The Department of Health and Human Services 
  and 
  The Department of Justice 
  Health Care Fraud and Abuse Control Program 
  Annual Report for Fiscal Year 2012 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
February 2013  TABLE OF CONTENTS 
 
 
Page 
 
Executive Summary  1     
Introduction  3     
Monetary Results                  5   
Program Accomplishments  8   
   
Department of Health and Human Services       
Office of Inspector General    38   
Centers for Medicare & Medicaid Services        55 
Administration on Community Living  70 
Office of the General Counsel  73   
Food and Drug Administration Pharmaceutical Fraud Program  76   
 
Department of Justice   
United States Attorneys  78   
Civil Division  80   
Criminal Division  83   
Civil Rights Division  86   
 
 
Appendix: Federal Bureau of Investigation  91     
        Return on Investment Calculation          94 
        Total HCFAC Funding              95 
 
Glossary of Terms                                                                                                      96     
 
 
 
 
 
 
    GENER AL NOTE   
   
All years are fiscal years unless 
otherwise noted in the text.    EXECUTIVE SUMMARY 
 
 
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established a national 
Health Care Fraud and Abuse Control Program (HCFAC or the Program) under the joint 
direction of the Attorney General and the Secretary of the Department of Health and Human 
Services (HHS)1, acting through the Inspector General, designed to coordinate Federal, state and 
local law enforcement activities with respect to health care fraud and abuse.  In its sixteenth year 
of operation, the Programs continued success confirms the soundness of a collaborative 
approach to identify and prosecute the most egregious instances of health care fraud, to prevent 
future fraud or abuse, and to protect program beneficiaries. 
 
Monetary Results 
 
During Fiscal Year (FY) 2012, the Federal government won or negotiated over $3.0 billion in 
health care fraud judgments and settlements2, and it attained additional administrative 
impositions in health care fraud cases and proceedings.  As a result of these efforts, as well as 
those of preceding years, in FY 2012, approximately $4.2 billion was deposited with the 
Department of the Treasury and the Centers for Medicare & Medicaid Services (CMS), 
transferred to other Federal agencies administering health care programs, or paid to private 
persons during the fiscal year.  Of this $4.2 billion, the Medicare Trust Funds3 received transfers 
of approximately $2.4 billion during this period, and over $835.7 million in Federal Medicaid 
money was similarly transferred separately to the Treasury as a result of these efforts.  The 
HCFAC account has returned over $23.0 billion to the Medicare Trust Funds since the inception 
of the Program in 1997. 
 
Enforcement Actions 
 
In FY 2012, the Department of Justice (DOJ) opened 1,131 new criminal health care fraud 
investigations involving 2,148 potential defendants.  Federal prosecutors had 2,032 health care 
fraud criminal investigations pending, involving 3,410 potential defendants, and filed criminal 
charges in 452 cases involving 892 defendants.  A total of 826 defendants were convicted of 
health care fraud-related crimes during the year.  Also in FY 2012, DOJ opened 885 new civil 
health care fraud investigations and had 1,023 civil health care fraud matters pending at the end 
of the fiscal year.  In FY 2012, Federal Bureau of Investigation (FBI) health care fraud 
investigations resulted in the operational disruption of 329 criminal fraud organizations, and the 
dismantlement of the criminal hierarchy of more than 83 criminal enterprises engaged in health 
                                                 
1Hereafter, referred to as the Secretary. 
2The amount reported as won or negotiated only reflects Federal recoveries and therefore does not reflect state 
Medicaid monies recovered as part of any global, Federal-State settlements.  
3Also known as the Medicare Hospital Insurance (Part A) Trust Fund and the Supplemental Medical Insurance (Part 
B) Trust Fund.  
 
  1  care fraud. 
 
In FY 2012, HHS Office of Inspector General (HHS/OIG) excluded 3,131 individuals and 
entities.  Among these were exclusions based on criminal convictions for crimes related to 
Medicare and Medicaid (912) or to other health care programs (287); for patient abuse or neglect 
(212); and as a result of licensure revocations (1,463).   In addition, HHS/OIG imposed civil 
monetary penalties against, among others, providers and suppliers who knowingly submitted 
false claims to the Federal government.  HHS/OIG also issued numerous audits and evaluations 
with recommendations that, when implemented, would correct program vulnerabilities and save 
program funds. 
 
 
 
  2    INTRODUCTION 
   
 
  ANNUAL REPORT OF  
  THE ATTORNEY GENERAL AND THE SECRETARY 
  DETAILING EXPENDITURES AND REVENUES 
  UNDER THE HEALTH CARE FRAUD AND ABUSE CONTROL PROGRAM 
  FOR FISCAL YEAR 2012 
 
  As Required by  
  Section 1817(k)(5) of the Social Security Act 
 
  STATUTORY BACKGROUND 
 
 
The Social Security Act Section 1128C(a), as established by the Health Insurance Portability and 
Accountability Act of 1996 (P.L. 104-191, HIPAA or the Act), created the Health Care Fraud 
and Abuse Control Program, a far-reaching program to combat fraud and abuse in health care, 
including both public and private health plans.   
 
As was the case before HIPAA, amounts paid to Medicare in restitution or for compensatory 
damages must be deposited in the Medicare Trust Funds.  The Act requires that an amount 
equaling recoveries from health care investigations  including criminal fines, forfeitures, civil 
settlements and judgments, and administrative penalties  also be deposited in the Trust Funds.   
 
The Act appropriates monies from the Medicare Hospital Insurance Trust Fund to an expenditure 
account, called the Health Care Fraud and Abuse Control Account (the Account), in amounts that 
the Secretary and Attorney General jointly certify as necessary to finance anti-fraud activities.  
The maximum amounts available for certification are specified in the Act.  Certain of these sums 
are to be used only for activities of the HHS/OIG, with respect to the Medicare and Medicaid 
programs.  In FY 2006, the Tax Relief and Health Care Act (TRHCA) (P.L 109-432, 303) 
amended the Act so that funds allotted from the Account are available until expended.  
TRHCA also allowed for yearly increases to the Account based on the change in the consumer 
price index for all urban consumers (all items; United States city average) (CPI-U) over the 
previous fiscal year for fiscal years for 2007 through 2010.4e  In FY 2010, the Patient Protection 
and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, 
collectively referred to as the Affordable Care Act (P.L. 111-148, ACA) extended permanently 
the yearly increases to the Account based upon the change in the consumer price index for all 
urban consumers or CPI-U. 
 
                                                 
4 The CPI-U adjustment in TRHCA did not apply to the Medicare Integrity Program (MIP).  Section 6402 of the 
ACA indexed Medicare Integrity Program funding to inflation starting in FY 2010. 
 
  3  In FY 2012, the Secretary and the Attorney General certified $294.8 million in mandatory 
funding for appropriation to the Account.  Additionally, Congress appropriated $309.7 million in 
discretionary funding.  A detailed breakdown of the allocation of these funds is set forth later in 
this report.  HCFAC appropriations generally supplement the direct appropriations of HHS and 
DOJ that are devoted to health care fraud enforcement and funded approximately three-fourths of 
HHS/OIGs appropriated budget in FY 2012.  (Separately, the FBI received $136.2 million from 
HIPAA which is discussed in the Appendix.) 
 
Under the joint direction of the Attorney General and the Secretary, the Programs goals are:  
 
(1) to coordinate Federal, state and local law enforcement efforts relating to health care fraud 
and abuse with respect to health plans; 
 
(2) to conduct investigations, audits, inspections, and evaluations relating to the delivery of and 
payment for health care in the United States; 
 
(3) to facilitate enforcement of all applicable remedies for such fraud; 
 
(4) to provide guidance to the health care industry regarding fraudulent practices; and 
 
(5) to establish a national data bank to receive and report final adverse actions against health care 
providers and suppliers. 
 
The Act requires the Attorney General and the Secretary to submit a joint annual report to the 
Congress which identifies both: 
 
(1) the amounts appropriated to the Trust Funds for the previous fiscal year under various 
categories and the source of such amounts; and 
 
(2) the amounts appropriated from the Trust Funds for such year for use by the Attorney General 
and the Secretary and the justification for the expenditure of such amounts. 
 
This annual report fulfills the above statutory requirements.   
 
Additionally, this report fulfills the requirement in the annual discretionary HCFAC 
appropriation (Public Law 112-74 Consolidated Appropriations Act of 2012) that this report 
include measures of the operational efficiency and impact on fraud, waste, and abuse in the 
Medicare, Medicaid, and CHIP programs for the funds provided by this appropriation.   
 
 
 
 
 
  4    MONETARY RESULTS 
 
As required by the Act, HHS and DOJ must detail in this Annual Report the amounts deposited 
to the Medicare Trust Funds and the source of such deposits.  In FY 2012, approximately $4.2 
billion was deposited with the Department of the Treasury and CMS, transferred to other Federal 
agencies administering health care programs, or paid to private persons during the fiscal year.  
The following chart provides a breakdown of the transfers/deposits: 
   
Total Transfers/Deposits by Recipient FY 2012 
Department of the Treasury    
  Deposits to the Medicare Trust Funds, as required by HIPAA   
            Gifts and Bequests  $54 
            Amount Equal to Criminal Fines  $1,389,126,761 
            Civil Monetary Penalties  $15,766,272 
            Asset Forfeiture   $20,370,629 
            Penalties and Multiple Damages  $602,272,078 
Subtotal  $2,027,535,794 
   
Centers for Medicare & Medicaid Services   
  HHS/OIG Audit Disallowances  Recovered - Medicare  $89,677,376 
  Restitution/Compensatory Damages  $332,565,650 
             Subtotal*     
   
Grand Total of Amounts Transferred to the Medicare Trust Funds  $2,449,778,820 
   
Restitution/Compensatory Damages to Federal Agencies   
TRICARE  $121,733,571 
Department of Veterans Affairs  $81,149,775 
 HHS/OIG Cost of Audits, Investigations and Compliance Monitoring  $11,847,360 
Office of Personnel Management  $157,225,672 
Other Agencies  $3,113,738 
   
Federal Share of Medicaid  $835,723,125 
HHS/OIG Audit Disallowances  Recovered - Medicaid  $275,559,307 
Subtotal  $1,486,352,548 
Relators  Payments**  $284,539,872 
=
      TOTAL ***  $4,220,671,240 
*   Restitution, compensatory damages, and recovered audit disallowances include returns to both the Medicare 
Hospital Insurance (Part A) Trust Fund and the Supplemental Medical Insurance (Part B) Trust Fund. 
**These are funds awarded to private persons who file suits on behalf of the Federal government under the qui tam 
provisions of the False Claims Act, 31 U.S.C.   3730(b). 
'
***State funds are also collected on behalf of state Medicaid programs; only the Federal share of Medicaid funds 
transferred to CMS are represented here. 
 
  5  The above transfers include certain collections, or amounts equal to certain collections, required 
by HIPAA to be deposited directly into the Medicare Trust Funds.  These amounts include: 
 
(1) Gifts and bequests made unconditionally to the Trust Funds, for the benefit of the Account or 
any activity financed through the Account; 
 
(2) Criminal fines recovered in cases involving a Federal health care offense, including 
collections under section 24(a) of Title 18, United States Code (relating to health care fraud); 
 
(3) Civil monetary penalties in cases involving a Federal health care offense; 
 
(4) Amounts resulting from the forfeiture of property by reason of a Federal health care offense, 
including collections under section 982(a)(7) of Title 18, United States Code; and 
 
(5) Penalties and damages obtained and otherwise creditable to miscellaneous receipts of the 
general fund of the Treasury obtained under sections 3729 through 3733 of Title 31, United 
States Code (known as the False Claims Act, or FCA), in cases involving claims related to the 
provision of health care items and services (other than funds awarded to a relator, for 
restitution or otherwise authorized by law). 
 
  6  PROGRAM ACCOMPLISHMENTS 
  
EXPENDITURES 
 
In the sixteenth year of operation, the Secretary and the Attorney General certified $294.8 million 
in mandatory funding as necessary for the Program.  Additionally, Congress appropriated $309.7 
million in discretionary funding.  The following chart gives the allocation by recipient: 
 
FY 2012 ALLOCATION OF HCFAC APPROPRIATION 
  Organization  Mandatory  Discretionary  Total 
Allocation5  Allocation  Allocation 
Department of Health and Human Services       
Office of Inspector General6  196,090,169  29,673,810  225,763,979 
Office of the General Counsel  8,887,870  0  8,887,870 
Administration for Community Living  10,709,503  0  10,709,503 
Food and Drug Administration  3,377,220  0  3,377,220 
Centers for Medicare & Medicaid Services  14,530,000  250,442,767  264,972,767 
  Subtotal  233,594,762  280,116,577  513,711,339 
       
Department of Justice            
 U  n  i  t e d   States Attorneys  31,400,000  4,064,433  35,464,433 
 C  i v  i l Division  18,972,139  5,190,085  24,162,224 
Criminal Division  3,380,000  5,117,052  8,497,052 
Civil Rights Division   3,838,000  1,055,842  4,893,842 
 Nursing Home and Elder Justice Initiative  1,000,000  0  1,000,000 
Federal Bureau of Investigation 7  0  3,446,994  3,446,994 
Justice Management Division  200,000  0  200,000 
Department of Justice - Other  2,434,610  10,799,404  13,233,414 
Subtotal  61,224,749  29,673,810  90,898,559 
TOTAL8  294,819,511  309,790,387  604,609,898 
 
ACCOMPLISHMENTS 
                                                 
5 In FY 2007, mandatory funds became available until expended.   Discretionary funding is two-year funding. 
 
6In addition, HHS/OIG obligated $9.4 million in funds received as  reimbursement for the costs of conducting 
A
investigations and audits and for monitoring compliance plans  as authorized by section 1128C(b) of the Social 
@
Security Act, 42 U.S.C.  1320a-7c(b).   
7In addition, in FY 2012, the FBI received $136.2 million in mandatory HIPAA funding. 
8Amounts only represent those that are provided by statute, and do not include other mandatory sources or 
discretionary appropriated sources provided through Departments annual appropriations. 
 
 
  7  Overall Recoveries 
 
During this fiscal year, the Federal government won or negotiated approximately $3.0 billion in 
judgments and settlements, and it attained additional administrative impositions in health care 
fraud cases and proceedings.  The Medicare Trust Funds received transfers of approximately $2.4 
billion during this period as a result of these efforts, as well as those of preceding years; and 
another $835.7 million in Federal Medicaid money was transferred to the Treasury separately as a 
result of these efforts. 9  
 
In addition to these enforcement actions, numerous audits, evaluations and other coordinated 
efforts yielded recoveries of overpaid funds, and prompted changes in Federal health care 
programs that reduce vulnerability to fraud.   
 
The return-on-investment (ROI) for the HCFAC program over the last three years (2010-2012) is 
$7.90 returned for every $1.00 expended.   This is $2.50 higher than the average ROI for the life 
of the HCFAC program since 1997.  Due to the fact that the annual ROI can vary from year to 
year depending on the number of cases that are settled or adjudicated during that year, DOJ and 
HHS use a three-year rolling average ROI for results contained in the report.  Additional 
information on how the ROI is calculated can be found in the Appendix. 
 
Departmental Collaboration  
 
Health Care Fraud Prevention & Enforcement Action Team (HEAT) 
 
The Attorney General and the Secretary maintain regular consultation at both senior and staff 
levels to accomplish the goals of the HCFAC Program.  On May 20, 2009, Attorney General 
Holder and Secretary Sebelius announced the Health Care Fraud Prevention & Enforcement 
Action Team (HEAT), a new effort with increased tools and resources, and a sustained focus by 
senior level leadership to enhance collaboration  between the Departments of Health and Human 
Services and Justice.  With the creation of the new HEAT effort, DOJ and HHS pledged a cabinet-
level commitment to prevent and prosecute health care fraud.  HEAT, which is jointly led by the 
Deputy Attorney General and HHS Deputy Secretary, is comprised of top level law enforcement 
agents, prosecutors, attorneys, auditors, evaluators, and other staff from DOJ and HHS and their 
operating divisions, and is dedicated to joint efforts across government to both prevent fraud and 
enforce current anti-fraud laws around the country.  The Medicare Fraud Strike Force teams are a 
key component of HEAT.     
 
 
 
 
                                                 
9 Note that some of the judgments, settlements, and administrative actions that occurred in FY 2012 will result in 
transfers in future years, just as some of the transfers in FY 2012 are attributable to actions from prior years.  
 
 
  8  The mission of HEAT is: 
 
  To marshal significant resources across government to prevent waste, fraud and 
o
abuse in the Medicare and Medicaid programs and crack down on the fraud 
perpetrators who are abusing the system and costing us all billions of dollars. 
 
  To reduce skyrocketing health care costs and improve the quality of care by ridding 
o
the system of perpetrators who are preying on Medicare and Medicaid beneficiaries. 
 
  To highlight best practices by providers and public sector employees who are 
o
dedicated to ending waste, fraud, and abuse in Medicare. 
 
  To build upon existing partnerships between DOJ and HHS, such as our Medicare 
o
Fraud Strike Force Teams, to reduce fraud and recover taxpayer dollars. 
 
Since its creation in May 2009, HEAT has focused on key areas for coordination and 
improvement.  HEAT members are working to identify new enforcement initiatives and areas for 
increased oversight and prevention to increase efficiency in pharmaceutical and device 
investigations.  DOJ and HHS have expanded data sharing and improved information sharing 
procedures in order to get critical data and information into the hands of law enforcement to track 
patterns of fraud and abuse, and increase efficiency in investigating and prosecuting complex 
health care fraud cases.  The departments established a cross-government health care fraud data 
intelligence sharing workgroup to share fraud trends, new initiatives, ideas, and success stories to 
improve awareness across the government of issues relating to health care fraud.  
 
Both departments also have developed training programs to prevent honest mistakes and help stop 
potential fraud before it happens.  This includes CMS compliance training for providers, 
HHS/OIGs HEAT Provider Compliance Training initiative, on-going meetings at U.S. 
Attorneys Offices (USAOs) with the public and private sector, and increased efforts by HHS to 
educate specific groups  including elderly and immigrant communities  to help protect them.  In 
addition, DOJ conducts, with the support of HHS, a Medicare Fraud Strike Force training 
program designed to teach the Strike Force concept and case model to prosecutors, law 
enforcement agents, and administrative support teams.  CMS and HHS/OIG are providing 
ongoing training to DOJ and HHS staff on the use of new technology to catch and quickly turn off 
funding to those who are defrauding the system. 
 
To achieve the mission and objectives of HEAT, the Attorney General and the Secretary 
promoted several HEAT initiatives during the fiscal year:   
 
  In February 2012, the Medicare Fraud Strike Force attained another milestone with the 
indictment and arrest of a Texas physician and the office manager of his medical practice, 
along with five owners of home health agencies (HHA) for their roles in the single largest 
fraud orchestrated by one doctor in the history of HEAT and the Medicare Fraud Strike 
Force operation.  See the summary included with the Dallas HEAT cases below. 
 
 
  9    In May 2012, Medicare Fraud Strike Force teams in 7 cities executed a nationwide 
operation that resulted in charges against 107 individuals, including doctors, nurses, and 
other medical professionals, for their alleged participation in Medicare fraud schemes 
involving approximately $452 million in false billing.  The coordinated operation involved 
the highest amount of false Medicare billings in a single takedown in the Strike Forces 
history.  As part of the operation, HHS also suspended or took other administrative action 
against 52 providers. 
 
  From September 27 through September 28, 2012, DOJ hosted a health care fraud training 
conference for Federal prosecutors, FBI agents, HHS/OIG agents, and others. 
 
In addition to the activities of HEAT, on July 26, 2012, Attorney General Holder and Secretary 
Sebelius announced the launch of a ground-breaking partnership among the Federal government, 
State officials, several leading private health insurance organizations, and other health care anti-
fraud groups to prevent health care fraud.  This voluntary, collaborative arrangement uniting 
public and private organizations is designed to share information and best practices in order to 
improve detection and prevent payment of fraudulent health care billings.  Its goal is to reveal and 
halt scams that cut across a number of public and private payers.   
 
CMS and law enforcement agency representatives, such as members of the Civil and Criminal 
Divisions, the USAOs and Executive Office for United States Attorneys (EOUSA), the FBI, and 
HHS/OIG, continue to meet on a periodic basis through numerous local or regional health care 
fraud working groups and task forces.   
 
In addition, attorneys from HHS/OIG have been detailed to the Fraud Section of the Criminal 
Division as Special Trial Attorneys and to USAOs as Special Assistant U.S. Attorneys to provide 
USAOs with additional prosecutorial resources. 
 
During FY 2012, the many significant HCFAC Program accomplishments included the following:  
 
Medicare Fraud Strike Force  
 
The first Medicare Fraud Strike Force (Strike Force) was launched in March 2007 as part of the 
South Florida Initiative, a joint investigative and prosecutorial effort against Medicare fraud and 
abuse among Durable Medical Equipment (DME) suppliers and Human Immunodeficiency Virus 
(HIV) infusion therapy providers in South Florida.  The Strike Force teams use advanced data 
analysis techniques to identify high-billing levels in health care fraud hot spots so that interagency 
teams can target emerging or migrating schemes along with chronic fraud by criminals 
masquerading as health care providers or suppliers.  Based on the success of these efforts and 
increased appropriated funding for the HCFAC program from Congress and the Administration, 
DOJ and HHS expanded the Strike Force to include teams of investigators and prosecutors in a 
total of nine cities  Miami, FL; Los Angeles, CA; Detroit, MI; Houston, TX; Brooklyn, NY; 
Baton Rouge, LA; Tampa, FL; Chicago, IL; and Dallas, TX.     
 
Each Medicare Fraud Strike Force team combines the data analysis and administrative action 
 
  10  capabilities of CMS, the investigative resources of the FBI and HHS/OIG, and the prosecutorial 
resources of the Criminal Divisions Fraud Section and the USAOs.  Strike Force 
accomplishments from cases prosecuted in all nine cities during FY 2012 include11:  
 
  117 indictments, informations and complaints involving charges filed against 278 
defendants who allegedly collectively billed the Medicare program more than $1.5 billion;  
 
  251 guilty pleas negotiated and 13 jury trials litigated, with guilty verdicts against 29 
defendants; and  
 
  Imprisonment for 201 defendants sentenced during the fiscal year, averaging more than 48 
months of incarceration.  
 
In the five and a half years since its inception, Strike Force prosecutors filed more than 724 cases 
charging more than 1,476 defendants who collectively billed the Medicare program more than 
$4.6 billion; 918 defendants pleaded guilty and 105 others were convicted in jury trials; and 745 
defendants were sentenced to imprisonment for an average term of more than 45 months.12   
 
Examples of successful cases initiated or concluded in districts where Strike Force prosecution 
teams were operational during FY 2012, as well as other successful cases are provided below.  
Summaries of additional successful prosecutions and settlements follow, organized by fraud type. 
 
Phase 1: Miami (Southern District of Florida) 
 
  In August 2012, the owner and operator of a Miami health care agency pleaded guilty for his 
participation in a $42 million home health Medicare fraud scheme.  According to plea 
documents, the defendant conspired with patient recruiters for the purpose of billing the 
Medicare program for unnecessary home health care and therapy services.  The defendant and 
his co-conspirators paid kickbacks and bribes to patient recruiters in return for these recruiters 
providing patients and other necessary documentation to the home health care agency for 
medically unnecessary therapy and home health services for Medicare beneficiaries.  The 
defendant and his co-conspirators also paid kickbacks and bribes directly to physicians in 
exchange for home health and therapy prescriptions, plans of care, and medical certifications.  
The defendant used these documents to fraudulently bill the Medicare program for home 
health care services.  The defendant is currently awaiting sentencing.   
 
  In June 2012, an Asheville, N.C. resident pleaded guilty for her role in a health care fraud 
scheme that resulted in the submission of more than $63 million in fraudulent claims to 
Medicare and Medicaid in Miami and Hendersonville, N.C.  The defendant, a licensed 
psychological associate, admitted to participating in a fraud scheme that was orchestrated 
through a Community Mental Health Center (CMHC) that purported to provide partial 
                                                 
11 The accomplishments figures presented in the bullets include all reported Strike Force cases handled by DOJ 
Criminal Division attorneys and AUSAs in the respective USAOs during FY 2012.     
 
12 These statistics are for the period of May 7, 2007, through September 30, 2012. 
 
  11  hospitalization programs (PHPs).  Specifically, the defendant and others agreed to fabricate 
therapy notes and other medical records and to direct other therapists to do the same, all to 
make it appear as though Medicare beneficiaries received appropriate services. 
 
  In April 2012, the U.S. District Court in Miami sentenced the three owners of a Miami health 
care agency to 120 months, 87 months and 87 months respectively for their participation in a 
$60 million Medicare home health care fraud scheme.  The defendants pleaded guilty to one 
count of conspiracy to commit health care fraud.  The defendants admitted that, from about 
January 2006 to about November 2009, they operated a home health care agency that paid 
illegal kickbacks to recruiters to obtain Medicare beneficiaries, which they then billed to 
Medicare for home health care services that were not medically necessary, and in many cases, 
never provided at all. 
 
  In January 2012, an office administrator at a home health care provider was sentenced to 78 
months of incarceration after she pleaded guilty to charges of conspiracy to commit health 
care fraud.  In all, the defendant and two co-conspirators were ordered to pay $15.3 million, 
$118,000, and $395,000, respectively, in restitution, jointly and severally, for their roles in the 
fraud scheme.  The trio was affiliated with two home health companies that purported to 
provide home health and physical therapy services to Medicare beneficiaries.  The home 
health companies fraudulently billed Medicare for home health services provided to 
beneficiaries who were not restricted to their homes and who had no medical need for the 
services.  
 
  In September 2011, the U.S. District Court in Miami sentenced an owner and operator of a 
CMHC to 50 years in prison, following his guilty plea to participating in a massive illegal 
kickback and money laundering scheme that resulted in a $205 million fraud.  In August 
2011, a Federal jury in Miami convicted another owner of the same CMHC for her role in the 
scheme.  The owner, convicted at trial, and another owner of the CMHC were each sentenced 
to 35 years in prison.  In June 2012, a Federal jury in Miami convicted five additional 
defendants, including two doctors, for their roles in the same scheme.  The owners/operators 
of the CMHC paid millions of dollars in illegal kickbacks to owners of Assisted Living 
Facilities and Halfway Houses to induce them to funnel vulnerable victims, many with 
Alzheimer or other forms of dementia, to the CMHC.  The CMHC performed little or no 
legitimate mental health services, but submitted $205 million in claims to Medicare.  The 
convicted defendants are currently awaiting sentencing.  To date, the case has resulted in two 
trials, at which a total of six defendants were convicted.  An additional thirteen individuals 
and the two corporate defendants have pleaded guilty.  The convicted defendants include all 
of the owners and operators of the CMHC, as well as two physicians.  The 50-year sentence 
represents the longest prison sentence in the history of the Medicare Fraud Strike Force. 
 
Phase 2: Los Angeles (Central District of California)  
 
  In June 2012, a Los Angeles physicians assistant who worked at fraudulent medical clinics 
was convicted of conspiracy, health care fraud, and aggravated identity theft charges in 
 
  12  connection with an $18.9 million Medicare fraud scheme.  The trial evidence showed that 
between March 2007 and September 2008, the defendants co-conspirator and others owned 
and operated several Los Angeles medical clinics established for the sole purpose of 
defrauding Medicare. These clinics hired street-level recruiters to find beneficiaries willing to 
provide their Medicare billing information.  In exchange, the defendants co-conspirators paid 
the recruiters cash kickbacks. The clinics then billed Medicare for unnecessary DME for these 
beneficiaries.  Evidence at trial showed that the defendant worked at the clinic and wrote 
prescriptions for power wheelchairs for beneficiaries he had never examined and who never 
visited the clinics.  In one case, the evidence showed that he wrote a prescription for a 
beneficiary who suffered from a mental defect and did not have the mental capacity to operate 
the wheelchair.  The physicians assistant is currently awaiting sentencing.  
 
  In January 2012, the U.S. District Court in Los Angeles sentenced a pastor of a now defunct 
Los Angeles church who owned and operated several fraudulent DME supply companies to 
15 years in prison for his role in a $14.2 million Medicare fraud scheme.  In July 2011, a jury 
found the defendant, his wife, and one of their employees guilty of conspiracy and health care 
fraud offenses.  According to evidence introduced at trial, the husband and wife were pastors 
at a church in Los Angeles, where they also operated the fraudulent company.  They hired 
several of their parishioners to assist them in running this company and another fraudulent 
DME supply company.  The couple diverted most of this money from the bank accounts of 
the supply companies to pay for the fraudulent prescriptions and documents which the 
defendant purchased to further the scheme and to cover the leases on their Mercedes vehicles, 
home remodeling expenses, and other personal expenses.   
 
Phase 3: Detroit (Eastern District of Michigan)  
 
  In July 2012, the U.S. District Court in Detroit sentenced a Detroit-area rehabilitation agency 
owner to 84 months in prison for his leading role in a $3 million Medicare fraud scheme.  The 
defendant was convicted by a Federal jury, following a weeklong trial, of one count of 
conspiracy to commit health care fraud and six counts of health care fraud.  According to 
evidence presented during the trial, the defendant was the owner of a fraudulent rehabilitation 
agency in Dearborn, Michigan.  Between January 2003 and February 2007, the agency 
purchased falsified physical and occupational therapy files from more than 30 therapy and 
rehabilitation companies and used them to fraudulently bill Medicare for more than $3 
million. Four co-defendants in this case pleaded guilty and were sentenced for their role in the 
same scheme.  The rehabilitation facility owner was excluded by OIG for 25 years. 
 
  In May 2012, a Federal grand jury returned an indictment charging a social worker and the 
owner of an adult day care center and psychotherapy clinic with conspiracy to commit health 
care fraud for their participation in a $20 million psychotherapy fraud scheme.  In June 2012, 
the social worker pleaded guilty to conspiracy to commit health care fraud, admitting to 
owning and running multiple clinics at which services were never performed or were 
performed by unlicensed staff who were not authorized to perform services reimbursed by 
Medicare. The staff members also fabricated therapy notes for patients that were never seen 
and billed Medicare using document templates created by the social worker.  In August 2012, 
 
  13  the owner of the adult day care center and psychotherapy clinic pleaded guilty to conspiracy 
to commit health care fraud and health care fraud with respect to the submission of false 
psychotherapy claims through her clinic. 
 
  In January 2012, a Detroit-area home health agency owner pleaded guilty for his leading role 
in a $13.4 million Medicare home health care fraud and money laundering scheme.  The 
owner, who was charged along with nineteen other defendants in the original and superseding 
indictments, admitted to paying kickbacks to beneficiaries, billing Medicare for services never 
rendered and laundering the proceeds of the fraud.  Nine defendants charged in the scheme 
have pleaded guilty, and three are fugitives. 
 
  In January 2012, the U.S. District Court in Detroit sentenced an operator of three medical 
clinics to 30 months of incarceration and ordered the operator to pay restitution in the amount 
of $2.9 million, jointly and severally, for his participation in a multimillion-dollar scheme to 
defraud Medicare.   The clinic operator and his co-conspirators paid Medicare patients to 
undergo medically unnecessary diagnostic tests at their three clinics.  In exchange for illegal 
kickbacks, the Medicare beneficiaries signed documents indicating they had received the 
services billed to Medicare.  The clinics involved in the fraud scheme subsequently billed 
Medicare for expensive and medically unnecessary diagnostic tests and diverted the proceeds 
to the clinic owners and co-conspirators for their personal use.  The co-conspirators are 
awaiting sentencing for their roles in the scheme. 
 
