OIG Components  Department of Health and Human Services 
OIG HOTLINE: 800-HHS-TIPS
With more than 1,500 staff throughout the Nation, OIG plans and carries out audits, evaluations,  
investigations, and legal activities through the following four components: 
S Office of Audit Services  The Office of Audit Services (OAS) conducts financial   To report matters involving fraud, waste, abuse, and mismanagement in any departmental program(s) 
and performance audits of departmental programs, operations, grantees, and 
A contractors following Government Auditing Standards issued by the Government 
Accountability Office. Financial audits principally provide reasonable assurance 
O about whether financial statements are presented fairly in all material respects;  Phone: 1-800-HHS-TIPS  TTY: 1-800-377-4950 
performance audits assess the achievement of objectives and identify the presence      1-800-447-8477  Fax:   1-800-223-8164 
of systemic weaknesses giving rise to waste, fraud, or abuse. Recommendations 
address problems, such as improper payments and inefficient and ineffective use 
of resources. OAS performs audits or oversees the audit work of others through 
a nationwide network of auditors, information technology experts, and other 
professionals.   
E-Mail:  HHSTips@oig.hhs.gov 
 
I Office of Evaluation and Inspections  The Office of Evaluation and Inspections  
E
(OEI) conducts national evaluations to provide HHS, Congress, and the public 
with timely, useful, and reliable information on significant issues. These evaluations, 
O
conducted by a nationwide staff of evaluators and other professionals, focus on  
Mail:  Office of Inspector General 
preventing fraud, waste, or abuse and promoting economy, efficiency, and effectiveness  
          Department of Health and Human Services 
of departmental programs. To promote impact, OEI reports also present practical 
          Attn: Hotline 
recommendations for improving program operations. 
            PO BOX 23489 
I Office of Investigations  The Office of Investigations (OI) conducts and coordinates             Washington, DC 20026           
O
investigations of fraud and misconduct related to the Departments programs, 
operations, and beneficiaries. With investigators working in all 50 States, OI leverages  
its resources by actively coordinating with the Department of Justice and other law 
enforcement authorities. OI identifies systemic weaknesses that leave Department 
programs vulnerable to fraud and recovers damages and penalties through civil and 
administrative proceedings. 
 
G Office of Counsel to the Inspector General  The Office of Counsel to the 
Inspector General (OCIG) provides legal advice and representation to OIG on 
matters relating to Medicare, Medicaid, and other HHS programs and operations, 
I
C administrative law issues, criminal procedure, and internal OIG management. 
OCIG represents OIG in all civil and administrative fraud and abuse cases involving 
HHS programs, including False Claims Act, program exclusion, and civil monetary 
O
penalty cases. In connection with these cases, OCIG also negotiates and monitors 
corporate integrity agreements. Finally, OCIG renders advisory opinions, issues fraud 
alerts, and provides other guidance to the health care industry concerning the Federal  
anti-kickback statute and OIG sanctions.  April 1, 2008-September 30, 2008
   
Top Management Challenges 
As part of the Department of Health and Human Services (HHS) Agency Financial 
Report for Fiscal Year 2007, OIG has identified the most significant management and 
performance challenges facing the Department.  These challenges are listed below: 
Top Management Challenges 
 
1.  Oversight of Medicare Part D 
2.  Medicare Integrity  
3.  Medicaid and SCHIP Integrity 
4.  Quality of Care 
5.  Emergency Preparedness and Response 
6.  Oversight of Food, Drugs, and Medical Devices 
7.  Grants Management 
8.  Integrity of Information Technology Systems and 
Infrastructure 
9.  Ethics Program Oversight and Enforcement  Message from the Inspector General 
This report, which is submitted to Congress pursuant to the 
Inspector General Act of 1978, as amended, summarizes the 
activities of the Office of Inspector General (OIG) for the 
6-month period ending September 30, 2008. 
Worth noting among the highlights for this period is a new 
standing section entitled Industry Guidance.  As Health and 
Human Services health care programs have grown in size and 
complexity over the past decade, OIG has engaged in outreach to foster a culture of 
compliance within the health care industry.  Among the most significant means of 
outreach are open letters and voluntary compliance program guidance (CPG).  During 
this period, we issued an Open Letter to Health Care Providers setting forth certain key 
refinements to the original Self-Disclosure Protocol of 1998.  In addition, we issued a 
new Supplemental CPG for nursing facilities.  These new issuances, which can assist 
providers in their efforts to adhere to program requirements and to take corrective action, 
are important additions to the growing body of OIG compliance tools. 
Additionally, OIG has continued to focus on an expanding docket of audits, 
investigations, and evaluations, yielding many notable accomplishments in advancing 
program savings, integrity and efficiency, and quality of care.  It is through the efforts of 
our professional staff nationwide, in collaboration with program and law enforcement 
partners, that we once again report substantial audit and investigative receivables, as well 
as savings through implemented recommendations.  Furthermore, our reviews of key 
Federal health care program payment processes have yielded findings and 
recommendations that are expected to contribute significantly to better financial 
accountability. 
We have achieved significant results in our fight against health care fraud, waste, and 
abuse through the effective use of our statutory funding streams directed toward 
Medicare and Medicaid integrity activities.  We have successfully employed innovative 
techniques, such as those used by the Medicare Fraud Strike Force in South Florida and 
Los Angeles, to identify and hold accountable those who have defrauded the program.  
As OIG begins to experience the beneficial impact of a new, dedicated $25-million 
funding stream to address Medicaid oversight and integrity issues, we are becoming 
better positioned than ever before to help account for and protect the growing Federal 
Medicaid expenditures.  On the other hand, we are increasingly challenged to provide 
comprehensive coverage of the Public Health and Human Service programs and other 
departmental issues, which also continue to grow in size, scope, and complexity. 
As we enter the final months of this 30th anniversary year of the Inspector General Act of 
1978, I would once again like to express my appreciation to Congress and to the 
Department for their sustained commitment to supporting the important mission of our 
office. 
 
Daniel R. Levinson 
Inspector General     
Highlights 
Summary of Accomplishments 
For fiscal year (FY) 2008, the Department of Health and Human Services (HHS) Office 
of Inspector General (OIG) reported savings and expected recoveries of more than 
$20.4 billion:  $16.72 billion in implemented recommendations to put funds to better use, 
$1.33 billion in audit receivables, and $2.35 billion* in investigative receivables. 
Also for this FY, OIG reported exclusions of 3,129 individuals and entities for fraud or 
abuse involving Federal health care programs and/or their beneficiaries; 575 criminal 
actions against individuals or entities that engaged in crimes against departmental 
programs; and 342 civil actions, which included False Claims Act (FCA) and unjust 
enrichment lawsuits filed in Federal district court, Civil Monetary Penalties Law (CMPL) 
settlements, and administrative recoveries related to provider self-disclosure matters. 
The following are highlights of some of the many significant OIG efforts during this 
semiannual period: 
Cephalon To Pay $425 Million Plus Interest for Marketing Three of its Drugs for 
Uses Not Approved by the Food and Drug Administration  
As part of a global criminal, civil, and administrative settlement, Cephalon, Inc., agreed 
to pay $375 million plus interest to resolve its FCA liability for the off-label marketing 
(that is, marketing for uses not approved by the Food and Drug Administration) (FDA) of 
the drugs Actiq, Gabitril, and Provigil; plead guilty to a misdemeanor violation of the 
Federal Food, Drug, and Cosmetic Act; and pay a $50 million criminal fine.  Cephalon 
also agreed to enter a comprehensive 5-year corporate integrity agreement (CIA) that 
contains several unique provisions, including a requirement that Cephalon notify doctors 
about the settlement and establish a way for them to report questionable conduct by sales 
representatives.  (Details on page 37.) 
Marketing Materials for Medicare Prescription Drug Plan 
In our review of marketing materials developed by stand-alone Medicare prescription 
drug plans (PDP) in 2007, we found that the Centers for Medicare & Medicaid Services 
(CMS) provided limited oversight of the materials and that 85 percent of the materials 
failed to meet at least one element of the agencys guidelines.  These deficiencies ranged 
from omitting required information about PDP benefits and rules to not using the 
required font size for footnotes.  We found that, among other problems, CMSs model 
documents were not fully consistent with the agencys own guidelines, which in turn 
resulted in problems with PDP marketing materials.  We recommended that CMS ensure 
that model documents are consistent with the guidelines, develop protocols for reviewing 
marketing materials, conduct more frequent retrospective reviews of file-and-use 
                                                 
