Irene Anderson cashed in on the home health care boom sweeping Texas. From 2004 to early 2008, Medicare paid her two agencies more than $6.5 million to care for elderly Dallas-area patients.

A federal investigation found that much of the care never was given. This year, Anderson pleaded guilty to defrauding Medicare and was sentenced to 46 months in federal prison and ordered to pay $2.2 million in restitution.

Texas has more home health agencies billing Medicare and more Medicare home health patients than any other state. It also ranks near the bottom in Medicare home health quality ratings and near the top in suspected waste and fraud.

The Anderson case, one of the biggest instances of home health fraud uncovered in recent years, explains in part why. At the same time, hundreds of Texas agencies are providing homebound patients with insulin injections, physical therapy and other care that reduces overall medical costs, health care experts said.

As the struggle to overhaul national health care unfolds, home health is seen as a partial solution to soaring medical costs. But critics portray it as a black hole of wasteful spending.

Medicare spends more on home health in Texas than it does in any other state – an average of $7,761 per home health patient in Texas in 2007, according to the most recent data. That's 9 percent more than it spent per patient in the next costliest state, Louisiana; 18 percent more than in Florida; and 41 percent more than in California.

A U.S. Government Accountability Office investigation this year found a number of warning signs involving Medicare home health care in Texas. Among them:

•A 144 percent increase in home health care spending from 2002 through 2006, more than three times the national growth rate.

•A 102 percent rise in the number of home health agencies that billed Medicare, compared with 29 percent nationally.

"I'm not saying it's an epidemic of abuse, waste or fraud in Texas, but it does stand out from other states in terms of agencies per Medicare enrollee, volume of services, spending per patient," said Bill Dombi, vice president for law at the National Association for Home Care & Hospice.

Texas had more than 2,000 Medicare-certified home health agencies in 2008 – 300 more than Florida and California combined. The question that Dombi and federal regulators are asking: Why?

A federal law requiring states to regulate the establishment of new medical facilities by issuing certificates of need was scrapped in 1987. Now, Texas is one of 33 states that don't require a certificate of need to open a home health agency, according to the National Conference of State Legislatures.

Otherwise, Texas is not out of step with other states in regulating home health agencies, federal fraud investigators and industry experts said.

These experts place greater weight on social and demographic factors for driving up the state's home health numbers. About 25 percent of Texas' population lacks health insurance. At the same time, the state spends less than most of its peers on health programs. Both of these factors create a chronically ill pool of patients for home health agencies, experts inside and outside the industry said.

A fast-growing population and entrepreneurial tradition have also contributed to the growth of the home health industry in Texas, said Anita Bradberry, executive director of the Texas Association for Home Care.

Other significant factors include the state's pockets of poverty and vast rural stretches. Of 254 Texas counties, 235 are "medically underserved," a federal designation that measures access to care.

"Once you get outside the four or five major cities, there's a desperate need for health care, and one of the ways to provide that is through home health," said Mike Gleason, chief executive officer of the HMG Capital Advisory Group in Dallas, who advises clients buying and selling home health and hospice agencies in Texas.

And then there is fraud. A government review of billings to Medicare found that 91 percent of claims were improperly coded for 670 Houston patients who had the most severe clinical rating–an indicator of possible fraudulent overbilling.

The review found that other patients were not homebound; some were mowing their lawns when investigators came to interview them.

Dallas appeared on the GAO radar screen for its rate of "outlier" cases in which home health agencies had extended the period of treatment for patients, a practice that frequently indicates fraud or abuse. A 2007 analysis found that 8.6 percent of home health cases in Dallas were "outlier" cases – compared with 2.2 percent in Houston and Atlanta and 0.4 percent in Chicago. Miami-Dade County in South Florida – the recognized national leader in home health fraud–had 57.5 percent outlier cases, the GAO reported.

