30 August 2013

The new health-care scam that's ripping off taxpayers

Story originally appeared on CNBC.

Health-care fraud costs taxpayers billions of dollars every year, with con artists constantly finding new ways to cheat the system. And while federal investigators report they are trying their best to crack down on crime, one scheme involving pharmacies and Medicaid is growing so quickly they said they can't work fast enough to keep up.

Here's how the scam works, according to Tom O'Donnell, special agent in charge with the Health and Human Services Office of Inspector General: An owner of a pharmacy asks customers to bring in prescription slips from doctors. But instead of filling the scripts and dispensing the drugs, the owner pays the customers a small fee and then bills Medicaid for the drugs that were never dispensed.

CNBC rode along with the Feds as they busted one pharmacy owner in Brooklyn, Aleksandr Ilyayev. Our cameras were rolling during the entire raid, from the early morning briefing session to the owner's ultimate arrest. Investigators had been keeping a close eye on the owner for a year, and said they already captured him on undercover video—allegedly pulling off a brazen scheme to rip off taxpayers.

The owner allegedly asked patients to bring prescription slips to his pharmacy in exchange for cash and New York Transit Authority MetroCards. The cash amounts weren't big—the owner allegedly dished out $20 to $40 for each prescription, according to investigators.

From there, O'Donnell said, the owner would bill Medicaid for drugs that were either partially filled, or never dispensed at all. O'Donnell said he also billed for refills.

According to federal agents, the owner focused on prescriptions for expensive HIV drugs like Atripla, Isentress, Prezista and Reyataz. Pharmacies are reimbursed by Medicaid for these drugs—often paying out as much as $1,500 for a 30-day supply.

All told, investigators allege the owner bilked Medicaid out of almost $1 million. Through his attorney, Ilyayev denies the charges.
This alleged scheme is just the tip of the iceberg, said O'Donnell, with other, similar schemes being played out at mom- and-pop pharmacies all over the country. He added that his department's caseload has quadrupled in the past five years.

It's a "drug trade subsidized by taxpayers," added Gary Cantrell, deputy inspector general in the Office of Investigations.

(Read more: Aphrodite girls: Inside an alleged high-end escort service)
According to Lauren Mack, executive assistant district attorney in Kings County, Brooklyn, between 3 percent and 10 percent of all Medicaid spending is fraudulent, or $184 million to $630 million worth of fraud.

19 August 2013

Paying for Obamacare: Some feel singled out

Story originally appeared on USA Today.

The Affordable Care Act generates revenue through a hodgepodge of new taxes, financial penalties and IRS rule changes.

NASHVILLE, Tenn. -- Johnny Drake's business is losing 2.3 percent of everything it makes because of the Affordable Care Act.

He's the president of Pathfinder Technologies, a small company in Nashville with fewer than 20 employees, that got hit with an excise tax this year because it makes medical devices.

Medical device manufacturers are among the federal health law losers, those that will have to pay up to cover the cost of implementing it. Others include high-wage earners, tanning salons and, in some cases, working parents and folks with big medical bills. The law generates revenue through a hodgepodge of new taxes, financial penalties and IRS rule changes.

"Every quarter, we're having to send the federal government a flat 2.3 percent of our revenue," Drake said. "I feel like it's double taxation because at the end of the year, we're sending them our federal income tax as well."

Tanning salon owners started having to pay a bigger tax three years ago. Lyvonn Reese, who owns the Hot Spot Tanning salons in the Nashville area, said the 10 percent tax ate away so much of her profit margin that she had no choice but to pass it along. She itemizes "tanning tax" on customer receipts.

Individuals won't be able to pass along taxes so easily. People making more than $200,000 annually and couples making more than $250,000 will have to pay a 3.8 percent tax on net investment income when they file next year — and that's not their only new tax.

"If you are in a high-income bracket with investment income and high wages, you might see something you might not have seen before," said Mark Steber, chief tax officer of Jackson Hewitt Tax Service Inc.

The federal health law could add up to a "triple whammy," he said. Besides the investment tax, people with these higher incomes also will have to pay an additional 0.9 percent in Medicare taxes, and many of them already fall into the highest tax bracket, he said.

There are legitimate reasons that some industries bear a bigger tax burden, said Sara Collins, an economist with The Commonwealth Fund, a foundation that supports improving health care and expanding access for the poor.

"Medical device manufacturers, pharmaceutical companies and insurance companies stand to gain an enormous increase in new customers because of the provisions in the law covering so many new people," she said. "What these fees and taxes do is essentially ask them to help support that major increase in their market.

"On net, they are really benefiting from health care reform. They will see a major increase in their revenues as a result of the reform law. These taxes and fees ask them to give back some of that."

But the 10 percent fee on tanning services is more of a sin tax for what the law's authors perceive as unhealthy habits. Reese said her businesses were unfairly singled out. The law assesses no new fees or penalties for tobacco or alcohol use.

