Message From the Inspector General 
 
This report, submitted pursuant to the Inspector General Act of 1978, as amended, 
summarizes the activities of the Office of Inspector General (OIG) for the 6-month 
reporting period that ended September 30, 2006. 
 
OIG is dedicated to fighting fraud, waste, and abuse and promoting economy and 
efficiency in the Departments varied and important programs.  Over the past 6 months, 
OIG has produced a significant body of accomplishments that result from our continued 
work on longstanding issues and new activities relating to implementation of Medicare 
Part D and our Medicaid integrity efforts pursuant to the Deficit Reduction Act of 2005.  
These accomplishments also reflect effective collaboration with the Department, as well 
as Federal, State, and local agencies and other important stakeholders. 
 
I am pleased to report that OIG enforcement activities produced significant and 
noteworthy results.  OIG obtained the largest-ever administrative recovery under its civil 
monetary penalty authority and its first settlement with a pharmacy benefits manager for 
soliciting and receiving kickbacks from pharmaceutical manufacturers and potential 
customers.  In addition, OIG reviewed pricing of Medicare and Medicaid prescription 
drugs and testified before Congress regarding Medicare Part B drug pricing.  OIG also 
completed a study of nursing home emergency preparedness and response to recent Gulf 
Coast hurricanes.  
 
During this reporting period, OIG also issued final regulations that establish two new safe 
harbors under the Federal anti-kickback statute for arrangements involving the donation 
of certain prescribing and electronic health information technology and services.  These 
regulations will help to further the Presidents and the Secretarys goal of widespread 
adoption of electronic health records technology by 2014. 
 
I want to express my sincere appreciation to Congress as well as to the senior 
management of the Department for their support over the last 6 months.  I am honored to 
be leading an organization of highly professional and talented employees who are 
committed to the mission of OIG and the important programs administered by the 
Department. 
 
 
   
Daniel R. Levinson 
Inspector General 
    
Highlights 
 
Summary of Accomplishments 
For fiscal year (FY) 2006, the Department of Health and Human Services (HHS) Office of 
Inspector General (OIG) reported savings and expected recoveries of nearly $38.2 billion:  
$35.8 billion in implemented recommendations and other actions to put funds to better use, 
$789.4 million in audit receivables, and $1.6 billion in investigative receivables.* 
 
Also for this FY, OIG reported exclusions of 3,425 individuals and entities for fraud or 
abuse involving Federal health care programs and/or their beneficiaries; 472 criminal 
actions against individuals or entities that engaged in crimes against departmental 
programs; and 272 civil actions, which include False Claims Act (FCA) and unjust 
enrichment suits filed in Federal district court, Civil Monetary Penalties Law (CMPL) 
settlements, and administrative recoveries related to provider self-disclosure matters.   
 
Average Manufacturer Prices for Prescription Drugs 
As required by the Deficit Reduction Act (DRA) of 2005, OIG reviewed the requirements 
for and manner in which calculations of average manufacturer prices (AMP) for 
prescription drugs are determined.  The review, which included discussions with industry 
groups, determined that some AMP requirements were unclear and that manufacturers 
calculation methods were inconsistent.   
OIG recommended that the Secretary direct the Centers for Medicare & Medicaid Services 
(CMS) to (1) clarify requirements for determining certain aspects of AMPs, (2) consider 
addressing issues raised by industry groups, (3) issue guidance on the implementation of 
the AMP-related reimbursement provisions of the DRA, and (4) encourage States to 
analyze the relationship between AMPs and pharmacy acquisition costs.  CMS agreed to 
address these issues in its proposed regulation.   
Nursing Home Emergency Preparedness and Response During Recent 
Hurricanes 
An OIG report recommended that CMS strengthen Federal certification standards for 
nursing home emergency plans.  OIGs study of emergency preparedness for selected 
nursing homes in five Gulf Coast States during the 2004 and 2005 hurricanes found that 
those facilities all experienced problems, whether evacuating or sheltering in place.  
Administrators and staff often did not follow their emergency plans, the plans were often 
missing suggested provisions, and a lack of collaboration between State and local 
emergency entities and nursing homes impeded emergency planning and response. 
Saint Barnabas Settlement 
The Saint Barnabas Health Care System (SBHCS) agreed to pay $265 million and enter 
into a 6-year corporate integrity agreement (CIA) to resolve its liability under the FCA and 
                                                 
*This figure represents HHS investigative receivables only; receivables on behalf of other Federal agencies, 
States, and others are not included here.   
i   
 
 
other statutes and certain common law causes of action.  SBHCS is the largest health care 
system in New Jersey, currently operating seven acute care hospitals and other ancillary 
health care providers.  The United States alleged that SBHCS artificially inflated its 
cost-to-charge ratio, triggering the outlier payments to which it was not entitled.   
Medicare Part B Drug Studies  
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
established new mandates for OIG that required ongoing monitoring of manufacturer-
reported average sales prices (ASP) compared to other pricing points.  OIG conducted 
several evaluations that looked at various pricing comparisons and found that 
manufacturer-reported ASPs sometimes exceeded other prices available in the 
marketplace.  Medicare could have saved between $64 million and $164 million a year had 
these other prices been used to set reimbursement.   
While conducting the mandated price comparisons, OIG found that CMSs method for 
calculating a volume-weighted ASP was mathematically flawed because CMS did not 
consistently weight the number of units of a drug that were sold throughout its equation.  
As a result, many procedure codes had a reimbursement amount that was higher or lower 
than the amount that would have been calculated if the weighting had been applied 
consistently.  The results of these studies and other OIG work in this area were presented at 
a hearing before the House Ways and Means Committees Subcommittee on Health.   
340B Drug Prices  
In a series of reports on 340B drug prices, OIG recommended that the Health Resources 
and Services Administration (HRSA) improve its oversight of the 340B Program to ensure 
that entities are charged at or below the 340B ceiling price.  OIG found that in a single 
month in 2005, 14 percent of total purchases made by 340B entities exceeded 340B ceiling 
prices, resulting in total projected overpayments of $3.9 million.  The largest price 
discrepancies resulted from prices that were not in line with a HRSA policy that directs 
manufacturers, in very specific situations, to charge entities one penny per unit. 
Couple Sentenced for Abuse of Mentally Ill Patients  
A Kansas couple was convicted of and sentenced on charges of involuntary servitude, 
forced labor, conspiracy, health care fraud, and mail fraud.  Operating a group home for 
mentally ill patients, the social worker and his wife forced and coerced the patients to 
perform manual labor in the nude and participate in sexually abusive therapy sessions.  
The husband and wife were sentenced to respective prison terms of 30 years and 7 years.  
Podiatrist Sentenced to Death for Murder of Witness 
An Illinois podiatrist received the death penalty for the murder of a woman who was 
expected to testify against the podiatrist before a grand jury about his scheme to defraud 
Medicare.  The woman was expected to testify about the more than 70 foot surgeries billed 
to Medicare that never took place. 
 
ii   
 
 
Health Information Technology Safe Harbors  
OIG issued final regulations that establish two new safe harbors under the Federal 
anti-kickback statute for arrangements involving the donation of certain electronic health 
information technology and services.  The final rule seeks to lower perceived barriers to 
the adoption of health information technology by finalizing safe harbors that promote the 
adoption of electronic prescribing technology and open, interconnected, interoperable 
electronic health record systems while safeguarding Federal programs and beneficiaries 
against undue risks of fraud and abuse.  
AdvancePCS 
AdvancePCS, a pharmacy benefits manager (PBM), agreed to pay the Government  
$137.5 million and enter into a 5-year CIA to resolve its liability for allegedly soliciting 
and receiving kickbacks from pharmaceutical manufacturers and paying kickbacks to 
potential customers to induce them to contract with the company.  This settlement 
represents the first of its kind with a PBM. 
 
Targeted Case Management Services  
Medicaid pays for targeted case management services to assess Medicaid beneficiaries 
service needs, refer beneficiaries to needed services, and monitor the services.  It does not 
pay for direct social services to which beneficiaries have been referred.  However, 
Massachusetts included the costs for direct social services in the rates used to claim 
reimbursement for targeted case management services.  OIG recommended that the State 
refund the resulting $87 million Federal overpayment and work with CMS to determine the 
allowability of the remaining $13.5 million Federal share claimed.  The $13.5 million 
claimed may have already been reimbursed under other Federal programs.  
Lincare Settlement 
Lincare Holdings, Inc., and its subsidiary Lincare Inc. (collectively, Lincare) agreed to pay 
$10 million to resolve allegations that Lincare paid illegal kickbacks and violated the 
Physician Self-Referral Law.  OIG alleged that from January 1993 through December 
2000, Lincare engaged in a nationwide scheme to pay physicians kickbacks to refer their 
patients to Lincare.  The Lincare settlement represents OIGs largest administrative 
settlement to date. 
 
Universities Compliance With Select Agent Regulations 
In this summary report, OIG noted that 11 of the 15 universities reviewed did not fully 
comply with Federal requirements regarding securing and accounting for select agents.  
Select agents are materials that could pose a severe threat to public health and safety as a 
result of inadvertent, terrorist or other criminal acts.  The Centers for Disease Control and 
Prevention agreed to resolve the recommendations in OIGs individual reports to the 
universities.  
Food and Drug Administration Postmarketing Study Commitments 
An OIG evaluation identified vulnerabilities that raise concerns that the Food and Drug 
Administration is not able to readily identify whether or how timely postmarketing study 
commitments are progressing toward completion.  After a drug has been approved for 
iii   
 
 
marketing, drug applicants can learn more about the risks, benefits, and optimal use of a 
drug by conducting postmarketing studies.  About one-third of annual status reports were 
missing or incomplete, and others contained information that is of limited use.   
 
iv   
Office of Inspector Generals  
Hurricane-Related Activities 
 
In response to the Gulf Coast hurricanes of 2005, the Office of Inspector General (OIG) 
launched an aggressive, coordinated oversight effort to ensure that Federal response and 
recovery funds are spent appropriately; that those attempting to defraud the Government 
are brought to justice; and that the individuals responsible for the relief efforts are wise 
stewards in their work assisting those affected by the hurricanes and their aftermath.   
 
OIG continues to work with Federal, State, and local partners in this effort, including 
participating as a member of the Presidents Council on Integrity and Efficiency (PCIE) 
Homeland Security Roundtable, which is coordinating the oversight activities of the 
various Inspectors General.  OIG is taking the lead in developing information related to 
State and Local Liaisons as part of a comprehensive Hurricane Action Plan currently under 
development by the Homeland Security Roundtable.  In addition, along with other 
members of the Inspector General (IG) community, OIG is a member of the Department of 
Justice Katrina task force in Baton Rouge.  That task force is investigating allegations of 
fraud related to Federal outlays in connection with Hurricane Katrina.   
 
OIG has initiated extensive audit, evaluation, and investigative activities related to the 
oversight of U.S. Department of Health and Human Services (HHS) hurricane recovery 
efforts.  These activities have been performed under existing appropriations.  A list of 
ongoing and completed projects follows: 
 
Department Accounting for Federal Emergency Management Agency 
Assignments   
As of June 30, 2006, the spending authority for HHS Federal Emergency Management 
Agency (FEMA)-requested mission assignments totaled $315.4 million.  This spending 
authority is contained within 121 individual mission assignments with different 
magnitudes and objectives.  OIGs audits will determine whether HHS is appropriately 
accounting for these costs. 
 
Nursing Home Emergency Preparedness and Response During Recent 
Hurricanes 
An OIG report recommended that the Centers for Medicare & Medicaid Services (CMS) 
consider strengthening Federal certification standards for nursing home emergency plans 
after OIGs study of emergency preparedness for homes in five Gulf Coast States found 
that the homes all experienced problems during the 2004 and 2005 hurricanes, whether 
evacuating or sheltering in place.  Nursing home administrators and staff often did not 
follow their emergency plans, the plans were often missing suggested provisions, and a 
lack of collaboration between State and local emergency entities and nursing homes 
impeded emergency planning and response. 
 
v   
 
 
Investigations of Health Care Fraud, Quality-of-Care Lapses, and Other Issues 
OIG will continue to be involved in hurricane-related investigations.  Currently, OIG has 
12 open investigations involving allegations of health care fraud, poor quality of care, and 
patient abandonment, and is assisting in investigations of circumstances surrounding the 
deaths of nursing home residents and hospital patients.  OIG is also involved in cases that 
include allegations of individuals fraudulently obtaining benefits based on false 
information. 
Auditing Vulnerable Hurricane-Related Procurements 
OIG is auditing all hurricane-related contractual procurements over $500,000.  These 
audits will specifically focus on the methods of procurement; costs incurred; and the 
quantity, quality, and timeliness of deliverables.  OIG plans to audit 72 procurements with 
a total value of $92.7 million.  As of September 30, 2006, OIG had issued nine audit 
reports with an audited value of $26.2 million.  OIG is in the process of completing and 
issuing an additional 63 reports with an audited value of $66.5 million. 
 
Transporting Medically Needy Evacuees 
OIG is auditing the performance and monetary charges of a contactor responsible for 
returning to Texas, Louisiana, and Mississippi all evacuees who require enroute medical 
care and therefore cannot travel via commercial air or without medical assistance.  It is 
estimated that 6,000 individuals may need to be transported.  This contractor was awarded 
$21 million to transport evacuees back to their medical facilities. 
 
Duplication of Benefits  
At the request of the Department of Homeland Security (DHS) OIG and the PCIE 
Homeland Security Roundtable, OIG completed a program survey to identify potential 
duplication of benefits provided in declared disasters associated with Hurricanes Katrina, 
Rita, and Wilma.  OIG distributed the survey request to various operating divisions within 
HHS and asked each operating division to complete the program survey form provided by 
the DHS Inspector General (IG).  Many Federal agencies provided record levels of 
support, both financial and nonfinancial, through programs they administer during 
presidentially declared disasters.  The DHS IG and PCIE will use this survey to determine 
which programs have the greatest risk of duplicative, excessive, and improper payments.   
 
Use of Emergency Preparedness Grants in Selected Gulf Coast States 
OIG is auditing the use of HHS emergency preparedness grant funding in selected Gulf 
Coast States to determine whether such funding, which is provided annually by the Centers 
for Disease Control and Prevention and the Health Resources and Services Administration, 
was used for approved purposes and whether items funded by these grants were effective 
in the hurricane response and recovery efforts.  Reviews are being performed in Florida, 
Alabama, Louisiana, Texas, and Mississippi. 
 
Implementation of National Response Plan Responsibilities 
OIG will audit HHSs implementation of its responsibilities under the National Response 
Plan, specifically, Emergency Support Function #8:  Public Health and Medical Services. 
At appropriate departmental, operating division, and staff division levels, OIG will assess 
vi   
 
 
the handling of FEMA-requested mission assignments using established plans, objectives, 
and other pertinent benchmarks.  The audit results will be critical for improving 
departmental processes for future public emergencies.  
 
Use of Purchase Cards in Response to Hurricane Katrina 
OIG is analyzing the use of purchase cards by HHS personnel deployed in response to 
Hurricane Katrina.  The study focuses on compliance with both established and emergency 
HHS and agency spending guidelines and procedures.  This study builds on OIGs March 
2003 report International Merchant Purchase Authorization Card Program:  Review of 
Calendar Year 2001 Transactions.  That study found that 44 percent of sampled 
transactions did not fully comply with requirements for using the cards.  These past 
findings, combined with the urgent nature of the responses to Hurricane Katrina, provide a 
useful opportunity to examine the use of HHS purchase cards during responses to large-
scale public health emergencies. 
 
Commissioned Corpss Deployment in Response to Hurricane Katrina 
OIG is evaluating the U.S. Public Health Service Commissioned Corps responses to 
Hurricanes Katrina and Rita and identifying whether and how the Corps could improve its 
response to future public health emergencies.  This deployment was one of the largest in 
the Corps 207-year history and came at a time when the Corps was working toward the 
goal of being 100-percent deployable.  In the weeks following Hurricane Katrina, more 
than 1,400 officers worked with State, local, and private agencies in seven Gulf Coast 
States; after 1 month, more than 700 remained in the Gulf Coast States and evacuee areas 
to provide relief services. 
 
Hurricane Katrina-Related Medical Review Contract 
Because of the effects of Hurricane Katrina, beneficiaries of HHS programs who resided in 
the Gulf Coast States may have been evacuated to various places around the United States 
or otherwise significantly affected.  In response to this situation, and to ensure that victims 
of Katrina received needed health care, HHS used Section 1115 and 1135 waiver 
authorities to expand Medicaid coverage criteria.  In this study, OIG describes the services 
and payments made under Section 1115 Medicaid waivers for victims of Katrina and 
determines the extent to which providers enrolled in Medicaid under the Section 1135 
waiver authority. 
 
 
vii    
Table of Contents 
 
CENTERS FOR MEDICARE & MEDICAID SERVICES.........................................1 
CMS-Related Reports..........................................................................................................2 
Medicares Program Safeguard Contractors:  Performance Evaluation Reports................2 
Consultations in Medicare:  Coding and Reimbursement....................................................2 
Medicare Advantage Marketing Materials for Calendar Year 2005....................................3 
Cost and Performance of Medicares 2005 Chemotherapy Demonstration Project...........3 
Determining Average Manufacturer Prices for Prescription Drugs Under the 
Deficit Reduction Act of 2005.........................................................................................3 
Medicare Beneficiary Access to Skilled Nursing Facilities and Home Health 
Care:  2004.........................................................................................................................4 
Medicare Drug Price Comparisons Mandated by the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003...............................................................4 
Nursing Home Emergency Preparedness and Response During Recent 
Hurricanes..........................................................................................................................5 
Medicare Reimbursement for New End-Stage Renal Disease Drugs..................................6 
Excessive Payments for Medicare Outpatient Services........................................................6 
Medicare Contractors Administrative Costs.........................................................................7 
Medicare Contractors Pension Segmentation Requirements...............................................7 
Independent Diagnostic Testing Facilities Claims for Medicare Services.........................7 
Medicare Claims for Outpatient Physical and Occupational Therapy Services..................8 
Medicare Payments to Community Mental Health Centers.................................................8 
Inpatient Rehabilitation Facilities Compliance With Medicare Transfer 
Regulation..........................................................................................................................9 
Medicare Part B Payments for Radiology Services...............................................................9 
Hospital Wage Data Used To Calculate Inpatient Prospective Payment System 
Wage Indexes....................................................................................................................9 
New Jerseys Controls for Preventing Duplicate Medicaid and State Childrens 
Health Insurance Program Payments.............................................................................10 
Graduate Medical Education for Dental Residents.............................................................11 
Medicaid Hospital Outlier Payments....................................................................................12 
Medicaid Disproportionate Share Hospital Payments.........................................................13 
Resolution of Audit Findings on States Beneficiary Eligibility Determinations 
for Medicaid and the State Childrens Health Insurance Program..............................13 
ix   
 
 
Generic Drug Utilization in State Medicaid Programs........................................................13 
Medicaid School-Based Health Claims in New Jersey.......................................................14 
Medicaid School-Based Health Service Payment Rates in Kansas....................................14 
Montanas Accounts Receivable System for Medicaid Provider Overpayments.............15 
Targeted Case Management Services Rendered by the Massachusetts 
Department of Social Services.......................................................................................15 
Nursing Home Enforcement:  Application of Mandatory Remedies.................................15 
Nursing Home Complaint Investigations.............................................................................16 
Physical Therapy Billed by Physicians................................................................................16 
Outreach............................................................................................................................17 
Advisory Opinions.................................................................................................................17 
Provider Self-Disclosure Protocol........................................................................................17 
Federal and State Partnership:  Joint Audits of Medicaid.................................................18 
Office of Inspector General Administrative Sanctions......................................................18 
Program Exclusions...............................................................................................................18 
Civil Monetary Penalties Law...............................................................................................19 
Patient Dumping....................................................................................................................20 
Criminal and Civil Enforcement.......................................................................................21 
Hospitals.................................................................................................................................21 
Prescription Drugs.................................................................................................................22 
Practitioners............................................................................................................................23 
Durable Medical Equipment Suppliers................................................................................24 
Clinic.......................................................................................................................................25 
Home Health Agency............................................................................................................25 
Nursing Home Company.......................................................................................................25 
Laboratory..............................................................................................................................25 
Theft of Health Care Services...............................................................................................26 
Medicaid Fraud Control Units...........................................................................................26 
 
PUBLIC HEALTH AGENCIES.................................................................................29 
Public Health Agency-Related Reports.............................................................................30 
Review of 340B Drug Prices................................................................................................30 
Use of the Departmental Alert List by the Health Resources and Services 
Administration.................................................................................................................30 
x   
 
 
The Food and Drug Administrations National Drug Code Directory...............................31 
Monitoring of Postmarketing Study Commitments............................................................31 
Agency for Healthcare Research and Quality:  Monitoring Patient Safety Grants...........32 
Superfund Financial Activities at the National Institute of Environmental Health 
Sciences for Fiscal Year 2005........................................................................................32 
Universities Compliance With Select Agent Regulations.................................................32 
HIV Prevention Grants..........................................................................................................32 
Select Agents at Private, State, and Local Laboratories......................................................33 
Financial Statement Audit.....................................................................................................33 
Health Education Assistance Loan Defaults........................................................................33 
Public Health-Related Investigations...................................................................................34 
 
ADMINISTRATION FOR CHILDREN AND FAMILIES AND 
ADMINISTRATION ON AGING........................................................................35 
Administration for Children and FamiliesRelated Reports.............................................36 
Aid to Families With Dependent Children in Connecticut.................................................36 
Undistributable Child Support Collections..........................................................................36 
Costs Claimed for the Statewide Automated Child Welfare Information System 
in California.....................................................................................................................37 
Title IV-E Training Costs......................................................................................................37 
Administration on Aging-Related Reports........................................................................38 
Cost Sharing for Older Americans Act Services.................................................................38 
Performance Data for the Senior Medicare Patrol Projects:  April 2006 
Performance Report........................................................................................................38 
Child Support Enforcement...................................................................................................38 
Task Forces............................................................................................................................39 
Investigations.........................................................................................................................39 
Misuse of ACF Grant Funds.................................................................................................40 
 
GENERAL OVERSIGHT..........................................................................................41 
Non-Federal Audits...........................................................................................................42 
Resolving Recommendations............................................................................................42 
Table 1:  Reports With Questioned Costs............................................................................43 
Table 2:  Funds Recommended To Be Put to Better Use...................................................44 
xi   
 
 
Legislative and Regulatory Review and Development.....................................................45 
Regulatory Review Functions...............................................................................................45 
Regulatory Development.......................................................................................................45 
Employee Fraud and Misconduct......................................................................................46 
Prosecutions.......................................................................................................................46 
 
APPENDIXES.............................................................................................................47 
Appendix A:  Savings Achieved Through Implementation of Recommendations 
in Audits and Evaluations for the Period October 1, 2005, Through 
September 30, 2006..................................................................................................49 
Appendix B:  Unimplemented Office of Inspector General Recommendations To 
Put Funds to Better Use...............................................................................................57 
Appendix C:  Unimplemented Office of Inspector General Program and 
Management Improvement Recommendations.........................................................59 
Appendix D:  Notes to Tables 1 and 2...............................................................................61 
Notes to Table 1.....................................................................................................................61 
TOTAL AMOUNT:  $1,942,621,749..................................................................................68 
Notes to Table 2.....................................................................................................................69 
TOTAL AMOUNT:  $591,982,294.....................................................................................70 
Appendix E:  Reporting Requirements of the Inspector General Act of 1978, as 
Amended.....................................................................................................................71 
Appendix F:  Status of Public Proposals for New and Modified Safe Harbors to 
the Anti-Kickback Statute Pursuant to Section 205 of the Health Insurance 
Portability and Accountability Act of 1996................................................................73 
Appendix G:  Summary of Sanction Authorities...............................................................77 
Program Exclusions...............................................................................................................77 
Patient Dumping....................................................................................................................77 
Civil Monetary Penalties Law...............................................................................................78 
Anti-Kickback Statute and Civil False Claims Act Enforcement Authorities...................78 
 
Please note:  Numerical information in this report is rounded. 
 
xii   
Centers for Medicare & Medicaid Services 
 
 
The Centers for Medicare & Medicaid Services (CMS) administers the Medicare and 
Medicaid programs.  Financed by the Federal Hospital Insurance Trust Fund, Medicare 
Part A provides hospital and other institutional insurance for individuals 65 years old or 
older and for certain disabled persons.  Medicare Part B (Supplementary Medical 
Insurance) is an optional program that covers most of the costs of medically necessary 
physician and other services and is financed by participants and general revenues.  
Medicare Part C (Medicare Advantage) enables beneficiaries of Medicare Parts A and B 
to choose to receive all their health care services through a coordinated Medicare 
Advantage plan, which replaced the previous Medicare+Choice managed care plans.  
Medicare Part D is a new, optional program offering prescription drug coverage through 
private drug plans.  Beneficiaries may opt either to enroll in a stand-alone prescription 
drug plan and receive their Part A and Part B benefits through a fee-for-service health 
plan or enroll in a Medicare Advantage prescription drug plan and receive all Medicare 
benefits, including drug coverage, through a Medicare Advantage plan. 
The Medicaid program provides funding to States for medical care and other support and 
services for low-income individuals.  State expenditures for medical assistance are 
matched by the Federal Government using a formula that compares per capita income in 
each State with the national average.  The State Childrens Health Insurance Program 
(SCHIP) expands health coverage to uninsured children whose families earn too much for 
Medicaid but too little to afford private coverage. 
The U.S. Department of Health and Human Services (HHS or the Department) Office of 
Inspector General (OIG) devotes significant resources to investigating Medicare and 
Medicaid fraud, waste, and abuse, and to monitoring these programs through audits and 
evaluations.  These activities have helped to ensure the cost-effective delivery of 
Medicare, Medicaid, and SCHIP services; to safeguard quality of care to program 
beneficiaries; and to reduce the potential for fraud, waste, and abuse.  In addition, these 
efforts have led to criminal, civil, and/or administrative actions against perpetrators of 
fraud and abuse. 
 
