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Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto



Willie Sutton robbed banks because "that's where the money is."

Today, government-run medical programs such as Medicare are the modern-day targets for new Willie Suttons. That's where the money is to be made. The system is ripe for plunder. The government signs the equivalent of blank checks to crooks who have figured out how to bilk the system.

The news is full of horror stories of Medicare mills cranking out fraudulent billings and bilking the American taxpayers out of millions of dollars. But these reports create a false impression that fraud is the norm in Medicare. Instead, most physicians are doing their best to comply with a very complex and confusing system of CPT codes and other government regulations. The Inspector General for Health and Human Services, June Gibbs Brown, acknowledges:

"We aren't finding the individual physician to be a prevalent offender. Most of them are caring people, dedicated to medicine and their patients."
-- Medical Economics (9/9/96)

But unfortunately, these highly publicized cases and misguided enforcement actions by the Health Care Finance Administration (HCFA) of HHS have created an atmosphere of fear and intimidation in which physicians who treat Medicare-eligible patients must practice their profession.

Proposed Solution

Under the current system, the billions of dollars of fraudulent Medicare payments will never be eliminated.

The Association of American Physicians and Surgeons proposes elimination of third-party payments ("assignment of benefits" directly to physicians and other providers as opposed to reimbursement of the beneficiary) for Medicare patients.

Instead, payments should be made directly to patients, who, in turn, would pay doctors and providers for actual services performed. As a result, those intent on cheating the system would be prevented from getting taxpayer reimbursement for treatments not performed, and for patients who don't exist.


AAPS recently released the results of a mailed survey of physicians on Medicare and its impact on patient care which shows that patients are also feeling the pinch of these tactics as fewer physicians are willing to treat Medicare-eligible patients and many are restricting services to Medicare patients because of fear of prosecution. Results of the survey detail for the first time the negative impact of Medicare enforcement and regulations on patients' access to care. Some findings:

  • More than three-fourths (82%) report increased fear of prosecution or investigation in the past 3 years;
  • 71% report making changes in their practice to avoid threat of prosecution, including greatly restricting services, i.e. more than one-third (34%) of all respondents restrict services to Medicare patients, such as surgery.
  • 20% report they do not accept new Medicare patients because of hassles and/or threats from Medicare. (Only 16% cite fees)
  • Almost one-fourth (23%) DO NOT accept new Medicare patients. Of those who do, 9% do so only under special circumstances;
  • More than one-third (34%) have difficulty finding physicians willing to accept referrals of their Medicare patients;

Perhaps the most disturbing finding is that more than one-fourth (26%) of physicians who restrict services to Medicare patients do so because of "hassles and/or threats from Medicare." This is proof indeed that some of the misdirected efforts of HHS and HCFA to "crack down" on fraud have made it more difficult for patients to get care from the most honest and qualified physicians.


The reason that Medicare is such an attractive target is that the money is easy and the risk of detection is still low. Simply, the system is ripe for plunder by design.

For example, in contrast to credit card fraud, Medicare fraud is "non-self-revealing." With credit cards, the customer receives a clearly itemized statement, then pays the bill with his own funds. If he finds a discrepancy, it is in his financial self-interest to protest the charge. But in Medicare, the "customer" (patient) never sees the bill before it is paid by the government.

The assignment of benefits makes it possible for multi-million dollar scams to operate by billing for fictitious services or for services of minimal value to the recipient (such as unnecessary laboratory tests). The absence of any copayment (as for laboratory tests or home health services) removes any patient incentives to pay attention to the bill.

As U.S. Attorney Alan Bersin has pointed out, the upswing in fraud has resulted from separating the payer from the recipient of services. Third-party payers are attractive targets for organized criminal scams, as well as for dishonest providers and patients. An appallingly high percentage of Americans (up to 25% in some groups) see nothing wrong with lying to increase the size of medical/insurance settlements. (study on fraud)

Inspector General Brown paints the picture clearly:

"It's created an entire cottage industry. But those involved aren't medical people...the[se] people learned about the money that can be made in health-care scams while they were in prison -- and then set up shop after they were released. Without providing any service, they started billing HCFA, using Medicare numbers of deceased individuals. Other people, again with no relationship to legitimate practitioners, have billed Medicare for durable medical equipment they never supplied." -- Medical Economics (9/9/96)


The Investigative Staff Report of Senator William S. Cohen ("Gaming the Health Care System" July 7, 1994) acknowledged that "The vast majority of health care providers are honest and dedicated professionals."