  In November 2011, the two owners of a medical clinic in Michigan were each sentenced to 14 
years of incarceration and ordered to pay over $6 million in restitution, jointly and severally, 
after they pleaded guilty to charges related to a health care fraud and money laundering 
scheme.  The clinic purported to provide infusion and injection therapy to HIV-positive 
patients.  The owners recruited and paid kickbacks to Medicare beneficiaries and billed 
Medicare for services not provided, while purchasing only a fraction of the medications billed 
to Medicare.  The owners fled the United States to avoid being apprehended, but were arrested 
on March 14, 2011, by the Colombian National Police and transferred to the custody of U.S. 
officials. 
 
  In October 2011, the U.S. District Court in Detroit sentenced the owner of a fraudulent 
Detroit-area medical clinic to 10 years in prison for his leading role in a $9.1 million Medicare 
fraud scheme.  The owner was previously convicted by a Federal jury.  According to evidence 
presented at trial, Medicare beneficiaries were not referred to the clinic by their primary care 
physicians, or for any other legitimate medical purpose, but rather were recruited to come to 
the clinic through the payment of illegal cash kickbacks.  The clinic then billed Medicare for 
infusions of expensive and exotic medications, purportedly administered to treat HIV and 
Hepatitis-C.  However, the medications were never administered.  Once Medicare started 
paying the co-conspirators, the defendant enlisted a family friend to help him launder the 
proceeds of the fraud through a shell corporation in Florida.  Evidence at trial showed that the 
shell corporation had no employees, did no research, and was based at the family friends 
residence.  The family friend, after taking a commission for himself, distributed the laundered 
proceeds to the defendant, his wife and co-owner, and co-conspirators.   
 
  14   
Phase 4: Houston (Southern District of Texas)  
 
  In July 2012, a Federal grand jury returned an indictment charging the owners and employees 
of a mental health care company, as well as patient recruiters, in an alleged $97 million 
Medicare fraud scheme.  Four of the defendants are accused of signing admission documents 
and progress notes certifying that patients qualified for mental health services, when in fact, 
the patients did not qualify for or need these services.  The indictment also alleges that the 
owners billed Medicare for intensive mental health services when the beneficiaries were 
actually watching movies, coloring and playing games  activities that are not covered by 
Medicare.  Finally, the owners and another defendant are alleged to have paid kickbacks to 
group care home operators and patient recruiters in exchange for delivering ineligible 
Medicare beneficiaries.  
 
  In June 2012, the U.S. District Court in Houston sentenced the former co-owners of a home 
health care company to 9 years in prison for their participation in a $5.2 million Medicare 
fraud scheme.  The owners paid co-conspirators to recruit Medicare beneficiaries for the 
purpose of filing claims with Medicare for care that was medically unnecessary, or not 
provided.  To date, nine individuals, including nurses and patient recruiters, have been 
sentenced related to the scheme. 
 
 
  In May 2012 a Federal jury convicted an owner of a DME company in connection with a 
$750,000 Medicare fraud scheme.  The company purported to provide orthotics and other 
devices to Medicare beneficiaries.  This equipment was medically unnecessary and/or not 
provided. The defendant awaits sentencing. 
 
  In February 2012, the assistant administrator of a CMHC pleaded guilty to an indictment just 
15 days after it was filed.  The defendant admitted in his plea that he and others at the CMHC 
engaged in a scheme to submit over $116 million in fraudulent claims to Medicare, and to pay 
kickbacks to patient recruiters and owners of assisted living facilities and group care homes in 
exchange for the recruiters and owners sending Medicare beneficiaries to the CMHCs partial 
hospitalization program, which purported to provide intensive mental health services.  The 
CMHC then submitted claims to Medicare for mental health services that were not medically 
necessary, and in some cases never provided.  The assistant administrator is currently awaiting 
sentencing.   
 
  In February 2012, a Federal jury convicted a patient recruiter for a DME company of health 
care fraud related to a fraud scheme involving arthritis kits.  The defendant operated a call 
center and hired teenagers to make unsolicited telephone calls to elderly Medicare 
beneficiaries, asking them if they wanted a free arthritis kit, which included several devices 
that were billed to Medicare but were not medically necessary or appropriate.  Each arthritis 
kit was billed to Medicare at more than $3,000.  The patient recruiter is currently awaiting 
sentencing.  
 
 
  15   
 
Phase 5: Brooklyn (Eastern District of New York) 
 
  In June 2012, a Federal jury convicted a Brooklyn-area doctor who operated a medical clinic 
in New York for his participation in a scheme to submit approximately $22.6 million in 
fraudulent claims to Medicare and numerous private insurance companies. The doctor 
submitted claims to Medicare and the insurance companies for surgeries that never occurred 
and services that were not provided.  Evidence at trial also showed that the defendant sent 
letters to his patients asking them to falsely certify in writing that they had received the phony 
surgeries.  The doctor is currently awaiting sentencing. 
 
  In November 2011, a Federal grand jury returned an indictment charging six defendants, 
including three medical doctors and a chiropractor, for their alleged participation in a fraud 
scheme at two medical clinics in Flushing.  The indictment states that defendants provided a 
variety of spa services such as massages and facials, while billing Medicare for physical 
therapy and other services that were medically unnecessary and never provided.  The 
defendants also recruited Medicare beneficiaries to their clinic by offering lunches and 
dancing classes, in exchange for the beneficiaries providing their Medicare numbers to be 
billed for medical services that they did not need and never received. 
 
  In November 2011, a Federal grand jury returned an indictment charging a Staten Island 
osteopathic doctor for participating in a scheme to defraud Medicare of approximately $13 
million.   The doctor allegedly billed Medicare for a variety of services she purported to 
provide  including vitamin infusion therapy, sleep studies, nerve conduction tests and duplex 
scans  but which were medically unnecessary and never provided.  In May 2012, the doctor 
entered a guilty plea to health care fraud and awaits sentencing. 
 
Phase 6: Baton Rouge (Middle District of Louisiana) 
 
  In August 2012, the U.S. District Court in Baton Rouge sentenced the owner of multiple DME 
companies that operated in Louisiana to 15 years in prison for his role in three separate 
Medicare fraud schemes that resulted in more than $22.5 million in fraudulent billings to 
Medicare.    The defendant, with his wife, owned and operated several DME companies, and 
was convicted at trial in August 2011 for one scheme and in November 2011 for another.  In 
January 2012 he pleaded guilty for his role in a third conspiracy.  The defendant paid 
kickbacks to recruiters to acquire Medicare beneficiary information, and then fraudulently 
billed Medicare for DME that was medically unnecessary and, in some cases, never provided.  
When a claim was denied by Medicare through one of the defendants companies, it would 
often be resubmitted through another company.  In July 2012, the defendants wife, a co-
conspirator in two of these cases, was sentenced to 7 years in prison.   
 
  In May 2012, a Federal grand jury returned an indictment against seven individuals alleged to 
have participated in a fraud scheme involving $225 million in false claims for services 
purportedly provided at two CMHCs.  The case represents the largest CMHC-related scheme 
 
  16  ever prosecuted by the Medicare Fraud Strike Force.  The charges are based on allegations 
that the defendants recruited beneficiaries from nursing homes and homeless shelters, 
including drug addicted and elderly individuals, and provided them with no services or 
medically inappropriate services, while billing Medicare for intensive mental health services.  
 
Phase 7: Tampa (Middle District of Florida) 
 
  In May 2012, a Federal grand jury returned an indictment charging the owners of multiple 
Florida-area physical therapy companies with participating in a scheme to defraud Medicare 
of approximately $8.2 million.  According to the indictment, the defendants paid patient 
recruiters to acquire Medicare beneficiary information for purposes of falsely billing 
Medicare.  In addition, upon acquisition of their physical therapy clinics, they also acquired 
the historical patient records left at the clinic sites, including the names and identification 
numbers of Medicare beneficiaries.  The defendants allegedly allowed others, who owned and 
operated similarly illegitimate physical therapy clinics in the Southern and Middle Districts of 
Florida, to submit fraudulent claims for reimbursement to Medicare through their three 
clinics. 
 
  In October 2011, the U.S. District Court in Tampa sentenced the owner/operator of a 
fraudulent physical therapy company in Lakeland, Florida to 42 months in prison for his 
leading role in a scheme to defraud Medicare of $757,654.  The defendant admitted to 
purchasing a pre-existing physical therapy business and transforming it into a fraudulent 
enterprise.  The defendant and his co-conspirators also paid kickbacks and bribes to Medicare 
beneficiaries in order to obtain their Medicare billing information and used that information to 
submit claims to Medicare for physical therapy services that were never provided.  The 
defendant also stole the identities of a physical therapist and Medicare beneficiaries to submit 
additional false claims to Medicare. 
 
Phase 8: Dallas (Northern District of Texas) 
 
  In February 2012, a Federal grand jury indicted a Dallas-area doctor and owner of an 
association of health care providers, along with five others, in a $374 million home health care 
fraud scheme, the largest fraud case ever indicted in terms of the amount of loss charged 
against a single doctor.  The indictment charges the defendant with fraudulently certifying or 
directing the certification of more than 11,000 individual patients from more than 500 home 
health agencies for home health services over five years.  These certifications allegedly 
resulted in more than $350 million being fraudulently billed to Medicare and more than $24 
million being fraudulently billed to Medicaid. 
 
  In December 2011, four owners of a Dallas home health agency, and one patient recruiter pled 
guilty to charges related to their participation in a scheme to defraud Medicare and Medicaid 
of approximately $1 million.  The agency submitted fraudulent claims to Medicare for home 
health services purportedly provided to Medicare beneficiaries.  The defendants falsified 
Medicare documentation and skilled nursing notes indicating that the patients were 
homebound and eligible for home health care services.  They also falsified time sheets and 
 
  17  patient visit logs for services that were not adequately rendered or were never provided at all, 
but then billed Medicare as if the services were adequately provided. 
 
  In December 2011, the U.S. District Court sentenced a patient recruiter for a home health 
agency to 33 months in prison for her role in a scheme to defraud Medicare and Medicaid of 
approximately $1 million.  This defendant recruited Medicare beneficiaries and agreed to pay 
patients kickbacks of $100 per month so that they would continue to use the home health 
agency.  In August 2012, a co-defendant and owner of the home health agency was sentenced 
to 37 months in prison.  This defendant admitted that she submitted fraudulent claims to 
Medicare for home health services for Medicare beneficiaries who were not homebound and, 
therefore, ineligible for home health care services. 
 
Phase 9: Chicago (Northern District of Illinois)  
 
  In August 2012, a home health care agency in suburban Chicago, two nurses who are part 
owners of the company and a third nurse affiliated with them, along with two marketers, were 
indicted on Federal charges for allegedly participating in a conspiracy to pay and receive 
kickbacks in exchange for the referral of Medicare patients for home health care services.  The 
part owners of the home health care agency and three other defendants allegedly conspired to 
pay and receive approximately $400,000 in kickbacks to themselves, nurses, marketers and 
others for the referral and retention of Medicare patients that enabled the home health care 
agency to bill Medicare approximately $5 million. 
 
  In July 2012, a physician who operated a Chicago area medical clinic was sentenced to 30 
months in Federal prison for engaging in a health care fraud scheme between 2007 and July 
2010.  The defendant was convicted at trial in March 2012 of defrauding Blue Cross Blue 
Shield of Illinois by submitting false insurance claims for medically unnecessary tests he 
ordered for patients and using false diagnosis codes to justify those tests. 
 
  In June 2012, the owner of multiple area outpatient surgery centers was arrested on fraud and 
tax charges in a 19-count indictment alleging that he paid bribes and kickbacks to physicians 
for patient referrals and filed false Federal income tax returns that understated his income. The 
defendants was charged with 10 counts of mail fraud, five counts of interstate travel in aid of 
racketeering, and four counts of filing false income tax returns for the years 2005-08. The 
indictment seeks forfeiture of at least $1.8 million in alleged fraud proceeds, or substitute 
assets, including the defendants suburban residence and two surgical centers in Chicago. 
 
  In June 2012, 10 defendants, including the owners of two Chicago home health care 
companies and three physicians, were indicted for allegedly participating in two separate 
schemes to pay and receive cash kickbacks in exchange for the referral of Medicare patients 
for home health care services.  In one case, the owners of the home health care company, and 
seven other defendants allegedly engaged in a fraud scheme involving payment of more than 
$1.1 million in cash kickbacks to doctors, social workers, and a registered nurse in exchange 
for the referral of Medicare patients.  In the second case, the owner was charged alone with 
allegedly paying at least $500,000 in cash kickbacks to doctors in exchange for Medicare 
 
  18  patient referrals. 
 
  In March 2012, two physicians and four registered nurses were among 11 defendants who 
were added to an indictment against a suburban Chicago man who operated two home health 
care businesses for allegedly swindling Medicare of at least $20 million over five years.  Nine 
co-defendants allegedly conspired with the lead defendant to submit millions of dollars in 
false claims for reimbursement of home health care services purportedly provided to Medicare 
beneficiaries, which were never provided or were not medically necessary so that they could 
profit from the fraudulently-obtained funds.  These co-schemers allegedly used the proceeds 
for various purposes, including: using cash to gamble at casinos in the Chicago area and Las 
Vegas; purchasing automobiles, jewelry and real estate in the United States and the 
Philippines and, paying kickbacks to others in exchange for patient referrals.  
 
In addition to the Medicare Strike Force matters listed above, our respective Departments 
successfully pursued the following matters, which are grouped by subject below: 
 
Pharmaceutical and Device Manufacturers and Related Individuals 
 
  In July 2012, GlaxoSmithKline paid $3 billion, plus interest, to resolve its criminal and civil 
liability arising from the companys unlawful promotion of certain prescription drugs, its 
failure to report certain safety data, and its civil liability for alleged false price reporting 
practices.  The company pled guilty and paid $1 billion in fines and forfeitures for 
misbranding the anti-depressant drugs Paxil and Wellbutrin and for failing to report required 
information to the Food and Drug Administration (FDA) in connection with the diabetes drug 
Avandia.  GSK also paid $2 billion to resolve its FCA and civil liability for: (1) promoting the 
drugs Paxil, Wellbutrin, Advair, Lamictal and Zofran for off-label, non-covered uses and 
paying kickbacks to physicians to prescribe those drugs as well as the drugs Imitrex, 
Lotronex, Flovent and Valtrex; (2) making false and misleading statements concerning the 
safety of Avandia; and (3) reporting false best prices and underpaying rebates owed under the 
Medicaid Drug Rebate Program.  As part of the settlement, GSK entered into a 5-year CIA 
(Corporate Integrity Agreement) with HHS/OIG.   
 
  In November 2011, Merck, Sharp & Dohme paid $950 million to resolve criminal charges and 
civil claims related to its promotion and marketing of the painkiller Vioxx (rofecoxib).  Under 
the terms of the resolution, Merck pleaded guilty to a one-count information charging a single 
violation of the Food Drug and Cosmetic Act (FDCA) for introducing a misbranded drug, 
Vioxx, into interstate commerce and paid a $32.1 million criminal fine.  In addition, Merck 
paid $628.3 million to resolve False Claims Act allegations regarding off-label marketing of 
Vioxx and false statements about the drugs cardiovascular safety.    
 
  In April 2012, McKesson Corporation paid $190 million to resolve claims that it violated the 
FCA by reporting inflated pricing information for a large number of prescription drugs, 
causing Medicaid to overpay for those drugs.  McKesson, a large drug wholesaler, reported 
the inflated pricing data to First DataBank, a publisher of drug prices that are used by most 
 
  19  state Medicaid programs to set payment rates for pharmaceuticals.  This settlement resolves 
claims based on the Federal share of Medicaid overpayments caused by McKessons conduct.   
 
  In October 2011, Scios, a subsidiary of the pharmaceutical company Johnson & Johnson, 
pleaded guilty to a violation of the FDCA and agreed to pay a criminal fine in the amount of 
$85 million. Scios admitted that it intended Natrecor to be used off-label for infusing chronic 
(nonacute) congestive heart failure patients on a scheduled, serial basis, even though the 
company understood that this was not an approved use of the drug.  
 
  In December 2011, GE Healthcare, Inc., (GEHC) paid $30 million plus interest to resolve 
allegations that an acquired entity previously known as Amersham Health, Inc., (Amersham) 
violated the FCA.  Specifically, the Government alleged that Amersham knowingly provided 
false or misleading information to CMS and its contractors from January 2000 through 
December 2003 regarding Myoview, a radiopharmaceutical product used in certain cardiac 
diagnostic imaging procedures.  In particular, the Government contended that the false and 
misleading information Amersham provided caused the Medicare program to reimburse 
certain claims for Myoview at artificially inflated rates. 
 
  In November 2011, Medtronic, Inc., a DME manufacturer, agreed to pay $23.8 million plus 
interest to resolve allegations that it violated the FCA.  The Government alleged that 
Medtronic used postmarket studies and device registries as vehicles to pay physicians illegal 
kickbacks to induce them to implant Medtronic pacemakers and defibrillators.  It was also 
alleged that Medtronic solicited physicians for the studies and registries to convert their 
business from a competitors product and persuade physicians to continue using Medtronic 
products. 
 
  In November 2011, Genentech, Inc. paid $20 million to resolve allegations that it violated the 
FCA in connection with an illegal off-label marketing and kickback scheme.  In particular, the 
allegations involved Genentechs marketing of the drug Rituxan, which is used to treat 
different types of cancer.   
 
  In December 2011, KV Pharmaceutical Company, which was the parent of now-defunct 
Ethex Corporation, paid $17 million to resolve FCA allegations that Ethex failed to advise the 
CMS that two unapproved products did not qualify for coverage under Federal health care 
programs.  In particular, the United States alleges that Ethex misrepresented the regulatory 
status of both drugs and failed to advise CMS that these unapproved drugs did not qualify for 
coverage under Federal health care programs.   
 
  In February 2012, Dava Pharmaceuticals Inc. paid $11 million to settle FCA allegations that it 
misreported drug prices in order to reduce its Medicaid Drug Rebate obligations.  In 
particular, the settlement resolves allegations that between Oct. 1, 2005 and Sept. 30, 2009, 
Dava and its corporate predecessors knowingly treated certain of their drugs as generic 
rather than branded in order to lower their monthly rebate obligations to the Medicaid 
program. 
 
 
  20    In  December  2011,  RAM  Medical,  Inc.,  a  New  Jersey  distributor  of  medical  devices, 
pharmaceuticals, food, cosmetics, and miscellaneous commodities, entered a guilty plea to an 
information charging the company with one count of introducing adulterated medical devices 
into interstate commerce and one count of introducing misbranded medical devices into 
interstate commerce. In May, 2012, RAM Medical, Inc. was sentenced to a 36 month term of 
probation and ordered to pay a $100,000 fine and $72,922 in restitution for importing and 
selling  counterfeit  and  contaminated  surgical  hernia  mesh.    RAM  Medical  purchased 
overstocked and discounted products from wholesalers and suppliers all over the world and 
resold these products to distributors and end-users in the United States.   Numerous boxes sold 
included  misbranded,  counterfeit  mesh,  as  well  as  adulterated  mesh,  which  contained 
numerous microorganisms. 
 
  In November and December 2011, four former executives of Synthes or its subsidiaries each 
pleaded guilty, as responsible corporate officers, to one misdemeanor count of shipping an 
adulterated and misbranded medical device in interstate commerce. Their terms of 
imprisonment ranged from 5 months to 9 months of incarceration. In connection with this case 
Synthes and its former subsidiary, Norian Corporation (Norian)  which develop, 
manufacture, distribute, market, and sell medical devices  entered into a global resolution 
with the Government to resolve liability with respect to allegations of conducting 
unauthorized clinical trials of their Norian XR and Norian SRS medical devices. These 
devices were allegedly used in surgeries to treat vertebral compression fractures of the spine, a 
painful condition commonly suffered by elderly individuals.  Many of these procedures were 
performed on Medicare and other Federal health care program beneficiaries, and the 
procedures were conducted despite a warning on the label for Norian XR against this use and 
despite serious medical concerns about the safety of the devices when used in the spine. 
 
Hospital  
 
  In March 2012, Beth Israel Medical Center paid over $13 million to resolve FCA claims that 
it fraudulently inflated fees for services provided to Medicare patients in order to obtain larger 
supplemental reimbursement, known as outlier payments, that Medicare pays to hospitals 
and other health care providers in cases where the cost of care is unusually high.  In particular, 
Beth Israel manipulated its fee structure to make it appear as though its treatment of certain 
patients was unusually costly, when in fact it was not.  As a result, Beth Israel obtained 
millions of dollars in Medicare outlier payments to which it was not entitled during the 
relevant time period. 
 
  In May 2012, Lenox Hill Hospital paid $11.8 million to resolve FCA claims that it inflated 
fees for services provided to Medicare patients in order to obtain larger supplemental 
reimbursement, known as outlier payments, that Medicare pays to hospitals and other health 
care providers in cases where the cost of care is unusually high.  In particular, Lenox Hill 
raised its room and board charges and manipulated its overall charge structure to make it 
appear as though its treatment of certain patients was unusually costly, when in fact it was not.  
As a result, Lenox Hill obtained millions of dollars in Medicare outlier payments to which it 
was not entitled from February 21, 2002 through August 7, 2003. 
 
  21   
  In June 2012, Atlantic Health System, Inc., AHS Hospital Corp. and Overlook Hospital, paid 
$8.9 million to settle FCA allegations that they submitted false claims to Medicare for 
services provided at Overlook Hospital.  Overlook Hospital and its owners, AHS Hospital 
Corp. and Atlantic Health System Inc., allegedly overbilled Medicare for patients who were 
treated on an inpatient basis when they should have been treated as observation patients or 
treated on an outpatient basis.   
 
  In February 2012, Rhode Island Hospital agreed to pay $5.3 million to resolve its liability 
under the FCA for allegedly submitting improper claims to Medicare and Medicaid.  The 
improper claims sought reimbursement for medically unnecessary overnight stays for patients 
receiving Gamma Knife stereotactic radiotherapy.  From January 1, 2004 through December 
31, 2009, overnight hospital admissions were ordered for approximately 260 patients 
receiving these treatments.   
 
  In June 2012, Christus Spohn Health System Corporation paid $5.1 million to settle 
allegations that six of its hospitals in and around Corpus Christi, Texas, violated the FCA by 
inappropriately admitting patients to inpatient status for outpatient procedures. The 
government alleged that the hospitals were routinely billing outpatient surgical procedures as 
if they required an inpatient level of care, which greatly increased the Medicare 
reimbursement.  
 
  In January 2012, Cayuga Medical Center of Ithaca, New York, paid $3.5 million to resolve 
FCA allegations that it submitted false claims to Medicare and Medicaid in connection with 
improper physician recruitment agreements entered into between Cayuga Medical Center and 
various medical practices. 
 
  In April, August and November 2011, three Connecticut hospitals paid a total of over $1.4 
million to resolve FCA allegations that the hospitals submitted false claims to Medicare and 
Medicaid when billing for injections of Lupron, a cancer drug. The hospitals regularly billed 
the higher-paying, female-related Lupron billing code for its male patients who were being 
treated for prostate cancer and therefore received substantially higher reimbursement than 
they should have received.  In addition, even after the hospitals realized that they had 
improperly coded their Lupron injection services and had been overpaid by government health 
insurance programs, the hospitals never self-disclosed their improper billing to the 
government or made any attempt to pay the money back to the Medicare and Medicaid 
programs.  
 
  In October 2011, Gibson Memorial Hospital agreed to pay approximately $1 million to 
resolve its civil liability for allegedly violating the FCA.  The hospital submitted claims to 
Medicare and Medicaid for out-patient surgery services that were being provided at a 
neighboring ambulatory surgery center, not owned by the hospital.  The claims falsely stated 
that the services were being provided at Gibson Memorial Hospital, which resulted in higher 
Medicare and Medicaid reimbursements.  The hospital was also including the costs of these 
surgeries on its cost reports, even though no costs had been incurred.   
 
  22   
  In December 2011, Satilla Health Services, Inc., d/b/a Satilla Regional Medical Center 
(Satilla) paid $840,000 to resolve FCA allegations that it submitted claims to Medicare and 
Medicaid for medically unnecessary and dangerous endovascular procedures performed by a 
physician for Satillas heart center that caused serious injury to 37 patients.  In addition, 
Satilla entered into an agreement for its sale to another company, which resulted in a new 
board of directors, new administrators, and a new compliance program at Satilla. 
 
  In  February  2011,  fourteen  hospitals  located  in  New  York,  Mississippi,  North  Carolina, 
Washington, Indiana, Missouri and Florida paid a total of more than $12 million to settle FCA 
allegations that the health care facilities submitted false claims to Medicare.  The settlements 
resolved allegations that these hospitals overcharged Medicare between 2000 and 2008 when 
performing kyphoplasty, a minimally-invasive procedure used to treat certain spinal fractures 
that often are due to osteoporosis.  In many cases, the procedure can be performed safely as a 
less costly outpatient procedure, but the government contends that the hospitals performed the 
procedure on an inpatient basis in order to increase their Medicare billings.   
Physicians 
 
  In November 2011, a family practice physician in Michigan was sentenced to 10 years of 
incarceration and ordered to pay $5.4 million in restitution for receiving kickbacks and 
fraudulently billing for diagnostic tests and services that were not medically necessary. The 
physician ordered unnecessary and actively harmful nuclear stress tests for her patients at a 
frequency beyond that of any other medical practice in the country.  Because each of these 
tests is the radiation equivalent of at least 80 to120 chest x-rays and because excess radiation 
creates a greater risk of cancer, the physician exposed patients to substantial risk. 
 
  In April 2012, a California physician was sentenced to 60 months of probation and ordered to 
pay over $1.9 million in restitution, jointly and severally, after pleading guilty to making a 
false statement to a Government agency.  The physician was also excluded by HHS/OIG for a 
period of 5 years based upon the conviction.  According to court documents, the defendants 
conspired to offer and make payments to Medicare patients in exchange for their Medicare 
numbers.  In addition, the defendants paid cappers for the referral of Medicare patients to 
the various clinics.  The defendants then submitted fraudulent claims to Medicare for services 
that were not performed, were not performed as billed, or were performed by persons other 
than the provider under whose identification those services were billed.  Investigators also 
believe that the defendants falsely stated that the clinics would be owned and operated by a 
licensed physician, when in fact the true owner was not a physician.  During the course of the 
investigation, the physician knowingly made false statements to HHS/OIG agents, 
deliberately trying to conceal his role and relationship to the co-defendants.  The true owner 
was previously sentenced to 3 years and 3 months of incarceration and ordered to pay more 
than $2 million in restitution, jointly and severally.  This was a joint investigation with the 
FBI, DOJ, and the Bureau of Medi-Cal Fraud and Elder Abuse (BMFEA).    
 
 
  23    In March 2012, a Pennsylvania physician was sentenced to over 7 years in prison for a health 
care fraud scheme in which he submitted fraudulent claims and caused more than $1.8 million 
in payments to be paid by Medicare and 31 other health insurers.  A Federal jury had 
previously convicted the physician of 150 counts of health care fraud, wire fraud, and making 
false statements in health care matters.    He submitted claims for services rendered to patients 
whom he did not personally see or evaluate.  The patients had been seen by other physicians 
in the office, but the defendant falsified the charts by making notations indicating that he had 
personally seen and evaluated the patients.    
 
  In December 2011, a Georgia radiologist was convicted following a jury trial, sentenced to 54 
months incarceration, and ordered to pay $919,000 in restitution for health care fraud, wire 
fraud, mail fraud, and alteration of records to obstruct an investigation.  The defendant 
submitted bills for radiology services that he did not perform.  Non-physician technicians who 
were not qualified to interpret x-rays and other films had actually performed the services, yet 
the defendant fraudulently passed off their reports to hospitals as his own.  He also instructed 
employees to alter and destroy records in response to a government subpoena. 
  In June 2012, a Colorado neurologist agreed to pay $747,013 to settle allegations that he 
submitted improper claims to Medicare.  The neurologist performs intraoperative monitoring 
(IOM) for companies located throughout the United States.  IOM involves remote monitoring 
of a patients nervous system during surgery.  Under Medicare rules, a physician is permitted 
to bill for the professional component of IOM as a telehealth service, but the physician is 
required to bill for the actual time spent on a per-hour basis, regardless of the number of cases 
simultaneously being monitored.  The United States alleged that the neurologist routinely 
conducted multiple IOM services simultaneously in his office and billed Medicare on an 
hourly basis for each patient he was monitoring concurrently, instead of on an hourly basis 
overall.  Consequently, he billed in excess of 24 hours per day.  In addition to the settlement 
agreement, he agreed to enter into a 5-year Integrity Agreement with OIG. 
 
  In November 2011, a Maryland physician, was sentenced to over 8 years in prison followed 
by three years of supervised release for six health care fraud offenses in connection with a 
scheme in which he submitted false claims for inserting medically unnecessary cardiac stents, 
ordering unnecessary tests, and making false entries in patient medical records, in order to 
defraud Medicare, Medicaid, and private insurers. The doctor was ordered to pay restitution to 
Medicare and the other health insurance programs in the amount of $579,070 and to forfeit 
$579,070 as proceeds of the crime. 
 
  In October 2011, 24 defendants were charged in New York in connection with a massive 
health care fraud.  Twenty-two of these defendants  including two general practitioner 
doctors, one neurologist, and two chiropractors  were charged with participating in 
fraudulent billing scams that caused no-fault insurance carriers to pay out millions of dollars 
in reimbursements for medical treatments that were never provided to patients or that were 
medically unnecessary.  Two defendants, operators of a medical supply company, were 
charged with orchestrating a billing scam in which the defendants forged doctors signatures 
 
  24  and prescriptions to support fraudulent billing to Medicare and Medicaid for millions of dollar 
in durable medical equipment, such as motorized wheelchairs, never supplied to patients. 
 
Other Health Care Providers 
 
  In August 2012, a formerly licensed psychologist pleaded guilty to a scheme to defraud 
Medicare and Medicaid.  Between September 2008 and April 2012, the defendant submitted 
Medicare and Medicaid claims for daily or near daily psychotherapy services to 19 
beneficiaries.  He billed up to 17 hours per day for 364 days a year and admitted that, based 
on an estimate of the services he did provide, the amount reimbursed by Medicare and 
Medicaid for services he did not provide to those 19 beneficiaries was $1 million.  The 
defendant also admitted that he forged, or caused another person to forge, the signatures of 
five beneficiaries on patient sign-in sheets.  He is subject to a sentence of up to 20 years, a 
fine of $500,000, and forfeiture of $1 million.  The defendant has surrendered his license to 
practice psychology.   
 
  In June 2012, a North Carolina woman was sentenced to 36 months imprisonment and ordered 
to pay full restitution for her role in a conspiracy to defraud North Carolina Medicaid of $1.1 
million in sham mental and behavioral health services.  The woman held herself out to be a 
provisionally-licensed counselor when, in fact, she was not.  Instead, she purchased a fake 
degree online and failed the licensing test five times.  Other Medicaid-approved providers 
joined the scheme to defraud by agreeing to submit false and fraudulent claims to Medicaid 
under their provider numbers for services which the unlicensed woman supposedly rendered.   
 
  In April 2012, Tenet Healthcare Corporation, which owns a network of healthcare facilities 
throughout the nation, paid $42.75 million to resolve allegations that its inpatient 
rehabilitation facilities (IRF) unlawfully admitted Medicare patients who did not meet the 
Medicare standards for IRF admissions.  IRFs are designed for patients who require a more 
intense inpatient rehabilitation program than is generally provided in other settings, such as 
acute care hospitals or skilled nursing facilities.   
 