OIG also reports on audits of CMS financial statements, which currently account for 
more than 82 percent of the Departments net costs.  In addition to issuing an opinion on 
the statements, auditors assess compliance with Medicare laws and regulations and the 
adequacy of internal controls. 
  Centers for Medicare & Medicaid Services 
 
 
CMS-Related Reports 
 
Medicares Program Safeguard Contractors:  Performance Evaluation 
Reports   
Program safeguard contractors (PSCs) are entities that are awarded benefit integrity task 
orders by CMS to detect and deter fraud and abuse in Medicare, as well as to undertake 
other projects.  OIG found that CMSs most current performance evaluation report for 
each of the 17 benefit integrity task orders contained little or no information on results, 
especially quantitative results, regarding PSCs detection and deterrence of fraud and 
abuse.  OIG also found that 72 percent of performance evaluation reports for 19992004 
were issued on time, while 28 percent were late.   
OIG recommended that CMS include PSC results in its performance evaluation reports.  
For example, if PSC activities are saving money for the Medicare program, the activity 
and the amount of money saved should be included in the reports.  OIG also 
recommended that CMS provide information about required fraud and abuse detection 
and deterrence activities in the reports.  In addition, CMS should ensure that all draft and 
final reports are issued on time and should establish a means to track and save evaluation 
milestone dates.  CMS concurred in part with OIGs recommendations, but expressed 
concern about how best to address results in PSC performance evaluation reports.  CMS 
stated that quantifying PSC output could create the appearance of case quotas.   
(OEI-03-04-00050) 
 
Consultations in Medicare:  Coding and Reimbursement  
OIG found that Medicare allowed $1.1 billion in improper payments in fiscal year 
(FY) 2001 for services billed as consultations.  Medicare allowed approximately 
$191 million for services that did not meet its definition of a consultation.  Medicare and 
its beneficiaries overpaid an additional $613 million for consultations that were billed as 
the incorrect type or level of complexity and $260 million for undocumented 
consultations.   
Consultations billed at the highest level (for the most complex services, which generate 
the highest reimbursements under the Medicare physician fee schedule) and follow-up 
inpatient consultations were particularly problematic:  approximately 95 percent of each 
were miscoded or undocumented.   
To reduce the incidence of improperly billed consultations, OIG recommended that CMS 
educate physicians and other health care professionals about the criteria and proper 
billing for all types and levels of consultations, emphasizing the highest billing levels and 
follow-up inpatient consultations.  CMS agreed with the recommendations and outlined a 
plan to publish an article about consultations on its Web site.  CMS also noted that codes 
for billing follow-up inpatient and confirmatory consultations have been eliminated from 
the reference text Current Procedural Terminology, effective January 1, 2006, which 
should reduce coding errors.  (OEI-09-02-00030)  
  2  Centers for Medicare & Medicaid Services 
 
 
Medicare Advantage Marketing Materials for Calendar Year 2005 
This report determined whether Medicare Advantage marketing materials for 2005 met 
CMSs marketing requirements.  OIG found that some marketing materials in its sample 
lacked CMS-required information concerning limitations to prescription drug benefits.  In 
addition, some materials in the sample lacked elements required by CMS to ensure that 
beneficiaries can access plan information, and some marketing materials in the sample 
did not clearly convey information concerning other aspects of plan coverage.  CMSs 
continued diligence in reviewing marketing materials is essential.  OIG had no 
recommendations for CMS in this report.  CMS concurred with the findings, stating that 
the report will help it improve its marketing materials review process.   
(OEI-01-05-00130) 
 
Cost and Performance of Medicares 2005 Chemotherapy Demonstration 
Project 
In an evaluation conducted at the request of the Senate Committee on Finance, OIG 
estimated the total cost of Medicares chemotherapy demonstration by analyzing 
Medicare paid claims data through the end of 2005.  To conduct an overall assessment of 
the demonstration, OIG interviewed staff at CMS and four oncology practices that 
participated in the demonstration to learn how they implemented the demonstration 
requirements. 
This study estimated that Medicare and its beneficiaries would spend approximately 
$275 million for the 2005 chemotherapy demonstration.  Participation in the project was 
high; 90 percent of eligible providers took part, and approximately 85 percent billed the 
demonstration codes at 50 percent or more of eligible chemotherapy administration visits.  
Seven percent of paid demonstration claims did not comply with program rules or were 
paid incorrectly, resulting in $17 million in overpayments.  Furthermore, because the 
parameters of the demonstration were not sufficiently defined, OIG concluded that the 
data are unreliable.  (OEI-09-05-00171) 
Determining Average Manufacturer Prices for Prescription Drugs Under the 
Deficit Reduction Act of 2005 
The Medicaid drug rebate program requires manufacturers of prescription drugs to 
determine and report the average manufacturer prices (AMP)generally the average 
prices paid to the manufacturer by wholesalers for drugs distributed to retail pharmacies.  
Manufacturers pay rebates to States based on AMPs and other factors.  The Deficit 
Reduction Act (DRA) of 2005 changed the manner in which drug manufacturers 
determine the AMP and required that the AMP be used in setting Federal upper payment 
limits for certain drugs under the Medicaid program.  The DRA also directed OIG to 
review the requirements for determining AMPs, and the way they are determined, to 
make recommendations based on this review.  
OIG found that some AMP requirements were unclear and that manufacturers methods 
of calculating AMPs were inconsistent.  Consistent with OIGs findings, industry groups 
also emphasized the need to clarify certain AMP requirements and raised additional 
issues related to the implementation of DRA provisions.  OIG recommended that the 
HHS Secretary direct CMS to clarify requirements for determining certain aspects of 
3  Centers for Medicare & Medicaid Services 
 
 
AMPs, including the definition of retail class of trade, and to clarify the treatment of 
pharmacy rebates and Medicaid sales.  OIG also recommended that the Secretary direct 
CMS to (1) consider addressing issues raised by industry groups, (2) issue guidance that 
specifically addresses the implementation of the AMP-related reimbursement provisions 
of the DRA, and (3) encourage States to analyze the relationship between the AMP and 
pharmacy acquisition costs to ensure appropriate pharmacy reimbursement.  CMS agreed 
to address each recommended area in its proposed regulation and to evaluate the need for 
additional guidance.  (A-06-06-00063) 
 
Medicare Beneficiary Access to Skilled Nursing Facilities and Home Health 
Care:  2004  
Two OIG evaluations assessed Medicare beneficiaries access to skilled nursing facilities 
(SNFs) and home health care since the implementation of the prospective payment 
system.  These studies are the most recent in a series conducted by OIG on access to 
SNFs and home health care for Medicare beneficiaries since the Balanced Budget Act of 
1997 required payments for these to be made on a prospective basis.  The studies were 
based on structured interviews with 256 hospital discharge planners with experience 
placing Medicare beneficiaries in SNFs and home health care, and an analysis of 5 years 
of Medicare data for beneficiaries discharged from hospitals to either a SNF or home 
health care.  
OIG found that most Medicare beneficiaries have access to both SNFs and home health 
care.  In the first report, OIG also found that beneficiaries with certain medical 
conditions, such as those requiring expensive drugs or wound care, may experience 
delays being placed in a SNF.  Similarly, in the report on home health care, OIG found 
that beneficiaries with certain medical conditions, such as those needing intravenous 
antibiotics and/or expensive drugs or complex wound care, may experience delays being 
placed in home health care.   
OIG concluded that these findings are generally consistent with the findings in its prior 
reports, suggesting that, overall, the prospective payment system has not resulted in 
reduced access to SNF care or home health care.  OIG encouraged CMS to continue to 
monitor access to skilled nursing care and home health care, particularly for beneficiaries 
with certain medical conditions or service needs who may experience delays in accessing 
such care.  (OEI-02-04-00260; OEI-02-04-00270) 
Medicare Drug Price Comparisons Mandated by the Medicare Prescription 
Drug, Improvement, and Modernization Act of 2003 
In 2005, Medicare began paying for most Part B drugs using a new methodology based 
on average sales price (ASP).  Pursuant to section 1847A(d)(3) of the Social Security 
Act, OIG must notify the HHS Secretary if the ASP for a particular drug exceeds the 
average manufacturer price (AMP) or widely available market price (WAMP) by a 
threshold of 5 percent.  If that threshold is met, section 1847A(d)(3) of the Act grants the 
Secretary authority to disregard the ASP and substitute the payment amount for the drug 
with the lesser of the WAMP (if any) for the drug or 103 percent of the AMP. 
  4  Centers for Medicare & Medicaid Services 
 
 
OIG recently completed the following three studies that compare ASP to AMP and 
WAMP: 
(cid:1) Monitoring Medicare Part B Drug Prices:  A Comparison of Average Sales Prices 
to Average Manufacturer PricesOIG found that in the third quarter of 2004, 51 of the 
364 procedure codes (14 percent) included in this review had an ASP that exceeded the 
AMP by at least 5 percent.  If reimbursement amounts for these 51 codes had been 
lowered to 103 percent of the AMP, Medicare expenditures would have been reduced by 
an estimated $164 million in 2005.  In response, CMS stated that the information in the 
report was helpful in its continuing efforts to monitor payment adequacy under the ASP 
methodology.  However, CMS noted that OIGs review was conducted using data 
submitted during the initial implementation phase of the ASP methodology.  Although 
CMS acknowledged the Secretarys authority to adjust ASP payment limits when certain 
conditions are met, it believed that other factors should be considered, including the 
timing and frequency of pricing comparisons, stabilization of ASP reporting, the effective 
date and duration of rate substitution, and the accuracy of ASP and AMP data.   
(OEI-03-04-00430)  
 
(cid:1) Comparison of Fourth Quarter 2005 Average Sales Prices to Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for the Second Quarter 
of 2006OIG found that for 46 of the 341 procedure codes (13 percent) included in this 
review, ASPs exceeded AMPs by at least 5 percent in the fourth quarter of 2005.  Twenty 
of these codes were identified in OIGs previous report as having ASPs that exceeded 
AMPs by at least 5 percent in the third quarter of 2004.  If reimbursement amounts for 
the 46 codes had been based on 103 percent of the AMP, OIG estimated that Medicare 
expenditures would have been reduced by $64 million in 1 year.  (OEI-03-06-00370) 
(cid:1) A Comparison of Average Sales Prices to Widely Available Market Prices: Fourth 
Quarter 2005For this analysis, OIG specifically selected a purposive sample of nine 
procedure codes for which OIG suspected that ASPs might exceed WAMPs by at least 
5 percent.  The purposive sample was based on the results of the September 2005 OIG 
report on adequacy of reimbursement for cancer drugs.  OIG found that five of the nine 
procedure codes included in this review met or surpassed the 5-percent threshold defined 
by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA).  For these 5 codes, the ASPs exceeded the WAMPs by a range of 17 to 
185 percent.  OIG estimated that Medicare expenditures would be reduced by as much as 
$67 million in 2006 if reimbursement amounts were lowered to the WAMPs for these 
five codes.  In addition, the prices that physicians pay for these drugs may be even lower 
than the WAMPs that were calculated, as all of the responding distributors offered price 
discounts to physician customers that were not reflected in the calculation of WAMPs.  
(OEI-03-05-00430) 
Nursing Home Emergency Preparedness and Response During Recent 
Hurricanes   
Federal regulations require that Medicare- and Medicaid-certified facilities maintain 
written plans and procedures to meet all potential emergencies and to train employees in 
emergency procedures.  An OIG review examined the experiences of selected nursing 
5  Centers for Medicare & Medicaid Services 
 
 
homes in the five Gulf Coast States during recent hurricanes and the completeness of 
their emergency preparedness plans.  The review found that while 94 percent of selected 
nursing homes met Federal standards for emergency plans and 80 percent had sufficient 
emergency training, all experienced problems whether they evacuated or sheltered in 
place.  Nursing homes that evacuated faced problems such as transportation contracts that 
were not honored, lengthy travel times, host facilities that were unavailable or 
inadequately prepared, inadequate staffing, insufficient food and water, and difficult 
reentry to facilities.  OIG also found that nursing home administrators and staff often did 
not follow their emergency plans, that the emergency plans often lacked provisions, and 
that a lack of collaboration between State and local emergency entities and nursing 
homes impeded emergency planning and response. 
OIG recommended that CMS consider strengthening Federal certification standards for 
nursing home emergency plans by including requirements for specific elements of 
emergency planning, and that CMS encourage communication and collaboration among 
State and local emergency entities and nursing homes.  CMS concurred with these 
recommendations and is exploring ways to strengthen Federal certification standards for 
emergency preparedness and to promote better coordination among Federal, State, and 
local emergency management entities.  (OEI-06-06-00020) 
Medicare Reimbursement for New End-Stage Renal Disease Drugs  
The MMA required that OIG conduct two studies on drugs used to treat end-stage renal 
disease (ESRD) patients.  The first study reviewed ESRD drugs in existence when the 
MMA passed, and OIG issued its first report on this topic in May 2004.  In this second 
study, OIG compared the Medicare reimbursement amount for new ESRD drugs to 
facility acquisition costs.  For purposes of this study, new drugs were those for which a 
billing code did not exist before January 1, 2004. 
OIG determined that just one new drug, darbepoetin alfa, was widely used in independent 
dialysis facilities during the time covered by this review.  OIG found that independent 
dialysis facilities were able to purchase darbepoetin alfa at prices below the Medicare 
reimbursement amount in 2005.  At that time, the average acquisition cost for the drug 
was $2.59 per microgram, while Medicare reimbursement ranged from $3.01 to $3.54 per 
microgram.  This report did not include recommendations for CMS.  (OEI-03-06-00200) 
Excessive Payments for Medicare Outpatient Services 
During calendar year (CY) 2003, a Medicare fiscal intermediary made 54 payments of 
$50,000 or more each to providers for outpatient services.  OIG found that 45 of the 
payments were incorrect because the providers inappropriately overstated the units of 
service.  OIG recommended that the intermediary (1) inform OIG of the status of the 
recovery of the $2.8 million in overpayments that the audit identified, (2) identify and 
recover additional overpayments made on high-dollar outpatient claims paid after 
CY 2003, and (3) use the results of the audit in its provider education activities.  The 
intermediary agreed with the recommendations.  (A-01-05-00514) 
 
  6  Centers for Medicare & Medicaid Services 
 
 
Medicare Contractors Administrative Costs  
This audit found that a Medicare contractors internal controls were largely effective in 
identifying administrative costs to be excluded from cost proposals.  However, the 
contractor claimed nearly $4.7 million in administrative costs that were not allowable for 
Medicare reimbursement.   
 
OIG recommended that the contractor make a $4.7 million adjustment, work with CMS 
to determine the allowability of $2.1 million in reported forward-funding costs, and 
ensure that future cost proposals are calculated accurately.  The contractor partially 
disagreed.  (A-02-03-01020) 
 
Medicare Contractors Pension Segmentation Requirements 
Since its inception, Medicare has paid a portion of Medicare contractors annual 
contributions to their pension plans.  CMS requires that contractors claims for pension 
costs comply with the Medicare contracts. 
A Medicare contractor in Utah did not correctly identify the initial allocation of pension 
plan assets to the Medicare segment as of January 1, 1986, and did not comply with the 
Medicare contracts pension segmentation requirements for updating Medicare segment 
assets from January 1, 1986, to January 1, 1991.  In addition, the contractor did not 
update the Medicare segment assets from January 1, 1991, to January 1, 1998.   
OIG recommended that the contractor identify Medicare segment pension assets of more 
than $2.1 million as of January 1, 1998.  The contractor agreed.  (A-07-05-00190) 
 
Independent Diagnostic Testing Facilities Claims for Medicare Services 
An independent diagnostic testing facility (IDTF) is an entity independent of a hospital or 
physicians office in which licensed or certified technicians perform diagnostic tests 
under physician supervision.  Medicare requires that IDTF services be reasonable and 
necessary, ordered by a physician, and sufficiently documented.  During the audit period, 
Medicare also required IDTFs to report any change in personnel, equipment, tests 
performed, ownership, or location to the Medicare carrier within 30 days of the change.  
Based on a sample of services paid by 10 Medicare carriers, OIG identified 
approximately $165,000 in overpayments and estimated that the carriers made improper 
Medicare payments of $71.5 million to IDTFs.  In addition, 191 IDTFs did not comply 
with enrollment update requirements.  
 
OIG recommended that CMS require its carriers to recover the $165,000, perform 
follow-up reviews to identify and recover the potential $71.5 million in improper 
payments, and consider performing site visits to monitor IDTFs compliance with update 
requirements if funding is available.  CMS agreed with the first two recommendations 
subject to certain conditions.  CMS stated that, because of funding limitations, it was not 
able to require Medicare carriers to conduct site visits to monitor compliance.   
(A-03-03-00002) 
 
7  Centers for Medicare & Medicaid Services 
 
 
Medicare Claims for Outpatient Physical and Occupational Therapy Services 
Medicare covers outpatient physical and occupational therapy services provided by 
qualified therapists in private practice.  Medicare requires that these services be 
reasonable and necessary for the treatment of a beneficiarys illness or injury and that 
they be provided according to an established plan of treatment reviewed by the 
beneficiarys physician.  
OIG sampled 114 claims for outpatient physical and occupational therapy services 
performed by a California provider from 2000 through 2003 and found that none met 
Medicare reimbursement requirements.  As a result, the provider received more than 
$41,000 in unallowable Medicare payments.  Projecting these results to the population, 
OIG estimated that at least $10 million of the $11.1 million that the provider received for 
outpatient physical and occupational therapy claims was unallowable.  
OIG recommended that the provider refund $10 million to the Medicare program and 
work with CMS to determine the allowability of services billed after 2003.  The provider 
did not respond; the providers Medicare carrier said that it would work with CMS to 
address the recommendations.  (A-09-04-00069) 
Medicare Payments to Community Mental Health Centers 
Partial hospitalization is an intensive outpatient program of psychiatric services that 
community mental health centers (CMHC) may provide to patients in lieu of inpatient 
psychiatric care.  OIG conducted several reviews to determine whether Medicare 
payments to CMHCs for partial hospitalization services complied with reimbursement 
requirements.   
 
(cid:1) A fiscal intermediary did not calculate payments to a CMHC in Louisiana in 
accordance with Medicare reimbursement requirements.  The intermediary used incorrect 
cost report information, incorrectly entered information in its claim-processing system, 
and assigned an incorrect geographic wage index factor.  As a result, the intermediary 
overpaid the CMHC almost $8.2 million.  OIG recommended that the intermediary 
collect the overpayment, review claims subsequent to the audit period, and implement 
controls to ensure that future payments are calculated correctly.  The intermediary 
disagreed with most of the recommendations.  (A-06-04-00032) 
 
The intermediary made similar errors in calculating payments to the remaining 
38 CMHCs in its service area.  As a result, the CMHCs were overpaid almost $8 million.  
OIG recommended that the intermediary collect the overpayments, review claims 
subsequent to the audit period and make any necessary financial adjustments, and 
implement controls to ensure that future payments are calculated correctly.  Again, the 
intermediary generally disagreed.  (A-06-04-00065) 
 
(cid:1) Medical reviewers found that 95 of the 100 sampled claims submitted by a CMHC in 
Florida did not meet Medicare reimbursement requirements relating to initial 
certification/evaluation by a physician, recertification, and/or beneficiary eligibility.  
Based on the sample results, OIG estimated that the CMHC was overpaid $4.8 million. 
  8  Centers for Medicare & Medicaid Services 
 
 
The CMHC disagreed with the findings, and OIG issued the report to CMS for resolution.  
OIG recommended that CMS determine the allowability of the claims that resulted in the 
$4.8 million estimate of unallowable payments.  (A-04-04-02003) 
 
Inpatient Rehabilitation Facilities Compliance With Medicare Transfer 
Regulation 
Medicare pays the full prospective payment to an inpatient rehabilitation facility (IRF) 
that discharges a beneficiary to home.  In contrast, under its transfer regulation, Medicare 
pays a lesser amount if the IRF transfers the beneficiary to certain other types of 
facilities.   
Nationwide, OIG identified 2,473 IRF claims coded and paid as discharges to home that 
potentially should have been paid as transfers during FY 2003.  The IRFs that OIG 
contacted attributed the miscoded claims to clerical errors.  Also, a key claim-processing 
system, the Common Working File, did not contain the necessary edits to compare the 
date a beneficiary was discharged from an IRF with the date the beneficiary was admitted 
to another provider.  As a result, estimated overpayments to IRFs totaled almost 
$12 million.   
OIG recommended that CMS collect the overpayments, review claims paid after the audit 
period, and implement system edits to identify miscoded claims.  CMS agreed with the 
recommendations.  (A-04-04-00008) 
Medicare Part B Payments for Radiology Services 
Under the inpatient prospective payment system, Medicare payments to hospitals cover 
outpatient radiology services provided to beneficiaries during inpatient hospital stays.  
During CYs 20012003, carriers inappropriately made Part B payments for more than 
100,000 outpatient radiology services provided to hospital inpatients.  Rather than billing 
the hospitals for these services, suppliers billed the carriers and received separate 
payments.  As a result, Medicare overpaid an estimated $20 million.  In addition, the 
Medicaid program (for individuals eligible for both Medicare and Medicaid), 
beneficiaries, or their supplemental insurers could have paid approximately $5.7 million 
in coinsurance and deductibles related to these potential overpayments.  Neither CMS nor 
its carriers had established computerized edits or postpayment review procedures for 
identifying duplicate Part B payments. 
OIG recommended that CMS instruct the Medicare carriers to recover the $20 million in 
potential overpayments, establish prepayment controls to detect and prevent duplicate 
payments, and educate the Medicare carriers and radiology suppliers on the most 
common types of payment errors.  CMS generally agreed.  (A-01-04-00528) 
Hospital Wage Data Used To Calculate Inpatient Prospective Payment 
System Wage Indexes 
Under the acute care hospital inpatient prospective payment system, CMS adjusts the 
Medicare base rate paid to participating hospitals by the wage index applicable to the area 
in which the hospital is located.  The wage indexes are based on data that hospitals 
include in their Medicare cost reports.  OIG determined whether several hospitals 
9  Centers for Medicare & Medicaid Services 
 
 
complied with Medicare requirements for reporting wage data in their Medicare cost 
reports. 
(cid:1) A hospital in Illinois overstated its wage data by nearly $4.4 million and 1,744 hours.  
OIG recommended that the hospital submit a revised FY 2003 Medicare cost report to the 
fiscal intermediary and implement procedural improvements.  The hospital concurred 
with OIGs findings and adjustments but did not address the recommendations.   
(A-05-05-00022) 
 
(cid:1) OIG reviewed two hospitals in New York.  The first hospital overstated its wage data 
by more than $3.1 million and more than 1,500 hours.  The second hospital overstated its 
salaries by $311,000 and understated its hours by 10,940.  OIG recommended that the 
hospitals submit revised FY 2003 Medicare cost reports to the fiscal intermediaries and 
implement procedural improvements.  The hospitals generally agreed.  (A-02-05-01004; 
A-02-05-01008)   
(cid:1) OIG also reviewed three hospitals in Florida.  The first hospital understated its wage 
data by more than $2.9 million and more than 175,000 hours.  The second hospital 
overstated its wage data by $2.4 million and 57,897 hours.  The third hospital overstated 
its wage data by $910,000 and 52,895 hours.  OIG recommended that the hospitals 
submit revised FY 2003 Medicare cost reports to the fiscal intermediaries and implement 
procedural improvements.  The hospitals generally agreed.  (A-04-05-02003;  
A-04-05-02002; A-04-05-02001)  
 
(cid:1) A hospital in California overstated wage data by approximately $1.7 million and more 
than 473,000 hours.  As a result of OIGs review, the hospital filed an amended FY 2004 
Medicare cost report.  However, nearly $1.3 million of wages and approximately 27,000 
related hours remained overstated.  OIG recommended that the hospital submit another 
revised FY 2004 Medicare cost report to the fiscal intermediary and implement 
procedural improvements.  The hospital agreed.  (A-09-05-00040) 
 
(cid:1) A hospital in New Jersey overstated its wage data by nearly $312,000 and understated 
hours by 1,865.  OIG recommended that the hospital submit a revised FY 2003 Medicare 
cost report to the fiscal intermediary and implement procedural improvements.  The 
hospital concurred.  (A-03-05-00005) 
New Jerseys Controls for Preventing Duplicate Medicaid and State 
Childrens Health Insurance Program Payments 
SCHIP enables States to provide health care coverage to uninsured children whose family 
incomes are too high to qualify for Medicaid but too low to afford private coverage.  In 
this report, OIG examined whether New Jerseys controls were adequate to prevent 
Medicaid and SCHIP from duplicating payments for the same beneficiary.  New Jerseys 
controls were adequate to prevent Medicaid and SCHIP from making duplicate provider 
payments and to prevent beneficiaries from enrolling in both programs.  However, New 
Jersey overstated SCHIP payments by approximately $1 million.   
  10 Centers for Medicare & Medicaid Services 
 
 
OIG recommended that New Jersey refund the Federal share, approximately $600,000.  
New Jersey agreed with the findings regarding the overpayment, and it has implemented 
programming changes to prevent future overpayments.  (A-02-04-01011) 
Graduate Medical Education for Dental Residents 
The Medicare program makes payments to teaching hospitals to support graduate medical 
education (GME) programs for physicians and certain other practitioners.  The payments, 
which cover both direct and indirect GME costs, are based in part on the number of full-
time equivalent (FTE) residents that the hospitals train.  The Balanced Budget Act of 
1997 permitted hospitals to count residents who train in nonhospital settings for purposes 
of indirect, in addition to direct, GME payments.  In order to count FTE residents training 
in nonhospital settings, hospitals are required to incur all or substantially all the costs of 
the training programs in those sites.  OIG reviewed hospitals in several States to 
determine whether they included the appropriate number of dental residents in their FTE 
counts when computing Medicare GME payments.   
 
(cid:1) CaliforniaA hospital in California inappropriately included a total of 153.88 direct 
GME FTEs and 159.69 indirect GME FTEs in its counts for FYs 2000 through 2002 
without incurring all the costs of training dental residents in nonhospital sites for those 
years.  As a result, the hospital overstated its direct and indirect GME claims by a total of 
$3.9 million.  
 
