The Department of Health and Human Services
 
And
 
The Department of Justice
 
Health Care Fraud and Abuse Control Program
 
Annual Report For FY 2006
 
November 2007  TABLE OF CONTENTS 

Page 
Executive Summary  1
 
Introduction  3
 
Monetary Results  5
 
Program Accomplishments  7
 
Department of Health and Human Services
 
Office of Inspector General  25
 
Centers for Medicare & Medicaid Services  34
 
Administration on Aging  34
 
Office of the General Counsel  35
 
Health Resources and Services Administration  37
 
Office of the National Coordinator 

     for Health Information Technology  38
 
Department of Justice
              
United States Attorneys  39
 
Civil Division  40
 
Criminal Division  41
 
Civil Rights Division  43
 
Appendix: Federal Bureau of Investigation - Mandatory Funding  47
 
Glossary of Terms  51
 
GENERAL NOTE 

All years are fiscal years unless
 
otherwise noted in the text.
  EXECUTIVE SUMMARY
 
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established a national 
Health Care Fraud and Abuse Control Program (HCFAC or the Program), under the joint 
direction of the Attorney General and the Secretary of the Department of Health and Human 
Services (HHS)1, acting through the Departments Inspector General (HHS/OIG), designed to 
coordinate Federal, state and local law enforcement activities with respect to health care fraud 
and abuse. In its tenth year of operation, the Programs continued success again confirms the 
soundness of a collaborative approach to identify and prosecute the most egregious instances of 
health care fraud, to prevent future fraud or abuse, and to protect program beneficiaries. 
Monetary Results 
During FY 2006, the Federal Government won or negotiated approximately $2.2 billion in 
judgments and settlements, and it attained additional administrative impositions in health care 
fraud cases and proceedings. The Medicare Trust Fund received transfers of approximately $1.5 
billion during this period as a result of these efforts, as well as those of preceding years, in 
addition to $177.1 million in Federal Medicaid money similarly transferred separately to the 
Treasury as a result of these efforts. The HCFAC account has returned over $10.4 billion to the 
Medicare Trust Fund since the inception of the program in 1997. 
Enforcement Actions 
In FY 2006, U.S. Attorneys' Offices opened 836 new criminal health care fraud investigations 
involving 1,448 potential defendants. Federal prosecutors had 1,677 health care fraud criminal 
investigations pending, involving 2,713 potential defendants, and filed criminal charges in 355 
cases involving 579 defendants. A total of 547 defendants were convicted for health care 
fraud-related crimes during the year.  Also in FY 2006, the Department of Justice (DOJ) opened 
915 new civil health care fraud investigations, and had 2,016 civil health care fraud 
investigations pending at the end of the fiscal year. 
1Hereafter, referred to as the Secretary. 
1
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2  INTRODUCTION
 
ANNUAL REPORT OF 

THE ATTORNEY GENERAL AND THE SECRETARY 

DETAILING EXPENDITURES AND REVENUES 

UNDER THE HEALTH CARE FRAUD AND ABUSE CONTROL PROGRAM 

FOR FISCAL YEAR 2006 

As Required by 

Section 1817(k)(5) of the Social Security Act
 
STATUTORY BACKGROUND 

The Social Security Act Section 1128C(a), as established by the Health Insurance Portability and 
Accountability Act of 1996 (P.L. 104-191, HIPAA or the Act), created the Health Care Fraud 
and Abuse Control Program, a far-reaching program to combat fraud and abuse in health care, 
including both public and private health plans. 
The Act requires that an amount equaling recoveries from health care investigations -- including 
criminal fines, forfeitures, civil settlements and judgments, and administrative penalties, but 
excluding restitution, compensation to the victim agency, and relators shares -- be deposited in 
the Medicare Trust Fund.2 All funds deposited in the Trust Fund as a result of the Act are 
available for the operations of the Trust Fund. 
The Act appropriates monies from the Medicare Trust Fund to an expenditure account, called the 
Health Care Fraud and Abuse Control Account (the Account), in amounts that the Secretary and 
Attorney General jointly certify as necessary to finance anti-fraud activities.  The maximum 
amounts available for certification are specified in the Act.  Certain of these sums are to be used 
only for activities of the HHS/OIG, with respect to Medicare and Medicaid programs.  In FY 
2006, the Secretary and the Attorney General certified $240.558 million for appropriation to the 
Account. A detailed breakdown of the allocation of these funds is set forth later in this report. 
These resources generally supplement the direct appropriations of HHS and DOJ that are 
devoted to health care fraud enforcement.  These resources also funded approximately 80% of 
the HHS/OIG expenses in FY 2006. (Separately, the Federal Bureau of Investigation (FBI) 
received $114 million from HIPAA which is discussed in the Appendix.) 
2Also known as the Hospital Insurance (HI) Trust Fund. All further references to the 
Medicare Trust Fund refer to the HI Trust Fund. 
3  Under the joint direction of the Attorney General and the Secretary, the Programs goals are: 
(1)	  to coordinate federal, state and local law enforcement efforts relating to health care fraud 
and abuse with respect to health plans; 
(2)	  to conduct investigations, audits, inspections, and evaluations relating to the delivery of 
and payment for health care in the United States; 
(3)	  to facilitate enforcement of all applicable remedies for such fraud; 
(4)	  to provide guidance to the health care industry regarding fraudulent practices; and 
(5)	  to establish a national data bank to receive and report final adverse actions against health 
care providers, and suppliers. 
The Act requires the Attorney General and the Secretary to submit a joint annual report to the 
Congress which identifies both: 
(1)	  the amounts appropriated to the Trust Fund for the previous fiscal year under various 
categories and the source of such amounts; and 
(2)	  the amounts appropriated from the Trust Fund for such year for use by the Attorney 
General and the Secretary and the justification for the expenditure of such amounts. 
This annual report fulfills the above statutory requirements.  
4
  MONETARY RESULTS
 
As required by the Act, HHS and DOJ must detail in this Annual Report the amounts deposited 
and appropriated to the Medicare Trust Fund, and the source of such deposits. In FY 2006, 
$1.78 billion was deposited with the Department of the Treasury and the Centers for Medicare 
and Medicaid Services (CMS), transferred to other Federal agencies administering health care 
programs, or paid to private persons during the fiscal year.  The following chart provides a 
breakdown of the transfers/deposits: 
Total Transfers/Deposits by Recipient FY 2006 
Department of the Treasury 
HIPAA Deposits to the Medicare Trust Fund             
 Gifts and Bequests $30,085 
            Amount Equal to Criminal Fines $143,759,622 
Civil Monetary Penalties $19,413,407 
Asset Forfeiture * $0 
            Penalties and Multiple Damages  $297,384,495 
Subtotal  $460,587,610 
Centers for Medicare & Medicaid Services
HHS/OIG Audit Disallowances - Recovered $378,400,000 
  Restitution/Compensatory Damages  $708,143,083 
Subtotal  $1,086,543,083
Grand Total  $1,547,130,693 
Restitution/Compensatory Damages to Federal Agencies 
Office of Personnel Management  $57,706,781 
TRICARE  $14,707,156 
HHS/OIG Cost of Audits, Investigations and Compliance           
Monitoring  $9,022,178 
Veterans Administration  $5,291,723 
Indian Health Services  $3,245,069 
Administration for Children and Families  $2,589,526 
Other Agencies  $4,641,347 
Subtotal  $97,203,780 
Relators Payments**  $140,229,514
 TOTAL ***  $1,784,563,987 
*This includes only forfeitures under 18 U.S.C.  1347, a Federal health care fraud offense that became effective on 
August 21, 1996. Not included are forfeitures obtained in numerous health care fraud cases prosecuted under 
Federal mail and wire fraud and other offenses. 
**These are funds awarded to private persons who file suits on behalf of the Federal Government under the qui tam 
provisions of the False Claims Act, 31 U.S.C.  3730(b). 
***Funds are also collected on behalf of state Medicaid programs and private insurance companies; these funds are 
not represented here. 
5
  The above transfers include certain collections, or amounts equal to certain collections, required 
by HIPAA to be deposited directly into the Medicare Trust Fund. These amounts include: 
(1)	  Gifts and bequests made unconditionally to the Trust Fund, for the benefit of the Account 
or any activity financed through the Account; 
(2)	  Criminal fines recovered in cases involving a Federal health care offense, including 
collections under section 24 (a) of Title 18, United States Code (relating to health care 
fraud); 
(3)	  Civil monetary penalties in cases involving a Federal health care offense; 
(4)	  Amounts resulting from the forfeiture of property by reason of a Federal health care 
offense, including collections under section 982(a)(7) of Title 18, United States Code; 
and 
(5)	  Penalties and damages obtained and otherwise creditable to miscellaneous receipts of the 
general fund of the Treasury obtained under sections 3729 through 3733 of Title 31, 
United States Code (known as the False Claims Act, or FCA), in cases involving claims 
related to the provision of health care items and services (other than funds awarded to a 
relator, for restitution or otherwise authorized by law). 
6
  PROGRAM ACCOMPLISHMENTS
 
EXPENDITURES 
In the tenth year of operation, the Secretary and the Attorney General certified $240.558 million 
as necessary for the Program.  The following chart gives the allocation by recipient: 
FY 2006 ALLOCATION OF HCFAC APPROPRIATION 
(Dollars in thousands) 
Organization  Allocation 
Department of Health and Human Services
 Office of Inspector General3 $160,000 
Office of the General Counsel 4,778 
   Administration on Aging 3,128 
Centers for Medicare & Medicaid Services (CMS) 22,297 
   Health Resources and Services Administration  450 
Office of the National Coordinator for Health 
Information Technology (ONC)  490 
Subtotal  $191,143 
Department of Justice
 United States Attorneys $30,400 
Civil Division 14,459 
    Criminal Division 1,580 
Civil Rights Division  1,976 
    Nursing Home and Elder Justice Initiative  1,000 
Subtotal  $49,415 
Total  $240,558 
3In addition, HHS/OIG obligated $9.02 million in funds received as reimbursement for 
the costs of conducting investigations and audits and for monitoring compliance plans as 
authorized by section 1128C(b) of the Social Security Act, 42 U.S.C.  1320a-7c(b). 
7  ACCOMPLISHMENTS 
Overall Recoveries 
During this fiscal year, the Federal Government won or negotiated approximately $2.2 billion in 
judgments and settlements, and it attained additional administrative impositions in health care 
fraud cases and proceedings. The Medicare Trust Fund received transfers of approximately $1.5 
billion during this period as a result of these efforts, as well as those of preceding years, in 
addition to $177.1 million in Federal Medicaid money similarly transferred to the Treasury 
separately as a result of these efforts4. 
In addition to these enforcement actions, numerous audits, evaluations and other coordinated 
efforts yielded recoveries of overpaid funds, and prompted changes in Federal health care 
programs that reduce vulnerability to fraud.  In FY 2006, HHS collected more than $378.4 million 
in HHS/OIG recommended recoveries. 
Program Accomplishments 
Working together, HHS/OIG, DOJ and their law enforcement partners have brought to successful 
conclusion the investigation and prosecution of numerous health care fraud schemes.  During FY 
2006, the many significant HCFAC Program accomplishments included the following: 
Hospital Fraud 
'	  Tenet Healthcare Corporation, operator of the nations second largest hospital chain, 
agreed to pay the United States more than $900 million for billing practices that were 
alleged to be unlawful in lawsuits filed by whistleblowers. Under the agreement, Tenet, 
which is headquartered in Dallas but operates dozens of hospitals throughout the United 
States, will pay a total of $900 million over a 4-year period, plus interest, to resolve 
various types of civil allegations involving Tenets billings to Medicare and other Federal 
health care programs.  
Of the $900 million settlement amount, the agreement requires Tenet to pay: 
<	  more than $788 million to resolve claims arising from Tenets receipt of excessive 
outlierpayments (payments that are intended to be limited to situations involving 
extraordinarily costly episodes of care) resulting from the hospitals inflating their 
4Note that some of the judgments, settlements, and administrative actions that occurred in 
FY 2006 will result in transfers in future years, just as some of the transfers in FY 2006 are 
attributable to actions from prior years. 
8  charges substantially in excess of any increase in the costs associated with patient 
care, and billing for services and supplies not provided to patients;5 
<	  more than $47 million to resolve claims that Tenet paid kickbacks to physicians to 
get Medicare patients referred to its facilities, and that Tenet billed Medicare for 
services that were ordered or referred by physicians with whom Tenet had an 
improper financial relationship; and, 
<	  more than $46 million to resolve claims that Tenet engaged in upcoding, which 
refers to situations where diagnosis codes that Tenet is unable to support or that 
were otherwise improper were assigned to patient records in order to increase 
reimbursement to Tenet hospitals. 
'	  St. Barnabas Health Care System, the largest health care system in New Jersey, paid $265 
million to resolve allegations that nine of its hospitals fraudulently increased charges to 
elderly patients to obtain enhanced Medicare reimbursement for outlier claims.  The 
United States alleged that between October 1995 and August 2003, Saint Barnabas and 
nine of its hospitals purposefully inflated charges for inpatient and outpatient care to make 
these cases appear more costly than they actually were, and thereby obtained outlier 
payments from Medicare that they were not entitled to receive.  Saint Barnabas  entered 
into a Corporate Integrity Agreement (CIA) with the HHS/OIG.  The CIA contains 
measures to ensure compliance with Medicare regulations and policies in the future.  
'	  Our Lady of Lourdes Regional Medical Center agreed to pay the United States $3.8 
million to settle claims that they defrauded Medicare, TRICARE, and Medicaid from 1999 
to 2003. The civil settlement resolves allegations that the Lafayette, Louisiana, facility 
submitted claims for medically unnecessary angiogram, angioplasty, and stenting 
procedures that were performed at the hospital from 1999 to 2003.  The allegations arose 
from a lawsuit filed by a whistleblower at the hospital. 
'	  Beth Israel Medical Center in New York City paid $73 million to resolve allegations that 
it submitted false claims for Medicare reimbursement in cost reports from 1992 to 2001. 
The Government alleged that Beth Israel misrepresented information related to the 
operating costs of its Kings Highway Division in Brooklyn and improperly claimed 
certain nonreimbursable costs.  These costs included the costs of private offices for Beth 
Israels faculty physicians, overhead for its methadone maintenance treatment program, 
fund-raising and marketing costs, and staff living quarters already paid for through rent 
collected from Beth Israel employees.  The settlement resulted in part from a voluntary 
disclosure by Beth Israel and in part from a qui tam suit filed by a relator. 
5Congress enacted the supplemental outlier payment system to defray a portion of the
 
costs to care for the very sickest patients, where reimbursement under the prospective payment
 
system falls far short of the hospitals actual cost to care.
 
