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Office of 
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Semiannual 
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Flag.tiff (provided on disk) contains cmyk information Office of Inspector General Components
OfficeofAuditServices(OAS)providesallauditingservicesforHHS,eitherthroughitsown
resourcesorbyoverseeingauditworkofothers. AuditsexaminetheperformanceofHHS
programsand/oritsgranteesandcontractorsincarryingouttheirrespectiveresponsibilitiesand
areintendedtoprovideindependentassessmentsofHHSprogramsandoperationsinorderto
reducewaste,abuseandmismanagementandtopromoteeconomyandefficiencythroughout
theDepartment.
OfficeofCounseltotheInspectorGeneral(OCIG)provideslegalservicestoOIG,rendering
adviceandopinionsonHHSprogramsandoperations,imposesprogramexclusionsandcivil
monetarypenaltiesonhealthcareprovidersandlitigatesthoseactionswithintheDepartment.
TheOCIGalsorepresentsOIGintheglobalsettlementofcasesarisingundertheCivilFalse
ClaimsAct,developsandmonitorscorporateintegrityagreements,developscompliance
programguidances,andrendersadvisoryopinionsonsanctionstothehealthcarecommunity.
OfficeofEvaluation&Inspections(OEI)conductsshort-termmanagementandprogram
evaluationsthatfocusonissuesofconcerntotheDepartment,theCongressandthepublic.
TheOEIgenerallyfocusesonprogramswithsignificantexpendituresoffundsandservicesto
programbeneficiariesorinwhichimportantmanagementissueshavesurfaced. Thefindings
andrecommendationscontainedinthereportsgeneraterapid,accurate,andup-to-date
informationontheefficiency,vulnerabilityandeffectivenessofdepartmentalprograms.
OfficeofInvestigations(OI)conductscriminal,civilandadministrativeinvestigationsof
allegationsofwrongdoinginHHSprogramsortoHHSbeneficiariesandofunjustenrichment
byproviders.Investigativeeffortsleadtocriminalconvictions,administrativesanctionsor
civilmonetarypenalties.TheOIservesasliaisontotheDepartmentofJusticeonallmatters
relatingtoinvestigationsofHHSprogramsandpersonnel.TheOIalsooverseesState
Medicaidfraudcontrolunitswhichinvestigateandprosecutefraudandpatientabuseinthe
Medicaidprogram.
OfficeofManagementandPolicy(OMP)providesmissionsupportservicestotheIGand
This semiannual report and other OIG materials may be 
othercomponents.TheOMPformulatesandexecutesthebudget,developspolicy,disseminates
accessed on the Internet at http://www.hhs.gov/oig  OIGinformationtothenewsmediaandpublic,liaiseswiththeDepartment,Congress,and
externalorganizationsandmanagesinformationtechnologyresources.TheOMPalsoconducts
andcoordinatesreviewsofexistingandproposedlegislationandregulationstoassess
implicationsandeconomicconsequencesforHHSprogramsandoperations.
Prints pms 541 Message from the Inspector General
Recently sworn in as the Inspector General of an office known for the
dedication of its employees and the success of its endeavors, I am honored to
have this opportunity to serve as a member of the Department of Health and
Human Services team.
I am especially proud of the work of this office during FY 2001 and
pleased to announce record breaking accomplishments.  This year OIG has
achieved a savings of over $18 billion, the greatest ever savings to the tax payer. 
We have achieved the most significant health care settlement in the history of our
organization, totaling over $800 million, and recorded $1.5 billion in investigative
receivables, the highest figure to date.  In addition, we excluded 3,756 individuals
and entities from participation in the Federal health care programs, a greater
number than in any prior fiscal year.
As we face the challenge of maintaining this level of success, it is my 
goal to work with the service provider community by generating information,
advice and compliance guidance to ensure their successful participation in HHS
programs.  We will rededicate our efforts to provide the best service possible to
our beneficiaries and strengthen our efforts to prevent and respond to intentional
fraud or abuse of our programs.
I look forward to working with Secretary Thopmson, his senior Department
officials and members of Congress so that we can continue meeting the needs of
our program beneficiaries and the service provider communityall the while
anticipating and preparing for the needs of the future.  Through our joint efforts, 
HHS programs can work more effectively, at less cost, and with reduced risk to
fraud and abuse.
Janet Rehnquist
Inspector General  Highlights 
Statistical Accomplishments 
For Fiscal Year (FY) 2001, OIG reported savings of $18.011 billion 
comprised of $16.1 billion in implemented recommendations and other 
actions to put funds to better use, $411 million in audit disallowances and 
$1.5 billion in investigative receivables.  (Details pp. 61, 62, 66, and 
Appendix A.) 
Also for FY 2001, OIG reported exclusions of 3,756 individuals 
and entities for fraud or abuse of the Federal health care programs and/or 
their beneficiaries, 423 convictions of individuals or entities that engaged 
in crimes against departmental programs, and 417 civil actions.  (Details 
pp. 21 and 66.) 
Significant Investigative Results 
'  HCA-The Healthcare Company, formerly Columbia/HCA 
Healthcare Corporation, paid over $800 million to the Federal Government 
and several States to resolve its civil liability related to five areas of Medicare 
and Medicaid fraud.  (Details p. 13.) 
'  Quorum Health Group, Inc., the owner of several acute care hospitals, 
agreed to pay the Federal Government $77.5 million.  The settlement 
resolved allegations that the provider engaged in certain improper cost 
reporting practices to Medicare.  (Details p. 13.) 
Medicaid Enhanced Payments 
Focusing on States exploitation of Medicaid upper payment limit 
regulations governing enhanced payments to public providers, OIG 
concluded that some States use of intergovernmental transfers was a 
financing mechanism designed to maximize Federal Medicaid reimbursement, 
thus effectively avoiding the Federal and State matching requirements. 
Revised regulations from the Centers for Medicare and Medicaid Services 
(CMS), which are being phased in, will help to controlbut not eliminate 
the amount of Federal dollars available to States as enhanced payments. 
The CMS estimates that the revisions will save $55 billion in Federal 
Medicaid funds over the next 10 years. (Details pp. 34-37.) 
i  Quality of Care 
During this period, OIG reported on several quality of care issues. Notable 
among them are the following: 
'  Through joint investigation and negotiation by multiple Federal 
and State agencies, Vencor, Inc., one of the Nations largest operators of 
nursing homes and long term hospital services, agreed to pay the 
Government a total of $219 million.  The company also agreed to a 
comprehensive corporate integrity agreement under which the company 
must implement a plan designed to improve the quality of care in its 
facilities.  (Details p. 4.) 
'  Evaluating the safety of dietary supplements, OIG found that since 
the FDA does not have the authority to require premarket approval of 
dietary supplements, it must rely on a voluntary adverse event reporting 
system to identify safety problems. The OIG found that the system detects 
relatively few adverse events, and the FDA often lacks information 
necessary to analyze the problems effectively. (Details p. 43.) 
'  The Orphan Drug Act of 1983 was designed to stimulate the 
development of drugs for rare diseases, and OIG found that the program 
is working as intendedproducts are generally accessible to patients; 
companies report excellent relationships with FDA; and no regulatory or 
legislative changes are needed at this time. (Details p. 42.) 
Prescription Drugs 
The OIG works to reduce Medicaid costs for covered prescription 
drugs. For example, OIG found that: 
'  States could save as much as $1.08 billion if reimbursement 
for the top 200 brand-name drugs were based on actual pharmacy 
acquisition costs.  (Details p. 33.) 
'  Medicaid lost drug rebates totaling $80.7 million because 
some drug manufacturers excluded sales to certain health maintenance 
organizations from their best price determinations. (Details p. 32.) 
'  Medicaid could have saved $140 million in Federal and 
State funds if States had purchased 16 HIV/AIDS antiretroviral 
drugs at the ceiling prices used by other Federal discount drug 
programs. (Details p. 34.) 
ii
 The OIG also works to deter the improper use of drugs and the danger 
associated with illegal distribution of often highly addictive medications. 
'  Working jointly with the Drug Enforcement Administration 
and State and local authorities, OIG investigated illegal schemes 
often involving beneficiaries, physicians, and other individuals 
who defrauded the Medicaid programto obtain, use, distribute 
and sell prescription drugs, such as Oxycontin.  (Details p. 31.) 
Child Support Enforcement 
The OIG continues to make the investigation of those parents who 
fail to pay court-ordered child support a priority. To address child support 
enforcement in an efficient and expeditious manner, OIG and the Office of 
Child Support Enforcement (OCSE) initiated Project Save Our Children 
six multiagency, multijurisdictional investigative task forces. The OIG 
works with the OCSE, FBI, U.S. Marshals Service and other Federal, State 
and local partners to carry out its enforcement work. (Details p. 50.) 
Provider Community Input 
As part of an on-going effort to gather information on corporate 
integrity agreements, OIG recently held a roundtable discussion to afford 
providers and other entities an opportunity to share their unique insight 
into issues surrounding the implementation and maintenance of compliance 
programs that are subject to integrity agreements. The OIG also conducted 
a survey regarding the same issues.  The results of these endeavors will 
help OIG further develop corporate integrity agreement requirements. 
(Details p. 27.) 
Performance Measure     
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. The OIG has identified some 
items throughout this report as performance measures by placing the symbols    
following the item. 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. 
iii
 Table  of Contents 
Centers for Medicare and Medicaid Services ....................... 1 
Payments for Mental Health Services    ............................. 2 
Therapyf orN  ursingH  omeP  atients .................................. 2 
Improper Payments for Skilled Nursing Facility Services  ................. 2 
Durable Medical Equipment in Skilled Nursing Facilities ................. 3 
Trends in Resource Utilization Group Assignment     .................. 3 
Fraud Involving Nursing Homes ..................................... 4 
FloridaH  omeH  ealthS  ervices  ...................................... 5 
Experience With Home Health Care    .............................. 6 
HomeC  areA  fterH  ospitalD  ischarge ................................. 6 
HomeH  ealthA  gencyF  raud ........................................ 7 
Outpatient Rehabilitation Facility Program  ............................ 8 
Excessive Payments for Outpatient Services  ........................... 8 
Nonphysician Outpatient Service Payments ............................ 8 
OutpatientP  sychiatricS  ervices  ..................................... 9 
PeriodicI nterimP  aymentst oH  ospitals  ............................... 9 
Overpaymentsf or1 -DayH  ospitalS  tays  ............................. 10 
Hospital Closures     ........................................... 10 
Major Hospital Initiatives ......................................... 11 
Physicians at Teaching Hospitals ............................. 11 
PPS Patient Transfer Project  ................................ 12 
PneumoniaU  pcoding ...................................... 12 
OtherH  ospitalI nvestigations ...................................... 13 
MedicareP  aymentsf orI ncarceratedB  eneficiaries ...................... 13 
Medicare Payments for Deceased Beneficiaries ........................ 14 
Medicare Outlier Payments ........................................ 15 
DuplicateM  edicareP  ayments  ..................................... 15 
TerminatedM  edicareC  ontractor  ................................... 15 
MedicareC  ontractorA  dministrativeC  osts ............................ 16 
Same Service Payments by Multiple Carriers .......................... 16 
Beneficiary Complaint Process: A Rusty Safety Valve    .............. 17 
Medicare Coverage of Nonpractitioner Services     ................... 17 
UnestablishedL  aboratoryT  estR  egulation ............................ 17 
Enrollment and Certification in the CLIA Program     ................. 18 
CriminalF  raud  ................................................. 18 
Kickbacks  ..................................................... 19 
Frauda ndA  buseS  anctions ........................................ 21 
ProgramE  xclusions ....................................... 21 
CivilP  enaltiesf orP  atientD  umping  .......................... 22 
CivilP  enaltiesf orF  alseC  laims .............................. 23 
Compliance Activities  ..................................... 25 
ProviderS  elf-Disclosure .......................................... 26 
Industry Guidance ............................................... 27 
iv
 Provider Community Input ........................................ 27 
Provider Roundtable  ...................................... 27 
OCIG/OEIS  urvey  ........................................ 28 
AdministrativeC  ostsI ncludedi nA  djustedC  ommunityR  ateP  roposals ..... 28 
MCOU  nderpaymentC  laim  ....................................... 29 
RespiratoryA  ssistD  evices ........................................ 29 
MedicalE  quipmentS  upplierC  ompliance  ............................ 30 
Fraud Involving Durable Medical Equipment Suppliers  ................. 30 
Prescription Drug Fraud  .......................................... 31 
Medicaid Prescription Drugs  ...................................... 32 
DrugR  ebates  ............................................ 32 
Brand-NameD  rugs  ....................................... 33 
Recoveryo fP  harmacyP  aymentsF  romL  iableT  hirdP  arties .............. 33 
MedicaidH  IV/AIDSD  rugE  xpenditures  ............................. 34 
MedicaidE  nhancedP  aymentst oP  ublicP  roviders ...................... 34 
Six-StateR  ollU  p ......................................... 34 
NorthC  arolina ........................................... 35 
Alabama ................................................ 35 
Pennsylvania  ............................................ 36 
Nebraska  ............................................... 36 
Disproportionate Share Hospital Program: Louisiana ................... 37 
Medicaid Reimbursement of Clinical Laboratory Services: Connecticut  .... 37 
MedicaidD  isputeR  esolution  ...................................... 38 
Federala ndS  tateP  artnership: J ointA  uditso fM  edicaid ................. 38 
MedicaidF  raud ................................................. 39 
Other Operating Divisions ...................................... 41 
FY 2000 Financial Statement Audits     ............................ 42 
TheO  rphanD  rugA  ct ............................................ 42 
Nonreporting to the National Practitioner Data Bank    ................ 43 
Inadequate Adverse Event Reporting For Dietary Supplements     ....... 43 
Exclusionsf orH  ealthE  ducationA  ssistanceL  oanD  efaults ............... 44 
Misuse of Grant Funds  ........................................... 45 
Research University Disclosure Statements ........................... 46 
Administration for Children and Families .......................... 47 
FY 2000 Financial Statement Audit: Administration 
for Children and Families     .................................. 48 
ChildC  areC  laims: N  orthC  arolina  ................................. 48 
Aidt oF  amiliesw  ithD  ependentC  hildrenP  rogram: O  verpayments ........ 48 
Promoting Safe and Stable Families: New York    ................... 49 
NewY  orkC  hildW  elfareI nformationS  ystem ......................... 49 
Maryland Child Protective Services    ............................. 50 
Child Support Enforcement  ....................................... 50 
InvestigativeT  askF  orces  .................................. 50 
Investigations ............................................ 51 
Decisiono f6 thC  ircuitC  ourto fA  ppeals ............................. 53 
v
 General Oversight ............................................. 55 
Results Act Review Plan    ...................................... 56 
FY 2000 Financial Statement Audit: Program Support Center    ........ 57 
Departmental Service Organizations    ............................. 57 
Monitoring Departmental Internet Sites    .......................... 57 
Abuse of Persons with Disabilities .................................. 58 
FY 2000 Drug Control Funds ...................................... 58 
NewJ erseyP  ensionS  urplus ....................................... 58 
EscheatedW  arrants .............................................. 59 
PuertoR  ico  ............................................. 59 
Florida  ................................................. 59 
NonfederalA  udits ............................................... 60 
ResolvingR  ecommendations  ...................................... 61 
Table1 : R  eportsw  ithQ  uestionedC  osts ....................... 62 
Table 2: Funds Recommended to be Put to Better Use  ........... 63 
Legislativea ndR  egulatoryR  eviewa ndR  egulatoryD  evelopment  ......... 64 
ReviewF  unctions ......................................... 64 
RegulatoryD  evelopmentF  unctions ........................... 64 
Congressional Testimony and Hearings  ....................... 65 
Employee Fraud and Misconduct ................................... 65 
Investigative Prosecutions ......................................... 66 
ProgramF  raudC  ivilR  emediesA  ct  ................................. 66 
Appendices  ................................................... 69 
Appendix A:  Savings Achieved Through Policy and Procedural Changes 
Resultingf romA  udits,I nvestigationsa ndI nspections  ..... 71 
Appendix B:  Unimplemented Office of Inspector General Recommendations 
to Put Funds to Better Use  ........................... 75 
Appendix C:  Unimplemented Office of Inspector General Program and 
ManagementI mprovementR  ecommendations ............ 83 
AppendixD  :  Notest oT  ables1  a nd2  .............................. 85 
Appendix E:  Reporting Requirements of the Inspector General Act of 
1978, as Amended .................................. 93 
Appendix F:  Status of Public Proposals for New and Modified Safe 
Harbors to the Anti-Kickback Statute Pursuant to 
Section 205 of the Health Insurance Portability and 
Accountability Act of 1996 ........................... 95 
Appendix G:  Statutory and Administrative Responsibilities  ............ 97 
vi
 Centers for Medicare 
and Medicaid Services 
The Centers for Medicare and Medicaid Services (CMS) administers 
the Medicare and Medicaid programs. Financed by the Federal Hospital 
Insurance Trust Fund, Medicare Part A provides hospital and other 
institutional insurance for persons aged 65 or older and for certain disabled 
persons. 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 qualifying low-income people. 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 the new 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 Office of Inspector General (OIG) continues to devote significant 
resources to investigating and monitoring the Medicare and Medicaid 
programs.  These activities 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.  In addition, these efforts have often led to 
criminal, civil and/or administrative actions against perpetrators of fraud 
and abuse. 
The OIG also audits CMS financial statementswhich presently 
account for more than 82 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. 
1
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PAYMENTS FOR MENTAL HEALTH SERVICES   

Medicare allowed $185 million in 1998 for outpatient mental health services 
that were medically unnecessary, billed incorrectly, rendered by unqualified 
providers, and that were undocumented or poorly documented. The OIG identified 
problems most particularly with psychotherapy and psychological testing. In 
addition, OIG found that while some beneficiaries received excessive therapy 
services, others did not receive needed medication management services. 
The OIG recommended that CMS identify problematic mental health services 
for pre-payment edits or post-payment medical review, promote provider awareness 
of documentation and medical necessity requirements for Part B mental health 
services, develop a specific and comprehensive listing of psychological assessments 
that can be correctly billed under psychological testing code 96100, and require 
carriers to initiate recovery of payments for the inappropriate outpatient mental 
health services identified in this report. The CMS concurred. (OEI-03-99-00130) 
THERAPY FOR NURSING HOME PATIENTS

Medicare allowed, in error, approximately $48.5 million for medically 
unnecessary ($28.7 million), undocumented ($12.2 million), and inadequately 
documented therapy ($7.6 million) during the first 6 months of 1999, according to 
this study. This amount represents an overall error rate of 24.7 percent, and 
assuming that figures for the second half of 1999 were comparable to those for 
the first 6 months, the inappropriate allowances totaled $97 million for the year. 
The CMS concurred with OIG recommendations in this report regarding 
provider education, focused medical review, and reimbursement systems. 
(OEI-09-99-00560) 
IMPROPER PAYMENTS FOR SKILLED 
NURSING FACILITY SERVICES 
This report pointed out that Medicare is paying twice for the same service 
once to a skilled nursing facility (SNF) under the Medicare Part A prospective 
payment system and again to an outside supplier under Medicare Part B.  Under 
current law, a SNF is reimbursed a prospective payment for covered services rendered 
to its Medicare beneficiaries in a Part A stay. Outside providers and suppliers 
must bill the SNF (not Medicare Part B) for most services and supplies provided 
2
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and the SNF bills Medicare as required under the consolidated billing provision. 
In 1999, a total of $47.6 million in potentially improper payments to Part B 
providers and suppliers occurred because edits were not established to detect and 
prevent supplier claims noncompliant with the consolidated billing provision. 
The following services were found to be most vulnerable: 
Potentially Improper Nationwide 
Type of Service  Payments (in millions) 
Outpatient Hospital  $15.8 
Ambulance  12.8 
Laboratory  9.4 
Radiology  5.9 
Durable Medical Equipment  3.7 
Total  $47.6 
Among other things, OIG recommended recovery of the improper payments 
and the establishment of payment edits within the Common Working File and the 
Medicare contractors claims processing systems to ensure that outside providers 
and suppliers comply with the consolidated billing provision. The CMS concurred 
with these recommendations. (A-01-00-00538) 
DURABLE MEDICAL EQUIPMENT IN 
SKILLED NURSING FACILITIES 
Federal regulations prohibit Medicare Part B payments for durable 
medical equipment (DME) on behalf of a beneficiary who is in a qualifying 
Medicare Part A skilled nursing facility stay for an entire month. The OIG found, 
however, that the four DME regional carriers inappropriately paid an estimated 
$35 million for such services from 1996 through 1998. Weaknesses in the carriers 
claim processing systems were the primary cause of the improper payments. 
In addition to recommending the recovery of the overpayments, OIG 
recommended that CMS work with the regional carriers in implementing edits to 
prevent improper Medicare Part B DME payments in the future. The CMS 
generally concurred. (A-01-00-00509) 
TRENDS IN RESOURCE UTILIZATION 
GROUP ASSIGNMENT    
There were no major changes in the seven resource utilization group

(RUG) assignmentsspecial rehabilitation, extensive care, special care, clinically

