of stay for hospice patients was 54 days. In 2010, it was 86 days.12 At HCK’s main branch in Wichita, the average length of stay was 109 days.13 Nationwide, about 21 percent of hospice patients stayed longer than six months, according to a 2013 report.14 Recognizing the frequency of abuses, Medicare discouraged hospices from taking healthy patients by reducing payments for care delivered after the 60th day.15
Manipulation of patients’ prognoses has led to predictions of imminent death that were amazingly far off the mark. Charles Groomes, who required stiff doses of OxyContin because of painful nerve damage in his feet, was discharged from Horizons Hospice in Pittsburgh after 32 months.16 When he eventually died, more than five years had elapsed since a doctor first certified that he had less than six months to live. Even then, his illness didn’t kill him, exactly. According to his wife, he took his own life by overdosing on pain medication, to which he had become addicted while in hospice care.
Gerald Stout, who spent about a year in hospice care, was still alive more than five years after being discharged.17 Eight months after being admitted by HCK for Parkinson’s disease, he had gained weight, moved about well with a walker, and his doctor determined that he was “not appropriate” for hospice. He was discharged three months later. Medicare paid more than $34,000 for his hospice care.
And remember Aunt Midge? A year after being admitted, she too was deemed “inappropriate for hospice.” HCK nonetheless held onto her for another eight months. Throughout her 20-month stay, Medicare paid $3,980 a month and Stubbs added $4,000 to $5,000 more. HCK thus made about $100,000 a year. As for Aunt Midge’s predicted encounter with the Grim Reaper, she lived four years after being discharged by HCK and passed away at the ripe old age of 106.
It can be difficult to know when patients will die. We’ve all heard stories of people who miraculously recovered from illnesses or injuries that seemed certain to be fatal, and of people who succumbed sooner than expected.18 But the frequency of mistakes is bound to increase when health care providers stand to make money by making wrong predictions. According to Professor Nancy Kane, “The long lengths of stay and high rates of live discharges suggest some hospices are signing up people who don’t belong in hospice. Any time there is money to be made, and you have this nebulous, gray area around ‘who is terminal,’ you get manipulation by some providers.”19 In other words, we rely on providers to assess patients’ prospects honestly, but Medicare corrodes their judgment by rewarding dishonesty.
Sometimes hospices scam patients by convincing them they are at death’s door—even though they aren’t. Misty Wall, a former social worker at a VistaCare hospice unit, explained that her job was to tell patients they were dying so they’d sign up for hospice services. After taking a position as an assistant professor of social work at Boise State University in Idaho, Wall described an incident in which a woman broke down in tears after Wall suggested that, because of renal failure, her father faced imminent death. According to the father’s physician, that wasn’t true. “I gave her this huge emotional blow, then sat there and soothed her,” Wall said. “Of course she signed.”20
After leaving VistaCare, Wall became a whistleblower. She accused her former employer of admitting patients who were not terminally ill, paying illegal kickbacks to patients and nursing home employees who referred residents, and using friendly doctors to get healthy patients certified for admission. The case was dismissed on a technicality, but many other hospice workers have leveled similar charges at their employers. In 2010, for example, the federal government opened more than 30 new Medicare fraud cases against hospice companies as a result of complaints by whistleblowers. (Of course, whistleblowers have some incentive to exaggerate misconduct, but they get paid only if their charges are proven correct—or the defendant decides to settle.)
In recent years, the federal government has cracked down on hospice fraud by auditing admission practices. Some audits have had stunning results. One, undertaken in connection with a whistleblower complaint, caused the San Diego Hospice (SDH), nominally a nonprofit organization, to drop hundreds of patients “as it target[ed] its services more tightly to only those within the six-month window. The resulting cash crunch forced the business to shed 260 workers and close a 24-bed hospital.”21 The slide didn’t end there. After trimming its staff further, the SDH declared bankruptcy and closed its doors in 2013.22 Fortunately, other local hospice operators took in SDH’s patients. In SDH’s bankruptcy proceeding, the federal government demanded repayment of $112 million in overpayments allegedly made in response to false claims filed in 2009 and 2010.23
Hospices receive many of their patients from hospitals, which creates another opportunity for gaming the payment rules. Medicare typically pays hospitals a fixed amount, based on patients’ discharge diagnoses. The payments, called “DRGs” (for diagnosis-related groups),24 reflect the expected cost and duration of the hospitalization. Thus, the DRG is a fixed fee that does not vary with the actual number of days that a patient is hospitalized. Previously, Medicare paid for the actual number of hospital days, which caused hospitals to inflate their bills by keeping patients hospitalized for longer than their treatments actually required. The fixed-fee DRG approach has the opposite shortcoming. It encourages hospitals to discharge patients early.