9  '	  Following a three-week trial, the former owner and chief executive officer of the now 
defunct Edgewater Hospital in Chicago, was found liable under the FCA for engaging in 
an illegal kickback scheme at Edgewater.  The court found that the defendant paid 
physicians for Medicare and Medicaid patient referrals in violation of federal law. The 
court held that the hospitals cost reports and individual patient claims for patients referred 
in connection with the scheme were false claims, and awarded treble damages and 
penalties on just over 1,800 claims. 
'	  Two owners of a former San Diego psychiatric hospital were found liable after trial for 
more than $15.7 million in damages and penalties for having included false claims in the 
hospitals cost report submitted to the Medicare program.  Those cost reports sought 
reimbursement from the Medicare program for a variety of false costs, such as amounts 
for a fictitious lease, reimbursement for unused hospital space, and millions of dollars in 
costs that were actually attributable to the defendants business enterprises unrelated to 
that hospital. The court awarded the United States $15.7 million for treble damages and 
$31,000 in civil penalties. 
'	  University Hospitals Health System (UH) in Ohio paid the United States $13.8 million to 
resolve allegations that UH violated the FCA. The payment resolved a qui tam suit 
brought by a physician formerly affiliated with UH, who alleged that UH entered into 
illegal financial arrangements with physicians in order to induce referrals to UH for 
services reimbursable by Medicare. 
'	  Chattanooga-Hamilton County Hospital Authority, the public nonprofit corporation that 
owns and operates Erlanger Medical Center located in Chattanooga, Tennessee, paid $37 
million to the United States and $3 million to Tennessee to settle claims that Erlanger paid 
money and other compensation, directly or indirectly, intended to induce physician 
referrals to its facilities in violation of the Anti-kickback Statute.  
'	  The Milton S. Hershey Medical Center paid the United States $2.9 million to settle 
allegations that it improperly submitted infusion therapy claims despite having been 
notified on five separate occasions that it was submitting its bills for these services 
improperly.  This settlement was part of a joint project in Pennsylvania between the 
United States Attorneys Offices and the HHS/OIG to investigate whether Pennsylvania 
hospitals submitted erroneous infusion therapy and/or blood transfusion claims to the 
Medicare Program which has resulted in numerous settlements and the return of over $8 
million to the Medicare Program. 
10
  Pharmaceutical Fraud 
'	  The Swiss corporation Serono, S.A., one of the worlds largest biotech manufacturers, 
paid $704 million to resolve criminal charges and civil liabilities in connection with 
several illegal schemes to promote and sell its drug, Serostim, that resulted in the 
submission of false claims to Medicaid and other federally funded health care programs. 
The Food and Drug Administration (FDA) had granted accelerated approval for Serostim 
in 1996 to treat Auto-Immune Deficiency Syndrome (AIDS) wasting, a condition 
involving profound involuntary weight loss in AIDS patients, then a leading cause of 
death in AIDS patients. Following the advent of protease inhibitor drugs, the incidence of 
AIDS wasting markedly declined, and Serono launched a campaign to redefine AIDS 
wasting to create a market for Serostim.  While doctors are permitted to prescribe drugs 
for uses that are not approved by the FDA, pharmaceutical companies are prohibited from 
marketing drugs for unapproved, or off-label uses. 
Serono pled guilty to conspiring with RJL Sciences, a medical device manufacturer, to 
introduce on the market bioelectrical impedance analysis (BIA) computer software 
packages for use in measuring body cell mass and diagnosing AIDS wasting.  The FDA 
had not approved the BIA software packages for these uses. RJL and its owner also pled 
guilty to their roles in the conspiracy. In addition, Serono pled guilty to conspiring to 
offer doctors kickbacks in the form of free trips to Cannes, France, to induce them to 
prescribe Serostim.  
The $704 million Serono settlement consisted of $305 million (plus accrued interest) paid 
by Serono to resolve FCA allegations that it knowingly caused the submission of claims 
for Serostim that were not eligible for reimbursement because they were for unnecessary 
or unapproved uses and because the claims were for prescriptions induced by kickbacks to 
physicians and pharmacies.  It also included $262 million plus interest paid to state 
Medicaid programs, as well as $136.9 million in criminal fines. 
'	  Schering-Plough Corporation, together with its subsidiary, Schering Sales Corporation, 
agreed to pay a total of $435 million to resolve criminal charges and civil liabilities in 
connection with illegal sales and marketing programs for its drugs Temador, used in the 
treatment of brain tumors and metastasis, and Intron A, used in the treatment of superficial 
bladder cancer and hepatitis C. 
Schering Sales Corporation agreed to plead guilty to charges that it conspired with others 
to make false statements to the FDA in response to the FDAs inquiry concerning certain 
illegal promotional activities by the companys sales representatives at a national 
conference for oncologists.  Schering Sales also agreed to plead guilty to charges that it 
conspired with others to give free Claritin Redi-Tabs to a major health maintenance 
organization (HMO) to disguise a new lower price being offered to the HMO to obtain its 
business. 
11
  As part of the civil resolution, Schering-Plough Corporation agreed to pay $255,025,000 
to resolve civil False Claims Act liabilities and liabilities under the Food Drug and 
Cosmetic Act in connection with illegal sales and marketing programs for its drugs 
Temodar for use in the treatment of brain tumors and Intron A for use in treatment of 
superficial bladder cancer and hepatitis C.  The civil resolution also resolves allegations of 
Medicaid Drug Rebate fraud involving Scherings drugs Claritin RediTabs, and K-Dur, 
used in treating stomach conditions. 
'	  King Pharmaceuticals, Inc., paid $75 million to resolve allegations that it underpaid 
rebates owed under the Medicaid program.  King paid an additional $50 million to several 
state governments based on the same allegations.  The settlement addressed King's alleged 
understatement of its drugs average manufacturer price and overstatement of its lowest 
available price or best price. For certain drugs, pharmaceutical companies are required 
to report their best price to Medicaid and to rebate the difference between the average 
manufacturer price and their best price.  By understating the former and overstating the 
latter, King unlawfully reduced its obligation to pay rebates in violation of the Medicaid 
program. 
'	  Eli Lilly and Company agreed to plead guilty and to pay $36 million in connection with its 
illegal promotion of its pharmaceutical drug Evista.  In addition to the criminal plea, Lilly 
agreed to settle civil Food, Drug, and Cosmetic Act liabilities by entering into a consent 
decree of permanent injunction and paying the United States $24 million in equitable 
disgorgement. 
Evista is approved by the FDA for the prevention and treatment of osteoporosis in 
postmenopausal women.  The Government alleged that the first years sales of Evista in 
the U.S. were disappointing compared to Lillys original forecast; the company reduced 
the forecast of Evistas first years sales in the U.S. from $401 million to $120 million.  In 
order to expand sales of the drug, it was alleged, Lilly sought to broaden the market for 
Evista by promoting it for off-label uses, such as for the prevention and reduction in risk 
of breast cancer, and the reduction in the risk of cardiovascular disease.  Lilly promoted 
Evista as effective for reducing the risk of breast cancer, even after Lillys proposed 
labeling for this use was specifically rejected by the FDA. 
'	  Omnicare, Inc., the nations leading provider of pharmacy services to skilled nursing 
facilities and assisted living communities, in a case jointly investigated by the Department 
of Justice, several Federal law enforcement agencies and the National Association of 
Medicaid Fraud Control Units (NAMFCU), agreed to pay the United States and 42 states 
$49.5 million to settle Medicaid prescription-drug-fraud claims initiated by two 
whistleblowers. Omnicare substituted different versions of prescribed drugs (such as 
tablets for capsules) solely to inflate profits rather than for any legitimate medical reason, 
and, as part of the settlement, Omnicare has also entered into a CIA with the HHS/OIG 
that is designed to prevent this type of drug switch in the future. 
12
  '	  Doing business as Glaxo SmithKline, SmithKline Beecham Corporation agreed to pay the 
Government $149 million plus interest and enter into a 5-year addendum to its existing 
CIA with the HHS/OIG. The settlement resolved allegations that the pharmaceutical 
manufacturer engaged in certain improper pricing and marketing practices for Zofran and 
Kytril, two antiemetic drugs used primarily in conjunction with oncology and radiation 
treatment. 
Nursing Home Fraud 
'	  Horizon West, Inc., and its wholly owned subsidiary, Horizon West Healthcare, Inc., have 
agreed to pay the United States $14.7 million to settle allegations that the companies 
violated the civil FCA by falsely inflating the number of nursing hours spent on Medicare 
patients. Horizon West runs a nursing home chain with approximately 30 facilities in 
California and Utah. 
'	  American Healthcare Management, Inc., (AHM), its individual owners, and three 
affiliated nursing homes agreed to pay $1.25 million to settle allegations of submitting 
false and fraudulent nursing home billings to Medicare and Medicaid for poor quality of 
care. The United States alleged that due to staffing limitations, numerous residents of the 
nursing homes suffered from dehydration and malnutrition, went for extended periods of 
time without cleaning or bathing, and contracted preventable pressure sores.  In addition, 
instances of elopements of residents from the facilities occurred, a resident was found 
covered with ants, and a resident was physically abused by a staff member.  As part of the 
settlement, AHM and the three nursing homes agreed to permanent exclusions, and the 
principal owner agreed to a 20-year exclusion. The other owner agreed to certify annually 
that he had no involvement in Medicare or Medicaid, and that if he did opt to bill those 
programs, he agreed that he would enter into a CIA at that time. 
'	  Life Care Centers of America, Inc., (LCCA) the operator of a Georgia-based skilled 
nursing facility known as Life Care Center of Lawrenceville (Lawrenceville), along with 
Lawencevilles owners Gwinnett Medical Investors Limited Partnership, Developers 
Investment Company, Inc., and the founder of LCCA, agreed to pay a total of $2.5 million 
to resolve multiple allegations of FCA violations for billing for services that either were 
not provided to the Lawrenceville residents or were deficient.  The complaint, originally 
filed by five whistleblowers in November 2002, alleged a systemic failure by 
Lawrenceville to provide appropriate nursing care to its residents and also alleged that 
such failure resulted in the premature deaths of several residents.  It was alleged that the 
failure of care was the result of severe under staffing, inadequate staff training, high staff 
turnover, an ineffective medical director, poor nursing documentation, and insufficient 
budgetary allowances. The whistleblowers all had family members who were residents at 
Lawrenceville. 
13
  LCCA and Lawrenceville entered into a CIA which, among other things, required the 
appointment of an independent monitor who will oversee operations at Lawrenceville for 
up to five years to verify that patients receive appropriate care.  LCCA also agreed to 
apply the policies and procedures implemented for Lawrenceville to LCCAs other 
facilities across the country. 
'	  USA Healthcare, Inc., (USAH) the owner of several skilled nursing facilities based in 
Cullman, Alabama, settled allegations of overcharging Medicare by agreeing to pay the 
United States $1.2 million.  The investigation arose out of an audit of cost reports filed by 
several of USAHs skilled nursing facilities which revealed that the company violated 
Medicare rules by failing to disclose that certain vendors were related to USAH by 
common ownership or control and therefore should have been reimbursed by Medicare at 
a lower rate based on actual costs and without inclusion of profit. 
Durable Medical Equipment Fraud 
'	  In Houston, a jury convicted a Texas osteopath on 13 counts related to health care fraud. 
The osteopath was sentenced to 10 years in prison, and ordered to pay $7.9 million in 
restitution to Medicare and Medicaid. The osteopath never obtained a license to practice 
in Texas. Nevertheless, over a 2-year period beginning in 2002, the osteopath signed 
pre-printed prescriptions and certificates of medical necessity (CMNs) for motorized 
wheelchairs in exchange for payments from marketers of durable medical equipment 
(DMEs). The osteopath rarely examined the Medicare and Medicaid beneficiaries in 
whose names the prescriptions and CMNs were prepared.  The marketers, in turn, sold the 
signed documents to DME suppliers in Texas and elsewhere.  The osteopaths fraudulent 
activity has been linked to nearly $8 million in Medicare and Medicaid payments. 
'	  In Tennessee, an individual was sentenced to 23 months in prison and ordered to pay $1.8 
million in restitution for his role in a scheme to defraud Medicare.  As the self-described 
ring leader, the defendant recruited friends and family members to establish DME 
suppliers with different names.  These suppliers billed Medicare for enteral nutrition 
products that were never actually provided to any beneficiaries. In some instances, the 
suppliers provided only flavored milk products to the elderly but billed Medicare as if the 
companies were providing enteral nutrition.  This defendant was the seventh 
co-conspirator to be convicted as a part of Project Milk Man. 
'	  In Texas, the owner of a DME supplier plead guilty and was sentenced to 63 months in 
prison for the fraudulent billing of expensive motorized wheelchairs and other DME.  The 
owner paid recruiters to collect Medicare and Medicaid beneficiary numbers and other 
information in Texas and in surrounding states.  The owner then used the patient 
information to bill Medicare or Medicaid for DME, while providing less expensive 
products to the named beneficiaries, or none at all.  Through this scheme, the owner was 
paid $1.6 million by Medicare and Medicaid.  In addition to the prison sentence, the 
owner was ordered to pay $669,000 in restitution. 
14
  '	  In Florida, a licensed orthotist and a patient recruiter were sentenced for conspiring to 
commit health care fraud involving eight Miami-based medical organizations.  The 
orthotist was sentenced to 28 months in prison and ordered to pay $1.8 million in 
restitution for providing DME suppliers with signed CMNs and prescriptions for orthotic 
devices without having examined the named Medicare beneficiaries.  He paid the 
beneficiaries for the misuse of their personal information.  The DME companies then 
billed for expensive custom-fitted devices, but provided only prefabricated devices.  The 
patient recruiter was sentenced to 22 months in prison and ordered to pay approximately 
$4.2 million in restitution. 
'	  Beverly Enterprises, Inc., agreed to pay the United States and the state of California $20 
million to settle allegations that its former wholly-owned subsidiary, MK Medical, 
submitted false claims to the Medicare and Medi-Cal programs from 1998 until 2002, 
while Beverly owned the company.  MK Medical, a now-defunct wholesaler of DME, 
allegedly billed Medicare and Medi-Cal for DME provided to the programs beneficiaries 
without obtaining the proper medical documentation.  Beverly has agreed to settle these 
allegations by paying $14.5 million to the United States and $5.5 million to the state of 
California. 
'	  The owner of a power wheelchair store was sentenced to 63 months in prison and ordered 
to pay over $4 million in restitution to the Medicare and Medicaid programs after he was 
convicted by a jury of paying recruiters to take beneficiaries to a medical clinic where a 
physician would perform medically unnecessary procedures and then sign false CMNs 
authorizing the beneficiaries to receive motorized wheelchairs.  The physician also was 
sentenced to 11 years and three months in prison for his participation in the scheme, for 
receiving payment for signing the CMNs, and for submitting claims for services that either 
werent performed properly, or were not performed at all. 
'	  In Texas, the owner of a power wheel chair store, the owners brother and a physician 
were found guilty of paying and receiving illegal kickbacks, and money laundering after a 
four week jury trial in San Antonio. The owner paid recruiters to find Medicare 
beneficiaries. The owner then paid the physician to falsely certify medical necessity of 
scooters or K0011 power wheelchairs. The owner would then fraudulently bill the 
Medicare program for reimbursement regardless of what, if any, equipment had been 
provided. Under the scheme, the defendants billed Medicare in excess of $12 million. 
The owner was sentenced to 151 months, the owners brother received 66 months and the 
physician was sentenced to 54 months imprisonment. 
'	  In the Southern District of Texas, a physician was sentenced to 10 years in prison for 
conspiring to defraud Medicare of $30 million in a wheelchair scam.  The physician and 
the physicians office manager sold CMNs and prescriptions for motorized wheelchairs 
and other durable medical equipment to certain marketers and suppliers for approximately 
$200 each. Nearly all of the physicians patients were ineligible for these items.  They 
also sold prescriptions for controlled substances that were outside the normal course of 
15
  medical practice and were not medically necessary.  They wrote 17,086 such prescriptions 
and received no less than $1.7 million in cash. 
'	  In the Southern District of Texas, the owner of a Houston-based DME company was 
sentenced to 63 months in prison for the owners role in a motorized wheelchair scam. 
The company fraudulently billed Medicare and Medicaid for almost $5 million and 
defrauded these health care programs of at least $1.6 million. 
Ambulance Services Fraud 
'	  In North Carolina, an ambulance company and its owner were convicted of billing 
Medicare and Medicaid for dialysis patient transports that were not medically necessary. 
The owner was sentenced to 120 months in jail for health care fraud and to an additional 
31 months in jail for obstruction.  The company and the owner were also ordered to pay 
$604,000 in joint-and-several restitution. The company owner instructed emergency 
medical technicians to enter information on ambulance reports that falsely indicated that 
patients required transportation by ambulance when, in fact, they could have been 
transported by other means.  To conceal this activity, the owner and the billing manager 
altered records to indicate medical necessity.  The billing manager was previously 
sentenced and was ordered to pay $30,000, a portion of the joint-and-several restitution 
amount. 
'	  American Medical Response Inc. (AMR), one of the nations largest ambulance providers, 
paid the United States over $9 million to resolve allegations that the company violated the 
FCA. The Government alleged that the ambulance company provided illegal inducements 
to hospitals in Texas in exchange for referrals.  The settlement relates to allegations that 
AMR, based in Greenwood, Colorado, provided or offered inducements to Texas hospitals 
in the form of contracts known as swapping arrangements.  Such contracts gave the 
medical facilities discounts on transports in exchange for the referral of patients upon their 
discharge from the hospitals. 
Chiropractic Fraud 
'	  A former Indiana chiropractor was sentenced to 12 years and 6 months in prison, and 
ordered to pay $1.5 million in restitution, for billing Medicare, Medicaid, and private 
insurers for medically unnecessary back braces.  The former chiropractor would arrange 
for presentations at senior citizens centers and other locations, often recruiting children to 
distribute flyers advertising the presentation in return for movie tickets.  At the 
presentations, the chiropractor would distribute the back braces, valued at less than $100 
each, to senior citizens and the indigent irrespective of need. The chiropractor would then 
bill government or private health insurers $1,300 for each brace.  
16
  Podiatry Fraud 
'	  An Illinois podiatrist was sentenced to death for the murder of a grand jury witness, 
sentenced to 78 months in prison for health care fraud, and ordered to pay $1.8 million in 
restitution. A jury convicted and condemned the podiatrist to death for murdering a 
woman days before she was expected to testify before the grand jury about the more than 
70 foot surgeries that were not performed that the podiatrist billed to Medicare. 
'	  An Ohio podiatrist was sentenced to 78 months in prison for conspiring and scheming to 
defraud Medicare. Because the podiatrist defaulted on federal student loans, Medicare 