3
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complex, cognitively impaired, behavior problems, and reduced physical 
functionssince implementation of the prospective payment system in January 
1999. Only small shifts have occurred in the proportion of residents assigned to 
RUGs within the rehabilitation category, which accounts for approximately 
78 percent of Medicare resident assignments at admission. The OIG found no 
substantial changes in the characteristics of Medicare beneficiaries admitted to 
skilled nursing facilities including age, sex, race, or reason for Medicare eligibility 
since January 1999.  (OEI-02-01-00280) 
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: 
'	 The Government entered into a settlement agreement with Vencor, Inc., 
(Vencor), one of the Nations largest operators of nursing homes and long-
term hospital services, following a joint OIG and Department of Justice 
investigation of allegations of billing abuses and poor quality of care. The 
company agreed to pay the Government a total of $219 million, including 
$104.5 million to resolve civil claims of submitting improper claims to 
Medicare, Medicaid and TRICARE. Part of the agreement is also based 
on Vencors failure to provide adequate health care at long term care 
facilities. In addition, the company agreed to enter into a 5-year corporate 
integrity agreement that requires Vencor to adopt a comprehensive quality 
assurance infrastructure at the corporate, regional and facility levels.  The 
corporate integrity agreement also requires the company to engage an 
independent monitor approved by OIG, to provide an ongoing assessment 
of the companys quality assurance infrastructure, in order to identify and 
correct system deficiencies. 
Additional provisions in the corporate integrity agreement require 
Vencor to conduct annual training of its employees, continue to operate an 
internal compliance helpline, enhance the companys current system of 
internal financial controls in order to promote compliance with Federal 
health care program requirements on billing and related financial issues, 
and retain an independent review organization to evaluate the integrity and 
effectiveness of the companys internal systems and report annually its 
findings to OIG.  As a result of the companys filing for protection from 
4
 Centers for Medicare and Medicaid Services 
its creditors under Chapter 11 of the U.S. Bankruptcy Code, the terms of 
the settlement agreement were required to be approved by the Bankruptcy 
Court prior to becoming effective. 
'	 National HealthCare Corporation (National HealthCare) and its related 
entities agreed to enter into a $27 million civil settlement with the Federal 
Government and a 5-year corporate integrity agreement. The settlement 
resolves the providers civil False Claims Act liability for the submission 
of false claims to Medicare from 1991 to 1996 in connection with certain 
nursing and restorative therapy services. The settlement also resolves 
certain pending administrative matters, and the settlement figure includes 
offset amounts relating to those matters. In terms of false claims, National 
HealthCare allegedly submitted, or caused to be submitted, improper cost 
reports for its nursing facilities around the country. The cost reports 
contained improper allocations of nursing labor costs between the Medicare 
certified units and the non-certified units and improper allocations of 
therapy costs. 
'	 As part of a settlement agreement with the Government, the principal 
operator/co-owner of nursing homes and other health care businesses in 
Pennsylvania agreed to a 5-year exclusion for his role in causing two of 
his nursing facilities to furnish services to patients of a quality that failed 
to meet professionally recognized standards of health care. The settlement 
represented the first time OIG has excluded the owner of a health care facility 
based on the owners responsibility for poor quality of care at the facility. 
An OIG investigation found that two nursing facilities under the owners 
control exhibited a pattern and practice of failing to meet professional 
standards with respect to the physical, medical and personal care of their 
residents.  Under the terms of the settlement agreement, the owner also 
agreed to pay $8,250 to resolve a pending administrative appeal of civil 
monetary penalties that the CMS imposed against one of his nursing 
facilities for deficient care practices. 
FLORIDA HOME HEALTH SERVICES 
Based on a statistical sample, OIG found that at least $38.3 million of 
$649.8 million in Florida home health agency claims for the 9 months ending 
September 30, 1998, were unallowable or highly questionable.  The majority of 
the unallowable claims were, in OIGs opinion, the result of inadequate physician 
involvement. Physicians did not always review or actively participate in developing 
the plans of care they signed. 
Among other things, OIG recommended that CMS revise Medicare 
regulations to require certifying physicians to examine patients before ordering 
5
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home health care services and to see the patient at least once every 60 days. 
Believing that the new prospective payment system for home health services will 
significantly reduce the incentive to provide unnecessary services, CMS did not 
concur with this recommendation. However, OIG identified the lack of physician 
involvement as a longstanding problem significantly contributing to improper 
claims and payments and continues to emphasize the need for corrective action. 
(A-04-99-01195) 
EXPERIENCE WITH HOME HEALTH CARE    
In this study, OIG found that 
93 percent of those beneficiaries who 
began a new episode of Medicare 
home health care in January 2001 
were satisfied with their care. Most 
beneficiaries reported positive 
relationships with their home health 
caregivers. Beneficiaries believed 
they were treated well and said they 
were not concerned for their safety. 
Satisfaction levels were high among 
all groups of recipients and did not 
differ among beneficiaries with different diagnoses nor between those living in 
urban and rural locations. Just 4 percent expressed concern about the quality or 
adequacy of their care, such as missed appointments. Also, only 13 of the 501 
respondents reported having difficulty gaining access to care. About 20 percent 
of beneficiaries believed they were not receiving all of the services they need; 
however, they may not be eligible for such services. (OEI-02-00-00560) 
HOME CARE AFTER HOSPITAL DISCHARGE 
The findings of this follow-up study of the effects of the prospective 
payment system on access to home health care for Medicare beneficiaries who are 
discharged from the hospital were consistent with those in our two previous studies. 
The OIG found that virtually all Medicare beneficiaries discharged from 
the hospital had access to home health care under the prospective payment system, 
even though the number of home health agencies nationwide has decreased. 
However, some patients with certain medical conditions or service needs experienced 
delays, and some discharge planners attributed these delays to the prospective 
payment system.  The results of this report demonstrated that the new prospective 
6
 Centers for Medicare and Medicaid Services 
payment system is not preventing access to home health benefits for Medicare 
beneficiaries who need it upon discharge from a hospital. (OEI-02-01-00180) 
HOME HEALTH AGENCY FRAUD 
Home health agencies (HHAs) represent an important segment 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, among them the following: 
'	 Northeast Georgia Health System, Inc., and its related entities paid the 
Government $6.4 million to settle a qui tam suit alleging False Claims Act 
violations.  The related entities included Northeast Georgia Medical 
Center, Inc., (NGMC) and Northeast Georgia Health Resources, Inc., 
doing business as Hand-in-Hand Home Health (Hand-in-Hand). From 
1994 through September 2000, Hand-in-Hand improperly submitted 
claims to Medicare and Medicaid for home health care visits to patients 
who were not homebound, did not require skilled care, or otherwise lacked 
the medical necessity for such care. Although Hand-in-Hand was sold in 
October 2000, OIG negotiated a 5-year corporate integrity agreement 
focused particularly on NGMC, owner and operator of two hospital 
campuses which treat Federal health care program beneficiaries. 
'	 The owner of an HHA and his former wife agreed to pay the Government 
$1.9 million to settle allegations of submitting false claims to Medicare. 
The scheme involved the utilization of Medicare-paid registered nurses 
and home health aides to treat individuals who had private insurance; the 
HHA would then bill both Medicare and private insurance for the same 
visit. Furthermore, the HHAs management staff took vacation trips 
disguised as legitimate Medicare sponsored training.  The trips were later 
included as allowable costs on the cost report submitted to Medicare. Both 
the HHAs owner and former chief financial officer were also previously 
sentenced for their roles in this scheme. 
'	 A Wisconsin woman was sentenced, for health care fraud, to 4 years 
probation and required to pay $13,784 in restitution and a $10,000 fine. 
One of 17 individuals involved in a scheme devised by the HHAs owners 
to defraud Medicare and Medicaid by billing for nonrendered and medically 
unnecessary home health services, she billed her services during times 
when she was actually working and traveling with a full-time job she held 
outside the HHA. 
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OUTPATIENT REHABILITATION FACILITY PROGRAM

This review assessed the allowability of costs claimed in a companys 
FY 1998 Medicare cost report for its outpatient rehabilitation facilities in Texas. 
The OIG questioned approximately $18.4 million of the $28.6 million in allocable 
expenses reported, primarily because they were not supported by documentation. 
In addition, certain clinic extension sites were not certified to provide outpatient 
rehabilitation services to Medicare beneficiaries. 
The OIG recommended that appropriate repayment be made. The parent 
company currently responsible for these Medicare liabilities did not concur. 
(A-06-00-00051) 
EXCESSIVE PAYMENTS FOR OUTPATIENT SERVICES

This report pointed out fundamental flaws in fiscal intermediaries 
systems for paying outpatient claims to institutional providers. The OIG found 
that clerical billing errors by these providers generated $12 million in Medicare 
overpayments. For example, overpayments of $11.1 million resulted from providers 
entering dates of service in the Units of Service field on the claim form. In these 
cases, the fiscal intermediary had inadvertently turned off edits designed to detect 
such errors. In other instances, overpayments were not precluded because edits 
for total charges were established at unreasonably high amounts. Although providers 
returned the overpayments in these instances, the Medicare trust fund lost as much as 
$106,000 in interest because the overpayments remained outstanding for various 
periods ranging from 10 to 431 days. 
To help ensure detection of such errors, OIG recommended that CMS 
implement edits in the Common Working File to reject potentially excessive 
Medicare claims for prepayment review. The OIG also recommended that CMS 
identify and collect any additional overpayments made on other outpatient claims 
that have the potential for excessive payments and stress the importance of standard 
Medicare claims processing system edits to the fiscal intermediaries. The CMS 
concurred. (A-01-00-00502) 
NONPHYSICIAN OUTPATIENT 

SERVICE PAYMENTS

Under the inpatient prospective payment system, Medicare reimburses 
hospitals a predetermined amount for services furnished to Medicare beneficiaries 
8  Centers for Medicare and Medicaid Services 
based on the illness and its classification under a diagnosis-related group (DRG). 
This amount covers nonphysician outpatient services rendered on the day of 
admission, during the inpatient stay, and up to 3 days before the day of admission. 
A duplicate payment occurs when such nonphysician outpatient services are paid 
separately. Five previous reports identified significant overpayments to prospective 
payment system hospitals as a result of noncompliance with this DRG payment 
window. 
This follow-up report points out that duplicate payments have decreased 
significantly. The OIG identified approximately $5 million, nationwide, in 
potentially duplicate payments during 1997 and 1998, down from the $27 million 
identified in the 3-year period covered by OIGs previous report.  The OIG 
attributed this significant reduction to hospitals compliance with OIG and DOJ 
settlement agreements. Recommendations called for CMS to ensure that systems 
edits are adequate to detect and prevent these duplicate payments, encourage fiscal 
intermediaries to continue educating providers on the DRG payment window, and 
require intermediaries to recover the $5 million in potential overpayments. The 
CMS concurred.  (A-01-00-00506) 
OUTPATIENT PSYCHIATRIC SERVICES

A significant amount of outpatient psychiatric service claims submitted by 
a hospital in California did not meet Medicare criteria for reimbursement, according 
to this OIG report.  Specifically, many charges either were unreasonable or 
unnecessary for the treatment of the patients condition or were not adequately 
supported by the underlying medical records. Based on a statistical sample, OIG 
estimates that for calendar year 1998, over $560,000 in outpatient psychiatric 
charges submitted by the hospital were unallowable. 
In addition to recommending a financial adjustment, OIG proposed that 
the hospital strengthen its procedures to ensure that charges for outpatient 
psychiatric services are covered and properly documented in accordance with 
Medicare requirements. The hospital did not concur.  (A-09-00-00067) 
PERIODIC INTERIM PAYMENTS 
TO HOSPITALS 
As noted in this report, a fiscal intermediary did not properly quantify 
periodic interim Medicare payments to some acute care prospective payment 
system hospitals.  During the cost report settlement process, the intermediary 
omitted outlier payments when calculating total interim payments to five of the 
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eight hospitals that OIG reviewed.  These hospitals were overpaid a total of 
$637,000 as a result. Subsequent work by the intermediary identified additional 
net overpayments totaling $10.7 million. Further, other intermediaries could have 
omitted outliers in determining total payments. During 1998, over 1,000 hospitals 
nationwide received periodic interim payments. 
The OIG recommended that CMS monitor the intermediarys corrective 
actions, including collection of the overpayments, and work with OIG to determine 
whether other intermediaries correctly calculated interim payments during cost 
report settlements. The CMS concurred. (A-07-01-02616) 
OVERPAYMENTS FOR 1-DAY HOSPITAL STAYS 
In reviewing a CMS regional offices efforts to identify and recover 
overpayments for 1-day inpatient hospital stays in Pennsylvania, OIG found that 
the methodology for identifying claims produced good resultsof 1,514 claims 
reviewed, 394 (26 percent) were found to be in error, resulting in overpayments 
totaling about $4.8 million.  The OIG pointed out that the fiscal intermediaries 
had not collected $1.65 million of these overpayments primarily because the 
overpayment adjustments were made after the related hospital cost report was 
settled. Based on OIG findings, the intermediaries are in the process of collecting 
the $1.65 million. 
The OIG recommended, among other things, that CMS monitor the 
intermediaries collection efforts to ensure that the overpayments are recovered 
and direct them to implement procedures to ensure the collection of future 
overpayment adjustments made after cost reports are settled. The CMS generally 
concurred. (A-03-00-00007) 
HOSPITAL CLOSURES    
Findings in OIGs thirteenth annual report on this subject were consistent 
with those of previous years. In 1999, 64 general, short-term, acute care hospitals 
closed1.3 percent of all hospitals.  Twenty-one more hospitals closed in 1999 
than closed in 1998. The additional closings were offset by 22 hospitals that 
opened or reopened in 1999.  Eight more hospitals opened or reopened in 1999 
than did in 1998. The hospitals that closed in 1999 were few in number and small 
in size. They had low occupancy rates and few patients were affected. The average 
daily patient load in the year prior to closure was 13 in rural hospitals and 40 in 
urban hospitals. Although residents of a few communities had to travel greater 
distances for hospital care, most had emergency and inpatient medical care available 
10
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within 10 miles of a closed hospital. After closure, 50 percent of hospitals were 
being used for other health-related services such as outpatient and long-term care 
facilities. (OEI-04-01-00020) 
MAJOR HOSPITAL INITIATIVES 
The OIG is involved in three national projects involving civil actions at 
hospitals that were falsely billing the Medicare program. 
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.  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. 
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 $7 billion to teaching 
hospitals in FY 2000 for the cost of training residents.  These Medicare 
Part A payments described above include, in part, payments to teaching 
physicians for their roles in supervising residents. 
To date, nine institutions have entered into settlements with the 
Federal Government to resolve potential False Claims Act liability under 
the PATH initiative, resulting in the Governments recovery of nearly 
$100 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. Separately, 10 investigations, not part of the PATH initiative 
but which included billings for teaching physicians, concluded in False 
Claims Act settlements totaling almost $51 million. In most of these 
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cases, the providers also entered into corporate integrity agreements with 
OIG. Reviews at two institutions resulted in administrative overpayment 
settlements totaling over $780,000. 
PPS Patient Transfer Project 
Another OIG/DOJ initiative has 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, and 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 CMS 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 various U.S. Attorneys 
Offices nationwide, along with CMS, on this continuing problem. 
To date, OIG has settled PPS cases with three hospitals totaling 
over $2.2 million. In addition, reviews at 11 institutions resulted in 
administrative overpayment settlements in the amount of $4.8 million. 
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 Classification 
of Diseases, 9th Revision, Clinical Modification to the inpatient stay. Most 
pneumonia cases are grouped into one of four DRGs.  And although one 
of the DRGs results in significantly higher payment to the hospital than do 
the others, the majority of 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 assisting DOJ in investigating the coding for 
pneumonia at over 100 hospitals. To date, 34 hospitals have settled their 
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liability for such coding by paying over $35.2 million and agreeing to 
corporate integrity requirements. 
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: 
'	 HCA-The Healthcare Company (HCA), formerly known as Columbia/HCA 
Healthcare Corporation, paid nearly $790 million to the Federal Government 
and approximately $14.7 million to several States (for the State portion of 
Medicaid payments) to resolve its civil liability for Medicare and Medicaid 
fraud related to: (1) upcoding of diagnosis-related groups (pneumonia and 
other diagnoses); (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. As part of the civil 
settlement, HCA also entered into a comprehensive 8-year corporate 
integrity agreement which is unprecedented in its scope and detail of its 
audit requirements. This settlement represents only a partial resolution of 
the Governments civil claims.  The Government is in litigation with HCA 
regarding civil liability for hospital cost report fraud and for payments to 
physicians that violate the kickback and physician self-referral prohibitions. 
'	 Quorum Health Group, Inc., (Quorum), the owner of several acute care 
hospitals, settled a case for $77.5 million for engaging in certain fraudulent 
cost reporting practices in violation of the False Claims Act. The provider 
used reserve cost reports to determine its allowable Medicare costs and 
then filed a separate set of allegedly fraudulent cost reports to obtain greater 
Medicare reimbursement. Quorum also agreed to enter into a comprehensive 
5-year corporate integrity agreement. 
MEDICARE PAYMENTS FOR 
INCARCERATED BENEFICIARIES 
Generally, Medicare payments cannot be made for medical services to 
Medicare beneficiaries who are incarcerated. This OIG report pointed out, 
however, that the Medicare program is extremely vulnerable to such payments 
because CMS does not identify Medicare beneficiaries who are in prison, making 
it virtually impossible for Medicare contractors to prevent improper payments. 
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The OIG identified $32 million in potentially improper Medicare fee-for-service 
payments to providers on behalf of 7,438 incarcerated beneficiaries during 
calendar years1997 through 1999. 
The OIG recommended that 
CMS take procedural and systematic 
measures to obtain data from the 
Social Security Administration 
(SSA) that identifies incarcerated 
SSA beneficiaries and design and 
implement system controls in the 
enrollment database and Common 
Working File to alert contractors 
when a Medicare claim is submitted 
for services to an incarcerated 
beneficiary. The CMS agreed with 
the intent of the recommendations 
but hesitated to fully commit to 
implementing systems controls 
without further study. 
(A-04-00-05568) 
MEDICARE PAYMENTS FOR DECEASED BENEFICIARIES 
The OIG pointed out in this report that CMS paid $4.1 million to MCOs 
for deceased beneficiaries in four States representing about 43 percent of all 
Medicare risk-based enrolleesArizona, California, Colorado and Florida.  The 
CMS recouped about $833,000, but over $3.2 million remained outstanding 
because CMS was not aware of all of the deaths and did not take action to collect 
some of the improper payments. Further, CMS continues to pay at least $700,000 
per year to MCOs for the deceased beneficiaries identified in this review. 
The OIG recommended that CMS identify and recoup Medicare payments 
made on behalf of deceased beneficiaries in all States, including the $3.2 million 
identified in this report.  In addition, OIG recommended that CMS continue to 
strengthen procedures to prevent and detect payments to MCOs for deceased 
beneficiaries. 
The CMS concurred.  According to CMS officials, CMS has developed a 
process for quarterly reconciliation of death data to assist in identifying and 
recouping overpayments. As a result of this new process, CMS has recouped 
over $4.2 million. (A-07-99-01298) 
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MEDICARE OUTLIER PAYMENTS

The Medicare program makes outlier payments, which are additional 
amounts beyond the basic diagnosis-related group payment, for inpatient cases 
with extraordinarily high costs. This report points out that outlier payments to an 
acute care hospital in Rhode Island increased by 395 percent from FY 1998 to FY 
1999, from $880,000 to $4.3 million. During FY 1999, the hospital was overpaid 
an estimated $3.1 million because the inpatient operating cost-to-charge ratio used to 
calculate outlier payments was incorrect. A clerical error on the hospitals FY 1996 
cost report, which was not identified by the hospital or by the fiscal intermediary, 
was the root of the problem. 
The OIG recommended that the hospital repay the $3.1 million and 
strengthen its controls to prevent future improper outlier payments. The hospital 
concurred. (A-01-01-00517) 
DUPLICATE MEDICARE PAYMENTS 
In this report, OIG reviewed potential duplicate services from CMS 
5 percent National Claims History file for 1998. For 15 procedures that should 
rarely or never be billed more than once per day, OIG found 3,152 services involving 
potential duplicate payments made by the same carrier.  The OIG estimated 
questionable allowances for these 15 codes to be approximately $2.25 million and 
also found other potential duplicate payments involving over 2,000 other procedure 
codes. 
The OIG recommended that CMS investigate Medicares claims processing 
systems to determine why potential duplicate services were not detected and that 
CMS recover payments for inappropriate services. The OIG also recommended 
that CMS implement corrective edits within the claims processing systems to 
detect and reject inappropriate services, and if this is not cost effective, then that 
CMS conduct post-payment reviews, particularly in areas where high numbers of 
duplicate payments were detected. The CMS concurred. (OEI-03-00-00091) 
TERMINATED MEDICARE CONTRACTOR 
A contractor in Illinois processed and paid Medicare Parts A and B claims 
until the contractual relationship with CMS was terminated in 1998. Until that 
time, Medicare reimbursed the contractor for its Medicare employees pension costs. 
15
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Regulations and Medicare contracts provide, however, that pension gains attributable 
to the Medicare segment of a terminated contractors pension plan be credited to 
the Medicare program.  This OIG report identified about $2.1 million in excess 
pension assets that the contractor should remit to Medicare. (A-07-00-00112) 
MEDICARE CONTRACTOR 
ADMINISTRATIVE COSTS 
Under agreements with CMS, a Minnesota contractor processes and pays 
Medicare Parts A and B claims. Based on an independent review of the contractors 
administrative costs claimed from October 1994 through July 1999, OIG 
recommended a financial adjustment of over $1 million.  Contractor officials 
concurred with the recommendation. 
In addition, OIG recommended that almost $174,000 of termination costs, 
which consisted of severance payments to employees who retired rather than accept 
positions with the replacement contractor, be set aside for CMS adjudication. The 
contractor did not agree with this recommendation. (A-05-01-00037) 
SAME SERVICE PAYMENTS BY MULTIPLE CARRIERS

In this report, OIG reviewed billings by 86 providers for a sample of 242 
potentially duplicate services involving 15 procedure codes.  The OIG found that 
Medicares claim processing system did not prevent duplicate payments by more 
than one carrier for any of the sample services. The OIG estimated total improper 
allowances for the sample services at $446,000. 
Percentage of Services Involving Potential Duplicates for 15 Sample Codes 
Provider  Number of services  Total number of  Percentage of services 
involving duplication  services overall  involving duplication 
A  334  828  40% 
B  966  2748  35% 
C  114  332  34% 
D  38  124  31% 
E  115  565  20% 
The OIG recommended that CMS revise Common Working File edits to 
detect and deny duplicate billings to more than one carrier. If this recommendation 
is determined not to be cost effective, then OIG recommended increased post-
payment reviews should be conducted, particularly in areas where providers 
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commonly perform services in multiple carrier jurisdictions. The CMS concurred 
with these recommendations. (OEI-03-00-00090) 
BENEFICIARY COMPLAINT PROCESS:

A RUSTY SAFETY VALVE   

This OIG report examines the effectiveness of the beneficiary complaint 
process administered by Medicares peer review organizations (PROs).  The OIG 
found the complaint process to be an ineffective safety valve that has changed 
little since an OIG inquiry 5 years ago. Its accessibility is questionable. The 
process rarely triggers any intervention beyond a letter to providers or physicians 
for substantiated complaints. It also fails to provide a meaningful response to 
complainants. The CMS contract with the PROs treats complaints as a minor 
activity, and PROs also tend to be more oriented toward the medical community 
than to the beneficiary community. 
The OIG recommended that CMS provide beneficiaries with an effective 
complaint process by either fixing the current PRO system or creating a new 
system outside the PROs. (OEI-01-00-00060) 
MEDICARE COVERAGE OF 
NONPRACTITIONER SERVICES    
Results of this report indicated that billings are rising rapidly for 
nonphysician practitioners, such as nurse practitioners, physician assistants, etc. 
It is unclear how much of the increase is due to real growth in services and how 
much is due to changes in billing practices. Additionally, payment controls, based on 
broad State scopes of practice, are limited. As such, carriers do not have sufficient 
guidance to distinguish which nonphysician practitioner services should be 
reimbursed by Medicare and which should not. The OIG plans to monitor 
nonphysician practitioner services for both overall trends and complex services. 
Though sensitive to the increasing monitoring burden on contractors, CMS 
concurs. (OEI-02-00-00290) 
UNESTABLISHED LABORATORY 
TEST REGULATION 
This report examined the regulation of unestablished laboratory tests. For 
purposes of this report, these tests, such as live blood cell analysis, are defined 
17  Centers for Medicare and Medicaid Services 
as those not generally accepted by persons involved in traditional laboratory 
practice and oversight. The OIG found that live blood cell analysis tests and 
other unestablished tests have not met the requirements of the Clinical Laboratory 
Improvement Amendments of 1988 (CLIA). 
Furthermore, some laboratories performing 
unestablished tests may have improperly 
Types of CLIA Certificates 
obtained CLIA certification.  Most of the 
study respondents believe that unestablished 
Waiver: Issued to labs that only 
laboratory tests should be regulated, but 
perform tests approved for home use 
they differ on how this should be  or are so simple and accurate the chance 
accomplished.  of erroneous results is negligible or 
pose no harm to the user if performed 
Among several OIG interim  incorrectly. Not routinely visited. 
recommendations were that CMS should 
Provider-Performed Microsocopy 
determine the usefulness of unestablished 
Procedure: Issued to labs where 
tests and improve test verification reviews. 
physician or other qualified provider 
CMS concurred with the recommendations  performs specified procedures permitted 
and agreed to find a long-term solution to  by CLIA. Also permitted to perform 
waived tests. Not routinely visited. 
problems associated with unestablished 
laboratory tests. (OEI-05-00-00250) 
Registration: Issued to labs that 
conduct testing of moderate and/or 
high complexity. Issued when the 
ENROLLMENT AND CERTIFICATION  labs application is accepted by CLIA 
IN THE CLIA PROGRAM     and valid until lab is surveyed. 
Compliance/Accreditation: Issued 
after lab is surveyed & found in 
Significant vulnerabilities, such as  compliance will all applicable CLIA 
lack of on-site visits, exist in waived and  requirements. Visited routinely. 
provider-performed microscopy 
laboratories.  In many cases these 
laboratories have been found to be non-
compliant. This OIG report found that, despite safeguards such as on-site visits, 
some vulnerabilities also exist for moderate and high complexity laboratories. 
The OIG made several recommendations, including that the Centers for 
Medicare and Medicaid Services educate laboratory directors and consider 
conducting on-site visits to a random sample of waived and provider-performed 
microscopy laboratories. (OEI-05-00-00251) 
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 
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claims or statements. Such false claims may be pursued civilly under the False 
Claims Act (for example, the hospital initiatives described in pages 11-13).  In 
appropriate cases, false claims may also be prosecuted under Federal criminal 
statutes. The successful resolution of these matters often results from combining 
investigative efforts and resources with the FBI and other law enforcement 
agencies. Descriptions of criminal prosecutions that resulted from the investigation of 
both false claims-related offenses and other health-care related offenses during 
this period follow: 
'	 A joint health care fraud task force in Florida investigated a complex 
Medicare fraud and kickback scheme involving two owners of a durable 
medical equipment company and clinic who, along with others, allegedly 
recruited Medicare beneficiaries to use their Medicare numbers. The 
beneficiaries allowed the use of their numbers to bill Medicare for equipment 
not provided and also signed fraudulent delivery receipts for the equipment in 
return for kickbacks. 
In August 2000, an 83-count indictment charged 23 defendants, 
including the two owners and eight beneficiaries, for their roles in the 
conspiracy. In May 2001, a superseding indictment charged eight 
additional defendants with false claims, conspiracy to defraud, money 
laundering, and payment and receipt of kickbacks.  The defendants 
scheme resulted in the billing of over $14 million in fraudulent Medicare 
claims.  To date, 10 of the 31 individuals charged in connection with this 
investigation have pled guilty, and three have been sentenced. 
'	 The owner of an Illinois business providing counseling services was 
sentenced to 40 months incarceration and required to pay $6.7 million in 
restitution for submitting false claims for group psychotherapy sessions 
that either never occurred or were conducted by unlicensed personnel.  To 
bill for these sessions, the owner used the Medicare provider numbers of 
licensed clinical social workers, physicians and other mental health 
professionals without their knowledge. 
KICKBACKS 
Many businesses use referrals to meet the needs of customers or clients for 
expertise, services or items that 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. Referrals in and 
of themselves are legal. However, if referrals of Federal health care program 
beneficiaries are made in exchange for anything of value, both the giver and 
receiver may violate the Federal anti-kickback statute. 
19
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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 (1) 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 (2) 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 may be subject to criminal penalties and to exclusion from 
participation in Federal health care programs. They may also be subject to civil 
monetary penalties. The following cases are examples of anti-kickback 
enforcement actions: 
'	 As part of an ongoing investigation into a complex patient brokering and 
kickback scheme, 10 individuals were sentenced in Floridafour of whom 
were principal owners in the largest illegal patient brokering network in 
the United States.  From 1989 through 1997, the company engaged in the 
business of patient brokering, supplying patient referrals to inpatient 
psychiatric hospitals for up to $6,000 per patient. The company acquired 
patient referrals, including Medicare beneficiaries, by paying kickbacks to 
referral sources. To disguise the patient referral fees as legitimate services, 
the company created false contracts and agreements with the hospitals. 
The primary defendant was sentenced to 16 months imprisonment 
and required to pay $1.575 million in restitution and a criminal fine totaling 
$250,000. Three associates were ordered to pay a total of $2.925 million 
in restitution and fines. The investigation also resulted in the sentencing 
of six additional individuals for their roles in kickback-related, patient 
brokering arrangements. To date, a total of 29 individuals have been 
sentenced since the inception of this investigation. 
'	 In related kickback investigations, three physicians were sentenced in 
New York. One physician was sentenced to 2 years probation and ordered 
to pay restitution, fines and penalties totaling $177,000 for tax evasion and 
accepting kickbacks. The physician entered into a kickback agreement 
with the owners of a medical supply company through which the physician 
referred patients to the company in return for DME and cash. 
The other two, an internist and a cardiologist, were also sentenced 
for accepting kickbacks in exchange for patient referrals. The internist 
was sentenced, for illegal kickback activity, to 2 years probation and required 
20
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to pay a $20,000 fine.  The cardiologist was sentenced to 30 months 
incarceration and ordered to pay a $10,000 fine for conspiracy and illegal 
kickback activity. 
'	 In New York, the chief executive officer (CEO) and the chief operating 
officer of a durable medical equipment (DME) company were sentenced 
for violating the anti-kickback statute to 3 years probation and ordered to pay 
fines of $20,000 and $15,000, respectively.  The two offered and paid 
kickbacks to an individual in exchange for the right to supply DME to his 
Medicare patients. To prevent discovery of the kickback arrangement, the 
two also devised an elaborate scheme which included a false contract for 
consulting services, drafted and signed by the CEO. 
FRAUD AND ABUSE SANCTIONS 
During this reporting period, OIG administered 2,354 sanctions, in the 
form of program exclusions or civil actions, on individuals and entities for alleged 
fraud or abuse or other activities that posed a risk to Federal health care programs 
and/or their beneficiaries. 
Program Exclusions 
Title XI of the Social Security Act provides several grounds for 
excluding individuals and entities from participation in Medicare, Medicaid 
and other Federal health care programs. Exclusion essentially falls into 
two categories: 
Mandatoryfor those convicted of crimes related to programs or 
related to patient abuse or neglect and for those convicted of felonies 
for defrauding other health care programs or for the illegal 
manufacture or distribution of controlled substances. 
Discretionaryfor 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 providing substandard or unnecessary 
services. 
Exclusions may also be authorized with respect to those convicted 
of crimes against health care programs and payers other than Medicare or 
Medicaid, in certain instances, and individuals who have failed to repay 
health education assistance loans (HEALs). (Additional details regarding 
HEALs on p. 44.) 
21
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Providers who are subject to exclusion are granted due process 
rights, including a hearing before an HHS administrative law judge and 
appeals to the HHS Departmental Appeals Board and the Federal district 
and appellate courts, regarding whether the basis for the exclusion exists 
and the length of the exclusion is reasonable. 
During this reporting period, OIG excluded 2,146 individuals and 
entities. The following are examples of exclusions based on criminal 
convictions related to delivery of a health care item or service under the 
Medicaid program and to neglect or abuse of patients in association with 
those items or services: 
'	 A Kansas dentist and her business were excluded for a 10-year 
period for submitting claims for services not performed. She also 
entered into a civil settlement for approximately $85,000. 
'	 A Colorado owner of a transportation company was excluded for 
a 5-year period. Assuming the identity of his deceased brother to 
obtain a Medicaid provider number, he started a transportation 
business and then over-billed Medicaid. 
'	 A Tennessee physician was excluded for a 20-year period. In 
July 1999, he was excluded for loss of his medical license after his 
conviction of sexual battery, rape and attempted rape. He repeated 
the offenses and was again convicted in October 2000.  The court 
sentenced him to 3 years in prison. 
'	 A nurse from Tennessee was excluded for a period of 20 years 
following a conviction relating to the aggravated rape of a physically 
incapacitated female. The court sentenced him to 25 years in prison. 
'	 Based on her conviction related to the extensive physical abuse of 
an 11-year-old resident, a nurses aide from Mississippi was excluded 
for a period of 25 years. First excluded in June 1999, this is her 
second abuse-related exclusion. 
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 of a Medicare-
participating hospital, the hospital must 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 either (1) treatment to stabilize the condition; or (2) 
an appropriate transfer to another medical facility. 
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If a transfer is ordered, the transferring hospital must provide 
stabilizing treatment to minimize the risks of transfer, and must ensure 
that the receiving hospital agrees to the transfer, has available space, and 
can effectuate the transfer through qualified personnel and transportation 
equipment. Further, a participating hospital with specialized capabilities 
or facilities may not refuse to accept an appropriate transfer of an individual 
who needs services if the hospital has the capacity to treat the individual. 
The OIG is authorized to collect civil monetary penalties 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 collect a penalty of up to $50,000 and exclude a 
responsible physician, including an on-call physician, for each negligent 
violation of any of the section 1867 requirements. 
Between April 1, 2001, and September 30, 2001, OIG collected 
$72,500 from four hospitals. The following is a sampling of the alleged 
violations involved in the FY 2001 Patient Anti-Dumping statute 
settlements from this reporting period: 
'	 The mother of a 4-month-old infant sought treatment for her at a 
Wisconsin facility. Though the infant displayed severe symptoms, 
she was discharged. The case was settled for $17,500. 
'	 A 5-month-old infant was examined by a staff physicians assistant 
in California. Without consulting an ER physician, the assistant 
discharged him. The infant presented the next day, was transferred 
to a nearby childrens critical care facility, and died shortly thereafter. 
The case was settled for $15,000. 
Civil Penalties for False Claims 
Under the civil monetary penalties authorities enacted by the 
Congress, OIG may collect civil penalties and assessments from 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 under the False Claims Act. Many providers 
elect to settle their cases prior to litigation.  As part of resolving these 
cases, providers often agree to put compliance measures in place to avoid 
exclusion and 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. 
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The Government, with the assistance of OIG and often the FBI and 
other law enforcement agencies, recouped more than $1.22 billion through 
both Civil Monetary Penalty Law and False Claims Act civil settlements 
related to the Medicare and Medicaid programs during this reporting 
period. Examples of these cases include the following: 
'	 In California, Catholic Healthcare West (CHW) agreed to pay the 
Federal Government $10.25 million to resolve its civil liability for 
submitting false claims to inflate reimbursement from Medicare, 
Medi-Cal and TRICARE. A qui tam complaint alleged that from 
January 1992 through December 1999, two CHW clinics submitted 
various false claims involving annual physical examinations, doctor 
referrals, provision of services and ancillary services. As part of 
the settlement agreement, the defendant also agreed to enter into a 
3-year corporate integrity agreement to ensure its compliance with 
Federal health care program requirements. 
'	 Urocor, Inc., an independent urological-related testing clinical 
laboratory in Oklahoma, agreed to payment of $9 million for 
billing medically unnecessary lab tests and paying kickbacks to 
doctors. As part of the settlement, Urocor also agreed to enter into 
a 5-year corporate integrity agreement. 
'	 In Alabama, HealthSouth Corporation (HealthSouth), the Nations 
largest provider of rehabilitative health services, agreed to pay the 
Government $7.9 million and to enter into a 5-year corporate 
integrity agreement to resolve their liability for submitting false 
Medicare and TRICARE cost reports. From 1992 through 1997, 
HealthSouth submitted improper claims to the Government. 
'	 Valley X-ray, Inc., a mobile x-ray company in Michigan, agreed to 
pay $1 million and to be permanently excluded from Federal health 
care programs to resolve its civil liability for alleged misconduct 
knowingly submitting false claims to Medicare for transportation 
and EKG chargesfrom January 1991 through December 1998. 
The companys CEO is currently serving a 7-year prison term for 
his involvement in the misconduct. 
'	 As part of the largest civil settlement to date with any individual 
health care provider in the District of Connecticut, the U.S. Attorneys 
Office entered into a consent judgment with a podiatrist who agreed 
to pay $986,801 in order to settle Federal civil fraud claims.  In 
addition, the podiatrist pled guilty to wire fraud for electronically 
submitting fraudulent bills to Medicare and was sentenced.  He 
also agreed to the criminal forfeiture of his office building.  During 
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the period from 1992 to 1997, Medicare paid for 50 or more 
procedures on each of more than 145 Medicare beneficiaries. In 
addition to his guilty plea and his agreement to a civil settlement, 
the podiatrist agreed to a permanent exclusion from participation 
in Federal health care programs. 
Compliance Activities 
Because the great majority of providers are honest and wish to 
avoid fraud and abuse issues, OIG has been actively working with the 
private sector to develop methods to prevent the submission of improper 
claims and inappropriate conduct. The OIG has already initiated significant 
outreach efforts with the private sector to encourage these compliance 
endeavors. The OIGs compliance program guidelines are available on 
the Internet at http://www.hhs.gov/oig in the Compliance Tools and 
Fraud Detection & Prevention sections. 
The OIG continues in its efforts to promote voluntary compliance 
programs by providing guidance for the various sectors of the health care 
industry. To this end, OIG has developed and released nine compliance 
program guidances for: clinical laboratories, hospitals, home health agencies, 
third-party billing companies, durable medical equipment (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 and the pharmaceutical 
industry. 
There are seven fundamental elements of an effective compliance 
program, including: implementing written policies, procedures and 
standards of conduct; designating a compliance officer and/or compliance 
committee; conducting effective training and education; developing 
effective lines of communication; ensuring compliance with standards 
through well-publicized disciplinary guidelines; conducting internal 
monitoring and auditing; and responding promptly to detected offenses 
and developing corrective action initiatives. 
In addition to developing compliance program guidance which 
promotes the voluntary adoption of compliance measures by private industry, 
OIG monitors compliance and integrity obligations agreed to by health 
care providers as part of global fraud settlements of OIG audits and 
investigations.  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.  Presently, 
OIG is monitoring approximately 450 corporate integrity agreements. 
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To assist with efforts to verify compliance with the terms of the 
agreements, OIG staff conducts on-site visits to certain entities and providers 
subject to the compliance obligations. These site visits generally involve 
meeting with compliance staff and management, conducting employee 
interviews, reviewing claims and having a detailed discussion of 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. They also serve as an 
educational tool for the entity or provider to discuss compliance efforts 
with OIG personnel. 
PROVIDER SELF-DISCLOSURE 
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 titled, 
Provider Self-Disclosure Protocol. The Protocol is available on the Internet at 
http://www.hhs.gov/oig in the Compliance Tools section. In addition, it can be 
found 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 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 and a reliable assessment of their economic impact 
(e.g., an estimate of the losses to the Federal health care programs). The OIG 
evaluates each submission to determine the appropriate course of action. To date, 
OIG has received 116 submissions. 
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 an 
agreement is necessary, OIG may make significant modifications in the term of 
an 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 
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through a cooperative and open relationship with the Government. To date, self-
disclosure cases have resulted in 24 recoveries and 14 settlements collectively 
totaling over $43 million. Successful resolution to provider self-disclosure cases 
are demonstrated in the following examples: 
'	 In North Carolina, Fayetteville Associates in Laboratory Medicine, P.A., 
(Fayetteville Associates) agreed to pay the Government $493,470 to settle 
a provider self-disclosure matter in which Fayetteville Associates 
acknowledged upcoding services. In early 1995, the director of Fayetteville 
Associates discovered that from approximately 1990 to 1994, a portion of 
the anatomical pathology services were billed under an improper code. In 
1998, the company contracted with a health care management consultant 
firm to conduct a detailed billing audit of these serviceswhich revealed 
overpayments to the medical laboratory from Medicare, Medicaid and 
TRICARE. 
'	 In Hawaii, Rehabilitation Hospital of the Pacific (Rehabilitation Hospital) 
entered into a settlement agreement totaling $399,675 with the Government. 
The settlement, which resulted from a voluntary disclosure to OIG, resolved 
the hospitals civil liability for submitting upcoded claims to Medicare and 
Medicaid for services performed by its physicians. Rehabilitation 
Hospital disclosed the billing issue following an extensive internal 
investigation. 
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 April 1, 2001, through September 30, 2001, OIG accepted 21 
advisory opinion requests and issued 14 advisory opinions.  In accordance with 
the Health Insurance Portability and Accountability Act of 1996 (HIPAA), OIG 
has enlisted the help of the provider and beneficiary communities to prevent 
impropriety by soliciting proposals (via Federal Register notice) for modifying 
existing safe harbors to the anti-kickback statute. The OIG received three timely 
filed responses to the December 2000 notice. 
PROVIDER COMMUNITY INPUT 
Provider Roundtable 
The purpose of a July 30, 2001, roundtable discussion co-sponsored with 
the Health Care Compliance Association was to afford providers and other 
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entities an opportunity to discuss the issues surrounding the implementation and 
maintenance of compliance programs subject to corporate integrity agreements. 
The meeting also offered OIG an opportunity to discuss its integrity agreement policy 
objectives and receive providers unique insights on ways to accomplish these 
objectives. Over 50 health care providers and 30 Government representatives took 
part in group discussions which centered on independent review organizations, 
compliance education and training, compliance program infrastructure, and 
reporting to OIG. 
Roundtable participants addressed many of the issues facing compliance 
officers and staff. Participants gained new insights into the challenges of creating 
effective compliance programs and had the opportunity to exchange perspectives 
on compliance from both the Government and the health care industry. The 
outcome of the roundtable discussions will offer OIG greater understanding of 
how the Government and provider community can work together to protect the 
integrity of the health care system.  Given the constructive discussion among the 
participants, OIG will seek additional opportunities for Government-industry 
exchanges on these and other issues surrounding health care compliance programs. 
OCIG/OEI Survey 
Working together, the Office of Counsel to the Inspector General (OCIG) 
and the Office of Evaluation and Inspections (OEI) developed and distributed a 
survey to providers currently operating under corporate integrity agreements. The 
results of the survey will help OCIG further develop integrity agreement 
requirements and will supplement the information received at the Government-
industry roundtable. 
ADMINISTRATIVE COSTS INCLUDED IN 
ADJUSTED COMMUNITY RATE PROPOSALS 
Through adjusted community rate proposals, managed care organizations 
(MCOs) present to CMS an initial rate that represents the commercial premium 
the MCO would charge its non-Medicare enrollees for services included in the 
managed care plan. This initial rate is then adjusted by various factors described 
in 42 C.F.R.  422.310, including the relative costs to Medicare beneficiaries. At 
CMS request, OIG reviewed the 1998 base year administrative costs included in 
the proposals of several plans for contract year 2000. The results underscored a 
significant problem noted in previous reviews; that is, there is no law or regulation 
governing the allowability of administrative costs included in the proposals, and 
Medicare is paying a disproportionate share of administrative costs. 
For the proposals reviewed, millions of dollars of administrative costs 
would be considered inappropriate when compared against Medicares general 
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principle of paying only reasonable costs.  Costs included, for example, travel and 
entertainment, public relations, marketing, political and charitable contributions, 
memberships, and lobbying.  In addition, the MCOs were unable to provide 
documentation for certain costs. The effect of including these costs was to increase 
the amounts needed for administration and to reduce the amounts available to 
beneficiaries in the form of additional benefits or reduced cost sharing.  In one 
egregious case, an MCO in Florida, beneficiaries were adversely affected by 
about $13.8 million during calendar year 2000. 
The results of these reviews are being shared with CMS for its consideration 
of legislative changes. (A-02-00-01034, A-04-00-02168, A-05-00-00040, A-06-
00-00052, A-07-00-00107, A-07-00-00114, A-09-00-00120, A-10-00-00013, 
A-14-00-00209) 
MCO UNDERPAYMENT CLAIM 
A national MCO chain with several risk contracts with CMS asserted that 
CMS had based its payments for enrolled Medicare beneficiaries on incorrect State 
and county address codes, resulting in a net $21.7 million underpayment. At CMS 
request, OIG reviewed the claim and estimated that it should be reduced by at 
least $12.2 million. This reduction would account for unsupported or invalid items 
and for beneficiaries out of the area but not included in the claim. 
In addition to recommending a $12.2 million reduction in the claim, OIG 
recommended that CMS not settle with the MCO chain until further audit work is 
completedwhich OIG believes will result in further reduction of the claim. 
According to CMS officials, the MCO chain has been providing information that 
is being processed through the CMS systems in order to determine exactly what 
the final amount of the claim will be. The CMS expects to fully process all of the 
information that the MCO chain has provided and to fully resolve this matter. 
(A-06-99-00060) 
RESPIRATORY ASSIST DEVICES 
In this inspection, OIG reviewed the payment categorization of bi-level 
respiratory assist devices with back-up rate and concluded that the current Medicare 
payment method used for this device is inappropriate.  Under the current frequent 
and substantial payment category, suppliers are paid an established monthly rental 
fee as long as the device is medically necessary. Under the capped rental payment 
category, suppliers are paid a monthly fee for a stipulated amount of time at which 
point the beneficiary may opt to have Medicare purchase the machine on his behalf 
or to continue to rent the device on his own after the passage of a stipulated time 
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period. Findings indicated that this equipment requires only routine maintenance 
and patient monitoring. Further, supplier visits do not reflect the frequency 
stipulated by supplier protocols. Visits are inconsistent and often discontinued 
after a short period of time. 
The OIG recommended that CMS proceed with its intention to move the 
bi-level respiratory assist device with back-up rate from the frequent and substantial 
payment category to the capped rental payment categorya change that would 
save Medicare $11.5 million annually. (OEI-07-99-00440) 
MEDICAL EQUIPMENT 
SUPPLIER COMPLIANCE 
Medical equipment suppliers are required to comply with CMS standards 
to receive a billing number. Since a1997 inspection which uncovered compliance 
problems, CMS and its contractor, the National Supplier Clearinghouse, began to 
require physical site inspections prior to application approval for a billing number. 
This follow-up report indicated that the compliance rate is considerably improved. 
All suppliers complied with delivery, warranty, returns, repairs, complaints 
and disclosing ownership standards.  Less than 1 percent of suppliers failed to 
comply with the standard requiring an appropriate physical address.  Less than 
15 percent of suppliers failed to comply with standards requiring appropriate 
liability insurance, licensure and inventory on-site or through contract. This report 
offers several suggestions to CMS for further improvement in compliance rates. 
(OEI 04-99-00670) 
FRAUD INVOLVING DURABLE 
MEDICAL EQUIPMENT SUPPLIERS 
The durable medical equipment (DME) industry suffers from waves of 
fraudulent schemes in which Federal health care programs are billed for equipment 
never delivered, higher-cost equipment than that actually delivered, unnecessary 
equipment or supplies, or equipment delivered in a State different from that billed 
in order to obtain higher reimbursement. During this reporting period, OIG 
obtained the following settlements and convictions regarding DME fraud: 
'	 In Puerto Rico, 9 of 12 defendants involved in a kickback-related DME 
fraud scheme were sentenced.  In February 2000, a 134-count indictment 
was handed down, charging all defendants with illegal kickback activity, 
conspiracy, mail fraud and money laundering among other violations. The 
scheme centered on the illegal exchange of kickbacks for patient referrals 
30  Centers for Medicare and Medicaid Services 
by a DME company owner. The three remaining defendants, including 
the DME company owner, await sentencing based on their guilty pleas. 
'	 In Missouri, Lancer Medical, Inc., (Lancer Medical), its affiliated companies 
and individual owners agreed to pay the Government $324,392 to resolve 
their liability for point of sale violations. Lancer Medical allegedly submitted 
claims for wound care supplies to a Pennsylvania carrier, rather than to a 
carrier in the State where the sales occurred, in order to receive a higher 
rate of reimbursement from Medicare. Upon learning of the Governments 
investigation into its improper practices, Lancer Medical also allegedly 
distributed a major portion of its assets to its shareholders in violation of 
the Federal Debt Collection Act. 
'	 In California, an employee of a health insurance company and a DME 
company owner were sentenced to 5 years probation and required to pay a 
total of $25,086 in restitution for mail fraud. The employee and the company 
owner participated in a scheme to defraud the health insurance company 
through false statements. Through their scheme, the owner submitted 
claims to the health insurance company for undelivered medical equipment. 
The employee caused the false insurance claims to be approved retroactively 
through the health insurance companys computer system and subsequently 
paid to the company owner. 
PRESCRIPTION DRUG FRAUD 
Working jointly with the Drug Enforcement Administration and State and 
local authorities, OIG has identified and investigated illegal schemes to obtain, 
use and distribute prescription drugs. The schemes often entail individuals who 
defraud the Medicaid program in order to receive the prescriptions and pay for the 
drugs. Individuals often obtain the prescription drugs under false pretenses for 
their own personal use or for resale. Participants in these often complex group 
schemes may include patients, beneficiaries, pharmacists, physicians and others. 
By investigating these schemes, OIG aims to deter the illegal use of prescription 
drugs, to curb the danger associated with street distribution of highly addictive 
medications and to protect the Medicaid program from making improper payments. 
Examples of cases related to prescription drug fraud follow: 
'	 Oxycontin is the trade name of a time-release medication containing 
oxycodone, a controlled narcotic which can produce effect similar to 
heroin when misused. The following cases are related to fraud involving 
the drug. 
&  In Maine, 21 people have been charged in an ongoing investigation 
involving groups of individuals using Medicaid and private insurance to 
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pay for illegally acquired Oxycontin, which was then illegally distributed. 
Subjects charged in this case obtained the drug by forging prescriptions and 
visiting multiple physicians simultaneously. Of the 21 persons charged, 18 
have been charged with health care fraud in addition to drug-related 
offenses. To date, 19 individuals have pled guilty; and 12 subjects have 
been sentenced, with the average length of incarceration 20 months. 
Restitution orders have totaled $41,540 to Maine Medicaid and $9,606 to 
private insurance companies. 
&  In a separate investigation in Maine, a man was sentenced to 
33 months in prison and required to pay $2,473 in restitution for health care 
fraud and acquiring controlled substances by fraud. The man improperly used 
Medicaid to pay for 11 altered prescriptions for Oxycontin.  This 
investigation resulted in the mans eighth felony conviction; his other 
convictions stemmed from a range of unrelated criminal activities. 
'	 An invasive radiologist, who was also chief of the radiology department at 
a Virginia hospital, was sentenced for acquiring a controlled substance by 
misrepresentation, fraud, forgery, deception and subterfuge. The radiologist 
was sentenced to 2 years probation and required to pay a $5,000 fine. From 
June 1998 through January 1999, the radiologist accessed the hospitals 
pharmaceutical cabinet and diverted morphine and fentanyl for his own use 
over 175 times. To conceal this diversion, he created charge tickets 
indicating that the drugs were for patients undergoing invasive procedures. 
Because many of the patients were Medicare beneficiaries, the program 
was inappropriately billed for pharmaceuticals taken under false pretenses. 
MEDICAID PRESCRIPTION DRUGS 
Medicaid is able to purchase drugs at the best price through 
Drug Rebates 
rebates that are based on the difference between the best 
price and the average manufacturer price.  Best price is 
defined as the lowest price at which drug manufacturers sell 
drugs to any purchaser and specifically includes sales to health maintenance 
organizations (HMOs).  Although CMS guidance has allowed the exclusion of 
sales to drug repackagers from the best price, a previous OIG review found that 
some repackagers were HMOs and that manufacturers were excluding sales to 
such HMOs from their best price. 
This follow-up review showed that 7 of 53 drug manufacturers excluded 
sales to 8 repackagers, 3 of which were HMO repackagers, for the top 200 
Medicaid-reimbursed drugs in FY 1999. As a result, the Medicaid program lost 
drug rebates totaling $80.7 million. The OIG recommended that CMS require the 
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drug manufacturers that excluded sales to HMOs from their best price determinations 
to repay the lost rebates. In addition, OIG recommended that CMS evaluate its 
policy guidance relating to the exclusion of sales to non-HMO repackagers from 
best price determinations, especially those repackagers that used the drugs for their 
own use and did not resell them.  The CMS concurred.  (A-06-00-00056) 
Following up on previous work, OIG conducted a 
Brand-Name Drugs 
nationwide review of pharmacy acquisition costs for 
brand-name drugs reimbursed under Medicaid. 
Most States use average wholesale price (AWP) minus a percentage discount, 
which varies by State, as a basis for reimbursing pharmacies for drug prescriptions. 
Therefore, the objective of this review was to develop an estimate of the discount 
below AWP at which pharmacies purchase brand-name drugs. 
Based on pricing information from 216 pharmacies in 8 States, OIG 
estimated that the national actual acquisition cost for brand-name drugs was an 
average of 21.84 percent below AWP. Under current policies in most States, the 
average discount below AWP for reimbursement of estimated acquisition cost was 
10.31 percent in 1999. The OIG estimated that as much as $1.08 billion could 
have been saved for the 200 brand-name drugs with the greatest amount of Medicaid 
reimbursement in 1999. This savings calculation was limited to ingredient acquisition 
costs and did not address other costs, such as dispensing fees. 
The CMS agreed that an accurate acquisition cost should be used to determine 
drug reimbursement and will encourage States to review their estimates of acquisition 
costs in light of OIG findings.  (A-06-00-00023) 
RECOVERY OF PHARMACY PAYMENTS 

