Citing a "significant potential for fraud, waste, and abuse," federal Medicare officials put a moratorium on the enrollment of new ambulance operators in Philadelphia and six surrounding counties.

The Philadelphia moratorium, which took effect Jan. 31, is just the second time officials at the Centers for Medicare and Medicaid Services have exercised this new power under the Affordable Care Act. It is intended to root out fraud.

A similar moratorium, which blocks new ambulance companies from getting paid by Medicare and Medicaid, was ordered in Houston last summer and has been extended for six months, authorities said.

The clampdown on new ambulance companies in the region came after a series of federal indictments since 2011 charged local ambulance operators with more than $15 million in fraudulent Medicare bills.

At issue is the medical necessity for nonemergency ambulance transportation. Medicare is supposed to pay for an ambulance only if a cheaper form of transportation would endanger the patient's health.

In 2011, Medicare paid an average of $289 for a one-way nonemergency trip. By contrast, the payment for a one-way trip in a wheelchair van - which makes up the bulk of business for law-abiding medical-transportation firms - is less than $50.

Most recently, in January, an emergency-medical technician who worked for Brotherly Love Ambulance Inc., of Philadelphia, pleaded guilty to signing up patients for relatively expensive ambulance rides when he knew they could walk or use cheaper transportation.

In addition, the EMT gave riders cash to entice them to keep using Brotherly Love, which fraudulently collected more than $2 million from Medicare from July 2010 through October 2011, the U.S. attorney in Philadelphia said.

An ambulance-industry trade group was in favor of the crackdown on small, fly-by-night ambulance operators that targeted dialysis and other patients for fraudulent rides, and then disappeared before regulators could catch up with them. The ambulance companies would then reinvent themselves with new names and logos.

"This whole moratorium is designed to prevent that reincarnation process," said Dean Bollendorf, president of Ambulance Association of Pennsylvania and vice president of HealthFleet Ambulance Inc., in the Roxborough section of Philadelphia.

Out-of-line costs

To support its moratorium in Philadelphia, federal regulators analyzed ambulance payments for U.S. counties with at least 200,000 Medicare beneficiaries, including Philadelphia. It found that in 2012, ambulance suppliers in Philadelphia were receiving $1,314 per year for the average ambulance patient, compared with $803 in comparable counties.

The analysis also looked at the number of ambulance companies in Philadelphia relative to the number of people receiving Medicare benefits under Medicare Part B, which is voluntary coverage with a premium paid by seniors that covers doctors visits, outpatient care, and other services not covered by basic Medicare Part A.

Philadelphia had 4.8 ambulance companies for every 10,000 Medicare beneficiaries in 2012. That ratio averaged 1.4 in comparable large counties. Only two other counties had more ambulances relative to the Medicare population than Philadelphia.

The regulators did not identify the counties that ranked higher.

Excluded from the analysis were Harris County, Texas, which is home to Houston and where widespread fraud has already been detected, and Manhattan (County of New York), because of its population density.

In the fall, there were about 80 ambulance companies in Philadelphia, including a small number of nonprofits, according to data from the Pennsylvania Department of Health, whose Bureau of Emergency Medical Services oversees licensing.

But nearly half of them had three or fewer ambulances, state data show.

Fraud pays well

The business is attractive to small operators. With just three dialysis patients taking three round-trips a week, an ambulance operator can earn about $250,000 a year, as long as those trips are billed to Medicare, said Daniel Herman, an owner of EMStar Medical Transportation, one of Philadelphia's largest ambulance companies.

"You can do $250,000 in revenue with three patients," Herman said, "and you can be done at 10 in the morning."

However, only 10 percent to 20 percent of dialysis patients actually need ambulance transportation, according to government and industry estimates. Medical necessity is determined on the "honor system," said Herman's partner, Joseph Zupnik.

Transporting the same three patients by wheelchair - which is much more likely to be appropriate - would bring in less than $50,000 annually.

Ambulance fraud involving dialysis patients gets most of the attention, but abuse extends beyond that.

For example, a person who had cancer surgery might go home but still need an ambulance to go for radiation treatments.

"They may not be able to get around for that first week or two. Guess what. We hope everyone's going to get better, and after two weeks," Zupnik said, "they may not need an ambulance."

There could be an approval for 90 days of ambulance rides, but "our nurses will go in and periodically review those cases and transition the person to what we feel is the appropriate level of medical transportation," Zupnik said.

"Other providers," he said, "will run the billing for the whole length of time, and maximize the revenue."