excluded the podiatrist in 2000, thus prohibiting billing Medicare for podiatry services. 
Despite this, the podiatrist continued to bill Medicare under a corporate name.  The 
corporation used the names of former podiatry school classmates, including one who was, 
at the time, dying of cancer.  None gave the podiatrist permission to use their names.  In 
2002, the podiatrist persuaded the Government to lift the exclusion, and began billing 
Medicare for complex procedures, when only routine nail-trimming services were 
provided. In addition to prison time, the podiatrist was ordered to pay $528,000 in 
restitution. 
Fraud by Physicians 
'	  An Ohio pain management physician was sentenced to life in prison, plus an additional 20 
years, for two charges of health care fraud resulting in death in addition to other charges 
of health care fraud. The Ohio physician administered to all his patients unnecessary and 
painful trigger-point injections of Schedule II and III narcotics. Once addicted, his 
patients would return for weekly injections, and were often forced to contribute to a 
malpractice insurance fund.  In two instances, the injections lead to fatal drug 
overdoses. The physician submitted $60 million in fraudulent bills to health care benefit 
programs, claiming he was performing multiple, complex epidural and nerve block 
injections when, in fact, he performed crude versions of lower cost trigger-point 
injections. In addition to the prison sentence, he was ordered to pay $14.3 million in 
restitution to Medicare, Medicaid, and the Ohio Bureau of Workers Compensation.  The 
health care fraud resulting in death case was recognized as the Investigation of the Year 
for 2006 by the National Health Care Anti-Fraud Association. 
'	  A Tennessee oncologist was sentenced to over 15 years imprisonment for defrauding 
Medicare, TennCare and BlueCross BlueShield at the expense of cancer patients. The 
defendant administered diluted versions of chemotherapy medications to patients, and 
instructed nurses to draw up partial doses of other medications to administer to patients. 
'	  From 1996 through 2003, a physician employed an individual to work at the physicians 
medical practice in Connecticut.  Although the individual was not licensed to practice 
medicine, the individual nonetheless treated patients in the physicians medical practice. 
During this time, the individual was referred to as "Doctor" by the physician and wrote 
17
  prescriptions. The physician then billed insurance companies for services that were 
rendered by the individual, representing them as services rendered by a physician.  They 
both pled guilty to conspiracy to commit health care fraud and was sentenced to two 
months of imprisonment, four months of home confinement and three years of supervised 
release. The physician also entered into a civil settlement with the Government and paid 
$160,000. 
'	  A jury convicted a Manhattan dermatologist for unlawfully distributing prescription 
narcotics and for health care fraud. The dermatologist was sentenced to 20 years 
imprisonment and was ordered to pay $880,000 in restitution.  From 1992 to 2002, the 
dermatologist engaged in a pattern of fraudulent behavior that ultimately lead to the death 
of one individual. The dermatologist paid kickbacks, often in the form of medically 
unnecessary prescriptions for controlled or addictive substances, to induce beneficiaries to 
continue returning to his office.  The dermatologist would then bill Federal or private 
health plans for the visit and for services not provided. The dermatologist filed almost 
2,000 claims for surgeries allegedly performed on a single patient, ultimately receiving 
$425,000 in reimbursements.  By submitting these claims, the dermatologist certified that, 
among other procedures, 1,300 4 centimeter incisions were performed in this one patients 
face. Ultimately, this individuals participation in the scheme proved fatal, as the patient 
overdosed on Dilaudid and Carisprodol, which were regularly obtained from the 
dermatologist. 
Fraud by Other Practitioners 
'	  In Illinois, a dentist was sentenced to 63 months in prison and ordered to pay $827,000 in 
restitution and a $20,000 fine. The dentist was found guilty in a jury trial on charges of 
mail fraud and health care fraud.  The dentist performed unnecessary dental procedures on 
patients and billed for services not performed or not performed as indicated. 
'	  The owner of Indiana-based dental practice, The Smile Center,  and the owners mother 
pled guilty to health care fraud. It was alleged that The Smile Center defrauded the 
Indiana Medicaid Program by billing for services that were either not medically necessary 
or were not provided at all, and for coding services to appear as if they were covered by 
Medicaid when they were not. Their scheme resulted in losses of over $1.8 million which 
the defendants agreed to repay in a related civil settlement. 
'	  A Kansas couple was convicted on Federal charges for involuntary servitude, forced labor, 
conspiracy, health care fraud, and mail fraud. The social worker and his wife, a nurse, 
were sentenced to 30 years and 7 years in prison, respectively, and ordered to pay 
approximately $500,000 in joint-and-several restitution.  In addition, the jury ordered the 
couple to forfeit approximately $85,000 and four properties.  For over 24 years, the couple 
operated a group home that provided therapy for mentally ill patients.  The investigation 
revealed that the social worker forced and coerced his patients to perform manual labor in 
the nude and participate in therapy sessions that involved sexually explicit acts. The 
18
  mans wife helped enforce house rules and fraudulently billed Federal health care 
programs.  
'	  A California audiologist was sentenced to 78 months in prison for defrauding Medicare 
and Medi-Cal. From January 1997 through July 2003, the audiologist billed Medicare and 
Medi-Cal for hearing aids, speech therapy, and other related services without being 
licensed to dispense or render the service and, in most cases, without a prescription from a 
referring physician.  The audiologist also billed for services purportedly provided to 
deceased beneficiaries. In addition to the prison sentence, the audiologist was ordered to 
pay $868,000 in restitution. 
Infusion Therapy 
'	  In FY 2006, the United States Attorney for the Southern District of Florida, the Civil 
Division, the FBI, the HHS/OIG, CMS, and Florida state enforcement agencies worked 
together in a federal-state fraud task force to aggressively address the problem of fraud by 
human immunodeficiency virus (HIV) and other specialized medical clinics in South 
Florida. Over the year, twenty-three defendants were charged in matters relating to fraud 
arising in clinics ostensibly providing infusion therapy to persons with HIV. The 
investigation determined that in many instances the so-called clinics were nothing more 
than mailing addresses where no medical services were provided.  It determined also that, 
in some instances, beneficiaries were paid modest sums to attend clinics and undergo 
infusion therapy that later was billed to Medicaid or Medicare.  The task force utilized the 
Miramar Health Care Facility, a Department of Justice document storage and investigative 
support facility located in Broward County, Florida.  The following are illustrative of the 
cases brought: 
A physician and his medical assistant in Miami, and three other defendants who 
participated in a health care fraud scheme involving a Miami HIV/AIDS clinic, 
were convicted after a jury trial and sentenced to imprisonment for billing 
Medicaid $1.3 million for medications and treatments that were not administered 
to Medicare beneficiaries with HIV and for paying the beneficiary patients 
kickbacks to attend the clinic. 
Two  employees of Project New Hope, a medical clinic located in Miami that 
claimed to specialize in the treatment of Medicare beneficiaries with HIV, were 
found guilty by a jury for participating in a fraudulent scheme that billed at least 
$2.8 million in medications that most of the beneficiaries did not receive, and for 
paying kickbacks to the beneficiaries to get them to attend the clinic.  Five other 
defendants pled guilty before trial. 
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  Medicare Secondary Payer6  
'	  Highmark, Inc., settled allegations that the Pennsylvania insurance company underpaid the 
amounts due for the care of certain Medicare beneficiaries under the employer group 
health plans administered by the company.  Highmark voluntarily conducted a review to 
capture actual employee count data from its customer employers for purposes of 
determining whether Medicare should be the primary or secondary payer.  Based on the 
results of this review, Highmark refunded $2.5 million to Medicare.  Highmark also paid 
an additional amount of approximately $2 million to the Government and agreed to 
implement a model Medicare Secondary Payer (MSP) program to address how data 
regarding employee counts is captured and utilized.  The terms of the settlement require 
that an independent organization will verify that Highmark establishes and maintains MSP 
procedures consistent with the model. 
Child Vaccine Programs 
'	  Operation Free Shot focuses on Connecticut health care providers who bill Medicaid and 
other insurance programs for childhood vaccines the providers received free-of-charge 
from the Vaccines For Children (VFC) program, a joint Federal and state program that 
provides childhood immunizations.  Under the VFC Program, doctors and other health 
care providers receive free vaccines distributed by the Department of Public Health and 
agree not to bill Medicaid or any other third-party for the cost of the vaccines. The 
provider may recover a minimal fee for administrative costs associated with inoculating a 
child. Overall, there have been seven civil settlements and two criminal convictions, with 
a total recovery of in excess of $2 million, and in FY 2006 there were two civil 
settlements against a physician and Winstead Pediatrics in the amount of $430,000. 
'	  The District of Utah also has investigated the VFC program and has entered into four 
settlements with providers over the last three years and one in FY 2006 against a 
physician in the amount of $53,000. 
Drug Diversion and Internet Pharmacy Fraud 
'	  An Arizona resident obtained more than 27,000 pills, mostly Percocet and Oxycodone, 
from 51 Tucson area pharmacies using forged signatures.  The individual pled guilty to 
health care fraud and other felonies of conspiracy, possession with intent to distribute a 
controlled substance, possession of a controlled substance by misrepresentation, fraud, 
forgery, deception and subterfuge, and fraud in connection with identification documents. 
6Medicare is a secondary payer of medical costs for its beneficiaries who are current 
employees of an employer with 20 or more employees, or of an employer of 19 or fewer 
employees who is a member of a multiple employer plan or a group health plan (GHP) who has 
at least 1 member with 20 or more employees.  Medicare dictates that the employer or GHP, not 
Medicare, is responsible for primary payment of the claims. 
20  '	  A Minnesota resident was convicted by a jury of illegally selling prescription drugs and 
controlled substances over the Internet. The individual was responsible for the 
distribution of more than two million units of Schedule III controlled substances with a 
value of approximately $24 million.  Five other individuals, including the prescribing 
physician, have also pled guilty to Federal felonies and are awaiting sentencing. 
'	  Seventeen individuals and thirty-seven corporations pled guilty in San Antonio to, among 
other things, health care fraud, distribution and possession with intent to distribute a 
controlled substance, and money laundering.  The indictment alleged that the defendants 
sold controlled substances, including hydrocodone, phentermine hydrochloride, 
alprazolam, and promethazine cough syrup containing codeine, over the Internet without 
any controls. It was alleged that more than $200 million in pharmaceuticals was 
fraudulently purchased from commercial pharmaceutical wholesalers and diverted for 
fraudulent and illegal distribution. 
'	  A Florida pharmaceutical wholesale distributor with offices in Miami, Savannah, and 
elsewhere, bought and sold millions of dollars of fraudulently obtained prescription drugs, 
including drugs already paid for by the Florida and California state Medicaid Programs; 
drugs defrauded from the Immune Deficiency Foundation's Safety Net Program; and drugs 
defrauded from several pharmaceutical manufacturers and distributors.  The defendants 
were convicted for the unlawful purchase and sale of prescription drugs, primarily blood 
derivatives used in the treatment of cancer, AIDS, hemophilia and other critical care 
illnesses. The defendants received sentences as high as 300 months in prison, fines as 
high as $5 million, and were ordered to pay $27.8 million in restitution. 
'	  In the Southern District of Texas, an individual pled guilty to counterfeit labeling and 
false trademarks on pharmaceutical drugs.  Eleven individuals, including the defendants 
alleged supplier, were arrested in China and charged with manufacturing and distributing 
counterfeit Viagra, Cialis and Lipitor. Subsequent searches resulted in the seizure of 
equipment used to process counterfeit pharmaceuticals, 600,000 counterfeit Viagra labels 
and packaging, 440,000 counterfeit Viagra and Cialis tablets, and 260 kilograms of raw 
materials used to manufacture counterfeit pharmaceuticals. 
'	  In the Western District of New York, a pharmacist pled guilty in connection with the theft 
of approximately $1,875,000 in public and private health care insurance funds.  The 
pharmacist submitted claims to Medicaid and private health insurers for prescription 
refills that were not authorized by the prescribing physician; name brand drugs when the 
generic drug was provided; prescriptions that were never actually filled; and other 
fraudulent prescriptions. 
'	  In the Northern District of Iowa, two doctors employed by a corporation that owned 
Internet pharmacy web sites were each sentenced to 20 months in prison for conspiring to 
21
  dispense Schedule III and Schedule IV controlled substances without a legitimate medical 
purpose and outside the usual course of medical practice.  Another conspirator was 
sentenced to three years of probation, with a six-month term of home confinement as a 
special condition. The defendants admitted they were employed by the corporation to 
review the questionnaires and approve the prescription drug requests though none had 
ever examined any of the patients before prescribing thousands of dosage units of 
Schedule III controlled substances, usually pain narcotics. 
Hospice Fraud 
'	  Odyssey HealthCare, a national hospice provider, paid the United States $12.9 million to 
settle allegations that the company submitted false claims to Medicare.  The Dallas-based 
company is alleged to have billed Medicare for services provided to hospice patients who 
were not terminally ill and therefore were ineligible for the Medicare hospice benefit.  The 
settlement, which covers a period from 2001 to 2005, also resolves charges originally 
brought against Odyssey HealthCare in a qui tam action brought by a former regional vice 
president. As part of the settlement, the former vice president will receive $2.3 million for 
bringing the matter to the attention of the Government.  Odyssey HealthCare also entered 
into a CIA with the HHS/OIG. The CIA addresses the companys practices regarding 
compliance with applicable Medicare regulations. 
'	  Faith Hospice, Inc., settled allegations that it submitted fraudulent claims to Medicare and 
Medicaid for hospice care.  The investigation was initiated when a review of a sample of 
Faith Hospices medical records showed that more than half of its patients were ineligible 
for hospice care. Under the agreement, the owner and Faith Hospice forfeited 
approximately $599,000 to the United States, one half of the funds seized pursuant to the 
civil forfeiture action. 
Kickbacks 
'	  Lincare Holdings, Inc., and its subsidiary, Lincare, Inc. (collectively, Lincare), agreed to 
pay the Government $10 million and to enter into a 5-year company-wide CIA.  The 
settlement resolves allegations that Lincare violated the anti-kickback provision of the 
Civil Monetary Penalties Law (CMPL) and the Physician Self-Referral Law.  The 
HHS/OIG alleged that from January 1993 through December 2000, Lincare engaged in a 
nationwide scheme to pay remuneration to physicians to induce referrals of patients to 
Lincare for DMEs. The HHS/OIG alleged that Lincare gave referring physicians items 
such as sporting and entertainment tickets, gift certificates, golf rounds and equipment, 
fishing trips, meals, advertising expenses, office equipment, and medical equipment, as 
well as payments pursuant to purported consulting agreements.  The HHS/OIG also 
alleged that Lincare violated the Physician Self-Referral Law by accepting referrals from 
parties to the purported consulting agreements.  
22
  '	  Medtronic, Inc., agreed to pay the United States $40 million to settle civil allegations that 
its Medtronic Sofamor Danek division (MSD) paid kickbacks to doctors to induce them to 
use MSDs spinal products. The Government alleged that, between 1998 and 2003, 
Medtronic paid illegal kickbacks in a number of forms, including sham consulting 
agreements, sham royalty agreements and lavish trips to desirable locations.  The 
Governments investigation was triggered by the filing of a qui tam action. 
'	  Marion Regional Health Care System agreed to pay the United States $3.75 million to 
resolve allegations of health care fraud against the Government.  The settlement resolves 
allegations that Marion County Medical Center submitted false claims to Medicare, 
Medicaid and TRICARE by engaging in financial relationships with certain physicians 
that were prohibited under the Physician Self-Referral Law and/or the Anti-kickback 
Statute. Specifically, the settlement focuses on the compensation Marion paid to two 
physicians which the United States contends far exceeded the fair market value of the 
services provided by those physicians and was not commercially reasonable.  The 
settlement also resolves allegations that Marion submitted claims to Medicare for 
professional services for initial hospitalizations which were coded at a level higher than 
the services that were provided. The United States initiated the investigation in response 
to a whistleblower action brought by a former employee of Marion. 
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24
      FUNDING FOR THE DEPARTMENT OF HEALTH AND 
                                  HUMAN SERVICES 
Office of Inspector General 
Certain of the funds appropriated under HIPAA are, by law, set aside for Medicare and Medicaid 
activities of the HHS/OIG. In FY 2006, The Secretary and the Attorney General jointly allotted 
$160 million to the HHS/OIG which is the statutory maximum permitted under HIPAA.  
The HHS/OIG participated in investigations or other inquiries that resulted in 744 prosecutions or 
settlements in FY 2006, of which 567 or 76% percent were health care cases.  A number of these 
are highlighted in the Accomplishments section.  During FY 2006, the HHS/OIG also excluded a 
total of 3,422 individuals and entities, barring them from participating in Medicare, Medicaid, and 
other Federal and state health care programs.  In addition, the Department of Health and Human 
Services collected more than $378.4 million in disallowances of improperly paid health care 
funds, based on HHS/OIG recommendations. 
Program Savings 
Frequently, investigations, audits and evaluations reveal vulnerabilities or incentives for 
questionable or fraudulent financial practices in agency programs or administrative processes.  As 
required by the Inspector General Act, the HHS/OIG makes recommendations to agency 
managers to address these vulnerabilities.  In turn, agency managers recommend legislative 
proposals or other corrective actions that, when enacted or implemented, close loopholes and 
reduce improper payments or conduct.  The net savings from these joint efforts toward program 
improvements can be substantial.  During FY 2006, the HHS/OIG estimates that such corrective 
actions resulted in health care savings (i.e., funds put to better use as a result of implemented 
legislative or other program initiatives) of approximately $34 billion -- $25.52 billion in Medicare 
savings, and $8.48 billion in savings to the Medicaid program.  Additional information about 
savings achieved through such policy and procedural changes may be found in the HHS/OIG 
Semiannual Report, on-line at http://oig.hhs.gov/reading/semiannual.html. 
Exclusions 
One important mechanism for safeguarding the care provided to program beneficiaries is through 
exclusion of providers and suppliers who have engaged in patient abuse or neglect or fraud. 
During FY 2006, the HHS/OIG excluded a total of 3,422 individuals and entities. Among these 
were exclusions based on criminal convictions for crimes related to Medicare or Medicaid (605), 
or to other health care programs (245); for patient abuse or neglect (295); or as a result of 
licensure revocations, suspensions or surrenders (1,868). This list is not meant to be exhaustive, 
 