OIG recommended that the hospital refund $3.9 million, establish procedures to ensure 
that the FTE counts for residents in nonhospital settings include only those FTEs for 
which the hospital has incurred all or substantially all of the training costs, and review 
subsequent Medicare cost reports and refund any overpayments.  The hospital generally 
disagreed.  (A-04-04-06012)  
 
(cid:1) OhioA hospital in Ohio inappropriately included a total of 75.04 direct GME FTEs 
and 92.29 indirect GME FTEs in its counts for FYs 2000 through 2002 without incurring 
all the costs of training dental residents in nonhospital sites for those years.  As a result, 
the hospital overstated its direct and indirect GME claims by a total of $3.5 million.  
 
OIG recommended that the hospital file an amended cost report, establish procedures to 
ensure that the FTE counts for residents in nonhospital settings include only those FTEs 
for which the hospital has incurred all or substantially all of the training costs, and review 
subsequent Medicare cost reports and refund any overpayments.  The hospital generally 
disagreed.  (A-04-04-06009) 
 
(cid:1) VirginiaA hospital in Virginia appropriately computed and claimed GME payments 
in FYs 2001 and 2002.  However, in FY 2000, the hospital inappropriately included 
41.90 direct GME FTEs and 34.07 indirect GME FTEs in its counts without incurring all 
the costs of training dental residents in nonhospital sites that year.  As a result, the 
hospital overstated its direct and indirect GME claims by approximately $1.6 million.   
 
11  Centers for Medicare & Medicaid Services 
 
 
OIG recommended that the hospital file an amended cost report, establish written 
procedures regarding FTE counts, and work with CMS to resolve FTEs corresponding to 
the didactic time of residents assigned to nonhospital settings.  The hospital disagreed.  
(A-04-03-06019) 
 
(cid:1) New YorkA hospital in New York appropriately included dental residents in the FTE 
counts that it used to compute CYs 2000 and 2001 GME payments.  However, for 
CY 2002, the hospital overstated the FTE counts for its dental residents.  Contrary to 
Federal regulations, the hospital inaccurately recorded the number of resident days 
worked and inappropriately claimed the time of a resident who had exceeded his initial 
residency period.  As a result, the hospital overstated its direct GME claims by nearly 
$11,000.   
 
OIG recommended that the hospital file an amended cost report, educate staff on the 
importance of accurately recording resident days, review subsequent Medicare cost 
reports, refund any overpayments, and work with CMS to resolve the FTEs 
corresponding to the didactic time of residents assigned to nonhospital settings.  The 
hospital generally agreed.  (A-02-04-01008)   
 
Medicaid Hospital Outlier Payments 
Some States make outlier payments to hospitals when the cost of treating a Medicaid 
inpatient is extraordinarily high compared with the average cost of treating comparable 
conditions.  OIG reported on two States methods of computing outlier payments. 
(cid:1) New YorkNew Yorks method of computing inpatient hospital cost outlier payments 
generally resulted in reasonable payments.  However, New York did not use the most 
accurate cost-to-charge ratios to convert billed charges to costs.  Had it done so, New 
York could have saved approximately $21.5 million ($10.75 million Federal share) in 
cost outlier payments between State FYs 1998 and 2002 at the three hospitals reviewed.  
OIG recommended that New York amend its State plan to require retroactive adjustments 
of interim cost outlier payments based on cost report data for the year in which the 
inpatient discharge occurred.  New York concurred with the recommendation but stated 
that implementation would require changes in State regulations and the applicable State 
plan.  (A-02-04-01022) 
(cid:1) TexasTexas did not limit cost outlier payments to exceptionally high-cost cases.  
Specifically, the State (1) did not use current cost-to-charge ratios, (2) used noncovered 
charges in calculating the outlier payments, and (3) did not have sufficient policies and 
procedures in place to monitor cost outlier payments.   
OIG recommended that Texas revise its method of computing cost outlier payments and 
develop policies and procedures to more closely monitor outlier payments.  Texas 
disagreed with the first recommendation but agreed to review and update its processes.  
(A-06-04-00051) 
  12 Centers for Medicare & Medicaid Services 
 
 
Medicaid Disproportionate Share Hospital Payments 
Section 1923 of the Social Security Act, as amended, requires that States make Medicaid 
disproportionate share hospital (DSH) payments to hospitals that serve disproportionate 
numbers of low-income patients with special needs.  The Omnibus Budget Reconciliation 
Act of 1993 limits these payments to a hospitals uncompensated care costs, which are 
the annual costs incurred to provide services to Medicaid and uninsured patients less 
payments received for those patients.  This limit is known as the hospital-specific 
DSH limit.  
DSH payments to a hospital in New Jersey exceeded the hospital-specific limits by 
$171.4 million ($85.7 million Federal share).  The States consultant erroneously 
included $169.2 million of appropriations to a medical school in its calculations of the 
hospitals DSH limits.  This amount was not DSH-eligible and should not have been 
included in the DSH limit calculations.  In addition, the State claimed $2.2 million of 
duplicate DSH expenditures.   
OIG recommended that the State refund $85.7 million to the Federal Government, adhere 
to Federal law and State plan requirements when submitting future DSH claims for 
Federal reimbursement, and review consultants work to ensure the veracity of future 
Medicaid claims.  The State partly agreed.  (A-02-04-01004) 
Resolution of Audit Findings on States Beneficiary Eligibility 
Determinations for Medicaid and the State Childrens Health Insurance 
Program 
The Office of Management and Budget (OMB) requires most non-Federal recipients of 
Federal awards to have periodic single audits, which are audits of all Federal awards 
given to an entity.  Each Federal awarding agency is responsible for resolving audit 
findings that relate to its Federal awards by issuing a management decision on needed 
corrective actions.  Departmental guidance requires CMS to resolve audit findings within 
6 months.  As of November 1, 2005, CMS had not resolved all single audit findings from 
FY 20022003 on States Medicaid and SCHIP beneficiary eligibility determinations.  
CMS had not resolved the findings in 11 of the 22 FY 2002 audit reports, 25 of the 28 
FY 2003 audit reports, or any of the 25 FY 2004 audit reports.  As a result, CMS did not 
have reasonable assurance that States had corrected their deficiencies. 
OIG recommended that CMS resolve its backlog of unresolved audit findings and resolve 
future findings within 6 months of receiving the audit reports.  CMS substantially agreed 
with the recommendations and stated that it had already initiated a review of its audit 
resolution process.  (A-07-06-03073) 
Generic Drug Utilization in State Medicaid Programs 
Prescription drug costs are one of the largest- and fastest-growing Medicaid expenditures.  
Congress and CMS have expressed support for using generic drugs to contain 
prescription drug costs.  OIG found that in 2004 Medicaid demonstrated high utilization 
of generic drugs.  On average, generics were dispensed 89 percent of the time for 
multisource drugs (i.e., those for which generic substitutes were available).  This 
compares favorably with a 90-percent private-sector benchmark.  However, 41 percent of 
13  Centers for Medicare & Medicaid Services 
 
 
all prescriptions were for drugs that had no generic substitutes.  Overall, on average, 
54 percent of all drugs dispensed were generics.  In light of these findings, OIG 
concluded that many States may have already achieved many of the gains possible in 
generic utilization through increased generic substitution.  States may realize greater 
gains by encouraging the prescribing of drugs that have generic equivalents, rather than 
single-source drugs.  Such efforts should be undertaken with caution to ensure that 
beneficiaries maintain access to appropriate treatment.   
OIG suggested that CMS consider providing information and technical assistance to 
States that wish to increase generic drug utilization.  In its comments, CMS indicated that 
it strongly encourages the dispensing of generic drugs as a cost-saving measure.  CMS 
concurred with OIGs suggestion and noted that it would share this report with States and 
encourage States to review their generic drug use by therapeutic class.   
(OEI-05-05-00360) 
 
Medicaid School-Based Health Claims in New Jersey 
Under Federal and State law and the Medicaid State plan, New Jersey schoolchildren 
who are eligible for the States Medicaid school health program must receive a health 
professionals prescription or referral to receive speech, physical, or occupational therapy 
and nursing services.  Individuals who provide such services must meet Federal 
qualification standards.   
Of New Jerseys 150 school-based claims sampled, 109 did not comply with these 
requirements.  Deficiencies occurred because the State did not provide guidance 
regarding Federal Medicaid requirements and school health providers failed to comply 
with other State guidance they had received.  In addition, the State did not adequately 
monitor school health claims for compliance.  OIG estimated that approximately 
$51 million in Federal Medicaid funding to New Jersey was unallowable.   
OIG recommended that New Jersey refund the $51 million and emphasize to school 
districts the need to comply with Federal and State requirements.  New Jersey did not 
concur with OIGs financial adjustment but agreed to work with CMS concerning 
approximately $1 million in set-aside claims arising from the States lack of guidance 
and/or compliance.  (A-02-03-01003) 
Medicaid School-Based Health Service Payment Rates in Kansas 
Kansas did not develop its payment rates for Medicaid school-based health services 
pursuant to Federal requirements and the State plan.  Kansas used incorrect indirect cost 
rates and service utilization data to develop the payment rates.  As a result, the payments 
to school districts for FYs 19982003 were incorrect, and Kansas received $18.5 million 
of overpayments.   
OIG recommended that Kansas refund $18.5 million to the Federal Government, 
calculate and refund all overpayments that occurred subsequent to the audit period, and 
develop and implement adequate internal controls to ensure that future Federal claims for 
school-based services are consistent with Federal requirements and the State plan.  
Kansas concurred with two of the recommendations but did not address the 
  14 Centers for Medicare & Medicaid Services 
 
 
recommendation to calculate and refund overpayments subsequent to the audit period.  
(A-07-05-01018) 
Montanas Accounts Receivable System for Medicaid Provider 
Overpayments 
An overpayment is a payment to a provider in excess of the allowable amount.  Federal 
regulations require that State Medicaid agencies refund the Federal share of 
overpayments at the end of the 60-day period following discovery, whether or not the 
State has recovered the overpayment from the provider, unless the provider has filed for 
bankruptcy or gone out of business.  
Montana did not report $3.7 million ($2.7 million Federal share) in Medicaid provider 
overpayments and delayed reporting $1.3 million ($944,000 Federal share) in 
overpayments during the period October 1, 2002, through September 30, 2004.  OIG 
recommended that the State refund the $2.7 million, determine and recover overpayments 
identified after the audit period, reduce overpayments only when it can support that 
providers are bankrupt or out of business, and ensure that overpayments are reported in 
accordance with Federal regulations.  The State agreed.  (A-07-05-03064) 
Targeted Case Management Services Rendered by the Massachusetts 
Department of Social Services  
The Social Security Act authorizes State Medicaid agencies to provide case management 
services to Medicaid beneficiaries.  CMS has defined such services to include an 
assessment of each beneficiary to determine service needs, development of a specific care 
plan, referral to needed services, and monitoring and followup of needed services.  
Specifically excluded are direct medical, educational, or social services to which the 
Medicaid-eligible person has been referred. 
The Massachusetts Department of Social Services inappropriately included social 
workers salaries for direct social services, such as child protection, in its monthly rates.  
Social Services used these rates to claim Medicaid reimbursement for targeted case 
management services.  By excluding the unallowable costs from the rates, OIG 
determined that the State had overstated its claims by approximately $171 million 
(approximately $87 million Federal share).  OIG was unable to express an opinion on the 
remaining $26.6 million ($13.5 million Federal share) claimed by the State.  Although 
this amount related to services that may appear to be allowable as targeted case 
management, OIG found a significant risk that these services may have already been 
reimbursed under other Federal programs. 
OIG recommended that Massachusetts refund approximately $87 million, work with 
CMS to determine the allowability of the $26.6 million, and establish procedures to 
ensure that rates used to claim Medicaid reimbursement do not include payment for direct 
medical, educational, or social services.  Massachusetts disagreed.  (A-01-04-00006)  
Nursing Home Enforcement:  Application of Mandatory Remedies  
The Omnibus Budget Reconciliation Act of 1987 established a certification process to 
maintain Federal standards in nursing homes participating in the Medicare and/or 
Medicaid programs.  States that monitor the facilities must refer case information to CMS 
15  Centers for Medicare & Medicaid Services 
 
 
for mandatory enforcement action.  Enforcement action may include termination of the 
facilitys Medicare contract and denial of payment for new admissions when a facility is 
noncompliant or exhibits deficiencies that place residents in immediate jeopardy. 
OIG found that CMS failed to apply the mandatory remedy in 30 out of 55 cases 
(55 percent) requiring Medicare/Medicaid contract termination during CYs 20002002.  
Of these, OIG found that 23 cases failing to return to substantial compliance within 
6 months were not terminated in a timely manner.  Nor were the remaining seven 
facilities terminated, despite their unabated immediate jeopardy deficiencies.  OIG 
recommended that CMS ensure facilities either reach compliance or are terminated 
within required timeframes.  To accomplish this, OIG recommended that CMS encourage 
States to prioritize termination cases, ensure that mandatory remedies are properly 
applied, and strongly consider raising the standards for case referral.  CMS agreed that 
timely enforcement and remedy of facility problems are important, but disagreed with 
OIGs recommendation regarding facility termination.  (OEI-06-03-00410) 
 
Nursing Home Complaint Investigations 
This report assessed whether State agencies investigate nursing home complaints in 
accordance with program requirements and evaluated the adequacy of CMSs monitoring 
of State agency performance in investigating nursing home complaints.  OIG found that 
State agencies did not investigate some of the most serious nursing home complaints 
within the required timeframe, including 7 percent of complaints alleging immediate 
jeopardy and 27 percent of complaints alleging actual harm.  In addition, while the 
Federal complaint tracking system, ASPEN Complaints/Incidents Tracking System 
(ACTS), shows potential for managing complaints, State agencies have not taken full 
advantage of this system.  Finally, CMS oversight of nursing home complaint 
investigations is limited.  OIG found that CMS conducts few Federal Oversight and 
Support Surveys (FOSS), which allow CMSs regional offices an opportunity to observe 
a State agencys complaint investigation process.  CMS guidance states that State 
agencies should provide CMS with at least 2 weeks advance notice of scheduled 
surveys, thus limiting the use of the FOSS for the most serious nursing home complaints.   
OIG recommended that CMS require State agencies to meet the 10-day timeframe for 
investigating complaints involving actual harm, increase oversight of the State agencies, 
and offer additional ACTS training to its regional offices as well as State agencies.  OIG 
also recommended that CMS remove the 2-week advance notice period for FOSSs.  CMS 
concurred with OIGs first three recommendations, but did not concur that it should 
eliminate the 2-week advance notice for FOSSs.  (OEI-01-04-00340) 
Physical Therapy Billed by Physicians  
Claims for physical therapy under Medicare increased from $353 million to $509 million 
from CYs 2002 to 2004.  In addition, the number of physicians billing for more than 
$1 million in physical therapy more than doubled, from 15 to 38.  Since OIG began 
reviewing Medicare rehabilitation therapy in 1994, it has found significant and persistent 
compliance and quality-of-care problems.  These include overutilization of services, 
services rendered by unskilled staff, and billing for services that do not meet Medicares 
coverage requirements.  During the first 6 months of 2002, OIG found $136 million 
  16 Centers for Medicare & Medicaid Services 
 
 
in improper payments for reasons including lack of medical necessity, lack of 
documentation, billing irregularities, and provision of services under incomplete medical 
care plans or medical care plans lacking information.   
 
Despite a 2005 revision to the Social Security Act that allows unlicensed therapists to 
provide services under physician supervision, OIG believes that this represents a 
vulnerability and that all service providers should be licensed, whether they are 
independent or working under physician supervision.  In addition, physical therapy billed 
incident to physicians professional services and rendered by unskilled and/or 
unlicensed personnel represent a vulnerability that could be placing beneficiaries at risk 
of receiving services that do not meet professionally recognized standards of care.  OIG 
did not issue formal recommendations because CMS had already taken actions to address 
OIG findings.  (OEI-09-02-00200) 
Outreach 
As part of its ongoing effort to promote the highest level of ethical and lawful conduct by 
the health care industry, OIG has continued to issue advisory opinions and other 
guidance. 
 
Advisory Opinions 
In accordance with section 205 of the Health Insurance Portability and Accountability 
Act of 1996, OIG, in consultation with the Department of Justice, issues advisory 
opinions to outside parties regarding the interpretation and applicability of certain statutes 
relating to Federal health care programs.  This authority allows OIG to provide 
case-specific formal guidance regarding the application of the anti-kickback statute and 
safe harbor provisions and other OIG health care fraud and abuse sanctions.  For the 
period April 1 through September 30, 2006, OIG received 35 advisory opinion requests 
and issued 13 advisory opinions. 
 
Provider Self-Disclosure Protocol 
In keeping with a longstanding commitment to assist providers and suppliers in detecting 
and preventing fraudulent and abusive practices, OIG established a set of comprehensive 
guidelines for voluntary self-disclosure, titled Provider Self-Disclosure Protocol, 
available on the Internet at http://oig.hhs.gov in the Fraud Prevention & Detection section 
under Self-Disclosure Information.  Also, in an April 24, 2006, Open Letter to 
Providers, also available on the OIG Web site, the Inspector General discussed a new 
initiative to promote the use of the self-disclosure protocol to resolve civil monetary 
penalty liability under the physician self-referral and anti-kickback statutes for financial 
arrangements between hospitals and physicians. 
 
The protocol guides providers and suppliers through the process of structuring a 
disclosure to OIG about matters that appear to constitute potential violations of Federal 
laws (as opposed to honest mistakes that may have resulted in overpayments).  After 
making an initial disclosure, the provider or supplier is expected to undertake a thorough 
internal investigation of the nature and cause of the matters uncovered and make a 
reliable assessment of their economic impact (e.g., an estimate of the losses to Federal 
17  Centers for Medicare & Medicaid Services 
 
 
health care programs).  OIG evaluates the reported results of each internal investigation 
to determine the appropriate course of action.   
 
During this reporting period, self-disclosure cases have resulted in $4.3 million in HHS 
receivables.  For example: 
(cid:1) IllinoisTo resolve a matter reported under OIGs Provider Self-Disclosure Protocol, 
Concord Extended Care and its management company, Care Centers, Inc. (collectively, 
Care Centers) agreed to pay $32,000 to resolve its Civil Monetary Penalties Law (CMPL) 
liability for employing an excluded individual.  Care Centers alleged that it did not 
discover the employees excluded status until she reverted to using her maiden name.  
Through the investigation, it was determined that the employee had, in fact, disclosed 
both her maiden and married names, but that Care Centers failed to check the maiden 
name against the List of Excluded Individuals/Entities. 
Federal and State Partnership:  Joint Audits of Medicaid 
Another major OIG outreach initiative has been to work closely with State auditors in 
reviewing the Medicaid program.  To this end, a partnership plan was developed to foster 
joint reviews and provide broader coverage of the Medicaid program.  The partnership 
approach has been an overwhelming success in ensuring more effective use of scarce 
audit resources by both the Federal and the State audit sectors.  To date, partnerships 
have been developed in 25 States. 
 
Reports issued to date have resulted in identification of more than approximately 
$263 million in Federal and State savings and have led to joint recommendations for 
savings at the Federal and State levels, as well as improvements in internal controls and 
computer system operations. 
 
Office of Inspector General Administrative Sanctions 
During this reporting period, OIG administered 1,923 sanctions in the form of program 
exclusions or administrative actions for alleged fraud or abuse or other activities that 
posed a risk to Federal health care programs and their beneficiaries.  A brief explanation 
of OIGs sanction authorities can be found in Appendix G. 
 
Program Exclusions 
During this reporting period, OIG excluded 1,885 individuals and entities from 
participating in Medicare, Medicaid, and other Federal health care programs.  Most of the 
exclusions resulted from convictions for crimes relating to Medicare or Medicaid, for 
patient abuse or neglect, or as a result of license revocation.  Examples include the 
following: 
(cid:1) New YorkA dermatologist was excluded for a minimum period of 50 years based on 
his conviction in a health care fraud scheme involving unlawful distribution of 
prescription narcotic drugs.  The dermatologists scheme caused the death of a patient.  
The patient, who visited the dermatologist approximately 24 times each month, died from 
a drug overdose.  In March 2006, the dermatologist was sentenced to 20 years in prison 
  18 Centers for Medicare & Medicaid Services 
 
 
and ordered to pay approximately $888,000 in restitution.  His license to practice as a 
physician in the State of New York was revoked.   
(cid:1) FloridaA medical clinic owner was excluded for a minimum period of 45 years based 
on her conviction related to a scheme to defraud the Medicare program.  She was 
sentenced to 112 months in prison and ordered to pay $14.5 million in restitution.  
Also in Florida, a family practice physician was excluded for a minimum period of 
30 years based on his conviction for Medicaid fraud and for controlled substance 
violations.  He was sentenced to 25 years in prison and lost his license to practice 
medicine in the State. 
(cid:1) VirginiaAn owner of a home health agency (HHA) was excluded for a minimum 
period of 30 years based on his conviction for health care fraud and controlled substance 
violations.  The HHA owner committed the fraud between January 2002 and January 
2005.  He was sentenced to 71 months incarceration and ordered to pay $2.5 million in 
restitution. 
(cid:1) WashingtonA nurse was excluded for a minimum period of 25 years based on his 
conviction for rape.  While providing in-home care, the nurse engaged in sexual 
intercourse with a female patient incapable of giving consent.  The victim is a 
quadriplegic who is developmentally disabled and suffers from spastic cerebral palsy.  
The nurse was sentenced to 102 months incarceration and the State revoked his nursing 
license. 
(cid:1) KansasA pharmacist was excluded for a minimum period of 5 years based on his 
conviction on multiple counts of battery.  During a 15-month period, the pharmacist 
falsely represented that he was participating in a blood study.  The pharmacist paid 
between $10 and $20 per blood sample, which he obtained from women in the 
community.  The pharmacist drew their blood in the pharmacy after hours, in the 
pharmacy parking lot, in his home, or at the victims homes. 
Civil Monetary Penalties Law 
The CMPL authorizes OIG to impose administrative penalties and assessments against a 
person who, among other things, submits claims to a Federal health care program that the 
person knows or should know are false or fraudulent.  The following is among the civil 
monetary penalties actions resolved during this reporting period: 
 
(cid:1) FloridaLincare Holdings, Inc., and its subsidiary, Lincare, Inc. (collectively, Lincare), 
agreed to pay the Government $10 million and to enter into a 5-year company-wide 
corporate integrity agreement (CIA).  The settlement resolves allegations that Lincare 
violated the anti-kickback provision of the CMPL and the Physician Self-Referral Law.  
OIG alleged that from January 1993 through December 2000, Lincare engaged in a 
nationwide scheme to pay remuneration to physicians to induce referrals of patients to 
Lincare for durable medical equipment (DME).  OIG alleged that Lincare gave referring 
physicians items such as sporting and entertainment tickets, gift certificates, rounds of 
golf, golf equipment, fishing trips, meals, advertising expenses, office equipment, and 
medical equipment, as well as payments pursuant to purported consulting agreements.  
19  Centers for Medicare & Medicaid Services 
 
 
OIG also alleged that Lincare violated the Physician Self-Referral Law by accepting 
referrals from parties to the purported consulting agreements.   
 
Patient Dumping 
Of the total civil monetary penalties OIG collected between April 1 and September 30, 
2006, $335,000 represents collections from 7 hospitals under the Emergency Medical 
Treatment and Labor Act, a statute designed to ensure patient access to appropriate 
emergency medical services.  The following are examples of settlements involving 
alleged violations of that statute: 
(cid:1) MissouriCitizens Memorial Hospital (CMH), a 74-bed hospital, agreed to pay 
$75,000 (the maximum penalty) to resolve allegations of three patient dumping incidents.  
OIG alleged that CMH failed to provide appropriate medical screenings and/or stabilizing 
treatment for three patients who presented to CMHs emergency department (ED) with 
emergency medical conditions:  a baby with life-threatening acute bronchitis and 
exacerbated asthma; a woman whose intestines were protruding from a loose cesarean 
section incision; and a teenage boy who complained that he could not move, stand, walk, 
or feel his limbs.  The baby was refused treatment because CMH did not accept Medicaid 
and the mother did not have $100 cash for her son to be seen.  The woman who had had 
the recent cesarean section was directed to her doctors office without any evaluation.  
The doctor subsequently sent her back to the hospital via ambulance for emergency 
surgery.  The teenage boys allegations of paralysis were not believed and CMH sent him 
home despite objective signs that he could not move.  His CT scan was reevaluated the 
next day and showed a vertebral fracture.  He was brought back to the hospital in a 
worsened condition and is now a quadriplegic.   
(cid:1) New YorkQueens Hospital Center agreed to pay $75,000 to resolve allegations of 
patient dumping involving two individuals.  A 9-year-old girl presented to the ED 
complaining of fainting, vomiting, and headaches.  She was given a cursory examination 
by a doctor and discharged.  She died of a brain tumor while still in the ED.  The other 
individual arrived via ambulance with an abnormal electrocardiogram reading and died of 
a heart attack in the ED after waiting 1 hour without receiving a screening examination. 
(cid:1) ColoradoPoudre Valley Hospital (PVH) agreed to pay $55,000 to resolve allegations 
of patient dumping.  OIG alleged that PVH failed, twice on the same day, to provide an 
appropriate medical screening examination for a deaf, nonverbal, and developmentally 
disabled male.  The patient went to a neighbors house in distress.  The neighbor called 
an ambulance that was owned and operated by PVH.  The patient complained of severe 
stomach pain and discomfort by writing notes and constantly motioning to his stomach.  
The paramedics refused to transport him to the ED.  Instead, the neighbor transported 
him.  The ED nurse allegedly reported that he had been to the ED three times and that he 
was only hungry.  A social worker gave him crackers and called a taxi to take him home.  
Two days later he died of hypovolemic shock caused by gastritis with erosion, ulcers, and 
gastric hemorrhage.   
(cid:1) IllinoisThe University of Chicago Hospitals (UCH) agreed to pay $35,000 to resolve 
one allegation of patient dumping.  OIG alleged that UCH failed to accept an appropriate 
  20 Centers for Medicare & Medicaid Services 
 
 
transfer of a 61-year-old man who presented to another hospitals ED with a large 
dissecting aortic aneurysm that required care that the transferring hospital was not 
equipped to provide.  UCH had the specialized capabilities to treat and stabilize the 
patients emergency medical condition, but allegedly refused to accept the transfer after 
learning the patient did not have insurance.  UCH later agreed to accept transfer of the 
patient only if he provided proof of substantial funds in a bank account.  The patient was 
transferred to another hospital where he died.  
Criminal and Civil Enforcement 
One of the most common types of fraud perpetrated against Medicare, Medicaid, and 
other Federal health care programs involves filing false claims for reimbursement.  False 
claims may be pursued under the civil False Claims Act (FCA) and, in appropriate cases, 
under Federal and State criminal statutes.  A description of those enforcement authorities 
can be found in Appendix G.  The successful resolution of such matters often involves 
the combined investigative efforts and resources of OIG, the Federal Bureau of 
Investigation, Medicaid Fraud Control Units (MFCUs), and a variety of other law 
enforcement agencies. 
 