*This amount represents HHS investigative receivables only; receivables of other Federal agencies, States, 
and other entities are not included here.  
HHS OIG Semiannual Report to Congress  iii  Highlights 
Fall 2008  materials, enforce the use of the materials tracking system, and enhance the tracking 
system to include an identifier for marketing materials written in non-English languages 
and alternative formats.  In commenting on our report, CMS concurred with all of our 
recommendations, stating that it had implemented steps to improve its oversight of 
marketing materials and identified additional areas for improving the review process.  
CMS agreed with our recommendations.  (OEI-01-06-00050)  (Details on page 9.)   
Medicare Part D Contracting Process  
In our congressionally requested review of contracting issues related to local, community 
pharmacies participation in the Medicare Part D program, we found that 78 of the 100 
local, community pharmacies in our sample relied on third-party contractors known as 
pharmacy services administrative organizations (PSAO) to contract with Medicare Part D 
PDP sponsors.  The pharmacies were generally satisfied with the services that their 
PSAOs provided.  Our review also found that almost all of the 100 sampled pharmacies 
and all of their PSAOs reported that they had experienced problems when contracting 
with PDP sponsors.  These problems related to PDP sponsors network development 
methods, standard terms and conditions, extended-day supply terms, negotiations, and 
network requirements and contracting deadlines.  We recommended that Congress and 
CMS consider the results of our review in deliberations about Medicare Part D 
contracting.  We provided specific recommendations related to the concerns voiced by 
the pharmacies and PSAOs.  CMS concurred with five of our recommendations but did 
not concur with the remaining five recommendations, stating that they were contrary to 
the competitive market principles that are fundamental to the Part D program.  We 
revised three of our recommendations to address CMS concerns.  (A-06-07-00082)  
(Details on page 15.) 
Hospital Agrees To Pay $88.9 Million in One of the Largest Civil Fraud Recoveries 
Ever Against an Individual Hospital 
In one of the largest civil fraud recoveries ever against a single U.S. hospital, Staten 
Island University Hospital agreed to pay nearly $89 million to resolve allegations that it 
defrauded Medicare, Medicaid, and TRICARE (the militarys health insurance program).  
The settlement resolves two separate lawsuits filed in the U.S. District Court for the 
Eastern District of New York under the qui tam provisions of the FCA and two 
investigations conducted by the United States, including one initiated under OIGs Self-
Disclosure Protocol.  As part of the settlement, the hospital entered into a 5-year CIA.  
(Details on page 38.) 
Medical Review of Claims in the Comprehensive Error Rate Testing Program 
In our review of CMSs Comprehensive Error Rate Testing (CERT) program, we 
estimated the error rate in the FY 2006 CERT durable medical equipment (DME) sample 
at 17.3 percent or 28.9 percent, depending on the extent of documentation reviewed.  
CMS established the CERT program to produce a Medicare fee-for-service paid claim 
error rate, which it reports annually to Congress pursuant to the Improper Payments Act 
of 2002.  Our two-part review, performed by an independent medical review contractor, 
initially used the same procedures and limited medical records as CMSs CERT 
HHS OIG Semiannual Report to Congress  iv  Highlights 
Fall 2008      contractor and produced an error rate of 17.3 percent.  The second part of our review, 
which used additional medical records from physicians and other health care providers 
and information from beneficiaries and providers, produced the higher error rate of 
28.9 percent.  We recommended that CMS require the CERT contractor to review all 
available supplier documentation and all medical records necessary to determine 
compliance with applicable requirements on medical necessity and contact the 
beneficiaries named on high-risk claims to determine whether the DME items were 
received and were medically necessary.  CMS generally concurred.  (A-01-07-00508)  
(Details on page 4.)   
Administrative Law Judge Affirms OIGs Sanctions Against Florida Durable Medical 
Equipment Owner 
Administrative Law Judge (ALJ) Steven T. Kessel issued a decision on June 24, finding 
that Cary Frounfelter and Kast Orthotics and Prosthetics, Inc. (Kast), a Florida-based 
DME company owned by Frounfelter, violated the CMPL by submitting false claims for 
Medicare Part B reimbursement.  ALJ Kessel sustained the determination by OIG to 
impose a civil monetary penalty (CMP) of $100,000; an assessment of $42,220; and a 
7-year exclusion, jointly and severally, against Frounfelter and Kast.  (Details on 
page 35.) 
Improper Medicare Payments for Facet Joint Injection Services 
In our medical review of Medicare payments in 2006 for facet joint injections, which are 
used to diagnose or treat back pain, we found that 63 percent of facet joint injections 
service claims allowed did not meet program requirements, resulting in approximately 
$96 million in improper payments to physicians and $33 million in associated facility 
claims.  Among other billing errors, we found that 38 percent of the reviewed claims 
contained documentation errors, and just over 60 percent of the claims were overpaid 
because physicians incorrectly billed add-on codes for bilateral injections instead of using 
the required modifier code.  Among other recommendations, we recommended that CMS 
strengthen program safeguards to prevent improper payment for facet joint services and 
clarify billing instructions for bilateral services.  We also advised CMS that it should take 
appropriate action regarding the undocumented, medically unnecessary, or miscoded 
services identified in our review.  CMS agreed with our recommendations.  We advised 
CMS to strengthen program safeguards to prevent improper payment for these services 
and to clarify billing instructions for bilateral services.  CMS agreed with our 
recommendations.  (OEI-05-07-00200)  (Details on page 14.)  
Medicare Administrative Law Judge Hearings:  Early Implementation,  
20052006  
In our congressionally requested review of the Office of Medicare Hearings and Appeals 
(OMHA) use of telephone, video teleconference, and in-person hearings to decide 
Medicare ALJ cases, we found that in its first 13 months of operation (July 1, 2005, to 
July 31, 2006), OMHA handled 78 percent of Medicare appeals by telephone and that 
most sample appellants were satisfied with their hearing format.  We determined that 
OMHAs ability to manage its caseload was limited by incomplete and inaccurate data in 
HHS OIG Semiannual Report to Congress  v  Highlights 
Fall 2008      the appeals system.  We also determined that OMHA did not meet the 90-day decision 
requirement for 15 percent of the cases with such a requirement and a decision date 
recorded in the appeals system.  We recommended that OMHA consistently offer 
appellants the options of video teleconferencing, improve the timeliness of deciding cases 
with the 90-day decision requirement, address technical problems associated with 
hearings conducted by telephone and video teleconference, and improve the quality of 
data in the appeals system.  OMHA agreed with our recommendations.  
(OEI-02-06-00110)  (Details on page 20.) 
Merck Agrees To Pay More Than $650 Million To Resolve Claims of Fraudulent Price 
Reporting and Kickbacks   
Merck and Company, Inc. (Merck), agreed to pay more than $650 million to resolve 
allegations that it failed to pay proper rebates to Medicaid and other Government health 
care programs and paid illegal remuneration to health care providers to induce them to 
prescribe the companys products.  The allegations were brought in two separate lawsuits 
filed by whistleblowers under the qui tam provisions of the FCA.  According to the 
allegations, Merck offered hospitals deep discounts on its products Pepcid, Vioxx, Zocor, 
and Mevacor, then overcharged Government programs by failing to properly include 
these discounts in the best prices reported to CMS under the Medicaid drug rebate 
program.  (Details on page 37.) 
Medicaid Disproportionate Share Hospital Eligibility 
In our review of Indianas compliance with Medicaid disproportionate share hospital 
(DSH) payment requirements, we found that from July 2000 through June 2003, the State 
paid $142.3 million ($88.2 million Federal share) to three State-owned psychiatric 
hospitals that were not eligible to receive DSH payments.  States are required to make 
DSH payments to hospitals that serve disproportionate numbers of low-income patients, 
but psychiatric hospitals qualify for such payments only if they meet special Medicare 
conditions of participation.  The three hospitals did not meet these conditions.  We 
recommended that the State refund $88.2 million and ensure that Medicaid DSH 
payments are made only to eligible hospitals.  The State disagreed.   (A-05-06-00045)  
(Details on page 22.) 
The Food and Drug Administrations Generic Drug Review Process 
In our review of generic drug applications reviewed by FDA in 2006, we determined that 
FDA had opportunities to better manage current reviews and to potentially increase the 
number of submissions reviewed and approved within 180 days.  To market a generic 
drug, which is the same as the brand name drug with respect to key qualities, such as 
conditions of use and active ingredient(s), a pharmaceutical company must obtain FDAs 
approval of an Abbreviated New Drug Application (ANDA) and the agency is required 
by Federal law to approve or disapprove original ANDAs within 180 days of receipt.  Of 
the original ANDAs that FDA reviewed in 2006, 96 percent did not meet review 
standards and were disapproved.  FDA exceeded the 180-day statutory review 
requirement for nearly half of the ANDAs.  We recommended that FDA identify 
common ANDA deficiencies and offer more guidance to industry to decrease the 
HHS OIG Semiannual Report to Congress  vi  Highlights 
Fall 2008      percentage of disapproved original ANDAs, increase the percentage of original ANDAs 
that are reviewed by all divisions within 180 days, and implement new prioritization 
practices.  FDA agreed with the first recommendation but did not indicate concurrence 
with the other two.  (OEI-04-07-00280) (Details on page 49.) 
Philadelphia Countys Foster Care Claims  
In our review of Pennsylvanias claims for Title IV-E reimbursement on behalf of 
Philadelphia County children in foster care for whom the per diem rates were $300 or 
less, we estimated that from October 1997 through September 2002, the State improperly 
claimed at least $56.5 million of the total $562.3 million (Federal share) claimed.  We 
recommended, among other things, that the State refund $56.5 million and work with the 
Administration for Children and Families to determine the allowability of $100 million 
related to claims that included both allowable and unallowable services.  The State 
disagreed with our recommendations.  (A-03-07-00560)  (Details on page 53.) 
Industry Guidance 
OIGs efforts to promote the highest level of ethical and lawful conduct within the health 
care industry included activities in two particular areas of industry outreach.  The first, an 
Open Letter to Health Care Providers issued on April 15, described refinements to 
OIGs Self-Disclosure Protocol, such as actions to streamline OIGs internal procedures 
regarding self-disclosures and an explanation that OIG will generally not require a self-
disclosing entity to enter into a CIA or certification of compliance agreement when a 
resolution has been negotiated pursuant to the protocol.  The second area of industry 
outreach was a draft Supplemental Compliance Program Guidance (CPG) for Nursing 
Facilities, issued for public comment on April 16.  The final CPG, issued on September 
30, described updates to the CPG for Nursing Facilities published in 2000, such as an 
expanded focus on quality-of-care issues, including staffing, care plan development, and 
patient neglect and abuse.  (Details on page 31.)  
HHS OIG Semiannual Report to Congress  vii  Highlights 
Fall 2008       External Activities 
During this reporting period, OIG officials participated in a range of external activities to 
further the organizations mission.  Following are examples of such activities. 
Presidents Council on Integrity and Efficiency  
Inspector General (IG) Daniel Levinson participates in the Presidents Council on 
Integrity and Efficiency (PCIE), a forum through which inspectors general coordinate 
interagency policy issues, set professional standards for OIG work, coordinate studies on 
topics of governmentwide concern, and provide training for OIG executives and their 
staffs.  In addition, IG Levinson serves as chair of the PCIE Inspection and Evaluation 
Committee.  He also sits on the Homeland Security Roundtable, a group composed of IGs 
with oversight responsibility for agency programs affecting national safety and security. 
Office of Inspector General Attorneys Serving as Special Assistant United States 
Attorneys   
The Department of Justice (DOJ) and OIG launched a program in which OIG attorneys 
serve as Special Assistant United States Attorneys (SAUSA).  Some are detailed full-time 
to DOJs Criminal Division, Fraud Section, for 6-month assignments; others prosecute 
matters on a case-by-case basis.  Both arrangements offer excellent litigation training for 
OIG attorneys and enhance collaboration between the departments in fighting fraud.  
Under this program, OIG attorneys have successfully litigated important criminal cases 
relating to DME or other Medicare and Medicaid fraud.  Given its success, OIG and DOJ 
plan to expand the SAUSA program to augment prosecutorial resources in districts across 
the country.  
Congressional Testimony 
OIG officials provided testimony to Congress on two occasions: 
 On May 15, 2008, Lewis Morris, Chief Counsel to the Inspector General, testified 
before the Subcommittee on Oversight and Investigations, House Committee on Energy 
and Commerce, at a hearing entitled In the Hands of Strangers:  Are Nursing Home 
Safeguards Working? Chief Counsel Morris described our work to both promote the 
financial integrity of and improve the quality of care furnished by, nursing facilities.   
 On July 9, 2008, Robert Vito, Philadelphia Regional Inspector General for Evaluation 
and Inspections, testified before the Permanent Subcommittee on Investigations, Senate 
Committee on Homeland Security and Governmental Affairs, at a hearing entitled 
Medicare Payments for Claims With Identification Numbers of Dead Doctors.  Mr. 
Vito discussed previous OIG reviews regarding vulnerabilities in the use of unique 
physician identification numbers on DME claims and OIGs plans for future work in this 
area.  
The full texts of testimony provided at these hearings can be found at 
http://oig.hhs.gov/testimony.html. 
HHS OIG Semiannual Report to Congress  ix  External Activities 
Fall 2008       
Speeches 
Speeches by OIG officials included the following: 
 On April 14 and 15, 2008, in New Orleans, LA, IG Levinson and Chief Counsel Morris 
provided the keynote address and a presentation on Federal enforcement roles, 
respectively, to the Health Care Compliance Associations 12th Annual Compliance 
Institute.  Conference attendees included compliance officers, health care attorneys, 
compliance consultants, and representatives from Federal and State enforcement 
agencies. 
 On May 2, 2008, in Washington, DC, IG Levinson participated in a Public Interest 
Dialogue Session on pandemic influenza.  The IG made a presentation regarding OIGs 
ongoing pandemic influenza oversight initiative.  This event was cosponsored by OIG, 
the American Health Lawyers Association, the Centers for Disease Control and 
Prevention, and George Washington University. 
 On May 9, 2008, Principal Deputy Inspector General (PDIG) Larry Goldberg spoke at 
the Ethics and Compliance Officer Association Conference on Public Sector Approaches 
to Ethics and Compliance. 
 On May 16, 2008, in Fairfax, VA, IG Levinson served as convocation speaker at the 
George Mason University College of Health and Human Services. 
 On June 17, 2008, in Washington, DC, the IG delivered a keynote address at American 
Universitys Inaugural Health Law and Policy Institute. 
 From June 27 through July 3, 2008, in San Francisco, at the American Health Lawyers 
Associations annual meeting, Chief Counsel Morris was the keynote speaker at the fraud 
and abuse interest group luncheon and also made presentations on the Governments role 
in promoting quality of care and techniques companies can use to effectively operate 
under CIAs. 
 On August 25, 2008, Tim Brady, San Francisco Regional Inspector General for 
Evaluation and Inspections, gave a presentation entitled OIGs Role in Combating 
Medicaid Fraud Through Audits, Evaluations, and Investigations to the National 
Association for Medicaid Program Integrity National Conference in Williamsburg, VA.  
Events 
OIG officials participated in the following events: 
 From December 2007 through July 2008, OIG sponsored Medicaid Integrity Program 
(MIP) training conferences in Arizona, Colorado, Iowa, and Washington.  These 2-day 
conferences provided technical assistance to those involved in addressing fraud and abuse 
in the Medicaid program.  Since March 2007, we have held 13 MIP training conferences 
for more than 1,500 attendees from a variety of Federal, State, and local agencies. 
HHS OIG Semiannual Report to Congress  x  External Activities 
Fall 2008      Significant Awards From External Organizations 
 In May 2008, during a ceremony held in Richmond, VA, Attorney General 
Robert McDonnell recognized the OIG Medicaid Fraud Unit Oversight Division 
(MFUOD) for outstanding work in its collaborative efforts with the Virginia Medicaid 
Fraud Control Unit to eliminate Medicaid fraud.  Individual awards were presented to 
MFUOD Director Sharon Colby-Elborn and Senior Program Analysts Michael Goforth 
and Susan Powell. 
External Organizations 
The IG and the PDIG are Invited Ethics Resource Center (ERC) Fellows from the 
Government sector.  ERC is Americas oldest nonprofit organization devoted to the 
advancement of high ethical standards and practices in public and private institutions.   
E-mail List 
OIG currently maintains an e-mail list of more than 14,000 subscribers who regularly 
receive updates to OIGs Internet Web site.  Notice is sent regarding new reports and 
changes to the OIG Exclusions database, as well as Federal Register notices and other 
OIG postings.  During this reporting period, 73 e-mail notices of new postings on the 
OIG Web site were sent to subscribers.  Information about the OIG e-mail list, including 
the link to subscribe to the list, is at http://www.oig.hhs.gov/mailinglist.html.
HHS OIG Semiannual Report to Congress  xi  External Activities 
Fall 2008        
Table of Contents 
Summary of Accomplishments.............................................................................................iii 
Centers for Medicare & Medicaid Services....................................................................1 
Reports Related to CMSs Programs....................................................................................3 
Medicare-Related Reports.....................................................................................................3 
Long Term Care Hospitals Short-Stay Outliers..........................................................................3 
Nursing Home Enforcement:  Processing Denials of Medicare Payment..................................3 
Medical Review of Claims in the Comprehensive Error Rate Testing Program.......................4 
Transition Stays at Inpatient Psychiatric Facilities......................................................................5 
Fiscal Integrity of Quality Improvement Organizations in Maryland, Tennessee, and 
Texas......................................................................................................................................5 
Medicare Payment for Irinotecan.................................................................................................6 
Comparison of Average Sales Prices to Average Manufacturer Prices and Widely 
Available Market Prices for Part B Prescription Drugs:  Impact on Medicare 
Reimbursement......................................................................................................................7 
Marketing Materials for Medicare Prescription Drug Plans.......................................................9 
Review of Disaster-Related Medicare Claims for Durable Medical Equipment.....................10 
Hospice Beneficiaries Use of Respite Care..............................................................................10 
Duplicate Medicaid and Medicare Home Health Payments:  Medical Supplies and 
Therapeutic Services...........................................................................................................11 
Role of Nursing Homes and Long Term Care Pharmacies in Assisting Dual-Eligible 
Residents With Selecting Part D Plans...............................................................................12 
External Quality Review in Medicaid Managed Care..............................................................13 
Availability of Medicare Part D Drugs to Dual-Eligible Nursing Home Residents................13 
Improper Medicare Payments for Facet Joint Injection Services.............................................14 
Medicare Part D Contracting Process........................................................................................15 
Hospital Wage Data....................................................................................................................15 
Place-of-Service Coding............................................................................................................16 
Illinois Full-Dual Beneficiary Contributions.........................................................................17 
Early Implementation Review of Qualified Independent Contractor Processing of 
Medicare Appeals Reconsiderations...................................................................................17 
Deficiency History and Recertification of Medicare Home Health Agencies.........................18 
Payments Made in Error for Personal Care Services During Institutional Stays.....................19 
Medicare Administrative Law Judge Hearings:  Early Implementation, 20052006.............20 
Medicaid-Related Reports....................................................................................................21 
Medicaid Outpatient Prescription Drug Expenditures..............................................................21 
Indiana Medicaid Disproportionate Share Hospital Eligibility.................................................22 
States Medicaid Claims for Hurricane Katrina Evacuees........................................................22 
 
