Department of Health
and Human Services
Office of Inspector General
Semiannual Report
April 1, 1999 - September 30, 1999
June Gibbs Brown
Inspector General Step One
Call your health care provider for an explanation 
of unusual or questionable Medicare charges. 
Most are honest and want to prevent fraud.
Step Two
If you still have questions, call your Medicare 
insurance company.
Step Three
If you continue to have questions, call the 
Medicare Fraud Hotline at:
 1-800-HHS-TIPS
 (1-800-447-8477) A MESSAGE FROM THE SECRETARY
The Department of Health and Human Services (HHS) programs provide some of this
Nations most essential benefits.  Fraud, waste and abuse threaten to undermine the
effectiveness of those programs, cost taxpayers billions in lost and wasted dollars and
deprive vulnerable beneficiaries of the care and support they need.  To best serve the
American people and make the most efficient use of our resources, we have worked for
tougher laws and intensified our oversight, and we have reached out to enlist the
cooperation of other agencies and organizations with similar goals, as well as the public and
the health care industry.
The Inspector General has taken a leadership role in the Departments efforts, and the
contributions of her office have been outstanding.  The Office of Inspector General (OIG)
has joined others within and outside the Department, notably the Health Care Financing
Administration (HCFA) and the Department of Justice, in an increasingly sophisticated and
coordinated assault on health care fraud, waste and abuse.  Together, we have made real
inroads and had a positive impact on the Trust Fund.  Using both prosecution and exclusion
of dishonest providers, we have punished many unscrupulous individuals and eliminated
others from our programs. Further, OIG and the Administration on Aging have collaborated
to heighten fraud and abuse awareness among beneficiaries so they can help us do so.  We
have also launched efforts to promote greater vigilance on the part of the provider
community itself.
Medicare reform efforts have been a central part of our work within the Department and the
Administration as a whole.  As in other areas, we relied heavily on OIGs independent and
timely analyses of Medicares systemic problems in formulating management and policy
decisions to address these issues.  In fact, many of the fundamental changes in Medicare
reimbursement methods introduced in the Balanced Budget Act of 1997 were prompted by
OIG findings and recommendations.  And we continue to look to OIG for that kind of
assistance.  Recently, OIG provided HCFA with information on utilization patterns of
Medicares chiropractic benefit, which has proven to be invaluable in enhancing oversight
of the program and related policies.
Another Administration priority continues to be child support enforcement.  The OIG and
our Office of Child Support Enforcement have teamed up with State and local officials in a
task force targeting specific geographic areas, and we are seeing positive results from this
unprecedented national effort.  Also, OIG has helped us focus on correcting vulnerabilities
resulting from Year 2000 computer problems. Overall, Fiscal Year 1999 has been a busy and productive time for OIG.  I commend the
Inspector General for the accomplishments of her office, including record savings to the
Government and a record number of successful prosecutions.  These are achievements to be
proud of, and achievements to build on.  As a Department, we have a lot of work ahead of
us.  With the Inspector General as an indispensable member of the HHS team, I have every
confidence that we are equal to the task.
Donna E. Shalala FOREWORD
This report covers the full range of the Office of Inspector Generals (OIGs) activities for
the 6-month period April 1, 1999 to September 30, 1999.  During this time, OIG has
continued to play a crucial role in helping the Department of Health and Human Services
(HHS)  carry  out  its  critical  mission.    Recognizing  the  breadth  and  complexity  of  the
challenges facing the Department, we have sought new and better ways to promote the
efficacy of HHS programs and to identify and ferret out fraud, waste and abuse.  To that
end, we have initiated structural reforms, introduced new ways of thinking and created new
partnerships.
Our efforts have been well rewarded.  In Fiscal Year 1999, OIG reported record savings to
the Government of over $12 billion, much of which resulted from passage of the Balanced
Budget Act (BBA) of 1997.  The BBA instituted what is commonly regarded as the most
sweeping set of changes to Medicare since the programs inception.  Many of these reforms
were consistent with recommendations made by our office or were aimed at correcting
program weaknesses and vulnerabilities identified by our work.  We also reported 401
convictions of individuals or entities that engaged in crimes against departmental programs,
a significant increase over previous years.
Key to our accomplishments are the many partnerships we have established with others who
share our goals.   For example, we have been working closely with State auditors to provide
broader coverage of the Medicaid program, thus ensuring more effective use of scarce
Federal and State audit resources.  Recently, the Administration launched a new National
Health Care Fraud and Abuse Task Force in which OIG, in collaboration with the Health
Care Financing Administration, the Department of Justice and other Federal and State
organizations, is formulating strategies to combat health care fraud and abuse and safeguard
the well-being of Medicare and Medicaid beneficiaries.  While the task force will focus on a
wide range of health care fraud and abuse policy issues, particular attention will be devoted
to fighting nursing home fraud and abuse and excluding dishonest and abusive providers
from  participation  in  Medicare,  Medicaid  and  other  Government-funded  health  care
programs.
The OIG is also engaged in numerous proactive efforts designed to help prevent fraud and
abuse  and  heighten  the  health  care  industrys  compliance  with  Medicare  rules.    This
includes issuing compliance program guidance; publishing fraud alerts; issuing advisory
opinions regarding OIG-enforced sanction authorities; undertaking beneficiary outreach and
education  along  with  the  Administration  on  Aging,  the  Health  Care  Financing
Administration  and  the  American  Association  of  Retired  Persons;  and  expanding  the
toll-free hotline for beneficiaries and providers to report suspected fraud. For more than a decade, OIG has also been involved in efforts to improve enforcement in
the area of child support through audits and evaluations dealing with such topics as paternity
establishment, the review and adjustment of support orders, and medical support.  More
recently, our investigative capabilities have been brought to bear on this problem.  Working
with the HHS Office of Child Support Enforcement, we have established a multiagency,
multijurisdictional task force to address the most egregious cases of nonsupport.  Originally
launched  in  the  Midwest,  this  model  has  now  been  broadened  to  several  additional
geographical areas.
Another key issue facing the Department is the vulnerability of its computer-dependent
systems  to  the  Year  2000  (Y2K)  problem.    Successful  delivery  and  payment  for
HHS-supported  services  also  depend  on  the  computer  systems  of  HHSs  partners.
Accordingly,  in  addition  to  its  reviews  of  departmental  systems,  OIG  has  published
evaluations  of  the  Y2K  readiness  of  various  Medicare  provider  groups  and  Medicare
contractors.
As always, our office seeks to be responsive to the Congress and the Department, and much
of our work is driven by concerns they raise.  Moreover, our successes in large part have
been the result of the cooperation and support they and others have provided us.  I look
forward to working with these partners in the new millennium to ensure the highest level of
effectiveness, efficiency and integrity in the HHS programs that serve and protect the
American people in such vital ways.
June Gibbs Brown
Inspector General HIGHLIGHTS
Introduction
This section highlights the most recent accomplishments of the Department of Health and
Human Services (HHS) Office of Inspector General (OIG). 
Statistical Accomplishments
For Fiscal Year (FY) 1999, OIG reported savings of $12.6 billion, comprised of $11.9
billion in implemented recommendations and other actions to put funds to better use, $251.5
million  in  audit  disallowances  and  $407.7  million  in  investigative  receivables.    (See
Appendix  A  and  the  sections  entitled  "Resolving  Office  of  Inspector  General
Recommendations, A. Questioned Costs" and "Investigative Prosecutions and Receivables"
in the General Oversight chapter in each of the two FY 1999 semiannual reports for details.)
In addition, for FY 1999, OIG reported 2,976 exclusions of individuals and entities for fraud
or abuse of the Federal health care programs and/or their beneficiaries, 401 convictions of
individuals or entities that engaged in crimes against departmental programs, and 541 civil
actions.  (See sections entitled "Fraud and Abuse Administrative Sanctions" in the Health
Care  Financing  Administration  [HCFA]  chapter  and  "Investigative  Prosecutions  and
Receivables" in the General Oversight chapter of the two FY 1999 semiannual reports.)
Following are some of OIGs most notable accomplishments for the 6-month period ending
September 30, 1999.
Quality of Care
The OIG carried out several initiatives related to the quality of care provided to program
beneficiaries.
Hospital Oversight
A 2-year study by OIG found major deficiencies in the external oversight system intended to
make sure the Nations hospitals are safe.  Four inspection reports assessed the key roles in
hospital quality oversight played by the Joint Commission for Accreditation of Healthcare
Organizations (JCAHO), the State survey and certification agencies, and HCFA. 
The  OIG  recommended  that  HCFA  exert  leadership  in  addressing  the  shortcomings
identified; steer the external review process so that it represents a balance between the
educationally-oriented approaches of JCAHO and the enforcement-oriented approaches of
the State agencies; and undertake actions to hold both JCAHO and the States more fully
accountable for their performance in reviewing hospitals.  In addition, OIG urged that HCFA
i determine  the  appropriate  minimum  cycle  for  conducting  certification  surveys  of
nonaccredited hospitals. (See page 2)
Nursing Homes
In a series of inspection reports, OIG concluded that serious problems with quality of care
continue to exist in nursing homes.  The OIG proposed that an effective strategy to deal with
these problems include actions to enhance the survey and certification process; strengthen
the Ombudsman program with increased resources; improve nursing home staffing levels;
and improve coordination between State survey agencies and Ombudsmen.  In addition,
further evaluation and performance measurement of the standards mandated by the Omnibus
Budget Reconciliation Act of 1987 and the conditions in nursing homes would make an
important contribution to efforts to improve nursing home care.  (See page 16) 
Organ Transplantation
The OIG is continuing its work in the area of organ transplantation.  In one report issued
during this period, OIG found considerable variation in median waiting times for kidney and
liver transplantations among the Organ Procurement and Transplantation Network regions.
In  a  second  report,  OIG  determined  that  the  117  liver  transplant  centers  cluster  in
metropolitan areas, leaving large portions of the population at considerable distance from a
transplant center.  The OIG concluded that widespread access to liver transplant centers does
not exist, and noted several factors other than allocation policy that affect this access.  (See
page 46)
Medicare Managed Care
Medicare managed care, with about 7 million enrolled beneficiaries, continues to be an
important focal area.  During this reporting period, OIG looked at the following issues:
Inpatient Services after Beneficiary Disenrollment
The OIG found that Medicare paid hospitals $224 million for inpatient fee-for-service care
furnished to beneficiaries who had disenrolled from six managed care plans.  About $41
million of this amount was paid for beneficiaries who later reenrolled in managed care.
Medicare  would  have  paid  $20  million  in  capitation  payments  to  the  plans  had  the
beneficiaries not disenrolled.  Based on this analysis, it appeared that plans could avoid
significant payments for medical services by having sicker beneficiaries disenroll, obtain
services under the fee-for-service program and then reenroll when they were healthier.  (See
page 3)
Payments for Institutionalized Beneficiaries
Medicare  pays  health  maintenance  organizations  (HMOs)  a  higher  capitation  rate  for
beneficiaries who are institutionalized.  Based on a statistical sample, OIG estimated that
Medicare  overpaid  $22.2  million  for  beneficiaries  who  were  incorrectly  classified  as
institutionalized.    The  report  recommended  that  HCFA  strengthen  its  onsite  review
procedures to better identify HMOs that inaccurately report the status of beneficiaries, and
identify and recover the resulting overpayments.  (See page 4)
ii Administrative Costs
Through adjusted community rate proposals, managed care organizations present to HCFA
their estimates of the costs needed to provide Medicare services to enrolled beneficiaries.
The  OIG  continued  to  find  that  the  administrative  cost  component  of  these  proposals
exceeded actual expenditures by millions of dollars and included such items as brokers
commissions and entertainment, which would not be allowable if regulations governing
other parts of the Medicare program were applied to managed care organizations.  The
results of these audits, as well as others underway, are being provided to HCFA for its
consideration of legislative changes.  (See page 4) 
Overlapping Inpatient Expenditures
The  OIG  assisted  the  Department  of  Defense  (DOD)  OIG  in  reviewing  claims  for
beneficiaries dually eligible under the DOD and Medicare health programs.  The DOD spent
about $45.2 million in FY 1997 for inpatient care of beneficiaries on whose behalf HCFA
made per capita payments to HMOs for medical services, including inpatient treatment.  The
DOD OIG recommended -- and HHS OIG fully supported  -- that DOD, HHS and the Office
of Management and Budget develop a strategy to reduce or eliminate these overlapping
Federal expenditures.  (See page 5)
Significant Investigative Results
Following are some of the major settlements that were finalized during this reporting period.
Health Services Corporation
As the result of investigations by OIG in Georgia, Florida and New York, a major health
services corporation and its subsidiary agreed to pay the Government $61 million in civil
damages and criminal fines.  The multimillion dollar global settlement resolves allegations
that  both  companies  engaged  in  schemes  to  defraud  Medicare.    As  part  of  the  civil
settlement agreement, the corporation will pay $50.92 million to settle alleged False Claims
Act violations.  In addition, the subsidiary agreed to plead guilty to Federal criminal charges
related to Medicare fraud in Florida and Georgia, and to pay $10.08 million in criminal
fines.  (See page 27)
Medical Care Company
In Pennsylvania, the Government reached a $16.5 million settlement with a medical care
company for the filing of false Medicare claims by various companies it acquired.  The OIG
investigated  claims  submitted  for  mobile  diagnostic  tests  by  a  diagnostic  laboratory
purchased  by  one  of  the  companys  subsidiaries.    The  laboratory  and  this  subsidiary
marketed their tests through improper kickback arrangements with the ordering physicians.
The settlement reached not only resolves this allegation of improper kickback activity, but
also other allegations of misconduct by the related companies.  (See page 34)            
Former Medicare Contractors
Two former Medicare contractors agreed to settle their criminal, civil and administrative
liability for misrepresenting their performance to HCFA.  In order to resolve allegations of
manipulating certain computer files to obtain a better score on the Contractor Performance
iii Evaluation Program and concealing poor performance on provider audits, the companies
pled guilty to felony charges and agreed to pay in excess of $12 million in criminal fines and
civil penalties and to forgo contract claims totaling $3.1 million.  Both corporations also
entered into a 5-year corporate integrity agreement with OIG.  Problems such as these,
coupled  with  longstanding  vulnerabilities  in  the  Medicare  contractors  internal  control
systems, prompted the recent establishment of a joint OIG/HCFA task force to develop
preventative solutions.  The task force is actively exploring various options to reduce the
contractors risk of errors, fraud and other illegal acts and to improve their controls over
financial management and information systems security.  (See page 28)
Home Health Care Company
A complaint to the HHS Inspector General hotline initiated a major investigation and audit
by OIG which culminated in a multimillion dollar settlement with the largest home health
care company in Texas.  The company agreed to pay the Government $10 million to settle
allegations of Medicare fraud against its subsidiary, a provider of home health care and
infusion therapy services.  Among other allegations of wrongdoing, the Government alleged
that the subsidiary improperly charged Medicare for unallowable costs which resulted in the
submission of false claims to the program.  (See page 33)
Child Support Enforcement
In addition to its audit and inspection work in this area, OIG has made the detection and
prosecution of absent parents who fail to pay court-ordered child support a priority.  The
OIG has worked with the Office of Child Support Enforcement (OCSE) and other Federal,
State and local partners to develop programmatic and operational procedures to expedite the
collection  of  child  support  and  to  bring  to  justice  those  who  willfully  disregard  their
obligations.  The OIG has opened 775 investigations of child support cases nationwide since
1995, which have resulted in 147 convictions and court-ordered restitution and settlements
of over $10 million.
Investigative Task Forces
In 1998, OIG and OCSE initiated multiagency, multijurisdictional investigative task forces
consisting of enforcement units from different States in the Midwest and Mid-Atlantic
regions.    The  task  forces  are  designed  to  identify,  investigate  and  prosecute  criminal
nonsupport cases both on the Federal and State levels through the coordination of law
enforcement, criminal justice and child support office resources; their goal is to create
streamlined systems of referral, investigation and prosecution that will bring to justice the
most egregious offenders.  Based on the initial success of this approach, similar units have
been established in other geographical areas during FY 1999, including the Northeast,
Southwest and Pacific Coast during this 6-month period.  (See page 56)
New Hampshires Collection Procedures
The OIG reviewed New Hampshires innovative requirement that businesses report not only
newly  hired  employees  but  also  newly  hired  independent  contractors.    By  garnishing
contractor earnings, the State increased child support collections from the self-employed,
one of the most difficult groups from which to collect payments.  The OIG recommended
iv that the Administration for Children and Families (ACF) consider encouraging other States
to require businesses to report the hiring of independent contractors.  As a result, ACF
publicized OIGs report in its nationwide newsletter.  (See page 60)
Review and Adjustment of Child Support Orders
Under current law, periodic reviews of child support orders are no longer required.  Child
support agencies must notify parents every 3 years of their right to request a review of their
child  support  orders,  and  must  conduct  a  parent-requested  review  if  none  has  been
performed within the past 3 years.  The OIG urged a reevaluation of Federal review and
adjustment policies in light of the merits of periodic reviews as demonstrated by research by
OIG and others.  In addition, OIG suggested ways to improve the current processes.  (See
page 59)
Paternity Establishment 
The  Congress  requires  that  State  child  support  agencies  provide  voluntary  paternity
acknowledgment services through in-hospital acknowledgment programs, the State agencies
responsible for maintaining birth records and alternative sites.  While OIG recognizes that
States have made promising efforts to provide written and oral notification of rights and
responsibilities  to  parents  who  voluntarily  acknowledge  paternity,  some  vital  records
agencies and other alternative sites are still unaware of this obligation.  About half the States
currently offer voluntary paternity acknowledgment services through some of their public
assistance offices, but few States have yet expanded service to other sites.  The OIG made a
number of suggestions to improve the use of alternative sites by capitalizing on and refining
effective practices now being used in some localities, and to ensure that agencies provide
both  written  and  oral  notifications  to  all  parents  considering  voluntary  paternity
acknowledgment.  (See page 60)   
Year 2000 System Compliance
As part of its oversight responsibilities for departmental activities, OIG continued to assess
the Departments progress toward Year 2000 (Y2K) computer system readiness.  As noted
below, the Medicare programs systems, including those external systems that interact with
HCFA, received particular attention.
Medicare Providers and Managed Care Organizations
The OIG conducted several inspections and follow-up studies to determine the relative
readiness of Medicare providers and managed care organizations for Y2K.  The studies
showed  that  only  about  half  the  provider  organizations  and  only  about  22  percent  of
managed care organizations were ready.  The OIG is following up these studies to provide
up-to-date information to the Department as the year closes.  (See page 13 and 14)
Medicare Contractors
The Medicare contractors are responsible for processing and paying about $180 billion in
fee-for-service claims each year.  The ability of their computer systems to operate effectively
by Y2K and beyond is therefore of critical importance.  In preparation for that date, HCFA
increased its Medicare contractors funding by over $100 million during FY 1998.  At
v HCFAs request, OIG reviewed the administrative costs reported by four contractors and
found that about $650,000, or 11.4 percent of the $5.7 million reported, did not qualify as
charges  to  the  Y2K  project.    The  OIG  also  maintained  its  active  monitoring  of  the
contractors progress in renovating their systems through frequent site visits (about 360 to
date) in conjunction with HCFA staff.  The results of the visits were provided to HCFAs
Chief Information Officer.  (See page 15)
Other Departmental Systems
An  OIG  review  determined  that  seven  of  the  Program  Support  Centers  (PSCs)
mission-critical systems were Y2K compliant as of April 1, 1999.  The remaining system,
the Payment Management System, was months behind its estimated Y2K compliance date of
December 31, 1998.  This system serves over 20,000 grantees and disburses more than $165
billion annually.  On June 30, 1999, PSC advised that the system had been certified as Y2K
compliant.  (See page 69)
The OIG also reviewed Y2K compliance and testing activities at the Centers for Disease
Control  and  Prevention  and  the  compliance  of  acquisition  contracts  for  information
technology at the National Institutes of Health. (See page 52)
Federal/State Partnership Project
By partnering with State auditors and other State groups, OIG has continued its initiative to
expand coverage of the Medicaid program.  This collaboration has been an overwhelming
success in more effectively applying scarce Federal and State audit resources to such diverse
issues as prescription drugs, clinical laboratory services and durable medical equipment.
Since the projects inception in 1994, active partnerships with 22 States have identified
potential program savings of $145 million and over $39 million in overpayment recoveries
of Federal and State funds.  Most recently, two reviews concluded that Utah could realize
significant savings on brand name and generic drugs if the ingredient portion of Medicaid
drug reimbursement were more consistent with the actual costs that pharmacies pay for
drugs.  (See page 40)
OIG Work in Performance Measurement
In order to identify work done in the area of performance measurement, OIG has labeled
some items throughout this report as performance measures with the symbol            .
Performance measures are used to evaluate the achievement of a program goal, such as the
efficiency of an immunization program which is measured by the number of inoculations
provided per dollar of cost.  In OIGs opinion, the audits, inspections and investigations
identified  with  the  performance  measure  symbol  offer  management  information  about
whether  some  aspect or all of the programs  or  activities reviewed are achieving their
missions and goals.  These proposals are provided to management for their consideration as
they develop their performance measures.  (See Appendix F)
vi Internet Address
This semiannual report and other OIG materials may be accessed on the Internet at the
following address: http://www.hhs.gov/oig
vii Table of Contents
Chapter I  HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . . .1
External Review of Hospital Quality  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Hospital Readmissions under the Medicare Prospective Payment System . . . . . . . . . . . .3
Inpatient Services Performed on Beneficiaries after Disenrolling from
Medicare Managed Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Managed Care Payments for Beneficiaries with Institutional Status  . . . . . . . . . . . . . . . .4
Adjusted Community Rate Proposals for Risk-Based Managed Care
Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Overlapping Inpatient Treatment Expenditures for Defense Department
Beneficiaries Enrolled in Medicare Health Maintenance Organizations  . . . . . . . . . . . . .5
Public Health and Managed Care:  Opportunities for Collaboration  . . . . . . . . . . . . . . . .5
Medicare Reimbursement under Diagnosis Related Group System . . . . . . . . . . . . . . . . .6
A.  Basis for Errors among Diagnosis Related Groups with 
Highest Upcoding Rates  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
B.  DRG 416: Septicemia  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
C.  DRG 296: Nutritional and Miscellaneous Metabolic Disorders  . . . . . . . . . . . . .7
D.  DRG 014: Specific Cerebrovascular Disorders Except 
Transient Ischemic Attack   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Major Hospital Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
A.  Physicians at Teaching Hospitals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
B.  Diagnosis Related Group Three-Day Window Project  . . . . . . . . . . . . . . . . . . . .8
C.  Hospital Outpatient Laboratory Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
D.  PPS Patient Transfer Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
E.  Pneumonia Upcoding Project  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Other Hospital Investigations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 Industry Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Year 2000 Readiness of Medicare Providers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Year 2000 Readiness of Managed Care Organizations . . . . . . . . . . . . . . . . . . . . . . . . . .14
Contractors Administrative Costs for Year 2000 Remediation of
Medicare Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Year 2000 Contractor System Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Quality of Care in Nursing Homes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Fraud Involving Nursing Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Abuse Complaints of Nursing Home Patients  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Glucose Monitoring in Nursing Homes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Skilled Nursing Facilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Criminal Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Kickbacks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Fraud and Abuse Sanctions   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
A.  Program Exclusions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
B.  Civil Penalties for Patient Dumping  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
C.  Civil Penalties for False Claims  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
D.  Compliance Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
Beneficiary and Provider Outreach Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Mutually Exclusive Procedure Codes at Hospital Outpatient
Departments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Home Health Care Reimbursement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Home Health Agency Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Laboratory Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Usage and Documentation of Home Oxygen Therapy . . . . . . . . . . . . . . . . . . . . . . . . . .35
Fraud Involving Durable Medical Equipment Suppliers  . . . . . . . . . . . . . . . . . . . . . . . .36
Licensing Requirements for Prescription Drug Suppliers . . . . . . . . . . . . . . . . . . . . . . . .37
Transportation Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Bad Debts Reported by Medical Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Pension Plan Audit  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Pension Costs Claimed for Medicare Reimbursement  . . . . . . . . . . . . . . . . . . . . . . . . . .39
Childrens Health Insurance Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Federal and State Partnership:  Joint Audits of Medicaid . . . . . . . . . . . . . . . . . . . . . . . .40
Medicaid Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Medicaid Managed Care Fraud and Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Chapter II  PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . .43
Costs Charged to the Chronic Fatigue Syndrome Program  . . . . . . . . . . . . . . . . . . . . . .44
The Ryan White CARE Act:  Implementation of the Spousal
Notification Requirement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Ryan White Evaluation Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Patient Access to Transplantation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Fostering Equity in Patient Access to Transplantation:  Local Access to
Liver Transplantation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Legislative Recommendation to Improve Hospital Reporting to the
National Practitioner Data Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Exclusions for Health Education Assistance Loan Defaults . . . . . . . . . . . . . . . . . . . . . .47
Arkansas Regional Laboratory Construction Project  . . . . . . . . . . . . . . . . . . . . . . . . . . .48
National Institutes of Health Printing Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Contract/Grant Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Fiscal Year 1998 Financial Statement Audits of Public Health Service
Agencies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
A.  Food and Drug Administration  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
B.  National Institutes of Health  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
C.  Centers for Disease Control and Prevention and Agency for 
Toxic Substances and Disease Registry  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
D.  Health Resources and Services Administration . . . . . . . . . . . . . . . . . . . . . . . . .51 E.  Substance Abuse and Mental Health Services Administration  . . . . . . . . . . . . .51
F.  Indian Health Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Federal Occupational Health Billing Operations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Year 2000 Computer Compliance Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
A.  Centers for Disease Control and Prevention . . . . . . . . . . . . . . . . . . . . . . . . . . .52
B.  National Institutes of Health  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Chapter III  ADMINISTRATION FOR CHILDREN 
AND FAMILIES, AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General Activities  . . . . . . . . . . . .55
Child Support Enforcement: Investigations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Review and Adjustment of Child Support Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Paternity Establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
New Hampshires Procedures for Collecting Child Support from
Independent Contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Expenditures for Missouris Automated Child Support System . . . . . . . . . . . . . . . . . . .61
Technical Assistance for Quality Child Care  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
A.  State Administrators Perspectives  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
B.  Community Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Interstate Compact on the Placement of Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
A.  State Structure and Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
B.  Implementation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Head Start Grantee  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Temporary Assistance for Needy Families:  Improving the
Effectiveness and Efficiency of Client Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Employment Programs for Persons with Developmental Disabilities  . . . . . . . . . . . . . .64
Employment and Training Expenditures:  Wisconsin   . . . . . . . . . . . . . . . . . . . . . . . . . .64
Fiscal Year 1998 Financial Statement Audit of the Administration for
Children and Families . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65 Administration on Agings Health Care Fraud and Abuse Programs  . . . . . . . . . . . . . . .65
Chapter IV  GENERAL OVERSIGHT
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
Reviews of Departmental Service Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
A.  Central Personnel and Payroll System, Human Resources Services . . . . . . . . .68
B.  Division of Financial Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
C.  Division of Payment Management  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
D.  Center for Information Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Program Support Centers Year 2000 Compliance Activities . . . . . . . . . . . . . . . . . . . . .69
Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
A.  Office of Inspector Generals Proactive Role  . . . . . . . . . . . . . . . . . . . . . . . . . .69
B.  Quality Control  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Resolving Office of Inspector General Recommendations . . . . . . . . . . . . . . . . . . . . . . .72
A.  Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
B.  Funds Put to Better Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Legislative and Regulatory Review and Regulatory Development  . . . . . . . . . . . . . . . .74
A.  Review Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
B.  Regulatory Development Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
C.  Congressional Testimony and Hearings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Employee Fraud and Misconduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Investigative Prosecutions and Receivables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Program Fraud Civil Remedies Act  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
APPENDIX A - Savings Achieved through Policy and Procedural 
Changes Resulting from Office of Inspector General
Audits, Investigations and Inspections April 1999 
through September 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1 APPENDIX B - Unimplemented Office of Inspector General 
Recommendations to Put Funds to Better Use . . . . . . . . . . . . . . .B-1
APPENDIX C - Unimplemented Office of Inspector General Program 
and Management Improvement Recommendations  . . . . . . . . . C-1
APPENDIX D - Notes to Tables I and II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
APPENDIX E - Reporting Requirements of the Inspector General 
Act of 1978, as Amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E-1
APPENDIX F - Performance Measures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
APPENDIX G - Status of Public Proposals for New and Modified 
Safe Harbors to the Anti-Kickback Statute Pursuant 
to Section 205 of the Health Insurance Portability and 
Accountability Act of 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1 Health Care 
Financing 
Administration Chapter I
HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General
Activities
The Health Care Financing Administration (HCFA) is responsible for administering the
Medicare and Medicaid programs.  Medicare Part A provides hospital and other institutional
insurance for persons age 65 or older and for certain disabled persons, and is financed by the
Federal  Hospital  Insurance  Trust  Fund.    Medicare  Part  B  (Supplementary  Medical
Insurance) is an optional program which covers most of the costs of medically necessary
physician and other services, and is financed by participants and general revenues.
The Medicaid program provides grants to States for medical care for low-income people.
Eligibility for Medicaid is, in general, based on a persons eligibility for cash assistance
programs.    State  expenditures  for  medical  assistance  are  matched  by  the  Federal
Government using a formula that measures per capita income in each State relative to the
national average.  The Federal/State Childrens Health Insurance Program (CHIP), created
under the new title XXI of the Social Security Act, will expand health coverage to uninsured
children whose families earn too much for Medicaid but too little to afford private coverage.
The CHIP program is a partnership between the Federal and State governments in which
States may choose to expand their Medicaid programs, design new child health insurance
programs or create a combination of both.
The Office of Inspector General (OIG) has devoted significant resources to investigating and
monitoring  the  Medicare  and  Medicaid  programs.    These  activities  have  often  led to
criminal, civil and/or administrative actions against perpetrators of fraud and abuse.  They
also have helped ensure the cost-effective delivery of health care, improved the quality of
health care and reduced the potential for fraud, waste and abuse.
Over the years, OIG findings and recommendations have contributed to many significant
reforms in the Medicare program.  Such reforms include implementation of the prospective
payment system (PPS) for inpatient hospital services and a fee schedule for physician
services; regional consolidation of claims processing for durable medical equipment (DME);
establishment of fraud units at Medicare contractors; prohibition on Medicare payment for
physician self-referrals; and new payment methodologies for graduate medical education.
1 The OIGs documentation of excessive payments led to recent statutory changes in the way
and/or the amount Medicare reimburses rural health clinics, skilled nursing facilities, home
health  agencies  (HHAs),  hospices,  ambulance  services,  oxygen  suppliers,  clinical
laboratories, suppliers of certain Medicare-covered drugs and biologicals, teaching hospitals
for indirect medical education costs and the States for Medicaid disproportionate share
payments.  To ensure quality of patient care, OIG has assessed clinical and physiological
laboratories; evaluated the medical necessity of medical equipment and of services provided
by HHAs; analyzed various State licensure and discipline issues; reviewed several aspects of
medical necessity and quality of care under PPS, including the risk of early discharge; and
evaluated the care rendered by itinerant surgeons and the treatment provided by physicians
performing in-office surgery.
The OIG also audits HCFAs financial statements, which account for more than 84 percent
of Department of Health and Human Services (HHS) outlays.  In addition to issuing an
opinion on the statements, OIG has assessed compliance with Medicare laws and regulations
and the adequacy of internal controls.
External Review of Hospital Quality
In four related final inspection reports, OIG assessed the key roles in hospital quality
oversight played by the Joint Commission for Accreditation of Healthcare Organizations
(JCAHO), the State survey and certification agencies and HCFA.  Overall, OIG concluded
that while the system of oversight that HCFA relies upon has some strengths, it also has
deficiencies that warrant serious attention.  The HCFA, OIG documented, does little at
present  to  hold  either  JCAHO  or  the  State  survey  agencies  accountable  for  their
performance.
The OIG called for HCFA to exert leadership in addressing the shortcomings.  First, as a
guiding principle, OIG urged HCFA to steer the external review process so that it represents
a balance between the educationally oriented approaches of JCAHO and the enforcement
oriented approaches of the State agencies.  In addition, OIG suggested a number of steps
HCFA should take to hold both JCAHO and the States more fully accountable for their
performance  in  reviewing  hospitals.    Also,  OIG  called  for  HCFA  to  determine  the
appropriate minimum cycle for conducting certification surveys of nonaccredited hospitals.
The HCFA responded positively to OIGs reports by presenting a detailed hospital oversight
plan that incorporates OIGs recommendations and an accompanying strategy for hospital
performance  measurement.    (OEI-01-97-00050;  OEI-01-97-00051;  OEI-01-97-00052;
OEI-01-97-00053)
2 Hospital Readmissions under the Medicare Prospective Payment
System
In this review, OIG sought to determine the validity of Medicare PPS claims in which a
beneficiary was discharged and subsequently readmitted on the same day to the same PPS
hospital.  In Calendar Year (CY) 1996, PPS hospitals nationwide submitted over 17,000
claims, valued at over $112 million, for the second inpatient hospital stay.
For 100 readmissions selected from the 18 States with the greatest number of second
inpatient hospitalizations, the peer review organizations (PROs) identified 29 readmissions
valued at $178,741 that were inappropriately paid to PPS hospital providers in CY 1996 for
the second inpatient stay.  The OIG estimated that the overpayments due to inappropriate
hospital readmissions in the 18 States totaled approximately $22 million in CY 1996.  The
review found that the largest number of errors was attributable to premature discharges.  The
OIG believes this is a serious quality of care issue which needs to be closely monitored.