25
  but identifies the most prevalent causes underlying the HHS/OIGs exclusions of individuals 
or entities in FY 2006. Among those excluded by the HHS/OIG from participation in Medicare, 
Medicaid, and other Federal health care programs were the following: 
'  South Beach Community Hospital (formerly South Shore Hospital and Medical Center) 
was excluded from participation in Medicare, Medicaid, and other Federal health care 
programs.  The exclusion resulted from South Beachs material breach of the terms of a 
CIA the hospital negotiated with the HHS/OIG in 2002 as part of the resolution of a FCA 
case against the hospital. The HHS/OIG determined that South Beach was in material 
breach for its repeated failure to submit timely, complete, and accurate required reports, 
and its failure to implement fully the Independent Review Organization requirements of 
the CIA. South Beach also neglected to notify the HHS/OIG, as required under the CIA, 
of its sale to new owners, who are also subject to the terms of the CIA.  The HHS/OIG 
determined that South Beachs repeated and egregious failure in this case to abide by 
the terms of its CIA required the HHS/OIG for the first time to seek exclusion for such a 
violation. 
'  A registered nurse was excluded for a minimum of 60 years based on her conviction for 
deliberately and intentionally causing the death of a home health patient under her care, 
and for using the victims credit card to obtain cash and make purchases.  The registered 
nurse was ordered to serve a life sentence without parole for first-degree homicide.  In 
addition, she was sentenced to 30 years for aggravated robbery against an at-risk adult, 6 
years for theft, and 3 years for unauthorized use of a credit card. 
'  Another nurse was excluded for a minimum period of 25 years based on his conviction for 
rape. While providing in-home care, the nurse engaged in sexual intercourse with a 
female patient incapable of giving consent.  The victim is a quadriplegic who is 
developmentally disabled and suffers from spastic cerebral palsy.  The nurse was 
sentenced to 102 months incarceration and the state revoked his nursing license. 
'  A pharmacist was excluded for a minimum period of 5 years based on his conviction on 
multiple counts of battery.  During a 15-month period, the pharmacist falsely represented 
that he was participating in a blood study. The pharmacist paid between $10 and $20 per 
blood sample, which he obtained from women in the community.  The pharmacist drew 
their blood in the pharmacy after hours, in the pharmacy parking lot, in his home, or at the 
victims homes. 
Other Administrative Enforcement Actions  Civil Monetary Penalties 
The Office of Inspector General has authority to impose civil monetary penalties (CMPs) against 
providers and suppliers who knowingly submit false claims to the Government, who participate in 
unlawful patient referral or kickback schemes, who fail to appropriately treat or refer patients who 
26
  present at hospital emergency rooms, or who engage in other activities prescribed in statute.  The 
HHS/OIG has stepped up its affirmative enforcement actions under these authorities.  The Lincare 
case discussed previously is one example. Others are:  
'	  University of Medicine and Dentistry of New Jersey (UMDNJ) agreed to pay $2 million 
to resolve its liability under the HHS/OIG Civil Monetary Penalties Law (CMPL) 
provisions applicable to false and fraudulent claims.  The HHS/OIG alleged that UMDNJ 
employed two individuals that UMDNJ knew or should have known had been excluded 
from participation in Federal health care programs.  As part of the agreement, UMDNJ is 
required to submit to the HHS/OIG an annual certification for three years attesting that 
they have in place a policy for screening all current and prospective employees and 
contractors to ensure that they are not excluded. 
'	  After it self-disclosed conduct to the HHS/OIG, Inova Health Care Services d/b/a Inova 
Fair Oaks Hospital (Inova) agreed to pay $714,000 and to enter into a certification of 
compliance agreement to resolve its liability under the CMPL provisions applicable to 
kickback and self-referral law violations. The HHS/OIG alleged that from 1998 to 2004, 
Inova subleased space in one of its medical office buildings to physicians at rental rates 
that were below the fair market value.  In one instance, a physician benefitted 
substantially by not paying rent from 1999 through 2004. 
Studies, Audits, and Evaluations 
The HHS/OIG conducts numerous studies, audits and evaluations that disclose improprieties in 
Medicare and Medicaid, and recommends corrective actions that, when implemented, correct 
program vulnerabilities and save program funds.  Among these were: 
Nursing Home Evacuation Planning and Execution 
'	  The HHS/OIG examined nursing home evacuation planning and executions at the request 
of the Senate Special Committee on Aging after the catastrophes in the gulf states 
precipitated by Hurricanes Katrina and Rita raised concerns about the adequacy of both 
nursing home evacuation plans and of the coordination efforts among facilities and 
State/local authorities. Nursing home residents and their families rely on nursing home 
management to plan for and execute appropriate evacuation procedures during times of 
disaster. Medicare and Medicaid regulations require that participating nursing facilities 
have detailed, written plans to meet all potential emergencies and disasters, and that the 
facilities train their employees in such plans.  This study responds to the Committees 
request and also continues the ongoing work of OIG to monitor the health and safety of 
nursing home residents.  The study assessed whether selected nursing homes, all located 
in the four gulf states affected by recent hurricanes, complied with Federal requirements to 
develop and practice emergency preparedness plans and whether the plans included 
27
  evacuation of residents. The report also examined the extent to which plans were executed 
by facilities that evacuated or considered evacuation during the recent disasters. After 
finding that all of the selected nursing homes experienced difficulty executing their 
emergency preparedness plans, the OIG recommended that CMS consider strengthening 
Federal certification standards for nursing home emergency plans, and consider 
encouraging communication and collaboration between state and local emergency entities 
and nursing homes.  CMS concurred with both recommendations and has improvement 
efforts underway, including the creation of a Survey and Certification Provider  Emergency 
Preparedness Stakeholders Group and implementation of a Survey and Certification 
Provider Emergency Preparedness Regulation and Guidance resource website. 
Upper Payment Limit Calculations 
'	  The HHS/OIG audited four states upper payment limit (UPL) payments to determine 
whether states calculated the UPLs for hospitals and nursing facilities in a manner 
consistent with Federal requirements.  The UPL is based on an estimate of the amount that 
would be paid for Medicaid services under Medicare payment principles.  The HHS/OIG 
found that the Medicaid programs in Alabama, Indiana, Mississippi, and New York did 
not comply with Federal regulations governing the calculation of UPLs, and 
recommended that three of the four states refund a total of $72.2 million in unallowable 
Medicaid payments that resulted from the states errors.  Further, the HHS/OIG 
recommended that two of the states, Alabama and Mississippi, work with CMS to resolve 
an additional $219 million in potential Federal overpayments.  
Medicaid Hospital Outlier Payments 
'	  Some states make outlier payments to hospitals when the cost of treating a Medicaid 
inpatient is extraordinarily high compared with the average cost of treating comparable 
conditions. The HHS/OIG reported on five states methods of computing outlier 
payments:  New York, North Carolina, Ohio, Pennsylvania and Texas. In New York and 
Pennsylvania, the HHS/OIG found that although the states outlier computation 
methodologies were reasonable, they relied on inaccurate or obsolete cost-to-charge 
ratios. In the remaining three states, the HHS/OIG found that the methodologies 
employed did not result in reasonable outlier payments.  The HHS/OIG recommended to 
all five states that they prospectively address the vulnerabilities identified in the audit 
reports. 
Medicaid Targeted Case Management Services 
'	  The Social Security Act authorizes state Medicaid agencies to provide case management 
services to Medicaid beneficiaries. The Act defines case management services as services 
that assist a beneficiary in gaining access to needed medical, social, educational, or other 
services. CMS further defined such services to include assessment of service needs, 
development of care plans, referral to needed services, and monitoring and follow-up. The 
28
  HHS/OIG audited Massachusettss claims for Federal matching for the cost of its 
Medicaid case management services.  It found that the state overstated its claims by, 
among other things, including the cost of direct services, rather than merely case 
management services.  The HHS/OIG recommended that the state refund approximately 
$87 million to the Federal Government, and work with CMS to determine the allowability 
of an additional $26.6 million ($13.5 million Federal share) in potentially improper case 
management claims. 
Medicaid School-Based Services.  The HHS/OIG continued its focus on states claims for 
school-based Medicaid services. The Medicaid program allows Medicaid reimbursement for 
covered health-related services in a school setting. Local education agencies (LEAs) bill the costs 
for these services to the states, which in turn bill them to Medicaid.  The HHS/OIG conducted 
audits on various aspects of school-based claiming practices in New Jersey, Texas and Kansas. 
'	  In New Jersey, the HHS/OIG found that 109 of 150 sampled school-based claims did not 
comply with the Federal and state requirement that eligible school children receive 
speech, physical, and occupational therapy services and nursing services only pursuant to 
a health professionals prescription. The HHS/OIG recommended that New Jersey refund 
to CMS the approximately $51 million in unallowable school-based Medicaid costs. 
In Texas, the HHS/OIG conducted two audits: 
'	  In the first audit, the HHS/OIG found that 991 of 2,175 sampled claims for school-based 
services were unallowable for various reasons, such as missing prescriptions, claims for 
non-reimbursable services, missing individual education plans, failure to meet 
transportation requirements, and others.  As a result, the HHS/OIG recommended that the 
state refund $8.7 million.  
'	  In the second review, the HHS/OIG found that a consortium of Texas LEAs claimed 
Medicaid school-based administrative costs that were not reasonable, allowable, or 
adequately supported. Such costs included unallowable personnel costs, unallowable 
operating costs, and overstated costs. In addition, the consortium incorrectly allocated 
costs and did not offset costs with revenues received from other sources.  The HHS/OIG 
recommended that the state refund the $2.4 million in costs that the HHS/OIG identified 
as unallowable. 
In Kansas, the HHS/OIG conducted three audits: 
'	  In the first audit, the HHS/OIG examined the bundled rate that the state used to both 
reimburse LEAs for the costs of providing school-based services and also to claim such 
costs from the Federal Government.  The HHS/OIG found that the state misapplied the 
states own methodology, which was based on the average cost of providing services over 
29
  a nine-month period (a school year).  Instead, the state calculated the rate based on the 
cost of providing services over a full year. The HHS/OIG recommended that the state 
refund $13.9 million in overpayments. 
'  In the second audit, the HHS/OIG sampled 300 claims for 3 school districts.  Of these, 
217 were unallowable because they were either for services that were not provided or for 
services that required a prescription, but for which there was none. The HHS/OIG 
recommended that the state refund the $5.1 million in claims that were unallowable for 
these reasons. 
'  In the third audit, the HHS/OIG found that the state did not develop the payment rates for 
Medicaid school-based health services pursuant to Federal requirements and the state 
plan. The state used incorrect indirect cost rates and service utilization data to develop the 
payment rates.  Based on these findings, the HHS/OIG recommended that the state refund 
$18.5 million to the Federal Government. 
Medicaid Family Planning Services. The HHS/OIG also continued its oversight of states 
claims for the cost of providing Medicaid family planning services.  Medicaid reimburses the 
costs of family planning services at an enhanced Federal matching rate of 90 percent.  The 
HHS/OIG found that states did not always comply with Federal requirements when claiming 
these costs. 
'	  In Pennsylvania, the HHS/OIG found that the state included in its methodology for 
calculating family planning costs services that were not reimbursable as family planning 
services, such as child birth delivery, as well as family planning services that were 
provided to ineligible beneficiaries. The HHS/OIG recommended that the state refund to 
the Federal Government the resulting $15.1 million in overpayments. 
Medicaid Provider Overpayments 
'	  State Medicaid agencies are required to refund the Federal share of overpayments at the 
end of the 60-day period following the discovery of the overpayment.  The HHS/OIG 
conducted reviews in Florida, New Jersey, and Montana to determine whether the states 
reported Medicaid overpayments in accordance with Federal requirements.  The reviews 
found that the states did not report all overpayments and adjustments of overpayments as 
required. As a result, the HHS/OIG recommended that the states refund $23.8 million to 
the Federal Government. 
Medicaid Disproportionate Share Hospitals. States are required to make Medicaid 
disproportionate share hospital (DSH) payments to hospitals that serve disproportionate numbers 
of low-income patients with special needs.  
30
  '	  In a report summarizing reviews of DSH programs in 10 states (Alabama, California, 
Illinois, Louisiana, Missouri, North Carolina, Ohio, Texas, Virginia, and Washington), the 
HHS/OIG noted that 9 of the 10 states had not complied with the hospital-specific DSH 
limits.  As a result of using historical rather than actual costs and including unallowable 
costs in the DSH calculations, DSH payments exceeded the hospital-specific limits by 
$1.6 billion. Also, three states required hospitals to return DSH payments of $3.6 billion 
to the states through intergovernmental transfers.  Among other things, the HHS/OIG 
recommended that CMS ensure that the monetary recommendations to the states are 
resolved. 
'	  DSH payments to a hospital in New Jersey exceeded the hospital-specific limits by $171.4 
million ($85.7 million Federal share) as a result of including ineligible amounts in the 
DSH calculations and claiming duplicate DSH expenditures.  The HHS/OIG 
recommended that the state refund the $85.7 million to the Federal Government. 
Drug Pricing 
'	  In 2005, Medicare began paying for most Part B drugs using a new methodology based on 
average sales prices. The Act specifies the unit that manufacturers must use when 
submitting average sales price data.  The Act also specifies the way to calculate a 
volume-weighted average sales price for a Medicare payment code based on 
manufacturer-reported average sales price data.  However, CMS opted to change the unit 
of average sales price submission, exercising discretion permitted under the Act.  It was 
therefore necessary for CMS to modify the method for calculating volume-weighted 
average sales prices described in the law. The HHS/OIG found that the method CMS 
currently uses to calculate a volume-weighted average sales price is mathematically 
incorrect. Therefore, CMSs equation may not always yield a volume-weighted average 
sales price that is consistent with the volume-weighted average sales price derived from 
the calculation set forth in the Act. Because CMS calculates volume-weighted average 
sales prices incorrectly, current and future reimbursement amounts may not be accurate. 
The HHS/OIG recommended that CMS change its calculation of volume-weighted 
average sales prices. 
'	  The Act also requires that the HHS/OIG notify the Secretary if the average sales prices for 
a particular drug exceeds the average manufacturer price (AMP) or widely available 
market price by a threshold of 5 percent.  If that threshold is met, the Act grants the 
Secretary authority to disregard the average sales prices and substitute the payment 
amount for the drug with the lesser of the widely available market price (if any) for the 
drug or 103 percent of the available market price.  The HHS/OIG recently completed the 
following three studies that compare average sales prices to AMP and widely available 
market price: 
Medicare Part B Drug Prices: A Comparison of Average Sales Prices to Average 
Manufacturer Prices.  The HHS/OIG found that in the third quarter of 2004, 51 of the 364 
31
  procedure codes (14 percent) included in this review had an average sales price that 
exceeded the AMP by at least 5 percent. If reimbursement amounts for these 51 codes had 
been lowered to 103 percent of the AMP, Medicare expenditures would have been 
reduced by an estimated $164 million in 2005.  
Comparison of Fourth Quarter 2005 Average Sales Prices to Average Manufacturer 
Prices: Impact on Medicare Reimbursement for the Second Quarter of 2006. The 
HHS/OIG found that for 46 of the 341 procedure codes (13 percent) included in this 
review, average sales prices exceeded AMP by at least 5 percent in the fourth quarter of 
2005. Twenty of these codes were identified in the HHS/OIGs previous report as having 
average sales prices that exceeded AMPs by at least 5 percent in the third quarter of 2004. 
If reimbursement amounts for the 46 codes had been based on 103 percent of the AMP, 
the HHS/OIG estimated that Medicare expenditures would have been reduced by $64 
million in 1 year. 
A Comparison of Average Sales Prices to Widely Available Market Prices:  Fourth 
Quarter 2005. For this analysis, the HHS/OIG specifically selected a purposive sample of 
nine procedure codes for which the HHS/OIG suspected that average sales prices might 
exceed widely available market prices by at least 5 percent.  The purposive sample was 
based on the results of the September 2005 HHS/OIG report on adequacy of 
reimbursement for cancer drugs.  The HHS/OIG found that five of the nine procedure 
codes included in this review met or surpassed the 5-percent threshold defined by the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).  For 
these 5 codes, the average sales prices exceeded the widely available market prices by a 
range of 17 to 185 percent. The HHS/OIG estimated that Medicare expenditures would be 
reduced by as much as $67 million in 2006 if reimbursement amounts were lowered to the 
widely available market prices for these five codes. 