HHS OIG Semiannual Report to Congress    Centers for Medicare & Medicaid Services 
Fall 2008  xiii     
Substance Abuse Treatment Facilities.......................................................................................23 
Kansass Medicaid Claims for the Child Welfare Services and Family Preservation 
Programs..............................................................................................................................24 
CMSs Medicaid Information Technology Audit Resolution Process.....................................24 
Medicaid Payments for Services Provided to Beneficiaries With Concurrent 
Eligibility in Two States......................................................................................................25 
Medicaid Buy-In Payments in North Carolina..........................................................................25 
Rhode Island Medicaid Transportation Claims.........................................................................26 
Separate State Childrens Health Insurance Program Enrollees Eligibility for 
Medicaid in 2006.................................................................................................................26 
Texas Medicaid Upper Payment Limit for Hospitals................................................................27 
Fee-for-Service Payments for Services Covered by Capitated Medicaid Managed 
Care......................................................................................................................................27 
Other CMS-Related Reports...............................................................................................28 
Audits of Hospitals in the New Orleans Area...........................................................................28 
Hospital A...................................................................................................................................29 
Hospital B...................................................................................................................................29 
Hospital C...................................................................................................................................29 
Hospital D...................................................................................................................................30 
Hospital E...................................................................................................................................30 
Grant Closeout Procedures.........................................................................................................31 
Outreach................................................................................................................................31 
Advisory Opinions.....................................................................................................................31 
Provider Self-Disclosure Protocol.............................................................................................32 
Office of Inspector General Administrative Sanctions......................................................33 
Program Exclusions....................................................................................................................33 
Civil Monetary Penalties Law....................................................................................................34 
Patient Dumping.........................................................................................................................35 
Criminal and Civil Enforcement.........................................................................................36 
Pharmaceutical Manufacturers and Distributors.......................................................................37 
Hospitals.....................................................................................................................................38 
Practitioners................................................................................................................................40 
Durable Medical Equipment Suppliers......................................................................................41 
Clinics.........................................................................................................................................42 
Health Care Consultants.............................................................................................................43 
Transportation Providers............................................................................................................43 
Individuals..................................................................................................................................43 
Medicaid Fraud Control Units............................................................................................44 
Joint Investigations.....................................................................................................................44 
   
HHS OIG Semiannual Report to Congress  xiv  Table of Contents 
Fall 2008    
Public Health and Human Service Programs and Departmentwide Issues..............47 
Reports Related to Public Health Programs......................................................................49 
The Food and Drug Administrations Generic Drug Review Process.....................................49 
National Cancer Institutes Monitoring of Research Project Grants........................................50 
Superfund Financial Activities at the National Institute of Environmental Health 
Sciences...............................................................................................................................50 
Actions and Investigations Related to Public Health Programs.......................................51 
Health Education Assistance Loan Defaults..............................................................................51 
Public Health-Related Investigations.........................................................................................52 
Reports Related to Human Service Programs...................................................................53 
Philadelphia Countys Title IV-E Claims..................................................................................53 
Improper Payments for Temporary Assistance for Needy Families Payments........................53 
Title IV-E Adoption Assistance Costs in Rhode Island............................................................55 
Child Safety and Financial Management at a Head Start Grantee............................................55 
Undistributable Child Support Collections................................................................................56 
Iowa Child Care and Development Funds.................................................................................57 
Child Support Enforcement.................................................................................................58 
Task Forces.................................................................................................................................58 
Child Support Investigations......................................................................................................58 
Misuse of Administration for Children and Families Grant Funds.................................59 
Reports Related to Departmentwide Issues........................................................................60 
Use of Discounted Airfares by the Office of the Secretary.......................................................60 
Non-Federal Audits....................................................................................................................60 
Resolving Recommendations...............................................................................................61 
Table 1:  Reports With Questioned Costs..................................................................................62 
Table 2:  Funds Recommended To Be Put to Better Use.........................................................63 
Regulatory Development......................................................................................................64 
Employee Fraud and Misconduct........................................................................................64 
Appendixes............................................................................................................................65 
Appendix A:  Savings Achieved Through Implementation of Recommendations in 
Audits and Evaluations for Fiscal Year 2007...............................................................67 
Appendix B:  Notes to Tables 1 and 2.................................................................................73 
Table 1........................................................................................................................................73 
Table 2........................................................................................................................................79 
   
HHS OIG Semiannual Report to Congress  xv  Table of Contents 
Fall 2008    
Appendix C:  Reporting Requirements of the Inspector General Act of 1978, as 
Amended.........................................................................................................................81 
Appendix D:  Status of Public Proposals for New and Modified Safe Harbors to the 
Anti-Kickback Statute...................................................................................................83 
Appendix E:  Summary of Sanction Authorities................................................................87 
Program Exclusions....................................................................................................................87 
Patient Dumping.........................................................................................................................87 
Civil Monetary Penalties Law....................................................................................................88 
Anti-Kickback Statute and Civil False Claims Act Enforcement Authorities.........................88 
Appendix F:  Acronyms and Abbreviations.......................................................................91 
 
NOTE:  Summaries of OIG audit and inspection reports in this publication contain 
rounded figures.  Monetary amounts in case narratives are rounded to the next lower 
dollar, where appropriate.
   
