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Editors note: We’re here in Honolulu, talking to Dewey H. Kim, Jr., Deputy Attorney General, State of Hawaii, who was the force behind the recent Longs Drug Store case.
JCFR: What was the tip of the iceberg, the initial tip that led to the Longs case being opened by the AG’s office?
DK: This case began as a result of a tip from a pharmacist who was employed at one of the Pay ‘n Save Stores in Hawaii. He provided us with a label that was stuck to the cash register. The Pay ‘n Save case actually came first. After collecting $1.5 million from Pay ‘n Save, which was owned by Thrifty Corporation, we pursued a case against Longs when we learned that they were doing the same kinds of things
JCFR: What was on the label?
DK: We nicknamed it the “smoking gun.” What it actually said was, “Reminder! Use 100 sizes for plans. Use 1000 sizes for cash.” It was signed by an executive, dated 5/26/90 and ended with the word “Mahalo,” the Hawaiian word for thank you.
JCFR: When you say 100 sizes and 1000 sizes, what’s the difference?
DK: Price. Medicaid allows a larger reimbursement for drugs that come in small bottles than for drugs that the pharmacy purchases in large bottles. This allows the smaller stores to stay in business and not get edged out by the industry giants. What it means is that this pharmacy was billing the plans by the small bottle prices even though it was buying from a wholesaler in multi-thousand bins. The pharmacist who alerted us knew it was an illegal practice. He quit his job and then turned the store in.
JCFR: What is the price difference between a 100 count bottle and a 1000 count bottle?
DK: It averages from 8 to 12 percent. That doesn’t appear to be a lot of money, but in the pharmacy business, a profit of 2 to 3 percent is considered to be good. It meant that these guys were substantially increasing their profit margin by changing the numbers. This practice has been going on for years all over the western United States.
JCFR: What was the result of your prosecution?
DK: Longs paid $2.35 million.
JCFR: Where does that money go?
DK: $418,000 goes back to the Medicaid program. $268,000 goes back to pay the costs of the investigation and the remaining $1.7 million goes back to the state as liquidated damages.
JCFR: Could their billing practice have simply been in error?
DK: No. An interesting aspect of our investigation was an internal memo that we discovered by means of a subpoena. The memo advised Longs management that using the 100 count bottle price was not in compliance with Hawaiian laws. But they just went ahead and did it anyway, so there was nothing accidental there. Some of these drugs come in bins of 5,000 to 10,000 units. From there, it’s computerized; you put the name of the drug in and 100 pills fall into a bottle that you put a label on. In the Longs case, the size of the ordered bin made no difference, they still billed according to the smaller 100 count bottles.
JCFR: How far back does this practice date?
DK: We can trace it back to at least ‘85. It stopped in 1990, coinciding with the time frame in which they found out about our investigation.
JCFR: Were these practices limited to Hawaii or were other western states Longs involved in the same practices?
DK: Our investigation triggered cases in Nevada, Oregon and other western states. Nevada settled with Longs for $750,000.
JCFR: What about brand prescriptions vs. generic prescriptions?
DK: This is going on all over the USA and is covered specifically by federal regulations. When a doctor writes a prescription for a patient, even if there are generic drugs available, the drug store may fill the prescription with brand name pills and bill a much higher amount. This is how it should be if the doctor writes “Do not Sub” on the form – but in cases where generic medication costs less than half of what brands cost, and brand is not asked for, then the cheaper medication should be dispensed.
JCFR: When you catch a crook in a crime, you often don’t stop them from being a crook, you just force them to be more creative. What are you doing to combat this?
DK: We have a network across a primary group, the National Association of Medicaid Fraud Control Units (NAMFCU), that assists us in sharing information. For example, if somebody in New York uncovers a huge scheme, they can pass it down the network and everybody will work it.
JCFR: Does your office only respond to tip-offs or do you go in on an audit basis and compare statistics from, let’s say, 20 providers?
DK: Unfortunately, we are unable to approach it from that perspective. Our Medicaid fraud unit was established by Congress to review fraud situations.
JCFR: Do you often get tips from ordinary citizens?
DK: People want to think that when they go to their corner drug store, they are receiving the proper medications at a proper price. Rarely will someone say, “My kid really needs this medicine but something about the pharmacy just doesn’t look right. I think I’ll go elsewhere.” The public isn’t really aware of the frauds that are being perpetrated.
JCFR: Are there task forces in place?
DK: We have a task force in Hawaii and we are starting to work out arrangements with private insurers. We now have a national Medicare/Medicaid fraud unit network. Some of us travel to assist other states in finding and dealing with fraud. There is a huge amount of money involved. About $1 trillion per year is spent on health care and we estimate that includes 20 percent in over-billing fraud.