'	  The Medicaid drug rebate program requires manufacturers of prescription drugs to 
determine and report the AMP -- generally the average prices paid to the manufacturer by 
wholesalers for drugs distributed to retail pharmacies.  Manufacturers pay rebates to states 
based on AMPs and other factors. The Deficit Reduction Act (DRA) of 2005 changed the 
manner in which drug manufacturers determine the AMP and required that the AMP be 
used in setting Federal upper payment limits for certain drugs under the Medicaid 
program.  The DRA also directed the HHS/OIG to review the requirements for 
determining AMPs, and to make recommendations based on this review.  The HHS/OIG 
found that some AMP requirements were unclear and that manufacturers methods of 
calculating AMPs were inconsistent. The HHS/OIG recommended that the Secretary 
direct CMS to clarify requirements for determining certain aspects of AMPs, consider 
addressing issues raised by industry groups, issue guidance that specifically addresses the 
implementation of the AMP-related reimbursement provisions of the DRA, and encourage 
states to analyze the relationship between the AMP and pharmacy acquisition costs to 
ensure appropriate pharmacy reimbursement. 
32
  Medicare Hospital Wage Data 
'	  Under the acute care hospital inpatient prospective payment system, CMS adjusts the 
Medicare base rate paid to participating hospitals by the wage index applicable to the area 
in which the hospital is located. The wage indexes are based on data that hospitals include 
in their Medicare cost reports. The HHS/OIG conducted numerous audits during FY 2006 
to determine whether hospitals complied with Medicare requirements for reporting wage 
data in their cost reports. The HHS/OIG found errors in the hospitals cost reports that 
reduce the accuracy of future wage indexes. Such errors included the misreporting of 
salaries and hours, contract labor costs and hours, and pension and post-retirement benefit 
costs. In each case, the HHS/OIG recommended that the hospital submit revised cost 
reports. 
Graduate Medical Education for Dental Residents 
'	  The Medicare program makes payments to teaching hospitals to support graduate medical 
education (GME) programs for physicians and other practitioners.  The payments, which 
cover both direct and indirect GME costs, are based in part on the number of full-time 
equivalent (FTE) residents that the hospitals train. Hospitals are permitted to count dental 
residents who train in non-hospital settings in the hospitals calculations of indirect and 
direct GME costs. The HHS/OIG reviewed hospitals in Connecticut, Iowa, Kentucky, 
Massachusetts, Pennsylvania, California, Ohio, Virginia, New York, and Texas to 
determine whether they included the appropriate number of dental residents in their FTE 
counts when computing Medicare GME payments.  All but two of the hospitals audited 
committed errors in the calculations of their FTEs, resulting in total overstatements in 
GME claims of approximately $14 million.  In each case, the HHS/OIG recommended 
that the hospital amend its cost report to return the overpayment and ensure subsequent 
FTE calculations are accurate. 
Industry Outreach and Guidance 
'	  Advisory Opinions. Central to the HIPAA guidance initiatives is an advisory opinion 
process through which parties may obtain binding legal guidance as to whether their 
existing or proposed health care business transactions run afoul of the Federal anti-
kickback statute, the CMP laws, or the exclusion provisions.  During FY 2006, the 
HHS/OIG, in consultation with DOJ, issued 16 advisory opinions. A total of 148 advisory 
opinions have been issued during the first ten years of the HCFAC program. 
'	  Corporate Integrity Agreements. Many health care providers that enter agreements with 
the Government to settle potential liabilities for violations of the FCA also agree to adhere 
to a separate CIA. Under these agreements, the provider commits to establishing a 
33
  program or taking other specified steps to ensure its future compliance with Medicare and 
Medicaid rules. At the close of FY 2006, the HHS/OIG was monitoring more than 390 
CIAs. 
Centers for Medicare & Medicaid Services 
In FY 2006, the Centers for Medicare & Medicaid Services (CMS) was allocated $22.3 million to 
fund a variety of projects related to fraud, waste, and abuse in the Medicare and Medicaid programs. 
CMS has increased its efforts to use advanced technology to detect and prevent fraud and abuse and 
to ensure that CMS pays the right providers, the right amount, for the right service, on behalf of the 
right beneficiary. Projects include: 
Medicaid/State Childrens Health Insurance Plan (SCHIP) Financial Management Project: 
Since FY 2004, CMS hired 100 funding specialists, including accountants and financial analysts, 
who have worked to improve CMSs financial oversight of the Medicaid program.  The primary 
goal for the Medicaid funding specialists during this fiscal year was to reduce cumulative 
questionable reimbursement by 10 percent.  Through the efforts of these specialists, CMS 
identified and resolved $2.9 billion of approximately $8 billion in cumulative questionable costs. 
Furthermore, an estimated $417 million in questionable reimbursement was actually averted due 
to the funding specialists preventive work with states to promote proper state Medicaid financing 
methods prior to implementation.  The funding specialists activities have included reviews of 
proposed Medicaid state plan amendments that relate to reimbursement; development of financial 
management reviews; research regarding state Medicaid financing policy and practices; working 
with states to resolve A-133 audits; and, among other activities, monitoring state revenue 
maximization contracts. 
Payment Error Rate Measurement (PERM): 
PERM is the program that CMS uses to implement the Improper Payments Information Act of 
2002 (IPIA), which requires HHS to measure improper payments in Medicaid and SCHIP.  In 
order to comply with the IPIA, CMS has elected to use Federal contractors to measure Medicaid 
and SCHIP error rates in a subset of states every year. In FY 2006, CMS measured fee-for-
service Medicaid error rates. Beginning in FY 2007, however, the PERM project will expand 
into testing Medicaid and SCHIP fee-for-service, managed care, and eligibility.  
Administration on Aging 
In FY 2006, the Administration on Aging (AoA) was allocated $3.128 million in HCFAC funds 
to support community education activities designed to assist older Americans and their families to 
recognize and report potential errors or fraudulent situations in the Medicare and Medicaid 
programs.  In FY 2006, these efforts included a particular focus on developing and disseminating 
consumer education information targeted to older Americans, with low health literacy, individuals 
from a variety of cultural backgrounds, persons living in rural areas, and other potentially under-
served populations. 
34
  The Senior Medicare Patrol (SMP) program recruits retired professionals to educate and assist 
Medicare beneficiaries to detect and report health care fraud, error, and abuse in the Medicare and 
Medicaid programs.  According to the last performance information from the Assistant Inspector 
General for Evaluation and Inspections, over the 12-month period ending December 31, 2006, the 
57 SMP projects trained over 9,500 new senior volunteers.  These volunteers perform an essential 
function of this program by sharing the SMP message within the senior community. 
Outreach to senior consumers is a key element of the SMP program.  During this period, SMP 
projects conducted over 9,100 media events and held almost 9,000 community education events 
to increase beneficiary awareness about issues related to Medicare and Medicaid integrity. 
During this period, over 200,000 one-on-one sessions were held between volunteers and 
beneficiaries. As a result of SMP outreach and education efforts, over 400,000 beneficiaries were 
educated, either in group or one-on-one sessions. 
As a result of educating beneficiaries, the projects received over 11,800 complaints.  While the 
SMP program staff was able to address the majority of these issues for beneficiaries, over 4,000 
were referred to Medicare contractors or other responsible agencies for follow-up.  Over 2,500 of 
these complaints resulted in money recouped to the Medicare program or another action taken by 
the Medicare contractor or investigative agency. In total, SMP projects documented over 
$700,000 recouped to the Medicare program during this period. 
While it is not possible to directly track all of the cases reported and dollars recovered through 
SMP community education activities, or quantify the sentinel effect in fraud costs avoided due 
to increased consumer awareness, over $105.2 million has been reported as savings attributable to 
the program since its inception.  
Office of the General Counsel  
In FY 2006, The Office of General Counsel (OGC) was allocated $4.778 million in HCFAC 
funding to supplement OGCs efforts to support program integrity activities.  OGC provides legal 
support consistent with the statutory authority of the HCFAC program.  While a considerable 
portion of these funds supported OGCs litigation activity, both administrative and judicial, OGC 
placed an increased focus upon program integrity review this fiscal year.     
FCA and Qui Tam Actions:  OGC provides support to DOJ in actions relating to Medicare or 
Medicaid fraud under the FCA. Among these were Tenet Healthcare Corporation, and Serono 
S.A., as detailed under the Accomplishments section. 
Criminal Prosecutions:  When requested, OGC assists the United States Attorneys Offices 
(USAOs) in criminal prosecution of Medicare providers.  One such case involved an investigation 
of a group of surgeons and the hospital that purchased their surgical practice. One doctor would 
be listed as the lead surgeon on one operation and as assistant on a second operation going on at 
35
  the same time, or a doctor would be shown assisting multiple surgeries that were happening at the 
same time.  Additionally, OGC worked closely to assist Federal prosecutors in the investigation 
of one of the owners of a power mobility supplier.  The owner entered into a criminal plea 
agreement and pled guilty to the violation of health care fraud provisions related to furnishing 
power mobility to Medicare beneficiaries.  
Suspensions and Revocations:  OGC assists HHS in deciding whether to suspend payments to 
Medicare providers and suppliers, or to revoke billing privileges when problems are discovered. 
For example, a licensed respiratory therapist appealed the carrier's determination that he was not 
qualified to enroll as a supplier because respiratory therapists are not included in the list of 
practitioner types that may deliver services to beneficiaries without direct physician supervision. 
After OGC filed CMSs brief supporting the carrier's denial, pointing out lack of Congressional 
authorization, and advanced the arguments at a pre-hearing conference, the individual withdrew 
his appeal. 
Civil Monetary Penalties (CMPs): During FY 2006, OGC provided legal advice to CMS 
regarding the development and imposition of CMPs and defended CMS in administrative appeals 
and judicial litigation resulting from these cases.  OGC recovered over $4 million in CMPs in FY 
2006. Among these, an Administrative Law Judge (ALJ) upheld a $220,600 CMP which 
included a $10,000 per day CMP at the immediate jeopardy level for 22 days, a denial of payment 
for new admissions and the termination of a facility from the Medicare program based on the 
facilitys failure to address the aggressive and destructive behaviors of a number of its residents 
(some of whom had criminal records) and its failure to provide adequate supervision of these 
residents who menaced and threatened to kill other residents.  
In addition, MMAs Part D prescription drug program has created new work for OGC in the area 
of CMPs. For example, OGC defended CMSs imposition of a CMP on Sav-Rx, Inc., a national 
provider of managed care prescription services.  CMS imposed a CMP on Sav-Rx as a result of 
the companys conduct as a prescription drug card program sponsor. 
Other Provider Enforcement:  OGC represented CMS in an enforcement action involving a 
determination to revoke the Arkansas Department of Health Central Laboratory Clinical 
Laboratory Improvement Amendment certificate.  The effect of this revocation was to potentially 
shut down the states central lab and 94 health department clinics around the state.  OGC 
facilitated a creative solution in an attempt to avert such a result by allowing a newly created state 
agency, the Arkansas Department of Health and Human Services, to become the owner and 
operator of the central lab and 94 clinics. 
Affirmative Overpayment Litigation:  OGC defends numerous lawsuits challenging CMSs 
overpayment determinations.  For example, OGC attorneys are engaged in a project involving the 
collection of overpayments against 383 providers who incurred overpayments as a result of 
billing for the cancer drug, Lupron. The total overpayment involved is almost $2.4 million. 
Medicaid Integrity:  OGC provides legal support to CMSs new Medicaid Integrity Program, 
established by the DRA. OGC has been working on a recent HHS/OIG audit finding that $86.6 
36
  million in Federal financial participation has been inappropriately claimed by the Massachusetts 
State Medicaid agency for targeted case management services.  The state agency disagreed with 
the audit finding, and asked CMS to reconsider the matter.  OGC also received favorable decisions 
from the DAB in two appeals by Illinois which upheld over $100 million in disallowances of 
Federal financial participation ($98.6 million in one appeal and $19.9 million in the other appeal) 
regarding Medicaid school-based services. 
Other Program Integrity Activity:   
Advising the Agency on the Physician Self-Referral Law and Electronic Prescribing, Electronic 
Health Records, and Specialty Hospitals. OGC worked closely with CMS and HHS in the drafting 
of a final rule aimed at one of HHS highest priorities:  encouraging adoption of electronic health 
information technology.  CMS proposed two exceptions to the physician self-referral prohibition 
under which certain entities would be permitted to donate to physicians valuable electronic 
prescribing software, equipment, and training services on electronic health records software and 
training services, provided that the arrangements satisfy several criteria designed to prevent fraud 
and abuse. 
Defending regulatory challenges in litigation. A Federal district court has dismissed for lack of 
standing a regulatory challenge brought by Renal Physicians Association regarding a provision in 
the CMS regulations that interprets a physician self-referral (Stark) safe harbor.  Under the safe 
harbor, hourly physician compensation calculated using either of two specified methodologies is 
deemed to be fair market value.  The court ruled that Renal Physicians Association lacked 
standing to sue, and should instead petition CMS to modify or eliminate the safe harbor in the final 
rule. 
Health Resources and Services Administration 
In 2006, the Health Resources and Services Administration allocated $450,320 in HCFAC 
funding to the Healthcare Integrity and Protection Data Bank (HIPDB) to supplement the overall 
operations and maintenance of the program.  The primary focus of the HIPDB is to prevent or 
reduce fraud and abuse in the medical system and to enhance quality health care by serving as a 
repository for collecting, maintaining, and reporting on final adverse actions taken against health 
care providers, suppliers and practitioners. This information helps prevent practitioners, 
providers, and suppliers with problem backgrounds from moving from state to state unnoticed by 
licensing, government and health plan officials, thus improving health care quality.  It also assists 
law enforcement officials in their efforts against health care fraud and abuse. 
As a result of HCFAC funding, the following enhancement was under development in FY 2006 to 
improve the HIPDB system timeliness, availability and performance: 
	  Over the past four years, HRSA has explored the feasibility of providing a Proactive 
Disclosure Service (PDS) to entities eligible to query the data banks. With this service, 
all eligible entities that choose to register their practitioners with the National Practitioner 
Data Bank (NPDB) and/or HIPDB will be notified of new reports that name any of their 
37
  registered practitioners as subjects within one day of the data banks receipt of the report. 
The PDS system is scheduled to be implemented in 2007.  Data bank users were invited to 
participate in the prototype. 
The HIPDB opened for reporting on November 22, 1999.  As of September 30, 2006, the HIPDB 
contained 255,879 reports of health care related civil judgments, criminal convictions, 
injunctions, licensing and certification actions, exclusions from state and Federal health care 
programs, and other adjudicated actions involving 147,499 individuals and 5,939 organizations. 
The HIPDB opened for routine queries on March 6, 2000. By September 30, 2006, the HIPDB 
had responded to 6,194,850 queries from state and Federal agencies (including law enforcement) 
and health plans. Health plans were responsible for 78.4 percent of the queries. 
The HIPDB has processed over 6.5 million queries since 2000 and maintains approximately 
256,000 reports. 
Office of the National Coordinator for Health Information Technology 
In FY 2006, the Office of the National Coordinator for Health Information Technology (ONC) 
was allocated $490,000 in HCFAC funding. This funding was used to fund an anti-fraud project. 
The project included the following four tasks: 
	  Work with Federal agencies, health information technology vendors, health care 
providers, private health insurers, and the National Health Information Network process to 
develop and coordinate model functionalities and requirements for health care anti-fraud 
data collection in electronic health records, and the submission, compilation and analysis 
of such data; 
	  Work with the Health Information Technology Standards Panel to identify existing and 
new standards needed to meet model functionalities and requirements, and develop a plan 
to complete the needed standards; 
	  Work with the Certification Commission for Health Information Technology on 
translating model functionalities and requirements for health care anti-fraud data 
collection and management into electronic health records certification criteria; and 
develop detailed specifications for testing the electronic health records anti-fraud 
certification criteria to enable ONC to pilot test the criteria. 
All of the abovementioned tasks are based upon two reports issued in FY 2005 by the Foundation 
of Research and Education of the American Health Information Management Association which 
detailed how health information technology can address the growing problem of health care fraud, 
and demonstrated the need for additional research on anti-fraud technology and electronic health 
records. 
38
  FUNDING FOR THE DEPARTMENT OF JUSTICE
 