FROM LIABLE THIRD PARTIES

This report quantifies the Medicaid dollars at risk when State Medicaid 
agencies pay and chase pharmacy claims that have liable third parties, instead of 
using cost avoidance techniques.  The OIG found States are at risk of losing over 
80 percent ($367 million) of the payments they tried to recover ($440 million) in 1999 
through the pay and chase approach. However, the cost-avoidance approach 
prevented $185 million from being at risk. Almost three-quarters of States reported 
that third parties refuse to process or pay Medicaid pharmacy claims.  The OIG 
also found that more States have problems with pharmacy benefit management 
companies than with all other types of third parties combined. 
The CMS concurred with OIG recommendations to reduce the dollars at 
risk through such measures as reviewing cost avoidance waivers, tracking dollar 
amounts paid and recovered, improving claim formats, and educating third parties. 
(OEI-03-00-00030) 
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MEDICAID HIV/AIDS DRUG EXPENDITURES

Medicaid pays up to 33 percent more for 16 antiretroviral HIV/AIDS 
drugs than do other Federal Government drug discount programs. If the ten 
States surveyed had purchased these antiretrovirals at the Federal ceiling price 
used by the Departments of Veterans Affairs and Defense, the Coast Guard and 
certain public health agencies, Medicaid could have saved $102 million in 
Federal/State funds ($54 million Federal share) in FY 2000. The program could 
have saved $140 million ($73 million Federal share) if all States payments for 
these drugs were limited by Federal ceiling prices. 
The OIG recommended that CMS review the current reimbursement 
methodology and work with States to more accurately estimate pharmacy acquisition 
costs for the antiretrovirals and initiate a review of Medicaid rebates for them. 
(OEI -05-99-00611) 
MEDICAID ENHANCED PAYMENTS 
TO PUBLIC PROVIDERS 
States are allowed to make enhanced Medicaid payments (in addition to 
regular Medicaid payments) to city and county health care facilities 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). During 
this 6-month period, OIG continued to audit States use of enhanced payments 
and the financial impact of intergovernmental transfers on the Medicaid program. 
As part of these audits, OIG reviewed the reasonableness and accuracy of enhanced 
payments and determined whether State claims were properly reported, sufficiently 
documented, and in accordance with approved State plans. The following reports 
were issued: 
In consolidating the results of seven audits in 
Six-State Roll Up  six States, OIG reported that enhanced payments 
to local government-owned providers were not 
based on the actual cost of providing services 
to Medicaid beneficiaries, nor was there a direct relationship between the 
use of these funds and the quality of care provided by public facilities. 
Rather than retain the enhanced payments to provide services, nursing 
facilities transferred a large portion of the payments back to the States for 
other uses. While hospitals kept a large portion of the enhanced payments, 
they either did not receive Medicaid disproportionate share hospital 
payments from the States or returned the majority of the disproportionate 
share payments to the States through intergovernmental transfers. 
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The OIG concluded that the States use of intergovernmental 
transfers in the enhanced payment program was a financing mechanism 
designed to maximize Federal Medicaid reimbursement, thus effectively 
avoiding the Federal/State matching requirements. In prior audits, OIG 
recommended that CMS revise the regulations on calculating the upper 
payment limit. The CMS concurred and on January 12, 2001, issued 
revisions to the regulations that included transition periods to gradually 
phase in the new regulations. The CMS estimates that the revisions will 
save $55 billion in Federal Medicaid funds over the next 10 years. However, 
when fully implemented, these changes will only limit, not eliminate, State 
financial manipulation of the Medicaid program.  The OIG made a number 
of recommendations to strengthen the regulations. In response to the draft 
report, CMS agreed in whole or in part with some of the recommendations. 
(A-03-00-00216) 
For FYs 1996 through 1999, North Carolina 
North Carolina  made enhanced payments to public and private 
hospitals based on its Medicaid deficits.  The 
deficits were calculated without consideration of 
disproportionate share hospital payments or the State/local governments 
payments for indigent care. During the period reviewed, the State made 
payments to hospitals totaling $647 million, generating $412 million in 
Federal matching funds. The hospitals retained the payments and used the 
funds to pay facility expenses. 
The OIG recommended that CMS provide States with definitive 
guidance on calculating the upper payment limit and review it annually, 
require that cost report data be the basis of the calculation, and require 
State plans to contain assurances that enhanced payments will be used to 
provide Medicaid services.  The CMS generally concurred but plans to 
conduct selective financial reviews as appropriate and offer reimbursement 
methods suitable to individual States. (A-04-00-00140) 
Alabama made enhanced payments to State and local 
Alabama  inpatient hospitals totaling about $432 million 
(Federal share $302 million) from October 1996 
through July 2000. Of the Federal share, the hospitals 
retained about $216 million and returned about $86 million (28.5 percent) 
to the State. Contrary to the spirit of Medicaids State/Federal matching 
requirements, the State, in effect, developed a mechanism to receive 
additional Federal funds without committing its share of required matching 
funds. Because 28.5 percent of the Federal funds were returned to the State, 
it did not appear that the State actually incurred an expense related to the 
enhanced payments. This raises the question of whether the amounts paid 
back to the State by the hospitals constituted a refund required to be reported 
as a collection and offset against expenditures reported to CMS. 
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The OIG estimated that the Federal Government will save 
approximately $18.8 million in Alabama during the upper payment limit 
regulatory transition period. Once the regulatory changes are fully 
implemented, OIG estimates savings at about $12.6 million annually, 
totaling about $63 million over 5 years. (A-04-00-02169) 
In another report, OIG pointed out that Alabama did not compute its 
inpatient hospital enhanced payments in accordance with its approved State 
plan amendment. In FY 1998, the State made two revisions to its funding 
pool calculations used in determining enhanced payment amounts. First, the 
State began using Medicare prospective payment system principles in 
computing the Medicare upper payment limit instead of using Medicare 
cost principles as required by the State plan amendment. Second, the State 
began including privately owned facilities in computing the enhanced 
payments, although the amendment required that payments be based on 
public facilities. As a result, the State made excessive enhanced payments 
over 4 years totaling $240.4 million ($168.3 million Federal share). 
The OIG recommended that Alabama refund the $168.3 million to 
the Government. The State did not concur, stating that it was justified in 
using Medicare prospective payment principles in computing the Medicare 
upper payment limit because the State no longer required hospitals to file 
Medicaid cost reports and that it acted within the scope of the regulations 
by including payments related to privately owned facilities. 
(A-04-00-02171) 
In this report, OIG pointed out that in reporting 
Pennsylvania 
enhanced payments to CMS, Pennsylvania over-
claimed $89 million in Federal matching funds 
during State FYs 1997 through 1999.  In addition, 
OIG estimated that the State may have overclaimed $65 million for 1990 
through 1996, bringing the total to a potential $155 million. These amounts 
represent the differences between (1) the actual enhanced payments 
supported by intergovernmental transfers and State voucher transmittals 
and (2) claimed payments actually reported by the State to CMS. 
The OIG recommended that the State (1) discontinue the practice of 
overclaiming Federal matching funds by overreporting payments; (2) 
refund $89 million to the Federal Government; and (3) together with CMS, 
determine if matching funds were overclaimed for the period 1990 through 
1996 and, if so, refund the associated amounts. The State did not concur 
with OIGs findings.  (A-03-00-00211) 
The OIG found that Nebraska did not correctly compute 
Nebraska 
enhanced payments for FYs 1998 and 1999. The 
approved State plan required that the computation be 
36
 Centers for Medicare and Medicaid Services 
based on the difference between allowable Medicare payment rates and 
actual Medicaid payment rates to nursing facilities. The allowable Medicare 
payment rate for each facility included a wage index factor.  Because the 
State did not use the wage index in its calculations of allowable Medicare 
payment rates, enhanced payment claims were overstated by about $72 
million ($44 million Federal share). 
The OIG recommended that the State refund the $44 million and 
use the wage index factor in calculating all future enhanced funding pools. 
While agreeing with the need to use the wage index factor, the State 
contracted with a consulting firm to identify any corrections needed in 
OIGs report. (A-07-00-02083) 
DISPROPORTIONATE SHARE HOSPITAL 
PROGRAM: LOUISIANA 
Under Medicaid, States make additional payments, called disproportionate 
share hospital payments, to hospitals for the uncompensated costs of serving 
disproportionate numbers of low-income patients with special needs. The Omnibus 
Budget Reconciliation Act of 1993 mandates that these payments not exceed the 
individual hospitals uncompensated care costs. 
In two reports, OIG pointed out that disproportionate share hospital 
payments to 10 hospitals in Louisiana during State FY 1998 were calculated in 
accordance with the approved State plan.  However, payments to the individual 
hospitals exceeded uncompensated care costs by a total of about $26.7 million. 
Also, OIG did not express an opinion on the allowability of $4.2 million in claimed 
overhead costs because it could not determine the reasonableness of the methodology 
used to calculate the costs. 
In addition to recommending financial adjustments, OIG recommended 
implementation of controls to ensure that disproportionate share payments are 
determined accurately in the future. Auditee officials generally agreed to implement 
the recommendations. (A-06-00-00026, A-06-00-00058) 
MEDICAID REIMBURSEMENT OF CLINICAL 
LABORATORY SERVICES: CONNECTICUT 
Under Medicaid requirements, reimbursement to providers for clinical 
laboratory and pathology services may not exceed what the Medicare program 
37  Centers for Medicare and Medicaid Services 
recognizes as reimbursement for the same services. This OIG review found that 
Connecticut had not updated its clinical laboratory fee schedule since 1994, during 
which time Medicare payments for many such services decreased. As a result, the 
State made overpayments totaling $2.8 million ($1.4 million Federal share) from 
1996 through 1999. 
The OIG recommended that the State make a financial adjustment for the 
overpayments identified and update clinical laboratory fee schedules on a regular 
basis to ensure that amounts paid do not exceed the Medicare reimbursement 
amounts. The State agreed to do so.  (A-01-01-00003) 
MEDICAID DISPUTE RESOLUTION

Dispute resolution systems for Medicaid managed care enrollees have been 
established in the States sampled for this study, but those States conduct few 
hearings and managed care plans receive relatively few complaints and grievances. 
Member materials and notices are often inadequate, and regulations governing fair 
hearing time frames are flexible, but can be ambiguous. The States have different 
interpretation of the plans
tB o e  dn  ies  fdp i   cue  icta ei rs   yaio n wn   Mis hCe  O s   BS  et  an ete  f  i cF ia  a  ir r y H f iel ea  sr i  nf  og  r  role, as well as their own in 
fair hearings. The OIG found 
i n t eB  re n  na elf  M i c  Ca  rO y  upsr oe cs e  s s  Y  S etD ax o ht e e a   sure  s  t qht i u oe   in r  e  Oju  pd  pico i ra  tlu rn ei   tv y ie f wo r   tmhaatn aogveedrs cigahret  odfi sMpuetdei caid 
N  resolution is inconsistent. 
N 
Is t h e  N  H e a r i n g t a kes  p l a c e in  Is t h e 
Be n e f i c i a r y  f r ont  of A L J o r he a r in g  Be n e f i c ia r y  The OIG recommended 
sa t i s f ie d  off  i c e r  sa t i s f ie d 
that CMS develop model 
Y 
beneficiary notices and 
D i spu  t e re  s o l v e d 
handbooks, improve regional 
oversight, and view dispute data as a way to improve quality of care.  The CMS 
concurred.  (OEI-09-99-00450) 
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 
38
 Centers for Medicare and Medicaid Services 
sectors. To date, partnerships have been developed in 24 States.  Reports issued 
to date have resulted in identifying over $192 million in Federal and State savings 
and have led to joint recommendations for savings at the Federal and State levels, 
as well as improvements in internal controls and computer system operations. 
'	 During this reporting period, a joint audit with an Illinois State agency 
determined that hospitals claimed excessive Medicaid reimbursement by 
coding patient transfers to other prospective payment system hospitals as 
discharges. As a result, from July 1996 through February 2000 potential 
overpayments totaled an estimated $2.3 million (Federal share $1.15 million). 
The report recommended that the State provide additional guidance to 
hospitals concerning codes for discharges and transfers; review controls to 
detect, monitor and correct improperly coded discharges; and make 
appropriate efforts to recover the potential overpayments. The State 
concurred. (A-05-00-00049) 
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 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 approximately $106.7 million in funds granted by CMS 
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 Federal judge in Florida issued a judgment totaling $46 million in a civil 
case against a psychiatrist and several mental health clinics he owned for 
damages to the Government. In February 1997, OIG joined an investigation 
by the FBI and the Florida MFCU which revealed that the psychiatrist 
39
 Centers for Medicare and Medicaid Services 
utilized unlicensed mental health counselors to conduct group sessions at 
his clinics. He also falsely claimed that the clinics employed a number of 
his family members, and a record review showed that he filed or caused to 
be filed numerous false claims for providing partial hospitalization or 
group therapy. The psychiatrist, who was also charged criminally with 
health care fraud, was scheduled to plead guilty in 1999 but failed to appear in 
court. A warrant was issued for his arrest; he remains a fugitive. 
'	 As the result of joint efforts which included representatives from the North 
Carolina, Ohio and Rhode Island MFCUs, CVS Corporation (CVS) agreed 
to pay the United Sates $4 million for the submission of claims for 
partially-filled prescriptions to Medicaid, TRICARE and the Federal 
Employees Health Benefits Program.  In addition, CVS entered into a 
comprehensive 4-year corporate integrity agreement. 
'	 Through a joint investigation which included the Indiana MFCU, a former 
podiatrist was sentenced to 68 months imprisonment and required to pay 
$2.76 million in restitution plus investigative costs for mail fraud, criminal 
forfeiture and criminal contempt. The investigation showed that the 
podiatrist operated a scheme to defraud health insurance programs by 
billing for nonrendered, medically unnecessary and upcoded services.  This 
case represented the largest criminal health care settlement to date in the 
State of Indiana. 
'	 As the result of an investigation by the West Virginia MFCU, a physician 
settled a case with the United States for $310,000 for the submission of 
upcoded evaluation and management services, provided in a hospital setting, 
to the Medicare and Medicaid programs. In addition, the physician agreed 
to enter into a corporate integrity agreement for a period of 3 years. 
'	 As the result of a joint case with the Connecticut MFCU, the former 
coordinator of a mental health facilitys evening alcohol and drug therapy 
program pled guilty to forgery. The therapist was given an 18-month 
suspended sentence and 3 years probation, with a special condition that he 
cannot work in a Medicare or Medicaid health care facility. The therapists 
conviction stemmed from his alteration and falsification of documents used 
to bill third party payers. His misconduct came to OIGs attention through a 
self-disclosure made by the mental health facility, his former employer. 
The investigation found that the therapist falsified group psychotherapy 
attendance rosters used by the facility to bill Medicare and Medicaid.  In 
March 2001, the facility agreed to pay the Government $260,000 to resolve 
its liability for these improper billings. 
40
 Other Operating Divisions 
The activities conducted and supported by other HHS 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 divisions within the Department 
include the following: 
National Institutes of Health (NIH) 
Food and Drug Administration (FDA) 
Centers for Disease Control and Prevention (CDC) 
Health Resources and Services Administration (HRSA) 
Indian Health Service (IHS) 
Agency for Toxic Substances and Disease Registry (ATSDR) 
Agency for Healthcare Research and Quality (AHRQ) 
Substance Abuse and Mental Health Services Administration 
(SAMHSA) 
The OIG continues to examine policies and procedures throughout 
these 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 
recommendations to program managers for strengthening the integrity of 
agency policies and procedures. 
41
 Other Operating Divisions 
FY 2000 FINANCIAL STATEMENT AUDITS   