OIG has the responsibility of assisting the Department of Justice in bringing and settling 
cases under the FCA.  Many providers elect to settle their cases prior to litigation.  As 
part of their settlements, providers often agree to enter integrity agreements with OIG to 
avoid exclusions and to be permitted to continue participating in Medicare, Medicaid, and 
other Federal health care programs.  Such agreements are monitored by OIG and require 
the providers to enhance existing compliance programs or establish new ones.  The 
compliance programs are designed, in part, to prevent a recurrence of the underlying 
fraudulent activities. 
 
In the fiscal year ending September 30, 2006, the Governments enforcement efforts 
resulted in $1.3 billion in HHS investigative receivables, representing civil and 
administrative settlements or civil judgments related to Medicare, Medicaid, and other 
Federal health care programs.  Some of those successful actions, as well as notable 
criminal enforcement actions, are described below.  Summaries are organized by the 
sector of the health care industry involved or by the nature of the offense. 
 
Hospitals 
 
(cid:1) New JerseyThe Saint Barnabas Health Care System (SBHCS) agreed to pay 
$265 million and enter into a 6-year CIA to resolve its liability under the FCA and other 
statutes, and certain common law causes of action.  SBHCS is the largest health care 
system in New Jersey, currently operating seven acute care hospitals and other ancillary 
health care providers.  The Government alleged that beginning in 1995, SBHCS falsely 
billed Medicare and the Department of Defense health care program TRICARE for 
excessive inpatient and outpatient outlier payments.  Specifically, the United States 
alleged that SBHCS artificially inflated its cost-to-charge ratio, triggering the outlier 
payments to which it was not entitled.  The investigation determined that SBHCSs 
conduct continued through August 2003.   
21  Centers for Medicare & Medicaid Services 
 
 
(cid:1) South CarolinaMarion Regional Health Care System (MRHS) agreed to pay the 
Government $3.75 million and to enter into a 5-year CIA.  The settlement resolves 
allegations that MRHS violated the Physician Self-Referral Law and upcoded in violation 
of the False Claims Act.  Specifically, MRHS employed a family practitioner in its family 
practice and paid him above fair market value.  In addition, the doctor routinely upcoded 
his claims for initial patient visits when his patients were hospitalized. 
(cid:1) FloridaMount Sinai Medical Center of Florida agreed to pay the Government 
$3.4 million and to enter into a 5-year CIA.  The settlement resolves cost report fraud 
allegations.  Mount Sinai allegedly overstated its allowable costs by failing to reduce the 
costs claimed on several cost reports of a management fee that it paid to a cancer center 
to manage its outpatient cancer centers by the amounts of several rebate checks that 
Mount Sinai received from the cancer center. 
(cid:1) New YorkHarlem Hospital Center agreed to pay $2.3 million to resolve its civil 
liability for allegedly double-billing the Medicare program for outpatient services from 
January 1992 through June 2001.  The Government alleged that the fiscal intermediary 
directed Harlem to stop double-billing Medicare; however, the hospital continued to 
submit false claims to Medicare.   
(cid:1) MissouriMcCune Brooks Hospital agreed to pay $238,000 and enter into a 5-year 
CIA to settle allegations of submitting false claims to Medicare and Medicaid for services 
provided at its off-site cardiac rehabilitation unit facility.  The Government alleged that 
McCune Brooks submitted claims for services provided by nonphysician personnel when 
no physician was present to supervise the service rendered, a violation of Medicares 
incident to billing rules.   
Prescription Drugs 
 
(cid:31) PennsylvaniaAdvancePCS, a pharmacy benefits manager (PBM), agreed to pay the 
Government $137.5 million to settle allegations of entering into kickback arrangements 
for referrals of Federal Employees Health Benefits Program, Medicare+Choice, and 
Indian Health Service program business.  Among the allegations, AdvancePCS allegedly 
solicited and received payments from drug manufacturers in the form of administrative 
fees and agreements for products and services such as medical data, research studies, and 
consultations that exceeded the value of the products and services provided.  The 
company also allegedly solicited and received payments from certain drug manufacturers 
in the form of flat-fee rebate contracts in exchange for favorable treatment of those 
manufacturers drugs and allegedly offered and paid remuneration to Federal health care 
program insurance carriers to induce them to enter into PBM contracts.  AdvancePCS 
agreed to enter into a 5-year CIA that focuses on review of its contracts and other 
arrangements for potential kickback violations.  AdvancePCS will also enter into a 
consent order with the U.S. Attorneys Office that includes detailed provisions governing 
the companys dealings with manufacturers, customers, pharmacists, and physicians.  
AdvancePCS was acquired by Caremark Rx, Inc., in March 2004. 
 
  22 Centers for Medicare & Medicaid Services 
 
 
Practitioners  
 
(cid:1) TexasA physician was sentenced to 11 years and 3 months in prison and ordered to 
pay $14.4 million in joint and several restitution for his role in defrauding the Medicare 
and Medicaid programs.  Beginning in August 1999, the physician caused the submission 
of false claims to Medicare for physical therapy evaluations and services.  As part of the 
scheme, the physician received payments for signing patient charts so clinic owners could 
fraudulently bill Medicare and Medicaid.  In 2001, the physician became involved in 
another scheme related to the submission of claims for services he provided to 
beneficiaries who were unlawfully referred to him for motorized wheelchairs.  The 
beneficiaries were transported to his clinic for the purpose of having motorized 
wheelchairs authorized.  The physician performed medical services, many of which were 
unnecessary, then prepared and signed certificates of medical necessity (CMNs) 
authorizing the motorized wheelchairs.  Some beneficiaries never saw the physician or 
qualified for wheelchairs.   
A DME company owner involved in the wheelchair scheme was sentenced to 5 years and 
3 months incarceration, ordered to pay $478,000 in restitution to the Medicaid program, 
and held jointly responsible for paying $4.2 million of the joint and several restitution 
figure.  In addition, two individuals paid to recruit Medicare and Medicaid beneficiaries 
were sentenced for their roles in the scheme.  One was sentenced to 12 months and 1 day 
in prison, and the other was sentenced to 6 months home detention.   
Also in Texas, an osteopathic physician licensed in Oklahoma was sentenced to 10 years 
in prison and ordered to pay $7.9 million for health care fraud and conspiracy.  The 
physician accepted cash payments for signing preprinted prescriptions and CMNs for 
motorized wheelchairs for beneficiaries she never examined.  Investigation revealed that 
more than 60 DME companies throughout the country received Medicare and Medicaid 
payments based on the fraudulent prescriptions.  In addition to the prison sentence, the 
physician was ordered not to practice medicine again without written permission of the 
court. 
(cid:1) IllinoisA podiatrist was condemned to death for the murder of a grand jury witness, 
sentenced to 78 months in prison for health care fraud, and ordered to pay $1.8 million in 
restitution.  A jury convicted and condemned the podiatrist to death for murdering a 
woman days before she was expected to testify before the grand jury about the more than 
70 foot surgeries that were not performed that the podiatrist billed to Medicare.  The 
woman was found shot six times.  Also sentenced in this case was an elderly Medicare 
beneficiary who allowed the podiatrist to use his personal information in order to 
fraudulently bill Medicare for services never performed.   
(cid:1) CaliforniaAn audiologist was sentenced to 78 months in prison and ordered to pay 
$868,000 in restitution for her scheme to defraud the Government.  From January 1997 
through July 2003, the audiologist billed Medicare and Medi-Cal for hearing aids, speech 
therapy, and other related services without being licensed to dispense or render the 
service and in most cases, without a prescription from a referring physician.  In addition, 
the audiologist billed services purportedly provided to deceased beneficiaries.   
23  Centers for Medicare & Medicaid Services 
 
 
(cid:1) KansasA couple was convicted on Federal charges for involuntary servitude, forced 
labor, conspiracy, health care fraud, and mail fraud.  The social worker and his wife, a 
nurse, were sentenced to 30 years and 7 years in prison, respectively, and ordered to pay 
approximately $500,000 in joint and several restitution.  In addition, the jury ordered the 
couple to forfeit approximately $85,000 and four properties.  For over 24 years, the 
couple operated a group home that provided therapy for mentally ill patients.  The 
investigation revealed that the social worker forced and coerced his patients to perform 
manual labor in the nude and participate in therapy sessions that involved sexually 
explicit acts.  The mans wife helped enforce house rules and fraudulently billed Federal 
health care programs for the therapy provided.   
(cid:1) OhioA psychiatrist agreed to pay the Government $400,000 and to be permanently 
excluded from participating in Federal health care programs.  The settlement resolves 
allegations that the psychiatrist improperly billed Medicare by misrepresenting that he 
provided therapy sessions generally requiring 30 or 60 minutes of face-to-face time with 
the patient, and claimed payment for the sessions, when he had only provided medication 
checks for 15 minutes or less.  The psychiatrist also misrepresented that he had provided 
therapy sessions, for which he claimed payment, when in fact a nonlicensed individual 
had conducted the sessions.  In addition, the psychiatrist claimed payment for therapy 
sessions when the patients had cancelled or failed to appear for the appointments. 
Durable Medical Equipment Suppliers 
 
(cid:1) VirginiaMatria Womens and Childrens Health, LLC, formerly known as Matria 
Healthcare, Inc. (Matria), and Diabetes Self Care, Inc. (DSC) agreed to pay $9 million to 
resolve their liability for alleged improper billing practices for mail-order DME.  The 
Government alleged that from January 1998 through December 2003, Matria and/or DSC 
submitted claims to Medicare for DME prior to obtaining valid physician orders, valid 
assignment of benefits, and/or valid CMNs.  Among other things, the Government 
alleged that Matria and/or DSC also failed to credit Medicare for returned DME.   
(cid:1) West VirginiaGroup II Medical Supports, LLC (Group II), was ordered to pay 
$8.4 million pursuant to its guilty plea to false statements relating to health care matters.  
Group II provided powered pressure-reducing air mattresses almost exclusively to 
beneficiaries residing in assisted living facilities.  During the investigation, it was 
revealed that from 1998 to 2004, Group II billed Medicare and Medicaid for a type of 
mattress intended to treat Stage II decubitus ulcers regardless of whether the beneficiary 
met the coverage criteria for the mattress.  In addition, Group II employees created false 
documents to support the false claims, and routinely misled assisted living facility 
personnel and physicians when marketing and servicing the mattresses.   
In addition to the guilty plea, Group II, one of its former owners, a current owner, and a 
national sales manager entered into settlement agreements to resolve their alleged 
liability related to the improper claims submitted to Medicare and Medicaid.  Group II 
and its current owner agreed to pay the Government $1 million; the former owner and the 
sales manager agreed to pay the Government $525,000 and $50,000, respectively.   
  24 Centers for Medicare & Medicaid Services 
 
 
(cid:1) TexasA DME company owner was sentenced to 63 months in prison and ordered to 
pay $669,000 in restitution for conspiracy and health care fraud.  Through his company, 
the man billed Medicare and Medicaid for motorized wheelchairs, wheelchair 
accessories, and alternating-pressure mattresses.  However, patients received 
less-expensive or used equipment or no equipment at all.   
Clinic 
 
(cid:1) MassachusettsCardiac Rehabilitation of Cape Cod, Inc. (CRCC), and its owner 
entered into a settlement with the Government to resolve their FCA liability.  The owner, 
who is a physician, agreed to pay $1.9 million and to enter into a 5-year Integrity 
Agreement (IA).  The Government alleged that Medicare was billed for cardiovascular 
stress tests when cardiac rehabilitation services were actually performed.  Cardiovascular 
stress tests have a significantly higher reimbursement rate.  The IA will cover the 
physician and his new cardiology practice so that OIG can, among other things, monitor 
his compliance with Medicare billing guidelines.  CRCC closed in 2001.   
Home Health Agency 
 
(cid:1) KentuckyNurses Registry and Home Health, Inc. (Nurses Registry), agreed to pay 
the Government $1.6 million and to enter into a 3-year CIA.  The settlement resolves 
allegations that Nurses Registry submitted claims for unallowable expenses related to 
advertising, community education, rental expenses and liaison salaries, benefits, and 
meals.  The settlement also settles allegations that Nurses Registry upcoded claims under 
the prospective payment system for home health services. 
Nursing Home Company 
 
(cid:1) MissouriAmerican Healthcare Management, Inc. (AHM), its individual owners, and 
three affiliated nursing homes agreed to pay the Government $1.25 million to settle 
allegations of submitting false and fraudulent nursing home billings to Medicare and 
Medicaid for poor quality of care.  From January 1998 through June 2001, the 
Government alleged that due to staffing limitations, numerous residents of the nursing 
homes suffered from dehydration and malnutrition, went for extended periods of time 
without cleaning or bathing, and contracted preventable pressure sores.  In addition, the 
Government alleged that instances of elopements of residents from the facilities occurred, 
a resident was found covered with ants, and a resident was physically abused by a staff 
member.  As part of the settlement, AHM and the three nursing homes agreed to 
permanent exclusions, and the principal owner agreed to a 20-year exclusion.  The other 
owner agreed to certify annually that he had no involvement in Medicare or Medicaid, 
and that if he did opt to bill those programs, he agreed that he would enter a CIA at that 
time. 
Laboratory 
 
(cid:1) TennesseeA diagnostic testing facility owner was sentenced to 37 months in prison 
and ordered to pay $243,000 in joint and several restitution for billing Medicare and a 
25  Centers for Medicare & Medicaid Services 
 
 
private insurer for carotid artery ultrasound diagnostic tests that were not necessary or 
were not ordered by the patients treating physician.  The diagnostic tests, which were 
mainly marketed in senior citizen centers, are covered by Medicare when ordered by the 
treating physician for use in managing a beneficiarys specific medical problem.  To 
facilitate the scheme, the owner paid a physician to sign test orders as if he were the 
treating physician.  The marketing representative was sentenced and is held responsible 
for $19,000, a portion of the joint restitution figure.  The physician was found guilty at 
the conclusion of his jury trial for his involvement in the scheme.  He was sentenced and 
is held responsible for paying $151,000 of the joint restitution amount.   
Theft of Health Care Services 
 
(cid:1) NevadaA woman was ordered to pay $23,000 in restitution for false statements 
relating to health care matters.  The woman stole the identity of her sister, a Medicare 
beneficiary, and used it to obtain medical services for which Medicare paid.   
 
Medicaid Fraud Control Units 
Currently, 48 States and the District of Columbia have MFCUs, which investigate and 
prosecute, or refer for prosecution, providers charged with defrauding the Medicaid 
program or abusing, neglecting, or financially exploiting beneficiaries in 
Medicaid-sponsored facilities.  In FY 2006, OIG provided oversight for and 
administration of approximately $161 million in Federal grant funds to the units.   
 
Examples of cases worked jointly by OIG with MFCUs during this semiannual period 
include: 
 
(cid:1) TennesseeAn oncologist found guilty by a Federal jury was sentenced to 15 years and 
8 months in jail and ordered to pay $432,000 in restitution for her scheme to provide 
partial doses of medications to chemotherapy patients and for lying to a Federal agent 
about the scheme.  An investigation and comprehensive analysis of records revealed that 
the oncologist billed for substantially more chemotherapy and chemotherapy side-effect 
medications than she actually purchased from manufacturers.  The oncologist instructed 
her staff to give partial doses of Procrit but to indicate on patients charts that full doses 
were provided.  Diluted doses of Taxol and Camptosar were also administered to 
patients.  This investigation involved OIG and the Tennessee MFCU. 
(cid:1) TexasA couple who owned and operated a DME company was sentenced for billing 
Medicare and Medicaid for power wheelchairs and other equipment that were not 
prescribed by a doctor or provided to patients.  The wife pled guilty and was sentenced to 
30 months in prison for health care fraud.  The husband contended that he had no 
knowledge of the scheme, but was convicted after a 4-day trial.  He was sentenced to 
33 months in prison.  The couple was also ordered to pay $286,000 in joint and several 
restitution.  This investigation involved OIG and the Texas MFCU. 
(cid:1) West VirginiaA family practice physician was sentenced to 6 months home 
detention and ordered to pay $214,000 in restitution for health care fraud and for 
obtaining controlled substances by fraud.  The physician submitted claims to Medicare 
  26 Centers for Medicare & Medicaid Services 
 
 
and Medicaid for initial hospital care services that he did not provide.  The services were 
either not provided at all or were provided by physician assistant students.  In addition, 
the physician used the names of family members to fraudulently obtain controlled 
substances.  The investigation involved OIG and the West Virginia MFCU. 
(cid:1) VirginiaA man who operated a transportation service was sentenced to 10 months 
home confinement and ordered to pay $77,000 in restitution for health care fraud and 
mail fraud.  The man fraudulently billed Medicaid for nonambulatory transports when the 
patients were ambulatory and billed for excessive wait time.  This investigation involved 
OIG, the Virginia MFCU, and the U.S. Postal Inspection Service.  
 
27    
Public Health Agencies 
 
 
The activities that HHS public health agencies conduct and support represent this 
countrys primary defense against acute and chronic diseases and disabilities.  The 
programs provide the foundation for the Nations efforts in promoting and enhancing the 
health of the American people.  Public health agencies within the Department include: 
 
(cid:1) Agency for Healthcare Research and Quality (AHRQ) 
(cid:1) Agency for Toxic Substances and Disease Registry (ATSDR) 
(cid:1) Centers for Disease Control and Prevention (CDC) 
(cid:1) Food and Drug Administration (FDA) 
(cid:1) Health Resources and Services Administration (HRSA) 
(cid:1) Indian Health Service (IHS) 
(cid:1) National Institutes of Health (NIH) 
(cid:1) Substance Abuse and Mental Health Services Administration (SAMHSA) 
 
OIG continues to examine the policies and procedures of these agencies to determine 
whether appropriate controls are in place to guard against fraud, waste, and abuse.  These 
activities include preaward and recipient capability audits and evaluations.  This 
oversight work has provided valuable recommendations to program managers for 
strengthening the integrity of agency policies and procedures and improving program 
performance. 
 
OIG is also involved in investigating specific allegations of fraud, waste, and abuse 
affecting HHS public health service agency programs.  These investigations are often 
complex cases and include such allegations as misuse or theft of grant monies, conflict of 
interest, kickbacks, and employee misconduct. 
29  Public Health Agencies 
 
 
Public Health Agency-Related Reports 
 
Review of 340B Drug Prices 
Section 340B of the Public Health Service Act created the 340B Drug Discount Program 
(340B Program) to lower drug prices for more than 12,300 entities, including community 
health centers, public hospitals, and various Federal grantees.  Pharmaceutical 
manufacturers calculate 340B Program ceiling prices using a specified formula and must 
sell their products at or below these prices to continue to receive reimbursement from the 
Medicaid program.  
OIG found that in a single month in 2005, 14 percent of purchases made by 340B 
Program entities exceeded 340B Program ceiling prices, resulting in total projected 
overpayments of $3.9 million.  The largest price discrepancies in OIGs sample resulted 
from prices that were not in line with a HRSA policy that directs manufacturers, in very 
specific situations, to charge entities a penny per unit.  Additionally, patterns in OIGs 
sample suggest that overpayments varied by the volume of 340B Program purchases or 
sales associated with the entities, manufacturers, and wholesalers.  Finally, inaccuracies 
in HRSAs calculations of the 340B Program ceiling prices continue to limit its ability to 
monitor 340B Program compliance. 
 
OIG recommended that HRSA improve its oversight of the 340B Program to ensure that 
entities are charged at or below the 340B Program ceiling price.  In addition, HRSA 
should provide technical assistance regarding 340B Program implementation to all 
participating entities, manufacturers, and wholesalers.  HRSA should also publish 
guidance regarding its penny price policy, from which the largest price discrepancies in 
the sample resulted.  Finally, OIG recommended that HRSA obtain consistent unit of 
measure and package size data to accurately calculate 340B Program ceiling prices.  
HRSA concurred with the recommendations.  (OEI-05-02-00073) 
 
Use of the Departmental Alert List by the Health Resources and Services 
Administration 
The Departmental Alert List, posted on the Departments Web site, contains a record of 
grantees that have been designated high risk or have raised concerns for reasons such 
as inexperience in handling Federal funds, financial instability, inadequate management 
systems, or a history of poor programmatic performance.  To determine the extent to 
which HRSA is adhering to policies for reporting to, maintaining, and consulting the 
Alert List, OIG reviewed the files of 56 HRSA grantees on the March 24, 2003, Alert 
List and conducted interviews with HRSA grants staff.  OIG found that HRSA does not 
consistently follow Alert List policies, failing to (1) place all grantees that are designated 
high risk on the Alert List; (2) check the Alert List prior to awarding a grant; 
(3) consult with the placing agency to determine the reason for placement; (4) document 
the monitoring of grantees on the Alert List; and (5) remove grantees in a timely manner 
or justify retaining a grantee that appears on the Alert List for more than 2 years.  In 
addition, OIG found that grants officers do not use the information on the Alert List to 
make grant decisions and some of them report concerns about whether the information on 
the Alert List is current or complete.   
  30 Public Health Agencies 
 
 
OIG recommended that HRSA ensure that grants officers follow Alert List policies and 
that HRSA develop methods to ensure that grants officers follow these policies.  HRSA 
concurred with OIGs recommendations.  HRSA reported taking corrective actions, 
including working closely with grants officers to support efforts to follow Alert 
procedures as recommended and having HRSA staff attend a Department Alert List 
training session.  (OEI-02-03-00011) 
The Food and Drug Administrations National Drug Code Directory 
An OIG study of FDAs National Drug Code (NDC) Directory of currently marketed 
prescription drug products found that the directory is neither complete nor accurate.  An 
estimated 9,187 prescription drug products are missing, while another 5,150 have not 
cleared the listing process.  Further, an estimated 34,257 drug products listed are no 
longer on the market, or are listed in error.  Problems are due primarily to drug firms 
failing to report when drugs are placed on or taken off the market and failing to provide 
sufficient and accurate information to complete the listing process.   
To resolve issues of completeness and accuracy of the directory, this study recommended 
that FDA (1) finalize draft listing instructions referenced on its Web site, (2) provide 
greater control over the assignment of NDCs, (3) continue efforts to implement electronic 
submission of listing forms by firms, (4) implement a mechanism to routinely identify 
drug product omissions and inaccuracies, (5) resolve the status of currently pending drug 
product listings, (6) enhance communication with drug firms to facilitate accurate and 
complete reporting of drug products, and (7) identify and take appropriate action against 
drug firms that consistently fail to list drug products and update information.  FDA 
concurred with OIGs recommendations, and has identified a number of steps it plans to 
take to address the issues identified in the report.  (OEI-06-05-00060) 
Monitoring of Postmarketing Study Commitments  
FDA requires all new drugs to undergo clinical testing to demonstrate their safety and 
efficacy prior to approval for sale in the United States.  After a drug has been approved 
for sale, drug applicants can learn more about the risks, benefits, and optimal use of a 
drug by conducting postmarketing studies.  Between fiscal years 1990 and 2004, 
48 percent of new drug applications included at least one postmarketing study 
commitment.  OIG identified vulnerabilities that raise concerns that FDA is not able to 
readily identify whether or how timely postmarketing study commitments are progressing 
toward completion.  OIG found that about one-third of required annual status reports 
(ASRs) were missing or incomplete, and that ASRs contain information of limited use.  
OIG also found limitations associated with FDAs management information system for 
monitoring postmarketing study commitments.  Finally, OIG found that monitoring 
postmarketing study commitments is not a top priority at FDA.   
To address these vulnerabilities, FDA should (1) instruct drug applicants to provide 
additional, meaningful information in their ASRs; (2) improve the management 
information system for monitoring postmarketing study commitments; and (3) ensure that 
postmarketing study commitments are being monitored and that ASRs are being 
validated.  FDA concurred with the second and third recommendation and has taken steps 
to address them.  FDA did not concur with the first recommendation.  (OEI-01-04-00390) 
31  Public Health Agencies 
 
 
Agency for Healthcare Research and Quality:  Monitoring Patient Safety 
Grants 
In fiscal years 20012003, AHRQ awarded 120 patient safety grants totaling 
$128 million to conduct research on improving patient safety and reducing medical 
errors.  Among 39 sampled grants, OIG found that 30 percent of required financial status 
reports were not received and 43 percent were late, representing a combined total of 
$50.6 million in dispensed grant funds.  Ninety-seven percent of the sampled grants had 
their most recent annual performance reports in the file, and 94 percent of the reports 
were received timely.  Of the sampled grants, seven official grant files were eligible for 
closeout; however, three of these were not closed in accordance with Federal 
requirements.  Two of the seven grants scheduled for closeout had the required 
documents; however, AHRQ staff did not finalize the closeout process.   
OIG recommended that AHRQ require submission of interim financial information 
accounting for prior-year expenditures before future funding is authorized, establish a 
tracking system for financial status reports, require grantees with no-cost extensions to 
submit financial status reports in compliance with Federal requirements, and ensure that 
grants awaiting closeout are closed promptly.  AHRQs comments suggested general 
agreement with the recommendations and described actions to address some of OIGs 
specific recommendations.  (OEI-07-04-00460) 
 
Superfund Financial Activities at the National Institute of Environmental 
Health Sciences for Fiscal Year 2005  
OIG found that Superfund costs recorded by the National Institute of Environmental 
Health Sciences (NIEHS) from October 1, 2004, through September 30, 2005, were 
allowable, allocable, and reasonable in accordance with applicable laws and regulations.  
In addition, NIEHS took appropriate action to ensure that its Superfund grantees 
submitted required audit reports.  Because this report contained no recommendations, no 
response was necessary.  (A-04-06-01023) 
 
Universities Compliance With Select Agent Regulations 
OIG reviewed 15 universities compliance with select agent regulations for the period 
November 2003 to November 2004.  Select agents are materials that have the potential to 
pose a severe threat to public health and safety if they are misused as a result of 
inadvertent, terrorist, or other criminal acts.  OIG issued detailed reports to each 
university and to CDC.   
In this summary report, OIG pointed out that 11 universities had weaknesses in at least 
one of the following control areas:  accountability for select agents, restricted access to 
select agents, security plans, training, and emergency response plans.  OIG recommended 
that CDC resolve the recommendations in the individual reports.  CDC is addressing 
OIGs concerns.  (A-04-05-02006) 
HIV Prevention Grants 
CDC entered into several cooperative agreements with an organization in the District of 
Columbia to advise community groups on HIV prevention training and intervention.  
  32 Public Health Agencies 
 
 
This review, conducted at CDCs request, found that during CYs 2003 and 2004, the 
organization spent approximately $703,000 of CDC funds on unallowable costs, 
including $379,000 on expenses such as lobbying and fundraising and $324,000 on 
expenses that occurred in a prior period.  The organization ceased operations and filed for 
bankruptcy without completing its cooperative agreement obligations.  OIG 
recommended that CDC follow up with the U.S. Bankruptcy Court regarding repayment 
of the funds.  (A-03-05-00351) 
 
Select Agents at Private, State, and Local Laboratories 
Following its reviews of compliance with select agent regulations at universities, OIG 
conducted similar work at State, local, and nonprofit institutions and issued seven 
restricted final reports during this semiannual reporting period.  The reports noted 
problems similar to those at the universities.  OIG plans to issue a summary report that 
will be available to the public in FY 2007. 
Financial Statement Audit 
To support its audit of the Departments FYs 2004 and 2005 financial statements, OIG 
contracted with independent certified public accounting firms to audit the financial 
statements of the major public health operating divisions.  During this reporting period, 
an accounting firm issued an unqualified opinion on FDAs FY 2004 financial 
statements, which means that the statements were reliable and fairly presented.  However, 
the firm was unable to obtain sufficient support for the amounts presented in the FY 2005 
financial statements.  The firm also noted two material weaknesses:  financial systems 
and analysis and payroll processing.  (A-17-05-00003) 
Health Education Assistance Loan Defaults 
Through the Health Education Assistance Loan (HEAL) program, HRSA guarantees 
commercial loans to students seeking education in health-related fields of study.  The 
students are allowed to defer repayment of the loans until after they have graduated and 
begun to earn an income.  Although the Departments Program Support Center (PSC) 
takes all steps it can to ensure repayment, some loan recipients ignore their indebtedness. 
After PSC has exhausted efforts to secure repayment of a debt, it declares the individual 
in default.  Thereafter, the Social Security Act permits, and in some instances mandates, 
exclusion from Medicare, Medicaid, and all Federal health care programs for 
nonpayment of these loans.  Exclusion means that the individual may not receive 
reimbursement under these programs for professional services rendered.  During the 
period covered by this report, 36 individuals and related entities were excluded as a result 
of PSC referral of their cases to OIG. 
 