HHS OIG Semiannual Report to Congress  xvi  Table of Contents 
Fall 2008    
Centers for Medicare & Medicaid Services  
The Office of Inspector General (OIG) allocates about 80 percent of its resources to work 
related to the Centers for Medicare & Medicaid Services (CMS), which administers the 
following programs:   
  Medicare provides health insurance for people 65 years of age or older, people 
younger than 65 years old with certain disabilities, and people of any age with 
end stage renal disease.  In fiscal year (FY) 2007, Medicare served an 
estimated 43.9 million enrollees at a cost of more than $370.7 billion.  
Medicare has four parts:  Part A (Hospital Insurance), which helps cover 
inpatient care in hospitals, including critical access hospitals, skilled nursing 
facilities (SNF), and hospice and certain home health care; Part B 
(Supplementary Medical Insurance), which helps pay for physician services, 
outpatient care, and other medical services that Part A does not cover, such as 
certain services offered by physical and occupational therapists; Part C 
(Medicare Advantage (MA)), which offers a range of prepaid managed health 
care choices; and Part D (the Medicare Prescription Drug Benefit), which 
provides an optional prescription drug benefit to individuals enrolled in 
Medicare, generally through private prescription drug plans (PDP).   
  Medicaid, a joint Federal-State program, supports States coverage of medical 
care and other support services for low-income individuals.  In FY 2007, the 
enrollment for Medicaid was estimated at 49.1 million beneficiaries; total 
Federal and State outlays were $333.2 billion, of which the Federal share was 
$190.6 billion.   
  The State Childrens Health Insurance Program (SCHIP), a joint Federal-State 
program established in 1997 under Title XXI of the Social Security Act, 
provides health insurance for children who do not qualify for Medicaid but 
whose families are not able to afford private coverage.  In FY 2007, SCHIP 
served 7.1 million beneficiaries at a Federal cost of $6 billion.   
OIGs focus on these health care programs reflects the spending of the Department of 
Health and Human Services (HHS):  CMS expenditures account for more than  
80 percent of the Departments budget.  OIGs focus is also rooted in legislative 
mandates and funding sources, including the following:   
  The Health Insurance Portability and Accountability Act of 1996 (HIPAA), 
P.L. No. 104191, established the Health Care Fraud and Abuse Control 
program (HCFAC) under the direction of the Attorney General and the 
Secretary of HHS to combat waste, fraud, and abuse in the Medicare and 
Medicaid programs.  HCFAC funding constitutes a major portion of OIGs 
annual operating budget and must be used for work related to Medicare and 
Medicaid. 
 
HHS OIG Semiannual Report to Congress  1  Centers for Medicare & Medicaid Services 
Fall 2008    
  The Deficit Reduction Act of 2005 (DRA), P.L. No. 109171, provides OIG 
annual funding of $25 million from FYs 200610 to undertake fraud and 
abuse control activities related to the Medicaid program. 
This chapter on CMS-related work summarizes OIGs findings and recommendations 
related to the Medicare, Medicaid, and SCHIP programs and provides examples of our 
outreach efforts, administrative sanctions, and criminal and civil enforcement activities.   
 
HHS OIG Semiannual Report to Congress  2  Centers for Medicare & Medicaid Services 
Fall 2008    
Reports Related to CMSs Programs  
Medicare-Related Reports 
Long Term Care Hospitals Short-Stay Outliers 
Consistent with CMSs efforts to cut payments for short-stay outliers in long term care 
hospitals (LTCH), which treat patients with complex medical conditions requiring 
prolonged postacute hospital-level care and receive higher reimbursement than general 
acute-care hospitals, we found that short-stay outliers decreased from 40 percent of 
LTCH stays discharged in FY 2003 to 27 percent in FY 2006.  Short-stay outliers are 
LTCH stays that end before they reach five-sixths of the average length of stay for the 
patients long-term care diagnosis-related group (LTC-DRG).  Despite the decline in 
short-stay outliers, some discharge patterns raised concern that patients are 
inappropriately placed in LTCHs or discharged based on financial incentives.  Patients 
discharged at least 10 days before the short-stay outlier threshold or who were readmitted 
to general acute-care hospitals directly after LTCH stays may have more appropriately 
received treatment at a general acute-care hospital.   
We also estimated an aggregate amount of improper payments for short-stay outliers 
based on our review of data from Quality Improvement Organization (QIO) medical 
record reviews of LTCH claims for FYs 2005 and 2006.  As part of the Hospital Payment 
Monitoring Program, CMS selects a national random sample of 116 LTCH claims each 
month for review by QIOs, which are Medicare contractors in each State that conduct 
case reviews to oversee and enhance the quality of care provided to Medicare 
beneficiaries.  We found that almost all of the payment errors that QIOs identified with 
LTCH claims in that period resulted from inaccurate LTC-DRGs and inappropriate 
LTCH admissions.  Based on our analysis of QIO reviews of LTCH claims, we estimated 
that about $85 million, or 6 percent, of CMS payments to LTCHs for short-stay outlier 
claims during the FY 2005 to FY 2006 period were erroneous.  We did not make 
recommendations for additional modifications to the program.  (OEI-01-07-00290) 
Nursing Home Enforcement:  Processing Denials of Medicare Payment  
In our review of denials of payment for new admissions (DPNA), a CMS enforcement 
action imposed on SNFs that have been found to be noncompliant with Federal program 
participations standards, we found that, in FY 2004, CMS and its fiscal intermediaries 
(FI) incorrectly processed 74 percent of such actions, with 40 percent of the DPNA cases 
resulting in a total of over $5 million of overpayments to SNFs.  CMS is responsible for 
imposing denial of payment remedies but relies on its FIs, which will eventually be 
replaced by Medicare administrative contractors (MAC), to identify and reject the 
relevant Medicare claims.  We identified various processing errors, including CMS not 
providing the FIs with the instructions on a timely basis or at all, CMS providing 
information to the wrong FIs, and FIs misinterpreting CMSs instructions.  
 
