DEFICIT REDUCTION ACT OF 2005 REPORT TO CONGRESS
FOR FISCAL YEAR 2007
DEPARTMENT OF HEALTH AND HUMAN SERVICES
OFFICE OF INSPECTOR GENERAL
Table of Contents
Section Title Page
Introduction
1 1
2 Overview ofOIG
1
3 Summary ofDRA Provisions That Affect OIG 4
4 the Medicaid Program During FY 2007 6
OIG Oversight of 
5 Medicaid Oversight in FY 2008 and Beyond 20
6 Conclusion 21
Appendix A .FY 2007 Medicaid Audit and Evaluation of  Reports Issued
Appendix B Medicaid Work Planned for FY 2008
Appendix C Acronyms and Abbreviations
Deficit Reduction Act of 2005 Report to Congress for FY 2007 SECTION 1: INTRODUCTION
Health and Human Services (HHS), Office ofInspector
This report fulfills the Department of 
funds provided
General's (OIG), statutory requirement to report on the use and effectiveness of 
the Deficit Reduction Act of2005 (DRA), P.L. 109-171. Specifically,
through section 6034 of 
this report summarizes OIG's Medicaid-related oversight activities during fiscal year (FY) 2007.
Medicaid integrty work that OIG anticipates
In addition, this report includes an overview of 
undertaking during FY 2008.
SECTION 2: OVERVIEW OF OIG
Organization of OIG
The mission ofOIG, as mandated by P.L. 95-452 (as amended), is to protect the integrity of
those program's. OIG
HHS programs, as well as the health and welfare of  the beneficiaries of 
has a responsibility to report both to the Secretary and to Congress program and management
problems and recommendations to correct them. OIG accomplishes its statutory responsibilities
through audits; evaluations; investigations; legal services; and when appropriate, criminal and
civil enforcement actions, as well as administrative sanctions. OIG is organized into five
component offices to carr out these activities.
 Offce of Audit Servzces (OAS). OAS conducts financial and performance audits
of departmental programs, operations, grantees, and contractors following
Government Auditing Standards issued by the Governent Accountability
Offce (GAO). Financial audits principally provide reasonable assurance about
whether financial statements are presented fairly in all material respects;
performance audits assess the achievement of objectives and identify the
presence of systemic weaknesses giving rise to waste, fraud, or abuse.
Recommendations address problems, such as improper payments and inefficient
and ineffective use of resources. OAS performs audits or oversees the audit
work of others through a nationwide network of auditors, information
experts, and other professionals.
technology 
 Offce of Evaluation and Inspections (OEI). OEI conducts national evaluations
to provide HHS, Congress, and the public with timely, useful, and reliable
information on significant issues. These evaluations, conducted by a nationwide
staff of evaluators and other professionals, focus on preventing fraud, waste, or
abuse and promoting economy, efficiency, and effectiveness of departmental
programs. To promote impact, OEI reports also present practical
recommendations for improving program operations.
 Offce ofInvestzgations (01). 01 conducts and coordinates investigations of
fraud and misconduct related to the Department's programs, operations, and
beneficiaries. With investigators working in all 50 States, 01 leverages its
Deficit Reduction Act of2005 Report to Congress for FY 2007 resources by actively coordinating with the Department of Justice (DOJ) and
other law enforcement authorities. 01 identifies systemic weaknesses that leave
Department programs vulnerable to fraud and recovers damages and penalties
through civil and administrative proceedings.
Counsel to the Inspector General (OCIG). OCIG provides general legal
 Offce of 
services to OIG, rendering advice and opinions on HHS programs and operations and
providing all legal support for OIG's internal operations. OCIG represents OIG in all
civil and administrative fraud and abuse cases involving HHS programs, including False
Claims Act (FCA), program exclusion, and civil monetary penalty cases. In connection
with these cases, OCIG also negotiates and monitors corporate integrity agreements.
OCIG renders advisory opinions, issues compliance program guidance, publishes fraud
alerts, and provides other guidance to the health care industry concerning the anti-
kickback statute and other OIG enforcement authorities.
 Offce of Management and Policy (OMP). OMP provides mission support services to the
Inspector General (IG) and OIG components by formulating and executing the budget,
issuing grants to State Medicaid Fraud Control Units (MFCU), developing administrative
publications, and managing
policies, disseminating OIG information in the form of 
information technology and human resources. OMP also executes and maintains an
internal quality assurance system, which includes quality control reviews of OMP
processes and products, to ensure that OIG policies and procedures are followed
effectively and function as intended.
OIG accomplishes its mission through a nationwide network of offces, including headquarters in
Washington, DC, and approximately 90 regional and field offces. In total, more than 80 percent
ofOIG resources are deployed to regional and field offices.
Divisions,
OIG staff at all locations work closely with the Department, its Operating and Staff 
the DOJ and other agencies in the Executive Branch, Congress, and the States to bring about
funds.
systemic changes, successful prosecutions, negotiated settlements, and recovery of 
OIG Budget
The funding that supports OIG's oversight activities is divided among a single discretionary
budget authority and multiple mandatory authorities. OIG's discretionary funding is used for
oversight of all HHS programs and offces except for Medicare, Medicaid, and the State
Children's Health Insurance Program (SCHIP), which are funded separately under the Health
Care Fraud and Abuse Control Program (HCF AC) and the Medicaid Integrity Program (MIP).
health
Following are summaries of  the two Acts that provide OIG with funding for oversight of 
care and, in particular, of the Medicaid program.
 Heath Care Fraud and Abuse Control Program. The Health Insurance Portability and
Accountability Act of 1996 (HIP AA), P.L. i 04-191) established a Health Care Fraud and
the Attorney General and the
Abuse Control Program (HCF AC) under the joint direction of 
Secretary ofHHS, acting through the HHS Inspector General (IG). The HIPAA appropriates
Deficit Reduction Act of 2005 Report to Congress for FY 2007
2 monies from the Medicare Trust Fund in amounts that the Secretary of HHS and Attorney
General jointly certify as necessary to finance antifraud activities, up to ceilings fixed by this
these funds are, by law, set aside for OIG "activities. . . with respect
legislation. Certain of 
to Medicare and Medicaid."! The HIP AA also requires the Attorney General and the
Secrerary of HHS to submit a joint annual report to Congress identifying expenditures and
accomplishments under the law (Social Security Act  1817(k)(5)). These reports are
both agencies at htto://oig.hhs.gov/reading/vublications.html
available on the Web sites of 
and httv:l/www.usdo;.gov/dag/pubdoc.html. respectively. Since FY 1997, the HCFAC has
been the primary source of funding for health care fraud investigations and prosecutions by
both OIG and DOJ.
 Medicaid Integrity Program. The DRA established the MIP through which OIG receives
enhanced funding for fraud and abuse control "activities with respect to the Medicaid
program" (42 U.S.C.  1396(c)). This funding is to be provided annually from FY 2006
though FY 2010 in addition to OIG's HCFAC resources and is available until expended.
its future
Table 1 presents a summary ofOIG's recent funding history and current estimates of 
funding commitment for Medicaid oversight.
Table 1: Summary ofOIG's Financial Expenditures
Related to Medicaid for Health Care Oversight, FY 2005 - FY 2009
(Dollars in Thousands)
2005 ' $160,000 $36,800 $36,800 23
2006 $160,000 $25,000 $44,800 $44,800 28
2007 $165,920 $25,000 $24,643 $24,858 $49,501 26
2008 $169,238 $25,000 $30,544 $28,283 $57,827 30
2009 $174,998 $25,000 $27,578 $27,578 $55,156 27
As illustrated in Table 1, a sizeable portion ofOIG's HCFAC funds has been used for Medicaid
oversight in recent years. As OIG continues spending its MIP funding in FYs 2008 and 2009, it
can enhance the depth and scope of its Medicaid integrty work.
1 The Social Security Act,  i 8 i 7(k)(3)(A).
2 FY s 2008 and 2009 are estimated as percentages of the combined HIP AAHCF AC and DRAMIP funding
streams.
3 OIG began FY 2007 with $25 million of  unspent MIP funds that were appropriated during FY 2006. These funds
are being used to fund OIG's continued Medicaid oversight from FY 2007 through FY 2010.
Deficit Reduction Act of 2005 Report to Congress for FY 2007 3 Because there is an overlap among the activities funded by the HCF AC and MIP sources, OIG
work activities relating to Medicaid may draw on funding from both sources. For investigations
and subsequent prosecutions, it is particularly difficult-sometimes impossible-to accurately
segregate HCFAC- and MIP-funded Medicaid enforcement activities. For example, even ifOIG
that
conducts a given investigation exclusively with MIP funds, the subsequent prosecution of 
case could draw upon DOl's own HCFAC money, and the matter would be reportable in both
the annual HCF AC and DRA reports. An overlap could also occur when an investigation
involves fraud in both Medicaid and other Federal health care programs, such as Medicare, as is
often the case. For these reasons, this report does not artificially divide accomplishments
between the two funding sources; OIG's successes are typically the result ofthe combined
funding from both resources.
In addition, much ofOIG's audit, evaluation, and investigation work requires more than 1 year to
yield results. As a consequence, many of the accomplishments summarized in this report reflect
the results ofOIG work performed over several years that culminated in FY 2007.