  In January 2012, a Maryland podiatrist was sentenced to 54 months of incarceration and 
ordered to pay $1.1 million in restitution for his scheme to defraud Medicare Advantage 
(Medicare Part C) plans. The podiatrist pleaded guilty to fraudulently billing Medicare for 
services to patients he had never seen.  Additionally, he used the names and other personally 
identifiable information of approximately 200 nursing home patients to submit false claims 
for podiatry care he never provided. 
 
Pharmacies 
 
  In April 2012, Walgreens, an Illinois-based corporation operating a national retail pharmacy 
chain, paid the United States and participating states $7.9 million to resolve allegations that 
Walgreens violated the FCA.  In particular, the settlement resolved allegations that Walgreens 
offered illegal inducements to beneficiaries of government health care programs, including 
Medicare, Medicaid, TRICARE and the Federal Employees Health Benefits Program 
 
  25  (FEHBP), in the form of gift cards, gift checks and other similar promotions that are 
prohibited by law, to transfer their prescriptions to Walgreens pharmacies.  The government 
investigation found that Walgreens had offered government health beneficiaries $25 gift cards 
when they transferred a prescription from another pharmacy to Walgreens.  The companys 
advertisements that promoted gift cards and gift checks for transferred prescriptions typically 
acknowledged that the offer was not valid with Medicaid, Medicare or any other government 
program.  Nevertheless, the government alleged that Walgreens employees frequently ignored 
the stated exemptions on the face of the coupons and handed gift cards to customers who were 
beneficiaries of government health programs, in violation of Federal law. 
 
  In October 2011, the controlling member and pharmacist for an Indiana pharmacy, was 
sentenced to 51 months of incarceration and ordered to pay $3.5 million in restitution for his 
role in a health care fraud and money laundering scheme.  Between January 2006 and 
September 2010, the pharmacist used his position at the pharmacy to carry out a scheme to 
defraud the Indiana Medicaid Program.  He entered false prescriptions in the pharmacys 
computer billing system which, in turn, billed the Indiana Medicaid Program.  This 
investigation was conducted jointly with the Indiana Medicaid Fraud Control Unit (MFCU). 
 
  In August 2012, a Tennessee pharmacist agreed to plead guilty to defrauding health care 
benefit programs of more than $845,000 in a scheme where he mailed misbranded iron 
sucrose to Kansas dialysis centers.  The pharmacist represented to the dialysis centers that he 
was providing an FDA-approved product, when he was actually providing a product he 
manufactured, using unapproved chemicals from China.  He faces 60 months in prison under 
the terms of a plea agreement.   
 
  In December 2011, an assistant pharmacist of a Massachusetts pharmacy was sentenced to 12 
months and 1 day of incarceration and was ordered to pay restitution in the amount of 
$292,635 and $60,037 to Medicaid and Medicare, respectively, for his role in a health care 
fraud scheme.  The assistant pharmacist and the owner of the pharmacy solicited paper 
prescriptions from customers in exchange for illegal kickbacks and submitted false claims to 
Medicare and Medicaid.  They targeted customers with HIV/AIDS and/or psychiatric 
disorders, such as depression and bipolar disorder.  The owner was previously convicted on 
the same charge and sentenced to 15 months of incarceration. 
 
Clinics 
 
  In June 2012, a man, his sister, and her daughter were all sentenced for their roles in a 
Medicare fraud scheme.  The trio, along with two co-conspirators, fraudulently organized and 
operated three diagnostic testing clinics in Eastern Michigan.  According to court documents, 
between May 2007 and January 2010, the three clinics submitted false claims to Medicare for 
medically unnecessary services.  The defendants paid drivers to recruit, drive, and pay 
kickbacks to Medicare beneficiaries to induce them to visit the clinics.  The United States 
alleged that the beneficiaries were recruited from soup kitchens and paid to sign paperwork 
indicating they had received diagnostic testing, including nerve conduction testing, that was 
medically unnecessary.  The sister was sentenced to 5 years of incarceration and ordered to 
 
  26  pay $2.9 million in restitution, jointly and severally.  She was also excluded by HHS/OIG for 
a period of 10 years.  The man was sentenced to 24 months of incarceration and ordered to 
pay $592,813 in restitution, jointly and severally.  The daughter was sentenced to 36 months 
of incarceration.  The co-conspirators were each sentenced to 12 months of incarceration and 
ordered to pay $2.99 million and $1.2 million in restitution, respectively, jointly and severally.   
 
  In April 2012, the physician-owner of a medical clinic in the state of Washington and his 
mother were sentenced on charges of health care fraud and filing false income tax returns.  
According to court documents, the owner, who was the sole physician for the clinics, used 
three of the clinics to write a high number of prescriptions to thousands of patients for 
narcotic pain medications, such as Oxycodone and Methadone, while often providing little or 
no medical care.  His mother served as the business manager and supervisor for the non-
medical staff.  They collected significant sums for these visits and further inflated the 
treatment code levels when billing these visits to the health care programs.  The physician-
owner was sentenced to 12 years and 7 months of incarceration and ordered to pay $1.28 
million in restitution, jointly and severally.  His mother was sentenced to 7 years and 3 
months of incarceration and ordered to pay $1.22 million in restitution, jointly and severally.  
Additionally, the physician-owner and his mother were each excluded by HHS/OIG for a 
period of 40 years and 30 years, respectively. 
 
  In June 2012, an Asheville, N.C. resident pleaded guilty for her role in a health care fraud 
scheme that resulted in the submission of more than $63 million in fraudulent claims to 
Medicare and Medicaid in Miami, FL and Hendersonville, N.C.  The defendant, a licensed 
psychological associate, admitted to participating in a fraud scheme that was orchestrated 
through a CMHC that purported to provide partial hospitalization programs (PHPs).  
Specifically, the defendant and others agreed to fabricate therapy notes and other medical 
records and to direct other therapists to do the same, all to make it appear Medicare 
beneficiaries received appropriate services. 
 
  In June 2012, the CEO and founder of a Pennsylvania mental health clinic, was convicted by a 
jury of 76 counts of health care fraud, aggravated identity theft, distribution of controlled 
substances, and distribution of controlled substances to minors.  The defendant opened the 
clinic in 2008 and advertised it as a trauma-specific mental health clinic, directed at victims of 
trauma, children, and members of the military and their families.  The defendant falsely 
portrayed herself as a psychiatrist to the patients of the clinic.  Using the prescription pads of 
two actual psychiatrists, she provided forged prescriptions to the patients at the clinic and 
medicated the patients whom she purported to be treating.  The defendant also wrote 
prescriptions to children, one as young as four years old.  In furtherance of her crime, she also 
used the name and unique identifying information of an actual psychiatrist to bill insurance 
companies for patient visits.  From February 4, 2009, until the clinic was closed, the defendant 
submitted thousands of bills to insurance companies, charging them more than $500,000, as if 
the patients were being seen by a psychiatrist.   
 
  In October 2011, the owner and operator of a Texas physical therapy facility and his co-
conspirators fraudulently used the facility to pay kickbacks to Medicare beneficiaries and 
 
  27  recruiters; provide physical therapy services to Medicare beneficiaries even though it did not 
employ any licensed or qualified physical therapists; and bill Medicare for physical therapy 
services that were not rendered.  To mask this practice, the facility created false and 
fraudulent patient files.  The owner/operator was sentenced to 27 years and 3 months of 
incarceration and ordered to pay more than $30.2 million in restitution, jointly and severally.  
The co-conspirators were also sentenced in the scheme.  One was sentenced to 3 years and 10 
months of incarceration and ordered to pay more than $25.5 million in restitution, jointly and 
severally.  The other was sentenced to 11 years and 3 months of incarceration and ordered to 
pay more than $15.6 million in restitution, jointly and severally.  
 
  In November 2011, a facility that treats individuals for lymphatic disorders in New Jersey was 
ordered to pay $3 million in restitution after pleading guilty to the submission of false claims 
by its office manager.  Between January 2004 and June 2007, the office manager billed 
Medicare and Medicaid for services not provided to patients.  Specifically, the staff allegedly 
submitted claims for surgical procedures when, in fact, they had provided physical therapy 
services, which have a lower reimbursement rate. 
 
  In July 2012, a Miami-area resident and manager of a Detroit-area health clinic and his son 
and clinic-owner were both sentenced after pleading guilty to charges of conspiracy to commit 
health care fraud.  Between August 2007 and October 2009, the two and their co-conspirators 
billed Medicare for medically unnecessary tests and services performed by the clinic.  The 
Government contended that they used patient recruiters to offer kickbacks to patients and 
coach patients to feign symptoms, which were used as justification for the clinics physicians 
to order unnecessary diagnostic tests.  The father was sentenced to 40 months of incarceration 
and ordered to pay over $5.3 million in restitution, jointly and severally.  His son was 
sentenced to 60 months of incarceration and ordered to pay $6.3 million in restitution, jointly 
and severally. 
 
Medical Equipment Suppliers  
 
  In April 2012, AmMed Direct, LLC, a durable medical equipment supplier based in 
Tennessee, paid $17.5 million to the United States and $439,003 to the State of Tennessee to 
settle FCA allegations that it submitted false claims to Medicare and Tennessee Medicaid 
(TennCare).  The United States alleged that AmMed violated the Medicare Cold Call Rule by 
offering covered supplies, such as diabetes testing supplies, to Medicare beneficiaries who 
called AmMed to request non-covered supplies, such as diabetes cookbooks, that AmMed 
advertised as free.  The United States also alleged that AmMed unlawfully retained refunds 
owed to Medicare and TennCare for returned medical supplies.   
 
  In August 2012, the co-owner of two Los Angeles-area health care companies was sentenced 
to 42 months of incarceration and ordered to pay $7 million in restitution, jointly and 
severally, for his conviction stemming from a 9-year Medicare fraud scheme.  The individual 
and a co-defendant were the founders and operators of Prosperity Home Health Services, Inc. 
(Prosperity), a home health agency, and Caravan Medical Supplies Inc. (Caravan), a DME 
company.  According to court documents, between October 2002 and February 2011, the co-
 
  28  owner and co-conspirators paid marketers for Medicare beneficiary information and doctors 
prescriptions that were acquired fraudulently by the marketers.  This information was then 
used by Prosperity and Caravan to submit false claims to Medicare for services that were not 
medically necessary or not provided.  The co-defendant was previously sentenced to 8 years 
of incarceration and ordered to pay $7 million in restitution, jointly and severally.  The co-
defendant was also excluded by HHS/OIG for a period of 30 years. 
 
  In November 2011, Shield Healthcare, a medical supply company in the Los Angeles area, 
paid $5 million to resolve its civil liability under the FCA.  From 2003 through 2009, the 
defendant allegedly submitted fraudulent, inflated claims for payment to Californias Medi-
Cal program for incontinence supplies, as well as other medical supplies.   
 
  In November 2011, operators and employees of The Mobility Store (TMS), a Houston DME 
company were sentenced to prison for their roles in fraudulently billing braces to Medicare 
and Medicaid as orthotic devices.  As a result of this scheme, Medicare reimbursed TMS at a 
rate many times the actual cost of the braces.  The four individuals were sentenced to 15 
years, 11 years and 3 months, 3 years and 7 months, and 2 years and 9 months of 
incarceration, respectively, for their roles in the scheme. Additionally, one of the individuals 
was ordered to pay $4 million in restitution, jointly and severally, and the other three were 
each ordered to pay $8.6 million, jointly and severally. 
 
  In October 2011, the owner/operator of two DME companies that provided oxygen therapy in 
central and west Florida and two associated managers were sentenced to incarceration and 
ordered to pay restitution for participating in a scheme to defraud Medicare and Medicaid. 
Although DME companies are expressly prohibited by Medicare regulations from performing 
the qualifying tests to establish medical necessity for home oxygen, the owner/operator 
allegedly instructed his employees to perform such tests; falsify test results; and alter 
information on office computers, such as the beneficiarys name and the procedure date.  The 
owner/operator was sentenced to 12 years of incarceration and ordered to pay $7 million in 
restitution, jointly and severally.  The two managers were sentenced to 42 months of 
incarceration for their roles in the scheme, respectively, and both were ordered to pay $7 
million, jointly and severally, in restitution. 
 
  In March and May 2012, and as part of an organized crime ring takedown, the owner of a 
Georgia DME company and an associate were sentenced for their roles in a Medicare fraud 
scheme.  According to court documents, the owner stole the identities of hundreds of 
Medicare beneficiaries and physicians from multiple states and submitted claims to Medicare 
for medical equipment that was never provided.  In addition, his associate engaged in 
numerous fraudulent financial transactions designed to deliberately conceal the proceeds from 
the fraudulent claims that were submitted to Medicare.  The owner was sentenced to 12 years 
of incarceration and ordered to pay over $1.8 million in restitution, jointly and severally, for 
conspiracy to commit health care fraud and aggravated identity theft.  His associate was 
sentenced to 60 months of incarceration and ordered to pay $308,963 in restitution, jointly and 
severally, on charges of money laundering conspiracy.  He will be deported after his 
incarceration.  In addition, the owner and associate were each excluded by HHS/OIG for a 
 
  29  period of 20 years and 15 years, respectively.  This case was jointly investigated with the U.S. 
Immigration and Customs Enforcement, the FBI, and the Los Angeles County Sheriffs 
Office.  This investigation has led to more than 35 arrests in connection with this scheme. 
 
  In October 2011, the owner of a California medical supply company was sentenced to 37 
months of incarceration and ordered to pay $576,803 in restitution for one count of health care 
fraud.  Between October 2007 and December 2008, the owner defrauded the Medicare and 
Medi-Cal programs by paying kickbacks to marketers to solicit beneficiary information with 
promises of free DME.  The owner then sold the beneficiary information to a Medicare billing 
service, which, in turn, sold some of the information to a fraudulent DME company.  The 
fraudulent company then submitted claims to Medicare falsely representing that it had 
supplied DME to the Medicare beneficiaries.  The owner received the longest possible prison 
term.  In January 2011, the fraudulent companys owner was sentenced to 37 months of 
incarceration and ordered to pay over $330,000 in restitution. 
 
  In June 2012, a sales representative for a nationwide supplier of DME, was sentenced to 36 
months of probation and ordered to pay $70,358 in restitution, jointly and severally, after 
pleading guilty to charges of health care fraud.  In order to induce beneficiaries to attend her 
sales presentations, the sales representative advertised no cost custom fit shoes for diabetics 
and medical equipment for individuals suffering from arthritis.  She obtained beneficiaries 
Medicare and physician information and then suggested products that could help with their 
ailments.  The sales representative then ordered as many DME products as possible for those 
beneficiaries without regard to whether they actually requested the products or had a medical 
need for the equipment.  When beneficiaries complained about receiving items that they did 
not order, she allegedly told them to keep the products in the closet until you need them.  
The president of the supplier was previously sentenced to 3 years and 1 month of 
incarceration and ordered to pay more than $2.2 million in restitution after pleading guilty to 
charges of health care fraud, money laundering, and introduction of an adulterated and 
misbranded medical device into interstate commerce.   
 
Managed Care Organizations 
 
  In August 2012, SCAN Health Plan, a Long Beach-based managed care health plan, paid 
$319 million to the Federal government and the State of California to resolve allegations that 
it received overpayments from Medi-Cal, Californias Medicaid program, for services 
provided to long term care patients.  The overpayments to SCAN resulted from two actuarial 
errors made during the Californias rate-setting process.  The first error, which spanned the 
period January 1, 1985 through December 31, 2008, caused Medi-Cal to pay for SCANs 
long-term care (LTC) patients, who were generally cared for at home, in the same amount as it 
would for Medi-Cal fee-for-service LTC patients, who were generally in nursing homes.  The 
amount paid by Medi-Cal for that latter category of nursing home care is much higher than it 
paid for home care.  The second actuarial error, made between July 1, 2001 and December 31, 
2007, failed to account for the fact that SCANs Medi-Cal contract authorized SCAN to 
terminate the memberships of LTC patients after they had spent a maximum of two months in 
 
  30  a nursing home.  Due to this error, Medi-Cal, in effect, kept paying SCAN for certain LTC 
patients even after SCAN was no longer obligated to provide services to them. 
 
  In April 2012, WellCare, a Florida-based managed care organization, agreed to pay the United 
States and nine States a total of $137.5 million to resolve FCA allegations that it  
(1) falsely inflated the amount it claimed to be spending on medical care in order to avoid 
returning money to Medicaid and other programs in various states; (2) knowingly retained 
overpayments it had received from Florida Medicaid for infant care; (3) falsified data that 
misrepresented the medical conditions of patients and the treatments they received; (4) 
engaged in certain marketing abuses, including the "cherrypicking" of healthy patients in 
order to avoid future costs; (5) manipulated "grades of service" or other performance metrics 
regarding its call center; and (6) operated a sham special investigations unit.  WellCare will 
make payments over a period of three years.   In addition to the settlement, WellCare entered 
into a 5-year CIA with enhanced oversight and reporting obligations.     
 
Nursing Homes 
 
  In August 2012, a nursing home operator in Georgia was sentenced to serve 20 years in 
Federal prison and ordered to pay $6.7 million in restitution on charges of conspiring with his 
wife to defraud the Medicare and Georgia Medicaid programs between July 2004 and 
September 2007.  Medicare and Medicaid paid the operator more than $32.9 million during 
that time for food, medical care, and other services for nursing home residents, but evidence 
presented at trial showed that conditions in the nursing home were so poor that any services 
provided were of no value.  This is the first time that a defendant has been convicted after a 
trial in Federal court for submitting claims for payment for worthless services.  In addition 
to the health care fraud conspiracy count, the operator was also convicted of eight counts of 
failing to pay over $800,000 in his nursing home employees' payroll taxes to the IRS, and of 
failing to file personal income tax returns in 2004 and 2005.   
 
  In May 2012, Bethany Lutheran Home, Inc. paid $675,000 to resolve FCA allegations that 
from 2002 through 2008, it billed Medicare for medically unnecessary and unreasonable 
rehabilitation therapy services.  Because the daily rate that Medicare paid Bethany Lutheran 
depended, in part, on the medically unnecessary therapy it provided, Bethany Lutheran billed 
Medicare at a higher rate than was appropriate.    
 
  In October 2011, Vanguard Healthcare Ancillary Services, LLC; Vanguard Healthcare, LLC; 
and Vanguard Healthcare Services, LLC (collectively, Vanguard), agreed to pay $2 million as 
a part of a settlement agreement to resolve allegations of false claims and illegal kickbacks.  
Between March 1998 and September 2008, Vanguard allegedly submitted claims to Medicare 
for enteral (nutrition) therapy goods and services that were also billed to the Tennessee and 
Mississippi Medicaid programs.  Vanguard also allegedly submitted claims to Medicare for 
certain free items, namely pumps used to deliver nutritional products and intravenous poles 
used in the administration of enteral therapy that Vanguard had received at no cost from a 
third party supplier in order to induce referrals.  This investigation was conducted jointly with 
the Tennessee MFCU. 
 
  31   
Home Health Providers 
 
  In August 2012, the president and an employee of a home health services supplier in Florida 
were sentenced for their participation in a multi-million dollar fraud scheme.  According to 
court documents, between February 2005 and April 2011, the president and her co-
conspirators paid kickbacks and bribes to patient recruiters in return for the recruiters 
providing patients to the home health supplier, as well as prescriptions, plans of care (POC), 
and certifications for medically unnecessary therapy and home health services.  Employees of 
the home health company then falsified patient files for Medicare beneficiaries to appear as 
though they qualified for the services.  The president then used these prescriptions, POCs, and 
medical certifications to fraudulently bill Medicare for home health care services.  The two 
individuals were sentenced to 9 years and 3 years and 10 months of incarceration, 
respectively.  In addition, the president was ordered to pay $14 million in restitution, jointly 
and severally, and the employee was ordered to pay over $2 million in restitution. 
 
  In August 2012, a private citizen, a representative of an estate, Diversified Health 
Management Inc. (f.k.a. CareAll Management, LLC), the James W. Carell Family Trust, 
CareAll, Inc., VIP Home Nursing and Rehabilitation Services LLC, Professional Home 
Health Care LLC, and University Home Health LLC paid $9.4 million to settle FCA 
allegations that the defendants knowingly submitted or caused to be submitted eight false cost 
reports to Medicare, for cost report years 1999, 2000, and 2001, that concealed the related 
party relationship between the agencies and their management company, resulting in the 
defendants receipt of excessive Medicare reimbursement.                                                                                                     
 
  In February 2012, a personal care attendant and her daughter were sentenced for their roles in 
a Medicaid fraud scheme.  A relative of the pair was a Medicaid beneficiary and received 
attendant care services from the attendant pursuant to the Medicaid Commerce Waiver 
Program.  An initial investigation by the Pennsylvania MFCU revealed that the beneficiary 
suffered from ulcers, bed sores, dehydration, and malnutrition and had missed numerous 
medical appointments.  A doctor who examined him in June 2009 recommended that the 
beneficiary be immediately transported to an emergency room.  On a number of the 
attendants timesheets, the attendants daughter signed on behalf of the beneficiary, verifying 
the hours and services provided.  Numerous timesheets and claims submitted to Medicaid 
included hours that the attendant allegedly provided care when in fact the attendant was 
employed elsewhere or was out of town or when the beneficiary was hospitalized or was in a 
nursing home.  The attendant was sentenced to between 11.5 months to 23 months of 
incarceration and ordered to pay $128,000 in restitution.  Her daughter was ordered to pay 
$38,614 of this amount, jointly and severally with the attendant, and was sentenced to a 7-year 
term of probation.  This was a joint investigation with the MFCU of the Pennsylvania 
Attorney Generals Office and the Montgomery County District Attorneys Office. 
 
  In January 2012, the owner/operator of a Minnesota home health facility was sentenced to 24 
months of incarceration and ordered to pay $656,876 in restitution to Medicaid for claims 
submitted for personal care assistant (PCA) services.  Between May 2007 and March 2008, 
 
  32  the owner/operator submitted false claims with respect to the number of PCA service hours 
provided to Medicaid beneficiaries. The owner/operator also submitted false claims to 
Medicaid for services that were not rendered, were provided by an unqualified individual, and 
were not medically necessary.  This case was jointly investigated with the Minnesota MFCU. 
 
  In December 2011, Health Care of Virginia, LLC, (HCV), an HHA, was ordered to pay 
$323,420 in restitution for health care fraud.  The company allegedly submitted claims to the 
Virginia Medicaid program for services rendered by untrained personal care aides.  The 
investigation indicated that HCV falsified training certificates and patient assessments.  Two 
other defendants pleaded guilty for their roles in the fraud scheme and have been sentenced.  
This was a joint investigation with the Virginia MFCU. 
 
Other Medicare/Medicaid Matters 
 
  In September 2012, Universal Health Services Inc. (UHS), and its subsidiaries, Keystone 
Education and Youth Services LLC and Keystone Marion LLC d/b/a Keystone Marion Youth 
Center agreed to pay over $6.9 million to resolve allegations that they submitted false and 
fraudulent claims to Medicaid.  Between October 2004 and March 2010, the entities allegedly 
provided substandard psychiatric counseling and treatment to adolescents in violation of the 
Medicaid requirements.  The United States alleged that UHS falsely represented Keystone 
Marion Youth Center as a residential treatment facility providing inpatient psychiatric 
services to Medicaid enrolled children, when in fact it was a juvenile detention facility.  The 
United States further alleged that neither a medical director nor licensed psychiatrist provided 
the required direction for psychiatric services or for the development of initial or continuing 
treatment plans.  The settlement further resolved allegations that the entities filed false records 
or statements to Medicaid when they filed treatment plans that falsely represented the level of 
services that would be provided to the patients. This was a joint investigation with the 
Virginia MFCU. 
 
  In August 2012, a CFO of a Medicaid contractor agreed to plead guilty to defrauding Kansas 
Medicaid of more than $2.1 million for sham consulting fees he had paid to a bogus company 
he created, and for sports equipment he donated to various sports teams he coached.  The 
CFO used the money to build an extravagant home in the country, including a $70,000 pool.  
By the terms of the plea agreement the defendant has entered into, he will be sentenced to 36 
months incarceration and ordered to pay restitution of over $2.1 million.   
 
  In June 2012, in Ohio, two leaders of an international ring, which stole identities of doctors 
and patients in an effort to bill Medicare for more than $48 million in fraudulent charges, were 
sentenced to 11 years and 8 years of incarceration, respectively.  This case was part of a 
nationwide sweep in which 73 people were indicted in New York, Georgia, California and 
New Mexico, for the submission of well over $100 million in fraudulent claims to Medicare. 
 
  In March 2012, two defendants were convicted of violations of the Controlled Substances Act, 
and the Money Laundering statute, for their involvement in an illegal Internet pharmacy 
operation.  One defendant owned and operated the illegal Internet pharmacy, Pitcairn, based in 
 
  33  Florida; the other owned and operated the fulfillment pharmacy, Kwic Fill, located in North 
Carolina, that filled drug orders for Pitcairn and other illegal Internet pharmacies. Pitcairn 
earned over $75 million during its four years of operation.  Kwic Fill earned over $4 million 
in just two months.  The pharmacies provided controlled substances to customers solely based 
on the provision of a credit card number and completion of a 10-question medical 
questionnaire.  The $75 million in Pitcairns revenue was laundered through ten different 
countries, including Switzerland, Liechtenstein, Luxembourg, the Netherlands, Romania, 
Canada, Panama, the Bahamas, St. Kitts & Nevis, and the Netherlands Antilles.  Eight other 
defendants have entered guilty pleas in this matter.  Three additional defendants are set for 
trial in September 2012. 
 
  In March 2012, a North Carolina woman was sentenced to 54 months incarceration for her 
role in defrauding Medicaid of $1.5 million.  The woman conspired with other Medicaid 
approved providers to submit claims for fraudulent services which she allegedly provided.  In 
reality, she did not provide any of the claimed services and merely operated an after school 
program.  She nevertheless sought and obtained Medicaid reimbursement for these services by 
misrepresenting the nature of the service and the identity of the clinician providing the 
service.  The defendant then spent the proceeds of this fraud on numerous luxury vehicles.  
She also purchased her residence in North Carolina and a time share in Kissimee, Fla., with 
the proceeds of her fraud.   In announcing the sentence, the judge characterized the theft of 
money from a fund for low-income recipients as appalling and noted that the conduct was 
egregious and deserving of just punishment.  The defendant was ordered to pay $1.5 
million in restitution. 
 
  In December 2011, a Georgia man was sentenced to over 5 years in prison and ordered to pay 
$1.0 million for health care fraud and criminal HIPAA violations.  The defendant persuaded 
numerous practicing physicians to bill Medicare, Medicaid, and private insurers under their 
own provider numbers for allergy-related care provided by him.  The defendant had never 
been licensed in Georgia as a physician, physician assistant, nurse practitioner, or clinical 
nurse specialist. 
Transportation Providers 
 
  In June 2012, Rural/Metro Corporation, Rural/Metro of Central Alabama Inc., and Mercury 
Ambulance Service paid $5.4 million to settle FCA claims that the company improperly billed 
Medicare for payment on ambulance services that were never provided or were medically 
unnecessary.  In particular, the United States alleged that the defendants represented that 
transported patients were either bed-confined or that transportation by ambulance was, 
otherwise, medically required. Many of those patients, however, were neither bed-confined 
nor needed to be moved on stretchers, and did not require ambulance transportation or qualify 
for ambulance transport under the applicable Medicare requirements. 
 
  In June 2012, the owners and operators of an ambulance and medical transport company in 
North Carolina entered into a FCA settlement agreement for $950,178.  The settlement 
resolved allegations that, between January 2002 and October 2006, the owner/operators 
 
  34  submitted Medicare and Medicaid claims for non-emergency ambulance transport for dialysis 
patients whose transports were not medically necessary because the patients were ambulatory 
and/or not bed-confined.  As part of the settlement, the second owner/operator agreed to an 
exclusion of 15 years based on her conviction of conspiracy to make false statements relating 
to health care matters.  In the criminal case, she was sentenced to 28 months of incarceration 
and ordered to pay $475,089 in restitution.  This was a joint investigation with the North 
Carolina MFCU. 
 
  In November 2011, the president and owner of an ambulance company in Rhode Island was 
sentenced to 24 months of incarceration and ordered to pay $704,117 in restitution for health 
care fraud.  Between March and December 2008, the president/owner submitted fraudulent 
claims to Medicare and Blue Cross and Blue Shield by billing routine dialysis transports as 
specialty care transports (SCT), even though the ambulance company did not have the proper 
equipment or personnel to provide SCTs.  This upcoded billing, which should have been 
billed as basic life support, resulted in a higher reimbursement rate.  The president/owner also 
instructed his employees to alter the trip sheets to ensure that the transports qualified as SCTs. 
 
Hospice Providers 
 
  In February 2012, Odyssey Healthcare, Inc., (Odyssey) a subsidiary of Gentiva Health 
Services, Inc., agreed to pay $25 million to resolve FCA allegations that between January 
2006 and January 2009, it submitted claims for hospice services that were medically 
unnecessary.  The investigation found Odyssey billed Medicare for continuous or crisis care 
services when the patients were not experiencing a crisis.  Continuous or crisis care is 
reimbursed by Medicare at a higher rate than routine care.  As part of the settlement, Odyssey 
entered into a 5-year CIA with HHS/OIG. 
 
  In December 2011, Diakon Lutheran Social Ministries d/b/a Diakon Hospice Saint John 
(Diakon) paid $10.6 million to resolve FCA claims that it erroneously submitted claims for 
Medicare beneficiaries who were not eligible for hospice care during the period from October 
1, 2004 to September 30, 2010.   
 
  In June 2012, Hospice Care of Kansas, LLC and its parent company, Voyager HospiceCare, 
Inc., paid $6.1 million to resolve allegations that it violated the FCA by submitting claims 
between January 2004 and December 2008 for ineligible beneficiaries who did not have a 
terminal prognosis of six months or less. 
 
  In August 2012, Hospice Family Care Inc. (HFC) in Arizona agreed to pay $3.7 million to 
resolve its liability for allegations under the FCA.  HFC, which was owned by two registered 
nurses, provided hospice care under Medicares hospice benefit.  To be eligible for hospice 
care, the patients attending physician and the hospices medical director must certify the 
patient is terminally ill.  Medicare reimbursement is based on the level of care provided by the 
hospice.  According to court records, HFC allegedly submitted claims to Medicare for the care 
of patients who were either completely or partially hospice ineligible or were provided a 
higher level of hospice care than was necessary or allowable.  As part of the agreement, both 
 
  35  nurses agreed to be excluded from participation in Federal health care programs for a period 
of 7 years. 
 
  In December 2011, Hospice Home Care, Inc., (HHC) agreed to pay $2.7 million to resolve its 
liability under the FCA for allegedly submitting false claims to Medicare.  Between January 
2002 and December 2004, HHC allegedly billed Medicare for general inpatient services when 
the patients received only routine care, which has a lower reimbursement rate. 
 
Other Schemes 
 
  In March 2012, LifeWatch Services, Inc. paid $18.5 million to resolve allegations that it 
violated the FCA by submitting false claims to Medicare for heart monitoring services that 
were not eligible for reimbursement.   
 
  In July 2012, NextCare, Inc, an Arizona-based company, agreed to pay $10 million to settle 
Federal and state allegations that it submitted false claims to Medicare, TRICARE and the 
FEHBP, as well as the Medicaid programs of Colorado, Virginia, Texas, North Carolina and 
Arizona, for unnecessary allergy, H1N1 virus and respiratory panel testing. The United States 
also contended that NextCare inflated billings for urgent care medical services in the years 
under review. 
 