The  HCFA  should  join  OIG  in  additional  work  on  hospital  readmissions  to  identify
additional overpayments; monitor quality of hospital care; and profile aberrant hospital
providers, ensuring that corrective action plans are instituted and referrals to OIG are made
as appropriate.  Further, HCFA should reinstate hospital readmission reviews and monitor
the fiscal intermediaries (FIs) recovery of the improper Medicare payments identified in
OIGs sample.  In response to the draft report, HCFA concurred with the recommendations.
(CIN:  A-01-98-00504)
Inpatient Services Performed on Beneficiaries 
after Disenrolling from Medicare Managed Care
This review was undertaken as part of OIGs ongoing work to assess whether Medicare risk
plans are selectively enrolling healthier beneficiaries and encouraging sicker beneficiaries to
disenroll.  Six managed care firms were selected for this initial audit.  In a review of
beneficiaries who disenrolled from these plans from 1991 to 1996, OIG found that Medicare
paid hospitals $224 million for inpatient services furnished to the beneficiaries within 3
months  of  their  disenrollment;  Medicare  would  have  paid  $20  million  in  capitation
payments to these six firms had these beneficiaries not disenrolled; and about 18 percent of
the expenditures ($41 million) were paid for beneficiaries who reenrolled in Medicare
managed care after receiving the inpatient care under the Medicare fee-for-service program.
It thus appeared that risk plans could avoid significant payments for medical services by
having sicker beneficiaries disenroll, obtain services under the Medicare fee-for-service
program and then reenroll.
The OIG is currently undertaking specific audit and investigative work related to enrollment
and disenrollment actions at some of the managed care plans.  As its analysis continues, OIG
believes  that  the  process  it  followed  could  be  useful  to  HCFA  in  evaluating  health
3 maintenance organization (HMO) performance.  Accordingly, OIG recommended that, in
addition to conducting studies and other efforts in this area, HCFA assess patients health
status  both  before  and  after  disenrollment  as  part  of  its  monitoring  system.    (CIN:
A-07-98-01256)
Managed Care Payments for Beneficiaries with Institutional
Status
Under risk-based contracts, HMOs receive payment on a prospective per capita basis.  A
higher capitation rate is paid for risk-based HMO enrollees who are institutionalized.
Based on the combined results of audits at eight HMOs located throughout the country, OIG
estimated  that risk-based HMOs received Medicare overpayments of $22.2 million for
beneficiaries incorrectly classified as institutionalized.  Of 800 beneficiaries sampled, 137
did  not  meet  institutional  status  requirements.    The  majority  of  the  137  Medicare
overpayments resulted from inadequate internal controls at the audited HMOs.
The OIG issued individual reports to the HMOs, which included recommendations to
correct deficiencies, where necessary, and to refund overpayments to HCFA.  Also, OIG
recommended  that  HCFA  strengthen  its  onsite  review  procedures  to  better  identify
risk-based HMOs that are unable to accurately verify and report the institutional status of
enrolled beneficiaries.  Further, OIG proposed that HCFA use the strengthened procedures
on the next round of site visits to identify HMOs that have been incorrectly reporting
beneficiaries as institutionalized, and conduct detailed audits to identify and recover the
Medicare overpayments.  The HCFA generally concurred with the recommendations and is
taking action to address OIGs concerns.  (CIN:  A-05-98-00046)
Adjusted Community Rate Proposals for Risk-Based Managed
Care Organizations
The adjusted community rate (ACR) process is designed for managed care organizations
(MCOs) to present to HCFA their estimates of the funds needed to cover the costs (both
medical and administrative) of providing the Medicare package of services to enrolled
beneficiaries.  In a previous audit, OIG concluded that the methodology allowing MCOs to
apportion  administrative  costs  to  Medicare  was  flawed  and  that  Medicare  covered  a
disproportionate amount of these costs.  As part of its continuing reviews of this area, OIG
reported on the administrative costs included in the 1997 ACR proposals of three MCOs
during this period.  
The  administrative  cost  component  of  a  California  MCOs  proposal  exceeded  actual
Medicare  administrative  expenditures  by  about  $20.1  million.    Additionally,  the
administrative  cost  component  of  a  Missouri  MCOs  proposal  exceeded  the  actual
administrative expenses for the organizations entire operations by about $21 million, or 200
4 percent.  At all three MCOs, OIG also noted costs for such items as brokers commissions,
entertainment, charitable donations and lobbying that would not be allowable if existing
regulations for other parts of the Medicare program were applied to risk-based MCOs.  
Including costs in the ACR proposal that exceed actual costs or that would be unallowable
under Medicares reimbursement principle of reasonableness serves to reduce any potential
savings from the Medicare payments and the amount available to Medicare beneficiaries for
additional benefits or reduced premiums.  Since there is no statutory or regulatory authority
governing the allowability of costs in the ACR process, no recommendations were addressed
to the MCOs.  The OIG believes, however, that the results of these audits and others
previously issued highlight a significant problem.  Preliminary findings from additional
audits underway support this view.  The results of these audits will be shared with HCFA so
that  appropriate  legislative  changes may  be  considered.   (CIN:    A-09-98-00093;  CIN:
A-07-99-01275; CIN:  A-04-98-01188)
Overlapping Inpatient Treatment Expenditures for Defense
Department Beneficiaries Enrolled in Medicare Health
Maintenance Organizations
As part of OIGs partnership initiatives to expand audit coverage of the Medicare and
Medicaid programs, OIG assisted the Department of Defense (DOD) OIG in its review of
inpatient hospital claims for beneficiaries dually eligible under the DOD and Medicare
health programs.  Many military retirees and dependents aged 65 and older are eligible to
receive health care benefits under both programs.  Such beneficiaries can opt for benefits
from either program depending on availability, expense, personal convenience and their
perception of quality of care.
The DOD OIG determined that military treatment facilities provided inpatient services to
beneficiaries who were also enrolled in Medicare risk-based HMOs.  As a result, DOD spent
about $45.2 million in FY 1997 for inpatient care of beneficiaries on whose behalf HCFA
made per capita  payments  to  HMOs  for  covered medical  services,  including inpatient
treatment.  The DOD OIG recommended that DOD consult with HHS and the Office of
Management and Budget to develop a strategy, including possible legislative action, to
reduce or eliminate these overlapping Federal expenditures.  The HHS OIG fully supported
this recommendation and encouraged HCFA to work with DOD on this matter.  (CIN:
A-14-99-00208)
Public Health and Managed Care:  Opportunities 
for Collaboration
State and local public health agencies carry out a fundamental government responsibility to
protect the health of the population by tracking disease, intervening in communities to
control exposures that threaten the population and responding to changes in communities
5 health needs.  Increasing portions of privately and publicly insured populations are enrolled
in managed care plans.  As organized systems of care that are increasingly data driven,
managed care plans offer public health agencies opportunities to track disease and health
trends and to mount effective interventions.
In  this  report,  OIG  assessed  how  public  health  agencies  are  taking  advantage  of
opportunities for collaboration with managed care plans to further population-based health
activities.    The  OIG  found  that  States  are  giving  increased  attention  to  fostering
collaborations between public health departments and MCOs.  However, the collaborations
focus predominantly on delivering services, rather than on population-based public health
activities.  
The  OIG  concluded  that  collaborations  that  address  public  health  population-based
strategies  have  barely  begun.    Moreover,  the  current  environment  may  mean  that
opportunities  for  realizing  the  potential  of  collaboration  are  fading.    In  the  highly
competitive MCO market, performing a broad-based community function reaching beyond
the  enrolled  population  is  unlikely.    The  OIG  identified  ways  in  which  departmental
programs can support movement toward greater collaboration.  (OEI-01-98-00170)
Medicare Reimbursement under Diagnosis Related Group System
The OIG maintains an active role in monitoring the diagnosis related group (DRG) system
that Medicare uses to pay for hospital care.  During this reporting period, OIG issued four
reports in this area.
A.  Basis for Errors among Diagnosis Related Groups with Highest Upcoding Rates 
In an earlier review (OEI-01-98-00420), OIG used data from a validation of DRG coding to
illustrate that the DRG system is  vulnerable to abuse by providers through upcoding,
particularly so within certain DRGS.  Medical reviewers found that 10 DRGS accounted for
over 50 percent of the upcoding in OIGs sample.  Taken together, these DRGs represented
10 percent of Medicares annual hospital discharges.  The data are published in this current
report, in response to numerous requests.  (OEI-01-98-00421)
B.  DRG 416: Septicemia
The results of the OIG validation described above indicated that approximately 20 percent of
the sample DRG 416 discharges were improperly coded.  Analyzing the Medicare Provider
Analysis and Review file for fiscal years (FYs) 1993-1996, OIG found that a relatively small
number of hospitals (120 out of 4,701) had abnormally high DRG 416 discharges compared
to national figures.  The OIG determined that the inappropriate billing of DRG 416 could
have a major financial impact, with potential overpayments as high as $16.6 million.  The
true upcoding error rate can only be determined by undertaking a detailed claims review at
each hospital. 
6 The OIG recommended that HCFA institute a system to identify hospitals with atypically
high billings for those DRGs identified as vulnerable to upcoding and review the discharges.
The HCFA concurred.  The OIG offered these findings for HCFAs consideration in its
efforts to reduce upcoding.  (OEI-03-98-00370)
C.  DRG 296: Nutritional and Miscellaneous Metabolic Disorders
In a review of the Medicare Provider Analysis and Review file for FYs 1993-1996, OIG also
found that 60 hospitals (out of 4,894) had abnormally high DRG 296 discharges.  The OIG
estimated that potential overpayments could be as high as $1.2 million or 8 percent of the
$14.4 million paid these hospitals for DRG 296 in 1996.  Again, OIG offered these findings
for HCFAs consideration in its efforts to reduce upcoding.  (OEI-03-98-00490)
D.  DRG 014: Specific Cerebrovascular Disorders Except Transient Ischemic Attack 
A small number of hospitals (35) were identified as having atypically high Medicare billings
for DRG 014.  The OIG estimated that potential overpayments in these hospitals for DRG
014 could be as high as $2.4 million.  Again, OIG offered these findings for HCFAs
consideration in its efforts to reduce upcoding. (OEI-03-99-00240)
Major Hospital Initiatives
The OIG has launched five national projects involving civil actions at hospitals that were
falsely billing the Medicare program.  Three of the five grew from OIG hospital audits that
identified irregularities in Medicare billing practices.
A.  Physicians at Teaching Hospitals
The  OIG  has  undertaken  a  nationwide  initiative  to  review  compliance  with  the  rules
governing reimbursement to physicians at teaching hospitals (also known as the PATH
initiative).  The specific objectives of the PATH audit initiative are to verify compliance with
the Medicare rules governing payment for physician services provided by residents and
teaching physicians, and to ensure that all claims for physician services accurately reflect the
level of service provided to the patient.
Medicare pays the costs of training residents through the graduate medical education (GME)
program.  Medicare also pays an additional amount in recognition of the additional costs
associated with training residents (also known as indirect medical education or IME).  These
payments can total over $100,000 per resident per year.  Medicare paid approximately $8
billion to teaching hospitals in 1998 for the costs of training residents.  The Medicare
payments  described  above  include  payments  to  teaching  physicians  for  their  role  in
supervising residents.
The fundamental tenet of the PATH initiative is that in order to receive reimbursement from
Medicare Part B for a service rendered to a patient, the teaching physician must have
7 personally provided that service or have been present when the resident furnished the care.
Physicians claiming reimbursement for services performed by the resident alone are making
a duplicate claim -- one that has already been paid for under Part A through the GME and
IME payments.
The PATH audits also include a review of Part B claims information and medical records to
determine if the teaching physician claimed the appropriate reimbursement for the level of
service provided.  The Medicare billing systems vulnerability to upcoding is a longstanding
concern at OIG.  The PATH reviews are designed to detect patterns or practices of upcoding,
resulting in unwarranted loss to the Medicare Trust Fund.
In sum, the PATH initiative has been undertaken as a result of OIGs extensive audit and
investigative work in this area.  To date, six institutions have entered into settlements with
the Federal Government to resolve potential False Claims Act liability related to improper
claims for Part B physician services submitted in the teaching setting.  These settlements
have resulted in the Governments recovery of over $75.1 million.  As a condition of
settlement, these institutions have also implemented compliance programs to prevent and
detect future improper claims.  Reviews completed at four other institutions disclosed no
major problems with either billings in the teaching setting or upcoding, demonstrating that
providers can and do bill the Medicare program correctly, and a review at one institution
resulted in an administrative overpayment settlement with the carrier.
To determine whether, and to what extent, problems similar to those noted above were
present  at  other  teaching  institutions  throughout  the  Country,  the  PATH  project  was
expanded into a national initiative, but limited to those institutions that received clear
guidance before December 30, 1992 from the Medicare Part B carriers communicating the
applicable HCFA reimbursement standards.  As an alternative to OIG auditors conducting
the audits, these providers are given the opportunity to conduct self-audits by contracting
with an independent third party for a review of their Medicare billing practices, with
Government oversight, and to report the audit results to OIG.
B.  Diagnosis Related Group Three-Day Window Project
In 1995, OIG and the Department of Justice (DOJ) launched a national project to recover
overpayments made to hospitals as a result of claims submitted for nonphysician outpatient
services that were already included in the hospitals inpatient payment under the PPS.
Hospitals that submit claims for the outpatient service in addition to the inpatient admission
are, in effect, double billing for the outpatient services.  In addition, the project seeks to
recover for those services rendered to beneficiaries during the inpatient admission that
should be included in the diagnosis related group (DRG), but are separately charged.  A
prevalent pattern of abuse was identified through repeated OIG audits of hospital claims for
inpatient services under PPS.  Prior to the inception of this project, OIG had issued four
8 reports to HCFA identifying approximately $115.1 million in Medicare overpayments to
hospitals caused by these improper billings.
This  national  project  identified  4,660  hospitals  that  submitted  improper  billings  for
outpatient services.  The project is primarily coordinated by the U.S.  Attorneys Office -
Middle District of Pennsylvania.  As of the end of the reporting period, settlements had been
executed with 2,660 hospitals and about $71 million had been recovered.
One of the most important aspects of this project is the stipulation in each settlement
agreement that each hospital will assure compliance with proper billing for inpatient and
outpatient services.  Such compliance measures are designed to prevent and detect erroneous
billing.  It is hoped that the deterrent effect of possible civil actions, along with promised
compliance, will remove this source of improper claims.
C.  Hospital Outpatient Laboratory Project
The OIG, DOJ and multiple States have joined forces to target false or fraudulent Medicare
and Medicaid claims in hospital outpatient laboratories.  A project begun in Ohio by OIG,
DOJ, the State of Ohio and the Medicare FI proved so successful, United States Attorneys
Offices in other States began their own investigations as part of an expanded effort.  This
project involves the recovery of multiple damages, when appropriate, for improper and
excessive claims submitted for hematology and automated blood chemistry tests by hospital
outpatient laboratories.  These abuses stem from the improper unbundling and double billing
of laboratory tests, and, in certain cases, the billing for certain medically unnecessary tests.
The investigations have also shown numerous instances of billing for hematology complete
blood count (CBC) additional indices that were not ordered by physicians and were not
medically necessary.
Clinical laboratory services were particularly vulnerable to these abuses because of the
multiple number of tests ordered at one time and the capability of automated equipment to
run numerous tests from one sample of blood at a low cost.  Under Medicare guidelines, the
hospitals were required to bill certain groupings of blood chemistry tests using a bundled
code.  The reimbursement for blood chemistry tests bundled into a panel was significantly
less than the sum of the costs for each test run separately.
The OIG and DOJ, and in some districts, authorities from other Federal programs such as
TRICARE (the health care benefits program for current and former military employees) and
Federal Employees Health Benefits Program (FEHBP), are working together on the national
project to provide targeting data to the United States Attorneys offices interested in pursuing
this recovery initiative in their districts.  The OIG also collaborated with DOJ to produce a
model  settlement  agreement  that  includes  compliance  measures,  which  has  been
disseminated to all participating districts throughout the United States.
9 Thus far, 233 hospitals have entered settlements in the Hospital Outpatient Laboratory
Project, with settlements totaling more than $53.5 million.  More hospitals are expected to
settle in the near future.
D.  PPS Patient Transfer Project
Another OIG/DOJ nationwide initiative is focused on improper payments to hospitals for
patient transfers between two PPS hospitals.  Under Medicare reimbursement rules, the
hospital transferring a patient is to receive a per diem payment based on the length of stay,
and the hospital receiving the transferred patient is to be paid a diagnosis-related payment
based on the final discharge code.
Since 1986, however, OIG has found that many transferring hospitals inappropriately claim
full diagnosis-related payment rather than the per diem payment.  The HCFA has already
acted on OIGs first report, which identified $227 million in recoveries and savings.  The
OIGs second report, issued in November 1996, and a more recent computer analysis of
claims disclosed additional overpayments of approximately $202 million.  Currently, OIG is
working  with  U.S.    Attorneys  offices  nationwide,  along  with  HCFA,  to  address  this
continuing problem.
E.  Pneumonia Upcoding Project
Medicare  inpatient  hospital  stays  are  reimbursed  based  on  the diagnosis-related  group
(DRG) that is assigned to the patients illness.  The determination of the appropriate DRG
for a particular case depends upon the hospitals assignment of diagnosis code(s) from the
th
International Classification of Diseases, 9  Revision, Clinical Modification (ICD-9-CM) to
the inpatient stay.  Most pneumonia cases are grouped into one of four DRGs, one of which
results in significantly higher payment to the hospital than do the others.  Most pneumonia
cases are grouped into the lower-paying DRGs.  The OIG has found that a small percentage
of hospitals across the country have assigned a disproportionate number of pneumonia cases
diagnosis codes that result in an admission being assigned the higher paying DRG.  Review
of the medical records has demonstrated that most of the cases assigned these specific
diagnosis codes at these hospitals should have been assigned a diagnosis code that would
result in assignment of a lower-paying DRG.
The OIG is currently investigating the coding for pneumonia upcoding at over 100 hospitals.
To date, eight hospitals have settled their liability for such coding by paying over $15
million and agreeing to corporate integrity requirements.
Other Hospital Investigations
The following cases are significant examples of other hospital cases resolved during this
period which were not part of the special projects described above:
10 (cid:127) A Maryland hospital agreed to pay the Government $2.1 million to resolve
its civil liability for allegedly committing fraud against the Medicare and
TRICARE programs.  The hospital improperly billed both programs for
outpatient  clinic  infusion  therapy  when  the  patients,  or  their  relatives,
actually self-administered the therapy in their homes.  Between 1993 and
1996, the medical center submitted over 350 false claims to Medicare.  As
part  of the settlement,  the  center entered into a  comprehensive,  5-year
corporate integrity agreement requiring new policies, training and annual
independent audits.
(cid:127) A  hospital  group  headquartered  in  Massachusetts  agreed  to  pay  the
Government  $395,065  and  entered  into  a  3-year  corporate  integrity
agreement to resolve issues related to improper billing practices by one of
its three hospitals.  In September 1997, the hospitals counsel disclosed to
the U.S. Attorneys Office that it had discovered a billing error in the
hospitals oncology clinic.  The hospital disclosed that between 1992 and
1997, it had billed Medicare Part B for a higher level of evaluation and
management services provided to clinic patients than actually performed.
The hospital attributed this problem to a programming error in its billing --
the overpayment was determined to be $263,376.
(cid:127) In New York, a medical center agreed to pay the Government $360,000 to
resolve its liability under the False Claims Act and to enter into a 3-year
corporate integrity  agreement.   The medical  center allegedly  billed the
Medicare program for unallowable pharmacy items.  Between 1989 and
1993, the facility billed Medicare Part B for certain pharmacy supplies
which were not covered under Medicare Part B.  Medicare Part B drug
coverage is limited to a small number of drugs, primarily immunological
drugs.  As a result of billing for these noncovered drugs, the medical center
was overpaid approximately $180,000.
(cid:127) A  hospital  in  Ohio  agreed  to  pay  the  Government  $290,000  to  settle
allegations it improperly billed self-administered drugs (SADs) provided in
an outpatient setting.  Medicare laws and regulations state explicitly that,
with certain specified exceptions, Medicare Part B pays for hospital services
and supplies incident to a physicians services to outpatients, including
drugs  and  biologicals  which  are  not  self-administered.    As  a  result,
Medicare generally does not pay for SADs provided to outpatients.  In this
case, the hospital self-disclosed the matter and then performed a self-audit
to establish damages.  It also provided the Government with substantial
cooperation and information regarding this issue.  As part of the settlement,
11 OIG also negotiated a comprehensive 3-year corporate integrity agreement
with the hospital.
(cid:127) A nonprofit hospital in California agreed to pay $51,000 to resolve its
liability under the False Claims Act and civil monetary penalty (CMP) law.
The hospital was named in a qui tam suit alleging that it paid kickbacks in
the form of marketing costs to obtain referrals from a physician.  The
hospital has had financial difficulties for several years but agreed to pay
almost  double  the  amount  of  the  alleged  kickback.    The  hospital  also
entered into a 3-year corporate integrity agreement.
(cid:127) In Maryland, a hospital agreed to pay the Government $10,000 to resolve its
liability under the CMP law for knowingly placing a prior False Claims Act
settlement amount on a Medicare cost report.  In 1997, the hospital  entered
into  a  settlement  with  the  Government  for  $564,000  and  subsequently
claimed the amount as legal fees on its Medicare Part A cost report for the
fiscal year.  Under the agreement made in 1997, the hospital was prohibited
from submitting the settlement amount as a cost for reimbursement by any
Federal health care program.  In addition to receiving the maximum CMP,
the hospital agreed to a new settlement agreement with certain corporate
integrity provisions to address corrective action specifically tailored to the
misconduct at issue.
Industry Guidance
The OIG has continued to issue advisory opinions, fraud alerts and other guidance as part of
its ongoing effort to promote the highest level of ethical and lawful conduct by the health
care industry.  For the period from April 1, 1999 through September 30, 1999, OIG accepted
22 advisory opinion requests and issued 5 advisory opinions.  In accordance with the Health
Insurance Portability and Accountability Act of 1996 (HIPAA), OIG has enlisted the help of
the provider and beneficiary communities to prevent impropriety by soliciting proposals (via
Federal Register notice) for modifying existing safe harbors to the anti-kickback statute.
The  OIG  received  seven  timely-filed  responses  to  the  1998  notice.    A  more  detailed
description of these proposals is set forth in Appendix G.  Where appropriate, OIG issues
more general guidance in the form of special fraud alerts describing practices that OIG has
investigated and believes are fraudulent, and special advisory bulletins articulating OIGs
views on emerging practices or arrangements that potentially implicate fraud and abuse
authorities.  One significant special advisory bulletin issued during the period concerned
gainsharing arrangements.
In the last year, several hospitals requested advisory opinions concerning the legality of
"gainsharing" arrangements with physicians on the hospitals staffs.  These gainsharing
arrangements involved the hospital giving physicians a percentage share of any reduction in
12 the hospitals costs for patient care attributable in part to the physicians clinical efforts.  In
most arrangements, in order to receive any payment, clinical care must not have been
adversely affected as measured by selected quality and performance measures.   
In  July  1999,  OIG  issued  a  special  advisory  bulletin  concluding  that  gainsharing
arrangements violate section 1128A(b)(1) of the Social Security Act, which prohibits a
hospital from making a payment, directly or indirectly, to induce a physician to reduce or
limit  services to  Medicare  or  Medicaid beneficiaries under the physicians  direct care.
Hospitals and physicians may be liable for CMPs of up to $2,000 per patient covered by the
payments.   The  OIG  stated  that  it will take into consideration  whether a  gainsharing
arrangement  was  terminated  expeditiously  in  determining  whether  to  prosecute  the
arrangement.
Year 2000 Readiness of Medicare Providers
The OIG surveyed Medicare health care providers regarding their readiness for the Year
2000 (Y2K).  In addition to Medicares 100 mission-critical computer systems, HCFA must
also  be  concerned  with  the  compliance  of  individual  systems  used  by  Medicare
claims-processing contractors and health care providers.  This is especially important since
the majority of Medicare claims are now sent electronically to the contractors for processing
and payment.
Replies were accepted through February 1999.  Respondents to OIGs survey included
hospitals, nursing facilities, HHAs, DME suppliers and physicians.  About half of them
reported that their billing and medical records systems were Y2K ready.  However, providers
seemed less confident in the Y2K readiness of their biomedical equipment.
13 Less than half the respondents had developed a contingency plan in preparation for possible
Y2K-related failures and less than half had received certification or guarantees that vendor
systems  were  Y2K  compliant.    In  addition,  few  respondents  had  actually  tested  data
exchange with external vendors.  Less than 60 percent of respondents reported that their
Medicare contractor had sent them information or offered assistance on Y2K, and even
fewer were aware that Medicare contractors offered free Y2K-ready software.
The OIG recognizes that HCFA has taken significant steps to address Medicare provider
readiness.  This report was designed to provide HCFA and health care provider associations
with immediate access to OIGs survey results and to assist HCFA in its ongoing Y2K
outreach and education efforts.  (OEI-03-98-00250)
At HCFAs request, OIG further analyzed the Y2K survey results to determine if other
variables had an impact on Y2K readiness.  Overall, OIG found very few statistically
significant  relationships  between  these  variables  and  the  survey  questions.
(OEI-03-98-00252)
Year 2000 Readiness of Managed Care Organizations
Effective January 1, 1999, the Balanced Budget Act of 1997 established a new Medicare +
Choice  program  that  expanded  the  health  insurance  options  available  to  Medicare
beneficiaries.  In a survey of Medicare + Choice contractors, OIG found that only 22 percent
of them were Y2K ready.  Of the remaining 78 percent, nearly two-thirds reported that all
14 their computer systems would be Y2K ready by December 31, 1999.  While the majority of
MCO  respondents  reportedly  discussed  possible  millennium  risks  with  their  medical
providers and subcontractors, most were unsure of their Y2K readiness; less than one quarter
reported testing data exchanges with two-thirds or more of their medical providers and
subcontractors.
The HCFA is conducting an outreach effort to address the preparedness of MCOs and is
monitoring the MCOs business continuity and contingency planning efforts.  The HCFA has
also  awarded a contract  to an independent verification  and validation  firm  to  provide
assistance in conducing onsite visits to numerous MCOs to assess their Y2K readiness.
(OEI-05-98-00590)
Contractors Administrative Costs for Year 2000 Remediation of
Medicare Systems
During FY 1998, HCFA increased funding to its Medicare contractors by over $100 million
for renovation of their computer systems in preparation for the Year 2000.  At HCFAs
request, OIG reviewed the administrative costs reported by four Medicare contractors to
determine whether they were allowable, i.e., qualified as charges to the Year 2000 project.
The OIG found that about $650,000, or 11.4 percent, of the $5.7 million in costs reported by
the contractors was unallowable for reimbursement.  Some of the unallowable costs were
unsupported or based on estimates, while others were attributable to accounting errors.  In
addition  to  recommending  financial  adjustments  for  the  unallowable  costs,  OIG
recommended  that  HCFA  clarify  its  written  guidance  to  contractors  regarding  the
allowability  of  certain  cost  items.    In  response  to  the  draft  report,  HCFA  generally
concurred.  (CIN:  A-05-99-00008)
Year 2000 Contractor System Compliance
The OIG has sustained its active monitoring of the progress being made by the Medicare
contractors to remediate their mission-critical computer systems in preparation for the Year
2000.  To date, OIG staff have participated in approximately 360 visits to the contractors,
along with staff from HCFA and HCFAs independent verification and validation contractor.
These visits focused on the shared system maintainers and data processing centers used by
multiple contractors to process Medicare claims.  Their purpose was not only to evaluate
progress in meeting HCFAs various deadlines and in resolving previously reported issues,
but also to discuss concerns on the part of all parties present.  Such concerns included
inadequate contingency plans to deal with possible system failures, the need for additional
guidance from HCFA on testing requirements and the need to conduct workload assessments
to identify the time and resources necessary for meeting HCFAs compliance requirements.
The results of the visits were provided in memorandums to HCFAs Chief Information
Officer.
15 Quality of Care in Nursing Homes
In a series of reports, OIG assessed the quality of care in nursing homes.  While real
improvements have been made in nursing home care since passage of the Omnibus Budget
Reconciliation Act (OBRA) of 1987, OIG found persistent problems in nursing home
conditions  and systems.   The  OIG  commended  HCFA  for  its  extensive  nursing home
initiative which addresses many of these areas.  Also, the Administration on Aging (AoA)
has taken steps to enhance the Ombudsman program.  
The OIG noted that the problems identified in these reports will require continuing attention,
possibly for several years.  The broad outline of an effective strategy would include actions
to enhance the survey and certification process; strengthen the Ombudsman program with
increased  resources;  improve  nursing  home  staffing  levels;  and  improve  coordination
between State survey agencies and ombudsmen.  Also, OIG believes that further evaluation
and progress measurement would make an important contribution to efforts to advance
nursing home care, specifically a systematic assessment of OBRA 1987 and the creation of a
periodic report card on conditions in nursing homes.
The OIG has incorporated action items from HCFA, AoA and current OIG work into one
comprehensive, long term agenda to continue improvements in nursing home care.  This
agenda consists of a three stage approach of immediate action, research and evaluation, and
continued progress measurement.  (OEI-02-98-00331; OEI-02-98-00330; OEI-02-98-00350;
OEI-02-98-00351; OEI-06-98-00280; OEI-02-99-00060)
Fraud Involving Nursing Homes
Nursing facilities and their residents have become common targets for fraudulent schemes
by which health care providers, medical professionals,  nursing facility staff and others
associated with the operation of nursing homes, improperly bill Medicare and Medicaid.
Through  such  arrangements,  Federal  health  care  programs  are  billed  for  medically
unnecessary services and for services either not rendered, or not rendered as described.
Examples  of fraudulent schemes involving nursing facilities and their  residents are as
follows:   
(cid:127) In Pennsylvania, a nursing home company agreed to pay the Government $3
million to settle allegations that it submitted false claims to Medicare.  The
improper claims were for saline dressings which were not reimbursable
because they were used for cleaning purposes and not for wounds.  The
ongoing criminal investigation in this case has resulted in six criminal
convictions, including the company owner, four salesmen and a physician
for  their  roles  in  defrauding  the  Government  and  for  illegal  kickback
activity.
16 (cid:127) In  Kansas,  a  nursing  home therapy  service  provider agreed to pay the
Government $688,996 to settle allegations of improper conduct with respect
to providing therapy services to nursing home patients.  The allegations
included the following:  billing for therapy that was excessive in duration,
providing medically unnecessary therapy, billing for time for staff education
purposes  under  inappropriate  circumstances,  excessively  billing  for
application of splints and positioning of patients, and billing for certain
aspects of wound therapy which did not require the skills of a therapist.  As
part  of  the  settlement,  the  defendant  agreed  to  adhere  to  a  3-year
comprehensive corporate integrity agreement.
(cid:127) In California, a diagnostics company and its owners paid the Government
$400,000 to settle allegations that the company submitted, and the owners
caused it to submit, false Medicare claims.  Evidence showed that the
company maintained two places of business so it could bill through two
different Medicare carriers.  Company technicians would travel to nursing
homes and provide respiratory therapy and diagnostic treatment to patients,
often at a frequency exceeding what was considered medically necessary by
Medicare  standards.    The  company  billed  a  portion  of  the  treatments
through one carrier and the other portion through the other carrier so that
each carrier would not know the true number of treatments provided to each
patient.   The  Government  also  alleged  that, on  occasion,  the company
would bill both carriers for the same treatment.  Under the terms of the
agreement, the company and one of its owners agreed to a 15-year exclusion
from participation in Federal health care programs.  The co-owner entered
into a comprehensive corporate integrity agreement covering her conduct
and any entity in which she has an ownership or management interest,
including the DME company she currently owns.
(cid:127) A  psychological  services  practice  agreed  to  settle  allegations  of  billing
Medicare for mental health services not rendered to nursing home residents.
The  practice  allegedly  engaged  in  a  broad-based  scheme  in  the
Maryland/Virginia/Washington,  D.C.  area  of  billing  a  comprehensive
diagnostic mental health evaluation every time one of their therapists saw a
nursing home patient.  Over a 4-year period, their alleged submission of
false claims resulted in a loss to Medicare of approximately $2 million.  By
the time of the settlement, the corporation had no assets and agreed to
permanent exclusion and closure of its business.  Two corporate officers
signed separate settlements, agreeing to pay the Government $50,000 and
$102,000, respectively, and to be permanently excluded.  A third officer did
not agree to settle, and a civil trial is pending.
17 (cid:127) A Texas podiatrist was sentenced to 3 years probation and 4 months home
confinement, and was ordered to pay restitution of $26,402 for her role in a
scheme to defraud Medicare of $357,000.  The podiatrist submitted forms to
her billing clerk indicating she rendered a higher level of service to nursing
home residents than the routine foot care she actually provided.  The clerk,
who admitted she submitted false claims to Medicare when she knew the
podiatrist provided a lesser service, was previously sentenced to 2 years
probation.
Abuse Complaints of Nursing Home Patients
The original purpose of this OIG study was to ascertain what could be learned about the
extent and nature of abuse of nursing home patients based on data available from the abuse
complaint systems of 11 large States.
The OIG obtained data about complaints made, but not necessarily substantiated.  While
OIG could not determine the extent to which nursing home patients were in jeopardy, it was
able to conclude that what was being reported by patients was serious.  The OIG found a
consistent reporting of abuse and neglect from each of the States.  More important, OIG
found that each State was reporting an increase in neglect complaints.  These types of
complaints related directly to quality of patient care in an environment which should ensure
each patients well-being.
