Law360 - May 12, 2022
Healthcare fraud related to durable medical equipment (DME) is extremely costly to insurers yet often continues without criminal or civil consequences.
Fraudulent schemes by DME supply companies vary in complexity but usually prove extremely costly to insurers. Likely victims of DME fraud include Medicaid, Medicare, automobile insurers, workers’ compensation insurers, and other private health insurers. Over the last year, the Department of Justice commenced criminal prosecutions for nearly $1 billion in fraudulent billing submitted to Medicare for schemes involving DME fraud.
Insurers may think to rely on federal and state law enforcement for protection from those who commit fraud. However, it is extremely rare that law enforcement will prosecute those involved in healthcare fraud against private insurers. Rather, almost all criminal prosecutions and civil actions brought by the Department of Justice, United States Attorney’s Office, or a State’s Attorney General Office involve fraud against Medicaid or Medicare. In the rare instances where law enforcement will criminally prosecute healthcare fraud against private insurers, such as those providing automobile or workers’ compensation insurance, those prosecutions will typically not involve DME fraud.
Current law enforcement trends are inadequate to protect private insurers from DME fraud. Instead, private insurers should take affirmative steps to investigate and detect fraudulent schemes and hire lawyers to take legal action that can recover previous loses due to fraud and aid in preventing future fraud. By understanding the types of fraudulent schemes used to commit DME fraud, private insurers should be able to focus their investigation to detecting fraudulent billing practices.
This article will discuss DME suppliers’ schemes that result in fraudulent billing to public and private insurers, will reference recent criminal prosecutions to provide examples for how DME fraud occurs, and will provide some recommendations to help private insurers identify potential DME fraud. The examples of Medicare and Medicaid fraud are provided to illustrate the types of schemes being perpetrated against insurers, be they public or private.
DME is particularly ripe for healthcare fraud. Suppliers are not required to have the educational background and licensing necessary for other healthcare providers, such as physicians, chiropractors, nurses, physical therapists, and massage therapists. Anyone can open a DME company. Even more, DME suppliers can be owned or operated by individuals previously convicted of theft.
Overall, medical equipment fraud generally can be categorized into two schemes, which are not mutually exclusive. The first scheme involves kickbacks paid in exchange for DME prescriptions that are then used to bill insurers. In the second scheme, fraudsters bill insurers for supposed medically necessary DME when the DME was never provided and/or never prescribed.
Schemes where DME suppliers pay illegal kickbacks to obtain DME prescriptions vary in complexity. For example, in some circumstances, a DME supplier will participate in an illegal kickback arrangement directly with physicians or healthcare practices. This was recently the circumstance in USA v. Raffai, where the defendant, an orthopedic surgeon, was indicted for his involvement in a scheme where he was provided with bribes and kickbacks in exchange for medically unnecessary prescriptions for DME. Those prescriptions were used to bill Medicare over $10 million. As another example, in February of 2022, the U.S. Attorney’s Office for the Southern District of Florida released an indictment against ten individuals for their role in a $67 million healthcare fraud scheme that involved paying telemedicine companies to obtain prescriptions for medically unnecessary DME, among other items.
In other illegal kickback schemes, DME suppliers make payments to third-party individuals and/or third-party shell companies that direct prescriptions for DME, almost all of which are medically unnecessary, back to the DME suppliers. In USA v. Harry, the defendants were indicted for their involvement as intermediaries in an illegal kickback scheme. DME suppliers, recruiters, and others would pay shell companies, which were in the names of straw owners but actually controlled by the defendants, for DME prescriptions. The defendants would use their network of telehealth physicians to obtain the prescriptions and provide them to the DME suppliers, recruiters, and others. This scheme resulted in over $784 million fraudulently billed to Medicare. As another example, in USA v. Seid., the defendants paid illegal kickbacks to purchase prescriptions for DME and then (i) sold some of the prescriptions to DME entities who used the prescriptions to bill Medicare, and (ii) used some of the prescriptions to bill Medicare themselves. In total, this scheme resulted in more than $11 million fraudulently billed to Medicare. 
Fraudulent kickback schemes are difficult to identify without having access to financial records belonging to the fraudster or others that are part of the fraudulent scheme. However, private insurers can look at their own financial records to help identify potential kickback schemes. Specifically, insurers can examine the endorsements on checks provided to a specific DME supplier to see where the funds are being deposited. If any of the checks are cashed at a check-cashing facility or deposited into an account not belonging to the DME supplier, this may indicate suspicious activity signaling participation in an illegal kickback scheme. It defies logic that a legitimate supplier would need to cash checks at a check cashing facility, especially on multiple occasions. Once an insurer discovers questionable payments, it should investigate further to find additional evidence of the DME supplier’s participation in an illegal kickback scheme.