Suppose a DRG required Medicare to pay a hospital $15,000, reflecting the expectation that a patient with a particular diagnosis would need five days of inpatient care at $3,000 per day. By discharging the patient to a hospice in fewer than five days, the hospital would be paid the same $15,000 but would have an empty bed that it could fill with another paying patient. Even if it couldn’t fill the bed, the hospital would make a profit by avoiding the incremental costs associated with caring for the patient who was discharged. Minimizing time in-hospital is a profit-maximizing strategy under the fixed-fee DRG approach. When available space in a hospice enables a hospital to discharge a patient quickly, why not?
Would hospitals really send vulnerable patients to hospice just to maximize their profits? Consider the title of another OIG report: Medicare Could Save Millions by Implementing a Hospital Transfer Payment Policy for Early Discharges to Hospice Care. The report estimated Medicare could save $602 million by paying hospitals a daily rate (instead of a DRG-based payment) for patients who were discharged to hospice “early,” that is, before the end of the period anticipated by the DRG. But, really, it is far from clear such a change would save Medicare money. If Medicare switched to per diem payments for patients who are discharged “early,” hospitals would probably adapt by keeping patients just long enough to collect the larger fixed-fee DRG payment. CMS officials who commented on the OIG report said as much.25 They knew that hospitals would game any set of payment rules Medicare created, so trying to save a paltry $600 million just wasn’t worth the trouble.
Hospices that pay bribes to bring in patients run the risk of doing deals with doctors who are bad actors. For Vitas Health Care Corp. (VHC), the largest hospice company in the United States, that risk became a reality when it “donated” $15,750 to a charity for cancer patients run by the notorious Dr. Farid Fata, the Michigan oncologist we met in Chapter 8. Fata was convicted of giving hundreds of patients false cancer diagnoses so he could make money by giving them chemotherapy and other drugs. A whistleblower filed a complaint alleging that VHC and Fata had a deal. In return for contributing the money, Fata would refer 23 terminally ill patients. VHC paid $200,000 to settle the lawsuit in 2016, while denying that it did anything wrong.26
The whistleblower who brought VHC’s relationship with Fata to light was Rita Dubois. She knew about VHC’s business practices because she once worked as the company’s director of marketing development in southeast Michigan. It’s common for whistleblowers to be corporate insiders, as we discuss in Chapter 20, because insiders are often the only ones who know what’s going on. Companies that defraud the government usually hide what they’re doing from public view.
A whistleblower complaint also led to another lawsuit against VHC in 2013. In this suit, which the U.S. Department of Justice (DOJ) joined, the company was accused of admitting patients who weren’t terminally ill—the standard charge. But there was also an allegation that VHC inflated its revenues by upcoding, that is, by making terminally ill patients seem to be in worse condition than they actually were. That might not seem possible; but, when you understand how Medicare compensates hospices, you’ll see why it would be financially advantageous to do that.
Medicare pays hospices at two different daily rates. In 2015, Medicare paid $156 per day for patients receiving routine palliative care and a much higher rate of $910 per day for patients needing more intensive treatment.27 Most patients who trigger the higher rate are actively dying, but some are being treated for nonfatal conditions in hope of improving their quality of life during their final days.
