Phantom Pharmacy

Like a nasty bug, a new fraud is spreading through the health care system. Criminal enterprises posing as pharmacies are billing Medicare, Medicaid and private insurers for fake prescriptions and bilking health care out of millions of dollars, federal officials say.

“These scams are exploding. They’re a huge issue for the department,” said Shimon Richmond, a field agent with the Department of Health and Human Services.

It’s not clear exactly how much money is being drained from the system by so-called “phantom pharmacy” schemes, but health care fraud already costs taxpayers and insurers more than $60 billion a year, federal officials say. Fraud is a key factor contributing to rising health care costs, they say.

Here’s how the phantom pharmacy scheme typically works, according to experts: Criminals use a legitimate address to establish a phantom pharmacy business — which is essentially a shell operation.

Then, using stolen or otherwise-misgotten doctor ID and patient insurance ID numbers, scammers write fraudulent prescriptions for expensive drugs that were never actually prescribed or dispensed.

Next, they submit these fake prescriptions for reimbursement to insurers, Medicare or Medicaid — for hefty returns. In a single claim, a phantom pharmacy can make anywhere from $2,000 to $8,000, said Richmond, who’s been investigating phantom pharmacy schemes in Florida for two years.

A promising way to control health costs

“These scams are 100% fraud, and we’re seeing more and more of them,” said Gary Cantrell, assistant inspector general for investigations with HHS. His office is pursuing hundreds of phantom pharmacy cases.

Short-term gains: But regulators are having a tough time cracking down, because phantom pharmacies operate quickly and quietly. They may operate for as little as 60 days or as long as eight months, then disappear and pop up at a new address.

“Criminals quickly make large amounts of money, then close up and open up a new scam somewhere else,” said Cantrell.

Another challenge for fraud-fighters: Since Medicare currently requires pharmacies to be reimbursed quickly — sometimes in as little as two weeks — fake claims may be paid out before they can be validated.

But even private insurers, which typically are better at preventing fraud, are falling victim to these schemes, federal officials say.

Phantom pharmacies also have a wider geographic reach than most other health-care scams, officials say. Scammers typically target Florida and California because they have large Medicare and Medicaid populations. But phantom pharmacies are spreading beyond these borders, they say, showing up in cities like Detroit, New York and Dallas.

Another obstacle for regulators is that trained health-care professionals may participate in the schemes. In some cases, corrupt doctors write prescriptions, or legitimate pharmacists operate a “phantom” business on the side, experts say.

Organized crime rings may also play a role. In one case, a group of people went to pharmacy school, then opened legitimate drugstores. Then they opened phantom pharmacies as well. Profits from these operations may flow overseas to fund money-laundering schemes, Richmond says.

“I’ve been in law enforcement for over 10 years,” said Richmond. “There’s just not enough of us to address this problem.”

Medigap Policies Might Get More Expensive

Your Medigap policies might get more expensive if Congress and HHS get their way.

The nation’s insurance commissioners have some stern advice about proposals to shrink Medicare spending by asking seniors with supplemental Medigap policies to pay more out of pocket for their health care: Don’t do it.

The health law requires the National Association of Insurance Commissioners to advise the administration about whether seniors would use fewer Medicare services – and therefore, cost the government less money — if the most popular Medigap plans were less generous. 

“Everything we’ve looked at has shown that increasing cost-sharing does stop people from seeking medical care,” said Bonnie Burns, training and policy specialist at California Health Advocates who serves on an NAIC committee that has studied the issue for more than a year. “The problem is they stop using both necessary and unnecessary care.”

In a draft letter approved unanimously by NAIC’s Senior Issues Task Force and Health Insurance Committee last week, the commissioners warn that limiting Medigap could backfire and raise Medicare costs when seniors don’t receive the medical care they need. The letter, to Secretary of Health and Human Services Kathleen Sebelius, was approved during the association’s annual meeting near Washington, D.C.  The letter will be sent after a third committee is expected to approve it next week.

“Once.the letter has cleared the Senior Issues Task Force, it’s probably a done deal,” said Guenther Ruch, a former administrator of the Wisconsin insurance department who, until March, chaired the Medigap subgroup that prepared the letter.