Due to the lack of uniform data systems and definitions across States, OIG also could not
determine whether States with higher reported abuse complaint levels actually had more
abuse occurring, had more aggressive abuse reporting systems, or had some other outside
influencing factors.
Given HCFAs plans to strengthen the complaint process and its recent letter to the State
survey  agencies  clarifying  expectations  for  the  collection,  review,  investigation  and
reporting of complaints, OIG will wait to conduct a further study on patient abuse complaint
systems until the improved complaint process is implemented.  (OEI-06-98-00340)
Glucose Monitoring in Nursing Homes
In this memorandum, OIG recommended that HCFA institute a national policy stipulating
that daily routine glucose testing services provided by nursing homes are routine services
covered under the per diem rate and not billable separately to Medicare.
Medicare policy does not specifically address glucose testing performed by nursing homes.
Historically, nursing homes have not billed Medicare for these services.  However, based on
a consultants advice, some nursing facilities have begun billing for glucose tests performed
18 on their patients.  The HCFA has left the decision as to whether to cover these tests to
individual FIs.
In 1996, Medicare nursing homes billed about $70,000 for glucose testing; in 1998, that
figure rose to nearly $452,000.  By contrast, a single Medicare intermediary received over
9,000  claims  for  nursing  home  glucose  testing  in  late  1998  and  early  1999.    This
intermediary has chosen not to pay these claims, which could cost Medicare between $3
million and $4 million.  However, another FI is processing and will pay many of the 2,000
claims for glucose testing submitted by nursing homes at $100 to $300 per claim.
The OIG believes that a national policy prohibiting separate billing for glucose testing
would be consistent with Medicare and Medicaid efforts to prevent unbundling of services
and to establish prospective payment rates.  Permitting nursing homes to bill for blood
glucose tests invites abuse and risks substantial program losses.  (OEI-05-99-00380)  
Skilled Nursing Facilities
The OIG produced three reports on the early effects of the PPS on access to skilled nursing
facilities  (SNFs),  and  the  appropriateness  of  Medicare  payments  for  physical  and
occupational therapy in SNFs.  The studies found that, so far, there are no serious problems
in placing Medicare beneficiaries in nursing homes.  However, nursing homes are changing
their admission practices in response to the new PPS; one-fifth of the hospital discharge
planners say that, as a result, it has become more difficult to place patients who require
extensive services, while it has become easier to place patients who need rehabilitation
services.  The OIG  also found that most nursing home patients were appropriate candidates
for and benefitted from the physical and occupational therapy they received.  However,
almost 13 percent of the therapy was billed improperly to Medicare because it was not
medically  necessary  and/or  the  therapy  was  provided  by  staff  who  did  not  have  the
appropriate skill.
The OIG recommended that HCFA instruct Medicare fiscal intermediaries to provide more
training to facility and therapy staff on Medicare coverage criteria and guidelines, local
medical review policies and monitoring procedures for therapy; work collaboratively with
the national therapy and nursing home associations to assure that they provide accurate and
comprehensive information to their members; and adequately fund Medicare contractors to
perform  medical  reviews  of  therapy.    The  HCFA  agreed  with  the  recommendations.
(OEI-02-99-00400; OEI-09-97-00121; OEI-09-97-00122)
Criminal Fraud
One of the most common types of fraud perpetrated against Medicare, Medicaid and other
Federal health care programs involves the filing of false claims or statements.  Such false
claims may be pursued civilly under the False Claims Act (see, for example, the hospital
19 initiatives described on pages 7-10, above).  In appropriate cases, false claims may also be
prosecuted criminally as Federal offenses such as mail fraud, wire fraud, false statements
and various health care fraud offenses.  Following are descriptions of criminal prosecutions
successfully concluded during the reporting period:
(cid:127) A  North  Carolina  podiatrist  was  sentenced  to  1  year  and  1  day
imprisonment,  2  years  supervised  probation,  payment  of  $4,335  in
restitution and a special assessment of $14,100.  In addition, a settlement
calls  for him to pay  the  Government $400,000  and  for  his  permanent
exclusion.    In  parallel  criminal  and  civil  proceedings,  the  Government
alleged that over a 5-year period, the podiatrist submitted false claims to
Medicare and Medicaid.  Specifically, he sought payment for nonroutine
surgical procedures when he actually performed routine services, such as the
cutting and trimming of toenails, and the removal of corns and calluses.
Through this scheme, he received approximately $142,000 from Medicare
and Medicaid.  He previously pled guilty to 52 counts of mail fraud, wire
fraud, false statements and health care fraud.  He also pled guilty to 12
counts  of  false  statements  with  regard  to  fraud  committed  against  the
Medicaid program.
(cid:127) In  Florida,  a  licensed  acupuncturist  was  sentenced  to  33  months
imprisonment,  3  years  supervised  release  and  payment  of  $50,000  in
restitution for conspiracy to defraud Medicare.  The acupuncturist and his
former  wife  operated  six  acupuncture  clinics.    They  conspired  with
physicians in a scheme to circumvent and defraud the Medicare program for
nonreimbursable  acupuncture  and  related  treatments.    The  investigation
involved the first known extradition of a fugitive from a foreign country
based on Medicare fraud charges.  In 1994, the acupuncturist fled the United
States to Taiwan via Hong Kong after being charged with Medicare-related
violations, as well as unrelated sexual battery charges filed by the State.
(cid:127) A Pennsylvania man was sentenced for his role in the improper billing
practices of his employer, a physician.  He was sentenced to 6 months home
detention, 3 years probation and a $4,000 fine for mail fraud.  As a billing
manager for the physician, he participated in the submission of false claims
for  services  not  rendered  to  Medicare  and  private  pay  patients.    The
fraudulent activity resulted in an estimated loss of over $600,000.  Finally,
the physician was sentenced for racketeering and sale of prescription drug
samples to 3 years imprisonment, 5 years supervised released, payment of
$650,000 in restitution, forfeiture of $105,000 to the Government and a
$25,000 fine.  The physician inappropriately prescribed certain controlled
20 substances to patients who were, in fact, drug abusers and improperly billed
for services not rendered to Medicare and private pay patients.
(cid:127) Another Pennsylvania man was sentenced to 37 months incarceration, 3
years supervised release and payment of $21,616 in restitution for using a
fictitious medical license, illegally distributing controlled substances and
mail fraud.  Posing as a physician specializing in psychiatry and licensed in
Pennsylvania, the man entered into a physician-patient relationship with
more than 500 patients to whom he provided psychiatric treatment and care.
In so doing, he often prescribed controlled substances to patients, including
powerful prescription medications.  He was neither licensed to practice
medicine in Pennsylvania, nor authorized to prescribe drugs or render other
psychiatric services.
(cid:127) A Virginia  physician was  sentenced to  6 months  house arrest, 2 years
probation and payment of a $20,000 fine.  The physician previously pled
guilty in November 1998 to mail fraud in connection with defrauding the
Medicare and Medicaid programs.  As part of his criminal plea, he agreed to
surrender  his  medical  license  for  life  and  to  pay  $26,112  in  criminal
restitution.   A  psychiatrist  in practice  for the past  30 years, he  falsely
represented that he treated patients when a licensed professional counselor
actually  provided  the  services.    He  also  engaged  in  improper  billing
practices related to the treatment of his patients during hospitalization; for
example, he submitted claims to Medicare for individual psychotherapy
services  and  psychiatric  evaluations  not  rendered.    In  addition,  the
investigation  uncovered allegations that the psychiatrist used treatment of
an unconventional and sexually inappropriate nature.
(cid:127) In Florida, a laboratory owner was sentenced for conspiracy to submit false
claims to 3 years probation, with a special condition that he serve 4 months
in a special treatment center, followed by 8 months home confinement.  The
man paid kickbacks to local doctors and clinic owners in return for their
referring  clinical  laboratory  services  to  his  laboratory.    Moreover,  he
actively solicited clinics and encouraged them to order certain tests, with a
higher Medicare reimbursement rate, for which he could bill the program.
In order to have the cash necessary to pay these kickbacks, the laboratory
owner engaged  in  an  elaborate  money  laundering  scheme.   Two  other
codefendants, who participated in the money laundering scheme by cashing
checks under the $10,000 Internal Revenue Service reporting requirement,
were sentenced as well.  One was sentenced to 60 days home confinement,
2 years probation and participation in an approved outpatient mental health
program.  The other was sentenced to 3 months home confinement and 4
21 years probation, with a special condition that he serve 4 months in a special
treatment center.
Kickbacks
Many businesses engage in referrals to meet the needs of customers or clients for expertise,
services or items which are not part of their own regular operations or products.  The
medical profession relies heavily upon referrals  because  of the myriad  specialties and
technologies associated with health care.  If referrals of Medicare or Medicaid patients are
made in exchange for anything of value, however, both the giver and receiver may violate
the Medicare and Medicaid anti-kickback statute.
Among  its  provisions,  the  anti-kickback  statute  penalizes  anyone  who  knowingly  and
willfully solicits, receives, offers or pays remuneration in cash or in kind to induce or in
return for:
(cid:127) referring an individual to a person or entity for the furnishing, or arranging
for the furnishing, of any item or service payable under the Medicare or
Medicaid programs; or
(cid:127) purchasing,  leasing  or  ordering,  or  arranging  for  or  recommending  the
purchasing, leasing or ordering of any good, facility, service or item payable
under the Medicare or Medicaid programs.
Violators are subject to criminal penalties, or exclusion from participation in the Medicare or
Medicaid program, or both.  They may also be subject to CMPs.  The following cases are
some of the examples of the sentences for this crime: 
(cid:127) In Florida, the employee of a mobile diagnostic laboratory was sentenced to
3 years probation and payment of $349,000 in restitution for conspiracy to
defraud the United States Government through illegal kickback activity.
The man paid kickbacks in exchange for Medicare patient referrals.  In
addition to his sentencing, two other case-related subjects entered into a
pre-trial diversion program.  Both former owners of impotence clinics, these
individuals committed offenses against the Medicare and Civilian Health
and Medical Plan of the Uniformed Services (CHAMPUS) programs, now
known  as  TRICARE.    This  investigation  was  opened  after  receiving
allegations  that  numerous  impotence  clinics  in  Florida  were  billing
Medicare and CHAMPUS for services and DME not medically necessary or
not ordered by physicians.
22 (cid:127) A New York man was sentenced to 5 months imprisonment, 5 months home
confinement and 2 years supervised release for his role in illegal kickback
activity.  His scheme involved paying kickbacks to doctors in return for
patient referrals to a magnetic resonance imaging (MRI) company where he
served as a "medical consultant."   As part of the scheme, the man received
checks from the MRI companys owners made payable to his own business.
He  then  deposited  the  checks  into  his  business  account  and  paid  the
referring doctors in cash.  As part of his sentence, he was ordered to file an
amended tax return to account for unclaimed kickback monies he received
through this scheme.
(cid:127) In New York, a man was sentenced to 3 years probation, 4 months home
detention and a $1,000 fine for conspiracy to commit mail fraud and illegal
kickback activity.  He engaged in these improper activities while working as
the office manager for a physician.  From 1990 through 1994, the two
conspired to solicit and obtain kickbacks from specific medical facilities in
return  for  Medicare  patient  referrals  to  those  facilities  for  diagnostic
services.   They  then  split  the kickbacks received.  For his part in the
scheme, the physician was arrested for mail fraud and sentenced to 2 years
probation, 6 months home detention and a $30,000 fine.
Fraud and Abuse Sanctions 
During this reporting period, OIG imposed 1,943 administrative sanctions, in the form of
program exclusions or civil actions, on individuals and entities for engaging in fraud or
abuse or other activities deemed to be a risk to Federal health care programs and/or their
beneficiaries.
A.  Program Exclusions
Title XI of the Social Security Act provides for a number of bases for excluding individuals
and  entities  from  participation  in  Medicare,  Medicaid  and  other  Federal  health  care
programs.  Exclusion is mandatory for those convicted of program-related crimes, crimes
related to patient abuse or neglect, felony convictions for defrauding other health care
programs, and felony convictions for the illegal manufacture or distribution of controlled
substances.  Exclusion is discretionary for those who have lost a license to practice or the
right  to  participate  in  a  State  health  care  program  for  reasons  related  to  professional
performance, professional competence or financial integrity, or provided substandard or
unnecessary services.  Exclusions may also be imposed on those convicted of private
insurance fraud, or obstruction of an investigation, and on individuals who have failed to
repay health education assistance loans (HEALs).
During this reporting period, OIG imposed exclusions on 1,689 individuals and entities.
The following are examples of some of the exclusions that were imposed:
23 (cid:127) A  registered  nurse  in  Colorado  was  excluded  from  participating  in
Medicare, Medicaid and all Federal health care programs for a period of 10
years following his conviction in district court of second degree assault
against two hospital patients.  The registered nurse was sentenced to 6 years
imprisonment (suspended), placed on 4 years probation, and required to
register as a sex offender. 
(cid:127) In Alabama, a man posing as a licensed professional counselor and clinical
psychologist was excluded from program participation for 10 years.  For
over 8 years, the subject used the mail to defraud the FEHBP, TRICARE,
private insurance companies and approximately 450 individual patients by
submitting false claims.  He was sentenced to 18 months in prison and
ordered to pay restitution of over $300,000.
(cid:127) A certified nursing assistant in Tennessee was excluded for 20 years after
being convicted of raping a resident of a rehabilitation center.  The man pled
guilty to two counts of rape and was sentenced to 16 years in prison.
Further, local police received allegations of sexual assaults by the man
against his own children, and he was charged with 15 additional counts of
rape of a child.  In this instance, the man pled guilty to one count of rape
and was sentenced to 8 years imprisonment, to be served concurrently.
(cid:127) After  pleading  guilty  to  four  counts  of  violation  of  the  Controlled
Substance, Drug, Device, and Cosmetic Act, a Pennsylvania pharmacist was
sentenced to serve 23 months incarceration and ordered to pay $12,000 in
restitution.  Over a 3-year period, the pharmacist illegally dispensed the
medication Darvon to a customer without a doctors prescription.  After
overdosing on the medication, the customer reported the pharmacists illegal
activities to the police.  The pharmacist was excluded for 10 years.
(cid:127) In Maryland, a physician who prescribed medication to Internet clients
around  the  world,  whom  he  admittedly  never  examined,  was  excluded
indefinitely from program participation after surrendering his license to
practice medicine in the State.  The physician had sex with several of his
patients and handed out medication indiscriminately.  One patient died
under  his  care  from  "drug  intoxication,"  and  another  patient,  under
treatment for cocaine addiction, committed suicide.
(cid:127) As part of a plea agreement, OIG consented to the permanent exclusion of
an Ohio physician charged with obstructing a criminal investigation of
health care offenses.  The physician came under investigation by the FBI
and  other  law  enforcement  agencies  as  a  result  of  reported  billing
24 irregularities and improprieties.  His office housed its own laboratory where
blood tests for his patients were conducted.  Ordered to turn over a number
of records via subpoena, the physician altered many of the patient cards,
adding entries to make it appear that certain in-house laboratory blood tests
had been ordered and performed when he knew they had not been.  Also,
test reports from other outside laboratories were removed from patient files
so it would appear that these blood tests (which were billed by the physician
to Medicare) had been performed in his office.  The physician was ordered
to pay restitution of almost $29,000 and a CMP of approximately $57,000.
(cid:127) A clinic owner in Georgia was excluded from program participation for 20
years.  The subject was indicted along with 11 others as part of a scheme to
defraud Medicare.  The scheme, which involved 6 clinics and diagnostic
companies, utilized patient recruiters and unlicensed physicians assistants.
Medicare  was  then  billed  for  medically  unnecessary  and  nonrendered
services,  and  the  proceeds  were  laundered  by  the  clinic  owners  and
employees.  The total loss to the Medicare program was in excess of $6
million dollars.  For his part in the scheme, the clinic owner was sentenced
to  21  months  in  jail,  3  years  supervised  release  and  a  $50  special
assessment.  He was also ordered to pay full restitution in the amount of
$696,000.
B.  Civil Penalties for Patient Dumping
Section  1867  of  the  Social  Security  Act  (42  U.S.C.  1395dd)  provides  that  when  an
individual presents to the emergency room for examination or treatment, a hospital which
has a Medicare provider agreement is required to provide an appropriate medical screening
examination to determine whether that individual has an emergency medical condition.  If
an individual has such a condition, the hospital must provide, within the capabilities of the
staff and facilities available at the hospital, treatment to stabilize the condition, unless a
physician certifies that the individual should be transferred because the benefits of medical
treatment elsewhere outweigh the risks associated with transfer.  If a transfer is ordered, the
transferring hospital must arrange for a safe transfer, which includes providing stabilizing
treatment to minimize the risks of transfer, making sure the receiving hospital has agreed to
accept the transfer and effecting the transfer through qualified personnel and transportation
equipment.  A hospital is prohibited from delaying provision of examination or treatment for
an emergency medical condition to inquire about an individuals method of payment or
insurance status.  Further, a participating hospital with specialized capabilities or facilities
may not refuse to accept an appropriate transfer of an individual who needs those services if
the hospital has the capacity to treat the individual.
The OIG is authorized to impose CMPs of up to $25,000 against small hospitals (less than
100 beds) and up to $50,000 against larger hospitals (100 beds or more) for each instance
25 where the hospital negligently violated any of the section 1867 requirements.  In addition,
OIG may impose a CMP of up to $50,000 against a participating physician, including an
on-call physician, for each negligent violation of any of the section 1867 requirements.
Between April 1, 1999 and September 30, 1999, OIG collected $1.7 million in CMPs from
61 hospitals and physicians.  The following is a sampling of the alleged violations involved
in the FY 1999 Patient Anti-Dumping Statute settlements from this reporting period.
(cid:127) A Tennessee emergency room physician agreed to pay $15,000 to resolve
one dumping allegation.  The incident involved the inappropriate transfer of
a gunshot victim to a trauma center approximately 30 miles away.  The
patient was thought to be stabilized; however, immediately prior to transfer
the patient began to bleed heavily.  Nonetheless, the physician transferred
the  patient  by  ambulance  but  without  blood,  even  though  blood  was
available and the patient had been prepped to receive blood.  Shortly after
arriving at the trauma center, the patient died from blood loss and a heart
attack.
(cid:127) An Illinois hospital paid $50,000 to resolve dumping allegations that six
patients did not receive appropriate medical screening examinations.  In five
of the cases, the hospital was denied prior payment authorization by the
individuals managed care organizations.  Four of these patients, children
aged 4-12, were triaged and advised to see a physician in the morning.  The
fifth was an 84-year old who was only triaged.  In the sixth case, the
emergency room physician instructed the patient to go to an urgent care
center for treatment.
(cid:127) A New York obstetrician/gynecologist (OB/GYN) agreed to pay $45,000
and attend and complete training on the requirements of, and the physician
obligations  under,  the  Patient  Anti-Dumping  Statute.    This  physician
allegedly failed to come to the hospital, examine and treat a 19-year old
uninsured  pregnant  patient  in  active  labor.    In  addition,  the  OB/GYN
refused to admit the patient and requested that the patients boyfriend drive
her to another hospital rather than arrange for an appropriate transfer.
(cid:127) A hospital in Kansas paid $148,000 to resolve dumping allegations that
involved four burn victims.  In one incident, the hospital failed to provide an
appropriate transfer for a patient.  The remaining three incidents involved
the hospitals failure to accept patients who needed the hospitals specialized
capabilities  or  facilities.    Three  of  the  four  patients  had  out-of-state
Medicaid insurance coverage.
26 (cid:127) A Maryland hospital resolved a dumping allegation by  paying  $35,000
because it failed to respond to a request made for treatment of a man who
collapsed outside the hospital but on hospital grounds.  The man had come
to the hospital with family members but went outside because he was not
feeling well.  After the emergency room denied two requests for assistance
made by  hospital security guards, a security guard was able to obtain the
assistance of a doctor and other hospital personnel.  The man could not be
resuscitated and died.
C.  Civil Penalties for False Claims
Under  the  CMP  authorities  enacted  by  the  Congress,  OIG  may  impose  penalties  and
assessments against health care providers and others who submit false or improper claims to
the Medicare and State health care programs.  The OIG also assists DOJ in bringing (and
settling) cases against wrongdoers under the False Claims Act.  Many providers elect to
settle their cases prior to litigation.  As part of resolving these cases, OIG frequently imposes
corporate integrity agreements on entities as a condition for being allowed to remain as a
provider in the Medicare program.  The integrity programs established by these agreements
are designed to prevent a recurrence of the fraudulent activities that gave rise to the case at
issue.  The Government, with the assistance of OIG, recouped more than $160 million
through both CMP and False Claims Act civil settlements related to the Medicare and
Medicaid programs during this reporting period.  Some examples of these cases include:
(cid:127) A major home health services corporation and one of its subsidiaries entered
into a global settlement totaling $61 million with the Government, including
approximately $10 million in criminal fines.  The settlement resolves the
corporations  criminal,  civil,  and  administrative  liability  arising  from
Medicare  fraud  investigations  in  Georgia,  Florida,  and  New  York.    In
Georgia and Florida, the investigation examined a series of transactions in
which the home health services corporation paid another large health care
corporation in order to secure the right to provide Medicare-reimbursable
management services to the other corporation.  The home health services
corporations payments took various forms, including selling its HHAs to
the other corporation at below-market prices, and making cash contributions
to the other corporations purchase of HHAs from third parties.  As a result
of this investigation, the subsidiary pled guilty to conspiracy, mail fraud and
violation  of  the  Medicare  anti-kickback  statute.    In  New  York,  an
independent  investigation  focused  on  allegations  that  the  corporation
submitted unallowable expenses on its Medicare cost reports, including
personal expenses of executives, gifts and entertainment, and merger costs.
In  addition  to  paying  $61  million,  the  corporation  entered  into  a
comprehensive corporate integrity agreement with OIG.
27 (cid:127) Stemming from a qui tam complaint filed in New Mexico, two former
Medicare contractors agreed to settle their False Claims Act, criminal and
administrative liability for misrepresenting their performance to HCFA.  In
order to resolve allegations of manipulating certain computer files to obtain
a better score on the Contractor Performance Evaluation Program, one of
the corporations agreed to pay the Government $6.84 million.  On or after
May 1, 2001, the United States may, at its sole discretion, demand that the
other corporation pay the Government $5.86 million, after considering the
corporations financial condition, for attempting to conceal evidence of poor
performance on their audits of Medicare Part A providers.  In addition, both
corporations  will  forgo  contract  claims  totaling  $3.1  million.    Both
corporations also entered into a 5-year corporate integrity agreement with
OIG.  In addition, as part of the global settlement, the former contractors
pled guilty to obstruction of a Federal audit and conspiracy to obstruct a
Federal audit.  A third corporation, co-owned by the contractors to provide
them with management services, pled guilty to conspiring to obstruct a
Federal audit as well.  The three companies agreed to pay a total of $1.5
million in criminal fines which will be applied to their civil liability.  The
United States should ultimately receive $15.8 million in criminal fines, the
civil settlement and the contract claims.
(cid:127) A psychiatric hospital with a partial hospitalization program (PHP) in the
Chicago, Illinois area agreed to pay the Government $4 million to resolve
allegations of improper billing practices.  The settlement covers Medicare
claims the hospital submitted for partial hospitalization services rendered to
patients for over a 3-year period.  Through its PHP, the hospital submitted
claims  to  Medicare  for  services  which  were  not  medically  necessary,
reasonable or appropriate.  As part of the settlement, the hospital also agreed
to a 5-year corporate integrity agreement that specifically addresses the
billing of PHP services and applies to its affiliates, including therapeutic day
schools and outpatient clinics.  In order to fund the settlement payment, the
owner sold the  hospital, and the buyer has agreed to comply with the
relevant provisions of the corporate integrity agreement.
(cid:127) A physician and his oncology clinic jointly agreed to pay the Government
$963,736 to resolve their civil liability for submitting false claims, and
entered into a corporate integrity agreement with OIG.  Between 1992 and
1997, the physician and his clinic allegedly submitted improper claims to
Medicare and the Mississippi Medicaid program for services rendered at the
clinic by nonphysicians without a physicians supervision or presence.  The
corporate integrity agreement applies to all entities in which the physician
has  an  ownership  or  management  interest  and  that  submit  claims  for
28 reimbursement to any Federal health care program.  The physician currently
owns two rural oncology clinics, one in Mississippi and the other in Illinois.
(cid:127) A Pennsylvania physician agreed to pay the Government $225,000 to settle
allegations  that  his  practice  upcoded  office  visits  and  angioplasty
consultations.    This  settlement  figure  represents  approximately  treble
damages.    The  physician  also  agreed  to  enter  into  a  3-year  corporate
integrity agreement.
(cid:127) A health care services corporation agreed to pay the Government $195,000
to resolve its liability for submitting claims for poor quality services at one
of its nursing facilities.  The case stems from a 1996 HCFA survey of
several residents records that uncovered inadequate nutrition care, wound
care, incontinence care and supervision at a nursing facility in Pennsylvania.
The poor quality of care alleged was attributed primarily to an inability to
control high staff turnover.  In addition to the amount paid in damages, the
settlement  calls  for  comprehensive  compliance  provisions  that  include
implementation of  a specific quality  of care protocol, training  and the
appointment of an independent consultant for 1 year to monitor and ensure
provision of quality care.
(cid:127) A New York physician agreed to pay the Government $23,041 to settle
allegations related to improper billing practices.  Between August 1991 and
December  1996,  the  physician  allegedly  billed  Medicare  for  certain
arthroscopy surgical procedures as if  they were more complex surgical
procedures  than  those actually performed.  As a result, he received an
approximate overpayment of $14,127.  As part of the settlement, the now
retired physician agreed to permanent exclusion from Medicare, Medicaid
and other Federal health care programs.
Under the CMP law (CMPL), OIG has authority to proceed administratively against persons
or entities who submit false claims for payment under the Medicare and Medicaid programs.
Under CMPL, the Inspector General may impose a civil penalty of "not more than  $10,000
for each item or service" falsely claimed, and "an assessment of not more than three times
the amount claimed for each such item or service in lieu of damages sustained by the United
States or a State agency because of such claim." (42 U.S.C. 1320a-7a).   Among the cases
successfully pursued under the CMPL authority were:
(cid:127) In Maine, a small town agreed to pay $50,000 to resolve allegations that the
town submitted false claims to Medicare for the use of the fire departments
ambulance service in circumstances where there was no medical necessity.
Ambulances  were  being used  as a  taxi  service  to transport the towns
29 residents to the hospital because the town was afraid of liability should it
not pick up someone who called.
(cid:127) A Colorado pharmacist, his wife and the irrevocable trust for which his wife
is a trustee agreed to pay $120,267 to resolve alleged violations of billing
while excluded.  After being excluded from participating in Medicare and
State health care programs, the pharmacist caused Medicaid to improperly
pay for more than 2,000 claims that were submitted for prescriptions he
filled.  His wife and the trust were parties to the agreement because some of
the pharmacies involved were owned by the irrevocable trust.
(cid:127) Queries into the National Practitioner Data Bank (NPDB) are restricted by
statute to hospitals, other health care entities, State licensing boards and
professional societies.  Authorized agents may only query with the specific
authorization of an eligible entity for specifically designated and limited
purposes.    An  Arizona  corporation  agreed  to  pay  $42,500  to  resolve
allegations  of  unauthorized  queries  into  the  NPDB.    The  corporation
allegedly queried the NPDB on behalf of an eligible entity without due
authorization.    The  OIG  deemed  that  the  queries  violated  NPDB
confidentiality provisions, which include improper disclosure, use or access
to  NPDB  information.    This  was  the  first  time  the  Inspector  General
imposed a CMP for alleged violations of NPDB confidentiality provisions.
D.  Compliance Activities
The existence of an "effective" compliance program can offer an organization certain credit
under the Federal Sentencing Guidelines.  This and other benefits have served to encourage
the private sector to develop methods to prevent and detect violations under the False
Claims Act and the CMP law.  The OIG has already initiated significant outreach efforts
with the private sector to discuss these endeavors.
The  OIG  continues  in  its  efforts  to  promote  voluntarily  developed  and  implemented
compliance programs by providing guidance for the various parts of the health care industry.
To this end, OIG has developed and released compliance program guidance for clinical
laboratories, hospitals, HHAs, third-party billing companies, DME, prosthetics and orthotics
suppliers, and hospices.  The OIG is currently working on guidance for other sectors of the
industry, including Medicare+Choice organizations that offer coordinated care plans and
nursing homes.  The seven fundamental elements of an effective compliance program are:
implementing  written  policies,  procedures  and  standards  of  conduct;  designating  a
compliance officer and compliance committee; conducting effective training and education;
developing effective lines of communication; enforcing standards through well-publicized
disciplinary  guidelines;  conducting  internal  monitoring  and  auditing;  and  responding
promptly to detected offenses and developing corrective action initiatives.  
30 Copies of OIGs compliance program guidances, as well as other materials developed by
OIG as part of its effort to identify and curb health care fraud, are available on the Internet at
http://www.hhs.gov/oig.
In addition to developing compliance program guidance, OIG monitors corporate integrity
obligations  imposed  on  health  care  providers  as  part  of  global  settlements  of  OIG
investigations and audits.  Presently, OIG is monitoring 418 Government-imposed corporate
integrity agreements.  These agreements cover the range of providers from small physician
offices to large hospitals and laboratory corporations.  The duration of most corporate
integrity agreements is 5 years and these agreements require a substantial effort by the
provider to ensure that the organization is operating within HCFA rules and regulations and
the parameters established by the corporate integrity agreement.  Failure to adhere to the
corporate integrity agreement could result in exclusion of the provider in addition to other
penalties.
For the first time, OIG and the health care industry, in conjunction with the Health Care
Compliance Association, conducted a joint roundtable on health care compliance to gain
new insights into the challenges of creating effective compliance programs.  A summary
report on this meeting was issued on April 13, 1999, and is available on OIGs website.  The
March  22  Washington,  D.C.  event  was  a  direct  result  of  OIGs  desire  to  engage  in
constructive discussions with the health care compliance industry about various practices
and  policies  related  to  compliance  programs,  including  how  to  deal  with  compliance
recommendations advanced by OIG.  Over 125 compliance officers, health care compliance
consultants and Government representatives attended the day-long event.  The participants
represented a wide spectrum of institutional and individual provider organizations.
Beneficiary and Provider Outreach Activities
Since the February kick-off of the national initiative against waste, fraud, and abuse in the
Medicare  program,  OIG  has  continued  its  collaborative  partnership  with  HCFA,  the
Administration on Aging (AoA), the American Association of Retired Persons (AARP) and
DOJ, including the Federal Bureau of Investigation.  Since the event, the OIG hotline
(1-800-HHS-TIPS) has served as an educational and reporting resource to approximately
300,000 callers.  The hotline has also experienced a spike in calls from Puerto Rico and has
established an active monitoring and evaluation system to ensure that concerns of the
Hispanic community are addressed. 
All  of  the  outreach  partners  listed  above  have  individual  and  collaborative  activities
underway.  The OIG continues to distribute hundreds of its Medicare fraud educational
materials to beneficiaries through AoA grantees, the AoA network and AARP regional
offices,  and  is  pursuing  endorsement  from  the  American  Library  Association  of  its
"Medicare Fraud is Money Down the Drain" poster for distribution to member libraries
31 nationwide.    Efforts  are  also  underway  to  develop  a  working  relationship  with  Asian
American and Hispanic organizations to translate and print Medicare fraud materials into
Mandarin Chinese and distribute these materials and those already printed in Spanish, to
Chinese Americans and Hispanics. 
In addition to beneficiary outreach, OIG has made progress in working with provider
groups.    Specifically,  OIG  has  coordinated  discussion  between  the  partners  and  the
American Hospital Association, has had two productive meetings with the American College
of Physicians/American Society of Internal Medicine and seeks to promote dialogue with
other provider groups.  
Mutually Exclusive Procedure Codes at Hospital Outpatient
Departments
Mutually  exclusive  procedures  represent  medical  services  that  cannot  reasonably  be
furnished in the same session, to the same patient, and by the same provider.  An OIG
review found that while HCFA established edits to preclude payment for certain mutually
exclusive services provided by doctors offices and clinics, payment for the same type of
services was not prevented when provided in hospital outpatient departments.  The OIG
recommended that HCFA instruct FIs to implement edits to preclude payment for Medicare
Part B mutually exclusive procedure codes.  Based on its review of payments for radiology
and pathology/laboratory services made in 1996 and 1997 by FIs, OIG believes these edits
would result in savings to Medicare of approximately $29.1 million over a 2-year period.
Also, OIG recommended that HCFA notify hospital providers that Medicare Part B will no
longer  pay  for  mutually  exclusive  procedure  codes  related  to  radiology  and
pathology/laboratory services.  The HCFA generally concurred with the recommendations.
(CIN:  A-01-98-00507)
Home Health Care Reimbursement
During this reporting period, OIG reviewed statistical samples of the home health care
services  claimed  by  three  Florida  providers  to  determine  whether  they  met  Medicare
reimbursement guidelines.
In an audit of 100 claims filed by one provider, OIG found that 44 involved services that did
not meet Medicare reimbursement requirements.  The 100 claims involved 2,264 services, of
which 759 were unallowable.  The OIG estimated that between $2.2 million and $3.8
million of the $9.1 million claimed by the provider for the year ending December 31, 1996
did not meet reimbursement requirements.
In a second review, OIG determined that 42 of 100 claims involved services that did not
meet Medicare reimbursement requirements.  The 100 claims involved 2,294 services, of
32 which 577 were unallowable.  The OIG estimated that between $1.9 million and $3.5
million of the $8.3 million claimed for 1996 did not meet the reimbursement guidelines.
