U.S. investigates alleged Medicare fraud scheme estimated at $2 billion

U.S. investigates alleged Medicare fraud scheme estimated at $2 billion

The first angry calls to the Pretty in Pink Boutique began last August, confusing staff at the Franklin, Tenn., provider of wigs, mastectomy bras and other accessories for cancer patients. Medicare recipients from around the country claimed that a company called “Pretty in Pink” had charged their health insurance companies thousands of dollars for urinary catheters that they never ordered or received.

Flooded by dozens of complaints, the boutique launched a webpage in September to explain that its leaders were dumbfounded, too.

“We have reported the calls we are receiving to Medicare, and we have been working with callers to try to figure out exactly who is filing these claims,” Pretty in Pink’s website reads, offering instructions on how to report the fraud to federal officials and insurance companies. “FRAUDULENT CLAIMS ARE BAD FOR ALL OF US, AND WE ARE ON YOUR SIDE.”

The complaints that ensnared the Tennessee cancer-care business are just one piece of an alleged fraud scheme whose scale has little precedent in the history of Medicare, experts said: an estimated $2 billion.

The months-long episode allegedly involves fraudulent insurance claims submitted by seven companies to the taxpayer-funded health insurance program for older Americans, according to health-care groups that have analyzed Medicare billing data. Federal officials investigating the alleged fraudulent billing for catheters are looking into several of the companies that may be involved, according to three officials who spoke on the condition of anonymity to discuss the probe and three people who said the FBI approached them. The probe’s existence has not been previously reported.

Over two years, one health-care group found, the companies collectively went from billing just 14 patients for catheters to nearly 406,000.

Urinary catheters made an appealing target for potential scammers because orders for the low-cost products — small tubes often made with latex or silicone — could escape some of the scrutiny that accompanies billing for expensive equipment, surgeries and other high-cost claims, fraud experts said.

The FBI’s public affairs office said it could not confirm or deny the existence of an investigation, citing the bureau’s standard practice. Officials at the Centers for Medicare and Medicaid Services also said they could not discuss the allegations, specific suppliers or the existence of a federal probe.

“I can’t confirm that any investigation is occurring,” Dara Corrigan, who leads Medicare’s center dedicated to fighting fraud, waste and abuse in the program, said in an interview Thursday. “I can’t compromise the integrity of any catheter investigation.”

The alleged scheme was uncovered by the National Association of ACOs — known as NAACOS — a health-care nonprofit that represents hundreds of medical groups and hospitals across the nation. The nonprofit’s members concluded that seven companies allegedly operating out of Connecticut, Florida, Kentucky, New York and Texas were behind a surge of bills submitted to Medicare across the last two years for intermittent urinary catheters — tubes that patients insert several times a day to drain their bladders and treat incontinence. While the companies used real patients’ information to submit the bills, NAACOS and its members found no evidence that any of their patients wanted the catheters or even received them.

All seven companies had become accredited with Medicare, allowing them to bill the health insurance program, although in some cases the accreditation was linked to a person who said they no longer worked at the company and had sold it last year.

“We’ve just never seen anything like this nationally,” said Clif Gaus, CEO of NAACOS, who said his organizations first spotted and reported the billings to federal officials last fall. Gaus’s team estimates that Medicare was wrongly billed about $2 billion for the catheters in 2022 and 2023.

Despite the relatively low reimbursement rates for each catheter — Medicare pays out about $8 per curved tip and sterile kit catheter — ample profits can be made when the products are ordered in bulk. The health department’s own watchdog warned that Medicare’s payment rates for the products were too high and should be lowered.

“Reducing Medicare’s payment rates can save Medicare and beneficiaries millions of dollars annually,” the Department of Health and Human Services inspector general concluded in a report in August 2022.

The spike in urinary catheter claims began weeks later, a trickle that would turn into a flood of bills in 2023.

Erika Tavarez said she has had a front-row seat to the alleged fraudulent activity: She used to own the Pretty in Pink company that has since been linked to fraud allegations.