About 9 million Medicare beneficiaries – or one out of five – bought a Medigap policy in 2010, to cover a portion of medical expenses not covered by Medicare. And two-thirds of them purchased the most comprehensive plans that offer “first dollar” coverage, which protects them from having to pay almost anything out of pocket, including copays and deductibles.

The Obama administration and congressional leaders are considering similar proposals as part of their effort to avoid automatic spending cuts and tax increases as part of the “fiscal cliff” negotiations. The Congressional Budget Office has estimated that cost-sharing changes could save the Medicare program as much as $53 billion over 10 years.

Medigap policies are popular with seniors because Medicare does not cap out-of-pocket expenses. The policies are not cheap — the average premium nationwide was $178 a month in 2010 — but they protect subscribers from unexpected high medical bills, which is important to people on fixed incomes. The C and F Medigap plans cover nearly all of the out-of-pocket costs that beneficiaries would usually pay.  Two thirds of people who buy Medigap plans have incomes below $40,000 a year — about the same income levels for all Medicare beneficiaries.

“People are buying Medigap because they need the [medical] treatment, said Dotti Outland, director of regulatory affairs for UnitedHealthcare and a member of the Medigap subgroup.  “And they are paying something out of their pocket now, they are paying premiums.”

Advocates of increased cost-sharing point to studies showing that seniors with Medigap coverage tend to use more Medicare services than those without it, and they likely get unneeded care for which the government pays a large share.

The insurance commissioners were supposed to recommend specific cost-sharing changes for these Medigap plans with first-dollar coverage to reduce Medicare spending for unnecessary medical treatment and, as the law says, “encourage the use of appropriate physicians’ services.” The law requires their recommendations to be based on peer-reviewed studies or current successful managed care practices.

But after a year and a half of research and discussion, they came up empty handed.

“None of the studies provided a basis for the design of nominal cost sharing that would encourage the use of appropriate physicians’ services,” the letter says. “Many of the studies caution that added cost sharing would result in delayed treatments that could increase Medicare program costs later (e.g., increased expenditures for emergency room visits and hospitalizations) and result in adverse health outcomes for vulnerable populations (i.e., elderly, chronically ill and low-income).”

The letter acknowledges that Sebelius may disagree with the NAIC and seek cost-sharing changes regardless.  “If that is your decision, please know that the NAIC stands ready to continue its regulatory role in developing Medicare supplement standards.”

Nevada state insurance commissioner Scott Kipper, who chairs the Senior Issues Task Force, said the letter conveys “without any doubt that we want to continue to be the organization that HHS turns to on Medigap.”

An earlier version of the letter had rejected cost-sharing overall, but recommended $25 co-payments for advanced diagnostic imaging tests and $50 co-payments for scooters as a way to reduce fraudulent charges. But the group’s consumer representatives argued strongly against including that option. Three days before the Senior Issues Task Force vote, 15 national consumer and patient advocacy groups, along with eight NAIC consumer representatives, wrote Kipper urging that the co-pay recommendations be dropped.

“The Centers for Medicare and Medicaid Services has the ability, and obligation, to discourage improper use of these services by all Medicare beneficiaries, not only those who purchase Medigap plans,” they said, adding that increasing Medigap cost-sharing is the wrong tool for reducing Medicare spending.

Obamacare Medicare Cuts Drive Doctors Away

Obamacare Medicare cuts will lead to doctors abandoning Medicare patients.

There are 600,000 physicians in America who care for the 48 million seniors on Medicare. Of the $716 billion that the Affordable Care Act cuts from the program over the next ten years, the largest chunk—$415 billion—comes from slashing Medicare’s reimbursement rates to hospitals, nursing homes, and doctors. This significant reduction in fees is driving many doctors to stop accepting new Medicare patients, making it harder for seniors to gain access to needed care. Here are a few of their stories.

Paul Wertsch is a primary physician inMadison, Wisconsin. In 1977, he and his two partners invested $500,000 of their own money and opened their own practice, the Wildwood Family Clinic, on the east side of town. Wertsch’s clinic is popular with the seniors who go there, but over time, Medicare’s fee schedule has made it harder and harder on the practice.