  In February 2012, Accela Medical LLC, a laboratory established to bill Medicare for 
diagnostic testing services, and six other defendants (Western Slope Laboratory, Coventry 
Diagnostics LLC, Performance Labs, Inc., and individual defendants) paid $5.4 million to 
resolve FCA claims that they fraudulently secured a provider number for McCormick, who 
had been excluded from the Medicare program, to further the scheme.  The United States 
further contended that the defendants billed Medicare for quantitative opiate tests that were 
never performed.  A non-party investor in defendant Coventry Diagnostics separately paid the 
United States $400,000 in Medicare funds he had received from Coventry.   
 
  In December 2011, February 2012, and June 2011, three individuals were sentenced to 7 
years, 5 years and 3 months, and 2 years and 6 months of incarceration, respectively.  
Between December 2007 and February 2008, these co-conspirators laundered fraudulent 
proceeds from five pharmacies and DME companies.  One individual was charged with 15 
counts of money laundering and 2 counts of structuring to avoid reporting requirements and 
was ordered to pay $250,000 in restitution following his jury trial conviction.  After the 
convictions of these individuals and with cooperation from other defendants, the owner of the 
pharmacies and DME companies was indicted for allegations of crimes, including health care 
fraud and aggravated identity theft. 
 
  In November 2011, a private citizen was sentenced to 7 years and 2 months of incarceration 
for possession with intent to distribute, as well as for distributing the Schedule II drug 
Oxycodone.  The individual was part of a fraud scheme that entailed obtaining paper 
Oxycodone prescriptions from a local physician who prescribed the controlled substances to 
 
  36  Medicare and Medicaid beneficiaries, despite lack of medical necessity.  He then assisted in 
filling the prescriptions and trafficking the drugs to street dealers. 
 
 
 
 
  37  DEPARTMENT OF HEALTH AND HUMAN SERVICES 
  
Office of Inspector General 
 
A certain portion of the funds appropriated under HIPAA are, by law, set aside for Medicare and 
Medicaid activities of HHS/OIG.13  In FY 2012, the Secretary and the Attorney General jointly 
allotted $196.1 million to HHS/OIG.  Additionally, Congress appropriated $29.7 million in 
discretionary funding for HHS/OIG HCFAC activities. 
 
HHS/OIG conducted investigations or other inquiries that resulted in 1,145 prosecutions or 
settlements in FY 2012, of which 1,047, or 91 percent, were health care cases.  A number of these 
are highlighted in the Accomplishments section.  In addition, during FY 2012, HHS/OIG 
excluded a total of 3,131 individuals and entities, the details of which are below. 
 
In FY 2012, HHS/OIG continued to staff and support Medicare Strike Force operations worked in 
conjunction with DOJ Criminal Divisions Fraud Section, local USAOs, the FBI, and State and 
local law enforcement agencies.  HHS/OIG has assigned agents to Strike Forces in Miami, New 
York City, Houston, Tampa, Detroit, Los Angeles, Baton Rouge, Dallas, and Chicago.  HHS/OIG 
has supported Strike Force operations by providing investigative, analytic, and forensic resources.  
These Strike Forces have effectively investigated and prosecuted individuals and entities that do 
not provide legitimate health care services, but exist solely for the purpose of defrauding 
Medicare and other Government health care programs.  The continued support of Medicare Strike 
Force operations is a top priority for HHS/OIG.   
 
Program Savings 
 
Frequently, investigations, audits, and evaluations reveal vulnerabilities or incentives for 
questionable or fraudulent practices in agency programs or administrative processes.  As required 
by the Inspector General Act, HHS/OIG makes recommendations to agency managers to address 
these vulnerabilities.  In turn, agency managers recommend legislative proposals or other 
corrective actions that, when enacted or implemented, close loopholes and reduce improper 
payments or conduct.  The savings from these joint efforts toward program improvements can be 
substantial.  During FY 2012, HHS/OIG reported that legislative and administrative actions to 
make funds available for better use resulted in an estimated $8.5 billion in health care savings 
attributable to FY 2012  $8 billion in Medicare savings and $525 million in savings to the 
Federal share of Medicaid.   
 
Additional information about savings achieved through such policy and procedural changes may 
                                                 
13  In addition to the funds made available to OIG from the HCFAC account under HIPAA, Congress has provided 
funds to OIG specifically for oversight of the Medicaid program.  The Deficit Reduction Act of 2005 (DRA, P.L. 
109-171), and the Supplemental Appropriations Act of 2008 (Pub. L. 110-252) at  7001(b) each appropriated 
funding for Medicaid-related oversight efforts.  Therefore, OIGs Medicaid activities cited throughout this report 
may have drawn from these funding sources, in addition to HCFAC. 
 
  38  be found in the HHS/OIG Semiannual Report, on-line at http://oig.hhs.gov. 
 
Exclusions 
 
One important mechanism for safeguarding the care provided to program beneficiaries is through 
exclusion of providers and suppliers who have engaged in the abuse or neglect of patients or fraud 
from participation in Medicare, Medicaid, and other Federal health care programs.  During  
FY 2012, HHS/OIG excluded a total of 3,131 individuals and entities.  Among these were 
exclusions based on criminal convictions for crimes related to Medicare and Medicaid (912) or to 
other health care programs (287); for patient abuse or neglect (212); or as a result of licensure 
revocations (1,463).  This list of conduct is not meant to be exhaustive, but identifies the most 
prevalent causes underlying HHS/OIGs exclusions of individuals or entities in FY 2012.  
Exclusion actions by HHS/OIG included: 
 
  Texas  In September 2012, a nurse was excluded from participation in Federal health care 
programs for a period of 60 years after she was sentenced to life in prison without parole for 
capital murder.  In April 2008, the nurse worked at a dialysis center in Lufkin, Texas, which 
serviced Medicare beneficiaries.  During the time of her employment, the facility experienced 
an unusual rate of patients suffering cardiac arrest while undergoing dialysis.  According to 
court records, on April 28, 2008, two patients witnessed the nurse draw bleach into a syringe 
and inject it into the dialysis lines of patients at the dialysis center, causing the patients to 
suffer distress and respiratory arrest.  It was determined that at least five patients died and five 
others suffered cardiac arrest that did not result in death due to the nurse injecting bleach into 
their dialysis lines or directly into their bloodstream. 
 
  Iowa  In December 2011, a certified medication aide at a residential facility was excluded for 
20 years for his conviction on two counts of dependent adult abuse.  He sexually exploited 
two dependent adults and caused them to suffer mental injuries and increased symptoms 
regarding their mental health problems.  The medication aide also has a prior criminal history 
that includes convictions for driving with a suspended license; assault with intent to cause 
pain or injury; theft in the fifth degree; driving while barred  habitual offender; and 
possession of a controlled substance. 
 
  Florida  In December 2011, the owner of durable medical equipment companies was 
excluded for 95 years on the basis of his conviction of health care fraud and conspiracy to 
commit health care fraud.  From 2002 to about August 2004, the owner and his co-
conspirators submitted false Medicare claims on behalf of the companies, seeking 
reimbursement for DME that was neither ordered by a physician nor provided to the 
beneficiary.  The court ordered him to pay $35.1 million in restitution and to serve 168 months 
of incarceration. 
 
  Ohio  In January 2012, a pediatrician was excluded for 50 years on the basis of his 
conviction of unlawful sexual conduct with a minor, bribery, complicity to deception to obtain 
dangerous drugs, and compelling prostitution.  From about March 1992 to about December 
2008, this physician provided prescriptions for controlled substances or money to patients in 
 
  39  return for sexual favors.  The court sentenced him to 13 years of incarceration.  The Ohio 
State Board of Medicine permanently revoked his license to practice medicine. 
 
  California  In June 2012, the former medical doctor of a famous pop singer was excluded for 
a minimum period of 50 years based on his conviction for involuntary manslaughter.  
According to court documents, the doctors actions included administering Propofol, an 
anesthetic drug used to induce and maintain anesthesia to the singer on a nightly basis for over 
2 months.  On June 25, 2009, he administered Propofol, along with another drug to the singer 
and then abandoned him.  When he directed his attention back to his patient, he found that he 
was no longer breathing.  It is alleged that the doctor waited at least 20 minutes prior to 
summoning emergency personnel.  In November 2011, a jury convicted him of involuntary 
manslaughter for his actions.  He was sentenced to 4 years of incarceration, ordered to pay 
$101,827,871 in restitution, and ordered to cease and desist from practicing medicine in the 
State of California.  
 
  Arizona  In May 2012, an Arizona medical doctor specializing in pediatrics was excluded 
indefinitely based on the revocation of his license by the Arizona Medical Board.  According 
to court records, an FBI agent from the Innocent Images Unit signed into a file sharing 
program on the internet and came into contact with a person later identified as this physician, 
who was sharing approximately 10,000 files.  The files contained multiple images of child 
pornography.  After being charged with distributing child pornography in interstate 
commerce, the Medical Boards of California and Texas revoked the physicians license to 
practice medicine in their States.  On September 2010, while on house confinement, the 
physician removed his electronic monitoring unit and absconded.  He remains a fugitive. 
 
Other Administrative Enforcement Actions  Civil Monetary Penalties 
 
HHS/OIG has the authority to impose civil monetary penalties (CMPs) against providers and 
suppliers who knowingly submit false claims to the Federal government, who participate in 
unlawful patient referral or kickback schemes, who fail to appropriately treat or refer patients at 
hospital emergency rooms, or who engage in other activities prescribed in statute.  HHS/OIG has 
continued to pursue its affirmative enforcement actions under these authorities.  Examples 
include:   
 
  Mississippi  OIG reached settlements with eight physicians who allegedly violated the Civil 
Monetary Penalties Law (CMPL) by causing the submission of false claims to Medicare from 
physical medicine companies.  Specifically, the physicians reassigned their Medicare 
payments to various physical medicine companies in exchange for medical directorship 
positions.  The companies then falsely billed Medicare using the physicians reassigned 
provider numbers as if the physicians had personally rendered the services or directly 
supervised individuals rendering the services.  The eight physicians have collectively paid 
$604,874 to resolve their CMPL liability.  Several owners and operators of the physical 
medicine companies were criminally prosecuted in Federal court for their roles in these 
schemes. 
 
 
  40    New Jersey  In December 2011, Sandoz Inc. (Sandoz), a pharmaceutical manufacturer, 
agreed to pay $230,000 to resolve its potential liability under the CMPL.  Specifically, the 
Government contended that Sandoz failed to timely submit pricing data required under the 
Medicaid Drug Rebate Program. 
 
  Georgia  In October 2011, Piedmont Hospital (Piedmont) agreed to pay $50,000 to resolve 
its potential liability under the Emergency Medical Treatment and Active Labor Act 
(EMTALA).  The Government alleged that Piedmont failed to provide an appropriate medical 
screening exam and stabilizing treatment for an individual who presented to Piedmonts 
emergency department for evaluation and treatment of an emergency medical condition.  The 
individual made repeated requests for treatment for approximately 8 hours without success.  
The individual left Piedmont, went to another hospital, and was diagnosed and treated for 
deep vein thrombosis and pulmonary embolus. 
 
  Tennessee  In December 2011, Vanderbilt University Medical Center (Vanderbilt) agreed to 
pay $45,000 to resolve its potential liability under EMTALA.  The Government alleged that 
Vanderbilt refused to accept the appropriate transfer of a 66-year-old patient suffering from a 
large subdural hematoma on the brain with a midline shift.  The patient, who had an unstable 
emergency medical condition that required the specialized capabilities available at Vanderbilt, 
died a few hours later at another hospital.  The neurosurgeon on call at Vanderbilt agreed to 
pay $35,000 to resolve his potential liability as a responsible physician under EMTALA for 
refusing to accept an appropriate transfer of an individual with an unstable emergency medical 
condition that required the services of a neurosurgeon.   
 
  Massachusetts  In April 2012, Baypointe Rehabilitation and Skilled Care Center, a nursing 
home, agreed to pay $351,255 to resolve its liability under the CMPL.  Baypointe employed 
an excluded nurse as its Assistant Director of Nursing from January 2006 through July 2009.  
OIG excluded the nurse after the Mississippi Board of Nursing revoked her license following 
a positive pre-employment drug test.  The Government contended that Baypointe should have 
known that the nurse was excluded. 
 
Audits and Evaluations 
 
Every year, HHS/OIG conducts a substantial number audits and evaluations that disclose 
questionable or improper conduct in Medicare and Medicaid, and recommends corrective actions 
that, when implemented, correct program vulnerabilities and save program funds.  Among those 
completed in FY 2012 were:  
 
Medicaid Drugs 
 
  HHS/OIG found that states could better approximate pharmacies invoice prices of drugs 
by developing separate reimbursement methodologies for major categories of drugs 
(single-source drugs, brand-name multiple-source drugs, and generic multiple-source 
drugs).  Numerous OIG reviews have found that the basis that states historically used for 
Medicaid drug reimbursements did not represent pharmacies actual costs to acquire drug 
 
  41  ingredients (invoice prices) and as a result, states often have over-reimbursed pharmacies 
for those costs.  This review evaluated the relationships between three recognized pricing 
benchmarks and pharmacy invoice prices for Medicaid-reimbursed drugs and found 
variations depending on whether the drugs were brand-name or generic.  HHS/OIG 
recommended that CMS share the results of this review with states to use when 
considering changes to their pharmacy reimbursement methodologies, including those for 
major categories of drugs. 
 
  HHS/OIG found that neither CMS nor the 14 state agencies that it reviewed had adequate 
controls to ensure that all drug expenditures complied with Federal requirements.  Federal 
Medicaid funding is generally available for covered outpatient drugs if the drug 
manufacturers have rebate agreements with CMS and pay rebates to the states.  The 
agreements require manufacturers to provide a list of all covered outpatient drugs to CMS 
quarterly.  However, manufacturers did not always provide information timely.  In 
addition, HHS/OIG found that the states generally did not use the quarterly Medicaid drug 
tapes (quarterly listings) to determine whether a drug was eligible for coverage and did not 
contact CMS to determine whether a drug was eligible for coverage if the drug was not on 
the tapes.  HHS/OIG recommended that CMS instruct states to ensure compliance with 
Federal requirements, appropriately report terminated drug expenditures to states, and 
require that states use the reports to ensure compliance.  CMS should also work with 
manufacturers to ensure that they collect and submit complete and accurate information 
and take appropriate action if they are not timely in providing the information.  
 
Medicaid Personal Care Services 
 
Medicaid reimburses for personal care services, which are generally furnished to individuals 
residing in their homes and not residing in hospitals, nursing facilities, intermediate care facilities 
for the mentally retarded, or institutions for mental diseases.  Further, Medicaid beneficiaries are 
authorized for personal care services by a physician in accordance with a plan of treatment or with 
a service plan approved by each state.  Other requirements may also apply based on state 
regulations. 
 
  HHS/OIG found that New Jersey improperly claimed an estimated $145 million in Federal 
Medicaid reimbursement for PCS.  Types of deficiencies in the claims reviewed included 
lapses relating to:  authorizations, in-service education for personal care attendants, 
nursing supervision, documentation of services, nursing assessments, and certification of 
personal care attendants by the New Jersey Board of Nursing.  New Jersey did not 
effectively monitor the PCS program for compliance with Federal and State requirements.  
HHS/OIG recommended that the state refund $145 million to the Federal government and 
improve its monitoring of the PCS program to help ensure compliance with Federal and 
state requirements.  
 
  HHS/OIG found that New Mexico improperly claimed about $889,000 in Federal 
reimbursement for PCS provider Ambercare that did not always comply with certain 
Federal and state requirements.  The deficiencies included lapses with attendant training, 
 
  42  lack of support for the number of units claimed for attendant services, and prior approval 
for PCS provided by a legal guardian.  HHS/OIG recommended that New Mexico refund 
$889,000 to the Federal government and ensure that PCS providers maintain evidence that 
they comply with Federal and State requirements. 
 
  HHS/OIG found that New Mexico did not always ensure that PCS provider Coordinated 
Home Healths (Coordinateds) claims for Medicaid personal care services complied with 
certain Federal and state requirements.  Based on sample results, HHS/OIG estimated that 
Coordinated improperly claimed at least $11 million (Federal share) for personal care 
services during the period October 1, 2006, through September 30, 2008.  Of the 100 
claims in the sample, 54 complied with requirements, but 46 did not.  Three of the 46 
claims were partially allowable. The 46 claims contained a total of 60 deficiencies, 
including insufficient attendant qualifications.  HHS/OIG recommended, among other 
things, that the state refund to the Federal government the $11 million paid to Coordinated 
for unallowable personal care services. 
 
  For the period October 1, 2006, through September 30, 2008, HHS/OIG estimated that 
New Mexico paid PCS provider Heritage Home Healthcare (Heritage) approximately $4.5 
million for personal care services claims that did not always comply with certain Federal 
and State requirements.  Of the 100 claims in the random sample, 36 did not comply with 
these requirements. The deficiencies included insufficient attendant training, missing prior 
approval for services, and unsupported units of service claimed.  HHS/OIG recommended, 
among other things, that the state refund to the Federal government the $4.5 million paid 
to Heritage for unallowable personal care services. 
 
  On the basis of sample results, HHS/OIG estimated that the Missouri Department of 
Social Services (State agency) claimed $26.7 million (Federal share) in reimbursement for 
Medicaid personal care services that did not comply with Federal and State requirements. 
In addition, the state agency claimed $213,000 (Federal share) for personal care services 
that were not supported by the claim data because the State agency did not have 
procedures to maintain that supporting documentation.  Of the 100 grouped line items in 
our sample, 50 complied with Federal and state requirements.  HHS/OIG recommended, 
among other things, that the State agency refund $26.9 million to the Federal government. 
 
Medicaid Continuing Day Treatments 
 
  HHS/OIG found that more than half of the claims for continuing day treatment (CDT) 
services that it reviewed did not comply with one or more of New York States 
requirements for payment, resulting in unallowable Federal reimbursements estimated at 
about $84.4 million.  CDT is a form of clinic services performed by non-hospital 
providers that New York includes among its licensed outpatient programs.  Providers did 
not properly document the type of CDT services billed, recipients clinical progress, 
and/or recipients contacts with outpatient program staff.  Although the State conducts 
periodic onsite monitoring, its monitoring program did not ensure that providers complied 
 
  43  with all state requirements.  HHS/OIG recommended that the State refund $84.4 million to 
the Federal government, work with the State Office of Mental Health to issue guidance to 
the provider community regarding State requirements for claiming Medicaid 
reimbursement for CDT services, and work with the state office to improve its monitoring 
of the CDT program to ensure compliance with State requirements. 
 
Medicaid Transportation Services 
 
States are required to ensure necessary transportation for Medicaid beneficiaries to and from 
providers.  Pursuant to New York State regulations, nonemergency medical transportation 
(NEMT) services may be delivered through the use of an ambulance, an ambulette, a taxicab, or 
livery service.  However, prior authorization must be obtained; a medical practitioners order 
justifying the beneficiarys use of NEMT services must be documented in the beneficiarys 
medical record; and a transportation provider must notify the New York Department of Motor 
Vehicles within 10 days of the date on which an ambulette driver commences employment. 
 
  HHS/OIG found that New York improperly claimed an estimated $13.5 million in Federal 
Medicaid reimbursement for NEMT services.  The deficiencies occurred because New 
York States policies, procedures, and mechanisms for overseeing the Medicaid program 
did not ensure that providers complied with Federal and state requirements for ordering, 
documenting, providing, and claiming such services.  HHS/OIG recommended that the 
state refund $13.5 million to the Federal government; strengthen policies and procedures 
to ensure compliance with requirements for ordering, documenting, and claiming NEMT 
services; and require the New York State social services districts to strengthen their 
quality assurance mechanism to ensure that NEMT services are properly provided.   
 
  HHS/OIG found that during a 1-year period, New York improperly claimed Federal 
reimbursement for almost 1 million NEMT claims for services in New York City.  We set 
aside for further analysis additional New York City NEMT claims that may also have 
been noncompliant.  New Yorks policies and procedures did not ensure that providers 
complied with Federal and state requirements for ordering, documenting, and claiming 
NEMT services, and New York Citys social services districts quality assurance 
mechanism did not ensure that NEMT services were properly provided.  HHS/OIG 
recommended that the state refund an estimated $17 million to the Federal government; 
resolve $2.9 million set aside for further analysis; and strengthen policies, procedures, and 
quality controls. 
 
Medicaid Managed Care 
 
  HHS/OIG found that 11 excluded providers enrolled in 4 of 12 Medicaid managed care 
entities (MCE) provider networks.  Only providers enrolled in the 12 selected MCEs were 
reviewed; additional excluded individuals may be employed by providers enrolled in the 663 
MCEs not included in this study.  States may benefit from sharing information regarding 
the failures that led to the inclusion of these few excluded providers in MCE provider 
networks.  For example, two MCEs explained that excluded providers had joined their 
 
  44  MCE networks through their acquisition of other MCEs or the providers had simply not 
been removed from the enrollment data when their last contracts expired or were 
terminated.  This report also describes the safeguards MCEs use to identify excluded 
providers.  HHS/OIG recommended that CMS periodically remind states of their 
obligation to ensure that no excluded providers receive Medicaid payments. 
 
  Medicaid MCE reported to HHS/OIG that they took steps to oversee fraud and abuse 
safeguards, but they remain concerned about the prevalence of fraud.  CMS, states, and 
Medicaid MCEs expressed that services billed but not rendered are their primary concern 
with respect to fraud and abuse in Medicaid managed care.  Other concerns include 
rendering services that are not medically necessary, upcoding by providers, questionable 
beneficiary eligibility, and prescription drug abuse by beneficiaries.  All MCEs in our 
sample reported taking steps to meet Federal program integrity requirements.  HHS/OIG 
recommended that CMS require that state contracts with MCEs include a method to verify 
with beneficiaries whether they received services billed by providers.  HHS/OIG also 
recommended that CMS update guidance to reflect concerns expressed by MCEs and 
States. 
 
Medicaid Contractors 
 
The Deficit Reduction Act (DRA) of 2005 established the Medicaid Integrity Program as the first 
comprehensive effort by CMS to fight fraud, waste, and abuse within Medicaid.  CMS defined 
three types of Medicaid Integrity Contractors to perform the program integrity activities listed in 
the DRA:  Review MICs, Audit MICs, and Education MICs.  Review MICs review State 
Medicaid claims data and identify potential overpayments.  Audit MICs conduct audits of 
providers and identify actual overpayments.  Education MICs educate providers and beneficiaries 
on program integrity issues.  During FY2012, HHS/OIG conducted two reviews of activities 
conducted by Audit and Review MICs. 
 
  HHS/OIG found that Review MICs completed 81 percent of their assignments; however, 
they had limited involvement in recommending specific audit leads and identifying 
potential fraud.  Further, because data were missing or inaccurate, Review MICs were 
hindered in their ability to accurately complete data analysis assignments. States 
invalidated more than one-third of sampled potential overpayments from assignments, 
mainly because data were missing or inaccurate. As a result, some of Review MICs data 
analyses may not lead to recoveries.  HHS/OIG recommended that CMS improve the 
quality of data that Review MICs can access for conducting data analysis and require 
Review MICs to recommend specific audit leads.   
 
  HHS/OIG found that the performance of Audit MICs was hindered because audit targets 
were poorly identified.  Audit targets were misidentified because of data problems and 
because S tate program policies were applied incorrectly.  Of the 370 audits assigned to 
Audit MICs, 81 percent of audits either did not or are unlikely to identify overpayments. 
 Only 11 percent of assigned audits were completed with findings of $6.9 million 
in overpayments, $6.2 million of which resulted from seven completed collaborative 
 
  45  audits.  HHS/OIG recommended that CMS increase collaboration among Audit and 
Review MICs, CMS, and States to improve target selection.   
 
Medicaid Administrative Claims 
 
  HHS/OIG found that for FYs 2005 and 2006 New Jerseys Medicaid Administrative 
Claim (MAC) did not comply with Federal requirements for claiming costs associated 
with the administration of the state Medicaid plan.  Specifically, Maximus Inc. 
(Maximus), the contractor that computed the MAC, included unallowable salaries and 
operating costs in the cost pool used to compute the MAC, resulting in a claim for $22.2 
million ($11.1 million Federal share) in excess Medicaid administrative costs.  HHS/OIG 
recommended, among other things, that the state refund $22.5 million to the Federal 
government. 
 
  HHS/OIG found that for FY 2007 New Jerseys MAC did not comply with Federal 
requirements. Specifically, the state agency's contractor, Maximus, included unallowable 
costs in the cost pool used to compute the MAC, resulting in a claim for $10 million ($5 
million Federal share) in excess Medicaid administrative costs.  However, HHS/OIG was 
unable to express an opinion on the allowability of the remaining $15.9 million ($8 
million Federal share) claimed on the State agency's MAC.  HHS/OIG recommended, 
among other things, that New Jersey refund $5 million to the Federal government and 
work with CMS to determine what portion of the remaining $8 million in Medicaid 
administration costs claimed for FY 2007 was allowable under Federal requirements. 
 
Medicaid Waiver Programs 
 
  HHS/OIG found that for calendar years 2005 through 2007 New Jersey claimed Federal 
Medicaid reimbursement for some Community Care Waiver (CCW) program services that 
did not comply with certain Federal and state requirements.  HHS/OIG estimated that, as a 
result, the State improperly claimed $60.7 million in Federal Medicaid reimbursement.  
The CCW program allows the state agency to claim Medicaid reimbursement for home 
and community-based services (HCBS) provided to individuals with intellectual and 
developmental disabilities.  Without HCBS, these individuals would require 
institutionalization in an Intermediate Care Facility for the Mentally Retarded (ICF/MR).  
HHS/OIG recommended, among other things, that the state refund $60.7 million to the 
Federal government. 
 
  Based on sample results, HHS/OIG estimated that New Jersey improperly claimed 
approximately $2.7 million in Federal Medicaid reimbursement for CCW program 
services provided by Bancroft NeuroHealth (Bancroft) that did not comply with certain 
Federal and state requirements during calendar years 2005 through 2007.  The claims for 
unallowable services were made because:  Bancroft and the State's Division of 
Developmental Disabilities (the division) did not ensure that they only claimed for 
documented, allowable CCW program services; the division did not ensure that CCW 
 
  46  program services were provided only to beneficiaries with completed and approved 
individual habilitation plans; and the division did not ensure and document that all 
beneficiaries were assessed and certified to require an ICF/MR level of care.  HHS/OIG 
recommended, among other things, that New Jersey refund $2.7 million to the Federal 
government. 
 
  The New York State Department of Health (DOH) claimed Federal Medicaid 
reimbursement for some Office for People With Developmental Disabilities (OPWDD) 
waiver program services provided by New York City providers that did not comply with 
certain Federal and State requirements.  Based on sample results, HHS/OIG estimate that 
DOH improperly claimed $7.8 million in Federal Medicaid reimbursement for OPWDD 
waiver program services during calendar years 2006 through 2008.  The claims for 
unallowable services were made because DOH and OPWDDs policies and procedures for 
overseeing and administering the waiver program were not adequate to ensure that 
providers claimed reimbursement only for services actually provided and maintained all 
the required documentation to support services billed; and OPWDD waiver program 
services were provided only to beneficiaries pursuant to written plans of care.  HHS/OIG 
recommended, among other things, that DOH refund $7.8 million to the Federal 
government. 
 
Medicaid Fraud Control Units 
 
HHS/OIG is responsible for overseeing the activities of all Medicaid Fraud Control Units 
(MFCUs or Units).  As part of this oversight, HHS/OIG conducts periodic onsite reviews of the 
Units.  These reviews describe the Units caseload and assess their performance; identify any 
opportunities for improvement and instances of noncompliance with laws, regulations, and policy 
transmittals; and identify noteworthy practices. 
 
  In its review of the New York MFCU, HHS/OIG found, among other things, that from 
fiscal years 2008 to 2010 the Unit filed criminal charges against more than 400 
defendants, obtained over 400 convictions, and was awarded more than $750 million in 
recoveries.  However, the Unit did not establish annual training plans for each of the three 
professional disciplines (auditors, investigators, or attorneys) and provided limited training 
opportunities to staff.  The Unit also lacked policies and procedures to reflect many of its 
current practices, and its case files lacked consistency and uniform supervisory reviews.  
At the same time, the review found no evidence of significant noncompliance with 
applicable laws, regulations, or policy transmittals.  HHS/OIG recommended that the New 
York MFCU, among other things, establish annual training plans and increase the number 
of training opportunities available to staff, ensure that its memorandum of understanding, 
policies, and procedures reflect current practices, and ensure that its case files are 
maintained with greater consistency and reviewed more frequently.  
 
 
 
 
 
  47  Quality of Care 
 
  HHS/OIG found that State survey and certification agencies (State agencies) responses to 
allegations of serious harm to hospital patients were generally timely.  However, State 
agencies often missed opportunities to incorporate patient safety principles.  In addition, 
CMS often failed to inform the Joint Commission concerning complaints about the 
hospitals it accredits, thereby impeding the Joint Commissions oversight.  Together, five 
types of in-hospital adverse events represented half or more of the complaints in our 
sample:  sexual assault, medication error, physical abuse by hospital staff, restraint 
problems, and suicide.  Investigations into these types of events led to most of the citations 
issued.  State agencies conducted the investigations on behalf of Medicare.  The hospitals 
corrective actions resulted largely in training, coupled with policy and process changes.  
HHS/OIG recommended that CMS require that State surveys evaluate compliance with 
quality improvement requirements, ensure that States monitor hospitals corrective 
actions, amend guidance on State agency disclosure of the nature of complaints to 
hospitals, and improve communication with accreditors. 
 
Medicare-Medicaid Data Matching 
 
  The Medicare-Medicaid Data Match program (Medi-Medi program) enables program 
safeguard contractors and participating Federal and State government agencies to 
collaboratively analyze billing trends across the Medicare and Medicaid programs to 
identify potential fraud, waste, and abuse.  Participation is optional.  In its review of this 
program, HHS/OIG found that the Medi-Medi program produced limited results and few 
fraud referrals.  In addition, during 2007 and 2008, the program  in which 10 states had 
chosen to participate  received $60 million in appropriations and it avoided and recouped 
$57.8 million. Also, of the $46.2 million total in Medicare and Medicaid expenditures 
recouped through the program during 2007 and 2008, more than three quarters, $34.9 
million, was recouped for Medicare.  HHS/OIG recommended that CMS reevaluate the 
goals, structure, and operations of the Medi-Medi program to determine what aspect of the 
program, if any, should be part of CMS's overall program integrity strategy.  
 
Medicare Physician Services 
 
  Two reviews of paid claims for cardiovascular and musculoskeletal surgeries in 2007 
revealed that Medicares payment methodology often did not reflect the actual number of 
evaluation and management (E/M) services actually provided to beneficiaries, resulting in 
wasteful spending.  The physician fee schedule includes global surgery fees for the 
surgical service and the related preoperative and postoperative E/M services provided 
during the global surgery period.  In determining a global surgery fee, CMS estimates the 
number of E/M services that a physician provides to a typical beneficiary during the 
global surgery period and compensates physicians regardless of the E/M services actually 
provided.  For the two types of surgeries, Medicare paid  an estimated $63 million in E/M 
services that were not provided in 2007.  HHS/OIG recommended that CMS adjust the 
estimated number of E/M services within cardiovascular and musculoskeletal global 
 
  48  surgery fees to reflect the actual number of such services being provided to beneficiaries 
or use the results of this audit during the annual update of the physician fee schedule. 
 
