JIFA: Medical schemes by non-providers grow in impact, investigative difficulty

Posted by Kendra Smith
The latest JIFA edition comes from Matt Kochanski, Senior Manager/SME – Healthcare Fraud for the Advize Health.

By Matt Kochanski | December 21, 2022

Premium schemes widespread, complex

Traditional healthcare fraud, in its essential form, consists of a provider submitting a claim for services that were not rendered, were medically unnecessary and/or were the result of kickbacks being paid in return for the referral of the patient. In my close to three decades of investigating healthcare fraud, I have seen trends and patterns repeated and advantages taken of the same areas of program vulnerability. While the details differ, the basic tenets remain the same.

Recently, however, something new has emerged. Non-provider entities have started to orchestrate fraud schemes. The non-provider entities involved in these schemes can generally be divided into several categories:

  • billing and practice management companies
  • device manufacturers 
  • marketing firms.

As these entities are not medical providers, it is difficult for payers to act against them. The examples running through this article largely come from my direct recent experience as the Program Director of the Northeastern Unified Program Integrity Contractor. I have observed that these non-provider schemes are growing in impact and present unique difficulties for payer organizations. On the other hand, these schemes can be identified early and resolved through judicial avenues.

Billing and Management Companies

Medical providers routinely rely on billing companies to submit accurate claims to the payers. The billing companies are paid a flat fee per claim or a percentage of the insurance revenue. In schemes identified on the east coast, the billing companies run the provider’s office. They pay the provider a salary and dictate the services that are billed. The revenue comes to the billing company, from which the provider is paid their salary. 

In many cases, the medical providers have no idea what is being billed under their National Provider Identifier (NPI) until they receive 1099s from the payers. While providers are always responsible for the claims submitted, in these cases, the providers are also victims in that they are also responsible for taxes related to the claims over which they had no control. Administrative remedies can be taken against the providers, but the billing companies are not contracted to the payers in any way, and are presently beyond any administrative remedy. During my time with the Northeast Unified Program Integrity Contractor, dozens of individual cases were initiated, and overpayments and other administrative actions were taken against the providers. But in most cases, the billing companies continued to operate.

Judicial remedies can address this problem through prosecution of the billing companies and its officials. While that would certainly have an impact on the specific billing entity involved and a deterrent effect on other such entities, the Department of Justice and federal court system is not the vehicle through which widespread program integrity activity is effectively curtailed.

Similar but distinct from billing company frauds are schemes by medical practice management companies. A legitimate management company provides a multitude of support functions for a medical practice. Aside from billing services, a management company can provide administrative services such as payroll, supply and equipment ordering, general office management and administrative staffing. 

Like the billing company schemes, in numerous instances found on the east coast, management companies initiate contracts with facilities such as assisted-living facilities to provide specialty services to the residents. The management companies then contract with individual providers to provide those services. In return, the providers are offered salaries, or a percent of the revenue generated by their services. The management companies had representatives at the facilities who would line up patients for services with no clinical evidence the services are medically necessary. Once patients are identified and scheduled, the management companies direct the contracted physicians where to go and what patients to see. The management companies conduct the billing for these services and reimburse the physicians. 

Like the billing company scheme, the physicians purportedly have no idea what is being billed under their NPIs as they never saw the claims and were reimbursed either a set salary or a percentage of the revenue. The management companies not only billed for the medically unnecessary services, but also bill for services not rendered by these unwitting physicians. As a result, millions of dollars are lost.

In the matters investigated, the physicians are the subject of administrative actions, and some become cooperating witnesses against the management companies’ officials with whom they contracted. In these cases, however, the management companies escape justice due to the disbanding of the companies and the emigration of the corporate officials running them. Some funds were recouped from the physicians, but most of the funds are not recovered as the physicians claimed to be identity theft victims whose NPIs are unknowingly used as the instruments of the fraud.

Device Manufacturers

History shows that advances in technology outpace the human understanding of how best to use them. From the harnessing of fire to the development of CRISPR gene therapy,[1] humankind’s ability to make technological advantages are always advanced before the ethical, social and administrative structures are in place to take effective advantage of those advances. The same is true in health care, where advances in diagnostic and therapeutic devices always outpace the regulatory, policy and coverage decisions that must be made.  Device manufacturers are now taking advantage of this gap to maximize illegal profits on the sale of devices for which neither medical need is established nor the regulatory structure developed.

Device manufacturers and their distributors market non-covered new devices or devices for which CPT codes have not been assigned. They are marketed to providers as revenue generators. Marketing material and/or training is provided on how the providers should code the use of the devices to maximize reimbursement. The coding disguises the non-covered use as something covered and, many times, the codes relate to very expensive diagnostic or therapeutic procedures.