Individuals who have been excluded as a result of default may enter into settlement 
agreements, whereby the exclusion is stayed while they pay specified amounts each 
month to satisfy the debt.  If they default on these settlement agreements, they may be 
excluded until the entire debt is repaid and cannot appeal the exclusion.  Some health 
professionals, upon being notified of their exclusion, immediately repay their HEAL 
debts.   
 
33  Public Health Agencies 
 
 
After being excluded for nonpayment of their HEAL debts, a total of 2,032 individuals 
have taken advantage of the opportunity to enter into settlement agreements or 
completely repay their debts.  That figure includes the 43 individuals who have entered 
into such a settlement agreement or completely repaid their debts during this reporting 
period.  The amount of money being repaid through settlement agreements or through 
complete repayment totals $144.3 million.  Of that amount, $3.57 million is attributable 
to this reporting period.   
 
In the following examples, each individual entered into a settlement agreement to repay 
the amount indicated: 
 
(cid:31) A Puerto Rico physician$530,000 
(cid:31) A Georgia dentist$254,000 
(cid:31) A Florida chiropractor$139,000 
(cid:31) A Colorado chiropractor$118,000 
 
Public Health-Related Investigations 
OIG also investigates cases involving the misuse of public health agency funds and 
threats to public health and safety, such as the improper use of select agents.   
 
The following is an example of a case involving improper use of HHS grant funds 
resolved during this reporting period: 
 
(cid:1) VermontA former professor and researcher at the University of Vermont was 
sentenced to 1 year and 1 day in prison for falsifying and fabricating research data used in 
his applications for NIH grants.  The false and fabricated research data were also used in 
research papers and presentations related to several topics, including his study of the 
impact of the menopause transition on womens metabolism, his study on the impact of 
aging in older men and women on a wide range of physical metabolic measures, and his 
proposal to study the impact of hormone replacement therapy on obesity in 
postmenopausal women.  The researcher previously had agreed to pay $196,000, had 
agreed to lifetime exclusion, and had written letters of retraction to medical journals that 
had published his papers.   
 
  34  
Administration for Children and Families and 
Administration on Aging 
 
 
The Administration for Children and Families (ACF) provides direction and funding for 
programs designed to promote stability, economic security, responsibility, and 
self-support for the Nations families.  Some of the major programs include Temporary 
Assistance for Needy Families (TANF), Child Support Enforcement, Foster Care, Family 
Preservation and Support, Head Start, and the Child Care and Development Block Grant.  
OIG reviews these programs and makes recommendations to increase the efficient use of 
program dollars; implement programs more effectively; better coordinate programs 
among the Federal, State, and local governments; and strengthen States financial 
management practices. 
 
The Administration on Aging (AoA) awards grants to States for establishing 
comprehensive community-based systems that assist the elderly in maintaining their 
independence and in remaining in their homes as long as possible.  Socially and 
economically disadvantaged elderly and low-income minority elderly are targeted for 
assistance, including supportive and nutrition services, education and training, low-cost 
transportation, and health promotion.  Over the years, OIG has reported opportunities for 
program improvements to target the neediest for services, expand available financial 
resources, upgrade data collection and reporting, and enhance program oversight.   
 
OIG works closely with ACFs Office of Child Support Enforcement and other Federal, 
State, and local partners to detect, investigate, and prosecute noncustodial parents who 
fail to pay a child support obligation.  In addition, OIG also investigates specific 
allegations of fraud, waste, and abuse affecting ACF and AoA programs.  These 
investigations are often complex cases and include such allegations as misuse or theft of 
grant monies, conflict of interest, kickbacks, and employee misconduct.   
35  Administration for Children and Families and Administration on Aging 
 
 
Administration for Children and FamiliesRelated Reports 
 
Aid to Families With Dependent Children in Connecticut  
Aid to Families with Dependent Children (AFDC) was replaced by the TANF program in 
1996 as a part of welfare reform.  Both programs were designed to help low-income 
families support their dependent children.  Federal regulations require States to pursue 
and recover AFDC overpayments as long as outstanding overpayments remain, turning 
over the Federal share of such payments.   
OIG determined that for 1 of the 16 quarters reviewed, Connecticut did not reimburse the 
Federal share of AFDC overpayment collections in a timely manner.  As a result of 
internal control weaknesses, Connecticut could not verify whether its Federal refund 
checks had been received or cashed.   
OIG recommended that Connecticut strengthen its internal controls so that it can verify 
that the Federal Government receives its share of future AFDC overpayment collections.  
Connecticut agreed.  (A-01-05-02501) 
Undistributable Child Support Collections  
ACFs Office of Child Support Enforcement (OCSE) requires States to offset Child 
Support Enforcement program costs by recognizing and reporting program income from 
undistributable child support collections and interest earned on program funds.  OIG 
evaluated three States handling of undistributable child support collections. 
(cid:1) MichiganMichigan did not recognize $6.7 million in program income for unclaimed 
collections that should have been considered abandoned and transferred to the State 
treasurer.  The State did not report $391,000 in program income for undistributable child 
support collections that were transferred to the State treasurer.  Furthermore, the State 
could not provide documentation to support resolution of a prior OCSE finding and 
recommendation regarding undistributable collections totaling $1.1 million that were not 
reported as program income. 
OIG recommended that Michigan make financial adjustments, improve its procedures, 
and work with OCSE to resolve the outstanding recommendation.  The State generally 
disagreed.  (A-05-05-00033) 
(cid:1) MissouriMissouri did not recognize and report program income totaling an estimated 
$693,000.  OIG recommended that Missouri make financial adjustments, revise its 
policies and procedures, and provide training to its personnel.  The State agreed.   
(A-07-05-03069) 
 
(cid:1) WisconsinWisconsin did not recognize and report program income of $163,000.  OIG 
recommended that Wisconsin make financial adjustments and implement adequate 
program policies and procedures.  The State agreed.  (A-05-06-00018)   
  36 Administration for Children and Families and Administration on Aging 
 
 
Costs Claimed for the Statewide Automated Child Welfare Information 
System in California  
ACF requested that OIG audit the costs claimed by Santa Clara County, California, for 
the Statewide Automated Child Welfare Information System (SACWIS).  SACWIS is a 
comprehensive case management tool that supports social workers foster care and 
adoption assistance case management.   
OIG found that approximately $573,000 ($286,500 Federal share) of the countys claims 
for January 1, 1999, through June 30, 2003, was not allowable under Federal and State 
regulations.  OIG was unable to determine whether the remaining $6.1 million 
($3.1 million Federal share) claimed was allowable because the county did not allocate 
these costs to all child welfare service system applications. 
OIG recommended that the State refund the $286,500 Federal share of unallowable costs, 
work with ACF to determine what portion of the remaining $6.1 million is reimbursable, 
and instruct the county to strengthen its internal controls.  The State generally agreed.  
(A-09-04-00068) 
 
Title IV-E Training Costs 
Pursuant to Title IV-E of the Social Security Act, the Federal Government shares in the 
costs of training State caseworkers who serve foster and adoptive children meeting 
Federal eligibility requirements.  OIG evaluated the allowability of three States claims 
for Title IV-E training costs.   
 
(cid:1) ConnecticutConnecticut lacked established procedures to ensure that only allowable 
and qualified training expenses were claimed at the enhanced rate.  As a result, the State 
overstated its Federal claims by $2.4 million during 20012004.  OIG recommended that 
Connecticut make a financial adjustment, ensure that only qualified training expenses are 
claimed at the enhanced rate, and review subsequent claims to ensure compliance with 
Federal requirements.  The State agreed.   
(A-01-05-02502) 
 
(cid:1) KentuckyKentucky did not always follow Federal regulations regarding allowability 
of training costs.  As a result, Kentucky overstated its Federal claims by at least 
$1 million during 20012003.  OIG recommended that Kentucky make a financial 
adjustment, work with ACF to determine the allowable portion of costs set aside, and 
develop additional procedures.  Kentucky generally agreed.  (A-04-03-00022)  
(cid:1) MissouriMissouri did not always follow Federal regulations regarding allowability of 
costs.  As a result, Missouri overstated its Federal claims by $15.3 million during  
19992002.  OIG recommended that Missouri make a financial adjustment, review 
subsequent claims to identify any further overpayments, work with ACF to determine 
whether some costs could be claimed at a different rate, and ensure that it claims only 
allowable costs in the future.  Missouri disagreed with the recommendations.   
(A-07-02-02002) 
 
37  Administration for Children and Families and Administration on Aging 
 
 
Administration on Aging-Related Reports 
 
Cost Sharing for Older Americans Act Services  
In this evaluation, OIG assessed the extent to which States have implemented cost 
sharing under the Older Americans Act (OAA) and whether States implementing cost 
sharing do so in accordance with requirements designed to protect low-income 
individuals access to services.  OIG found that 12 States have implemented cost sharing 
for at least one OAA service in at least one part of their State.  States that have 
implemented cost sharing do not always follow OAA requirements for cost sharing that 
are designed to protect low-income individuals access to services.  OIG also found that 
AoA has provided limited guidance to States about implementing cost sharing and AoAs 
participation data cannot be used to determine the impact of cost sharing on participation 
rates.  OIG based this study on data gathered from a written survey completed by State 
representatives from all 50 States, Puerto Rico, and the District of Columbia; a review of 
relevant State documents; a review of AoAs participation data; and structured interviews 
with State Unit on Aging representatives, area agency officials, and State data officials.   
 
OIG recommended that AoA ensure that States cost sharing practices comply with 
requirements designed to protect low-income individuals access to services; provide 
additional guidance to States about implementing cost sharing in accordance with the 
OAA; and improve the quality of its data so that any effects of cost sharing can be 
measured.  AoA agreed with OIGs findings that cost sharing is limited and that States 
are confused about cost sharing.  However, AoA did not agree with the finding that AoA 
has provided limited guidance to States.  In addition, AoA also disagreed with the finding 
and recommendation regarding the National Aging Program Information System/State 
Program Reports (NAPIS/SPR).  AoA stated that it will follow up on OIGs observations, 
correct instances of noncompliance with the provisions of the OAA, and will provide 
additional guidance to States.  (OEI-02-04-00290) 
 
Performance Data for the Senior Medicare Patrol Projects:  April 2006 
Performance Report   
The Senior Medicare Patrol Projects receive grants from AoA to recruit retired 
professionals to serve as educators and resources to assist beneficiaries in detecting and 
reporting fraud, waste, and abuse in the Medicare program.  In the 6 months from July 
through December 2005, the 64 projects educated about 290,500 beneficiaries in more 
than 96,000 group and one-on-one training sessions.  In total, the projects documented 
more than $103,000 recouped to the Medicare program.  The projects also reported more 
than $59,000 in savings to beneficiaries.  All these projects provided descriptions of  
out-of-pocket expenses being returned to beneficiaries and savings due to resolution of 
billing errors.  Additionally, one projects referral led to the removal of 11 providers from 
the Medicare program.  OIG had no recommendations.  (OEI-02-04-00363) 
 
Child Support Enforcement  
The detection, investigation, and prosecution of noncustodial parents who fail to pay 
court-ordered child support are priorities for OIG.  Working with the Federal Office of 
Child Support Enforcement, the Department of Justice, U.S. Attorneys Offices, the 
  38 Administration for Children and Families and Administration on Aging 
 
 
U.S. Marshals Service, and other Federal, State, and local partners, OIG develops ways to 
expedite the collection of child support.  Since 1995, OIG has opened 3,189 
investigations of child support cases nationwide, resulting in 1,225 convictions and court-
ordered restitution and settlements of $64.7 million.   
 
Task Forces 
In 1998, OIG and OCSE initiated Project Save Our Children, a child support initiative 
made up of multiagency, multijurisdictional investigative task forces for child support 
enforcement.  The task forces are designed to identify, investigate, and prosecute 
egregious criminal nonsupport cases on both the Federal and State levels by coordinating 
law enforcement, criminal justice, and child support office resources.  Task force 
screening units receive child support cases from the States, conduct preinvestigative 
analyses, and forward the cases to the investigative task force units, wherein they are 
assigned and investigated.  The task force approach streamlines the process by which the 
cases best suited for criminal prosecution are identified, investigated, and resolved. 
 
To date, the task force units have received more than 10,800 cases from the States.  As a 
result of the work of the task forces, 625 Federal arrests have been made and 601 
individuals have been sentenced.  The total ordered amount of restitution related to 
Federal investigations is $27.2 million.  There have been 409 arrests at the State level and 
396 convictions or civil adjudications to date, resulting in $21 million in restitution being 
ordered as a result of State investigations.  In addition, of the court-ordered restitution, 
over $31 million has actually been collected and distributed to families. 
 
Investigations 
Nationwide, OIG investigations of child support cases resulted in 60 convictions and 
court-ordered restitution and settlements of $3.8 million during this semiannual period.  
Examples of OIGs enforcement results for failure to pay child support include the 
following: 
 
(cid:1) ColoradoA man was sentenced to time served of 7 days and ordered to pay $449,000 
for failure to pay child support.  The man, who worked internationally as a journalist, was 
arrested as he entered the United States from Mexico.  The warrant for his arrest had been 
outstanding for nearly 2 years.   
(cid:1) CaliforniaA man was sentenced to 1 year of home detention, 5 years probation, 
100 hours of community service, and ordered to pay $186,000 in restitution for failure to 
pay child support.  The man, who attempted to win custody of his two children in 1987, 
has only made a single $660 payment.  Even after the custodial parents suicide in 2001, 
he failed to provide any financial support for his children.  In November 2003, the mans 
daughter assumed legal guardianship of her brother. 
(cid:1) WashingtonA former cancer researcher was sentenced to 5 years probation, 
100 hours of community service, and ordered to pay $166,000 in restitution for failure to 
pay child support.  He was also ordered to enroll in a mental health program.  
Investigation revealed that, although the former researcher has not worked in the last 
39  Administration for Children and Families and Administration on Aging 
 
 
year, he has earned up to $3 million a year.  In addition, he liquidated $15 million from 
his childrens trust fund to buy fine art.   
(cid:1) IdahoA man was sentenced to 10 months incarceration, 1 year supervised release 
and ordered to pay $106,000 in restitution for failure to pay child support.  Although 
ordered to pay child support in 1989, he never made a voluntary payment.  Payments 
were made by way of garnishments or were made in order to avoid confinement and 
contempt charges. 
(cid:1) IllinoisA woman received a $50,000 payment for support of her son after the 
noncustodial parent, a Washington, DC, area dentist, was notified of a pending OIG 
investigation into his failure to pay child support.  The amount that the man paid covered 
his arrearage amount plus future amounts owed through June 2006, the date the child 
reached emancipation.  The woman appeared in court with proof that the man had 
satisfied his obligation, and the State was ordered to update its records.   
(cid:1) South DakotaA man was sentenced to 5 years probation and ordered to pay $47,000 
in restitution for failure to pay child support.  The restitution amount included $22,000 
that was incorporated into the sentencing order for his childrens health care expenses. 
Misuse of ACF Grant Funds  
OIG also investigates cases involving the misuse of ACF grant funds.  Resolution of 
charges involving the improper use of these funds occurred in the following example 
during this reporting period: 
 
(cid:1) WashingtonA former State government social worker and his wife were sentenced 
for their scheme to defraud the Federal Government.  The man was sentenced to 46 
months in prison and ordered to pay $136,000 in joint and several restitution; his wife 
received a 30-day sentence.  Between March 1998 and December 2004, the defendants 
diverted money from a federally funded program designed to help developmentally 
disabled foster care children and their families.  As part of the scheme, phony invoices 
were submitted through the mans nonexistent business purportedly for services provided 
to children.   
 
  40  
General Oversight 
 
 
The Office of the Assistant Secretary for Resources and Technology (previously called 
the Office of the Assistant Secretary for Budget, Technology, and Finance) is responsible 
for developing and executing the Department of Health and Human Services (HHS) 
budget; ensuring that HHS performance measurement and reporting are in compliance 
with the Government Performance and Results Act; establishing and monitoring 
departmental policy for financial management (including debt collection, audit 
resolution, cost policy, and financial reporting); and developing and monitoring HHS 
information technology policy (including information technology security).  The 
Assistant Secretary is the Departments Chief Financial Officer and oversees the 
Departments Chief Information Officer.  The Department also has the responsibility, by 
virtue of the magnitude of its funding, to negotiate the indirect cost rates and methods 
that many outside entities, such as State and local governments, use for administering 
HHS and other Federal programs. 
 
The Office of the Assistant Secretary for Administration and Management is responsible 
for HHS policies regarding human resources and acquisition management.  This office 
also oversees the Program Support Center, which provides a range of services, such as 
human resource system support, financial management, administrative operations, 
acquisitions, and Federal occupational health services. 
OIG has general oversight responsibility for these activities.  Another major 
responsibility derives from Office of Management and Budget (OMB) Circular A-133, 
under which HHS is the cognizant agency to audit the majority of major research 
institutions and nearly all State and local governments.  As the cognizant agency, OIG 
oversees the work of non-Federal auditors of Federal money at some 6,700 entities, such 
as community health centers and Head Start grantees, as well as at State and local 
governments, colleges and universities, and other nonprofit organizations.  In addition, 
OIG is responsible for auditing the Departments financial statements. 
 
OIG reviews audits, evaluations, and studies performed by others, such as OMBs 
Program Assessment and Rating Tool and reports of the Government Accountability 
Office.  It takes these studies into account when planning its own work and examines 
management actions designed to correct the deficiencies cited in these prior studies. 
41  General Oversight 
 
 
Non-Federal Audits 
OMB Circular A-133 establishes audit requirements for State and local governments, 
colleges and universities, and nonprofit organizations receiving Federal awards.  Under 
this circular, covered entities must conduct annual organizationwide audits of all Federal 
money they receive.  These audits are conducted by non-Federal auditors, such as public 
accounting firms and State auditors.  OIG reviews the quality of these audits and assesses 
the adequacy of the entitys management of Federal funds.  In the first half of FY 2006, 
OIGs National External Audit Review Center reviewed 1,184 reports that covered 
$1.2 trillion in audited costs.  Federal dollars covered by these audits totaled $415 billion, 
about $186 billion of which was HHS money. 
 
OIGs oversight of non-Federal audit activity informs Department managers about the 
soundness of management of Federal programs and identifies any significant areas of 
internal control weakness, noncompliance, and questioned costs that require formal 
resolution by Federal officials.  OIG identifies entities for high-risk monitoring, alerts 
program officials to any trends that could indicate problems in HHS programs, and 
profiles non-Federal audit findings of a particular program or activity over time to 
identify systemic problems.  OIG also provides training and technical assistance to 
grantees and members of the auditing profession. 
 
OIG maintains a quality control review process to assess the quality of the non-Federal 
reports received and the audit work that supports selected reports.  The non-Federal audit 
reports reviewed and issued during this reporting period are categorized in the box below: 
 
   
Reports issued: 
 
Without changes or with minor changes  1,047 
With major changes       97 
With significant inadequacies       40 
Total  1,184 
 
 
 
The 1,184 reports included recommendations for HHS program officials to take action on 
cost recoveries totaling $1.5 million, as well as 5,577 recommendations for improving 
management operations.  In addition, these audit reports provided information for 126 
special memorandums that identified concerns for increased monitoring by departmental 
management. 
 
Resolving Recommendations 
The following tables are provided in accordance with section 5 of the Inspector General 
Act and indicate the dollar value of actions taken on OIGs recommendations. 
  42 General Oversight 
 
 
Table 1:  Reports With Questioned Costs(cid:1) 
Reports Number of  Dollar Value  Dollar Value 
    Reports  Questioned  Unsupported 
 
Section 1       
For which no management decision 
had been made by the beginning of 
the reporting period1  466  $2,387,426,000  $252,642,000 
Issued during the reporting period  85  $518,918,000  $17,028,000 
Total Section 1  551  $2,906,344,000  $269,670,000 
       
Section 2       
For which a management decision 
was made during the reporting 
period2,3       
  Disallowed costs  254  $501,371,000  $1,688,000 
  Costs not disallowed  30  $9,053,000  $875,000 
Total Section 2  284  $510,424,000  $2,563,000 
       
Section 3       
For which no management decision 
had been made by the end of the 
reporting period       
Total Section 1 
minus Total Section 2  267  $2,395,920,000  $267,107,000 
       
Section 4       
For which no management decision 
was made within 6 months of   
issuance4  187  $1,942,622,000  $194,262,000 
 
                                                 
(cid:1) Details concerning footnotes can be found in Appendix D. 
43  General Oversight 
 
 
Table 2:  Funds Recommended To Be Put to Better Use(cid:1) 
Reports  Number of    Dollar Value 
Reports 
 
Section 1     
For which no management decision had been made by the 
beginning of the reporting period1  35  $592,774,000 
Issued during the reporting period  21  $401,188,000 
Total Section 1  56  $993,962,000 
     
Section 2     
For which a management decision was made during the 
reporting period     
  Value of recommendations agreed to by management     
    Based on proposed management action  4  $1,102,000 
    Based on proposed legislative action     
  Value of recommendations not agreed to by management    $0 
Total Section 2  4  $1,102,000 
     
Section 3     
For which no management decision had been made by the 
end of the reporting period2     
Total Section 1 minus Total Section 2  52  $992,860,000 
                                                 
(cid:1) Details concerning footnotes can be found in Appendix D. 
  44 General Oversight 
 
 
Legislative and Regulatory Review and Development 
 
Regulatory Review Functions 
Section 4(a) of the Inspector General Act of 1978 requires that the Inspector General 
review existing and proposed legislation and regulations and make recommendations in 
this report concerning the impact on the economy and efficiency of the administration of 
the Departments programs and on the prevention of fraud and abuse.  In reviewing 
regulations and legislative proposals, OIG uses as the primary basis for its comments the 
audits, evaluations, investigations, and other activities highlighted in this and previous 
semiannual reports. 
During FY 2006, OIG was involved in the review and clearance of the implementing 
regulations and other policy guidance resulting from the various provisions of the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) and 
the Deficit Reduction Act of 2005 (DRA).  Among other things, OIG reviewed and 
provided comments on the final rules addressing Physicians Referrals to Health Care 
Entities With Which They Have Financial Relationships; Electronic Prescribing and 
Health Records Arrangements.  
Regulatory Development 
OIG is responsible for the development and publication of a variety of sanction 
regulations addressing civil money penalty and program exclusion authorities 
administered by the Inspector General, as well as regulations promulgating safe harbors 
related to the anti-kickback statute.  During this semiannual reporting period, OIG: 
(cid:1) Published in the Federal Register final rulemaking addressing new safe harbors under 
the anti-kickback statute for arrangements involving the donation of certain electronic 
health information technology and services.  The final rule seeks to lower perceived 
barriers to the adoption of health information technology by finalizing safe harbors that 
promote the adoption of electronic prescribing technology and open, interconnected, 
interoperable electronic health record systems, while safeguarding the Federal programs 
and beneficiaries against undue risks of fraud and abuse.  As required by the MMA, the 
first safe harbor establishes the conditions under which certain individuals may donate to 
specific recipients hardware, software, or information technology and training services 
necessary and used solely for electronic prescribing.  The second safe harbor establishes 
conditions under which a broader category of individuals may donate to a broader 
category of recipients interoperable electronic health records software, information 
technology, and training services.  (71 FR 45110; August 8, 2006).   
 