JCFR: What is the largest obstacle you see in identifying and prosecuting fraud?
DK: Knowledge of the system. It’s hard to learn everything that’s involved, almost like trying to learn how a car engine works. You have to learn the entire engine to understand each part. With uncovering fraud, we, too , have to understand all of the parts. There are federal regulations, state regulations, Medicaid regulations, Medicare regulations, Blue Cross/Blue Shield regulations, contracts and more. Also, the investigators need to find out about the different specialties. There are a lot of layers for fraud to hide. For a serious assault on fraud, people have to commit resources and I now see that happening.
JCFR: Do you mean resources as in manpower hours, monetary resources?
DK: I’ll give you a classic example. We did about three or four investigations on something that we call a “big-needle scheme.” This is where providers administer injections with a one-inch needle and charge as if they were doing a quasi-surgical procedure with a three- to four-inch needle. Proper use of such a needle would entail injecting medication into the shoulder, back or hip and it would technically be considered surgery.
JCFR: How did you find this out?
DK: Some of the drugs being injected just didn’t match up with the procedural codes being used. For instance, a penicillin shot given to a two year old for a sore throat is not administered with a big needle.
JCFR: What kind of an investigation does this trigger?
DK: One example, we approach a patient and ask if they’d ever been given a shot by doctor so-and-so with this kind of a needle. They take one look at the thing and say, “No way!” The results of these investigations included two convictions and a number of reimbursements.
JCFR: How much are you seeing in penalties?
DK: One provider is now doing time and another is scheduled to be sentenced in January.
JCFR: Is there a deterrent effect on other providers?
DK: Our auditors ran an analysis of the procedure code for the larger size needle six months before the investigation began and then, again, six months after. The difference in the amount of charges was amazing. From almost $200,000 all the way down to $60,000. One conclusion is that some of these procedures were being upcoded and, when the word got out about the investigations, everybody stopped.
JCFR: Is there much enforcement in the professional licensing area?
DK: The pharmacist will generally claim to have no idea of what’s going on. “We only fill the prescription; the computer does the billing,” they’ll say. But when we find a provider who’s engaging in fraudulent practices, if we can convict them, they can be struck from the Medicaid program for five years.
JCFR: Does the Attorney General’s office want to hear from tipsters in cases of suspected fraud?
DK: We appreciate information from people in the business who tell us about things they see going on that trouble them. It helps to know the terminology. When we went to the individual pharmacists and said, “Look at this, it can’t be right,” they would look at it and assure us it was correct. They finally admitted the truth later. But when we went to independent pharmacists who were not involved and asked them to look at the same billings, these pharmacists instantly knew the billings were fraudulent. They knew that a large pharmacy simply would not purchase certain drugs in 100 count bottles. They also knew that brand names are not always used to fill every prescription.
JCFR: So here are these guys lying to you; they know it; you know it. Is there no penalty? Did you go after any of them?
DK: We do go after some of them. In the majority of instances, though, it’s not the individuals who reap the benefits in this kind of fraud, it’s the corporation. That’s taken into consideration when we look at a case for possible prosecution.
JCFR: Does under-staffing enter into the decision?
DK: It has nothing to do with under-staffing. In order to do a full investigation which would lead to a conviction, we need our entire staff to run with this type of case. It’s a tremendous commitment.
JCFR: If four major insurers called you today and said that they would back an investigation, would you take the case?
DK: Maybe yes, maybe no. We examine each case and make a decision based on the potential benefit. The more flagrant a fraud is, the more apt we are to open a case. Flagrant would be something like a provider who did not provide service at all or billed for 50 pills he didn’t provide. We always look at the extreme cases.
JCFR: Have you had any of these extreme cases?
DK: A number of them. But we have to be able to prove the case. People don’t always understand the difference between what is true and what can actually be proven.
JCFR: What if a major insurer called you this afternoon?
DK: But they don’t call. Say you had three carriers who had complaints. Why should one come forward and put itself on the line? Several years ago, chiropractors brought a class action suit after the insurance companies had challenged billings. It was extremely expensive for the carriers and many of them are very cautious.
JCFR: What about hard fraud, paper claims?
DK: Generally we don’t get too many reports. If we did, we’d look at and consider them. But we would have to be presented a complaint, not simply a referral.
JCFR: Where do the very best cases originate?
DK: The best referrals come from disgruntled employees. For instance, that’s how some of the national fraud cases start.
JCFR: If you were given a case referral backed by an extensive computer audit, would you look into it?
DK: Certainly. This area is so difficult to investigate that we would welcome any assistance.
Dewey H. Kim, Jr. is a Deputy Attorney General in charge of the Hawaii Medicaid Investigations Division.
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