The DOJ’s complaint accuses VHC of bilking Medicare by listing patients as being in crisis when in fact they were not. According to the government’s press release, VHC and its parent company
set goals for the number of crisis care days that were to be billed to Medicare. The companies also allegedly used aggressive marketing tactics and pressured staff to increase the numbers of crisis care claims submitted to Medicare, without regard to whether the services were appropriate or were actually being provided. For example, the complaint contends that Vitas billed three straight days of crisis care for a patient, even though the patient’s medical records do not indicate that the patient required crisis care and, indeed, reflect that the patient was playing bingo part of the time.28
One imagines that the patient wasn’t the only one shouting “Bingo!” VHC’s owners and managers must have thought they were winners too—at least until late 2017, when Chemed Corp., the parent company of VHC, paid $75 million to settle the government’s case.29
The government’s complaint against VHC also revealed, in a surprisingly casual (but candid) manner, one of the main reasons that Medicare fraud can’t be policed:
Because it is not feasible for the Medicare program, or its contractors, to review the patient files for the millions of claims for payments it receives from hospice providers, the Medicare program relies upon the hospice providers to comply with the Medicare requirements, and trusts the providers to submit truthful and accurate claims.30
Medicare is ill-equipped to evaluate claims as they come in, so it has no option but to pay providers whatever they demand while trusting them to bill honestly. The government practically invites providers to steal from it by telling them that their claims won’t be audited.
Before leaving this case, we cannot resist mentioning its strangest aspect. VHC’s founder was Dan Gaetz, who also served as vice chairman of VHC’s board of directors during part of the fraud period. When the DOJ filed its complaint, Gaetz was president of the Florida senate. He claimed to have had no active role in VHC’s operation when he was vice chairman of the board.31
By denying involvement in a long-term health care fraud committed by a company he created, Gaetz joined Florida’s governor, Rick Scott, who served as CEO of Columbia/HCA.32 In 2000, that company agreed to pay $840 million in criminal fines, civil damages, and penalties to settle claims that it defrauded Medicare and Medicaid by billing for tests that were neither needed nor ordered by physicians, using false diagnosis codes to increase reimbursements, and committing other misdeeds. In 2002, Columbia/HCA paid another $881 million in a second settlement involving similar allegations, bringing the total to $1.7 billion. Like Gaetz, Scott claimed to know nothing about the wrongdoing.33 Florida’s governor and senate president were such fantastic managers that they made fortunes running health care businesses, but both somehow remained completely unaware that their businesses were breaking the law.
Hospices also upcode by certifying that patients are in need of something called general inpatient care (GIP). GIP applies when hospice residents need short-term pain control or other symptom management services that must be provided via inpatient facilities, such as hospitals, skilled nursing facilities, or Medicare-certified hospice inpatient units. In 2011, Medicare paid $652.27 per day of GIP, more than four times the rate for routine inpatient hospice care.34
Most hospices reserve GIP for cases where it is needed, but some upcode to increase their revenues. In 2014, the DOJ filed a criminal indictment against Seth Gillman, a part-owner of Passages Hospice, LLC, which sends nurses to visit hospice patients in nursing homes and private residences in Illinois. A study of Medicare claims data revealed that Passages’ payments for GIP services grew from $4,437 per month in 2006–2008 to $946,743 per month in 2011. A government expert who reviewed the files of several patients treated by Passages concluded that most were not eligible for Medicare hospice benefits for part or all of their admission and that all of the 503 days of GIP submitted for those patients were improper.35 In hope of covering up the scheme, Gillman allegedly altered patient files that had been requested for auditing.36 Gillman pled guilty to fraud in early 2016. One month later, Angela Armenta, the director of nursing assistants at Passages, was convicted.37
As mentioned above, some hospices have Medicare-certified inpatient units. These hospices can provide GIP in-house instead of referring residents to other facilities—and the ability to profit by doing so has had predictable results. According to a 2013 OIG report, hospices that “owned or leased their own inpatient units provided that care to 35% of their Medicare patients,” while those “that had to send their inpatients to other companies’ hospitals or skilled-nursing facilities did so for only 12% of their Medicare beneficiaries.”38 Finally, when hospices had their own facilities, GIP stays were 50 percent longer than when residents were sent to hospitals for treatment. The odor of excessive use of medical treatments is hard to miss.