United States Attorneys 
In FY 2006, the United States Attorneys Offices (USAOs) were allocated $30.4 million in 
HCFAC funding to support civil and criminal health care fraud and abuse litigation as 
exemplified in the Program Accomplishments section.  The USAOs dedicated substantial 
resources to combating health care fraud and abuse in FY 2006, and HCFAC allocations have 
supplemented those resources by providing funding for attorneys, paralegals, auditors and 
investigators, as well as funds for litigation of resource-intensive health care fraud cases. 
The 93 United States Attorneys and their assistants, or AUSAs, are the nations principal 
prosecutors of Federal crimes, including health care fraud, and each district has a designated 
Criminal Health Care Fraud Coordinator and a Civil Health Care Fraud Coordinator.  Civil cases 
are also obtained by USAOs by means of qui tam complaints.  Under the FCA, a qui tam plaintiff 
(a relator) must file his or her complaint under seal in a United States District Court, and serve 
a copy of the complaint upon the USAO for that judicial district, as well as the Attorney General. 
In addition to the positions funded by HCFAC, the Executive Office for the United States 
Attorneys Office of Legal Education uses HCFAC funds to train AUSAs and other DOJ 
attorneys, as well as paralegals, investigators, and auditors in the investigation and prosecution of 
health care fraud. In FY 2006, courses and presentations on health care fraud included the Health 
Care Fraud Coordinators Conference for Civil and Criminal AUSAs, Health Care Fraud for new 
AUSAs, and Affirmative Civil Enforcement for Auditors, Investigators and Paralegals.  USAOs 
also handle most criminal and civil appeals at the Federal appellate level. 
Criminal Prosecutions 
In FY 2006, the USAOs received 836 new criminal matters involving 1,448 defendants, and had 
1,677 health care fraud criminal matters pending,7 involving 2,713 defendants. The USAOs filed 
criminal charges in 355 cases involving 579 defendants, and obtained 547 federal health care 
related convictions. 
Civil Matters 
USAOs play a major role in health care fraud enforcement by bringing affirmative civil cases to 
recover funds that federal health care programs have paid as a result of fraud, waste, and abuse. 
USAOs use affirmative civil enforcement litigation to recover monies wrongfully taken from the 
Medicare Trust Fund and other taxpayer-funded health care systems, and to ensure that the  federal 
health care programs are fully compensated for the losses and damages resulting from such thefts. 
Civil AUSAs, similar to their criminal counterparts, litigate a wide variety of health care fraud 
matters including false billings by doctors and other providers of medical services, overcharging 
7When a USAO accepts a criminal referral for consideration, the office opens it as a 
matter pending in the district.  A referral remains a pending matter until an indictment or 
information is filed or it is declined for prosecution. 
39  by hospitals, Medicaid fraud, kickbacks to induce referrals of Medicare or Medicaid patients, 
fraud by pharmaceutical companies, and failure of care allegations against nursing home owners.  
In FY 2006, USAOs opened 698 new civil health care fraud matters and filed 217 new civil 
health care fraud cases. At the end of FY 2006, the USAOs had 1,268 civil health care fraud 
matters and 748 cases pending.  Civil health care fraud referrals are often made to USAOs 
through the law enforcement network described above, and these cases are usually handled 
primarily by the USAOs, though they are sometimes handled jointly with the Civil Division.  The 
other principal source of referrals of civil cases for USAOs is through the filing of qui tam (or 
whistleblower) complaints.  These cases are often handled jointly with trial attorneys within the 
Civil Division, but may be handled by the USAO itself. 
Civil Division 
In FY 2006, the Civil Division was allocated $15.459 million in HCFAC funding to support civil 
health care fraud litigation (this amount includes $1 million allotted for the Nursing Home and 
Elder Justice Initiative). Civil Division attorneys pursue civil and criminal remedies in health 
care fraud matters, working closely with the USAOs, the FBI, the HHS/OIG and the Department 
of Defense, CMS, and other federal and state law enforcement agencies.  Cases involve providers 
of health care services, supplies and equipment, as well as carriers and fiscal intermediaries, that 
defraud Medicare, Medicaid, TRICARE, the Federal Employees Health Benefits Program 
(FEHB), and other government health care programs. 
In FY 2006, the Division opened or filed a total of 239 health care fraud cases or matters.  In 
addition to these new efforts, the Civil Division pursued 680 existing cases or matters that 
remained open at the end of FY 2005.  Civil Division attorneys were actively involved in the 
recoveries described earlier in this report. In addition, the Civil Division provided in-depth, 
multi-day, training to AUSAs nationwide on the FCA and other civil fraud remedies, including 
issues relating to the investigation and litigation of qui tam cases, and continued to provide 
training to DOJ and HHS components on a regular basis. 
Civil Division attorneys litigate a wide range of health care fraud matters, including cases 
involving allegations of overcharging by hospitals, and other Medicare Part A institutional 
providers; similar claims against suppliers of durable medical equipment and other supplies under 
Part B of Medicare; similar allegations involving state Medicaid programs; claims that doctors 
and others have been paid kickbacks or other remuneration to induce referrals of Medicare or 
Medicaid patients, in violation of the Anti-kickback Act and Physician Self-Referral laws; claims 
of false price reporting and illegal marketing of pharmaceuticals and  medical devices by 
companies and related entities; and allegations that nursing homes have failed to provide 
necessary care to the elderly. Among these are multi-district cases involving large health 
providers and suppliers that typically require coordination among affected Federal agencies, 
USAOs, state Medicaid Fraud Control Units and other state agencies, and various investigative 
organizations. 
40
  The Civil Division continues to staff and provide a critical coordination function in the FCA 
investigations alleging pharmaceutical price reporting fraud against government health care 
programs.  These matters involve hundreds of manufacturers and related entities, span multiple 
districts and present myriad legal and factual issues.  Civil Division attorneys have spearheaded 
substantial efforts to share information and evidence, as appropriate, with the USAOs and other 
components of DOJ, as well as HHS components including the Food and Drug Administration. 
In addition, close communication with state Medicaid Fraud Control Units and state attorneys 
general is ongoing to ensure that federal and state investigations and litigation are coordinated. 
Since 1999, cases involving violations of the Food Drug and Cosmetic Act, or other types of 
fraud by pharmaceutical manufacturers in connection with Federal health benefit programs have 
resulted in total criminal and civil recoveries of over $5.3 billion. 
In addition to these accomplishments, the Nursing Home and Elder Justice Initiative, coordinated 
by the Civil Division, among other things, supports enhanced prosecution and coordination at 
federal, state and local levels to fight abuse, neglect, and financial exploitation of the nations 
senior and infirm population.  This initiative makes grants to promote prevention, detection, 
intervention, investigation, and prosecution of elder abuse and neglect, and to improve the scarce 
forensic knowledge in the field. The Civil Division is also pursuing a growing number of cases 
under the FCA involving providers egregious failures of care. 
Civil Division attorneys, working with attorneys in the Criminal Division and the Executive 
Office of United States Attorneys (EOUSA), have played a critical role in coordinating and 
presenting the views of the Department of Justice to the Department of Health and Human 
Services as the two Departments coordinate their respective health care fraud enforcement efforts. 
Civil Division attorneys assisted CMS as it implemented its Medicaid Integrity Program that was 
created by the DRA. Civil Division attorneys also assisted in enhanced Federal Medicaid fraud 
enforcement efforts, providing assistance in the planning and implementation of a training 
conference sponsored by the HHS/OIG and held at the National Advocacy Center in September, 
2006. 
Criminal Division 
The Criminal Division was allocated $1.58 million in HCFAC funding to support criminal health 
care fraud litigation, prevention and interagency coordination in FY 2006.  The Criminal 
Divisions Fraud Section develops and implements white collar crime policy, and supports the 
Federal white collar crime enforcement community through litigation, coordination, policy and 
legislative work. The Fraud Section is responsible for handling and coordinating complex health 
care fraud litigation nationwide. The Fraud Section also supports the USAOs with legal and 
investigative guidance, training, and, in certain instances, provides trial attorneys to prosecute 
criminal health care fraud cases. 
  