There are many recent examples of this behavior, from vein ablation devices[2] to transcranial doppler studies[3] and electronic neuropathy treatments.[4] But the most-widespread illustration of this scheme involves devices related to electronic acupuncture.

The Pulse Stimulation (P-STIM) treatments involve the inserting of small acupuncture needles on the ear that receives electronic pulses from the P-Stim unit also attached to the ear. This is an uninsured procedure. The device manufacturers and distributors market the devices to providers as a huge revenue generator. The providers are given materials that instruct them to bill the procedure using the CPT code (L8679). This procedure is for implanting pain-blocking devices in the spine. These services are usually reimbursed for several thousand dollars. They involve a surgical procedure conducted in a hospital or ambulatory surgical center while the patient is under anesthesia.

There is usually a need to repeat the application of needles. The marketing materials take this into account, adding to the economic benefit. For the payers, it means paying for multiple spinal surgeries over short periods of time.

This is a nationwide scheme. Dozens of investigations into billing of the procedures by the individual providers were conducted, discovering overpayments and other administrative actions. As the material role of the device manufacturers and distributors becomes apparent, the investigations also focus on gathering evidence of that role. Interviews give insight into the marketing strategies — to include obtaining the actual marketing materials. That directs what procedure codes should be billed, and the expected revenue based on the multiple use of those codes.

The Department of Justice is interested in the scheme[5] — acting against individual providers and gaining their cooperation in pursuing litigation against the device manufacturers and distributors. An example of such litigation is the November 2022, $15-million default judgment against a chiropractor and his firm for promoting electro-acupuncture devices as reimbursable. The chiropractor acted as a coding consultant and was hired by the device manufacturers and distributors to promote their products.[6]        

Marketing Firms

Access to durable medical equipment (DME) is integral to living a full and active life. The DME benefit, however, has long been vulnerable to fraud, waste and abuse. Traditionally, DME fraud has involved the delivery of unnecessary medical equipment, the upcoding of the equipment delivered, or simply the billing for equipment that is never delivered.

There has been an evolution to how some DME companies defraud payers. In the early 1990s, DME companies used call centers to directly contact the beneficiaries/members and convince them of the need for equipment. The DME companies solicited the beneficiaries’/members’ primary care physicians to order the equipment through sending the completed prescription forms to the physicians’ offices. Many times, physicians signed these prescriptions because they did not want to anger their patients. This traditional approach was made more difficult when Medicare (and other payers) outlawed the direct marketing of the beneficiaries. DME companies then began to advertise, using television ads, mailers and other media created by marketing firms. 

Once beneficiaries responded to these advertisements, the DME companies then were free to contact the beneficiary as often as they liked to complete the order. With this approach, the suppliers still had to convince the physicians to prescribe the equipment.

Enforcement actions and education of the prescribing physicians made “convincing” the physicians more difficult. In response, the DME companies, through marketing companies, began a two-pronged scheme. On one hand, the marketing of beneficiaries continued unabated — with television ads, health fairs and outreach programs. They focused on convincing beneficiaries and members to take advantage of their benefits by obtaining the medical equipment they wanted/needed. These efforts resulted in beneficiaries calling the DME companies. The beneficiaries then were bombarded with telephone calls from multiple companies. The marketing firms shared the contact information among their DME supplier clients.  

The other prong of the marketing firms’ strategy was to recruit physicians to telephonically “examine” the prospective customers to determine their need for the equipment. These physicians were ostensibly paid by the marketing firms to conduct examinations and prescribe the equipment. These examinations either did not take place at all, or were brief telephone calls that in no way met the requirements for substantiating the need for the equipment. In essence, the physicians were paid to sign the prescriptions/orders.

The DME that became the focus of this approach were braces — back, knee, wrist, elbow and neck braces. It was not uncommon for beneficiaries/members to receive some or all these braces from multiple companies on the same day. The huge financial impact of this fraud scheme became a focus of the Department of Justice. This resulted in a coordinated enforcement operation called “Operation Brace Yourself.” This project resulted in the arrest and prosecution of dozens of physicians and DME supplier owners and marketing company officials.[7]

Despite physicians being among the subjects of this operation, in essence these physicians were not providers, as they did not directly bill for any services related to the members and beneficiaries who were receiving the equipment. They ordered the equipment despite having no medical history with the patients. As such, payers could not truly take any action against the physicians. The Department of Justice’s actions were positive and took many perpetrators off the street. Still, the marketing firms continued to use many of the same physicians (and new recruits) to move into different program areas — such as genetic tests.[8]

Conclusions and Recommendations

The rising tide of non-provider fraud brings new complexities. The perpetrators are not contracted to the payers, so many of the traditional program integrity administrative actions are not available. While the providers who are part of the schemes can be subject to overpayments, suspensions and revocations, the recent history with the billing companies, device manufacturers and marketing companies shows that such actions against their customers/co-conspirators have little impact on their ongoing fraud efforts. As of now, the only avenue is the Department of Justice’s pursuit of criminal or civil action. These actions are effective. Yet DOJ’s limited resources combined with the effort and length of time needed to bring these cases to fruition are not a solution.

