Department of Health 
and Human Services 
Office of Inspector General 
Semiannual Report 
October 1, 2000 - March 31, 2001 
Office of 
Inspector General  ACRONYMS

AARP  American Association of Retired Persons 
ACF  Administration for Children and Families 
ACR  adjusted community rate 
ADR  adverse drug reaction 
AHRQ  Agency for Healthcare Research and Quality 
ALJ  administrative law judge 
AoA  Administration on Aging 
ASMB  Assistant Secretary for Management and Budget 
ATSDR  Agency for Toxic Substances and Disease Registry 
AWP  average wholesale price 
BBA  Balanced Budget Act of 1997 
CBO  Congressional Budget Office 
CDC  Centers for Disease Control and Prevention 
CIN  common identification number 
CMP  civil monetary penalty 
CSE  child support enforcement 
CY  calendar year 
DME  durable medical equipment 
DOJ  Department of Justice 
DRG  diagnosis-related group 
ESRD  end stage renal disease 
FDA  Food and Drug Administration 
FEHBP  Federal Employees Health Benefits Program 
FFP  Federal financial participation 
FI  fiscal intermediary 
FY  fiscal year 
GME  graduate medical education 
HCFA  Health Care Financing Administration 
HEAL  health education assistance loan 
HHA  home health agency 
HHS  Department of Health and Human Services 
HIPAA  Health Insurance Portability and Accountability Act of 1996 
HIPDB  Healthcare Integrity and Protection Data Bank 
HMO  health maintenance organization 
HRSA  Health Resources and Services Administration 
IDPN  intradialytic parenteral nutrition 
IHS  Indian Health Service 
IME  indirect medical education 
MCO  managed care organization 
MFCU  Medicaid fraud control unit 
MSP  Medicare secondary payer 
NIH  National Institutes of Health 
OBRA  Omnibus Budget Reconciliation Act 
OCSE  Office of Child Support Enforcement 
OMB  Office of Management and Budget 
OPDIV  operating division 
PATH  physicians at teaching hospitals 
PHS  Public Health Service 
PIN  provider identification number 
PPS  prospective payment system 
PRO  peer review organization 
PSC  Program Support Center 
SAMHSA  Substance Abuse and Mental Health Services Administration 
SCHIP  State Childrens Health Insurance Program 
SNF  skilled nursing facility 
TANF  Temporary Assistance for Needy Families 
UPIN  unique physician identification number 
UPN  universal product number  FOREWORD

As we move through this period of transition to a new administration, the Office of the 
Inspector General welcomes the opportunity to work with the Department and Congress in 
our long standing effort to protect the integrity of HHSs programs and their beneficiaries. 
In fulfilling our responsibilities as independent and objective fact finders, OIG will continue 
to focus on ways to help our programs function better, at less cost, with reduced risk of 
fraud and abuse.  As examples of OIG work, the highlights which appear on the following 
pages  describe  a  few  of  our  successes.   Among  themimprovement  in  the  Medicare 
fee-for-service  improper  payment  rate;  significant  trend-setting  settlements  with  major 
corporations; initial investigations into the complexities of tissue banking and tissue donor 
issues; investigations into mental health services in nursing homes and psychiatric care 
hospitals; and continuing work in child support enforcement. 
Though these highlights demonstrate both the scope and breadth of OIG accomplishments, 
they are but a few of the many examples contained in this report which collectively speak to 
OIGs commitment to achieving economy, efficiency and effectiveness of operations and 
services to beneficiaries. 
Michael F. Mangano 
Acting Inspector General  HIGHLIGHTS

INTRODUCTION 
This section highlights the most noteworthy recent accomplishments of the Department of 
Health and Human Services (HHS) Office of Inspector General (OIG). 
STATISTICAL ACCOMPLISHMENTS 
For the first half of Fiscal Year (FY) 2001, OIG reported savings of $10 billion, comprised 
of $9.5 billion in implemented recommendations and other actions to put funds to better use, 
$335 million in audit disallowances and $249 million in investigative receivables. (See 
Appendix A and Resolving Office of Inspector General Recommendations, A. Questioned 
Costs and Investigative Prosecutions and Receivables in the General Oversight chapter 
for details.) 
In addition, for the first half of the fiscal year, OIG reported 1,610 exclusions of individuals 
and entities for fraud or abuse of the Federal health care programs and/or their beneficiaries, 
213  convictions  of  individuals  or  entities  that  engaged  in  crimes  against  departmental 
programs, and 209 civil actions.  (See Fraud and Abuse Sanctions in the Health Care 
Financing Administration [HCFA] chapter and Investigative Prosecutions and Receivables 
in the General Oversight chapter.) 
FINANCIAL STATEMENT AUDIT 
During  FY  2000,  the  Department  achieved  an  important  milestone  in  financial 
accountability.  In its fifth annual audit of the HHS financial statements, OIG for the second 
year issued an unqualified, or clean, opinion.  This opinion means that the Department 
successfully resolved previously reported opinion issues and that the FY 2000 statements 
fairly presented financial information. 
However, OIG found that the Departments financial systems and reporting needed further 
improvement.  An integrated accounting system was still lacking, and accounts were not 
reconciled and analyzed throughout the year to ensure the accuracy of reported amounts or 
to  identify  emerging  problems.  This  deficiency  and  continuing  problems  in  Medicare 
electronic data processing controls were reported as material weaknesses. 
The OIG also issued its fifth report on the Medicare fee-for-service payment error rate. 
Based on a statistically valid sample, improper payments totaled an estimated $11.9 billion, 
or about 6.8 percent of the $173.6 billion in FY 2000 processed fee-for-service payments. 
While this years estimate is lower than last years, OIG cannot conclude that the current 
estimate is  statistically different. This years estimate is about half that for FY 1996, when 
OIG developed the first national error rate. (See pages 2, 3 and 65.) 
i  SIGNIFICANT INVESTIGATIVE RESULTS 
Through joint investigations with the FBI and other partners in law enforcement, OIG 
continues to achieve significant investigative results.  Following are some of the major cases 
in which OIG achieved such results during this reporting period. 
The Healthcare Corporation 
Two subsidiaries of HCA - The Healthcare Corporation (formerly known as Columbia/HCA 
Healthcare Corporation), a large national hospital chain, pleaded guilty to multiple Medicare 
offenses in several judicial districts and was fined $95 million. The investigation found 
wrongdoing in the companys billings to Medicare for inpatient hospital services, laboratory 
tests,  and  home  health  services,  and  in  the  companys  Medicare  cost  reports.  The 
Government also determined that HCA engaged in kickbacks in transactions related to 
acquisition of home health agencies and in its dealings with referring physicians. (See page 
13.) 
Durable Medical Equipment Manufacturer 
In California, the Government entered into a $60 million dollar global settlement with a 
durable  medical  equipment  manufacturer.  The  manufacturer  engaged  in  corporate 
misconduct that misled both the public and the Food and Drug Administration (FDA).  The 
global settlement resolved this California corporations criminal, civil and administrative 
exclusion liability stemming from defects in the blood glucose monitoring systems the 
corporation produced between May 1996 and late 1997. The corporation allegedly knew 
about the defects but failed to disclose them either to customers or to the FDA in order to 
obtain FDA approval to sell the device. The corporation also entered into a 3-year corporate 
compliance agreement with OIG and a 3-year compliance agreement with the FDA. (See 
pages 22-23.) 
MEDICAID ENHANCED PAYMENTS 
Acting at HCFAs request, OIG found that some States were exploiting a provision in 
Medicaids  upper  payment  limit  regulations  governing enhanced  payments  to certain 
providers such as city- and county-owned hospitals and nursing homes. The States would 
require these public providers to return the bulk of their enhanced payments to the State 
governments through intergovernmental transfers. Once the payments were returned, the 
States used the funds for other purposes, some of which were unrelated to Medicaid. The 
Federal loss resulting from this practice is estimated in the billions of dollars. The HCFA 
acted quickly on OIG recommendations for  regulatory change.  The OIGs five reports 
issued this period covered practices by Pennsylvania, Nebraska, Alabama, Washington and 
Illinois. (See pages 42-44.) 
PRESCRIPTION DRUGS 
The following major settlement and report were finalized during this period. 
ii  Bayer Corporation 
In  the  first  settlement  of  its  kind,  the  Bayer  Corporation,  a  major  pharmaceutical 
manufacturer, agreed to pay the Government $14 million and to enter into a comprehensive 
5-year  corporate  integrity  agreement  to  resolve  its  civil  and  administrative  liabilities 
associated with drug price reporting practices for six of its drugs. Specifically at issue were 
the  average  wholesale  prices  (AWPs)  that  Bayer  reported  for  six  of  its  drugs  and 
misrepresentations  that  Bayer  made  to  State  Medicaid  programs  and  to  HCFA.  This 
corporate integrity agreement is unique because, for the first time, it requires Bayer to 
affirmatively undertake certain drug price reporting obligations, including an obligation to 
provide certified pricing data directly to the Medicaid programs for all Bayer products 
reimbursed  by  Medicaid.  Depending  on  the  various  State-specific  reimbursement 
parameters, the State Medicaid programs may be able to use this certified pricing data to set 
more appropriate reimbursement levels for drugs. (See page 23.) 
Medicare Overpayment 
Over  the past 5 years, OIG inspections have consistently  shown that HCFA  is paying 
significantly  more  for  Medicare  prescription  drugs  than  are  other  public  and  private 
organizations. In the latest study, OIG found that Medicare and its beneficiaries would save 
$1.6 billion a year if 24 drugs were reimbursed at amounts available to the Department of 
Veterans Affairs. By paying the actual wholesale prices available to physicians and suppliers 
for these 24 drugs, $761 million a year would be saved.  Or, Medicare would save $425 
million a year on these drugs by obtaining rebates equal to those in the Medicaid program. 
(See page 39.) 
TISSUE BANKING 
In January, the OIG published two inspection reports and testified before a congressional 
committee on the emerging issue of tissue banking and Government oversight.  These 
reports indicated that the altruistic motives of donor families are the foundation of tissue 
bankingfamilies expect that the donation will be used to enhance the lives of others and 
that the donor will be respected.  The OIG encouraged joint action among tissue banks, 
donor  families  and  the  Government  to  develop  guidelines  regarding  the  exchange  of 
information  with  families  and  the  obtaining  of  their  consent  at  the  time  of  donation. 
Concerning the oversight of tissue banks, OIG identified situations that indicate the need for 
vigilance in this area. 
The  OIG  recommended  and  FDA  agreed  to  expedite  the  publication  of  its  proposed 
regulatory agenda requiring registration of  tissue banks, enhanced donor screening and 
testing, the use of good tissue practices and the establishment of a realistic, yet aggressive, 
date to complete an initial inspection of all tissue banks and determine an appropriate 
minimum cycle for such inspections. (See page 50.) 
MENTAL HEALTH SERVICES 
The OIG recently re-evaluated Medicares payments for mental health services provided in 
nursing homes. The study showed 39 percent of psychiatric services in nursing homes were 
iii  either medically unnecessary, had no mental health documentation or were questionable. 
Based on these findings, OIG recommended that HCFA strengthen the billing process for 
psychiatric services in nursing homes by working to develop better guidelines for such 
services and identifying a specific psychological testing instrument.  Implementing these 
recommendations could result in a potential savings of $30 million a year. (See page 32. ) 
The  OIG  also  reviewed  psychiatric  care  hospitals  for  costs  associated  with  providing 
outpatient psychiatric services.  In an audit of States with the largest dollar volume of 
outpatient psychiatric services nationwide, OIG found that a large percentage of charges did 
not  meet  Medicare  criteria  for  reimbursement.  Based  on  this  statistical  sample,  OIG 
estimated that for 1998, psychiatric care hospitals in these locations submitted claims to 
Medicare  totaling  more  than  $57  million  for  unallowable  or  unsupported  psychiatric 
services. (See page 7.) 
CHILD SUPPORT ENFORCEMENT 
In addition to its audit and inspection work in the area of child support enforcement, OIG 
has made the detection and prosecution of absent parents who fail to pay court-ordered child 
support a priority. The OIG has worked with the Office of Child Support Enforcement 
(OCSE), the FBI, the U.S. Marshals Service and other Federal, State and local partners to 
develop programmatic and operational procedures to expedite the collection of child support 
and to bring to justice those who willfully disregard their obligations. Since 1995, OIG has 
opened 1,391 investigations of child support cases nationwide which have resulted in 393 
convictions and court-ordered restitution and settlements of over $22.8 million. 
Investigative Task Forces 
In 1998, OIG and OCSE initiated Project Save Our Children, a criminal child support 
initiative made up of multiagency, multijurisdictional investigative task forces. The task 
forces  bring  together  enforcement  units  from  different  States  within  the  following 
geographical regions:  the Midwest, Mid-Atlantic, Southwest, Northeast, Southeast and 
West Coast. The task forces are designed to identify, investigate and prosecute criminal 
nonsupport cases both on the Federal and State levels through the coordination of law 
enforcement, criminal justice and child support office resources; their goal is to create 
streamlined systems of referral, investigation and prosecution that will bring to justice the 
most egregious offenders. 
At this point, the task force units have received over 3,200 cases from the States. As a result 
of the work of the task forces, 133 Federal arrests have been executed and 90 individuals 
sentenced. The total recovered amount related to Federal investigations is $3.8 million. 
There have been 289 arrests on the State level and 217 convictions or civil adjudications to 
date, resulting in $9.7 million in restitution. (See page 55.) 
OIG WORK IN PERFORMANCE MEASUREMENT 
In order to identify work done in the area of performance measurement, OIG has labeled 
some items throughout this report as performance measures with the symbol  . 
iv  Performance measures are used to evaluate the achievement of a program goal, such as the 
efficiency of an immunization program which is measured by the number of inoculations 
provided per dollar of cost. In OIGs opinion, the audits, inspections and investigations 
identified  with  the  performance  measure  symbol  offer  management  information  about 
whether  some  aspect  or  all  of the programs  or  activities reviewed are achieving their 
missions and goals. These proposals are provided to management for their consideration as 
they develop their performance measures. (See Appendix F.) 
INTERNET ADDRESS 
This  semiannual  report  and  other  OIG  materials  may  be  accessed  on  the  Internet  at: 
http://www.hhs.gov/oig. 
v  Table of Contents 
Chapter I  HEALTH CARE FINANCING ADMINISTRATION 
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . . .1

Improper Fiscal Year 2000 Medicare Fee-for-Service Payments  . . . . . . . . . . . . . . . . . . .2

Financial Statement Audit of the Health Care Financing Administration

forFiscal Year2000  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Internal Controls at a Medicare Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Managed CarePayments Afterthe Balanced Budget Actof1997  . . . . . . . . . . . . . . . . . .4

Medicare Payments for Beneficiaries Reported as Institutionalized . . . . . . . . . . . . . . . . .4

The Emergency MedicalTreatment and LaborAct  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

A.  Survey ofHospital Emergency Departments  . . . . . . . . . . . . . . . . . . . . . . . . . . .5

B.  The EnforcementProcess  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Medicare Reimbursement forCritical Care Services  . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Implementation of Medicares Postacute Care Transfer Policy  . . . . . . . . . . . . . . . . . . . .6

A.  Blue Cross and Blue Shield ofGeorgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

B.  First Coast Service Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Outpatient Psychiatric Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

A. Ten Location Review  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

B.  Illinois Hospital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

C. New YorkHospital  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Outpatient Rehabilitation Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

A.  Michigan Facility  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

B.  New Jersey  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

C. Texas Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

MajorHospital Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
 A.  Physicians atTeaching Hospitals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

B.  DiagnosisRelated Group 3-Day Window Project . . . . . . . . . . . . . . . . . . . . . . .10

C.  HospitalOutpatient Laboratory Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

D.  PPS Patient TransferProject . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

E. Pneumonia Upcoding  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

OtherHospitalInvestigations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Industry Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Criminal Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Kickbacks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

Fraud and Abuse Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

A.  Program Exclusions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

B.  CivilPenalties forPatient Dumping  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

C.  CivilPenalties forFalse Claims  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

D. ComplianceActivities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Provider Self-Disclosure Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Monitoring Part B Therapy for Skilled Nursing Facility Patients . . . . . . . . . . . . . . . . . .28

Skilled Nursing Facility Claims Lacking 3-Day Stay Requirement . . . . . . . . . . . . . . . .29

Fraud Involving Nursing Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Nursing Home Resident Assessment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

A.  Quality ofCare  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

B.  Resource Utilization Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Medicare Payments for Psychiatric Services in Nursing Homes: A

Follow-up  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

YoungerNursing Facility Residents With MentalIllness . . . . . . . . . . . . . . . . . . . . . . . .32

A.  Preadmission Screening and Resident Review Implementation

and Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

B. An Unidentified Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

New Yorks Claims for Residents in Institutions for Mental Diseases  . . . . . . . . . . . . . .33
 Home Health Agency Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

ContractorsPension Segmentation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Separately Billed End Stage Renal Disease Tests Included in the

Composite Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Laboratory TestPerformance  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Hyperbaric Oxygen Therapy Use  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Balance Billing forMedical Equipment and Supplies  . . . . . . . . . . . . . . . . . . . . . . . . . .37

Fraud Involving Durable Medical Equipment Suppliers  . . . . . . . . . . . . . . . . . . . . . . . .37

Medicare Reimbursement ofPrescription Drugs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Inconsistent Medicare Data Concerning Carrier Payment Dates  . . . . . . . . . . . . . . . . . .40

Federally Funded Health Centers and Low-Income Childrens 

Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

State Childrens Health Insurance Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

Transportation Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41

Birth Certificate Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

Medicaid Enhanced Paymentsto Public Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

A.  Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

B.  Nebraska  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

C. Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

D. Washington  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

E. Illinois  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Federal and State Partnership: Joint AuditsofMedicaid . . . . . . . . . . . . . . . . . . . . . . . .44

Credentialing of Medicaid Providers: Fee-For-Service . . . . . . . . . . . . . . . . . . . . . . . . .45

Medicaid Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

Chapter II  PUBLIC HEALTH SERVICE OPERATING DIVISIONS 
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . .49

Human Tissue Donation and Banking Issues  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
 A.  Informed Consent in Tissue Donation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

B.  Oversight ofTissue Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

TransferofNIH Technologiesto the Private Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

AIDS Drug Assistance Program Cost Containment Strategies . . . . . . . . . . . . . . . . . . . .51

Exclusions for Health Education Assistance Loan Defaults . . . . . . . . . . . . . . . . . . . . . .51

Superfund ActivitiesNational Institute of Environmental Health

Sciences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52

Fiscal Year 1999 Financial Statement Audit of the Indian 

Health Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

MisuseofGrantFunds  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

Chapter III  ADMINISTRATION FOR CHILDREN 
AND  FAMILIES, AND ADMINISTRATION ON AGING 
Overview of Program Areas and Office of Inspector General Activities  . . . . . . . . . . . .55

Child SupportEnforcement: Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

Head StartManagement Consulting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59

Head Start Grantee: WestVirginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59

Emergency Assistance Program Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60

A. Kinship FosterCareCosts in New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60

B.  Nonparticipating Foster Care Costs Claimed by New York  . . . . . . . . . . . . . . .60

C.  Costs Claimed for Federal Financial Participation by Pennsylvania . . . . . . . . .61

Foster CareChildren Protection in California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

Maines Licensing ofFosterCareHomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

Connecticuts OversightofChild CareFacilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62

Texas State AuditofFosterCareContracts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62

FosterCare: Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62

Voluntary Contributions Not Used to Expand Services for the Elderly  . . . . . . . . . . . . .63
 Chapter IV  GENERAL OVERSIGHT 
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65

Financial Statement Audit of the Department for Fiscal Year 2000  . . . . . . . . . . . . . . . .66

Escheated Warrants: WestVirginia  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66

Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67

A.  Office of InspectorGeneralsProactive Role  . . . . . . . . . . . . . . . . . . . . . . . . . .67

B.  Quality Control  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68

Resolving Office of Inspector General Recommendations . . . . . . . . . . . . . . . . . . . . . . .69

A.  Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69

B.  FundsPut to BetterUse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70

Legislative and Regulatory Review and Regulatory Development  . . . . . . . . . . . . . . . .71

A.  Review Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

B.  Regulatory Development Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

C.  Congressional Testimony and Hearings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72

Employee Fraud and Misconduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72

Investigative Prosecutions and Receivables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72

APPENDIX A -Savings Achieved through Policy and Procedural 
Changes Resulting from Office of Inspector General 
Audits, Investigations and Inspections 
October2000 throughMarch 2001  . . . . . . . . . . . . . . . . . . . . . . . A-1 
APPENDIX B -Unimplemented Office of Inspector General

RecommendationstoPutFunds toBetter Use . . . . . . . . . . . . . . .B-1

APPENDIX C -Unimplemented Office of Inspector General

Program and Management Improvement

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1

APPENDIX D -Notes to Tables Iand II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1

APPENDIX E -Reporting Requirements of the

InspectorGeneral Actof1978,asAmended . . . . . . . . . . . . . . . . .E-1

APPENDIX F-Performance Measures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1
 Health Care 
Financing 
Administration  Chapter I 
HEALTH CARE FINANCING ADMINISTRATION