SECTION 3: SUMMARY OF DRA PROVISIONS THAT AFFECT OIG
the DRA include provisions that require OIG to conduct
Sections 6001, 6031, and 6034 of 
mandatory activities, as well as annual reporting on overall Medicaid activities. These sections
are summarized below.
. Section 6001: Federal Upper Payment Limitfor Multiple Source Drugs and Other Drug
Payment Provisions. This section requires OIG to, by no later than June 1, 2006, (1) review
the requirements for, and manner in which, average manufacturer prices (AMP) are
determined under section 1927 of the Social Security Act and (2) submit to the Secretary of
HHS and Congress recommendations for changes in such requirements or manner as the IG
determines to be appropriate.
On May 30, 2006, OIG issued a report entitled "Determining Average Manufacturer Prices
for Prescription Drugs Under the Deficit Reduction Act of2005" (A-06-06-00063), which
fulfilled this statutory requirement. In this report, OIG found that some AMP requirements
were unclear and that manufacturers' methods of calculating AMPs were inconsistent. OIG
recommended that the Secretary direct the Centers for Medicare and Medicaid Services
(CMS), in promulgating the AMP regulation, to clarify requirements in regard to the
definition of retail class of trade and the treatment of pharmacy benefit manager rebates and
Medicaid sales, and to consider addressing issues raised by industry groups. OIG also
recommended that the Secretary direct CMS to issue guidance that specifically addresses the
the DRA and to encourage
implementation of  the AMP-related reimbursement provisions of 
cost before using
States to analyze the relationship between AMP and pharmacy acquisition 
AMP for their reimbursement methodology. During FY 2007, OIG continued to address
topics related to the Federal upper payment limit for multiple source drugs and other drug
payment provisions by issuing an evaluation report in June 2007 entitled "Deficit Reduction
Act of2005: Impact on the Medicaid Federal Upper Limit Program" (OEI-03-06-00400).
Deficit Reduction Act of 2005 Report to Congress for FY 2007 4  Section 6031: Encouraging the Enactment o.lState False Claims Acts (Fc""). Effective
January 1, 2007, this section provides a financial incentive for States to enact FCAs that
false or fraudulent claims to the State's
establish liability to the State for the submission of 
Medicaid program. Ifa State's FCA is determined to meet certain enumerated requirements,
Medicaid recoveries under the State FCA wil be reduced by
the Federal share of 
10 percentage points.
Specifically, for a State to be eligible for the 1 O-percentage point increase in its share of false
claims recoveries, the State law relating to false and fraudulent claims must be determined by
OIG, in consultation with the Attorney General, to meet the following criteria: (1) establish
liability to the State for false or fraudulent claims described in the FCA with respect to
Medicaid expenditures, (2) contain provisions that are at least as effective in rewarding and
facilitating qui tam actions as those in the FCA, (3) contain a requirement for filing an action
under seal for 60 days with review by the State Attorney General, and (4) contain a civil
penalty that is not less than the amount authorized by the FCA.
On August 21,2006, OIG published in the Federal Register (71 FR 48552) its guidelines for
the DRA. This notice was
evaluating State FCAs under the requirements of  section 6031 of 
developed in consultation with DOl's Civil Division. In the notice, OIG invited the States to
the Federal Register notice, OIG has
request review of  their FCAs. Since the publication of 
received requests from 20 States to review both existing and proposed State laws.
the
As of  February 2008, OIG had provided written responses to 13 States and approved 8 of 
State laws-those passed by Massachusetts, Ilinois, Tennessee, Virginia, Hawaii, Texas,
Nevada, and New York-for the DRA incentive. OIG made these determinations in
consultation with DOl's Civil Division. The response letters are published on OIG's Web
site at http://www.oig.hhs.gov.
. Section 6034: Medicaid Integrity Program. This section establishes the MIP and requires
the Secretary to enhance the capacity of CMS to conduct oversight of Medicaid expenditures.
The program's activities include: review of the actions of individuals or entities furnishing
items or services for which a Medicaid payment may be made, audit of claims for payment
for items or services furnished or for administrative services rendered, and education of
service providers, managed care entities, beneficiaries, and other individuals with respect to
payment integrty and quality of care. The section further establishes that, from FY 2006
through FY 2010, $25 million shall be appropriated to OIG for the Medicaid activities of
OIG in addition to any other amounts appropriated or made available for Medicaid oversight.
the DRA also requires
Such funds shall remain available until expended. This section of 
the use of such
OIG to submit to Congress a report that identifies the use and effectiveness of 
funds no later than 180 days after the end of each fiscal year.
Deficit Reduction Act of2005 Report to Congress for FY 2007 5 SECTION 4: OIG OVERSIGHT OF THE MEDICAID PROGRAM DURING FY 2007
This section of the report includes information on the Medicaid oversight activities conducted by
OIG during FY 2007. Many ofthe Medicaid enforcement actions and collections cited in this
report wil also be included in the total figures set forth in OIG's annual MFCU report, as well as
the OIG Semiannual and the joint OIG-DOJ annual HCF AC reports. These documents are
available on OIG's Web site at http://www.oig.hhs.gov/publications.htmL.
Audit and Evaluation Reports
During FY 2007, OIG issued 48 audits and 14 evaluations that were related specifically to
the health care sectors that these audits and
Medicaid. Table 2 provides a summary of 
evaluations addressed.
Table 2: OIG's Medicaid Audit and Evaluation
Reports Issued in FY 2007
Medicaid Administration 18
Medicaid Services (i.e., not otherwise listed) 11
Medicaid Information Systems Controls 8
Medicaid Long-Term and Community Care 6
Medicaid Hospitals 6
Medicaid/SCHIP 5
Medicaid Prescription Drugs 5
Medicaid Hurrcane Response 2
Medicaid Mental Health Services
1
Total 62
the Medicaid program in FY 2007, OIG questioned
As a result of  these audits and evaluations of 
$460 million in costs and identified $630 milion in funds that could be put to better use.
Furthermore, management action on OIG recommendations resulted in audit disallowances of
$1.2 billon.
this
A list ofOIG's audit and evaluation reports issued in FY 2007 is contained in Appendix A of 
document. The complete text of all reports, excluding the Medicaid Information Systems
controls reports, which are considered sensitive, can be accessed through the "Reports" section
the findings
ofOIG's Web site at http://www.oig.hhs.gov/reports. Below are highlights of 
contained in several of these Medicaid reports.
. Medicaid Eligibilty. OIG determined that from January 1 through June 30, 2005, two States
beneficiaries who did not
(New York and California) made Medicaid payments on behalf of 
Deficit Reduction Act of 2005 Report to Congress for FY 2007 6 meet Federal or State eligibility requirements or did not adequately document all eligibility
determinations. OIG estimated that New York made more than 4.2 million payments totaling
$230.4 million (Federal share) on behalf of ineligible beneficiaries and did not adequately
document eligibility determinations for an additional 15.3 million payments totaling
$2.8 billion (Federal share). OIG estimated that California made 4.7 million payments
totaling $133 million (Federal share) on behalf of ineligible beneficiaries and did not
adequately document eligibility determinations for an additional 2.5 million payments
totaling $117 million (Federal share). OIG did not recommend recoveries because a
the errors are detected through a State's Medicaid Eligibility
disallowance may occur only if 
Quality Control program. However, OIG recommended that New York and California
review these report results to help ensure compliance with Federal and State Medicaid
eligibility requirements. (A-02-05-01 028; A-09-06-00028; A-04-06-00020)
. Medicaid Disproportionate Share Hospital Payments. The Social Security Act requires that
States make Medicaid disproportionate share hospital (DSH) payments to hospitals that serve
disproportionately large numbers oflow-income patients. The Omnibus Budget
Reconciliation Act of1993 (OBRA) limits these payments to a hospital's uncompensated
care costs, which are the annual costs incurred to provide services to Medicaid and uninsured
patients less payments received for those patients. OIG found that two States, New
Hampshire and New Jersey, claimed a total of$45.3 million in unallowable Federal
the $194.1 million that New Hampshire claimed in DSH payments for FY
payments. Of 
2004, $70.6 milion ($35.3 milion Federal share) was unallowable. OIG review ofDSH
payments to two New Jersey hospitals also identified unallowable payments. DSH payments
to one hospital from July 1995 through June 2001 exceeded the hospital-specific limits by
$20 milion ($10 million Federal share) because a consultant used by the State erroneously
were not DSH eligible in its calculations, and the State claimed some
included costs that 
duplicate DSH expenditures. DSH payments to the other hospital exceeded the hospital-
specific limits by $2.2 milion ($1.1 million Federal share) from November 1996 through
June 2001 because the consultant improperly included costs applicable to patients with
private insurance coverage. (A-01-05-00001; A-02-04-01024; A-02-05-01 007)
 Medicaid Community Mental Health Center Provider Services in Indiana. OIG estimated
that Indiana overpaid community mental health center providers at least $33.4 milion
($21.3 million Federal share) in reimbursement for Medicaid Rehabilitation Option (MRO)
services provided during FY 2003. Under the MRO services program, clinical mental health
serVices are provided to individuals, families, or groups living in the community who need
aid intermittently for emotional disturbances or mental illness. OIG recommended that
the overpayment and strengthen its internal controls over
Indiana refund the Federal share of 
the monitoring ofMRO services. (A-05-05-00057)
. Medicaid Reimbursement Rate for School-Based Health Services in Maryland. OIG found
that Maryland had not complied with reimbursement provisions specified in its CMS-
approved State Medicaid plan for school-based health services resulting in overpayments
totaling $65.5 milion ($32.8 million Federal share) between State FYs 2002 and 2004.