In FY 2006, the Fraud Section provided guidance to FBI agents, AUSAs and Criminal Division 
attorneys on criminal, civil and administrative tools to combat health care fraud, and worked on 
an interagency level through the following activities: 
41
  	  coordinating large scale multi-district health care fraud investigations; 
	  providing frequent advice and written materials on confidentiality and disclosure issues 
arising in the course of investigations and legal proceedings regarding patient medical 
records, including HIPAA medical privacy requirements, compliance with the Substance 
Abuse Patient Medical Records Privacy Act and regulations, and coordinating referrals 
from the HHS Office of Civil Rights of possible criminal violations of the HIPAA privacy 
statute; 
	  providing training and training materials for AUSAs, investigative agents, support staff, 
program agency officials, and state and local law enforcement on health care fraud 
enforcement and medical records privacy issues; 
	  monitoring and coordinating DOJ responses to legislative proposals, major regulatory 
initiatives, and enforcement policy matters related to prevention, deterrence and 
punishment of health care fraud and abuse; 
	  reviewing and commenting on health care provider requests to the HHS/OIG for advisory 
opinions, and consulting with the HHS/OIG on draft advisory opinions per HIPAA 
requirements; 
	  working with USAOs and CMS to improve Medicare contractors fraud detection, 
referrals to law enforcement for investigation, and case development work; 
	  preparing and distributing to all USAOs and FBI field offices periodic summaries of 
recent and significant health care fraud cases; and 
	  organizing, overseeing and participating on interagency working groups formed to address 
specific cases and initiatives, often in conjunction with the Civil Division and Executive 
Office for United States Attorneys. 
In FY 2006, Fraud Section attorneys and the USAO from the Eastern District of Louisiana filed a 
superseding indictment of four corporate executives in a case involving the collapse of 
Louisianas third largest health maintenance organization and its subsequent takeover and 
liquidation by the state Department of Insurance. The USAO for the Southern District of Florida 
and Fraud Section attorneys also indicted five defendants who were involved in a scheme to 
defraud Medicare by submitting prescriptions for groups of Medicare beneficiaries who were paid 
kickbacks by certain pharmacies to allow the fraudulent billing of aerosol medicines.  These cases 
are scheduled to go to trial in 2007. 
Along with the USAO for the Southern District of Mississippi, Fraud Section attorneys also 
prosecuted seven individuals who participated in a scheme to create bogus prescription histories 
and file fraudulent claims against a $400 million settlement fund established by the manufacturer 
of the diet drugs Redux and Pondimin, commonly known as Fen-Phen, for medical injuries 
42
  caused by the inappropriate prescription of these products. As of September 30, 2006, a total of 
25 defendants were convicted in this multi-year ongoing joint investigation. 
Fraud Section staff, along with criminal and civil AUSAs, trained CMS regional and central 
office staff hired to administer the Medicare prescription drug (Part D) benefit and monitor the 
Prescription Drug Plans and Medicare Advantage Prescription Drug Plans on Federal health care 
fraud statutes and possible fraud schemes which could occur in the Medicare Part D program. 
The team of Fraud Section staff and AUSAs also conducted two national training seminars for 
CMS Medicare Drug Integrity Contractor (MEDICs) staff hired to conduct program integrity and 
anti-fraud work for the Part D program.  In collaboration with the Civil Division, the Fraud 
Section co-sponsored a national training and coordination seminar for AUSAs and DOJ attorneys 
focused on pharmaceutical fraud matters and Food, Drug, and Cosmetic Act violations. 
The Fraud Section, along with the Civil Division and EOUSA, prepared and broadcast three 
HIPAA medical privacy rule national training seminars from the National Advocacy Center over 
the Justice Television Network for: all DOJ personnel who obtain and use medical records; all 
Federal health oversight investigators and prosecutors; and a final program for all general state 
and law enforcement personnel which was co-broadcast on the new National District Attorneys 
Association training network. In conjunction with HIPAA medical privacy broadcast, Fraud 
Section staff distributed written training materials and laminated reference cards summarizing and 
explaining the specific HIPAA law enforcement and Federal Privacy Act exceptions that permit 
disclosure of personally identifiable health information in certain circumstances to criminal 
investigators and police to over 16,000 state and local law enforcement agencies nationwide.  The 
Fraud Section also responded to hundreds of follow-up questions and requests from local law 
enforcement agencies for additional guidance on HIPAA. 
Civil Rights Division 
In FY 2006, the Civil Rights Division was allocated $1.98 million in HCFAC funding to support 
Civil Rights Division litigation activities related to health care fraud and abuse.  The Civil Rights 
Division pursues relief affecting public, residential health care facilities.  The Division has also 
established an initiative to eliminate abuse and grossly substandard care in public, Medicare and 
Medicaid funded nursing homes and other long-term care facilities. 
The Division plays a critical role in the HCFAC Program.  The Special Litigation Section of the 
Civil Rights Division is the sole DOJ component responsible for the Civil Rights of 
Institutionalized Persons Act, 42 U.S.C.  1997 (CRIPA).  CRIPA authorizes the investigation of 
conditions of confinement at state and local residential institutions (including facilities for 
persons with developmental disabilities or mental illness, and nursing homes) and initiation of 
civil action for injunctive relief to remedy a pattern or practice of violations of the Constitution or 
Federal statutory rights. The review of conditions in facilities for persons who have mental 
illness, facilities for persons with developmental disabilities, and nursing homes comprises a 
significant portion of the program.  The Special Litigation Section works collaboratively with the 
USAOs and HHS. 
43
  Fiscal Year 2006 Accomplishments 
As part of DOJs Institutional Health Care Abuse and Neglect Initiative, and as an enhancement 
to ongoing CRIPA enforcement efforts, the Special Litigation Section staff conducted preliminary 
reviews of conditions and services at 29 health care facilities in twelve states during Fiscal Year 
2006. The task in preliminary inquiries is to determine whether there is sufficient information 
supporting allegations of unlawful conditions to warrant formal investigation under CRIPA.  The 
section reviews information pertaining to areas such as abuse and neglect, medical and mental 
health care, use of restraints, fire and environmental safety, and placement in the most integrated 
setting appropriate to individual needs.  Separately, in Fiscal Year 2006, the Section opened or 
continued formal investigations, entered remedial agreements, or monitored existing remedial 
agreements regarding 45 health care facilities in 23 states, the District of Columbia, and the 
Commonwealth of Puerto Rico.  
In Fiscal Year 2006, the Section commenced investigations of two state-operated facilities for 
persons with mental illness and one publicly-operated nursing home.  Those facilities are 
Connecticut Valley Hospital, in Middletown, Connecticut, Oregon State Hospital, in Salem and 
Portland, Oregon, and C.M. Tucker, Jr. Nursing Care Center, in Columbia, South Carolina. 
The Section found that conditions and practices at two state-operated facilities and one city-
operated facility for persons with mental illness, one state-operated facility for persons with 
developmental disabilities, and one publicly-operated nursing home, violate the residents' Federal 
constitutional and statutory rights. Those facilities are:  Atascadero State Hospital, in Atascadero, 
California, Patton State Hospital, in Patton, California, St. Elizabeths Hospital, in Washington, 
D.C., Lanterman Developmental Center, in Pomona, California, and Fort Bayard Medical Center, 
in Fort Bayard, New Mexico. 
The Section entered settlement agreements to resolve its investigations of one publicly-operated 
nursing home, two state-operated facilities for persons with developmental disabilities, and nine 
state-operated facilities for persons with mental illness.  Those facilities are:  A Holly Patterson 
Extended Care Facility, in Uniondale, New York; Woodbridge Developmental Center, in 
Woodbridge, New Jersey; the Communities at Oakwood, in Somerset, Kentucky; Vermont State 
Hospital, in Waterbury, Vermont; Dorothea Dix Hospital, in Raleigh, North Carolina; Broughton 
Hospital, in Morganton, North Carolina; Cherry Hospital, in Goldsboro, North Carolina; John 
Umstead Hospital, in Butler, North Carolina; Metropolitan State Hospital, in Norwalk, California; 
Napa State Hospital, in Napa, California; Atascadero State Hospital, in Atascadero, California; 
and Patton State Hospital, in Patton, California. 
The Section continued its investigations of eight residential facilities for persons with 
developmental disabilities:  Agnews Developmental Center, in San Jose, California; Sonoma 
Developmental Center, in Eldridge, California; Lanterman Developmental Center, in Pomona, 
44
  California; Rainier Residential Rehabilitation Center, in Buckley, Washington; Frances Haddon 
Morgan Center, in Lacey, Washington; Conway Developmental Center, in Conway, Arkansas; 
Lubbock State School, in Lubbock, Texas; and Bellefontaine Developmental Center, in St. Louis, 
Missouri. In addition, the Section continued its investigations of two publicly-operated nursing 
homes:  Charlotte Hall Veterans Home, in Charlotte Hall, Maryland; and the Laguna Honda 
Hospital and Rehabilitation Center in San Francisco, California.  The Section also continued its 
investigation of one residential facility for persons with mental illness:  St. Elizabeths Hospital in 
the District of Columbia.  In some of these matters, the Section is reviewing voluntary 
compliance to improve conditions. 
The Section monitored the implementation of remedial agreements for 13 facilities for persons 
with developmental disabilities:  Fort Wayne State Developmental Center, in Fort Wayne, 
Indiana; Central Wisconsin Center, in Madison, Wisconsin; Southern Wisconsin Center, in Union 
Grove, Wisconsin; Pinecrest Developmental Center, in Pinecrest, Louisiana; Hammond 
Developmental Center, in Hammond, Louisiana; Clover Bottom Developmental Center, in 
Nashville, Tennessee; Greene Valley Developmental Center, in Greeneville, Tennessee; Harold 
Jordan Center, in Nashville, Tennessee; Arlington Developmental Center, in Arlington, 
Tennessee; New Lisbon Developmental Center, in New Lisbon, New Jersey; Southbury Training 
School, in Southbury, Connecticut; Woodward Resource Center, in Woodward, Iowa; and 
Glenwood Resource Center, in Glenwood, Iowa. It also monitored the implementation of 
remedial agreements regarding community placements from facilities for persons with 
developmental disabilities in Indiana, Puerto Rico, and Washington, D.C. 
The Section monitored the implementation of remedial agreements for four nursing homes: 
Banks-Jackson-Commerce Medical Center and Nursing Home, in Commerce, Georgia; Nim 
Henson Geriatric Center, in Jackson, Kentucky; Reginald P. White Nursing Facility, in Meridian, 
Mississippi; and Mercer County Geriatric Center, in Trenton, New Jersey.  The Section also 
monitored the implementation of a remedial agreement regarding two state-operated residential 
facilities for persons with mental illness:  Hawaii State Hospital in Kanehoe, Hawaii (and the 
associated community mental health system) and Memphis Mental Health Institute, in Memphis, 
Tennessee. Finally, the Section monitored the implementation of a remedial agreement regarding 
one residential facility for children with visual disabilities: New Mexico School for the Visually 
Handicapped, in Alamogordo, New Mexico. 
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46  APPENDIX
 