(cid:1) Continued to develop new proposed rulemaking addressing the reorganization of and 
revisions to 42 CFR part 1003, which sets forth OIGs regulatory authorities for imposing 
civil money penalties and assessments. 
In addition, OIG published a number of Federal Register notices that offer guidance to 
alert program beneficiaries, health care providers, and other entities about potential 
problems or areas of special interest.  During this semiannual reporting period, OIG: 
45  General Oversight 
 
 
(cid:1) In accordance with section 6031 of DRA, published a Federal Register notice setting 
forth specific criteria and standards for determining whether a State False Claims Act 
meets the requirements of section 1909(b) of the Social Security Act (71 FR 48552; 
August 21, 2006).  
(cid:1) Continued to develop a Federal Register notice addressing revisions to the current OIG 
organizational statement and setting forth the alignment of certain functions and 
responsibilities of several OIG components to better reflect the current work environment 
and priorities and to more closely delineate responsibilities for the various offices within 
OIG.   
Employee Fraud and Misconduct 
Most people employed by HHS are dedicated, honest civil servants.  Occasionally, 
however, employees violate their ethical and fiduciary responsibilities.  OIG conducts or 
oversees investigations of serious allegations of wrongdoing by Department employees, 
as in the following example: 
 
(cid:1) South DakotaA former Indian Health Service employee was ordered to pay $4,000 
in restitution following her guilty plea to larceny.  Pursuant to an OIG investigation, the 
employee allegedly caused the intentional destruction of Government records to conceal 
payments made to contractors that were fraudulent.  During the investigation, it was 
revealed that she stole funds from the Rosebud Public Health Service Employee 
Association through her capacity as treasurer.   
Prosecutions 
During this semiannual reporting period, OIG investigations resulted in 246 successful 
criminal actions.  Also during this semiannual period, 642 cases were presented for 
criminal prosecution to the Department of Justice and, in some instances, to State and 
local prosecutors.  Prosecutors brought criminal charges against 238 individuals and 
entities. 
 
In addition to terms of imprisonment and probation imposed in the judicial processes, 
$870.1 million was ordered to be returned, or was returned, as a result of OIG 
investigations during this reporting period.  That figure includes civil settlements from 
investigations resulting from audit findings. 
 
  46  
APPENDIXES 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
47    
 
Appendix A:  Savings Achieved Through Implementation of 
Recommendations in Audits and Evaluations for the Period 
October 1, 2005, Through September 30, 2006 
 
The Congressional Budget Office (CBO) estimates annual Federal savings expected to 
result from the enactment of legislation as part of the process of informing Congress of 
the potential impact of legislation under consideration.  After laws involving HHS 
programs have been enacted, OIG analyzes them to identify provisions that were 
recommended in OIG-issued reports.  A similar process occurs with respect to 
administrative changes recommended by OIG and implemented by HHSs operating or 
staff divisions.  In the latter cases, the savings estimated to accrue are developed by the 
relevant HHS operating or staff division or by OIG. 
Savings of this kind depend greatly on the contributions of others, such as other HHS 
divisions and the Department of Justice.  The amounts claimed represent funds that will 
be available for better use as a result of documented actions taken, including reductions 
in budget outlays, deobligations of funds, reductions in costs incurred, preaward grant 
reductions, and reductions and/or withdrawal of the Federal portion of interest subsidy 
costs of loans or loan guarantees, insurance, or bonds. 
Total estimated savings from implemented recommendations and other actions to put 
funds to better use were $35,806.7 million ($35.8 billion) for the fiscal year (FY) that 
ended September 30, 2006. 
Savings 
OIG Recommendation  Implementing Action  (millions) 
 
Centers for Medicare & Medicaid Services 
Medicare Home Health Payments:  Chapter 1 of Subtitle G of the Balanced  $7,330 
CMS should restructure the payment system for  Budget Act of 1997 (BBA) (as amended 
home health care to eliminate inappropriate  by the Omnibus Consolidated and 
incentives that unnecessarily increase cost and  Emergency Supplemental Appropriations 
utilization; prevent unscrupulous providers from  Act of 1998), which pertains to home 
gaining entry into the program; and improve program  health benefits, addresses OIGs concerns 
controls, such as eligibility determinations and  regarding the need to restructure and 
approval of plans of care and services.  control the payment system for these 
(OEI-04-93-00260; OEI-09-96-00110;   services.  For example, it mandates that a 
A-04-96-02121)  prospective payment system be 
developed and that the total payments in 
FY 2000 be equal to the amount that 
would have been paid under the prior 
system if cost limits were reduced by  
15 percent.  It also eliminates periodic 
interim payments to home health 
agencies (HHAs). 
49  Appendix A 
 
Savings 
OIG Recommendation  Implementing Action  (millions) 
State-Enhanced Payments Under Medicaid  On January 12, 2001, CMS issued  $5,800 
Upper Payment Limit Requirements:  revisions to the upper payment limit 
States are allowed to make enhanced payments to  (UPL) regulations that, among other 
local government providers as long as aggregate  things, created new payment limits for 
State payments for each class of service do not  local government-owned providers.  This 
exceed the amount that would have been paid  final rule significantly affects a States 
under Medicare cost principles.  OIG found that  ability to reap windfall revenues by 
States use of intergovernmental transfers  reducing the available funding pool from 
maximized Federal Medicaid reimbursements.  which to make enhanced payments to 
OIG also found that enhanced payments were not  local government-owned providers.  
based on the cost of providing the service, nor did 
OIG find a direct relationship in the use of these 
funds to increase the quality of care.   
(A-03-00-00216) 
Medicare Part A Payments for Skilled Nursing  Section 4432 of the BBA (as amended  $4,990 
Facilities:  by the Balanced Budget Refinement 
Services should be bundled into Medicare and  Act of 1999, or BBRA) established a 
Medicaids payments to nursing homes; Part B  prospective payment for SNF care.  
payments for services normally included in the  Covered services include Part A SNF 
extended care benefit should continue to be  benefits and all services for which 
payment may be made under Part B 
examined for appropriateness; and legislation 
(except physician and certain other 
should prohibit entities other than skilled nursing 
professional services) during the period 
facilities (SNFs) from seeking payment on behalf 
when the beneficiary is provided 
of persons in Part A-covered SNF stays for enteral 
covered SNF care.  
nutrition, incontinence care, and surgical 
dressings, and limit Medicare coverage of these 
services to Part A.  In 1997 congressional 
testimony, OIG supported establishing a 
prospective payment system and consolidated 
billing.  (OEI-03-94-00790; OEI-06-92-00863;  
OEI-06-92-00864; A-17-95-00096; 
A-14-98-00350) 
Medicare Indirect Medical Education:  Section 4621 of the BBA (as amended by  $2,680 
CMS should base the indirect medical education  the BBRA)  reduced the indirect teaching   
adjustment factor on the level supported by CMSs  adjustment factor from 7.7 percent in  
empirical data.  (A-07-88-00111)  FY 1997 to 7 percent in FY 1998,  
6.5 percent in FY 1999, 6 percent in  
FY 2000, and 5.5 percent in FY 2001 
and thereafter. 
Medicaid Enhanced Payments to Local  CMS issued a final rule that modified the  $2,600 
Providers:  Medicaid UPL provisions to remove the 
CMS should reconsider capping the aggregate UPL  150-percent UPL for services furnished by 
at 100 percent for all facilities rather than the  non-State-owned or -operated hospitals.  
150 percent allowance for non-State-owned  The rule became effective in spring 2002. 
government hospitals.  (A-03-00-00216) 
  50 Appendix A 
Savings 
OIG Recommendation  Implementing Action  (millions) 
Medicare Secondary Payer Extensions:  The database capacity was achieved  $2,460 
CMS should establish a centralized database of  through the authorization of a data 
information about private insurance coverage of  exchange between the Social Security 
Medicare beneficiaries.  Extend the Medicare  Administration and the Centers for 
secondary payer (MSP) provision to include end- Medicare & Medicaid Services (CMS) 
stage renal disease (ESRD) beneficiaries as long as  and between the Internal Revenue Service 
the individual has employer-based coverage  and CMS.  Section 4631 of the BBA 
available.  (OEI-07-90-00760; OEI-03-90-00763;  permanently extended current MSP 
A-10-86-62016; A-09-89-00100; A-09-91-00103;   policies for beneficiaries who are disabled 
A-14-94-00391; A-14-94-00392)   and have ESRD.   
 
For ESRD beneficiaries, the statute also 
increased the time period Medicare is 
secondary payer from 18 to 30 months. 
Medicare Outlier Payments:  CMS issued new regulations in summer  $1,800 
To prevent future inappropriate outlier payments,  2003.  As a result of these regulations, it 
CMS should focus its attention on the following:    is estimated that the Medicare program 
(1) determining how to limit, if not eliminate, the  will save at least $9 billion from 2004  
policy that allows for the use of the statewide rate   to 2008. 
in place of a hospital-specific rate; (2) dramatically   
reducing the timelag between the payment of    
outliers and the actual closing of a specific  
hospitals cost report, particularly with regard to the 
hospitals that the fiscal intermediary identifies as 
having significantly increased their charges; and  
(3) eliminating the hospitals ability to construct and 
manipulate charges to determine whether an outlier 
payment is warranted in a specific medical case 
without regard to the actual costs involved in that 
case.  (A-07-02-04007) 
Capital-Related Costs of Hospital Services:  Section 4402 of the BBA provided for  $1,200 
CMS should extend congressionally mandated  rebasing of capital payment rates for an 
reductions in capital-related hospital costs.  OIG  additional reduction in the rate of 
believes that CMS should seek legislative authority  2.1 percent. 
to continue mandated reductions in capital payments; 
excess capacity was not considered in the capital cost 
policy.  (A-09-91-00070; A-07-95-01127)  
Medicare Payments for Oxygen:  Section 4552(a) of the BBA reduced  $1,000 
CMS should reduce Medicare payments for  Medicare reimbursement for oxygen  
oxygen concentrators and ensure that beneficiaries  by 25 percent until 1999 and by 
receive necessary care and support in connection  30 percent for each subsequent year.   
with their oxygen therapy.  (OEI-03-91-00710;  
OEI-03-91-00711)  
51  Appendix A 
 
Savings 
OIG Recommendation  Implementing Action  (millions) 
Payment Reform for Part B Drugs and  Sections 303 through 305 of the  $900 
Biologicals:  Medicare Prescription Drug, 
CMS should reexamine drug reimbursement  Improvement, and Modernization Act of 
methodologies based on average wholesale price  2003 (MMA) revised the current payment 
(AWP) with the goal of reducing payments in both  methodology for Part B-covered drugs 
Medicare and Medicaid.  (Multiple reports and  and biologicals that were not paid on a 
testimony, including OEI-03-96-00420;   cost or prospective payment basis.  
OEI-03-97-00290; OEI-03-00-00310;   Under the MMA, most drugs were to be 
OEI-03-97-00293; A-06-00-00023; A-06-01-00053;   paid at 85 percent of the April 1, 2003, 
A-06-02-00041)  AWP effective January 1, 2004, unless 
they meet certain exceptions.  CBO 
specifically attributed the FY 2004 
savings to sections 304 and 305.  After 
2004, most drug prices are based on the 
average sales price or competitive 
acquisition instead of AWP. 
Medicare Laboratory Reimbursements:  Section 4553 of the BBA provided for  $900 
In 1989, OIG recommended that CMS take  reducing fee schedule payments by 
advantage of economies of scale present in the  lowering the cap to 74 percent of the 
laboratory industry by considering competitive  median for payment amounts, with no 
bidding or making reductions to the fee schedule  inflation update for 1998 through 2002.  
amounts.  In 1990, OIG recommended that CMS  The MMA mandated that the annual 
seek legislation to allow across-the-board  adjustment to the clinical laboratory fee 
adjustments in Medicare laboratory fee schedules,  schedule for 2007 through 2008 will be 
bringing them in line with the prices   0 percent. 
that laboratories charge physicians in a 
competitive marketplace.  In a 1996 followup, 
OIG found that Medicare continued to pay more to 
clinical laboratories than to physicians for the 
same tests.  Although the Omnibus Budget 
Reconciliation Act (OBRA) of 1993 reduced the 
fee schedule to 76 percent of the average in 1996, 
OIG recommended that CMS periodically evaluate 
the national fee schedule to ensure that it is in line 
with the prices that physicians pay for the same 
clinical laboratory services.  (OEI-02-89-01910;  
A-09-89-00031; A-09-93-00056)  
Medicare Secondary Payer:  Section 301 of the MMA clarifies the  $800 
CMS should ensure sufficient resources and  Secretarys authority to make certain 
contractor training for retroactively examining paid  reimbursable conditional payments and 
claims to identify other payer sources and initiating  to take recovery actions against all 
recovery action on all related overpayments.   responsible entities, including collection 
(Multiple reports and testimonies, including   of damages, under MSP provisions.  
A-02-98-01036; A-04-92-02057; A-09-89-00162;   This builds on other program 
A-10-86-62005)  improvements related to OIGs work that 
were implemented by the BBA of 1997, 
OBRA of 1993, OBRA 1990, and 
OBRA 1989. 
  52 Appendix A 
Savings 
OIG Recommendation  Implementing Action  (millions) 
Graduate Medical Education Payments:  Sections 4623 and 4626 of the BBA  $700 
CMS should reevaluate Medicares policy of paying  provided for limits in the number of 
graduate medical education (GME) costs for all  residents counted for purposes of 
physician specialties and consider backing legislation  Medicare GME payments and offered 
to reduce Medicares investment in GME for a more  payments for voluntary reductions in the 
accurate and representative sharing of GME costs.    number of residents to limit Medicares 
(A-06-92-00020)  share of GME costs. 
Payments for Durable Medical Equipment:  Section 302 of the MMA froze payments  $600 
CMS should take steps to reduce payments for a  for certain DME items, including 
variety of durable medical equipment (DME) and  prosthetics and orthotics, effective 
related supplies.  (Multiple reports, including   January 1, 2004.   
OEI-03-01-00680; OEI-03-02-00700;  
OEI-07-96-00221; OEI-03-96-00230;  
OEI-03-94-0021; OEI-06-92-00861;  
OEI-06-92-00866) 
Payments for Durable Medical Equipment:  Section 4551(b) of the BBA froze  $500 
Excessive Medicare Part B payments for enteral  Medicare payments for enteral and 
and parenteral nutrition, equipment, and supplies  parenteral nutrition and supplies for 
should be reduced, or competitive acquisition  1998 through 2002 and simplified the 
strategies should be employed.    process used to reduce inherently 
(OEI-03-94-00021; OEI-06-92-00866;   unreasonable prices by 15 percent. 
OEI-03-96-00230; OEI-06-92-00861)  
Medicare Home Health Payments:  Section 701 of the MMA changed the  $400 
The HHA update factor should be reduced to account  updates of home health rates from fiscal 
for the high error rate found in OIGs review.  The  year to calendar year beginning in 2004, 
annual update was defined as the home health market  with the update for the last 3 quarters of 
basket percentage increase.    2004 equal to the market basket increase 
(A-04-99-01194)  minus 0.8 percent. 
Clinical Diagnostic Laboratory Tests:  Section 628 of the MMA froze annual  $400 
CMS should seek legislation to allow across-the- updates for FY 2004 through FY 2008.  
board adjustments in Medicare laboratory fee  This action builds on prior legislative 
schedules, bringing them in line with the prices that  action in the BBA of 1997, OBRA 
laboratories charge physicians in a competitive  1993, OBRA 1990, and legislation in 
marketplace; and periodically evaluate the national fee  1984 that was also responsive to OIGs 
schedule levels.  (A-09-89-00031;   recommendations to curb excessive 
A-09-93-00056)  clinical laboratory test reimbursements 
by Medicare. 
Medicare Payments to Hospitals for Bad Debt:  Section 4451 of the BBA reduced bad  $160 
CMS should seek legislative authority to modify  debt payment to providers by 25 percent 
the bad debt payment policy.  in FY 1998, 40 percent in FY 1999, and 
(A-14-90-00039)   45 percent in later years.  The Benefits 
Improvement and Protection Act of 2000 
subsequently reduced further to 
30 percent. 
Payment for Services Furnished in  Section 626 of the MMA limited the  $100 
Ambulatory Surgical Centers:  ASC update starting April 1, 2004, then 
CMS should set rates that are consistent across sites  froze updates for a period beginning the 
and reflect only the costs necessary for the efficient  last quarter of FY 2005.   
delivery of health services and establish parity among 
ambulatory surgical centers (ASC) and outpatient 
departments.  (OEI-05-00-00340; OEI-09-88-01003;  
A-14-98-00400; A-14-89-00221) 
53  Appendix A 
 
Savings 
OIG Recommendation  Implementing Action  (millions) 
Hospice Certification:  Sections 44414449 of the BBA  $90 
CMS should restructure hospice benefit policies to  contained provisions to control hospice 
curb inappropriate growth in the program,  payments and practices, such as replacing 
particularly with regard to the fourth benefit  the current unlimited fourth benefit period 
period.  (OEI-05-95-00250; A-05-96-00023)  with an unlimited number of 
  60-day benefit periods (each requiring 
recertification). 
Rural Health Clinics:  Section 4205 of the BBA extended the  $90 
The oversight and functioning of the current cost  per-visit payment limits to provider-
reimbursement system should be improved by  based clinics and stipulated that the 
implementing caps on provider-based rural health  shortage area requirements designation be 
clinics and allowing States to do so, or finding other  reviewed triennially. 
ways to make reimbursement between provider-based 
and independent clinics more equitable.   
 
In addition, the certification process should be 
modified to increase State involvement in the 
placement of the clinics.  Recertification should be 
required within a specific time limit (for example,  
5 years), applying new criteria to document the  
need and impact on access.  (OEI-05-94-00040)  
Medicaid Drug RebatesSales to Repackagers  CMS issued Medicaid Drug Rebate  $81 
Excluded From Best Price Determinations:  Program Release #47 in July 2000 to 
Medicaid rebates were lost because sales to health  make it clear that manufacturers should 
maintenance organizations (HMO) were  not exclude other prices from best prices, 
improperly excluded from drug manufacturers best  as required by section 1927 of the Social 
price determinations in FYs 1998 and 1999.    Security Act.  
 
CMS should require drug manufacturers who 
excluded sales to HMOs from their best price 
calculations to repay the rebates and evaluate the 
policy guidance relating to exclusion of sales to 
other (non-HMO) repackagers from best price 
determinations.  (A-06-00-00056) 
  54 Appendix A 
Savings 
OIG Recommendation  Implementing Action  (millions) 
Fraud and Abuse Provisions of the Balanced  A number of provisions in Subtitle D of  $80 
Budget Act:  the BBA corresponded to and were 
CMS should require DME suppliers and HHAs to  supported by OIG work.  For example, 
provide Social Security numbers and employee  the BBA authorized the HHS Secretary 
identification numbers; refuse to enter into a  to collect Social Security numbers and 
provider agreement with any HHA whose owners  employer identification numbers from 
or principals have prior criminal records or are the  entities under Medicare, Medicaid, and 
relatives of owners of a provider that has defrauded  Title V; authorized the Secretary to refuse 
Medicare; apply inherent reasonableness  to enter into contracts with physicians or 
provisions when assessing the appropriateness of  suppliers that have been convicted of 
Medicare payments; and authorize competitive  felonies; authorized the exclusion of 
bidding as a means of providing Medicare  entities owned or controlled by the 
services.   family or household members of excluded 
  individuals; authorized CMS to make 
Moreover, CMS should clarify which general,  inherent reasonableness adjustments of up 
administrative, and fringe benefit costs at hospitals  to 15 percent to all Part B services except 
and HHAs are related to patient care.  Specifically,  physician services; authorized up to five 
CMS should distinguish between employee  demonstration projects to be completed 
benefits and/or prerequisites to entertainment and  by  
patient care; and specify that the cost of  December 31, 2002 (one must be oxygen 
entertainment, goods, or services for personal use,  and oxygen equipment), which can have 
and alcohol, all fines, penalties and associated  multiple sites, to allow competitive 
interest, dues, and membership costs associated  bidding; and prohibited reasonable 
with civic and community organizations are not  cost payments for items such as 
allowable.  (OEI-04-96-00240; OEI-09-96-00110;   entertainment, gifts and donations, 
OEI-09-96-00110; OEI-03-94-00392;   education expenses, and personal use of 
OEI-03-94-00021; OEI-06-92-00866;   automobiles. 
OEI-03-96-00230; A-03-92-00017;  
A-04-93-02067) 
Hospital Sales:  Section 4404 of the BBA eliminated the  $70 
CMS should eliminate the requirement that  requirement that Medicare make 
Medicare adjust for gains and losses when  adjustments by setting the Medicare 
hospitals undergo changes of ownership.    capital asset sales price equal to the net 
(OEI-03-96-00170)  book value. 
Medicare Payments for Prescription Drugs:  Section 4556 of the BBA reduced  $50 
CMS should reexamine its Medicare drug  Medicare payments for drugs that are 
reimbursement methodologies, with a goal of  paid based on the average wholesale 
reducing payments as appropriate.    price. 
(OEI-03-95-00420; OEI-03-94-00390;  
OEI-03-97-00290) 
Payments for Ambulance Services:  Section 4531 of the BBA made interim  $20 
CMS should seek legislative authority to develop  reductions in ambulance payments by 
a fee schedule for ambulance transportation and  limiting the allowed rate of increase 
examine the inherent reasonableness of current  and mandated the establishment of a fee 
allowable charges.  (OEI-05-95-00300)  schedule by January 1, 2000.  The fee 
schedule was to be set so that aggregate 
payments would be reduced by 
1 percent. 
55  Appendix A 
 
OIG Recommendation  Implementing Action  Savings 
(millions) 
 
ADMINISTRATION FOR CHILDREN AND FAMILIES 
Availability of Health Insurance for Title   The BBA established the State Childrens  $5.7 
IV-D Children:  Health Insurance Program to enhance 
Connecticut should either implement policies  Medicaid coverage provided to children and 
and procedures to require noncustodial parents  to allow States to create insurance options 
to pay all or part of the Medicaid costs for their  for families who exceed Medicaid resource 
dependent children or establish a statewide  and income limits.  Under Connecticut 
health insurance plan that provides reasonably  law, applicants include noncustodial parents 
priced, comprehensive coverage for children,  ordered to provide health insurance. 
with costs paid by noncustodial parents. 
(A-01-97-02506) 
 
 
56   
Appendix B:  Unimplemented Office of Inspector General 
Recommendations To Put Funds to Better Use 
 
OIG issues a publication called the Red Book that outlines the potential annual savings or 
onetime recoveries that could be realized if OIG recommendations were enacted by 
Congress or the Department through legislation, regulation, or management action. 
Previous editions of the semiannual report included a table (Appendix B) that duplicated 
information found in the Red Book.  Starting with this edition, the semiannual report will 
no longer repeat information from the Red Book.  Instead, the reader may refer to the Red 
Book itself, which is available in its entirety at http://oig.hhs.gov. 
Historically, OIG issued two publications, the Red Book and Orange Book, which, 
respectively, detailed the significant unimplemented monetary and nonmonetary 
recommendations made by OIG.  In 2006, these two publications will be combined into a 
single publication titled Unimplemented OIG Recommendations. 
 
 
 
 
 
 
 
 
57    
Appendix C:  Unimplemented Office of Inspector General 
Program and Management Improvement Recommendations 
 
OIG issues a publication called the Orange Book that outlines the potential improvements 
in Department programs and operations that could be realized if OIGs nonmonetary 
recommendations were enacted by Congress or the Department through legislation, 
regulation, or management action.   
 
Previous editions of the semiannual report included a table (Appendix C) that duplicated 
information found in the Orange Book.  Starting with this edition, the semiannual report 
will no longer repeat information from the Orange Book.  Instead, the reader may refer to 
the Orange Book, which is available in its entirety at http://oig.hhs.gov. 
Historically, OIG issued two publications, the Red Book and Orange Book, which, 
respectively, detailed the significant unimplemented monetary and nonmonetary 
recommendations made by OIG.  In 2006, these two publications will be combined into a 
single publication titled Unimplemented OIG Recommendations. 
59    
Appendix D:  Notes to Tables 1 and 2 
 
Notes to Table 1  
 
1The opening balance was adjusted upward $ 54.2 million.  
 
2During the period, revisions to previously reported management decisions included: 
 
Central Identification Number (CIN): A-04-98-00126 REVIEW OF FOSTER CARE PAYMENTS  ACF and 
the State arrived at a settlement agreement whereby ACF would accept $5.6 million as full and complete 
payment on the $11.7 million that ACF disallowed. 
 
CIN: A-07-04-04034 REVIEW OF MEDICARE OUTLIER PAYMENTS TO THE QUITMAN CLINIC  
Questioned costs were revised from $12.5 million to $7.8 million based on the fiscal intermediarys 
Statistical Valid Random Sample review.  
 
CIN: A-08-00-64575 STATE OF COLORADO  Estimated questioned costs were revised from 
$11.2 million to the actual amount collected and returned to CMS by a State totaling $2.5 million.  
 
     Not detailed are revisions to previously disallowed management decisions totaling $19 million. 
   
3Included are management decisions to disallow $69 million that was identified in nonfederal audit reports. 
 