Overview of Program Area and Office of Inspector General 
Activities 
The Health Care Financing Administration (HCFA) is responsible for administering the 
Medicare and Medicaid programs. Medicare Part A provides hospital and other institutional 
insurance for persons age 65 or older and for certain disabled persons and is financed by the 
Federal Hospital Insurance Trust Fund. Medicare Part B (Supplementary Medical Insurance) 
is an optional program which covers most of the costs of medically necessary physician and 
other services and is financed by participants and general revenues. 
The Medicaid program provides grants to States for medical care for certain low-income 
people.  Eligibility  for  Medicaid  is,  in  general,  based  on  a  persons  eligibility  for 
Supplemental Security Income or the former Aid to Families with Dependent Children 
program. State expenditures for medical assistance are matched by the Federal Government 
using a formula that measures per capita income in each State relative to the national 
average. The State Childrens Health Insurance Program (SCHIP), created under Title XXI 
of the Social Security Act, expands health coverage to uninsured children whose families 
earn too much for Medicaid but too little to afford private coverage. The SCHIP program is 
a partnership between the Federal and State governments in which States may choose to 
expand their Medicaid programs, design new child health insurance programs or create a 
combination of both. 
The Office of Inspector General (OIG) has devoted significant resources to investigating and 
monitoring the Medicare and Medicaid programs. These activities have often led to criminal, 
civil and/or administrative actions against perpetrators of fraud and abuse. They also have 
helped ensure the cost-effective delivery of health care, improved the quality of health care 
and reduced the potential for fraud, waste and abuse. 
Over the years, OIG findings and recommendations have contributed to many significant 
reforms in the Medicare program. Such reforms include implementation of the prospective 
payment system (PPS) for inpatient hospital services and a fee schedule for physician 
services; regional consolidation of claims processing for durable medical equipment (DME); 
establishment of fraud units at Medicare contractors; prohibition on Medicare payment for 
physician self-referrals; and new payment methodologies for graduate medical education 
(GME). 
1
 The OIGs documentation of excessive payments led to recent statutory changes in the way 
and/or the amount Medicare reimburses rural health clinics, skilled nursing facilities, home 
health  agencies  (HHAs),  hospices,  ambulance  services,  oxygen  suppliers,  clinical 
laboratories, suppliers of certain Medicare-covered drugs and biologicals, teaching hospitals 
for indirect medical education costs and the States for Medicaid disproportionate share 
payments. To ensure quality of patient care, OIG has assessed clinical and physiological 
laboratories; evaluated the medical necessity of medical equipment and of services provided 
by HHAs; analyzed various State licensure and discipline issues; reviewed several aspects of 
medical necessity and quality of care under PPS, including the risk of early discharge; and 
evaluated the care rendered by itinerant surgeons and the treatment provided by physicians 
performing in-office surgery. 
The OIG also audits HCFAs financial statements which account for almost 83 percent of 
Department of Health and Human Services (HHS) outlays. In addition to issuing an opinion 
on the statements, OIG assesses compliance with Medicare laws and regulations and the 
adequacy of internal controls. 
Improper Fiscal Year 2000 Medicare 
Fee-for-Service Payments 
The OIG reported that improper payments under Medicares fee-for-service system totaled 
an estimated $11.9 billion during Fiscal Year (FY) 2000. This years estimate is the lowest to 
date  and  about  half  of  the  $23.2  billion  that  was  estimated  for  FY  1996,  when  OIG 
developed the first national error rate. While this years estimate is lower than last years, 
OIG cannot conclude that the current error rate is statistically different. 
The OIG developed the estimate of improper payments with the support of medical experts 
who together  reviewed a comprehensive, statistical  sample of Medicare fee-for-service 
claims  expenditures  and  supporting  medical  records  to  determine  the  accuracy  and 
legitimacy of the claims. 
The OIG believes that since the first error rate of 1996, HCFA has demonstrated continued 
vigilance in monitoring the error rate and developing appropriate corrective action plans. In 
addition,  it  clearly  shows  that  the  majority  of  health  care  providers  submit  claims  to 
Medicare  for  services  that  are  medically  necessary,  billed  correctly  and  documented 
properly.   As  in  past  years,  OIG  estimated  that  over  90  percent  of  the  FY  2000 
fee-for-service payments met Medicare reimbursement requirements. 
While OIGs 5-year analysis indicates continuing progress in reducing improper payments, 
there are indicators that unsupported and medically unnecessary services have been and 
continue to be pervasive problems. These two error categories accounted for over 70 percent 
2
 of the total improper payments over the 5 years. The HCFA needs to sustain its efforts to 
maintain progress in reducing these improper payments. (A-17-00-02000) 
Financial Statement Audit of the Health Care 
Financing Administration for Fiscal Year 2000 
In its audit report on HCFAs FY 2000 financial statements, OIG issued an unqualified 
opinion of the statements, namely that they present fairly, in all material respects, HCFAs 
financial  position,  its  net  costs,  changes  in  net  position,  budgetary  resources  and 
reconciliation  of  net  costs  to  budgetary  obligations  as  of  September  30,  2000,  in 
conformance with generally accepted accounting principles. However, the audit found that 
material weaknesses continue in financial analysis and regional and central office oversight, 
as well as in electronic data processing (EDP) controls. 
Overall,  the  Medicare  contractors  have  made  significant  improvements  in  maintaining 
supporting records for Medicare activities and yearend balances.  However, because the 
contractors lack a formal, integrated accounting system to accumulate and report financial 
information, they use ad hoc, labor-intensive reports which increase the risk of material 
misstatement  or  omission.  In  addition,  Medicare  contractor  controls  over  accounts 
receivable continue to need improvement. 
At HCFAs central office, procedures were implemented which resulted in adjustments to 
accounts receivable balances reported by the contractors. However, these procedures did not 
ensure that accounts receivable activity included in the contractor financial reports were 
properly supported by detailed transactions.  In addition, the HCFA central office did not 
have formal procedures documenting financial statement and financial reporting analysis 
functions,  and  regional  offices  did  not perform certain  procedures  to  help  ensure  that 
financial information provided by the contractors was reliable, accurate and complete. 
Further, OIG again found that weaknesses continue in EDP general controls at the Medicare 
contractors, as well as in application controls at the contractors shared systems.  The HCFA 
concurred with OIGs recommendations and is in the process of taking corrective action. 
(A-17-00-02001) 
Internal Controls at a Medicare Contractor 
As part of a pilot project, OIG evaluated a Medicare contractors internal controls and 
financial management of cash and accounts receivable.   The review identified  several 
weaknesses,  including  uncollected  overpayments  in  excess  of  $750,000,  lost  monthly 
income of $23,000 and inadequate reporting of accounts receivable resulting in a $3.3 
million overstatement for two quarters, as well as material errors in two quarterly financial 
statements. The latter resulted in misstatements of at least $51 million. The OIG made 
specific recommendations to the contractor and pointed out that the review demonstrated the 
3
 need  to  provide  Medicare  contractors  ongoing  and  in-depth  technical  assistance. 
(A-01-00-00535) 
Managed Care Payments After the Balanced Budget Act of 1997 
The Balanced Budget Act (BBA) of 1997 established the Medicare+Choice (M+C) program 
with the primary goal of providing a wider range of health plan choices to Medicare 
beneficiaries. The BBA also modified the payment methodology under the M+C program in 
order to correct excess payments,  reduce geographic variations in payments and align 
managed care organization (MCO) payments to reflect the health status of beneficiaries. 
Many MCO industry representatives now claim that the payment changes brought about by 
BBA were too severe and resulting payments are inadequate.  Among the reasons cited by 
the  industry  are  the  unintended  consequences  of  higher-than-anticipated  inflation,  the 
growing gap in funding between the M+C program and the fee-for-service program and 
administrative actions taken by HCFA affecting payments. To address these issues, OIG 
examined data submitted  by MCOs and findings from previous reports and studies by 
various agencies.  The OIG report revealed the following significant problems:  the basis on 
which the monthly  capitation  payment amounts were calculated was flawed; Medicare 
payments were being used to fund unnecessary administrative costs and excess profits; 
investment income was not accounted for by MCOs in the Medicare payment formula; and 
improper  payments  were  made  to  MCOs  for  erroneously  classified  beneficiaries.  The 
cumulative impact is that MCO payments for CY 2000 will be about 95 percent of the 
average amount paid in the Medicare fee-for-service (FFS) sector.  Since MCO payments 
were established at 95 percent of FFS to account for assumed efficiencies in the MCO 
sector, the net effect is that MCOs will be paid more than the Congress originally intended. 
This is in stark contrast to the industrys assertion that it was being adversely impacted by 
the BBA provision. 
Therefore, OIG recommended that HCFA consider all the related OIG recently completed 
information to modify the present monthly rates to a level fully supported by empirical data. 
The HCFA agreed with the overall finding that MCO payments are adequate to fund the 
Medicare package of covered services. (A-14-00-00212) 
Medicare Payments for Beneficiaries Reported as 
Institutionalized 
Medicare pays a higher capitation rate for Medicare beneficiaries who are institutionalized 
than for those who are not. In this report, OIG noted that, between January 1997 and 
December 1999, a Pennsylvania health plan claimed the higher rate for beneficiaries who 
were not institutionalized. Based on a statistical sample of claims, OIG estimated that 
overpayments totaled $306,269 over the 3-year period. 
4
 In addition to financial adjustments, OIG recommended that the plan strengthen internal 
controls for identifying, monitoring and billing the Medicare program for institutional status 
beneficiaries.  The plan agreed that errors occurred within the time frame examined but did 
not agree to financial adjustment.  (A-03-00-00010) 
The Emergency Medical Treatment and Labor Act 
The Emergency Medical Treatment and Labor Act (EMTALA), passed in 1986, addressed 
the problem of patient dumping, a term which refers to situations wherein hospitals fail to 
screen,  treat  or  appropriately  transfer  emergency  patients.  The  Act  requires  that 
Medicare-participating hospitals provide emergency services regardless of an individuals 
ability to pay and prohibits them from delaying examination or treatment to inquire about an 
individuals method of payment or insurance status.  The OIG issued the following two 
reports on this subject during this reporting period: 
A.  Survey of Hospital Emergency Departments 
The  first  report  described  the  results  of  a  mail  and  telephone  survey  of  emergency 
department managers, doctors, nurses and registration staff, as well as on-call physicians. 
The OIG found that most emergency department staff were familiar with EMTALA but were 
unaware of recent policy changes. Private managed care reimbursement practices created 
special problems in hospitals receiving payment for services required under EMTALA. 
The OIG concluded that additional efforts should be made to communicate policy decisions, 
and legislation compelling managed care plans to reimburse hospitals for EMTALA-related 
services should be supported. (OEI-09-98-00220) 
B.  The Enforcement Process 
In this report, OIG examined the mechanisms by which the Federal Government enforces 
EMTALA.  The  OIG  found  that  enforcement  was  compromised  by  long  delays  and 
inadequate feedback, as well as by inconsistency in enforcement across HCFA regions. 
Tracking systems were inadequate and peer review was not always obtained before HCFA 
considered terminating a hospital. 
The OIG recommended that HCFA increase its oversight of regional offices, improve data 
collection  and access and establish an EMTALA  technical advisory group.  The HCFA 
concurred with these recommendations.  (OEI-09-98-00221) 
Medicare Reimbursement for Critical Care Services 
The  HCFA,  as  well  as  local  carriers  and  practitioners,  has  voiced  concerns  about 
exploitation of critical care codes.  However, based on an analysis of claims in 1998 and 
1999, OIG found few problems with this aspect of the Medicare program. Ten physician 
5
 specialties, all of which could be expected to provide critical care, received 90 percent of 
Medicares reimbursement for critical care, while non-physician practitioners accounted for 
less than 0.09 percent.  Medicare carriers were not paying for services that should be 
bundled into critical care codes. Payments for services beyond the first hour on a given day 
without a corresponding bill for the first hour on that day dropped 74 percent between 1998 
and 1999. The OIG believes that the few problems identified can be efficiently corrected by 
HCFA requesting  carriers  to  refine  payment  system  edits  and  clarify  or  correct  local 
payment policy statements. There were no recommendations issued. (OEI-05-00-00420) 
Implementation of Medicares Postacute Care Transfer Policy 
Medicares postacute care transfer policy provides for reduced inpatient payment rates when 
PPS hospitals discharge beneficiaries in 10 specified diagnosis-related groups (DRGs) to 
certain postacute care settings; i.e., skilled nursing facilities, PPS-exempt hospitals (or units 
within a hospital) and home health agencies. 
A.  Blue Cross and Blue Shield of Georgia 
In this report, OIG estimated, based on a statistical sample, that Georgia hospitals were 
overpaid about $890,000 in FY 1999 for claims involving these 10 DRGs because the 
hospitals erroneously coded discharges as discharges to homes rather than discharges to 
postacute care settings. 
Among other things, OIG recommended that HCFA establish edits in its common working 
file to compare beneficiary inpatient claims potentially subject to the postacute care transfer 
policy with subsequent postacute claims.  This will allow potentially erroneous claims to be 
reviewed and appropriate adjustments to be made to the discharging hospitals inpatient 
claim. The HCFA concurred with the recommendations. (A-04-00-01201) 
B.  First Coast Service Options 
In this report, OIG estimated that hospitals serviced by the Medicare fiscal intermediary 
First Coast Service Options received $2 million in excessive payments in FY 1999 because 
the hospitals incorrectly coded bills as if the beneficiaries were discharged to homes when 
the beneficiaries had actually been transferred to postacute care settings. 
In addition to recommending edits in the common working file to detect this type of 
erroneously coded claim, OIG recommended several interim measures to HCFA, including 
issuing a  memorandum alerting  fiscal intermediaries to the problems identified  in this 
review. The HCFA concurred with the recommendations. (A-04-00-02162) 
6
 Outpatient Psychiatric Services 
Medicare  reimburses  psychiatric  care  hospitals  for  reasonable  costs  associated  with 
providing outpatient psychiatric services. The OIG conducted a review in nine States and the 
District of Columbia and two audits of specific acute-care hospitals. 
A. Ten Location Review 
For Calendar Year (CY) 1998 review, OIG selected claims from psychiatric care hospitals in 
California,  Connecticut,  the  District  of  Columbia,  Florida,  Illinois,  Louisiana, 
Massachusetts, New York, Pennsylvania and Texasthe locations with the largest dollar 
volume for outpatient psychiatric services nationwide. In reviewing 200 claims totaling 
$180,153 from these locations, OIG concluded that $75,413 of the charges did not meet 
Medicare  criteria  for  reimbursement.  The  claims  identified  were  not  documented  in 
accordance with Medicare requirements and/or not reasonable and necessary.  Based on this 
statistical  sample,  OIG  estimated  that  for  CY 1998  psychiatric  care  hospitals  in  these 
locations submitted claims to Medicare totaling more than $57 million for unallowable or 
unsupported psychiatric services. 
The OIG recommended that HCFA require Medicare fiscal intermediaries (FIs) to increase 
post-payment review of outpatient psychiatric service claims; require FIs to initiate recovery 
of  payments  for  claims  found  in  error;  and  further  emphasize  its  documentation 
requirements for all types of outpatient psychiatric services through seminars, educational 
sessions and newsletters. The HCFA concurred with all recommendations. (A-01-99-00530) 
B.  Illinois Hospital 
In this report, OIG pointed out that significant numbers of outpatient psychiatric claims by 
an Illinois hospital for the 15-month period ending November 30, 1997, did not meet 
Medicare reimbursement requirements. Based on a statistical sample, OIG estimated that 
unallowable charges totaled nearly $1.9 million for the above period. Specifically, many 
outpatient psychiatric services were not medically necessary, not supported by medical 
records or without any medical record. The OIG identified an additional $97,494 in other 
unallowable costs for meals, patient transportation and other unsupported costs. 
The OIG recommended that the hospital work with its FI to make appropriate financial 
adjustments. Additionally, OIG recommended that the hospital strengthen its controls and 
procedures  to  ensure  that  charges  for  outpatient  psychiatric  services  are  covered  and 
documented in accordance with Medicare requirements and that it develop procedures to 
exclude unallowable costs from its Medicare cost reports. The hospital concurred with the 
recommendations to establish procedures and controls to ensure outpatient and cost report 
compliance.  (A-05-00-00034) 
7
 C. New York Hospital 
An OIG review of a New York hospital concluded that many of the outpatient psychiatric 
services claimed did not meet Medicare criteria for reimbursement. The OIG estimated that, 
based on a review of statistically selected claims, at least $2,261,155 in such charges for CY 
1997  were  unallowable.  Specifically,  charges  for  outpatient  psychiatric services lacked 
sufficient patient treatment plans, lacked sufficient medical record documentation and/or 
were not reasonable and necessary. 
In addition to an appropriate financial adjustment, OIG recommended that the hospital 
strengthen  its  procedures  to  ensure  that  charges  for  outpatient psychiatric  services  are 
reasonable, necessary and properly documented in accordance with Medicare regulations 
and guidelines. (A-02-99-01010) 
Outpatient Rehabilitation Facilities 
As part of a national study to determine whether outpatient physical therapy, occupational 
therapy and speech pathology services were being provided and billed in accordance with 
Medicare  requirements  and  whether  costs  reported  on  the  CY 1997  cost  report  were 
allowable, OIG conducted audits of the following facilities: 
A.  Michigan Facility 
This final report points out that a Michigan rehabilitation facility claimed payment for 
outpatient rehabilitation services that did not meet Medicare criteria for reimbursement. 
Specifically, OIG identified  charges for outpatient  rehabilitation services that  were not 
reasonable and medically necessary for the beneficiarys condition or were inadequately 
documented. The OIG review of a statistical sample resulted in an estimate of at least 
$190,399 paid to the facility for unallowable charges. The OIG also identified additional 
unallowable costs of $313,220 in unreasonable owners compensation, contracted costs for 
which there was not sufficient documentation and other miscellaneous unallowable expenses 
on the facilitys CY 1997 Medicare cost report. 
The OIG recommended that the facility work with its fiscal intermediary to make financial 
adjustments.  In addition, OIG recommended stronger controls and procedures to ensure that 
claims for services are reasonable, necessary and properly documented and to exclude 
nonreimbursable  costs  from  Medicare  cost  reports.  The  facility  concurred  with  the 
recommendation regarding procedures and controls. (A-05-99-00062) 
B.  New Jersey 
A  New  Jersey  facility  claimed  payment  for  outpatient  services  that  did  not  meet  the 
Medicare criteria for reimbursement. The OIG identified charges for outpatient rehabilitation 
services that were not reasonable and necessary, lacked sufficient patient treatment plans 
and/or were not properly supported by medical record documentation. Based on a statistical 
8
 sample, OIG estimated that at least $241,774 was claimed by the facility for unallowable 
charges. The OIG also identified  unallowable costs of $56,034 in owners compensation 
and  miscellaneous  unsupported  costs  on  the  facilitys  CY  1997  Medicare  cost  report. 
During the audit, this facility voluntarily left the Medicare program. (A-02-99-01026) 
C.  Texas Facility 
A Texas facility claimed payment for outpatient rehabilitation services that did not meet 
Medicare  eligibility  and  reimbursement  requirements.  Specifically,  the  Medicare 
contractors medical review personnel identified claims for outpatient rehabilitation services 
that were not reasonable and necessary, authorized by a physician or supported by medical 
records.  In many cases the facility could not locate any medical records for a claim.  As a 
result, OIG estimated, based on a statistical sample, that at least $3.1 million was paid to the 
facility  for  improper  charges  for  FY  1998.  The  OIG  recommended  that  the  fiscal 
intermediary apply the appropriate financial adjustment during settlement of the facilitys 
FY 1998 cost report.  However, the facility is no longer in operation and along with its 
parent corporation has filed for bankruptcy under Chapter 11. (A-06-99-00057) 
Major Hospital Initiatives 
The OIG has launched five national projects involving civil actions at hospitals that were 
falsely billing the Medicare program. Three of the five grew from OIG hospital audits that 
identified irregularities in Medicare billing practices. 
A.  Physicians at Teaching Hospitals 
The  OIG  has  undertaken  a  nationwide  initiative  to  review  compliance  with  the  rules 
governing reimbursement to physicians at teaching hospitals (also known as the PATH 
initiative).  The specific objectives of the PATH audit initiative are to verify compliance with 
the Medicare rules governing payment for physician services provided by residents and 
teaching physicians and to ensure that all claims for physician services accurately reflect the 
level of service provided to the patient. 
Medicare, under Part A of the program, pays the direct costs of training residents through 
graduate medical education (GME) payments. Medicare also pays an additional amount in 
recognition of the additional costs associated with training residents, also known as indirect 
medical education (IME) payments. These payments can total over $100,000 per resident 
per year.  Medicare paid approximately $8 billion to teaching hospitals in 1999 for the cost 
of training residents. The Medicare payments described above include payments to teaching 
physicians for their role in supervising residents. 
The fundamental tenet of the PATH initiative is that in order to receive a separate payment 
from Medicare Part B for a service rendered to a patient, the teaching physician must have 
personally provided that service or have been present when the resident furnished the care. 
9
 Physicians claiming reimbursement for services performed by the resident alone are making 
a duplicate claimone that has already been paid for under Part A through the GME and 
IME payments. 
The PATH audits also include a review of Part B claims information and medical records to 
determine if the teaching physician claimed the appropriate reimbursement for the level of 
service provided. The Medicare billing systems vulnerability to upcoding is a longstanding 
concern at OIG. The PATH reviews are designed to detect patterns or practices of upcoding 
which result in unwarranted losses to the Medicare Trust Fund. 
In sum, the PATH initiative has been undertaken as a result of OIGs extensive audit and 
investigative work in this area. To date, eight institutions have entered into settlements with 
the Federal Government to resolve potential False Claims Act liability related to improper 
claims for Part B physician services submitted in the teaching setting. These settlements 
have resulted in the Governments  recovery  of over  $98.7 million. As a condition of 
settlement,  most  of  these  institutions  have  also  implemented  compliance  programs  to 
prevent and detect future improper claims. Reviews completed at four other institutions 
disclosed  no  major  problems  with either  billings  in  the  teaching  setting  or upcoding, 
demonstrating that providers can and do bill the Medicare program correctly, and reviews at 
two institutions resulted in administrative overpayment settlements, totaling $565,360, with 
the carriers. 
Separately, eight investigations not part of the PATH initiative, but which included billings 
for teaching physicians, concluded in False Claims Act settlements totaling over $41.1 
million. In all of these cases, the providers also entered into corporate integrity agreements 
with OIG. 
To determine whether, and to what extent, problems similar to those noted above were 
present at other teaching institutions throughout the country, the PATH project was expanded 
into a national initiative but limited to those institutions that received clear guidance before 
December 30, 1992, from the Medicare Part B carriers communicating the applicable HCFA 
reimbursement standards. As an alternative to OIG auditors conducting the audits, these 
providers  are  given  the  opportunity  to  conduct  self-audits  by  contracting  with  an 
independent third party for a review of their Medicare billing practices, with Government 
oversight, and to report the audit results to OIG. 
B.  Diagnosis Related Group 3-Day Window Project 
In 1995, OIG and the Department of Justice (DOJ) launched a national project to recover 
overpayments made to hospitals as a result of claims submitted for nonphysician outpatient 
services that were already included in  the hospitals inpatient payment under the PPS. 
Hospitals that submit claims for the outpatient service in addition to the inpatient admission 
are, in effect, double billing for the outpatient service. In addition, the project seeks to 
10
 recover for those services rendered to beneficiaries during the inpatient admission that 
should be included in the DRG but are separately charged. A prevalent pattern of abuse was 
identified through repeated OIG audits of hospital claims for inpatient services under PPS. 
Prior to the inception of this project, OIG had issued four reports to HCFA identifying 
approximately  $115.1  million  in  Medicare  overpayments  to  hospitals  caused  by  these 
improper billings. 
This  national  project  identified  4,660  hospitals  that  submitted  improper  billings  for 
outpatient services. The project is primarily coordinated by the U.S. Attorneys Office for 
the Middle District of Pennsylvania. As of the end of the reporting period, settlements had 
been executed with 2,799 hospitals and over $73 million had been recovered. 
One of the most  important aspects of this project is the stipulation in each settlement 
agreement that each hospital will ensure compliance with proper billing for inpatient and 
outpatient services. Such compliance measures are designed to prevent and detect erroneous 
billing. It is hoped that the deterrent effect of possible civil actions, along with promised 
compliance, will remove this source of improper claims. 
C.  Hospital Outpatient Laboratory Project 
The OIG, DOJ and multiple States joined forces to target false or fraudulent Medicare and 
Medicaid claims in hospital outpatient laboratories.  Based on the results of a project begun 
in Ohio by OIG, DOJ, the State of Ohio and the Medicare FI, U.S. Attorneys Offices in 
other States began their own investigations. This project involved the recovery of multiple 
damages, when appropriate, for improper and excessive claims submitted for hematology 
and  automated  blood  chemistry  tests  by  hospital  outpatient laboratories.  These  abuses 
stemmed from the improper unbundling and double billing of laboratory tests and, in certain 
cases, the billing for certain tests that were not medically necessary. The investigations have 
also shown numerous instances of billing for additional blood count indices that were not 
ordered by physicians and were not medically necessary. 
Clinical laboratory services were particularly vulnerable to these abuses because of the 
multiple number of tests ordered at one time and the capability of automated equipment to 
run numerous tests from one sample of blood at a low cost. Under Medicare guidelines, the 
hospitals were required to bill certain groupings of blood chemistry tests using a bundled 
code.  The  Medicare payment for blood chemistry panels is  significantly less  than the 
payments for each test billed separately. 
The OIG, DOJ and, in some districts, authorities from other Federal programs, such as 
TRICARE (the health care benefits program for current and former military employees) and 
Federal Employees Health Benefits Program (FEHBP), worked together on the national 
project to provide targeting data to the U. S. Attorneys Offices interested in pursuing this 
recovery initiative in their districts. The OIG also collaborated with DOJ to produce a model 
11
 settlement  agreement  including  compliance  measures  which  was  disseminated  to  all 
participating districts throughout the United States. 
Thus far, 288 hospitals have entered settlements, totaling more than $63 million, in the 
Hospital Outpatient Laboratory Project. More hospitals are expected to settle in the near 
future. 
D.  PPS Patient Transfer Project 
Another OIG/DOJ nationwide initiative is focused on improper payments to hospitals for 
patient transfers between two PPS hospitals. Under Medicare reimbursement rules, the 
hospital transferring a patient receives a graduated per diem payment based on the length of 
stay and the DRG for the case, but no more than the full DRG payment amount; the hospital 
receiving the transferred patient is paid the full DRG payment amount. 
The  OIG  found,  however,  that  since  1986  many  transferring  hospitals  inappropriately 
claimed full diagnosis-related payment rather than the per diem payment. The HCFA has 
already acted on OIGs first report which identified $227 million in recoveries and savings. 
The OIGs second report, issued in November 1996, and a more recent computer analysis of 
claims disclosed additional overpayments of approximately $232 million.  Currently, OIG is 
working with U.S. Attorneys offices nationwide, along with HCFA, on this continuing 
problem. The HCFA is preparing a program memorandum to address the collection of 
overpayments. To date, OIG has settled PPS cases with three hospitals, totaling over $2.2 
million. In addition, reviews at three institutions resulted in administrative overpayment 
settlements in the amount of $1,144,135. 
E.  Pneumonia Upcoding 
Medicare inpatient hospital stays are reimbursed based on the DRG that is assigned to the 
patients stay. The determination of the appropriate DRG for a particular case depends upon 
the hospitals assignment of diagnosis code(s) and procedure codes from the International 
th
Classification of Diseases, 9  Revision, Clinical Modification to the inpatient stay. Most 
pneumonia cases are grouped into one of four DRGs, one of which results in significantly 
higher payment to the hospital than do the others. Most pneumonia cases are grouped into 
the lower-paying DRGs. The OIG found that a small percentage of hospitals across the 
country have assigned a disproportionate number of pneumonia cases diagnosis codes that 
result in a discharge being assigned the higher paying DRG.  Review of the medical records 
has demonstrated that most of the cases should have been assigned a diagnosis code that 
would result in assignment of a lower-paying DRG. 
The OIG is currently investigating the coding for pneumonia at over 100 hospitals. To date, 
23 hospitals have settled their liability for such coding by paying over $23.7 million and 
agreeing to corporate integrity requirements. 
12
 Other Hospital Investigations 
The following cases are significant examples of other hospital-related cases resolved during 
this period which were not part of the special projects described above: 
	 Columbia  Homecare  Group,  Inc.  (CHG)  and  Columbia  Management 
Companies, Inc. (CMC), pleaded guilty to multiple Medicare offenses in 
several judicial districts and were fined $95 million.  The guilty pleas were 
entered  pursuant  to  a  plea  agreement  with  CHGs  and  CMCs  parent 
company,  HCA  - The  Healthcare  Corporation  (formerly  known  as 
Columbia/HCA Healthcare Corporation), a large national hospital chain. 
CHG pleaded guilty to:  (1) one count of receiving unlawful remuneration 
in violation of  the kickback statute for home health acquisitions in the 
Northern District of Georgia; (2) one count of conspiracy for home health 
acquisitions  in  the  Southern  District  of  Florida;  and  (3)  one  count  of 
conspiracy for home health acquisitions in the Middle District of Florida. 
CMC pleaded guilty to: (1) eight counts of making false statements and 
representations for cost report fraud in the Middle District of Florida; (2) 
one count of conspiracy for diagnosis-related group (DRG) upcoding in the 
Middle District of Tennessee; and (3)one count of conspiracy related to 
kickbacks to physicians in the Western District of Texas. 
The OIG and HCA have entered into a comprehensive 8-year corporate 
integrity agreement (CIA) that is unprecedented in the scope and detail of its 
auditing provisions.  HCA has also agreed to pay the United States $745 
million  in  a  civil  settlement.  When  the  civil  settlement  becomes  final 
(expected to occur during the second half of FY 2001, it will resolve five 
issues:  (1) upcoding of DRGs; (2) hospital lab unbundling and billing for 
medically unnecessary lab tests; (3) kickback and cost report (e.g., related 
party)  violations  arising  from  a  series  of  acquisitions  of  home  health 
agencies;  (4)  charging  marketing  costs  as  home  health  community 
education; and (5) billing for non-covered home health services. 
	 The U.S. Attorneys Office in New York entered a stipulation and order of 
settlement and dismissal to settle a civil case against a medical center. The 
medical center agreed to pay the Government $1.25 million to resolve its 
civil  liability  for  obtaining  an  overpayment  from  Medicare  relating  to 
ancillary pharmacy billings. The complaint filed alleged that the medical 
center submitted claims and received payment for ancillary pharmacy items 
not covered under Medicare.  In addition, the medical center agreed to enter 
into  an  institutional  compliance  agreement  to  supplement  its  existing 
compliance plan. 
13
 	 A medical center agreed to pay the Government $1.2 million and to enter 
into a 5-year corporate integrity agreement to resolve a qui tam suit filed in 
Georgia. From July 1995 to October 1998, the medical center improperly 
submitted claims for 1-day hospital admissions; improperly upcoded DRGs; 
and improperly included on cost reports the salary expenses for a nurse who 
did not perform 100 percent of her time on reimbursable patient care. 
Additionally, a physician named in the qui tam suit paid the Government 
$9,383 to settle allegations against him; and a second physician paid $5,715 
to  settle  a  civil  action  against  him  for  similar  misconduct.  Although a 
registered nurse (RN) is not qualified to perform histories and physicals, the 
physicians improperly used an RN at the medical center to perform these 
services for their hospital patients. 
	 In Pennsylvania, a small rural hospital and a medical practice providing 
anesthesia services to the hospital agreed to pay the Government a total of 
$700,000. The settlements resolved allegations that from 1993 to 1998 the 
hospital  and  medical  practice  were  not  billing  anesthesia  services  in 
compliance with Medicare rules governing their coding, documentation and 
reimbursement. The settlement agreement with the hospital also provided 
for the hospital to continue implementing its existing corporate compliance 
program. 
	 A Kentucky hospital agreed to pay the Government $226,164 for allegedly 
submitting improper claims between May 1996 and February 1999. The 
settlement agreement resolves the hospitals liability for submitting false 
claims to Medicare and Medicaid for more expensive cardiac catheters than 
were actually used at the hospitals cardiac catheterization laboratories. The 
settlement agreement also requires the hospital to make a good faith attempt 
to adjust the patient accounts of Medicare beneficiaries whose copayments 
may have been inflated due to the hospitals improper claims. The hospital 
also  agreed  to  abide  by  extensive  compliance  obligations  for  a  3-year 
period. 
Industry Guidance 
The OIG has continued to issue advisory opinions, special fraud alerts, special advisory 
bulletins and other guidance as part of its ongoing effort to promote the highest level of 
ethical and lawful conduct by the health care industry.  For the period from October 1, 2000, 
through March 31, 2001, OIG accepted nine advisory opinion requests and issued six 
advisory opinions. In accordance with the Health Insurance Portability and Accountability 
Act  of  1996  (HIPAA),  OIG  has  enlisted  the  help  of  the  provider  and  beneficiary 
communities to prevent impropriety by soliciting proposals (via Federal Register notice) for 
14
 modifying existing safe harbors to the anti-kickback statute.  The OIG received 3 timely 
filed responses to the December 2000 notice. 
Criminal Fraud 
One of the most common types of fraud perpetrated against Medicare, Medicaid and other 
Federal health care programs involves the filing of false claims or statements. Such false 
claims may be pursued  civilly  under  the False  Claims Act (for example, the hospital 
initiatives  described  in  pages  9-12).  In  appropriate  cases,  false  claims  may  also  be 
prosecuted criminally as Federal offenses such as mail fraud, wire fraud, false statements 
and various health care fraud offenses.  The successful resolution of these matters often 
results from combining investigative efforts and resources with the FBI and other law 
enforcement agencies. Following are descriptions of criminal prosecutions which resulted 
from the investigation of both false claims-related offenses and other health care-related 
offenses during this period: 
	 A physician and three others were sentenced in Washington following guilty 
pleas to health care fraud, mail fraud and conspiracy. The physician was 
sentenced to 35 months imprisonment, 3 years probation and payment of 
$470,710 in restitution. One individual was sentenced to 6 months home 
detention, 5 years probation and payment of $30,000 in restitution. The 
second individual was sentenced to 10 months home detention, 5 years 
probation  and  payment  of  $30,000  in  restitution;  and  the  third  was 
sentenced  to  5  years  probation,  500  hours  of  community  service  and 
payment  of  $10,000  in  restitution.  The  defendants  were  owners  and 
operators of clinics located throughout the greater Seattle, Washington, area. 
The clinics provided noncovered services such as acupuncture, nutrition 
counseling and massage therapy but billed Medicare and other insurers for 
physician office visits. 
	 A Michigan chiropractor was sentenced, for health care fraud and mail 
fraud, to 18 months confinement in a community correctional facility, 3 
years supervised release and payment of $343,771 in restitution.  As the 
owner of a medical center in Michigan, the chiropractor submitted claims to 
Medicare and a private insurer using another physicians PIN in order to bill 
for services outside his field of chiropractic medicine. 
	 The owner of a rehabilitation and wellness clinic in Texas was sentenced to 
24 months confinement and payment of $186,622 in restitution. A registered 
nurse employed by the clinic was also sentenced to 21 months confinement 
and  payment  of  $124,000  in  restitution.  The  defendants  defrauded 
Medicare  and  Medicaid  by  billing  physical  therapy  and  psychological 
services provided by unsupervised, unlicensed clinic employees as though 
15
 directly supervised by a physician. To perpetrate the scheme, the defendants 
used  a  physicians  signature  stamp  and  photocopies  of  a  physicians 
signature on patient evaluation and prescription forms. 
	 In  New  York,  a  clinical  social  worker  was  sentenced  to  2  years 
incarceration, 3 years supervised release and payment of restitution totaling 
$171,235 to Medicare and a private insurer for health care fraud. The social 
worker, who is also a retired probation officer, billed both insurers for 
psychotherapy services not rendered to several elderly beneficiaries. He also 
improperly billed and received reimbursement for psychotherapy services 
he purportedly provided to his mother; billing for services on behalf of an 
immediate  family  member  is  against  both  insurers  regulations  and 
represents a professional conflict of interest. 
	 In Arizona, a woman was sentenced to 15 months imprisonment (with 12 
months time served), 3 years probation and payment of more than $88,000 
in restitution for fraud and related activity in connection with identification 
documents and false statements relating to health care matters.  The woman 
stole the identity of a person in Vermont more than 3 years ago; she then 
incurred medical bills across the country in the victims name by feigning 
illness in an effort to obtain drugs. Due to her actions, the Arizona Medicaid 
program alone incurred more than $51,000 in medical expenses, including a 
medical helicopter ride from a remote Arizona town to a regional medical 