In support of its audit of the consolidated HHS-wide financial statements 
for FY 2000, OIG audited, through contracts with independent public accounting 
firms, the financial statements of the major operating divisions. Agency officials 
are taking corrective action on most of the recommendations. 
!	 Centers for Disease Control and Prevention and Agency for Toxic Substances 
and Disease Registry: The accounting firm issued an unqualified opinion 
on the CDC and ATSDR FY 2000 financial statements and noted one 
material weaknesses for not having a fully integrated accounting system. 
(A-17-00-00008) 
!	 Food and Drug Administration: The FDA received an unqualified opinion 
on the FY 2000 financial statements. No material weaknesses were noted 
in the system of internal controls. (A-17-00-00006) 
!	 Health Resources and Services Administration:  The HRSA received an 
unqualified opinion on the FY 2000 financial statements. One material 
weakness was noted for not routinely analyzing grant expenditures and 
advances. (A-17-00-00003) 
!	 National Institutes of Health: The accounting firm issued an unqualified 
opinion on the NIH FY 2000 financial statements and noted two material 
weaknesses for lacking an integrated financial system and for insufficiently 
analyzing grant expenditure activity. (A-17-00-00007) 
!	 Substance Abuse and Mental Health Services Administration: The SAMHSA 
received an unqualified opinion on the FY 2000 financial statements. One 
material weakness was noted for not routinely analyzing grant expenditures 
and advances. (A-17-00-00002) 
THE ORPHAN DRUG ACT 
Assessing the implementation of the Orphan Drug Act of 1983, a law 
designed to stimulate the development of drugs for rare diseases, OIG found that 
the program is working as intended.  The incentives in the law and FDAs 
administration of the program motivate drug companies to develop orphan products. 
Marketing exclusivity, which limits competition, is the most powerful incentive in 
the Orphan Drug Act. These products are generally accessible to patients, and 
42
 Other Operating Divisions 
although they can be costly, price alone has not prevented patients from obtaining 
them.  Companies reported an excellent relationship with FDA. 
The OIG has concluded that no regulatory or legislative changes are needed 
at this time. This report is significant because it examines a program that provides 
substantial benefits to industry and the millions of Americans who suffer from rare 
diseases. (OEI-09-00-00380) 
NONREPORTING TO THE NATIONAL 
PRACTITIONER DATA BANK    
Prompted by reports that physicians who lost their licenses to practice in 
one State were continuing to practice in others, Congress established the National 
Practitioner Data Bank in 1986.  Conducted at the request of HRSA, this OIG 
report assessed the extent to which managed care organizations (MCOs) report the 
adverse actions they have taken against health care practitioners to the Data Bank. 
The OIG discovered that 84 percent (1,176 out of 1,401) of MCOs have never 
reported an adverse action to the Data Bank. 
There are several possible explanations for nonreporting, but the two most 
likely are that nonreporting is a result of (1) limited focus on clinical oversight 
and/or (2) reliance on downstream entitieshospitals, physician practice groups, 
and State licensure boardsto conduct quality monitoring of practitioners. This 
report raises a broad concern about the limitations of the downstream entities upon 
which MCOs rely.  (OEI-01-99-00690) 
INADEQUATE ADVERSE EVENT REPORTING 
FOR DIETARY SUPPLEMENTS    
Unlike new prescription and over-the-counter drugs, the FDA does not 
have the authority to require dietary supplements to undergo premarket approval 
for safety and efficacy. Therefore, the FDA must rely on its voluntary adverse 
event reporting system to identify safety problems. As is true of most adverse 
event reporting systems, the FDAs system detects relatively few adverse events. 
The OIG found that the FDAs reporting system is inherently limited as a tool to 
safeguard consumers. For those events that are reported, the FDA often lacks 
much of the informationmedical, product, manufacturer, consumer, and 
clinicalnecessary to effectively analyze adverse event reports and generate 
possible signals of concern. 
43
 Other Operating Divisions 
The OIG recommended 
that the FDA facilitate greater 
detection of adverse events, 
obtain more relevant information 
concerning the adversity and 
increase disclosure to the public. 
The FDA is proceeding, within 
available resources, in improving 
the system.  (OEI-01-00-00180) 
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, 351 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 1,469 
individuals have taken advantage of the opportunity to enter into settlement 
agreements or completely repay their debt.  This figure includes the 127 
44
 Other Operating Divisions 
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 $102 
million. Of that amount, over $10.9 million is attributable to this reporting period. 
In the following examples, each individual entered into a settlement agreement to 
repay the amount indicated: 
'  A West Virginia osteopath$958,000 
'  A Michigan physician$230,000 
'  A Pennsylvania dentist$194,000 
'  A New York physician$182,000 
MISUSE OF GRANT FUNDS 
Resolution of charges of misuse of HHS grant funds occurred in the 
following examples during this reporting period: 
'	 A Massachusetts woman was sentenced to 3 years probation and ordered to 
pay $83,025 in restitution for theft concerning programs receiving Federal 
funds. The woman embezzled Federal funds from an organization 
receiving HHS grant monies to conduct research on programs for the 
homeless. 
'	 In connection with a grant fraud investigation, the sixth and final subject 
was sentenced in Wisconsin based on his guilty plea to a State charge of 
felony theft. The investigation revealed that the employee of an HHS 
grantee misappropriated approximately $32,000 in various Federal, State 
and local grant funds, including Administration for Children and Families 
(ACF) funds. The employee generated checks from the grantee payable to 
her son, her sons acquaintances and her landlord.  The checks were drawn 
from an account funded by ACF grant monies. 
'	 The former administrative officer of an HHS grantee in Colorado was 
sentenced to 7 days incarceration, 3 years probation and ordered to pay 
$4,705 in restitution for wire fraud. The administrative officer illegally 
used the grantees credit card to make personal purchases and to provide a 
down payment on her vehicle. The credit card charges were ultimately 
paid from the grantees operating account funded by HHS. Due to her 
ineffective and fraudulent administration of the grant, the grantee lost its 
HHS funding and terminated its operations. 
45
 Other Operating Divisions 
RESEARCH UNIVERSITY 
DISCLOSURE STATEMENTS 
To promote accountability and fiscal integrity, OIG reviews disclosure 
statements submitted by major research universities as required by the cost 
accounting standards incorporated into OMB Circular A-21. These reviews 
determine whether the cost accounting practices presented in the disclosure 
statements are complete, accurate, current, and consistent with cost accounting 
standards and OMB Circulars A-21 and A-110. 
The OIG is responsible for determining the adequacy and compliance of 
140 disclosure statements submitted to the Department for approval. To date, OIG 
has reviewed 58 such statements and, as appropriate, has recommended that 
universities establish new, or revise existing, policies and procedures or that they 
revise those practices that are inconsistent with cost accounting standards or cost 
principles. These recommendations help to strengthen financial controls and 
ensure the integrity of the billions of Federal research dollars to be awarded to 
major universities in future years.  (Various audit report numbers) 
46
 Administration for 
Children and Families 
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. 
The OIG reviews those programs serving children and families. 
Reports have focused on ways to increase the efficient use of program 
dollars; to more effectively implement programs; to better coordinate 
programs among the Federal, State and local governments; and to 
strengthen States financial management practices. 
47
 Administration for Children and Families 
FY 2000 FINANCIAL STATEMENT AUDIT: 
ADMINISTRATION FOR CHILDREN AND FAMILIES    
In support of its audit of the consolidated Departmentwide financial 
statements for FY 2000, OIG contracted with an independent accounting firm to 
audit ACFs financial statements. The ACF received an unqualified opinion on its 
financial statements. One material weakness was noted for not routinely analyzing 
grant expenditures and advances to detect material errors and unusual fluctuations. 
The ACF officials agreed with the findings and are taking corrective action on 
most of the recommendations. (A-17-00-00001) 
CHILD CARE CLAIMS: NORTH CAROLINA 
At ACFs request, OIG reviewed North Carolinas retroactive child care 
claims under Title IV-E foster care and other grants for the period October 1, 1993, 
through October 31, 1997. Based on a statistical sample, OIG estimated that the 
State was reimbursed approximately $48.2 million in unallowable costs. In most 
cases, a consultant to the State did not properly determine the allowability of the 
claims, and the State did not adequately review the claims before submitting them 
to the Federal Government.  In addition, the States accounting system did not 
identify which grant was used to pay for a childs care, and the State did not 
maintain records that showed to which grant these payments were initially and 
subsequently assigned. 
The OIG recommended that the State refund the $48.2 million, develop 
accounting procedures that identify the grant used to pay for a childs care, 
maintain documentation to support eligibility for all child care claims for required 
periods, and monitor its consultants to ensure that only allowable child care claims 
are filed for Federal financial participation. State officials generally did not agree 
with the findings and recommendations. (A-04-98-00123) 
AID TO FAMILIES WITH DEPENDENT 
CHILDREN PROGRAM: OVERPAYMENTS 
Under the former Aid to Families With Dependent Children (AFDC) 
program, State agencies were obligated to recover any overpayments to recipients 
by reducing future payments to the recipients or by collecting a cash settlement. 
Although the program was repealed and replaced with the Temporary Assistance 
48  Administration for Children and Families 
to Needy Families program, the requirement to recover AFDC overpayments 
remains in effect. States must return to the U.S. Treasury the Federal share of the 
overpayments that they collect. 
As part of a nationwide review, OIG assessed the process used by six New 
England States to identify and return the Federal share of AFDC overpayments 
collected as of December 31, 2000. The OIG found that, of the amount collected, 
approximately $12.4 million should be refunded to the Federal Government. The 
States agreed to return this amount and have already repaid over 90 percent. 
(A-01-01-02502) 
PROMOTING SAFE AND STABLE 
FAMILIES: NEW YORK    
Since FY 1994, ACF has awarded Title IV-B, Subpart 2 grants to States to 
promote safe and stable families. In FY 2001, funding for this program totaled 
$305 million, and the Presidents budget for FY 2002 includes an additional 
$200 million. In light of this planned increase, OIG assessed New Yorks use of 
program funds over the years. 
New York elected not to apply for any program funds in FYs 1997 through 
2001 because it could not meet the maintenance-of-effort requirements for both 
this program and the TANF program.  Although the State participated in the 
program during FYs 1994 through 1996, one county was unable to spend $167,000 
of the FY 1994 allotment. The OIG also found that the State met its cost-sharing 
requirements during the years of participation. However, financial status reports 
for 2 years were submitted late. (A-12-01-00010) 
NEW YORK CHILD WELFARE 
INFORMATION SYSTEM 
State Agency Child Welfare Information Systems, which are eligible for 
Title IV-E funding, are designed to allow child welfare workers online access to 
information on child protection, foster care, and adoption services. At ACFs 
request, OIG reviewed the costs that New York State claimed for Federal 
reimbursement under Phase I of the development and implementation of its child 
welfare information system (called CONNECTIONS). 
The ACF had determined that the States Phase I costs were outside the 
scope of developing and implementing the system. New York was unable to provide 
49  Administration for Children and Families 
detailed supporting documentation for Phase I costs because the accounting 
records did not segregate Phase I and II costs. As a result, neither the State nor 
OIG could identify the costs. However, the State proposed, and ACF accepted, a 
downward adjustment of $12.4 million (Federal share $9 million) based on 
previously approved budgeted figures.  (A-02-99-02008) 
MARYLAND CHILD PROTECTIVE SERVICES     
In this review, OIG determined whether a county-operated child protective 
agency in Maryland responded to reports of child abuse and neglect, known as 
referrals, in accordance with State and county requirements. The OIG found that 
the agency had a comprehensive outreach awareness program to provide child 
abuse and neglect information to the community and that its screening process was 
appropriate for determining whether a referral should be investigated. 
However, the agency needed to better ensure that risk assessments and 
investigations complied with State requirements. For example, some investigations 
were not completed within the required 60-day period, risk assessments and 
investigation reports did not always document the familys history of prior 
involvement with the agency, and continuing services were not always offered to 
families when abuse or neglect was indicated. State and county officials generally 
agreed with OIGs recommendations to strengthen the agencys procedures, 
particularly supervisory oversight. (A-12-00-00004) 
CHILD SUPPORT ENFORCEMENT 
The OIG has made the detection, investigation 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), DOJ, U.S. Attorneys 
Offices, FBI, 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 1,519 investigations of child support cases nationwide 
which have resulted in 456 convictions and court-ordered criminal restitution and 
settlements of over $25.9 million. 
Investigative Task Forces 
In 1998, OIG and OCSE initiated Project Save Our Children, a 
criminal child support initiative made up of multiagency, multijurisdictional 
50
 Administration for Children and Families 
investigative task forces. The task forces are designed to identify, investigate 
and prosecute the most egregious criminal nonsupport cases both on the 
Federal and State levels through the coordination of law enforcement, 
criminal justice and child support office resources. The six task force 
regions are the following: 
Task Force  Task Force  Task Force 
Region  Headquarters  States 
Mid-Atlantic  Baltimore, Maryland  Delaware, District of Columbia, 
Maryland, Pennsylvania, 
Virginia, West Virginia 
Midwest  Columbus, Ohio  Illinois, Indiana, Michigan, 
Ohio, Wisconsin 
Northeast  New York City  Connecticut, New Jersey, 
New York, Puerto Rico 
Southeast  Atlanta, Georgia  Alabama, Florida, Georgia, 
Mississippi, North Carolina, 
South Carolina 
Southwest  Dallas, Texas  Louisiana, Oklahoma, Texas 
West Coast  Sacramento, California  Arizona, California, Hawaii, 
Nevada, Oregon, Washington 
Central to the above 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 databases and 
then forward the cases to the investigative task force units where they are 
assigned and investigated. The task force approach streamlines the process 
by which the cases best suited for criminal prosecution are identified, 
investigated and brought to fruition. 
At this point, the task force units have received over 3,700 cases 
from the States. As a result of the work of the task forces, 157 Federal 
arrests have been executed and 113 individuals sentenced. The total ordered 
amount of restitution related to Federal investigations is $4.8 million. 
There have been 298 arrests on the State level and 244 convictions or civil 
adjudications to date, resulting in $9.9 million in restitution being ordered. 
Investigations 
During this period, OIG investigations of child support cases, 
nationwide, resulted in 64 convictions and court-ordered criminal restitution 
51
 Administration for Children and Families 
of over $3 million. Examples of the Federal arrests, convictions and sentences 
resulting from OIGs enforcement work, both inside and outside the task force 
regions, include the following: 
'	 A Federal judge in Florida sentenced a man to 5 years probation 
and ordered him to pay $322,976 in restitution for failure to pay 
child support. The man, a citizen of the United Kingdom and a 
legal resident of Florida, owns and operates a marketing firm 
incorporated with his current wife; most of the firms earnings have 
been reported under her name.  Since 1990, he has earned over 
$735,000. 
'	 In Texas, a man was sentenced to 5 years probation and ordered to 
pay $77,283 in restitution for failure to pay child support.  The man 
is employed by the United States Postal Service in Illinois where he 
earns approximately $40,000 a year. He has been ordered to pay 
$900 a month in support of his three children.  His last voluntary 
child support payment occurred in July 1998. 
'	 As part of three separate child support enforcement cases in Nevada, 
three individuals were sentenced for failure to pay child support. 
One was sentenced to 5 years probation and ordered to pay $74,454 in 
restitution. A second was sentenced to 5 years probation and 
ordered to pay $39,683 in restitution; and the third was sentenced to 
5 years probation and ordered to pay $32,900 in restitution. 
'	 A man was sentenced in New York for failure to pay child support. 
He was ordered to pay $68,640 in restitution, serve 5 years probation, 
enter a substance abuse program, refrain from the use of illegal 
drugs and alcohol and was prohibited from owning a firearm. At 
the time of his divorce in 1992, the man was ordered to pay $80 a 
week in support for each of his two children.  He avoided making 
these payments by moving from New York, to Virginia, to Arizona 
and eventually to California. 
'	 A Montana man pled guilty to failure to pay child support and was 
sentenced in Washington to 5 years probation and ordered to pay 
$67,320 in restitution. The man had not made any child support 
payments in 7 years for this three children who reside in Washington. 
The man deposited his earnings as a repairman in his girlfriends 
business bank account. The man has an extensive criminal history 
which includes domestic violence. 
52
 Administration for Children and Families 
'	 In the first child support enforcement case successfully prosecuted in 
Maine, a man was sentenced to 5 years probation and ordered to pay 
$28,917 in restitution for failure to pay child support.  In 1993, the court 
ordered him to pay $92 a week in support of his two children.  Since that 
time, he consistently failed to meet this obligation, and the only payments 
received occurred through tax intercepts. The investigation determined 
that although the man changed jobs often, he had earned reportable income. 
Investigation also revealed that as the result of an automobile accident, the 
man received an insurance settlement of approximately $34,000 in 1993. 
'	 In Minnesota, a man was sentenced to 5 years probation and ordered to pay 
$18,852 in restitution for failure to pay child support. The man abandoned 
his 2-year-old daughter and her mother in 1997. Although ordered to make 
support payments of $150 a month and gainfully employed since 1997, he 
never made a voluntary payment. Since his arrest in the fall of 2000, the 
man has remained current in his child support obligation via wage 
withholdings and has renewed contact with his daughter and her mother. 
DECISION OF 6TH CIRCUIT COURT OF APPEALS 
A September 25, 2000, decision of the 6th Circuit Court of Appeals had an 
impact on OIG child support enforcement investigative efforts. The Child Support 
Recovery Act made it a Federal crime to fail to pay child support on behalf of an 
out-of-state child. In United States v. Faasse, 227 F.3d 660 (6th Cir. 2000), the 
Court held that this Act exceeded Congresss commerce clause authority and was 
therefore unconstitutional. The Court granted rehearing en banc and on September 
14, 2001, vacated the original decision. In the interim, however, the decision 
hampered pursuit of some child support nonpayment cases in the States covered by 
the 6th Circuit. 
53
 54
 General Oversight 
The Program Support Center, a separate operating division within 
the Department of Health and Human Services (HHS), provides overall 
direction for departmental administrative activities as well as common 
services such as human resources, financial management, administrative 
operations, and information technology.  The Office of the Assistant 
Secretary for Management and Budget is responsible for the development 
of the HHS budget and its execution, as well as the related activities of 
establishing and monitoring departmental policy for debt collection, cash 
management, and payment of HHS grants and contracts. The Department 
also has the responsibility, by virtue of the magnitude of its funding, to 
negotiate the payment rates and methods that outside entities, such as State 
and local governments, charge for administering HHS and other Federal 
programs. 
The OIG has oversight responsibility for these activities at the 
departmental level. A related major responsibility flows from Office of 
Management and Budget (OMB) Circular A-133, under which HHS is 
cognizant agency to audit the majority of the Federal funds awarded to 
major research schools, State and local government cost allocation plans, 
and separate indirect cost plans of State agencies and local governments. 
Also, OIG oversees the work of nonfederal auditors of Federal money at 
some 6,700 entities, such as community health centers and Head Start 
grantees, as well as at State and local governments, colleges and universities 
and other nonprofit organizations. Beginning with the FY1996 statements, 
OIG became responsible for auditing the Departments financial statements. 
The OIGs work in Governmentwide oversight and in departmental 
administrative activities focuses principally on financial statement audits, 
financial management and managers accountability for resources entrusted, 
standards of conduct and ethics, and Governmentwide audit oversight, 
including recommending revisions to OMB guidance. 
55
 General Oversight 
RESULTS ACT REVIEW PLAN   