Wertsch billed Medicare $217 to care for a Medicare patient with a sinus infection whose appointment ran late, because the patient required more time. Medicare reimbursed the clinic for $54.38. Later in the day, a younger patient with the same sinus infection, requiring half the time, was charged the same $217. But his private insurer reimbursed the clinic for twice the amount of Medicare: $108.04.

“I love taking care of Medicare patients,” Wertschtold the Capital Times, a progressive paper in Madison. “But every time we treat them we have to dig into our wallets. What kind of business model is that?” Today, Medicare patients represent one-quarter of Wildwood’s practice overall, and as much as 70 percent for some of the clinic’s veterans, like Wertsch. In 2011, Wildwood decided to stop accepting new patients from the Medicare program.

Wildwood was the first clinic in the Madison area to stop taking new Medicare patients. But, nationally, doctors like Wertsch are increasingly common.

‘Well, honey, it’s just going to get worse’

Joseph Shanahan is a rheumatologist in Raleigh, North Carolina. Shanahan told his local ABC affiliate, WTVD, that he was one of the few rheumatologists left in the Research Triangle area who accepted Medicare patients. “The reimbursement is so low [with Medicare]—in some cases 60, 80 dollars—it costs you more to get a plumber to come to your house than to get a rheumatologist to come to the hospital,” he said.

This spring, Shanahan decided to stop taking new Medicare patients. “Not by choice,” said Shanahan, “but I’ve got to pay off the business loan I got, and I got to pay my staff, and I got to pay my malpractice insurance.” Shanahan reiterated what you hear from a lot of doctors: that they don’t want to stop taking new patients, but the government has left them no choice. “I don’t do medicine for the money,” he explained. “I never got into it to get rich. The real reward in medicine is taking care of patients and making them feel better.”

Steve Daniels, a reporter with WTVD, led an investigation into problems with Medicare access in North Carolina. A team of volunteers used the “mystery shopper” method, posing as Medicare beneficiaries looking for a new doctor. Of the 200 family physicians they called, nearly half said that they were no longer accepting new Medicare patients.

“I have had many friends who have moved down here to retire and they cannot find a physician to take them,” said one of WTVD’s volunteers. “It’s very sad because they are coming down here to start a new life, a lot coming to be closer to families, and they have medical problems. Unfortunately, they’re finding that no one wants to take them.”

Beverly Frake was one of those people. Frake moved to North Carolina in 2010 from upstate New York, to escape the northern winters, and to be closer to her daughter, who lived in the area. “I moved into this nice apartment complex, big medical complex across the street, I thought, ‘How lucky am I?’” she told Daniels. “And I went there and was told in the waiting room, well they just don’t take Medicare patients. One of the receptionists said to me, ‘Well honey, it’s just going to get worse.’”

Medicare’s problems have been building for decades

These problems with the Medicare program predate the passage of Obamacare. For decades, politicians have been wrestling with Medicare’s runaway costs. Conventional fixes, like raising the retirement age, reducing benefits, or raising premiums were considered politically toxic. So instead, Congress sought the path of least resistance: paying doctors and hospitals less to provide the same level of service.

In 1988, Congress instituted a new system of price controls, called the Resource-Based Relative Value Scale, or RBRVS. Designed by an acclaimed Harvard health economist, William Hsiao, experts thought that the RBRVS system would succeed in controlling Medicare spending. It didn’t. Doctors, especially specialists, compensated for being paid less per-service by performing more services.

In 1997, Congress tried to fix the RBVRS using a new system called theSustainable Growth Rate, tying growth in physician fees to growth in the size of the nation’s economy, as measured by GDP. That didn’t work either. As Medicare spending continued to grow at a faster pace than the economy, the SGR law required Congress to reduce Medicare fees accordingly. But both parties in Congress, at the behest of the American Medical Association, routinely overrode the SGR provision with costly “doc fix” legislation.

Obamacare significantly worsens the Medicare access problem

The AMA supported Obamacare, on the promise that the law would include a permanent “doc fix.” But Democrats reneged on that promise, owing to the cost of a permanent SGR adjustment: something on the order of $200 billion over ten years, depending on the prescribed growth rate of the fees.

