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California watchdog warns of rampant fraud at sham LA hospice agencies

The state auditor faulted California's Public Health Department's "lax licensing process" for allowing potentially fraudulent agencies to proliferate.

LOS ANGELES (CN) — The California state auditor reported Tuesday that bogus hospice agencies in Los Angeles are likely defrauding Medicare and Medi-Cal on a massive scale, noting a 1,600% increase of such agencies in LA County since 2010.

The rapid, disproportionate growth in the number of hospice agencies in LA County, the excessive geographic clustering of these agencies, the long durations of the services they provide, and the high rates of patients discharged alive are all indicators that these are sham operations, the auditor found.

"We are concerned that numerous unscrupulous individuals are likely creating hospice agencies and applying for licenses to fraudulently bill Medicare and Medi-Cal either for services that they are providing to patients who are ineligible for hospice care or for services that they are not providing at all," Acting California State Auditor Michael Tilden wrote.

The report pointed to the California Department of Public Health's "lax licensing process" for allowing the proliferation of bogus hospice agencies, even to the extent that the department didn't deny applications for a license in cases where its own staff had raised red flags.

Tilden also faulted the public health department for inadequate oversight of hospice agencies once they were licensed, including not having information about who manages an agency, not monitoring when licenses expire, and not keeping track of the ownership and locations of the agencies.

"Changing hospice agency locations and ownership can allow unscrupulous individuals to evade oversight," the report said. "In fact, there appear to be individuals who seek licensure of hospice agencies with the sole intention of selling them. We found online listings selling 'brand new, never billed' hospice agencies for hundreds of thousands of dollars and promising high cash flow and profits within a few months."

The Department of Public Health said in an email Tuesday that it has already begun to implement several of the audit's recommendations in advance of regulations and legislation currently in the works.

"Many of the recommendations made in the audit require statutory changes and CDPH looks forward to providing technical assistance to Legislative members so that we have the authority to oversee and hold hospice providers who may be providing substandard care or engaged in fraudulent activities accountable," the department said.

In LA County, the number of hospice agencies ballooned to 1,841 last year, from just 109 in 2010, according to the auditor's report. As a result, the county has 45 times as many hospice agencies as the state of New York and 59 times as many as Florida per their respective aged populations.

Moreover, the LA County hospice agencies are suspiciously clustered together in parts of the county. In one case, the auditor found 210 active hospice agencies located within 1 mile of each other in the Van Nuys neighborhood. One office building in the neighborhood was listed as the address of more than 150 licensed hospice and home-health agencies, according to the report, which appeared to exceed the building's physical capacity. 

In many cases, the hospice agencies weren't listed on building directories, and in some cases the agencies name was only on a paper sign taped to a door, or the purported door of an agency had no sign at all, according to the report.

Hospice agencies provide palliative services to terminally ill patients, either at the patients' homes or at a skilled nursing facility or hospital. In California, 94% of hospice agencies are for-profit businesses, which is the highest percentage in all 50 states, according to Tilden's report. Medicare pays for the bulk of hospice care. In 2020, the federal program paid more than $3 billion for hospice services to 162,000 patients in California.

In October 2021, California passed a general moratorium on licensing new hospice agencies beginning Jan. 1, 2022, and lasting until one year after the publication of the auditor's report, "to spur attention and action to improve what many stakeholders, including hospice providers themselves, agree is a regulatory system in need of reform," Tilden wrote.

Just this month, the U.S. attorney's office in Los Angeles announced the arrest of two people in connection with a hospice-fraud scheme through which Medicare and Medi-Cal were billed for more than $30 million in unnecessary services, or services that weren't even provided, for patients who weren't terminally and were obtained through kickbacks.

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