Comprehensive Outpatient Rehabilitation Facilities 
 
  HHS/OIG found that 18 of the 101 South Florida Comprehensive Outpatient 
Rehabilitation Facilities (CORF) included in its analysis were not operational.  Ten of the 
18 CORFs were not at the locations on file with CMS and 8 were not open during business 
hours.  Medicare allowed $2.2 million in 2010 for services billed by these nonoperational 
CORFs.  This HEAT initiative review was limited to determining whether the CORFs 
were operational.  In prior reviews at three South Florida CORFs, HHS/OIG estimated 
that each audited CORF received between $720,000 and $1.6 million for services that did 
not meet Medicare reimbursement requirements.  HHS/OIG recommended that CMS 
continue to periodically conduct unannounced site visits to CORFs and implement 
additional program safeguards for CORFs. 
 
Community Mental Health Centers 
 
  HHS/OIG found that in 2010 approximately half of CMHCs met or exceeded thresholds 
that indicated unusually high billing for at least one of nine questionable billing 
characteristics.  Approximately one-third of these CMHCs had at least two of the 
characteristics.  Additionally, approximately two-thirds of CMHCs with questionable 
billing were located in eight metropolitan areas.  Finally, 90 percent of CMHCs with 
questionable billing were located in states that do not require CMHCs to be licensed or 
certified.  During 2010, 206 CMHCs received an estimated $218.6 million for providing 
PHP services to approximately 25,000 Medicare beneficiaries with mental disorders.  Past 
OIG studies have found vulnerabilities in Medicare payments to CMHCs for PHPs.  
HHS/OIG recommend that CMS increase its monitoring of CMHCs Medicare billing and 
fraud prevention controls; enforce the requirement that certifying physicians be listed on 
the PHP claims submitted by CMHCs; finalize and implement the proposed conditions of 
participation for CMHCs; and review and take appropriate action against CMHCs with 
questionable billing identified in the report. 
 
Medicare Outpatient Services 
 
  HHS/OIGs  review of outpatient line items for which Medicare payments significantly 
exceeded billed charges revealed frequent errors, including incorrect units of services, 
incorrect codes, billing for unallowable services, and inadequate supporting 
documentation, causing Medicare to overpay for the services.  Billed charges are the 
prices that a provider sets for its services.  These reviews focused on billings in which 
Medicares payments significantly exceeded billed charges.  Millions of dollars in 
overpayments have occurred in part because key Medicare systems (the Fiscal 
Intermediary Standard System and the Common Working File (CWF)) did not have 
sufficient edits in place during the audit periods to prevent or detect the overpayments.  
For the 18 reviews conducted of Medicare payment contractors, HHS/OIG identified 
 
  49  nearly $67 million in overpayments.  HHS/OIG recommended that Medicares payment 
contractors recover the identified overpayments, implement suggested system edits, and 
use the results of our audits in provider education activities.   
 
Medicare Home Health Agencies 
 
Medicare beneficiaries who are generally confined to their homes may be eligible to receive 
certain medical services at home.  Home health services include part-time or intermittent skilled 
nursing care, as well as other skilled care services, such as physical, occupational, and speech 
therapy; medical social work; and home health aide services.  The services are provided by 
certified HHAs.   
 
  In a review of HHAs compliance with data reporting requirements, HHS/OIG found that 
HHAs did not properly submit required Outcome and Assessment Information Set 
(OASIS) data for six percent of claims filed in 2009, which represented over $1 billion in 
Medicare payments.  Among other important uses, states use OASIS data in the survey 
and certification of HHAs, which ensures that HHAs are meeting all conditions of 
participation  required by Medicare.  CMS holds states accountable for ensuring that 
HHAs submit timely and accurate OASIS data; however, it does not provide guidance on 
how states should oversee this process.  HHS/OIG recommended that CMS identify all 
HHAs that failed to submit OASIS data and apply its two-percent payment reduction 
authority, establish and implement enforcement actions for late submission of the data, 
and develop clear guidelines that delineate expectations regarding data accuracy and 
timeliness. 
 
  In a review of the availability of intermediate sanctions, CMS issued a Notice of Proposed  
Rulemaking (NPRM) in 1991 to implement intermediate sanctions for HHAs found to be 
noncompliant with Medicares conditions of participation; however, CMS did not issue a 
final rule and withdrew the NPRM in August 2000.  CMS said that legislative changes and 
other demands impeded promulgation of a final rule.   Intermediate sanctions, such as civil 
money penalties, payment suspensions, and appointments of temporary management, will 
provide CMS with important tools to enforce compliance.  HHS/OIG concluded that CMS 
should make HHA intermediate sanctions a high priority and complete their 
implementation as soon as possible.  Most recently, CMS published a new NPRM on July 
13, 2012, which proposes to implement intermediate sanctions for HHAs effective January 
1, 2013. 
  
  In a review of HHAs compliance with documentation requirements, HHS/OIG found that 
HHAs usually documented Medicares coverage requirements in beneficiaries medical 
records.  However, for the claims reviewed, HHS/OIG also found that 22 percent were in 
error, resulting in $432 million in improper payments.  This review, which examined the 
medical records supporting a sample of HHAs claims to Medicare, showed that HHAs 
records nearly always documented the information necessary to demonstrate compliance 
with key Medicare coverage requirements  that beneficiaries were homebound, needed 
skilled nursing care or therapy services, and were under the care of a physician.  However, 
 
  50  other HHS/OIG reviews and investigations, as well as joint efforts between the HHS and 
DOJ, have demonstrated that home health is an area at increased risk for fraud.  HHS/OIG 
concluded that further reviews beyond the medical records are needed to determine 
whether beneficiaries are actually eligible, services are furnished, and Medicare 
requirements for payment are met.   
 
Medicare Contractors 
 
  HHS/OIG found that the workload data that CMS uses to oversee Zone Program Integrity 
Contractors (ZPICs) were not accurate or uniform, and inaccuracies and lack of uniformity 
in the ZPICs data prevented a conclusive assessment of ZPICs activities.  ZPICs are the 
contactors that perform benefit integrity work for Medicare Parts A and B.  The 
inaccuracies and lack of uniformity in ZPICs data resulted from system issues in CMSs 
Analysis, Reporting, and Tracking System (CMS ARTS); ZPIC reporting errors; ZPICs 
interpretations of workload definitions; and inconsistencies in requests for information 
reports.  ZPICs performance evaluations contained few workload statistics, and data 
access issues affected ZPICs program integrity activities.  These conditions are serious 
obstacles to CMSs oversight of ZPIC operations and effectiveness.  HHS/OIG 
recommended that CMS clarify definitions in CMS ARTS, perform a timely review of 
data in CMS ARTS, use and report ZPIC workload statistics in ZPIC evaluations, and 
ensure that ZPICs have access to necessary data. 
 
  HHS/OIG found that CMS had not resolved, or taken significant action to resolve, 77 
percent of vulnerabilities that its Medicare benefit integrity contractors reported in 2009.  
The estimated impact of vulnerabilities, such as those in claims coding and provider 
identifiers was at least $1.2 billion.  Only two of the vulnerabilities reported in 2009 had 
been resolved as of January 2011.  Although CMS has procedures to consistently track 
and review vulnerabilities, it lacks procedures to ensure that vulnerabilities are resolved.  
HHS/OIG recommended that CMS determine the status of all unresolved vulnerabilities 
and take action to address them, require contractors to report monetary impact, and ensure 
that vulnerabilities are resolved by establishing formal written procedures.  
 
  HHS/OIG found that, as of October 2010, Medicare had not recovered the majority of 
overpaid amounts OIG identified in audit reports during FYs 2007 and 2008 and the first 6 
months of FY 2009.  Collection efforts were obstructed by time constraints imposed by 
the statute of limitations.  Also, Medicare contractors lacked adequate guidance for 
collecting overpayments and CMS did not have an effective system for monitoring 
contractors collection efforts.  We identified inaccuracies and could not verify the $84.2 
million that CMS reported collecting.  HHS/OIG recommended, among other things, that 
CMS collect sustained amounts related to OIG recommendations made after the audit 
period and verify that the $84.2 million reported as collected has actually been collected. 
 
  In a July 2012 report, HHS/OIG found that ZPIC offerors (companies that submit 
proposals for ZPIC contracts) and their subcontractors often had business and contractual 
 
  51  relationships with CMS and with other offerors, but rarely considered them to be actual 
conflicts of interest.  Conflicts of interest could introduce bias, which in turn could 
influence ZPICs efforts to reduce fraud, waste, and abuse in the Medicare program.  
Offerors, subcontractors, and CMS identified 1,919 business and contractual relationships 
as possible conflicts and 16 as actual conflicts.   However, descriptions of the conflicts of 
interest presented were often unclear and some did not distinguish actual conflicts from 
possible conflicts.  In addition, some ZPIC offerors and their subcontractors failed to 
provide all the requisite information regarding financial interests in other entities.  
HHS/OIG recommended that CMS provide clear guidance to offerors and subcontractors 
regarding which business and contractual relationships should be identified as actual or 
possible conflicts and develop a formal, written policy outlining how conflict of interest 
information provided by offerors should be reviewed by CMS staff. 
 
Medicare Advantage Organizations 
 
  In two reports, HHS/OIG found that two Medicare Advantage (MA) organizations were 
overpaid in 2007 because the diagnoses and/or supporting documentation that they 
submitted to CMS for use in CMSs risk score calculations did not always comply with 
Federal requirements.  CMS uses risk scores to adjust the monthly capitated payments to 
MA organizations for the next payment period.  The first MA organization, which was 
overpaid an estimated $115.4 million, did not have written policies and procedures for 
obtaining, processing, and submitting diagnoses to CMS and its practices were not 
effective in ensuring that the diagnoses it submitted to CMS complied with Federal 
requirements.  For the second MA organization, which was overpaid and estimated $18.2 
million, the documentation submitted did not support the diagnoses, was incomplete or 
missing, or the diagnoses were unconfirmed, causing CMSs risk scores to be invalid.  
HHS/OIG recommended that the two organizations refund to the Federal government 
overpayments identified for sampled beneficiaries and work with CMS to determine the 
correct contract level adjustment for the projected overpayments.   
 
Medicare Part D 
 
  In a review of Part D billing by retail pharmacies, HHS/OIG found that over 2,600 
pharmacies nationwide had questionable billing, indicating vulnerabilities in the oversight 
of the Part D program.  These pharmacies had extremely high billing for at least one of 
eight measures.  They represented 4 percent of all retail pharmacies nationwide.  Together, 
they billed $5.6 billion to Part D in 2009.  Many billed for extremely high dollar amounts 
or numbers of prescriptions per beneficiary or per prescriber.  Many also billed for high 
percentages of Schedule II or III controlled substances.  HHS/OIG recommended, among 
other things, that CMS strengthen the Medicare Drug Integrity Contractors monitoring of 
pharmacies and ability to identify pharmacies for further review; provide additional 
guidance to sponsors on monitoring pharmacy billing; require sponsors to refer potential 
fraud and abuse incidents that may warrant further investigation; and develop risk scores 
for pharmacies. 
 
 
  52   
Medicare Error Rates 
 
CMSs Comprehensive Error Rate Testing (CERT) program contractors collect and review 
documents supporting claims for payment, identify improper payments, and calculate a national 
Medicare fee for service error rate.  HHS/OIG found the following issues in current CERT 
practices.   
 
  HHS/OIG found that a CERT contractors error rate calculations did not account for 
pending appeals.  If the CERT statistical contractor had included overturned CERT claim 
payment denials in its error rate calculations, it would have decreased the estimated value 
of reported errors for FYs 2009 and 2010 by approximately $2 billion each year.  CMS 
could improve the accuracy of the reported estimate of improper payment error rates by 
including an adjustment for overturned CERT claim payment denials.  HHS/OIG 
recommended that CMS improve the accuracy of the reported estimate of improper 
payment error rates by including an adjustment for overturned CERT claim payment 
denials. 
  
  HHS/OIG found that the necessary documentation required for the CERT contractors to 
conduct claims reviews was not provided by the cutoff date for the error rate calculation. 
The submission of this documentation to the CERT contractor upon initial claim review 
and before the cutoff date would have reduced the estimate of improper payments for FY 
2010 by almost $1 billion. HHS/OIG recommended that CMS should continue to educate 
providers on the documentation required, assess the improper payments and overturned 
denials of claim payments to identify the population of providers that would benefit from 
additional requests for medical records, and ensure that the CERT documentation 
contractor continues following established procedures in seeking signature attestations. 
 
Other Fraud and Abuse Prevention Activities 
 
HHS/OIGs HEAT Provider Compliance Training initiative (HEAT PCT), launched in 2011, 
provided free, high-quality compliance training for providers, compliance professionals, and 
attorneys in Strike Force cities and elsewhere, and online.  During FY 2011, HEAT PCT, which 
included presenters from HHS/OIG, CMS Regional Offices, CMS Program Integrity, USAOs, 
and state Medicaid Fraud Control Units, held sessions in Houston, Tampa, Kansas City, Baton 
Rouge, Denver, and Washington, D.C., training a total of 737 in-person attendees.  In addition, 
the final HEAT PCT session in Washington, D.C., was webcast live to 2,335 participants.  
HHS/OIG developed comprehensive training materials to accompany HEAT PCT, and those 
materials are now available online at no charge, together with sixteen video modules dividing the 
webcast by subject area.  HEAT PCT continues to reach the health care community with 
HHS/OIGs message of compliance and prevention via a series of twelve free, downloadable 
video and audio podcasts, which were rolled out during FY 2012.  The podcasts summarize a 
range of compliance topics covered in the HEAT PCT initiative materials. 
 
HCFAC funding also supported HHS/OIGs continued enhancement of data analysis and mining 
 
  53  capabilities for detecting health care fraud, including tools that allow for complex data analysis.  
OIG continues to use data mining, predictive analytics, trend evaluation, and modeling 
approaches to better analyze and target the oversight of HHS programs.  Analysis teams use near-
time data to examine Medicare claims for known fraud patterns, identify suspected fraud trends, 
and to calculate ratios of allowed services as compared with national averages, as well as other 
assessments.  When united with the expertise of OIG agents, auditors, and evaluators, as well as 
our HEAT partners, HHS/OIGs data analysis fosters a highly effective combination of 
technologies and traditional skills to the fight against fraud, waste, and abuse.  
 
Industry Outreach and Guidance 
 
Advisory Opinions   
 
Central to the HIPAA guidance initiatives is an advisory opinion process through which parties 
may obtain binding legal guidance as to whether their existing or proposed health care business 
transactions run afoul of the AKS, the CMP laws, or the exclusion provisions.  During FY 2012, 
the HHS/OIG, in consultation with DOJ, issued 19 advisory opinions and two modifications of 
advisory opinions.  A total of 276 advisory opinions have been issued during the 16 years of the 
HCFAC program. 
 
Corporate and Other Integrity Agreements   
 
Many health care providers that enter agreements with the government to settle potential 
liabilities for violations of the FCA also agree to adhere to a separate CIA, Integrity Agreement, 
or other similar agreement.  Under these agreements, the provider or supplier commits to 
establishing a program or taking other specified steps to ensure its future compliance with 
Medicare and Medicaid rules.  At the close of FY 2012, HHS/OIG was monitoring compliance 
with 214 such agreements. 
 
OIG Round Tables 
 
On February 23, 2012, HHS/OIG convened a Pharmaceutical Compliance Roundtable.  The 
Roundtable provided an opportunity for OIG to discuss with compliance professionals in the 
pharmaceutical industry their experiences under CIAs and with various types of compliance 
activities.  Forty-two compliance officers and other compliance professionals from 23 
pharmaceutical manufacturers currently under CIAs attended the day-long event.  One goal of the 
event was to identify compliance measures that the participants have found to be effective.  A 
publicly-available report about the Roundtable shared the participants insights with others in and 
beyond the pharmaceutical industry.   
 
Also, on August 7, 2012, HHS/OIG held a roundtable meeting titled Focus on Compliance: The 
Next Generation of CIAs.  The roundtable included representatives from 32 companies that have 
entered into CIAs since 2009.  The companies represented included hospitals, ambulance 
companies, medical device manufacturers, physician practices, laboratories, home health 
agencies, and skilled nursing facilities.  The purpose of the roundtable was to solicit feedback 
 
  54  from the company representatives regarding their current compliance best practices and their 
efforts to implement the requirements of their CIAs.  The OIG will provide a summary of the 
roundtable in a whitepaper that will be posted on the OIGs website.   
   
Centers for Medicare & Medicaid Services 
 
In FY 2012, CMS was allocated approximately $14.5 million by HHS, and appropriated $250.4 
million in discretionary funds by Congress to support a variety of projects related to fraud, waste, 
and abuse in the Medicare and Medicaid programs and the Childrens Health Insurance Program 
(CHIP).  With these funds, CMS is building on existing fraud prevention activities and new 
advanced technology to ensure that accurate payments are made to legitimate providers for 
appropriate and reasonable services for eligible beneficiaries of the federal health care programs.  
CMS has also engaged in many program integrity activities that are beyond the scope of this 
report because they are not funded directly by the HCFAC Account or discretionary HCFAC 
funding.  Medicare Fee-for-Service error rate measurement, activities and Recovery Audit 
activities are discussed in separate reports, and CMS will submit a combined Medicare and 
Medicaid Integrity Program report to Congress later this year.   
 
CMS has taken four major approaches to fraud prevention and organizing its key anti-fraud, 
waste, and abuse activities: 
 
1.  Prevention 
2.  Detection 
3.  Transparency and Accountability 
4.  Recovery 
 
1.   Prevention 
 
The Affordable Care Act (ACA) 
 
The new authorities granted to HHS and CMS under ACA have been instrumental in clamping 
down on fraudulent activity in the health care sector. CMS has begun to implement these 
authorities and published one final rule on provider identification numbers and a Notice of 
Proposed Rule-Making on reporting and returning overpayments.  
 
In FY 2012, CMS implemented ACA authorities to keep fraudulent providers and suppliers out of 
Medicare and Medicaid.  CMS published a Final Rule entitled Medicare and Medicaid 
Programs; Changes in Provider and Supplier Enrollment, Ordering and Referring, and 
Documentation Requirements; and Changes in Provider Agreements (CMS-6010-F) on April 27, 
2012.  This rule finalized ACA provisions that were addressed in a May 5, 2010 interim final rule. 
It requires all providers of medical or other items or services and suppliers that qualify for a 
National Provider Identifier (NPI) to include their NPI on all enrollment applications for 
Medicare and Medicaid programs and on all claims for payment submitted under those programs. 
In addition, it requires physicians and other professionals who are permitted to order and certify 
covered items and services for Medicare beneficiaries to be enrolled in Medicare. Finally, it 
 
  55  establishes document retention and provision requirements on providers and supplier that order 
and certify items and services for Medicare beneficiaries.  
 
CMS also published a NPRM entitled Medicare Program; Reporting and Returning of 
Overpayments on February 16, 2012.  This proposed rule would require providers and suppliers, 
who receive funds under Medicare, to report and return overpayments 60 days after the later of 
the date that the overpayment was identified, or the date that any corresponding cost report is due. 
 
The Fraud Prevention System 
 
The Fraud Prevention System (FPS) was launched on June 30, 2011 pursuant to the Small Business 
Jobs Act of 2010.   While the development of the FPS is not directly funded by HCFAC, many 
activities in this report both support and rely on the FPS. The FPS analyzes all Medicare fee-for-
service claims using risk-based algorithms developed by CMS and the private sector, prior to 
payment, allowing CMS to take prompt action where appropriate. CMS uses the FPS to target 
investigative resources to suspect claims and providers, and swiftly impose administrative action 
when warranted.  The system generates alerts in priority order, allowing program integrity 
analysts to further investigate the most egregious, suspect, or aberrant activity.  CMS and our 
program integrity contractors use the FPS information to stop, prevent, and identify improper 
payments using a variety of administrative tools and actions, including claim denials, payment 
suspensions, revocation of Medicare billing privileges, and referrals to law enforcement.   
 
Automated Provider Screening 
 
To strengthen and help implement the new provider enrollment requirements under the ACA, 
CMS launched the Automated Provider Screening (APS) system in December 2011. The APS is 
designed to verify the data submitted on enrollment applications against independent commercial 
and health care data to establish eligibility for enrollment into Medicare. It assesses risk of 
potential fraud of each individual and organization, and returns the results and supporting data to 
a web-based user interface accessible to CMS and its designees.   In FY 2012 CMS began the 
process of screening all 1.5 million Medicare- enrolled providers through the new Automated 
Provider Screening (APS) system which identifies ineligible providers and suppliers prior to 
enrollment or revalidation to verify the data in the Provider Enrollment, Chain and Ownership 
System (PECOS).   This baseline screen of existing Medicare enrollments enables CMS to quickly 
identify ineligible and potentially fraudulent providers within existing enrollments.  This process 
was followed by nightly screens of updated enrollments and new applications in a pilot with three 
Medicare Administrative Contractors in June 2012.  The integration of this automated provider 
screening tool with the enrollment data in PECOS and the claims data in the Fraud Prevention 
System (FPS) will improve CMS ability to screen and identify questionable entities efficiently, 
and lead to cost-avoidance and increased savings for Medicare. 
 
Provider Screening Lab 
 
CMS worked with a national health research organization managing a Federally Funded Research 
and Development Center to establish the Provider Screening Lab.  The lab tests concepts for new 
provider screening data sources, methodologies, and associated algorithms.  To date, the lab has 
 
  56  provided analytic support to develop approximately 59 criteria to assess provider eligibility and 
potential risk as part of effective provider screening.  A variety of CMS data sets, such as 
Provider Enrollment, Chain and Ownership System (PECOS), the Federal Investigations 
Database (FID), the Compromised Numbers Checklist (CNC), and the Medicare Exclusion 
Database (MED) were used in the development of these criteria; External data have also been 
used for criteria around criminal, financial and identity verification.  CMS is continuously 
evaluating additional data sources to develop new criteria for use in the provider screening 
solution.   
 
Revalidation Project 
 
In FY 2012, CMS embarked on an ambitious project to revalidate the enrollments of all existing 
1.5 million Medicare suppliers and providers by 2015 under the new ACA screening 
requirements.  Since March 25, 2011, CMS enrolled or revalidated enrollment information for 
approximately 409,150 Medicare providers and suppliers under the enhanced screening 
requirements of the ACA.  These efforts will ensure that only qualified and legitimate providers 
and suppliers can provide health care items and services to Medicare beneficiaries. 
 
The FPS, APS, and other enrollment enhancements promote synergy in CMS program integrity 
activities.  For example, based on FPS leads, CMS identified specific providers and suppliers as 
top priorities for revalidation.  As a result of the screening performed as part of revalidation, CMS 
has moved to revoke and deactivate the billing privileges and enrollment records of providers and 
suppliers that do not meet Medicare enrollment requirements.  The first phase of revalidation led 
to 17,620 deactivations of provider practice locations for non-response to the revalidation request, 
as of September 1, 2012.  The second phase of revalidation has resulted in the deactivation of 
21,114 provider enrollments records for non-response and 6,630 revocations after it was 
determined the providers were not properly licensed in the state in which they were enrolled, as of 
September 1, 2012.14  These initiatives complement the traditional program integrity work and 
additional provider enrollment enhancements that CMS performs. 
 
One Program Integrity 
 
In FY 2012, CMS made improvements and changes to the One Program Integrity (One PI), CMS 
centralized portal that provides CMS contractors and law enforcement with a single access point 
to Medicare data as well as analytic tools to review the data. CMS moved from an integration 
contractor to a system support contractor while continuing to enhance the existing analytic tools. 
One PI users now have access to the CMS Integrated Data Repository (IDR) as the basis of their 
data analytics. The IDR contains a comprehensive and accurate set of Medicare provider, 
beneficiary and claims data for Medicare Parts A, B, and D back to January 2006.  One PI 
improves CMS ability to detect fraud, waste, and abuse with consistent, reliable, and timely 
analytics. 
                                                 
14 We note that the first and second phase revalidation results are preliminary results as deactivated providers could reactivate over 
time with updated practice information or after showing evidence of proper licensing. 
 
  57  Over the last 12 months, CMS has expanded the IDR to include shared systems data, providing 
access to Part B and Part B-DME claims data from both before and after final payment has been 
made.  This access allows ZPICs to perform pre-payment analytics on historical data and develop 
models that can be applied in the FPS. With shared systems history going back to FY 2006, 
ZPICs will also be able to improve their analytics for post-payment detection of fraud, waste, and 
abuse. Part A data from the shared systems will be added in the near future. 
The new system support contract includes onsite training at ZPICs sites, which began in July of 
2012, and is scheduled to occur at one ZPIC each month into calendar year 2013.  This training 
will be replaced by web-based training once the new modules are completed in 2013.   
 
Next Generation Desktop 
 
The Next Generation Desktop (NGD) was developed to provide single access point that interacts 
with all Medicare claims processing systems and multiple other government data sources.  NGD 
has been adapted for law enforcement purposes, providing investigators the ability to examine all 
claims associated with a specific provider tax ID or a Medicare beneficiary.  CMS implemented 
enhancements to the Next Generation Desktop in September of 2012.  These enhancements are a 
result of collaboration between CMS, National Government Services (NGS), the NGD contractor, 
and Medicare Administrative Contractor (MAC), with specific requests from law enforcement for 
enhanced views of provider data.  CMS and NGS developed tailored training material for law 
enforcement partners and have scheduled four 3-day training sessions in FY 2013.  CMS 
anticipates training up to 100 or more individuals in FY 2013.  
 
Compromised Number Checklist 
 
In January 2010, CMS developed its first national database of compromised Medicare beneficiary 
and provider ID numbers called the Compromised Number Checklist (CNC). This database is 
populated by monthly submissions from program integrity contractors.  The purpose of the CNC 
is to share compromised ID numbers and any associated corrective actions that have been taken.  
CMS uses this national CNC database to enhance efforts detecting and preventing fraud and 
abuse in Medicare.   
   
The compromised numbers are updated on a monthly basis.  In FY 2012, as part of its refinement 
of and assignment of risk assessment indicators to the CNC database, CMS and the PSCS/ZPICs 
and MEDIC have removed some providers and beneficiaries whose identifiers were closely 
linked to compromised providers or beneficiaries but were not themselves compromised. This 
refinement process has reduced the number of providers from approximately 5,000 to 2,185, and 
reduced the number of beneficiaries from approximately 284,000 to 226,000. 
 
SAS Statistical Programming License 
 
CMS established an analytics lab to develop and test new models for the FPS using SAS 
statistical programming software to analyze claims data to identify aberrant billing patterns and 
program vulnerabilities.  As of the end of FY 2012, CMS has added 31 new models to the FPS, 
 
  58  and 29 additional models were under active development for future integration in the FPS.  Going 
forward, CMS will develop models on a continuous basis. 
 
The Command Center 
 
In FY 2012, CMS established the Command Center to improve health care fraud detection and 
investigation, drive innovation, and help reduce fraud and improper payments in the Medicare and 
Medicaid programs.  The Command Center provides the advanced technologies and collaborative 
environment for a multi-disciplinary team of experts and decision makers to more efficiently 
coordinate policies and case actions, reduce duplication of efforts, and streamline fraud 
investigations for more immediate administrative action.   
 
CMS anticipates that the Command Center collaborative activities will help increase CMS ability 
to take administrative actions, such as revoking Medicare billing privileges and payment 
suspensions, more quickly and efficiently.  From the opening of the Command Center on July 31, 
2012 through September 27, 2012 the Command Center conducted 22 missions and identified 223 
action items that will lead to improvements in the fraud prevention and detection process. 
Missions are facilitated collaboration sessions that bring together experts from various disciplines 
to improve the processes for fraud prevention in Medicare and Medicaid.  Approximately 290 
experts met during this period representing policy analysts, investigators, lab modelers, FBI, OIG, 
ZPICS, field office staff, clinicians, Contracting Officer Representatives (CORs), and other CMS 
staff. 
 
DME Initiatives 
 
CMS has undertaken a comprehensive strategy to address program integrity concerns with 
durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) suppliers: 
 
  DMEPOS Enrollment Requirements: In the February 2, 2011 final rule, CMS assigned 
newly enrolling DMEPOS suppliers to the high level of screening.  As a result, such 
suppliers are subject to an announced or unannounced site visit prior to the approval of 
their application.  Newly enrolling DMEPOS suppliers will also be subject to a FBI 
criminal history record check once CMS completes the procurement of an FBI-approved 
channeler.  Enrolled DMEPOS suppliers are assigned to the moderate screening level, 
and are also subject to an announced or unannounced site visit prior to the approval of 
their revalidation. 
 
  DMEPOS Surety Bond: Since 2009, CMS has required DMEPOS suppliers to post surety 
bonds prior to enrollment. CMS also implemented DMEPOS Accreditation Standards, 
which have been in effect since October 1, 2009.  Supplier numbers cannot be issued or 
renewed unless the supplier - assuming it does not otherwise qualify for an exception 
under 42 CFR  424.57(d)(15) - obtains and maintains a surety bond of at least $50,000 
and meets the accreditation standards on a continuous basis.   
 
CMS finalized its DMEPOS surety bond collection procedures in January 2012.  CMS has 
 
  59  thus far collected approximately $263,000 in DMEPOS supplier overpayments from 
sureties.  The DME MACs are continuing to make requests for payments from sureties, 
and CMS expects more overpayments to be collected as a result.  In addition, CMS has 
recouped approximately $65,000 in overpayments from suppliers immediately after their 
debts were referred to their respective sureties for payment.   In many cases, once 
suppliers learn that their debt has been sent to their surety for collection, they proceed to 
pay back the debt themselves.  This is an encouraging sign that the surety bond collection 
process is spurring DMEPOS suppliers to satisfy their debts earlier than would otherwise 
have been the case.  
 
  DMEPOS Swipe Card Pilot: The DMEPOS Swipe Card pilot was designed in part to 
assess the effectiveness of new regulatory requirements as a result of the Affordable Care 
Act, Section 6406.  Physicians and other suppliers that participated in the pilot on a 
voluntary basis used swipe magnetic cards (similar to credit cards), and entered a code 
into existing credit card terminals when placing or filling DMEPOS orders.  CMS, through 
its contract with National Government Services (NGS), extracted the DMEPOS data from 
the financial network, and used the data to confirm that the orders were appropriately 
initiated and filled.  
 
The Swipe Card pilot began in early 2011 with a series of meetings to plan out the issuing 
of swipe cards to providers and suppliers in the Greater Indianapolis area and concluded in 
FY2012.  CMS found that the voluntary nature of the pilot led to low participation, and 
that a significant number of providers do not have swipe terminals in their office.  CMS is 
evaluating these results to identify opportunities for future pilots. 
 
Fraud Prevention Campaign 
 
In FY 2012, CMS worked with the Assistant Secretary for Public Affairs (ASPA) to expand the 
Fraud Prevention Campaign, which was launched in January 2010 to increase public awareness 
about Medicares fight against fraud.  HCFAC funding in FY 2012  supported by FY 2011 
HCFAC dollars  was used to support outreach to inform Medicare beneficiaries how to prevent, 
detect and report Medicare fraud.   
 
Outreach included a national television campaign featuring a cracking-down spot, print, and 
digital advertising as well as targeted in-language advertising. In-language advertising included 
print and radio advertising in Russian in New York, in Armenian in Los Angeles and in Spanish 
in Miami.  The national television advertising delivered an estimated 140,580,420 impressions. 
The digital advertising delivered an additional 11.1 million views of the cracking-down spot.    
 