facility. 
	 A Maryland podiatrist was sentenced to 6 months home detention, 2 years 
probation and $3,100 in fines for mail fraud. The podiatrist submitted false 
claims to Medicare and TRICARE by billing for noncovered whirlpool 
treatments and by billing under evaluation and management codes when he 
actually  provided  routine  foot  care.  In  an  earlier  civil  settlement,  the 
podiatrist agreed to pay the Government $301,000.  He also agreed to be 
permanently excluded and to surrender his medical license. 
	 In Pennsylvania, a physician was sentenced to 13 months incarceration, 3 
years supervised release and $3,300 in fines for mail fraud and health care 
fraud.  In 1990, the physician was also convicted of Medicaid fraud in New 
York for his role in submitting false claims for DME supplies not provided 
to patients.  As a result of this conviction, the physician was sanctioned 
from participating in the Medicare and Medicaid programs for a 5-year 
period effective January 1992. After serving 3 years probation, the physician 
relocated from New York to Pennsylvania where he entered into residency 
training at a medical school.  In 1996, he became a licensed Pennsylvania 
16
 physician able to participate in various health insurance plans, including 
Medicare  and  Medicaid.  The  physician  failed  to  disclose  to  Medicare, 
Medicaid, his employers, the licensing board and various private health 
insurance  plans  that  he  was  both  a  convicted  felon  and  an  excluded 
provider. He created false histories of his past by disseminating fraudulent 
resumes concealing his prior criminal conviction. 
	 A New York chiropractor was sentenced to 27 months imprisonment, 3 
years probation and payment of $133,171 in restitution for false claims and 
mail  fraud.  Along  with  several  of  her  employees  and  patients,  the 
chiropractor submitted false claims for chiropractic and physical therapy 
treatments. The chiropractor entered into agreements with her office staff 
through which the workers billed for treatments for themselves and other 
family members that were not rendered.  The physical therapy treatments 
were billed under the provider number of a physician who shared office 
space with the chiropractor.  The chiropractor then cashed the insurance 
reimbursement checks against a joint account she shared with the physician. 
The  chiropractor  and  her  employees  split  the  proceeds  from  the 
reimbursement checks. The chiropractor also billed Medicare and private 
insurance companies for physical therapy and chiropractic services when 
she actually provided massage therapy. 
	 A Pennsylvania podiatrist was sentenced to 6 months home detention and 18 
months probation for obstruction of a Federal audit. During a Medicare 
Review Audit of the podiatrists patient records, a consultant found that the 
physical  therapy  modalities  the  podiatrist  billed  were  medically 
unnecessary. Moreover, the modalities billed were so excessive that patients 
would have been severely burned or harmed if they actually received the 
services  documented  in  the podiatrists records and billed to Medicare. 
During the course of a subsequent audit, the podiatrist admitted that he 
fabricated the patient records furnished to Medicare review for purposes of 
the audit.  Based on his plea to obstruction of a Federal audit and the fact 
that he is $187,000 in default on a HEAL loan, the podiatrist will also be 
excluded from the Medicare program. 
Kickbacks 
Many businesses use referrals to meet the needs of customers or clients for expertise, 
services or items which are not part of their own regular operations or products. The medical 
profession relies heavily upon referrals because of the myriad specialties and technologies 
associated with health care. If referrals of Federal health care program beneficiaries are 
made in exchange for anything of value, however, both the giver and receiver may violate 
the Federal anti-kickback statute. 
17
 The anti-kickback statute penalizes anyone who knowingly and willfully solicits, receives, 
offers or pays remuneration, in cash or in kind, to induce or in return for: 
	 referring an individual to a person or entity for the furnishing, or arranging 
for the furnishing, of any item or service payable under the Federal health 
care programs; or 
	 purchasing,  leasing  or  ordering,  or  arranging  for  or  recommending  the 
purchasing, leasing or ordering of any good, facility, service or item payable 
under the Federal health care programs. 
Violators are subject to criminal penalties and to exclusion from participation in Federal 
health care programs. They may also be subject to civil monetary penalties (CMPs). The 
following cases are examples of anti-kickback enforcement actions: 
	 In Michigan, the Government settled a civil False Claims Act case as part of 
a global resolution to a matter involving an osteopathic physician allegedly 
involved in several fraudulent schemes concerning nursing home patients. 
Through these schemes, the osteopath allegedly submitted false claims to 
Medicare for services furnished to residents in nursing homes that were 
either upcoded or never provided. As part of the settlement agreement, he 
agreed  to  pay  the  Government  $2  million  and  the  State  of  Michigan 
$47,751.  The osteopath also allegedly accepted kickbacks for referring 
residents (ineligible for hospice services) of nursing homes he owned to a 
hospice for which he was the medical director. 
	 A  Florida  physician  was  sentenced  to  144  months  imprisonment  for 
conspiracy  to  dispense  and  distribute  controlled  substances  outside  the 
course  of  professional  medical  practice.  She  was  also  sentenced  to  57 
months imprisonment for conspiracy to defraud the Medicare program and 
10 months for conspiracy to solicit and receive kickbacks in return for 
ordering  Medicare  services  and  for  referring  Medicare beneficiaries. In 
addition  to  these  sentences,  which  are  to  be  served  concurrently,  the 
physician was also sentenced to 5 years supervised release and payment of 
$229,384  in  restitution.  In  December  1999,  a  351-count  superseding 
indictment charged her with both drug related offenses and health care fraud 
related offenses. The indictment alleged that the physician routinely wrote 
large quantities of prescriptions for highly addictive pain medication, billed 
Medicare for services not provided and upcoded patients office visits.  A 
second individual was also sentenced to serve 192 months imprisonment 
and 5 years supervised release and was ordered to pay a total of $56,400 in 
fines  for  drug-related  offenses.  Through  his  pharmacy,  the  individual 
18
 dispensed  in  excess  of  one  million  doses  of  highly  addictive  pain 
medication based upon prescriptions written by the physician. Furthermore, 
the individual knowingly filled hundreds of invalid prescriptions that the 
physician had prewritten and which contained false information. 
	 A New York cardiologist paid $30,000 and entered into a 3-year physician 
integrity agreement to resolve OIGs CMP law case against him for payment 
of  kickbacks.  The  cardiologist  made  a  series  of  small payments to an 
internist to induce the internist to refer his patients, including Medicare 
beneficiaries, to the cardiologist for diagnostic testing.  The OIG initiated 
the action based upon its CMP authority for remuneration offered, paid, 
solicited or received after August 5, 1997. 
	 A Georgia DME company owner was sentenced to 2 years probation, 4 
months home confinement and payment of $8,100 in restitution for illegal 
kickback activity.  The DME company owner paid kickbacks to a podiatrist 
in return  for the referral of patients  requiring lymphedema pumps.   In 
August  2000,  the  podiatrist  was  also  sentenced  for  violating  the 
anti-kickback statute. 
Fraud and Abuse Sanctions 
During this reporting period, OIG imposed 1,819 administrative sanctions, in the form of 
program exclusions or civil actions, on individuals and entities for engaging in fraud or 
abuse or other activities deemed to be a risk to Federal health care programs and/or their 
beneficiaries. 
A.  Program Exclusions 
Title XI of the Social Security Act provides a number of bases for excluding individuals and 
entities from participation in Medicare, Medicaid and other Federal health care programs. 
Exclusion is mandatory for those convicted of program-related crimes, crimes related to 
patient abuse or neglect, felony convictions for defrauding other health care programs and 
felony convictions for the illegal manufacture or distribution of controlled substances. 
Exclusion is discretionary for those who have lost a license to practice or the right to 
participate in a State health care program for reasons related to professional performance, 
professional  competence or  financial  integrity, or provided substandard or unnecessary 
services.  Exclusions may also be imposed on those convicted of a misdemeanor for private 
insurance fraud or of obstruction of an investigation and on individuals who have failed to 
repay health education assistance loans (HEALs). (See page 51  for further information on 
exclusions for HEAL defaults.) 
19
 During this reporting period, OIG imposed exclusions on 1,610 individuals and entities. The 
following are examples of some of the exclusions that were imposed: 
	 A  Florida  registered  nurse  was  excluded  for  25  years  based  on  her 
conviction for participating in a conspiracy by HHAs to fraudulently submit 
Medicare  claims  and  her  previous  10-year  exclusion  from  Medicare, 
Medicaid and all Federal health care programs (instituted after an earlier 
conviction for a program-related offense).  In the scheme which led to her 
second conviction and exclusion,  she allowed her name to be used on 
fraudulent claims, even though she had neither seen nor provided care to the 
patients.  The court ordered her to serve 18 months in prison and pay more 
than $19,000 in restitution. 
	 In Tennessee, a chiropractor was excluded for 15 years based on his patient 
abuse and health care fraud convictions.  His first conviction resulted from 
his plea of nolo contendere to sexual battery.  The court ordered him to be 
incarcerated for 109 days.  His second conviction was for submitting a 
claim for physical therapy services not performed by a physical therapist. 
This time the court sentenced him to 8 months in jail and ordered him to pay 
approximately $9,000 in restitution. 
	 After  being  convicted  for  his  role  in  a  scheme  to  defraud  the  Maine 
Medicaid  program  and  the  Social  Security  Administration,  a  disabled 
Medicaid recipient was excluded for 5 years.  This individual submitted 
false  claims  for  himself  and  another  individual  for  transportation  and 
medical services that were not provided to them. The court ordered him to 
pay restitution in excess of $44,000. 
	 A  25-year  exclusion  was  implemented  against  a  physician  who  was 
convicted twice in Florida.  His first conviction was for practicing medicine 
without a license. The doctor, who had also been convicted previously in 
New York for the same offense, was ordered by the court to spend 1 year in 
jail and pay restitution of $24,000.  His second Florida conviction involved 
health care and mail fraud. The physician was found guilty of executing a 
scheme for obtaining fraudulent medical school documents which, in turn, 
enabled him to become a licensed Florida physician. He then represented 
himself to be a qualified and validly licensed physician and thus was able to 
bill health  care programs through the mail for services he provided to 
patients.  The court ordered him to be incarcerated for 39 months and pay 
almost $5 million in restitution. 
20
 	 An individual was excluded for 5 years based on his conviction for health 
care  fraud  and  the  unlawful  acquisition  and  distribution  of  controlled 
substances. He used the Maine Medicaid program to pay for controlled 
substances which he then unlawfully distributed. The court sentenced him to 
18 months in jail and ordered him to pay over $1,000 in restitution. 
B.  Civil Penalties for Patient Dumping 
Section  1867  of  the  Social  Security  Act  (42  U.S.C.  1395dd)  provides  that  when  an 
individual presents to the emergency room for examination or treatment, a hospital which 
has a Medicare provider agreement is required to provide an appropriate medical screening 
examination to determine whether that individual has an emergency medical condition.  If 
an individual has such a condition, the hospital must provide, within the capabilities of the 
staff and facilities available at the hospital, treatment to stabilize the condition, unless a 
physician certifies that the individual should be transferred because the benefits of medical 
treatment elsewhere outweigh the risks associated with transfer or if the patient requests to 
be  transferred  after  being  advised  of  the  inherent  risks.  If  a  transfer  is  ordered,  the 
transferring hospital must arrange for a safe transfer, which includes providing stabilizing 
treatment to minimize the risks of transfer, making sure the receiving hospital has agreed to 
accept the transfer and effecting the transfer through qualified personnel and transportation 
equipment. A hospital is prohibited from delaying provision of examination or treatment for 
an emergency medical condition to inquire about an individuals method of payment or 
insurance status. Further, a participating hospital with specialized capabilities or facilities 
may not refuse to accept an appropriate transfer of an individual who needs those services if 
the hospital has the capacity to treat the individual. 
The OIG is authorized to impose CMPs of up to $25,000 against small hospitals (less than 
100 beds) and up to $50,000 against larger hospitals (100 beds or more) for each instance in 
which the hospital negligently violated any of the section 1867 requirements. In addition, 
OIG may impose a CMP of up to $50,000 against a responsible physician, including an 
on-call physician, for each negligent violation of any of the section 1867 requirements. 
Between October 1, 2000, through March 31, 2001, OIG collected $325,250 in settlement 
amounts from 15 hospitals and physicians. The following is a sampling of the alleged 
violations involved in the FY 2001 Patient Anti-Dumping Statute settlements from this 
reporting period: 
	  An Oklahoma hospital settled for $40,000 an allegation that it refused to 
accept the appropriate transfer of a patient who had been critically injured in 
an  automobile  accident  and  required  emergency  vascular  surgery.  The 
transferring hospital did not have the specialized capabilities or facilities 
that  were  required  to  treat  the  life-threatening  injury  to  the  patients 
abdominal aorta.  After numerous calls to hospital emergency rooms and 
21
 physicians,  the  patient  was  eventually  transferred  to  a  hospital  where 
surgery was performed in an unsuccessful attempt to save his life. 
	 An Ohio physician agreed to pay $20,000 for an allegation that he failed to 
stabilize an individual who had an unstable emergency medical condition. 
Hours  after  being  discharged  from  the  emergency  room,  the  patient 
presented to another hospital where he was admitted and treated for 10 days. 
	 A Utah hospital settled for $40,000 an allegation that it inappropriately 
transferred a high risk obstetrics patient. The patient had been transferred to 
the hospital via an ambulance. She was being prepared for delivery when 
the patients insurance company related that it would not pay for delivery at 
that hospital.  As a result, the patient was transferred yet again to another 
hospital where she immediately had an abrupted delivery. 
	 A Missouri hospital agreed to pay $40,000 for allegations that it denied 
screening  exams  to  two  patients  because  their  primary  care  physicians 
apparently  denied  payment authorization for treatment.  In addition, one 
patient was not transferred in complete compliance with EMTALA transfer 
requirements. 
	 A  Virginia  hospital  paid  $30,000  to  settle  an  allegation  that  it 
inappropriately  transferred  a  patient  to  a  psychiatric  hospital  without 
completing an appropriate medical screening of his physical complaints or 
providing stabilizing treatment. 
C.  Civil Penalties for False Claims 
Under the civil monetary penalties (CMP) authorities enacted by the Congress, OIG may 
impose penalties and assessments against health care providers and others who submit false 
or improper claims to Medicare and other Federal health care programs. The OIG also 
assists DOJ in bringing (and settling) cases against wrongdoers under the False Claims Act. 
Many providers elect to settle their cases prior to litigation. As part of resolving these cases, 
OIG frequently imposes corporate integrity agreements on entities as a condition for being 
allowed to remain a provider in the Medicare program. The integrity programs established 
by these agreements are designed to prevent a recurrence of the fraudulent activities that 
gave rise to the case at issue. The Government, with the assistance of OIG and often the FBI 
and other law enforcement agencies, recouped more than $99.8 million through both CMP 
and False Claims Act civil settlements related to the Medicare and Medicaid programs 
during this reporting period. Some examples of these cases include the following: 
	 Based upon a cooperative effort among the FDA, DOJ and OIG, the United 
States entered into a global settlement for $60 million with a California 
22
 corporation that develops, designs, manufactures, distributes and sells blood 
glucose monitoring systems. The global settlement involved a misdemeanor 
guilty plea and resolved the companys criminal liability for certain FDA 
reporting violations and its civil liability under the False Claims Act and 
CMP  law  for  introducing  and  delivering  into  interstate  commerce  an 
adulterated and misbranded medical device for which Federal and State 
health care programs (including Medicare, VA and TRICARE) paid. This 
settlement also resolved the companys administrative exclusion liability. 
To resolve concerns related to future compliance issues, the FDA required 
as part of Special Conditions of Probation that for the next 3 years the 
company engage in extensive training, review and reporting requirements. 
In addition, in exchange for OIGs exclusion release (the misdemeanor plea 
did not result in a mandatory exclusion) and to address Federal health care 
program compliance concerns, the company entered into a 3-year corporate 
compliance agreement that supplements the FDA compliance requirements. 
	 In the first settlement of its kind with a major drug manufacturer, the United 
States recently settled a qui tam False Claims Act case with the Bayer 
Corporation.  Under  the  terms  of a settlement negotiated by a  team of 
Federal  and  State  law  enforcement  officials,  Bayer  agreed  to  pay  $14 
million and enter a comprehensive 5-year corporate integrity agreement 
with OIG to resolve its liability to the Medicaid program. Through the 
settlement, Bayer resolved its liability under the False Claims Act, CMP law 
and the Medicaid Rebate statute for its conduct in connection with six of its 
drugs (the qui tam drugs) between January 1993 and August 1999. Bayer 
allegedly (1) knowingly set and reported average wholesale prices (AWPs) 
for the qui tam drugs at levels far higher than the actual acquisition cost of 
the majority of its customers and caused those customers to receive excess 
Medicaid  reimbursement;  (2)  made  misrepresentations  to  the  Medicaid 
programs of certain States; and (3) knowingly misreported and underpaid its 
Medicaid Rebates for the qui tam drugs. 
This corporate integrity agreement is unique because it requires Bayer to 
affirmatively undertake certain drug price reporting obligations, including 
(for the first time) an obligation to provide certified pricing data directly to 
the  Medicaid  programs  for  all  Bayer  products  that  are  reimbursed  by 
Medicaid.  Ideally, the State Medicaid programs will be able to use this 
certified  pricing data to set more appropriate  reimbursement levels for 
drugs. 
23
 	 An HMO in Illinois entered into a $2.9 million settlement agreement and a 
corporate integrity agreement to resolve allegations of defrauding Medicare. 
The investigation began in 1998 after an audit by OIG showed that the 
HMO was falsely reporting the status of Medicare beneficiaries. As a result 
of  upcoding  beneficiaries  to  an  institutionalized  status,  the  HMO  was 
receiving approximately double the monthly capitation rate paid to an HMO 
by Medicare. In order to qualify for this higher monthly capitation rate, the 
beneficiary must have been in an institution, such as a hospital, nursing 
home, or psychiatric facility for 30 consecutive days. 
	 In Arizona, a clinical laboratory agreed to pay the Government $1.5 million 
to resolve a qui tam suit. The laboratory also agreed to maintain its current 
compliance  program  for  the  next  3  years  following  execution  of  the 
settlement. The relator alleged that, from the 1980s to the present, the 
laboratory submitted false claims for medically unnecessary and unordered 
lab tests. The investigation determined that, between 1989 and 1993, the 
laboratory marketed, sold, priced and billed Federal health care programs 
for apolipoprotein tests (APOs) as part of the laboratorys lipid profile and 
executive  profile  lab  tests.  The  laboratory  knew  the  APOs  were  not 
specifically ordered by a physician and were not medically necessary. 
	 Five physician groups in multiple jurisdictions settled allegations arising 
from a qui tam law suit, which revealed that they employed a billing agency 
that submitted upcoded emergency room services to Medicare, Medicaid, 
TRICARE and FEHBP on their behalf.  Under the terms of the settlement 
agreement, the physician groups have agreed to pay a combined total of 
$581,303. In addition, one of the physician groups entered into a corporate 
integrity agreement. 
	 In California, the estate of a deceased physician entered into a settlement 
agreement with the Government to resolve his civil liability for improper 
Medicare claims submitted from July 1996 through December 1996. The 
Government will recover $403,838 from the estate. The physician, who 
owned three medical clinics in California, died in a car accident in March 
1999. The estate is resolving his liability for billing Medicare for procedures 
and  services  not  authorized,  not  medically  necessary,  not  rendered  or 
upcoded.  The estate also agreed to waive $43,838 in withheld Medicare 
funds. 
	 Two physicians located in Texas have agreed to pay a combined amount of 
$182,986 to resolve their respective liabilities under the False Claims Act, 
CMP law, and OIGs exclusion authority.  The physicians were alleged to 
24
 have admitted Medicare beneficiaries to a hospital when hospitalization was 
not medically necessary. Both physicians have agreed to be permanently 
excluded from participating in any Federal health care programs. 
	 Two licensed clinical social workers, employees of a hospice facility that 
previously settled a case with OIG, located in Michigan agreed to pay a total 
of $110,000 to resolve allegations that one of the clinical social workers 
made  false  certifications  of  terminal  illnesses,  while  the  other  falsified 
patients psychosocial assessments. 
	 A former anesthesiologist practicing in Maine and an anesthesia practice 
agreed to pay the Government $79,000 to resolve their civil liability under 
the False Claims Act and the CMP law. Between 1993 and 1996, the former 
anesthesiologist  submitted  improper  claims  to  Medicare,  Medicaid  and 
TRICARE for anesthesia services which did not meet the minimum criteria 
for the categories of service billed. In several instances, the anesthesiologist 
billed  for  services  performed  by  certified  registered  nurse  anesthetists 
(CRNAs) as though he personally provided the service.  In other instances, 
the anesthesiologist was not even in the hospital at the time the CRNA 
rendered the service.  Additionally, in 1997 the anesthesiologist submitted 
claims  to  Medicare,  Medicaid  and  TRICARE  for  services  provided  by 
physicians who were paid by the hospital. As part of the settlement, the 
anesthesiologist  must  annually  certify  that  he  is  not  involved  in  the 
submission of claims to Federal health care programs. 
	 A behavioral health company in Louisiana agreed to pay the Government 
$50,000 to resolve its civil monetary penalty liability for alleged misconduct 
by the companys predecessor owner.  The facility allegedly submitted false 
claims for medically unnecessary psychiatric hospital services, as well as for 
poor quality services.  The settlement figure represents the amount billed to 
care  for  Medicare  patients  an  expert  determined  were  inappropriately 
admitted.  In addition, the company entered into a 3-year corporate integrity 
agreement with OIG. 
D.  Compliance Activities 
The existence of an effective compliance program can offer an organization certain credit 
under the Federal Sentencing Guidelines which would ameliorate a sentence in a criminal 
matter. This and other benefits have served to encourage the private sector to develop 
methods to prevent the submission of improper claims and inappropriate conduct and to 
detect violations of Federal fraud and abuse laws, including the False Claims Act and the 
CMP law.  The OIG has already initiated significant outreach efforts with the private sector 
to encourage these compliance endeavors. 
25
 The  OIG  continues  in  its  efforts  to  promote  voluntarily  developed  and  implemented 
compliance programs by providing guidance for the various sectors of the health care 
industry. To this end, OIG has developed and released compliance program guidance for 
clinical laboratories, hospitals, HHAs, third-party billing companies, DME, prosthetics and 
orthotics suppliers, hospices, Medicare+Choice organizations that offer coordinated care 
plans, nursing homes, and individual and small group physician practices. The OIG is 
currently working on compliance guidance for ambulance service providers. 
With respect to guidance and outreach to the physician community, OIG obtained significant 
input from physicians regarding its compliance program guidance for individual and small 
group  physician  practices.  The  physician  guidance  highlights  the  seven  elements  of 
effective compliance programs set forth in the Federal Sentencing Guidelines.  However, 
OIG adapted these seven elements to reflect the staffing and financial constraints faced by 
many individual and small group physician practices. The guidance contains four main risk 
areas:  coding  and  billing;  reasonable and necessary  services; documentation, including 
medical record documentation and HCFA 1500 forms; and kickbacks, inducements and 
self-referrals. The guidance is intended to serve as a useful resource for physician practices 
and includes several appendices providing additional information. These appendices contain 
additional  risk  areas  that  physician  practices  should  be  familiar  with;  summaries  and 
examples of civil, administrative and criminal statutes related to the Federal health care 
programs; carrier contact information; and a listing of related Internet resources. 
As noted in the Federal Sentencing Guidelines,  the  seven fundamental elements of an 
effective compliance program are the following: implementing written policies, procedures 
and standards of conduct; designating a compliance officer and compliance committee; 
conducting effective training and education; developing effective lines of communication; 
enforcing standards  through  well-publicized  disciplinary guidelines; conducting internal 
monitoring and auditing; and responding promptly to detected offenses and developing 
corrective action initiatives. 
Copies of OIGs compliance program guidances, as well as other materials developed by 
OIG as part of its effort to identify and curb health care waste, fraud and abuse, are available 
on the Internet at http://www.hhs.gov/oig in the Compliance Tools and Fraud Detection 
& Prevention sections. 
In addition to developing compliance program  guidance which promotes  the voluntary 
adoption  of  compliance  measures  by  private  industry,  OIG  monitors  compliance  and 
integrity obligations imposed on health care providers as part of global fraud settlements of 
OIG  investigations  and  audits.  These  compliance  obligations  are  typically  negotiated 
through an agreement commonly referred to as a corporate integrity agreement. When 
negotiating these integrity agreements, OIG takes into account an entitys existing voluntary 
compliance program, if any. Presently, OIG is monitoring approximately 500 corporate 
26
 integrity agreements. These agreements cover the range of providers from small physician 
offices  to  large  hospitals  and  laboratory  corporations.  The  duration  of  most  current 
corporate integrity agreements is 5 years and these agreements require the provider to take 
substantial measures to ensure that the organization is operating within HCFA rules and 
regulations and the parameters established by the corporate integrity agreement. A material 
failure to adhere to the corporate integrity agreement could result in financial penalties or 
exclusion of the provider. 
To  assist  with  efforts  to  verify  compliance  with  the  terms  of  the  corporate  integrity 
agreements, OIG staff conducts on-site visits to certain entities and providers subject to the 
compliance obligations. The OIG has approximately 25 site visits scheduled for FY 2001. 
These  site  visits  generally  involve  meeting  with  compliance  staff  and  management, 
employee interviews, a claims review and a detailed discussion of assertions made in annual 
reports submitted to OIG by the provider. Site visits often verify compliance with the 
corporate integrity obligations, but they have also uncovered and confirmed instances of 
noncompliance,  including  improper  claims  reviews  and  the  providers  placement  of 
prohibited costs related to a false claims settlement agreement on provider cost reports. 
As one of its six task orders awarded to program safeguard contractors, in November 1999 
HCFA  contracted  with  TriCenturion,  LLC,  a  new  company  formed  by  three  current 
Medicare contractors (Blue Cross Blue Shield of Florida, Blue Cross Blue Shield of South 
Carolina and TrailBlazer Health Enterprises) to assist OIG in its monitoring of providers 
subject to corporate integrity agreements.  In the following contract year, TriCenturion will 
perform  approximately  30  on-site  reviews  of  providers  subject  to  corporate  integrity 
agreements  to  assist  OIG  in  determining  if  providers  are  billing  in  compliance  with 
applicable  Medicare  laws.  In  addition,  OIG  staff  is  working  closely  with  HCFA  and 
TriCenturion on this important project. This effort will complement the site visits conducted 
by OIGs compliance unit staff. 
Provider Self-Disclosure Protocol 
In keeping with a longstanding commitment to assist providers and suppliers in detecting 
and preventing fraudulent and abusive practices, on October 21, 1998, OIG issued a set of 
comprehensive guidelines for voluntary self-disclosures. These guidelines, known as the 
Provider  Self-Disclosure  Protocol,  can  be  found  on  OIGs  Internet  site 
(http://www.hhs.gov/oig) or as published in 63 Federal Register 58,399 (October 30, 1998). 
Essentially, the Protocol guides providers and suppliers through the process of structuring a 
disclosure to OIG of matters uncovered that are believed to constitute potential violations of 
Federal criminal, civil and/or administrative laws (as opposed to innocent mistakes that may 
have resulted in overpayments).  Pursuant to the Protocol, an appropriate submission would 
include a thorough internal investigation as to the nature and cause of the matters uncovered 
27
 and a reliable assessment of their economic impact (e.g., an estimate of the losses to the 
Federal health care programs). 
Unlike prior voluntary disclosure procedures (e.g., Voluntary Disclosure Pilot Program), 
there are no limitations as to the type of provider or supplier that can avail itself of the 
Protocols guidance or with respect to geographical location.  Nor is the fact that a provider 
or  supplier is under investigation by  another Government agency an automatic bar to 
submissions  under  the  Protocol.  The  OIG evaluates each  submission to determine the 
appropriate  course  of  action.  To  date,  OIG  has  received  119  submissions.  They  are 
comprised of a variety of issues and types of providers throughout the country. 
Among the benefits experienced by disclosing providers is the allocation of investigative 
resources that can contribute to an expeditious inquiry and a prompt resolution of the matter. 
Additionally, disclosing providers that demonstrate the effectiveness of their compliance 
programs and that, as part of the resolution of the matter, agree to continue such compliance 
activities may avoid entering into a corporate integrity agreement with OIG. In those cases 
where objective evidence of a comprehensive compliance program exists and OIG believes 
a corporate integrity agreement is necessary, OIG may make significant concessions in the 
term of a corporate integrity agreement or the role of the independent review organization. 
Overall, the Protocol provides helpful guidance to providers and the community at large 
concerning how to achieve resolution of identified misconduct through a cooperative and 
open relationship with the Government. To date, self-disclosure cases have resulted in 18 
recoveries and 13 settlements collectively totaling over $40 million. 
Monitoring Part B Therapy for Skilled Nursing Facility Patients 
The OIG continued to monitor the effects of the Balanced Budget Act of 1997 (BBA) and 
the Balanced Budget Refinement Act of 1999 (BBRA) on therapy services provided to 
Medicare  beneficiaries  in  skilled  nursing  facilities  (SNFs.)  The  BBRA  suspended  the 
Medicare reimbursement caps on Part B physical, occupational and speech therapy that were 
imposed by the BBA.  In addition, the BBRA mandated that the Department of Health and 
Human Services conduct focused medical reviews on Part B therapy services and provide 
reports to Congress in the years 2001 and 2002.  The OIG continued to gather and analyze 
information and data that will assist HCFA in responding to the congressional mandate. The 
implementation of monetary caps on therapy services in SNFs coincided with a dramatic 
decrease in Part B therapy charges during 1999. However, preliminary reports indicated that 
the Department could expect a rebound in SNF Part B therapy charges in 2000 and 2001 
based in  part on the moratorium on the caps and the persistent,  inadequate contractor 
oversight of billing practices and medical necessity of Part B therapy. 
The OIG recommended that HCFA ensure that adequate medical reviews of Part B therapy 
in SNFs are conducted. The OIG also recommended that HCFA continue to work to improve 
28  therapy providers understanding of billing procedures and the medical necessity guidelines 
for Part B therapy. (OEI-09-99-00550) 
Skilled Nursing Facility Claims Lacking 3-Day Stay Requirement 
A Medicare skilled nursing facility (SNF) claim generally qualifies for reimbursement only 
if the SNF stay was preceded by an inpatient hospital stay of at least 3 days, and the hospital 
discharge was within 30 days of the admission.  Based on a statistical sample, this OIG 
report estimated that Medicare inappropriately paid Illinois providers $900,000 for SNF 
services during CY 1996 because of instances in which the 3-day hospital stay requirement 
was not  met. The fiscal intermediaries that  reviewed medical records and data  for the 
sampled  claims concurred and indicated they would request  refunds  for each incorrect 
payment identified. 
The OIG recommended that HCFA monitor the intermediaries recovery actions, report the 
results through the normal audit resolution process, issue a program memorandum to advise 
all fiscal intermediaries and SNFs of the results of the OIG review and consider having the 
FIs perform a review of the 3-day hospital stay requirement as part of their payment 
safeguard activities. The HCFA concurred with the recommendations. (A-05-99-00018) 
Fraud Involving Nursing Homes 
Nursing facilities and their residents have become common targets for fraudulent schemes 
through which health care providers, medical professionals, nursing facility staff and others 
associated with the operation of nursing homes improperly bill Medicare and Medicaid. 
Through  such  arrangements,  Federal  health  care  programs  are  billed  for  medically 
unnecessary services and for services either not rendered, or not rendered as described. 
Examples of cases involving nursing facilities and their residents follow: 
	 A retired optometrist agreed to pay the Government $500,000 to settle 
allegations that he submitted improper Medicare claims for comprehensive 
consultations in Maryland long term care facilities from July 1994 through 
December  1995.  The  consultations  under  which  the  optometrist  billed 
required an opinion requested by a physician or other appropriate source, a 
detailed history, a detailed examination and medical decision-making of low 
to high complexity. A review of the optometrists patient records showed 
that the claims he submitted were actually for routine eye care that included 
medical screening examinations for glaucoma and cataractsservices not 
covered under Medicare. 
	 The CEO of a Medicare provider of diagnostic services to Michigan nursing 
homes  was  sentenced  to  15  months  incarceration,  2  years  supervised 
release,  payment  of  $177,424  in  restitution  and  a  $40,000  fine  for 
29
 committing health care fraud.  The CEO ordered billing personnel to submit 
Medicare  reimbursement  claims  for  post-symptom  electrocardiogram 
procedures that he knew were not performed. 
	 The  OIG  and  the  U.S.  Attorneys  Office  for  the  Eastern  District  of 
Pennsylvania announced court approval of a consent order and judgment 
settling  certain  civil  False  Claims  Act  claims  against  a  nursing  home 
corporation.  The  consent  order  and  judgment  addressed  the  alleged 
provision  of inadequate nursing care to certain  residents  of  one of the 
corporations  skilled  nursing  facilities.  The  Government  alleged  the 
corporation  submitted,  or  caused  to  be  submitted,  claims  for  services 
rendered  to  certain  identified  residents  in  deliberate  ignorance  and/or 
reckless  disregard  of  the  truth  of  those  claims  regarding  its  failure  to 
provide:  adequate nursing care to those identified residents with decubitus 
ulcers (pressure ulcers); adequate assessments of each identified residents 
functional capacity and needs; adequate participation and intervention by 
physicians for identified residents; adequate staffing levels, supervision and 
training  of  staff  as  to  identified  residents;  and  adequate,  complete  and 
accurate  medical  and  nursing  documentation.  The  consent  order  and 
judgment provides for: (1) payment to the Government of $90,000; (2) 
retention of a third-party consultant selected by the Government and paid 
for by the corporation,  with an  annual  budget  of up  to $100,000.  The 
consultant will address quality of care issues and review compliance with 
the terms of the consent order and judgment; (3) adherence to specific 
protocols and standards of care to ensure provision of quality services to 
residents;  (4)  training  of  all  professional  and  direct  care  staff  on  the 
requirements  of  the  consent  order  and  judgment;  and  (5)  retention  of 
jurisdiction of the action by the Court for all purposes under the consent 
order and judgment for at least one year and one month, and continuing 
thereafter until the corporation has fully and faithfully implemented all 
provisions of the order, and until the action is dismissed. 
	 An Indiana woman was sentenced for mail fraud to 4 months imprisonment, 
4 months home confinement, 3 years probation and payment of $61,916 in 
restitution. The woman forged two occupational therapy licenses for her 
own use after taking copies of actual licenses from a local hospital. For over 
two years, the woman, who had no medical training, worked in an Indiana 
nursing home treating disabled Medicare beneficiaries. The costs of her 
salary and the services she provided were ultimately billed through the 
nursing homes cost report and paid by the Medicare program. This criminal 
case resulted from the OIG Self-Disclosure Program. 
30
 	 The  OIG  and  the  U.S.  Attorneys  Office  for  the  Eastern  District  of 
Pennsylvania announced settlement of a False Claims Act case against a 
Philadelphia nursing facility. The case was initiated as a result of a history 
of quality of care problems at the facility. However the focus of the False 
Claims Act investigation and the basis for damages was the egregious care 
provided to one resident alleged to have received poor care with respect to 
wound care and nutrition monitoring. The nursing facility agreed to: (1) 
payment to the Government of $60,000; (2) a commitment to spend not less 
than $100,000 over the next 2 years to improve the environmental aspects of 
the facility and the quality of life of the residents; (3) retention of an outside 
monitor selected by the Government and paid for by the facility to address 
quality of care issues and review compliance with the agreement for a 
one-year period; (4) implementation of a weight monitoring program and 
provision of wound care treatment utilizing the published guidelines as the 
foundation for the prediction, prevention and treatment of pressure ulcers on 
an individualized basis; and (5) implementation of a corporate compliance 
program that addresses care needs as well as ensuring compliance with all 
Federal and State laws. The compliance program requirements include an 
agreement to abide by specific standards of care and protocols, conduct 
training, implement a compliance plan, and submit annual reports to OIG 
for the next 3 years. 
	 In Illinois, a licensed clinical social worker agreed to pay the Government 
$22,500 and to comply with certain integrity provisions for a 5-year period. 
The social worker allegedly obtained a Medicare provider number which he 
permitted another individual to use. The other individual, who was not a 
licensed provider, used the provider number to bill Medicare for counseling 
services he purportedly provided to nursing home patients. The services 
provided were not medically necessary and not appropriately documented. 
The social worker received 10 percent of the funds reimbursed by Medicare 
as a result of this billing misconduct. 
Nursing Home Resident Assessment 
The Nursing Home Reform Act mandates that nursing homes use the Resident Assessment 
Instrument to capture pertinent information concerning residents. The minimum data set 
(MDS), a component of the resident assessment, contains a standardized set of essential 