Most hospices are run by trained professionals who care deeply about their patients and treat them well. But fraud permeates every part of our government-controlled, third-party payer health care system, hospices included. The case of Matthew Kolodesh, the owner of Home Care Hospice, Inc. (HCH), shows how rotten a hospice operation can be.
In 2011, the federal government filed a criminal complaint in which it accused HCH of submitting false claims to the tune of roughly $14.3 million. Thirty percent of the patients treated at HCH were said to be ineligible for hospice care, and 90 percent of HCH’s charges for more expensive and intensive continuous care were deemed wholly fraudulent. The services were never delivered. The complaint also charged Kolodesh with paying doctors and other health care professionals to refer patients and provide false eligibility certifications and accused him of disguising the payments by hiring the recipients as medical directors, hospice physicians, and advisers. A jury convicted Kolodesh in late 2013. He was sentenced to spend more than 14 years in prison and ordered to pay over $16 million in restitution.
Kolodesh hid HCH’s malfeasance by altering patients’ records or creating phony ones. To make HCH’s patients seem sicker, he ordered employees to alter charts, falsify nursing notes, change diagnoses, and invent instances of weight loss, fever, and infection. To disguise billings for services that were never delivered, he had his nurse concoct phony schedules of continuous care visits. Often, the schedules used real events, such as death dates or hospitalizations, as anchors, falsely showing that services were delivered in the days immediately before the events occurred. To secure staff members’ cooperation, Kolodesh reportedly paid nurses $20–$25 per hour for every hour they falsely certified as having been devoted to a patient. Home health care aides allegedly received $11 per hour for participating in the scam.
Kolodesh is reported to have diverted $9.4 million of these fraudulent billings to his family, of which $5.3 million went in the form of salary and bonuses for his wife (who held a nominal position in HCH); $3.6 million went to other businesses Kolodesh owned; and $500,000 went to vendors who supposedly paid kickbacks to Kolodesh. He is even said to have committed tax fraud by conspiring with his synagogue to inflate his charitable contributions. According to the feds, Kolodesh gave his synagogue almost $150,000 written on HCH checks and the synagogue handed him back $55,700 in cash. He thus took a $150,000 charitable deduction while actually donating $55,700 less, and also avoided paying income taxes on the latter amount.39
Hospice companies, which are paid by Medicare, often operate nursing homes too. They frequently bill Medicaid for the services that the latter operations provide. Many patients, called “dual eligibles,” reside in nursing homes and receive hospice care at the same time. The prospect of collecting from both payers gives hospices that are affiliated with nursing homes an obvious temptation to double dip.
This temptation appears to have been more than the managers of Voyager HospiceCare, Inc., could resist. At a time when about one-third of hospice patients resided in nursing homes, more than half of Voyager’s patients did.40 According to Larry Anderson, a former president of the Kansas Medical Society, Voyager used its network of nursing home doctors to provide a ready supply of hospice patients. He called this arrangement “a win-win for everybody but the taxpayer.”41 Anderson also observed that, after he declined to approve several patients for hospice care because they were not terminally ill, a nursing-home doctor made the certification. The rate at which nursing homes falsely certify residents as hospice ready is unknown, but many fraud cases make this allegation.
Nursing homes also commit abuses on their own. A particular concern has been their tendency to render the vulnerable seniors who are left in their care more docile by dosing them with anti-psychotic drugs, like Risperdal, Haldol, and Seroquel. In 2010, for example, about 185,000 nursing home residents received drugs of this type, against the recommendations of federal nursing home regulators.42 Use of anti-psychotics for this purpose, known as “chemical restraint,” is usually off-label. “In 2011, a government study found that 88 percent of Medicare claims for antipsychotics prescribed in nursing homes were for treating symptoms of dementia, even though the drugs aren’t approved for that.”43 The federal government has campaigned against this practice, but chemical restraints are still common. Across the country, 19 percent of long-stay residents in nursing homes have received anti-psychotics, ranging from a high of over 25 percent in Texas to a low of only 9 percent in Hawaii.44
When asked, nursing home operators often say that chemical restraints are needed because residents would otherwise have to be restrained physically. Sometimes, that is true. But many experts believe that nursing homes administer anti-psychotics far too freely, and that financial incentives play a role in this. Citing Charlene Harrington, professor of nursing and sociology at the University of California, San Francisco, the AARP Bulletin reported that “as many as 1 in 5 patients in the nation’s 15,500 nursing homes are given antipsychotic drugs that are not only unnecessary, but also extremely dangerous for older patients” and that “an aggressive push by pharmaceutical companies to market their products” is one reason why.45
But it is not just pharma companies that push anti-psychotics. In the scam we are about to describe, a pharmacy company, two drug companies, and two nursing home chains all worked together to load up residents with expensive prescription drugs.