However, much of the current enforcement effort is directed at the coding practices of those honest individuals trying to make a living while abiding by ever-changing and Byzantine regulations. The side effects:

  1. Corruption in the system tends to protect the most egregious offenders, as demonstrated by the repeat offenses of the Philadelphia cardiologist cited in the Investigative Report, totaling millions of dollars over thirteen years.
  2. The system of rewarding enforcers (incentives or "bounties," especially forfeiture) has led to outrageous abuse of power by government agents.
  3. The system has become so terrifying that many physicians would be well advised to avoid participation. Factors include ambiguous rules, administrative law that deprives the accused of basic rights, paid informants, draconian fines for trivial errors and routine tactics of intimidation.

The Investigative Report of the Special Committee cites 50 case samples of true abuse. AAPS can match each of those with a case of an honest practitioner unfairly prosecuted for inadvertent mistakes or victimized because of inconsistent interpretation of coding regulations.

For example:

Edgardo Perez-DeLeon of Michigan. Mr. Perez-DeLeon, former office manager for his wife's internal medicine practice was convicted of 12 felony counts of Medicaid False Claims and Health Care False Claims Offenses.

His crime? He coded patient visits that did not involve a physical examination as "office visits." The coding was the closest match available consistent with recommended manuals; contrary to testimony by a government witness, a physical examination is not necessarily required on every occasion.

His punishment? One year in jail, while the family house was threatened with foreclosure and their children were sent back to Puerto Rico to live with family because they couldn't afford to support them. To this date, Mr. Perez-DeLeon has not been able to get a clarification of the official interpretation of "office visit."


As Congress explores ways to reduce fraud, AAPS suggests the following goals:

  1. Minimize fraud by eliminating opportunities to cheat the system via third-party payments/assignment of benefits.
  2. Minimize adverse side effects of the fraud control effort, which include:
    • Increasing costs and reducing the availability of medical goods and services by intimidating honest medical professionals and vendors and increasing overhead for activities required solely to demonstrate compliance;
    • Violation of the rights of Americans with the unwarranted destruction of careers and lives through abusive, over-zealous prosecution;
    • Destruction of patient confidentiality because of seizure and disclosure of private patient records in enforcement actions;
    • Public endangerment by commando-style raids in which unarmed, nonviolent patients and staff may be threatened with deadly force.


True fraud involves the submission of inaccurate claims with the intent to deceive, for the purpose of collecting Medicare payment to which the person submitting the claim knows he is not entitled. The use of controversial treatments, "overutilization," failure to follow "practice guidelines," incorrect coding, etc., do not constitute fraud, though they may be the subject of a billing or reimbursement dispute. Deliberate misrepresentation -- dishonesty -- is the sine qua non for fraud.

While Inspector General Brown has assured that "You won't find any physician who has been convicted of a crime when all he did was make an honest mistake," HCFA continues to send written threats and pursue outrageous investigation tactics usually reserved for violent criminals.

  • For example, Dr. Danny Westmoreland, a family practice physician in Mason, West Virginia, along with his wife, 9-year-old son and eight patients, were held at gunpoint while government officials ransacked his office looking for evidence of irregularities in his billings. Dr. Westmoreland says if they wanted to look at his files, "All they had to do was ask."

To eliminate opportunities for fraud and to ensure the best medical care for patients, Congress should consider to following actions:

  1. Make all Medicare payments directly to the patients, rather than the providers;
  2. Make Medical Savings Accounts available to all Medicare-eligible patients;
  3. Eliminate the Resource-Based Relative Value Scale and price controls.
  4. Restrain Over-Zealous Enforcement Activities

Minimizing Incentives to Defraud By Abolishing Third Party Payment (Assignment of Benefits

Congress must require HCFA to make all payments directly to Medicare beneficiaries rather than to the providers, and possibly only after the beneficiary presents evidence that the payment, or at least any applicable copayment, has been made. (And some copayment should always be required except in cases of severe financial need.) At a minimum, Congress should put a stop to any incentives that tend to encourage accepting assignment (such as higher reimbursements to "participating" Medicare providers and enhanced "hassle factors" for "nonparticipating" providers.)

The risk of detection would be enhanced by making health-care fraud more likely to be "self- revealing." Senator Harkin proposed that a toll free hotline be established for patients ask questions about the "Explanation of Benefits." This is a first step, but does not go far enough. Instead, a full and complete billing should be sent to the patient in every case, and nondeliverable bills should be followed up. Furthermore, the billing should be in plain English, printed in legible type, and should include narrative descriptions of services and diagnoses, not just codes.