In its third review, OIG found that 32 of 100 claims involved services that did not meet
Medicare reimbursement guidelines.  The 100 claims involved 1,930 services, of which 429
were unallowable.  The resulting overpayment was estimated at between $2.3 million and
$4.7 million of the $21.8 million claimed by the provider for 1996.
Although OIG found that the providers monitored their own employees and subcontractors,
the monitoring was not adequate to ensure that claims submitted were for services that met
Medicare reimbursement requirements; it did not properly address homebound status, the
medical necessity of services or duplication of services.  The OIG recommended that HCFA
instruct the FI to recover the overpayments; require the FI to instruct the providers on their
responsibilities to properly monitor their  subcontractors for compliance with  Medicare
regulations; and monitor the FI and the providers to ensure that corrective actions are
effectively  implemented.    The  HCFA  concurred  with  the  recommendations.    (CIN:
A-04-97-01170; CIN:  A-04-97-01169; CIN:  A-04-97-01166) 
Home Health Agency Fraud
Home health agencies are one of the fastest growing segments of the health care industry
because they allow many patients to remain in their own homes at less expense than might
be incurred at a hospital or other institution.  The OIG has become aware of a number of
fraudulent arrangements by which home health care providers, medical professionals and
others associated with the operation of HHAs, inappropriately bill Medicare and Medicaid.
The following cases represent some examples of improper activities related to the provision
of home health care services:   
(cid:127) As  the  result  of  an  OIG  investigation  and  audit,  a  multimillion  dollar
settlement was reached with the largest home health care company in Texas.
The  company  agreed  to  pay  the  Government  $10  million  to  resolve
allegations involving its subsidiary, a provider of home health care and
infusion therapy services.  Allegedly, the subsidiary improperly charged
Medicare for unallowable costs including salaries, travel and legal fees.  In
addition,  the  subsidiary  allegedly  conspired  with  and  caused  SNFs  to
overcharge  Medicare  for  infusion  therapy  drugs,  supplies  and  nursing
services.    As  part  of the  settlement,  the  subsidiary  also  entered  into  a
comprehensive corporate integrity agreement with OIG.
(cid:127) A Texas physician and his clinic agreed to pay the Government $1.7 million
to  settle  allegations  of  violating  the  Federal  physician  self-referral
prohibition and Federal health care program regulations.  The physician
allegedly participated in a scheme to circumvent prohibitions against the
33 referral of patients to an HHA in which the physician has a significant
ownership  interest.    The physician  violated these  statutes  by indirectly
referring his patients to an HHA owned by his wife.  In settling this case, the
OIG waived its permissive exclusion authority and imposed a corporate
integrity agreement requiring outside audits, reporting and other compliance
measures over the next 5 years.  One factor considered in OIGs decision to
waive its permissive exclusion authority involved the essential specialized
services the physician provides to indigent patients in an underserved area.
This investigation arose out of a civil lawsuit involving allegations of cost
report fraud against the physicians wife.
(cid:127) In Arizona, a couple who owned and operated an HHA was sentenced for
theft  of  public  monies.    The  wife  was  sentenced  to  1  year  probation,
restitution  of  $97,201  and  a  fine  of  $3,000.    Her  husbands  sentence
included 3 years probation and 140 hours of community service.  It was
alleged that the couple paid for patient referrals and that they operated a
DME company and private staffing company, using the same staff as their
Medicare-funded operation.  During the execution of a search warrant,
evidence of cost report fraud was obtained.  As a result, the Medicare carrier
suspended payments to the HHA, and the business closed shortly thereafter.
The couple also agreed to permanent exclusions from the Medicare and
Medi-Cal programs.
Laboratory Fraud
During this reporting period, OIG successfully resolved civil cases related to fraudulent
billings to Medicare, Medicaid and other Federal health care programs on the part of
laboratories,  physicians  and  other  providers  of  laboratory  services.    In  addition  to
settlements reached as part of the Hospital Outpatient Laboratory Project discussed on page
9, convictions and settlements were also obtained for other types of fraudulent or abusive
activities involving  laboratories  and these  health  care  providers.   The following  cases
represent significant examples of laboratory fraud which resulted in settlements during this
period:
(cid:127) In Pennsylvania, a medical care company agreed to pay the Government
$16.5 million to resolve allegations regarding the filing of false Medicare
claims by various companies it acquired.  The claims arose from the sale of
mobile diagnostic tests to the patients of independent physicians nationwide.
These noninvasive tests were primarily marketed between 1992 and 1995
by a diagnostic laboratory purchased by one of the companys subsidiaries
in  1994.    The  laboratory  and  this  subsidiary  marketed  their  mobile
diagnostic tests by offering various kickbacks to doctors in exchange for
ordering tests for their patients.  This improper practice resulted in the
34 performance  of  thousands  of  medically  unnecessary  tests.    Company
salesmen also engaged in improper billing practices despite Medicares
prohibition against claiming services doctors do not personally provide.
This settlement resolves three different qui tam suits brought against the
laboratory,  the  subsidiary  and/or  related  companies,  alleging  similar
conduct.
(cid:127) An  independent  clinical  laboratory  in  Michigan  agreed  to  pay  the
Government $500,000 to resolve its liability under the False Claims Act.
The laboratory  allegedly submitted improper Medicare Part B claims for
additional  hematological  indices,  calculations  derived  from  CBC  test
results.  The CBC testing machines were programmed to automatically
calculate the results of additional indices for which the laboratory billed,
even though the physicians did not order them.  Since the additional indices
were  not  medically  necessary,  they  were  not  covered  under  Medicare
guidelines.    Corporate  integrity  provisions  were  not  required  as  the
laboratory is no longer in business.
(cid:127) A Massachusetts hospital specializing in clinical laboratory services agreed
to pay the Government $476,167 to resolve allegations of improper billing
practices and to enter into a 3-year corporate integrity agreement.  This
settlement resulted from a voluntary disclosure by the hospital under  OIGs
Voluntary Disclosure Pilot Program.  The investigation focused on improper
billings for various pathology laboratory tests over a 6-year period.  The
disclosure and subsequent verification audit determined that various billing
irregularities, primarily involving services claimed but not documented, and
upcoded services, resulted in an approximate overpayment of $326,000 by
Medicare and Medicaid.
Usage and Documentation of Home Oxygen Therapy
In an inspection of usage and documentation of home oxygen therapy, OIG found nearly
one-quarter  of  oxygen  certificates  of  medical  necessity  (CMNs)  to  be  inaccurate  or
incomplete, and estimated that Medicare paid $263 million in 1996 for oxygen equipment
covered by such CMNs.  The OIG also found that 13 percent of beneficiaries reported never
using their portable oxygen systems.  In addition, some suppliers were unable to fully
document the equipment services they reported providing to beneficiaries.
The OIG recommended that HCFA ensure that carriers system edits identify incomplete
CMNs, and delay payments for oxygen equipment claims until complete certificates are
submitted.  In addition, OIG proposed that HCFA target oxygen claims for focused medical
review; quickly establish specific service standards for home oxygen suppliers; and continue
to alert physicians to their critical role in determining medical need for and utilization of
35 medical  equipment  paid  for  by  Medicare.    The  HCFA  concurred  with  OIGs
recommendations.  (OEI-03-96-00090)
Fraud Involving Durable Medical Equipment Suppliers
The DME industry has consistently suffered from waves of fraudulent schemes in which
Medicare or Medicaid is billed for equipment never delivered, higher-cost equipment than
that actually delivered, totally unnecessary equipment or supplies, or equipment delivered in
a different State from that billed in order to obtain higher reimbursement.  During this
reporting period, OIG obtained settlements and convictions of unscrupulous DME suppliers
for a variety of schemes as demonstrated by the following examples:
(cid:127) A Florida man was sentenced after previously pleading guilty to count one
of a 23-count indictment charging him with conspiracy, mail fraud and
money laundering.  He was sentenced to 46 months imprisonment followed
by 2 years supervised release.  He was also ordered to pay restitution of
over $14 million both jointly and severally.  For over 4 years, he owned and
operated numerous DME companies in Florida along with several other
individuals.  These companies billed Medicare for nutritional supplements
for beneficiaries who did not require the product.
(cid:127) In  California,  a  DME  company  located  in  Missouri  agreed  to  pay the
Government $1.2 million to settle allegations that the company submitted
false claims to Medicare.  The companys misconduct was uncovered during
an OIG investigation of a home health care corporation based in California.
The  company  allegedly  submitted  claims  to  Medicare  for  DME  after
patients had died, had been admitted to a SNF and/or hospital, or after the
DME had been returned to the company.  The company also allegedly
submitted Medicare claims for which CMNs and other claims documents
were  improperly  altered,  falsified  or  marked  to  facilitate  payment.    In
addition,  claims  were  submitted  which  lacked  the  required  claims
submission  documents  or  were  for  noncovered  items.    As  part  of  the
settlement, the company entered into a 5-year corporate integrity agreement.
(cid:127) In New York, four individuals were sentenced for their participation in a
scheme to defraud Medicare.  Along with others, these individuals owned
and operated three DME companies that billed four DME regional carriers
for upcoded services.  Originally exposed by a local, consumer-related news
program, their scheme involved the use of aggressive telephone marketing
aimed at providing lower quality DME to Medicare beneficiaries than the
higher quality items reflected in their Medicare billing.  For his role in the
scheme, one man was sentenced to 2 years probation and a $5,000 fine.
Two  others  each  received  2  years  probation.    These  three,  along  with
36 another defendant, previously entered into, and paid, a civil settlement of
$380,000  in  connection  with  this  investigation.    Finally,  the  fourth
individual,  who  acted  as  the  chief  owner/operator  of  the  three  DME
companies, was sentenced for his role in the scheme to 5 years probation,
1,000 hours of community service and payment of $19,871 in restitution.
All individuals and entities were sanctioned.
(cid:127) In  Florida,  a  DME  company  owner  was  sentenced  to  30  months
imprisonment and 3 years supervised release for conspiracy to defraud
Medicare via mail fraud.  Through his DME scheme, the man and his
company caused a loss to the Medicare program of over $500,000.  In order
to generate claims for his company, he paid beneficiaries for the use of their
names and Medicare numbers.  He also paid cash to physicians for their
signatures on oxygen-related DME prescriptions and to the owner of an
oximetry company for false oxygen testing results.
(cid:127) In  New  York,  a man was  sentenced to 3 years supervised release and
ordered to make restitution of $40,000 based on violations of mail fraud and
illegal kickback activity.  A former DME company owner and supplier, the
man paid kickbacks to a podiatrist, in return for Medicare patient names and
their  Medicare  numbers.    He  then  provided  medically  unnecessary
lymphedema pumps to these patients.
Licensing Requirements for Prescription 
Drug Suppliers
The OIG reviewed HCFA and National Supplier Clearinghouse (NSC) efforts to ensure that
DME suppliers have valid pharmacy licenses to bill Medicare for prescription drugs.  Only
DME supply companies licensed to dispense prescription drugs may bill Medicare for these
items  when  provided  in  conjunction  with  DME  or  prosthetic  devices.    The  NSC  is
responsible for issuing Medicare supplier billing numbers and ensuring that suppliers meet
prescribed standards for participation.  
The OIG determined that NSC has taken several steps to determine that DME suppliers
billing for drugs have valid pharmacy licenses and that few non-licensed suppliers continue
to bill Medicare for drugs.  Since HCFA and NSC appear to be taking appropriate action in
this area, OIG issued this informational report to encourage collaborative efforts to recover
incorrect  payments  and  identify  any  remaining  suppliers  without  required  licensure.
(OEI-07-98-00460)
37 Transportation Fraud
A common Medicare fraud scheme associated with transportation and ambulance companies
is the submission of claims for transportation of patients to a hospital when the patients are
really taken to other facilities for which claims are nonreimbursable.  Other schemes include
billing  singly  for  patients  who  were  transported  as  a  group  and  falsely  claiming
reimbursement  for  ambulatory  patients.    The  following  examples  of  cases  involving
transportation fraud were resolved during this reporting period:
(cid:127) Two Maryland ambulance company owners pled guilty to theft from the
Medicare  program  and  to  Medicaid  fraud.    Together,  they  owned  and
operated  three  ambulance  companies.    From  1993  through  1998,  the
business partners and their companies defrauded Medicare and Medicaid by
transporting  ambulatory  beneficiaries  to  doctors  offices  and  dialysis
centers.  When necessary, they also acted in the capacity of billers, drivers,
dispatchers and emergency medical technicians.  One of the owners was
sentenced to 10 years incarceration, with all but 18 months suspended,
placed on 5 years probation and ordered to pay $555,134 in restitution.  The
other owner involved in the scheme will be sentenced at a later date.
(cid:127) In Delaware, two individuals were sentenced to 30 months incarceration, 3
years probation and an $800 special assessment for their roles in a scheme
to  defraud  Medicare  by  submitting  false  claims  for  ambulance
transportation.  Their medical billing company, now a defunct corporation,
was also ordered to pay a special assessment of $3,200.  The scheme
involved a conspiracy between an ambulance company and the defendants,
acting  as  the  ambulance  companys  billing  service.    The  ambulance
company transported as many as six people at a time in wheelchairs and
passenger  vans  to  free-standing  dialysis  centers  for  treatment.    The
ambulance company, its president and vice-president pled guilty in 1997
and were previously sentenced.  During the 10-month relationship between
the  two  companies,  Medicare  paid  them  over  $1.2  million,  of  which
approximately $900,000 was due to improper billings.
(cid:127) In Pennsylvania, a transportation broker agreed to pay the Government
$4,500 to settle allegations that he violated the anti-kickback provisions of
section 1128B(b)(1) of the Social Security Act.  Evidence showed that this
individual  received  illegal  remuneration  from  ambulance  companies  in
exchange for referrals from nursing home providers that ordered ambulance
services that were billed in whole or in part to the Medicare and Medicaid
programs.  Under the terms of the settlement agreement, the individual
agreed to cooperate with any current or future OIG investigations related to
38 such  ambulance  services  that  were  provided  by  any  of  the  ambulance
companies from which he allegedly received illegal remuneration.
Bad Debts Reported by Medical Corporation
A medical corporation headquartered in Massachusetts provided renal dialysis treatment at
647 facilities in CY 1996.  Each facility had a Medicare provider number and prepared a
separate cost report.  The corporation allocated indirect home office costs to the facilities
and controlled certain direct charges that were also included in each facilitys cost report.
The OIG determined that the corporation allocated about $16.1 million in unallowable costs
to 320 facilities claiming reimbursable bad debts in CY 1996.  As a result, reimbursable bad
debts were overstated by $1.5 million.
While the corporation has taken actions over the years to remove significant unallowable
costs  from  its  facilities  cost  reports,  corrective  action  is  still  needed  to  address  the
unallowable  costs  identified  in  this  report.    Accordingly,  OIG  recommended  that  the
corporation establish additional procedures to exclude these unallowable costs from future
cost reports.  Further, OIG recommended that HCFA instruct the FIs to apply the cost
adjustments  and  make  the  appropriate  adjustments  to  reimbursable  bad  debt  amounts
claimed on the CY 1996 cost reports, and recover all overpayments.  The corporation agreed
with most of OIGs recommendations.  (CIN:  A-01-98-00508)
Pension Plan Audit
The OIG identified about $7.6 million in excess pension assets at Blue Shield of California
which should be remitted to Medicare because of the closing of the Medicare segment of the
contractors pension plan.  Blue Shield of California was a Medicare Part B contractor until
its contract was terminated in 1996, and, as such, claimed Medicare reimbursement for
Medicare  employees  pension  costs.    Regulations  and  the  Medicare  contract  provide,
however,  that  pension  gains  attributable  to  the  Medicare  segment  of  a  terminated
contractors  pension  plan  be  credited  to  the  Medicare  program.    Accordingly,  OIG
recommended that the contractor remit the $7.6 million in excess pension assets to the
Medicare program.  The contractor agreed with the finding and recommendation.  (CIN:
A-07-98-02522)
Pension Costs Claimed for Medicare Reimbursement
In a review of pension costs claimed by Blue Shield of California, OIG identified about $2.4
million in unallowable pension costs which should be refunded to Medicare.  While the
Medicare contract provides for either an allocation or separate calculation of qualified plan
pension costs for the Medicare segment of a contractors business, the separate calculation
method must be used if there is a material difference between the two methods.  For FYs
1991 though 1997, Blue Shield of California based its claim for reimbursement of pension
costs  on  an  allocation  of  total  company  pension  costs,  even  though  those  costs  were
39 materially higher than the pension costs computed under the separate calculation method.
Accordingly, OIG recommended that Blue Shield of California revise its claims to eliminate
about $2.4 million in unallowable pension costs.  The contractor agreed with the finding and
recommendation.  (CIN:  A-07-98-02523)
Childrens Health Insurance Program
The Balanced Budget Act of 1997 created the Childrens Health Insurance Program (CHIP),
which  provides  $24  billion  over  5  years  to  develop  health  insurance  programs  for
low-income children.  States have the option to expand their existing Medicaid programs,
design new childrens health insurance programs or develop programs that combine these
strategies.
The OIG conducted a study involving 19 States to identify promising practices, barriers and
issues related to the CHIP application and enrollment procedures.  Based on its results, OIG
recommended  that  HCFA  work  with  States  to  improve  the  "readability"  of  CHIP
applications and proposed specific ways in which HCFA could encourage States to simplify
their  application  and  enrollment  processes  for  CHIP  and  Medicaid.    Also,  OIG
recommended that HCFA work with the Immigration and Naturalization Service (INS) to
encourage INSs development of clear guidance and policy statements on how applications
for CHIP and Medicaid will impact noncitizens.  Further, OIG urged that an interagency task
force  be  formed  to  address  conflicting  public  benefit  application  requirements.    This
interagency work group should develop uniform policies for verifying income using the
eligibility  verification  system,  determining  household/family  composition,  defining
countable income, counting child support and disclosing information.  (OEI-05-98-00310)
Federal and State Partnership:  Joint Audits of Medicaid
One of  OIGs major  initiatives has been  to  work  more  closely  with  State  auditors in
reviewing the Medicaid program.  To foster the creation of these joint review efforts and to
provide broader coverage of the Medicaid program, the Partnership Plan was developed.
The partnership approach has been an overwhelming success in ensuring more effective use
of  scarce  audit  resources  by  both  the  Federal  and  the  State  audit  sectors.    To  date,
partnerships have been developed in 22 States.  Extensive sharing of audit ideas, approaches
and objectives has taken place between Federal and State auditors.  Completed reports have
resulted in identifying potential program savings of $145 million and over $39 million in
overpayment recoveries of Federal and State government funds.
During this reporting period, two partnership reports on drug reimbursement in Utah were
issued.  Under Medicaid regulations, generic drugs are reimbursed at the lower of the
pharmacists usual and customary charge to the general public or an upper limit set by
HCFA plus a dispensing fee.  For brand name drugs or generics for which an upper limit has
40 not been established, reimbursement is the lower of the pharmacists usual and customary
charge to the general public or the estimated acquisition cost plus dispensing fee.
Like  most  States,  Utah  reimburses  pharmacies  for  the  ingredient  cost  of  Medicaid
prescription drugs using a formula which discounts the average wholesale price (AWP).  The
Utah Division of Health Care Financing (UHCF) conducted reviews to develop a statewide
estimate of the discount below AWP at which pharmacies purchase brand name and generic
drugs.  Both reviews found that pharmacies pay less than AWP to acquire drugs: 18.4
percent below AWP for brand name drugs and 60.1 percent below AWP for generics.
The UHCF recommended that the State reimburse the ingredient portion of Medicaid drugs,
brand name and generic, in a manner more consistent with the findings of their reports.  The
OIG continues to believe that the ingredient portion of Medicaid drug reimbursement should
be consistent with what pharmacies actually pay for brand name and generic drugs, noting
that the cost of Medicaid prescription drugs grew from $6.9 billion in FY 1992 to $12.4
billion in FY 1997.  (CIN:  A-06-99-00035; CIN:  A-06-99-00036)
Medicaid Fraud
At present, 47 States have established Medicaid fraud control units (MFCUs).  The MFCUs
conduct  investigations  and  prosecute  providers  charged  with  defrauding  the  Medicaid
program, or persons charged with patient abuse and neglect.  As required by the Omnibus
Budget Reconciliation Act of 1993, three States -- Nebraska, North Dakota and Idaho --
have sought and received waivers from the requirement that all States operate MFCUs.
During FY 1999, OIG provided oversight and administered approximately $89.7 million in
funds granted by HCFA to the MFCUs to facilitate their mission.
Although most Medicaid fraud cases are investigated by the MFCUs, OIG occasionally
works with the units and/or other law enforcement agencies on such cases.  The following
instances of successful results in these cases bear noting:
(cid:127) In North Carolina, a provider of adaptive behavioral training to residents of
therapeutic group homes agreed to pay the Government $240,000 to settle
allegations of knowingly submitting false claims to the Medicaid program.
The provider billed the Medicaid program for more therapeutic hours than
were actually worked by its direct care aides in group homes.  As part of the
settlement  agreement,  the  provider  is  required  to  adhere  to  certain
mandatory integrity provisions.
(cid:127) A Kansas nursing facility reached a settlement with the Government totaling
$175,000 to resolve two qui tam suits alleging False Claims Act violations
41 due to substandard quality of care.  The relators alleged that the nursing
facility failed to provide adequate nutrition, proper supervision and sanitary
living conditions, and submitted false claims to Medicaid.  The OIG is not
requiring any corporate integrity provisions because the nursing facility
closed down several years ago.
(cid:127) In Connecticut, a man was sentenced to 4 months incarceration, 4 months
home confinement, 2 years probation and payment of $85,810 in restitution
for mail fraud and failure to file income tax returns.  The man participated in
a scheme involving his  DME  company.  Investigation revealed that he
received Medicaid reimbursement for custom-fitted support stockings when
he actually supplied less expensive, more generic support stockings.  He
received approximately $85,810 in profits as a result of this scheme.
Medicaid Managed Care Fraud and Abuse
The OIG examined fraud and abuse detection and referral activities in Medicaid managed
care organizations, Medicaid State agencies and MFCUs.  The OIG found that two States,
Arizona and Tennessee, have active programs which result in detection and referral of fraud
and abuse, while other States do not.  Also, there is no general agreement about roles and
requirements to detect and refer fraud and abuse cases.  Medicaid State agencies and fraud
units differed in the intensity and nature of oversight of managed care organizations, and all
parties involved indicated that there was a need for tools to address fraud and abuse in
managed care, including guidelines and training.  (OEI-07-96-00250)
42 Public Health Service
Operating Divisions Chapter II
PUBLIC HEALTH SERVICE OPERATING
DIVISIONS
Overview of Program Area and Office of Inspector General
Activities
The  activities  conducted  and supported  by  the  Public  Health  Service  (PHS)  operating
divisions represent this countrys primary defense against acute and chronic diseases and
disabilities.  These programs provide the foundation for the Nations efforts in promoting
and enhancing the continued good health of the American people.  These independent
operating divisions within the Department include:  National Institutes of Health (NIH), to
advance our knowledge through research; Food and Drug Administration (FDA), to assure
the safety and efficacy of marketed food, drugs, biological products and medical devices;
Centers for Disease Control and Prevention (CDC), to combat preventable diseases and
protect the public health; Health Resources and Services Administration (HRSA), to support
the development, distribution and management of health care personnel, and other health
resources and services; Indian Health Service (IHS), to improve the health status of Native
Americans; Agency for Toxic Substances and Disease Registry (ATSDR), to address issues
related to Superfund toxic waste sites; the Agency for Health Care Policy and Research
(AHCPR), to enhance the quality and appropriateness of health care services and access to
services through scientific research and the promotion of improvements in clinical practice,
and in the organization, financing and delivery of services; and the Substance Abuse and
Mental  Health  Services  Administration  (SAMHSA),  to  assist  States  in  refining  and
expanding treatment and prevention services.
The Office of Inspector General (OIG) has concentrated on a variety of public health
programs and issues such as biomedical research funding, substance abuse, health services
to Indians, drug approval processes and community health center programs.  The OIG has
looked  at  the  regulation  of  drugs,  foods  and  devices,  and  explored  the  potential  for
improving these activities through user fees.  The OIG has conducted audits of colleges and
universities which annually receive substantial research funding from the Department, as
well as audits of the financial statements and operations of the PHS operating divisions.  The
OIG continues to examine policies and procedures throughout the agencies to determine
whether proper controls are in place to guard against fraud, waste and abuse.  These
activities  include  preaward  and  recipient  capability  audits.    This  oversight  work  has
43 provided valuable recommendations to program managers for strengthening the integrity of
agency policies and procedures.
Costs Charged to the Chronic Fatigue Syndrome Program
At CDCs request, OIG conducted a review to determine whether costs charged to the
Chronic Fatigue Syndrome (CFS) program during FYs 1995 though 1998 were actually
incurred for that program in accordance with applicable laws, regulations and accounting
standards.  The OIG determined that CDC spent significant portions of CFS funds on the
costs of other programs and activities unrelated to CFS, and failed to adequately document
the relevance of other costs charged to the CFS program, as illustrated below.
Although CDC is not statutorily prohibited from spending funds budgeted for CFS on other
programs, it is clear that the Congress expected the agency to spend the amount it budgeted
for  CFS  only  on  CFS.    The  questionable  charges  identified  by  OIG  resulted  from
deficiencies in CDCs internal control system regarding the handling of direct and indirect
costs.  As a result of these inappropriate charges, CDC provided inaccurate information to
the Congress regarding the use of CFS funds and has not supported the CFS program to the
extent intended by the Congress.
The OIG proposed that CDC implement a training and certification program for managers
and  staff  responsible  for  budget  and  accounting  functions  within  all  organizational
components.    This  proposal  would  ensure  that  appropriate  officials  are  aware  of
44 requirements applicable to the use of Federal funds and understand how to properly use
CDCs accounting system.  The OIG also proposed that CDC establish an internal quality
assurance  capacity  within  their  Financial  Management  Office  to  carry  out  regular
assessments of CDCs policies, procedures, practices and controls related to budget and
accounting  functions.    Third,  OIG  recommended  that  CDC  continue  development  of
systems to properly identify and allocate organizationwide indirect costs at the CDC level
and begin development of similar systems to identify and allocate indirect costs at its
component units based on the relative benefits provided.  The CDC generally concurred
with OIGs findings and has  taken action  to  implement  the  recommendations.   (CIN:
A-04-98-04226) 
The Ryan White CARE Act:  Implementation of the Spousal
Notification Requirement
This report, from a series on the Ryan White CARE Act, concerned States implementation
of  Section  8  (spousal  notification  requirement)  of  the  Act.    The  OIG  conducted  this
inspection in response to a congressional request.
The CDC has certified that all 50 States have plans reflecting a "good faith effort" to notify
spouses about the HIV infection of their partners.  The eleven States studied had taken
actions to implement their CDC-approved plans.  These States notification programs are
responding to common barriers, and several have taken actions which appear particularly
useful or successful in easing these barriers.  However, none of these sampled States collect
data  specifically  on  spousal  notification.    The  OIG  recommended  that  CDC  promote
education campaigns, encourage provider training and facilitate local collaboration between
State and local public health departments and private providers.  Further, OIG recommended
that CDC encourage the development and use of data collection systems to monitor State
spouse and partner elicitation and notification efforts.  (OEI-05-98-00391)
Ryan White Evaluation Systems
Three OIG inspection reports examined the mechanisms that Ryan White grantees use to
monitor subgrantee compliance, assess program outcomes and evaluate their effectiveness in
meeting population needs.  The OIG found that the State and metropolitan area grantees and
AIDS  drug  assistance  program  administrators  had  monitoring  mechanisms  in  place.
However, few grantees or administrators were measuring program outcomes, although many
grantees were planning to do so.  While these grantees were assessing the needs of persons
already in HIV/AIDS care, they were not meeting the requirement to obtain information
about the needs of infected persons not currently receiving care.  The AIDS drug assistance
programs were conducting minimal assessments of whether they were reaching populations
in need.
45 The OIG recommended that HRSA further strengthen routine monitoring mechanisms by
supporting the development of system-wide databases; assist grantees to better measure
program  outcomes;  and  offer  grantees  technical  assistance  regarding  gathering  needs
information from HIV-infected persons outside of HIV/AIDS care.  (OEI-05-98-00390;
OEI-05-98-00392; OEI-05-98-00393)
Patient Access to Transplantation
Over the past decade, OIG has maintained an active interest in the Nations organ allocation
system.  In 1991, OIG found that access of patients to donated kidneys fell short of
expectations in some important respects, noting a wide variation in waiting times among
racial groups, transplant centers and geographic regions.  In a 1998 update to that report,
OIG determined that racial and geographic disparities in waiting time still existed and, in
some cases, seemed to be growing.
In  the  current  reports,  part  of  a  series  designed  to shed light on  the  reasons for  and
implications of inequitable access to organ transplantation, OIG analyzed the most recent
available data on median waiting times from the Organ Procurement and Transplantation
Network (OPTN). 
The OIG found a considerable variation in median waiting times for kidney transplantation
among the OPTN regions, and determined that patients in regions with longer waiting times
were less likely to receive a transplant.  There was little variation in regional death rates and
a limited relationship with length of time on the waiting list, possibly due to the use of
dialysis. 
There was also a considerable variation in median waiting times for liver transplants among
the OPTN regions, and an inverse relationship between the median waiting time and the
percentage of patients who actually received a transplant.  The OIG also identified a regional
variation in death rates for persons awaiting a transplant, probably due to factors such as
patient characteristics and listing practices.  The OIG is continuing its work in this area.
(OEI-01-99-00210; OEI-01-99-00211)
Fostering Equity in Patient Access to 
Transplantation:  Local Access to Liver 
Transplantation
In the debate over the Departments regulation on organ allocation, concerns were raised that
the rule could hinder local access to liver transplantation.  This OIG study did not assess the
effect of the regulation, but examined the extent to which local access to liver transplant
centers exists currently.
46 The OIG found that the 117 liver transplant centers cluster in metropolitan areas, leaving
large portions of the population at considerable distance from a transplant center.  More than
80 percent of liver transplants were performed in just 35 cities.  Fifteen States have no liver
transplant center and 45 percent of the population lives outside of metropolitan areas with
liver transplant centers.  Further, most new liver transplant centers have opened in areas
where a liver transplant center already operates.
The OIG concluded that there is no widespread local access to liver transplant centers.
Basic factors other than allocation policy affect this access, including the shortage of organs,
the relationship between the number of transplants and patient outcomes, the high costs of
running a transplant center and the housing of liver transplant programs in urban academic
medical centers.  (OEI-01-99-00470)
Legislative Recommendation to Improve Hospital 
Reporting to the National Practitioner Data Bank
This memorandum report analyzed hospital reporting data and summarized studies relating
to hospital compliance with the National Practitioner Data Bank reporting requirements.
The OIG found that hospitals were apparently not reporting adverse actions taken against
doctors.  The report recommended that HRSA initiate a legislative proposal that would
establish a civil monetary penalty of up to $10,000 for each instance of a hospitals failure to
report.  The HRSA concurred and is preparing a legislative proposal to impose a civil
monetary penalty.  The HRSA intends that the proposal apply more broadly to health care
provider organizations and is considering recommending a monetary penalty level above
that recommended by OIG.  (OEI-12-99-00250)
Exclusions for Health Education Assistance Loan Defaults
Through  the  Health  Education  Assistance  Loan  (HEAL)  program,  HRSA  guarantees
commercial loans to students seeking an education in a health-related field of study.  The
students are allowed to defer repayment of these loans until after they have graduated and
begun to earn an income.  The Departments Program Support Center (PSC) takes all steps
that it can to ensure repayment.  However, some loan recipients ignore their indebtedness.
After PSC has exhausted all efforts to secure repayment of these debts, it declares the
individual in default.  Once the individual has been declared in default, the Social Security
Act permits, and in some instances mandates, exclusion from Medicare, Medicaid and all
Federal health care programs for nonpayment of these loans.  During this 6-month period,
164 individuals were excluded as a result of PSC referral of their cases to OIG.
Individuals who have been excluded as a result of their default may enter into settlement
agreements whereby the exclusion is stayed while they pay specified amounts each month to
satisfy their debt.  If they default on these settlement agreements, they can then be excluded
47 until their entire debt is repaid, and they cannot appeal these exclusions.  Some health
professionals, upon being notified of their exclusion, immediately repay their HEAL debt.
After being excluded for nonpayment of their HEAL debts, a total of 1,152 individuals have
taken advantage of the opportunity to enter into settlement agreements or completely repay
their debt.  This figure includes the 80 individuals who have entered into such a settlement
agreement or completely repaid their debt during this reporting period.  The amount of
money being repaid through settlement agreements or through complete repayment totals
over $76.7 million.  Of that amount, $7 million is attributable to this reporting period.  The
following are examples of some of these settlements:
(cid:127) After being notified that he was excluded as a result of his failure to repay
his HEAL debt, a Michigan osteopath entered into a settlement agreement to
repay over $123,000 in student loans.
(cid:127) A settlement agreement was signed by a New York physician to repay his
HEAL debt of almost $200,000.
(cid:127) A podiatrist in New York entered into a settlement agreement to repay his
$168,000 HEAL debt.
(cid:127) In New Jersey, a physician entered into a settlement agreement to repay his
HEAL debt of over $286,000.