HHS OIG Semiannual Report to Congress    Centers for Medicare & Medicaid Services 
Fall 2008  3     
We recommended that CMS manage DPNA cases to ensure that all DPNA instructions 
are sent timely; to ensure that FIs and MACs retrospectively review cases that are 
processed late to correct any payment errors, address communication breakdowns by 
implementing a standard format to notify FIs or MACs that a DPNA remedy will be in 
effect, and require confirmation that instructions are received and understood; and to 
update guidance on coding readmissions and verifying readmission status for DPNA 
claims.  CMS agreed with our recommendations and outlined specific actions that it 
planned to address each recommendation.  (OEI-06-03-00390) 
Medical Review of Claims in the Comprehensive Error Rate Testing Program 
In our review of CMSs Comprehensive Error Rate Testing (CERT) program, we 
estimated the error rate in the FY 2006 CERT durable medical equipment (DME) sample 
at 17.3 percent or 28.9 percent, depending on the extent of documentation reviewed.  An 
error is the difference between the amount that Medicare paid to a provider and the 
amount that it should have paid.  CMS established the CERT program to produce a 
Medicare fee-for-service paid claim error rate.  Pursuant to the Improper Payments 
Information Act of 2002, CMS submits annually to Congress an estimate of the improper 
payments for Medicare fee-for-service claims. 
Our two-level review, performed by an independent medical review contractor, initially 
used the same procedures and limited medical records as CMSs CERT contractor and 
produced an error rate of 17.3 percent.  We found that the CERT contractors review was 
adequate for 324 of the 363 sampled claims.  However, our medical review contractor 
identified 39 additional errors that the CERT contractor had not identified.  We attributed 
these review discrepancies to the CERT contractors inadequate review of available 
documentation and to CMSs lack of written policies and procedures on the appropriate 
use of clinical inference.  The second part of our review used additional medical records 
from physicians and other health care providers and, in some cases, information from 
beneficiaries, and produced the higher error rate of 28.9 percent.  Our medical review 
contractor confirmed 20 of the 23 errors identified by the CERT contractor and identified 
an additional 39 errors.  We attributed these review discrepancies to the CERT 
contractors reliance on clinical inference rather than medical records available from 
health care providers, CMSs inconsistent policies regarding proof-of-delivery 
documentation, and the agencys lack of procedures for obtaining information on 
high-risk DME items from beneficiaries. 
We recommended that CMS require the CERT contractor to review all available supplier 
documentation and all medical records necessary to determine compliance with 
applicable requirements on medical necessity, and to contact the beneficiaries named on 
high-risk claims to help determine whether the DME items were received and were 
medically necessary.  We also recommended that CMS establish a written policy to 
address the appropriate use of clinical inference, instruct its Medicare contractors to 
provide additional training to physicians to improve their medical record documentation, 
and document oral guidance that conflicts with written policies.  CMS generally 
concurred with our findings and recommendations.  (A-01-07-00508)   
HHS OIG Semiannual Report to Congress  4  Centers for Medicare & Medicaid Services 
Fall 2008   
Transition Stays at Inpatient Psychiatric Facilities 
In our review of billing for transition stays at inpatient psychiatric facilities (IPF) in 
calendar year 2005, we estimated that IPFs received about $9 million in Medicare 
overpayments for incorrectly billed transition stays.  Under Medicares prospective 
payment system (PPS), IPFs must submit a single discharge bill for an entire inpatient 
stay.  If a beneficiarys stay begins before and ends on or after the date on which the 
facility becomes subject to the PPS (called a transition stay), the FI should base its 
payments to the facility on prospective payment rates and rules.  IPFs that split the stay 
and submit two separate claims must cancel the split bills and then rebill the FI after the 
cancellation has been accepted.  In our sample of 100 transition stays, we identified 
62 stays for which the IPFs had not canceled the split bills and resubmitted correct bills. 
These 62 stays resulted in overpayments of $408,000.   
We recommended that CMS instruct the FIs to adjust claims for the sampled stays that 
resulted in overpayments of $408,000; review our information on the stays not included 
in our sample which had potential overpayments estimated at $8.6 million ($9 million 
less $408,000); work with the IPFs to recover any overpayments; and analyze 
postpayment data for claims submitted after our review to ensure that IPFs billed the 
claims properly and FIs paid them correctly.  CMS agreed with our recommendations.  
(A-01-07-00520)   
Fiscal Integrity of Quality Improvement Organizations in Maryland, 
Tennessee, and Texas  
At the request of the Senate Finance Committee, we assessed the fiscal integrity of QIOs 
in several States.  A QIO operates in each State under contract with CMS to promote the 
effective, efficient, and economical delivery of health care services and the quality of 
those services.  We focused our audits in the following areas:  board member and 
executive staff compensation and travel, legal fees, equipment and related administrative 
charges, business relationships and conflicts of interest, and contract modifications.  Our 
findings were as follows: 
Maryland  We found that most of the QIOs $22.8 million in Federal reimbursement 
for November 2002 through October 2005 appeared reasonable.  However, the QIO had 
improperly classified $1.6 million as indirect costs, which may have resulted in inflated 
indirect costs charged to the CMS contract.  We recommended that the QIO work with 
CMS to resolve the status of the $1.6 million in indirect costs.  In its comments on our 
draft report, the QIO took exception to the recommendation but stated that it had changed 
its accounting practices.  We modified our recommendation in response.   
(A-03-06-01650) 
Tennessee  Of the $13.81 million of costs reviewed (out of a total of $18.2 million), 
$13.7 million appeared reasonable for Federal reimbursement.  We determined that from 
August 2002 through July 2005, $31,000 of costs incurred by the QIO was unallowable 
and that $124,000 was potentially unallowable.  We recommended that the QIO refund 
HHS OIG Semiannual Report to Congress  5  Centers for Medicare & Medicaid Services 
Fall 2008   
$6,700 for unallowable physician consultant fees, reduce the indirect cost pool by 
$24,000 for the balance of unallowable costs incurred, and work with CMS to determine 
the portion of the $124,000 incurred for conference-related costs that should be excluded 
from the indirect cost pool for purposes of determining final rates.  The QIO partially 
agreed with our findings and recommendations; however, its response and additional 
documentation did not cause us to change our findings or recommendations.   
(A-04-06-00023) 
Texas  For the period February 1, 2003, through January 31, 2006, we found that most 
of the $6.5 million in costs that we reviewed appeared reasonable for reimbursement.  
However, $404,000 was unallowable and $49,200 was potentially unallowable.  We 
recommended that the QIO refund $17,500 for unallowable legal fees and consultant 
travel; reduce the indirect cost pool by $386,000 for severance packages for executives, 
board member and executive travel, and conference costs; and work with CMS to 
determine the portion of the $49,200 incurred for compensation during our audit period 
that should be excluded from the indirect cost pool for purposes of determining final 
rates.  The QIO disagreed with most of our findings and provided additional supporting 
documentation to support its position; we revised our report accordingly.  However, the 
QIOs supporting documentation did not cause us to revise the majority of our findings 
and recommendations.  (A-06-06-00072) 
Medicare Payment for Irinotecan 
In our review comparing the Medicare payment amount to manufacturer prices for 
irinotecan hydrochloride (irinotecan), an injectable drug covered by Part B for the 
treatment of colorectal cancer, we found that Medicare paid 145 percent more than the 
OIG-calculated average manufacturer sales price in March 2008.  The Food and Drug 
Administration (FDA) approved the first generic version of irinotecan on February 20, 
2008.  In March 2008, lower-priced generic versions of irinotecan were available for 
purchase but were not yet factored into the calculation of Medicare reimbursement. 
For this review of irinotecan pricing, we determined the following:  
 Lower-priced generic versions of irinotecan accounted for 86 percent of the drugs 
sales in March 2008; based on the average price for the generic version and sales volume 
during the month, we calculated that any purchaser of generic irinotecan received a 
Medicare payment that was approximately $85 more than the average manufacturer sales 
price.   
 Medicare payment amounts would have been reduced by $6.5 million in March 2008 
alone if the generic prices been considered in the Medicare calculation; however, there is 
a two-quarter lag for establishing Medicare payments and CMS had not yet considered 
generic prices in calculating the Medicare payment for this drug.   
HHS OIG Semiannual Report to Congress  6  Centers for Medicare & Medicaid Services 
Fall 2008   
We recommended that CMS explore options to expedite the process to ensure that the 
Medicare payment amounts for drugs with newly available generic versions accurately 
reflect market prices.  CMS concurred with our recommendation.  (OEI-03-08-00310) 
Comparison of Average Sales Prices to Average Manufacturer Prices and 
Widely Available Market Prices for Part B Prescription Drugs:  Impact on 
Medicare Reimbursement 
During this semiannual period, we issued three reports related to our continuing work 
comparing average sales prices (ASP) with average manufacturer prices (AMP) and 
widely available market prices (WAMP) for Medicare Part B prescription drugs.  From 
April 2006 through September 2008, we issued nine reports of such comparisons.  
Section 1847A(d)(2)(B) of the Social Security Act (the Act) mandates that OIG perform 
these comparisons.  For instances in which the ASP for a drug exceeds the AMP or 
WAMP by a certain threshold (currently 5 percent), section 1847A(d)(3) of the Act 
provides that the Secretary may disregard the ASP pricing methodology for that drug and 
that the Secretary shall substitute the payment amount for the drug code with the lesser of 
the WAMP (if any) or 103 percent of the AMP (for the drug).  
In December 2007, the Medicare, Medicaid, and SCHIP Extension Act of 2007 (the 
Extension Act), P.L. No. 110173, amended section 1847A(b) of the Act and changed the 
way that CMS calculates volume-weighted ASPs, effective April 1, 2008. 
Analyzing CMSs Healthcare Common Procedure Coding System (HCPCS) codes for 
drugs covered under Medicare Part B, we identified in both the previous comparisons and 
those issued during this semiannual period instances in which drug codes met the 
threshold for price adjustments.  We determined that such adjustments, if implemented by 
the Secretary, would save Medicare millions of dollars in Part B drug costs.  Although 
these reports did not include recommendations, CMS has commented previously that it 
would like to better understand fluctuating differences between ASPs and AMPs and that 
it intends to develop a process to adjust payment amounts based on the results of our 
pricing comparisons.  To date, no changes have been made to Part B reimbursement as a 
result of our price comparisons. 
In the three comparisons issued during this reporting period, we specifically found the 
following: 
 Comparison of Third-Quarter 2007 Average Sales Prices to Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for First-Quarter    
2008  For the third quarter of 2007, we identified 41 of 369 drug codes with ASPs that 
exceeded AMPs by at least 5 percent.  Of the 41 codes, 31 also met the threshold for 
price adjustments in at least one of the prior OIG studies comparing ASPs to AMPs.  We 
estimated that if reimbursement amounts for all 41 codes had been based on 103 percent 
of AMP, Medicare expenditures would be reduced by $16 million during the first quarter 
of 2008 alone. 
HHS OIG Semiannual Report to Congress  7  Centers for Medicare & Medicaid Services 
Fall 2008   
Had the revised payment methodology, mandated by the Extension Act and effective in 
April 2008, been in effect during our review period, ASPs for fewer drug codes35 of 
369would have exceeded AMPs by at least 5 percent.  However, of these 35 codes, 32 
are included in the 41 identified as meeting the 5-percent threshold under the method for 
volume-weighting data that was effective during the review period.  (OEI-03-08-00130) 
 Comparison of Fourth-Quarter 2007 Average Sales Prices and Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for Second-Quarter 
2008  For the fourth quarter of 2007 using the revised ASP payment amount 
methodology, we identified 12 of 285 drug codes with ASPs that exceeded AMPs by at 
least 5 percent.  We estimated that if reimbursement amounts for all 12 codes had been 
based on 103 percent of AMP, Medicare expenditures would have been reduced by 
$20 million during the second quarter of 2008 alone.  Lowering reimbursement amounts 
for the 12 HCPCS codes to 103 percent of the AMPs would have reduced Medicare 
allowances by an estimated $20 million in the second quarter of 2008.  Two of the 
12 HCPCS codes accounted for almost 90 percent of the $20 million.  If the 
reimbursement amounts for the two codes had been based on 103 percent of the AMP 
during the second quarter of 2008, Medicare expenditures would have been reduced by 
an estimated $11 million and $7 million, respectively.  This was our first pricing 
comparison since CMS implemented a revised ASP payment methodology mandated by 
section 112(a) of the Extension Act.  (OEI-03-08-00340) 
 Comparison of Average Sales Prices to Widely Available Market Prices for 
Inhalation Drugs  In our review of inhalation drugs, for which Medicare and its 
beneficiaries paid more than $900 million in 2006 to treat and prevent symptoms related 
to lung diseases, we determined that Medicare could have reduced expenditures in the 
second quarter of 2007 by $27 million had pricing for two drugsalbuterol and 
levalbuterolbeen based on WAMPs rather than ASPs.  We calculated that use of the 
WAMP, defined in law as the price that a prudent physician or supplier would pay for the 
drug, net of any routinely available price concessions, would have saved $6 million for 
albuterol and $21 million for levalbuterol. 
Additional findings included the following: 
 For the second quarter of 2007, the ASP for both albuterol and levalbuterol exceeded 
the price threshold (i.e., 5 percent) that would permit the Secretary of HHS to disregard 
the ASP, which is the basis for reimbursement.  The volume-weighted ASP for albuterol 
exceeded the WAMP by 85 percent, and the volume-weighted ASP for levalbuterol 
exceeded the WAMP by 19 percent. 
 As a result of CMS establishing a single drug code for the two drugs, effective July 1, 
2007, the Medicare payment amount for albuterol in the third quarter of 2007 may have 
been 13 times greater than the WAMP in the previous quarter.  In contrast, the Medicare 
payment amount for levalbuterol in the third quarter of 2007 was 57 percent below the 
WAMP in the previous quarter. 
HHS OIG Semiannual Report to Congress  8  Centers for Medicare & Medicaid Services 
Fall 2008   
 After we completed our analysis, but before issuing the draft report, CMS reestablished 
two codes for albuterol and levalbuterol.  As of April 1, 2008, the new Medicare payment 
amount for albuterol was very close to the WAMP that we had calculated for the second 
quarter of 2007 and, for levalbuterol, the new payment was substantially lower than the 
WAMP calculated for that quarter. 
In commenting on our draft report, which had no recommendations, CMS indicated that 
our review had certain limitations.  Our report provides explanations to address these 
areas.  (OEI-03-07-00190) 
Marketing Materials for Medicare Prescription Drug Plans 
In our review of marketing materials developed by stand-alone Medicare PDPs in 2007, 
we found that CMS provided limited oversight of the materials and that 85 percent of the 
materials failed to meet at least one element of the agencys guidelines.  These 
deficiencies ranged from omitting required information about PDP benefits and rules to 
not using the required font size for footnotes.  Under Medicare Part D, private health 
insurance organizations contract with CMS to offer PDPs.  To help Medicare 
beneficiaries make an informed decision about PDP enrollment, CMS has issued 
regulations and developed guidelines specifying the type of information that must be 
provided in PDP marketing materials and created model documents to ensure the 
accuracy of information and expedite the review process for certain materials.  PDP 
marketing materialsincluding advertisements, enrollment forms, and benefit 
summariesmust be submitted to CMS before they are distributed.  CMS has two review 
processes:  a standard review process, in which the agency manually reviews the 
marketing materials; and a file and use process, in which PDP sponsors attest that their 
marketing materials comply with CMS guidelines.  
Our specific findings included the following:   
 CMS had not completed its retrospective review of the 2006 file and use marketing 
material until April 2008.  Therefore, it was unable to determine whether any sponsors 
should have had their file and use privileges revoked until more than 2 years after Part D 
began. 
 The agency had completed standard reviews of marketing materials on a timely basis 
but the reviews were not consistent across regions. 
 Marketing materials identification numbers, used for oversight purposes, failed to 
match numbers in CMSs system for 45 percent of the materials that we reviewed.  
 CMS did not have a systematic way to track the materials that were written in 
non-English languages or alternative formats.  
 CMSs model documents were not fully consistent with the agencys own guidelines, 
which in turn resulted in problems with PDP marketing materials.  For example, because 
HHS OIG Semiannual Report to Congress  9  Centers for Medicare & Medicaid Services 
Fall 2008   
the model language for summaries of benefits omitted certain required information on the 
low-income subsidy, nearly all summaries of benefits on marketing materials that we 
reviewed lacked this information.  
 In addition to having problems that stemmed from model documents, PDP marketing 
materials did not meet the guidelines in several areas.  For example, 79 percent of the 
advertisements with pharmacy cobranding (that is, a business relationship between the 
sponsor of a Medicare plan and another entity, such as a pharmacy) failed to include a 
required statement that other pharmacies were also available; and 42 percent of pharmacy 
directories did not describe, as required, the process for beneficiaries to obtain 
prescriptions if mail order service is delayed.  
We recommended that CMS ensure that model documents are consistent with the 
guidelines, develop protocols for reviewing marketing materials, conduct more frequent 
retrospective reviews of file-and-use materials, enforce the use of the materials tracking 
system, and enhance the tracking system to include an identifier for marketing materials 
written in non-English languages and alternative formats.  In commenting on our report, 
CMS concurred with all of our recommendations, stating that it had implemented steps to 
improve its oversight of marketing materials and identified additional areas for improving 
the review process.  (OEI-01-06-00050)   
Review of Disaster-Related Medicare Claims for Durable Medical Equipment   
In our review of a Louisiana DME suppliers 2005 Medicare claims for beneficiaries 
affected by Hurricanes Katrina and Rita, we found that all of the individuals in our 
sample were eligible for replacement DME and were provided with allowable DME.  As 