Scheme identification is complicated. The entities are not contracted with the payers and their connection to the billing for services by providers is not readily apparent. Also, as with the DME scheme, the involved providers sometimes have no history with the beneficiaries/members being victimized. Here are some recommendations to assist in identifying, investigating and resolving these matters:

  • Data projects should look to determine if a billing company is in common among suspect providers in the same geographic area and/or share rendering providers and/or beneficiaries. Further, similar billing patterns among providers should be examined.
  • Patterns involving unusual combinations of procedure codes or procedures being billed by specialists usually not associated with those types of services should be researched. Such as in the P-Stim scenario, multiple surgical procedures being provided in an office without anesthesia was an indicator of the scheme. Looking for the patterns of codes linked to a specialist that usually would not bill them also is a good lead to pursue.
  • Data projects looking for tests and equipment ordered by providers that have no prior history with the patients for whom they are making the orders can help identify suspect billing. Identifying the laboratories and DME companies that have a high percentage of such a pattern is a good way to initiate any such investigation.
  • Researching the enrollment documentation of suspect providers — especially those with similar billing patterns — may identify a common contact person, Resident Agent or corporate official. This may provide a link to a management company orchestrating the illicit behavior.
  • In investigating these matters, collect the evidence that connects the providers to the entities working behind the scenes. Whether that be contracts, marketing material, rental agreements, consulting contracts or employment records, these records will assist the DOJ in making the connections.
  • In conducting provider interviews, obtain attestations or written statements that focus on the relationships these providers have with the corporate entities described in this article.
  • Payers should educate providers about the pitfalls of following coding directions from device salespeople.
  • Regulatory or policy changes involving the enrollment of billing companies may provide some remedy. Taking quick administrative action against these entities may curtail their activities or at least allow the payers to better protect their programs and members.

The growth of organized non-provider fraud presents new challenges and complications to the fight against health care fraud. Recent cases illustrate the breadth of the complexities, and  some of the strategies and remedies that can be used to identify, investigate and resolve the cases. As both the frauds and the strategies involved in combating it evolve, it will be interesting to see the next battleground.

About the author: Matt Kochanski has over 27 years supporting the Medicare and Medicaid programs; 17 with the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG), over 10 years working with SafeGuard Services and Advize Health.


1. Walter Isaacson, The Code Breaker, (New York: Simon & Schuster, 2022).

2. Author Not Confirmed, “Vascular Insights, LLC Clarivein Systematic Institutionalized FRAUD committed by Vascular Insights Account Representatives Quincy Massachusetts”, Ripoff Report, March 5, 2017, Ripoff Report | Vascular Insights Review – Quincy, Massachusetts.

3. Ryan K. Patrick, “Mission Family Practitioner Pays $2 Million to Resolve Allegations”, United States Department of Justice, September 9, 2019, Mission Family Practitioner Pays $2 Million to Resolve Allegations | USAO-SDTX | Department of Justice.

4. Jennifer Crandall, “Two Doctors and Their Medical practice to Pay More than $181,000 to Resolve False Claims Act Liability Arising from Billing of ‘Sanexas’ Devices”, United States Department of Justice, June 16, 2022, Two Doctors and Their Medical Practice to Pay More than $181,000 to Resolve False Claims Act Liability Arising from Billing of “Sanexas” Devices | USAO-EDPA | Department of Justice.

5. nknown Author, “P-Stim Fraud: A New DOJ Enforcement Priority?”, Constantine/Cannon, April 23, 2021, P-Stim Fraud: A New DOJ Enforcement Priority? – Constantine Cannon.

6. Jennifer Crandall, “U.S. Attorney’s Office Secures FCA Judgment of Over $15 Million Against Chiropractor in National P-Stim Insurance Coding Scheme”, United States Department of Justice, November 3, 2022, U.S. Attorney’s Office Secures FCA Judgment of Over $15 Million Against Chiropractor in National P-Stim Insurance Coding Scheme | USAO-EDPA | Department of Justice.

7.  Adiel Kaplan, Jay Blackman, Tom Costello, and Sarah Ploss, “Feds take down $1 billion Medicare fraud scheme in ‘Operation Brace Yourself’”, NBC News, April 9, 2019, Feds take down $1 billion Medicare fraud scheme in ‘Operation Brace Yourself’ (

8. Author Unknown, “Nationwide Genetic Testing Fraud”, USDHHS Office of Inspector General, April 13, 2021, Nationwide Genetic Testing Fraud | Office of Inspector General | Government Oversight | U.S. Department of Health and Human Services (