The durable medical equipment company specialized in prostheses for breast cancer survivors and operated from El Paso. Tavarez said she sold it last summer for $50,000.

Then, she said, people began sending her angry emails that called her a fraud, and FBI agents arrived to ask her questions about urinary catheters — a product she said she’d never offered to patients, but that her former company was now billing to Medicare.

“It’s been really stressful and sad,” Tavarez said, adding that she has learned the fraudulent claims began while she was negotiating to sell her business. “People think it’s me.”

Tavarez declined to provide more information about the individuals who purchased the company, saying she feared disrupting an FBI investigation.

Repeated calls to the current number listed in Medicare’s directory for the El Paso-based Pretty in Pink went unanswered. A second phone number listed for the company’s website is not in service.

A Washington Post examination of state and federal records found links among the companies, such as a matching address and officers listed at multiple organizations. Six of the seven companies had critical reviews on Yelp, the Better Business Bureau, Facebook or other sites complaining of Medicare fraud involving catheters.

Calls to telephone numbers listed in state and federal records for all seven companies led to busy signals, inactive numbers, voice mails, or for one company, an automatic recording touting, “Don’t miss out if you have the red, white and blue Medicare card.”

None of the seven companies — all of which changed ownership or leadership in 2023, according to incorporation records — had been major players in the niche field of intermittent urinary catheters.

In 2021, the companies were collectively responsible for submitting catheter bills for only 14 patients, according to NAACOS’s analysis of federal bills for curved tip and sterile kit urinary catheters — a negligible slice of the roughly 40,000 patients who submitted claims for such catheters to Medicare that year. The federal health program paid out about $193 million for such catheters that year, according to The Post’s review of federal data.

But in late 2022, two of the companies began billing the federal government for significant amounts of catheters, according to NAACOS. The organization concluded that the companies billed Medicare for $109 million to cover catheters for 12,000 patients.

And in 2023, the seven companies billed Medicare about $1.9 billion for catheters for nearly 406,000 patients, according to NAACOS.

The seven companies were single-handedly responsible for a national spike in urinary catheter claims to Medicare, NAACOS found, saying that the total claims by all other companies remained nearly flat across 2022 and 2023.

The Post analyzed Medicare billing records for historic trends in catheter charges. Publicly available records are not recent enough to see the spike in catheter claims across 2022 and 2023, and do not name the supplier companies. The Post examined NAACOS’s analysis of Medicare billing records that are made available only to organizations that have obtained a license to review those records.

The group’s findings were supported by a similar analysis conducted this week by Aledade, a network of independent primary care providers, which found that urinary catheter claims across its 1 million patients increased by more than 1,600 percent between early 2022 and late 2023, linked to the same seven companies. There is no change in medical practice that would explain a surge in catheter orders from the seven companies, Aledade officials told The Post, noting that the level of catheter orders from other companies has remained the same.

The extent of the catheter billings and the size of the potential fraud have angered health-care providers who question why federal officials did not act swiftly as complaints began to pour in last year. Each of the seven companies operated under a unique National Provider Identifier, or NPI, that allowed them to bill Medicare, making their billings easy to track — and potentially halt.

The accountable care organizations, which are responsible for managing care for seniors across the country while trying to hit quality and financial targets, have been particularly worried because Medicare could penalize them for their patients’ apparent spike in catheter utilization. As the groups’ leaders and doctors fretted — knowing that the federal government decides whether to reward the accountable care organizations with annual bonuses or penalties, partly based on their patients’ reported spending — their frustrations spilled out in panicked texts, emails and phone calls.

“[R]eporting these cases to an online system and hoping law enforcement investigates when they have the time is not acceptable,” Stephen Nuckolls, the CEO of Coastal Carolina Health Care P.A., a North Carolina medical group, wrote on Dec. 6 to fellow members of NAACOS, according to an email shared with The Post. “We are being robbed.”

Nuckolls told The Post that his group stood to lose $900,000 in federal payments this year because their patients have been billed $1.2 million for catheters that they never used or received.

