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Executive Summary

Hospitals and other facilities that purchase diverted drug products are likely to be targeted in a second "wave of indictments" stemming from the federal government's "Operation Goldpill," FBI White-Collar Crimes Section Chief William Esposito hinted at a July 29 House hearing. Appearing before the Select Committee on Narcotics Abuse, Esposito said that "investigations are ongoing right now" into indications that some health care facilities, particularly some hospitals, are purchasing significant amounts of diverted products. After Rep. Brewster (D-Okla.), a pharmacist, commented that "buying these products from illegitimate channels" is a felony in Oklahoma, Esposito replied: "Goldpill, which was announced on June 30, was Phase I. You'll probably see another wave of indictments in the very near future looking at these other matters." The Narcotics Committee hearing was convened to assess the extent and types of drug diversion and Medicaid fraud. The panel plans a September hearing to review policy options for combating those activities. Operation Goldpill, coordinated by the FBI and conducted in concert with several federal agencies, has to date resulted in the arrest of 107 individuals, criminal charges against nearly 200 individuals and business entities, and seizure of 11 pharmacies, cash, and diverted or adulterated drug products. Those charged were involved either in prescription drug diversion or fraudulent Medicaid billings ("The Pink Sheet" July 6, p. 3). The FBI "has received a number of inquiries concerning why more doctors were not charged in the 'Goldpill' cases," Esposito's written statement notes. "Not all of the diversion schemes involve criminal activity by doctors," the statement continues. "In many Medicaid fraud schemes, physicians' assistants or office managers engaged in criminal activity without the doctors' knowledge. There are other individuals who also engage in the diversion of medication by stealing drugs from pharmaceutical companies and pharmacies." Esposito explained that Goldpill investigators relied on organized crime investigation tactics rather than more conventional techniques of following the paper trail to detect medical fraud. The General Accounting Office's Janet Shikles also addressed the difficulties facing state Medicaid fraud control units in using Medicaid records to detect fraud after it has occurred. Esposito said both investigators and juries find it "boring" and difficult to sift through and understand the large amount of paper records usually involved in proving cases of fraud and diversion. In addition, a documents-based approach makes it easier for the individuals to elude blame. For example, the person charged may state that he or she is a medical professional and claim that someone else in the operation was actually responsible for billings. Another frequent defense is that Medicaid billing rules are so complex that no one can fully comprehend them, and thus even if a few rules technically were broken, it was not intentional. On the other hand, if an undercover investigator is wired with a tape recorder and records a pharmacist or other health professional stating that he "knows the system" and is "out to screw it," that is "great evidence," Esposito commented. Techniques used by "Operation Goldpill" included undercover operations, consensual monitoring and court-authorized electronic surveillance. The FBI official indicated that while past drug diversion or Medicaid fraud investigations often focused on individual small- time operators, investigators now are targeting "loose-knit" networks of diverters. Esposito indicated that these diverters so far appear fairly bold in their dealings. For example, individuals involved in traditional forms of organized crime tend to be "paranoid" and guarded in their telephone conversations, Esposito said. Yet after investigators received permission to record the phone conversations of one drug diversion network located in New York and Miami, the individuals in the very first conversation recorded joked openly that they would have to rent a mausoleum for storage because they were bringing in so much cash that bank safety deposit boxes were no longer adequate. GAO's Shikles, director of the office's Health Financing and Policy Issues section, reviewed a current investigation of "pill mills," defined by GAO as a facility in which the principal business is prescription drug diversion. The investigation was begun in New York at the request of committee Chairman Rangel (D- N.Y.) and since has been expanded to additional states. "Half of the 42 state Medicaid fraud control units that we recently surveyed reported having a problem with pill mills," Shikles said. "We also found that the fraud appears in locations as diverse as New York City and Buchanan, W. Va. which has a population of 6,600." She cited four reasons why drug diversion remains "resistant to enforcement efforts" despite the range of data on file with Medicaid agencies. First, agencies may not receive data soon enough to prevent recipients from receiving a large number of prescriptions. For example, New York recently instituted a requirement that a Medicaid enrollee must receive permission to have more than three prescriptions per month. Previously, one enrollee "received 416 prescriptions in one month before the state became aware of the situation," she said. In addition, "provider enrollment procedures and ownership data are often not sufficient to ensure that providers previously involved in fraudulent schemes are barred from continuing to bill Medicaid," Shikles continued. "So you catch them, they get a new name and they start billing Medicaid again." She also said that drug fraud is costly in both time and money to pursue and detect, and that the entities under investigation were corporations that elude Medicaid efforts to recoup reimbursements by declaring bankruptcy, going out of business or "simply reincorporating." Chairman Rangel reacted to the testimony with frustration. In the case of storefront diversion operations, he contended, everyone in the neighborhood knows about them. For other types of schemes, if a health professional is behind the operation, he or she should be identifiable through professional licensure or other means, Rangel suggested. "The problem is resources," Shikles replied. "When you have a lot of people who can easily get a [provider] billing number for Medicaid and Medicare, and you're back in your office trying to process checks, it takes a lot of resources to send somebody into the books, [to] look behind the new corporate name and realize that maybe they're operating out of the same address that you just nailed...for fraudulent activity." She said this type of drug diversion is part of a larger medical fraud problem as more health care moves from highly regulated hospital settings to other, less regulated, settings. "It wouldn't take much for us to get a station wagon," obtain a provider billing number, "and start billing a private insurer or Medicare and Medicaid," she remarked. Shikles thus emphasized the approach of "avoiding the problem or detecting it very early to minimize losses because it's so difficult and so expensive after the incident has happpened to go after [it] and try to recover the money." Both Shikles and Esposito urged increased support for federal and state investigators. A bill introduced in May by Sen. Biden (D-Del.) includes provisions authorizing 225 new FBI agents dedicated to medical fraud investigations, as well as 50 new U.S. attorneys and 25 new HHS Inspector General's Office investigators. In February, the FBI increased its health fraud investigations capability by about 30% by reassigning 50 agents to that area. Biden's bill, S 2652, would roughly double the agency's current capacity. A just-released GAO study on multiple copy and electronic prescription tracing programs for controlled drugs reports that five of the 10 states analyzed "actually showed declines in the number of prescriptions for these drugs since their programs were implemented" although it was "not clear" whether the change was due to decreased diversion, changes in prescribing practices or both. Four of the other states did not have information on their programs' effect on covered prescription drugs and one reported no change. The HHS Inspector General's Office also recently reported that multiple copy programs led to declines in prescriptions in several states ("The Pink Sheet" July 13, T&G-2). "Claims by medical, pharmaceutical, and patient organizations that prescription drug monitoring programs adversely affect a physician's ability to practice medicine or compromise patient care or confidentially have not been substantiated," GAO also found.

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