clinical and functional status measures which in turn are used to classify residents into 
Resource Utilization Groups (RUGs).  RUGs flow from the MDS and, under the PPS, drive 
Medicare reimbursement to nursing homes. Under the PPS, SNFs are required to classify 
residents into 1 of 44 RUGs. The OIG issued the following two reports addressing these 
assessments: 
31
 A.  Quality of Care 
In this report, OIG indicated that nursing homes generally follow a systematic process when 
performing  the  assessment.  However,  OIG  found  that  17  percent  of  the  fields  on  the 
assessment instrument contained information which differed from that found in the rest of 
the medical record.  Furthermore, 14 percent of specific assessment protocols which should 
have  been  triggered  by  the  overall  assessment  were  not  triggered.  One-quarter  of  the 
protocols were not addressed in the residents plans of care.  For those residents who had 
plans of care, the plans were being followed. The OIG recommended that HCFA clarify 
MDS  elements  and  provide  enhanced  and  coordinated  training  concerning  MDS. 
(OEI-02-99-00040) 
B.  Resource Utilization Groups 
The OIG found significant problems in the area of RUG coding. When compared to the rest 
of the medical record, 76 percent of the cases reviewed demonstrated discrepancies46 
percent were coded higher and 30 percent were coded lower. Because these discrepancies 
consisted of both upcoding and downcoding, they might be indicative of a problem inherent 
in the assessment instrument as opposed to the result of deliberate miscoding. In addition to 
the recommendations in A. above, OIG recommended that HCFA require an audit trail for 
MDS validation. (OEI-02-99-00041) 
Medicare Payments for Psychiatric Services in Nursing Homes: 
A Follow-up 
Based on a broad review of nursing home psychiatric services in the first 6 months of 1999, 
OIG found that 39 percent of these services were medically unnecessary, had no mental 
health documentation or were questionable.  Psychological testing was the most problematic 
of the services reviewed: more than one third of these tests were medically unnecessary and 
administered with instruments the reviewer considered questionable, and tests were often 
too long, too frequent or not necessary. Further, while carrier policies now specifically 
address psychiatric services in nursing homes, utilization guidelines are inconsistent and 
unclear. 
The OIG recommended that HCFA strengthen the billing process for psychiatric services in 
nursing homes by working with carriers to develop guidelines for the appropriate frequency 
and duration of such services, identify specific psychological testing instruments and take 
advantage of the MDS. The OIG estimated that implementing these recommendations would 
result in potential savings of as much as $30 million a year. The HCFA concurred with the 
recommendations. (OEI-02-99-00140) 
Younger Nursing Facility Residents With Mental Illness 
Nursing  facilities  have  traditionally  been  the  last  refuge  for  individuals  with  mental 
illness. Federal nursing facility regulations stipulate that when evaluating an individual with 
32
 mental illness for nursing facility placement, evaluators must ascertain the most appropriate 
treatment  setting  for  the  individual.  The  preadmission  screening  and  resident  review 
(PASRR) is the primary mechanism used to ensure appropriate nursing facility placement 
and  treatment.  Both  Medicaid  and  Medicare  impose  limitations  on  coverage  for  the 
long-term nursing home care of mentally ill persons from ages 22-64, and these residents 
were the focus of the following reports: 
A.  Preadmission Screening and Resident Review 
Implementation and Oversight 
The results of this OIG report revealed that the systems intended to ensure that mentally ill 
nursing home patients are correctly diagnosed and appropriately treated were not working 
and that patients were not receiving the services needed. In particular, PASRRs did not 
comply  with  Federal  requirements.  States  may  be  violating  the  intent  of  the  Federal 
requirement to define and provide specialized mental health services for these patients, and 
PASRR systems functioned with little State and Federal oversight. 
The OIG recommended that HCFA improve the States capacity to identify and ensure 
appropriate placement of mentally ill persons and improve PASRR oversight. The OIG also 
recommended that HCFA strengthen reassessment/referral processes and Federal monitoring 
and oversight. The HCFA concurred. (OEI-05-99-00700) 
B. An Unidentified Population 
The study also found that the number of individuals with a mental illness in the 22-64 age 
group  who  reside  in  nursing  facilities  cannot  be  conclusively  determined;  Medicaid 
expenditures cannot be validated; and States do not know where these individuals are 
receiving long-term care. 
The OIG recommended that HCFA undertake a series of steps to address these problems and 
improve  the  ability  of  both  States  and  HCFA  to  produce  accurate  nursing  facility 
information and to monitor care and treatment of Medicaid nursing facility residents. In 
addition, OIG recommended that HCFA undertake steps to make this information available 
for State and HCFA use in responding to the Olmstead Supreme Court Decision to ensure 
that individuals with a mental illness are placed in the most integrated and least restrictive 
setting appropriate.  The HCFA agreed with the recommendations. (OEI-05-99-00701) 
New Yorks Claims for Residents in Institutions for Mental 
Diseases 
This  report  followed  up  on  HCFAs  actions  regarding  previous  OIG recommendations 
related to improper Medicaid claims for residents in institutions for mental diseases. The 
OIG previously recommended that New York cease claiming Federal financial participation 
for patients between the ages of 22 and 64 in adult psychiatric centers (identified by the 
33
 State as institutions for mental diseases) when they are temporarily released to general acute 
care hospitals. Federal financial participation is not allowed for these patients, an exclusion 
that continues during their temporary release. The current review found that New York 
continued to make such claims totaling approximately $19.6 million (Federal share) for the 
9-year  period ending  December  31,  1999.  The  State has  since  implemented  edits  and 
controls which, if maintained, should prevent similar improper claims. 
The HCFA concurred with OIGs recommendations to disallow the $19.6 million and to 
instruct the State to compute and refund the Federal share of any unallowable claims made 
after December 31, 1999.  (A-02-99-01031) 
Home Health Agency Fraud 
Home health agencies (HHAs) are one of the fastest growing segments of the health care 
industry because they allow many patients to remain in their own homes at less expense than 
might  be  incurred  at  a  hospital  or  other  institution.  The  OIG  identified  a  number  of 
fraudulent arrangements by which home health care providers, medical professionals and 
others associated with the operation of HHAs inappropriately billed Medicare and Medicaid. 
The following cases represent some examples of improper activities related to the provision 
of home health care services: 
	 Three  owners  (a  husband,  wife  and  third  individual)  of  an  HHA  in 
Oklahoma were sentenced for their roles in a scheme to defraud Medicare. 
The husband was sentenced to 31 months incarceration, 3 years probation 
and payment of $532,432 in restitution for conspiracy and Medicare fraud. 
His wife was sentenced to 4 months incarceration, 3 years probation, 104 
hours of community service and payment of $500,000 in restitution for 
conspiracy. The third individual was sentenced to 8 months incarceration, 3 
years probation, 104 hours of community service and payment of $500,000 
in restitution for  conspiracy.  In  early  1995,  the  three  owners  formed a 
management company for the purpose of circumventing the Medicare salary 
caps for HHA owners.  The management companys sole source of income 
was the agency. The husband, who maintained his interest in the agency 
while associated with the management company, paid himself a salary of 
$465,000 per year, a portion of which he kicked back  to  his wife. In 
addition  to  the  undisclosed  related  party  interest,  numerous  personal 
expenses were passed on to Medicare through management fees claimed on 
the HHAs cost reports. 
	 In Louisiana, two former owners of an HHA were each sentenced to 5 
months incarceration, 5 months in a halfway house, 3 years supervised 
probation and payment of $329,000 in restitution for committing health care 
fraud. The two admitted to forming a shell management company through 
34
 which they submitted $135,643 in fraudulent management invoices to the 
HHA  for  Medicare  reimbursement.  They  also  failed  to  properly  fund 
$76,228 to the pension plan and fraudulently claimed $116,692 in bonuses. 
	 A national HHA agreed to pay the Government $170,000 for improper 
claims submitted in relation to its 1993 acquisition of a Medicare certified 
agency in Pennsylvania. The purchase provided the agencys former owner 
with a 2-year consulting agreement. The consulting agreement called for the 
former owner to provide consulting services to the HHA in return for $8,750 
monthly.  During  the  time  he  was  a  paid  consultant,  the  former  owner 
performed  no  consulting  services  which  qualified  for  Medicare 
reimbursement. The agency, however, included the consulting costs in its 
Medicare cost reports and received reimbursement for them. The HHA also 
allegedly created false invoices to support the consulting services billed to 
Medicare. 
	 In Minnesota, an accounts receivable clerk for an HHA was sentenced to 41 
months incarceration, 3 years supervised release and payment of $124,012 
in restitution for theft of health care funds and money laundering. The clerk 
embezzled 19 checks from the agency after using an alias to open a bank 
account under the HHAs name. He withdrew money from the agencys 
bank  account  and  deposited  it  into  another  business  account  he  had 
previously opened. 
	 In  Massachusetts,  a  licensed  practical  nurse  was  sentenced  to  1  year 
probation, payment of $1,693 in restitution, $3,100 in fines and 150 hours 
of community service for health care fraud. The nurse defrauded Medicare 
by submitting skilled nursing notes for visits to patients she had not made. 
Her employer, an HHA unaware of the fraud, used these fraudulent nursing 
notes to submit claims to Medicare for reimbursement.  The nurse resigned 
from her nursing position when the scheme was discovered. 
Contractors Pension Segmentation 
Medicare pays a portion of the annual contributions made by contractors to their pension 
plans. The HCFA incorporated pension segmentation requirements into Medicare contracts 
beginning with FY 1988; contractual language specifies segmentation requirements and 
provides for the separate identification of the pension assets for a Medicare segment.  The 
following case is an example. 
	 A  Medicare  Part  B  contractor  was  allowed  to  claim  Medicare 
reimbursement for its Medicare employees pension costs. Regulations and 
the Medicare contract provided, however, that pension gains that occur 
35  when a Medicare segment of a pension plan closes should be credited to the 
Medicare program.  The contractor was terminated in 1998, and a review by 
OIG identified over $3.5 million in excess Medicare pension assets at the 
time of termination.  The OIG methodology and calculations were reviewed 
by HCFAs actuarial staff. The OIG recommended that the contractor remit 
the  excess  to  the  Medicare  program.  The  contractor  agreed  with  the 
computations, but further comment  is pending negotiations  with HCFA 
concerning resolution of contract termination issues. (A-07-00-00109) 
Separately Billed End Stage Renal Disease Tests Included in the 
Composite Rate 
An OIG review of the payment system for billed laboratory services provided to end stage 
renal disease (ESRD) beneficiaries identified a control weakness with the reimbursement for 
these tests.  Based on a statistical sample of laboratory claims, OIG estimated that over $6 
million was  improperly  paid for services  provided to ESRD beneficiaries during  CYs 
1995-1997.  The OIG analysis showed that hospital laboratories were reimbursed separately 
for services that were included in the dialysis facilitys composite rate. The OIG also found 
that separate payments were made for additional profile tests performed in conjunction with 
the monthly testing included in the composite rate. Other errors identified included improper 
coding, unbundled claims and lack of documentation for services claimed. 
The  OIG  recommended  that  HCFA require  Medicare  contractors  to  provide  education 
concerning billing practices to all ESRD providers and hospital laboratories. The OIG also 
recommended that HCFA monitor for proper billing and conduct detailed post-payment 
reviews. The OIG estimated that, if implemented, these recommendations would result in 
savings  of  more  than  $2  million  annually.  The  HCFA  generally  concurred  with  the 
recommendations. (A-01-99-00506) 
Laboratory Test Performance 
In a prior audit, OIG indicated that Medicare carriers overpaid independent clinical and 
physician laboratories by over $50 million for chemistry, hematology and urinalysis tests 
during the 2-year period ending June 30, 1995. This follow-up audit showed significant 
improvements; overpayments decreased to approximately $31 million for such tests for the 
2-year period ending December 31,  1997.  However, certain carriers  still did not have 
adequate  procedures  and  controls  (including  edits)  for  detecting  and/or  preventing 
inappropriate  payment  for  laboratory  tests.  In  addition  to  recommending  financial 
adjustments,  OIG  recommended  that  HCFA  ensure  that  carriers  implement  controls  to 
preclude such overpayments. The HCFA concurred. (A-01-99-00522) 
36
 Hyperbaric Oxygen Therapy Use 
Originally developed for the treatment of decompression sickness, Hyperbaric Oxygen 
Therapy  (HBO2)  is  primarily  an  adjunctive  treatment  for  the  management  of  select 
non-healing wounds. An OIG review of the use and appropriateness of HBO2 between July 
1, 1997, and July 1, 1998, determined that $19.1 million (of approximately $49.9 million 
allowable charges for outpatient hospitals and physicians) was paid for inappropriate or 
excessive  treatments.  An  additional  $11.1  million  was  paid  for  treatments  that  lacked 
appropriate testing or monitoring. These reimbursements resulted from confusion over or 
abuse of the current  coverage policy, medical opinions that  did  not  align with HCFA 
guidelines, inconsistent application of coverage criteria and inadequate documentation. A 
failure by contractors to implement appropriate edits and medical review standards further 
contributed  to  inappropriate  payments.  In  an  effort  to  resolve  these  problems,  OIG 
recommended  that  HCFA  review  its  national  coverage  for  HBO2,  strengthen  policy 
guidance and improve  contractor oversight.  The HCFA generally concurred with these 
recommendations. (OEI-06-99-00090) 
Balance Billing for Medical Equipment and Supplies 
In 1999, Medicare beneficiaries paid $41 million above the Medicare allowed amounts for 
medical equipment and supplies.  Most beneficiaries surveyed in this study were unaware of 
the differences in assigned and non-assigned claims and participating and non-participating 
suppliers.  Based on a review of 1999 claims data, OIG found that ostomy supplies have a 
higher non-assigned rate than supplies overall. In this report, OIG recommended that HCFA 
educate beneficiaries regarding ways to reduce financial liability for medical equipment and 
supplies and re-evaluate Medicare fee schedules for ostomy supplies. HCFA concurred. 
(OEI-07-99-00510) 
Fraud Involving Durable Medical Equipment Suppliers 
The durable medical equipment (DME) industry has consistently suffered from waves of 
fraudulent schemes through which Federal health care programs are billed for equipment 
never delivered, higher-cost equipment than that actually delivered, totally unnecessary 
equipment or supplies, or equipment delivered in a different State from that billed in order to 
obtain higher reimbursement. During this reporting period, OIG obtained settlements and 
convictions of DME suppliers for a variety of schemes as demonstrated by the following 
examples: 
	 A  California  man  was  sentenced  to  71  months  incarceration,  3  years 
supervised release, payment of $2.5 million in restitution and a $2,200 
special  assessment  for  his  role  in  a  DME  fraud  scheme.  Through  his 
operation  of  two  DME  companies,  the  man  submitted  false  claims  to 
Medicare for supplies not provided.  At the time of his arrest numerous 
items, including three vehicles, two grand pianos, jewelry, artwork, over 
37
 1,000 bottles of wine, a pool table, approximately $17,000 in currency and 
an escrow account containing more than $120,000, were seized; the total 
value of the seizures was estimated at $340,000. 
	 A Federal judge in New York approved the civil settlement between a DME 
company  and  the  Government,  whereby  the  company  agreed  to  pay 
$900,000 for allegedly upcoding lymphedema pumps on Medicare claims. 
Between  1989  and  1994,  the  company  submitted  over  350  upcoded 
Medicare claims for lymphedema pumps in order to receive a higher rate of 
reimbursement from the program.  To support these inflated costs, the DME 
company  improperly  used  formula  language,  rather  then  unique 
descriptions of individuals true conditions, on its certificates of medical 
necessity. As part of the civil settlement, the company must also implement 
a 5-year corporate compliance program to ensure proper Medicare billing 
procedures. 
	 The owner/operator of several DME companies in New York was sentenced 
to  5  years  probation,  including  2  years  home  detention  to  be  served 
concurrently for mail fraud and conspiracy. He must also pay $800,000 in 
restitution before the end of his probation period and forward all proceeds 
from the sale of property by a specified date. In addition, he must comply 
with psychiatric treatment and serve 400 hours a year of community service 
after  completing  home  detention.  One  of  his  DME  companies  billed 
Medicare  over  $6.5  million  for  wound  care  supplies  from  May  1994 
through mid-1995; more than 50 percent of these billings were fraudulent. 
Previously, the company owner/operator was also convicted of defrauding 
New York State Medicaid and ordered to repay the program $1 million.  In 
order to repay Medicaid, he defrauded Medicare by funneling funds from 
his DME company to New York State Medicaid through another company 
he owned. 
	 A California DME company owner/operator was sentenced to 33 months 
imprisonment, 3 years probation and a $1,000 assessment for wire fraud. 
The DME company owner/operator was also ordered to pay $385,332 in 
restitution jointly and severally with an additional subject in this case; the 
additional  subject  must  also  pay  a  $4,000  assessment.  Through  his 
company,  the  owner/operator  billed  for  saline  solution  and  irrigation 
syringes which he never provided to  Medicare beneficiaries  residing in 
SNFs. 
	 In New Jersey, the co-owners of a DME company that supplied hospital 
beds to residents of SNFs were sentenced for their roles in a scheme to 
38
 defraud Medicare. One was sentenced to 1 year and a day incarceration, 
payment of $200,000 in restitution and 3 years supervised release. The 
other, who previously agreed to pay the Government $1 million in a civil 
settlement, was sentenced to 5 years supervised release. The co-owners filed 
false Medicare claims representing that the beneficiaries resided in their 
homes when they actually resided in SNFs; Medicare regulations do not 
allow payment for specialty beds in a SNF.  In addition, they billed for air 
fluidized beds, when they actually provided low air loss beds reimbursed at 
a significantly lower rate. 
	 In Pennsylvania, the former owner of a now defunct DME company was 
sentenced to 8 months incarceration, 2 years supervised probation and a 
$30,000 fine. The former DME company owner paid a physician $85,000 in 
kickbacks to induce him to order wound care supplies billed to Medicare. 
The  former  owner  also  committed  a  misdemeanor  violation  of  FDA 
regulations involving the interstate transport of misbranded medical devices. 
In the second scheme, he owned a company that manufactured hydrogel 
wound care dressings which were labeled and packaged as sterile but not 
actually tested for sterility.  In an earlier civil settlement, the former owner 
agreed to pay the Government $255,000 and accepted a 15-year exclusion 
from Federal health care programs. He was the last to be sentenced in a 
10-year investigation of the company, which resulted in the conviction of 
six other individuals as well. 
	 In  Indiana,  a  DME  company  owner  was  sentenced  to  6  months  home 
detention, 5 years probation, 450 hours of community service, payment of 
$14,243 in restitution and $1,600 in fines for presenting false claims to the 
Government.  The  owner  misrepresented  the  point  of  service  code  on 
numerous claims he filed for pressure mattresses provided to Medicare 
beneficiaries  in  SNFs.  Medicare  pays  for  pressure  mattresses  for 
beneficiaries who reside at home or in custodial care facilities; however, it 
does not cover these items when provided to beneficiaries in SNFs. 
Medicare Reimbursement of Prescription Drugs 
This report updated earlier studies that concluded Medicare pays too much for prescription 
drugs. The OIG found that to still be the casethe amount of excessive payments is rising. 
This report compared Medicare reimbursement of prescription drugs to costs incurred by the 
Department of Veterans Affairs (VA), the physician/supplier community and Medicaid. The 
OIG found that Medicare and its beneficiaries would save $1.6 billion a year if 24 drugs 
were reimbursed at the same amounts as they are to the VA; or $761 million a year by 
paying the actual wholesale prices available to physicians and suppliers for these 24 drugs; 
or $425 million a year by obtaining rebates equal to those in the Medicaid program. The 
39
 OIG also found that Medicare carriers were not establishing consistent drug reimbursement 
amounts  for  certain  drugs.  The  OIG  recommended  that  HCFA  continue  to  seek 
administrative and legislative remedies to reduce excessive drug reimbursement amounts 
and that it require all carriers to reimburse a uniform amount for each drug. The HCFA 
concurred with these recommendations. (OEI-03-00-00310) 
Inconsistent Medicare Data Concerning Carrier Payment Dates 
One of the Medicare processing standards that must be met includes a payment floor 
standard which requires carriers to hold payment of electronic claims for 13 days starting on 
the day after the claim is received, which translates to a 14-day floor standard.  In reviewing 
HCFAs National Claims History File data, OIG found that Medicare paid over 80 percent of 
Part  B  claims  prior  to  the  14-day  floor  requirement.  However,  according  to  HCFAs 
Contractor Reporting of Operational and Workload Data (CROWD) system, payments for 
less than 1 percent of these Part B claims were made prior to the 14-day floor requirement. 
Information from both HCFA and carrier staff indicated that data from the National Claims 
History File may  not accurately reflect the carriers actual date of payment.  The OIG 
recommended that HCFA define for carriers which data should be entered into the scheduled 
payment date field and how it should be calculated, revise the current variable definition in 
the National Claims History File and determine the accuracy of information contained in the 
CROWD  system.  The  HCFA  has  initiated  a  review  to  resolve  this  inconsistency. 
(OEI-03-00-00350) 
Federally Funded Health Centers and 
Low-Income Childrens Health Care 
The State Childrens Health Insurance Program (SCHIP) was created by The Balanced 
Budget Act of 1997 and targets children in low-income families with the intent of providing 
States with an opportunity to design health care delivery systems similar to that available 
through private insurance. An OIG review of a broad sample of federally-funded health care 
centers revealed that, as of February 2000, 73 percent of the centers had children enrolled in 
SCHIP. The report indicated that centers receiving State enrollment training were almost 
four times more likely to enroll children than those that did not receive training. Health 
center enrollment success was also related to the availability of outstationed eligibility 
workers or a presumptive eligibility site designation. 
The OIG recommended that HCFA encourage States to provide enrollment training, increase 
the number of health centers with oustationed eligibility workers, promote appropriate 
inclusion of health centers and expand reimbursement to include enabling services. The 
HCFA generally concurred with these recommendations. (OEI-06-98-00321) 
40
 State Childrens Health Insurance Program 
In two related inspections on SCHIP (see preceding entry), OIG found that the 13 States 
operating SCHIP-only programs were not enrolling Medicaid children in SCHIP. These 
States  were  enrolling  SCHIP  children appropriately  and providing  a smooth transition 
between the SCHIP and Medicaid programs. Sampled States also reported reductions in the 
number of uninsured children and mixed success in meeting other goals. However, the 
reports relied heavily on enrollment data and tended to use descriptive information in lieu of 
evaluation. In addition, State evaluations had conceptual and technical weaknesses. 
The OIG recommended that HCFA identify a core set of evaluation measures and develop a 
more specific framework for the content and structure of the reports States are required to 
submit to the Department.  The OIG also recommended that HCFA and HRSA provide 
guidance  and  assistance  to  States  in  conducting  useful  evaluations  of  their  SCHIPs. 
(OEI-05-00-00240, OEI-05-00-00241) 
Transportation Fraud 
Common  Medicare  and  Medicaid  fraud  schemes  associated  with  transportation  and 
ambulance  companies  involve  the  submission  of  claims  for  transporting  patients  to  a 
hospital  when  the  patients  are  really  taken  to  other  facilities  for  which  claims  are 
nonreimbursable. Other schemes include billing singly for patients who were transported as 
a  group  and  falsely  claiming  reimbursement  for  ambulatory  patients.  The  following 
examples of transportation fraud were resolved during this reporting period: 
	 Three hospitals, one located in Florida and two located in Texas, agreed to 
pay $8.7 million to settle allegations relating to the hospitals inclusion of 
certain management fees for ambulance services on its cost reports. The 
allegations  claimed  that  the  fees  paid  to  the  ambulance  management 
companies were not reasonable and not entirely related to patient care. As 
part of the settlement agreement, the parent company of the hospitals agreed 
to enter into a comprehensive 5-year corporate integrity agreement. 
	 An Illinois ambulance company agreed to pay the Government $2.1 million 
to  settle  allegations  that  the  company  submitted  improper  claims  for 
ambulance  transports  not  covered  by  Medicare  or  Medicaid.  From 
September  1991  through  July  1997,  the  company  allegedly  used  its 
ambulances to transport Medicare and Medicaid beneficiaries to and from 
their residences and nursing homes for scheduled medical appointments or 
routine hospital visits.  In submitting electronic claims for payment, the 
company improperly represented these transports as medically necessary 
and as provided to patients who could only be moved by stretcher. As part 
41
 of  the  settlement  agreement,  the  company  also  entered  into  a  3-year 
corporate integrity agreement with OIG. 
	 In Missouri, the former president of an ambulance company agreed to pay 
the Government $325,000 for his role in improperly billing Medicare for 
ambulance transports. The former president was also sentenced for false 
claims to more than 1 year in jail and 3 years probation.  He was also 
ordered to pay a $250,000 fine and $1,243 in restitution.  The ambulance 
company previously agreed to pay the Government $5.4 million to settle 
allegations  of  ticket  managing.   The  investigation  revealed  that  the 
company  engaged  in  a  scheme  through  which  it  billed  for  medically 
unnecessary ambulance trips and for noncovered ambulance trips to doctors 
offices. 
Birth Certificate Fraud 
The Immigration Reform and Immigrant Responsibility Act of 1996 required the Secretary 
to present to Congress a document delineating ways to reduce fraudulent acquisition and use 
of birth certificates.  Consequently, at the Departments request, OIG examined the issue of 
fraud associated with birth certificates. The OIG found that fundamental, irreconcilable 
conflicts surround the purposes and uses of birth certificates. They continue to be used as 
breeder  documents  with  which  to  obtain  drivers  licenses,  credit  cards  and  other 
documents of identification. They are easy to acquire and to counterfeit.  Birth certificate 
fraud is hard to detect and, when detected, seldom prosecuted. Even State practices lend 
themselves to opportunities for fraud.  Efforts to restrict access to these documents might 
improve their usefulness in establishing identity but could diminish their value for the 
original purpose of certifying a birth. 
State vital record agencies and other issuing entities suggested, among other things, reducing 
the number of issuing entities, establishing national requirements for security paper on 
which the document is printed, and introducing biometrics into the birth certificate process. 
In addition, OIG suggested that Federal and State program managers should reassess the 
documents they will accept as proof of identity. (OEI-07-99-00570) 
Medicaid Enhanced Payments to Public Providers 
At  HCFAs  request,  OIG  audited  States  use  of  enhanced  Medicaid  payments  and 
intergovernmental transfers as a means of avoiding Federal/State matching requirements. 
States are allowed to make enhanced payments (in addition to regular Medicaid payments) 
to city and county governments and other public providers as long as the States aggregate 
payment does not exceed the amount that would have been paid under Medicare (referred to 
as the upper limit). 
42
 The OIG generally found, however, that these enhanced payments were not based on the 
actual cost of providing services to Medicaid beneficiaries or directly  related to increasing 
the quality of care provided by  public facilities that received the enhanced payments. Nor 
were  they  being  retained  by  the  facilities  to  provide  services  to  Medicaid-eligible 
individuals. Instead, the bulk of the enhanced payments were returned to the States through 
intergovernmental transfers. The OIG recommended that HCFA move as quickly as possible 
to issue regulatory changes involving the upper payment limit calculation. The HCFA 
concurred and on January 12, 2001, issued revisions to the upper payment limit regulations 
that included transition periods to gradually phase in the new regulations. 
The OIG issued the following five final reports on this subject during this 6-month period. 
A.  Pennsylvania 
From 1992 through 1999, Pennsylvania reported $5.5 billion in enhanced payments to 
county nursing facilities. These payments generated $3.1 billion in Federal matching funds 
without any corresponding increase in services to the Medicaid residents of these facilities. 
Under the enhanced payment program, counties obtained bank loans and transferred the 
borrowed amounts to the State, which immediately transferred the funds back to the counties 
as Medicaid enhanced payments. The counties used their enhanced payments to pay the 
bank loans that initiated the transactions. The State claimed, received and kept Federal 
matching funds based on the enhanced payments. 
Based on HCFAs revised upper payment limit rule, OIG estimates savings to the Federal 
Government of $2.4 billion during the regulation transition period. Once the regulatory 
changes are fully implemented, OIG estimates additional Federal savings of $731 million 
annually, totaling a savings of $3.7 billion over 5 years. (A-03-00-00203) 
B.  Nebraska 
From 1998 through 2000, Nebraska made enhanced payments to public nursing facilities 
totaling $227 million, generating about $139 million in Federal matching funds. Of the $227 
million, providers retained about $1.5 million and about $225.5 million was returned to the 
State for other uses. Of the funds transferred back to the State, the State share of the 
enhanced payments, totaling about $88 million, was returned to the Nebraska General Fund 
and  the  remaining  $137.5  million  in  Federal  matching  funds  was  designated  for  the 
Nebraska Health Care Trust Fund. 
Using HCFAs revised upper payment limit rule, OIG estimated savings to the Federal 
Government of $142 million during the regulation transition period. Once the regulatory 
changes are fully implemented, OIG estimated additional Federal savings of $44 million 
annually, totaling a savings of $220 million over 5 years.  (A-07-00-02076) 
43
 C. Alabama 
During  1999 and 2000, Alabama made enhanced payments to public nursing facilities 
totaling about $83.5 million (Federal share $58.5 million).  The bulk of these payments 
(96.5 percent) were not retained by the facilities but were returned to the State Medicaid 
agency for other uses. Consequently, the State received Federal Medicaid funds without the 
required State match. 
Using HCFAs revised upper payment limit rule, OIG estimated savings of $44 million to the 
Federal Government during the regulation transition period. Once the regulatory changes are 
fully implemented, OIG estimated additional Federal savings of $29.5 million annually, 
totaling a savings of $147.5 million over 5 years. (A-04-00-02165) 
D. Washington 
During State FY 2000, Washington made enhanced payments to public nursing facilities 
totaling $147 million.  Over 86 percent of this amount was returned to the State.  Most of the 
funds were apparently designated or used for State health care needs, regardless of Medicaid 
eligibility. 
Using HCFAs revised rule, OIG estimated savings to the Federal Government of $110 
million during the transition period.  Once the regulatory changes are fully implemented, 
OIG estimated additional Federal savings of $73 million annually, totaling a savings of $365 
million over 5 years. (A-10-00-00011) 
E.  Illinois 
During State FYs 1991 through 2000, Illinois made enhanced payments to three Cook 
County hospitals and associated clinics of about $5.9 billion.  About $3 billion of this 
amount was a return of funds that were initially transferred from the county to the State. 
Over $866 million of the remainder (i.e., the Federal share) was deposited in the States 
General Revenue Fund. 
Using HCFAs revised upper payment limit rule, OIG estimated savings to the Federal 
Government  of  about  $1.2  billion  during  the  regulation  transition  period.  Once  the 
regulatory changes are fully implemented, OIG estimated additional Federal savings of $374 
million annually, totaling a savings of about $1.9 billion over 5 years.  (A-05-00-00056) 
Federal and State Partnership:  Joint Audits of Medicaid 
One of  OIGs  major  initiatives has  been  to  work  more  closely  with  State  auditors in 
reviewing the Medicaid program. The Partnership Plan was developed to foster these joint 
review efforts and provide broader coverage of the Medicaid program. The partnership 
approach has been an overwhelming success in ensuring more effective use of scarce audit 
resources by both the Federal and the State audit sectors. To date, partnerships have been 
44
 developed in 23 States. Extensive sharing of audit ideas, approaches and objectives has 
taken  place  between  Federal  and  State  auditors.  Completed  reports  have  resulted  in 
identifying potential program savings of $188.7 million, of which over $39 million in 
Federal and State overpayments has been recovered. 
During this reporting period, a report issued by the Ohio State Auditor indicated that a 
transportation service company was unable to provide documentation for a statistical sample 
of services billed from January 1, 1996, through March 31, 2000. Due to the lack of 
documentationno support that trips occurred, missing physician certifications regarding 
the medical necessity of trips, and other evidencethe State Auditor questioned $1,001,675 
(Federal share approximately $590,000). 
The  State  Auditor  recommended  that  the  State  determine  whether  the  overpayments 
constitute fraud and abuse, initiate proceedings to recoup all or part of the overpayments and 
consider termination of the providers Medicaid agreement. The case was referred to the 
Ohio  Medicaid  Fraud  Control  Unit  for  investigation  and  possible  legal  action. 
(A-05-00-00091) 
Credentialing of Medicaid Providers:  Fee-For-Service 
One-half of the States are not collecting all the enrollment and credentialing information 
required by HCFA, according to this OIG report. The verification of providers exclusion 
status  is  incomplete.  States  are  accepting  provider  enrollment  statements  without 
independently verifying the accuracy of the information. Only two-thirds of the States make 
use of information available from external sources to enhance their credentialing processes. 
Most  States  have  not  established aggressive post-credentialing activities. Among other 
things,  OIG  recommended  that  HCFA  strengthen  enrollment,  re-enrollment  and 
credentialing requirements for providers to address these problems. (OEI-07-99-00680) 
Medicaid Fraud 
At present, 47 States and the District of Columbia have established Medicaid fraud control 
units (MFCUs). The MFCUs conduct investigations and prosecute providers charged with 
defrauding the Medicaid program or persons charged with patient abuse and neglect. As 
required by the Omnibus Budget Reconciliation Act of 1993, three StatesIdaho, Nebraska 
and North Dakotahave sought and received waivers from the requirement that all States 
operate MFCUs. 
The Inspector General is delegated the authority to annually certify each MFCU as eligible 
to receive Federal grant funds under the Medicaid fraud control program. The MFCUs 
receive  90  percent  Federal  funding  for  the  first  3  years  of  operation  and  75  percent 
thereafter.   During  FY  2001,  OIG  is  providing  oversight  for  and  administration  of 
45
 approximately $104.1 million in funds granted by HCFA to the units to facilitate their 
mission. 
Since the inception of the Medicaid fraud control program, the MFCUs have successfully 
convicted thousands of Medicaid providers and have recovered hundreds of millions of 
program dollars. Although most Medicaid fraud cases are investigated by the units, OIG 
works with the units and/or other law enforcement agencies on such cases as well. The 
following instances of OIGs successful efforts in Medicaid fraud cases bear noting: 
	 A  physiatrist  was  sentenced  to  5  years  probation  and  payment  of 
approximately $1.4 million in total restitution to the Medicare program and 
the New York State Medicaid program for his scheme to bill for services not 
rendered. From 1993 to 1995, the physiatrist provided services at four 
nursing homes and had a private practice. During that time, he obtained the 
patient rosters at the nursing homes and systematically billed Medicare and 
Medicaid for a battery of tests he did not perform on residents.  He also 
billed in this manner for patients of his private practice.  The investigation 
revealed that thousands of the tests and procedures he billed, and received 
reimbursement for, were neither performed nor ordered by the attending 
physicians. 
	 A for-profit corporation licensed in Pennsylvania to provide skilled nursing 
care to severely disabled children, its affiliated entities and its principal 
operator agreed to pay the Government more than $1.3 million for allegedly 
submitting false Medicaid claims. This qui tam suit involved allegations that 
community residential programs for persons with developmental disabilities 
engaged in cost report fraud by double billing and by seeking payment for 
services  not  provided,  for  related  party  expenses  and  for  the  personal 
expenses  of  the  facilitys  principal  operator.  Additionally,  the  principal 
operator agreed to a 5-year exclusion. The programs, which operate as three 
separate entities, will also enter into 5-year corporate integrity agreements 
with OIG. 
	 Through a joint investigation with the Rhode Island MFCU and the FBI, a 
hospital  agreed  to  pay  the  Government  $750,000  in  order  to  settle  its 
liability  under  the  False  Claims  Act  and  CMP  Law.  The  investigation 
focused on allegations that the hospital did not make any attempt to repay 
an overpayment it received due to a malfunctioning computer program. The 
computer program caused the hospital to bill Medicare and Medicaid for 
laboratory panel tests which were not rendered.  As a result, the hospital 
received funds from Medicare and Medicaid to which it was not entitled. 
From  1989  through  1996,  the  hospital  allegedly  submitted  claims  for 
46
 outpatient  laboratory  tests  that  incorrectly  stated  the  number  of  tests 
rendered and the number of panels of such tests rendered. 
	 A hospital located in Oklahoma entered into a settlement agreement for 
$700,001 to resolve allegations that the hospital billed Medicaid for services 
related to inpatient psychiatric and chemical dependency treatment by or at 
the medical direction of and/or on the prescription of a psychiatrist who had 
previously been excluded from the Federal health care programs and whose 
exclusion  was  still  in  effect  at  the  time  the  claims  were  submitted.  A 
corporate integrity agreement was not imposed.  Instead, for the next 5 
years, the hospital must perform quarterly screenings of OIGs exclusion list 
and  also  report  to  OIG  upon  finding  overpayments  and/or  material 
deficiencies of any kind. 
	 As the result of a joint investigation with the Washington and Oregon 
MFCUs, the former billing manager of a DME company in Washington was 
sentenced to 2  years probation and ordered to pay $3,100 in  fines  for 
conspiracy to commit mail fraud and health care fraud. In order to obtain 
more money from health care benefit programs, the billing manager and her 
co-conspirators  at  the  company  routinely  upcoded  claims,  falsified 
certificates of medical necessity and billed Medicare and Medicaid for items 
not delivered. In addition, the company was sentenced in Washington and 
ordered to pay $400,000 in restitution for mail fraud in relation to the health 
care fraud scheme; the DME company had been previously prosecuted and 
sentenced in Oregon for similar misconduct. 
47
 Public Health Service 
Operating Divisions  Chapter II