Arkansas Regional Laboratory Construction Project
The OIG initiated this review to determine why costs related to FDAs construction of the
Arkansas Regional Laboratory had increased.  Total project costs are currently estimated at
$37.9 million -- $10.4 million, or 38 percent, higher than the original estimate of $27.5
million.
The OIG found that the projects budget exceeded its estimate because $3.4 million in
project costs were not included in the estimate used as the basis for the budget request; the
architect and engineering (A&E) firm revised its estimate upward by $2.1 million; and $4.9
million in additional costs were attributable to a combination of factors, including inflation,
the A&E firms unfamiliarity with the Arkansas area and cursory assessment of market
conditions, the effects of a building boom in Arkansas and the inexact nature of construction
estimates.   The OIG also  identified  several  management control  weaknesses in FDAs
oversight of the project.    
The  OIG  recommended  that  FDA  establish  clear  lines  of  responsibility  for  future
construction projects; implement a system for tracking estimated project costs throughout
48 the budget development stages; institute a policy to closely review budgets to ensure their
completeness and accuracy; obtain second estimates for large construction projects; and
institute general policies on developing a construction project budget.  In response to the
draft report, FDA generally concurred with OIGs recommendations and stated that it had
been implementing actions consistent with the recommendations.  (CIN:  A-15-98-50002)
National Institutes of Health Printing Program
The Director of each National Research Institute at NIH has authority to use sources outside
the Government Printing Office (GPO) to publish, or arrange for the publication of, NIH
materials.  The NIH is responsible for ensuring that GPO receives an adequate number of
copies of publications for distribution to Federal depository libraries as well as one copy for
GPOs use in cataloging and indexing.  Also, NIH must report to GPO all publications that it
has published in the previous month.
The OIG identified numerous deficiencies in the operation of NIHs printing program and
made specific recommendations to ensure corrective action.  The NIH fully concurred with
the OIG  findings  and  recommendations,  and  stated  that  its goal is  to be  in  complete
compliance with Federal printing rules and procedures as dissemination of information is of
vital importance to NIHs mission.  (CIN:  A-15-98-80001)
Contract/Grant Fraud
Resolution of charges of misusing PHS grant funds occurred in the following four cases:
(cid:127) A prominent AIDS research scientist and the head of the retrovirology
laboratory  at  a  Florida  medical  center  was  sentenced  to  15  months
imprisonment, 2 years supervised release and a $10,700 fine for engaging in
a scheme to defraud area research institutions.  His laboratory received
millions of dollars in AIDS and HIV-related research subcontracts from
hospitals  and  universities,  including  one  NIH  grantee.    In  1989,  he
established  a  fictional  laboratory  company  which  he  misrepresented  to
fellow researchers as a functional AIDS research laboratory.  Over a 6-year
period, the man fraudulently billed both the university/NIH grantee and
other institutions for AIDS research supposedly conducted by his company.
The  research  was  actually  performed  by  his  employees  at  the  medical
center.  Further, between 1993 and 1996, the researcher, also a practicing
dermatologist, allegedly submitted false Medicare claims for dermatology
services,  including  claims  for  services  not  provided  as  billed  and  for
medically unnecessary services.  As a result of this subsequent investigation,
the  researcher  agreed  to pay  the  Government $784,500,  to  release  any
claims to $600,000 held in administrative suspension by the carrier and to
accept a 5-year exclusion.
49 (cid:127) A California nonprofit institution involved in public health research and
educational activities agreed to pay the Government $306,000 to resolve its
liability under the False Claims Act.  This case arose from an OIG audit
regarding  the  relationship  between  the  institution  and  professors  at  a
California university.  Under the arrangement, the institution applied for and
administered  grants  in  which  the  principal  investigators  were  actually
professors performing the grant work on the university campus.  Since these
grants  were  run  through  the  institution  rather  than  directly  from  the
university, NIH paid for salaries of principal investigators and consultants
who were professors.  The OIG found that almost $2 million in salary
payments and an additional $450,000 in overhead payments would not have
been made to the institution if NIH had known the true nature of the
relationship between it and the university professors.  The institution also
agreed not to apply for any more grants from Federal Government sources.
(cid:127) A  major  medical  research  facility  in  Massachusetts  agreed  to  pay  the
Government $920,000 to settle its alleged misapplication of grant funds
awarded by PHS.  The allegation involved a doctor, formerly employed at
the facility, who applied to NIH for a research grant to study gene mutations
in mice at the medical center.  The application stated that the research doctor
would devote at least 50 percent of his time to the project.  Prior to the
initial award being made, the doctor moved out of the country.  In 1995 and
1996, the medical facility submitted applications to NIH to continue the
grant, even though the doctor resided in Holland.  The OIG found that the
doctor did not spend 50 percent of his time on the project as required by the
grant award, and that the facility knowingly accepted the grant funds and
applied a substantial portion of them to support other research projects.  In
all, the facility received approximately $368,000 in unentitled grant funds.
As part of the settlement, the facility agreed to enter into a compliance
agreement to ensure that similar problems do not recur.
(cid:127) In New York, an HHS grantee agreed to pay the Government $350,000 to
settle  allegations  concerning  the  propriety  of  certain  costs  charged  to
Department grants and contracts.  The OIG performed an audit of five
grants and contracts awarded to the organization between 1992 and 1997.
The awarding agencies included CDC, the Office of Minority Health and
HRSA.  The OIG identified $717,924 in costs claimed by the organization
that were unreasonable, unallowable or improperly documented.  Based on
an inability to pay, the case was settled for $350,000.  As a result of the
settlement,  the  organization and its owner  will be subject to increased
scrutiny in the performance of duties under present or future HHS contracts
or grants.
50 Fiscal Year 1998 Financial Statement Audits 
of Public Health Service Agencies
In support of its audit of the consolidated HHS-wide financial statements for FY 1998, OIG
audited,  through  contracts  with  independent  public  accounting  firms,  the  financial
statements of the major PHS agencies.  Improvements were noted at many of the agencies
since the previous year.
A.  Food and Drug Administration
The accounting firm issued an unqualified opinion on FDAs FY 1998 financial statements
and noted no material weaknesses in the system of internal controls.  Agreeing with the
recommendations, FDA is in the process of further strengthening internal controls.  (CIN:
A-17-98-00014)
B.  National Institutes of Health
The NIH received an unqualified opinion on the FY 1998 balance sheet and the statements
of net costs, custodial activities, budgetary resources and changes in net position.  However,
the accounting firm disclaimed an opinion on the statement of financing because NIH was
unable  to  reconcile  net  costs  to  budgetary  obligations.    The  NIH  concurred  in  the
recommendations to continue to strengthen internal controls.  (CIN:  A-17-98-00008)
C.  Centers for Disease Control and Prevention and Agency for Toxic Substances
and Disease Registry
The accounting firm issued an unqualified opinion on the CDC and ATSDR FY 1998
financial statements and noted no material weaknesses in the agencies systems of internal
controls.  Agency officials agreed with the firms findings and recommendations. (CIN:
A-17-98-00007)
D.  Health Resources and Services Administration
The HRSA received a qualified opinion on its FY 1998 balance sheet and the statements of
net cost and changes in net position, primarily because the agency was unable to completely
reconcile the "Fund Balance with U.S. Treasury" general ledger account to the balance
reported by the Department of the Treasury at the years end.  The firm also disclaimed an
opinion on the statements of budgetary resources, financing and custodial activity, which
could not be reconciled to the general ledger.  The HRSA concurred and is taking corrective
action.  (CIN:  A-17-98-00005)
E.  Substance Abuse and Mental Health Services Administration
The accounting firm issued an unqualified opinion on SAMHSAs FY 1998 balance sheet
and the statements of net cost and changes in net position.  However, the firm was unable to
reconcile the statements of budgetary resources, financing and custodial activity to amounts
reflected in the general ledger for the year ended September 30, 1998.  As a result, the firm
51 disclaimed an opinion on these financial statements.  Agency officials are taking corrective
action on the recommendations.  (CIN:  A-17-98-00006)
F.  Indian Health Service
The IHS received a qualified opinion on its FY 1998 balance sheet and the statements of net
cost and changes in net position, primarily because the balances for the net position accounts
were in error.  The firm also disclaimed on the statements of budgetary resources, financing
and custodial activity because it could not reconcile these statements to the IHS general
ledger.  Again, the agency agreed with the audit findings and has begun to implement the
recommendations.  (CIN:  A-17-98-00004)
Federal Occupational Health Billing Operations
The HRSAs Federal Occupational Health (FOH) provides occupational health services to
approximately 160 Federal agencies through interagency agreements.  The OIG contracted
with an independent public accounting firm to perform agreed-upon procedures to assist
FOH in evaluating the billing operations in place during FY 1998.  The firm noted minor
exceptions in billing operations and made recommendations for improvements.  (CIN:
A-17-99-00019)
Year 2000 Computer Compliance Activities
Reviews were conducted at two PHS agencies as part of OIGs overall initiative to monitor
the Departments efforts to address Year 2000 (Y2K) compliance issues.  All Federal
agencies must ensure that their computer systems are Y2K compliant well before December
31, 1999, to avoid the risk of widespread system failures. 
A.  Centers for Disease Control and Prevention
Assessments of CDCs efforts in achieving Y2K compliance for five of its mission-critical
systems were provided in a series of four memorandums.  The OIG reported on such areas
as  the  accuracy  of  CDCs  system  status  inventory,  internal  testing  and  independent
verification and validation of major information systems, and testing in a non-Y2K certified
environment.    The  issues  identified  have  since  been  addressed  by  CDC.    (CIN:
A-04-98-05006)
B.  National Institutes of Health
The OIGs review of NIHs actions to address Y2K compliance focused on contracts for
information  technology  (IT)  acquisitions  that  will  perform  data  processing  beyond
December 31, 1999.  The NIH is taking steps to ensure that IT acquisitions are Y2K
compliant; contracting officials provided documentation showing that 23 of the 30 contracts
reviewed were in compliance.  As a result of OIGs review, NIH officials incorporated Y2K
compliance clauses into the seven contracts that were not in compliance.  These clauses
52 carry  out  the  Federal  Acquisition  Regulation  compliance  requirements.    (CIN:
A-15-98-80002)
53 Administration 
for Children
and Families,
and Administration 
on Aging Chapter III
ADMINISTRATION FOR CHILDREN AND
FAMILIES, AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General
Activities
The Administration for Children and Families (ACF) provides direction and funding for
programs designed to promote stability, economic security, responsibility and self-support
for the Nations families.  The major programs include: Temporary Assistance for Needy
Families (TANF), Child Support Enforcement (CSE), Foster Care, Family Preservation and
Support, Head Start, and the Child Care and Development Block Grant program.  
With respect to TANF, OIG will continue to ensure program integrity, identify opportunities
for  program  improvement,  and  provide  Federal  and  State  management  with  useful
information regarding the goal of moving individuals and families from welfare dependency
to self-sufficiency.
In addition, OIG reviews the Departments programs that serve children, and has issued a
number of reports in this area.  The OIG reports have focused on ways to increase the
efficient use of the program dollar, more effective program implementation, and how to
better coordinate program implementation among the Federal, State and local governments.  
In 1993, the Congress passed the Government Performance and Results Act mandating
Federal agencies to establish strategic planning and to prepare annual performance plans,
beginning with a plan for FY 1999.  The annual performance plan sets out measurable goals
that define what will be accomplished during a fiscal year.  The OIG has initiated a review
of  selected  data  sources  and  information  collection  systems  supporting  ACFs  1999
performance plan.
The Administration on Aging (AoA), which reports directly to the Secretary, awards grants
to  States  for establishment of  comprehensive  community-based  systems  that  assist the
elderly in maintaining their independence and in remaining in their homes as long as
possible.  Socially and economically disadvantaged elderly and low-income minority elderly
are targeted for assistance, including supportive services, nutrition services, education and
training, low-cost transportation and health promotion.  The OIG has reported opportunities
55 for program improvements to target the neediest for services; expand available financial
resources; upgrade data collection and reporting; and enhance program oversight.
Child Support Enforcement: Investigations
The United States Attorney General has placed enforcement of the Child Support Recovery
Act of 1992 as a top Department of Justice (DOJ) priority.  The Act made it a Federal
misdemeanor crime for a parent in one State to refuse to pay past due support for a child in
another State, when the support has been owed for more than 1 year or exceeds $5,000.  Any
subsequent offense is a felony violation.  A recent amendment to this Act has created two
other felony provisions for the most egregious first time violations.
The OIG has also made the investigation of these matters a high priority.  The OIG and the
Office  of  Child  Support  Enforcement  (OCSE)  are  the  sponsors  of  five  multiagency,
multijurisdictional investigative task forces whose missions are to identify, investigate and
prosecute the most egregious violators of the Federal and State child support laws in the
regions covered by the task forces.  The task forces are comprised of personnel from the
OIG Office of Investigations, U.S.  Marshals Service, U.S. Attorneys Offices, DOJ, State
and local child support offices, State and local law enforcement, State and local prosecutors,
representatives from the judiciary (both State and Federal), and representatives from the
corrections and probation offices at both the Federal and State levels.
The task forces are structured to identify, investigate and prosecute criminal nonsupport
cases both on the Federal and State levels through the coordination of law enforcement,
criminal justice and child support office resources.  There are investigative units in each of
the States which conduct the actual investigations.  The units work with the State child
support offices to identify the cases that the States then refer to the task force.  The units also
work with prosecutors at State and Federal levels to ensure that the cases worked are those
that will be prosecuted in a volume consistent with the resources of those offices.
Central to the task forces are the screening units located in each task force region which are
staffed by analysts and auditors from both OIG and OCSE.  These units receive the child
support cases from the States, conduct preinvestigative analyses of these cases through the
use of information databases and then forward the cases to the investigative task force units
where they are assigned and investigated.  This streamlines the process by which the cases
best suited for criminal prosecution are identified, investigated and brought to fruition.  As
the task forces bring in more law enforcement partners on the State level, the number of
cases adjudicated will rise dramatically.  At this point, the task force units have received
over 1,200 cases from the States.  As a result of the work of the task forces, 51 Federal
arrests have been executed and 32 individuals already sentenced.  The total recovered
amount related to Federal investigations is $1.2 million.  There have been 222 arrests on the
State level and 181 convictions or civil adjudications to date.
56 Two of the five task forces were initiated prior to this reporting period.  Headquartered in
Columbus,  Ohio  and  Baltimore,  Maryland,  these  task  forces  are  in  the  Midwest  and
Mid-Atlantic regions -- with special emphasis on the States of Illinois, Michigan, Ohio,
Maryland, Virginia, Pennsylvania, Delaware and the District of Columbia.  Based on the
success of these two initial task forces, three more have recently become operational in other
areas of the country in this fiscal year, including the Northeast, Southwest and the Pacific
Coast.  In the Northeastern task force area, investigative efforts are headquartered in New
York City, with special emphasis on the States of New York and New Jersey.  For the
Southwestern area, headquartered in Dallas, Texas, efforts focus especially on the States of
Texas, Louisiana and Oklahoma.  Efforts of the Pacific Coast task force area are directed at
the States of California, Oregon, Washington and Arizona, with headquarters located in
Sacramento, California.
Examples  of  the  Federal  arrests,  convictions  and  sentencings  resulting  from  OIGs
enforcement work both inside and outside the task force areas during this reporting period
include the following: 
(cid:127) One of Virginias top 10 deadbeat parents received the first sentence given
in the country under the Deadbeat Parents Punishment Act as the result of a
trial conviction.  After finding the man guilty of failure to pay child support
at a bench trial, the judge sentenced him to 20 months imprisonment.  He
also ordered the man to pay his arrearage of $106,144 in restitution, of
which  $72,000  represents  the  amount  of  public  assistance  benefits  the
custodial parent relied upon in lieu of the mans support.  Over the past
several  years,  the  man  absconded  twice  in  attempting  to  avoid  his
court-ordered child support obligations.
(cid:127) A New York man was sentenced to 5 years probation for failure to pay child
support.  As part of his plea agreement, he made a one-time payment of
$120,000 toward his arrearage and deeded his share of the former marital
residence, valued at approximately $1 million, to his former spouse.  He
also agreed to execute monthly child support payments of $2,500 for 30
months with a lump sum payment of $25,000 due at the end of that period.
Thereafter, he agreed to make monthly payments of $1,250 for an additional
30 months followed by a final payment of $20,000.  This child support
payment  plan  will  satisfy both  his  current, court-ordered  child support
obligation and his arrearage.  An avid golfer who occasionally plays on the
senior golf tour, the man concealed his assets in a trust fund held by several
members of his family.  He failed to make any child support payments
contending he had no assets.
57 (cid:127) A Texas man was sentenced based upon an earlier plea agreement in which
he admitted to failure to pay child support.  As part of his plea agreement,
the man agreed to pay $15,000 toward his arrearage of $173,000.  When he
produced only $13,000 of the required amount at his sentencing, the judge
ordered  the  maximum  sentence  of  18  months  incarceration.    His
imprisonment is to be followed by 1 year supervised release.  The sentence
also mandates that he pay full restitution totaling $186,097 and comply with
all State orders for child support payment  ($1,500 per month).  As a result
of his failure to support his four children, the custodial parent resorted to
food stamps, and the oldest child dropped out of high school to help support
the family.
(cid:127) A child support case filed in Arizona resulted in the arrest and sentencing of
a Texas man.  The man was placed on 5 years probation and 3 months
nighttime detention as part of a work release program, and was ordered to
make monthly payments of $1,800 until his arrearage of $142,468 is paid in
full.
(cid:127) A  California  man  was  sentenced  to  2  months  imprisonment,  5  years
probation and payment of $65,472 in restitution for failure to pay child
support.  The defendant, an architect who formerly managed a design firm,
was ordered to pay child support for his two daughters in 1992.  Despite this
order, he made no payments between 1993 and late 1998.  In early 1994, he
moved to Utah where he earned over $36,000 as a design consultant in less
than 9 months but still made no payments.  Conditions of his probation
included a restitution payment plan, financial supervision and disclosure
requirements, and no contact with his former spouse.
(cid:127) An Alabama man entered into a pre-trial diversion agreement for failure to
pay child support.  The agreement requires him to make restitution of
$66,465 to the custodial parent and to perform 30 hours of community
service.  If he fails to make his scheduled payments, the original indictment,
to remain pending during the pre-trial diversion period, will be enforced.
(cid:127) In Washington, a man who failed to pay child support was sentenced to 5
years probation.  He was also ordered to make monthly payments of $1,900
until his arrearage of $59,054 is paid.  Prior to the mans arrest in January
1999, he had not made child support payments since April 1994.  A project
manager for a construction company in Colorado, the man pled guilty to
willful failure to pay child support following his arrest.  If the man pays less
than the required $1,900 per month, the judge ordered that the unpaid
arrearage balance will be subject to twelve percent annual interest.
58 (cid:127) In Oregon, a man was sentenced to 30 days incarceration, given credit for
time served, placed on 5 years probation and ordered to pay his arrearage of
$53,000  for  failure  to  pay  child  support.    Although  the  man  earns
approximately $60,000 a year as a pipe fitter, he has not voluntarily paid
child support since his divorce in 1990.  In attempting to avoid his child
support obligation, he frequently changed jobs and relocated to different
States.
(cid:127) In Florida, a man pled guilty for failing to pay $44,729 in child support.
After two attempts failed to have him arrested and extradited on State
criminal charges, the county friend of the court referred his case to the
Michigan Child Support Multi-Agency Investigative Team.  As part of his
plea, the man paid the county friend of the court more than the required
$38,000, money which was then turned over to his ex-wife and children.  In
addition, he was sentenced to 3 years supervised release and ordered to pay
$500 a month until the remainder of his arrearage is satisfied.
(cid:127) In California, a magistrate sentenced a man to 60 months probation and
imposed full restitution of both the principle and the interest in the amount
of $35,819 for failure to pay child support.  In addition, the man may not
possess a hand gun.  Since the man is an avid hunter, the magistrate did
allow him to possess a long gun in Minnesota where he currently resides.
The man pled guilty to willful failure to pay legal child support.
During this period, OIG investigations of child support cases nationwide resulted in 43
convictions and court-ordered restitution of over $2.5 million.  Prosecutions in this area are
unique in that sentences ordered by a judge take into account the need for the defendant to
continue to be able to pay.  Therefore, alternative sentencing options -- such as work release,
home detention and probation where nonpayment is a violation -- are ordered.
Review and Adjustment of Child Support Orders
The Personal Responsibility and Work Opportunities Act of 1996 substantially changed
States responsibilities to review and adjust child support orders.  Under the Act, periodic
reviews of child support orders are no longer required.  The CSE agencies are required to
notify all parents every 3 years of their right to request a review of their child support orders.
The agencies must conduct a parent-requested review if none has been performed within the
last 3 years.  States may act on behalf of public assistance custodial parents to initiate a
review.
The OIG surveyed CSE agency directors in all States and collected in-depth information
through site visits in 10 States.  Since 32 States have discontinued or plan to discontinue the
triennial review of public assistance cases, OIG determined that most child support orders
59 will not be reviewed unless a parent requests the review or a CSE worker initiates a review.
In addition, OIG found four areas of particular concern:  notification of parents of the right
to request a review, medical support, collection of basic data and downward adjustments.
Subsequent to issuance of OIGs draft report, the President included a proposal to restore
periodic reviews in the FY 2000 budget.  While this addressed some of the issues raised in
this report, OIG further recommended that OCSE remind States that they are required to
notify parents every 3 years of their right to request a review of child support orders; urge
States to use the review and adjustment process as an opportunity to ensure that medical
support is provided; encourage States to collect basic data on the review and adjustment
process as well as cost-benefit data including requests for downward modifications; and
encourage States to review child support orders for families leaving welfare.  The ACF
concurred  with  OIGs  findings  and  recommendations.    (OEI-05-98-00100;
OEI-05-98-00102)
Paternity Establishment
Three related reports explored the issue of paternity establishment.  They addressed State
practices in providing written and oral notification of rights and responsibilities to parents
who voluntarily acknowledge paternity outside the hospital; early implementation efforts of
State child support agencies to offer voluntary paternity acknowledgment services through
alternative sites; and recent data collection and analysis regarding use of Federal funds to
pay State vital records agencies for paternity establishment services.
The OIG found that States have made serious efforts to provide both written and oral
notification, as required by Federal law.  However, some staff within vital records agencies
and other alternative sites are still unaware of this obligation.  While about half the States
currently offer voluntary paternity acknowledgment services through some of their public
assistance offices, few States have yet expanded service to other sites.  State efforts to
encourage participation have met with reluctance by some entities due to time demands on
limited staff and lack of financial incentives.  The OIG also found that while the number of
State vital records agencies who receive Federal funds for paternity establishment activities
has increased, vital records agencies in half the States still use only their own funds to pay
for these activities; in some cases this is due to State confusion over Federal rules governing
such payments.  (OEI-06-98-00051; OEI-06-98-00052; OEI-06-98-00056).
New Hampshires Procedures for Collecting 
Child Support from Independent Contractors
Federal law requires that all States have a system in place for businesses to report newly
hired employees for the purpose of collecting child support payments.  New Hampshire took
this  a  step  further  by  requiring  businesses  to  also  report  the  hiring  of  independent
contractors.  State officials reasoned that garnishing contractor earnings would improve
60 collections  of  current  and  past-due  child  support  from  a  significant  subset  of  the
self-employed (one of the most difficult groups from which to collect payments).  As a result
of this initiative, the State collected an estimated $1.065 million in child support from
independent contractors for the year ended October 12, 1998.  The OIG recommended that
ACF consider the merits of encouraging other States to require businesses to report the
hiring of independent contractors.  The ACF subsequently highlighted the results of OIGs
review  in  its  newsletter  distributed  to  all  child  support  agencies  nationwide.    (CIN:
A-01-98-02503)
Expenditures for Missouris Automated Child Support System
The CSE program was established to locate noncustodial parents, establish paternity and
collect child support payments.  To assist States in meeting these objectives, the Federal
Government requires each State to develop an automated child support system and provides
enhanced funding for system development.  An OIG review found that Missouri exceeded
the Federal ceiling for system development expenditures by $207,466.  The overclaim
would have been more than $2.2 million above the ceiling had the State not reduced its
claim for a clerical error identified and reported earlier by OIG.  The OIG recommended a
recovery of the overclaim and additional evaluation of controls over future claims.  (CIN:
A-07-98-01033)
Technical Assistance for Quality Child Care
The Personal Responsibility and Work Opportunity Act of 1996 repealed a number of child
care programs and created a single, integrated Child Care and Development Block Grant for
low-income  families.    The  ACF  contracts  with  outside  entities  to  provide  technical
assistance  funded  through  this  grant,  which  includes  the  coordination  and  support  of
regional  and  national  conferences,  national  work  groups,  leadership  forums,  audio
conference calls and creation of the national Child Care Information Center.  In 1997, ACF
further expanded its technical assistance capabilities by creating the Child Care Technical
Assistance Network.
A.  State Administrators Perspectives
In a survey of State child care administrators, OIG sought to determine the extent to which
the technical assistance provided meets their needs and to garner their opinions on the
format, content and logistical support for the technical assistance they require.  Among other
findings, OIG determined that the administrators consider large national conferences and
small regional meetings the most beneficial technical assistance formats and regard the
National Child Care Information Center a valuable technical assistance tool.  Also, they are
more satisfied with the content and focus of national conferences than other technical
assistance events.
61 Based  on  OIGs  analysis  of  the  administrators  responses  and  suggestions,  OIG
recommended  that  ACF  focus  on  five  general  approaches  to  enhance  their  program:
maintain and improve effective technical assistance formats; focus technical assistance on
areas of interest to program administrators; improve logistical support; continue to support
the National Child Care Information Center, but enhance the technical assistance provided
by the website; and reevaluate the structure and content of audio conference calls to better
meet State administrators needs.  The OIG provided specific proposals in each of these
areas.    The  ACF  concurred  with  OIGs  recommendations  and  described  various
improvements in their technical assistance initiatives.  (OEI-07-97-00420)
B.  Community Perspectives
Child  care  community leaders value  ACFs technical assistance  programs.   They find
regional  meetings  and  conferences  the  most  beneficial  formats for  receiving  technical
assistance and regard the National Child Care Information Center as a valuable technical
assistance  tool.    This  OIG  report  suggested  that  ACF  improve  advance  notice  and
information  about  upcoming  events,  focus  technical  assistance  on  issues  child  care
community  leaders  consider  critical  and  continue  to  support  the  Information  Center.
(OEI-07-97-00421)
Interstate Compact on the Placement of Children
The  Interstate  Compact  on  the  Placement  of  Children  is  a  contract  among  the  States
intended to ensure that children placed across State lines receive adequate protection and
services.  The ACF asked OIG to examine a number of issues regarding the interstate
compact,  including  how  the  compact  is  implemented  by  States  and  its  strengths  and
weaknesses.
A.  State Structure and Process
In  this  inspection,  OIG  found  that  States  have  policies  and  procedures  regarding  the
interstate compact that are generally uniform and comprehensive.  However, States are
sometimes unaware that children have been placed in their jurisdiction and half the States
did not know how many children they had placed through the compact in 1997.  While the
compact has clearly been successful in establishing procedures for the interstate placement
of  children,  there  are  weaknesses  in  the  overall  system  which  make  some  children
vulnerable.  The OIG recommended that ACF be prepared, where necessary, to provide
technical assistance on how to more effectively implement the compact, especially in regard
to  placement  notification  and  uniform  data  collection.    The  ACF  found  the  report
information useful.  (OEI-02-95-00041)
B.  Implementation
In a study involving the 10 States with the highest population of persons under age 18, OIG
found that States are meeting the basic requirement of the compact:  they are conducting
62 home studies, providing for children financially and supervising the placements.  However,
State  administrators,  local  workers  and  other  involved  parties  reported  four  main
weaknesses  in  implementation:    lack  of  knowledge  about  the  compact  among  judges,
attorneys and caseworkers; placements in violation of the compact; the lengthiness of the
process; and the differing adoption laws among the States that may hinder placements.
The OIG made specific recommendations to those individuals and entities that have a role in
the compact.  These recommendations are intended to increase awareness and familiarity
with the compact; reduce the lengthiness of the compact process; ensure that State compact
offices continue to be the official contact point between States; make ACF training and
technical assistance available to the States; and examine how the compact handles placement
into residential care facilities.  The ACF intends to work with appropriate officials to
determine how it can promote awareness of the compact, provide training to State agency
staff who implement the compact and support the development of model procedures to help
the compact operate more effectively.  (OEI-02-95-00044)
Head Start Grantee
At ACFs request, a special agreed-upon procedures review was performed concerning the
financial and compliance activities of a St. Louis, Missouri Head Start grantee.  The review
focused  on  asset  management,  enrollment  and  attendance,  indirect  costs,  nonfederal
matching, and adequacy of the financial management and accounting systems.
The OIG found that the grantee claimed $146,790 of Head Start costs that were unallowable.
The costs included duplicate payments for computer equipment ($83,960), unreported and
unsupported nonfederal matching ($33,430) and  excessive indirect cost charges ($29,400).
In addition, the grantees Head Start program was seriously underenrolled -- at least 670
children below the funded enrollment of 2,519 as of March 1999.  Lastly, the grantees
accounting  system  and  system  of  internal  controls  did  not  adequately  ensure  accurate
reporting  of  Head  Start  expenditures  and  the  safeguarding  of  program  assets.
Recommendations called for a refund of $146,790 to the Federal Government and actions to
strengthen the grantees accounting and internal control systems, and elimination of the
enrollment shortfall.  The ACF concurred.  (CIN:  A-07-99-01039)
Temporary Assistance for Needy Families:  Improving the
Effectiveness and Efficiency of Client Sanctions
The TANF program grants cash assistance on a time-limited basis to needy families, but
requires States to implement more stringent work requirements than under the former Aid to
Families with Dependent Children (AFDC) program.  Clients who fail to comply with
TANF program rules and requirements face sanctions, including cash assistance reductions
ranging from $25 to lifetime ineligibility.  States can decide how and when to inform clients
63 of sanction policies and sanction decisions.  They use several methods to resolve client
disputes of sanction decisions, including conciliation meetings.
This report presented a general overview of how sanctions are actually being used in TANF
offices.    The  OIG  concluded  that  these  sanctions  are  most  effective  when  they  are
administered on a case-by-case basis, and are useful for ferreting out clients who do not
report earned income.  They are less effective for clients who face significant barriers to
employment, such as substance abuse, mental illness and illiteracy.  (OEI-09-98-00290)
Employment Programs for Persons with 
Developmental Disabilities
The OIG found that while State developmental disabilities councils did not obtain direct
employment for persons with developmental disabilities, they did facilitate job opportunities
for them by funding demonstration projects for promising employment approaches.  Key
factors in creating and maintaining jobs for persons with developmental disabilities included
involvement of the employer community, collaborative arrangements among State entities
and planning for long term support systems.
The  OIG  found  that  the  greatest  barrier  to  the  development  and  administration  of
employment programs was availability of transportation; other barriers included poor job
matching,  high  speed  production  jobs  that  were  too  stressful,  traditional  sheltered
employment agencies, and mobile work crews and groups.  Outcome data to assess the
success or effectiveness of employment programs was not generally available, and available
data was limited and inconsistent from State to State.
The OIG suggested that ACF work with the State councils to develop an ongoing inventory
of successful employment initiatives and mandatory performance measures with which all
State councils must comply.  (OEI-07-98-00260)
Employment and Training Expenditures:  Wisconsin 
The OIG reviewed Wisconsins employment and training expenditures claimed under the
Title IV-F Job Opportunities and Basic Skills (JOBS) program and the Title IV-A AFDC
demonstration project in FYs 1994 and 1995.  These programs, which were later repealed by
the Personal Responsibility and Work Opportunity Act of 1996, were intended to provide
needy families with additional training and job development services beyond those available
at the State and local level.  However, OIG determined that Wisconsins claims to the
programs  supplanted  normal  State  job  training  activities.    The  State  agreed  that  it
inappropriately claimed $5,140,249 ($2,570,125 Federal share) for FY 1994 and $1,497,464
($748,732 Federal share) for FY 1995.  (CIN:  A-05-98-00010)
64 Fiscal Year 1998 Financial Statement Audit 
of the Administration for Children and Families
In support of its audit of the consolidated departmentwide financial statements for FY 1998,
OIG contracted with an independent accounting firm to audit ACFs financial statements.
The ACF received an unqualified opinion on the balance sheet and the statements of net cost
and changes in net position.  However, the accounting firm disclaimed an opinion on the
statements of budgetary resources, financing and custodial activity because it could not
reconcile these statements to the ACF general ledger.  Officials of ACF agreed with the
recommendations and are taking corrective action.  (CIN:  A-17-98-00003)
Administration on Agings Health Care Fraud 
and Abuse Programs
In an inspection on AoAs health care fraud and abuse programs, OIG found that its two
antifraud initiatives used somewhat different approaches, but complemented one another
well.  The programs educated thousands of beneficiaries who then identified some instances
of fraud and abuse.
Performance data indicated that the community volunteer projects trained 3,700 individuals
who educated over 60,000 Medicare beneficiaries.  The Health Insurance Portability and
Accountability  Act-funded  projects  trained  over  10,000  trainers  who  reached  many
additional beneficiaries.  In total, projects referred at least 870 allegations to Medicare
contractors or other agencies.  However, most projects did not routinely track complaint
outcomes, making it difficult to determine whether they produced more in savings than the
amount of money invested in them.  The OIG encouraged AoA to assure that grantees track
key outcomes as they expand the program. (OEI-02-99-00110; OEI-02-99-00111)
65 General Oversight Chapter IV
GENERAL OVERSIGHT
Introduction
This chapter addresses the Office of Inspector Generals (OIGs) departmental management
and Governmentwide oversight responsibilities.