4 A.  Due to administrative delays, many of which are beyond management control, resolution of the 
following 187 audits were not completed within 6 months of issuance; however, based upon discussions 
with management, resolution is expected before the end of the next semiannual reporting period: 
 
CIN: A-02-02-01029  REVIEW OF SPEECH SCHOOL HEALTH CLAIMS - NYCDE, JUN 2005, 
$435,903,456 
CIN: A-02-02-01030  REVIEW OF SPEECH SCHOOL HEALTH CLAIMS - REST OF STATE, 
FEB 2004, $172,553,831 
CIN: A-05-01-00099  U OF I HOSPITAL-DSH PAYMENT LIMITS, OCT 2004, $140,281,912 
CIN: A-09-02-00054  AUDIT OF STATE OF CALIFORNIA DSH PROGRAM FOR FY 1998,  
  MAY 2003, $128,269,448 
CIN: A-02-03-01023  REVIEW OF TRANSPORTATION SCHOOL HEALTH CLAIMS - NYC 
DEPT. OF EDUCATION, SEP 2005, $108,241,199 
CIN: A-04-99-05561  AUDIT ADMIN COST PROPOSALS FY95-98, BCBSFL, JAX, JUL 2002, 
$101,671,328 
CIN: A-09-02-00071  AUDIT OF CA DSH PROGRAM FOR FY 1998 - LA COUNTY, MAY 2003, 
$98,190,042 
CIN: A-04-03-02027  REVIEW OF MEDICAID UPPER PAYMENT LIMIT CALCULATIONS IN 
ALABAMA, DEC 2005, $73,432,381 
CIN: A-04-04-03000  COMPLIANCE WITH MEDICARES POSTACUTE CARE TRANSFER 
POLICY - FY 01 & 02, APR 2005, $72,369,964 
CIN: A-02-03-01008  REVIEW OF TRANSPORTATION SCHOOL HEALTH CLAIMS - REST OF 
STATE, AUG 2004, $53,037,302 
CIN: A-01-04-00527  REVIEW OF HOME HEALTH AGENCIES BILLING FOR SERVICES 
PRECEDED BY A HOSPITAL DISCHARGE, MAR 2006, $48,135,395 
CIN: A-05-01-00058  OHIO MEDICAID HOSPITAL-SPECIFIC DSH PAYMENT LIMITS, 
  JUN 2004, $47,000,000 
61  Appendix D 
 
 
CIN: A-04-01-02006  MEDICAID DISPROPORTIONATE SHARE PAYMENTS IN ALABAMA, 
JUN 2004, $45,763,327 
CIN: A-02-03-01021  UPPER PAYMENT LIMIT REVIEW - NEW YORK, OCT 2005, $43,284,850 
CIN: A-01-02-00006  REVIEW OF RATE SETTING METHODOLOGY FOR MEDICAID 
SCHOOL BASED HEALTH SERVICES - CT, MAY 2003, $32,780,146 
CIN: A-04-03-06003  MEDICAID ACCOUNTS RECEIVABLE OVERPAYMENTS IN FLORIDA, 
OCT 2005, $31,900,000 
CIN: A-01-04-00513  REVIEW OF MEDICARE PART B PAYMENTS FOR AMBULANCE 
SERVICES RENDERED TO BENEFICIARIES DURING AN INPATIENT 
STAY, MAR 2006, $21,705,010 
CIN: A-03-01-00224  MEDICAID SCHOOL-BASED SERVICES/MARYLAND, MAR 2003, 
$19,954,944 
CIN: A-09-01-00098  AUDIT OF KERN MEDICAL CENTER DISPROPORTIONATE SHARE 
HOSPITAL PAYMENTS FOR FY 1998, SEP 2002, $19,446,435 
CIN: A-01-02-00509  REVIEW OF MEDICARE ADMINISTRATIVE COSTS - PART A & B - 
UNITED HEALTHCARE INSURANCE COMPANY, MAR 2005, $12,991,420 
CIN: A-02-03-01019  UPPER PAYMENT LIMIT CALCULATIONS - NEW JERSEY, MAR 2005, 
$10,698,309 
CIN: A-06-03-00027  REVIEW OF HUMANAS BIPA MODIFICATIONS, JUL 2005, $10,500,000 
CIN: A-06-02-00034  REV OF COST REPORTS & MEDICARE FEE-FOR-SERVICE PYMTS @ 
SCOTT & WHITE, MAY 2003, $8,229,574 
CIN: A-09-01-00085  AUDIT OF UCSDMC DISPROPORTIONATE SHARE HOSPITAL 
PAYMENTS FOR SFYE 1998, SEP 2002, $7,999,212 
CIN: A-09-97-44262  STATE OF CALIFORNIA, APR 1997, $7,300,000 
CIN: A-07-02-03033  CAREFIRST SEGMENTATION AUDIT, MAY 2003, $6,788,644 
CIN: A-02-04-01009  MEDICAID PROVIDER OVERPAYMENTS - NEW JERSEY, JAN 2006, 
$6,621,210 
CIN: A-05-02-00049  MEDICAL SERVICE COSTS UNDER ILLINOIS SCHOOL-BASED 
MEDICAID, DEC 2003, $6,067,669 
CIN: A-03-03-00562  DELAWARE TITLE IV-E TRAINING AND ADMIN COSTS, JUL 2005, 
$5,912,733 
CIN: A-01-04-00525  REVIEW OF INTERRUPTED STAYS AT INPATIENT REHABILITATION 
FACILITIES, DEC 2005, $5,868,697 
CIN: A-04-00-02161  MEDICAID SCHOOL-BASED SERVICES IN NORTH CAROLINA,  
  NOV 2001, $5,344,160 
CIN: A-01-02-00016  MEDICAID SCHOOL-BASED HEALTH SERVICE ADMINISTRATIVE 
CLAIMING REVIEW-MASSACHUSETTS, SEP 2004, $5,312,447 
CIN: A-09-03-00042  REVIEW OF HHA PRECEEDING HOSPITAL STAY UNDER PPS - UGS, 
FEB 2004, $5,306,825 
CIN: A-06-02-00060  REVIEW PACIFICARE OK BIPA MODIFICATIONS TO CY 2001 ACRP, 
JUN 2004, $5,204,042 
CIN: A-05-03-00096  REVIEW OF ADMINISTRATIVE COSTS FOR ADMINASTAR FEDERAL, 
AUG 2004, $5,000,598 
CIN: A-04-04-06003  GME FOR DENTAL RESIDENTS - MA, MAR 2006, $4,927,121 
CIN: A-07-05-00187  PENSION COSTS CLAIMED REVIEW AT ANTHEM INSURANCE 
COMPANIES - ADMINISTAR FEDERAL, DEC 2005, $4,833,704 
CIN: A-09-03-00051  REVIEW OF BLUE SHIELD CALIFORNIA BIPA MODIFICATIONS TO  
  CY 2001 ACRP, OCT 2004, $4,555,992 
62  Appendix D 
 
 
CIN: A-05-01-00102  MT. SINAI HOSPITAL-DSH PAYMENT LIMITS, OCT 2004, $4,516,112 
CIN: A-02-00-01047  DEMO BSWNY - FINANCIAL, MAR 2002, $4,505,051 
CIN: A-01-02-00015  REVIEW OF MA MEDICAID USE OF REVISED FEE SCHEDULES FOR 
CLINICAL DIAGNOSTIC LABORATORY SERVICES, JAN 2004, 
$4,100,000 
CIN: A-07-04-03053  REVIEW OF CAHABAS UNFUNDED PENSION COSTS, FEB 2004, 
$4,006,541 
CIN: A-03-01-00225  VIRGINIA IMD UNDER 21, MAR 2004, $3,948,532 
CIN: A-09-03-00053  AUDIT OF ORGAN ACQUISITION COSTS AT CPMC, JAN 2005, 
$3,731,752 
CIN: A-01-02-00525  MAINE ANTHEM BCBS - MEDICARE ADMINISTRATIVE COSTS,  
  APR 2004, $3,389,716 
CIN: A-05-03-00068  REVIEW OF INDIANA MEDICAID UPPER PAYMENT LIMIT 
CALCULATIONS, SEP 2005, $3,173,161 
CIN: A-06-04-00076  MEDICAL REVIEW OF SYNERGYS PHP CLAIMS, MAR 2006, $3,098,296 
CIN: A-04-01-00005  MEDICAID FFS PAYMENTS TO LEAS IN NORTH CAROLINA,  
  MAY 2004, $3,066,806 
CIN: A-01-04-00004  REVIEW OF MAINES MEDICAID RETROACTIVE CLAIMS FOR 
SCHOOL-BASED HEALTH SERVICES - JANUARY 2001 THROUGH 
JUNE 2003, JAN 2005, $3,044,211 
CIN: A-09-98-50183  STATE OF CALIFORNIA, MAR 1998, $3,000,000 
CIN: A-03-04-00207  MEDICAID OVERPAYMENTS-WEST VIRGINIA, JUN 2005, $2,940,469 
CIN: A-03-03-00220  DELAWARE MEDICAID MANAGED CARE FAMILY PLANNING 
FACTOR VALIDATION AUDIT, JAN 2006, $2,916,288 
CIN: A-01-02-00508  REVIEW OF MEDICARE CONTRACT TERMINATION COSTS - UNITED 
HEALTHCARE, NOV 2003, $2,894,010 
CIN: A-07-05-03064  MEDICAID PROVIDER OVERPAYMENTS IN MONTANA, MAR 2006, 
$2,731,303 
CIN: A-01-04-78839  STATE OF NEW HAMPSHIRE, JUN 2004, $2,631,648 
CIN: A-07-03-03039  CAREFIRST OF MARYLAND UNFUNDED PENSION COSTS, MAY 2003, 
$2,611,100 
CIN: A-01-04-00523  REVIEW OF ADMINISTRATIVE COSTS - PART A & B AT RHODE 
ISLAND BLUE CROSS AND BLUE SHIELD, SEP 2005, $2,582,664 
CIN: A-06-02-00051  LAPORTE ADMIN COST CLAIMED FOR MEDICAID SCHOOL-BASED 
SERVICES, JAN 2006, $2,408,218 
CIN: A-09-02-72300  STATE OF CALIFORNIA, JUL 2002, $2,400,000 
CIN: A-07-04-03050  PENSION SEGMENTATION REVIEW AT HIGHMARK, INC. OF PA,  
  JAN 2005, $2,394,501 
CIN: A-07-04-00173  REVIEW OF UNFUNDED PENSION COSTS FOR PENNSYLVANIA BLUE 
SHIELD, NOV 2004, $2,154,481 
CIN: A-04-03-06019  GRADUATE MEDICAL EDUCATION FOR DENTAL RESIDENTS - VA, 
MAR 2006, $2,117,401 
CIN: A-05-03-00063  REVIEW OF INELIGIBLE SNF PAYMENTS UNDER THE 
ADMINISTRATIVE RESPONSIBILITY OF MEDICARE NORTHWEST 
(BLUE CROSS BLUE SHIELD OF OREGON), OCT 2003, $2,100,000 
CIN: A-07-05-04048  MEDICAID DRUG REBATE FOLLOW-UP - COLORADO, NOV 2005, 
$1,925,367 
63  Appendix D 
 
 
CIN: A-01-02-00516  REVIEW OF POTENTIALLY EXCESSIVE MEDICARE PAYMENTS FOR 
OUTPATIENT SERVICES UNITED GOVERNMENT SERVICES,          
MAR 2003, $1,768,783 
CIN: A-01-05-02500  REVIEW OF NEW HAMPSHIRES TRAINING AND IV-E ADOPTION 
ASSISTANCE COSTS, JAN 2006, $1,760,000 
CIN: A-03-01-00228  PENNSYLVANIA IMD UNDER 21, JUL 2005, $1,694,148 
CIN: A-02-04-01010  REVIEW OF PHYSICIAN PLACE OF SERVICE CODING FOR 
AMBULATORY SURGICAL AND RELATED PROCEDURES, JAN 2005, 
$1,467,318 
CIN: A-03-04-00209  VIRGINIA MEDICAID MANAGED CARE FAMILY PLANNING FACTOR 
VALIDATION AUDIT, JUN 2005, $1,388,506 
CIN: A-07-02-03021  ANTHEM BCBS OF CT - PENSION SEGMENT CLOSING, FEB 2004, 
$1,351,284 
CIN: A-04-03-02024  REVIEW OF BCBSFL RESPONSE TO SET-ASIDE COSTS IN PRIOR FACP 
AUDIT, APR 2003, $1,277,247 
CIN: A-07-04-00169  PENSION SEGMENTATION REVIEW AT PBS, NOV 2004, $1,214,985 
CIN: A-04-02-72903  STATE OF TENNESSEE, SEP 2002, $1,213,353 
CIN: A-04-03-01000  REVIEW OF HOME HEALTH SERVICES CLAIMED BY LIFELINE 
HEALTH GROUP, INC, JUN 2004, $1,173,330 
CIN: A-09-94-01010  CLOSEOUT AUDIT-CONT NO. N01-ES-75196 (STRATAGENE),           
MAR 1994, $983,208 
CIN: A-05-05-00018  REVIEW OF MICHIGANS MEDICAID REIMBURSEMENT TO 
TEACHING HOSPITALS FOR GRADUATE MEDICAL EDUCATION,    
FEB 2006, $955,060 
CIN: A-07-04-00182  PENSION SEGMENTATION REVIEW AT BLUE CROSS AND BLUE 
SHIELD OF MAINE, OCT 2005, $942,882 
CIN: A-07-05-00195  REVIEW OF SERP COSTS CLAIMED BY ADMINASTAR FEDERAL,     
JAN 2006, $934,728 
CIN: A-05-04-77356  TRI-VALLEY OPPORTUNITY COUNCIL INC., FEB 2004, $866,666 
CIN: A-06-03-00046  REVIEW OF OKLAHOMAS MEDICAID ADMINISTRATIVE COSTS,  
APR 2005, $853,915 
CIN: A-04-01-05004  REVIEW MEDICARE CLAIMS FOR DEPORTED BENEFICIARIES,     
MAR 2002, $836,711 
CIN: A-05-05-00032  MEDICAID GME IN OHIO, MAR 2006, $823,883 
CIN: A-06-03-00013  MEDICARE ADMINISTRATIVE COST PROPOSAL-ARKANSAS BCBS, 
OCT 2003, $759,748 
CIN: A-05-02-00041  INDIANA MEDICAID HOSPITAL PATIENT TRANSFERS, JAN 2003, 
$730,061 
CIN: A-09-03-00046  AUDIT OF ORGAN ACQUISITION COSTS AT ST VINCENT, JUL 2004, 
$683,315 
CIN: A-03-05-00202  COUNTY ADMINISTRATIVE SERVICE COSTS CLAIMED THROUGH 
MARYLANDS CAP, FEB 2006, $666,694 
CIN: A-06-03-00032  AUDIT OF ADMIN COSTS PART A & PART B OF MEDICARE 
PROGRAM-TRAILBLAZERS, APR 2004, $622,078 
CIN: A-01-04-00012  REVIEW OF UMASS MEDICAL SCHOOLS ADMINISTRATIVE COST 
CLAIMS - FY 2003 - FY 2004, MAR 2006, $614,022 
CIN: A-07-04-00170  REVIEW OF PENSION COSTS CLAIMED FOR MEDICARE 
REIMBURSEMENT FOR VERITUS, AUG 2004, $594,806 
CIN: A-04-04-06002  GME FOR DENTAL RESIDENTS - PA, JAN 2006, $579,977 
64  Appendix D 
 
 
CIN: A-02-03-01024  MEDICAID DRUG REBATE COLLECTIONS - NEW JERSEY, OCT 2004, 
$567,186 
CIN: A-05-04-00054  STATE AGENCY USE OF CONTRACTED SERVICES - OHIO, MAY 2005, 
$560,249 
CIN: A-07-02-03015  BCBS OF MN PENSION COSTS CLAIMED FOR MEDICARE 
REIMBURSEMENT, FEB 2003, $550,083 
CIN: A-05-02-72811  COMMUNITY ACTION OF GREATER INDIANAPOLIS INC., AUG 2002, 
$547,899 
CIN: A-01-04-00008  AUDIT OF MEDICAID PAYMENTS FOR SKILLED PROFESSIONAL 
MEDICAL PERSONNEL REIMBURSED AT ENHANCED RATES 
OCTOBER 1, 2002 THROUGH SEPTEMBER 30, 2003 OFFICE OF 
VERMONT HEALTH ACCESS, MAR 2005, $534,438 
CIN: A-03-92-16229  STATE OF PENNSYLVANIA, MAR 1992, $496,876 
CIN: A-02-02-01004  MEDICAID PPS TRANSFERS, MAY 2003, $493,158 
CIN: A-03-04-00205  MEDICAID PROVIDER OVERPAYMENTS-DELAWARE, OCT 2004, 
$437,592 
CIN: A-01-04-00506  REVIEW OF DISPROPORTIONATE SHARE HOSPITAL PAYMENTS 
CLAIMED BY SAINT MARYS HOSPITAL FOR FISCAL YEAR ENDING 
DECEMBER 31, 2002, MAY 2004, $433,502 
CIN: A-05-03-00053  ESRD PRICING ERRORS AT INDEPENDENT FACILITIES, NOV 2003, 
$407,300 
CIN: A-10-04-00003  MEDICAID OVERPAYMENTS IN WASHINGTON, SEP 2005, $396,941 
CIN: A-02-01-67912  STATE OF NEW YORK, MAR 2001, $389,536 
CIN: A-04-04-06011  GRADUATE MEDICAL EDUCATION FOR DENTAL RESIDENTS - IOWA, 
FEB 2006, $338,490 
CIN: A-05-01-00096  PAYMENTS TO INTER VALLEY FOR INSTITUTIONAL BENEFICIARIES, 
MAY 2002, $319,355 
CIN: A-03-04-00204  SKILLED PROFESSIONAL MEDICAL PERSONNEL (SPMP) - WEST 
VIRGINIA, DEC 2004, $299,360 
CIN: A-07-05-01013  PAYMENTS FOR M+C ORGANIZATION FOR INSTITUTIONAL 
BENEFICIARIES, OCT 2005, $293,885 
CIN: A-01-04-00522  THE MID COAST HOSPITAL IN MAINE DSH PAYMENT, SEP 2004, 
$289,936 
CIN: A-01-04-00003  APPLICATION CONTROLS AT NEW HAMPSHIRE MEDICAID STATE 
AGENCY, FEB 2005, $274,370 
CIN: A-01-05-00520  REVIEW OF FISCAL YEAR-END BILLING FOR INPATIENT 
REHABILITATION CLAIMS UNDER THE ADMINISTRATIVE 
RESPONSIBILITY OF ADMINISTAR FEDERAL FOR 2002, MAR 2006, 
$272,564 
CIN: A-09-94-30178  STATE OF ARIZONA, JUN 1994, $267,021 
CIN: A-07-04-00175  REVIEW OF UNFUNDED PENSION COSTS AT VERITUS, INC.,           
OCT 2004, $266,052 
CIN: A-05-02-00047  UNITED GOVERNMENT SERVICES, MEDICARE PART A ADMIN. 
COSTS FY 1999-2001, JUN 2003, $260,831 
CIN: A-07-03-02662  REVIEW OF MULTIPLE ASC PROCEDURES IN THE SAME SESSION 
NORDIAN, DEC 2002, $258,112 
CIN: A-01-05-00508  REVIEW OF FISCAL YEAR-END BILLING AT MAINE GENERAL 
MEDICAL CENTER, AUG 2005, $254,915 
65  Appendix D 
 
 
CIN: A-06-05-00039  REVIEW OF ARKANSAS ACCOUNTS RECEIVABLE SYSTEM FOR 
MEDICAID PROVIDER OVERPAYMENTS, JAN 2006, $238,928 
CIN: A-03-04-00353  ACCOUNTABILITY OVER CDC BT FUNDS, JUN 2005, $238,537 
CIN: A-05-01-00094  PAYMENTS TO KAISER OF OAKLAND FOR INSTITUTIONAL 
BENEFICIARIES, OCT 2002, $229,656 
CIN: A-02-01-01019  DEMO BSWNY - CASH MANAGEMENT, OCT 2002, $208,271 
CIN: A-05-04-00058  REVIEW OF INELIGIBLE SNF PAYMENTS UNDER THE 
ADMINISTRATIVE RESPONSIBILITY OF ANTHEM HEALTH PLANS OF 
NEW HAMPSHIRE, INC., JUL 2004, $206,495 
CIN: A-01-05-00509  REVIEW OF MEDICARE CONTRACT TERMINATION/SEVERANCE 
COSTS CLAIMED BY BLUE CROSS & BLUE SHIELD OF RHODE 
ISLAND (RIBCBS), SEP 2005,  $205,384 
CIN: A-01-04-01501  NORTHEASTERN UNIVERSITY DHHS GRANT COSTS GRANT #S 9274, 
4000 AND 4111, JAN 2005, $194,890 
CIN: A-07-01-02094  SURVEY OF OUTPATIENT OBSERVATION SERVICES, OCT 2002, 
$165,125 
CIN: A-07-05-00194  PENSION COSTS CLAIMED REVIEW AT ANTHEM INSURANCE 
COMPANIES - MAINE, OCT 2005, $163,107 
CIN: A-09-05-00077  REVIEW OF PACIFICARES USE OF ADDITIONAL CAPITATION 
UNDER THE MMA OF 2003, MAR 2006, $135,000 
CIN: A-07-04-03051  MEDICAID PROVIDER OVERPAYMENTS IN UTAH, AUG 2004, $132,749 
CIN: A-05-03-00067  ADMINISTRATIVE COSTS - WI MEDICAID WAIVERS, JUN 2004, 
$129,663 
CIN: A-01-03-00010  MEDICAID SCHOOL-BASED HEALTH SERVICES ADMINISTRATIVE 
CLAIMING REVIEW - RHODE ISLAND, JUN 2004, $123,010 
CIN: A-05-01-00091  PAYMENTS TO UNITED HC OF FLA FOR INSTITUTIONAL 
BENEFICIARIES, SEP 2002, $121,023 
CIN: A-02-96-02001  INTERNATIONAL RESCUE COMMITTEE - REFUGEE PROGRAM,      
JAN 1998, $114,631 
CIN: A-05-05-00044  DUPLICATE MEDICARE PAYMENTS TO COST-BASED HEALTH 
MAINTENANCE ORGANIZATION PLAN-ARNETT HEALTH PLANS, 
INC. FOR FISCAL YEARS 2000, THROUGH 2003, SEP 2005, $111,862 
CIN: A-01-02-00527  REVIEW OF ANTHEM BLUE CROSS/BLUE SHIELD MEDICARE 
CONTRACT TERMINATION AND SEVERANCE COSTS, SEP 2003, 
$104,468 
CIN: A-05-01-00079  PAYMENTS TO BLUE CARE MID-MI FOR INSTITUTIONAL 
BENEFICIARIES, JUN 2002, $100,692 
CIN: A-04-04-01002  USE OF CDC BIOTERRORISM GRANT FUNDS, JUL 2005, $98,929 
CIN: A-05-02-00067  REVIEW OF MEDICARE FEE-FOR-SERVICE PAYMENTS & COST 
REPORTS @ WELBORN, JUN 2003, $97,623 
CIN: A-10-05-80407  FIRST A.M.E. CHILD & FAMILY CENTER, MAR 2005, $96,803 
CIN: A-09-97-00066  WALTER MCDONALD - INDIRECT COST RATE AUDIT, MAR 1998, 
$95,733 
CIN: A-05-05-00042  DUPLICATE MEDICARE PAYMENTS TO COST-BASED HEALTH 
MAINTENANCE ORGANIZATION PLAN-DEAN HEALTH PLANS, INC. 
FOR FISCAL YEARS 2000, THROUGH 2003, AUG 2005, $91,710 
CIN: A-05-02-00074  IL PARTNERSHIP PLAN - TRANSPORTATION DURING AN INPATIENT 
STAY, APR 2003, $89,147 
66  Appendix D 
 
 
CIN: A-05-01-00090  PAYMENTS TO AETNA OF FOR INSTITUTIONAL BENEFICIARIES,   
JUL 2002, $87,516 
CIN: A-01-04-77722  STATE OF RHODE ISLAND & PROVIDENCE PLANTATIONS, JAN 2004, 
$86,792 
CIN: A-05-05-00043  DUPLICATE MEDICARE PAYMENTS TO COST-BASED HEALTH 
MAINTENANCE ORGANIZATION PLAN - JOHN DEERE HEALTH 
PLANS, INC.FOR FISCAL YEARS 2000 THROUGH 2003, SEP 2005, 
$78,799 
CIN: A-05-04-00061  REVIEW OF INELIGIBLE SNF PAYMENTS UNDER THE 
ADMINISTRATIVE RESPONSIBILITY OF BLUE CROSS BLUE SHIELD 
OF NEBRASKA, DEC 2004, $78,352 
CIN: A-05-01-00089  ADDITIONAL BENEFITS REVIEW ON MANAGED CARE 
ORGANIZATION, OCT 2002, $77,000 
CIN: A-01-03-75448  STATE OF NEW HAMPSHIRE, APR 2003, $65,917 
CIN: A-04-05-02000  AUDIT OF HHA THERAPY BILLINGS, SEP 2005, $63,425 
CIN: A-05-01-00086  PAYMENTS TO HMO OF NE PA FOR INSTITUTIONAL BENEFICIARIES, 
MAY 2002, $62,432 
CIN: A-09-04-00029  REVIEW OF AIR AMBULANCE SERVICES FOR CALENDAR YEAR 2002, 
JUL 2005, $62,408 
CIN: A-05-02-00054  UNITED GOVERNMENT SERVICES, Y2K COSTS FY 1998 & 1999,      
APR 2003, $49,923 
CIN: A-02-99-58263  PUERTO RICO OFFICE OF THE GOVERNOR OFFICE OF CHILD,         
JUL 1999, $49,684 
CIN: A-03-02-00373  REVIEW OF US HELPING US, DEC 2003, $45,558 
CIN: A-01-03-01500  REVIEW OF CDC HIV PROGRAMS AT GREATER BRIDGEPORT 
ADOLESCENT PREGNANCY PROGRAM, JUL 2003, $41,088 
CIN: A-05-03-00105  AUDIT OF MEDICAID NURSING FACILITY ADMINISTRATIVE COSTS, 
OCT 2004, $39,104 
CIN: A-07-04-04035  REVIEW OF MEDICARE OUTLIER PAYMENTS TO FOUNDATION 
CMHC, APR 2005, $36,000 
CIN: A-02-00-65502  ABYSSINIAN DEVELOPMENT CORP., AUG 2000, $34,737 
CIN: A-05-02-69155  STATE OF WISCONSIN, DEC 2001, $30,900 
CIN: A-08-03-73541  SOUTH DAKOTA FOUNDATION FOR MEDICAL CARE, JAN 2003, 
$28,573 
CIN: A-03-98-03301  AAUAP - INCURRED COST REVIEW - HHS 105-95-7011, APR 1998, 
$28,289 
CIN: A-05-03-00097  MEDICARE OUTPATIENT CARDIAC REHAB - NORTHFIELD 
HOSPITAL, NOV 2003, $27,013 
CIN: A-07-02-00150  PAYMENTS TO COVENTRY-PITTSBURG FOR INSTITUTIONAL 
BENEFICIARIES, JUN 2003, $26,000 
CIN: A-01-04-78952  STATE OF CONNECTICUT, AUG 2004, $24,457 
CIN: A-05-01-00078  PAYMENTS TO HEALTH NET-TUCSON, AZ.-FOR INSTITUTIONAL 
BENEFICIARIES, APR 2002, 21,233 
CIN: A-05-02-70624  STATE OF OHIO, JAN 2002, $19,970 
CIN: A-04-01-67441  CATAWBA INDIAN NATION, APR 2001, $19,204 
CIN: A-08-04-76779  COLORADO FOUNDATION FOR MEDICAL CARE, DEC 2003, $18,925 
CIN: A-05-01-00100  PAYMENTS TO FALLON HEALTH FOR INSTITUTIONALIZED 
BENEFICIARIES, MAY 2002, $18,842 
67  Appendix D 
 