PUBLIC HEALTH SERVICE OPERATING

DIVISIONS

Overview of Program Area and Office of Inspector General 
Activities 
The  activities  conducted  and supported  by the  Public  Health  Service  (PHS)  operating 
divisions (OPDIVs) represent this countrys primary defense against acute and chronic 
diseases and disabilities. These programs provide the foundation for the Nations efforts in 
promoting  and  enhancing  the  continued  good  health  of  the  American  people.  These 
independent OPDIVs within the Department include:  the National Institutes of Health 
(NIH), to advance our knowledge through research; the Food and Drug Administration 
(FDA), to assure the safety and efficacy of marketed food, drugs, biological products and 
medical  devices;  the  Centers  for  Disease  Control  and  Prevention  (CDC),  to  combat 
preventable diseases and protect  the public  health;  the Health  Resources and Services 
Administration (HRSA), to support the development, distribution and management of health 
care personnel and other health resources and services; the Indian Health Service (IHS), to 
improve the health status of Native Americans;  the Agency for Toxic Substances and 
Disease Registry (ATSDR), to address issues related to Superfund toxic waste sites; the 
Agency  for  Healthcare  Research  and  Quality  (AHRQ),  to  enhance  the  quality  and 
appropriateness of health care services and access to services through scientific research and 
the promotion of improvements in clinical practice and in the organization, financing and 
delivery of services; and the Substance Abuse and Mental Health Services Administration 
(SAMHSA), to assist States in refining and expanding treatment and prevention services. 
The Office of Inspector General (OIG) has concentrated on a variety of public health 
programs and issues such as biomedical research funding, substance abuse, health services 
to Indians, drug approval processes and community health center programs. The OIG has 
looked  at  the  regulation  of  drugs,  foods  and  devices  and  explored  the  potential  for 
improving these activities through user fees. The OIG has conducted audits of colleges and 
universities which annually receive substantial research funding from the Department, as 
well as audits of the financial statements and operations of the PHS OPDIVs. The OIG 
continues to examine policies and procedures throughout the agencies to determine whether 
proper controls are in place to guard against fraud, waste and abuse. These activities include 
preaward  and  recipient  capability  audits.  This  oversight  work  has  provided  valuable 
49	 recommendations to program managers for strengthening the integrity of agency policies 
and procedures. 
Human Tissue Donation and Banking Issues 
Human tissue is an important resource in myriad medical treatments. In 1999, more than 
20,000 donorscompared to perhaps 6,000 in 1995provided cadaveric tissue, and tissue 
banks  distributed  over  750,000  allografts  for  transplantation  in  1999.  In  response  to 
concerns which have arisen about both the donation process and banking oversight, OIG 
conducted the following two studies. 
A.  Informed Consent in Tissue Donation 
In this report, OIG revealed that the foundation of tissue banking lies in the altruistic 
motives of donor families. However, the reality of the tissue banking industry as it has 
expanded  gives  rise  to  concerns  regarding  family  assumptions.  Families  expect,  for 
example, that the donation will be used to enhance the life of another and that the donor will 
be respected. The unique nature of the donation warrants that steps above and beyond those 
that would apply to other business or philanthropic enterprises be taken. Therefore, OIG 
recommended joint action among tissue banks, donor families and government agencies to 
develop guidelines regarding the exchange of information with families and the obtaining of 
their consent at the time of donation. (OEI-01-00-00440) 
B.  Oversight of Tissue Banking 
In this companion report, OIG indicated that the oversight of tissue banking takes place at 
three levels. At the Federal level, FDA focuses on preventing transmission of communicable 
diseases by requiring donor screening and testing.  At the State level, only New York and 
Florida  license  and  inspect  tissue  banks.  The  American  Association  of  Tissue  Banks 
conducts a voluntary accreditation program, but it accredits fewer than half of the Nations 
tissue banks. The absence of known new cases of disease transmission since the early 1990s 
points to significant strengths in the current system. Nevertheless, OIG identified situations 
indicating the need for continued vigilance. 
OIG recommended that FDA expedite the publication of its proposed regulatory agenda 
requiring registration of tissue banks, enhanced donor screening and testing and the use of 
good  tissue  practices.  In  addition,  OIG  recommended  that  FDA  set  a  realistic,  yet 
aggressive, date to complete an initial inspection of all tissue banks and determine an 
appropriate minimum cycle for such inspections. (OEI-01-00-00441) 
Transfer of NIH Technologies to the Private Sector 
At the request of a Member of Congress, OIG reviewed the NIH process for licensing 
technologies developed in its laboratories to the private sector for further development so 
that products could be brought to the public. The NIH intramural budget for FY 2000 was 
50	 about $1.7 billion, or about 10 percent of its total budget of $17.8 billion. The OIG found 
that  few  of  the thousands  of  prescription drug and  biological  products on  the market 
originated in NIHs laboratories. With the notable exception of Taxol, products that were 
developed in NIH laboratories generally required years of additional development by the 
private sector before they could be approved for marketing by FDA. As of September 1999, 
only 13 prescription therapeutic drugs and vaccines containing technologies developed at 
NIH intramural laboratories were on the market.  (A-15-99-50003) 
AIDS Drug Assistance Program Cost Containment Strategies 
Drug assistance programs (ADAPs) were established by the Ryan White Comprehensive 
AIDS Resource Emergency Act to provide medications to low-income individuals living 
with HIV/AIDS who have limited or no coverage from private insurance or Medicaid. One 
of the principal methods through which ADAPs contain drug costs is the 340B drug pricing 
program. This program provides drug price ceilings to ADAPs that purchase their drugs 
through a central purchaser as well as certain other federally funded entities. The program 
also provides a rebate option for ADAPs without a central purchaser. 
The OIG report on cost containment strategies for the ADAP revealed that the ceiling prices 
limiting drug expenditures for program grantees are, on average, 16 percent higher than the 
Federal ceiling prices for the Departments of Veterans Affairs and Defense, the Public 
Health Service and the U.S. Coast Guard (Big 4). If allowed access to the Big 4 ceiling 
prices, ADAP grantees could have saved $75.5 million in Federal funds in 1999. 
The OIG recommended that HRSA seek legislation to change the ceiling price calculation 
for the ADAP and other eligible entities covered by the 340B drug pricing program to the 
calculation  used  by  the  Big  4  agencies.  Additionally,  OIG  recommended  that  HRSA 
continue to work toward direct purchase discounts for rebate and non-participating ADAPs. 
The HRSA concurred with these recommendations. (OEI-05-99-00610) 
Exclusions for Health Education Assistance Loan Defaults 
Through  the  Health  Education  Assistance  Loan  (HEAL)  program,  HRSA  guarantees 
commercial loans to students seeking education in a health-related field of study. The 
students are allowed to defer repayment of these loans until after they have graduated and 
begun to earn an income.  Although the Departments Program Support Center (PSC) takes 
all steps that it can to ensure repayment, some loan recipients ignore their indebtedness. 
After PSC has exhausted all efforts to secure repayment of these debts, it declares the 
individual in default. Once the individual has been declared in default, the Social Security 
Act permits, and in some instances mandates, exclusion from Medicare, Medicaid and all 
Federal health care programs for nonpayment of these loans. During this 6-month period, 
51	 192 individuals and related entities were excluded as a result of PSC referral of their cases to 
OIG. 
Individuals who have been excluded as a result of their default may enter into settlement 
agreements whereby the exclusion is stayed while they pay specified amounts each month to 
satisfy their debt. If they default on these settlement agreements, they can then be excluded 
until their entire debt is repaid, and they cannot appeal these exclusions. Some health 
professionals, upon being notified of their exclusion, immediately repay their HEAL debt. 
After being excluded for nonpayment of their HEAL debts, a total of 1,371 individuals have 
taken advantage of the opportunity to enter into settlement agreements or completely repay 
their debt. This figure includes the 88 individuals who have entered into such a settlement 
agreement or completely repaid their debt during this reporting period. The amount of 
money being repaid through settlement agreements or through complete repayment totals 
over $93 million. Of that amount, over $6.4 million is attributable to this reporting period. 
The following are examples of some of these settlements: 
	 After he was excluded from participation in Medicare, Medicaid and all 
Federal health care programs, a Texas physician entered into a settlement 
agreement to repay his HEAL debt of more than $295,000. 
	 In Indiana, an osteopath entered into a settlement agreement to repay his 
HEAL debt of more than $235,000. 
	 A  Texas  osteopath  agreed  to  repay  his  HEAL  debt  of  approximately 
$169,000. 
	 After being notified she was excluded, a Wisconsin chiropractor agreed to 
repay her HEAL debt of almost $146,000. 
	 A Maine psychologist entered into a settlement agreement to repay her 
HEAL debt of approximately $130,000. 
Superfund ActivitiesNational Institute of Environmental Health 
Sciences 
The National Institute of Environmental Health Sciences (NIEHS) receives funds through an 
interagency agreement with the Environmental Protection Agency to carry out health-related 
and other functions mandated by the Superfund legislation. As required by statute, OIG 
audited  Superfund  financial  activities  at  NIEHS.  During  FY  1999,  its  obligations  of 
Superfund resources totaled about $62.9 million, and disbursements totaled about $55.4 
52	 million of the funds obligated during and prior to the same fiscal year.  The OIG concluded 
that NIEHS administered the fund according to the Superfund legislation. (A-04-00-04230) 
Fiscal Year 1999 Financial Statement 
Audit of the Indian Health Service 
In support of its audit of the consolidated Departmentwide financial statements for FY 1999, 
OIG contracted with an  independent accounting firm to audit the IHS financial statements. 
The auditors opinion on the IHS statements was qualified for two reasons. First, IHS could 
not completely reconcile its Fund Balance with Treasury as reflected in its general ledger 
to  that  reported  by  the  Department  of  the  Treasury  at  September  30,1999.  The  IHS 
subsequently  reduced  its  general  ledger  by  approximately  $142  million  to  agree  with 
amounts reported by Treasury.  Second, the auditor was unable to determine whether the 
amount IHS reported in its general ledger account Deferred Revenue (governmental) was 
correctly stated.  The IHS adjusted its general ledger by approximately $115 million so that 
the account agreed to its subsidiary report of September 30, 1999. Records were unavailable 
to assess the propriety of the  adjustment. In addition, the auditor reported three material 
internal control weaknessesone of which was the lack of a fully functioning, integrated 
financial reporting system capable of producing reliable financial statements. This weakness 
was reported in conjunction with the accounting service provided to IHS by the Program 
Support Center.  (A-17-00-00004) 
Misuse of Grant Funds 
Resolution of charges of misuse of HHS grant funds occurred in the following example 
during this reporting period: 
	 In New York, a partner in a small advertising firm was sentenced to 2 years 
probation and payment of $3,600 in restitution for mail fraud. The firm 
provided advertising, marketing and related services to an HHS grantee that 
received  funding  from  SAMHSA.  The  partner  knowingly  caused  the 
advertising firm to send invoices by mail to the grantee for goods and 
services that were not provided; the partner then converted a portion of the 
resulting funds to his own personal use. 
53	 Administration 
for Children 
and Families, 
and Administration 
on Aging  Chapter III

ADMINISTRATION FOR CHILDREN AND

FAMILIES, AND ADMINISTRATION ON AGING

Overview of Program Areas and Office of Inspector General 
Activities 
The Administration for Children and Families (ACF) provides direction and funding for 
programs designed to promote stability, economic security, responsibility and self-support 
for the Nations families. Some of the major programs include Temporary Assistance for 
Needy  Families  (TANF),  Child  Support  Enforcement  (CSE),  Foster  Care,  Family 
Preservation and Support, Head Start, and the Child Care and Development Block Grant. 
With respect to TANF, OIG continues to ensure program integrity, identify opportunities for 
program improvement and provide Federal and State management with useful information 
regarding  the  goal  of  moving  individuals  and  families  from  welfare  dependency  to 
self-sufficiency. 
In addition, OIG reviews the Departments programs that serve children and families and 
has issued a number of reports in this area. These reports have addressed quality-of-care 
issues and have focused on ways to increase the efficient use of program dollars; more 
effective program implementation; better coordination of programs among the Federal, State 
and local governments; and States financial management practices. 
The  Administration  on  Aging  (AoA)  awards  grants  to  States  for  establishment  of 
comprehensive  community-based  systems  that  assist  the  elderly  in  maintaining  their 
independence  and  in  remaining  in  their  homes  as  long  as  possible.  Socially  and 
economically  disadvantaged  elderly  and  low-income  minority  elderly  are  targeted  for 
assistance, including supportive services, nutrition services, education and training, low-cost 
transportation  and  health  promotion.  The  OIG  has  reported  opportunities  for  program 
improvements to target the neediest for services; expand available financial resources; 
upgrade data collection and reporting; and enhance program oversight. 
Child Support Enforcement:  Investigations 
The U.S. Attorney General has made enforcement of the Child Support Recovery Act of 
1992 a top Department of Justice (DOJ) priority. The Act made it a Federal misdemeanor for 
55
 a parent in one State to refuse to pay past due support for a child in another State, when the 
support has been owed for more than 1 year or exceeds $5,000. Any subsequent offense is a 
felony. A 1998 amendment to this Act created two other felony provisions for the most 
egregious first-time violations. 
The OIG has also made the investigation of these matters a high priority. The OIG and the 
Office  of  Child  Support  Enforcement  (OCSE)  are  the  sponsors  of  Project  Save  Our 
Children: six multiagency, multijurisdictional investigative task forces whose missions are to 
identify, investigate and prosecute the most egregious violators of the Federal and State 
child support laws in the regions covered by the task forces. The task forces are comprised 
of personnel from OIG Office of Investigations, FBI, U.S. Marshals Service, U.S. Attorneys 
Offices, DOJ, State and local child support offices, State and local law enforcement, State 
and local prosecutors,  representatives  from the  judiciary  (both  State and Federal) and 
representatives from the corrections and probation offices at both the Federal and State 
levels. 
The task forces are structured to identify, investigate and prosecute criminal nonsupport 
cases both on the Federal and State levels through the coordination of law enforcement, 
criminal justice and child support office resources. There are investigative units in each of 
the States which conduct the actual investigations. The units work with the State child 
support offices to identify the cases that the States then refer to the task force. The units also 
work with prosecutors at State and Federal levels to ensure that the cases worked are those 
that will be prosecuted in a volume consistent with the resources of those offices. 
Central to the task forces are the screening units located in each task force region and staffed 
by analysts and auditors from both OIG and OCSE. The units receive child support cases 
from  the  States,  conduct  preinvestigative  analyses  of  these  cases  through  the  use  of 
information databases and then forward the cases to the investigative task force units where 
they are assigned and investigated. This streamlines the process by which the cases best 
suited for criminal prosecution are identified, investigated and brought to fruition. As the 
task forces bring in more law enforcement partners on the State level, the number of cases 
adjudicated will rise dramatically. 
The task forces cover the Midwest, Mid-Atlantic, Northeast, Southwest, Southeast and West 
Coast regions. The Midwest task force is headquartered in Columbus, Ohio, and includes the 
States of Illinois, Michigan, Ohio and Indiana. Headquartered in Baltimore, Maryland, the 
Mid-Atlantic task force area places special emphasis on the States of Maryland, Virginia, 
Pennsylvania, Delaware, West Virginia and the District of Columbia. In the Northeastern 
task  force area, investigative efforts are headquartered in New York  City, with special 
emphasis  on  the  States  of  New  York  and  New  Jersey.  For  the  Southwestern  area, 
headquartered in Dallas, Texas, efforts focus especially on the States of Texas, Louisiana and 
Oklahoma. The Southeast task force, headquartered in Atlanta, Georgia, concentrates its 
56
 efforts on Florida, Georgia, Alabama, Mississippi and North Carolina. Efforts of the West 
Coast task force area are directed at the States of California, Oregon, Washington and 
Arizona, with headquarters located in Sacramento, California. 
Examples  of  the  Federal  arrests,  convictions  and  sentences  resulting  from  OIGs 
enforcement work, both inside and outside the task force areas, during this reporting period 
include the following: 
	 A  former  professional  basketball  player  was  sentenced  to  6  months 
imprisonment, 1 year probation and $1,100 in fines for failure to pay child 
support.  The former basketball player, who currently resides in Arizona, 
was charged in March 2000 with owing more than $46,706 in overdue 
support for his 15-year-old son living in Massachusetts.  He also owed a 
total of $113,504 in four other child support cases.  Prior to sentencing, he 
paid a total of $160,210 to become current on all five child support orders. 
At sentencing, he was ordered to remain current and comply with all five 
support orders for his minor children who reside in multiple jurisdictions. 
Additionally, he also pleaded guilty and was sentenced in August 2000 for 
failing to pay support for two other children who live in Georgia. 
	 In Nevada, a man was sentenced to 9 months imprisonment and 1 year 
probation for failure to pay child support. He was also ordered to pay more 
than $140,000 in overdue child support and to remain current in his support 
payments  of  $999  a  month.  The  man  evaded  efforts  to  locate  him  by 
stealing a social security number and manufacturing a social security card 
under his alias; he used this card to work and to obtain credit. 
	 In Iowa, a man was sentenced to 4 months prison (time served), 4 months in 
a community correctional facility, 1 year supervised release and payment of 
$132,284 in restitution for failure to pay child support. In February 2000, he 
was indicted on seven counts of failure to pay child support for seven 
children by six different mothers. At the time of his sentencing, the judge 
ordered him to pay past due child support for an eighth child as well. In 
addition  to these children, the State of  Wisconsin is in the process of 
establishing paternity for two more children. 
	 In Florida, a man was  sentenced to 5 years probation and payment of 
$96,745 in restitution for failure to pay child support. As part of a special 
condition  of  his  probation,  he  was  ordered  to  liquidate  his  sports 
memorabilia collection and to get a second job. In 1990, the man was 
ordered  to  pay  $514  a  month  in  support  of  one  child.  To  avoid  his 
57
 obligation, he moved frequently, and although he had several jobs, he failed 
to pay any child support. 
	 In New York, a man was sentenced to 7 months incarceration (time served), 
restitution of $18,200 (in addition to the $30,000 he provided at the time of 
his guilty plea), 1 year supervised release and mandatory alcohol and drug 
abuse counseling for failure to pay child support. When initially arrested for 
this violation, the man made statements to agents which threatened his sons 
safety. The investigation also uncovered that he owned the following assets: 
three bank accounts; a stock investment account; a large trust fund of which 
he was a paid trustee; apartments in Brussels, Paris, New York and Arizona; 
and two New York City warehouses in which the man, an art dealer, stored 
collections of fine art and sculpture. 
	 In  Indiana, a man was sentenced to 5 years probation and payment of 
$45,058 in restitution for failure to pay child support. In July 1996, he 
moved to Florida and stopped paying support for his four children who 
reside in Indiana.  During the investigation, the custodial parent informed 
OIG that he threatened to use a firearm against her if she tried to enforce the 
child support order. 
	 In  Louisiana,  a  man  was  sentenced  to  5  years  probation,  payment  of 
$40,735 in restitution, a $1,000 fine and drug testing for failure to pay child 
support. He was also ordered to perform 20 hours a week of community 
service  while  not  employed.  A  qualified  paralegal,  the  man  remained 
unemployed to avoid paying child support. He has since found a job as a 
paralegal earning $30,000 a year. 
	 In Texas, a man was sentenced to 5 years probation and payment of $34,427 
in restitution for failure to pay child support. As an additional condition of 
probation, he must also pay his current child support obligation of $400 a 
month  for  his  twin  daughters.  A  licensed  architect,  the  man  has  been 
employed at various times in Illinois but leaves employment when a wage 
garnishment is attempted. This case represents the first CSE prosecution in 
the Eastern District of Texas. 
	 In Arizona, a woman was sentenced to 5 years probation and payment of 
more than $10,000 in restitution for failure to pay child support. The woman 
currently earns more than $105,000 a year working for an Internet company 
in New York City. 
58
 	 In New Hampshire, a man was sentenced to 5 years probation and payment 
of $7,650 in restitution for failure to pay child support. He was also ordered 
to pay $275 a week via wage assignment to the State of New Hampshires 
Department of Health and Human Services for current and past due child 
support. The man is a second time offender; the State of New Hampshire 
also convicted him of failure to pay child support in September 1999. 
During this period, OIG investigations of child support cases, nationwide, resulted in 78 
convictions and court-ordered restitution of over $3.7 million.  Prosecutions in this area are 
unique in that sentences ordered by a judge take into account the need for the defendant to 
continue to be able to pay. Therefore, alternative sentencing optionssuch as work release, 
home detention and probation where nonpayment is a violationare often ordered. 
Head Start Management Consulting Firm 
The OIG reviewed the reliability and appropriateness of costs reported by a management 
consulting firm contracted to perform Head Start-related activities. The review focused on 
whether incurred costs reported by the contractor were allowable, applicable to Government 
contracts, determined under generally accepted accounting principles, and not prohibited by 
Government regulation or contract. 
The review found that the contractor claimed $4.5 million in unallowable costs over a 5-year 
period because financial and accounting controls were not sufficient to ensure compliance 
with Federal contract requirements. Unallowable costs included unreasonable compensation 
costs, undocumented consulting costs paid to the spouse of the firms president, travel and 
entertainment costs, and costs that were unsupported by the financial statements. 
The OIG recommended that ACF require the contractor to refund $4.5 million and establish 
financial and accounting controls to ensure compliance with Federal contract requirements. 
Although ACF  agreed  with  the  findings  and recommendations,  the contractor  did not. 
(A-03-99-03305) 
Head Start Grantee:  West Virginia 
After noting deficiencies during a performance review at a Head Start grantee in West 
Virginia,  ACF  requested that  OIG  review  the  grantees  grant expenditures,  accounting 
operations and internal controls. Because the grantee received funds from several Federal 
sources, OIG expanded its review to include all Federal funding. 
The review found several accounting and internal control deficiencies. For instance, budgets 
were overspent, funds were transferred from subsequent year funds and other program funds 
to satisfy deficits, and time allocations for personnel working on multiple programs were not 
calculated accurately. 
59
 The OIG recommended that the grantee refund $145,680 in inappropriately claimed Head 
Start funds and suggested several improvements in internal accounting and budget controls 
to prevent future problems. The grantee generally agreed with OIGs recommendations for 
internal control improvements but did not agree to refund Federal funds. The ACF concurred 
with the findings and recommendations.  (A-03-00-00551) 
Emergency Assistance Program Costs 
The  Emergency  Assistance  (EA)  program  provided  temporary financial assistance and 
supportive services to needy families in emergency situations. The program was eliminated 
by the  Personal  Responsibility  and Work Opportunity Reconciliation  Act of 1996 and 
replaced  with  the  Temporary  Assistance  for  Needy  Families  program.  Certain  States 
submitted retroactive EA claims that covered periods before TANFs implementation. In 
many cases, States employed consultants to develop these claims. 
The following reports were issued as part of OIGs nationwide review of retroactive EA 
claims. 
A. Kinship Foster Care Costs in New York 
An  OIG  report  pointed  out  that  from  January  1,  1994,  to  June  30,  1996,  New  York 
retroactively claimed kinship foster care costs as EA costs. In actuality, of those claims, 
$11.7 million (Federal share $5.8 million) did not meet Federal reimbursement requirements 
under the EA program. A statistical sample of 100 claims showed that 99 contained costs 
that were unallowable because they represented services provided outside the 12-month 
statutory limit for reimbursement under the EA program. The remaining case lacked an 
authorization  form.  Since  ACF  deferred  these  claims  pending  this  review,  OIG 
recommended that New York reduce its retroactive claim by $11.7 million. The State did not 
contest OIGs projection. (A-02-99-02001) 
B.  Nonparticipating Foster Care Costs Claimed by New York 
A second OIG report reviewed New Yorks retroactive EA claim for costs related to Federal 
nonparticipating (FNP) foster care. In New York, FNP represents maintenance payments for 
children who live in a foster care setting but are not eligible for assistance under the Federal 
Title IV-E program. The States claim covered the period from April 1, 1996, through 
December 31, 1997. 
The OIGs statistical sample of 100 cases found that 74 contained claims that were ineligible 
for Federal reimbursement. Most (72 of the 74 cases) related to services provided outside the 
12-month statutory limit for reimbursement under the EA program. The OIG recommended 
a financial adjustment of $7.3 million (Federal share $3.6 million). New York did not contest 
OIGs projection but reserved the right to appeal the amount disallowed. (A-02-98-02002) 
60
 C.  Costs Claimed for Federal Financial Participation by Pennsylvania 
In this report, OIG determined that due to widespread violations of Federal criteria by 
Pennsylvania,  the  State  was  reimbursed  at  least  $42.4  million  in  Federal  funds  for 
unallowable claims for EA services and associated administrative costs. Of 300 claims 
reviewed, 251 violated Federal requirements and 141 of the 251 contained 2 or more 
violations.  The  State  circumvented  Federal  criteria  by  disregarding  such  fundamental 
principles of the EA program as the childs living arrangements prior to applying for 
assistance, the role of parents or guardians in the application process and the 12-month time 
period in which services could be provided. The OIG recommended that the State refund the 
$42.4 million to the Federal Government. The State generally disagreed with these findings 
and recommendations. (A-03-99-00596) 
Foster Care Children Protection in California 
The OIG review of Californias administration of federally mandated protections provided to 
foster care children in the States juvenile justice system revealed significant problems. 
State plan requirements for the case review system were, in large part, not met. Additionally, 
one or both of the required judicial determinations pertaining to the childs removal from the 
home were not always made. These protections were not effective due to a lack of both 
sufficient oversight by California and State statutes codifying the juvenile delinquency court 
and probation department procedures for federally mandated protections. 
The OIG recommended that the State implement periodic case sampling to ensure that the 
protections are provided and furnish oversight and technical assistance to county probation 
departments regarding the proper administration of Federal foster care requirements. The 
State concurred with these recommendations. (A-09-99-00057) 
Maines Licensing of Foster Care Homes 
The OIG review of Maines foster care licensing indicated that the State  needed to make 
more timely reviews of license applications and renewals. The 60 sampled foster care homes 
had pending license renewals (some of which included temporary or provisional licenses) of 
3 years or more and averaged 4.3 years. Of the 60 homes sampled, 31 did not meet one or 
more safety requirements.  Specifically, 14 homes had fire code violations, 4 had bacteria in 
the water supply and 13 had allegations of abuse or neglect of foster care children.  These 
problems  were  primarily  the  result  of  insufficient  inspection  resources  and  ineffective 
procedures, including the failure to use computer technology to automatically flag homes 
needing safety inspections or license renewals. 
The  OIG recommended that Maine implement  a corrective action plan to resolve the 
licensing of its foster homes in accordance with its own licensing standards. The OIG also 
recommended  that  the  State  improve  procedures  to  ensure  that  licensing 
standardsincluding monitoring to ensure early identification and prevention of safety 
61
 issuesare consistently met. State officials concurred with and are working to implement 
these recommendations. (A-01-00-02500) 
Connecticuts Oversight of Child Care Facilities 
An  OIG  report,  requested  by  a  Member  of  Congress,  pointed  out  weaknesses  in 
Connecticuts licensing and monitoring of child care facilities. The States inspection and 
reporting process needed improvement, especially in the areas of  quarterly visits required 
by State law, reporting results and documenting supervisory reviews.  In one case, a facility 
was  inspected  only  4  times  from  October  1995  to  October  1999,  during  which  17 
inspections  should have been performed.  The OIG noted instances wherein inspectors 
reported  that  certain  licensing  requirements  had  been  met  when  documented  evidence 
suggested otherwise.  In other cases operating licenses were issued and reissued to certain 
facilities in spite of serious deficiencies identified by license inspectors in current and 
previous inspections.  Recommendations called for improvements in meeting the States 
licensing and oversight responsibilities. The State concurred and is in the process of taking 
corrective action. (A-01-00-02504) 
Texas State Audit of Foster Care Contracts 
As part of the Inspector Generals partnership efforts with States to expand audit coverage of 
foster care programs, the Texas State Auditor conducted an audit with the assistance of OIG. 
The State Auditors report identified gaps in the States oversight of foster care contracts 
which could be serious enough to undermine its efforts to ensure the safety of children in its 
care and its efforts to ensure that contractors comply with contract requirements. The report 
noted other problems:  the foster care rate methodology was based upon a number of 
untested assumptions; the State lacked adequate assurance concerning accuracy of cost 
reports  submitted  by  foster  care  providers;  and  it  had  not  implemented  policies  and 
procedures to verify that child-placing agencies were paying foster homes the required 
minimum amount for maintenance. The State agreed with the State Auditors findings and is 
taking  action  to  correct  the  weaknesses  identified  in  its  administration  of  foster  care 
contracts.  Action by ACF is pending resolution of the findings through the State audit 
process.  (A-06-00-00046) 
Foster Care:  Maryland 
At  the  request  of  a  Member  of  Congress,  OIG  conducted  a  limited-scope  review  to 
determine whether Maryland had claimed Title IV-E foster care funds for children residing 
in detention-type facilities commonly referred to as boot camps. Federal foster care funds 
are not allowable for children in detention facilities. While the review disclosed that the 
State did not claim funds for children residing in such facilities, isolated payment errors 
associated with several cases were noted.  The OIG provided information on these errors to 
State officials who agreed to review the cases and make financial adjustments if appropriate. 
(A-03-00-00553) 
62
 Voluntary Contributions Not Used to Expand Services for the 
Elderly 
Current AoA regulations permit States to use voluntary contributions to meet cost-sharing or 
matching grant requirements. This use of contributions is contrary to the Older Americans 
Act which  requires that voluntary  contributions  be  used to  increase  services  (such  as 
congregate and home-delivered meals, transportation and in-home support) to the elderly. 
According  to  their  financial  status  reports,  28  States  and  the  District  of  Columbia 
erroneously used $155.4 million, or 37 percent of the total $421.5 million in voluntary 
contributions received in FYs 1996 and 1999, to meet their grant matching requirements. 
The OIG recommended that AoA revise its regulations to stop this practice. The OIG also 
recommended that AoA step up its monitoring of financial status reports to ensure that all 
available funds are used to satisfy the needs of the elderly.  In response to the draft report, 
AoA agreed with OIG findings and recommendations and outlined corrective actions under 
way or planned. (A-12-00-00002) 
63
 General Oversight
 Chapter IV 
GENERAL OVERSIGHT