authorized by section 1135(b) of the Act and in response to Hurricanes Katrina and Rita, 
the Secretary of HHS waived certain requirements of the Act to ensure that sufficient 
health care items were available to meet the needs of affected individuals, including 
Medicare beneficiaries, in emergency areas.  The waivers were intended to ensure that 
health care providers that furnished items and services in good faith but who were unable 
to comply with certain program requirements because of the hurricanes would be 
reimbursed and exempt from sanctions for noncompliance, except in cases of fraud and 
abuse.  This report contained no recommendations.  (A-06-07-00079) 
Hospice Beneficiaries Use of Respite Care 
In our review of Medicare Part A hospice claims filed in 2005, we found infrequent use 
of inpatient respite hospice care, which is one of four levels of hospice care available to 
Medicare beneficiaries.  The Medicare hospice benefit allows a beneficiary with a 
terminal illness to forgo curative treatment for the illness and instead receive palliative 
care, which is the relief of pain and other uncomfortable symptoms.  Inpatient respite care 
is short-term inpatient care provided to the beneficiary who is otherwise cared for at 
home, but whose caregiver is in need of relief.  Our specific findings included the 
following: 
HHS OIG Semiannual Report to Congress  10  Centers for Medicare & Medicaid Services 
Fall 2008   
 Only 2 percent of all hospice beneficiaries received respite care, with 81 percent of 
these cases meeting the Federal regulations specifying that such care not exceed 
5 consecutive days.   
 There were a number of inappropriate uses of respite care:  54 beneficiaries received 
respite care for more than 5 consecutive days; 685 beneficiaries had claims for more than 
5 days, but those claims did not show whether the respite days were consecutive care; and 
62 beneficiaries received respite care that was not appropriate because they were already 
residing in facilities.  We provided CMS additional information about potentially 
inappropriate respite care claims.   
 Hospice claims may not have all of the information needed by CMS to determine 
hospice agencies compliance with the 5 consecutive day respite care requirement.   
This report had no recommendations.  (OEI-02-06-00222)  
Duplicate Medicaid and Medicare Home Health Payments:  Medical Supplies 
and Therapeutic Services  
In our review of Medicare and Medicaid home health payments in five States during 
2005, we found in four of the States that Medicaid inappropriately paid home health 
providers a combined total of $1 million for more than 84,000 claims for nonroutine 
medical supplies (e.g., catheters, dressings, syringes, and needles) and therapeutic 
services that were also paid by Medicare.  This represented nearly 1 percent of the 
$113 million that the four States spent on home health nonroutine medical supplies and 
therapeutic services in our review and 6 percent of the 1.5 million total claims.  
Both Medicaid and Medicare pay home health providers for home health services 
specified in the plans of care for beneficiaries; however, both programs should not pay 
for the same supplies or services for the same beneficiaries.  When both Medicaid and 
Medicare cover particular supplies and services, Medicaid is the payer of last resort and 
Medicare should pay first for services provided to individuals who meet both Medicaid 
and Medicare eligibility requirements.  Additional findings from our review included the 
following: 
 In two States, Medicaid paid $6.6 million for routine medical supplies (e.g., cotton 
balls, gloves, and incontinence items) on the same dates that Medicare covered home 
health services.  It was possible that these medical supplies were included in the 
Medicare payments and that Medicaid should not have paid for them; however, the 
Medicaid claims data did not include enough information to determine whether the 
supplies qualified for Medicare payment.  
 Each of the five States reviewed had established payment system edits to compare 
claims for home health services to Medicare eligibility information; however, incomplete 
eligibility information and payment system edit overrides resulted in inappropriate 
payments.  
HHS OIG Semiannual Report to Congress  11  Centers for Medicare & Medicaid Services 
Fall 2008   
 The five States did not have direct access to the Medicare PPS data that would provide 
information about whether and when a beneficiary is receiving Medicare paid services.  
We recommended that CMS ensure that Medicaid does not pay providers for Medicare-
paid nonroutine medical supplies and therapeutic services and clarify the agencys policy 
on Medicare PPS coverage of routine medical supplies.  CMS stated that it did not 
disagree with our first recommendation and concurred with our second 
recommendation.  (OEI-07-06-00640) 
Role of Nursing Homes and Long Term Care Pharmacies in Assisting 
Dual-Eligible Residents With Selecting Part D Plans 
In our review of the role of nursing homes and long term care pharmacies (LTCP) in 
providing assistance to dual-eligible residentsbeneficiaries eligible to receive both 
Medicare and Medicaid coveragein selecting their Part D plans, we found that the 
facilities provided different levels of assistance and that certain practices, such as 
enrolling beneficiaries into a single plan or recommending only one plan, may not have 
been in accordance with CMSs guidance.  CMS permits and encourages nursing homes 
to provide information and education to residents about available Part D plans but states 
that nursing homes and the pharmacies serving them are not to, under any circumstance, 
require, request, coach, or steer any resident to select or change a plan.  Prior to Medicare 
Part D, Medicaid paid for most of the prescription drugs for dual-eligible nursing home 
residents.  Under Part D, dual-eligible residents receive drug coverage through Medicare 
and they are eligible to have their premiums, deductibles, and copayments fully 
subsidized.   
Interviews that we conducted with nursing home administrators (with responses projected 
to the population of administrators) and pharmacy directors (with responses limited to the 
sample) between September 2006 and March 2007 revealed the following:  
 Identifying multiple plans for dual-eligible residents  Thirty-eight percent of the 
nursing home administrators and 26 of the 79 pharmacy directors reported that their 
nursing homes or LTCPs had identified multiple plans to meet the needs of their dual-
eligible residents. 
 Recommending one plan to dual-eligible residents  About 9 percent of nursing 
home administrators reported that they enrolled most dual-eligible residents in a single 
plan or recommended one plan to each resident; 6 of the 79 pharmacy directors reported 
that their pharmacies generally recommended one plan to each resident. 
 Providing general or no assistance to dual-eligible residents  Thirty-seven percent 
of nursing home administrators and 17 of the 79 pharmacy directors reported that they 
provided only general information about the Part D benefit to dual-eligible residents; 
17 percent of the administrators and 30 of the 79 pharmacy directors said that they 
provided no assistance to dual-eligible residents in selecting their Part D plans.   
HHS OIG Semiannual Report to Congress  12  Centers for Medicare & Medicaid Services 
Fall 2008   
We made no recommendations.  (OEI-02-06-00191) 
External Quality Review in Medicaid Managed Care 
In our review of the 37 States that had arranged for external quality reviews of Medicaid 
managed care organizations (MCO) in 2005, we determined that most of the States found 
the results of such reviews useful, but more than half reported concerns about the external 
review process.  Federal regulations require States to provide for an external, independent 
review of their MCOs, which, as of 2006, enrolled 65 percent of the 45.6 million 
Medicaid beneficiaries.  States may contract with an independent entity called an external 
quality review organization (EQRO) to conduct the external quality review.  
Our specific findings included the following:   
 Of the 37 States surveyed, 33 required their MCOs to make changes based on EQRO 
reports.   
 The three primary concerns about external quality review that were cited by 24 States 
related to staffing (turnover and training), EQRO report quality (timeliness and feasibility 
of recommendations), and redundancy with other monitoring efforts.   
 Some EQRO reports did not include all of the information required by their contracts.   
We recommended that CMS work with States to ensure that EQROs provide complete 
information and also provide States with additional technical assistance and written 
guidance.  In commenting on the draft report, CMS agreed with these recommendations 
and cited actions that it had taken in both areas.  (OEI-01-06-00510) 
Availability of Medicare Part D Drugs to Dual-Eligible Nursing Home 
Residents  
In our review of the availability of Medicare Part D drugs to dual-eligible nursing home 
residents, 93 percent of nursing home administrators, medical directors, and LTCP 
directors told us that between September 2006 and March 2007, dual-eligible residents 
were receiving all necessary Part D drugs.  Prior to Medicare Part D, Medicaid paid for 
most of the prescription drugs for dual-eligible nursing home residents.  Under Part D, 
dual-eligible residents receive drug coverage through Medicare and are eligible to have 
their premiums, deductibles, and copayments fully subsidized.   
Our review brought to light specific areas of concern raised by respondents, as follows:  
 Of the nursing home administrators interviewed, 45 percent reported paying for at least 
one Part D drug for dual-eligible residents, some citing the responsibility to comply with 
conditions of participation (CoP) to ensure that residents receive needed drugs in a timely 
manner.  Administrators and pharmacy directors indicated that the drugs most often paid 
for were those not covered by the residents Part D plan formularies or those requiring 
prior authorization.   
HHS OIG Semiannual Report to Congress  13  Centers for Medicare & Medicaid Services 
Fall 2008   
 Some respondents indicated that the Part D plan formularies may not meet all of the 
needs of some dual-eligible nursing home residents.  For example, plans may offer 
therapeutically equivalent drugs that are not always appropriate for residents because of 
adverse side effects or dosage form.  In addition, the plans do not always cover all drugs 
needed by residents, such as injectable anemia drugs, oral cancer drugs, or drugs 
administered through nebulizers.   
 Of the pharmacy directors interviewed, 80 percent reported that dual-eligible nursing 
home residents were incorrectly identified by their Part D plans in the latter part of 2006 
as requiring copayments, even though these beneficiaries are eligible to have their 
premiums, deductibles, and copayments fully subsidized for prescription drugs covered 
under Part D.  Some respondents found that the prior authorization process could be 
burdensome in the nursing home setting, noting problems with long wait times to speak 
with plan staff or the plan staffs lack of knowledge of formulary and coverage issues. 
 Of the pharmacy directors interviewed, 54 percent reported that their pharmacies 
received rebates from drug manufacturers, and only three reported that their pharmacies 
provide any information to nursing homes or to physicians about the rebates that they can 
receive.   
 Rebates may create incentives for pharmacists to recommend certain drugs on financial 
considerations as opposed to clinical considerations that the physician may be unaware 
of. 
We recommended that CMS work with Part D plans to ensure that the formularies meet 
the needs of dual-eligible nursing home residents; continue to work with plans to improve 
the prior authorization process; ensure that copayments for dual-eligible nursing home 
residents are fully subsidized, as appropriate; and consider methods to encourage LTCPs 
to disclose to physicians information about rebates they receive from drug manufacturers.  
CMS concurred with our first two recommendations and the intent of our third 
recommendation but, citing a lack of authority in the area, it did not concur with our last 
recommendation.  (OEI-02-06-00190) 
Improper Medicare Payments for Facet Joint Injection Services 
In our medical review of Medicare payments in 2006 for facet joint injections, which are 
used to diagnose or treat back pain, we found that 63 percent of the facet joint injections 
service claims allowed did not meet program requirements, resulting in approximately 
$96 million in improper payments to physicians and $33 million for associated facility 
claims.  Between 2003 and 2006, Medicare Part B claims for facet joint injections 
increased by 76 percent, with payments rising from $141 million to $307 million. 
Our specific findings included the following: 
HHS OIG Semiannual Report to Congress  14  Centers for Medicare & Medicaid Services 
Fall 2008   
 More than 60 percent of net overpayments identified were the result of incorrect billing 
of bilateral services, which are injections performed on both the right and left side of the 
joint level.   
 Claims for facet join injection services provided in a practitioners office were more 
likely to have errors than claims for services provided in an ambulatory surgical center or 
a hospital outpatient department.   
 Although most carriers had policies and safeguards for facet joint injection services 
claims, they identified limits to using these safeguards. 
We recommended that CMS strengthen program safeguards to prevent improper payment 
for facet joint services and clarify billing instructions for bilateral services.  We also 
advised CMS that it should take appropriate action regarding the undocumented, 
medically unnecessary, or miscoded services identified in our review.  CMS agreed with 
our recommendations.  (OEI-05-07-00200)   
Medicare Part D Contracting Process 
In our review of certain contracting aspects related to local, community pharmacies 
participation in the Medicare Part D program, we found that 78 of the 100 local, 
community pharmacies in our sample relied on third-party contractors known as 
pharmacy services administrative organizations (PSAO) to contract with Part D PDP 
sponsors and that the pharmacies were generally satisfied with the services that their 
PSAOs provided.  We conducted this review at the request of 33 Senators who expressed 
concern about PDP sponsors contracting strategies.  Previous OIG reports addressed the 
Senators concerns regarding network adequacy and reimbursement. 
Our review also found that almost all of the 100 sampled pharmacies and all of their 
PSAOs reported that they had experienced problems when contracting with PDP 
sponsors.  These problems related to PDP sponsors network development methods, 
standard terms and conditions, extended-day supply terms, negotiations, and network 
requirements and contracting deadlines. 
We recommended that Congress and CMS consider the results of our review, including 
the data provided, in any deliberations regarding Medicare Part D contracting.  We 
provided specific recommendations related to the concerns voiced by the pharmacies and 
PSAOs.  CMS concurred with five of our recommendations but did not concur with the 
remaining five recommendations, stating that they were contrary to the competitive 
market principles that are fundamental to the Part D program.  After reviewing CMSs 
comments, we revised three recommendations.  (A-06-07-00082)   
Hospital Wage Data 
In our reviews of hospitals compliance with Medicare requirements for reporting wage 
data in their Medicare cost reports, we found that three hospitals did not fully comply 
HHS OIG Semiannual Report to Congress  15  Centers for Medicare & Medicaid Services 
Fall 2008   
with the Medicare requirements.  Under the acute-care hospital inpatient PPS, CMS 
adjusts the Medicare base rate paid to participating hospitals by the wage index 
applicable to the area in which the hospitals are located.  CMS updates the wage indexes 
annually based on hospitals wage data reported 4 years earlier.  Our specific findings, by 
hospital, follow: 
 A hospital in Florida overstated its wage data by $12.8 million and 165,006 hours in its 
FY 2006 Medicare cost report.  Correcting the hospitals errors decreased the average 
hourly wage rate from $31.61 to $30.31.  We recommended that the hospital submit a 
revised FY 2006 Medicare cost report to the fiscal intermediary (FI) and implement 
procedural improvements.  The hospital agreed.  (A-04-07-06034) 
 A hospital in Michigan overstated its wage data by $27 million and 316,281 hours in its 
FY 2005 Medicare cost report.  Correcting the hospitals errors decreased the average 
hourly wage rate from $32.26 to $31.08.  We recommended that the hospital submit a 
revised FY 2005 Medicare cost report to the FI and implement procedural improvements.  
The hospital agreed.  (A-05-07-00063)  
 A hospital in North Carolina overstated its wage data by $9.3 million and 50,857 hours 
in its FY 2006 Medicare cost report.  Correcting the hospitals errors decreased the 
average hourly wage rate from $31.51 to $30.96.  We recommended that the hospital 
submit a revised FY 2006 Medicare cost report to the FI and implement procedural 
improvements.  The hospital generally agreed with our findings but disagreed, in part, 
that it had included in its wage data unsupported costs for Part B services provided by 
nurse practitioners.  Based on the hospitals additional documentation, we revised the 
finding related to nurse practitioners.  (A-01-07-00511) 
Place-of-Service Coding 
In our review of place-of-service coding for claims submitted by physicians to the 
Medicare Part B contractor in Connecticut and Florida during 2004 and 2005, we found 
that physicians improperly coded place of service 85 percent of the time, resulting in an 
estimated $1.5 million in overpayments.  Physicians are required to identify, among other 
things, the place of servicetheir own office or another facilityon the health insurance 
claim forms that they submit to Medicare Part B to ensure that Medicare does not 
duplicate payment to the physician and the facility.  Medicare generally reimburses 
physicians a higher amount for services performed in their offices than it does for 
services performed in an outpatient hospital or an ambulatory surgical center (ASC). 
Our specific findings included the following: 
 Of 100 sampled services, 85 services coded as having been performed in physicians 
offices were actually performed in outpatient hospitals or ASCs.   
 Of the 85 incorrectly coded services, 31 did not result in overpayments because the 
physicians billings (i.e., their actual charges) did not exceed the Medicare fee schedule 
HHS OIG Semiannual Report to Congress  16  Centers for Medicare & Medicaid Services 
Fall 2008   
amount that would have applied if the physicians had used the correct facility place-of-
service code.  For each of the remaining 54 services, the physicians actual charges 
exceeded the Medicare fee schedule amount associated with the facility place-of-service 
code, resulting in overpayments of $2,900. 
We recommended that the Medicare contractor recover $2,900 in overpayments for the 
sampled services, review our information on the nonsampled services to identify services 
estimated at $1.5 million that were potentially billed with incorrect place-of-service codes 
and recover any overpayments, reemphasize to physicians and their billing agents the 
importance of correctly coding the place of service, and work with the program safeguard 
contractor to identify physician services at high risk for place-of-service miscoding.  The 
contractor agreed with our recommendations.  (A-01-07-00518) 
Illinois Full-Dual Beneficiary Contributions 
In our review of Illinoiss monthly contributions to CMS for beneficiaries who were 
eligible for both full Medicaid benefits and Medicare benefits (full-duals), we found that, 
contrary to Federal requirements, the State did not contribute a projected $2.1 million to 
CMS for the period from January through October 2006.   Medicare subsidizes the Part D 
prescription drug benefit for full-duals, and States are required to make contributions to 
CMS to defray a portion of Medicares cost. 
 