Instead, the Affordable Care Act further reduced fees to health care providers, by $415 billion over the 2013-2022 time frame. As these reductions go into effect, more and more physicians are certain to stop taking new Medicare patients. We already see this problem with the Medicaid program for low-income Americans, where doctors don’t accept Medicaid patients, leading to poor health outcomes.

The Obama campaign offers several lame defenses of these cuts. “The President’s plan doesn’t cut [benefits] by one dime,” insists deputy campaign manager Stephanie Cutter. “He ends taxpayer subsidies to insurance companies, and weeds out waste, fraud, and abuse, which saves the Medicare system $716 billion.”

But Cutter’s assertion the law doesn’t cut benefits only makes sense if you don’t count getting a doctor’s appointment as a “benefit.” And her argument that the provider cuts merely amount to eliminating “waste, fraud and abuse” displays a callous disregard for how the law’s blunt, across-the-board payment reductions affect doctors like Joseph Shanahan, and seniors like Beverly Frake.

In 2011, the Department of Health and Human Services attempted to conduct an investigation into the problem of physicians opting out of Medicare. But they had to shutter the inquiry, because the government doesn’t “maintain sufficient data regarding physicians who opt out of Medicare.”

memorandum sent by the lead investigator to acting Medicare chief Marilyn Tavenner concluded that the problem is getting worse. “Based on the limited data that we received, the number of opted-out physicians appears to have increased each year from 2006 to 2010,” wrote the inspector. “More physicians may opt out in the near future.”

If you want to reduce waste, increase choice and competition

The Romney and Wyden-Ryan plans for Medicare reform do far more to get at the problem of waste, by using the tried-and-true methods of choice and competition. The plans use competitive bidding to challenge insurers, and traditional Medicare, to pay doctors whatever they want to pay, while providing a Medicare benefit package at the best possible price.

A similar method is already used in the Medicare prescription-drug program, or Part D, which has, remarkably, come in more than 30 percent underCongressional Budget Office projections for its fiscal cost. This year, the program actually reduced premiums, relative to 2011: something that almost never happens in government health-care programs.

Instead of a politically-motivated, one-size-fits-all, across-the-board fee cut, the Romney approach allows competing insurers to negotiate with hospitals and doctors to gain the optimal combination of access and price. Under a competitive bidding system, insurers are likely to pay primary care physicians more, while bearing more scrutiny upon the wasteful, costly procedures that drive Medicare spending higher.

The key to putting Medicare on a fiscally sustainable path isn’t to take a sledgehammer to the program, as Obamacare does, and ration care from above, but to make structural improvements that give seniors and their doctors the bottom-up incentive to avoid wasteful spending.

So far, many media reports have displayed confusion about these concepts. But if we have an honest debate between who should control Medicare’s health dollars—bureaucrats or seniors—I have a feeling as to which side will win.

Medicare Patients Have Higher Costs for Cancer Medication

Medicare patients will have higher out of pocket costs for cancer medication forcing seniors to skip treatment.

Facing a life-and-death struggle with kidney cancer, Rita Moore took her prescription for a new kind of chemotherapy pill to her local drugstore.

She was stunned when the pharmacist told her the cost for a month’s supply would be $2,400, well beyond her income.

Medicare drug plans that cover Medicare patients  like Moore are allowed to charge steep copayments for the latest cancer medications, whose cost can run to tens of thousands of dollars a year. About 1 in 6 beneficiaries aren’t filling their prescriptions, according to recent research that has put numbers on a worrisome trend.

Officials at Medicare say they’re not sure what happens to those patients — whether they get less expensive older drugs that sometimes work as well, or they just give up. Traditionally, chemotherapy has been administered intravenously at a clinic or doctor’s office. Pills, a relatively new option, are thought to represent the future of cancer care.

Moore, 65, was operated on in February for an advanced form of kidney cancer. She said both her cancer and kidney specialists agreed that a drug called Sutent probably offered the only chance to keep the disease in check. It’s a capsule taken at home.

But she was unprepared for what happened when she went to fill her prescription.

“I cried,” said Moore, who lives in a small town in central California. “What can you do when the only thing out there that can maybe give you some quality of life is unaffordable? I was devastated. I didn’t know what to do.”