Medicaid and CHIP Business Information Solutions (MACBIS) 
 
The Medicaid and CHIP Business Information Solutions (MACBIS) is a CMS enterprise-wide 
initiative to modernize and transform the information and data exchanges with States and other 
key health reform stakeholders in order to ensure we have high performing Medicaid and CHIP 
programs. This initiative creates a more robust and comprehensive information management 
 
  60  strategy for Medicaid and CHIP. We have designed a transformed data state that will, for the 
first time, integrate Medicaid and CHIP program, operational, quality, and performance data. 
Specifically, the data will be used to support detection of fraudulent patterns in State Medicaid 
programs as well as comparative analytics across state lines.  
The accomplishments for FY 2012 include: 
 
  MACBIS  Completed Medicaid & CHIP enterprise data work resulting in an expanded data 
dictionary.  
 
  TMSIS  Completed and evaluated an 11-State pilot to test an expanded operational data set 
(Transformed MSIS); developed a plan to launch a national implementation of TMSIS in 
2014.  
 
  MACPro  Collected business requirements to complete system development to adjudicate a 
limited set of Medicaid and CHIP plans and waiver actions for January 2013 implementation. 
Subsequent phases will cover the remaining actions for full implementation by 2016.  
 
  Information Technology Support  Integrated MACBIS processes into CMSs enterprise 
shared services efforts including, master data management, identity management, and portal 
development. 
  
2.   Detection  
 
Strengthened Program Integrity Activities in Medicare Advantage and Medicare Part D 
 
In FY 2011, CMS established a contract for Medicare Advantage (Part C) and Medicare 
Prescription Drug (Part D) outreach and education.  This contractor is responsible for 
coordinating all Part C and Part D program integrity outreach activities for all stakeholders, 
including plan sponsors and law enforcement. In addition, this contractor supports compliance 
audits and fraud audits.   
 
CMS continued to fund the Program Integrity Technical Assistance contractor to support Part C 
and Part D program integrity strategy, ROI methodology, performance measure database 
maintenance, development of program risk assessment processes, and other technical assistance 
as requested.  CMS also contracted with the Compliance and Enforcement Medicare Drug 
Integrity Contractor (MEDIC) to conduct ad-hoc studies and analysis with a special focus on 
select geographic areas.    
 
Additionally, CMS continued to invest HCFAC discretionary funds to strengthen Medicare Part C 
and Part D oversight.  CMS contracts with the MEDICs for all Medicare Advantage and Part D 
program integrity work, including: 
 
  Managing all incoming complaints about Part C and Part D fraud, waste, and abuse; 
  Utilizing new and innovative techniques to monitor and analyze information to help 
identify potential fraud; 
 
  61    Working with law enforcement, MA, and prescription drug plans, consumer groups, and 
other key partners to protect consumers and enforce Medicares rules; 
  Providing basic tips for consumers on how to protect themselves from potential scams;  
  Identifying program vulnerabilities; and 
  Performing proactive research utilizing all available data to find trends in order to ferret 
out fraud, waste, and abuse activities. 
 
As of May 2012, the national benefit integrity MEDIC received approximately 348 actionable 
complaints (within the MEDICs scope) per month; processed 27 requests for information from 
law enforcement per month; and referred an average of 34 cases to law enforcement per month.   
 
In addition to the work of the MEDICs, CMS enhanced other Part C and Part D oversight 
functions in FY 2012: to address new complexities facing law enforcement, contract and plan 
oversight functions, monitor plan performance assessment and surveillance/secret shopper 
activities, audit programs, and conduct routine compliance and enforcement tracking. Also in FY 
2012, CMS conducted 33 program audits of sponsoring organizations and tested for compliance 
with program requirements relating to Part D formulary and benefit administration, Part C and D 
organizational/coverage determinations, appeals, and grievances, part C Access, 
Enrollment/Disenrollment, Late Enrollment Penalty (LEP), independent agent and broker 
oversight, and compliance program effectiveness.  These audits covered programs that accounted 
for 27 percent of all MA and Prescription Drug Plan contracts and 28 percent of all beneficiaries 
enrolled as of September 2012.   
 
CMS also strengthened program integrity in MA and Part D through marketing surveillance 
activities and compliance actions based on surveillance activities: 
  
Marketing Surveillance Activities 
 
In FY 2012, CMS conducted many marketing surveillance activities, such as secret shopping and 
examining newspaper ads for unreported marketing events and content. These activities have 
improved plan sponsor oversight of marketing activities and lessened incidents of agent/broker 
marketplace misconduct. 
 
For the 2012 Annual Enrollment Period (AEP), CMS conducted 1,661 secret shopping events.  
Secret shopping is the undercover surveillance of formal, public MA and Part D plan marketing 
events to ensure agents and brokers are providing accurate information to Medicare beneficiaries 
and are in compliance with CMS marketing rules for Parts C and D.   Of the 1,661 shops, almost 
80 percent had no validated deficiencies and were considered entirely compliant with Medicare 
regulations.  The percentage of plan sponsors with no validated deficiencies improved from 2011 
to 2012, with 31 of 84 plan sponsors (36.9 percent) having no deficiencies notes from events 
shopped (from 18.7 percent plan sponsors in 2011).  This improvement demonstrates a continued 
increase in compliance likely due, in part; to CMS market surveillance efforts.  CMS estimates 
that over 850,000 beneficiaries who attended marketing events during the 2012 AEP were 
protected by CMS marketing surveillance efforts this year.  
 
 
  62  Unreported Marketing Events 
The unreported marketing events initiative was an effort to determine if plan sponsors 
appropriately reported and represented their sales events activity to CMS.  The CMS 
contractor reviewed daily and weekly print publications in U.S. domestic markets 
nationwide, including advertisements from Armenian, English, Korean, Mandarin, 
Russian and Spanish publications.  None of the reviewed Armenian or Russian 
publications contained Medicare marketing events.  Each of the remaining language 
publications advertised marketing events that were not properly reported to CMS in a 
timely manner.  
 
Under CMS direction, the surveillance contractor reviewed 9,714 unique events (derived 
from 2,162 Medicare advertisements in 579 newspapers) collected from October 24, 2011 
through December 29, 2011 from a total of 86 plan sponsors.  Results by plan sponsor 
included: 42 plan sponsors (approx. 49 percent  submitted all clipped marketing events to 
CMS; an additional 41 plans (approx. 4 percent) submitted at least 95 percent of clipped 
marketing events to CMS ; and 3 plan sponsors (approx. 4 percent) failed to submit at 
least 5 percent of their clipped events.  These three plan sponsors were issued notices of 
non-compliance for their failure to submit at least 95 percent of all of their events to CMS. 
 
Compliance Actions Based on Surveillance Activities 
 
CMS may issue the following types of letters to sponsors who have had deficiencies related to our 
surveillance.  They include Technical Assistance Letters (which are not formal compliance 
letters), Notices of Non-Compliance, Warning Letters, and Ad-hoc Corrective Action Plans 
(CAPs).  Listed below are the compliance actions taken for each primary surveillance activity.  
 
Compliance Actions  
 
Compliance Action  Secret  Unreported 
Shopping  Marketing 
Events*   Events 
Technical Assistance Letter*   105   0 
Notice of Non-compliance   12   3  
Warning Letter with Business Plan   1   0 
Ad-hoc CAP   0   0 
Total Letters Issued   118   3 
 
*Totals include results from both AEP and post-AEP shopping. 
*Technical Assistance Letters were sent to plan sponsors that were shopped, but either did 
not meet the minimum number of shops, no matter how many deficiencies were found, or 
had minimal findings. 
 
Medicare Advantage Encounter Data Processing System Contract 
 
The Medicare Advantage (MA) Encounter Data Processing System (EDPS) is currently being 
 
  63  developed out of guidance published in the final FY 2009 inpatient prospective payment system 
(IPPS) rule. In that rule, CMS revised regulations to clarify that CMS has the authority to require 
MA organizations to submit encounter data for each item and service provided to MA plan 
enrollees.  Consistent with this authority, CMS is requiring MA organizations to submit encounter 
data for dates of service January 3, 2012 and later. MA plans are required to submit data for all 
institutional, professional and DME services provided to MA plan enrollees on or after that date.   
 
What program needs will EDPS be addressing?  Over the past several years there has been 
dramatic growth in the Medicare Advantage program.  Today, one-fourth of Medicare 
beneficiaries are enrolled in Medicare Advantage plans.  CMS pays Medicare Advantage 
organizations approximately $145 billion per year for the care provided to these 13 million 
beneficiaries.  To date, however, CMS has not had detailed information on the care we are 
purchasing.  This is because Medicare Advantage organizations are paid a fixed amount (monthly 
capitation) per beneficiary and, therefore, do not bill CMS for each service provided.  Encounter 
data will provide CMS with information that is equivalent to the information provided on a FFS 
claim record.  The diagnosis data provided on these claims will be used to risk adjust payments 
and, as a result, CMS will need complete encounter data records for the MA population being 
served.  Sampling is not an option for processing the approximately 330 million encounter data 
claims any more than it would be for processing Medicare FFS claims. 
      
To better ensure that CMS is a more prudent purchaser, earlier this year the agency launched an 
initiative to collect encounter data from Medicare Advantage organizations.  Essentially the 
encounter data are no pay claims that detail each item and service provided to enrollees of 
Medicare Advantage organizations.  CMS can collect and process these data for an estimated 
average annual cost of $25 million.  These records are comparable in format and detail to claims 
submitted to the MACs by FFS providers.   
 
How will CMS use the data collected by EDPS?  CMS will be able to use encounter data to 
make more accurate risk adjusted payments, recognize cost efficiencies, better assess the value of 
what we are purchasing for beneficiaries, and more closely monitor fraud, waste and abuse in the 
MA program.   For example, using encounter data, CMS will be able to compute quality metrics, 
such as hospital readmission rates, for Medicare Advantage as a whole, as well as for individual 
Medicare Advantage organizations. 
 
In addition, using procedure and diagnosis information for each health care service provided, 
CMS will shadow price each encounter using FFS payment rules.  This will allow CMS to 
conduct cost comparisons against FFS relative to the actual services used. 
 
Under the new EDPS system, MA plans face significant differences from the current Risk 
Adjustment Processing System. Most notably, data collection changes from 5 data elements 
currently collected to all of the required data elements on the HIPAA 5010 version of the X12 
standards.  The collection of MA encounter data is expected to provide CMS with a complete 
picture of MA member utilization and will provide CMS the ability to perform, such as: 
 
 
  64    Encounter data can be utilized to identify provider types and facilities with increased 
fraudulent or incorrect billing to Medicare.  
 
  Claims, where Medicare is the secondary payer, can be analyzed focusing on coordination 
of benefits, employer group health plans, or other government issued benefits. 
 
  CMS can utilize analysis of DME data, and make cost comparisons by region and location 
of DME service provider or supplier to determine that diagnostic, procedural and costs 
patterns are appropriate.  Careful analysis of the DME fee schedule will be employed to 
ascertain accurate payment reimbursement methods. 
 
Medicaid/CHIP Financial Management Project 
 
Under this project, funding specialists, including accountants and financial analysts, worked to 
improve CMSs financial oversight of the Medicaid program and CHIP.  In FY 2012, through the 
continued efforts of these specialists, CMS removed an estimated $895 million (with 
approximately $451 million recovered and $444 million resolved) of approximately $7.8 billion 
identified in questionable Medicaid costs.   
 
Furthermore, an estimated $128 million in questionable reimbursement was actually averted due 
to the funding specialists preventive work with states to promote proper state Medicaid 
financing.  The funding specialists activities included reviews of proposed Medicaid state plan 
amendments that related to reimbursement; development of financial management reviews; 
research regarding state Medicaid financing policy and practices; collaboration with states to 
resolve the Medicaid and CHIP portions of the A-133 Single State audits; and identification of 
sources of the non-Federal share of Medicaid program payments to ensure proper financing of 
Medicaid program costs.   
 
HHS/OIG Hotline Database  
 
CMS and its contractor use the OIG Hotline database to perform program integrity activities. 
Specifically, the contractor currently receives and processes the complaints OIG receives through 
its TIPS Hotline and uploads them to the OIG Hotline database for review by the MACs. The 
complaints from both the OIG Hotline and 1-800-Medicare have been in two separate databases 
and followed two distinct processes for resolution. These processes will improve as we 
consolidate and integrate all the complaints received by OIG and 1-800-MEDICARE.  The CMS 
contractor is coordinating this effort with the OIG, ECM and NGD. CMS and the OIG anticipate 
implementing the new process by December 2012. 
 
3.   Transparency and Accountability  
 
Measured Error Rate - Payment Error Rate Measurement (PERM)  
 
The Improper Payments Information Act (IPIA) of 2002, amended by the Improper Payments 
Elimination and Recovery Act of 2010 (IPERA), requires each agency to periodically review 
 
  65  programs it administers, identify programs that may be susceptible to significant improper 
payments, estimate the amount of improper payments, submit those estimates to Congress, and 
report on actions the Agency is taking to reduce improper payments.   
 
The Medicaid program and CHIP have been identified as at risk for significant erroneous 
payments.  To comply with the IPIA and IPERA, CMS established the Payment Error Rate 
Measurement (PERM) to estimate improper payment error rates in Medicaid and CHIP.  The 
error rates are based on reviews of the fee-for-service (FFS), managed care, and eligibility 
components of Medicaid and CHIP in the fiscal year under review.  CMS uses federal contractors 
to measure Medicaid and CHIP error rates using a 17-state rotation so that each state is reviewed 
once every three years.  After several years of development, piloting and implementing the PERM 
error rate was published for the first time in FY 2008. 
 
HHS calculated, and is reporting in the FY 2012 Agency Financial Report, the three-year 
weighted average national Medicaid error rate that includes the rates reported in fiscal years 2010, 
2011, and 2012.  This three-year rolling national error rate is 7.1 percent or $19.2 billion in 
estimated improper payments and has decreased from FY 2011 (8.1 percent or $21.9 billion).  
The weighted national error components rates are as follows:  Medicaid FFS, 3.0 percent; 
Medicaid managed care, 0.3 percent; and Medicaid eligibility, 4.9 percent.  The most common 
cause of errors in fee-for-service claims is lack of sufficient documentation to support the 
payment.  The vast majority of the eligibility errors were due to beneficiaries found to be 
ineligible or whose eligibility status could not be determined.  
   
Section 601 of the Childrens Health Insurance Program Reauthorization Act of 2009 (CHIPRA) 
prohibited HHS from calculating or publishing any national or state-specific error rates for CHIP 
until six months after a new PERM final rule was effective.  In addition, Section 205(c) of the 
Medicare and Medicaid Extenders Act of 2010 exempted HHS from reporting a 2011 CHIP 
improper payment rate. On August 11, 2010, as part of enhanced efforts to reduce improper 
payments in federal programs, HHS issued the final regulations that fully implemented 
improvements to the PERM program. Therefore, HHS commenced CHIP error rate measurement 
in 2011 and is reporting the single-year FY 2012 national CHIP error rate in the FY 2012 Agency 
Financial Report. The FY 2012 national CHIP error rate is 8.2 percent or $0.7 billion in estimated 
improper payments. The national component error rates are as follows: CHIP FFS  6.9 percent; 
CHIP managed care  0.1 percent; and CHIP eligibility  5.8 percent. The most common causes 
of errors are due to beneficiaries found to be ineligible. Other errors are due to policy violations, 
payments made for non-covered services, and no documentation. 
 
CMS is currently measuring cycles that will be reported in 2013 and 2014.  CMS expects the 
error rates to decline in future years through program maturation and corrective action initiatives 
implemented at the state and Federal levels.   
 
As a result of the Executive Order 13520Reducing Improper Payments and Eliminating Waste 
in Federal Programs, the PERM program has added several new requirements including reporting 
error rate information on the Treasury improper payment dashboard  PaymentAccuracy.gov 
and annually reporting comprehensive improper payment measurement and reduction activities to 
 
  66  HHS/OIG.   
 
Error Rate Measurement and Increased Accountability in Medicare Advantage (Part C) and 
Medicare Prescription Drug Benefit Program (Part D) 
 
In compliance with IPIA, CMS has implemented a systematic plan regarding improper payments 
for Part C and Part D programs.  Unlike Medicare fee-for-service, CMS makes prospective, 
monthly per-capita payments to Part C organizations and Part D plan sponsors.  Each per-person 
payment is based on a bid amount, approved by CMS, that reflects the plan's estimate of average 
costs to provide benefit coverage to enrollees.  CMS risk-adjusts these payments to take into 
account the cost associated with treating individual beneficiaries based on health status.  In 
addition, certain Part D prospective payments are reconciled against actual costs, and risk-sharing 
rules set in law are applied to further mitigate plan risk.  
 
The Part C payment error estimate reported for FY 2012 (based on calendar  year CY 2010) is 
11.4 percent, or $13.1 billion.  The Part C payment error estimate has remained relatively constant 
compared to FY 2011 of 11.0 percent.  The FY 2012 Part C payment error estimate presents the 
combined impact on Part C payments of two sources of error: Part C payment system error and 
the Risk Adjustment Error.  Most of the Part C payment error is driven by errors in risk 
adjustment data (clinical diagnosis data) submitted by Part C plans to CMS for payment purposes.  
Specifically, the Risk Adjustment Error estimate reflects the extent to which diagnoses that plans 
report to CMS are not supported by medical record documentation.  In an effort to improve the 
Part C error rate, CMS has implemented contract-specific Risk Adjustment Data Validation 
(RADV) audits designed to recover overpayments to Part C plans, and to provide outreach and 
education to plans.  Further, CMS has initiated outreach and education efforts for 
physicians/providers for FY 2012.    
 
On February 24, 2012, HHS released the Notice of Final Payment Error Calculation 
Methodology for Part C Medicare Advantage Risk Adjustment Data Validation Contract-Level 
Audits.  The notice clarifies the final audit methodology that will be implemented for audited 
contracts going forward.  Calendar year 2011 is the first year that CMS will conduct payment 
recovery based on extrapolated estimates.  CMS expects to audit about 30 MA contracts each 
year.   
 
Additionally, the CY 2007 contract-level RADV audits are in the final stages.  In FY 2012, CMS 
conducted payment recovery (at the beneficiary level) from five of the contracts involved in the 
CY 2007 RADV pilot audits totaling $3.5 million.  
 
 
The Part D payment error estimate reported for FY 2012 (based on CY 2010) is 3.1 percent, or 
$1.59 billion.  The FY 2012 Part D error estimate presents the combined impact on Part D 
payments of five sources of error: Part D payment system error; payment error related to low 
income subsidy status; payment error related to incorrect Medicaid status; payment error related 
to prescription drug event data validation; and payment error related to direct and indirect 
remuneration.   
 
  67   
Probable Fraud Measurement Pilot   
 
While CMS calculates improper payments error rates in Medicare and Medicaid as described 
above, there is no reliable estimate of the amount of fraud in the Medicare program.  
Documenting the baseline amount of fraud in Medicare is of critical importance, as it allows 
officials to evaluate the success of ongoing fraud prevention activities.  In collaboration with the 
HHS Office of the Assistant Secretary for Planning and Evaluation, CMS developed the 
methodology for the first nationally representative estimate of the extent of probable fraud in the 
Medicare fee-for-service program in FY 2011.  In FY 2012, CMS developed the measurement 
tools for the pilot, and collaborated with government partners, including ASPE, on the strategy for 
implementation.   
 
This project will estimate probable fraud within the area of Home Health Agencies (HHAs) to 
pilot test the measurement approach and calculate a service-specific estimate.  This pilot is 
measuring probable fraud rather than fraud because fraud is a legal determination that CMS 
cannot make on its own.  A review panel of experienced health care analysts, clinicians, policy 
experts, and fraud investigators will review all collected data and determine if there is sufficient 
evidence to warrant a referral to law enforcement.  After the completion of this pilot, CMS will 
assess the value of expanding the measurement to other areas of health care. CMS will begin 
collecting data on probable fraud and have an estimate of probable fraud within HHAs in 2013.  
 
Fraud Summits 
 
Since June 8, 2010 when President Obama announced a nationwide series of regional fraud 
prevention summits as part of a multi-faceted effort to crack down on health care fraud, HHS has 
a strong commitment to partnering with the private sector to exchange information on best 
practices.  The seventh fraud prevention summit was held in Chicago on April 4, 2012 
highlighting the new high-tech war against health care fraud being jointly fought by HHS and 
DOJ.  FY 2010 HCFAC funds totaling $1 million were used to fund these regional fraud summits 
and also to underwrite the Fraud Prevention Campaign in both FY 2011 and FY 2012.  
 
4.   Recovery  
 
Field Offices 
 
CMS has been placing resources in Medicare hot fraud areas with ZPIC and CMS program 
integrity field offices.  The ZPIC contracting strategy aligns the anti-fraud contractors with the 
Medicare Administrative Contractor (MAC) zones.  Additionally, the designated program 
integrity field offices are located in or near the HEAT cities of Miami, Los Angeles, and 
Brooklyn, and provide a CMS presence in high risk fraud areas of the country.  Together, the field 
offices and ZPICs conduct data analysis to proactively identify targets and to coordinate efforts 
among various contractors and agencies to identify local issues and vulnerabilities with national 
or regional impact.  All three field offices have staff that are designated CMS Strike Force 
Liaisons, who coordinate with law enforcement, facilitate data analysis, and expedite suspension 
 
  68  requests. 
 
Enrollment Special Study 
 
The Enrollment Special Study is a project designed to stop fraudulent providers from obtaining 
new Medicare provider numbers, reduce the number of habitual bad providers from re-entering 
the Medicare system after they have been kicked out, and shift from the pay and chase approach 
that has existed in years past.  In this project, site visits are conducted prior to enrollment, and 
providers are targeted for a closer review.  The project is limited to Community Mental Health 
Centers (CMHCs), Comprehensive Outpatient Rehabilitation Facilities, and Independent 
Diagnostic Testing Facilities in South Florida. Once the MAC conducts a site visit, it assesses the 
providers individual risk.  If the provider appears to be suspect or pose an elevated risk of fraud, 
the provider is referred to the ZPIC for investigation and administrative action, as appropriate.  
This project began as a one year project in July 2009 and has been extended due to its success.   
 
As of July 31, 2012, First Coast Service Operations, Inc. (FCSO), a MAC, has conducted 15,826 
activity checks to verify providers/suppliers operational status; deactivated 576 practice locations 
and revoked 736 providers billing privileges. Since inception, FCSO has saved over $42 million 
through prepayment review.  In addition, as of July, 14, 2012, SafeGuard Services (SGS), the 
ZPIC, conducted 1,296 on-site investigations resulting in 605 requests for provider revocation or 
deactivation.   SGS placed 618 providers on prepayment review resulting in savings of $18.7 
million. 
 
South Florida Fraud Hot Line 
 
CMS also continued a successful initiative aimed at increasing fraud reporting in South Florida.  
As part of a two-year infusion therapy demonstration, CMS established a special fraud hotline in 
2007 to protect Medicare beneficiaries in South Florida from fraudulent providers of infusion 
therapy.  As a result of the hotlines success in FY 2009, CMS expanded the scope of this 
infusion therapy fraud hotline to handle all Medicare fraud-related calls in South Florida.  The 
fraud hotline number is included on monthly Medicare Summary Notices (MSNs) sent to 
beneficiaries in Miami-Dade, Broward and Palm Beach counties.    
 
Trained, bilingual, or trilingual staff fielded and routed calls, and acknowledged receipt of 
complaints in writing.  A rapid response team at the ZPIC investigated the highest priority leads 
received from the fraud hotline within 48 hours of receipt of the call and then collaborated with 
CMS and law enforcement to pursue appropriate follow up action(s).  CMS worked with its 
partners to conduct beneficiary outreach and education to ensure beneficiaries understood the 
types of fraud that may occur and how to read their MSNs to detect potential fraudulent billings. 
 
As of August 31, 2012, the hotline has received more than 86,535 calls leading to 954 new fraud 
investigations.  In addition, the ZPIC has placed 191 providers on prepayment review saving $14 
million, revoked or deactivated 157 provider numbers, referred 42 cases to law enforcement, and 
sent 133 Immediate Advisements to the HHS/OIG.  Additionally, law enforcement has seized $3 
million in provider bank accounts.   
 
  69   
DME Stop Gap Plan 
 
The DME Stop Gap Plan was developed in response to the escalation in DMEPOS fraud and the 
delay in implementation of DMEPOS competitive bidding.  This two-year project was initiated in 
FY 2009 to enhance detection and prevention activities in connection with fraud, waste and abuse 
in DMEPOS in seven high risk states (California, Florida, Illinois, Michigan, North Carolina, 
New York and Texas).  The project is intended to address fraud involving high risk suppliers, 
ordering physicians, DMEPOS items, and beneficiaries in each area.  
 
Under this project, CMS and its contractors first identify and then interview or conduct site visits 
to the highest paid and highest risk DMEPOS suppliers ordering physicians, and utilizing 
beneficiaries. These visits and interviews allow CMS to identify and scrutinize the highest billed 
and highest risk DMEPOS equipment and supplies.  
 
Based on the findings, administrative actions, as appropriate, are initiated.  The second year of the 
project concluded on September 30, 2011 and the results to date include onsite interviews/reviews 
of 5,371 high risk providers, suppliers, and beneficiaries; implementation of 15,470 claims 
processing edits to prevent improper payment (with associated $36.4 million in denied claims); 
$69 million in requested overpayments; 1,240 new investigations opened; and 479 suppliers 
revoked or deactivated.   
 
As a result of the DME Stop Gap project CPI has decided to incorporate lessons learned from the 
DME Stop Gap into the routine DME workload for all ZPICs.  
Defending Medical Review Decisions at Administrative Law Judge (ALJ) Hearings 
 
In FY 2011, CMS was awarded HHS Wedge funding to hire additional Contractor Medical 
Directors (CMDs) to support CMS anti-fraud and error rate reduction efforts by defending 
decisions at the ALJ.  The funding was provided to the MACs in FY 2012.  As a result, there are 
now Medical Directors dedicated to serving as expert witnesses at appeal hearings. 
 
This project supports agency administrative actions by ensuring there are adequate CMDs that can 
serve as expert witnesses for the agency at the ALJ level.  In a pilot program, CMS had 
previously had success with reducing the overturn rate on appeals by having a physician 
participate at the ALJ level.   
 
Administration for Community Living 
 
In FY 2012, the Administration for Community Living (ACL) via the Administration on Aging 
(AoA) was allocated $3.378 million in HCFAC funding by HHS to support infrastructure, 
technical assistance, and the other Senior Medicare Patrol (SMP) program support. In addition to 
this funding, ACL was allocated $7.331 million for capacity-building activities designed to 
enhance the effectiveness of state-wide SMP programs. During FY 2010 and FY 2011, CMS had 
provided this capacity funding to ACL for the SMP projects. In FY 2012, the funding came 
 
  70  directly to ACL. The base SMP project grant is funded from a separate Congressional 
appropriation.   
 
SMP Project Activities and Outcomes 
 
ACL funds 54 SMP statewide projects (each state, Guam, Puerto Rico, Virgin Islands and D.C.) 
with funds authorized in the Older American Act and the HCFAC Wedge. SMP projects recruit 
and train senior volunteers to educate their peers on how, as beneficiaries, they can detect and 
prevent fraud, waste and abuse in Medicare.  
 
In  FY  2012  ACL  received  the  aforementioned  $7.3  million  in  additional  HCFAC  funds  to 
continue the expanded funding of statewide SMP projects that began in FY 2010 and continued in 
FY 2011.  This additional funding has allowed SMPs to target their expansions in large states 
with high instances of fraud. 
   
According to the most recent annual performance report from HHS/OIGs Deputy Inspector 
General for Evaluation and Inspections, dated June 21, 2012, 5,671 active volunteers served SMP 
projects during 2011.  This represents a 14 percent increase in the number of volunteers from that 
of 2010.  These volunteers performed an essential function of this program, contributing 88,169 
hours in efforts to educate beneficiaries about how to prevent and detect Medicare and Medicaid 
fraud within local communities.  
 
Outreach to senior consumers is a key element of the SMP program.  During 2011, SMP projects 
held 8,800 community outreach education events reaching close to an estimated 1.67 million 
people, and were responsible for over 592,000 media airings to increase beneficiary awareness 
about issues related to Medicare and Medicaid integrity.  During this period, 66,303 one-on-one 
counseling sessions were held with or on behalf of a beneficiary on a variety of issues related to 
potential Medicare or Medicaid fraud, error, or abuse.  In addition, over 431,000 beneficiaries 
were educated through 11,109 group educational sessions conducted by SMP programs in local 
communities.  
 
SMP projects nationwide resolved 77,367 inquiries for information or assistance in 2011 from or 
on behalf of beneficiaries.  This included receipt of 2,077 complex issuesi.e., beneficiary 
complaints requiring further research, assistance, case development, and/or referral.   SMP 
projects reported that 1,415 complex issues were resolved for beneficiaries during 2011, while 
819 complex issues with an estimated dollar value of over $5.3 million, were referred to law 
enforcement, CMS integrity contractors, state Medicaid Fraud Control Units, or other entities for 
further action.  During this period, HHS/OIG documented that $247,850 in health care 
expenditures were avoided and nearly $33,000 in Medicare, Medicaid and other savings resulted 
from actions taken by the SMP program. 
 
Since the programs inception, the program has educated over 4.7 million beneficiaries in group 
or one-on-one counseling sessions and has reached nearly 27 million people through community 
education outreach events.  While SMPs make numerous referrals of potential fraud to CMS 
program integrity contractors, it is still difficult to measure the outcome of these cases without a 
 
  71  tracking mechanism. Therefore, we have no measure of these outcomes, though we anticipate that 
they would demonstrate an additional benefit of the SMP programs ability to detect and prevent 
fraud and abuse in the Medicare program.  In addition, the impact of the SMP programs primary 
activitieseducation of beneficiaries to prevent health care fraudis difficult to measure and 
impossible to quantify in dollars and cents.  As HHS/OIG indicated in the June 2012 report: 
 
 We continue to emphasize that the number of beneficiaries who have learned from the 
Senior Medicare Patrol Projects to detect fraud, waste, and abuse and who subsequently 
call the OIG fraud hotline or other contacts cannot be tracked.  Therefore, the projects may 
not be receiving full credit for savings attributable to their work.  In addition, the projects 
are unable to track substantial savings derived from a sentinel effect, whereby fraud and 
errors are reduced in light of Medicare beneficiaries scrutiny of their bills.   
 
ACL recognizes the importance of measuring the value of the SMP program impact to the fullest 
degree possible.  Toward that end, in 2012,  ACL contracted for the first-ever SMP program 
evaluation that will assess the national design and implementation of the SMP program, the 
adequacy of current SMP performance measures, and seek to determine the most appropriate 
measures of SMP program value (benefits, results and impact).  The contract was awarded in 
September 2012 and will continue for 15 months. 
 
In addition, during FY 2012, ACL and HHS/OIG continued a collaborative effort to help ensure 
SMP referrals of beneficiary complaints of potential fraud are received by law enforcement in a 
timely fashion.  This has included development of processes for SMP referral of beneficiary 
complaints to the HHS/OIG hotline, including mechanisms for capturing outcomes related to 
these referrals. In addition, a workgroup between ACL and HHS/OIG meets regularly to review 
potential fraud cases for submission to the OIG hotline. 
 
Despite the factors that have limited ACLs ability to quantify the value of the SMP program in 
preventing, identifying, and reporting health care fraud, the OIG has documented close to $106 
million in savings attributable to the program as a result of beneficiary complaints since its 
inception in 1997.  
 
SMP Infrastructure and Program Support  
 
National Consumer Protection Technical Resource Center 
 
The Center, established October 1, 2003, provides technical assistance, support and training to the 
SMP projects, ensuring a fully consolidated national approach to reaching Medicare and Medicaid 
beneficiaries.  The goal of the Center is to provide professional expertise and technical support, 
serve  as  an  accessible  and  responsive  central  source  of  information,  and  maximize  the 
effectiveness of the SMP projects in healthcare integrity outreach and education.  The Center has 
been instrumental in supporting ACL efforts to forge national visibility for the SMP program.   
 