In our sample of 300 full-dual beneficiary-months, we determined that the State had not 
made contributions for 22 beneficiary-months.  Although the States monthly Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) file included 
full-dual information for 18 of the 22 beneficiary-months, CMS did not include the 
information in the MMA return file that identifies the amount billed to the State.   For the 
remaining 4 beneficiary-months, the State did not include full-dual information in its 
MMA file nor did CMS in its MMA return file.  We recommended that the State work 
with CMS to develop a process for reconciling the MMA file to the MMA return file to 
ensure that required contributions are identified and made for all full-duals and identify 
and accurately report all full-duals to CMS in the MMA file.  The State concurred with 
the recommendations.  (A-05-07-00009) 
Early Implementation Review of Qualified Independent Contractor 
Processing of Medicare Appeals Reconsiderations 
In our review of the extent to which qualified independent contractors (QIC) followed 
timeliness, correspondence, and data entry requirements for Medicare Part A and Part B 
claims reconsiderations received from May 2005 to July 2006, we found that the QICs 
did not always meet the requirements in these areas.  Medicare beneficiaries, providers, 
and suppliers of health care services may appeal certain decisions related to their 
Medicare claims through a four-level administrative appeals process.  This review 
focused on the second level, QIC reconsiderations; CMS contracted with two QICs that 
began processing Part A reconsiderations in May 2005 and with two QICs that began 
processing Part B reconsiderations in January 2006.  
HHS OIG Semiannual Report to Congress  17  Centers for Medicare & Medicaid Services 
Fall 2008   
Our findings included the following: 
 Timeliness requirements  Part A QICs met the 60-day processing requirement, but 
Part B QICs did not meet this requirement for 58 percent of the reconsiderations. 
 Correspondence requirements  Twenty-six percent of the case files reviewed did 
not contain documentation that QICs had sent letters acknowledging reconsideration 
requests, and 12 percent were missing reconsideration letters.  In files containing 
reconsideration letters, we determined that they included the appropriate content.  Forty 
percent of case files did not contain documentation substantiating that QICs sent 
processing delay notifications for Part B cases that were decided late. 
 Data entry requirements and the Medicare Appeals System  QICs entered 
inaccurate information into the Medicare Appeals System for 54 percent of the 
reconsiderations.  
QICs attributed these deficiencies to case transfer delays, unexpected case volume, and 
appeals system challenges.  We recommended that CMS take further action to ensure that 
QICs meet timeliness, correspondence, and data entry requirements and described several 
options.  CMS concurred with our recommendation and indicated in its comments to our 
report that it had already implemented several changes that resulted in the Part B QICs 
completing over 98 percent of reconsiderations on a timely basis during the first half of 
FY 2008.  CMS also awarded a contract to conduct a performance evaluation to assess 
QICs adherence to Federal requirements and awarded three new Part B QIC contracts.  
(OEI-06-06-00500)   
Deficiency History and Recertification of Medicare Home Health Agencies 
In our review of the deficiency history of more than 5,000 Medicare-certified home 
health agencies (HHA) as of January 2007, we found that 15 percent of HHAs were cited 
for the same deficiency on three consecutive surveys and that CMS could improve its 
oversight of HHAs.  HHAs, which provide a range of services to Medicare beneficiaries 
who are confined to their homes, must meet specific Medicare CoPs and health and 
safety standards.  CMS contracts with State agencies to conduct initial HHA certification 
and recertification surveys of CoP compliance.  States cite deficiencies when HHAs are 
found to be noncompliant with the Medicare CoPs and health and safety standards.  We 
refer to HHAs found repeatedly deficient on subsequent surveys as cyclically deficient 
HHAs.  In terms of enforcement, provisions in the Omnibus Budget Reconciliation Act 
(OBRA) of 1987 directed CMS to implement intermediate sanctions against HHAs that 
are not in compliance with Federal requirements.  Although CMS proposed intermediate 
sanctions in 1991, the regulation has never been finalized.  As a result, CMSs only 
remedy in response to HHA noncompliance is termination from the Medicare program.  
 