The second type of scheme where insurers are billed for DME that was never actually prescribed or provided to a patient can involve: (i) billing for DME when no DME was provided; (ii) billing for specific DME when a different and/or cheaper type of DME was provided; and (iii) billing for DME based on prescriptions that were not signed or authorized by the healthcare provider who is listed on the prescription. These types of schemes were the subject of USA v. McCune, USA v. Brandy and USA v. Harden.
In USA v. McCune, Robert McCune, a former NFL player, orchestrated a nationwide scheme that defrauded a medical expense reimbursement program for retired NFL players and their families. Mr. McCune was convicted of conspiracy to commit healthcare fraud and wire fraud for submitting approximately $2.9 million in false and fraudulent claims on behalf of himself and dozens of former NFL players for expensive DME that was never purchased or received. He was sentenced to five years in prison.
In USA v. Brandy, the defendant owned a supplier that submitted bills to Medicaid and collected over $10 million for DME that was never prescribed or received by patients. In fact, some of the Medicaid bills were for patients who purportedly received DME from the defendant when they were already deceased. Similarly, in USA v. Harden, the defendant executed a scheme on behalf of her DME company that fraudulently billed Medicare for DME that was never prescribed or delivered to patients.
Private insurers can take investigatory steps to identify DME suppliers that are fraudulently submitting bills for DME that was not prescribed and/or provided to patients. Investigations that focus on answering the following questions can help pinpoint potential fraud:
- Does a DME supplier submit bills for a large volume of DME for an individual patient when the patient is diagnosed with relatively minor injuries?
- Are patients, who are diagnosed with relatively minor injuries, receiving a large volume of DME from one or multiple DME suppliers?
- Are DME suppliers submitting bills for multiple items of almost always the exact same type of DME for each patient that is billed to the insurer?
- Do the prescriptions used by DME suppliers to support the charges for DME contain potentially duplicated healthcare provider signatures or have other indicia that the healthcare provider’s signature is not authentic?
These questions are only part of many potential investigative techniques that can be used to identify fraudulent billing for DME that was never prescribed or provided to patients.
Private insurers cannot assume that simply because criminal prosecutions have targeted public payors they themselves are immune to DME fraud. Private insurers are the victims of DME fraud, are not being protected by federal or state law enforcement, and must therefore protect themselves.
 See, e.g. United States of America v. Thomas Farese, et al., 21-CR-8049 (D.N.J.); United States of America v. Elemer Raffai, 22-CR-177 (E.D.N.Y.); United States of America v. Zachary S. Seid, et al., 22-CR-108 (S.D.N.Y.); https://www.justice.gov/opa/pr/ten-florida-residents-indicted-67-million-health-care-fraud-wire-fraud-kickback-and-money; https://www.justice.gov/opa/pr/telemedicine-company-owner-charged-superseding-indictment-784-million-health-care-fraud
 United States of America v. Elemer Raffai, 22-CR-177 (E.D.N.Y.); https://www.justice.gov/usao-edny/pr/physician-indicted-10-million-telemedicine-health-care-fraud-scheme
 United States of America v. Creaghan Harry, et al., 19-cr-246 (D.N.J.); https://www.justice.gov/opa/pr/telemedicine-company-owner-charged-superseding-indictment-784-million-health-care-fraud
 United States of America v. Zachary S. Seid, et al., 22-CR-108 (S.D.N.Y.); https://www.justice.gov/usao-sdny/pr/two-florida-men-charged-11-million-medicare-fraud-scheme-traffic-prescriptions-medical
 United States of America v. Robert McCune, et al., 19-cv-206 (E.D. Ky); https://www.justice.gov/opa/pr/former-nfl-player-sentenced-prison-nationwide-health-care-fraud-scheme
 United States of America v. Shelly Philips Brandy, 20-cr-111 (E.D.N.C.); https://www.justice.gov/usao-ednc/pr/co-owner-north-carolina-durable-medical-equipment-company-sentenced-prison-role
 United States of America v. Joy Beth Harden, 20-cr-48 (S.D. Miss.); https://www.justice.gov/usao-sdms/pr/columbia-woman-sentenced-57-months-prison-health-care-fraud
This article first appeared in Law360.