Private insurance companies that deliver the Medicare prescription benefit say the problem is that drug makers charge too much for the medications, some of which were developed from taxpayer-funded research. The pharmaceutical industry faults insurers, saying copayments on drugs are higher than cost-sharing for other medical services, such as hospital care.

Others blame the design of the Medicare prescription benefit itself, because it allows insurers to put expensive drugs on a so-called “specialty tier” with copayments equivalent to 25 percent or more of the cost of the medication.

Drugs for multiple sclerosis, rheumatoid arthritis and hepatitis C also wind up on specialty tiers, along with the new anti-cancer pills. Medicare supplemental insurance — Medigap — doesn’t cover those copayments.

“This is a benefit design issue,” said Dan Mendelson, president of Avalere Health, a research firm that collaborated in a recent medical journal study on the consequences of high copayments for the new cancer drugs.

Cost-sharing should only be used to deter wasteful treatment, he explained. “It is hard to make the argument that someone who has been prescribed an oral cancer medication doesn’t need the drug,” added Mendelson.

The study last month in the Journal of Oncology Practice found that nearly 16 percent of Medicare beneficiaries did not fill an initial prescription for pills to treat cancer, a significantly higher proportion than the 9 percent of people with private insurance who did not follow through.

Forty-six percent of Medicare beneficiaries faced copayments of more than $500, as compared to only 11 percent of patients with private insurance. Among people of all ages, 1 in 4 who faced a copayment over $500 did not fill their prescriptions. Cancer is more prevalent among older people.

“Obviously, we’re leaving a lot of Medicare patients off the bus, standing at the curb, if they can’t afford the medications,” said Dr. Lowell Schnipper, who chairs the American Society of Clinical Oncology’s task force on the cost of cancer care. It advises doctors to discuss costs with patients up front, to avoid surprises.

Medicare officials say there are currently no plans to rework the design of the prescription benefit.

But “nobody is more concerned about access than we are,” said Dr. Jeff Kelman, Medicare’s chief medical officer.

For many seniors, Kelman suggested, the situation is not as bleak as what Moore encountered. For example, the prescription plan is designed so beneficiaries who are poor or near poverty face only token copays. For the rest, President Barack Obama’s health care law gradually closes the coverage gap known as the “doughnut hole.” This year, the new law provides a 50 percent discount on brand name drugs for those in the gap.

(Comment: Closing the doughnut hole will INCREASE Medicare Part D premiums and copays. It will also result in tier shifting for the more expensive drugs and will never eliminate the coinsurance requirement on the most expensive drugs.)

The gap starts after Medicare recipients and their insurance plan have spent $2,840 on medications. After that, seniors are responsible for roughly the next $3,600. Once total spending reaches about $6,440, Medicare’s catastrophic coverage kicks in and beneficiaries pay only a small amount.

Yet the health care law could be struck down by the courts or repealed if Republicans win the White House and Congress next year. Even if the law stands, assistance after seniors end up in the gap doesn’t take away the initial shock at the pharmacy counter.

“The underlying problem is with the basic structure,” said Joe Baker, president of the Medicare Rights Center, a New-York based advocacy group. “Even before you get to the doughnut hole, you’ve got a problem.”

One solution would involve requiring drug plans to lower copayments for cancer pills. But the trade-off is likely to be an increase in premiums for all beneficiaries.

Rita Moore had to try to find her own way out of the dilemma. She lives in Corcoran, Calif., and still works as resident manager of an apartment building for seniors.

Moore decided to apply to Pfizer’s prescription assistance program for Medicare patients who can’t afford Sutent and other drugs the company makes. Pfizer approved a year’s worth of free medication, but it took about two months to collect and review all the medical and financial paperwork.

(Comment: Organizations such as PPARx and Needy Meds will help Medicare beneficiaries find low cost and free medications)

“They were very helpful, but it wasn’t a fast process,” said Moore. In the meantime, she wasn’t being treated. The cancer spread and is now close to her spine and her body’s main artery.

“This is kind of strange,” Moore said. “After you’ve worked all your life, you get something catastrophic and you run into news like your drugs are going to cost $2,400.”