Introduction 
This chapter addresses the Office of Inspector Generals (OIGs) departmental management 
and Governmentwide oversight responsibilities. 
The Program Support Center, a separate operating division (OPDIV) within the Department 
of  Health  and  Human  Services  (HHS),  provides  overall  direction  for  departmental 
administrative activities as well as common services such as human resources, financial 
management,  administrative  operations  and  information  technology.  The  Office  of  the 
Assistant Secretary for Management and Budget is responsible for the development of the 
HHS budget and its execution, as well as the related activities of establishing and monitoring 
departmental policy for debt collection, cash management and payment of HHS grants and 
contracts. The Department also has the responsibility, by virtue of the magnitude of its 
funding, to negotiate the payment rates and methods that outside entities, such as State and 
local governments, charge for administering HHS and other Federal programs. 
The OIG has oversight responsibility for these activities at the departmental level. A related 
major responsibility flows from Office of Management and Budget (OMB) Circular A-133 
which designates HHS as the cognizant audit entity for most States and major research 
organizations. The OIG oversees the work of nonfederal auditors of Federal money at some 
6,700 entities, such as community health centers and Head Start grantees, as well as at State 
and local governments, colleges and universities, and other nonprofit organizations.  In 
addition,  OIG  became  responsible  for  auditing  the  Departments  financial  statements 
beginning with FY 1996. 
The OIGs work in departmental administrative activities and Governmentwide oversight 
focuses principally on  financial statement audits,  financial management and managers 
accountability for resources entrusted, the Departments performance measurement efforts, 
standards  of  conduct  and  ethics,  and  Governmentwide  audit  oversight,  including 
recommending revisions to OMB guidance. 
65
 Financial Statement Audit of the Department 
for Fiscal Year 2000 
As  required  by  the  Government  Management  Reform  Act  of  1994,  OIG  audited  the 
departmentwide consolidated and combined financial statements for FY 2000, which include 
the consolidated balance sheet of the Department, the related statements of net cost and 
changes in net position, and the combined statements of budgetary resource and financing. 
This audit encompassed individual audits of nine OPDIVs financial statements. 
The audit report, which appears in the Departments Accountability Report for FY 2000, 
gives an unqualified opinion on the FY 2000 statements. This means that, for the second 
year,  the  Departments  FY  2000  statements  reliably  presented  departmental  financial 
information. 
While a clean audit opinion assures financial statement users that the information is reliable 
and fairly presented, it does not provide an assurance on the effectiveness and efficiency of 
the financial systems used to prepare the statements. The OIG continues to cite as a material 
internal control weakness the deficiencies in the Departments financial systems and the 
processes for producing financial statements. The lack of a unified, integrated financial 
management system and the OPDIVs failure to routinely reconcile and analyze accounts 
throughout the year led to major adjustments to OPDIV financial statements as late as 
February 2001, nearly 5 months after the close of the fiscal year. Continuing problems in 
controls over Medicare electronic data processing were also reported as a material weakness. 
The  Department  generally  agreed  with  OIGs  recommendations  for  improvements. 
(A-17-00-00014) 
Escheated Warrants:  West Virginia 
Under Federal regulations, States are required to refund the Federal portion of uncashed and 
unclaimed checks known as escheated warrants. However, OIG found that for FYs 1997 
through 1999 West Virginia did not reimburse the Federal Government at least $586,000 for 
uncashed canceled checks originally issued with funds from Federal programs. Although 
complete records were unavailable for the period before FY 1997, OIG determined that 
uncashed checks totaled approximately $16.7 million from 1990 until the period reviewed. 
The OIG believes that the Federal share of uncashed checks during this time was greater 
than the amount calculated for the audit period because Federal funding to the State under 
the former Aid to Families With Dependent Children program was significantly higher than 
it is under the present Temporary Assistance for Needy Families program. 
The OIG recommended that the Department recover the $586,000 identified during the audit 
period and consider the findings in the report when negotiating recovery of the Federal 
portion of escheatments for prior periods. (A-03-00-00460) 
66
 Nonfederal Audits 
The  OMB  Circular  A-133  establishes  the  audit  requirements  for  State  and  local 
governments,  colleges  and  universities,  and  nonprofit  organizations  receiving  Federal 
awards. Under this circular, covered entities are required to have an annual organizationwide 
audit which includes all Federal money they receive. 
These annual audits are conducted by nonfederal auditors, such as public accounting firms 
and State auditors.  As cognizant auditor, OIG reviews the quality of these audits and 
assesses the adequacy of the entitys management of Federal funds. In the first half of FY 
2001, OIGs National External Audit Review Center (located in Kansas City) reviewed 
about 1,500 reports that covered over $447.9 billion in audited costs.  Federal dollars 
covered by these audits totaled $96.9 billion, about $52 billion of which was HHS money. 
The OIGs oversight of the nonfederal audit activity not only provides Department managers 
with  assurances  about  the  management  of  Federal  programs,  but  also  identifies  any 
significant areas of internal control weakness, noncompliance and questioned costs that 
require formal resolution by Federal officials. 
A.  Office of Inspector Generals Proactive Role 
The OIG has taken the following steps in the nonfederal area to ensure adequate coverage of 
the Departments programs and provide for greater utilization of the data obtained: 
	 Through evaluation of reported data, OIG is able to provide basic audit 
coverage and analyze reports to identify entities for high-risk monitoring 
and  trends  that  could  indicate  problems  within  HHS  programs.  These 
problems are brought to the attention of departmental management who can 
take steps to improve program administration. In addition, OIG profiles 
nonfederal audit findings of a particular program or activity over a period of 
time to identify systemic problems. 
	 To ensure audit quality, OIG maintains a quality control program (discussed 
below) and has taken steps to ensure that adequate guidance is available to 
the nonfederal auditor. The OIG actively assists the National Association of 
State Auditors, Controllers and Treasurers in performing peer reviews of 
State audit organizations. 
	 As a further enhancement of audit quality, OIG provides technical assistance 
to  grantees  and  the  auditing  profession  through  its  toll  free  number 
(800-732-0679).  In  addition,  OIG  offers  various  training;  for  example, 
formal training was provided to certified public accountant societies and 
State auditor staffs on issues related to Circular A-133. 
67
 	 The OIG is also very much involved with OMB and the American Institute 
of Certified Public Accountants in developing authoritative guidance for 
nonfederal auditors. 
	 The OIG chaired both a work group sponsored by OMB to revise the data 
collection form for single audit reporting and currently chairs a committee 
of the Presidents Council on Integrity and Efficiency to revise the Orange 
Book which addresses audit cognizance assignments. 
B.  Quality Control 
To rely on the work of nonfederal auditors, OIG maintains a quality control review process 
which  assesses  the  quality  of  the  nonfederal  reports  received  and  the  audit work  that 
supports selected reports. Uniform procedures are used to review nonfederal audit reports to 
determine compliance with Federal audit requirements and Government auditing standards. 
During this reporting period, OIG reviewed and issued 1,502 nonfederal audit reports. The 
following table summarizes those results: 
Reports issued without changes or with minor changes  1,454 
Reports issued with major changes  25 
Reports with significant inadequacies  23 
Total audit reports processed  1,502 
The  1,502  audit  reports  discussed  above included  recommendations  for  HHS program 
officials  to  take  action  on  cost  recoveries  totaling  $7.5  million  as  well  as  4,702 
recommendations for improving management operations. In addition, these audit reports 
provided information for 101 special memoranda which identified concerns for increased 
monitoring by departmental management. 
68
 Resolving Office of Inspector General Recommendations 
The tables and schedules below summarize actions  taken on OIG recommendations to 
recover funds or to put them to better use. 
A.  Questioned Costs 
The following chart summarizes the Departments responses to OIGs recommendations for 
the recovery or redirection of questioned and unsupported costs. Questioned costs are those 
costs which are challenged because of violation of law, regulation, grant conditions, etc. 
Unsupported costs are those costs questioned because they are not supported by adequate 
documentation.  This  information  is  provided  in  accordance  with  the  Supplemental 
Appropriations and Rescissions Act of 1980 (Public Law 96-304) and section 5 of the 
Inspector General Act. These costs are separate from the amount ordered or returned as a 
result of OIG investigations. (See page 72.) 
TABLE I 
OFFICE OF INSPECTOR GENERAL 
REPORTS WITH QUESTIONED COSTS 
Number  Dollar Value 
Questioned  Unsupported 
A. For which no management 
decision had been made by 
the commencement of the 
reporting period1  465  $613,204,000  $132,833,000 
B. Which were issued during 
the reporting period  94  $253,504,000  $2,271,000 
Subtotals (A + B)  559  $866,708,000  $135,104,000 
Less: 
C. For which a management 
decision was made during 
the reporting period2,3:  135  $358,860,000  $14,696,000 
(i) dollar value of 
disallowed costs  $334,565,000  65,835,000 
(ii) dollar value of 
costs not disallowed  $23,957,000  $65,915,000 
D. For which no management 
decision had been made by the 
end of the reporting period  424  $507,848,000  $3,354,000 
E. For which no 
management decision was 
made within 6 months 
of issuance4  660  $336,076,464  $33,607,000 
See Appendix D for footnotes. 
69
 B.  Funds Put to Better Use 
The following chart summarizes reports which include recommendations that funds be put 
to better use through cost avoidances, budget savings, etc. 
TABLE II 
OFFICE OF INSPECTOR GENERAL REPORTS 
WITH RECOMMENDATIONS THAT FUNDS BE PUT 
TO BETTER USE 
Number  Dollar Value 
A. For which no management 
decision had been made by 
the commencement of the 
reporting period1  17  $125,963,000 
B. Which were issued during 
the reporting period  12  $6,312,164,000 
Subtotals (A + B)  29  $6,438,127,000 
Less: 
C. For which a management 
decision was made during 
the reporting period: 
(i) dollar value of 
recommendations that 
were agreed to by 
management 
(a) based on proposed 
management action2  3  $87,521,000 
(b) based on proposed 
legislative action 
Subtotals (a+b)  3  $87,521,000 
(ii) dollar value of 
recommendations that 
were not agreed to 
by management  4  $38,000 
Subtotals (i + ii)  7  $87,559,000 
D. For which no management 
decision had been made by 
the end of the reporting 
period3  22  $6,350,568,000 
See Appendix D for footnotes. 
70
 Legislative and Regulatory Review and Regulatory Development 
A.  Review Functions 
Section 4(a) of the Inspector General Act of 1978 requires the Inspector General to review 
existing and proposed legislation and regulations and to make recommendations in the 
semiannual  report  concerning  the  impact  on  the  economy  and  efficiency  of  the 
administration of the Departments programs and on the prevention of fraud and abuse. In 
reviewing  regulations  and  legislative  proposals,  OIG  uses  as  the primary  basis  for  its 
comments the audits, inspections, investigations and other activities highlighted in this and 
previous semiannual reports. Recommendations made by OIG for legislative and regulatory 
change can be found throughout this semiannual report. 
B.  Regulatory Development Functions 
The OIG is responsible for the development and publication of regulations addressing the 
administrative sanction  authorities  implemented by OIG, e.g., civil monetary  penalties 
(CMPs)  and  program  exclusions,  as  well  as  safe  harbor  regulations  related  to  the 
anti-kickback statute.  Among  the  regulatory initiatives  undertaken  during the  reporting 
period were the following: 
Proposed  Rulemaking on Revisions and Technical Corrections to 42 CFR Chapter 
VThe rule proposed several revisions and technical amendments to OIG regulations. 
The rule included revisions or clarifications to the definition of the term item or 
service, to the reinstatement procedures relating to exclusions resulting from a default 
on  health  education  loan  or  scholarship  obligations  and  to  the  limitations  period 
applicable to exclusions. In addition, the proposed rule set forth a number of technical 
corrections to the current regulations (65 FR 63035; October 20, 2000). 
Revised  Final  Rulemaking  on  the  Reporting  of  Final  Adverse  ActionsThis  rule 
amended an earlier OIG rule that established a national health care fraud and abuse data 
collection program for the reporting and disclosing of certain adverse actions taken 
against health care providers, suppliers and practitioners, and for maintaining a data base 
of such final adverse actions. The revised rule amended the definition of the term health 
plan, as it appeared in 45 CFR 61.3 (65 FR 70506; November 24, 2000). 
Also, during this period, OIG published several Federal Register notices that set forth OIG 
policy and procedures in various areas. These included the publication of: 
Final OIG Compliance Program Guidance for Individual and Small Group Physician 
Practices (65 FR 59434; October 5, 2000). 
A solicitation for suggestions for developing new and modifying existing safe harbor 
provisions related to the anti-kickback statute, as well as the issuance of additional OIG 
Special Fraud Alerts (65 FR 78124; December 14, 2000). 
71
 A notice amending OIGs Health Care Program Violations System of Records under the 
Privacy Act to include Social Security numbers to assure the proper identification of 
sanctioned individuals (66 FR 9865; February 12, 2001). 
C.  Congressional Testimony and Hearings 
The OIG also maintains an active involvement in the congressional hearing process. For 
example, OIG testified at three hearings during this 6-month period, principally on health 
care  fraud  and  abuse  issues.  On  several  occasions,  the  testimony  concerned  OIG 
recommendations which, if implemented, could produce significant annual savings to the 
Government. These recommendations are contained in the OIG Cost Saver Handbook, also 
known as the Red Book. The hearing process offers OIG the opportunity to meet its 
statutory  obligation of  keeping the Congress informed of its  work  with  regard to the 
effective and efficient operation of Department programs. The OIG continues to track all 
relevant congressional hearings and pending legislation relative to a wide range of issues. 
Employee Fraud and Misconduct 
The OIG has oversight responsibility for the investigation of allegations of wrongdoing by 
Department employees when it affects internal programs.  Most of the persons employed by 
HHS are dedicated, honest civil servants. Occasionally, however, individuals violate their 
fiduciary responsibilities, as illustrated in the following example: 
	 In Maryland, a former Food and Drug Administration (FDA) employee was 
sentenced to 2 years probation, 60 hours community service and restitution 
of $789 for theft of Government property. As the FDA project officer on the 
mover contract, the employee used contractor personnel to move out of his 
home and to move FDA surplus furniture to his wifes business office in 
Virginia.  He also used an FDA warehouse to store his personal belongings. 
The  investigation  showed  that  costs  associated  with  these  moves  were 
charged to the FDA contract. The employee resigned from Federal service 
shortly after his arrest for this misconduct. 
Investigative Prosecutions and Receivables 
During this semiannual reporting period, OIG investigations resulted in 213 successful 
criminal actions. Also during this period, 782 cases were presented for criminal prosecution 
to DOJ and, in some instances, to State and local prosecutors. Criminal charges were 
brought by prosecutors against 304 individuals and entities. 
In addition to terms of imprisonment and probation imposed in the judicial processes, over 
$249  million  was  ordered  or  returned  as  a  result  of  OIG  investigations  during  this 
72
 semiannual period. Civil settlements from investigations resulting from audit findings are 
included in this figure. 
73
 Appendices
 APPENDIX A

Savings Achieved through Policy and Procedural Changes Resulting from

Office of Inspector General

Audits, Investigations and Inspections

October 2000 through March 2001

The following schedule highlights savings resulting from Office of Inspector General (OIG) efforts to prevent unnecessary 
obligations for expenditures of agency funds or to improve agency systems and operations. These achievements depend 
greatly on the contributions of others, such as OIGs partners within the Department and elsewhere. The amounts shown 
represent funds or resources that will be used more efficiently as a result of documented measures taken by the Congress or 
by management in response to OIG audits, investigations and inspections, including: actual reductions in unnecessary 
budget outlays; deobligations of funds; reductions in costs incurred or preaward grant reductions from agency programs or 
operations; and reduction and/or withdrawal of the Federal portion of interest subsidy costs on loans or loan guarantees, or 
insurance or bonds. 
Legislative savings are annualized amounts based on Congressional Budget Office (CBO) estimates for a 5-year budget 
cycle. Consistent with OIG policy, savings from the Medicare provisions of the Balanced Budget Act (BBA) of 1997 were 
adjusted downward to reflect CBO estimates for related provisions of the Balanced Budget Refinement Act (BBRA) of 
1999. Administrative savings are calculated by OIG using departmental figures, where available, for the year in which the 
change is effected or for multiple years, if applicable. Total savings from these sources amount to $9,511 million for this 
period. 
OIG Recommendation  Implementing Action  Savings 
in Millions 
HEALTH CARE FINANCING ADMINISTRATION 
Reforming Medicaid Disproportionate 
Share Payments: 
Disproportionate share payments to hospitals  Section 4721 of the BBA of 1997 reformed  $3,150

should be related to costs incurred in treating  disproportionate share payments under

Medicaid and indigent patients to correct the  State Medicaid programs by placing

inequities and abuses in current payment  limitations on Federal financial

methodologies. (CIN: A-06-90-00073; CIN:  participation.

A-04-92-01025)

Medicare Part A Payments for Skilled 
Nursing Facilities: 
Services should be bundled into Medicare and  Section 4432 of the BBA of 1997 (as  1,930

Medicaids payments to nursing homes; Part B  amended by the BBRA of 1999) required a

payments for services normally included in the  PPS for SNF care. Covered services include

extended care benefit should continue to be  Part A SNF benefits and all services for

examined for appropriateness; and a legislative  which payment may be made under Part B

recommendation should be developed to  (except physician and certain other

prohibit entities other than the skilled nursing  professional services) during the period

facility (SNF) from seeking coverage on behalf  when the beneficiary is provided covered

of persons in Part A covered SNF stays for  SNF care.

enteral nutrition, incontinence care, and surgical 
dressings, and limit Medicare coverage of these 
services to Part A. In 1997 congressional 
testimony, OIG supported establishing a 
prospective payment system (PPS) and 
consolidated billing. (OEI-03-94-00790; 
OEI-06-92-00863; OEI-06-92-00864; CIN: 
A-17-95-00096; CIN: A-14-98-00350) 
A-1
   OIG Recommendation  Implementing Action  Savings 
in Millions 
Medicare Secondary Payer Extensions: 
Establish a centralized database of information  The database capacity was achieved  $1,890

about private insurance coverage of Medicare  through the authorization of a data 
beneficiaries. Extend the Medicare secondary  exchange between the Social Security 
payer (MSP) provision to include end stage  Administration and the Health Care 
renal disease (ESRD) beneficiaries as long as  Financing Administration (HCFA) and 
the individual has employer based coverage  between the Internal Revenue Service and 
available. (OEI-07-90-00760;  HCFA. Section 4631 of the BBA of 1997 
OEI-03-90-00763; CIN: A-10-86-62016; CIN:  permanently extended current MSP policies 
A-09-89-00100; CIN: A-09-91-00103; CIN:  for beneficiaries who are disabled and have 
A-14-94-00391; CIN: A-14-94-00392)  ESRD. For ESRD beneficiaries, the statute 
also increased the time period Medicare is 
secondary payer from 18 to 30 months. 
Capital-Related Costs of Hospital Services: 
Extend congressionally mandated reductions in  Section 4402 of the BBA of 1997 provided  1,140 
hospital costs. The HCFA should seek  for rebasing of capital payment rates for an 
legislative authority to continue mandated  additional reduction in the rate of 2.1 
reductions in capital payments; excess capacity  percent. 
was not considered in the capital cost policy. 
(CIN: A-09-91-00070; CIN: A-07-95-01127) 
Medicare Payments for Oxygen: 
The HCFA should reduce Medicare payments  Section 4552(a) of the BBA of 1997  500 
for oxygen concentrators and ensure that  reduced Medicare reimbursement for 
beneficiaries receive necessary care and support  oxygen 25 percent until 1999 and by 30 
in connection with their oxygen therapy.  percent for each subsequent year; section 
(OEI-03-91-00711, OEI-03-91-001710)  4552(c) mandated that the Secretary 
develop service standards for oxygen 
provided in the home. 
Medicare Laboratory Reimbursements: 
In July 1989, OIG recommended that HCFA  Section 4553 of the BBA of 1997 provided  500 
take advantage of economies of scale present in  for reducing fee schedule payments by 
the laboratory industry by considering  lowering the cap to 74 percent of the 
competitive bidding or making reductions to the  median for payment amounts, with no 
fee schedule amounts. In January 1990, OIG  inflation update for 1998 through 2002. 
recommended that HCFA seek legislation to 
allow across the board adjustments in Medicare 
laboratory fee schedules, bringing them in line 
with the prices which laboratories charge 
physicians in a competitive marketplace. In a 
January 1996 follow-up, OIG found that 
Medicare continued to pay more to clinical 
laboratories than physicians for the same tests. 
Although the Omnibus Budget Reconciliation 
Act of 1993 reduced the fee schedule to 76 
percent of the average in 1996, OIG 
recommended that HCFA periodically evaluate 
the national fee schedule to ensure that it is in 
line with the prices physicians pay for the same 
clinical laboratory services. (OAI-02-89-01910; 
CIN: A-09-89-00031; CIN: A-09-93-00056) 
A-2
   OIG Recommendation  Implementing Action  Savings 
in Millions 
Payments for Durable Medical Equipment: 
Excessive Medicare Part B payments for enteral  Section 4551 of the BBA of 1997 froze  $200 
and parenteral nutrition, equipment and supplies  Medicare payments for enteral and 
should be reduced, or competitive acquisition  parenteral nutrition and supplies for 1998 
strategies should be employed.  through 2002 and simplified the process 
(OEI-03-94-00021; OEI-06-92-00866;  used to reduce inherently unreasonable 
OEI-03-96-00230; OEI-06-92-00861)  prices by 15 percent. 
Medicare Payments to Hospitals for Bad 
Debt: 
The HCFA should seek legislative authority to  Section 4451 of the BBA of 1997 reduced  140 
modify the bad debt payment policy. (CIN:  bad debt payment to providers to 75 percent 
A-14-90-00039)  during FY 1998, 60 percent during FY 1999 
and 55 percent in later years. 
Medicare Payments for Prescription Drugs: 
The HCFA should reexamine its Medicare drug  Section 4556 of the BBA of 1997 reduced  40

reimbursement methodologies, with a goal of  Medicare payments for drugs, which are

reducing payments as appropriate.  paid based on the average wholesale price,

(OEI-03-95-00420; OEI-03-94-00390;  by 5 percent.

OEI-03-97-00290)

A-3
   Other  Implementing Action  Savings 
in Millions 
ADMINISTRATION FOR CHILDREN AND FAMILIES 
Retroactive Juvenile Justice and Youth 
Incentive Costs Claimed to the Emergency 
Assistance Program 
The OIG review found that the New Jersey  The OIG worked with the Division and  $2 
Division of Family Development did not  provided periodic briefings to its officials 
adequately review and test the work of their  on the results of the OIG review. As a 
contractor before submitting claims to the  result of the review, New Jersey returned 
Federal Government for reimbursement of  $1,959,737 in Federal funds. 
retroactive claims for the juvenile justice and 
youth incentive programs under the Emergency 
Assistance Program. 
VARIOUS OPERATING DIVISIONS 
Results of Investigations: 
In addition to any restitution, fines, settlements  The operating division takes action based  19

or judgments, or other monetary amounts  on the results of the OIG investigation to

resulting from successful investigations,  suspend or terminate payments to the

additional monetary losses are avoided through  offending individual or entity.

timely communication of the investigative

results to the operating division.

A-4
 APPENDIX B 
Unimplemented Office of Inspector General Recommendations to 
Put Funds to Better Use 
This schedule represents potential annual savings or one-time recoveries which could be realized if Office of Inspector 
General (OIG) recommendations were enacted by the Congress and the Administration through legislative or regulatory 
action, or policy determinations by management. (In many cases, these recommendations are beyond the direct authority of 
the departmental operating division.)  It should be noted, however, that the Congress normally develops savings over a 
budget cycle which results in far greater dollar impact statements. Savings are based on preliminary OIG estimates and 
reflect economic assumptions which are subject to change.  The magnitude of the savings may also increase or decrease as 
some of the proposals could have interactive effects if enacted together. 
OIG Recommendation  Status  Savings 
in Millions 
HEALTH CARE FINANCING ADMINISTRATION 
Modify Formula for Costs Charged to the 
Medicaid Program: 
The Health Care Financing Administration  The HCFA did not agree with the  $4,100 
(HCFA) should consult with the Congress on  recommendation. 
modification of the Federal medical assistance 
percentage formula used to determine the 
Federal share of costs for the Medicaid and 
other programs which would result in 
distributions of Federal funds that more closely 
reflect per capita income relationships. (CIN: 
A-06-89-00041) 
Correct Overstated Managed Care 
Capitation Rates: 
The HCFA should seek legislation to correct the  The Medicare, Medicaid, and SCHIP  1,722 

overstated base-year rates or eliminate any  Benefits Improvement and Protection Act

future increases in managed care capitation  of 2000 (BIPA) increased payments to

rates. (CIN: A-05-99-00025)  Medicare+Choice organizations but did not

modify the base-year amounts due to the

overstated actuarial assumptions. The OIG

believes that managed care payment rates

continue to be excessive.

Medicare Coverage of State and Local 
Government Employees: 
Require Medicare coverage and hospital  The HCFA agreed with the recommendation  1,559

insurance contributions for all State and local  to mandate Medicare coverage for all State

employees, including those hired prior to April  and local government employees but did

1, 1986.  If this proposal is not enacted, seek  not agree with the recommendation to make

legislation making Medicare the secondary  Medicare the secondary payer.

payer for retirees of exempt State and local

government agencies. (CIN: A-09-88-00072)

B-1
   OIG Recommendation  Status  Savings 
in Millions 
Excessive Medicare Payments for 
Prescription Drugs: 
The HCFA should examine its Medicare drug  The BBA of 1997 reduced Medicare  $1,600 
reimbursement methodologies.  payments by limiting them to 95 percent of 
(OEI-03-97-00290; OEI-03-97-00292;  the average wholesale price (AWP). The 
OEI-03-97-00293; OEI-03-97-00390;  OIG believes additional corrective action is 
OEI-03-95-00420; OEI-03-94-00390)  warranted. 
Clinical Laboratory Tests: 
Develop a methodology and legislative proposal  The HCFA agreed with the first  1,130*

to pay for tests ordered as custom panels at  recommendation but not the second. The 
substantially less than the full price for  FY 2001 budget included a proposal to 
individual tests, and study reinstating the  reduce payment updates from 2003 through 
beneficiary coinsurance and deductible  2005 and a proposal to reinstate laboratory 
provisions for laboratory services as a means of  cost sharing. In addition, the BBA required 
controlling utilization. (CIN: A-09-89-00031;  the Secretary to contract with the Institute 
CIN: A-09-93-00056)  of Medicine for a study of Part B laboratory 
test payments; HCFA may use the results to 
develop a new payment methodology. 
Reduce Hospital Capital Costs: 
Determine the extent that capital reductions are  The HCFA did not agree with the  820

needed to fully account for hospitals excess  recommendation. Although the BBA of 
bed capacity and report the percentage to the  1997 reduces capital payments, it does not 
Congress.( CIN: A-09-91-00070;CIN:  include the effect of excess bed capacity 
A-14-93-00380)  and other elements included in the base 
year historical costs. The Presidents FY 
2001 budget would have reduced capital 
payments and saved $630 million in FY 
2001 through FY 2005. 
Medicaid Payments to Institutions for 
Mentally Retarded: 
The HCFA should take action to reduce  The HCFA did not concur with OIGs  683

excessive spending of Medicaid funds for  recommendation. The HCFA believes 
intermediate care facilities for the mentally  Medicaid statutory provisions allow States 
retarded (ICF/MRs) by one or more of the  to establish their own payment systems. 
following: take administrative action to control  This flexibility allows for the variations 
ICF/MR reimbursement by encouraging States  found among States in their payment rates 
to adopt controls; seek legislation to control  and the methods and standards used in 
ICF/MR reimbursement, such as mandatory cost  determining these rates. The HCFA and 
controls, Federal per capita limits, flat per  OIG negotiated an agreement for HCFA to 
capita payment, case-mix reimbursement or  send the report to all State Medicaid 
national ceiling for ICF/MR reimbursements;  directors.  This action has been taken. 
and/or seek comprehensive legislation to  However, pursuant to section 4711 of the 
restructure Medicaid reimbursement for both  BBA of 1997, the Secretary shall conduct a 
ICF/MR and home and community-based  study on the effect on access to, and the 
waiver service for developmentally disabled  quality of services provided to beneficiaries 
people via global budgeting, block grants or  of the rate-setting methods used by States. 
financial incentive programs. 
(OEI-04-91-01010) 
*This savings estimate would result from the copayment; the savings estimate for panels has yet to be determined. 
B-2    OIG Recommendation  Status  Savings 
in Millions 
Modify Payment Policy for Medicare Bad 
Debts: 
The OIG presented an analysis of four options  The HCFA agreed with the recommendation  $340

for HCFA to consider, including the elimination  to include a bad debt factor in the DRG 
of a separate payment for bad debts, the offset  rates. The BBA of 1997 provides for some 
of Medicare bad debts against beneficiary  reduction of bad debt payments to 
Social Security payments, the limitation of bad  providers. The Presidents FY 2001 budget 
debt payments to prospective payment system  proposes to reduce the percentage (from 55 
hospitals that are profitable, and the inclusion of  percent to 45 percent) that Medicare pays 
a bad debt factor in the diagnosis-related group  for bad debts. However, additional 
(DRG) rates. The HCFA should seek legislative  legislative changes are needed to 
authority to further modify bad debt policies.  implement the modifications that OIG 
(CIN: A-14-90-00339)  recommended. 
Hospital Admissions: 
Seek legislation to pay for covered services  The HCFA proposed to implement OIGs  210 
related to 1-day admissions without an  recommendation through administrative 
overnight stay as outpatient services. (CIN:  remedies that would designate whether 
A-05-89-00055; CIN:  A-05-92-00006)  specific services are to be covered and paid 
for as inpatient or outpatient services. 
Graduate Medical Education: 
Revise the regulations to remove from a  The HCFA did not concur with the  157.3

hospitals allowable graduate medical education  recommendations.  Although the BBA of

(GME) base year costs any cost center with  1997 contains provisions to slow the

little or no Medicare utilization. Submit a  growth in Medicare spending on GME, OIG

legislative proposal to compute Medicares  believes that its recommendations should

percentage of participation under the former  be implemented and that further savings

more comprehensive system. (CIN:  can be achieved.