Federal Bureau of Investigation
 
Mandatory Funding
 
There are hereby appropriated from the general fund of the United States Treasury and 
hereby appropriated to the Account for transfer to the Federal Bureau of Investigation to 
carry out the purpose described in subparagraph , to be available without further 
appropriation - (I) for fiscal year 2006, $114,100,000. 
In FY 2006, the FBI was allocated $114 million in HCFAC funding for health care fraud 
enforcement.  This yearly appropriation was used to support 775 positions (455 Agent, 320 
Support) in FY 2006, a decrease of 31 positions from the positions supported in FY 2005 (11 
Agent, 20 Support). The FY 2006 funding did not allow for cost of living increases, necessitating 
reductions in funded staffing levels. The number of pending investigations has shown steady 
increase from 591 cases in 1992 to 2,423 cases through 2006.  FBI-led investigations resulted in 
535 criminal health care fraud convictions and 588 indictments and informations being filed in 
FY 2006. 
The FBI is the primary investigative agency involved in the fight against health care fraud that 
has jurisdiction over both the Federal and private insurance programs.  With health care 
expenditures rising at three times the rate of inflation, it is especially important to coordinate all 
investigative efforts to combat fraud within the health care system.  More than $1 trillion is spent 
in the private sector on health care and its related services and the FBI's efforts are crucial to the 
overall success of the program.  The FBI leverages its resources in both the private and public 
arenas through investigative partnerships with agencies such as the HHS/OIG, the FDA, the Drug 
Enforcement Administration (DEA), the Defense Criminal Investigative Service, the Office of 
Personnel Management, the Internal Revenue Service and various state and local agencies.  On 
the private side, the FBI is actively involved with national groups, such as the National Health 
Care Anti-Fraud Association (NHCAA), the Blue Cross and Blue Shield Association and the 
National Insurance Crime Bureau, as well as many other professional and fundamental efforts to 
expose and investigate fraud within the system.  
Health care fraud investigations are considered a priority within the White Collar Crime Program 
Plan. In addition to being a partner in the majority of investigations listed in the body of this 
report, FBI field offices throughout the U.S. have proactively addressed significant health care 
fraud through coordinated initiatives, task forces, and undercover operations to identify and 
pursue investigations against the most egregious offenders which may include organized criminal 
activity and criminal enterprises.  Organized criminal activity has been identified in the operation 
of medical clinics, independent diagnostic testing facilities, DME companies and other health care 
47
  facilities. The FBI is committed to addressing this criminal activity through disruption, 
dismantlement and prosecution of criminal organizations. 
The FBI initiated the Internet Pharmacy Fraud Initiative which focuses on Internet web sites and 
individuals selling illegal prescription drugs and controlled substances. The overall goal of the 
Internet Pharmacy Fraud Initiative is to identify fraudulent Internet pharmacies and target 
physicians who are willing to write prescriptions for financial gain outside of the doctor/patient 
relationship and with no legitimate medical purpose.  Also in the scope of this initiative are 
investigations involving the sale of counterfeit and diverted pharmaceuticals on the Internet.  
The majority of funding received by the FBI is used to pay personnel costs associated with the 
775 funded positions. Funds not used directly for personnel matters are used to provide 
operational support for major health care fraud investigations and national initiatives currently 
focusing on pharmaceutical fraud and outpatient surgery centers.  Further, the FBI continues to 
support individual investigative needs such as the purchase of specialized equipment and expert 
witness testimony on an as-needed basis. 
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  Glossary Of Terms 

The Account - The Health Care Fraud and Abuse Control Account 
AHM - American Healthcare Management Inc. 
AIDS - Auto-Immune Deficiency Syndrome 
AoA - Department of Health and Human Services, Administration on Aging 
AMP - Average Manufacturer Prices 
AUSA - Assistant United States Attorney 
BIA - Bioelectrical Impedance Analysis 
CIA - Corporate Integrity Agreement 
CMN - Certificate of Medical Necessity 
CMP - Civil Monetary Penalty 
CMPL - Civil Monetary Penalties Law, 42 U.S.C.  1320a-7a 
CMS - Department of Health and Human Services, Centers for Medicare & Medicaid Services    
CRIPA - Civil Rights of Institutionalized Persons Act 
DME - Durable Medical Equipment 
DRA - Deficit Reduction Act of 2005 
DOJ - The Department of Justice 
DSH - Disproportionate Share Hospital 
EOUSA - Executive Office for the United States Attorneys 
FBI - Federal Bureau of Investigation 
FCA - False Claims Act 
FDA - Food and Drug Administration 
FEHBP - Federal Employees Health Benefits Program 
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  FTE-Full-time equivalent 
GHP - Group Health Plan 
GME - Graduate Medical Education 
GPO - Group Purchasing Organization 
HCFAC - -Health Care Fraud and Abuse Control Program or the Program 
HHS - The Department of Health and Human Services 
HHS/OIG - The Department of Health and Human Services - Office of the Inspector General 
HI - Hospital Insurance Trust Fund 
HIPAA, or the Act - The Health Insurance Portability and Accountability Act of 1996, P.L. 104-191 
HIPDB - Healthcare Integrity and Protection Data Bank 
HIV - Human Immunodeficiency Virus 
HMO - Health Maintenance Organization 
HRSA - The Department of Health and Humans Services - Health Resources and Services Administration 
LEA - Local Education Agencies 
MMA - Medicare Prescription Drug, Improvement and Modernization Act of 2003 
MSP - Medicare Secondary Payer 
NAMFCU - The National Association of Medical Fraud Control Units 
NHCAA - National Health Care Anti-Fraud Association 
OGC - The Department of Health and Human Services, Office of the General Counsel 
ONC - The Department of Health and Human Services - Office of the National Coordinator for Health Information 
Technology 
PERM - Program Error Rate Measurement 
Proactive Disclosure Service - PDS 
The Program - The Health Care Fraud and Abuse Control Program 
SCHIP - State Childrens Health Insurance Plan 
50
  Secretary - The Secretary of the Department of Health and Human Services 
SMP - Senior Medicare Patrol 
UPL - Upper Payment Limit 
USAO - United States Attorneys Office 
VFC - Vaccines for Children Program 
51