National Hispanic SMP Project Grant 
 
 
  72  In September 2008, AoA awarded an initial three-year grant to the National Hispanic Council on 
Aging for the development and implementation of a National Hispanic SMP (NHSMP) Program.  
The problem of health care fraud and abuse becomes even more challenging to address with hard-
to-reach populations, particularly those with cultural and language barriers. The NHSMP project 
also promotes collaborations among key community players in order to promote the prevention, 
detection and reporting of fraud within the Hispanic community.  The NHSMP program is working 
to  create  a  model  to  provide  technical  assistance  to  SMP  projects  who  work  with  Hispanic 
populations so that they can expand their reach to Hispanic older adults.   
 
Office of the General Counsel  
 
In FY 2012, the Office of the General Counsel (OGC) was allocated approximately $8.9 million 
in HCFAC funding by HHS to supplement OGCs efforts to support program integrity activities.  
OGCs efforts in FY 2012 focused heavily on program integrity review, in which OGC reviews 
CMS programs and HCFAC activities in order to strengthen them against potential fraud, waste, 
and abuse.  OGC also continued to expand its litigation role in order to assist in the recovery of 
program funds.  During FY 2012, OGC was involved in a wide range of HCFAC efforts that 
resulted in Government recoveries of over $2.8 billion in judgments, settlements, or other types of 
recoveries, savings, or receivables described elsewhere in this report.     
 
The Affordable Care Act 
 
The ACA significantly amended existing anti-fraud statutes. These provisions established 
fundamental expectations for compliance, disclosure, transparency, and quality of care, and are 
matched by corresponding enforcement provisions. Some specific provisions of the ACA that 
particularly support HCFAC priorities include amending Medicare and Medicaid 
provider/supplier enrollment requirements, overpayment provisions to specifically invoke the 
FCA, strengthening the anti-kickback statute, and creating a statutory disclosure protocol for 
violations of the physician self-referral prohibition known as the Stark law.  During FY 2012, 
OGC spent significant time and resources working with CMS to implement program integrity 
provisions in the ACA.  As new ACA programs were implemented, OGC worked with the 
relevant agencies to ensure that program integrity issues were reviewed and resolved, and assisted 
the agencies in addressing program integrity and compliance problems as they occurred.   
 
HEAT 
 
During FY 2012, OGC was involved in HEAT initiatives and worked closely with other HEAT 
members to combat fraud, waste, and abuse in the Medicare and Medicaid programs by providing 
advice on the myriad legal issues presented as the government works to initiate innovative anti-
fraud programs in various hotspots throughout the country. OGC continued to assist DOJ in 
pursuing both criminal and civil cases involving individuals and entities seeking to defraud the 
Medicare and Medicaid programs and to defend any Federal court challenges that are brought as a 
result of HEAT initiatives. OGCs involvement in HEAT also included advising CMS on 
provider and supplier revocations, payment suspensions, recoupments, and defending the 
administrative appeals that resulted.   
 
  73   
FCA and Qui Tam Actions 
 
OGC assisted DOJ in assessing qui tam actions filed under the FCA by interpreting complex 
Medicare and Medicaid rules and policies in order to assist DOJ in discerning which allegations 
were program violations and should be pursued and to help DOJ focus on those matters which 
were most likely to result in a recovery of money for the government. When DOJ filed or 
intervened in a FCA matter, OGC provided litigation support, including interviewing and 
preparing witnesses and responding to requests for documents and information. In FY 2012, OGC 
participated in FCA and related matters that recovered over $2.6 billion for the government.  The 
types of FCA cases that OGC participated included: drug pricing manipulation; illegal marketing 
activity by pharmaceutical manufacturers that resulted in Medicare and Medicaid paying for drugs 
for indications not covered; underpayment of rebates to state Medicaid programs; physician self-
referral violations; and provider up coding cases.   
     
Provider/Supplier Suspensions and Enrollment Revocations or Denials 
 
Suspensions play a critical role in protecting against the abuse of program funds.  OGC advised 
CMS on whether to suspend payments to Medicare providers and suppliers and defended the 
suspensions when challenged. In FY 2012, OGC attorneys were involved in a myriad of 
suspension and recoupment actions, which involved fraudulent billings and different segments of 
the health care industry: DME suppliers, ambulance companies, physicians, infusion clinics, 
therapists, home health agencies, and diagnostic testing facilities. OGC also represented CMS 
when a provider or supplier appealed a denial of enrollment or revocation. In FY 2012, OGC 
represented CMS in appeals before the Departmental Appeals Board (DAB) and often resolved 
these cases without formal hearings. OGC also continued to advise CMS on the interpretation of 
enrollment regulations and reviewed proposed enrollment rules and manual changes.   
 
Medicare Prescription Drug Program (Part D) & Medicare Advantage (Part C) Compliance 
 
During FY 2012, OGC continued to provide extensive advice to CMS on a variety of Part D and 
MA-related contract compliance issues, including identifying enforcement options against 
sponsors that are noncompliant or violate program rules, such as the Marketing Guidelines.  OGC 
reviewed compliance-related correspondence that CMS issued to Part D sponsors and MA plans 
in the form of warning letters, corrective action plan letters, intermediate sanctions, CMP notices, 
and non-renewal or termination notices.   
 
Civil Monetary Penalties 
 
CMS has the responsibility for administering numerous CMP provisions enacted by Congress to 
combat fraud, waste, and abuse by enforcing program compliance and payment integrity. In FY 
2012, OGC provided legal advice to CMS regarding the development and imposition of CMPs 
and defended CMS in many administrative appeals and judicial litigation resulting from these 
cases, recovering or establishing the right to recover over $4.5 million in CMPs. 
 
 
  74   
Petitions for Remission 
 
OGC collaborated with Federal law enforcement, including the FBI, the USAOs, the Secret 
Service, U.S. Postal Service, and the U.S. Marshals Service in filing petitions for remission 
directed to recover assets subject either to administrative forfeiture by Federal law enforcement or 
civil judicial forfeiture by DOJ.  Each petition set forth the background of the fraudulent scheme, 
the history of Medicares payments, and how the fraudulently induced payments could be traced 
to the seized assets.  During FY 2012, OGC petitioned these agencies to recover funds in both 
criminal and civil litigation matters in which Medicare was a victim of fraud involving about $5.4 
million seized by law enforcement agencies. 
     
Regulatory Review and Programmatic Advice 
 
In FY 2012, OGC advised CMS on a variety of contract compliance, immediate sanction, and 
civil money penalty issues, and assisted CMS with a variety of law enforcement inquiries related 
to Parts C and D. OGC also provided extensive legal counsel to CPI on a proposed rule 
implementing new section 1128J(d) of the Social Security Act (SSA), which requires providers 
and suppliers to report and return overpayments within 60 days of identifying them.   
 
Medicaid Integrity 
 
Continuing recent trends, OGC saw continued increasing involvement in FY 2012 in Medicaid 
integrity issues as CMS devoted more resources to financial reviews and oversight and as states 
continued to present innovative proposals to reconfigure their programs.   
 
Physician Self-Referral 
 
OGC provided valuable assistance to CMS in navigating the complexities of the Stark physician 
self-referral law.  In FY 2012, OGC reviewed several draft Stark advisory opinions as well as 
various payment or coverage rules and suggested modifications necessary to avoid implicating, or 
to conform the regulation to, the Stark law. In addition, OGC has been instrumental in advising 
CMS on the newly established (by the ACA) voluntary Self Referral Disclosure Protocol, under 
which providers of services and supplies may self-disclose actual or potential violations of the 
physician self-referral statute.  OGC has advised CMS on how to implement this new provision, 
how to apply the protocol, and how to resolve the specific disclosures (now over 100) that CMS 
has received. 
 
Medicare Secondary Payer (MSP) Workload 
 
OGCs efforts to recover conditional payments by Medicare that are the primary responsibility of 
other payers directly supports the HCFAC statutory goal of facilitating the enforcement of all 
applicable legal remedies for program fraud and abuse.  During FY 2012, OGC has been 
successful in establishing the right to recover over $17 million for Medicare under the MSP 
program.  Recent statutory changes implementing reporting requirements to the MSP law have 
 
  75  strengthened and expanded OGCs efforts in this area  to the benefit of the Medicare Trust 
Funds  including substantial CMPs for failure to report.   
 
Bankruptcy Litigation 
 
OGC protected Medicare funds when providers sought bankruptcy protections by asserting CMS 
recoupment and set-off rights to collect overpayments. In FY 2012, OGC asserted CMS interests 
in numerous bankruptcy and receivership actions involving physicians, hospitals, independent 
diagnostic test facilities, DME suppliers, nursing homes, and nursing home chains. Further, OGC 
negotiated agreements to recover overpayments, and advanced the use of Medicares recoupment 
and set-off authority, collecting or establishing the right to collect over $4.9 million in recoveries 
involving bankrupt providers. 
 
Denial of Claims and Payments 
 
CMS and its contractors engaged in various activities and initiatives to detect and prevent abusive 
and fraudulent billing practices.  These measures included provider and beneficiary education, use 
of claim sampling techniques, and a more rigorous scrutiny of claims with increased medical 
review.  In FY 2012, OGC played a major role in advising CMS regarding the development and 
implementation of these types of program integrity measures and defended CMS in litigation 
brought by providers and suppliers who challenged these efforts.  OGC continued to aggressively 
defend CMS and its contractors in cases seeking damages for the alleged wrongful denial of 
claims, for being placed on payment suspension, and for not being granted extended repayment 
plans.   
 
Food and Drug Administration Pharmaceutical Fraud 
Program 
 
In FY 2012, the FDA was allocated $3.4 million in HCFAC funding by HHS for the FDA 
Pharmaceutical Fraud Program (PFP).  The PFP has enhanced the health care fraud- related 
activities of FDA's Office of Criminal Investigations (OCI) and the Office of the General 
Counsel (OGC) Food and Drug Division.  OCI, with the support of OGC, investigates 
criminal violations of the Food, Drug, and Cosmetic Act (FDCA), the Prescription Drug 
Marketing Act, the Federal Anti-Tampering Act, and related Federal statutes. 
 
The PFP is designed to detect, prosecute, and prevent pharmaceutical, biologic, and medical 
device fraud.  The PFP gathers information from sources inside and outside FDA and focuses 
on fraudulent marketing schemes, application fraud, clinical trial fraud, and flagrant 
manufacturing- related violations related to biologics, drugs, and medical devices.  The early 
detection and prosecution of fraudulent conduct furthers FDAs public health mission and helps 
reduce health care costs and deter future violators.  As described below, the PFP has identified 
multiple alleged medical product fraud schemes through various avenues. 
 
Since the inception of the PFP, OCI has opened a total of forty-two criminal investigations.  In 
FY 2012, FDAs second full fiscal year of HCFAC Program activity, OCI, through its PFP, 
 
  76  opened seventeen criminal investigations, described below: 
 
  Two investigations involving allegations of promotional violations including 
minimization of risk and/or off label promotion of two drugs by different 
manufacturers.  One investigation involves the promotion of a drug for conditions not 
indicated in the drugs labeling.  The other investigation involves allegations of 
deceptive marketing practices regarding the safety of a drug product.  
 
  One investigation involving allegations of promotional violations involving multiple 
medical devices by a manufacturer.  In this investigation, it is alleged that the 
manufacturer was aware of defects and repeated failures of the devices and failed to 
provide safety information to the FDA, doctors and patients. 
 
  One investigation involving allegations of off-label promotion, clinical trial and 
application fraud and insurance billing matters regarding a medical device.  The device is 
allegedly being promoted off-label and being used in a clinical trial without an 
investigational device exemption for a condition that falls outside the cleared indication 
for use.       
 
  Thirteen investigations involving allegations of clinical trial fraud and/or application 
fraud.  These investigations consist in part of individuals suspected of falsifying 
clinical trial data, forging signatures of clinical investigators, and enrolling ineligible 
subjects in clinical trials. 
 
In regards to judicial action, one of the PFP clinical trial fraud investigations has resulted in 
the convictions of two individuals.  The investigation revealed that a physician and a clinical 
research coordinator conducting clinical trials of biological product intended to treat allergies 
enrolled ineligible participant in the clinical trial, falsified records of physical examinations, 
and made false statements to the FDA about the study.  Both were charged with conspiracy, 
mail fraud, and falsifying information required by the FDA.  The defendants each received 12 
months probation and were ordered to pay restitution in the amount of $36,040.  OCI 
forwarded information about the convictions to FDAs Office of Enforcement for 
consideration of appropriate administrative remedies to prevent the defendants from 
conducting additional clinical investigations.   
 
In addition to these investigative activities, FDA conducted a three day training session in late 
June 2012 for criminal investigators and supervisors covering PFP-related topics.  Instruction 
provided included legal training by the Office of General Counsel on the Federal Food, Drug, and 
Cosmetic Act in areas relevant to PFP cases, investigative scenario training on clinical trial fraud 
investigations, case presentations on successful prosecutions involving off-label promotion and 
other fraud schemes involving both drugs and medical devices.  The training also provided 
background on OCIs participation in the HCFAC Program and resources available to assist in 
investigations being conducted under the PFP.   
 
 
 
  77  THE DEPARTMENT OF JUSTICE 
 
United States Attorneys 
 
In FY 2012, the United States Attorneys Offices (USAOs) were allocated approximately $35.4 
million in HCFAC funding to support civil and criminal health care fraud and abuse litigation, as 
exemplified in the Program Accomplishments section.  The USAOs dedicated substantial district 
resources to combating health care fraud and abuse in 2012, and HCFAC allocations have 
supplemented those resources by providing funding for attorneys, paralegals, auditors and 
investigators, as well as funds for litigation of resource-intensive health care fraud cases. 
 
The 93 United States Attorneys and their assistants, or AUSAs, are the nations principal 
prosecutors of Federal crimes, including health care fraud.  Each district has a designated 
Criminal Health Care Fraud Coordinator and a Civil Health Care Fraud Coordinator.  Civil and 
criminal health care fraud referrals are often made to USAOs through the law enforcement 
network described herein, and these cases are usually handled primarily by the USAOs, although 
the civil referrals are sometimes handled jointly with the Civil Divisions Commercial Litigation 
Branch (Fraud Section).  The other principal source of referrals of civil cases for USAOs is 
through the filing of qui tam (or whistleblower) complaints.  These cases are often handled jointly 
with trial attorneys in the Frauds Section. USAOs also handle most criminal and civil appeals at 
the Federal appellate level. 
 
USAOs play a major role in health care fraud enforcement by bringing criminal and affirmative 
civil cases to recover funds wrongfully taken from the Medicare Trust Funds and other taxpayer-
funded health care systems as a result of fraud, waste, and abuse.  Civil and criminal AUSAs 
litigate a wide variety of health care fraud matters, including false billings by physicians and other 
providers of medical services, overcharges by hospitals, Medicaid fraud, kickbacks to induce 
referrals of Medicare or Medicaid patients, fraud by pharmaceutical and medical device 
companies, home health and hospice fraud, and failure of care allegations against nursing home 
owners.  Working closely with their partners in the Civil Division, several civil health care fraud 
AUSAs have focused their efforts on pharmaceutical fraud, resulting in significant recoveries 
including: $3.0 billion from GlaxoSmithKline, and $950 million from Merck, Sharp and Dohme.  
Most of the civil settlements, including these settlements were part of a global resolution, which 
also addressed the criminal liabilities, resulting in criminal pleas, as well as significant fines and 
forfeitures.  The criminal portion of these investigations and resolutions was handled by criminal 
health care fraud AUSAs, often working with their counterparts at the Consumer Protection 
Branch of the Civil Division.  These global settlements resolved allegations including, reporting 
of false and inflated drug prices, manufacturing and distributing adulterated drugs, off-label 
marketing and kick-backs.  These cases are detailed earlier in this report.     
 
Several of the USAOs have dedicated significant resources to investigate fraud perpetrated on our 
most vulnerable citizens.  To this end, the USAOs have partnered with Civil Frauds in the Elder 
Justice and Nursing Home Initiative to address elder abuse and neglect.  As a result of USAO 
efforts, the owner and operator of three nursing homes was sentenced to serve 20 years in Federal 
 
  78  prison on charges of conspiring with his wife to defraud the Medicare and Georgia Medicaid 
programs by billing them for worthless services in the operation of three nursing homes. This is 
the first time that a defendant has been convicted after a trial in Federal court for submitting 
claims for payment for worthless services. The defendant was also ordered to pay $6.7 million in 
restitution to Medicaid and Medicare 
 
The USAOs partner with the Criminal Division in the Strike Forces, which are currently operating 
in nine USAOs across the country.  Each USAO has dedicated several AUSAs and support 
personnel to work with Criminal Division attorneys in this important initiative.  The MFSFs use 
data analysis to identify high-billing levels in health care hot spots so that emerging or migrating 
schemes can be targeted.  The significant successes of the MFSFs have been detailed earlier in 
this report.   
 
Special Focus Teams, consisting of criminal and civil AUSAs, paralegals, and auditors, are 
operational in three districts and focus on pharmaceutical, biologics, and medical device fraud.  
The teams have contributed significantly to the success of the pharmaceutical investigations and 
recoveries this year.  To increase the capacity of other districts to successfully litigate these 
complex health care fraud cases, the Special Focus Teams have organized monthly training 
Webinars and serve as advisors for the USAO community in the various complex areas of health 
care fraud. 
 
In addition to the positions funded by HCFAC, the Executive Office for United States Attorneys 
Office of Legal Education (OLE) uses HCFAC funds to train AUSAs and other DOJ attorneys, as 
well as paralegals, investigators, and auditors in the investigation and prosecution of health care 
fraud.  In 2012, OLE offered a Health Care Fraud Seminar, which was attended by over 100 
AUSAs and DOJ trial attorneys.  In addition, an ACE Conference, with a heavy concentration on 
health care fraud issues, was offered for paralegals, auditors, and investigators.  Many USAO 
attorneys, investigators, auditors, and paralegals serve as faculty at these OLE trainings, and also 
participate in other Federal, state, and private health care fraud seminars.       
 
Criminal Prosecutions 
 
In FY 2012, the USAOs received 1,131 new criminal matters involving 2,148 defendants, and had 
2,032 health care fraud criminal matters pending,15 involving 3,410 defendants.  The USAOs filed 
criminal charges in 452 cases involving 892 defendants, and obtained 826 Federal health care 
fraud related convictions. 
 
Civil Matters and Cases 
 
In FY 2012, the USAOs had opened 885 new civil health care fraud investigations.  At the end of 
FY 2012, the USAOs had 1,023 civil health care fraud investigations pending. 
 
                                                 
15 When a USAO accepts a criminal referral for consideration, the office opens it as a matter pending in the district.  
A referral remains a pending matter until an indictment or information is filed or it is declined for prosecution. 
 
  79  Civil Division 
 
In FY 2012, the Civil Division received approximately $25.1 million in HCFAC funding to 
support the health care fraud activities of the Commercial Litigation Branchs Fraud Section and 
the Consumer Protection Branch.  This amount also included funding to support the Department 
of Justices Elder Justice and Nursing Home Initiative.   
 
The Commercial Litigation Branchs Fraud Section 
 
The Civil Divisions Commercial Litigation Branch (Fraud Section) investigates health care fraud 
allegations and brings actions under the FCA to recover money on behalf of defrauded Federal 
health care programs including Medicare, Medicaid, TRICARE, and the FEHBP.  The Fraud 
Section works closely with the Consumer Protection Branch, USAOs, HHS/OIG, state Medicaid 
Fraud Control Units and other law enforcement agencies.  As a result of these efforts, the Fraud 
Section has obtained settlements and judgments of over $1 billion almost every year since 2000 
and over $3 billion in FY 2012 alone. 
 
The Fraud Section investigates and resolves matters against a wide array of health care providers 
and suppliers.  Matters involving pharmaceutical and device manufacturers are among the most 
complex and resource intensive cases handled by the Fraud Section.  These matters commonly 
involve nationwide conduct, raise legally and factually complicated issues, and demand 
significant resources to investigate, resolve, and litigate, if necessary.  Many of these cases, 
including the GlaxoSmithKline matter discussed above and in greater detail below, involved 
allegations that the pharmaceutical manufacturer improperly promoted its drug for uses not 
approved by the FDA and thereby caused Federal health care programs to pay for drugs for 
unapproved and non-covered uses.  Other cases involved allegations that the manufacturer 
provided false and misleading information about their products, or else paid kickbacks to 
physicians to prescribe their products.  Lastly, some of these matters alleged drug pricing 
manipulation by pharmaceutical manufacturers in order to lower their month rebate obligations to 
the Medicaid program.  In all, the Fraud Section recovered more than $2 billion in matters 
involving pharmaceutical and medical device manufacturers.  
 
The Fraud Section also investigated and resolved several matters involving hospice and hospital 
providers in FY12.  For example, Odyssey Healthcare paid $25 million to resolve FCA 
allegations that it submitted claims for medically unnecessary continuous home care services 
that were intended for patients who are experiencing an acute crisis and whose symptoms could 
only be controlled at home through the provision of skilled nursing services.  Likewise, the Fraud 
Section resolved several hospital matters involving allegations that the hospitals overbilled 
Medicare by treating patients on an inpatient basis when they should have been treated as 
observation patients or treated on an outpatient basis.      
 
In addition to its investigative responsibilities, the Fraud Section plays a critical role supporting 
and providing guidance to its health care fraud partners.  It regularly provides training and 
guidance to AUSAs and agents on the FCA and health care fraud issues.  The Section works 
closely with HHS/OIG, Office of General Counsel, in all settlements of health care fraud 
 
  80  allegations in order to ensure that the administrative remedies possessed by HHS are 
appropriately considered and to enable the negotiation of compliance terms that diminish the risk 
that the offending conduct will be repeated.  The Section also collaborates with and counsels 
CMS and HHS/OIG on interagency initiatives and proposed rules and regulations.   
 
The Elder Justice and Nursing Home Initiative, which is housed in the Civil Division, coordinates 
and supports law enforcement efforts to combat elder abuse, neglect, and financial exploitation.  
The Initiative supports law enforcement efforts by maintaining an information bank of Elder 
Justice related materials (including briefs, opinions, indictments, plea agreements, subpoenas 
templates); funding medical reviewers, auditors, and other consultants to assist DOJ attorneys and 
AUSAs in their nursing home and/or long term care facility cases; hosting quarterly 
teleconferences with DOJ attorneys and AUSAs across the country to discuss issues or 
developments in connection with our nursing home and failure of care cases; and coordinating 
nationwide investigations of skilled nursing facilities.  In addition to supporting law enforcement 
efforts, the Initiative continues to fund research projects awarded by the Office of Justice 
Programs, National Institute of Justice, to study the abuse, neglect, and exploitation of elderly 
individuals and residents of residential care facilities.   
 
The Consumer Protection Branch 
 
The Consumer Protection Branch (CPB) investigates and prosecutes manufacturers and 
individuals who are illegally promoting and distributing unapproved, misbranded, and adulterated 
drugs and devices in violation of the FDCA.  CPB works closely with the Commercial Litigation 
Branchs Fraud Section, the USAOs, and the FDA on a wide variety of health care fraud matters.  
In recent years, CPB has convicted dozens of companies and individuals.  The prosecutions 
resulted in significant jail terms and fines, penalties, and forfeitures totaling in the billions of 
dollars. 
 
In the area of pharmaceutical and device fraud, CPB coordinates complex investigations with 
districts nationwide, staffing the cases directly as well as providing assistance to USAOs.  
Because these investigations are complicated, both legally and factually, they demand significant 
resources.  The recent prosecution of GlaxoSmithKline (GSK), a major pharmaceutical 
company, is an example of the sort of complex health care fraud investigation the Consumer 
Protection Branch handles with its investigative partners.  GSK agreed to plead guilty and pay $3 
billion to resolve criminal and civil liability arising from the companys unlawful promotion of its 
drugs Paxil and Wellbutrin, its failure to report certain safety data for its drug Avandia, and its 
civil liability for alleged false price reporting practices.  As part of the global resolutionthe 
largest combined health care fraud recovery in a single global resolution in U.S. historyGSK 
pled guilty to three misdemeanor violations of the FDCA.  One of the criminal charges involved 
the off-label promotion of Paxil, which had been approved only for patients over the age of 18, 
and which, since 2004, like other antidepressants, included on its label a black box warning 
stating that antidepressants may increase the risk of suicidal thinking and behavior based on short-
term studies in patients under age 18.  CPB and the USAO developed evidence showing that GSK 
prepared, published and distributed a misleading medical journal article that misreported that a 
clinical trial of Paxil demonstrated efficacy in the treatment of depression in patients under age 
 
  81  18, when the study failed to demonstrate efficacy.  At the same time, GSK did not make available 
data from two other studies in which Paxil also failed to demonstrate efficacy in treating 
depression in patients under 18.  The evidence also showed that GSK sponsored dinners, lunches, 
spa programs and similar activities to promote the use of Paxil in children and adolescents.  GSK 
agreed to plead guilty to misbranding Paxil with false and misleading labeling regarding the use 
of Paxil for patients under 18.   
 
In addition to prosecuting major pharmaceutical companies for health care offenses, CPB 
prosecutes smaller-scale, yet equally dangerous schemes involving drug compounding and drug 
diversion.  For example, in FY 2012, CPB prosecuted ApotheCure, and its principal, Gary 
Osborn, who were convicted of misdemeanor misbranding under the Food, Drug, and Cosmetic 
Act.  ApotheCure purchased raw active pharmaceutical ingredients for use in the manufacture of 
prescription drugs. Three patients who received injections from lots shipped from the companys 
pharmacy died from colchicine toxicity, as some of the vials were super-potent, containing 640 
percent of the level of compounded colchicine declared on the drugs label. ApotheCure and 
Osborn pled guilty and each was fined $100,000. 
 
CPB has also taken the lead in investigating and prosecuting drug diversion schemes, in which 
prescription drugs are removed from lawful channels of distribution and then reintroduced into 
the marketplace for sale to consumers. In such schemes, prescription drugs at issue are often 
stolen from warehouses or cargo trucks or repackaged and resold from boxes of free samples. 
Drugs diverted from lawful channels of distribution may not have been properly labeled and 
stored, which allows for contamination, or they could be expired.  In FY2012, CPB and the 
USAO prosecuted Altec Medical and William Rodriguez for their role in a drug diversion 
scheme. Altec paid Rodriguez approximately $55 million for prescription drugs that it knew had 
been diverted from lawful channels of drug wholesale distribution. The diverted drugs were a 
wide variety of expensive branded products, including HIV medications, atypical antipsychotics, 
diabetes medications (including insulin products, which need to be refrigerated, and were not 
refrigerated while they were being diverted) and cholesterol medications. Altec pled guilty, was 
fined $2 million, and was ordered to forfeit an additional $1 million; Rodriguez pled guilty, was 
sentenced to 120 months imprisonment, and ordered to forfeit $55 million. A second co-
conspirator received a sentence of probation of one year.  
 
CPB has also been a leader in investigating and prosecuting Internet pharmacies, which is, in 
many ways, the leading edge of health care fraud in the United States.  The Internet now provides 
an avenue for the illegal dissemination of prescription drugs and controlled substances for drug 
abusers and others who divert drugs.  Website owners often hire doctors and pharmacists who are 
willing to authorize and dispense prescriptions based on an online questionnaire, without any 
legitimate doctor-patient relationship, thereby permitting these websites to operate as online pill 
mills.  CPB prosecutes those who unlawfully distribute prescription drugs and controlled 
substances over the Internet.  As a result of its leadership in this area, CPB is now a primary 
source for legal advice to prosecutors around the country pursuing such cases.  
 
In addition, CPB provides expertise and guidance in the prosecution of those selling counterfeit 
drugswhich are often sold online and are a growing problem in the United States and abroad.  
 
  82  In addition to advising USAOs on this issue, CPB also serves on the Attorney Generals Task 
Force on Intellectual Property, which has made it a priority to improve law enforcement with 
respect to counterfeit products, such as drugs and devices, which threaten the public health and 
safety.  
 
Criminal Division 
 
In FY 2012, the Criminal Division was allocated $8.5 million in HCFAC funding to support 
criminal health care fraud litigation and interagency coordination, which is carried out primarily 
by the Fraud Section and, to a lesser extent, the Organized Crime and Gang Section (OCGS).   
 
The Fraud Section 
 
The Fraud Section initiates and coordinates complex health care fraud prosecutions and supports 
the USAOs with legal and investigative guidance and training and trial attorneys to prosecute 
health care fraud cases.  Beginning in March 2007, the Fraud Section, working with the local 
USAOs, the FBI and law enforcement partners in HHS/OIG, and state and local law enforcement 
agencies, launched the Medicare Fraud Strike Force in Miami-Dade County, Florida, to prosecute 
individuals and entities that do not provide legitimate health care services but exist solely for the 
purpose of defrauding Medicare and other government health care programs.  Since 2007, DOJ 
and HHS have expanded the Strike Force to nine cities.  In FY 2012, the Fraud Section continued 
to provide attorney staffing, litigation support, and leadership and management oversight for 
numerous Strike Force prosecutions in eight of the nine cities.  A summary of the Fraud Sections 
key litigation accomplishments in FY 2012 follows:   
 
  Filed 136 new health care fraud cases involving charges against 110 defendants who 
collectively billed the Medicare and Medicaid programs more than $1.3 billion; 
  Obtained 99 guilty pleas and litigated 10 jury trials, winning guilty verdicts against 21 
defendants;16   
  Secured prison sentences in health care fraud cases averaging more than 56 months; and 
  Secured court-ordered restitution, forfeiture and fines exceeding $373 million.   
 
Fraud Section attorneys staffed and coordinated the Division s health care fraud litigation 
=
through the existing Medicare Fraud Strike Force teams in Miami, Los Angeles, Detroit, Houston, 
Brooklyn, Baton Rouge,  Tampa, and Dallas.17 
 
Section attorneys coordinated a major multi-district Strike Force arrest takedown during the fiscal 
year and handled many of the investigations and indictments that were filed in these operations. 
 
 
                                                 
16 Fraud Section attorneys litigated 9 of the 13 Medicare Fraud Strike Force trials during FY 2012. Several of these 
trials were summarized previously in the Medicare Fraud Strike Force section of this report.  
 
17 The U.S. Attorneys Office for the Northern District of Illinois implemented the Strike Force in Chicago and is 
providing management and oversight for Strike Force prosecutions in that district. 
 
  83  On May 2, 2012, Fraud Section and USAO Strike Force prosecutors in seven cities executed a 
nationwide operation that resulted in charges against 107 individuals, including doctors, nurses, 
and other medical professionals, for their alleged participation in Medicare fraud schemes 
involving approximately $452 million in false billing.  The coordinated operation involved the 
highest amount of false Medicare billings in a single takedown in Strike Force history. 
 
Of particular note during the FY2012, the Fraud Section prosecuted one of the largest criminal 
health care fraud cases in history, involving American Therapeutic Corporation (ATC).  Fraud 
Section attorneys tried two cases involving executives, physicians, and others involved in a $205 
million fraud at ATC.  As part of that prosecution, during the fiscal year, Fraud Section attorneys 
obtained three of the longest prison sentences ever handed down in health care fraud prosecutions 
for the three owners and operators of ATC  one sentence of 50 years and two sentences of 35 
years.  In addition to the six defendants convicted at trial, Fraud Section attorneys obtained guilty 
pleas from an additional thirteen individuals and the two corporate defendants, including ATC 
itself.   
 