This would eliminate the potential for fraudulent billing for deceased individuals or for services which have not been provided--scams which have been proven to bilk the taxpayers of millions of dollars.

Many physicians fear that patients will simply pocket the check and not meet their financial obligation. To obviate these potential objections, payment could be made by dual-payee check, which would require endorsement by both patient and provider, with an "Explanation of Medical Benefits" (EOMB) sent to the provider. Beneficiaries would not be able to cash the check and pocket the money for non-medical use.

Expand the Medical Savings Account Option

Even more important is to reduce the use of Medicare as a pre-payment rather than a risk- sharing mechanism. Most medical services should be paid for directly at the time of service and claims submitted only after the deductible is met. If Congress continues to encourage enrollment in managed care (HMOs), the taxpayers will continue to pay for benefits whether they are used or not. A recent study shows that managed care organizations have been paid 7% more for Medicare patients than those utilizing fee-for-service. HMOs will continue to "game the system" by receiving payment for services which are paid in advance, but not performed.

Medical Savings Accounts (MSAs) would encourage responsible spending by seniors only for services actually needed. The demonstration project proposed should be expanded to any Medicare-eligible persons who choose to participate.

Eliminate Price Controls

Congress must recognize that the current Medicare price controls regime rewards cheaters and punishes conscientious physicians. Forty centuries of wage-and-price controls have shown that market distortions, gluts and shortages, black markets, erosion of quality, and disrespect for law inevitably follow. The Resource-Based Relative Value Scale is a cumbersome, Byzantine price-control system that frequently leads to absurd fees, which may not even cover the overhead for services. Physicians who do not "game the system" may be forced out of business. At least, they may be forced to change their practice in a way that is less than optimal for patient care simply to bring in enough payment to keep their doors open.

Survival is a powerful motive; faced with price controls that prevent them from earning a fair return on their work, the most honest citizens are tempted to cheat. That is why severe price controls have always had to be enforced with draconian punishments, often the death penalty. It is better to have reasonable laws, with which most citizens comply willingly, than oppressive laws that must be enforced with intrusive surveillance and harsh penalties. (This is especially true since price controls never actually work to restrain or lower prices in the long run.) Numerous respected economists have testified against price controls, and Republicans in Congress are nominally against this discredited and coercive intervention.

The RBRVS schedules, if used at all, should only be used to determine reimbursement, not to dictate what physicians may charge. The proper fee in all cases in the one that physician and patient agree is just and reasonable. The ability to set one's own fees (which is always constrained by the consumer's ability and willingness to pay) is essential to a free market. All other professions, such as attorneys, enjoy this freedom. The right to determine the value of one's own services (implemented by balance billing) is a fundamental right, also guaranteed in the initial enactment of the Medicare law (Sec. 1801 of Title 18 of the Social Security Act). It also tends to eliminate rationalizations for "gaming the system."

Moreover, when prices are set at an irrationally low level, the honest and most capable physicians may be driven from the profession. (Price controls eventually lead to an increased proportion of less conscientious or less skillful providers whose services have a value closer to that assigned to them by the central planners.)

The elimination of price controls need not increase Medicare expenditures. In fact, it might decrease them if physicians offer more services of types that are presently underreimbursed and being replace by more costly services for which reimbursements are more acceptable.

Decreasing Adverse Side Effects of Over-Zealous Enforcement

Patient confidentiality should not be sacrificed to the demands of prosecutors. The medical record should not be turned into a legalistic compliance tools to the detriment of medical practice.

Congress should monitor law-enforcement efforts and curb abusive practices such as intimidation of witness, especially the most vulnerable (elderly and mentally disturbed patients), unwarranted forcible entry, bounty hunting, use or display of deadly weapons in circumstances presenting no threat of harm to officers, knowing use of perjured testimony and any other tactics that are unseemly in a nation of laws, limited constitutional government, and respect for human dignity.

If the U.S. government continues to harass the best and most honest physicians, only the most mediocre and less scrupulous providers will be left to care for our seniors. Patients will be the ones to suffer.


Medicare fraud is estimated at 10% of total dollars spent, and can be expected to increase as the "baby boomers" reach Medicare-eligible age.

AAPS believes Congress should consider legislation which would eliminate third-party payment (assignment of benefits to the provider instead of reimbursing the beneficiary) and inoculate the Medicare system from the potential for fraud and abuse, while protecting the best and most honest providers from intimidation and harassment.

If we want to stop the Willie Suttons from robbing the bank, we must stop giving them a blank check. Removing the incentive will work much better than retroactive enforcement. It will also preserve the rights of the innocent patients and physicians, and reduce the cost of medical care.