The episode underscores the frequent fraud in the field of durable medical equipment, where repeat offenders have learned to set up shell companies and exploit loopholes, said Gabriel L. Imperato, a partner with the Nelson Mullins law firm and a former lawyer for the Department of Health and Human Services.

Imperato added that government officials face hurdles in trying to combat fraud, given the sheer number of complaints, the confidentiality of investigations and the years it can take to assemble and prosecute a case. “The wheels of justice move pretty slowly,” he said.

Corrigan, the Medicare fraud chief, stressed that the lack of public action on any allegation was not necessarily representative of federal efforts.

“We can’t disclose everything that’s going on behind the scenes,” Corrigan said, listing tactics that her agency has used in prior investigations. “If there are credible allegations of fraud, we can put a suspension in place, which means the money doesn’t go out the door” and instead gets placed in escrow, even though it is publicly reported as paid out.

Corrigan and other federal officials also noted that claims that companies make for Medicare reimbursement are often much larger than the actual payouts later made by the government.

Gaus said he was concerned the companies behind the surge in catheter bills were using real patients’ data to order medical products that the patients did not want or need.

“Where do you get half a million [Medicare] beneficiary names and ID numbers?” Gaus asked. “There has to be a breach somewhere in the health-care system,” suggesting several possible sources, such as health-care records or consumer data.

One of those Medicare beneficiaries — Aileen Hatcher, a 74-year-old former certified public accountant in Ponte Vedra Beach, Fla. — said the experience alarmed her.

Hatcher called the Medicare fraud line and her supplemental insurance company, UnitedHealthcare, on Monday after discovering that her taxpayer-funded insurance was recently charged nearly $12,000 for catheters she neither ordered nor received. A United representative told her the charges were probably fraud, she said. But Medicare had already paid nearly $3,000 to Alexandria Durable Medical Equipment, the company that filed the claims using Hatcher’s Medicare number and Post Office box address, Hatcher said she was told.

“You’d think Medicare would have caught it. When you get that big a bill, somebody should be looking at it,” Hatcher said. “The taxpayer is the victim, and I worry about where my information is being passed around.”

The Post attempted to reach Alexandria Durable Medical Equipment for comment. The phone number listed in Medicare’s provider directory for the company is out of service, and a toll-free phone number linked to the company simply played a recording touting access to a free medical alert device.

Like Tavarez, the former owner of Pretty in Pink, other people identified in public records as past owners of companies allegedly responsible for the spike in catheter bills said they had sold their companies before the questionable billing practices began.

According to Connecticut’s business records, Sharon Kutner was listed as the former secretary for Medical Home Care Inc. until March 2023; her husband, Bruce, was listed as president.

“This fraud has nothing to do with my husband or me,” Sharon Kutner told The Post. Her husband recently sold the business, she said.

According to Kutner, the FBI had spoken with her husband as part of an investigation into one of the individuals who had taken over his former company but had since fled the country. That person is also listed as an authorized member of Royce Medical Supply, another one of the seven companies, according to Florida business records. The Post is not naming the individual because they could not be reached for comment.

The Post attempted to reach leaders of Medical Home Care and Royce, but the companies’ phone numbers listed in the Medicare provider directory were not in service.

Those affected by the alleged scheme said they have heard nothing from authorities.

David Klebonis, chief operating officer of Palm Beach Accountable Care Organization based in Palm Springs, Fla., said he decided to drive to the headquarters of Royce Medical Supply on Monday after realizing its listed location was within a 45-minute drive.

“I almost felt, out of desperation … I need to stop by,” Klebonis said, adding that he texted his wife to call 911 if she didn’t hear from him after the visit. The company was located in a small suite in an unremarkable building that catered to small businesses, he said; no one answered its door and the listed phone number was disconnected.

Patients and providers also said the episode had changed how they think about fraud.

Hatcher, the retired accountant, worries that her peers don’t bother to look at Medicare statements — because seniors covered by the health program generally don’t have to pay out of pocket for supplies and services — allowing potentially fraudulent billing to go undetected.

“I mentioned it at a luncheon yesterday, and every lady there said, ‘We never look at those statements,’” Hatcher said. “Well, that’s the problem.”