Medicaid covers the costs of school-based health services, such as physical therapy, speech
pathology/therapy services, and psychological counseling that are provided to children under
Deficit Reduction Act of 2005 Report to Congress for FY 2007 7 the Individuals with Disabilities Education Act. OIG recommended that the State refund the
unallowable costs, determine the unallowable costs for State FY 2005, make
Federal share of 
the appropriate refund, and continue to work with CMS to develop more accurate school-
based health service rates. (A-03-05-00206)
Health Information Technology in State Medicaid Programs. OIG found that 12 State
 Use of 
Medicaid agencies have implemented a total of 16 health information technology (HIT)
initiatives for Medicaid beneficiaries and participating providers, including claims-based
electronic health records initiatives, electronic prescribing initiatives, remote disease-
monitoring initiatives, and personal health records initiatives. OIG also found that 25 State
Medicaid agencies are currently involved in planning and developing statewide health
information exchange (HIE) networks. Lastly, OIG found that 13 State Medicaid agencies
are incorporating the Medicaid Information Technology Architecture (MIT A) into their HIT
and HIE planning. The MIT A is a framework developed by CMS to help States modernize
their Medicaid information systems.
In recent years, both the President and the Secretary ofHHS have promoted the goal of
developing the HIT and the HIE initiatives. OIG recommended that CMS continue to
support the goals of the MIT A to help facilitate future State Medicaid HIT and HIE
initiatives, assist State Medicaid agencies with developing privacy and security policies
Medicaid health care information in HIT and HIE initiatives, and
regarding the use of 
the National Coordinator for HIT to ensure that State
continue to work with the Office of 
Medicaid initiatives are consistent with national goals. CMS concurred with all OIG
recommendations. (OEI-02-06-00270)
. Preadmission Screening and Resident Review for Younger Nursing Facility Residents With
Serious Mental Illness and Mental Retardation. In two separate reviews, OIG examined the
extent to which Preadmission Screening and Resident Review (P ASRR) requirements were
addressed for Medicaid facility residents aged 22 to 64 with (1) serious mental illness and (2)
mental retardation. All individuals who apply to or reside in Medicaid nursing facilities are
required to receive a Level I P ASRR screen to identify suspected serious mental illness or
mental retardation. Those identified must receive a Level II P ASRR to confirm their mental
ilness or retardation, to determine whether they require nursing facility services, and to
determine whether they require specialized services.
With regard to residents with serious mental ilness, OIG found that almost all sampled
residents had Level I screens that met all Federal requirements. Two-thirds had evidence of
the Level II PASRRs met all Federal requirements.
Level II PASRRs, but only 5 percent of 
For those residents who received Level II P ASRRs, 85 percent received mental health service
recommendations, and 33 percent had all the recommended services in their nursing facility
care plans. Only two of five selected States' Level II P ASRR evaluation forms prompted
evaluators to consider community-based placements, and, although all selected States
the PASRR process, CMS provided only limited oversight. With
monitored aspects of 
regard to residents with mental retardation, OIG found that, while Level I screens were
percent of cases, one-fourth ofthese were completed late. Fifty-two percent of
present in 88 
selected files contained neither a Level II evaluation nor a Level II determination. Twenty-
Deficit Reduction Act of 2005 Report to Congress for FY 2007 8 two percent of sampled Level II evaluations did not contain evidence that the evaluator
assessed whether the individual's total needs could be met in a community setting. CMS and
the survey and certification agencies conducted only limited oversight. OIG recommended
in both reviews that CMS hold State Medicaid agencies accountable for ensuring compliance
with Federal requirements, hold States accountable for considering community placements
during the Level II P ASRR process, and revise survey and certification requirements to
ensure systematic oversight of the P ASRR. CMS agreed with all our recommendations.
(OEI-05-05-00220; OEl-07-05-00230)
 States' Requirements for Medicaid-Funded Personal Care Service Attendants. OIG found in
its review of all 50 States and the District of Columbia that States have established multiple
sets of attendant requirements that often vary among programs and by delivery models within
programs, resulting in 300 sets of attendant requirements nationwide. The "Medicaid State
Manual" requires States to develop qualifications for attendants who provide care to
Medicaid beneficiaries; it does not list specific qualifications but offers examples of
requirements that States may establish to ensure that attendants provide high quality personal
care.
Because States had established different requirements for varous programs and/or delivery
models, attendants may need to meet different requirements depending on the programs and
delivery models through which they are serving beneficiaries. Only seven States applied
uniform requirements to all the programs within them, and there were five programs
nationwide using the consumer-directed delivery model that had no requirements. Those
States that defined requirements did so differently and used them in different combinations.
We concluded that most States were monitoring compliance with these attendant
requirements on two levels. First, States delegated responsibility for ensuring that attendants
met requirements to another entity (e.g., home health or personal care service agency,
beneficiary, case manager). Second, States retained direct responsibility by ensuring that the
entities with primary responsibility fulfilled their oversight duties. This report did not
include recommendations. (OEI-07-05-00250)
 Suspected Medicaid Fraud Referrals. OIG found that MFCUs reported receiving a total of
13,733 suspected fraud referrals over the 3-year period from July 2002 through June 2005, of
which 29 percent came from State Medicaid agencies. Eighty-four percent ofMFCUs that
provided information reported receiving less than half of all suspected fraud referrals from
their respective State Medicaid agencies. MFCU-accepted referrals are matters that each
MFCU retains for further investigation. Overall, MFCU-accepted referrals from State
Medicaid agencies increased in number but their percentage of total referrals remained
constant over the 3-year period reviewed. Within individual States these trends varied
widely. Fifty-nine percent ofMFCUs reported accepting fewer referrals from their
respective State Medicaid agencies in the last year of our review compared to the average
number of referrals over all 3 years. One State Medicaid agency contributed to 67 percent of
the increase in the number ofMFCU-accepted referrals over the 3-year study period. OIG
recommended that CMS establish fraud referral performance standards for State Medicaid
agencies. CMS concurred. (OEI-07-04-00181)
Deficit Reduction Act of 2005 Report to Congress for FY 2007 9  Deficit Reduction Act of 2005: Impact on the Medicaid Federal Upper Limit Program.
Pursuant to the DRA and effective January 2007, Medicaid Federal upper limits are to be
based on 250 percent of AMP rather than 150 percent of the lowest price published in the
this new provision,
national compendia. This report, which assessed the expected impact of 
found that Federal upper limit amounts are likely to decrease substantially under the new
calculation method. Under the previous calculation method, Federal upper limit amounts
were more than double pharmacy acquisition costs for 23 of 25 selected high-expenditure
Medicaid drugs in the second quarter of 2006. However, if the new calculation had been in
effect during that time period, pharmacies on average would have been able to purchase only
the 25 selected high-expenditure drugs for less than the new Federal upper limit
6 of 
amounts. Furthermore, the AMP used to set a new Federal upper limit amount may be
substantially lower than other AMPs associated with a drug.
OIG recommended that CMS take steps to identify when a new Federal upper limit amount
may not be representative of a drug's acquisition cost to pharmaCies and, in those situations,
determine the proper course of action. CMS did not agree with our findings. In July 2007,
CMS published final rule 72 FR 39142-39245 (July 17,2007), which implements section
the DRA and incorporates provisions that ensure that a drug is for sale nationally.4
6001 of 
(OEI-03-06-00400)
Investigations and Legal Services
In addition to conducting audits and evaluations, OIG investigates allegations of criminal and
civil wrongdoing in conjunction with DOJ, conducts administrative enforcement and litigation,
these activities, OIG reported over $2 billion in
and provides technical support. As a result of 
that
monetary receivables to both Federal and non-Federal governent entities in FY 2007. Of 
amount, over $391 milion was specifically identified as restitutions or recoveries to be returned
to Federal and State Medicaid programs.
OIG's enforcement work and industry guidance are often designed to have broad impact on
Federal health care programs. In large part, OIG's industry outreach and enforcement efforts
just Medicaid. Table 3 presents a summary ofOIG's
affect other health care programs, not 
investigative, enforcement, and industry outreach activities during FY 2007 related to Medicaid.