The Government Performance and Results Act (GPRA) of 1993 mandates 
that Federal agencies establish strategic planning and prepare annual performance 
plans, beginning with FY 1999. The annual performance plans are to set forth 
measurable goals defining what will be accomplished during the year, and annual 
reports are to compare actual performance with those goals. The OIGs work in 
this area is focused on those measures related to mission-critical issues and areas at 
high risk of fraud, waste, and abuse and includes assessments of data collection 
methods and controls over the systems that produce performance data. The OIG 
notes that an ongoing objective of its audits, inspections and investigations is to 
identify performance results and offer recommended improvements. 
The OIGs continuing payment error rate reviews at the Centers for Medicare 
and Medicaid Services (CMS) relate directly to assessment of CMS-generated 
financial performance data. The CMS uses OIGs annual estimate of the Medicare 
fee-for-service error rate as a basis for setting performance goals and for measuring 
performance. For FY 2000, OIG reported an estimated 6.8 percent error rate, and 
CMS met its 7 percent target that year.  The CMS goal is to reduce this rate to 
6 percent by 2001 and 5 percent by 2002. 
During this reporting period, an OIG review of the Office for Civil Rights 
FY 1999 GPRA report found that the office did not accurately report performance 
results and did not have an adequate system for validating the information presented 
in its performance report. This conclusion was based on exceptions found in a 
judgmental sample of 63 of the 209 review or investigation cases used to prepare 
the performance report. The OIG recommended that the Office for Civil Rights 
(1) issue guidance to its regional offices to ensure that performance results are 
accurately and consistently reported; (2) enhance its data validation process to 
ensure that future  performance results are reliable; and (3) review and, where 
appropriate, clarify the explanations and descriptions of performance measures 
and reported results in future performance plans. In response, the office is taking 
steps to improve the accuracy and verification of data in future years reports. 
(A-12-00-00009) 
Upcoming is a review of ACFs use of State-supplied data for performance 
measurement. The OIG will determine whether ACF has taken adequate steps to 
validate State data used in one or more major programs. 
56
 General Oversight 
FY 2000 FINANCIAL STATEMENT AUDIT: 
PROGRAM SUPPORT CENTER    
In support of its audit of the consolidated HHS-wide financial statements 
for FY 2000, OIG audited, through a contract with an independent public accounting 
firm, the financial statements of the Program Support Center (PSC). The report 
noted continued improvement in PSCs financial management processes. The PSC 
received an unqualified opinion on its FY 2000 financial statements, and no 
material weaknesses were noted in the system of internal controls. (A-17-00-00005) 
DEPARTMENTAL SERVICE ORGANIZATIONS     
In support of its HHS-wide FY 2000 financial statement audit, OIG 
contracted for examinations of four service organizations that provide common 
administrative, data processing and accounting services to individual operating 
divisions. In accordance with Statement on Auditing Standards No. 70, independent 
accounting firms examined the organizations controls and tested their operating 
effectiveness. 
!	 Center for Information Technology: The accounting firm issued an 
unqualified opinion and noted no significant exceptions at the 
Center. (A-17-00-00010) 
!	 Central Personnel and Payroll System, Human Resources Services: 
The accounting firm issued an unqualified opinion and noted no 
significant exceptions. (A-17-00-00012) 
!	 Division of Financial Operations: The firm concluded that controls 
tested were operating effectively but with exceptions.  Problems 
were noted in such areas as risk assessment, the entity-wide security 
program, segregation of duties, and access controls. Officials of the 
division agreed with most of the findings.  (A-17-00-00009) 
!	 Division of Payment Management: The accounting firm issued an 
unqualified opinion and noted no significant exceptions. 
(A-17-01-00021) 
MONITORING DEPARTMENTAL INTERNET SITES    
In this review of departmental monitoring of personally identifiable 
information on users of its web sites, OIG found that, contrary to departmental 
57
 General Oversight 
policy, four operating divisions collected such information through the use of 
persistent cookies. This information was collected without obtaining the required 
Secretarial prior approval, and users were not warned that such information was 
being collected. The OIG also found that 21 of the Departments web sites designed 
for children did not contain privacy statements or links to a privacy statement as 
required by the Childrens Online Privacy Protection Act. 
The OIG recommended that departmental policy be amended to require 
frequent review of web sites to detect the use of persistent cookies and that the 
persistent cookies detected be immediately disabled.  The OIG also recommended 
that the Department direct the Chief Information Officers (CIOS) of the operating 
divisions to ensure that web sites do not use persistent cookies without the proper 
waiver from the Secretary and that the web sites for children are in compliance 
with applicable laws. Finally, OIG recommended that all web site originators be 
required to certify to their respective CIOs that they are in compliance. 
(A-01-01-03000) 
ABUSE OF PERSONS WITH DISABILITIES 
Facilities receiving Medicare or Medicaid funding are subject to CMS 
conditions of participation as well as State laws and regulations.  However, many 
other facilities, such as group homes, some residential schools, and supervised 
apartments, do not receive Medicare or Medicaid funding, and up to 90 percent of 
persons with disabilities reside in such facilities. These people must rely on State 
protections, which vary widely. This report provides a summary of systems used 
by some States to identify, investigate and resolve incidents of abuse or neglect of 
persons with disabilities. 
The OIG recommended that CMS, the Administration for Children and 
Families, the Substance Abuse and Mental Health Services Administration, and the 
Food and Drug Administration work cooperatively to provide information and 
technical assistance to States to (1) improve the reporting of potential abuse or 
neglect of persons with disabilities, (2) strengthen investigative and resolution 
processes, (3) assist in analyzing incident data to identify trends indicative of 
systemic problems, and (4) identify the nature and cause of incidents to prevent 
future abuse. (A-01-00-02502) 
FY 2000 DRUG CONTROL FUNDS 
Agencies that participate in the National Drug Control Program are 
required to annually submit to the Office of National Drug Control Policy a 
58
 General Oversight 
detailed accounting of all funds expended on program activities during the 
previous year. The agencies respective Inspectors General are responsible for 
expressing an opinion on the reliability of the assertions in the accounting reports. 
The OIG reviewed the detailed submissions of the six HHS agencies required 
to submit those reports for FY 2000: ACF, CDC, CMS, IHS, NIH, and SAMHSA. 
Based on these reviews, OIG was unable to determine that management assertions 
were reliably reported in the agencies reports.  (A-15-01-80006, A-15-01-80010, 
A-15-01-80008, A-15-01-80005, A-15-01-80011, and A-15-01-80007) 
NEW JERSEY PENSION SURPLUS 
In June 1994, New Jersey withdrew $180.2 million from its public employee 
retirement systems and transferred the funds to the States General Fund. The 
Department requested that OIG determine whether the Federal Government had 
received its share of the $180.2 million for pension contributions made on behalf 
of federally funded programs, grants, and contracts.  Office of Management and 
Budget Circular A-87 requires that States credit the Federal Government for its 
share of withdrawn pension funds. 
The OIG found that the Federal Government was due a refund of $6.6 
million. Additionally, using the monthly interest rates earned by the States 
General Fund from July 1994 to March 2001, OIG computed interest due the 
Federal Government in the amount of $3 million. State officials concurred and 
refunded $9.6 million. (A-02-01-02005) 
ESCHEATED WARRANTS 
Federal regulations require that States promptly refund the Federal portion 
of escheated warrants, which are uncashed and unclaimed checks. As noted below, 
two reviews identified problems in meeting this requirement 
In three previous audits, covering the period July 1975 
Puerto Rico 
through June 1993, OIG identified serious deficiencies 
in Puerto Ricos handling of escheated warrants, 
which resulted in a recovery of $28.8 million to the 
Federal Government. At the request of the Department, OIG followed up 
to determine whether Puerto Rico had implemented adequate controls to 
ensure that Federal programs received timely credit for escheated warrants 
from July 1993 through June 1998. 
59
 General Oversight 
Finding no significant progress, OIG worked with Puerto Rico 
officials to develop a methodology for determining an appropriate credit 
that could serve as a basis for reaching a negotiated settlement. Using this 
methodology, OIG identified a potential credit of almost $2 million due the 
Federal Government for FY 1994. The OIG recommended that the 
Department use this work to reach a settlement with Puerto Rico for the 
full period covered by the review.  (A-02-99-02004) 
This OIG report noted that Florida credited the Aid to 
Florida 
Families With Dependent Children and Temporary 
Assistance to Needy Families (TANF) programs for the 
Federal share of escheated warrants for the period July 
1993 through September 1997. However, from October 1997 through 
September 1998, the State did not credit $42,000 ($21,500 Federal share) 
of escheated warrants pertaining to TANF in accordance with either Federal 
regulations or State criteria.  State officials said that they inadvertently 
failed to do so. 
The OIG recommended that the State credit the TANF program 
the $21,500 and take steps to ensure that escheated warrants are reported as 
required. State officials generally agreed with the findings and the 
recommendations. (A-04-00-00133) 
NONFEDERAL AUDITS 
The OMB Circular A-133 establishes 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 
organization-wide audit which includes all Federal money they receive. These 
annual audits are conducted by nonfederal auditors, such as public accounting firms 
and State auditors. As cognizant auditor, OIG reviews the quality of these audits 
and assesses the adequacy of the entitys management of Federal funds. In the 
second half of FY 2001, OIGs National External Audit Review Center reviewed 
about 850 reports that covered $568.9 billion in audited costs. Federal dollars 
covered by these audits totaled $171.9 billion, about $78.6 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. By taking a 
proactive stance, OIG identifies entities for high-risk monitoring and any trends 
that could indicate problems in HHS programs. In addition, OIG profiles nonfederal 
60
 General Oversight 
audit findings of a particular program or activity over time to identify systemic 
problems. As a further enhancement of audit quality, OIG provides training and 
technical assistance to grantees and the auditing profession. 
To rely on the work of nonfederal auditors, OIG maintains a quality control 
review process which assesses the nonfederal reports received and the audit work 
that supports selected reports. During this reporting period, OIG reviewed and 
issued 850 nonfederal audit reports which fall into the following categories: 
Reports issued: 
Without changes or with minor changes  832 
With major changes  11 
With significant inadequacies  7 
Total  850 
The 850 reports included recommendations for HHS program officials to 
take action on cost recoveries totaling $6.1 million, as well as 2,499 recommendations 
for improving management operations. In addition, these audit reports provided 
information for 60 special memoranda which identified concerns for increased 
monitoring by departmental management. 
RESOLVING RECOMMENDATIONS 
The tables on the following pages are provided in accordance with the 
Supplemental Appropriations and Rescissions Act of 1980 (Public Law 96-304) 
and section 5 of the Inspector General Act and indicate the dollar value of actions 
taken on OIG recommendations. 
In Table 1, Dollar Value Questioned  costs are those challenged because 
of violation of law, regulation, grant conditions, etc. Dollar Value Unsupported 
costs are those not supported by adequate documentation. 
Table 2 summarizes recommendations that funds be put to better use 
through cost avoidances, budget savings, etc. 
These costs are separate from the amount ordered or returned as a result of 
OIG investigations. (Details p. 66.) All footnotes and additional explanatory 
information can be found in Appendix D. 
61
 General Oversight 
Table 1:  Reports With Questioned Costs 
Reports  Number of  Dollar Value  Dollar Value 
Reports  Questioned  Unsupported 
Section 1 
For which no management 
decision had been made by  475  $548,701,000  $51,222,000 
the beginning of the reporting 
period1 
Issued during the reporting  120  $754,733,000  $155,629,000 
period 
Total Section 1  595  $1,303,434,000  $206,851,000 
Section 2 
For which management 
decision was made during 
the reporting period2,3 
Disallowed costs  $76,516,000  $595,000 
Costs not disallowed  $12,358,000  $153,000 
Total Section 2  183  $88,874,000  $748,000 
Section 3 
For which no management 
decision had been made by 
the end of the reporting period 
Total Section 1 minus  412  $1,214,560,000  $206,103,000 
Total Section 2 
Section 4 
For which no management 
decision was made within  300  $296,930,000  $295,900 
6 months of issuance4 
62
 General Oversight 
Table 2:  Funds Recommended to be Put to Better Use 
Reports  Number of  Dollar Value 
Reports 
Section 1 
For which no management decision had 
been made by the beginning of reporting  32  $6,598,957,000 
period1 
Issued during the reporting period  10  $56,806,002,000 
Total Section 1  42  $63,404,959,000 
Section 2 
For which management decision was 
made during the reporting period 
Value of recommendations that 
were agreed to by management 
Based on proposed 
management action  3  $4,640,00 
Based on proposed 
legislative action 
Value of recommendations that  4  $7,757,000 
were not agreed to by management 
Total Section 2  7  $12,397,000 
Section 3 
For which no management decision had 
been made by the end of the reporting 
period2 
Total Section 1 minus 
Total Section 2  35  $63,392,562,000 
63
 General Oversight 
LEGISLATIVE AND REGULATORY REVIEW 

AND REGULATORY DEVELOPMENT

Review Functions 
Section 4(a) of the Inspector General Act of 1978 requires that the 
Inspector General review existing and proposed legislation and regulations 
and make recommendations in this 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. 
Regulatory Development Functions 
The OIG is responsible for the development and promulgation of a 
variety of sanction regulations addressing civil money penalty (CMP) and 
program exclusion authorities administered by the Inspector General, as 
well as advisory opinions and safe harbor regulations related to the anti-
kickback statute. Among the regulatory initiatives undertaken during the 
reporting period were the following: 
!	 Final Rulemaking on Revisions and Technical Corrections to 42 
CFR Chapter V: 
The rule will address, among other things, revisions or clarifications to 
the definition item or service, to the reinstatement procedures 
relating to exclusions resulting from a default on health education 
or scholarship obligations, and to the limitations period applicable 
to exclusions. In addition, the rule will set forth a number of technical 
corrections to the current regulations and clarify various issues and 
inadvertent errors appearing in OIGs existing regulatory authorities 
in order to achieve greater clarity and consistency. 
!	 Safe Harbor for Ambulance Restocking Arrangements Under the 
Anti-Kickback Statute: 
This rule sets forth a safe harbor under the anti-kickback statute to 
protect certain arrangements involving hospitals or other receiving 
facilities that replenish drugs and medical supplies used by ambulance 
providers (or other responders) when transporting patients to hospitals 
or receiving facilities. 
64
 General Oversight 
In addition, during this period, OIG worked towards developing the 
following: 
!	 Revised final regulations addressing a statutory exception to the 
anti-kickback statute for shared risk arrangements 
!	 A final rule addressing a CMP safe harbor to protect payment of 
Medicare and Medigap premiums for ESRD beneficiaries 
!	 Proposed rulemaking amending OIG exclusion regulations 
addressing excessive claims 
During this period, OIG published several Federal Register notices 
that set forth OIG policy and procedures in various areas.  These included 
the following: 
!	 An OIG special advisory bulletin on Practices of Business 
Consultants (66 FR 36583; July 12, 2001) 
!	 A notice announcing a change in user fees for the Healthcare 
Integrity and Protection Data Bank (66 FR 31245; June 11, 2001) 
!	 A solicitation notice regarding development of compliance program 
guidance for the pharmaceutical industry (66 FR 31246; June 11, 
2001) 
Congressional Testimony and Hearings 
The OIG also maintains an active involvement in the congressional 
hearing process. For example, OIG testified at nine 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 
65
 General Oversight 
the persons employed by HHS are dedicated, honest civil servants.  Occasionally, 
however, individuals violate their fiduciary responsibilities, as illustrated in the 
following examples: 
'	 A Federal judge in Maryland sentenced a former NIH research scientist and 
his wife for willfully infringing copyrights by selling compact disks 
containing thousands of dollars of copyrighted computer software.  The 
former NIH employee was sentenced to 36 months supervised probation 
and was ordered to pay $30,988 in restitution to several software companies 
and a $6,055 fine for his participation in the scheme which involved using 
the NIH computer network to facilitate the sale of the software. His wife 
was sentenced to 36 months supervised probation and was ordered to pay 
$30,988 in restitution to several software companies and a $2,000 fine for 
her involvement. 
'	 In Maryland, a former NIH employee was sentenced to 36 months supervised 
probation and was ordered to pay $23,300 in restitution for theft of 
Government property. While working in an NIH mail room, the employee 
stole 19 Government and private checks made payable to NIH. 
INVESTIGATIVE PROSECUTIONS 
During this semiannual reporting period, OIG investigations resulted in 210 
successful criminal actions. Also during this period, 738 cases were presented for 
criminal prosecution to DOJ and, in some instances, to State and local 
prosecutors. Criminal charges were brought by prosecutors against 232 individuals 
and entities. 
In addition to terms of imprisonment and probation imposed in the judicial 
processes, over $1.25 billion was ordered or returned as a result of OIG 
investigations during this reporting period. Civil settlements from investigations 
resulting from audit findings are included in this figure. 
PROGRAM FRAUD CIVIL REMEDIES ACT 
The Program Fraud Civil Remedies Act (PFCRA), 31 U.S.C. 3801- 3812, 
authorizes the imposition of civil money penalties and assessments against anyone 
who makes a false, fictitious, or fraudulent claim or written statement to a Federal 
agency. It was modeled after the Civil Monetary Penalty Law (42 U.S.C. 1320a-7a) 
which is applicable to false or otherwise improper claims presented to Medicare, 
Medicaid or other Federal health care programs. 
66
 General Oversight 
Under PFCRA, a person who presents a false, fictitious or fraudulent 
claim to a Federal agency may be subject to a civil monetary penalty of up to 
$5,000 per claim or statement, as well as an assessment of up to double the 
amount of each claim falsely made. The OIG is responsible for investigating 
allegations of false claims and statements presented to the Department. 
During FY 2001, no matters were specifically referred for administrative 
action solely under PFCRA. While all cases are routinely analyzed for potential 
action under PFCRA, at HHS the availability of other criminal, civil and 
administrative remedies often renders unnecessary the referral of cases for action 
solely under PFCRA. However, OIG does assert its administrative authority 
under PFCRA as one basis in settlement agreements, in which OIG is a party, that 
resolve cases arising under the False Claims Act and other Federal statutes.  In 
addition, as part of these settlements, the defendant is released from liability 
under PFCRA. 
67
 68
 Appendices

