Some criminals who might have sold drugs or run numbers in days gone by are now trying their hand at Medicare and Medicaid fraud.

Witnesses from the Office of the Inspector General at the U.S. Department of Health and Human Services (HHS) talked about the involvement of potentially violent criminal organizations, including gangs, in health program fraud today at a Medicare and Medicaid fraud hearing organized by the House Energy and Commerce Committee oversight subcommittee.

The House Ways and Means Committee health and oversight subcommittees heard similar testimony at a Medicare fraud hearing they convened in June 2010.

Gerald Roy, a deputy inspector in the HHS inspector general’s office, told lawmakers about a Medicare crime ring that included at least 73 defendants and at least 118 sham clinics in 25 states. The operation, which was organized by the Mirzoyan-Terdjanian organization, was charged with more than $163 million in fraudulent billing, stealing the identities of thousands of patients, and stealing the identities of many doctors, Roy said, according to a written version of his remarks.

The Mirzoyan-Terdjanian organization “has allegedly used violence and threats of violence to ensure payments to its leadership,” Roy said.

In a separate fraud operation in southern California, an individual tried to defraud the Medicare program by establishing several fraudulent durable medical equipment (DME) companies.

“The owner used members of a street gang as nominee owners of his DME companies,” Roy reported. “He paid the gang members approximately $5,000 each to establish bank accounts and fill out Medicare enrollment paperwork.”

The nominee owners submitted claims to Medicare for power wheelchairs and orthotic devices that were not medically necessary or legitimately prescribed by a physician.

Craig Smith, a former Florida Agency for Health Care Administration general counsel, said shifting Medicare toward capitated managed care systems, and away from the fee-for-service reimbursement system, could help reduce fraud and abuse.

Florida’s Medicaid program uses capitated managed care arrangements and seems to suffer much less fraud and abuse, Smith said.

The Medicaid managed care organizations (MCOs) “have a significant financial incentive to prevent fraud and abuse, and for the most part they are successful,” Smith said. “Even if a Medicaid provider under contract with the MCO were to commit fraud, the MCO suffers the financial hit, not Florida’s Medicaid program.”

An MCO could commit fraud or abuse, but, even if it does, it likely will have enough “access to capital to be held financially accountable should any improper payments occur,” Smith said.

Karen Ignagni, president of America’s Health Insurance Plans (AHIP), Washington, testified later in the day at a separate health care fraud hearing organized by the House Ways and Means Committee’s oversight subcommittee.

Ignagni testified that one weapon health plans use to prevent fraud is to Karen Ignagniverify providers’ credentials.

Private plans also use provider contracts that give the plans the ability to suspend payments if improper billing practices are suspected, and they share data on suspected cases of fraud with government agencies and other carriers, Ignagni said.

The federal government could help improve fraud prevention and detection in both public and private programs by recognizing that fraud prevention and provider credentialing are quality improvement activities, Ignagni said.

She said the government should

let carriers classify fraud prevention costs as quality improvement costs when complying with the new Patient and Affordable Care Act minimum medical loss ratio rules.

The federal government should also make more of an effort to have health fraud investigators work with private carriers and share information with them, Ignagni said.

“Plans are concerned that it is a missed opportunity for their policyholders and employer purchasers when in some instances they are not included in settlements when the Department of Justice or other enforcement agencies enter into agreements and obtain restitution from providers.” Ignagni said. “This is a missed opportunity for federal and state prosecutors as well.”

If prosecutors went to bat for by private plans as well as public programs, they could get even larger penalties from the perpetrators, Ignagni said.