Omnicare operates pharmacies that provide prescription medications for more than one million people who reside in nursing homes and other long-term care facilities. As a pharmacy company, it doesn’t directly control the quantity of medications it delivers: it fills prescriptions written by physicians. Its revenues therefore depend on the frequency with which doctors order drugs and the cost of the drugs they prescribe.
Recognizing this, Omnicare set about convincing doctors to use their prescription pads more often. Its pharmacists had good working relationships with doctors employed at long-term care facilities, so Omnicare implemented a policy of having its pharmacists prompt nursing home physicians to write prescriptions. The policy worked. According to the DOJ, which eventually sued Omnicare, physicians employed by nursing homes accepted the recommendations of Omnicare’s pharmacists more than 80 percent of the time.46
Omnicare also had cozy relationships with two companies that operate nursing homes.47 One was Mariner, which ran more than 250 facilities. The other was Sava, a Mariner spinoff that operated 190 skilled nursing and assisted living facilities in nearly 20 states.48 According to the federal government’s complaint, Omnicare paid Mariner and Sava $50 million in exchange for the exclusive right to provide pharmacy services to their nursing homes. The parties disguised the $50 million kickback by making it part of a transaction in which Omnicare acquired a small Mariner business unit.
The right to be the sole pharmacy supplying Mariner’s and Sava’s facilities gave Omnicare significant power to influence the selection of drugs for large numbers of residents. Omnicare’s pharmacists could push certain drugs by advising doctors to prescribe them. They could also steer doctors away from other drugs by recommending alternatives.
Recognizing that pharmaceutical companies might pay handsomely to have this power exercised in their favor, Omnicare went hunting for treasure. According to the government, Omnicare solicited a drug company known as IVAX, which paid $8 million in kickbacks in exchange for Omnicare’s agreement to purchase $50 million worth of IVAX drugs.49
Omnicare also approached Johnson & Johnson ( J&J), with which it had a longstanding business relationship. The relationship was so close that J&J effectively used Omnicare’s pharmacists as an “[e]xtension of [the J&J] sales force.”50 Again, the kickback was disguised. Formally, J&J paid Omnicare tens of millions of dollars and gave Omnicare millions of dollars in interest-free loans to create “incentives” for pharmacists “to advocate appropriate use of J&J products.”51 No such incentive was needed, of course. Pharmacists are paid salaries to do precisely that job. The objective was to influence the professional judgment of Omnicare’s pharmacists, so they would recommend J&J’s products more often.
The plan worked. Omnicare’s purchases of Risperdal, an anti-psychotic drug produced by J&J, nearly tripled. J&J’s Levaquin, an antibiotic, rose from its initial 19.2 percent share of Omnicare’s deliveries to 66.4 percent, while deliveries of Cipro, an antibiotic manufactured by a competitor, declined from 80 percent to 20 percent.52 In 2001, Omnicare’s senior vice president of professional services and purchasing wrote a letter to J&J exclaiming, “WE ARE SELLING MORE HIGH PRICED DRUGS FOR THE PHARMACEUTICAL INDUSTRY!!”53
As we said above, the scheme was complex. The key to understanding it is that all of the companies involved stood to gain by pumping drugs into nursing home residents and by substituting more expensive drugs for cheaper ones. Omnicare benefited because its sales increased. It shared part of its gain with Mariner and Sava to ensure their cooperation and obtained in return the exclusive right to deliver drugs to their residents. Then, it used its control of the nursing home market to obtain payments from IVAX and J&J, both of which gained by having Omnicare deliver their drugs.