The Program Support Center (PSC), a separate operating division within the Department of
Health  and  Human  Services  (HHS),  provides  overall  direction  for  departmental
administrative activities as well as common services such as human resources, financial
management, administrative operations and information technology.  The Office of the
Assistant Secretary for Management and Budget (ASMB) is responsible for the development
of the HHS budget and its execution, as well as the related activities of establishing and
monitoring departmental policy for debt collection, cash management, and payment of HHS
grants and contracts.  The Department also has the responsibility, by virtue of the magnitude
of its funding, to negotiate the payment rates and methods that outside entities, such as State
and local governments, charge for administering HHS and other Federal programs.
The OIG has oversight responsibility for these activities at the departmental level.  A related
major responsibility flows from Office of Management and Budget (OMB) Circular A-133,
under which HHS is cognizant agency to audit the majority of the Federal funds awarded to
major research schools, State and local government cost allocation plans, and separate
indirect cost plans of State agencies and local governments.  Also, OIG oversees the work of
nonfederal auditors of Federal money at some 6,700 entities, such as community health
centers and Head Start grantees, as well as at State and local governments, colleges and
universities, and other nonprofit organizations.  In addition, OIG became responsible for
auditing the Departments financial statements beginning with the FY 1996 statements.
The OIGs work in departmental administrative activities and Governmentwide oversight
focuses principally on financial statement audits, financial management and managers
accountability  for  resources  entrusted,  standards  of  conduct  and  ethics,  and
Governmentwide audit oversight, including recommending necessary revisions to OMB
guidance.
67 Reviews of Departmental Service Organizations
In support of its HHS-wide FY 1998 financial statement audit, OIG contracted for reviews
of four service organizations which provide common administrative, data processing and
accounting services to the individual operating divisions.  In accordance with Statement on
Auditing  Standards  No.  70,  independent  accounting  firms  reviewed  the  service
organizations controls in operation and tested their operating effectiveness, especially the
controls that may be relevant to a user organizations internal controls. 
A.  Central Personnel and Payroll System, Human Resources Services
In FY 1998, the Human Resources Services (HRS) office made significant improvements;
the accounting firm reported only three exceptions relating to policies and procedures,
compared with seven exceptions in FY 1997.  Specifically, the firm determined that HRS did
not have a fully implemented entitywide security program; did not protect its data from
unauthorized access that could lead to improper modification, disclosure or deletions; and
did not have an up-to-date disaster plan.  The HRS has projects in place to address each of
these exceptions.  (CIN:  A-17-99-00018)
B.  Division of Financial Operations
The firm concluded that controls tested for the Division of Financial Operations (DFO) were
operating with sufficient effectiveness, with some exceptions.  For instance, certain duties
were  not  adequately  segregated;  some  application  programmers  who  made  accounting
system changes had authority to make and test changes to source code, compile the code and
move the altered code to the production library.  The DFO officials concurred with this
finding and are implementing corrective action.  
In addition, the accounting firm concluded that DFO did not always apply standard general
ledger  posting  rules,  did  not  fully  document  and  maintain  a  comprehensive  list  of
reconciliations performed and did not adequately document data conversion between two
accounting  systems.    The  DFO  officials  did  not  concur  with  these  findings.    (CIN:
A-17-98-00009)
C.  Division of Payment Management
At the Division of Payment Management, the accounting firm determined that the controls
tested were operating with sufficient effectiveness and noted no significant exceptions.
(CIN:  A-17-99-00011)
D.  Center for Information Technology
Again, the accounting firm determined that the controls tested at the Center for Information
Technology were operating with sufficient effectiveness and noted no significant exceptions.
(CIN:  A-17-98-00013)
68 Program Support Centers Year 2000 Compliance Activities
While seven of the eight PSC mission-critical systems were Y2K compliant as of April 1,
1999, the remaining system, the Payment Management System, did not meet the HHS
compliance date of December 31, 1998.  This system processes more than 1,000 transactions
daily, serves over 20,000 grantees and disburses more than $165 billion annually.  In an
April 22, 1999 memorandum, OIG suggested that PSC consider investigating the feasibility
of contracting for alternative administrative support services that are Y2K compliant from
other Federal agencies or private contractors as an additional safeguard should the Payment
Management System not be Y2K compliant by January 1, 2000.  The PSC advised OIG on
June 30, 1999 that the system had been recommended for certification as Y2K compliant by
the  independent  verification  and  validation  contractor  and  was  subsequently  certified
compliant.  (CIN:  A-15-98-80002)
Nonfederal Audits
The  OMB  Circular  A-133  establishes  the  audit  requirements  for  State  and  local
governments,  colleges  and  universities,  and  nonprofit  organizations  receiving  Federal
awards.  Under this circular, these entities are required to have an annual organizationwide
audit which includes all Federal money they receive.
These annual audits are conducted by nonfederal auditors, such as public accounting firms
and State auditors.  As cognizant auditor, OIG reviews the quality of these audits and
assesses the adequacy of the entitys management of Federal funds.  In the second half of FY
1999, OIGs National External Audit Review Center (located in Kansas City) reviewed
about 1,300 reports that covered over $494.9 billion in audited costs.  Federal dollars
covered by these audits totaled $118.4 billion, about $56.8 billion of which was HHS
money.
The OIGs oversight of the nonfederal audit activity not only provides Department managers
with  assurances  about  the  management  of  Federal  programs,  but  also  identifies  any
significant areas of internal control weakness, noncompliance and questioned costs that
require formal resolution by Federal officials.
A.  Office of Inspector Generals Proactive Role
The OIG has taken the following steps in the nonfederal area to ensure adequate coverage of
the Departments programs and provide for greater utilization of the data obtained: 
(cid:127) Through evaluation of reported data, OIG is able to provide basic audit
coverage and analyze reports to identify entities for high-risk monitoring
and trends that could indicate  problems within  HHS  programs.  These
problems are brought to the attention of departmental management who can
take steps to improve program administration.  In addition, OIG profiles
69 nonfederal audit findings of a particular program or activity over a period of
time to identify systemic problems.
(cid:127) To ensure audit quality, OIG maintains a quality control program (discussed
below) and has taken steps to ensure that adequate guidance is available to
the nonfederal auditor.  The OIG actively assists the National Association of
State Auditors, Controllers and Treasurers in performing peer reviews of
State audit organizations.
(cid:127) As a further enhancement of audit quality, OIG provides technical assistance
to  grantees  and  the  auditing  profession  through  its  toll  free  number
(800-732-0679).  In addition, OIG offers various training; for example,
formal training was provided to certified public accountant societies and
State auditor staffs on issues related to Circular A-133.
(cid:127) The OIG is also very much involved with OMB and the American Institute
of Certified Public Accountants in developing authoritative guidance for
nonfederal auditors.
(cid:127) The OIG led the revision of the Initial Review Guide and Quality Control
Review Guide issued by the Presidents Council on Integrity and Efficiency
and used for quality assurance.
B.  Quality Control
To rely on the work of nonfederal auditors, OIG maintains a quality control review process
which  assesses  the  quality  of  the  nonfederal  reports  received  and  the  audit work  that
supports selected reports.  Uniform procedures are used to review nonfederal audit reports to
determine compliance with Federal audit requirements and Government auditing standards.
During this reporting period, OIG reviewed and issued 1,323 nonfederal audit reports.  The
following table summarizes those results:
Reports issued without changes or with minor changes 1,286
Reports issued with major changes 10
Reports with significant inadequacies       27 
Total audit reports processed 1,323
70 The  1,323  audit  reports  discussed  above  included  recommendations  for  HHS program
officials  to  take  action  on  cost  recoveries  totaling  $28.8  million  as  well  as  3,118
recommendations for improving management operations.  In addition, these audit reports
provided information for 52 special memoranda which identified concerns for increased
monitoring by departmental management.
71 Resolving Office of Inspector General Recommendations
The tables and schedules below summarize actions taken on OIG recommendations to
recover funds or to put them to better use.
A.  Questioned Costs
The following chart summarizes the Departments responses to OIGs recommendations for
the recovery or redirection of questioned and unsupported costs.  Questioned costs are those
costs which are challenged because of violation of law, regulation, grant conditions, etc.
Unsupported costs are those costs questioned because they are not supported by adequate
documentation.    This  information  is  provided  in  accordance  with  the  Supplemental
Appropriations and Rescissions Act of 1980 (Public Law 96-304) and section 5 of the
Inspector General Act.  These costs are separate from the amount ordered or returned as a
result of OIG investigations (see page 76).
TABLE I
OFFICE OF INSPECTOR GENERAL 
REPORTS WITH QUESTIONED COSTS
Number  Dollar Value 
Questioned Unsupported
A.For which no management
decision had been made by
the commencement of the
reporting period1 401 $328,456,000 $28,443,000
B.Which were issued during
the reporting period 117 $94,363,000 $689,000
Subtotals (A + B) 518 $422,819,000 $29,132,000
Less:
C.For which a management
decision was made during 
the reporting period2: 152 $119,819,000 $7,101,000
(i) dollar value of
disallowed costs3,4 $111,017,000 $140,000
(ii)dollar value of
costs not disallowed $8,802,000 $6,961,000
D.For which no management 
decision had been made by the 
end of the reporting period 366 $303,000,000 $22,031,000
E. For which no
management decision was
made within 6 months
of issuance5 260 $228,109,000 $22,800,000
See Appendix D for footnotes.
72 B.  Funds Put to Better Use
The following chart summarizes reports which include recommendations that funds be put
to better use through cost avoidances, budget savings, etc.
TABLE II
OFFICE OF INSPECTOR GENERAL REPORTS 
WITH RECOMMENDATIONS THAT FUNDS BE PUT
TO BETTER USE
Number  Dollar Value 
A.For which no management
decision had been made by
the commencement of the
reporting period1 41 $1,445,362,000
B.Which were issued during
the reporting period 7 $76,778,000
Subtotals (A + B) 48 $1,522,140,000
Less:
C.For which a management
decision was made during 
the reporting period:
(i) dollar value of
recommendations that
were agreed to by
management
(a) based on proposed
    management action2 19 $86,186,000
(b) based on proposed
    legislative action 0 0
Subtotals (a+b) 19 $86,186,000
  (ii)dollar value of
recommendations that
were not agreed to
by management  1 $8,000
Subtotals (i + ii) 20 $86,194,000
D.For which no management 
decision had been made by
the end of the reporting 
period3 28 $1,435,946,000
See Appendix D for footnotes.
73 Legislative and Regulatory Review and Regulatory Development
A.  Review Functions
Section 4(a) of the Inspector General Act of 1978 requires the Inspector General to review
existing and proposed legislation and regulations, and to make recommendations in the
semiannual  report  concerning  the  impact  on  the  economy  and  efficiency  of  the
administration of the Departments programs and on the prevention of fraud and abuse.  In
reviewing  regulations  and  legislative  proposals,  OIG  uses  as  the  primary  basis  for its
comments the audits, inspections, investigations and other activities highlighted in this and
previous semiannual reports.  Recommendations made by OIG for legislative and regulatory
change can be found throughout this semiannual report.  
B.  Regulatory Development Functions
The OIG is responsible for the development and promulgation of a variety of sanction
regulations addressing civil monetary penalty (CMP) and program exclusion authorities
administered by the Inspector General, as well as safe harbor regulations related to the
anti-kickback statute.  Among the regulatory initiatives promulgated during the reporting
period were final codifying  regulations that addressed revised OIG sanction authorities
resulting from Public Law 105-33.  These final regulations (64 FR 39420; July 22, 1999)
revised OIGs exclusion and CMP authorities set forth in 42 C.F.R. parts 1001 through 1003
as a result of the Balanced Budget Act of 1997. These revisions are intended to protect
Medicare  and  other  Federal  health  care  programs  by  enhancing  OIGs  administrative
sanction authority through new or revised exclusion and CMP provisions.  
In addition, during this reporting period, the Inspector General signed and the Secretary
cleared the following rules (currently at the Office of Management and Budget awaiting
final clearance and publication):
Final Rule: Health Care Fraud and Abuse Data Collection Program - Reporting of Final
Adverse Actions.  This final rule establishes the new national health care fraud and abuse
data bank - the Healthcare Integrity and Protection Data Bank (HIPDB) - for the
reporting  and  disclosure  of  certain  final  adverse  actions  taken  against  health  care
providers, suppliers and practitioners.  The regulations will set forth the policy and
procedures for implementing the new HIPDB. 
Proposed Rule:  Privacy Act - Exempt Records System. This rule would exempt the new
system of records from the HIPDB from certain provisions of the Privacy Act (5 U.S.C.
552a).   The proposed exemption would apply to investigative materials compiled for
law  enforcement  purposes  in  anticipation  of  civil,  criminal  or  administrative
proceedings.
74 Final Rule:  Clarification of the Initial OIG Safe Harbor Provisions and Establishment of
Additional Safe Harbor Provisions Under the Anti-Kickback Statute.  This final rule
serves both to clarify various aspects of the original safe harbor provisions codified at 42
C.F.R. 1001.952, and to add new safe harbors designed to protect additional payment
and  business  practices  from  criminal  prosecution  and  civil  sanctions  under  the
anti-kickback statute. 
Interim Final Rule:  Shared Risk Exception to the Anti-Kickback Statute.  This rule
establishes  standards  relating  to  the  exception  to  the  anti-kickback  statute  for
risk-sharing arrangements, set forth in section 1128B(b)(3)(F) of the Social Security Act.
In addition, during this period, OIG developed and published a number of Federal Register
notices that addressed development of OIG compliance program guidances, Special Fraud
Alerts and Special Advisory Bulletins in a variety of areas.  These included:
Draft OIG Compliance Program Guidance for Certain Medicare+Choice Organizations
(64 FR 33869; June 24, 1999)
OIG Compliance Program Guidance for the Durable Medical Equipment, Prosthetics,
Orthotics and Supply Industry (64 FR 36368; July 6, 1999)
OIG Special Advisory Bulletin on Gainsharing Arrangements and CMPs for Hospital
Payments to Physicians to Reduce or Limit Services to Beneficiaries (64 FR 37985; July
14, 1999 )
Draft OIG Compliance Program Guidance for Hospices (64 FR 39150; July 21, 1999)
C.  Congressional Testimony and Hearings
The OIG also maintains an active involvement in the congressional hearing process.  For
example, OIG testified at seven hearings and made one statement for the record during this
6-month period, principally on health care fraud and abuse issues.  On several occasions, the
testimony  concerned  OIG  recommendations  which,  if  implemented,  could  produce
significant annual savings to the Government.  These recommendations are contained in the
OIG Cost Saver Handbook, also known as the Red Book.  The hearing process offers OIG
the opportunity to meet its statutory obligation of keeping the Congress informed of its work
with regard to the effective and efficient operation of Department programs.  The OIG
continues to track all relevant congressional hearings and pending legislation relative to a
wide range of issues.
75 Employee Fraud and Misconduct
The OIG has oversight responsibility for the investigation of allegations of wrongdoing by
Department employees when it affects internal programs.  Most of the persons employed full
time by HHS are dedicated, honest civil servants.  Occasionally, however, individuals
violate their fiduciary responsibilities, as illustrated by the following examples:
(cid:127) In New York, a former Public Health Service (PHS) commissioned officer
was sentenced to 21 months imprisonment and 1 year supervised release for
sexual abuse of a prison ward.  As a Lieutenant Commander for PHS, he
worked as a physicians assistant at the Immigration and Naturalization
Service Detention Center.  He admitted to sexually molesting at least five
detainees on more than 20 separate occasions during a 2-year period of his
employment with PHS.  After pleading guilty to three counts of sexual
abuse of a prison ward in 1998, he immediately resigned from his position
at PHS.
(cid:127) A Regional Hub Director for the Administration for Children and Families
(ACF), agreed to pay the Government $14,521 for allegedly submitting a
false travel voucher.  When he submitted the travel order, he allegedly
misrepresented a friends home in California as his own and moved the
friends household goods to his new duty station.  The companys services
cost the Government $7,260.  The ACF waived its right to take adverse
personnel action concerning his employment.
Investigative Prosecutions and Receivables
During this semiannual reporting period, OIG investigations resulted in 222 successful
criminal actions.  Also during this period, 550 cases were presented for criminal prosecution
to DOJ and, in some instances, to State and local prosecutors.  Criminal charges were
brought by prosecutors against 197 individuals and entities.
In addition to terms of imprisonment and probation imposed in the judicial processes, over
$231.9  million  was  ordered  or  returned  as  a  result  of  OIG  investigations  during  this
semiannual period.  Civil settlements from investigations resulting from audit findings are
included in this figure.
Program Fraud Civil Remedies Act
The Program Fraud Civil Remedies Act (PFCRA), 31 U.S.C. sections 3801-3812, authorizes
the imposition of civil money penalties (CMPs) and assessments against anyone who makes
a false, fictitious, or fraudulent claim or written statement to a Federal agency.  It was
modeled after the CMP law (42 U.S.C. 1320a-7a) which is applicable to false or otherwise
improper claims presented to Medicare, Medicaid or other Federal health care programs.
76 Under PFCRA, a person who presents a false, fictitious or fraudulent claim to a Federal
agency may be subject to a CMP of up to $5,000 per claim or statement, as well as an
assessment of up to double the amount of each claim falsely made.  The OIG is responsible
for investigating allegations of false claims and statements presented to the Department, and
for reporting at the end of each fiscal year the number of investigations completed and
matters referred for administrative action under PFCRA. 
During FY 1999, no matters were specifically referred for administrative action solely under
PFCRA.  While all cases are routinely analyzed for potential action under PFCRA, at HHS
the availability of other criminal, civil and administrative remedies (particularly the CMPL)
often renders unnecessary the referral of cases for action solely under PFCRA.  However,
OIG  does  assert  its  administrative  authority  under  PFCRA  as  one  basis  in  settlement
agreements, in which OIG is a party, that resolve cases arising under the False Claims Act
and other Federal statutes.  In addition, as part of these settlements, the defendant is released
from liability under PFCRA.
77 Appendices APPENDIX A
Savings Achieved through Policy and Procedural Changes Resulting from
Office of Inspector General
Audits, Investigations and Inspections
April 1999 through September 1999
The following schedule highlights savings resulting from Office of Inspector General (OIG) efforts to prevent unnecessary
obligations for expenditures of agency funds or to improve agency systems and operations.  These achievements depend
greatly on the contributions of others, such as OIGs partners within the Department and elsewhere.  The amounts shown
represent funds or resources that will be used more efficiently as a result of documented measures taken by the Congress or
by management in response to OIG audits, investigations and inspections, including:  actual reductions in unnecessary
budget outlays; deobligations of funds; reductions in costs incurred or preaward grant reductions from agency programs or
operations; and reduction and/or withdrawal of the Federal portion of interest subsidy costs on loans or loan guarantees, or
insurance or bonds.
Legislative savings are annualized amounts based on Congressional Budget Office (CBO) estimates for a 5-year budget
cycle.  Administrative savings are calculated by OIG using departmental figures, where available, for the year in which the
change is effected or for multiple years, if applicable.  Total savings from these sources amount to $5,480.4 million for this
period.
      OIG Recommendation Implementing Action Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Medicare Home Health Payments:
Restructure the payment system for home health Chapter I of Subtitle G of the Balanced $1,900
care to eliminate inappropriate incentives which Budget Act of 1997, which pertains to
unnecessarily increase cost and utilization; home health benefits, addresses OIGs
prevent unscrupulous providers from gaining concerns regarding the need to restructure
entry into the program; and improve program and control the payment system for these
controls, such as eligibility determinations and services.  For example, it mandates that a
approval of plans of care and services. prospective payment system be developed
(OEI-04-93-00260; OEI-09-96-00110; CIN: and that the total payments in fiscal year
A-04-96-02121) (FY) 2000 be equal to the amount that
would have been paid under the prior
system if cost limits were reduced by 15
percent.  It also eliminates periodic interim
payments to home health agencies.
Hospital Outpatient Policy:
Extend congressionally mandated reductions in Section 13521 of the Omnibus Budget 1,890
hospital costs.  Hospitals should limit outpatient Reconciliation Act (OBRA) of 1993
department (OPD) facility fees to the applicable mandated a reduction of 10 percent for
ambulatory surgical center (ASC) rate or reduce outpatient capital costs.  Sections
payments for OPD services to bring them in line 4521-4523 of the Balanced Budget Act
with ASC payments. (CIN:  A-14-89-00221; (BBA) of 1997 eliminated formula-driven
CIN: A-09-91-00070; OAI-85-09-0046; overpayments in FY 1998, extended
OEI-09-88-01003)   reductions in payments for costs of hospital
outpatient services, and established a
prospective payment system (PPS) for
hospital outpatient services for FY 1999.
A-1       OIG Recommendation Implementing Action Savings
in Millions 
Medicare Indirect Medical Education:
The Health Care Financing Administration Section 4621 of the BBA reduced the $750
(HCFA) should base the indirect medical indirect teaching adjustment factor from 7.7
education adjustment factor on the level percent in FY 1997 to 7.0 percent in FY
supported by HCFAs empirical data.  (CIN: 1998; 6.5 percent in FY 1999; 6.0 percent
A-07-88-00111) in FY 2000; 5.5 percent in FY 2001 and
thereafter. 
Medicare Secondary Payer - Initial
Enrollment Questionnaire:
The HCFA should take steps to collect primary Since 1995, all Medicare beneficiaries are 425
insurance information in a more timely and being asked to complete the Initial
accurate manner, requiring beneficiaries to Enrollment Questionnaire and list any other
disclose other health insurance information, and health insurance they have.  The HCFA has
should revise all Medicare claims forms to reported that two-thirds of all new
require spousal information before claims can beneficiaries are voluntarily completing the
be paid.  (CIN:  A-09-89-00100; questionnaire and this has helped HCFA
OEI-07-90-00760) document 110,000 cases each year in which
new beneficiaries have other coverage.
Graduate Medical Education Payments:
The HCFA should reevaluate Medicares policy Sections 4623 and 4626 of the BBA 100
of paying graduate medical education (GME) provided for limits in the number of
costs for all physician specialities and should residents and offered payments for
consider submitting legislation to reduce voluntary reductions in the number of
Medicares investment in GME to arrive at a residents to limit Medicares share of GME
more representative and accurate sharing of costs.
GME costs.  (CIN: A-06-92-00020)
Medicare Disproportionate Share:
The disproportionate share adjustment should Section 4403 of the BBA provided for 70
be reduced, if not eliminated, without reducing disproportionate share payments
redistribution of the funds to PPS hospitals. by 1 percent in FY 1998, 2 percent in FY
(CIN: A-04-87-01004) 1999, 3 percent in FY 2000, 4 percent in
FY 2001, 5 percent in FY 2002 and 0
percent thereafter.
Ambulance Services for Medicare End Stage
Renal Disease Beneficiaries:
The HCFA should ensure fairer payment for A set of proposed national codes for use by 55.4
services rendered, and ensure that claims meet carriers was developed in January 1994,
Medicare coverage guidelines. and a program memorandum was finalized
(OEI-03-90-02130; OEI-03-90-02131) and distributed a year later for January
1995 implementation.
A-2       OIG Recommendation Implementing Action Savings
in Millions 
Fraud and Abuse Provisions of the Balanced
Budget Act:
Require durable medical equipment (DME) Subtitle D of the BBA contained a number $50
suppliers and home health agencies (HHAs) to of provisions that corresponded to and were
provide Social Security numbers (SSNs) and supported by OIG work: for example, the
employer identification numbers BBA authorized the Secretary to collect
(OEI-04-96-00240; OEI-09-96-00110); refuse SSNs and employer identification numbers
to enter into a provider agreement with any from entities under Medicare, Medicaid and
HHA whose owners or principals have prior title V; authorized the Secretary to refuse to
criminal records or are the relatives of the enter into contracts with physicians or
owner of a provider who had defrauded the suppliers that have been convicted of
Medicare program (OEI-09-96-00110); allow felonies; authorized the exclusion of
HCFA to apply "inherent reasonableness" entities owned or controlled by the family
provisions when assessing the appropriateness or household members of excluded
of Medicare payments (OEI-03-94-00392); individuals; authorized HCFA to make
authorize competitive bidding as a means of inherent reasonableness adjustments up to
providing Medicare services (OEI-03-94-00021; 15 percent to all Part B services except
OEI-06-92-00866; OEI-03-96-00230); and physician services; authorized up to 5
require DME suppliers and HHAs to post surety demonstration projects to be completed by
bonds as a condition of participation December 31, 2002 (one must be oxygen
(OEI-04-96-00240; OEI-09-96-00110).  Also, and oxygen equipment), which can have
clarify which general and administrative and multiple sites, to allow competitive
fringe benefits costs at hospitals and HHAs are bidding; and prohibited "reasonable cost"
related to patient care; specifically, distinguish payments for items such as entertainment,
between employee benefits and/or perquisites to gifts and donations, education expenses and
entertainment and patient care, and specify that personal use of automobiles.  The BBA also
cost of entertainment, goods or services for required DME suppliers, HHAs and others
personal use, alcohol, all fines and penalties and to post a surety bond of a minimum of
associated interest, dues, and membership costs $50,000.
associated with civic and community
organizations are unallowable.  (CIN:
A-03-92-00017; CIN:  A-04-93-02067)
Hospital Sales:
The HCFA should eliminate the requirement Section 4404 of the BBA eliminated the 50
that Medicare make adjustments for gains and requirement that Medicare make
losses when hospitals undergo changes of adjustments by setting the Medicare capital
ownership.  (OEI-03-96-00170)  asset sales price equal to the net book value.
Rural Health Clinics:
The oversight and functioning of the current Section 4205 of the BBA extended the 30
cost reimbursement system should be improved per-visit payment limits to provider-based
by implementing caps on provider-based rural clinics and stipulated that the shortage area
health clinics (RHCs) and allowing States to do requirements designation be reviewed
so, or finding other ways to make triennially.
reimbursement between provider-based and
independent RHCs more equitable.  In addition,
the certification process should be modified to
increase State involvement and ensure more
strategic placement of RHCs.  Recertification
should be required of RHCs within a specific
time limit (for example 5 years), applying new
criteria to document the need and impact on
access.  (OEI-05-94-00040)  
A-3       OIG Recommendation Implementing Action Savings
in Millions 
Hospice Certification:
The HCFA should restructure hospice benefit Sections 4441-4449 of the BBA of 1997 $30
policies to curb inappropriate growth in the contained provisions to control hospice
program, particularly with regard to the fourth payments and practices, such as replacing
benefit period.  (OEI-05-95-00250; CIN: the current unlimited fourth benefit period
A-05-96-00023) with an unlimited number of 60 day benefit
periods (each requiring recertification).
Payments for Ambulance Services:
The HCFA should seek legislative authority to Section 4531 of the BBA of 1997 made 10
develop a fee schedule for ambulance interim reductions in ambulance payments
transportation and examine the inherent by limiting the allowed rate of increase and
reasonableness of current allowable charges. mandated the establishment of a fee
(OEI-05-95-00300) schedule by January 1, 2000. Such fee
schedule is to be set so that aggregate
payments are reduced by 1 percent.
Medicare Payments for Home Blood
Glucose Monitors:
The HCFA should ensure that Medicare The HCFA issued final regulations on the 5
payments for monitors are net of any available fee schedule for home blood glucose
rebates.  (CIN:  A-09-92-00034) monitors.  These regulations refer to the
OIG report for support of fee schedule
changes.
PUBLIC HEALTH SERVICE AGENCIES
Audit of Harvard Universitys Indirect Cost
Proposal:
The Division of Cost Allocation (DCA) should In addition to the original negotiations, 2
utilize the OIGs recommendations on DCA utilized this report to negotiate a
allocation of research space, depreciation and 3-year rate extension of F&A costs for FYs
salaries and fringe benefits to negotiate 1998-2000.
facilities and administrative (F&A) cost rates at
Harvard University.  (CIN:  A-01-94-04009)
A-4       Other Implementing Action Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Incontinence Supplies:
Information from OIG inspections indicated that The DMERCs issued single national $108
suppliers engaged in questionable marketing coverage guidelines in October 1995 and
practices and that beneficiaries were receiving educated providers about proper billing.
unnecessary or noncovered incontinence Since the initiative began in 1994,
supplies.  A joint OIG/HCFA effort to address Medicare payments dropped by $110
this problem resulted in the initiation of an OIG million a year, of which $104 million in
review of this area and a national investigation 1996 was directly attributable to the
examining potentially fraudulent practices by problems discussed in the OIG reports.
specific suppliers.  In addition to issuing
reports, OIG dramatized the problem in
speeches and congressional testimony.  The
OIG issued fraud alerts on this topic in
December 1994 and August 1995.  As a result of
OIG investigations, approximately $50.2
million was recovered through seizures and
restitutions from abusive providers, further
highlighting the intensity of the OIG/HCFA
initiative.  In these ways, OIG supported
ongoing activity in HCFA and the durable
medical equipment regional carriers (DMERCs)
to control Medicare outlays for these supplies
and equipment.  (OEI-03-94-00770;
OEI-03-94-00772; OEI-03-94-00773)
VARIOUS OPERATING DIVISIONS
Results of Investigations:
In addition to any restitution, fines, settlements The operating division takes action based 5
or judgments, or other monetary amounts on the results of the OIG investigation to
resulting from successful investigations, suspend or terminate payments to the
additional monetary losses are avoided through offending individual or entity.
timely communication of the investigative
results to the operating division.
A-5 APPENDIX B
Unimplemented Office of Inspector General Recommendations to 
Put Funds to Better Use
This schedule represents potential annual savings or one-time recoveries which could be realized if Office of Inspector
General (OIG) recommendations were enacted by the Congress and the Administration through legislative or regulatory
action, or policy determinations by management.  (In many cases, these recommendations are beyond the direct authority of
the departmental operating division.)  It should be noted, however, that the Congress normally develops savings over a
budget cycle which results in far greater dollar impact statements.  Savings are based on preliminary OIG estimates and
reflect economic assumptions which are subject to change.  The magnitude of the savings may also increase or decrease as
some of the proposals could have interactive effects if enacted together.
      OIG Recommendation Status  Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Modify Formula for Costs Charged to the
Medicaid Program:
The Health Care Financing Administration The HCFA did not agree with the $4,100
(HCFA) should consult with the Congress on recommendation, and no legislative
modification of the Federal medical assistance proposal was included in the Presidents
percentage formula used to determine the current budget.
Federal share of costs for the Medicaid and
other programs which would result in
distributions of Federal funds that more closely
reflect per capita income relationships.  (CIN:
A-06-89-00041)
Laboratory Roll-In:
Fees for laboratory services should be included The HCFA disagreed with the 2,040
in Medicare recognized charges for physician recommendation.  The OIG continues to
office visits.  (OEI-05-89-89150; believe that it should be implemented. 
OEI-05-89-89151)
Medicare Coverage of State and Local
Government Employees:
Require Medicare coverage and hospital Although HCFA included a proposal to 1,559
insurance contributions for all State and local mandate Medicare coverage for all State
employees, including those hired prior to April and local government employees in the FY
1, 1986.  If this proposal is not enacted, seek 1990 budget submission, no legislative
legislation making Medicare the secondary proposal was included in the Presidents
payer for retirees of exempt State and local current budget.  Also, HCFA did not agree
government agencies.  (CIN:  A-09-88-00072) with the recommendation to make Medicare
the secondary payer.
Clinical Laboratory Tests:
Develop a methodology and legislative proposal The HCFA agreed with the first 1,130*
to pay for tests ordered as custom panels at recommendation but not the second.  The
substantially less than the full price for Balanced Budget Act of 1997 reduces
individual tests, and study reinstating the Medicare fee schedule payments by
beneficiary coinsurance and deductible lowering the cap to 74 percent of the
provisions for laboratory services as a means of median for payment amounts beginning in
controlling utilization.  (CIN:  A-09-89-00031; 1998.  Also, there will be no inflation
CIN:  A-09-93-00056) update between 1998 and 2002.  The
Presidents current budget proposes to
reduce the fee schedule ceiling from 74 to
72 percent.
*This savings estimate would result from the copayment; the savings estimate for panels has yet to be determined.
B-1       OIG Recommendation Status  Savings
in Millions
Reduce Hospital Capital Costs:
Determine the extent that capital reductions are The HCFA did not agree with the $820
needed to fully account for hospitals excess recommendation.  Although the Balanced
bed capacity and report the percentage to the Budget Act of 1997 reduces capital
Congress.  (CIN:  A-09-91-00070; CIN: payments, it does not include the effect of
A-14-93-00380) excess bed capacity and other elements
included in the base year historical costs.
Medicaid Payments to Institutions for
Mentally Retarded:
The HCFA should take action to reduce The HCFA nonconcurred with OIGs 683
excessive spending of Medicaid funds for recommendation.  The HCFA believes
intermediate care facilities for the mentally Medicaid statutory provisions allow States
retarded (ICF/MRs) by one or more of the to establish their own payment systems.
following:  take administrative action to control This flexibility allows for the variations
ICF/MR reimbursement by encouraging States found among States in their payment rates
to adopt controls; seek legislation to control and the methods and standards used in
ICF/MR reimbursement, such as mandatory cost determining these rates.  The HCFA and
controls, Federal per capita limits, flat per OIG negotiated an agreement for HCFA to
capita payment, case-mix reimbursement or send the report to all State Medicaid
national ceiling for ICF/MR reimbursements; directors.  This action has been taken.
and seek comprehensive legislation to However, pursuant to section 4711 of the
restructure Medicaid reimbursement for both Balanced Budget Act of 1997, the Secretary
ICF/MR and home and community-based shall conduct a study on the effect on
waiver service for developmentally disabled access to, and the quality of services
people via global budgeting, block grants or provided to beneficiaries of the rate-setting
financial incentive programs. methods used by States.
