Durable Medical Equipment Fraud Estimates $1.5 to $5 Billion Annually

According to the 2012-2021 National Health Expenditure Projections, durable medical equipment (DME) spending could surpass $50 billion by the end of 2015. For public and private health care programs, fraudulent billing is estimated at between 3% and 10% of total health care expenditures (FBI 2011). Apply this figure to DME spending and the estimated cost of DME fraud could fall between $1.5 billion and $5 billion each year.

Durable Medical Equipment Fraud Estimates $1.5 to $5 Billion Annually

The DME industry is no stranger to whistleblower claims. Almost every major device company has been accused of health care fraud at least once. The steady growth of the industry and overall lack of credentials required to distribute DME offers deceitful individuals and companies heaps of opportunity to defraud the US government.

What Is Durable Medical Equipment?

The term Durable Medical Equipment (DME) encompasses prosthetics and orthotics, braces, diabetic supplies, therapeutic shoes, wheelchairs, scooters, walkers, oxygen equipment, canes and crutches. DME is defined as equipment that:

  • Can withstand repeated use
  • Is primarily and customarily used to serve a medical purpose
  • Generally is not useful to a person in the absence of an illness or injury
  • Is appropriate for use in the home

Common DME Fraud Activities and the Fraudsters 

DME suppliers, sales representatives, nurses, and physicians alike may be involved in a number of DME fraud scheme possibilities. The most common DME fraud activities include:

  • Billing for goods not medically necessary, not eligible, or not provided
  • Knowingly providing substandard or defective equipment
  • Paying patients and physicians to submit fraudulent claims
  • Paying rewards for patient referrals
  • Forging medical records or prescriptions
  • Failing to report returned items
  • Upcoding (billing for more expensive items than those shipped)
  • Knowingly shipping more than the amount ordered
  • Using shell companies for money laundering and DME fraud
  • Stealing patient or physician identities to apply toward false claims
  • Manipulating/not disclosing rental options

The 2014 Fiscal Year Report of the Departments of Health and Human Services and Justice on the Health Care Fraud and Abuse Control Program (HCFAC FY2014) listed 14 examples of successful DME fraud cases initiated, prosecuted or settled during fiscal year 2014.

Billing for items not medically necessary or not provided consistently remains at number one in DMA fraud activity for the years 2012-2014, making up around 50-72% of fraudulent activities mentioned. Falsifying documents and prescriptions is involved in 50% of the cases mentioned while kickbacks are involved in about 21% of the cases mentioned.

US Government Recoveries of Defrauded Taxpayer Dollars Rise

Recoveries of taxpayer dollars stolen through DME fraud had risen drastically over the past three years. Of the 14 cases mentioned in the 2014 HCFAC Report (only a handful of the total 2014 DME fraud cases), the United States government reclaimed over $1.62 billion, a big jump from the $69.2 million mentioned in 2013 report.

Medicare Strike Force Honing in on Durable Medical Equipment Fraud 

The Medicare Strike Force Team, a targeted initiative formed to combat health care fraud in nine US fraud hotspots, is increasing its focus on DME fraud. According to the HCFAC Reports from 2012-2014, the Medicare Strike Force Team DME cases increased from 15% to 23%.

Criminal cases are big in DME and continuing to grow. All 14 cases mentioned in the 2014 HCFAC Report were criminal cases. In 2013, 7 out of 9 cases were criminal, most engaging in elaborate schemes involving shell companies, money laundering, and ID theft.

Whistleblowers on the Front Lines Fighting DME Fraud

Successful False Claims Act whistleblower actions by DME relators continue to recover millions in taxpayer dollars. Under the qui tam provisions of the False Claims Act, private citizens may file suit against companies on behalf of the U.S. government and share up to 30 percent of any financial recovery. Recent DME whistleblowers include Orthofix’ Susan Hutchinson, Baxano Surgical’s Kevin Ryan, and Orbit Medical’s Dustin Clyde and Tyler Jackson.

In November 2012, Susan Hutchinson, ex-sales manager of Orthofix Inc., received an $8 million whistleblower reward for reporting allegations that the company was waiving patient copays, paying kickbacks to physicians, and failing to advise patients to rent rather than purchase Orthofix products. Orthofix settled to resolve allegations with the US government at $30 million.

In July 2013, Kevin Ryan, former sales manager for Baxano Surgical Inc., collected $1.02 million for his allegations that the company counseled health care providers to submit claims with incorrect diagnosis or procedure codes for spine surgeries performed using the company’s device and paid kickbacks to induce physicians to use company products. The company settled the allegations at $6 million.

In May 2015, Dustin Clyde and Tyler Jackson, former Orbit Medical Inc. employees, shared in a $1.5 million whistleblower reward for their efforts in exposing allegations that Orbit Medical sales reps were altering physician prescriptions and other documents to get Medicare to pay for wheelchair and accessory claims. Orbit Medical reached a settlement agreement of $7.5 million with the US government.

Billions in false claims and fraudulent practices by Durable Medical Equipment companies remain undetected according to the report. Company owners, medical providers, accountants, physicians, sales reps, and patients alike serve as key players in combatting the overt fraud and abuse that continues to be a multibillion dollar drain on the US health care system.

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