In view of the money to be made and the vulnerability of many nursing home residents, it is easy to see why anti-psychotics are over-prescribed. In 2011, the U.S. Senate Select Committee on Aging held a hearing on the overuse of anti-psychotics in nursing homes at which Daniel R. Levinson, the inspector general for the U.S. Department of Health and Human Services, testified.54 According to his written submission, the OIG “hired psychiatrists expert in treating elderly patients to review a sample of medical records. Their review found the following:
Inspector Levinson also testified that off-label prescribing of antipsychotics for unapproved uses was common and that “the large majority of claims for atypical antipsychotics were for elderly patients with dementia. These findings are . . . troubling given that there is ample evidence that some drug manufacturers have illegally marketed these drugs for off-label use.”56
The danger that elderly nursing home residents will be overmedicated and mistreated in other ways has been known about for decades. In 1986, the Institute of Medicine issued a report finding that nursing home residents were often abused, neglected, and cared for inadequately.57 As a result, Congress enacted the Nursing Home Reform Act, a law that, among other things, requires nursing homes to protect residents from chemical restraints imposed for purposes of discipline or convenience rather than to treat medical conditions. Regulations also require consulting pharmacists to review residents’ records every month, so the pharmacists can monitor the use of anti-psychotics and discourage doctors from misusing them.
Omnicare’s kickback arrangement with J&J stood the practice of pharmacist review on its head. Instead of discouraging doctors from overusing Risperdal, Omnicare’s pharmacists encouraged them to do so because their objective was to move the largest possible volume of J&J products. The predictable result was overmedication.
When the federal government finally caught on to the scam, each of the conspirators paid millions to settle the resulting fraud claims. In 2009, Omnicare paid $98 million and IVAX paid $14 million.58 In 2010, the nursing homes paid $14 million.59 Finally, J&J paid $2.2 billion in 2013 to settle multiple fraud claims, with $149 million attributable to its pact with Omnicare.60 Of course, the human cost of overmedicating vulnerable seniors is incalculable.
As the federal government admitted when suing Vitas Healthcare, Medicare and Medicaid, which pay for about 75 percent of all nursing home services, work on the honor system. The government expects providers to be honest and doesn’t do nearly enough to monitor them. This is true for the quality of the services that providers deliver, as well as for the accuracy of their bills. There are far too many providers for Medicare and Medicaid to police them.61
What happens when nursing home providers deliver services of such low quality as to be worthless? Ordinarily, they get paid, just as they would if they were treating residents exceptionally well. The government assumes that the beneficiaries of its programs are receiving appropriate treatment when, in fact, they may be suffering severely.
Consider the case of George D. Houser, for whom we hope a special place in hell has been reserved. Houser ran three nursing homes in Georgia. Over a four-year period (2004–2007), Medicare and Medicaid paid almost $33 million for services they delivered.62 But Houser wasn’t using the money to take care of the residents. At a trial that occurred years later, the evidence showed “a long-term pattern and practice of conditions . . . that were so poor, including food shortages bordering on starvation, leaking roofs, virtually no nursing or housekeeping supplies, poor sanitary conditions, major staff shortages and safety concerns that, in essence, any services actually provided were of no value to the residents.”63 A state official who inspected Houser’s operation in Rome, Georgia, testified that “the heat, flies, filth, and stench created an environment that was ‘appalling’ and ‘horrendous.’”64 The facilities were repeatedly cited for violations, and in 2007, the state of Georgia terminated the Medicaid provider agreements and ordered the closure of all three nursing homes.65
The conditions were so egregious that Houser was charged with criminal health care fraud. Houser is one of the few persons ever tried for defrauding the government on the basis of providing services that were of such poor quality as to be worthless. He was sentenced to 20 years in prison and ordered to repay $6.7 million in restitution to Medicare and Medicaid. At sentencing, the trial judge noted that, if these nursing homes had been prisons, he would have ordered them closed for violating the Eighth Amendment’s prohibition of cruel and unusual punishment.66
Of course, Houser treated himself much better than the vulnerable seniors in his charge. Evidence presented in the criminal case showed that he diverted $8 million of federal money to himself. He is said to have used the money to buy real estate worth $4.2 million upon which he planned to develop hotels, a $1.4 million house in Atlanta for his ex-wife, two Mercedes-Benzes, furniture, and vacations. The government also accused Houser of writing bad checks to employees, failing to pay vendors for such essentials as utilities and garbage pickup, and failing to repair leaking roofs and broken air-conditioning units. Commenting on the fraud verdict, U.S. Attorney and Georgia native Sally Quillian Yates—who went on to be President Donald Trump’s acting attorney general for all of 10 days—stated, “It almost defies the imagination to believe that someone would use millions of dollars in Medicare and Medicaid money to buy real estate for hotels and a house while his elderly and defenseless nursing home residents went hungry and lived in filth and mold.”67 No, it doesn’t—and that degree of willful blindness is unhelpful if you want to understand and fix America’s health care system.