69
 70
 Appendix A

Savings Achieved through Policy and Procedural Changes Resulting from Audits,

Investigations and Inspections 

April 1, 2001 through September 30, 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 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 
consistent with CBO savings. In keeping 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 $6,555 million for this period. 
Savings 
OIG Recommendation  Implementing Action  ( millions) 
Centers for Medicare and Medicaid 
Services 
Medicare Home Health Payments:  $4,270 
Restructure the payment system for  Chapter I of Subtitle G of the BBA of 1997 (as amended by 
home health care to eliminate inappro- the Omnibus Consolidated and Emergency Supplemental 
priate incentives which unnecessarily  Appropriations Act of 1998), which pertains to home health 
increase cost and utilization; prevent  benefits, addresses OIGs concerns regarding the need 
unscrupulous providers from gaining  to restructure and control the payment system for these 
entry into the program; and improve  services. For example, it mandates that a prospective 
program controls, such as eligibility  payment system be developed and that the total payments 
determinations and approval of plans of  in fiscal year (FY) 2000 be equal to the amount that would 
care and services. (OEI-04-93-00260;  have been paid under the prior system if cost limits were 
OEI-09-96-00110; CIN:  reduced by 15 percent. It also eliminates periodic interim 
A-04-96-02121)  payments to home health agencies. 
Medicare Indirect Medical  1,170 
Education: 
The Centers for Medicare and Medicaid  Section 4621 of the BBA (as amended by the BBRA of 
Services (CMS) should base the  1999) reduced the indirect teaching adjustment factor from 
indirect medical education adjustment  7.7 percent in FY 1997 to 7.0 percent in FY 1998; 6.5 
factor on the level supported by CMS  percent in FY 1999; 6.0 percent in FY 2000; and 
empirical data.  5.5 percent in FY 2001 and thereafter. 
(CIN: A-07-88-00111) 
71
 Appendix A 
Medicare Secondary Payer - Initial  425 
Enrollment Questionnaire: 
The CMS should take steps to collect  Since 1995, all Medicare beneficiaries are being asked to 
primary insurance information in a  complete the Initial Enrollment Questionnaire and list any 
more timely and accurate manner,  other health insurance they have. The CMS has reported 
requiring beneficiaries to disclose other  that two-thirds of all new beneficiaries are voluntarily 
health insurance information, and  completing the questionnaire and this has helped CMS 
should revise all Medicare claims  document 110,000 cases each year in which new 
forms to require spousal information  beneficiaries have other coverage. 
before claims can be paid. (CIN: 
A-09-89-00100; OEI-07-90-00760) 
Graduate Medical Education  240 
Payments: 
The CMS should reevaluate  Sections 4623 and 4626 of the BBA provided for limits 
Medicares policy of paying graduate  in the number of residents and offered payments for 
medical education (GME) costs for  voluntary reductions in the number of residents to limit 
all physician specialities and should  Medicares share of GME costs. 
consider submitting legislation to 
reduce Medicares investment in GME 
to arrive at a more representative and 
accurate sharing of GME costs. 
(CIN: A-06-92-00020) 
Medicare Disproportionate Share:  160 
The disproportionate share adjustment  Section 4403 of the BBA provided for the reduction of 
should be reduced, if not eliminated,  disproportionate share payments by 1 percent in FY 1998, 
without redistribution of the funds to  2 percent in FY 1999, 3 percent in FY 2000, 4 percent in 
prospective payment system (PPS)  FY 2001, 5 percent in FY 2002 and 0 percent thereafter. 
hospitals. (CIN: A-04-87-01004) 
Hospital Outpatient Policy:  60 
Extend congressionally mandated  Section 13521 of the Omnibus Budget Reconciliation Act 
reductions in hospital costs. Hospitals  of 1993 mandated a reduction of 10 percent for outpatient 
should limit outpatient department  capital costs. Sections 4521-4523 of the BBA of 1997 
(OPD) facility fees to the applicable  eliminated formula-driven overpayments in FY 1998, 
ambulatory surgical center (ASC) rate  extended reductions in payments for costs of hospital 
or reduce payments for OPD services to  outpatient services, and established a PPS for hospital 
bring them in line with AZC payments.  outpatient services for FY 1999. 
(CINs: A-14-89-00221; A-09-91-00070; 
& OEI-85-09-0046; OEI-09-88-01003) 
Fraud and Abuse Provisions of the  60 
Balanced Budget Act: 
Require durable medical equipment  Subtitle D of the BBA contained a number of provisions 
(DME) suppliers and home health  that corresponded to and were supported by OIG work. 
agencies (HHAs) to provide Social  For example, the BBA authorized the Secretary to collect 
Security numbers (SSNs) and employee  SSNs and employer identification numbers from entities 
identification numbers (OEI-04-96- under Medicare, Medicaid and Title V; authorized the 
00240 & OEI-09-96-00110); refuse to  Secretary to refuse to enter into contracts with physicians 
enter into a provider agreement with  or suppliers that have been convicted of felonies; 
any HHA whose owners or principals  authorized the exclusion of entities owned or controlled by 
have prior criminal records or are the  the family or household members of excluded individuals; 
relatives of owners of a provider that  authorized CMS to make inherent reasonableness 
had defrauded the Medicare program  adjustments up to 15 percent to all Part B 
continued 
72
 Appendix A 
Fraud and Abuse Provisions of the 
Balanced Budget Act Continued 
(OEI-09-96-00110); allow CMS to  services except physician services; authorized up to five 
apply inherent reasonableness  demonstration projects to be completed by December 31, 
provisions when assessing the  2002 (one must be oxygen and oxygen equipment), which 
appropriateness of Medicare payments  can have multiple sites, to allow competitive bidding; and 
(OEI-03-94-00392); authorize  prohibited reasonable cost payments for items such as 
competitive bidding as a means of  entertainment, gifts and donations, education expenses and 
providing Medicare services (OEI-03- personal use of automobiles. The BBA also required 
94-00021; OEI-06-92-00866; OEI-03- DME suppliers, HHAs and others to post surety bonds of 
96- 00230); and require DME suppliers  a minimum of $50,000. 
and HHAs to post surety bonds as a 
condition of participation. (OEI-04-96-
00240; OEI-09-96-00110). Also, 
clarify which general and administrative 
and fringe benefit costs at hospitals and 
HHAs are related to patient care; 
specifically, distinguish between 
employee benefits and/or perquisites to 
entertainment and patient care, and 
specify that cost of entertainment, 
goods or services for personal use, 
alcohol, all fines and penalties and 
associated interest, dues, and member-
ship costs associated with civic and 
community organizations are not 
allowable. (CINs: A-03-92-00017 & 
A-04-93-02067) 
Hospice Certification:  60 
The CMS should restructure hospice  Sections 4441-4449 of the BBA of 1997 contained 
benefit policies to curb inappropriate  provisions to control hospice payments and practices, such 
growth in the program, particularly  as replacing the current unlimited fourth benefit period 
with regard to the fourth benefit period.  with an unlimited number of 60 day benefit periods (each 
(OEI-05-95-00250; CIN:  requiring recertification). 
A-05-96-00023) 
Hospital Sales:  50 
The CMS should eliminate the  Section 4404 of the BBA eliminated the requirement that 
requirement that Medicare adjust for  Medicare make adjustments by setting the Medicare 
gains and losses when hospitals  capital asset sales price equal to the net book value. 
undergo changes of ownership. 
(OEI-03-96-00170) 
Rural Health Clinics:  40 
The oversight and functioning of the  Section 4205 of the BBA extended the per-visit payment 
current cost reimbursement system  limits to provider-based clinics and stipulated that the 
should be improved by implementing  shortage area requirements designation be reviewed 
caps on provider-based rural health  triennially. 
clinics (RHCs) and allowing States to 
do so, or finding other ways to make 
reimbursement between provider-
based and independent RHCs more 
equitable. In addition, the certifi-cation 
process should be modified to 
continued 
73
 Appendix A 
Rural Health Clinics Continued 
increase State involvement and ensure 
more strategic placement of RHCs. 
Recertification should be required of 
RHCs within a specific time limit (for 
example 5 years), applying new criteria 
to document the need and impact on 
access. (OEI-05-94-00040) 
Payments for Ambulance Services:    10 
The CMS should seek legislative  Section 4531 of the BBA of 1997 made interim reductions 
authority to develop a fee schedule for  in ambulance payments by limiting the allowed rate of 
ambulance transportation and examine  increase and mandated the establishment of a fee schedule 
the inherent reasonableness of current  by January 1, 2000. Such fee schedule is to be set so that 
allowable charges. (OEI-05-95-00300)  aggregate payments are reduced by 1 percent. 
Administration for Children and Families 
Availability of Health Insurance for  5.7 
Title IV-D Children: 
The OIG recommended that the State  The BBA of 1997 established Title XXI of the Social 
of Connecticut either (i) implement  Security Act, known as the State Children's Health 
policies and procedures to require  Insurance Program (SCHIP), to enhance Medicaid 
noncustodial parents (NCPs) to pay  coverage provided to children and allow States to create 
all or part of the Medicaid premiums  insurance options for families who exceed Medicaid 
for their dependent children or (ii) to  resource and income limits. Connecticut received CMS 
establish a statewide health insurance  approval in April 1998 to initiate a child health program. 
plan that provides reasonably priced  Under Connecticut law, applicants include noncustodial 
comprehensive coverage for children,  parents under court orders to provide health insurance. 
with premiums paid by NCPs. (CIN: 
A-01-97-02506) 
Various Operating Divisions 
Results of Investigations:  4.3 
In addition to any restitution, fines,  The operating division takes action based on the results of 
settlements or judgments, or other  OIG investigation to suspend or terminate payments to the 
monetary amounts resulting from  offending individual or entity. 
successful investigations, additional 
monetary losses are avoided through 
timely communication of the 
investigative results to the operating 
division. 
74
 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. 
More detailed information may be found in OIGs Red Book. 
Savings 
OIG Recommendation  Status  (millions) 
Centers for Medicare and Medicaid Services 
Formula for Costs Charged to the  $4,100 
Medicaid Program: The Centers for  The CMS did not agree with the recommendation. 
Medicare and Medicaid Services (CMS) 
should consult with the Congress on 
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) 
Medicare Coverage of State and Local  1,559 
Government Employees: The CMS should  The CMS agreed with the recommendation to mandate 
require Medicare coverage and hospital  Medicare coverage for all State and local government 
insurance contributions for all State and  employees but did not agree with the recommendation 
local employees, including those hired prior  to make Medicare the secondary payer. 
to April 1, 1986. If this proposal is not 
enacted, seek legislation making Medicare 
the secondary payer for retirees of exempt 
State and local government agencies. (CIN: 
A-09-88-00072) 
Overstated Managed Care Capitation  1,260 
Rates: The CMS should seek legislation to  The Medicare, Medicaid, and SCHIP Benefits 
correct the overstated base-year rates or  Improvement and Protection Act of 2000 increased 
eliminate any future increases in managed  payments to Medicare+Choice organizations but did 
care capitation rates.  not modify the base-year amounts due to the over-
(CIN: A-05-99-00025)  stated actuarial assumptions. The OIG believes that 
managed care payment rates continue to be excessive. 
75
 Appendix B 
Excessive Medicare Payments for  1,600 
Prescription Drugs: The CMS should  The BBA of 1997 reduced Medicare payments by 
examine its Medicare drug reimbursement  limiting them to 95 percent of the average wholesale 
methodologies. (OEI-03-97-00290;  price (AWP). The OIG believes additional corrective 
OEI-03-97-00292; OEI-03-97-00293;  action is warranted. 
OEI-03-97-00390; OEI-03-95-00420; 
OEI-03-94-00390) 
Clinical Laboratory Tests: The CMS  1,130* 
should develop a methodology and  The CMS agreed with the first recommendation 
legislative proposal to pay for tests ordered  but not the second. The FY 2001 budget included a 
as custom panels at substantially less than  proposal to reduce payment updates from 2003 through 
the full price for individual tests, and study  2005 and a proposal to reinstate laboratory cost sharing. 
reinstating the beneficiary coinsurance and  In addition, the BBA required the Secretary to contract 
deductible provisions for laboratory services  with the Institute of Medicine for a study of Part B 
as a means of controlling utilization. (CINs:  laboratory test payments; CMS may use the results to 
A-09-89-00031& A-09-93-00056)  develop a new payment methodology. 
Hospital Capital Costs: The CMS should  820 
determine the extent that capital reductions  The CMS did not agree with the recommendation. 
are needed to fully account for hospitals  Although the BBA of 1997 reduces capital payments, it 
excess bed capacity and report the  does not include the effect of excess bed capacity and 
percentage to the Congress.  other elements included in the base-year historical 
(CINs: A-09-91-00070 & A-14-93-00380)  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  683 
Mentally Retarded: The CMS should take  The CMS did not concur with OIGs recommendation. 
action to reduce excessive spending of  The CMS believes Medicaid statutory provisions allow 
Medicaid funds for intermediate care  States to establish their own payment systems. This 
facilities for the mentally retarded  flexibility allows for the variations found among States 
(ICF/MRs) by one or more of the following:  in their payment rates and the methods and standards 
take administrative action to control  used in determining these rates. The CMS and OIG 
ICF/MR reimbursement by encouraging  negotiated an agreement for CMS to send the report to 
States to adopt controls; seek legislation to  all State Medicaid directors. This action has been 
control reimbursement, such as mandatory  taken. However, pursuant to section 4711 of the BBA 
cost controls, Federal per capita limits, flat  of 1997, the Secretary shall conduct a study on the 
per capita payment, case-mix  effect of access to, and the quality of, services provided 
reimbursement or national ceiling for  to beneficiaries of the rate-setting methods used by 
ICF/MR reimbursements; and/or seek  States. 
comprehensive legislation to restructure 
Medicaid reimbursement for both ICF/MR 
and home and community-based waiver 
service for developmentally disabled people 
via global budgeting, block grants or 
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. 
76
 Appendix B 
Payment Policy for Medicare Bad Debts:  340 
The OIG presented four options for CMS to  The CMS agreed with the recommendation to include a 
consider, including the elimination of a  bad debt factor in the DRG rates. The BBA of 1997 
separate payment for bad debts, the offset  provides for some reduction of bad debt payments to 
of Medicare bad debts against beneficiary  providers. The Presidents FY 2001 budget proposes 
Social Security payments, the limitation of  to reduce the percentage (from 55 to 45 percent) that 
bad debt payments to prospective payment  Medicare pays for bad debts. However, additional 
system hospitals that are profitable, and the  legislative changes are needed to implement the 
inclusion of a bad debt factor in the diagnosis- modifications that OIG recommended. 
related group (DRG) rates. The CMS 
should seek legislative authority to further 
modify bad debt policies. 
(CIN: A-14-90-00339) 
Hospital Admissions: The CMS should  210 
seek legislation to pay for covered services  The CMS proposed to implement OIGs 
related to 1-day admissions without an  recommendation through administrative remedies 
overnight stay as outpatient services.  that would designate whether specific services are to 
(CINs: A-05-89-00055 & A-05-92-00006)  be covered and paid for as inpatient or outpatient 
services. 
Graduate Medical Education: The CMS  157.3 
should revise the regulations to remove  The CMS did not concur with the recommendations. 
from a hospitals allowable graduate medical  Although the BBA of 1997 contains provisions to slow 
education (GME) base-year costs any cost  the growth in Medicare spending on GME, OIG 
center with little or no Medicare utilization  believes that its recommendations should be 
and submit a legislative proposal to compute  implemented and that further savings can be achieved. 
Medicares percentage of participation under 
the former more comprehensive system. 
(CIN: A-06-92-00020) 
Paperless Claims: The CMS should lead a  126 
target outreach to encourage voluntary  The CMS concurred with OIGs recommendations. 
conversion to paperless Medicare claim  The Presidents FY 2001 budget proposes to allow an 
filing by physicians who submit claims on  assessment of a $1 fee on claims not submitted 
paper and who have a moderate to high  electronically. 
level of interest in making the switch. This 
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 CMS 
should 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, continued 
77
 Appendix B 
Paperless Claims Continued 
targeting a date when paperless claim 
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-05-94000039; OEI 01-94-
002300) 
Medicaid Drug Rebate Program:  123 
The best price calculation in the Medicaid  The OIG is continuing to monitor the Medicaid drug 
drug rebate program should be indexed to  rebate program. 
the consumer price index-urban. 
(CIN: A-06-94-00039) 
Expansion of the Diagnosis Related  83.5 
Group Payment Window: The CMS  The CMS did not concur with the recommendation to 
should propose legislation to expand the  further expand the payment window. 
DRG payment window to at least 7 days 
immediately prior to the day of admission. 
(CIN: A-01-92-00521) 
Inpatient Psychiatric Care Limits: The  47.6 
CMS should develop new limits to deal  The CMS agreed with OIGs findings but stated that 
with the high cost and changing utilization  further analysis would be required before any 
patterns of inpatient psychiatric services  legislative changes could be supported. 
and apply a 60-day annual and a 190-day 
lifetime limit to all psychiatric care 
regardless of the place of service. (CIN: 
A-06-86-62045) 
Nonemergency Advanced Life Support  47 
Ambulance Services: The CMS should  The BBA of 1997 required that CMS link payments to 
modify its Medicare policy to allow  services provided and that the definitions of basic life 
payment for nonemergency advanced life  support and advanced life support ambulance services 
support ambulance service only when that  be subject to negotiated rulemaking. The Negotiated 
level of service is medically necessary;  Rulemaking Committee Statement on the Medicare 
instruct carriers to institute controls to  Ambulance Services Fee Schedule was signed in 
ensure that payment is based on the medical  February 2000. The CMS published the proposed rule, 
need of the beneficiary; and closely monitor  which includes revised physician certification 
carrier compliance.  requirements, in the Federal Register in September 
(CINs: A-01-91-00513 & A-01-94-00528)  2000. 
Reimbursement for Hospital Beds: The  40 
CMS should take immediate steps to reduce  The CMS concurred with the recommendations and is 
Medicare payments for hospital beds used  considering options to determine the best approach to 
in the home. This should include the  achieve a fair price for hospital beds. The agency is 
elimination of the higher reimbursement  examining payment allowances and methodologies at 
continued  other payers and is reviewing data to determine if 
78
 Appendix B 
Reimbursement for Hospital Beds 
Continued  Medicare payments are excessive. However, the 
rate currently paid during the first 3 months  BBRA of 1999 imposed a moratorium on the 
of rental.  application of CMS inherent reasonableness 
(CIN: A-06-91-00080; OEI-07-96-00221;  authority. Thus, while the moratorium is in place, 
OEI-07-96-00222)  CMS may not act on a determination that costs are 
excessive. 
End Stage Renal Disease Payment Rates:  22* 
The CMS should reduce the payment rates  The CMS agreed that the composite payment rates 
for outpatient dialysis treatments to reflect  should reflect the costs of outpatient dialysis treatment 
current efficiencies and economies in the  in efficiently operated facilities. While the Omnibus 
marketplace. (CIN: A-14-90-00215)  Budget Reconciliation Act of 1990 prohibited CMS 
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 CMS 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 CMS 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. 
Medicaid Reimbursement for Clinical  17.8 
Laboratory Services: State agencies  The CMS wrote to all State Medicaid directors on 
should install edits to detect and prevent  January 15, 1997, alerting them to OIGs review, 
payments for clinical laboratory services  encouraging them to use Medicares bundling policies 
that exceed the Medicare limits and billings  and urging them to install appropriate payment edits in 
that contain duplicate tests, recover over- their claim processing systems. Currently, OIG is 
payments, and make adjustments for the  conducting several follow-up reviews in this area. 
Federal share of the amounts recovered. 
(CINs: A-01-95-00005; A-05-95- 00035; 
A-01-96-00001; A-06-95-00078; 
A-06-95-00031; A-04-95-01108; 
A-04-95-01109; A-07-95-01139; 
A-07-95-01147; A-04-95-01113; 
A-07-95-01138; A-09-95-00072; 
A-05-96-00019; A-10-95-00002; 
continued 
*This estimate represents program savings of $22 million for each dollar reduction in the composite rate. 
79
 Appendix B 
Medicaid Reimbursement for Clinical 
Laboratory Services Continued 
A-01-95-00006; A-02-95-01009; 
A-03-96-00200; A-03-96-00202; 
A-03-96-00203; A-05-95-00062; 
A-06-96-00002; A-06-95-00100; 
A-04-98-01185) 
Medicare Orthotics: The CMS should  33 
take action to improve Medicare billing for  The CMS generally concurred. However, CMS 
orthotic devices. The CMS should also  did not agree to set specific standards for suppliers of 
require standards for suppliers of custom- custom-molded and custom-fabricated devices. 
molded and custom- fabricated orthotic 
devices. (OEI-02-99-00120) 
Medicare Claims for Railroad  9.1 
Retirement Beneficiaries: The CMS  The FY 2002 budget does not include this type of 
should discontinue use of a separate carrier  legislative proposal. 
to process Medicare claims for railroad 
retirement beneficiaries. 
(CIN: A-14-90-02528) 
Indirect Medical Education: The CMS  TBD * 
should reduce the indirect medical  The CMS agreed with the recommendation, and 
education (IME) adjustment factor to the  the BBA of 1997, as amended by the BBRA of 1999, 
level supported by CMS empirical data and  reduces the IME adjustment to 5.5 percent in 2002 
initiate further studies to determine whether  and thereafter. The OIG believes the factor should 
different adjustment factors are warranted  be further reduced to eliminate any overlap with the 
for different types of teaching hospitals.  disproportionate share adjustment. 
(CIN: A-07-88-00111) 
Medicare Secondary PayerEnd Stage  TBD 
Renal Disease Time Limit: The CMS  The CMS was concerned that an indefinite MSP 
should extend the Medicare secondary  provision might encourage insurers to drop services 
payer (MSP) provisions to include end  that are uneconomical, namely facility dialysis and 
stage renal disease (ESRD) beneficiaries  transplantation. Although the BBA of 1997 extends 
without a time limitation.  MSP policies for individuals with ESRD to 30 months, 
(CIN: A-10-86-62016)  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. 
*To Be Determined 
80
 Appendix B 
Home Health Agencies: The CMS should  TBD 
revise Medicare regulations to require the  Although the Congress and the Administration 
physician to examine the patient before  included provisions to restructure home health benefits 
ordering home health services.  in the BBA of 1997, CMS still needs to revise 
(OEI-04-93-00262; OEI-04-93-00260;  Medicare regulations to require that physicians 
OEI-12-94-00180; OEI-02-94-00170; CINs:  examine Medicare patients before ordering home 
A-04-95-01103; A-04-95-01104;  health services. Subsequent to implementation of the 
A-04-94-02087; A-04-94-02078;  BBA, OIGs four-State review found that unallowable 
A-04-96-02121; A-04-97-01169;  services continue to be provided because of inadequate 
A-04-97-01166; A-04-97-01170;  physician involvement. While agreeing in principle, 
A-04-99-01194)  CMS said it would continue to examine both coverage 
rules and conditions of participation to develop the 
discipline necessary for ensuring proper certification. 
Connection Between the Calculation of  TBD 
Medicaid Drug Rebates and Drug 
Reimbursement: The CMS should seek  The CMS disagreed with the recommendation to seek a 
legislation that would require participating  legislative change, believing that such legislation was 
drug manufacturers to pay Medicaid drug  not feasible at the time. However, CMS stated that 
rebates based on average wholesale price  changing AMP to AWP would reduce the 
(AWP) or study other viable alternatives to  administrative burden involved in the AMP 
the current program of using average  calculations and planned a comprehensive study of 
manufacturer price (AMP) to calculate the  AWP. 
rebates. This legislation would have 
resulted in about $1.15 billion in additional 
rebates for 100 brand-name drugs with the 
highest total Medicaid reimbursements in 
Calendar Years 1994-96. 
(CIN: A-06-97-00052) 
Various Operating Divisions 
User Fees for Food and Drug  75.9 
Administration Regulations: Extend user  In the absence of specific authorizing legislation, the 
fees to inspections of food processors and  Food and Drug Administration (FDA) is precluded by 
establishments. (OEI-05-90-01070)  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. 
81
 Appendix B 
Medicare Rates for Indian Health  8.2 
Service Contracted Health Services: 
The Indian Health Service (IHS) should  The IHS concurred with OIGs recommendations. 
revise its legislative proposal to incorporate  This proposal is on the Departments list of legislative 
OIGs updated savings figures and should  initiatives for 2002. The IHS notes that by applying a 
identify elements to be included in the  5-percent inflation factor, the savings projection for 
implementing regulations. Also, IHS should  2002 would be almost $11 million. 
continue to pursue the most favorable rates 
at hospitals that have previously offered 
less than Medicare rates and should 
strategically identify and pursue other 
opportunities where lower rates may be 
negotiated. 
(CIN: A-15-97-50001) 
Recharge Center Costs:  1.9 
The Assistant Secretary for Management  The Deputy Assistant Secretary for Grants and 
and Budget should propose changes to  Acquisition Management concurred. In addition, the 
OMB Circular A-21 to improve guidance  Council on Government Relations generally agreed 
on the financial management of recharge  and stated that the proposed criteria should be included 
centers. The revision should include  in the Compliance Supplement to OMB Circular 
criteria for establishing, monitoring and  A-133, which provides guidance to independent 
adjusting billing rates to eliminate  auditors in conducting compliance audits of 
accumulated surpluses and deficits;  educational institutions. 
preventing the use of recharge funds for 
unrelated purposes and excluding 
unallowable costs from the calculation 
of recharge rates; 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) 
82
 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 
Centers for Medicare and Medicaid Services 
Accountability Over Billing and Collection of 
Medicaid Drug Rebates: The CMS should ensure  The CMS concurred with the recommendation. States 
that States implement accounting and internal control  will now be required to maintain detailed supporting 
systems in accordance with applicable Federal  records of all rebate amounts invoiced to drug 
regulations for the Medicaid drug rebate program.  companies using a formal accounts receivable system. 
Such systems must provide for accurate, current, and  The CMS issued interim regulations in FY 1996. 
complete disclosure of drug rebate transactions and 
provide CMS with the financial information it needs to 
effectively monitor and manage the Medicaid drug 
rebate program. (CIN: A-06-92-00029) 
Fairly Presenting the Medicare Accounts 
Receivable Balance: The CMS should require  The CMS hired consultants to assist in validating the 
Medicare contractors to implement or improve internal  FY 1999 accounts receivable activity and balance, as 
controls and systems to ensure that reported accounts  well as the activity for the first 6 months of FY 2000. 
receivable are valid and documented.  The agency also provided training on accumulating and 
(CINs: A-17-95-00096; A-17-97-00097;  verifying receivable balances. The Presidents  FY 
A-17-98-00098; A-17-00-00500; A-17-00-02001)  2001 budget included funding to establish financial 
management controls at the contractors and to hire 
contractor staff to implement the controls. 
Safeguards Over Medicaid Managed Care 
Programs: The CMS should consider safeguards  The CMS generally concurred with OIGs 
available to reduce the risk of insolvency and to ensure  recommendations but felt that a broader analysis of 
consistent and uniform State oversight.  managed care plans was needed to support broad 
(CIN: A-03-93-00200)  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. 
Guidance to Drug Manufacturers to Better 
Implement the Medicaid Drug Rebate Program:  The CMS did not concur, stating that the drug law 
The CMS should survey manufacturers to identify the  and the rebate agreements already established a 
various calculation methods used to determine average  methodology for computing AMP. The OIG disagreed 
manufacturer price (AMP). The CMS should also  because the rebate law and agreement defined AMP 
develop a more specific policy for calculating AMP  but did not provide specific written methodology for 
continued  computing AMP. 
83
 Appendix C 
Guidance to Drug Manufacturers to Better 
Implement the Medicaid Drug Rebate Program 
Continued 
which would protect the interests of the Government 
and which would be equitable to the manufacturers. 
(CIN: A-06-91-00092) 
Physician Office Surgery: The peer review 
organizations (PROs) should extend their review to  The CMS has issued policy guidance and manual 
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. 
Medicare Beneficiary Satisfaction with Durable 
Medical Equipment Regional Carrier Services:  The CMS concurred. The CMS conducts annual 
The CMS should evaluate ways to increase beneficiary  evaluations to identify ways to improve performance. 
satisfaction with the one durable medical equipment  The CMS is also working to develop new outreach 
regional carrier with a low rating, and review effective  techniques to increase beneficiaries knowledge on 
ways to educate beneficiaries on what constitutes fraud  detecting fraud and abuse. 
and abuse. (OEI-02-96-00200) 
Pressure Reducing Support Services: The CMS 
should establish the requirement for periodic review  The CMS did not concur. 
and renewal of the medical necessity for beneficiaries 
use of group 2 support surface equipment. 
(OEI-02-95-00370) 
General Oversight 
Cost Principles for Federally Sponsored Research 
Activities: The Department should modernize and  Hospital cost principles have been updated in a draft 
strengthen cost principles applicable to hospitals by  regulation which is expected to be issued as a notice of 
either revising existing guidelines to conform with  proposed rulemaking by September 30, 2001. 
Office of Management and Budget (OMB) Circular 
A-21 or working with OMB to extend Circular A-21 
coverage to all hospitals. (CIN: A-01-92-01528) 
84
 Appendix D