4 In December 2007, the US District Court for the District of  Columbia preliminarily enjoined the implementation of  this
regulation,
Deficit Reduction Act of 2005 Report to Congress for FY 2007 10 Table 3: OIG's Medicaid-Related Investigations and Legal Services in FY 2007
IIIIIIJli'
Enforcement
Medicaid Cases Worked 1201
Joint Investigations Worked With State MFCUs 724
Total Medicaid Cases Opened 490
Criminal Convictions 145
Civil Actions 90
Program Exclusions - Imposed 3,308
Program Exclusions - Appeal Proceedings 90
Civil Monetary Penalty Actions 20
Emergency Medical Treatment and Labor 9
Act -"Patient Dumping"
CIAs- New 76
CIAs- Monitored6 469
Outreach
Advisory Opinions 18
Criminal and Civil Enforcement
fraud perpetrated against Medicaid and other Federal health
One of  the most common types of 
care programs involves filing false claims for reimbursement. The filing of false claims may be
pursued under Federal and State criminal statutes and, in appropriate cases, under the civil FCA.
The successful resolution of such civil FCA matters often involves the combined investigative
efforts and resources ofOIG, State MFCUs, and a variety of other law enforcement agencies.
Many providers elect to settle their cases prior to litigation. As part of their settlements,
providers often agree to enter into integrty agreements with OIG to avoid exclusions and to be
permitted to continue participating in Medicare, Medicaid, and other Federal health care
programs. Such agreements are monitored by OIG and require providers to enhance existing
compliance programs or establish new ones. Providers that settle these cases gen.erally deny that
they were liable or that they committed the alleged conduct.
In FY 2007, OIG opened 490 Medicaid-related cases for investigation of criminal or civil
wrongdoing and participated in 145 successful criminal convictions and 90 civil actions.
In addition, the Governent's enforcement efforts, including FCA cases, resulted in over
$1.4 bilion in investigative receivables related to Medicaid and other Federal health care
programs. Some successful enforcement actions are described below.
5 Matters listed here are not necessarily Medicaid specific. Many also involve fraud against other health care programs,
6 This number includes 14 quality-of-care CIAs representing more than 1,250 facilities funded primarily by Medicaid.
Deficit Reduction Act of 2005 Report to Congress for FY 2007
i 1 Criminal Enforcement
. Ohio. Jorge Martinez, a pain management physician convicted in a jury trial, was
sentenced to life in prison and ordered to pay over $ i 4.3 millon in restitution, including
over $1.6 million to Medicaid, for health care fraud resulting in death. Martinez was
additionally sentenced to 20 years in jail for ilegal drug distribution, mail fraud, wire
fraud, and health care fraud. The investigation revealed that Martinez conducted
unnecessary and painful procedures on patients as a pretext for writing prescriptions for
narcotic drugs. The physician then submitted claims to health care benefit programs,
falsely indicating that he performed multiple complex procedures, such as nerve block or
epidural injections. Many of the patients endured painful treatments because they were
addicted to drugs, while other patients, who initially had legitimate injuries, fell victim to
his patients died of drug overdoses
the physician's scheme and became addicted. Two of 
in 2001. Martinez is subject to supervised release and deportation ifhis life sentence is
overtrned.
 New York. Philip Fran, a dentist, was sentenced to 18 months in jail and ordered to
being found guilty of defrauding the Medicaid
forfeit $5 milion in assets as a result of 
program. Frank had been excluded from participating in the Medicaid program in 1995.
However, he devised a scheme to maintain his practice which was comprised of
95-percent Medicaid patients. To continue treating his Medicaid patients, Frank hired
junior dentists with valid Medicaid provider numbers to perform basic procedures and
paid them on a per diem basis. The excluded dentist provided the more complex
procedures and billed Medicaid for all the services performed in the practice under the
provider numbers of the junior dentists. In an attempt to cover up his scheme, Frank
created management companies enabling him to deposit the Medicaid funds received in
the names of the junior dentists.
health agency, and Donna Bates, her
 Virginia. Rebecca Conyer, the owner of a home 
offce manager, were sentenced in Virginia for defrauding the Medicaid program.
Conyer was sentenced to 30 months' incarceration and ordered to pay $923,000 in
restitution. Bates received a 24-month prison sentence and was held responsible for
the total restitution amount. The investigation revealed
paying $713,000, a portion of 
that personal care services billed to the Medicaid program were not performed at all,
were not performed according to Medicaid standards, or were performed by personal care
aides who were not adequately trained.
 Ohio. Kevin Dennis, the former owner of a home health company, was sentenced to
13 years incarceration and ordered to pay $564,000 in restitution for health care fraud,
money laundering, and drug and weapons charges. The investigation revealed that
Dennis solicited a population of an immigrant community to provide unnecessary
medical services and billed Medicaid for those services. To facilitate the fraud, doctors
signed plans of care to indicate that patients were in need of skilled nursing and home
health aid services. In reality, patients had not been seen by the doctors. In addition,
reimbursements from claims submitted to Medicaid were diverted to support Dennis's
drug habit and to fund personal business ventures.
Deficit Reduction Act of 2005 Report to Congress for FY 2007 12 Civil Enforcement
 Virginia. As part of a global criminal, civil, and administrative settlement agreement, the
Purdue Frederick Company, Inc., and Purdue Pharma L.P. (collectively, the Purdue
Companies), and three top executives agreed to pay almost $635 million to resolve a
Federal, State, and private claims for fraudulently marketing OxyContin, a
variety of 
controlled-release formulation of Oxycodone, a powerful pain medication. The
investigation revealed that from December 1995 through June 2001, Purdue Frederick
effectively undertook a fraudulent and deceptive marketing campaign aimed at
convincing doctors nationwide that OxyContin, because of its time-release formula, was
less prone to abuse and that it was less likely to cause addiction or to produce other
narcotic side effects than competing immediate release opioids. Purdue Frederick, along
Legal Officer, Howard Udell; and
with its former president, Michael Friedman; Chief 
Medical Officer, Paul Goldenheim, were sentenced for criminal violations
former Chief 
the drug
of  the Federal Food, Drug, and Cosmetic Act for the misbranding of 
OxyContin.
Each executive was sentenced to 3 years of probation, ordered to perform 400 hours of
community service in a drug abuse or drug treatment program, and ordered to pay a
$5,000 fine. Purdue Frederick was sentenced to 5 years of probation. Pursuant to their
plea agreements, the executives will pay a total of $34.5 million in penalties. The Purdue
Companies wil pay a total of almost $600 million in settlement and restitution costs and
the total global settlement, HHS received
pay a maximum statutory fine of  $500,000. Of 
over $95 million in Medicaid restitution (Federal and State shares) and over $3 million in
improperly calculated Medicaid rebates involving OxyContin (Federal
the recovery of 
and State shares). Purdue Frederick wil be subject to a 25-year exclusion; Purdue
Pharma L.P. agreed to enter a 5-year CIA with OIG.
 District of Columbia. Maximus, Inc., a revenue maximization consultant, entered into a
$42.7 million settlement agreement with the United States to resolve the company's
liability under the FCA. Maximus allegedly filed false claims for Medicaid-funded
targeted case management services. Such services assist foster children in obtaining
needed medical, social, educational, and other services. Maximus submitted
26,683 claims for Medicaid reimbursement that were not supported by documentation.
The Federal Government contended that these services were never rendered. As par of
the case, Maximus also entered into a 5-year CIA with OIG, as
the global resolution of 
well as a 24-month deferred prosecution agreement with the U.S. Attorney's Office. In a
novel provision, the CIA requires that OIG's OAS perform the claims and contract
reviews that are ordinarily performed by an Independent Review Organization.
 Maryland. Pediatrix Medical Group, Inc., agreed to pay the Governent $25 milion,
including approximately $10.8 million to Medicaid, and enter into a 5-year CIA to
resolve its liability under the FCA for improperly biling Medicaid, TRICARE, and the
Federal Employees Health Benefits Program for neonatal services provided by its
doctors. Through its network of affliated physician groups, Pediatrix provides neonatal
services at varous hospital neonatal intensive care units in 32 States and Puerto Rico.
Deficit Reduction Act of 2005 Report to Congress for FY 2007 13 Pediatrix allegedly used improper billing codes for neonatal services provided at several
of these units. The Governent alleged that from January 1996 to December 1999,
the infants were
Pediatrix billed critical care services for infants when, in fact, many of 
not critically il. The settlement also resolved a Colorado case being investigated for the
same misconduct.
 Idaho. Alan D. Kohal, Kohal Pharmacy, Inc., and Kohal Pharacy and Medical Supply
(collectively, "Kohal"), agreed to pay $214,000 to resolve their false claims act liability.
The settlement resolved allegations that Kohal biled Medicaid for more than its usual
and customary charge to the general public, failed to credit Medicaid for prescriptions
returned unused, billed Medicaid for prior authorizations before prescriptions were
eligible to be refilled, and biled Medicaid for doses of prescription drugs not distributed
to beneficiaries. The State ofIdaho was also a party to the settlement. Kohal also agreed
to enter into a comprehensive 5-year CIA. Alan D. Kohal and any entity in which he has
the CIA during the five reporting
an ownership interest will be bound by the terms of 
periods.
Administrative Sanctions
Program Exclusions
Through the legal authorities contained in sections 1128 and 1156 of the Social Security Act,
OIG established a program to exclude individuals and entities from participation in Medicaid,
Medicare, and other Federal health care programs. OIG maintains a list of all currently excluded
Excluded Individuals/Entities from Federal Health Care Programs. The
parties called the List of 
bases for exclusion include convictions for program-related fraud, patient abuse, State licensing
board actions, default on Health Education Assistance Loans, and violation of existing CIAs.