 
CIN: A-05-01-00095  PAYMENTS TO HUMANA OF ARIZONA FOR INSTITUTIONAL 
BENEFICIARIES, JUN 2002, $18,645 
CIN: A-07-03-00151  REVIEW OF MEDICARE PAYMENTS FOR BENEFICIARIES WITH 
INSTITUTIONAL STATUS, JUN 2003, $18,400 
CIN: A-10-04-76879  STATE OF ALASKA, DEC 2003, $18,226 
CIN: A-01-02-01504  REVIEW OF CDCS HIV PROGRAMS AT FENWAY COMMUNITY 
HEALTH CENTER, JUN 2003, $18,028 
CIN: A-07-06-00203  REVIEW OF MEDICARE SEGMENT ASSETS FOR NONQUALIFIED 
PLAN FOR HIGHMARK & PREDECESSORS, JAN 2006, 13,533 
CIN: A-07-04-01011  PAYMENTS FOR UNITED HEALTHCARE FOR INSTITUTIONAL 
BENEFICIARIES, MAR 2005, $13,128 
CIN: A-03-04-00001  RAYTEL CARDIAC SERVICES- OCIG ASSIST, JAN 2006, $12,315 
CIN: A-05-01-00070  PAYMENTS TO GHP MCO/ST LOUIS FOR INSTITUTIONAL 
BENEFICIARIES, JAN 2002, $11,089 
CIN: A-09-05-00058  WEDGE: HAWAII MEDICAID NURSING FACILITIES EXPENDITURES, 
FEB 2006, $9,562 
CIN: A-05-04-00030  PAYMENTS FOR SERVICES TO DECEASED MEDICAID 
BENEFICIARIES - MASSACHUSETTS, FEB 2005, $4,696 
CIN: A-04-03-01006  OUTPATIENT CARDIAC REHAB SERVICES AT MORTON PLANT 
HOSPITAL, JAN 2004, $4,426 
CIN: A-06-04-00092  REVIEW OF ARTERIAL STENTS - MUTUAL OF OMAHA CLAIMS,    
DEC 2005, $4,109 
CIN: A-02-02-01035  EVALUATION OF BID PROPOSAL - MEDICARE HELP LINE, AUG 2002, 
$3,760 
CIN: A-05-03-00084  MEDICARE OUTPATIENT CARDIAC REHAB - NORTHERN MICHIGAN 
HOSPITAL, OCT 2003, $3,738 
CIN: A-03-95-03318  TRANS-MANAGEMENT SYSTEMS 105-92-1527 (CCO), MAY 1996, $3,016 
CIN: A-04-95-33088  STATE OF NORTH CAROLINA, APR 1995, $2,734 
CIN: A-04-03-01002  OUTPATIENT HOSPITAL CARDIAC REHAB - MEMORIAL HOSPITAL 
JACKSONVILLE, NOV 2003, $2,123 
CIN: A-04-03-01005  OUTPATIENT CARDIAC REHAB SERVICES CENTRAL FL REGIONAL 
HOSPITAL, NOV 2003, $2,003 
CIN: A-02-03-01026  MEADOWLANDS HOSPITAL MEDICAL CENTER CARDIAC REHAB 
SERVICES, JAN 2004, $1,703 
CIN: A-06-02-00032  CMS FY 01 MEDICARE ERROR RATE - ARK BC/BS REPORT, NOV 2002, 
$1,311 
CIN: A-05-03-00070  MEDICARE OUTPATIENT CARDIAC REHAB - ST.CHARLES MERCY 
HOSP, OCT 2003, $1,158 
CIN: A-03-03-00393  AUDIT OF CDC HIV/AIDS GRANT TO SEXUAL MINORITY YOUTH 
ASSISTANCE LEAGUE, OCT 2003, $1,155 
Total CINs:  187 
TOTAL AMOUNT:  $1,942,621,749 
 
 
 
 
B. The following audit is open pending the resolution of the contractors termination audit-related    
termination agreements and pending lawsuits: 
 
68  Appendix D 
 
 
CIN: A-04-01-67441   CATAWBA INDIAN NATION.  UNABLE TO DETERMINE WHEN THE 
REPORT WILL BE CLOSED.  THE REPORT HAS 1 MONETARY FINDING 
FOR $19,204, MAY 2001.   
 
Notes to Table 2 
 
1The opening balance was adjusted downward by $10 million. 
 
2Management decision has not been made within 6 months on 32 reports. 
 
A.  Discussions with management are ongoing and it is expected that the following audits will be 
resolved by the next semiannual reporting period: 
  
 
CIN: A-06-01-00041  AUDIT OF THE TX DISPROPORTIONATE SHARE HOSP PROG 
PAYMENT METHODOLOGY, FEB 2003, $319,200,000 
CIN: A-07-04-04038  MEDICAID HOSPITAL OUTLIER PAYMENTS IN NORTH CAROLINA, 
JAN 2006, $89,420,140 
CIN: A-07-04-04031  MEDICAID HOSPITAL OUTLIER PAYMENTS IN ILLINOIS, MAY 2005, 
$56,449,668 
CIN: A-01-02-0050  FURTHER EXPANSION OF THE DRG PAYMENT WINDOW, AUG 2003, 
$37,000,000 
CIN: A-05-04-00064  OHIO MEDICAID HOSPITAL OUTLIER PAYMENTS, MAR 2006, 
$24,700,000 
CIN: A-05-02-00078  ROLLUP OF MEDICARE PAYMENTS FOR BENEFICIARIES WITH 
INSTITUTIONAL STATUS, FEB 2004, $12,764,202 
CIN: A-03-04-00211  MEDICAID HOSPITAL OUTLIER PAYMENTS - PENNSYLVANIA,     
NOV 2005, $11,420,000 
CIN: A-05-03-00019  PAYMENTS FOR SERVICES TO DECEASED RECIPIENTS - NEW YORK, 
OCT 2004, $6,707,623 
CIN: A-05-04-00073  ROLL-UP ON ADDITIONAL GPOS, MAY 2005, $6,600,000 
CIN: A-05-02-00077  MICHIGAN MEDICAID/SCHIP REVIEW, NOV 2003, $5,908,350 
CIN: A-03-02-00203  VIRGINIA - SCHIP/TITLE IV - D SURVEY, JUL 2004, $5,402,491 
CIN: A-05-05-00022  REVIEW OF RIVERSIDE MEDICAL CENTERS WAGE DATA USED FOR 
CALCULATING INPATIENT PROSPECTIVE PAYMENT SYSTEM WAGE 
INDICES, MAR 2006, $4,388,324 
CIN: A-06-00-00073  REV OF MGR CARE ADDTL BENEFITS FOR CY 00 OF NYLCAR,      
MAR 2002, $4,000,000 
CIN: A-01-04-02503  REVIEW OF MAINES ADOPTION ASSISTANCE SUBSIDY PAYMENTS, 
APR 2005, $1,900,000 
CIN: A-05-02-00075  INDIANA MEDICAID/SCHIP REVIEW, NOV 2003, $1,885,708 
CIN: A-05-04-00025  REVIEW OF MEDICARE PHYSICIAN PLACE OF SERVICE CODING FOR 
AMBULATORY SURGICAL AND RELATED PROCEDURES, OCT 2004, 
$742,510 
CIN: A-05-02-00082  BID PROPOSAL FOR 1-800 MEDICARE HOTLINE ADMINISTRATION, 
AUG 2002, $609,950 
CIN: A-05-03-00021  CIMRO PRO PRE-AWARD AUDIT FOR NEBRASKA, NOV 2002, $504,650 
CIN: A-05-04-00030  PAYMENTS FOR SERVICES TO DECEASED MEDICAID 
BENEFICIARIES - MASSACHUSETTS, FEB 2005, $503,715 
69  Appendix D 
 
 
CIN: A-05-04-00054  STATE AGENCY USE OF CONTRACTED SERVICES - OHIO, MAY 2005, 
$277,243 
CIN: A-07-04-01008  FAMILY PLANNING - FEE-FOR-SERVICE - COLORADO, JAN 2005, 
$269,024 
CIN: A-05-00-00006  MEDICAID MUTUALLY EXCLUSIVE CODES - MI, JUN 2000, $240,000 
CIN: A-05-04-00023  HEAD START COMPENSATION REVIEW - CEOGC, JAN 2005, $178,000 
CIN: A-01-05-00512  REVIEW OF 2004 ACRP MODIFICATION SUBMITTED AS A RESULT OF 
MMA FOR THE FALLON COMMUNITY HEALTH PLAN, JAN 2006, 
$154,970 
CIN: A-05-02-00023  SCHOOL-BASED MEDICAID ADMIN & SERVICE COSTS - WISCONSIN, 
MAR 2003, $144,909 
CIN: A-05-03-00059  ESRD #9 PRE-AWARD AUDIT (RFP-CMS-03-001/JAC), MAY 2003, 
$139,816 
CIN: A-04-03-08013  ESRD NETWORK COST PROPOSAL, MAY 2003, $116,085 
CIN: A-05-03-00060  ESRD #10 PREAWARD AUDIT (RFP-CMS-03-001/JAC), MAY 2003, 
$114,289 
CIN: A-05-01-00070  PAYMENTS TO GHP MCO/ST LOUIS FOR INSTITUTIONAL 
BENEFICIARIES, JAN 2002, $98,698 
CIN: A-02-96-02001  INTERNATIONAL RESCUE COMMITTEE - REFUGEE PROGRAM,      
JAN 1998, $90,528 
CIN: A-05-02-00084  MEDICARE OUTPATIENT CARDIAC REHAB - ST. LUKES MEDICAL 
CENTER, JUL 2003, $47,247 
CIN: A-05-04-00051  ALLOWABILITY OF CDC BIOTERRORISM COSTS - OHIO 
DEPARTMENT OF HEALTH, FEB 2005, $4,154 
 
Total CINs:  32 
TOTAL AMOUNT:  $591,982,294
 
70   
Appendix E:  Reporting Requirements of the Inspector 
General Act of 1978, as Amended 
 
The reporting requirements of the Inspector General Act of 1978, as amended, are listed 
below with reference to the page in the semiannual report on which each is addressed.  
Where there are no data to report under a particular requirement, the word None 
appears in the column.  A complete listing of audit and inspection reports is being 
furnished to Congress under separate cover.  Copies are available upon request. 
 
Section of the Act   Requirement  Page 
Section 4(a)(2)  Review of legislation and regulations  p. 45 
     
Section 5     
  (a)(1)  Significant problems, abuses, and deficiencies  Throughout 
  (a)(2)  Recommendations with respect to significant  Throughout 
problems, abuses, and deficiencies 
  (a)(3)  Prior significant recommendations on which corrective  See the Red Book and 
action has not been completed   Orange Book at 
http://oig.hhs.gov. 
  (a)(4)  Matters referred to prosecutive authorities  p. 46 
  (a)(5)  Summary of instances in which information was  None 
refused  
  (a)(6)  List of audit reports  Under separate cover 
  (a)(7)  Summary of significant reports  Throughout 
  (a)(8)  Statistical Table 1Reports With Questioned Costs  p. 43 
  (a)(9)  Statistical Table 2Funds Recommended To Be Put  p. 44 
to Better Use 
  (a)(10)  Summary of previous audit reports without  Appendix D 
management decisions 
  (a)(11)  Description and explanation of revised management  Appendix D 
decisions 
  (a)(12)  Management decisions with which the Inspector  None 
General is in disagreement 
 
71    
Appendix F:  Status of Public Proposals for New and Modified 
Safe Harbors to the Anti-Kickback Statute Pursuant to Section 
205 of the Health Insurance Portability and Accountability Act 
of 1996 
 
Pursuant to section 205 of the Health Insurance Portability and Accountability Act of 
1996 (HIPAA), Public Law 104191, the Inspector General (IG) is required to solicit 
proposals annually via Federal Register notice for developing new and modifying 
existing safe harbors to the anti-kickback statute and for developing special fraud alerts.  
The IG is also required to report to Congress annually on the status of the proposals. 
In crafting safe harbors for a criminal statute, it is incumbent upon OIG to engage in a 
complete and careful review of the range of factual circumstances that may fall within the 
proposed safe harbor subject area, so as to uncover all potential opportunities for fraud 
and abuse by unscrupulous providers.  Having done so, OIG must then determine, in 
consultation with the Department of Justice, whether it can develop effective regulatory 
limitations and controls that will permit beneficial or innocuous arrangements, but also 
protect the Federal health care programs and their beneficiaries from abusive practices. 
In response to the 2005 annual solicitation, OIG received the following proposals related 
to safe harbors: 
Proposal   OIG Response 
New safe harbor to protect intellectual property royalty  OIG is not adopting this suggestion.  The 
payments to medical innovators.  arrangements described are subject to abuse and 
should be evaluated on a case-by-case basis, such as 
under the advisory opinion procedures. 
Modification of existing group purchasing organization  These suggestions require further study. 
(GPO) safe harbor to clarify:  (i) the application of the 
safe harbor to pharmacy benefit managers; (ii) the 
application of the wholly owned standard; and (iii) 
the treatment of administrative fees distributed by a 
GPO to its members. 
Modification of discount safe harbor with respect to  This suggestion requires further study. 
Medicare Part D plans to incorporate documentation 
and disclosure standards for manufacturers, Part D 
plans, and certain other business relationships. 
Modification of discount safe harbor to update  These suggestions require further study. 
disclosure requirements and standardize requirements 
for offerors and sellers. 
New safe harbor applying to investment interests of  OIG is not adopting this suggestion.  The 
physicians in specialty hospitals that receive their  arrangements described are subject to abuse and 
patient referrals.  should be evaluated on a case-by-case basis, such as 
under the advisory opinion procedures.  Depending 
on the facts, existing safe harbors may be applicable. 
New safe harbor specifying conditions under which  OIG is not adopting this suggestion.  The 
Medicare patients could receive different types of  arrangements described are subject to abuse and 
services (e.g., educational services, home environment  should be evaluated on a case-by-case basis, such as 
assessment) from home care providers prior to  under the advisory opinion procedures. 
scheduled hospital procedures. 
73  Appendix F 
 
 
Proposal   OIG Response 
New safe harbor for assisting physicians with the  OIG published a final rule regarding new electronic 
adoption of electronic health records technology.  This  prescribing and electronic health records safe harbors.  
safe harbor should complement the previously  See 71 FR 45110 (August 8, 2006). 
announced proposed safe harbor for e-prescribing 
technology.   
 
In addition to the proposals in the preceding table (some of which duplicate proposals from 
past years), OIG has had under consideration a number of suggestions reported in prior 
years.  The following table updates the status of those suggestions:   
Proposal   OIG Response 
New safe harbor for implementation of electronic health  OIG published a final rule regarding new electronic 
record systems between hospitals, health systems, and  prescribing and electronic health records safe harbors.  
multi-specialty group practices and for the provision of  See 71 FR 45110 (August 8, 2006). 
standardized software and hardware to physicians 
without charge. 
New safe harbor for implementation of a community  OIG has solicited comments regarding this 
wide health information network.  suggestion.  See 70 FR 59015 at 59024 (October 11, 
2005). 
Modification of existing safe harbor for obstetrical  This suggestion requires further study. 
malpractice insurance subsidies to include 
(i) additional types of physicians and (ii) subsidies 
where there is documented need and the subsidy 
amount is limited in scope and duration. 
New safe harbor for manufacturer donations to  This issue has been addressed in OIGs Special 
charitable organizations that provide items or services  Advisory Bulletin on Patient Assistance Programs 
to financially needy patients, including copayment  for Medicare Part D Enrollees, issued on November 
assistance.  7, 2005, and in several advisory opinions.  OIG 
continues to consider this suggestion. 
Modification of the discount safe harbor to clarify its  This suggestion requires further study. 
application to the additional entities with which 
pharmaceutical manufacturers may contract under 
MMA (e.g., discount drug card sponsors, pharmacy 
benefits managers, retail pharmacies, and Part D drug 
plan sponsors). 
New safe harbor for certain practices related to  This issue was addressed in the OIG Supplemental 
economic credentialing of physicians by hospitals. Compliance Program Guidance for Hospitals, issued 
    on January 31, 2005.  Public comments previously 
received variously suggest issuance of different types 
of guidance; some comments suggest that OIG take 
no action.  OIG is reviewing the comments and 
studying the issue.   
Modification of the Medicare SELECT safe harbor to  These suggestions require further study.  In 
cover (i) coinsurance waivers for inpatient services  September 2002, OIG issued a notice of proposed 
negotiated between a hospital and an Employee  rulemaking to make certain modifications to the safe 
Retirement Income Security Act employee welfare  harbor.  The public comments to that rulemaking are 
benefit plan that covers retirees and (ii) Part B waivers  under review. 
for employer group plans. 
New anti-kickback safe harbor for inducements offered  OIG is considering this suggestion. 
to beneficiaries that fit in an exception to the 
beneficiary inducements civil monetary penalties 
statute at 42 U.S.C. 1320a-7a(a)(5). 
Modification of the existing shared risk exception to  OIG is considering these suggestions. 
cover (i) second tier contractors of Federally qualified 
74  Appendix F 
 
 
Proposal   OIG Response 
health centers (FQHCs) and (ii) the TRICARE 
program. 
New safe harbor for certain fee-for-service arrangements  OIG published a proposed rule regarding FQHC 
between FQHCs and other providers, practitioners, and  arrangements.  See 70 FR 38081 (July 1, 2005).  
suppliers.  The public comments are under review. 
Modification of the discount safe harbor to include a  OIG is considering this suggestion. 
discount obtained by a commercial health plan that 
does not file claims with the Federal health care 
programs, where the discount otherwise meets the safe 
harbor conditions. 
Modification of the discount safe harbor to clarify its  This suggestion requires further study.   
application to discounts applied to a manufacturers 
full product line. 
Modification of the discount safe harbors reporting  This suggestion requires further study.   
requirements. 
Modification of the existing safe harbors to conform  OIG is considering making some conforming 
them to the final regulations under the physician self- changes with respect to the group practice safe harbor.  
referral statute published by the Centers for Medicare &  With respect to other safe harbors, the statutes 
Medicaid Services (CMS), and new safe harbors  generally serve somewhat different purposes, and 
analogous to the new self-referral exceptions created by  conforming the safe harbors to the self-referral 
the CMS regulations.  exceptions may not be appropriate. 
Modification of the ambulatory surgical centers (ASC)  OIG is considering this suggestion. 
safe harbor to address protection of start-up multi-
specialty ASCs that otherwise comply with the current 
safe harbor conditions. 
Modification of the safe harbor for ASCs jointly owned  OIG is considering this suggestion. 
by hospitals and physicians to add conditions under 
which a hospital would not be in a position to make 
or influence referrals. 
Modification of the ASC safe harbor to indicate  OIG is considering this suggestion. 
whether an ASC can require investors to comply with 
safe harbor conditions. 
Modification of the ASC safe harbor to clarify (i) the  OIG is considering this suggestion. 
use of pass-through entities to hold ownership 
interests and (ii) the treatment of physician investors 
who invest at different times. 
New safe harbor for rural health networks operating  This suggestion requires further study. 
pursuant to the Medicare Rural Hospital Flexibility 
Program. 
New safe harbor for arrangements that comply with  This suggestion requires further study. 
section 513 of the IRS Code pertaining to the 
provision of certain supporting goods and services by 
tax-exempt hospitals to other tax-exempt hospitals. 
 
75    
Appendix G:  Summary of Sanction Authorities 
 
The Inspector General Act of 1978 (Public Law 95-452), as amended, sets forth specific 
requirements for semiannual reports to be made to the Secretary for transmittal to 
Congress.  A selection of other authorities appears below: 
 
Program Exclusions 
Section 1128 of the Social Security Act (42 U.S.C.  1320a-7) provides several grounds 
for excluding individuals and entities from participation in Medicare, Medicaid, and other 
Federal health care programs.  Exclusions are required for individuals and entities 
convicted of the following types of criminal offenses:  (1) Medicare or Medicaid fraud; 
(2) patient abuse or neglect; (3) felonies for other health care fraud; and (4) felonies for 
illegal manufacture, distribution, prescription, or dispensing of controlled substances.  
OIG has the discretion to exclude individuals and entities on several other grounds, 
including misdemeanors for other health care fraud (other than Medicare or Medicaid) or 
for illegal manufacture, distribution, prescription, or dispensing of controlled substances; 
suspension or revocation of a license to provide health care for reasons bearing on 
professional competence, professional performance, or financial integrity; provision of 
unnecessary or substandard services; submission of false or fraudulent claims to a Federal 
health care program; or engaging in unlawful kickback arrangements. 
 
Providers subject to exclusion are granted due process rights (including a hearing before 
an HHS administrative law judge and appeals to the HHS Departmental Appeals Board 
and Federal district and appellate courts) regarding whether the basis for the exclusion 
exists and the length of the exclusion is reasonable. 
 
Patient Dumping 
Section 1867 of the Social Security Act (42 U.S.C.  1395dd) provides that when an 
individual presents to the emergency room of a Medicare-participating hospital, the 
hospital must provide an appropriate medical screening examination to determine 
whether that individual has an emergency medical condition.  If an individual has such a 
condition, the hospital must provide either treatment to stabilize the condition or an 
appropriate transfer to another medical facility. 
 
If a transfer is ordered, the transferring hospital must provide stabilizing treatment to 
minimize the risks of transfer and must ensure that the receiving hospital agrees to the 
transfer and has available space and qualified personnel to treat the individual.  In 
addition, the transferring hospital must effect the transfer through qualified personnel and 
transportation equipment.  Further, a participating hospital with specialized capabilities or 
facilities may not refuse to accept an appropriate transfer of an individual who needs 
services if the hospital has the capacity to treat the individual. 
 
OIG is authorized to collect civil monetary penalties of up to $25,000 against small 
hospitals (fewer than 100 beds) and up to $50,000 against larger hospitals (100 beds or 
more) for each instance in which the hospital negligently violated any of the section 1867 
requirements.  In addition, OIG may collect a penalty of up to $50,000 from a responsible 
77  Appendix G 
 
 
physician for each negligent violation of any of the section 1867 requirements and, in 
some circumstances, may exclude a responsible physician. 
 
Civil Monetary Penalties Law 
Under the Civil Monetary Penalties Law (CMPL), section 1128A of the Social Security 
Act (42 U.S.C.  1320a-7a), a person is subject to penalties, assessments, and exclusion 
from participation in Federal health care programs for engaging in certain activities.  For 
example, a person who submits to a Federal health care program a claim for items and 
services that the person knows or should know is false or fraudulent is subject to a 
penalty of up to $10,000 for each item or service falsely or fraudulently claimed, an 
assessment of up to three times the amount falsely or fraudulently claimed, and 
exclusion. 
 
For the purposes of the CMPL, should know is defined to mean that the person acted in 
reckless disregard or deliberate ignorance of the truth or falsity of the claim.  The CMPL 
also authorizes actions for a variety of other violations, including submission of claims 
for items or services furnished by an excluded person; requests for payment in violation 
of an assignment agreement; violations of rules regarding the possession, use, and 
transfer of biological agents and toxins; and payment or receipt of remuneration in 
violation of the anti-kickback statute (42 U.S.C.  1320a-7b(b)). 
 
Anti-Kickback Statute and Civil False Claims Act Enforcement Authorities 
 
The Anti-Kickback StatuteThe anti-kickback statute authorizes penalties against 
anyone who knowingly and willfully solicits, receives, offers, or pays remuneration, in 
cash or in kind, to induce or in return for (1) referring an individual to a person or entity 
for the furnishing, or arranging for the furnishing, of any item or service payable under 
the Federal health care programs; or (2) purchasing, leasing or ordering, or arranging for 
or recommending the purchasing, leasing, or ordering of any good, facility, service, or 
item payable under the Federal health care programs (Section 1128B(b) of the Social 
Security Act, 42 U.S.C.  1320a-7b). 
 
Individuals and entities that engage in unlawful referral or kickback schemes may be 
subject to criminal penalties under the general criminal anti-kickback statute, civil 
monetary penalties under OIGs CMPL authority (Section 1128A(a)(7) of the Social 
Security Act, 42 U.S.C.  1320a-7a), and/or program exclusion under OIGs permissive 
exclusion authority (Section 1128(b)(7) of the Social Security Act, 42 U.S.C.  1320a-
7(b)(7)). 
 
False Claims ActUnder the Federal civil False Claims Act (FCA) (31 U.S.C.  3729-
3733), a person or entity is liable for up to treble damages and a penalty between $5,500 
and $11,000 for each false claim it knowingly submits or causes to be submitted to a 
Federal program.  Similarly, a person or entity is liable under the FCA if it knowingly 
makes or uses, or causes to be made or used, a false record or statement to have a false 
claim paid. 
 
78  Appendix G 
 
 
The FCA defines knowing to include not only the traditional definition but also 
instances in which the person acted in deliberate ignorance of the truth or falsity of the 
information or in reckless disregard of the truth or falsity of the information.  Under the 
FCA, no specific intent to defraud is required.  Further, the FCA contains a qui tam, or 
whistleblower, provision that allows a private individual to file suit on behalf of the 
United States and entitles that whistleblower to a percentage of any fraud recoveries. 
79