(OEI-04-91-01010)
Flexible Benefit Plans:
The value of flexible benefit plans should be While HCFA agreed with the 291
included in the definition of wages for the recommendation and has submitted a
hospital insurance portion of the Federal legislative proposal to subject flexible
Insurance Contributions Act.  (CIN: benefit plans to the hospital insurance tax,
A-05-93-00066) the proposal was not included in the
Presidents budget.
Hospital Admissions:
Seek legislation to pay for covered services The HCFA proposed to implement OIGs 210
related to 1-day admissions without an recommendation through administrative
overnight stay as outpatient services which are remedies that would designate whether
paid on the basis of the lower of the actual costs specific services are to be covered and paid
or the customary charges in a locality.  (CIN: for as inpatient or outpatient services.  No
A-05-89-00055; CIN:  A-05-92-00006) proposal was included in the Presidents
current budget.
Graduate Medical Education:
Revise the regulations to remove from a The HCFA did not concur with the 157.3
hospitals allowable graduate medical education recommendations.  Although the Balanced
(GME) base year costs any cost center with Budget Act of 1997 contains provisions to
little or no Medicare utilization.  Submit a slow the growth in Medicare spending on
legislative proposal to compute Medicares GME, OIG believes that its
percentage of participation under the former recommendations should be implemented
more comprehensive system.  (CIN: and that further savings can be achieved.
A-06-92-00020)
B-2       OIG Recommendation Status  Savings
in Millions
Chemistry Panel Tests:
The HCFA should update its guidelines by The HCFA agreed with 8 of the 10 tests $130
expanding the national list of chemistry panel recommended for addition to the list and
tests to include 10 tests identified by the OIG added 6 of these tests to its carrier manual.
audit.  (CIN:  A-01-93-00521) The HCFA will periodically review
applicable tests and related equipment.
Also, although a legislative proposal to add
further tests was included in the Presidents
FY 1997 budget, the Congress decided
(through the Balanced Budget Act of 1997)
to achieve savings through other means,
including freezing laboratory payments
through 2002 and reducing the national
payment cap to 74 percent of the median of
all fee schedules. 
Paperless Claims:
The HCFA should lead a target outreach to The HCFA concurred with OIGs 126
encourage voluntary conversion to paperless recommendations.  The Presidents current
Medicare claim filing by physicians who submit budget proposes to allow an assessment of a
claims on paper and who have a moderate to $1 fee on any claim not submitted
high level of interest in making the switch.  This electronically.
effort should be coordinated with efforts to
promote further use of electronic data
interchange by providers under the
administrative simplification provisions of the
Health Insurance Portability and Accountability
Act of 1996.  The HCFA should also begin to
plan now for the policy changes that will be
necessary to achieve an almost completely
paperless environment for processing Medicare
claims.  These policy changes can include
targeting a date when all physicians will be
mandated to submit paperless claims, targeting
a date when paperless claims submission will
become a condition for Medicare participation
physician status, or continuing to accept paper
claims but imposing a filing fee to cover the
incremental cost of doing so.  (CIN:
A-05-94-00039; OEI-01-94-00230)
Medicaid Drug Rebate Program:
The best price calculation in the Medicaid drug The OIG is continuing to monitor the 123
rebate program should be indexed to the Medicaid drug rebate program.
consumer price index-urban.  (CIN:
A-06-94-00039)
B-3       OIG Recommendation Status  Savings
in Millions
Medicaid Cost Sharing:
The HCFA should promote the development of The HCFA provided States with program $122
effective cost sharing programs by:  allowing and administrative flexibility through
States to experiment with cost sharing programs waivers for Medicaid programs.  However,
that target new populations and reflect more HCFA has no current plans for providing
substantial cost sharing amounts; and/or information on States cost-sharing
recommending changes to Federal requirements experiences.
allowing for greater State flexibility in
determining exempted populations and services;
allowing for higher beneficiary cost sharing
amounts; and promoting the use of cost sharing
in States that do not currently have programs.
(OEI-03-91-01800)
Recover Overpayments and Expand the
Diagnosis Related Group Payment Window:
The HCFA should propose legislation to expand The HCFA agreed to recover the improper 83.5
the diagnosis related group (DRG) payment Medicare billings and to refund the
window to at least 7 days immediately prior to beneficiaries coinsurance and deductible.
the day of admission.  (CIN:  A-01-92-00521) Collection of the overpayment is being
handled by settlement agreements with the
hospitals through the Department of Justice
working with HCFA and OIG.  The HCFA
did not concur with the recommendation to
further expand the payment window.  No
legislative proposal was included in the
Presidents current budget.
Inpatient Psychiatric Care Limits:
Develop new limits to deal with the high cost The HCFA considered a proposal 47.6 
and changing utilization patterns of inpatient recommending that the Medicare 190-day
psychiatric services.  Apply a 60-day annual lifetime limit for psychiatric admissions be
and a 190-day lifetime limit to all psychiatric extended to general hospitals; however,
care regardless of the place of service.  (CIN: such a proposal was not included as part of
A-06-86-62045) the Presidents current budget.
Nonemergency Advanced Life Support
Ambulance Services:
The HCFA should modify its Medicare policy to The HCFA issued a final regulation which 47
allow payment for nonemergency advanced life addresses the coverage of ambulance
support ambulance service only when that level services and vehicle and staff requirements.
of service is medically necessary; instruct The agency intends to address advanced
carriers to institute controls to ensure that and basic life support services as part of the
payment is based on the medical need of the negotiated rulemaking process on the
beneficiary; and closely monitor carrier ambulance fee schedule which began in
compliance.  (CIN:  A-01-91-00513; CIN: early 1999.
A-01-94-00528)
Limit Reimbursement for Hospital Beds:
The HCFA should take immediate steps to The HCFA concurred with the 40
reduce Medicare payments for hospital beds recommendations and is considering
used in the home.  This should include the options to determine the best approach to
elimination of the higher reimbursement rate achieve a fair price for hospital beds.  The
currently paid during the first 3 months of agency has included hospital beds and
rental.  (CIN:  A-06-91-00080; supplies as part of its ongoing competitive
OEI-07-96-00221; OEI-07-96-00222) bidding demonstration project for durable
medical equipment.
B-4       OIG Recommendation Status  Savings
in Millions
Reduce End Stage Renal Disease Payment
Rates:
The HCFA should reduce the payment rates for The HCFA agreed that the composite $22*
outpatient dialysis treatments to reflect current payment rates should reflect the costs of
efficiencies and economies in the marketplace. outpatient dialysis treatment in efficiently
(CIN:  A-14-90-00215) operated facilities.  While the Omnibus
Budget Reconciliation Act of 1990
prohibited HCFA from changing these
rates, it mandated a study to determine the
costs, services and profits associated with
various modalities of dialysis treatment.  A
March 1996 study by ProPAC
recommended an increase to the current
rates, but HCFA did not believe an
across-the-board increase was warranted
and intended to monitor facilities costs and
other factors to determine if a rate increase
would be appropriate.  Toward this end, the
Balanced Budget Act of 1997 requires the
Secretary to audit the cost reports of each
renal dialysis provider at least once every 3
years.  The HCFA began these audits in the
fourth quarter of FY 1999.
Collect Overpayments from Health
Maintenance Organizations for
Misclassified End Stage Renal Disease
Beneficiaries:
The HCFA should issue clear guidelines for the The HCFA agreed to clarify its policies for 20.5
recovery of overpayments from health collecting overpayments from HMOs.
maintenance organizations (HMOs) and recover However, it collected overpayments
all overpayments occurring at least since 1992 retroactively only to March 1995 for the
that were made to HMOs on behalf of majority of misclassified beneficiaries and
misclassified end-stage renal disease (ESRD) retroactively to October 1993 for the
beneficiaries. (CIN:  A-14-96-00203) remaining beneficiaries who were
misclassified as having ESRD before
enrollment in the HMO.  Due to this limited
recovery schedule, HCFA has not collected
$20.5 million in overpayments which
occurred since 1992.  The HCFA disagreed
with the OIG recommendation to collect the
overpayments retroactively to 1992.
*This savings estimate represents program savings of $22 million for each dollar reduction in the composite rate.
B-5       OIG Recommendation Status  Savings
in Millions
Preclude Improper Medicaid
Reimbursement for Clinical Laboratory
Services:
State agencies should install edits to detect and The HCFA wrote to all State Medicaid $17
prevent payments for clinical laboratory directors on January 15, 1997, alerting
services that exceed the Medicare limits and them to the OIG review, encouraging them
billings that contain duplicate tests, recover to use Medicares bundling policies and
overpayments and make adjustments for the urging them to install appropriate payment
Federal share of the amounts recovered.  (CIN: edits in their claim processing systems.
A-01-95-00005; CIN:  A-05-95-00035; CIN:
A-01-96-00001; CIN:  A-06-95-00078; CIN:
A-06-95-00031; CIN:  A-04-95-01108; CIN:
A-04-95-01109; CIN:  A-07-95-01139; CIN:
A-07-95-01147; CIN:  A-04-95-01113; CIN:
A-07-95-01138; CIN:  A-09-95-00072; CIN:
A-05-96-00019; CIN:  A-10-95-00002; CIN:
A-01-95-00006; CIN:  A-02-95-01009; CIN:
A-03-96-00200; CIN: A-03-96-00202; CIN:
A-03-96-00203; CIN:  A-05-95-00062; CIN:
A-06-96-00002; CIN:  A-06-95-00100)
Medicare Claims for Railroad Retirement
Beneficiaries:
Discontinue use of a separate carrier to process While HCFA has supported legislation in 9.1
Medicare claims for railroad retirement the past, there is currently no legislative
beneficiaries.  (CIN:  A-14-90-02528) proposal before the Congress.
Medicare Orthotics:
Develop guidelines that better define orthotic The HCFA concurred with the 7.9
devices; develop policies for orthotic codes; recommendations and has revised its
develop screens for billing many orthotic national codes to distinguish among
devices on the same day or within a short time categories of devices.  The OIG is currently
frame; pay special attention to billing for conducting a follow-up to this study.
orthotics in nursing facilities; work with the
American Orthotic and Prosthetic Association
to develop a table of devices that should not be
used together, and consider stricter standards to
determine who is allowed to bill for orthotics.
(OEI-02-95-00380)
B-6       OIG Recommendation Status  Savings
in Millions
Third Party Liability Settlements and
Awards:
The HCFA should develop legislative proposals The HCFA agreed that the exception in the $3
to close the loopholes in the Omnibus Budget law contains loopholes.  It indicated that
Reconciliation Act of 1993 that allow Medicaid recommendations could be made to the
beneficiaries, who receive settlements and Congress to amend the exception limiting
awards from third parties as a result of the use of trust funds to certain
accidents, to shelter the assets in irrevocable well-defined necessities (e.g., health care
trusts and retain their eligibility for Medicaid. that is not covered by Medicaid).  The
The HCFA should also develop guidelines to HCFA also agreed to take appropriate
assist States in strengthening Medicaids right action to strengthen Medicaids right to
to recover when trusts are established by third recover from trusts established from third
parties.  (CIN:  A-09-93-00033) party settlements.  In June 1996, HCFA
issued guidelines which set forth advice on
ways in which States can better recover
Medicaid expenditures from established
third-party settlements, especially for the
disabled population.
Indirect Medical Education:
Reduce the indirect medical education (IME) The HCFA agreed with the to be determined
adjustment factor to the level supported by recommendation, and the Balanced Budget
HCFAs empirical data.  Initiate further studies Act of 1997 reduces the IME adjustment
to determine whether different adjustment factor from the current 7.7 percent in Fiscal
factors are warranted for different types of Year (FY) 1997 to 5.5 percent in 2001 and
teaching hospitals.  (CIN:  A-07-88-00111) thereafter.  The OIG believes the factor
should be further reduced to eliminate any
overlap with the disproportionate share
adjustment.
Medicare Secondary Payer - End Stage
Renal Disease Time Limit:
Extend the Medicare secondary payer (MSP) The HCFA was concerned that an indefinite to be determined
provisions to include ESRD beneficiaries MSP provision might encourage insurers to
without a time limitation.  (CIN: drop uneconomical services, namely
A-10-86-62016) facility dialysis and transplantation.  The
HCFA favored indefinitely extending the
MSP provision for all other services and
included this proposal in an earlier budget
submission.  Although the Balanced Budget
Act of 1997 extends MSP policies for
individuals with ESRD to 30 months, OIG
continues to advocate that when Medicare
eligibility is due solely to ESRD, the group
health plan should remain primary until the
beneficiary becomes entitled to Medicare
for old age or disability.  At that point,
Medicare would become the primary payer.  
B-7       OIG Recommendation Status  Savings
in Millions
Home Health Agencies:
The HCFA should revise Medicare regulations Although the Congress and the to be determined
to require the physician to examine the patient Administration included provisions to
before ordering home health services.  (CIN: restructure home health benefits in the
A-04-95-01103; CIN: A-04-95-01104; Balanced Budget Act of 1997, HCFA still
OEI-04-93-00262; OEI-04-93-00260; needs to revise Medicare regulations to
OEI-12-94-00180; OEI-02-94-00170; CIN: require that physicians examine Medicare
A-04-94-02087; CIN: A-04-94-02078; CIN: patients before ordering home health
A-04-96-02121; CIN:  A04-97-01169; CIN: services.  While agreeing in principle,
A-04-97-01166; CIN: A-04-97-01170) HCFA said it would continue to examine
both coverage rules and conditions of
participation to develop the discipline
necessary for ensuring proper certification.
The OIG will continue to do work in this
area.
Modify Payment Policy for Medicare Bad
Debts:
The OIG presented an analysis of four options The HCFA agreed with the  to be determined
for HCFA to consider, including the elimination recommendation to include a bad debt
of a separate payment for bad debts, the offset factor in the DRG rates.  The Balanced
of Medicare bad debts against beneficiary Budget Act of 1997 provides for some
Social Security payments, the limitation of bad reduction of bad debt payments to
debt payments to prospective payment system providers.  The Presidents current budget
hospitals that are profitable, and the inclusion of proposes to reduce the percentage (from 55
a bad debt factor in the DRG rates.  The HCFA percent to 45 percent) that Medicare pays
should seek legislative authority to further for bad debts and to extend this policy to
modify bad debt policies.  (CIN: providers beyond hospitals.  However,
A-14-90-00339) additional legislative changes are needed to
implement the modifications that OIG
recommended.
Establish Connection Between the
Calculation of Medicaid Drug Rebates and
Drug Reimbursement:
The HCFA should seek legislation that would The HCFA disagreed with the to be determined
require participating drug manufacturers to pay recommendation to seek a legislative
Medicaid drug rebates based on average change, believing that such legislation was
wholesale price (AWP) or study other viable not feasible at the time.  However, HCFA
alternatives to the current program of using stated that changing AMP to AWP would
average manufacturer price (AMP) to calculate reduce the administrative burden involved
the rebates.  This legislation would have in the AMP calculations and planned a
resulted in about $1.15 billion in additional comprehensive study of AWP.
rebates for 100 brand name drugs with the
highest total Medicaid reimbursements in
Calendar Years 1994-96.  (CIN:
A-06-97-00052)
B-8       OIG Recommendation Status  Savings
in Millions
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Institute and Collect User Fees for Food and
Drug Administration Regulations:
Extend user fees to inspections of food In the absence of specific authorizing $189.3
processors and establishments. legislation, the Food and Drug
(OEI-05-90-01070) Administration (FDA) is precluded by
statute from imposing user fees to cover
additional functions.  The FY 2000
Presidents budget request for FDA
proposes that FDA be given new user fee
authority to enhance premarket review
activities for medical devices and food
additive petitions.
Medicare Rates for Indian Health Service
Contracted Health Services:
The Indian Health Service (IHS) should revise The IHS concurred with OIGs 8.2
its legislative proposal to incorporate OIGs recommendations and is revising its
updated savings figures and should identify legislative proposal for submission in the
elements to be included in the implementing FY 2000 legislative cycle, identifying
regulations.  Also, IHS should continue to elements to be developed in its
pursue the most favorable rates at hospitals that implementing regulations and continuing its
have previously offered less than Medicare rates efforts to obtain discount rates throughout
and should strategically identify and pursue its service area.
other opportunities where lower rates may be
negotiated.  (CIN: A-15-97-50001)
Recharge Center Costs:
The Assistant Secretary for Management and The Deputy Assistant Secretary for Grants 1
Budget should propose changes to OMB and Acquisition Management concurred
Circular A-21 to improve guidance on the with the recommendations.  In addition, the
financial management of recharge centers.  The Council on Government Relations generally
revision should include criteria for establishing, agreed and stated that the proposed criteria
monitoring and adjusting billing rates to should be included in the Compliance
eliminate accumulated surpluses and deficits; Supplement to OMB Circular A-133, which
preventing the use of recharge funds for provides guidance to independent auditors
unrelated purposes and excluding unallowable in conducting compliance audits of
costs from the calculation of recharge rates; educational institutions.
ensuring that Federal projects are billed
equitably; and excluding recharge costs from
the recalculation of facilities and administrative
cost rates.  (CIN: A-09-96-04003)
ADMINISTRATION FOR CHILDREN AND FAMILIES
Medical Child Support:
Increase the number of noncustodial parents The Administration for Children and 11.4
providing medical support for their children and Families and HCFA agreed with OIGs
reduce Medicaid costs by either requiring findings and recommendations.  State
noncustodial parents to pay for all or part of the officials will move to consider a legislative
Medicaid premiums or establishing a new change and budget option to address the
comprehensive health insurance plan for recommendation for the 1999 legislative
children with premiums paid by noncustodial session.
parents.  (CIN: A-01-97-02506)
B-9       OIG Recommendation Status  Savings
in Millions
GENERAL OVERSIGHT
Simplify Administrative/Indirect Cost
Allocation Systems:
The OMB should simplify the process for Some of OIGs recommendations are cited $660
charging administrative/indirect costs to Federal in the National Performance Review report
programs through reform of the cost allocation that calls for reform of the cost allocation
plans.  Options for reform include use of block process.  The OMBs revision of Circular
grant awards, a flat percentage rate for A-87 addressed those recommendations.
administrative/indirect costs, and negotiation of However, further reform is needed to
a nonadjustable rate for a predetermined address the bulk of administrative/indirect
number of years.  (CIN:  A-12-92-00014) costs charged to the Federal Government.
B-10 APPENDIX C
Unimplemented Office of Inspector General Program and Management 
Improvement Recommendations
This schedule represents Office of Inspector General (OIG) findings and recommendations which, if implemented, would result
in substantial benefits.  The benefits relate primarily to effectiveness rather than cost-efficiency.  More detailed information may
be found in OIGs Program and Management Improvement Recommendations (the Orange Book).
OIG Recommendation Status
HEALTH CARE FINANCING ADMINISTRATION
Improve the Health Care Financing
Administrations Implementation of the
Federal Managers Financial Integrity Act
Program:
The Health Care Financing Administration (HCFA) The HCFA still does not agree with the need to expand
should reevaluate its review of the Common Working File financial management reviews to other systems, such as the
to ensure that all functional responsibilities of the system Common Working File.
are included in Federal Managers Financial Integrity Act
reviews.  (CIN:  A-14-93-03026)
Implement Proper Accountability over Billing
and Collection of Medicaid Drug Rebates:
The HCFA should ensure that States implement The HCFA concurred with the recommendation.  States
accounting and internal control systems in accordance will now be required to maintain detailed supporting
with applicable Federal regulations for the Medicaid drug records of all rebate amounts invoiced to drug companies
rebate program.  Such systems must provide for accurate, using a formal accounts receivable system.  The HCFA also
current and complete disclosure of drug rebate has a task force to help with rebate resolution.
transactions and provide HCFA with the financial
information it needs to effectively monitor and manage
the Medicaid drug rebate program.  (CIN:
A-06-92-00029)
Ensure that the Medicare Accounts Receivable
Balance Is Fairly Presented:
The HCFA should require contractors to implement or The HCFA has contracted with a consulting service to
improve internal controls and systems to provide assist in validating the FY 1998 accounts receivable
sufficient documentation to support reported accounts activity and balance, as well as the activity for the first 6
receivable.  Because of insufficient documentation, OIG months of FY 1999, and to recommend any accounting
again was not able to satisfy itself as to the fair changes or adjustments.
presentation of the Medicare accounts receivable balance
($3.6 billion in FY 1998). (CIN:  A-17-95-00096; CIN:
A-17-97-00097; CIN: A-17-98-00098)
Consider Recommended Safeguards over
Medicaid Managed Care Programs:
The HCFA should consider safeguards available to reduce The HCFA generally concurred with OIGs
the risk of insolvency and to ensure consistent and recommendations but felt that a broader analysis of
uniform State oversight.  (CIN:  A-03-93-00200) managed care plans was needed to support broad program
recommendations.  The OIG notes that the same concerns
raised in its report have been expressed by the Congress
and the General Accounting Office.  The OIG is continuing
reviews of Medicaid managed care plans.
C-1       OIG Recommendation Status
Provide Additional Guidance to Drug
Manufacturers to Better Implement the
Medicaid Drug Rebate Program:
The HCFA should survey manufacturers to identify the The HCFA did not concur stating that the drug law and the
various calculation methods used to determine average rebate agreements already established a methodology for
manufacturer price (AMP).  The HCFA should also computing AMP.  The OIG disagreed because the rebate
develop a more specific policy for calculating AMP law and agreement defined AMP, but did not provide
which would protect the interests of the Government and specific written methodology for computing AMP.
which would be equitable to the manufacturers.  (CIN:
A-06-91-00092) 
Physician Office Surgery:
The peer review organizations (PROs) should extend The HCFA has issued policy guidance and manual
their review to surgery performed in physicians offices. instructions to explicitly state that PROs have the
(OEI-07-91-00680) responsibility to review all care in physician offices when a
beneficiary complains.
Properly Account for Medicare Secondary
Payer Overpayments:
Although agreement was reached to relieve Blue Cross The HCFA is currently pursuing the recommended
and Blue Shield plans of past due Medicare secondary administrative action through improved information
payer (MSP) overpayments, HCFA should continue to systems to guard against making improper Medicare
implement financial management systems to ensure that payments to the Blue Cross and Blue Shield plans.  Also,
all overpayments (receivables) are accurately recorded. the Presidents FY 1999 budget includes a legislative
(CIN:  A-09-89-00100) proposal to clarify MSP requirements.
Investigate Patient Dumping Complaints:
The HCFA should improve its processes for investigating The HCFA concurred with OIGs recommendations.
and resolving complaints involving potential violations of
the Examination and Treatment for Emergency Medical
Conditions and Workmen in Labor Act, commonly
referred to as patient dumping.  (CIN:  A-06-93-00087)
Medicare Beneficiary Satisfaction with
Durable Medical Equipment Regional Carrier
Services:
The HCFA should evaluate ways to increase beneficiary The HCFA concurred.  The HCFA conducts annual
satisfaction with the one durable medical equipment evaluations to identify ways to improve performance.  The
regional carrier with a low rating, and review effective HCFA is also working to develop new outreach techniques
ways to educate beneficiaries on what constitutes fraud to increase beneficiaries knowledge on detecting fraud and
and abuse.  (OEI-02-96-00200) abuse.
Pressure Reducing Support Services:
The HCFA should establish the requirement for periodic The HCFA did not concur.
review and renewal of the medical necessity for
beneficiaries use of group 2 support surface equipment.
(OEI-02-95-00370)
Excessive Medicare Payments for Prescription
Drugs:
The HCFA should examine its Medicare drug The Balanced Budget Act of 1997 reduced Medicare
reimbursement methodologies.  (OEI-03-97-00290) payments by limiting them to 95 percent of the average
wholesale price.  Additional corrective action is warranted
and called for in the Presidents 1999 and 2000 budget and
legislative programs.
C-2       OIG Recommendation Status
Medicaid Accounts Receivable and Accounts
Payable:
The HCFA should continue its annual survey process or The HCFA sent the FY 1998 survey to the States well in
find a suitable alternative to estimate net accounts advance of the due date. 
payable.  Trend data on receivables and payables over
time should be developed for each State and used to
improve the estimation model. (CIN:  A-17-95-00096;
CIN: A-17-97-00097; CIN: A-17-98-00098)
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Require Participation in the 340B Drug Pricing
Program:
To ensure that grantees are accessing lower priced drugs, The HRSA published a Federal Register notice that would
which enables them to provide additional services, the require all eligible entities to participate in the 340B
Health Resources and Services Administration (HRSA) program.  Because all responses to the notice were
should require all eligible entities to participate in the negative, HRSA instead decided to address the issue
340B drug pricing program.  (CIN: A-01-98-01500) administratively by issuing a policy statement and
guidance to grantees.
ADMINISTRATION FOR CHILDREN AND FAMILIES AND ADMINISTRATION ON AGING
Improve the Federal Foster Care Program:
The OIG provided options for the Administration for The ACF concurred and is piloting redesigned titles IV-B
Children and Families (ACF) to consider in its efforts to and IV-E child welfare reviews.  A notice of proposed
improve its partnership with State and local governments rulemaking was published in September 1998, and the final
in administering the Federal Foster Care program.  The rule is in clearance.  In addition, the child welfare waiver
options included streamlining the process; determining demonstrations are allowing several States to test
whether legislative change is needed; and determining if alternative approaches to the title IV-E requirements.
certain program requirements could be changed to
facilitate compliance.  (CIN:  A-12-93-00022)
GENERAL OVERSIGHT
Update Cost Principles for Federally
Sponsored Research Activities:
The Department should act to modernize and strengthen The Department is revising hospital cost principles to be
cost principles applicable to hospitals by either revising consistent with OMB Circulars.
existing guidelines to conform with Office of
Management and Budget (OMB) Circular A-21 or
working with OMB to extend Circular A-21 coverage to
all hospitals.  (CIN:  A-01-92-01528)
Guidelines to Reimburse Educational
Institutions and Nonprofit Organizations:
The Department should work with OMB to revise The OMB has revised Circular A-87 to limit PRB costs to
applicable cost principles to reflect the change in the amount funded, but has no plans to revise Circular
accounting for post retirement benefit (PRB) costs arising A-21.  However, the Department has instructed negotiators
from implementation of Financial Accounting Standards that PRB costs claimed under Circulars A-21 and A-122
Board Opinion 106.  It should also advise negotiators for should be treated in the same manner as the provisions of
the Departments Division of Cost Allocation to pay Circular A-87.
special attention to such costs when reviewing fringe
benefit rates for schools and nonprofit organizations.
(CIN:  A-01-93-04000)
C-3 APPENDIX D
Notes to Tables I and II
Table I
1 The opening balance was adjusted downward by $10.8 million.
2 During the period, revisions to previously reported management decisions included:
CIN: A-03-97-43787 State of Virginia:  Grantee submitted documentation to revise plan in the amount of
$428,200
CIN: A-04-96-01139 Venice Hospital:  Grantee adjusted overpayment of $72,892
CIN: A-07-96-39484 Omaha Tribe:  Tribe supplied documentation in the amount of $51,483
Not detailed are revisions to previously disallowed management decision totaling $81,067.