Many ofthese are acts committed against the Medicaid program or its beneficiaries.
During FY 2007, OIG excluded 3,308 individuals and entities from participating in Medicaid,
Medicare, and other health care programs. These exclusions can have the effect of reducing
potential fraud that may be committed by the excluded entities against similar Federal health care
program exclusions imposed in FY 2007.
programs. The following are examples of 
 Georgia. Martin Bradley, III, owner of a pharmaceutical wholesale distributing
company, was excluded for a minimum period of 70 years based on his conviction related
to a racketeering scheme involving prescription drugs that were unlawfully obtained and
incarceration and ordered
diverted from 1996 to 2003. He was sentenced to 20 years of 
to pay over $27.8 million in restitution, including over $10.1 million in restitution to the
Florida Medicaid program and over $2.7 milion to CMS.
 Texas. Doris Blake, owner of a biling company, was excluded for a minimum period of
50 years based on her conviction related to a Medicaid fraud scheme. She billed the
Medicaid program from September 2001 to December 2003 for chemical dependency
counseling services that were never rendered. She was sentenced to 50 years of
incarceration and ordered to pay over $1 milion in restitution.
Deficit Reduction Act of2005 Report to Congress for FY 2007 14 . Florida. Thomas Merrll, an osteopath, was excluded for a minimum period of 50 years
based on his conviction for wire fraud, health care fraud resulting in death, and unlawful
dispensing of numerous controlled substances. From about January 2000 to May 2004,
the osteopath submitted claims for medical services and procedures that were not
provided or medic"ally necessary. In addition, he wrote prescriptions for controlled
substances outside the usual course of professional practice, resulting in patient deaths.
He was sentenced to life in prison and ordered to pay approximately $115,000 in
restitution to Blue Cross Blue Shield, Medicaid, TRICARE, and a private insurer.
Civil Monetary Penalties Under the Emergency Medical Treatment and Labor Act
The Emergency Medical Treatment and Labor Act (EMTALA) (42 U.S.C.  1395dd) requires of
all hospitals that receive Federal funding through Medicaid and other Federal health care
programs that "if any individual. . . comes to a hospital and the hospital determines that the
individual has an emergency medical condition, the hospital must provide either (A) within the
staff and facilities available at the hospital, for such further medical examination and such
treatment as may be required to stabilize the medical condition, or (B) for transfer of the
individual to another medical facility." This statute is designed to ensure patient access to
appropriate emergency medical services regardless ofthe patient's health insurance coverage
status.
In FY 2007, OIG collected $265,000 in civil monetary penalties, representing collections from
nine hospitals and one physician under the EMT ALA. The following are examples of
settlements involving alleged violations of that statute.
. Wheaton Franczscan Healthcare St. Joseph, Incpk/aSt. Joseph Regional Medical Center
(St. Joseph), Wisconsin. The center agreed to pay $40,000 to resolve its liability for civil
monetary penalties under the EMT ALA. OIG alleged that St. Joseph failed to provide an
appropriate medical screening examination and stabilizing treatment to a woman that
severe upper quadrant
presented to St. Joseph's emergency department (ED) complaining of 
abdominal, hip, and thigh pain, following a motor vehicle accident. The ED physician
diagnosed the patient as having a right hip and thigh contusion and did not conduct any lab
work, any x-rays, or a CT scan. The patient was given an anti-inflammatory and discharged.
The patient protested leaving the ED and informed a nurse that she was in extreme pain and
told the patient to leave the hospital and threatened to call the
could not walk. Hospital staff 
police. The patient was then placed in a wheelchair and hospital security escorted to her
relative's car. The patient presented to another hospital's ED, where an x-ray revealed that
she had a dislocated right hip, and a CT scan of the hip revealed an acetabular fracture that
prevented relocation of the hip without surgery.
. St. Mary's Medical Center, Indiana. The center agreed to pay $40;000 to resolve allegations
that it engaged in patient dumping. A 46-year-old uninsured man came to the hospital's
emergency department by ambulance and in an unresponsive state. The on-call
neurosurgeon was at the hospital but did not treat the patient. Instead, he directed the
emergency department physician to transfer the patient over 180 miles away. The
Deficit Reduction Act of 2005 Report to Congress for FY 2007 15 transfer was performed without stabilizing treatment, and the patient arrved at the second
hospital "brain dead."
 Medical Center of Arlington (MCA), Texas. The center agreed to pay $30,000 to resolve its
liability for civil monetary penalties under the EMTALA. OIG alleged that MCA violated
the screening, stabilization, and transfer provisions of the patient dumping statute when a
pregnancy presented to MCA's labor and delivery department
female in her 39th week of 
with contractions. After approximately 35 minutes of observation, an on-duty obstetrician
ordered that the patient be discharged with instructions to go, by private automobile, to
another hospital that was nearly 21 miles away. Based on clinical indicators upon the
patient's arrval at the alternative hospital, the order by MCA was alleged to have created an
umeasonable level of risk for the patient and her child.
Medicaid Fraud Control Units
In addition to conducting audits, evaluations and investigations and providing legal services,
Federal grants to State MFCUs. In FY 2007, OIG oversaw
OIG is responsible for oversight of 
Columbia. Section
the distribution of$169 milion to MFCUs in 49 States and the District of 
the OBRA, required
1902(a)(61) of  the Social Security Act, as amended by section 13625 of 
OIG to develop performance standards for assessing MFCUs. The standards are to assess the
effectiveness and efficiency ofMFCUs and enable OIG to determine whether the MFCUs are
carrying out their duties and responsibilities in an effective manner and in accordance with
applicable laws. These standards were created in consultation with the MFCU community and
made effective on September 26, 1994. In FY 2007, OIG conducted 12 onsite reviews of
MFCUs.
During this same time period, OIG participated in 724 joint investigations with MFCUs and
opened 490 investigations into potential fraud involving the Medicaid program.
Outreach
In FY 2007, OIG undertook a diverse array of other activities to enhance its capacity to fight
its Federal and State partners in
fraud, waste, and abuse in Medicaid and develop the capacity of 
conducting their Medicaid oversight and enforcement responsibilities. More specifically, OIG
conducted outreach activities such as hosting training conferences, participating in roundtable
discussions, and issuing advisory opinions. The following subsections describe OIG's FY 2007
outreach activities.
Deficit Reduction Act of2005 Report to Congress for FY 2007 16 Advisory Opinions to Outside Parties
the HIPAA, OIG, in consultation with DOJ, issues advisory
In accordance with section 205 of 
opinions to outside parties regarding the interpretation and applicability of certain statutes
relating to Federal health care programs. This authority allows OIG to provide case-specific
the anti-kickback statute and safe harbor provisions
formal guidance regarding the application of 
and other OIG health care fraud and abuse authorities. In FY 2007, OIG issued 18 advisory
opinions related to Medicaid. The following are examples:
. In Advisory Opinion 07-07, OIG considered a proposed cash donation to a retirement
community by a charitable foundation affiliated with a health system. The retirement
community provides a residential alternative to nursing homes for certain patients with
special needs, including Medicaid beneficiaries. It is in a position to purchase federally
financed paid items and services from the health system. The retirement community, the
foundation, and the health system are all located in a medically undeserved area, and the
three entities have overlapping directors. OIG determined that, although the proposed
donation could implicate the anti-kickback statute, OIG would not impose sanctions for a
broad
combination of reasons. First, the donation would be unrestricted, made as part of 
solicitation of funding, in proportion with contributions of other businesses in the area,
and would constitute only a small percentage of the overall funding. Second, the
donation would represent a one-time-only, fixed in-advance payment that would not be
determined in a manner related to the volume or value of any business generated for the
health system. Third, the retirement community would not be required to purchase items
or services from the health system and would have an incentive to act as a prudent
purchaser. Finally, the retirement community would implement certain safeguards
against improper influence by the health care system.
 In Advisory Opinion 07-12, OIG addressed a State's proposal to accept low- or no-cost
bids for therapy services to be provided at State-run veterans' homes. The winning
bidder would bill Medicare, Medicaid, or other third-party payers for services provided to
insured patients and would bill the veterans for any cost-sharing amounts on behalf of
these patients. Services to uninsured patients would be provided by the bidder at low or
no cost. OIG determined that, although the proposals could implicate the anti-kickback
statute, OIG would not impose sanctions based on several factors. The bid and the
services to be provided would be part of a comprehensive regulatory scheme to care for
the Medicaid program. The risk of
the State's veterans, including some beneficiaries of 
overutilzation would be low, because the veterans would have an incentive to monitor
utilization to control costs for which they would be responsible. In addition, there would
be no adverse effect on competition because the bids would be pursuant to open,
competitive invitations for bids in accordance with State law. Finally, the payment of
cost-sharing amounts on behalf of residents who are Medicare or Medicaid beneficiaries
would not be an improper inducement, because the State would thereby fulfill its
statutory responsibility under State law to provide for the care and assistance of its
veterans.