In February 2012, Fraud Section attorneys, in conjunction with attorneys from the local United 
States Attorneys Office, obtained an indictment against a Dallas-area doctor and owner of an 
association of health care providers, along with six others, in a $374 million home health care 
fraud scheme, the largest fraud case ever indicted in terms of the amount of loss charged against a 
single doctor.  The indictment charges the defendants with fraudulently certifying or directing the 
certification of more than 11,000 individual patients from more than 500 home health agencies for 
home health services over five years.  These certifications allegedly resulted in more than $350 
million being fraudulently billed to Medicare and more than $24 million being fraudulently billed 
to Medicaid. 
 
In addition to Medicare Fraud Strike Force cases, the Fraud Section handles other types of 
complex criminal health care fraud litigation.  Often, such cases are handled in a parallel manner 
by Fraud Section prosecutors along with DOJ Civil Division attorneys and/or AUSAs from the 
USAOs.   
 
In addition to health care fraud litigation, the Fraud Section also provided legal guidance to FBI 
and HHS/OIG agents, health program agency staff, AUSAs, and other Criminal Division 
attorneys on criminal, civil, and administrative tools to combat health care fraud.  From 
September 27 through September 28, 2012, the Fraud Section hosted a two-day health care fraud 
training conference for approximately 175 Federal prosecutors, FBI agents, HHS/OIG agents, and 
others.   The Fraud Section also provided advice and written materials on patient medical record 
confidentiality and disclosure issues, and coordinated referrals of possible criminal HIPAA 
privacy violations from the HHS Office for Civil Rights; monitored and coordinated DOJ 
responses to legislative proposals, major regulatory initiatives, and enforcement policy matters; 
reviewed and commented on health care provider requests to the HHS/OIG for advisory opinions, 
and consulted with the HHS/OIG on draft advisory opinions; worked with CMS to improve 
Medicare contractors  fraud detection, referrals to law enforcement for investigation, and case 
=
development work; and prepared and distributed to all USAOs and FBI field offices periodic 
summaries of recent and significant health care fraud cases. 
 
  84   
The Organized Crime and Gang Section (OCGS) 
The Criminal Divisions Organized Crime and Gang Section (OCGS) supports investigations and 
prosecutions of fraud and abuse targeting the 2.5 million private sector health plans sponsored by 
employers and/or unions, as well as investigations and prosecutions of health care frauds 
perpetrated by domestic and international organized crime groups. OCGS is also working to 
improve strategic coordination in the identification and prosecution of domestic and international 
organized crime groups engaged in sophisticated frauds posing a threat to the health care industry. 
In FY 2012, OCGS increased the number of attorneys assigned to health care fraud prosecutions 
despite substantial budget limitations restricting its available resources.  In this fiscal year, two 
attorneys have worked with the Organized Crime Strike Force in Philadelphia on cases involving 
Medicare fraud.  One OCGS attorney partnered with an AUSA in the prosecution of a hospice co-
owner for conspiring to defraud Medicare by submitting $14.3 million in fraudulent medical 
claims for hospice services provided to patients who did not receive services or were ineligible.  
This attorney is also prosecuting a doctor for the receipt of more than $200 in kickbacks for 
Medicare and Medicaid patient referrals to the hospice.  A second OCGS attorney is prosecuting 
the operator of an ambulance service company, indicted in June 2012, for submitting more than 
$5.4 million in false claims to Medicare for medically unnecessary transportation of patients by 
ambulance.   
 A third OCGS attorney teamed with the OC Strike Force Chief in the Southern District of Florida 
in the prosecution of a health care fraud perpetrated by a Eurasian organized crime group alleged 
to have significant ties to Russia and Armenia.  This criminal conspiracy was indicted in February 
2011 as part of a multi-district crackdown on activities of Armenian Power, an international 
organized crime group.  The health care fraud schemes in Miami involved chiropractic clinics that 
allegedly paid individuals to refer patients of staged accidents.  The clinics then billed private 
automobile insurance carriers for treatments that were either not medically necessary or were not 
provided.  Two defendants were convicted of health care fraud conspiracy in October 2011.   
Finally, a fourth OCGS attorney is prosecuting an acting boss of a La Cosa Nostra crime family 
for an alleged embezzlement from a health plan operated by Teamsters unions in Philadelphia.  
Private sector employment-based group health plans are the leading source of health care 
coverage for individuals not covered by Medicare or Medicaid.   OCGS attorneys routinely 
provide litigation support and advice to AUSAs and criminal investigative agencies to combat 
corruption and abuse of such private employment-based group health plans covered by the 
Employee Retirement Income Security Act (ERISA).  OCGS attorneys provide considerable 
support to investigations of fraud schemes by corrupt entities that sell unlicensed health insurance 
products and fraud schemes by corrupt employers that cheat workers out of health benefits 
required by the prevailing wage laws and regulations.  In addition, OCGS attorneys regularly 
provide health care fraud and abuse training and legal guidance to AUSAs and to criminal 
investigators and agents of the Department of Labors Employee Benefits Security Administration 
and Office of Inspector General.  Such guidance and training has covered prosecutions involving 
 
  85  abuses targeting private sector employee health plans subject to ERISA, health plans sponsored 
by labor organizations, and multiple employer welfare arrangements. OCGS drafts and reviews 
criminal legislative proposals affecting employee health benefit plans.   
 
OCGS also provides legal guidance to prosecutors and required approvals in the use of the 
Racketeer Influenced and Corrupt Organizations (RICO) statute in prosecutions of Medicare or 
Medicaid fraud or private sector health care frauds.  For example, OCGS reviewed and approved 
a RICO indictment submitted by the Organized Crime Strike Force in the Eastern District of New 
York in which defendants allegedly operated medical clinics to generate medical claims for 
treatments that were never performed or not medically needed.  The indictment, which was 
returned in February 2012, charged that defendants operated nine clinics which billed private 
automobile insurance companies for $279 million in unnecessary and excessive medical 
treatments claimed to be the result of automobile accidents, including physical therapy, 
acupuncture, pain management, psychological services, X-rays, MRIs and other services. The 
indictment was believed to be the largest single no-fault insurance fraud ever charged and the first 
case of its kind to allege violations of the RICO statute.   
  
  Civil Rights Division 
 
  In FY 2012, the Civil Rights Division was allocated approximately $4.8 million in HCFAC 
funding to support Civil Rights Division litigation activities related to health care fraud and abuse.  
The Civil Rights Division pursues relief affecting public, residential health care facilities and 
service systems.  The Division conducts investigations to eliminate abuse and grossly substandard 
care in public, Medicare and Medicaid funded long-term care facilities.  Consistent with the 
Supreme Courts decision in Olmstead v. L.C., 527 U.S. 581 (1999), the Division has also 
undertaken initiatives to eliminate the needless institutionalization of individuals who require 
health care supports and services. 
   
  The Division plays a critical role in the HCFAC Program.  The Special Litigation Section of the 
Civil Rights Division is the sole DOJ component responsible for the Civil Rights of 
Institutionalized Persons Act, 42 U.S.C.   1997 (CRIPA).  CRIPA authorizes the investigation of 
'
conditions of confinement at state and local residential institutions (including facilities for persons 
with developmental disabilities or mental illness, and nursing homes) and initiation of civil action 
for injunctive relief to remedy a pattern or practice of violations of the Constitution or Federal 
statutory rights.  The review of conditions in facilities for persons who have mental illness, 
facilities for persons with developmental disabilities, and nursing homes comprises a significant 
portion of the program.   
 
  The Disability Rights Section of the Civil Rights Division has primary enforcement authority for 
the Americans with Disabilities Act (ADA).  Title II of the ADA authorizes investigation of 
allegations of discrimination by public entities against individuals with disabilities, including 
discrimination in the form of needless institutionalization of persons who require health care 
supports and services.  See Olmstead v. L.C., 527 U.S. 581 (1999).  Title II also authorizes the 
initiation of civil action to remedy discrimination in violation of the ADA.  Both the Special 
 
  86  Litigation Section and the Disability Rights Section have undertaken initiatives to combat the 
unjustified institutionalization of persons with disabilities.   
 
  The Special Litigation and Disability Rights Sections work collaboratively with the USAOs and 
HHS.   
 
Fiscal Year 2012 Accomplishments 
 
Special Litigation Section staff conducted preliminary reviews of conditions and services at 19 
health care facilities in 16 states during Fiscal Year 2012.  The task in preliminary inquiries is to 
determine whether there is sufficient information supporting allegations of unlawful conditions 
and needless institutionalization to warrant formal investigation under CRIPA and/or the ADA.  
The Section reviews information pertaining to areas such as abuse and neglect, medical and 
mental health care, use of restraints, fire and environmental safety, and placement in the most 
integrated setting appropriate to individual needs.  Separately, in Fiscal Year 2012, the Section 
opened or continued formal investigations, entered remedial agreements, or monitored existing 
remedial agreements regarding 62 health care facilities in19 states, the District of Columbia, and 
the Commonwealth of Puerto Rico.   
 
The Section found that conditions and practices at 12 state facilities for persons with intellectual 
and developmental disabilities and/or mental illness violate the residents' statutory rights.  Those 
facilities are:  Boswell Regional Center, in Magee, Mississippi; Ellisville State School, in 
Ellisville, Mississippi; Hudspeth Regional Center, in Pearl, Mississippi; Southern Mississippi 
Regional Center, in Long Beach, Mississippi; Mississippi Adolescent Center, in Brookhaven, 
Mississippi; North Mississippi Regional Center, in Oxford, Mississippi; Mississippi State 
Hospital, in Whitfield, Mississippi; South Mississippi State Hospital, in Purvis, Mississippi; 
Central Mississippi Residential Center, in Newton, Mississippi; East Mississippi State Hospital, 
in Meridian, Mississippi; North Mississippi State Hospital, in Tupelo, Mississippi; and the 
Specialized Treatment Center, in Gulfport, Mississippi. 
 
In Fiscal Year 2012, the Section entered into a court-enforceable settlement agreement to resolve 
its investigations of Central Virginia Training Center, in Lynchburg, Virginia and Virginias 
state-wide system for serving individuals with disabilities.   Pursuant to the Agreement, Virginia 
will create a total of approximately 4,200 home and community-based waivers for people who are 
on waitlists for community services and individuals transitioning from institutional settings over a 
ten year period.  Virginia also will provide support services to an additional 1,000 people to 
enable them to stay in their home or their familys home, rather than face institutionalization.  
Further, Virginia will create a comprehensive community crisis system to divert individuals from 
unnecessary institutionalization or other out-of-home placements.  The Agreement also requires 
the Commonwealth to create a comprehensive quality and risk management system to ensure that 
community-based services are safe and effective.  
 
The Section moved to intervene in two Olmstead actions.  The Section moved to intervene in 
Lynn v. Lynch, (D. N.H.), a proposed class action involving claims under the ADA that the State 
of New Hampshire failed to provide adequate community-based services to persons with mental 
 
  87  illness, unnecessarily segregating them in institutions and placing them at risk of unnecessary and 
more costly institutionalization.  The case will go to trial in 2014.  Separately, in Steward v. 
Perry, (W. D. TX.), the court granted the Sections intervention motion in a proposed class action 
involving ADA claims that the State of Texas fails to provide adequate community-based services 
to persons with intellectual disabilities residing in nursing homes. 
 
The Section continued its investigations of 10 residential facilities for persons with intellectual 
and developmental disabilities, including:  Northwest Habilitation Center, in St. Louis, Missouri; 
Bellefontaine Habilitation Center, in St. Louis, Missouri; Sonoma Developmental Center, in 
Eldridge, California; Lanterman Developmental Center, in Pomona, California; Clyde L. Choate 
Developmental Center, in Anna, Illinois; and, five Arkansas facilities, including:  Arkadelphia 
Human Development Center, in Arkadelphia, Arkansas; Alexander Human Development Center, 
in Alexander, Arkansas; Booneville Human Development Center, in Booneville, Arkansas; 
Jonesboro Human Development Center, in Jonesboro, Arkansas; and Southeast Arkansas Human 
Development Center, in Warren, Arkansas. 
 
The Section also continued its investigations of three facilities for persons with mental illness, 
including:  Ancora Psychiatric Hospital, in Hammonton, New Jersey; Oregon State Hospital, in 
Salem and Portland, Oregon; and Kingsboro Psychiatric Center, in Brooklyn, New York.  
 
The Section also continued its investigations of two nursing facilities:  Maple Lawn Nursing 
Home, in Palmyra, Missouri; and Casa del Veteranos, in Juana Diaz, Puerto Rico. 
 
The Section monitored the implementation of remedial agreements for 17 facilities for persons 
with intellectual and developmental disabilities: Beatrice State Developmental Center, in 
Beatrice, Nebraska; Woodbridge Developmental Center, in Woodbridge, New Jersey; Clover 
Bottom Developmental Center in Nashville, Tennessee; Greene Valley Developmental Center in 
Greeneville, Tennessee; Lubbock State Supported Living Center, in Lubbock, Texas; Denton 
State Supported Living Center, in Denton, Texas; Abilene State Supported Living Center, in 
Abilene, Texas; Austin State Supported Living Center, in Austin, Texas; Brenham State 
Supported Living Center, in Brenham, Texas; Corpus Christi State Supported Living Center, in 
Corpus Christi, Texas; El Paso State Supported Living Center, in El Paso, Texas; Lufkin State 
Supported Living Center, in Lufkin, Texas; Mexia State Supported Living Center, in Mexia, 
Texas; Richmond State Supported Living Center, in Richmond, Texas; Rio Grande State 
Supported Living Center, in Harlingen, Texas; San Angelo State Supported Living Center, in 
Carlsbad, Texas; San Antonio State Supported Living Center, in San Antonio, Texas.  These 
remedial agreements include the provision of adequate community supports and services.  The 
Section also litigated the issue of whether the closure of Arlington Developmental Center in 
Memphis, Tennessee should result in the dismissal of its case involving the facility and 
community services for individuals with intellectual and developmental disabilities in West 
Tennessee; a ruling is forthcoming. 
 
The Section also monitored the implementation of remedial agreements regarding 18 state-
operated residential facilities for persons with mental illness:  Metropolitan State Hospital, in 
Norwalk, California; Patton State Hospital, in San Bernardino, California, Atascadero State 
 
  88  Hospital, in Atascadero, California; Napa State Hospital, in Napa, California; Kings County 
Hospital Center, in  Brooklyn, New York; Delaware State Psychiatric Center, in New Castle, 
Delaware; Georgia Regional Hospital, in Atlanta, Georgia; Georgia Regional Hospital, in 
Savannah, Georgia;  Central State Hospital, in Milledgeville, Georgia; Southwest State Hospital, 
in Thomasville, Georgia; West Central Georgia Hospital, in Columbus, Georgia; East Central 
Georgia Regional Hospital, in Augusta, Georgia; St. Elizabeths Hospital, in Washington, D.C.; 
Connecticut Valley Hospital, in Middletown, Connecticut and, four facilities in North Carolina, 
including John Umstead Hospital in Butner; Dorothea Dix Hospital in Raleigh; Cherry Hospital in 
Goldsboro; and Broughton Hospital in Morgantown. These remedial agreements include the 
provision of adequate support and services to enable individuals to live successfully in the 
community. 
 
In addition, the Section continued monitoring of remedial agreements at two nursing facilities: 
William F. Green State Veterans Nursing Home, in Bay Minette, Alabama; and Ft. Bayard 
Medical Center, in Ft. Bayard, New Mexico. 
In August 2012, the Disability Rights Section entered a comprehensive, eight-year settlement 
agreement with the State of North Carolina resolving the Sections Olmstead investigation of 
North Carolinas mental health service system, which currently serves thousands of individuals 
with mental illness in large institutional settings known as adult care homes.  The Agreement, 
which is court-enforceable, will expand access to community-based supported housing  
integrated housing that promotes inclusion and independence and enables individuals with mental 
illness to participate fully in community life.  Pursuant to the Agreement, North Carolina will 
provide community-based supported housing to 3,000 individuals unnecessarily segregated in, or 
at risk of entry into, adult care homes.  The Agreement will also ensure that thousands of people 
with mental illness have access to critical community-based mental health services such as 
Assertive Community Treatment (ACT) teams, and will expand integrated employment 
opportunities for individuals with mental illness by providing supported employment services to 
2,500 individuals.  
The Section also commenced two statewide Olmstead investigations in FY 2012.  In Oregon, the 
Section conducted an extensive nine-month investigation of the states employment service 
system for individuals with intellectual and developmental disabilities, which is funded in 
significant part through Medicaid home and community-based waivers pursuant to Section 
1915(c) of the Social Security Act.  Following the investigation, in June 2012, the Division issued 
a Letter of Findings stating that Oregon was violating Title II of the ADA and Olmstead by 
unnecessarily segregating individuals with disabilities in sheltered workshops when such 
individuals can and want to work in more integrated supported employment settings.  
Negotiations with the state to resolve these allegations are ongoing.   
 
The Section also conducted an investigation of the State of Florida regarding allegations that 
Florida unnecessarily segregates children with disabilities in private nursing facilities, when such 
children could be served in more integrated, community-based settings.  In September 2012, the 
Section issued a Letter of Findings notifying the State of the Sections findings that the State 
violates the ADA by planning, structuring and administering its system of care for children with 
 
  89  disabilities in a manner that causes hundreds of children with disabilities to be unnecessarily 
institutionalized in nursing facilities, and places many other children with complex medical 
conditions at risk of such institutionalization. 
 
The Section also engaged in ongoing settlement discussions with the State of New York regarding 
the states administration of its mental health service system, which relies on large, private, 
institutional adult homes in New York City to house individuals with mental illness who can and 
should be residing in more integrated community settings.  The Section also continued its ongoing 
investigation of the State of New York regarding the placement of children with disabilities at 
certain restrictive out-of-state facilities.      
 
The Division filed ten statements of interest or amicus briefs in litigation raising issues of 
needless institutionalization in California, the District of Columbia, Florida, New Hampshire, 
Oregon, and Pennsylvania. These briefs have addressed a wide range of issues, including 
unnecessary institutionalization of individuals in state-run and private institutions and cuts to 
community services placing individuals at risk of unnecessary, and more costly, 
institutionalization.    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  90  Federal Bureau of Investigation 
 
I n FY 2012, the FBI was allocated $136.2 million in funding, including $131.8 million from 
HIPAA and $3.4 million from discretionary HCFAC, to support the facilitation, coordination and 
accomplishment of the goals of the HCFAC Program.  This yearly appropriation was used to 
support 798 positions (478 Agent, 320 Support).  In FY 2012, the FBI initiated 817 new health 
care fraud investigations and had 2,835 pending investigations.  Investigative efforts produced 
1,096 criminal health care fraud convictions and 909 indictments and informations.  In addition, 
investigative efforts resulted in the operational disruption of 329 criminal fraud organizations and 
the dismantlement of the criminal hierarchy of more than 83 HCF criminal enterprises.      
 
The FBI is the primary investigative agency involved in the fight against health care fraud that 
has jurisdiction over both the Federal and private insurance programs.  Each of the 56 FBI field 
offices has personnel assigned specifically to investigate health care fraud matters.  With national 
health care expenditures projected to exceed $2.8 trillion dollars in FY 2012, it is especially 
important to coordinate all investigative efforts to combat the significant fraud and abuse within 
the health care system.   
 
The FBI leverages its resources in both the private and public arenas through investigative 
partnerships with agencies such as HHS/OIG, the FDA, the DEA, the Defense Criminal 
Investigative Service, the Office of Personnel Management, the Internal Revenue Service, state 
Medicaid Fraud Control Units, and other state and local agencies.  On the private side, the FBI is 
actively involved in the Fraud Prevention Partnership, an effort to exchange facts and information 
between the public and private sectors in order to reduce the prevalence of health care fraud.  
These efforts will enable members to share successful anti-fraud practices and effective 
methodologies and strategies for detecting and preventing health care fraud.  In addition, the FBI 
maintains significant liaison with private insurance national groups, such as the National Health 
Care Anti-Fraud Association, the National Insurance Crime Bureau, other professional 
associations, and private insurance investigative units.   
 
Health care fraud investigations are considered a high priority within the FBI White Collar Crime 
Program.  In addition to being a partner in the majority of investigations listed in the body of this 
report, FBI field offices throughout the U.S. have pro-actively addressed significant health care 
fraud threats through coordinated initiatives, task forces, working groups, and undercover 
operations.  These activities identify and pursue investigations against the most egregious 
offenders, which included criminal enterprises and other crime groups.   
 
In an effort to ensure sufficient FBI HCF resources are dedicated to address priority threats within 
the health care system for which the FBI has primary responsibility, the FBI established national 
priorities.  During FY 2012, the FBIs top HCF Program National Priorities were Government 
Sponsored and Private Insurance Programs.  Accordingly, approximately 85 percent of FBI cases 
primarily involve these programs.  The FBI also investigated violations involving drug diversion, 
Internet pharmacy, and other investigations that did not include billings to government sponsored 
or private insurance programs. 
 
 
  91  A review of the threats to the health care system reveals that many schemes target multiple FBI 
HCF Program National Priority areas, and individual schemes may have considerable impact on 
the health care system.  In response to these threats the FBI has enhanced its focus on threats to 
government sponsored and private insurance programs associated with Large Scale Conspiracies 
and Major Providers, in addition to combating traditional provider fraud.   
 
Large scale conspiracies include criminal enterprises and other crime groups involving significant 
losses, or potential losses, to health care benefit programs.  The criminal activity of these groups 
can cross multiple Federal districts and have included the sharing/selling of beneficiary 
information, the sharing/selling of referring provider identifiers, and kickback schemes involving 
invoices, referrals, and medical services/products.  It is not unusual for more complex large scale 
conspiracies to conduct other criminal activity in addition to health care fraud.  The potential 
extent of this type of criminal activity is noted in several investigations that each involved 
hundreds of millions of dollars and included numerous providers conspiring together to defraud 
health plans.  An example of these types of cases was the American Therapeutic Corporation 
(ATC) investigation in which kickbacks were made to halfway houses and assisted living 
facilities for patient referrals. ATC billed the Medicare program for intensive mental therapy. The 
therapy was either not rendered, or rendered to some degree to patients who cannot benefit from 
this form of therapy, and therefore, was medically unnecessary.  The FBI is committed to 
addressing this type crime problem through the disruption, dismantlement and prosecution of 
those involved in criminal enterprises and other organized criminal activities. 
 
Major Providers can include companies, corporations, hospitals, provider groups, and other 
groups able to significantly bill, or effect billing, to health care benefit programs.  The related 
schemes are frequently complex and challenging to identify.  A principal source of referrals on 
these schemes is the filing of qui tams.  In FY 2012, the FBI continued to aggressively expand its 
involvement in major provider/qui tam investigations.  Examples of significant major provider 
investigations for FY 2012 included the GlaxoSmithKline LLC agreement to plead guilty and pay 
$3 billion to resolve its criminal and civil liabilities and the Merck, Sharp and Dohme agreement 
to pay $950 million to resolve criminal charges and civil claims.  In addition to the work 
completed at the field office level, and in response to this substantial and increasing threat, the 
FBI has established a centralized squad to provide investigative assistance on these types of cases 
nationwide.  The FBI coordinates this effort with the DOJ, HHS/OIG, and FDA. 
 
In FY 2012, the FBI continued to staff and support Medicare Strike Force operations worked in 
conjunction with DOJ Criminal Divisions Fraud Section, local USAOs, HHS/OIG, and state and 
local law enforcement agencies.  The FBI has assigned agents to Strike Forces in Miami, New 
York City, Houston, Tampa, Detroit, Los Angeles, Baton Rouge, Dallas, and Chicago.  In 
addition to funding agent resources, the FBI funded undercover operations expenses, financial 
and investigative analysis support, offsite and evidence storage locations, and other investigative 
costs.  These Strike Forces have effectively investigated and prosecuted individuals and entities 
that do not provide legitimate health care services, but exist solely for the purpose of defrauding 
Medicare and other Federal government health care programs.  The continued support of 
Medicare Strike Force operations is a top priority for the FBI.   
 
 
  92  In addition to its investigative efforts, the FBI actively provides training and guidance on health 
care matters.  The FBI has teamed with the DOJ, the United States Attorneys, HHS, and private 
insurance organizations to provide training in the priority threat areas of health care fraud.  
Funded training has included innovative methods of employing advanced investigative 
techniques, basic HCF training for FBI special agent and professional staff newly assigned to 
HCF, and sessions on new and current HCF trends and issues.  FBI personnel training 
opportunities included sessions offered by other government agencies and the private sector.  In 
FY 2012, more than 400 FBI health care fraud investigators and analysts received training.  FBI 
personnel also conducted a wide range of training for external audiences, including personnel 
involved in the investigation of health care fraud matters and industry representatives. 
 
Funding received by the FBI is used to pay direct and indirect personnel-related costs associated 
with the 798 funded positions.  Funds not used directly for personnel matters, are used to provide 
operational support for major health care fraud investigations, national initiatives, training, 
specialized equipment, expert witness testimony, and Strike Force operations.  
 
 
 
 
  93  Return-on-Investment Calculation 
 
  The Return-on-Investment (ROI) for the HCFAC program is calculated by dividing the total 
monetary results to the Federal government (not including relator payments) by the annual 
appropriation for the HCFAC Account in a given year (not including portions of CMS 
funding dedicated to the Medicare Integrity Program, listed in the table on page 95).  
 
  The monetary results include deposits and transfers to the Medicare Part A Trust Fund and the 
Treasury, as well as restitution and compensatory damages to Federal agencies. 
 
  The HCFAC Account is made up of three funding sources: mandatory funding for HHS and 
DOJ, including HHS/OIG, appropriated through Section 1817(k)(3)(A) of the Social Security 
Act; mandatory funding for FBI activities appropriated through Section 1817(k)(3)(B) of the 
Social Security Act; and discretionary funding for the HCFAC Account appropriated through 
the annual Labor-HHS-Education appropriation.  FBI mandatory HIPAA funding is included 
in ROI calculations given the important role the FBI plays in achieving the monetary results 
reflected in the HCFAC annual report and because that statute states that the funds are for the 
same purposes as the funds provided for HHS and DOJ under the Social Security Act, even 
though FBI spending and monetary results are not required to be reported, per the statute.   
 
  While all mandatory HCFAC Account funding is included in the ROI calculation of this 
report, only certain portions of discretionary HCFAC funding is included.  All discretionary 
HCFAC funding for HHS/OIG and DOJ are included in the HCFAC report ROI since they 
spend their discretionary funding on the same types of activities that they support with 
mandatory funding.  Only the portion of CMS Medicare discretionary HCFAC funding that 
supports law enforcement is included in the HCFAC report ROI.  The remainder of CMSs 
HCFAC Medicare discretionary funding supports activities in the Medicare Integrity Program 
(MIP) that are included in the MIP ROI, which is calculated separately and outside of the 
HCFAC report.  All discretionary CMS Medicaid Integrity program funding is included in a 
separate Medicaid Integrity program ROI published in a separate report. 
   
 
  94  Total Health Care Fraud and Abuse Control Resources 
 
The table below sets forth HCFAC funding, by agency, for health care fraud and abuse control 
activities in FY 2012.  The FBI also receives a stipulated amount of HIPAA funding for use in 
support of the Fraud and Abuse Control Program, which is shown below.  Separately, CMS 
receives additional Mandatory Resources under the Medicare Integrity Program (section 
1817(k)(4) of the Social Security Act).  The inclusion of the activities supported with these funds 
is not required in this report, and this information is included for informational purposes.   
 
Since 2009, Congress has also appropriated annual amounts to help carry out health care fraud 
and abuse control activities within DOJ and HHS.  Those amounts are set forth as Discretionary 
Resources in the table below and the results of the efforts supported with these funds are 
contained within this report. 
 
Mandatory Resources  Fiscal Year 2012 
Office of Inspector General  $196,090,169 
Health and Human Services Wedge1  $37,504,593 
Medicare Integrity Program2  $863,128,689 
MIP/Medicare (non-add)  $796,734,174 
Medi-Medi (non-add)  $66,394,515 
Department of Justice Wedge1  $61,224,749 
Federal Bureau of Investigation3  $131,871,557 
Subtotal, Mandatory HCFAC   $1,289,819,757 
Discretionary Resources 
 
Office of Inspector General  $29,673,810 
CMS Program Integrity  $250,442,817 
Medicare Program Integrity (Non-Add)  $219,463,429 
Medicaid Program Integrity (Non-Add)4  $30,979,388 
Department of Justice  $29,673,810 
Subtotal, Discretionary HCFAC  $309,790,437  
Grand Total, HCFAC  $1,599,610,194 
     
 
                                                  
1 The HHS and DOJ Wedge funds are divided among multiple agencies within HHS and DOJ. Page 7 of this report 
 
includes the allocations of the HHS and DOJ Wedge by agency or activity. 
2 Medicare Integrity Program (MIP) and Medi-Medi fund fraud prevention and detection activities within Medicare 
and Medicaid, which are not included in this report to Congress. There is another mandatory report due to Congress 
in April regarding MIP activities. 
3 The FBI receives funding annually to conduct anti-fraud activities authorized by HIPAA. This funding is included 
in the HCFAC ROI calculation for this report.   
4 This is not to be confused with the Medicaid Integrity Program authorized in the Deficit Reduction Act of 2005, 
which receives funding separately from the HCFAC account. 
 
  95  Glossary of Terms 
 
 
The Account - The Health Care Fraud and Abuse Control Account 
 
ACA  Affordable Care Act 
 
AoA - Department of Health and Human Services, Administration on Aging 
 
ACL  Department of Health and Human Services, Administration for Community 
Living 
 
ASPA  Assistant Secretary for Public Affairs (HHS) 
 
AUSA - Assistant United States Attorney 
 
CHIP - Childrens Health Insurance Program 
 
CIA - Corporate Integrity Agreement 
 
CMP - Civil Monetary Penalty 
 
CMS - Department of Health and Human Services, Centers for Medicare & Medicaid 
Services    
 
CNC  Compromised Number Contractors 
 
CPI  Center Program Integrity 
 
CRIPA - Civil Rights of Institutionalized Persons Act 
 
CY  Calendar Year 
 
DME - Durable Medical Equipment 
 
DMEPOS  Durable Medical Equipment Prosthetics, Orthotics, and Supplies 
 
DOJ - The Department of Justice 
 
FEHBP  Federal Employee Health Benefits Program 
 
FBI - Federal Bureau of Investigation 
 
FCA - False Claims Act 
 
 
  96  FDA - Food and Drug Administration 
 
FDCA  Food, Drug, and Cosmetic Act 
 
FY  Fiscal Year 
 
HCFAC - -Health Care Fraud and Abuse Control Program or the Program 
 
HEAT - Health Care Fraud Prevention & Enforcement Action Team 
 
HHA  Home Health Agency 
 
HHS - The Department of Health and Human Services 
 
HHS/OIG - The Department of Health and Human Services - Office of the Inspector 
General 
 
HI - Hospital Insurance Trust Fund 
 
HIPAA, or the Act - The Health Insurance Portability and Accountability Act of 1996, 
P.L. 104-191 
 
HIV - Human Immunodeficiency Virus 
 
MEDIC - Medicare Drug Integrity Contractors 
 
MFCU  Medicaid Fraud Control Unit 
 
OCGS - Organized Crime and Gang Section 
 
OGC - Office of the General Counsel, Department of Health and Human Services  
 
PERM - Program Error Rate Measurement 
 
PFP  Pharmaceutical Fraud Pilot Program 
 
The Program - The Health Care Fraud and Abuse Control Program 
 
Secretary - The Secretary of the Department of Health and Human Services 
 
SMP - Senior Medicare Patrol 
 
USAO - United States Attorney s Office 
=
 
ZPIC - Zone Program Integrity Contractor 
 
  97