3 Included in management decisions to disallow is $9,750 in audits performed by the Defense Contract Audit Agency.
4 Included in management decisions to disallow $27.1 million that was identified in nonfederal audit reports.
5 Audits on which a management decision had not been made within 6 months of issuance of the report:
A. Due to administrative delays, many of which are beyond managements control, resolution of the following
audits was not completed within 6 months of issuance; however, based upon discussions with management,
resolution is expected before the end of the next semiannual reporting period:
CIN:  A-09-96-00054 Blue Cross of California Admin. Cost, Aug. 1996, ($1,653,079)
CIN:  A-09-94-01022 Intelligenetics #N01-GM-72110, Oct. 1994, ($12,400) 
CIN:  A-03-97-00013 BC/BS FY 89-92 Incremental Claim, Sept. 1998, $11,723,785
CIN:  A-07-98-02522 Pension Segmentation BS California Termination, April 1999, $7,623,524
CIN:  A-09-97-44262 State of California, April 1997, $7,419,900
CIN:  A-03-91-00552 Independent Living Program, March 1993, $6,529,545 (Related recommendation
of $10,161,742 outstanding on Table II)
CIN:  A-10-97-48849 State of Oregon, July 1997, $6,379,395
CIN:  A-07-92-00578 Blue Cross/Blue Shield of Texas Inc., Unfunded Pension Costs, Oct. 1992,
$6,244,637
CIN:  A-07-97-01213 Pension - Travelers Termination, Feb. 1998, $5,624,747
CIN:  A-07-96-02001 Medicare Part B Admin Costs at BC/BS Colorado, Dec. 1996, $4,483,104
CIN:  A-07-98-01224 BC/BS KY-Unfunded Pension Costs, Oct. 1998, $4,286,294
CIN:  A-07-97-01234 Rocky Mountain Pension Termination, May 1998, $4,079,171
CIN:  A-05-94-00080 Associated INS. Medicare Administrative Costs, July 1996, $3,954,632
CIN:  A-09-95-00056 Review of Training Activities - CA Dept of Social Services., Aug. 1996, $3,934,717
D-1 CIN:  A-06-97-00029 Retention of Fees Child- Placing Agencies Louisiana, Sept. 1998, $3,450,173
CIN:  A-02-95-01019 Staff Builders Home Office Medicare Cost Rev. Ort., Aug. 1998, $3,434,274
CIN:  A-05-93-00054 IL-Associated Insurance Group - Contract Audit, Oct. 1993, $3,355,560
CIN:  A-03-94-00029 Veritus INC - Admin. Cost, Feb. 1998, $3,140,363
CIN:  A-07-93-00633 Pension Segmentation - Aetna Life Insurance Co, Oct. 1993, $3,011,376
CIN:  A-05-93-00013 MI-Blue Cross/Blue Shield - Contract Medicare Audit, April 1993, $3,010,916
CIN:  A-09-98-50183 State of California, Mar. 1998, $3,000,000
CIN:  A-07-92-00585 Pension Segmentation BC/BS of California, Jan. 1994, $2,973,504
CIN:  A-01-95-00504 Medicare Parts A&B Admin Costs - AETNA, Jan. 1996, $2,938,223
CIN:  A-01-96-00508 Medicare Admin. Costs Parts A&B and RRB - Travelers, Mar. 1996, $2,803,260
CIN:  A-07-96-01185 BCBS Rocky Mountain Pension Segmentation, June 1997, $2,743,438
CIN:  A-05-97-00005 Administrative Costs Claimed Under Medicare A&B, Feb. 1998, $2,569,067
CIN:  A-05-92-00026 Associated Insurance Co - Medicare Administrative Audit, Feb. 1992, $2,530,409
CIN:  A-02-91-01006 Blue Shield of Western NY Medicare Adm CTS Porter, Sept. 1991, $2,379,239
CIN:  A-02-93-02001 Manpower Demonstration RES Corp. HHS100890030, Oct. 1994, $2,024,444
CIN:  A-06-96-00009 New Mexico BCBS Admin. Cost - Contracted, Nov. 1997, $1,879,366
CIN:  A-05-97-00014 Group Health Plan Inc. (Healthpartners) Inst. Benes, June 1998, $1,808,308
CIN:  A-05-95-00059 Audit Of Administrative Costs - BCBS Michigan, Jan. 1997, $1,787,345
CIN:  A-02-94-01030 Hospice Eligibility Review IN PR - Manati - ORT, June 1995, $1,598,837
CIN:  A-03-96-00012 BC/BSM PT-B Non-Renewal Costs, Aug. 1998, $1,557,459
CIN:  A-06-96-00008 Arkansas BCBS Admin Cost - Contracted, Sept. 1996, $1,442,193
CIN:  A-02-96-42454 City of New York Agency for Child Development, May 1996, $1,410,441
CIN:  A-07-98-02506 AETNA, Unfunded Pension Costs, Aug. 1998, $1,407,689
CIN:  A-09-96-00064 ORT - Hospice - California, Mar. 1997, $1,350,000
CIN:  A-10-91-00011 WPS - Keystone Computer Acquisition, Oct. 1992, $1,346,681
CIN:  A-05-95-00042 BC/BSA Administrative Costs - Contracted Audit, Dec. 1995, $1,333,598
CIN:  A-02-98-52102 Puerto Rico Family Dept. of Children and Families, March 1998, $1,321,656
CIN:  A-02-96-01016 Empire Admin. Costs Part B Gardiner, Kamya & Assoc., April 1997, $1,296,098
CIN:  A-07-93-00700 BC/BS of Mass - Unfunded Pension Costs, May 1994, $1,290,740
CIN:  A-07-96-01194 Pension - Community Mutual Segmentation, July 1997, $1,263,188
CIN:  A-10-97-47406 State of Idaho, April 1997, $1,262,577 (Related recommendation of $5,900,000
outstanding on Table II)
CIN:  A-07-97-01223 Pensions - Kentucky Blues/Segmentation, Oct. 1998, $1,236,890
D-2 CIN:  A-07-94-00762 Health Care Service Corp - Unfunded Pension Costs, July 1994, $1,233,337
CIN:  A-07-93-00665 Travelers Insurance Co - Unfunded Pension Cost AUD, Oct. 1993, $1,218,963
CIN:  A-02-94-01029 Hospice Eligibility RVW IN PR - San German - ORT, June 1995, $1,070,814
CIN:  A-09-98-00052 California Medical Rev Inc., Jan. 1999, $1,067,991
CIN:  A-07-94-00763 Health Care Serv Corp - Pension Segmentation, Aug. 1994, $1,055,458
CIN:  A-05-94-00047 Nationwide Ins., Medicare Part B Admin. Costs, Sept. 1995, $1,049,309
CIN:  A-07-93-00634 Pension Segmentation - Travelers Insurance Co., Oct. 1993, $1,026,460
CIN:  A-01-98-00500 Payment Edits for Psychiatric ATMA Part B Carrier, Sept. 1998, $1,000,000
CIN:  A-07-97-01208 Pension - Community Mutual FACP, July 1997, $991,972
CIN:  A-06-95-00035 Fees Retained by Child Placing Agencies, Feb. 1996, $988,680
CIN:  A-09-94-01010 Closeout Audit - Cont No. N01-ES-75196 (Stratagene), Mar 1994, $983,208  
CIN:  A-09-98-49528 Hawaii Dept. of Human Service, Oct. 1997, $952,016
CIN:  A-05-92-00060 Contractor Audit - BC/BS - Admin., Feb. 1993, $879,609
CIN:  A-02-94-01022 Blue Cross Blue Shield NJ - Admin. Cost Medicare, Sept. 1997, $864,851
CIN:  A-07-93-00701 BC/BS of Mass. - Pension Costs Chared Audit, July 1994, $839,740
CIN:  A-07-98-01225 BC/BS KY Pension Costs Claimed, Oct. 1998,  $736,134
CIN:  A-05-91-00136 Community Mutual Insurance Co. - Administrative Costs, August 1992, $720,668
CIN:  A-07-96-01195 Pension - New Mexico Segmentation, Feb. 1997, $700,952
CIN:  A-02-98-01004 Nylcare Managed Care Administrative Costs, Dec. 1998, $688,723
CIN:  A-09-97-00078 Physician Billings, Jan. 1999, $683,264
CIN:  A-04-99-54416 State of Florida, Nov. 1998, $668,791
CIN:  A-07-93-00699 BC/BS of Mass. - Pension Segmentation Audit, April 1994, $658,471
CIN:  A-02-96-01015 Empire Admin. Costs Part A - Gardiner, KAMYA & Assoc., April 1997, $652,492
CIN:  A-01-98-00503 Psychiatric Output Services at the Franklin Medical Center, Nov. 1998 $646,517
CIN:  A-06-96-00062 South Plains Community Action Association, July 1996, $639,400 
CIN:  A-07-97-02503 Pension Kansas City BC/BS Termination, July 1998, $635,984
CIN:  A-07-96-01178 Medicare Pension Costs Claimed BC/BS Mich., Nov. 1996, $631,248
CIN:  A-04-94-01078 Monitoring Admin. Cost - Audit Medicare Part B BC/BS/SC, July 1994, $594,092
CIN:  A-10-99-57240 State of Idaho, Jan. 1999, $594,000
CIN:  A-04-93-01069 Monitoring Admin. Cost Audit Medicare Part A BC/BS/SC, July 1994, $590,844
CIN:  A-07-93-00679 AETNA - Unfunded Pension Cost Audit, May 1994, $590,207
CIN:  A-02-97-47130 Middlesex County Economic Opportunities Corp. June 1997, $578,550
CIN:  A-07-97-01207 Pension - Community Mutual Unfunded Pension, July 1997, $571,413 
D-3 CIN:  A-03-97-00009 Peer Review Systems Inc./CCAS/Ohio, Mar. 1997, $545,405
CIN:  A-07-96-01198 Pension - Rocky Mountain Unfunded, Feb. 1997, $543,421
CIN:  A-02-91-03508 Audit of NJ Child Care and Supportive Services, June 1993, $506,710
CIN:  A-09-99-56858 Hawaii Dept. of Human Services, Feb. 1999, $502,000
CIN:  A-03-92-16229 State of Pennsylvania, March 1992, $496,876
CIN:  A-10-98-51043 Nooksack Indian Tribe, May 1998, $433,539
CIN:  A-07-96-01188 Pro Closeout - DOSHI CPA, Aug. 1996, $432,698 (Related recommendation of
$5,667 outstanding on Table II)
CIN:  A-07-97-01235 DOSHI - Texas, June 1997, $424,255 (Related recommendation of $51,334
outstanding on Table II)
CIN:  A-06-99-56489 State of Louisiana, Jan. 1999, $421,206
CIN:  A-09-98-49239 Hermandad Mexicana Nacional Legal Center Inc., Nov. 1997, $419,364
CIN:  A-02-97-01006 BC/BS of Western NY, Feb. 1999, $366,506
CIN:  A-04-96-01134 Parti. Part of HCFA Surv. Team - Colonnade MCAL - ORT, Feb. 1997, $358,338
CIN:  A-04-96-01136 Partic. Part of HCFA Surv. Team - Survey Savannah - ORT, Dec. 1996, $354,537
CIN:  A-05-92-00126 Wisconsin Westacap Head Start ACF, March 1993, $347,576
CIN:  A-05-93-25697 West Central Wisconsin Community Action Agency Inc., August 1993, $324,759
CIN:  A-04-97-01175 Keystone Pro, June 1998, $310,787
CIN:  A-07-98-02501 CT. BC/BS Unfunded Pension Costs, Mar. 1998, $292,152
CIN:  A-10-97-49306 State of Alaska, Aug. 1997, $287,125
CIN:  A-04-96-01129 Parti. Part HCFA Surv. Team - Ameri. Trans. Care (ORT), Feb. 1997, $284,378
CIN:  A-05-96-00069 CPA Audit of Hooper Holmes HHA G&A - OI Case Open, Feb. 1998, $280,515
(Related recommendation of $17,555 outstanding on Table II)
CIN:  A-09-94-30178 State of Arizona, June 1994, $267,021
CIN:  A-03-98-00027 KHPW/Institutional Status/Medicare, Nov. 1998, $263,573
CIN:  A-05-98-53935 Montgomery County Community Action Agency, June 1998, $257,702
CIN:  A-04-99-54767 Anderson Oconee Head Start Project, Oct. 1998, $254,673
CIN:  A-07-93-00710 BC/BS of Connecticut - Unfunded Pension Cost Audit, Mar. 1994, $237,392
CIN:  A-04-97-01152 Close Out Audit - Michigan Pro, June 1997, $228,630
CIN:  A-04-96-01135 Partic. Part of HCFA Surv. Wash. Manor Nursg. - ORT, Feb. 1997, $220,483
CIN:  A-09-96-00094 ORT - Monitor CPA Audit of  Dynasty HHA Cost Report, July 1997, $217,720
CIN:  A-06-99-56489 State of Louisiana, Jan. 1999, $213,709
CIN:  A-09-95-34788 State of Arizona, August 1995, $209,462
CIN:  A-01-99-54113 State of Rhode Island & Providence Plantations, Oct. 1998, $209,630
D-4 CIN:  A-05-96-00052 ORT Assist - Ancillary Costs - NW Com. Hosp., June 1997, $206,508
CIN:  A-03-98-00014 Connecticut Pro Inc./CCAS/HHS-100-95-0033, Feb. 1998, $202,662
CIN:  A-06-96-00064 ORT SNF Research at Methodist Hospital, Jan. 1997, $200,000
CIN:  A-01-97-00531 Medicare Administrative Costs - MABCBS, June 1998, $198,950
CIN:  A-05-97-00006 MI - Wayne State U/NIH Request/Romero Grant, June 1997, $195,809
CIN:  A-10-96-00007 Idaho Migrant Council Head Start, March 1997, $192,981
CIN:  A-04-98-01181 Massachusetts Peer Review Organization (MPRO), June 1998, $183,074
CIN:  A-03-99-00007 Forest Ambulance Service, Dec. 1998, $173,189
CIN:  A-05-94-29229 West Central Wisconsin Community Action Agency, March 1994, $167,977
CIN:  A-05-96-00031 WIPRO/Equipment Depreciation, Aug. 1996, $167,033
CIN:  A-04-98-49312 State of North Carolina, Nov. 1997, $164,792
CIN:  A-03-97-00016 Quality Improvement Pro Inc/CCAS/Puerto Rico, Feb. 1998, $158,925
CIN:  A-07-98-02526 Unfunded Pension Liability - BC/BS of Arkansas, Sept. 1998, $153,269
CIN:  A-04-96-01147 ORT Rev. Parker Jewish Geriatric CTR, New Hyde, NY, April 1997, $140,188
CIN:  A-03-98-00025 Abingdon Ambulance Company, Abingdon VA, Jan. 1999, $139,325
CIN:  A-09-99-52846 Intertribal Council of California, Feb. 1999, $136,360
CIN:  A-02-98-01002 Ipro Closeout Audit, Dec. 1998, $135,492
CIN:  A-09-99-56378 Fresno Indian Health Assoc., Jan. 1999, $134,465
CIN:  A-07-97-02500 Pension Segmentation BC/BS Connecticut, Mar. 1998, $122,548
CIN:  A-07-93-00709 BC/BS of Connecticut - Pension Segmentation Audit, April 1994, $119,472
CIN:  A-05-97-00023 Kaiser Foundation - HMO Institutional Status Project, April 1998, $116,096
CIN:  A-03-95-03329 Henderson Associates/CACS/ASC/282-91-0012, Mar 1997, $111,289
CIN:  A-02-96-01001 VNS of NY Home Care - ORT/HHA Target, Sept. 1997, $110,841
CIN:  A-02-96-02001 International Rescue Committee Refugee Program, Jan. 1998, $108,604 (Related
recommendation of $90,528 outstanding on Table II)
CIN:  A-03-98-03300 Raymond Maria Group - Contract Closeout, Mar. 1998, $102,476
CIN:  A-07-95-01159 NE BCBS Pension Segmentation, Jan. 1996, $96,955
CIN:  A-09-97-00066 Walter McDonald Indirect Cost Rate, March 1998, $95,733
CIN:  A-03-98-00007 Delmarva Pro, Dec. 1998, $95,709
CIN:  A-09-98-00065 Latino Resources, Jan. 1999, $95,102
CIN:  A-10-97-00003 Psychiatric Outpatient Services, Feb. 1998, $94,643
CIN:  A-06-96-43195 Pueblo of Isleta, June 1996, $92,969
CIN:  A-07-95-01164 Medicare Admin. Costs - General American, Dec. 1995, $89,929 (Related
recommendation of $16,632 outstanding on Table II)
D-5 CIN:  A-01-99-57358 Organix Inc., Feb. 1999, $89,395
CIN:  A-02-95-34278 Puerto Rico Dept. of Health, June 1995, $86,064
CIN:  A-02-95-34279 Puerto Rico Dept. of Health, June 1995, $85,266
CIN:  A-04-96-38655 State of North Carolina, April 1996, $83,237
CIN:  A-01-96-00505 CFO Audit of HCFAs Financial Statements, July 1997, $80,236 
CIN:  A-03-98-00008 VA Health Quality Center Rev, Dec. 1998, $78,207 
CIN:  A-04-96-01137 Partic. Part of HCFA Surv. Team - Daytona Nursg. - ORT, Dec. 1996, $76,130
CIN:  A-05-97-48530 Jackson-Vinton Community Action, July 1997, $75,392
CIN:  A-07-95-01166 Unfunded Pension Costs Nebraska BC/BS, Jan. 1996, $73,509
CIN:  A-08-96-42696 Blackfeet Tribe, July 1996, $71,988
CIN:  A-01-97-00520 CFO Audit of HCFAs Financial Statements, July 1998, $69,031
CIN:  A-09-97-48489 Pascua Yaqui Tribe of Arizona, June 1997, $68,736
CIN:  A-02-95-34275 Puerto Rico Dept. of Health, June 1995, $64,841
CIN:  A-05-96-00072 MI Dept. of Community Health/Medicaid Lab Services, Aug. 1997, $59,956
CIN:  A-05-96-00051 ORT Assist - Ancillary Costs - St. Joseph, June 1997, $58,008 
CIN:  A-09-97-00059 Health Services Advisory Group, Inc. Pro - AZ, May 1997, $57,925
CIN:  A-08-99-54138 Rosebud Sioux Tribe, Nov. 1998, $56,223
CIN:  A-04-96-01125 Partic.- Part of HCFA Survey Team - Rosemont - ORT, Feb. 1997, $55,306
CIN:  A-05-98-51855 Stark County Community Action Agency, March 1998, $54,933
CIN:  A-07-97-01206 Pension - Washington/Alaska - Unfunded, Mar. 1997, $54,000
CIN:  A-07-98-50741 Citizen Housing Information Council Inc., Mar 1998, $52,758
CIN:  A-05-98-51302 Kootasca Community Action Inc., Feb. 1998, $52,000
CIN:  A-09-95-00095 Health Services Advisory Group, Inc. (HSAG), $49,585 (Related recommendation
of $1,389,723 outstanding on Table II)
CIN:  A-03-93-03306 Survey Research Assoc. CACS NO1-ES-45067, $48,779
CIN:  A-09-99-55207 Fresno Indian Health Assoc., Jan. 1999, $47,742
CIN:  A-02-95-34276 Puerto Rico Dept. of Health, June 1995, $46,842 
CIN:  A-09-99-56858 Hawaii Dept. of Human Services, Feb. 1999, $44,144
CIN:  A-09-99-52845 Inter-Tribal Council of California, Feb. 1999, $43,315
CIN:  A-03-97-44742 Association of Teachers of Preventive Medicine Inc., Feb. 1998, $37,260
CIN:  A-07-98-53295 Winnebago Tribe of Nebraska, Sept. 1998, $36,808
CIN:  A-07-98-02030 DOSHI - CPA Report, Nov. 1997, $35,703
CIN:  A-07-97-01218 DOSHI - Utah/Nevada FMC, Mar. 1997, $33,752
D-6 CIN:  A-03-99-56842 National Association for Equal Opportunity in High, Feb. 1999, $33,585
CIN:  A-06-97-47794 Gulf Coast Community Services Association, July 1997, $32,619
CIN:  A-07-97-01199 BC/BS New Mexico Unfunded Pension Cost, Feb. 1997, $31,372
CIN:  A-09-96-42547 Maricopa County Arizona, April 1996, $30,766
CIN:  A-09-98-49616 State of Arizona, Nov. 1997, $29,746
CIN:  A-05-97-48015 Hoosier Valley Economic Opportunity Corp., May 1997, $29,004
CIN:  A-03-98-03301 AAUAP Incurre Cost Review, April 1998, $28,289
CIN:  A-10-98-00008 Review of Evergreen Community Development Corp., Dec. 1998, $27,316
CIN:  A-05-97-00025 Health Care Plan - HMO Institutional Status Project, June 1998, $27,201
CIN:  A-10-96-41391 KLAMATH, Family Head Start, April 1996, $26,530
CIN:  A-03-92-00033 Blue Cross of West Virginia Termination, Nov. 1992, $25,200
CIN:  A-09-98-50772 Institute for Black Parenting, April 1998, $24,502
CIN:  A-04-99-54416 State of Florida, Nov. 1998, $24,165
CIN:  A-09-94-27868 Inyo Mono Advocates for Community Action, Nov. 1993, $22, 875
CIN:  A-10-97-43797 State of Washington, Jan. 1997, $21,241
CIN:  A-05-96-39685 Michigan Family Resources, Dec. 1995, $20,799
CIN:  A-05-96-43041 Hoosier Valley Economic Opportunity Corp, June 1996, $20,438
CIN:  A-04-97-01163 VIMI Medicare Pro Contract Audit, Sept. 1997, $18,758
CIN:  A-05-93-21928 Wright State Univ., July 1993, $18,308
CIN:  A-03-97-00007 NE Health Care Quality Foundation/CCAS/N Hampshire, Mar. 1997, $17,045
CIN:  A-01-98-55594 State of Vermont, Nov. 1998, $16,623 
CIN:  A-01-97-44143 Brandeis Univ., Jan. 1997, $16,602
CIN:  A-05-95-34584 Wood County Head Start, Dec. 1994, $14,896
CIN:  A-03-97-00008 NE Health Care Quality Foundation/CAS/Vermont, Mar. 1997, $14,596
CIN:  A-06-98-54189 City of Houston Texas, July 1998, $14,146
CIN:  A-09-96-00050 CFO - HCFA 1996, Nov. 1997, $13,924
CIN:  A-07-95-01175 Mutual of Omaha - Admin Cost, Aug. 1996, $13,564
CIN:  A-07-99-57985 State of Kansas, Feb. 1999, $13,550
CIN:  A-05-95-36498 Hoosier Valley Economic Opportunity Corp., April 1995, $13,116
CIN:  A-03-98-50338 National Medical Association, Feb. 1998, $12,968
CIN:  A-01-97-48573 New Opportunities for Waterbury Inc., July 1997, $10,675 (Related
recommendation of $122,126 outstanding on Table II)
CIN:  A-10-97-00002 Group Health Institutionalized, Nov. 1997, $9,769
D-7 CIN:  A-10-97-48639 Nooksack Indian Tribe, Aug. 1997, $9,440
CIN:  A-04-97-01153 MS Found.- MCal Care, MCare Pro Contract Audit, Sept. 1997, $9,070
CIN:  A-04-98-49581 Mid-South Foundation for Medical Care Inc., Jan. 1998, $8,938
CIN:  A-03-99-57965 DC Dept of Human Services, Feb. 1999, $8,784
CIN:  A-02-95-34277 Puerto Rico Dept. of Health, June 1995, $8,486 
CIN:  A-10-98-53162 People of Color Against Aids Network, April 1998, $8,289
CIN:  A-07-97-01231 Prowest - DOSHI Washington, June 1997, $8,027 (Related recommendation of
$163,552 outstanding on Table II)
CIN:  A-03-96-38803 Skyline Government Services Corp., Nov. 1995, $7,285
CIN:  A-07-97-01227 MT-WY Foundation for Medical Care, June 1997, $7,168
CIN:  A-01-97-49174 Brandeis Univ., Aug. 1997, $7,068
CIN:  A-02-97-44269 Puerto Rico Dept. of Anti-Addiction Services, Oct. 1996, $6,586
CIN:  A-06-96-40858 CADDO Community Action Agency Inc., Feb. 1996, $6,557
CIN:  A-07-95-01167 Pension Costs Claimed Nebraska BC/BS, Jan. 1996, $6,075
CIN:  A-02-96-02001 International Rescue Committee - Refugee Program, Dec. 1998, $6,027
CIN:  A-06-97-48062 Jobs for Progress National Inc., May 1997, $5,924
CIN:  A-02-96-39964 State of New Jersey, April 1996, $5,497
CIN:  A-10-98-50308 Coastal Community Action Program, Dec. 1997, $5,274
CIN:  A-05-98-51316 Community Action Program Inc. of Western Indiana, Feb. 1998, $5,202
CIN:  A-06-91-00034 Audit of Collection and Credit Activities at TDHS, Jan. 1992, $5,081
CIN:  A-02-99-56463 Virgin Islands Advocacy Agency Inc., Nov. 1998, $5,089
CIN:  A-09-97-48829 Community Action Commission of Santa Barbera, Aug. 1997, $4,809
CIN:  A-09-97-44435 Commonwealth of the Northern Mariana Islands, Oct. 1996, $4,767
CIN:  A-06-99-56489 State of Louisiana, Jan. 1999, $4,699
CIN:  A-15-98-00035 Audit of KRA Corporations Directs Costs, Nov. 1998, $4,164
CIN:  A-07-95-01123 Review of CPA Adm. Cost - BCBS of Kansas City, May 1995, $4,045
CIN:  A-04-97-01162 HMSA MCare Pro Contract Audit, Sept. 1997, $3,871
CIN:  A-05-96-38947 American Association of Cardiovascular & Pulmonary, Dec. 1995, $3,827 
CIN:  A-09-95-39056 Hawaii Dept. of Health, Sept. 1995, $3,601
CIN:  A-06-98-50840 St. Martin Iberia Lafayette Community Action Agency, Feb. 1998, $3,362
CIN:  A-01-98-00512 CFO of HCFAs FY 1997 Medicare Benefit Payments, June 1998, $3,264
CIN:  A-10-98-52321 Consejo Counseling & Referral Services, May 1998, $3,088
CIN:  A-03-95-03318 Trans-Management Systems, May 1996, $3,016
D-8 CIN:  A-07-98-02502 CT. BC/BS Pension Cost Claimed, Mar. 1998, $2,725
CIN:  A-03-98-51505 Allied Signal Technical Services Corp., April 1998, $2,722
CIN:  A-03-95-34716 West Virginia Medical Institute Inc., Mar. 1995, $2,688
CIN:  A-07-98-50741 Citizen Housing Information Council Inc., March 1998, $2,678
CIN:  A-02-97-49366 Seneca Nation of Indians, Sept. 1997, $2,655
CIN:  A-05-95-35315 Lake County Economic Opportunity Council, Jan. 1995, $2,650
CIN:  A-03-97-43996 Actuarial Research Corp., Oct. 1996, $2,561
CIN:  A-01-97-45487 ABT Associates Inc., Jan. 1997, $2,596
CIN:  A-06-98-53934 Osage Nation of Oklahoma, Aug. 1998, $2,368
CIN:  A-07-97-01221 Pro Closeout - DOSHI CPA - Ark FDN for Med Care, Mar. 1997, $2,096
CIN:  A-09-98-53899 Stanford Univ., June 1998, $2,058
CIN:  A-03-96-44076 St. Pauls College, Aug. 1996, $2,029
CIN:  A-07-97-01232 Prowest-DOSHI Alaska, June 1997, $1,473 (Related recommendation of $21,218
outstanding on Table II)
B. The following audit is in litigation:
CIN:  A-03-91-02004 W. VA B/C Admin. Cost FY 85/90 and Term. Cost, Nov. 1992, $7,556 
C. The following audits are open pending the resolution of contractors termination audit, related termination
agreements and pending lawsuits: 
CIN:  A-05-94-00064 MI Blue Cross/Blue Shield Audit of Admin. Costs, June 1996, $15,609,718
CIN:  A-07-96-01176 Medicare Excess Pension Assets - BC Mich., Nov. 1996,  $11,904,263
CIN:  A-05-96-00058 Close-Out Audit of Medicare Contract - BC/BS - MI, Dec.1997, $5,226,443
CIN:  A-07-92-00579 BC/BS of Michigan Inc. - Unfunded Pension Costs, Oct. 1992, $2,535,698
CIN:  A-05-93-00057 MI-Blue Cross & Blue Shield of MI - Contract Audit, July 1993, $1,409,954
Table II
 1 The opening balance was adjusted upward by $193.5 million.
2 Included in the total recommendations agreed to by management is $2.7 million resulting from Defense Contract Audit Agency
recommendations.
3 Management decision has not been made within 6 months on 13 reports.
A. Discussions with management are ongoing and it is expected that the following audits will be resolved by the
next semiannual reporting period:
CIN:  A-06-97-00052 Medicaid Drug Rebates, May 1998, $1,150,000,000
CIN:  A-04-98-02145 Five State Review CMHCs Partial Hospital Programs, Oct. 1998, $229,362,884 
CIN:  A-04-97-00109 Emergency Assistance Claims - NC, July 1998, $13,000,000
D-9 CIN:  A-15-97-50001 Audit of IHS Contract Health Services Program, Jan. 1999, $8,000,000
CIN:  A-01-97-02506 Review of the Avail Medical Coverage, June 1998, $5,704,585
CIN:  A-07-97-01230 DOSHI - Oklahoma, June 1997, $203,510
CIN:  A-05-96-43154 Muskegon Community Action against Poverty, $130,993
CIN:  A-06-96-43307 Nueces County Community Action Agency, June 1996, $22,667
CIN:  A-06-97-45023 Caddo Community Action Agency, Nov. 1996, $8,880
CIN:  A-01-97-00526 Psychiatric Outpatient Services, March 1998, $7,245
CIN:  A-05-95-37812 Northeast Michigan Community Service Agency, Aug. 1995, $2,191
CIN:  A-01-98-00506 Psychiatric Outpatient at Newton Wellesley Hospital, March 1998, $1,120
B. The following audit is in litigation:
CIN:  A-07-96-01177 Medicare Post Retirement Claim BC Michigan, Nov. 1996, $8,978,998
D-10 APPENDIX E
Reporting Requirements of the
Inspector General Act of 1978, as Amended
The specific reporting requirements of the Inspector General Act of 1978, as amended, are listed below with reference to
the page in the semiannual report on which each of them is addressed.  Where there is no data to report under a particular
requirement, this is indicated as none.  A complete listing of Office of Inspector General audit and inspection reports is
being furnished to the Congress under separate cover.  Copies are available upon request.
Section of the Act Requirement Page
Section 4(a)(2) Review of legislation and regulations 74
Section 5(a)(1) Significant problems, abuses and throughout
deficiencies
Section 5(a)(2) Recommendations with respect to throughout
significant problems, abuses and
deficiencies
Section 5(a)(3) Prior significant recommendations on appendices B and C
which corrective action has not been
completed
Section 5(a)(4) Matters referred to prosecutive authorities 76
Section 5(a)(5) Summary of instances where information none
was refused
Section 5(a)(6) List of audit reports under separate cover
Section 5(a)(7) Summary of significant reports throughout
Section 5(a)(8) Statistical table I - reports with questioned 72
costs
Section 5(a)(9) Statistical table II - reports with 73
recommendations that funds be put to
better use
Section 5(a)(10) Summary of previous audit reports appendix D
without management decisions
Section 5(a)(11) Description and explanation of revised appendix D
management decisions
Section 5(a)(12) Management decisions with which the none
Inspector General is in disagreement
E-1 APPENDIX F
Performance Measures
In order to identify work done in the area of performance measurement, the Office of Inspector General (OIG) has labeled some
items throughout the semiannual report as  performance measures with the symbol                  . Performance measures
are used to evaluate the achievement of a program goal, such as the efficiency of an immunization program which is measured by
the number of inoculations provided per dollar of cost.  In OIGs opinion, the following audits, inspections and investigations
finalized during this semiannual period offer management information about whether some aspect or all of the programs or
activities reviewed are achieving their missions and goals.  
Page
External Review of Hospital Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
Inpatient Services Performed on Beneficiaries after Disenrolling from Medicare
Managed Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Public Health and Managed Care: Opportunities for Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
Quality of Care in Nursing Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Skilled Nursing Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Licensing Requirements for Prescription Drug Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Ryan White Evaluation Systems  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Patient Access to Transplantation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Fostering Equity in Patient Access to Transplantation:  Local Access to Liver
Transplantation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Legislative Recommendation to Improve Hospital Reporting to the National Practitioner
Data Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
National Institutes of Health Printing Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Fiscal Year 1998 Financial Statement Audits of Public Health Service Agencies  . . . . . . . . . . . . . . . . . .51
Federal Occupational Health Billing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Paternity Establishment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
New Hampshires Procedures for Collecting Child Support from Independent Contractors . . . . . . . . . .60
Technical Assistance for Quality Child Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Interstate Compact on the Placement of Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Employment Programs for Persons with Developmental Disabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Fiscal Year 1998 Financial Statement Audit of the Administration for Children and
Families . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Administration on Agings Health Care Fraud and Abuse Programs  . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Reviews of Departmental Service Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
F-1 APPENDIX G
Status of Public Proposals for New and Modified Safe Harbors to the
Anti-Kickback Statute Pursuant to Section 205 of the Health Insurance
Portability and Accountability Act of 1996
Pursuant to section 205 of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Public Law 104-191, the
Inspector General is required annually to solicit proposals (via Federal Register notice) for modifying existing safe harbors to the
anti-kickback statute and for developing new safe harbors and special fraud alerts.  In accordance with this requirement, on
December 10, 1998, the Office of Inspector General (OIG) published a notice in the Federal Register soliciting such proposals.
The OIG received seven timely-filed responses from a cross-section of organizations, associations and other interested parties.
Some of these respondents commented generally on areas of concern; others provided detailed proposals for new or modified
safe harbor regulations.
The OIG is currently preparing a comprehensive safe harbor rule that will finalize certain proposals for new and clarified safe
harbors published in the Federal Register in 1993 and 1994.  This rulemaking is in the governmental clearance process.  Several
respondents to the 1998 annual solicitations suggested safe harbors in subject areas addressed by the 1993 and 1994 notices of
proposed rulemaking.  Such suggestions (received in response to the annual solicitations) included:
(cid:127) Investments in ambulatory surgical centers and other facilities where physicians practice, including investment interests
held by nonsurgeon and nonphysician investors;
(cid:127) Referral agreements for speciality services, such as cross-referral and comanagement agreements between optometrists
and ophthalmologists.
(cid:127) Modifications to the existing discount safe harbor; 
(cid:127) Modifications to the existing personal services and equipment leasing safe harbors; and
(cid:127) Modifications to the existing investment interests safe harbor.
These safe harbor suggestions will be addressed (but not necessarily adopted) in the rulemaking on the 1993 and 1994 proposals.
In crafting safe harbors for a criminal statute, it is incumbent upon OIG to engage in a complete and careful review of the range
of factual circumstances that may fall within the proposed safe harbor subject area, so as to uncover all potential opportunities for
fraud and abuse by unscrupulous providers.  Having done so, OIG must then determine, in consultation with the Department of
Justice, whether it can develop regulatory limitations and controls that will be effective in permitting beneficial or innocuous
arrangements within the subject area, while at the same time protecting the Federal health care programs and their beneficiaries
from abusive practices.
In response to the 1998 annual solicitation, OIG received the following two suggestions for safe harbors concerning subject areas
other than those addressed in the rulemaking described above:
(cid:127) Modifying the safe harbors generally to exclude from protection business arrangements involving parties previously
sanctioned by Medicare or Medicaid.  The OIG is studying this suggestion.
(cid:127) Adding a new safe harbor for physician-owned therapeutic services (such as mobile lithotripsy) where the physician
performs or supervises the performance of the therapeutic services.  The OIG will not promulgate a safe harbor for
physician-owned therapeutic services, such as mobile lithotripsy, because many such ventures result in increased costs to
the Federal health care programs.  The investment interests in small entities safe harbor, 42 C.F.R.  1001.952(a)(ii), may
be available for some therapeutic services ventures that meet the safe harbor criteria.
More generally, one respondent expressed concern about various coding and billing deficiencies and the need for better
monitoring; another urged that OIG not create an exception to section 1128A(a)(5) of the Social Security Act for insurance
premium payments by end stage renal disease facilities.
G-1 Finally, OIG is continuing to study safe harbor suggestions received in response to annual solicitations published in 1996 and
1997 and reported in the semiannual report published in November 1998.  The OIG anticipates publishing a proposed rulemaking
for new safe harbors in early 2000.
G-2 STATUTORY AND ADMINISTRATIVE RESPONSIBILITIES
The Inspector General Act of 1978 (Public Law 95-452), as amended, sets forth specific requirements for semiannual
reports to be made to the Secretary for transmittal to the Congress.  A selection of other statutory and administrative
reporting and enforcement responsibilities and authorities are listed below:
AUDIT AND MANAGEMENT REVIEW RESPONSIBILITIES AND OFFICE OF MANAGEMENT AND
BUDGET CIRCULARS
P.L.   96-304  Supplemental Appropriations and Rescissions Act of 1980
P.L.   96-510  Comprehensive Environmental Response, Compensation and Liability Act
P.L.   97-255  Federal Managers Financial Integrity Act
P.L.   97-365  Debt Collection Act of 1982
P.L.   99-499  Superfund Amendments and Reauthorization Act of 1986
P.L. 101-576  Chief Financial Officers Act of 1990
P.L. 102-486  Energy Policy Act of 1992
P.L. 103-62   Government Performance and Results Act of 1993
P.L. 103-355  Federal Acquisition Streamlining Act of 1994
P.L. 103-356  Government Management Reform Act of 1994
P.L. 104-156 Single Audit Act Amendments of 1996
P.L. 104-191  Health Insurance Portability and Accountability Act of 1996
P.L. 104-193  Personal Responsibility and Work Opportunity Act of 1996
P.L. 104-208  Federal Financial Management Improvement Act of 1996
Office of Management and Budget Circulars:
A-  21 Cost Principles for Educational Institutions
A-  25 User Charges
A-  50 Audit Follow-up  
A-  76 Performance of Commercial Activities
A-  87 Cost Principles for State, Local and Indian Tribal Governments
A-102 Grants and Cooperative Agreements with State and Local Governments
A-110 Uniform Administrative Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations
A-122 Cost Principles for Nonprofit Organizations
A-123 Management Accountability and Control
A-127 Financial Management Systems
A-129 Policies for Federal Credit Programs and Non-Tax Receivables
A-133 Audits of States, Local Governments and Non-Profit Organizations
  A-134 Financial Accounting Principles and Standards
General Accounting Office Government Auditing Standards
CRIMINAL AND CIVIL INVESTIGATIVE AUTHORITIES
Criminal investigative authorities include:
Title   5, United States Code, section 552a(I)
Title 18, United States Code, sections on crime and criminal procedures as they pertain to OIGs oversight of
departmental programs and employee misconduct
Title 42, United States Code, sections 263a(l), 274e, 290dd-2, 300w-8, 300x-8, 707, 1320a-7b, the Social Security
and Public Health Service Acts
Civil and administrative investigative authorities include civil monetary penalty and exclusion authorities such as
those at:
Title 31, United States Code, sections 3729-3733, (the False Claims Act) and 3801-3812 (the Program Fraud Civil
Remedies Act)
Title 42, United States Code, sections 1320a-7, 1320a-7a, 1320b-10, 1320c-5, 1395l, 1395m, 1395u, 1395dd and
1396b DEPARTMENT OF HEALTH
AND HUMAN SERVICES
Office of Inspector General
330 Independence Avenue, S.W.
Washington, D.C. 20201
 
Internet Address
http://www.hhs.gov/oig