Deficit Reduction Act of 2005 Report to Congress for FY 2007 17 Directors
Resource for Health Care Boards of 
In September 2007, OIG issued a resource guide for health care boards of directors. The guide is
the third in a series of documents co-sponsored by OIG and the American Health Lawyers
health care organizations in carrying out their
Association (AHLA). It seeks to assist directors of 
important oversight responsibilities in the current challenging health care environment. The
guide is designed to help directors ask knowledgeable and appropriate questions related to health
care quality requirements, measurement tools, and reporting requirements to establish, and
affrmatively demonstrate, that they have followed a reasonable quality oversight process. The
comments and perspectives shared in this educational resource are intended to assist boards in
exercising their duty of care as it relates to health care quality effectively, efficiently, and in a
manner that will help improve the nation's health care system. The guide is available on OIG's
Web site at
. http://oig.hhs. gov /fraud/ docs/ complianceguidance/CorporateResponsibilityF inal %209-4-07 .pdf.
Long-Term Care Ouality-of-Care Roundtable
On December 6,2007, OIG and the Health Care Compliance Association (HCCA) cosponsored
a Governent-industry roundtable called "Driving for Quality in Long-Term Care: A Board of
the roundtable was to specify items that could be
Directors Dashboard." One of  the goals of 
included on a "Quality of Care Dashboard" to be offered as a tool for boards of directors of long-
term care organizations. Over 35 long-term care professionals and 10 Governent
representatives attended the day-long event. The day consisted primarily of  breakout discussion
groups designed around three perspectives on the oversight of quality of care: (1) organizational
processes related to monitoring and improving quality, and
commitment to quality, (2) 
(3) outcome measures related to quality. In addition to these three substantive areas, a fourth
discussion group considered the benefIts of, and challenges to, developing a "Quality-of-Care
Dashboard." A report ofthe roundtable is available on the OIG Web site at
http://www .oig.hhs.gov/fraud/docs/ complianceguidance/RoundtableO 13007 .pdf.
OIG-Sponsored Medicaid Integrty Program Conferences
During FY 2007, OIG hosted six MIP conferences and set in motion working relationships
and future collaboration among OIG, Federal and State investigators, auditors, attorneys and
analysts from 26 States and the District of Columbia. Table 4 presents a list of the completed
conferences.
Table 4: OIG 2007 MIP Conferences
,~ 1.!lI~uil,lI'l'l
New York Cape May, NJ March 5-7, 2007 90
Boston Boston, MA May 9-10, 2007 90
Dallas Dallas, TX June 5-7, 2007 100
Chicago Indianapolis, IN July 10-11, 2007 120
Atlanta Atlanta, GA August 2 i -22, 2007 110
Baton Rouge Baton Rouge, LA September 11-13, 2007 140
Deficit Reduction Act of 2005 Report to Congress for FY 2007
18 the
Organizing and holding the MIP conferences has enabled OIG to involve each of 
following agencies in a strategic planning process to collaboratively address Medicaid fraud
and abuse: CMS, Medicaid Integrty Group (CMS/MIG); District Attorneys' Offices; Federal
Bureau ofInvestigation; independent/nonprofit health insurance associations (e.g., National
Insurance Crime Bureau); MFCUs; CMS Program Safeguard Contractors; State agencies
Medical Assistance and
(e.g., State Health and Human Services Departments; Division of 
the State Comptroller); State Attorneys' General Offices; State
Human Services; Office of 
Medicaid Inspector General Offices; United States Attorneys' Offices; and OIG.
Holding multiple conferences across the country provided OIG the opportnity to address
program integrty issues and vulnerabilities that differ substantially across State lines and
within various regions. Each agenda was tailored to address specific needs unique to the
States residing within the hosting OIG region. Breakout sessions helped further achieve these
goals by focusing on specific areas with the highest risk for fraud.
Collaboration with CMS's Medicaid Integrtv Group
OIG's Medicaid integrty workgroup collaborates with CMS/MIG to coordinate and maximize
Medicaid. OIG has provided feedback and
our respective activities to protect the integrty of 
work, task
technical assistance to CMS/MIG on a number of  products, including the statement of 
orders, and audit protocols for its Medicaid integrity contactors and letters to State Medicaid
Directors. OIG has also offered input into the currculum for CMS/MIG's training programs for
its newly hired staff and for State Medicaid program integrty staff. In addition, OIG and
CMS/MIG jointly developed procedures for CMS/MIG's Medicaid integrty contactors to refer
potential fraud to OIG. Finally, in followup to OIG's report on suspected fraud referrals
cases of 
from State Medicaid programs to MFCUs, OIG is assisting CMS/MIG in implementing its
recommendation to develop fraud referral performance standards for State Medicaid agencies.
Seminars for Federal Agents and Attornevs
Legal Education on Medicaid fraud
OIG cosponsored a conference with DOl's Office of 
enforcement entitled "HHS Seminar on Strengthening OIG Response to Medicaid Fraud -
Developing Successful Investigations." The conference was designed for Federal agents and
attorneys with backgrounds in health care fraud and included 130 attendees and speakers from
OIG, GAO, MFCUs, State Attorneys General, U.S. Attorneys' Offices, and DOJ. We
specifically addressed the following subjects.
. Medicaid Vulnerabilities - The GAO Perspective
. Federal and State False Claims Acts
. Investigative Tools
. Drug Diversion
. Kickbacks
. Case Resolution
. Challenges to Collaboration: A Panel Discussion
. Nursing Home Fraud: Financial Fraud and Failure of Care
Deficit Reduction Act of 2005 Report to Congress for FY 2007 19 . Trying a Fraud Case: Lessons Learned; Home Health Care Fraud
 Medical Transportation Fraud
 Hospital Medicaid Fraud
 Pharmaceutical Cases
Biannual MFCU Conference
To assist MFCUs in meeting their training needs, OIG conducted its biannual administrative
training conference in Chicago, Ilinois, from July 30 through August 2,2007. The purpose of
the conference was to provide guidance on issues and concerns that relate directly to the
oversight responsibilities ofOIG.
Congressional Hearing
On July 18,2007, Assistant Inspector General for Legal Affairs, Gregory Demske, testified
before the Senate Special Committee on Aging regarding OIG's work related to identifying and
the elderly. The testimony described the spectrum of activities,
preventing the abuse of 
enforcement actions, and initiatives that OIG has undertaken to identify cases of elder abuse,
the law
ensure that those who would harm the elderly are prosecuted to the fullest extent of 
and/or prevented from continuing to participate in Federal health care programs, identify where
programs and systems involved in the oversight of quality of care may be strengthened, and
promote practices that will help prevent elder abuse.
SECTION 5: MEDICAID OVERSIGHT IN FY 2008 AND BEYOND
At the beginning of each fiscal year, OIG publishes its Work Plan to highlight the areas in which
it expects to conduct oversight work during the coming year. In addition to being a planning
document, the Work Plan serves as a method for focusing public attention on the areas deemed
important and identified as particularly vulnerable to fraud, waste, and abuse.
Throughout the course of each fiscal year, the OIG work undertaken may change for a number of
reasons. Some activities announced in the Work Plan may shift from higher to lower priority or
may be postponed until future years as a result of the changing focus of Congress, the Secretary,
OIG, or an intervening emergency or in response to trends identified in other related work. As
such, OIG's work planning is an evolving process that enables OIG to remain adaptable to the
changing priorities of its stakeholders.
Appendix A ofthis report lists OIG reports issued in FY 2007, and Appendix B identifies more
than 70 Medicaid Work Plan items that OIG anticipates undertaking during FY 2008. Although
most Work Plan items will be initiated in FY 2008, many wil not be completed within the fiscal
prior OIG work by conducting
year. Some of  these reviews increase the scope and depth of 
follow-up activities and others expand into new and emerging areas of interest. OIG will also
continue its investigative and enforcement activities and its outreach and guidance to the health
care industry. Detailed summaries ofOIG's anticipated work activities for FY 2008 can be
Deficit Reduction Act of 2005 Report to Congress for FY 2007 20 the OIG Web site
found in the OIG Work Plan, which is located in the "Publications" section of 
at http://www.oig.hhs.gov/publications.
In addition to the activities described in the FY 2008 Work Plan, we are planning other activities
to enhance Medicaid enforcement and fraud prevention. For example, we expect to continue
working with CMS., State MFCUs, and the National Association for Medicaid Program Integrity
to improve State Medicaid agencies' capacity to make proper referrals based on a shared
understanding of the elements of successful investigations. We plan to host seven MIP
conferences during FY 2008. These conferences will involve 24 States thus completing OIG's
national MIP outreach effort.
revising and updating its compliance program guidance for nursing
OIG is also in the process of 
facilities. OIG develops compliance program guidance in its effort to engage the private health
care industry in addressing and combating fraud and abuse. Over the past several years, OIG has
the health
developed and issued compliance program guidance directed at various segments of 
care industry, including nursing homes. Risk areas for the nursing home industry include the
submission of false claims, as well as quality of care concerns, kickbacks, and accurate reporting
of data to Medicare and Medicaid. Since OIG first published a compliance program guidance in
this area (65 FR 14289; March 16, 2000), the nursing home industry has experienced a number
of changes. Additionally, the subsequent years of enforcement and compliance activity in the
nursing home industry has allowed OIG to address more fully the various risk areas in nursing
home compliance. On January 24, 2008, OIG published a Solicitation ofInformation and
Recommendations for Revising the Compliance Program Guidance for Nursing Facilities (73
Fed. Reg., 16).