A-06-92-00020) 
Paperless Claims: 
The HCFA should lead a target outreach to  The HCFA concurred with OIGs  126 
encourage voluntary conversion to paperless  recommendations. The Presidents FY 
Medicare claim filing by physicians who submit  2001 budget proposes to allow an 
claims on paper and who have a moderate to  assessment of a $1 fee on claims not 
high level of interest in making the switch. This  submitted electronically. 
effort should be coordinated with efforts to 
promote further use of electronic data 
interchange by providers under the 
administrative simplification provisions of the 
Health Insurance Portability and Accountability 
Act of 1996.  The HCFA should also begin to 
plan now for the policy changes that will be 
necessary to achieve an almost completely 
paperless environment for processing Medicare 
claims.  These policy changes can include 
targeting a date when all physicians will be 
mandated to submit paperless claims, targeting 
a date when paperless claims submission will 
become a condition for Medicare participation, 
or continuing to accept paper claims but 
imposing a filing fee to cover the incremental 
cost of doing so. (CIN: A-05-94-00039; 
OEI-01-94-00230) 
B-3
   OIG Recommendation  Status  Savings 
in Millions 
Medicaid Drug Rebate Program: 
The best price calculation in the Medicaid drug  The OIG is continuing to monitor the  $123 
rebate program should be indexed to the  Medicaid drug rebate program. 
consumer price index-urban. (CIN: 
A-06-94-00039) 
Recover Overpayments and Expand the 
Diagnosis Related Group Payment Window: 
The HCFA should propose legislation to expand  The HCFA did not concur with the  83.5 
the DRG payment window to at least 7 days  recommendation to further expand the 
immediately prior to the day of admission.  payment window. 
(CIN: A-01-92-00521) 
Inpatient Psychiatric Care Limits: 
Develop new limits to deal with the high cost  The HCFA agreed with OIGs findings but  47.6 
and changing utilization patterns of inpatient  stated that further analysis would be 
psychiatric services. Apply a 60-day annual  required before any legislative changes 
and a 190-day lifetime limit to all psychiatric  could be supported. 
care regardless of the place of service. (CIN: 
A-06-86-62045) 
Nonemergency Advanced Life Support 
Ambulance Services: 
The HCFA should modify its Medicare policy to  The HCFA issued a final regulation which  47

allow payment for nonemergency advanced life  addresses the coverage of ambulance 
support ambulance service only when that level  services and vehicle and staff requirements. 
of service is medically necessary; instruct  The BBA of 1997 required that HCFA link 
carriers to institute controls to ensure that  payments to services provided and that the 
payment is based on the medical need of the  definitions of basic life support and 
beneficiary; and closely monitor carrier  advanced life support ambulance services 
compliance. (CIN: A-01-91-00513; CIN:  be subject to negotiated rulemaking. The 
A-01-94-00528)  Negotiated Rulemaking Committee 
Statement on the Medicare Ambulance 
Services Fee Schedule was signed in 
February 2000. The HCFA published the 
proposed rule, which includes revised 
physician certification requirements, in the 
Federal Register in September 2000. 
Limit Reimbursement for Hospital Beds: 
The HCFA should take immediate steps to  The HCFA concurred with the  40

reduce Medicare payments for hospital beds  recommendations and is considering 
used in the home. This should include the  options to determine the best approach to 
elimination of the higher reimbursement rate  achieve a fair price for hospital beds. The 
currently paid during the first 3 months of  agency is examining payment allowances 
rental. (CIN: A-06-91-00080;  and methodologies at other payers and is 
OEI-07-96-00221; OEI-07-96-00222)  reviewing data to determine if Medicare 
payments are excessive. However, the 
BBRA of 1999 imposed a moratorium on 
the application of HCFAs inherent 
reasonableness authority. Thus, while the 
moratorium is in place, HCFA may not act 
on a determination that costs are excessive. 
B-4
   OIG Recommendation  Status  Savings 
in Millions 
Reduce End Stage Renal Disease Payment 
Rates: 
The HCFA should reduce the payment rates for  The HCFA agreed that the composite  $22*

outpatient dialysis treatments to reflect current  payment rates should reflect the costs of 
efficiencies and economies in the marketplace.  outpatient dialysis treatment in efficiently 
(CIN: A-14-90-00215)  operated facilities. While the Omnibus 
Budget Reconciliation Act of 1990 
prohibited HCFA from changing these 
rates, it mandated a study to determine the 
costs, services and profits associated with 
various modalities of dialysis treatment. A 
March 1996 study by ProPAC 
recommended an increase to the current 
rates, but HCFA did not believe an 
across-the-board increase was warranted 
and intended to monitor facilities costs and 
other factors to determine if a rate increase 
would be appropriate. Toward this end, the 
BBA of 1997 requires the Secretary to audit 
the cost reports of each renal dialysis 
provider at least once every 3 years. The 
HCFA planned to begin these audits in FY 
1999. Section 222 of the BBRA of 1999 
increased each composite rate payment for 
dialysis services furnished during 2000 by 
1.2 percent above the payment for services 
provided on December 31, 1999, and for 
services during 2001 by 1.2 percent above 
the payment for services provided on 
December 31, 2000. 
*This savings estimate represents program savings of $22 million for each dollar reduction in the composite rate. 
B-5    OIG Recommendation  Status  Savings 
in Millions 
Preclude Improper Medicaid 
Reimbursement for Clinical Laboratory 
Services: 
State agencies should install edits to detect and  The HCFA wrote to all State Medicaid  $17.8

prevent payments for clinical laboratory  directors on January 15, 1997, alerting 
services that exceed the Medicare limits and  them to the OIG review, encouraging them 
billings that contain duplicate tests, recover  to use Medicares bundling policies and 
overpayments and make adjustments for the  urging them to install appropriate payment 
Federal share of the amounts recovered. (CIN:  edits in their claim processing systems. 
A-01-95-00005; CIN:  A-05-95-00035; CIN:  Currently, OIG is conducting several 
A-01-96-00001; CIN:  A-06-95-00078; CIN:  follow-up reviews in this area. 
A-06-95-00031; CIN:  A-04-95-01108; CIN: 
A-04-95-01109; CIN:  A-07-95-01139; CIN: 
A-07-95-01147; CIN:  A-04-95-01113; CIN: 
A-07-95-01138; CIN:  A-09-95-00072; CIN: 
A-05-96-00019; CIN:  A-10-95-00002; CIN: 
A-01-95-00006; CIN:  A-02-95-01009; CIN: 
A-03-96-00200; CIN:  A-03-96-00202; CIN: 
A-03-96-00203; CIN:  A-05-95-00062; CIN: 
A-06-96-00002; CIN:  A-06-95-00100; CIN: 
A-04-98-01185) 
Medicare Orthotics: 
HCFA should take action to improve Medicare  The HCFA generally concurred with the  33 
billing for orthotic devices. HCFA should also  recommendations. However, HCFA did not 
require standards for suppliers of  agree to set specific standards for suppliers 
custom-molded and custom-fabricated orthotic  of custom-molded and custom-fabricated 
devices. (OEI-02-99-00120)  devices. 
Medicare Claims for Railroad Retirement 
Beneficiaries: 
Discontinue use of a separate carrier to process  The FY 2002 budget does not include this  9.1 
Medicare claims for railroad retirement  type of legislative proposal. 
beneficiaries. (CIN:  A-14-90-02528) 
Indirect Medical Education: 
Reduce the indirect medical education (IME)  The HCFA agreed with the  to be determined 
adjustment factor to the level supported by  recommendation, and the BBA of 1997, as 
HCFAs empirical data. Initiate further studies  amended by the BBRA of 1999, reduces the 
to determine whether different adjustment  IME adjustment to 5.5 percent in 2002 and 
factors are warranted for different types of  thereafter. The OIG believes the factor 
teaching hospitals. (CIN: A-07-88-00111)  should be further reduced to eliminate any 
overlap with the disproportionate share 
adjustment. 
B-6
   OIG Recommendation  Status  Savings 
in Millions 
Medicare Secondary Payer -End Stage 
Renal Disease Time Limit: 
Extend the Medicare secondary payer (MSP)  The HCFA was concerned that an indefinite  to be determined 
provisions to include end stage renal disease  MSP provision might encourage insurers to 
(ESRD) beneficiaries without a time limitation.  drop uneconomical services, namely 
(CIN: A-10-86-62016)  facility dialysis and transplantation. 
Although the BBA of 1997 extends MSP 
policies for individuals with ESRD to 30 
months, OIG continues to advocate that 
when Medicare eligibility is due solely to 
ESRD, the group health plan should remain 
primary until the beneficiary becomes 
entitled to Medicare for old age or 
disability. At that point, Medicare would 
become the primary payer. 
Home Health Agencies: 
The HCFA should revise Medicare regulations  Although the Congress and the  to be determined 
to require the physician to examine the patient  Administration included provisions to 
before ordering home health services.  restructure home health benefits in the BBA 
(CIN:A-04-95-01103; CIN: A-04-95-01104;  of 1997, HCFA still needs to revise 
OEI-04-93-00262;  Medicare regulations to require that 
OEI-04-93-00260;OEI-12-94-00180;OEI-02-94-0  physicians examine Medicare patients 
0170;CIN:  before ordering home health services. 
A-04-94-02087;CIN:A-04-94-02078;CIN:A-04-9  Subsequent to implementation of the BBA, 
6-02121;CIN:  OIGs four-State review found that 
A-04-97-01169;CIN:A-04-97-01166;CIN:A-04-9  unallowable services continue to be 
7-01170;CIN: A-04-99-01194)  provided because of inadequate physician 
involvement. While agreeing in principle, 
HCFA said it would continue to examine 
both coverage rules and conditions of 
participation to develop the discipline 
necessary for ensuring proper certification. 
The OIG will continue to do work in this 
area. 
Establish Connection Between the 
Calculation of Medicaid Drug Rebates and 
Drug Reimbursement: 
The HCFA should seek legislation that would  The HCFA disagreed with the  to be determined 
require participating drug manufacturers to pay  recommendation to seek a legislative 
Medicaid drug rebates based on average  change, believing that such legislation was 
manufacturer price (AMP) or study other viable  not feasible at the time. However, HCFA 
alternatives to the current program of using  stated that changing AMP to AWP would 
AMP to calculate the rebates. This legislation  reduce the administrative burden involved 
would have resulted in about $1.15 billion in  in the AMP calculations and planned a 
additional rebates for 100 brand name drugs  comprehensive study of AWP. 
with the highest total Medicaid reimbursements 
in Calendar Years 1994-96. (CIN: 
A-06-97-00052) 
B-7
   OIG Recommendation  Status  Savings 
in Millions 
PUBLIC HEALTH SERVICE OPERATING DIVISIONS 
Institute and Collect User Fees for Food and 
Drug Administration Regulations: 
Extend user fees to inspections of food  In the absence of specific authorizing  $75.9

processors and establishments.  legislation, the Food and Drug 
(OEI-05-90-01070)  Administration (FDA) is precluded by 
statute from imposing user fees to cover 
additional functions. The FY 2001 
Presidents budget request for FDA 
proposes that FDA be given new user fee 
authority to perform premarket review of 
direct food additives, food export 
certificates, and medical device review of 
510(k)s. 
Medicare Rates for Indian Health Service 
Contracted Health Services: 
The Indian Health Service (IHS) should revise  The IHS concurred with OIGs  8.2

its legislative proposal to incorporate OIGs  recommendations. This proposal is on the

updated savings figures and should identify  Departments list of legislative initiatives

elements to be included in the implementing  for 2002. The IHS notes that by applying a

regulations. Also, IHS should continue to  5-percent inflation factor, the savings

pursue the most favorable rates at hospitals that  projection for 2002 would be almost $11

have previously offered less than Medicare rates  million.

and should strategically identify and pursue 
other opportunities where lower rates may be 
negotiated. (CIN: A-15-97-50001) 
Recharge Center Costs: 
The Assistant Secretary for Management and  The Deputy Assistant Secretary for Grants  1.9

Budget should propose changes to OMB  and Acquisition Management concurred 
Circular A-21 to improve guidance on the  with the recommendations. In addition, the 
financial management of recharge centers. The  Council on Government Relations generally 
revision should include criteria for establishing,  agreed and stated that the proposed criteria 
monitoring and adjusting billing rates to  should be included in the Compliance 
eliminate accumulated surpluses and deficits;  Supplement to OMB Circular A-133, which 
preventing the use of recharge funds for  provides guidance to independent auditors 
unrelated purposes and excluding unallowable  in conducting compliance audits of 
costs from the calculation of recharge rates;  educational institutions. 
ensuring that Federal projects are billed 
equitably; and excluding recharge costs from 
the recalculation of facilities and administrative 
cost rates. (CIN: A-09-96-04003) 
B-8
 APPENDIX C 
Unimplemented Office of Inspector General Program and Management 
Improvement Recommendations 
This schedule represents Office of Inspector General (OIG) findings and recommendations which, if implemented, would result 
in substantial benefits.  The benefits relate primarily to effectiveness rather than cost-efficiency. More detailed information may 
be found in OIGs Program and Management Improvement Recommendations (the Orange Book). 
OIG Recommendation  Status 
HEALTH CARE FINANCING ADMINISTRATION 
Implement Proper Accountability over Billing 
and Collection of Medicaid Drug Rebates: 
The HCFA should ensure that States implement  The HCFA concurred with the recommendation. States will 
accounting and internal control systems in accordance  now be required to maintain detailed supporting records of 
with applicable Federal regulations for the Medicaid drug  all rebate amounts invoiced to drug companies using a 
rebate program. Such systems must provide for accurate,  formal accounts receivable system. The HCFA issued 
current and complete disclosure of drug rebate  interim regulations in FY 1996. 
transactions and provide HCFA with the financial 
information it needs to effectively monitor and manage 
the Medicaid drug rebate program. (CIN: 
A-06-92-00029) 
Ensure that the Medicare Accounts Receivable 
Balance Is Fairly Presented: 
The HCFA should require contractors to implement or  The HCFA hired consultants to assist in validating the FY 
improve internal controls and systems to ensure that  1999 accounts receivable activity and balance, as well as 
reported accounts receivable are valid and documented.  the activity for the first 6 months of FY 2000. The agency 
(CIN: A-17-95-00096; CIN: A-17-97-00097; CIN:  also provided training on accumulating and verifying 
A-17-98-00098; CIN: A-17-00-00500)  receivable balances. The Presidents FY 2001 budget 
included funding to establish financial management 
controls at the contractors and to hire contractor staff to 
implement the controls. 
Consider Recommended Safeguards over 
Medicaid Managed Care Programs: 
The HCFA should consider safeguards available to reduce  The HCFA generally concurred with OIGs 
the risk of insolvency and to ensure consistent and  recommendations but felt that a broader analysis of 
uniform State oversight. (CIN: A-03-93-00200)  managed care plans was needed to support broad program 
recommendations. The OIG notes that the same concerns 
raised in its report have been expressed by the Congress 
and the General Accounting Office. The OIG is continuing 
reviews of Medicaid managed care plans. 
Provide Additional Guidance to Drug 
Manufacturers to Better Implement the 
Medicaid Drug Rebate Program: 
The HCFA should survey manufacturers to identify the  The HCFA did not concur stating that the drug law and the 
various calculation methods used to determine average  rebate agreements already established a methodology for 
manufacturer price (AMP). The HCFA should also  computing AMP. The OIG disagreed because the rebate 
develop a more specific policy for calculating AMP  law and agreement defined AMP, but did not provide 
which would protect the interests of the Government and  specific written methodology for computing AMP. 
which would be equitable to the manufacturers. (CIN: 
A-06-91-00092) 
C-1
   OIG Recommendation  Status 
Physician Office Surgery: 
The peer review organizations (PROs) should extend  The HCFA has issued policy guidance and manual 
their review to surgery performed in physicians offices.  instructions to explicitly state that PROs have the 
(OEI-07-91-00680)  responsibility to review all care in physician offices when a 
beneficiary complains. 
Investigate Patient Dumping Complaints: 
The HCFA should improve its processes for investigating  The HCFA concurred with OIGs recommendations.

and resolving complaints involving potential violations of

the Examination and Treatment for Emergency Medical

Conditions and Women in Labor Act, commonly referred

to as patient dumping. (CIN: A-06-93-00087)

Medicare Beneficiary Satisfaction with 
Durable Medical Equipment Regional Carrier 
Services: 
The HCFA should evaluate ways to increase beneficiary  The HCFA concurred. The HCFA conducts annual 
satisfaction with the one durable medical equipment  evaluations to identify ways to improve performance. The 
regional carrier with a low rating, and review effective  HCFA is also working to develop new outreach techniques 
ways to educate beneficiaries on what constitutes fraud  to increase beneficiaries knowledge on detecting fraud and 
and abuse. (OEI-02-96-00200)  abuse. 
Pressure Reducing Support Services: 
The HCFA should establish the requirement for periodic  The HCFA did not concur. 
review and renewal of the medical necessity for 
beneficiaries use of group 2 support surface equipment. 
(OEI-02-95-00370) 
GENERAL OVERSIGHT 
Update Cost Principles for Federally 
Sponsored Research Activities: 
The Department should act to modernize and strengthen  The Department circulated a draft of hospital cost 
cost principles applicable to hospitals by either revising  principles to the National Institutes of Health, and the 
existing guidelines to conform with Office of  grants management community submitted comments in 
Management and Budget (OMB) Circular A-21 or  August 2000. The Department planned to issue the cost 
working with OMB to extend Circular A-21 coverage to  principles by December 1, 2000 
all hospitals. (CIN: A-01-92-01528) 
C-2
 APPENDIX D

Notes to Tables I and II

Table I 
1 The opening balance was adjusted upward by $99.5 million. 
2 During the period, revisions to previously reported management decisions included: 
CIN: A-02-99-58335	 Puerto Rico Dept. Of the Family: Grantee supplied Documentation to Support 
Questioned Cost for $224,011. 
CIN: A-07-99-54890	 State of Iowa: $22,079 was for recipients who were not deceased and was posted 
in error. 
CIN: A-07-99-59813  State of Iowa: $21,211 was never paid from Medicaid Funds. It was posted in error. 
CIN: A-10-00-62578  $30,000 was posted in error. 
3 Included are management decisions to disallow $51.1 that was identified in nonfederal audit reports. 
4 Audits on which a management decision had not been made within 6 months of issuance of the report: 
A. Due to administrative delays, many of which are beyond managements control, resolution of the following 
audits was not completed within 6 months of issuance; however, based upon discussions with management, 
resolution is expected before the end of the next semiannual reporting period: 
CIN: A-07-99-00980  Assist Review of Medicare A/R HCFA RO KCMO, January 2000, $39,730,982 
CIN: A-04-00-65030  State of South Carolina, July 2000, $31,755,510 
CIN: A-04-98-00122	 Emergency Assistance Claims-NC HHS/DIV. Mental Health, September 1999, 
$25,993,849 
CIN: A-05-94-00064  MI BCBS, Audit of Admin. Costs, June 1996, $15,609,718 
CIN: A-07-96-01176  Medicare Excess Pension Assets - BC MICH, November 1996,  $11,904,263 
CIN: A-03-97-00013  BCBSM FY 89-92 Incremental Claim, September 1998, $11,723,785 
CIN: A-05-99-00070  Monitoring-Contract Audit of HCSC & Termination, March 2000, $9,921,720 
CIN: A-05-00-00045  OIG Partnership: State Auditor Report on Medicaid, May 2000, $8,500,000 
CIN: A-09-97-44262  State of California, April 1997, $7,419,900 
CIN: A-03-91-00552  Independent Living Program - National, March 1993, $6,529,545 
CIN: A-02-99-02001  NYS Review of Retroactive Kinship Claims, September 2000, $5,833,676 
CIN: A-07-99-02537  BCBS of Massachusetts, November 1999, $5,270,461 
CIN: A-05-96-00058  Closeout Audit of Medicare Contract - BCBS-MI, December 1997, $5,226,443 
CIN: A-09-99-57988  NA-State of Arizona, June 1999, $4,950,000 
CIN: A-01-97-00516  Admin. Costs - Part A & B, Railroad Retirement Board, June 1999, $4,939,184 
D-1  CIN: A-07-96-02001  Medicare Part B Admin. Costs at BCBS Colorado, December 1996, $4,483,104 
CIN: A-07-98-01263  Denver CMHC, May 2000, $4,447,607 
CIN: A-05-94-00080  Associated Ins. Medicare Admin. Costs, July 1996, $3,954,632 
CIN: A-07-00-00109  Medicare Contract Term. & Seg. Closing-Galic, September 2000, $3,505,560 
CIN: A-06-97-00029  Retention of Fees Child Placing Agencies Louisiana, September 1998, $3,450,173 
CIN: A-02-95-01019  Staff Builders Home Office Medicare Cost Review, ORT, August 1998, $3,434,274 
CIN: A-05-93-00054  IL-Associated Insurance Group - Contract Audit, October 1993, $3,355,560 
CIN: A-03-94-00029  Veritus Inc -Admin. Cost, February 1998, $3,140,363 
CIN: A-05-98-00042  Administar Ins. Co.-Admin. Costs Audit, September 1999, $3,111,728 
CIN: A-05-93-00013  MI-BCBS -Contract Medicare Audit, April 1993, $3,010,916 
CIN: A-09-98-50183  State of California, March 1998, $3,000,000 
CIN: A-01-95-00504  Medicare Parts A & B Admin. Costs - Aetna, January 1996, $2,938,223 
CIN: A-01-96-00508  Medicare Admin. Costs Parts A & B and RRB -Travelers, March 1996, $2,803,260 
CIN: A-05-97-00005  Admin. Costs Claimed Under Medicare A & B, February 1998, $2,569,067 
CIN: A-07-92-00579  BCBS of Michigan Inc - Unfunded Pension Costs, October 1992, $2,535,698 
CIN: A-05-92-00026  Associated Insurance Co. - Medicare Admin., February 1992, $2,530,409 
CIN: A-07-98-02523  Blue Cross California - FACP, April 1999, $2,408,019 
CIN: A-02-91-01006	 Blue Shield of Western NY Medicare Admin. Costs Porter, September 1991, 
$2,379,239 
CIN: A-04-97-01166	 Review Home Health Services by Staff Builders Home Health, April 1999, 
$2,300,000 
CIN: A-04-97-01170	 Review Home Health Services by Medcare Home Health Services, April 1999, 
$2,200,000 
CIN: A-01-99-00501  Psychiatric Outpatient Services Atwaterbury Hospital, October 1999, $2,122,333 
CIN: A-04-97-01169	 Review Home Health Services by Medtech Home Health Services, April 1999, 
$1,900,000 
CIN: A-06-96-00009  New Mexico BCBS Admin. Cost -Contracted, November 1997, $1,879,366 
CIN: A-05-97-00014  Group Health Plan Inc.(Healthpartners) Inst. Benes, June 1998, $1,808,308 
CIN: A-05-95-00059  Audit of Admin. Costs -BCBS-Michigan, January 1997, $1,787,345 
CIN: A-04-00-66032  State of Florida, August 2000, $1,713,052 
CIN: A-04-97-02143  Review Therapy Services in Life Care SNFs in TN, December 1999, $1,638,025 
CIN: A-02-97-01039  Medassist - Orthotics Provider Target, November 1999, $1,616,222 
CIN: A-06-99-00006  Contract Audit of BCBS Admin. Costs, November 1999, $1,615,063 
CIN: A-15-98-00038  Contract Closeout Audit For Cts, Inc., July 1999, $1,590,692 
CIN: A-03-96-00012  BCBSM Part B Non-Renewal Costs, August 1998, $1,557,459 
D-2  CIN: A-06-96-00008  Arkansas BCBS Admin. Cost - Contracted, September 1996, $1,442,193 
CIN: A-05-93-00057  MI-BBCBS of MI-Contract Audit, July 1993, $1,409,954 
CIN: A-09-96-00064  ORT - Hospice - California, March 1997, $1,350,000 
CIN: A-10-91-00011  WPS - Keystone Computer Acquisition, October 1992, $1,346,681 
CIN: A-05-95-00042  BCBSA Admin. Costs -Contracted Audit, December 1995, $1,333,598 
CIN: A-02-98-52102  NA-Puerto Rico Family Dept. of Children & Families, March 1998, $1,321,656 
CIN: A-02-96-01016  Empire Admin. Costs Part B Gardiner, Kamya & Assoc, April 1997, $1,296,098 
CIN: A-05-00-00004  New Center Community Mental Health Center, June 2000, $1,181,000 
CIN: A-02-99-01016  St. Lukes -Roosevelt Medicare O/P Psychiatric Services, June 2000, $1,175,759 
CIN: A-02-97-01026  EDDY VNA (#337152) HHA Eligibility Review, September 1999, $1,131,593 
CIN: A-05-98-00050  Follow-up Medicaid Clinical Laboratories, July 1999, $1,097,036 
CIN: A-02-94-01029  Hospice Eligibility Review in PR - San German-ORT, June 1995, $1,070,814 
CIN: A-09-98-00052  California Medical Review Inc. (CA. Pro), January 1999, $1,067,991 
CIN: A-05-94-00047  Nationwide Ins., Medicare Part B Admin. Costs, September 1995, $1,049,309 
CIN: A-07-99-01278  ORF-MO, September 2000, $1,042,522 
CIN: A-01-98-00500  Payment Edits For Psychiatric at MA Part B Carrier, September 1998, $1,000,000 
CIN: A-09-94-01010  Closeout Audit-Cont No. N01-ES-75196 (STRATAGENE), March 1994, $983,208 
CIN: A-04-97-02142	 Review St.Jude Behav. Health Ctrs Part. Hosp Program, December 1999, 
$927,845 
CIN: A-08-99-55285  NA-South Dakota Urban Indian Health Inc., June 1999, $902,377 
CIN: A-08-99-55284  NA-South Dakota Urban Indian Health Inc., June 1999, $902,046 
CIN: A-05-92-00060  Contractor Audit -BCBS - Admin., February 1993, $879,609 
CIN: A-01-99-00518  Psychiatric Outpatient Services at Danbury Hospital, May 2000, $877,270 
CIN: A-02-97-01034  Dr. Pila Foundation Home Care Program (Ponce), September 1999, $857,208 
CIN: A-07-98-02533  Travelers FACP, December 1998, $854,214 
CIN: A-06-99-00013  Medicare Part A Admin. NM BCBS, December 1999, $817,487 
CIN: A-02-98-01040	 Niagara Cty Dept. of Health-#337001-HHS Elig Review, December 1999, 
$807,679 
CIN: A-03-99-00008  BCBS of Delaware - Part A, January 2000, $798,939 
CIN: A-07-99-00981  Assist Review of Medicare A/R HCFA RO Denver, January 2000, $754,926 
CIN: A-05-91-00136  Community Mutual Ins Co. Admin. Costs, August 1992, $720,668 
CIN: A-09-97-00078  Physician Billings, Dr. Spencer, January 1999, $683,264 
CIN: A-04-99-54416  State of Florida, November 1998, $668,791 
CIN: A-04-00-61620  State of North Carolina, March 2000, $664,773 
D-3  CIN: A-09-99-00083  Blue Shield Termination Costs, December 1999, $659,763 
CIN: A-05-00-64226  NA-Illinois Dept. of Public Aid, May 2000, $654,017 
CIN: A-02-96-01015  Empire Admin. Costs Part A-Gardiner, Kamya & Assoc, April 1997, $652,492 
CIN: A-01-98-00503	 Psychiatric Outpatient Services at The Franklin Med Ctr, November 1998, 
$646,517 
CIN: A-06-99-56489  State of Louisiana, January 1999, $634,915 
CIN: A-01-99-00535  Audit of M/C Part A Admin. Costs - Anthem BCBS Ct, August 2000, $621,256 
CIN: A-09-98-00095  Blue Shield of California, October 1999, $612,569 
CIN: A-06-98-00066  ORT Review of Ultimate Home Health Care Inc., October 1999, $602,982 
CIN: A-04-94-01078  Monitoring Admin. Cost -Audit Medicare Part B BCBSSC, July 1994, $594,092 
CIN: A-04-93-01069  Monitoring Admin. Cost -Audit Medicare Part A BCBSSC, July 1994, $590,844 
CIN: A-05-99-04005  Cash Management Review - U of Wisconsin, September 1999, $584,740 
CIN: A-04-97-02141  Review St. Francis Behav. Health Ctrs Part. Hosp. Pro., December 1999, $573,506 
CIN: A-04-00-60897  State of Florida, March 2000, $558,607 
CIN: A-09-99-56858  Hawaii Dept. of Human Services, February 1999, $546,144 
CIN: A-03-93-21786  District of Columbia Dept. of Human Services, October 1993, $501,747 
CIN: A-03-92-16229  State of Pennsylvania, March 1992, $496,876 
CIN: A-04-98-01192	 Review Americas Behav. Health Cares Part. Hospitalization, December 1999, 
$452,928 
CIN: A-07-97-01235  DOSHI - Texas, June 1997, $424,255 
CIN: A-09-98-49239  NA-Hermandad Mexicana Nacional Legal Center Inc., November 1997, $419,364 
CIN: A-05-97-00013  Pacificare of CA-HMO Institutional Status Project, April 1998, $407,784 
CIN: A-06-99-58928  Arkansas Office of Child Support Enforcement, April 1999, $367,273 
CIN: A-01-99-57863  State of Connecticut, May 1999, $362,813 
CIN: A-04-96-01134	 Partic. Part of HCFA Survey Team-Colonnade MCAL-ORT, February 1997, 
$358,338 
CIN: A-04-96-01136	 Partic. Part of HCFA Survey Team-Survey Savanah-ORT, December 1996, 
$354,537 
CIN: A-01-99-00502  Psychiatric Outpatient Services at Elliot Hospital, November 1999, $325,674 
CIN: A-04-00-64832  NA-State of Mississippi, June 2000, $319,116 
CIN: A-09-00-62979  Hawaii Dept. of The Attorney General, March 2000, $311,399 
CIN: A-04-97-01175  Keystone Pro, June 1998, $310,787 
CIN: A-04-96-01129	 Partic. Part HCFA Survey Team -Ameri. Trans. Care (ORT), February 1997, 
$284,378 
D-4
 CIN: A-05-96-00069	 CPA Audit of Hooper Holmes HHA G&A -OI Case Open, February 1998, 
$280,515 
CIN: A-06-97-00015  New Mexico Pro Closeout Audit, September 1999, $268,844 
CIN: A-09-94-30178  State of Arizona, June 1994, $267,021 
CIN: A-03-98-00027  KHPW/Institutional Status/Medicare, November 1998, $263,573 
CIN: A-04-99-54767  Anderson-Oconee Head Start Project Inc., October 1998, $254,673 
CIN: A-04-97-01152  Closeout Audit - Michigan Pro, June 1997, $228,630 
CIN: A-05-00-60454  St. Croix Chippewa of Wisconsin, December 1999, $224,452 
CIN: A-04-96-01135	 Partic. Part of HCFA Survey Washington Manor Nursing - ORT, February 1997, 
$220,483 
CIN: A-09-96-00094  ORT-Monitor CPA Audit of Dynasty HHA Cost Report, July 1997, $217,720 
CIN: A-05-00-57443  Michigan Family Independence Agency, July 2000, $216,563 
CIN: A-01-00-65823  South County Community Action Inc., August 2000, $211,504 
CIN: A-05-96-00052  ORT Assist-Ancillary Costs-NW Com. Hospital, June 1997, $206,508 
CIN: A-03-98-00014  Connecticut Pro Inc/CCAS/HHS-100-95-0033, February 1998, $202,662 
CIN: A-06-96-00064  ORT SNF Research at Methodist Hospital, January 1997, $200,000 
CIN: A-01-97-00531  Medicare Admin. Costs -MABCBS, June 1998, $198,950 
CIN: A-06-00-57470  Jicarilla Apache Tribe, October 1999, $198,118 
CIN: A-05-97-00006  MI - Wayne State U/NIH Request/Romero Grant, June 1997, $195,809 
CIN: A-09-99-57168  NA-Santa Ysabel Band of Mission Indians, September 1999, $194,843 
CIN: A-05-00-63513  BBF Family Services, March 2000, $183,711 
CIN: A-04-99-57581  NA-Harambee Child Development Council Inc., September 1999, $173,256 
CIN: A-03-99-00007  Forest Ambulance Service -External, December 1998, $173,189 
CIN: A-05-96-00031  WIPro/Equipment Depreciation, August 1996, $167,033 
CIN: A-05-00-56834  NA-Springfield Urban League Inc., October 1999, $166,345 
CIN: A-07-99-01287  Wellmark Admin. Costs 98, November 1999, $160,626 
CIN: A-03-97-00016  Quality Improvement Pro Inc/CCAS/Puerto Rico, February 1998, $158,925 
CIN: A-03-98-00034  Freestate HP/Institutional Status/Medicare, March 1999, $156,987 
CIN: A-09-00-62575  Hawaii Dept. of The Attorney General, March 2000, $155,339 
CIN: A-08-99-60402  State of South Dakota, July 1999, $142,748 
CIN: A-07-99-54163  Ponca Tribe of Nebraska, May 1999, $141,475 
CIN: A-04-96-01147  ORT Review Parker Jewish Geriatric Ctr, New Hyde, NY, April 1997, $140,188 
CIN: A-03-98-00025  Abingdon Ambulance Company - Abingdon, VA, January 1999, $139,325 
CIN: A-06-99-58786  Arkansas Dept. of Human Services, March 1999, $137,218 
D-5  CIN: A-09-99-52846  Inter-Tribal Council of California Inc., February 1999, $136,360 
CIN: A-02-98-01002  IPRO Closeout Audit - CPA Contract Monitoring, December 1998, $135,492 
CIN: A-06-00-00014  Review of Infusion Therapy Claims at Doctors HealthCare, June 2000, $132,238 
CIN:  A-02-95-34279  Puerto Rico Dept. of Health, June 1995, $125,473 
CIN: A-05-97-00023  Kaiser Foundation -HMO Institutional Status Project, April 1998, $116,096 
CIN: A-02-96-02001  International Rescue Committee - Refugee Program, January 1998, $114,631 
CIN: A-03-99-00003  AETNA-US Healthcare/Institutional Status/Medicare, July 1999, $113,993 
CIN: A-03-95-03329  Henderson Associates/CACS/ASC/282-91-0012, March 1997, $111,289 
CIN: A-02-96-01001  VNS of NY Home Care - ORT/HHA Target, September 1997, $110,841 
CIN: A-01-00-62266  State of Maine, March 2000, $106,500 
CIN: A-04-00-64861  State of North Carolina, June 2000, $105,219 
CIN: A-08-00-61777  NA-Turtle Mountain Band of Chippewa Indians, November 1999, $104,590 
CIN: A-09-99-59788  Palau Community Action Agency, June 1999, $102,653 
CIN: A-02-99-58263  Puerto Rico Office of The Governor Office of Child, July 1999, $101,799 
CIN: A-10-00-61811  State of Washington, January 2000, $101,047 
CIN: A-09-99-59834  Government of Guam, June 1999, $99,978 
CIN: A-05-00-65775  State of Wisconsin, September 2000, $98,586 
CIN: A-09-97-00066  Walter McDonald - Indirect Cost Rate Audit, March 1998,  $95,733 
CIN: A-05-00-65108  NA-Illinois Dept. of Public Aid, July 2000, $95,309 
CIN: A-09-98-00065  CSBG DISC. Grant #90EE004901 - Latino Resources, January 1999, $95,102 
CIN: A-01-99-00507	 Nationwide Ref Outpatient Psychiatric Services at Acute Care Hospitals, March 
2000, $94,716 
CIN: A-10-97-00003	 BCWAAK - Admin. Costs Remote Network Activities FY 93&94, FEBRUARY 
1998, $94,643 
CIN: A-06-96-43195  Pueblo of Isleta, June 1996, $92,969 
CIN: A-07-95-01164  Medicare Admin. Costs -General American, December 1995, $89,929 
CIN: A-01-99-57358  Organix Inc., February 1999, $89,395 
CIN: A-06-00-00013  Review of Infusion Therapy Claims at Spring Creek N, June 2000, $89,288 
CIN: A-08-99-56914  Rural America Initiatives, July 1999, $87,468 
CIN: A-02-95-34278  Puerto Rico Dept. of Health, June 1995, $86,064 
CIN: A-04-96-38655  State of North Carolina, April 1996, $83,237 
CIN: A-09-99-56382  Metropolitan Area Advisory Committee, January 1999, $82,600 
CIN: A-01-96-00505  CFO Audit of HCFAs Financial Statements, July 1997, $80,236 
CIN: A-04-94-02080  Finalization of BCBSFL Data Match, June 1995, $79,316 
D-6  CIN: A-03-98-00008  VA Health Quality Center Review ORG/Pro/CCAS/VA, December 1998, $78,207 
CIN: A-08-00-64682  Inter-lakes Community Action Inc., June 2000, $77,011 
CIN: A-04-00-65037  Coastal Community Action Inc., August 2000, $76,235 
CIN: A-04-96-01137	 Partic. Part of HCFA Survey Team-Daytona Nursing - ORT, December 1996, 
$76,130 
CIN: A-09-00-60032  Lovelock Paiute Tribe, December 1999, $74,187 
CIN: A-09-99-56272  NA-Rincon San Luiseno Band of Mission Indians, September 1999, $71,017 
CIN: A-06-00-62331  City of Houston Texas, January 2000, $70,044 
CIN: A-01-97-00520  CFO Audit of HCFAs Financial Statements, July 1998, $69,031 
CIN: A-09-00-60444  Yomba Shoshone Tribe, December 1999, $64,030 
CIN: A-05-99-00045  Kaiser Health Plan of Ohio -Institutional Status, May 2000, $61,177 
CIN: A-05-96-00072  MI Dept. of Community Health/Medicaid Lab Services, August 1997, $59,956 
CIN: A-03-99-00200  PSU-Geisinger/Physician Credit Balances/Medicaid, December 1999, $59,051 
CIN: A-02-00-62534  City of New York, New York, January 2000, $58,309 
CIN: A-07-92-00526  MMIS Enhanced FFP Costs, July 1992, $58,149 
CIN: A-05-96-00051  ORT Assist-Ancillary Costs-St. Joseph, June 1997, $58,008 
CIN: A-09-97-00059  Health Services Advisory Group, Inc Pro-AZ, May 1997, $57,925 
CIN: A-09-99-56270  NA-Rincon San Luiseno Band of Mission Indians, September 1999, $57,636 
CIN: A-08-99-54138  Rosebud Sioux Tribe, November 1998, $56,223 
CIN: A-04-96-01125  Partic. Part of HCFA Survey Team-Rosemont -ORT, February 1997, $55,306 
CIN: A-04-00-64899  NA-State of Tennessee, July 2000, $55,129 
CIN: A-07-97-01206  Pension -Washington/Alaska - Unfunded, March 1997, $54,000 
CIN: A-10-00-62761  Burns Paiute Indian Tribe, February 2000, $53,516 
CIN: A-08-00-60687  South Dakota Foundation For Medical Care, November 1999, $52,536 
CIN: A-06-99-59854  State of Louisiana, August 1999, $51,788 
CIN: A-09-95-00095  Health Services Advisory Group, Inc (HSAG), December 1995, $49,585 
CIN: A-03-93-03306  Survey Research Assoc. CACS NO1-ES-45067, December 1993, $48,779 
CIN: A-02-95-34276  Puerto Rico Dept. of Health, June 1995, $46,922 
CIN: A-08-00-57179  NA-Turtle Mountain Band of Chippewa Indians, November 1999, $45,422 
CIN: A-04-99-60712  Coastal Community Action Inc., September 1999, $44,000 
CIN: A-09-99-52845  Inter-Tribal Council of California Inc., February 1999, $43,315 
CIN: A-09-99-57306  Picayune Rancheria of The Chukchansi Indian Tribe, September 1999, $43,159 
CIN: A-07-00-64873  State of Nebraska, May 2000, $42,824 
D-7  CIN: A-03-99-00017  PSU-Hershey/Physician Credit Balances/Medicare, December 1999, $41,712

