AMARILLO, TX – On February 9, 2024, the New York Times published an article that discusses fraud in the catheter space. The article states, in part:

Linda Hennis was checking her Medicare statement in January when she noticed something strange: It said a company she had never heard of had been paid about $12,000 for sending her 2,000 urinary catheters. But she had never needed, or received, any catheters.

Ms. Hennis, a retired nurse who lives in a suburb of Chicago, noticed that the company selling the plastic tubes was called Pretty in Pink Boutique, and it was based in Texas. “There’s a mistake here,” Ms. Hennis recalled thinking.

She is among more than 450,000 Medicare beneficiaries whose accounts were billed for urinary catheters in 2023, up from about 50,000 in previous years, according to a new report produced by the National Association of Accountable Care Organizations, an advocacy group that represents hundreds of health care systems across the country. The report used a federal database of Medicare claims that is available to researchers.

The massive uptick in billing for catheters included $2 billion charged by seven high-volume suppliers, according to that analysis, potentially accounting for nearly one-fifth of all Medicare spending on medical supplies in 2023. Doctors, state insurance departments and health care groups around the country said the spike in claims for catheters that were never delivered suggested a far-reaching Medicare scam.

…

Pretty in Pink Boutique … billed Medicare at least $267 million for catheters between October 2022 and December 2023 …

Medical supply companies are easy to set up and have a relatively low bar for proving medical necessity. The companies “don’t need much to show why grandma needs a urinary catheter,” said Eva Gunasekera, who previously led health care fraud investigations at the Department of Justice.

Patients and doctors who have been reporting mysterious catheter claims to Medicare for months say they are frustrated by a lack of communication from the government about whether billions of dollars have been lost to an ongoing billing scam.

One of the advocacy group’s members, Dr. Bob Rauner, runs a large network of doctors in Nebraska. In an interview, he said his patients had been collectively billed nearly $2 million in 2023 for phantom catheters. (He tracks such spending because his organization gets bonus payments from Medicare when patients have good health outcomes with low overall medical spending.)

“I just know that it’s all fraud because our doctor didn’t order it and our patient never got it,” said Dr. Rauner, who filed a complaint with the federal health department’s Office of Inspector General in mid-December.

The vast majority of the suspicious claims identified by the new analysis came from seven companies, many of which have shared executives, according to public documents and the advocacy group’s report. Only one of the businesses had a working phone number, and it did not return a request for comment. The other numbers were either disconnected, went to different businesses or, in one case, went to a previous owner.

Pretty in Pink Boutique is registered with Medicare to a street address of a house in El Paso. Its phone number goes to an auto body shop called West Texas Body and Paint, where an employee who answered a call from a reporter said the shop receives “calls all day, every day” from Medicare enrollees concerned about fraudulent bills.

Pamela Ludwig runs an unrelated business in Nashville that is also called Pretty in Pink Boutique. She has received so many catheter complaints that she added a page to her website explaining that her business was not part of any scam.

…

The issue landed on the radar of the Oklahoma Insurance Department in July, when it was investigating fraudulent Medicare claims for Covid-19 testing kits. The officials noticed a surprisingly high number of claims for catheters as well.

“When we started asking seniors, they told us they had never used urinary catheters and didn’t know why the claims were there,” said Ray Walker, the department’s Medicare assistance director. Since then, he estimates that at least 70 Medicare beneficiaries have filed complaints about catheter claims, one as recently as this week.

In Illinois, Travis Trumitch said he reported four cases of potential catheter fraud to the federal health department’s inspector general after his group, the Illinois Senior Medicare Patrol, fielded more than a dozen calls from Medicare beneficiaries. The group is part of a national network that warns older adults about federal health insurance scams.

It’s unclear how the catheter companies obtained the Medicare accounts of so many people, but Mr. Trumitch said some people told him they had previously received phone calls asking them for their Medicare identification number. Others said they had not received any calls, but suspected that their names were obtained through data breaches.

Lessons for DME Suppliers
This article discusses an extreme case of fraud. In fact, it would be difficult to make up a story that is worse than what is described in the article. Nevertheless, there are some important lessons that DME suppliers can learn from the N.Y. Times article:

• Honest DME Suppliers Can Be Sullied by Bad Players – There is an old saying: “Don’t throw the baby out with the bath water.” Even though a DME supplier may run an honest/compliant business, it may have to deal with consequences caused by bad players. This can be in the form of scrutiny by governmental agencies of the types of products that the supplier provides. For example, the vast majority of catheter suppliers are honest. However, they may have to deal with audits triggered by activities of fraudulent companies. While the N.Y. Times article discusses catheters, let us look at the growing CGM industry. There is a rapid movement of patients (with diabetes) moving from the traditional meter/finger prick model to the CGM model. There are a number of DME suppliers that are focusing on providing CGMs. This is resulting in a noticeable spike in claims submissions to traditional Medicare and commercial insurers. The vast majority of the CGM suppliers are honest players. But there will be a minority of CGM suppliers that will game the system. This will result in enforcement scrutiny of the entire CGM space.
• A Spike in Claims Submissions Will Result in Scrutiny – If an individual DME supplier moves aggressively into a particular product space (e.g., CGMs, orthotic products, urological supplies) and its claim submissions spike, such an increase in claims will be noticed by payors (Medicare and commercial insurers) … and audits will result. This means that the supplier must focus on having clean documentation. The concept holds true when a sub-category of DME suppliers (i.e., those focusing on CGMs) collectively increase their claims submissions. And so if a DME supplier recognizes that it is providing a type of product that is in demand, and that other suppliers are also providing the same type of product, then the supplier needs to be prepared for audits.
• Be Wary of the “Flavor of the Month” – When a DME supplier becomes aware of the existence of a “hot item” (i.e., a product that is seeing noticeable spike in demand), then the supplier needs to think twice before jumping on that product’s band wagon. Claims submissions for “flavor of the month” products will quickly spike…and will likely be followed by government scrutiny and audits.
• You Cannot Hide the Truth – If a DME supplier is doing something it should not be doing, someone will know about it. That “someone” is normally an employee of the supplier. It is important that the DME supplier have a compliance program in place that will motivate the employee to share his/her concerns with the DME supplier’s Compliance Officer. This way, if there is a compliance problem, it can be resolved in-house. If the DME supplier does not have a robust compliance program in place, or if the employee is hesitant to talk to the Compliance Officer, then the employee can become a whistleblower. That is a path that the supplier does not want to go down.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Texas with a national health care practice. He represents pharmacies, infusion companies, HME companies, manufacturers, and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].

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