SECTION 6: CONCLUSION
In conclusion, OIG's varied and far-reaching activities help position the Federal Governent and
its partners to better monitor the integrty of funds appropriated to HHS to operate Medicaid and
more than 300 other programs. In so doing, OIG serves Congress, HHS, and the American
public by improving the solvency of Governent-sponsored health and human services
programs.
Deficit Reduction Act of2005 Report to Congress for FY 2007 21 APPENDIX A: OIG'S MEDICAID-RELATED AUDIT AND EVALUATION REPORTS
ISSUED IN FY 2007
This appendix contains selected report titles and reference numbers for OIG's Medicaid-related
audit and evaluation reports issued during FY 2007. The full text for the reports listed below is
available on the OIG Web site at http://www.oig.hhs.gov.
Medicaid Hospitals
Medicaid Hospital Outlier Payments in Virginia for State Fiscal Years 2001 Through 2003
(A-03-04-00212)
Medicaid Disproportionate Share Hospital Payments to University Behavioral
Review of 
New Jersey: July 1, 1995, Through
Healthcare Center, University of  Medicine and Dentistry of 
June 30, 2001 (A-02-04-01024)
Medicaid Disproportionate Share Hospital Payments to Runnells Specialized
Review of 
Hospital: November 1, 1996, Through June 30, 2001 (A-02-05-01007)
Review of Medicaid Reimbursement of Graduate Medical Education in Missouri
(A-07-04-03058)
New Hampshire's Medicaid Disproportionate Share Hospital Payments During
Review of 
Federal Fiscal Year 2004 (A-01-05-00001)
Virginia Rebase Process Used To Calculate Medicaid Rates for State Fiscal Years 2001 Though
2003 (A-03-05-00205)
Medicaid Long-Term and Community Care
Contracting Practices for Tennessee Home- and Community-Based Services for Mentally
Retarded Persons (A-04-03-03025)
Preadmission Screening and Resident Review for Younger Nursing Facility Residents With
Mental Retardation (OEI-07-05-00230)
Preadmission Screening and Resident Review for Younger Nursing Facility Residents With
Serious Mental Ilness (OEI-05-05-00220)
Public Hospitals in
Review of Additional Reimbursement for Distinct-Part Nursing Facilities of 
California (A-09-05-00050)
States' Requirements for Medicaid-Funded Personal Care Service Attendants
(OEI -07 -05-00250)
Deficit Reduction Act of 2005 Report to Congress for FY 2007 22 Tennessee Home- and Community-Based Mental Retardation Services for July 1,2002,
Through June 30, 2003 (A-04-03-03026)
Medicaid Mental Health Services
Medicaid Community Mental Health Center Provider Services in Indiana
Review of 
(A-05-05-00057)
Medicaid/State Children's Health Insurance Program
Fraud and Abuse Safeguards in Separate State Children's Health Insurance Programs
(OEI-06-04-00380)
Premium Payments for Iowa's Separate State Children's Health Insurance Program
Review of 
for the Period July l, 2000, Through June 30,2002 (A-07-03-02011)
Review of State Children's Health Insurance Program Eligibility in California (A-09-06-00022)
State Children's Health Insurance Program Eligibility in Florida (A-04-06-00021)
Review of 
State Children's Health Insurance Program Eligibility in New York State
Review of 
(A-02-06-01003)
Medicaid Prescription Drugs
Deficit Reduction Act of2005: Impact on the Medicaid Federal Upper Payment Limits
(OEI-03-06-00400)
Examining Fluctuations in Average Manufacturer Prices (OEI-03-06-00350)
Medicaid Outpatient Drug Expenditures in Iowa for the Period October 1,2002,
Review of 
Though September 30,2004 (A-07-06-04062)
Medicaid Outpatient Drug Expenditures in Nebraska for the Period October 1, 1997,
Review of 
Through September 30,2004 (A-07-05-04056)
New Drug Pricing Data in the Medicaid Program (OEI-03-06-00490)
States' Use of 
Other Medicaid Services
Improper Payment for Medicaid Pediatric Dental Services (OEI-04-04-00210)
Medicaid Provider Enrollment Standards: Medical Equipment Providers (OEI-04-05-00180)
Review of Abortion-Related Laboratory Claims Billed as Family Planning Under the New York
State Medicaid Program (A-02-05-01009)
Deficit Reduction Act of2005 Report to Congress for FY 2007 23 Medicaid Reimbursement Rate for School-Based Health Services in Maryland
Review of 
(A-03-05-00206)
Nevada's Medicaid School-Based Administrative Expenditures for Calendar Years
Review of 
2003 and 2004 (A-09-05-00054)
Pharmacy Claims Biled as Family Planning Under New Jersey's Medicaid Program
Review of 
(A-02-05-01019)
Pharmacy Claims Billed as Family Planning Under the New York State Medicaid
Review of 
Program (A-02-05-01018)
Education
Review of  Retroactive School Health Claims - New York City Department of 
(A-02-03-01029)
Review of Retroactive School Health Claims - Rest of State (A-02-04-01 02 I)
Family Planning Services Provided Through Medicaid
Review of State Claims for the Costs of 
Managed Care Programs (A-03-06-00200)
Medicaid Administration
Arkansas Physician Supplemental Payment Program (A-06-06-00064)
California's Section 1115 Medicaid Demonstration Project Extension for Los Angeles
Audit of 
County (A-09-04-00038)
Medicaid Payments for Skiled Professional Medical Personnel to Missouri School Districts
(A-07-06-03075)
Medicaid Enhanced Payments for Ilinois State-Employed Physicians for April 1, 2002, Through
June 30, 2004 (A-05-06-00042)
Review of Allegheny County's Medicaid Administrative Case Management Costs Claimed by
Pennsylvania Between January 2002 and June 2003 (A-03-05-00201)
Review of California's Controls Over Reporting of County Medicaid Administrative
Expenditures (A-09-05-00057)
Medicaid Credit Balances at Baystate Franklin Medical Center for the Period Ending
Review of 
June 30, 2006 (A-01-07-00002)
Review of Medicaid Credit Balances at Baystate Mary Lane Hospital for the Period Ending
June 30, 2006 (A-01-06-0001O)
Deficit Reduction Act of2005 Report to Congress for FY 2007 24 Medicaid Credit Balances at Baystate Medical Center for the Period Ending
Review of 
June 30,2006 (A-01-07-00004)
Medicaid Eligibility in California for the Period January 1 Through June 30, 2005
Review of 
(A-09-06-00028)
Medicaid Eligibility in Florida (A-04-06-00020)
Review of 
Medicaid Eligibility in New York State (A-02-05-01028)
Review of 
Consultants on a Contingency Fee Basis
Review ofthe Medicaid Program's Use of 
(A-04-05-00015)
Missouri Provider Tax (A-07-06-01029)
Review of 
Montgomery County's Medicaid Administrative Health Services Costs Claimed by
Review of 
Maryland Between October 2003 and September 2004 (A-03-05-00208)
Non-Risk Managed Care Contract Administration Fees in Utah (A-07-06-01020)
Review of 
Review of Social Security Act Section 1915( c) Waiver Payments for Home and Community-
Based Services at Trinity Services, Inc., July 1, 2004, through June 30, 2005 (A-05-07-00056)
Suspected Medicaid Frau~ Referrals (OEI-07-04-00181)
Medicaid Information Systems Controls
Health Information Technology in State Medicaid Programs (OEI-02-06-00270)
Use of 
Medicaid Hurricane Response
Medicaid Payments and Services Related to Hurrcanes Katrina and Rita
(OEI-05-07-00300, primary report, and OEI-05-06-00140, data compendium)
Deficit Reduction Act of 2005 Report to Congress for FY 2007 25 APPENDIX B: MEDICAID WORK INCLUDED IN OIG'S FY 2008 WORK PLAN
This appendix lists Medicaid-related audit and evaluation work included in OIG's FY 2008
the objectives of each project are provided in the work plan, located
Work Plan. Summaries of 
the OIG Web site at http://www.oig.hhs.gov.