CIN: A-09-00-60443  Yomba Shoshone Tribe, January 2000, $41,373

CIN: A-02-95-34275  Puerto Rico Dept. of Health, June 1995, $37,515

CIN: A-03-97-44742  Association of Teachers of Preventive Medicine Inc, February 1998, $37,260

CIN: A-02-99-59166  Cypress Hills Child Care Corp., September 1999, $36,935

CIN: A-07-98-53295  Winnebago Tribe of Nebraska, September 1998, $36,808

CIN: A-10-00-63008  State of Idaho, March 2000, $36,800

CIN: A-08-00-65136  State of South Dakota, June 2000, $36,380

CIN: A-03-99-57965  NA-District of Columbia Dept. of Human Services, February 1999, $35,975

CIN: A-07-98-02030  DOSHI - CPA Report, November 1997, $35,703

CIN: A-02-00-65502  Abyssinian Development Corp., August 2000, $34,737

CIN: A-04-00-65587  Taylor County District School Board, September 2000, $33,827

CIN: A-07-97-01218  DOSHI - Utah/Nevada FMC, March 1997, $33,752

CIN: A-05-00-62763  Upper Midwest American Indian Center, January 2000, $33,127

CIN: A-03-99-00004  PSU-Geisinger/Physician Credit Balances/Medicare, December 1999, $32,165

CIN: A-07-97-01199  BCBS New Mexico Unfunded Pension Cost, February 1997, $31,372

CIN: A-06-00-59472  Pueblo of Acoma, April 2000, $31,259

CIN: A-06-00-66017  Northcentral Arkansas Development Council Inc., September 2000, $30,813

CIN: A-09-96-42547  Maricopa County Arizona, April 1996, $30,766

CIN: A-03-00-63919  Mingo County Economic Opportunity Commission Inc., March 2000,  $30,453

CIN: A-09-98-49616  State of Arizona, November 1997, $29,746

CIN: A-05-97-48015  NA-Hoosier Valley Economic Opportunity Corp., May 1997, $29,004

CIN: A-03-00-65199  Association of American Medical Colleges, September 2000, $28,716

CIN: A-03-98-03301  AAUAP - Incurred Cost Review - HHS 105-95-7011, APRIL 1998, $28,289

CIN: A-08-00-65151  Rocky Boy School District No. 87J & L, July 2000, $28,139

CIN: A-03-00-64076  National Medical Association, April 2000, $27,106

CIN: A-10-96-41391  Klamath Family Head Start, April 1996, $26,530

CIN: A-05-00-60452  St. Croix Chippewa of Wisconsin, December 1999, $26,363

CIN: A-04-00-62745  Pasco County District School Board, January 2000, $26,358

CIN: A-03-92-00033  Blue Cross of West Virginia Termination, November 1992, $25,200

CIN: A-06-00-00020  Review of Infusion Therapy Claims at Vista Continuing, June 2000, $25,008

CIN: A-08-00-59365  Three Affiliated Tribes, December 1999, $24,745

CIN: A-10-00-58628  NA-Kuigpagmiut Inc., November 1999, $24,596

D-8  CIN: A-04-00-64117  State of Alabama, April 2000, $23,911 
CIN: A-03-00-00004  Guthrie Clinic/Physician Credit Balances/Medicare, December 1999, $23,759 
CIN: A-08-00-60654  Spirit Lake Tribe, January 2000, $22,031 
CIN: A-07-99-01288  Wellmark Medicare Admin. Costs, November 1999, $21,513 
CIN: A-04-00-01206	 BCBSNC -Medicare Part A Admin. Cost Audit-Carmichael, September 2000, 
$21,302 
CIN: A-03-00-65163  George Washington U., September 2000, $20,879 
CIN: A-07-99-01290  Moh Admin. Costs, November 1999, $20,548 
CIN: A-05-96-43041  NA-Hoosier Valley Economic Opportunity Corp., June 1996, $20,438 
CIN: A-04-00-62452  Clarksville - Montgomery County Community Action A, January 2000, $19,114 
CIN: A-04-97-01163  VIMI Medicare Pro Contract Audit, September 1997, $18,758 
CIN: A-03-00-61948  Mingo County Economic Opportunity Commission Inc., January 2000, $18,703 
CIN: A-03-00-00200  Guthrie Clinic/Physician Credit Balances/Medicaid, December 1999, $18,318 
CIN: A-05-93-21928  Wright State U., July 1993, $18,308 
CIN: A-01-00-61896  Jewish Family Service of Stamford Inc., December 1999, $18,027 
CIN: A-09-99-59787  Palau Community Action Agency, June 1999, $17,612 
CIN: A-03-99-00201  PSU- Hershey/Physician Credit Balances/Medicaid, December 1999, $17,584 
CIN: A-03-97-00007  NE Health Care Quality Foundation/ccas/n Hampshire, March 1997, $17,045 
CIN: A-01-99-55594  State of Vermont, November 1998, $16,623 
CIN: A-01-97-44143  Brandeis U., January 1997, $16,602 
CIN: A-05-00-60814  Childrens Hospital of Michigan Inc., November 1999, $16,191 
CIN: A-10-00-62940  Lutheran Social Services of Washington & Idaho, February 2000, $15,900 
CIN: A-01-00-65091  State of Vermont, July 2000, $15,853 
CIN: A-10-00-59080  Norton Sound Health Corp., December 1999, $15,000 
CIN: A-04-99-01200  OIG-HCFA Joint Review of Gem Physical Therapy Inc., December 1999, $14,604 
CIN: A-03-97-00008  NE Health Care Quality Foundation/CCAS/Vermont, March 1997, $14,596 
CIN: A-07-99-60332  State of Nebraska, July 1999, $14,209 
CIN: A-06-98-54189  City of Houston Texas, July 1998, $14,146 
CIN: A-09-96-00050  CFO - HCFA 1996, November 1997, $13,924 
CIN: A-10-00-63684  Hoh Indian Tribe, April 2000, $13,602 
CIN: A-07-95-01175  Mutual of Omaha -Admin. Costs, August 1996, $13,564 
CIN: A-07-99-57985  State of Kansas, February 1999, $13,550 
CIN: A-05-95-36498  Hoosier Valley Economic Opportunity Corp., April 1995, $13,116 
D-9  CIN: A-03-98-50338  National Medical Association, February 1998, $12,968

CIN: A-01-98-00531  Medicare Cr Bal Recoup ESRD FAC Florida BlueCross, January 2000, $12,432

CIN: A-09-00-61853  Fresno Indian Health Association Inc., March 2000, $11,963

CIN: A-04-99-59501  Chapel Hill-Carrboro City Board of Education, June 1999, $11,256

CIN: A-08-00-56759  South Dakota Urban Indian Health Inc., November 1999, $10,933

CIN: A-09-00-62572  NA-Fresno Indian Health Association Inc., February 2000, $10,720

CIN: A-06-00-65377  Osage Nation, September 2000, $10,652 

CIN: A-06-00-64997  State of Oklahoma, May 2000, $10,348

CIN: A-10-99-59863  Coastal Community Action Program, September 1999, $10,187

CIN: A-07-00-63881  Santee Sioux Tribe of Nebraska, April 2000, $10,187

CIN: A-05-00-57466  Sault Ste. Marie Tribe of Chippewa Indians, October 1999, $10,000

CIN: A-10-97-00002  Group Health Institutionalized, November 1997, $9,769

CIN: A-10-00-62578  State of Alaska, February 2000, $9,159

CIN: A-10-00-63241  Lutheran Social Services of Washington & Idaho, February 2000, $9,053

CIN: A-02-95-34277  Puerto Rico Dept. of Health, June 1995, $8,486

CIN: A-07-97-01231  PROWEST-DOSHI Washington, June 1997, $8,027

CIN: A-05-00-63666  Ho-Chunk Nation, February 2000, $7,851

CIN: A-03-91-02004  WVA B/C Admin. Cost FY 85/90 And Term. Cost, November 1992,  $7,556

CIN: A-03-96-38803  Skyline Government Services Corp., November 1995, $7,285

CIN: A-03-98-00045  Temple U./Physician Credit Balances/Medicare, July 1999, $7,280

CIN: A-01-97-49174  Brandeis U., August 1997, $7,068

CIN: A-01-00-61715  State of Vermont, October 1999, $6,766

CIN: A-06-96-40858  CADDO Community Action Agency Inc., February 1996, $6,557

CIN: A-09-00-58580  Tohono O Odham Nation, November 1999, $6,456

CIN: A-04-99-56945  Quitman County Development Organization Inc., March 1999, $6,142

CIN: A-07-95-01167  Pension Costs Claimed Nebraska BCBS, January 1996, $6,075

CIN: A-06-97-48062  SER-Jobs For Progress National Inc., May 1997, $5,924

CIN: A-05-00-58003  Community Unit School District No. 300, October 1999, $5,858

CIN: A-08-99-56446  Sisseton-Wahpeton Sioux Tribe, May 1999, $5,843

CIN: A-08-00-59899  South Dakota Urban Indian Health Inc., November 1999, $5,496

CIN: A-02-99-56463  Virgin Islands Advocacy Agency Inc., November 1998, $5,089

CIN: A-09-00-64725  Northland Crisis Nursery Inc., August 2000, $4,986

CIN: A-09-97-48829  Community Action Commission of Santa Barbara Count, August 1997, $4,809

D-10  CIN: A-09-97-44435  Commonwealth of The Northern Mariana Islands, October 1996, $4,767

CIN: A-01-00-60299  Indian Township Tribal Government Passamaquoddy TR, January 2000, $4,597

CIN: A-06-00-65759  Seminole Nation of Oklahoma, August 2000, $4,584

CIN: A-07-95-01123  Review of CPA Admin. Cost - BCBS of Kansas City, May 1995, $4,045

CIN: A-04-97-01162  HMSA Medicare Pro Contract Audit, September 1997, $3,871

CIN: A-04-00-65140  Four Square Community Action Inc., July 2000, $3,798

CIN: A-02-00-64365  NA-Municipality of Ponce Puerto Rico, May 2000, $3,788

CIN: A-09-95-39056  Hawaii Dept. of Health, September 1995, $3,601

CIN: A-04-99-59126  Sequatchie Valley Planning & Development Agency, September 1999, $3,360

CIN: A-01-98-00512  CFO of HCFAs FY 1997 Medicare Benefit Payments, June 1998, $3,264

CIN: A-06-00-65029  State of Louisiana, July 2000, $3,162

CIN: A-03-95-03318  Trans-Management Systems 105-92-1527 (CCO), May 1996, $3,016

CIN: A-07-00-62371  Omaha Tribe of Nebraska, March 2000, $3,005

CIN: A-07-98-02502  CT BCBS Pension Costs Claimed, March 1998, $2,725

CIN: A-03-98-51505  Alliedsignal Technical Services Corp., April 1998, $2,722

CIN: A-03-95-34716  West Virginia Medical Institute Inc., March 1995, $2,688

CIN: A-02-97-49366  Seneca Nation of Indians, September 1997, $2,655

CIN: A-01-97-45487  ABT Associates Inc., January 1997, $2,596

CIN: A-08-00-61852  Native American Services Agency Inc., February 2000, $2,575

CIN: A-03-97-43996  Actuarial Research Corp., October 1996, $2,561

CIN: A-04-00-61462  Amputee Coalition of America, November 1999, $2,550

CIN: A-02-00-62577  Seneca Nation of Indians, January 2000, $2,545

CIN: A-06-00-58523  Osage Nation of Oklahoma, October 1999, $2,247

CIN: A-07-97-01221  PRO Closeout - DOSHI CPA - ARK Fdn for Med Care, March 1997, $2,096

CIN: A-09-98-53899  Stanford U., June 1998, $2,058

CIN: A-03-96-44076  St. Pauls College, August 1996, $2,029

CIN: A-10-96-38114  State of Washington, February 1996, $2,000

CIN: A-07-97-01232  PROWEST - DOSHI Alaska, June 1997, $1,473

B. Audit on which a management decision had not been made within 6 months due to possible litigation: 
CIN: A-05-99-60620  Red Cliff Band of Lake Superior Chippewa Indians, July 1999, $1,459 
D-11
 Table II 
1 The opening balance was adjusted to reflect a downward revaluation of $126 million. 
2 Management decision has not been made within 6 months of issuance on 22 reports: 
Discussions with management are ongoing and it is expected that the following audits will be resolved by the 
next semiannual reporting period: 
CIN: A-01-99-00507	 Nationwide Ref Outpatient Psychiatric Services at Acute Care Hospitals, March 
2000, $224,466,692 
CIN: A-07-98-02534  Empire BCBS Pension Plan Termination, March 2000, $38,626,351 
CIN: A-04-97-00109  Emergency Assistance Claims - NC, July 1998, $13,000,000 
CIN: A-03-91-00557  Independent Living Program - National, March 1993, $10,161,742 
CIN: A-07-96-01177  Medicare Post Retirement Claim BC Mich, November 1996, $8,978,998 
CIN: A-01-97-02506  Review of the Avail of Medical Coverage/CSE Support, June 1998, $5,704,585 
CIN: A-04-98-01188  Review Admin. Costs of Medicare Managed Risk Plan, August 1999, $2,559,357 
CIN: A-09-95-00095  Health Services Advisory Group, Inc (HSAG), December 1995, $1,389,723 
CIN: A-07-97-01230  OFMQ - DOSHI Oklahoma, June 1997, $203,510 
CIN: A-07-97-01231  PROWEST - DOSHI Washington, June 1997, $163,552 
CIN: A-02-96-02001  International Rescue Committee - Refugee Program, January 1998, $90,528 
CIN: A-08-00-64113  Rural America Initiatives, April 2000, $87,468 
CIN: A-07-97-01235  DOSHI - Texas, June 1997, $ 51,334 
CIN: A-07-97-01232  PROWEST - DOSHI Alaska, June 1997, $21,218 
CIN: A-09-00-60029  Cocopah Indian Tribe, December 1999, $20,830 
CIN: A-05-96-00069  CPA Audit of Hooper Holmes HHA G&A - OI Case Open, February 1998, $17,555 
CIN: A-07-95-01164  Medicare Admin. Costs -General American, December 1995, $16,632 
CIN: A-01-97-00526  Psychiatric Outpatient Services, March 1998, $7,245 
CIN: A-01-98-00506  Psychiatric Outpatient at Newton-Wellesley Hospital, March 1998, $1,120 
D-12
 APPENDIX E

Reporting Requirements of the

Inspector General Act of 1978, as Amended

The specific reporting requirements of the Inspector General Act of 1978, as amended, are listed below with reference to 
the page in the semiannual report on which each of them is addressed. Where there is no data to report under a particular 
requirement, this is indicated as none. A complete listing of Office of Inspector General audit and inspection reports is 
being furnished to the Congress under separate cover. Copies are available upon request. 
Section of the Act  Requirement  Page 
Section 4(a)(2)  Review of legislation and regulations  71 
Section 5(a)(1)  Significant problems, abuses and  throughout 
deficiencies 
Section 5(a)(2)  Recommendations with respect to  throughout 
significant problems, abuses and 
deficiencies 
Section 5(a)(3)  Prior significant recommendations on  appendices B and C 
which corrective action has not been 
completed 
Section 5(a)(4)  Matters referred to prosecutive authorities  72 
Section 5(a)(5)  Summary of instances where information  none 
was refused 
Section 5(a)(6)  List of audit reports  under separate cover 
Section 5(a)(7)  Summary of significant reports  throughout 
Section 5(a)(8)  Statistical table I -reports with questioned  69 
costs 
Section 5(a)(9)  Statistical table II -reports with  70 
recommendations that funds be put to 
better use 
Section 5(a)(10)  Summary of previous audit reports  appendix D 
without management decisions 
Section 5(a)(11)  Description and explanation of revised  appendix D 
management decisions 
Section 5(a)(12)  Management decisions with which the  none 
Inspector General is in disagreement 
E-1
 APPENDIX F

Performance Measures

In order to identify work done in the area of performance measurement, the Office of Inspector General (OIG) has labeled some 
items throughout the semiannual report as performance measures with the symbol  . Performance measures 
are used to evaluate the achievement of a program goal, such as the efficiency of an immunization program which is measured by 
the number of inoculations provided per dollar of cost. In OIGs opinion, the following audits, inspections and investigations 
finalized during this semiannual period offer management information about whether some aspect or all of the programs or 
activities reviewed are achieving their missions and goals. 
Page 
Improper Fiscal Year 2000 Medicare Fee-for-Service Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 
Financial Statement Audit of the Health Care Financing Administration for Fiscal Year

2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

The Emergency Medical Treatment and Labor Act: Survey of Hospital Emergency

Departments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

The Emergency Medical Treatment and Labor Act: The Enforcement Process . . . . . . . . . . . . . . . . . . . . .5

Nursing Home Resident Assessment: Quality of Care  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Nursing Home Resident Assessment: ResourceUtilization Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Younger Nursing Facility Residents With Mental Illness: Preadmission Screening and

Resident Review Implementation and Oversight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Younger Nursing Facility Residents With Mental Illness: An Unidentified Population . . . . . . . . . . . . . .33

Federally Funded Health Centers and Low-income Childrens Health Care  . . . . . . . . . . . . . . . . . . . . . .40

Fiscal Year 1999 Financial Statement Audit of the Indian Health Service . . . . . . . . . . . . . . . . . . . . . . . .53

Financial Statement Audit of the Department for FiscalYear 2000  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66

F-1
 STATUTORY AND ADMINISTRATIVE RESPONSIBILITIES

The Inspector General Act of 1978 (Public Law 95-452), as amended, sets forth specific requirements for semiannual 
reports to be made to the Secretary for transmittal to the Congress.  A selection of other statutory and administrative 
reporting and enforcement responsibilities and authorities are listed below: 
AUDIT AND MANAGEMENT REVIEW RESPONSIBILITIES AND OFFICE OF MANAGEMENT AND 
BUDGET CIRCULARS 
P.L.  96-304  Supplemental Appropriations and Rescissions Act of 1980

P.L.  96-510  Comprehensive Environmental Response, Compensation and Liability Act

P.L.  97-255  Federal Managers Financial Integrity Act

P.L.  97-365  Debt Collection Act of 1982

P.L.  99-499  Superfund Amendments and Reauthorization Act of 1986

P.L. 101-576  Chief Financial Officers Act of 1990

P.L. 102-486  Energy Policy Act of 1992

P.L. 103-62  Government Performance and Results Act of 1993

P.L. 103-355  Federal Acquisition Streamlining Act of 1994

P.L. 103-356  Government Management Reform Act of 1994

P.L. 104-156  Single Audit Act Amendments of 1996

P.L. 104-191  Health Insurance Portability and Accountability Act of 1996

P.L. 104-193  Personal Responsibility and Work Opportunity Act of 1996

P.L. 104-208  Federal Financial Management Improvement Act of 1996

P.L. 106-398  Government Information Security Reform Act

P.L. 106-554  Report on Federal Agencies Monitoring of Personal Information Through Cookies

P.L. 106-554  Report on Water/Sewer Services Provided by the District or Columbia

Office of Management and Budget Circulars: 
A- 21  Cost Principles for Educational Institutions 
A- 25  User Charges 
A- 50  Audit Follow-up 
A- 76  Performance of Commercial Activities 
A- 87  Cost Principles for State, Local and Indian Tribal Governments 
A-102  Grants and Cooperative Agreements with State and Local Governments 
A-110  Uniform Administrative Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations 
A-122  Cost Principles for Nonprofit Organizations 
A-123  Management Accountability and Control 
A-127  Financial Management Systems 
A-129  Policies for Federal Credit Programs and Non-Tax Receivables 
A-133  Audits of States, Local Governments and Non-Profit Organizations 
A-134  Financial Accounting Principles and Standards 
General Accounting Office Government Auditing Standards 
CRIMINAL AND CIVIL INVESTIGATIVE AUTHORITIES 
Criminal investigative authorities include: 
Title  5,  United States Code, section 552a(I) 
Title 18,	 United States Code, sections on crime and criminal procedures as they pertain to OIGs oversight of 
departmental programs and employee misconduct 
Title 42,	 United States Code, sections 263a(l), 274e, 290dd-2, 300w-8, 300x-8, 707, 1320a-7b, the Social Security 
and Public Health Service Acts 
Civil and administrative investigative authorities include civil monetary penalty and exclusion authorities such as 
those at: 
Title 31,  United States Code, sections 3729-3733, (the False Claims Act) and 3801-3812 (the Program Fraud Civil 
Remedies Act) 
Title 42,  United States Code, sections 1320a-7, 1320a-7a (Civil Monetary Penalties Law), 1320b-10, 1320c-5, 1395l, 
1395m, 1395u, 1395dd ("Patient Anti-Dumping" Act) and 1396b  DEPARTMENT OF HEALTH 
AND HUMAN SERVICES 
Office of Inspector General 
330 Independence Avenue, S.W. 
Washington, D.C. 20201 
Internet Address 
http://www.hhs.gov/oig