Our politicized third-party payment system creates bad incentives that attract the already corrupt, and also corrupt the virtuous. Although many angels work in the health care sector, the easy money to be made by committing fraud attracts many devils as well. When left unsupervised and put in charge of vulnerable patients, the devils will exploit those patients for personal gain. They’ll pump them full of drugs they don’t need; subject them to treatments that do not work; lie to them about how long they have to live; move them like cattle between nursing homes, hospitals, and hospices; and leave them to rot in filth and be harassed by flies. The puzzle is not that such people exist. The puzzle is why Congress creates and defends government programs that allow and even encourage the devils to operate in this fashion.
In 2017, Hurricane Irma inflicted considerable damage in the United States. When it made its way up Florida’s peninsula, it knocked out power for millions of people and caused more than 30 deaths. Fourteen of the victims were nursing home residents who lived at the Rehabilitation Center at Hollywood Hills (RCHH). Irma didn’t kill them directly. It didn’t knock down a wall, blow off the roof, or flood the building. The residents died during the heat wave that followed the gale. When the power went out, RCHH’s air-conditioning system stopped working and the temperature inside the facility soared. Some of those who perished reportedly had body temperatures as high as 109.9 degrees.68 A cooling tower and stand-by generator had both been installed defectively and without required permits. When Irma struck, the equipment failed.69
When they chose to reside at RCHH, neither the residents who died nor those who survived likely had any inkling that they were entrusting their lives to someone with a history of committing health care fraud.70 According to a federal complaint filed in 2004, Dr. Jack Michel, who purchased RCHH in 2015, conspired with other doctors and facility operators—including Morris and Philip Esformes, a father/son duo we discuss further in Chapter 12—to generate phony bills by sending patients to the Larkin Community Hospital of Miami (LCH) for treatments they didn’t need.71
In one scam, dubbed “The 1997 Scheme” in the complaint, Jack Michel and his brother, Dr. George Michel, engaged in seven types of kickback arrangements with LCH. For example, they referred patients to LCH and received $70,000 per month in return. “Many of the patients . . . were residents of Oceanside, a skilled nursing facility located in North Miami Beach” where Jack Michel served as medical director. “Oceanside residents were transported to Larkin where the[y] were provided with medically unnecessary services with the knowledge of Oceanside’s ownership, Morris Esformes and Philip Esformes.”72 Altogether, these referrals were said to have generated over $5 million in payments from Medicare and Medicaid for LCH. The government also accused LCH of disguising kickbacks to Michel as fees for running its emergency room, staffing its radiology department, and operating his house call program, and as payments to a pharmacy Michel owned.