in the "Publications" section of 
Medicaid Hospitals
Hospital Eligibility for Disproportionate Share Hospital Payments (OAS W -00-05-31084)
069)
Hospital Outlier  Payments (OAS W-00-04-31069; OAS W-00-05-31 
Medicaid Disproportionate Share Hospital Payment Distribution (OAS W-00-08-31302)
Provider Eligibility for Medicaid Reimbursement (OAS W-00-08-31301)
Disproportionate Share Hospital Payments (OAS W-00-08-31300)
States' Use of 
Medicaid Long Term and Community Care
Assisted Living Facilities (OAS W -00-04-31076; OAS W -00-05-31076)
Biling for Medicaid Nursing Home Patients Transferred to Hospitals (OAS W-00-07-31201)
Community Residence Rehabilitation Services (OAS W-00-07-31 087)
Inappropriate Medicaid Payments for Personal Care Services During Periods of
Institutionalization (OEI07-06-00620)
Medicaid Adult Day Health Service Payments for Ineligible and Absent Beneficiaries
(OEI09-07-00500)
Medicaid Home Health Agency Claims (OAS W-00-08-31304)
Medicaid Payments for Medicare-Covered Home Health Services
(OEI 07-06-00640; OEI 07-06-00641; OAS W-00-07-31305)
Medicaid Payments for Personal Care Services (OAS W-00-05-31 035)
Civil Monetary Penalty Funds (OEI 00-00-00000; OAS W-00-08-31303)
States' Use of 
082)
Targeted Case Management (OAS W-00-05-31  082; OAS W-00-06-31 
Deficit Reduction Act of 2005 Report to Congress for FY 2007 26 Medicaid Mental Health Services
Mental Health in Medicaid Managed
Early and Periodic Screening, Diagnosis, and Treatment of 
Care Plans (OEIOO-OO-OOOOO)
Medicaid Supplemental Mental Health Payments to Prepaid Inpatient Health Plans
098; OAS A-07-06-04067)
(OAS W-00-06-31 
Medicaid/State Children's Health Insurance Program
Assessing Medicaid Eligibility for Children Enrolled in Separate State Children's Insurance
Programs (OEI06-07-00310)
Medicaid Prescription Drugs
Brand-Name Drugs (OAS W -00-08-31306; OAS A-06-08-00000)
Additional Rebates of 
Assessing the Accuracy of Drug Type Classification in the Medicaid Drug Rebate Initiative File
(OEIOO-OO-OOOOO)
Calculation of Average Manufacturer Prices (OAS W-00-07-31202)
Disputes Within the Medicaid Prescription Drug Rebate Program (OEIOO-OO-OOOOO)
Outliers Average Manufacturer Price (OEI03-07-00740)
Manufactures' Submission of 
Pharmacies' Ability To Purchase Drugs at the Average Manufacturer Price
(OAS W-00-07-31204; OEI 00-00-00000)
Post Implementation Review ofthe Federal Upper Limit Program (OEI 00-00-00000)
States' Accountability Over Medicaid Drug Rebate Programs (OAS W -00-07 -31205)
States' Medicaid Drug Claims (OAS W-00-07-31203)
the Average Manufacturer Price To Establish Medicaid Pharmacy Reimbursement
States' Use of 
(OEIOO-OO-OOOOO)
Zero Dollar Unit Rebate Amounts (OAS W-00-07-31106)
Other Medicaid Services
Adult Rehabilitative Services (OAS W -00-03-31028)
078; OAS W-00-05-31078; OAS W-00-06-31078)
Family Planning Services (OAS W-00-04-31 
Deficit Reduction Act of2005 Report to Congress for FY 2007 27 Freestanding Inpatient Alcoholism and Substance Abuse Providers (OAS W -00-06-31107)
Improper Medicaid Payments for Laboratory Services for Dual-Eligible Beneficiaries
(OEI 04-07-00340)
Tests (OAS W-00-07-31206)
Medicaid Laboratory 
Medicaid Payments for Transportation Services (OAS W-00-06-31121)
Payments
Medicaid Physical and Occupational Therapy Services: Appropriateness of 
(OEIOO-OO-OOOOO)
Medicaid Safeguards Over Payments for Nonemergency Transportation Services
(OEI 06-07-00320).
Medicaid's Use of an All-Inclusive Rate for Reimbursing the Indian Health Service and Tribes
for Prescription Drugs (OEI 09-08-00160)
Medical Equipment (OAS W-00-08-31307)
Medical Services for Undocumented Aliens (OAS W -00-06-31108)
Outpatient Alcoholism and Substance Abuse Services (OAS W-00-07-31079)
Reimbursement Rates for Services Provided by Indian Health Service Facilities
(OAS W-00-07-31221)
Medicaid Administration
Additional Medicaid Payments to High-Volume Providers (OAS W -00-07 -31214)
Level of Care Determinations for Home- and Community-Based Services
Appropriateness of 
Waiver Recipients (OEI 00-00-00000)
Contingency Fee Payment Arrangements
045)
(OAS W-00-04-31045; OAS W-00-05-31045; OAS W-00-06-31 
External Quality Review Organizations' Compliance With Federal Requirements
(OEI01-06-00510)
Medicaid and State Children's Health Insurance Program Payment Error Rate Measurement
(OAS W-00-08-31314)
Medicaid Administrative Costs (OAS W-00-06-39044; OAS W-00-06-31123)
Deficit Reduction Act of2005 Report to Congress for FY 2007 28 Medicaid Asset Transfers and Estate Recovery Provision for Nursing Home Care
(OAS W-00-06-31113)
Medicaid Claims at Enhanced Federal Financial Participation Rates (OAS W -00-08-31310)
Medicaid Eligibility in Multiple States (OAS W -00-06-31114)
Working Disabled (OEIOO-OO-OOOOO)
Medicaid Enrollment of 
Medicaid Managed Care Encounter Data: Reporting and Utilization (OEI 07-06-00540)
Medicaid Management Information System Costs (OAS W -00-08-31312)
Medicaid Payments for Services Provided Under Section 1115 Demonstration Projects
(OAS W-00-07-31208)
Medicaid Payments for Services Provided Under Section 1915(b) Managed Care/Freedom of
Choice Waivers (OAS W-00-08-31125)
Under Section 1915(c) Home- and Community-Based
Medicaid Payments for Services Provided 
Service Waivers (OAS W-00-06-39045; OAS W-00-06-31124)
Medicaid Payments Made for Ineligible Managed Care Members (OAS W-00-07-31212)
Medicaid Provider Tax Issues (OAS W-00-08-31 094)
Medicaid Statistical Information System Data Reporting (OEI04-07-00240)
Medicaid Upper Payment Limits (OAS W -00-08-31313)
Net Care Pools (OAS W-00-08-31308)
Medicaid Waiver Safety 
Medicare/Medicaid Credit Balances (OAS W -00-08-31311)
Physician Assistant Reimbursement (OAS W-00-07-31089)
Provider Enrollment Controls for Medicaid Home- and Community-Based Services Waiver
Providers (OEIOO-OO-OOOOO)
Waivers (OAS W-00-08-31309)
Sections 1915(b) and (c) Concurrent 
Home- and Community-Based Services (OEI02-08-00170)
State and Federal Oversight of 
State Medicaid Third Party Liability (OEI 00-00-00000; OAS W-00-07-31213)
Funds (OAS W-00-07-31207)
Upper Payment Limits-Flow of 
Deficit Reduction Act of 2005 Report to Congress for FY 2007 29 Information Systems Controls
Claims-Processing Controls To Prevent Duplicate Payments for Medicaid Services
(OAS W-00-08A1040)
Health Information Technology in Medicare and Medicaid-Security Issues
(OAS W-00-08-4102L)
Medicaid Management Information Systems-Business Associate Agreements
028)
(OAS W-00-08-41 
Oversight of System Conversions, Redesigns, and Transitions of State Medicaid Management
077)
Information Systems (OAS W-00-08-41 
State-Based Controls Over Medicaid Payments and Program Eligibility (OAS W-OO-08-40019)
Medicaid-Related Gulf Coast Hurricane Response
Duplicate Medicaid Payments to Providers (OAS W-00-06-31117)
Evacuees (OAS W-00-07-31216)
Medicaid Payments for 
Uncompensated Care Costs (OAS W-00-07-31219)
Deficit Reduction Act of 2005 Report to Congress for FY 2007 30 APPENDIX C: ACRONYMS AND ABBREVIATIONS
The following is a list of acronyms and abbreviations used in this publication.
AMP average manufacturer price
CIA corporate integrty agreement
CMP Civil monetary penalty
CMS Centers for Medicare & Medicaid Services
CMS/MIG CMS, Medicaid Integrty Group
DOJ Department of Justice
DRA Deficit Reduction Act of 2005
DSH disproportionate share hospital
ED emergency department
EMT ALA Emergency Medical Treatment and Labor Act
FCA False Claims Act
FR Federal Register
FY fiscal year
GAO Governent Accountability Office
HCCA Health Care Compliance Association
HCF AC Health Care Fraud and Abuse Control Program
HHS Health and Human Services
Department of 
HIE health information exchange
HIP AA Health Insurance Portability and Accountability Act
HIT health information technology
IG Inspector General
Deficit Reduction Act of 2005 Report to Congress for FY 2007
31 IT information technology
MCA Medical Center of Arlington
MFCU Medicaid Fraud Control Unit
MlC Medicaid Integrty Contractor
MIP Medicaid Integrty Program
MITA Medicaid Information Technology Architecture
MRO Medicaid Rehabilitation Option
OAS Office of Audit Services
OBRA Omnibus Budget Reconciliation Act of 1993
OCIG Office of Counsel to the Inspector General
OEI Evaluation and Inspections
Office of 
01 Office of Investigations
OIG Office of Inspector General
OMP Management and Policy
Offce of 
P ASRR Preadmission Screening and Resident Review
P.L. Public Law
SCHIP State Children's Health Insurance Program
Deficit Reduction Act of 2005 Report to Congress for FY 2007
32