Notes to Tables 1 and 2

Notes to Table 1 
1The opening balance was adjusted upward by $41 million. 
2During the period, revisions to previously reported management decisions included: 
CIN:	 A-04-98-49864 NA-Head Start of Alamance & Caswell Countries:  Grantee Supplied 
Documentation to Support Question Cost for $137,631. 
CIN: 	 A-06-99-55361 OTOE-Missouria Tribe of Indians: Grantee Supplied Documentation to Support 
Question Cost for $2,700. 
CIN: 	 A-06-00-64997 State of Oklahoma: Grantee Supplied Documentation to Support Question Cost 
for $12,400. 
CIN: 	 A-10-01-65062 NookSack Indian Tribe: Grantee Supplied Documentation to Support Question 
Cost for $20,528 
3Included are management decisions to disallow $45 million that was identified in nonfederal audit reports. 
4Due 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-02-99-02007  NYSDFA - Rev. Retroactive Juvenile Justice Claims, April 2000, $32,614,777 

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-07-99-01279  O/P Psych, January 2001, $18,515,190 
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 Michigan, 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, $7,300,000 
CIN: A-03-91-00552  Independent Living Program - National, March 1993, $6,529,545 
CIN: A-02-99-02001  NYS Rev of Retroactive Kinship Claims, September 2000, $5,833,676 
CIN: A-07-99-02537  Blue Cross & Blue Shield of Massachusetts, November 1999, $5,270,461 
CIN: A-05-96-00058  Close-out Audit of Medicare Contract-BCBS-MI, December 1997, $5,226,443 
CIN: A-01-97-00516  Admin. Costs-part A & B, Railroad Retire Board, June 1999, $4,939,184 
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 Administrative 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 Rev. 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 
85
 Appendix D 
CIN: A-06-99-00057  Audit of Medicare Rehab Agency Srvcs in TX, RHS, in, January 2001, $3,097,201 
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  Administrative Costs Claimed under Medicare A & B, February 1998, $2,569,067 

CIN: A-07-92-00579  BC/BS 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  BC/California - FACP, April 1999, $2,408,019 

CIN: A-02-91-01006  Blue Shield of Western NY Medicare Adm Cts Porter, September 1991, $2,379,239 

CIN: A-04-97-01166  Rev. Home Hlth Srvcs by Staff Builders Home Hlth, April 1999, $2,300,000 

CIN: A-04-97-01170  Review Home Hlth Srvcs by Medicare Home Hlth Srvcs, April 1999, $2,200,000 

CIN: A-04-00-02162  Review Treatment of Qualified Dischrgs @ FCSO, February 2001, $2,042,060 

CIN: A-05-00-00034  Provena St. Joseph Hospital-O/P Psych Services, November 2000, $1,978,583 

CIN: A-04-97-01169  Review Home Hlth Srvcs by Medtech Home Hlth Srvcs, 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, $1,787,345 

CIN: A-04-00-66032  State of Florida, August 2000, $1,713,052 

CIN: A-04-97-02143  Review Therapy Srvcs in Life Care SNF's in TN, December 1999, $1,638,025 

CIN: A-02-97-01039  Medassist - ORT Orthotics Provider Target, November 1999, $1,616,222 

CIN: A-06-99-00006  Contract Audit of BCBS Administrative Costs, November 1999, $1,615,063 

CIN: A-04-99-01196  OIG-HCFA Joint Review of JMY Medical Corp., December 2000, $1,600,417 

CIN: A-03-96-00012  BCBSM Part-B Non-renewal Costs, August 1998, $1,557,459 

CIN: A-05-93-00057  MI BCBS of MI-Contract Audit, July 1993, $1,409,954 

CIN: A-09-01-67037  Hawaii Dept. Of the Attorney General , January 2001, $1,407,910 

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 Administrative Costs - Contracted Audit, December 1995, $1,333,598 

CIN: A-05-00-00004  New Center Community Mental Health Center, June 2000, $1,181,000 

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 Germane - 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-03-98-00048  The Program, Inc. - CMHC, November 2000, $1,009,493 

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-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-04-00-01210  Review Treatment-qualified Dischrgs - BCBS GA, December 2000, $891,000 

CIN: A-05-92-00060  Contractor Audit - BCBS - Admin, February 1993, $879,609 

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 City 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 
86
 Appendix D 
CIN: A-04-00-61620  State of North Carolina, March 2000, $664,773 

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-01-98-00503  Psychiatric O/P 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 BC/BS 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 BCBS SC, July 1994, $594,092 

CIN: A-04-93-01069  Monitoring Admin Cost - Audit Medicare Part A BCBS SC, July 1994, $590,844 

CIN: A-05-99-00062  Americare Physical Therapy Services, December 2000, $503,619 

CIN: A-09-99-56858  Hawaii Dept. Of Human Services, February 1999, $502,000 

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-05-01-67384  Michigan Dept. Of Community Health , February 2001, $488,737 

CIN: A-04-98-01192  Review Americas Behav.Health Cares Part. Hospitaliz, December 1999, $452,928 

CIN: A-06-00-00011  Final Administrative Cost Proposal - AR BCBS, November 2000, $442,177 

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-05-00-00030  Contracted Audit-nationwide Ins.-medicare Admin., October 2000, $385,081 

CIN: A-04-00-01208  Outpatient Clinic Costs, Coral Gables Hospital, Fl, February 2001, $384,295 

CIN: A-06-99-58928  Arkansas Office of Child Support Enforcement, April 1999, $367,273 

CIN: A-04-96-01134  Partic. Part of HCFA Surv. Team-colonnade MCAL-ORT, February 1997, $358,338 

CIN: A-04-96-01136  Partic. Part of HCFA Surv. Team-Survey Savanah-ORT, December 1996, $354,537 

CIN: A-01-99-00518  Psychiatric Outpatient Svcs at Danbury Hospital, May 2000, $342,168 

CIN: A-02-01-65217  Puerto Rico Dept. Of the Family , December 2000, $317,042 

CIN: A-04-97-01175  Keystone Pro, June 1998, $310,787 

CIN: A-04-96-01129  Parti.part HCFA Surv.Team-Ameri.trans.Care (ORT), February 1997, $284,378 

CIN: A-05-96-00069  CPA Audit of Hooper Holmes HHA G&A -OI Case Open, February 1998, $280,515 

CIN: A-01-00-00511  Review of O/P Pharmacy Svc-Baystate Med Ctr, November 2000, $279,409 

CIN: A-06-97-00015  New Mexico Pro Close out Audit, September 1999, $268,844 

CIN: A-05-01-67360  Michigan Family Independence Agency , February 2001, $267,632 

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-02-99-01026  South Jersey Rehab (ORF), November 2000, $241,774 

CIN: A-04-97-01152  Close out Audit - Michigan Pro, June 1997, $228,630 

CIN: A-05-00-60454  St. Croix Chippewa of Wisconsin, December 1999, $224,452 

CIN: A-01-00-00549  Beth Israel Audit of Outpatient Pharmacy Svc, March 2001, $221,905 

CIN: A-05-99-00067  WPS Part B Administrative Costs, November 2000, $221,644 

CIN: A-04-96-01135  Partic. Part of HCFA Surv. Wash. Manor Nursg - 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-05-96-00052  ORT Assist-Ancillary Costs-NW Com. Hosp., June 1997, $206,508 

CIN: A-03-98-00014  Connecticut Pro Inc/CCAS/HHS-100-95-0033, February 1998, $202,662 

CIN: A-06-96-00064  ORT SNF Research at Methodist Hospital, January 1997, $200,000 

CIN: A-05-97-00006  MI - Wayne State U/NIH Request/Romero Grant, June 1997, $195,809 

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-07-99-01287  Wellmark Admin Costs 98, November 1999, $160,626 

87
 Appendix D 
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-08-99-60402  State of South Dakota, July 1999, $142,748 

CIN: A-03-98-00025  Abingdon Ambulance Company - Abingdon, VA, January 1999, $139,325 

CIN: A-05-00-00031  Contracted Audit of UGSMedicare Admin. Costs, November 2000, $138,182 

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  Rev of Infusion Therapy Claims @ Doctors Healthcare, June 2000, $132,238 

CIN: A-09-01-66969  Fresno Indian Health Association Inc., February 2001, $116,607 

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-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-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 O/P Psych Svc at Acute Care Hospitals, March 2000, $94,716 

CIN: A-10-97-00003  BCWAAK-Adm Costs Remote Network Activities Fy93&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-06-00-00013  Review of Infusion Therapy Claims @ Spring Creek N, June 2000, $89,288 
CIN: A-08-99-56914  Rural America Initiatives, July 1999, $87,468 
CIN: A-04-96-38655  State of North Carolina, April 1996, $83,237 
CIN: A-04-94-02080  Finalization of BCBS FL Data Match, June 1995, $79,316 
CIN: A-03-98-00008  VA Health Quality Center Review ORG/PRO/CCAS/VA, December 1998, $78,207 
CIN: A-04-96-01137  Partic. Part of HCFA Surv.Team-Daytona Nursg-ORT, December 1996, $76,130 
CIN: A-01-99-00530  Nationwide Rev of O/P Psych Svcs @ Psych Hospitals, December 2000, $75,413 
CIN: A-09-00-60032  Lovelock Paiute Tribe, December 1999, $74,187 
CIN: A-01-00-00503  Review of Medicare Outlier Payments-Mass General, December 2000, $73,019 
CIN: A-01-99-57863  State of Connecticut, May 1999, $67,594 
CIN: A-07-01-67750  VIA Christi Regional Medical Center Inc. & Subsid, January 2001, $65,117 
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-01-96-00505  CFO Audit of HCFAs Financial Statements, July 1997, $59,327 
CIN: A-03-99-00200  PSU-Geisinger/Phy 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-04-01-67287  Covington Protestant Childrens Home , December 2000, $56,335 
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 
88
 Appendix D 
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-09-01-65664  NA-Lovelock Paiute Tribe , December 2000, $50,473 

CIN: A-09-95-00095  Health Services Advisory Group, Inc (HSAG), December 1995, $49,585 

CIN: A-03-93-03306  Survey Research Assoc. CACS N01-ES-45067, December 1993, $48,779 

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-03-99-00017  PSU-Hershey/Phy Credit Balances/Medicare, December 1999, $41,712 

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

CIN: A-02-95-34279  Puerto Rico Dept. Of Health, June 1995, $40,207 

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

CIN: A-03-00-00010  PSU Geisinger HMO/Institutional Status/Medicare, January 2001, $35,639 

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

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

CIN: A-04-00-60897  State of Florida, March 2000, $33,397 

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

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

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

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

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

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

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

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  BCBS NC - Medicare Part A Admin Cost Audit-Carmichael, September 2000,

$21,302 
CIN: A-03-00-65163  George Washington Univ., 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-10-01-67141  State of Idaho , December 2000, $20,000 
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 Univ., July 1993, $18,308 
CIN: A-01-00-61896  Jewish Family Service of Stamford Inc., December 1999, $18,027 
CIN: A-03-99-00201  PSU-Hershey/Phy Credit Balances/Medicaid, December 1999, $17,584 
89
 Appendix D 
CIN: A-03-97-00007  NE Health Care Quality Foundation/CCAS/N Hampshire, March 1997, $17,045 

CIN: A-07-00-00117  Rev. of Pension Costs for Med. Reimb. BCBS of ND, January 2001, $16,863 

CIN: A-01-99-55594  State of Vermont, November 1998, $16,623 

CIN: A-01-97-44143  Brandeis Univ., January 1997, $16,602 

CIN: A-05-00-60814  Childrens Hospital of Michigan Inc., November 1999, $16,191 

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-09-00-00104  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-09-01-66137  Tohono O Odham Nation, November 2000, $13,329 

CIN: A-05-95-36498  Hoosier Valley Economic Opportunity Corp., April 1995, $13,116 

CIN: A-03-98-50338  National Medical Association, February 1998, $12,968 

CIN: A-09-01-67471  Catholic Charities of San Jose, January 2001, $12,420 

CIN: A-09-99-59787  Palau Community Action Agency, June 1999, $12,326 

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

CIN: A-03-01-66421  American Association of Community Colleges, November 2000, $11,811 

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

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

CIN: A-05-01-66410  Hutzel Hospital (Subsidiary of the Detroit Medic), November 2000, $9,455 

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

CIN: A-02-01-66887  Puerto Rico Administration of Children & Families, February 2001, $9,000 

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-03-00-00020  Health Personnel, Inc. PA, February 2001, $7,809 

CIN: A-03-91-02004  W. VA 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 Univ/Physician Credit Balances/Medicare, July 1999, $7,280 

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

CIN: A-09-01-65778  Indian Health Council Inc., October 2000, $7,032 

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

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

CIN: A-05-01-67790  Chicago Family Health Center Inc., January 2001, $4,462 

90
 Appendix D 
CIN: A-07-95-01123  Review of CPA Adm. 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-02-01-67330  Cornell Cooperative Extension of Madison County, January 2001, $3,803 

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-03-01-03303  Johns Hopkins University/KPMG/NIDA/N01da-3-7301, February 2001, $3,347 

CIN: A-08-00-65151  Rocky Boy School District No. 87J & L, July 2000, $3,309 

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

CIN: A-02-01-66889  Puerto Rico Administration of Children & Families , February 2001, $3,103 

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

CIN: A-02-01-66888  Puerto Rico Administration of Children & Families , February 2001, $2,883 

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

CIN: A-04-01-67492  Berean Baptist Church Head Start, January 2001, $2,141 

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 

Notes to Table 2 
1The opening balance was adjusted to reflect an upward revaluation by $248 million. 
2Management decision has not been made within 6 months of issuance on 12 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-03-00-00203  PA/Intergovernmental Transfers/Medicaid, February 2001, $3,700,000,000 

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-01-99-00506  Follow-up Review of Seprtly Billable ESRD Lab Tests, January 2001, $12,200,000 

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 @ 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-03-99-00038  Edgewater Psyc Hospital, March 2001, $208,731 

CIN: A-07-97-01230  OFMQ - DOSHI Oklahoma, June 1997, $203,510 

CIN: A-09-00-60029  Cocopah Indian Tribe, December 1999, $20,830 

CIN: A-01-97-00526  Psychiatric Outpatient Services, March 1998, $7,245

91
 92
 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 are no data to report under a particular requirement, this is indicated as none. A complete listing 
of 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  64 
Section 5 
(a)(1)  Significant problems, abuses and deficiencies  Throughout 
(a)(2)  Recommendations with respect to significant problems,  Throughout 
abuses and deficiencies 
(a)(3)  Prior significant recommendations on which corrective  Appendices B and C 
action has not been completed 
(a)(4)  Matters referred to prosecutive authorities  66 
(a)(5)  Summary of instances where information was refused  None 
(a)(6)  List of audit reports  Under separate cover 
(a)(7)  Summary of significant reports  Throughout 
(a)(8)  Statistical Table 1-Reports with Questioned Costs  62 
(a)(9)  Statistical Table 2-Reports With Recommendations That  63 
Funds Be Put To Better Use 
(a)(10)  Summary of previous audit reports without management  Appendix D 
decisions 
(a)(11)  Description and explanation of revised management  Appendix D 
decisions 
(a)(12)  Management decisions with which the Inspector  None 
General is in disagreement 
93
 94
 Appendix F

Status of Public Proposals for New and Modified Safe Harbors to the Anti-Kickback Statute Pursuant

to Section 205 of the Health Insurance Portability and Accountability Act of 1996

Pursuant to section 205 of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), 
Public Law 104-191, the Inspector General is required annually to solicit proposals (via Federal Register 
notice) for modifying existing safe harbors to the anti-kickback statute and for developing new safe 
harbors and special fraud alerts. 
In crafting safe harbors for a criminal statute, it is incumbent upon OIG to engage in a complete 
and careful review of the range of factual circumstances that may fall within the proposed safe harbor 
subject area, so as to uncover all potential opportunities for fraud and abuse by unscrupulous providers. 
Having done so, OIG must then determine, in consultation with the Department of Justice, whether it can 
develop regulatory limitations and controls that will be effective in permitting beneficial or innocuous 
arrangements within the subject area, while at the same time protecting the Federal health care programs 
and their beneficiaries from abusive practices. 
In response to the 2000 annual solicitation, OIG received three timely filed responses which 
contained the following proposals related to safe harbors: 
Proposal  OIG Response 
New safe harbor for sale of durable medical equipment  The OIG will not adopt this suggestion. There is no 
(DME) by sleep disorder centers.  basis for safe harbor protection for the provision of 
DME by sleep disorder clinics. There is no 
comparable safe harbor under the anti-kickback 
statute for other providers. Arrangements for the sale 
or distribution of DME can be abusive, depending on 
the circumstances. 
Modify the language of the existing rental and services  The OIG will not adopt this suggestion. The 
safe harbors that requires aggregate compensation to be  arrangements that use per use or similar per click 
set in advance so as to accommodate per use fees.  fees are often abusive under the anti-kickback statute. 
Modify the employment safe harbor to include a bright  The OIG will not adopt this suggestion. The existing 
line definition of the term employee.  safe harbor defines employee with reference to 
Internal Revenue Service rules for purposes of 
consistency. It would not be feasible for OIG to 
develop a different definition. 
Modify the group practice safe harbor to conform it to  The OIG has this proposal under consideration. 
the final regulations under the physician self-referral 
statute published by CMS on January 4, 2001. 
95
 96
 Appendix G

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 of 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 Monetary6543 Penalties Law), 1320b-10, 
1320c-5, 1395l, 1395m, 1395u, 1395dd (Patient Anti-Dumping Act) and 1396b 
97
 98
 Office of Inspector General Components 
Office of Audit Services (OAS)provides all auditing services for HHS, either through its own 
resources or by overseeing audit work of others. Audits examine the performance of HHS 
programs and/or its grantees and contractors in carrying out their respective responsibilities and 
are intended to provide independent assessments of HHS programs and operations in order to 
reduce waste, abuse and mismanagement and to promote economy and efficiency throughout 
the Department. 
Office of Counsel to the Inspector General (OCIG)provides legal services to OIG, rendering 
advice and opinions on HHS programs and operations, imposes program exclusions and civil 
monetary penalties on health care providers and litigates those actions within the Department. 
The OCIG also represents OIG in the global settlement of cases arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, and renders advisory opinions on sanctions to the health care community. 
Office of Evaluation & Inspections (OEI)conducts short-term management and program 
evaluations that focus on issues of concern to the Department, the Congress and the public. 
The OEI generally focuses on programs with significant expenditures of funds and services to 
program beneficiaries or in which important management issues have surfaced. The findings 
and recommendations contained in the reports generate rapid, accurate, and up-to-date 
information on the efficiency, vulnerability and effectiveness of departmental programs. 
Office of Investigations (OI)conducts criminal, civil and administrative investigations of 
allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment 
by providers. Investigative efforts lead to criminal convictions, administrative sanctions or 
civil monetary penalties. The OI serves as liaison to the Department of Justice on all matters 
relating to investigations of HHS programs and personnel. The OI also oversees State 
Medicaid fraud control units which investigate and prosecute fraud and patient abuse in the 
Medicaid program. 
Office of Management and Policy (OMP)provides mission support services to the IG and 
ThissemiannualreportandotherOIGmaterialsmaybe
other components. The OMP formulates and executes the budget, develops policy, disseminates 
accessedontheInternetathttp://www.hhs.gov/oig OIG information to the news media and public, liaises with the Department, Congress, and 
external organizations and manages information technology resources. The OMP also conducts 
and coordinates reviews of existing and proposed legislation and regulations to assess 
implications and economic consequences for HHS programs and operations. 
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