Working parents

Companies and rich people aren't the only ones who will face higher tax bills. The law's quirks will put some working parents in a tight spot and make it harder for people with big medical bills to deduct those expenses.

The old 7.5 percent threshold to qualify for tax deductions on medical expenses is gone. The health law put the hurdle higher at 10 percent beginning this year. The law limits out-of-pocket costs for consumers, but the Obama administration gave some employer health plans a one-year grace period for complying with the limitations.

The tight spot for working parents occurs when an employer pays for their health coverage but not for their families'. The parents can't buy subsidized insurance on the federal exchange because it's not open to workers covered by an employer. Nevertheless, these parents will be penalized if their families go without coverage.

"The one that really gets the shaft in this whole thing is the guy making $25,000 or $30,000 or $35,000 a year where the company pays for part of his insurance but not for his dependents," said David Moore, a board member for the Tennessee Association of Health Insurance Underwriters.

"He is having to pay the whole family costs and the rest of his dependents. He can't afford it because it's expensive. But he can't send his wife and kids to the exchange to get insurance because he's got insurance available at work."

The Medicaid choice

Many of these families would qualify for Medicaid if states expanded their Medicaid programs. In Tennessee, a family of four with an income below $32,499 could get coverage.

Should Tennessee expand its Medicaid program, the decision would have no impact on income taxes. The money is already being collected in Tennessee by the federal government, but none of the funds allocated for Medicaid expansion would be coming back here unless Tennessee expands Medicaid.

The federal government will pick up 100 percent of the costs of insuring new people brought onto state Medicaid rolls through 2016 for those states that do expand their programs. It will then phase down to a permanent 90 percent matching rate in 2020.

Ron Pollack, executive director of Families USA, an advocacy organization for health consumers, said states that expand their Medicaid programs will save money because, otherwise, they will pay out more to support hospitals and other health providers that care for the uninsured.

"Any governor or state legislature that turns this down is really committing financial malpractice," Pollack said. "It just doesn't make sense."

Tennessee Gov. Bill Haslam has not completely ruled out an expansion of coverage, but he faces the double difficulties of getting a plan approved by a Republican-dominated legislature where "Obamacare" is disliked.

Industry impact

The medical device tax takes a big bite in Tennessee.

Tennessee ranks seventh among states for medical device manufacturing, accounting for about $275 million in wages in 2009, according to Life Science Tennessee, an advocacy organization that represents the industry.

The industry has a big foothold in Memphis, which is the nation's second-largest orthopedic device center and where Wright Medical Group Inc. is based.

"The medical device tax is particularly burdensome on smaller, innovative companies like Wright Medical," said Lance Berry, the chief financial officer for Wright. "Not only is the estimated $3 million to $4 million cost of this tax in 2013 for Wright's continuing operations significant — but both the cost and the effort required to comply with the tax consume resources that could otherwise be used to drive business growth, develop newer and better technology and hire new employees."

Business owners hit by the Affordable Care Act taxes feel singled out.

"Why not charge the tan tax everywhere?" asked Reese, noting that gyms that offer suntanning beds with memberships don't have to pay the 10 percent excise tax.

The Affordable Care Act brings the most change, however, for the health insurance industry. It limits their profits. The law requires insurance companies to spend at least 80 percent of the money they collect in premiums on either medical care or health care quality improvements. For large group plans, that requirement is 85 percent.

Whenever insurance companies don't meet the requirements, they have to issue rebates to the premium payers. That's only one of a myriad of regulations that health insurers must abide by. They will not be able to deny coverage due to pre-existing conditions and will no longer be allowed to set lifetime spending limits on individuals.

Indirect costs

The Affordable Care Act will make it possible for people to buy insurance who could not previously afford it, particularly those with chronic medical conditions. The average subsidy for a family to buy coverage on the exchange will be $2,672, which would reduce the cost of buying insurance by 32 percent, according to a report issued last week by the Henry J. Kaiser Family Foundation.

However, young people who do not qualify for subsidies, especially men, may end up paying more than they otherwise would have.

"Today men and women pay different rates in Tennessee," said Brian Haile, senior vice president for health care policy at Jackson Hewitt. "That will no longer be legal in 2014. Right now, a 27-year-old male is getting a real deal. He doesn't have to pay for labor and delivery costs because they segregate those. He will have to pay more if he wants to keep coverage."

Employers with healthy workers, who benefited with lower premiums under the old system, also may have to pay more as insurers spread the cost of having to cover people with pre-existing conditions.

A great deal of uncertainty remains about the Affordable Care Act as actuaries continue assessing costs, politicians debate the law and some provisions get delayed. Some of the rules for the tax provisions are still being written by the IRS.

Steber, the chief tax officer of Jackson Hewitt, said people who don't prepare in advance may get unexpected bills from the IRS.

"You can't hide these things," Steber said. "They are all traceable."