In The 1997 Scheme, LCH also paid kickbacks to other physicians who referred patients. The involvement of other doctors allegedly ended in 1998, when Michel purchased LCH and started the second scam, labeled “The 1998–1999 Scheme” in the government’s complaint. The 1998–1999 Scheme was described as a cozier arrangement that involved just the Michel brothers, the Esformes, and the assisted living facilities, skilled nursing facilities, and similar operations that they owned, controlled, or planned to buy. The scam was simple. The facilities sent residents to LCH for unnecessary treatments, LCH billed Medicare and Medicaid, and the conspirators split the cash. An examination of the files of patients “admitted to [LCH] in 1998 and 1999 demonstrated that a minimum of 50 percent of the services [they received] . . . were medically unnecessary.”73
In 2006, Michel and the other defendants paid $15.4 million to settle with the government.74 In the press release announcing the settlement, Peter D. Keisler, assistant attorney general for the Justice Department’s Civil Division, stated, “We will not tolerate health care providers who pay kickbacks or perform medically unnecessary treatments on elderly beneficiaries in order to generate Medicare and Medicaid payments.”75
But tolerate Dr. Jack Michel is exactly what the government did. It let him retain his medical license and also let him keep on billing Medicare and Medicaid. After the case settled, Michel continued to operate nursing homes and LCH, as before. And the government kept cutting him checks like clockwork, each and every month.
Michel even expanded the network of nursing homes he owned. In 2015, he purchased RCHH, which was on the auction block because its former operator had committed health care fraud and was on her way to jail. “The nursing home’s previous CEO, Karen Kallen-Zury, was sentenced to 25 years in federal prison” for her role “in a $67 million Medicare fraud scheme, a case [that] federal prosecutors described as a ‘massive criminal fraud conspiracy involving fake documents . . . fake patients, fake services, and bribes.’”76 (It was during Kallen-Zury’s watch that the standby generator and cooling tower were installed improperly and illegally.) Three other executives were also sent to prison and ordered to pay millions in restitution.
The prospect that one fraudster would succeed another did not sit well with the folks at Florida’s Agency for Health Care Administration (AHCA), the state’s nursing home regulator, so they “moved to block” Michel’s attempt to purchase RCHH.77 “But months later, after Michel retained a lobbyist confidant of Gov. Rick Scott—Fort Lauderdale’s William ‘Billy’ Rubin—the [AHCA] reversed course” and “approved a pair of license transfers that Michel and [LCH] needed to buy and operate [RCHH] and an adjacent mental health hospital.”78 As noted above, Governor Scott is the former CEO of Columbia/HCA, which paid $1.7 billion to resolve fraud claims in 2000 and 2002.79 “What role Scott and Rubin may have played in the process, or what impact their relationship may have had on AHCA’s ultimate decision, isn’t known,” according to Florida Bulldog, an independent watchdog group. What is known is that “Rubin’s firm, The Rubin Group, [received] between $50,000 and $80,000 for lobbying the executive branch” on behalf of Hollywood Property Investments LLC, the vehicle Michel used to purchase RCHH.80 Other entities associated with Michel had sizable dealings with the state, including a $23 million contract to train physicians and a $48 million contract to treat state prisoners.81 The full story of the relationship between Scott, Rubin, and Michel remains to be written, but the decision to allow Michel to acquire and operate RCHH was, at least in retrospect, clearly a mistake.
The deaths at RCHH outraged the public. Seeing an opportunity to play to the crowd, Florida officials initiated criminal and legislative investigations and condemned everyone responsible for the loss. After learning of Michel’s history of fraud charges, state senator Gary Farmer said that Florida’s “skilled nursing facilities have really become death warehouses,” adding, “Our elderly patients are being treated as cash crops.” He denounced the practice of allowing providers who settle fraud cases to go into business again and promised to sponsor legislation that would permanently ban them from running nursing homes.82
The best guess, unfortunately, is that these promises are hollow. The government has neither the means nor the motivation to bring providers to heel. The threat to exclude providers that settle false claims cases from the Medicare and Medicaid programs is empty too. To see that, one need only ask why such persons are not excluded already. Medicare and Medicaid have existed since the mid-1960s, but 50 years later they are still allowing known fraudsters like the Michels and the Esformes to bill. Unscrupulous nursing home operators treat America’s elderly citizens as “cash crops” because, as far as both the providers and the government are concerned, that is what they are. For providers, senior citizens are opportunities to submit bills and get paid. For the government, senior citizens are opportunities to cut checks in exchange for political support. In a health care payment system whose chief purpose is to move money, elderly nursing home residents are simply means to an end.