"Medicare is an honor system," said Mike Fields, special agent in charge of the Dallas region of the federal Health and Human Services Office of Inspector General, which led the Irene Anderson investigation. "There's no way Medicare can scrutinize every claim that comes in and be timely in paying physicians and hospitals." Texas home health officials say a small number of bad operators are giving the state a bad name.

"We have some operators running below the radar," said Bradberry of the home care association. "They can open a business and are billing Medicare electronically and really don't have any clients. It has been frustrating to our operators who are trying to get it right."

Still, the benefits of home care outweigh any waste and fraud, Bradberry said. "Even if somebody has to have a registered nurse 24 hours a day, that's less expensive than going into the hospital," she said.

Medicare, the government health plan for Americans age 65 and older as well as some disabled people, limits home health benefits to patients who are unable to leave their homes without significant assistance.

Medicare sets the payment rate for care provided by nurses, therapists or home health aides, but the number of initial visits is determined by the patient's doctor. Federal rules prohibit doctors from referring patients to a home health agency in which they have a financial stake. But Fields and other federal investigators have uncovered cases in which doctors and other medical providers were paid illegal referral fees by home health agencies.

Fraud investigators and industry officials said there is considerable anecdotal evidence of a significant problem.

Medicare spent more than $15.6 billion on home health benefits for about 3 million patients in 2007.. It spent about $2.5 billion of that in Texas.

One recent study found that home health services following a hospital stay saved Medicare $1.71 billion in 2005-06, when used to treat patients with at least one chronic disease such as diabetes. The study, sponsored by the industry-affiliated Alliance for Home Health Quality and Innovation, concluded that Medicare could save $31.1 billion over a decade by expanding home health benefits.

Mary Bell, 65, of Dallas, felt fortunate when a doctor approved Medicare home health benefits for her bedridden husband, Billy, a 64-year-old Alzheimer's patient, but the experience quickly turned frustrating. She tried dozens of agencies before finding a dependable one. Several home health workers pilfered jewelry, clothes and other valuables while tending to her husband, she said.

"They've stolen me blind," she said. "They were supposed to clean my husband, wash his clothes, do the kitchen and clean his room. None of them knew how to even clean or turn a patient. I had to teach them."

After a monthlong hospital stay, 82-year-old Janice Banks of Grand Prairie was discharged after her doctor arranged for Medicare-covered home care. A physical therapist taught Banks to use a walker and become more mobile. Now, a nurse visits every week or so to check her vital signs and see how she is doing.

"I've heard some of the horror stories, but we've been very pleased," said her daughter, Jana Barker. "My mother is doing better, and we're not going to have to look at a nursing home."

In February, after the GAO found hundreds of millions of dollars in questionable Medicare home health payments in Houston and other metropolitan areas, Sen. Charles Grassley, R-Iowa, chided Medicare for system "vulnerabilities."

Rising concerns with suspected abuses have led the Medicare Payment Advisory Commission, an independent congressional agency, to recommended accelerated cuts to home health spending in 2010.

Health care overhaul legislation moving through the House would cut payment rates for Medicare home health providers by $56.8 billion over the next 10 years, according to the National Association for Home Care & Hospice. The Obama administration has proposed home health rate cuts of about $34 billion over a decade.

A bill by Sen. Max Baucus, D-Mont., would cut Medicare home health benefits by $43.2 billion over a decade, said Dombi of the national home health association.

Industry advocates said these across-the-board rate cuts would drive many home health agencies out of business–and drive up overall health care costs.

The national home care association is proposing alternative measures: tougher government oversight, a two-year moratorium on new Medicare home health agencies and cuts targeting the outlier cases involving extended treatments.

"We're saying, 'Let's target the cuts to the bad guys,' " Dombi said.

Dr. Karen Kowalske, a UT Southwestern Medical Center professor and chairwoman of the Department of Physical Medicine and Rehabilitation, said home health works.

"It's one way to treat someone at home who otherwise would have to be in the hospital for IV antibiotics or get wound care that they need or get cancer treatment that they need," Kowalske said. "I think that home health has been a cost savings, but like all things, I think we have to be very diligent that it's not misused."