Our specific findings included the following: 
HHS OIG Semiannual Report to Congress  18  Centers for Medicare & Medicaid Services 
Fall 2008   
 Among the cyclically deficient HHAs in our sample, the most repeated deficiency 
citation related to patient plans of care. 
 Most cyclically deficient HHAs were located in six States and tended to be 
concentrated in highly populated areas. 
 Cyclically deficient HHAs received twice as many deficiency citations as did HHAs 
without repeat citations. 
 CMS did not use all available deficiency history information in its oversight of HHAs.  
We found that deficiency history beyond the most recent survey could be an important 
indicator of performance on the next survey and could improve CMSs identification of 
at-risk HHAs.   
 For HHAs with one or more condition-level deficiencies, CMS has no sanction other 
than initiating a termination. 
We recommended that CMS use existing survey data to identify patterns of deficiency 
citations and at-risk HHAs and implement intermediate sanctions, as directed by OBRA.  
In responding to our draft report, CMS generally concurred with our recommendations 
but did not agree with all of our specific recommended actions within each 
recommendation.  (OEI-09-06-00040) 
Payments Made in Error for Personal Care Services During Institutional 
Stays 
In our review of payments in five States for claims for personal care services (PCS) 
provided from October 1 through December 31, 2005, we found that in the first quarter of 
FY 2006, these States paid nearly $500,000 in error for PCS provided during periods of 
institutionalization.  PCSdescribed by Medicaid as assistance related to such activities 
as eating, bathing, dressing, and toiletingprovide the elderly, persons with disabilities, 
and individuals with chronic or temporary conditions with the assistance that they need to 
remain in their homes or communities.  State Medicaid programs should not separately 
reimburse for PCS furnished during institutional stays.  Our specific findings included the 
following: 
 The five States paid a total of $11.6 million for more than 29,000 PCS claims that 
overlapped with the dates of paid Medicaid or Medicare institutional stays; of these, 
almost 4,000 claims (13.5 percent) were paid in error, with State Medicaid programs 
paying $243,000 for PCS provided during Medicaid-paid institutional stays and $251,000 
for PCS provided during Medicare-paid institutional stays.   
 Because of vulnerabilities in the billing practices of three States in our review, up to 
$11 million for PCS claims could have been paid in error.   
HHS OIG Semiannual Report to Congress  19  Centers for Medicare & Medicaid Services 
Fall 2008   
 All five States reported having controls such as system edits and postpayment audits to 
prevent or recover payments for PCS provided during institutional stays, but these 
controls were not fully effective.   
We recommended that CMS enforce existing Federal Medicaid payment policies that 
prohibit Medicaid reimbursement for PCS provided over a range of dates if the range 
includes dates on which the beneficiary was institutionalized and work with States to 
reduce erroneous Medicaid payments for such services.  In commenting on our draft 
report, CMS agreed to work with the States to reduce erroneous payments.  However, 
CMS stated that existing Federal reimbursement policies are sufficient to prohibit such 
payments for PCS claims billed with date ranges when States have effective controls in 
place.  (OEI-07-06-00620) 
Medicare Administrative Law Judge Hearings:  Early Implementation, 
2005--2006  
In our congressionally requested review of the Office of Medicare Hearings and Appeals 
(OMHA) use of telephone, video teleconference, and in-person hearings, we found that in 
its first 13 months of operation (July 1, 2005, to July 31, 2006), OMHA handled 
78 percent of Medicare appeals by telephone and that most sample appellants were 
satisfied with their hearing format.  Medicare beneficiaries, providers, and suppliers of 
health care services may appeal certain Medicare claims decisions through a four-level 
administrative appeals process.  The third level of appeal, the subject of this review, is a 
hearing before an Administrative Law Judge (ALJ).  OMHA assumed responsibility for 
these hearings from the Social Security Administration (SSA) in July 2005; unlike SSA, 
which held in-person hearings, OMHA primarily uses telephone and video teleconference 
to conduct ALJ hearings.  OMHA is required by statute to decide certain cases within 
90 days.   
We also found the following:  
 OMHA conducted 12 percent of its hearings by video teleconference and 10 percent in 
person. 
 OMHAs ability to manage its caseload was limited by incomplete and inaccurate data 
in the appeals system.  For example, for more than 70 percent of the cases that were 
decided in the first 13 months of OMHAs operation, there was no indication about 
which parties were the primary appellants.  Other data problems included inconsistently 
entered appellant information, inaccurate or missing key dates, and incomplete or 
incorrect information about the hearing type and format. 
 OMHA did not meet the 90-day decision requirement for 15 percent of the cases with 
such a requirement and a decision date recorded in the appeals system.  
We recommended that OMHA consistently offer appellants the option of video 
teleconferencing, improve the timeliness of deciding 90-day decision requirement cases, 
HHS OIG Semiannual Report to Congress  20  Centers for Medicare & Medicaid Services 
Fall 2008   
address technical problems associated with hearings conducted by telephone and 
videoconference, and improve the quality of the data in the appeals system.  OMHA 
concurred with all four of our recommendations, noting that it had previously identified 
the same findings and had taken measures to address them.  (OEI-02-06-00110)   
Medicaid-Related Reports 
Medicaid Outpatient Prescription Drug Expenditures 
In our reviews of the Medicaid outpatient prescription drug expenditures in two States, 
we found that both States had claimed Federal Medicaid reimbursement for prescription 
drug expenditures that did not fully comply with Federal requirements.  Medicaid 
generally covers outpatient drugs if the drug manufacturers have rebate agreements with 
CMS and pay rebates to the States.  Under the Medicaid drug rebate program, CMS 
provides the States with a quarterly Medicaid drug tape, which lists all covered outpatient 
drugs, indicates a drugs termination date if applicable, and specifies whether FDA has 
determined the drug to be less than effective.  CMS guidance instructs the States to use 
the tape to verify coverage of the drugs for which they claim reimbursement.   
Our specific findings were as follows: 
 Illinois  For FYs 2004 and 2005, Illinois claimed $108,000 in unallowable 
expenditures for prescription drugs that were no longer eligible for reimbursement.  The 
State claimed an additional $3.5 million for drugs that were not listed on the quarterly 
drug tapes.  Because the State did not verify whether these drugs were eligible for the 
coverage, latter expenditures may not be allowable.   
We recommended that the State refund $108,000, work with CMS to resolve $3.5 million 
in payments for drugs that were not listed on the quarterly drug tapes, and strengthen its 
internal controls.  The State agreed with the first two recommendations but said that it 
would not change its internal controls because they were sufficient to comply with 
Federal requirements.  (A-05-07-00019) 
 Missouri  For FYs 2003 and 2004, Missouri claimed $2.9 million in unallowable 
expenditures for prescription drugs that were no longer eligible for reimbursement or 
were inadequately documented.  In addition, the State claimed $1.9 million for drugs that 
were not listed on the quarterly drug tapes and therefore may not be allowable.   
We recommended that the State refund $2.9 million, work with CMS to resolve 
$1.9 million in payments for drugs that were not listed on the quarterly drug tapes, and 
strengthen its internal controls.  The State disagreed with all of our findings and said that 
its internal controls were adequate.  The State did not provide information that would 
cause us to revise our findings.  (A-07-06-04063) 
HHS OIG Semiannual Report to Congress  21  Centers for Medicare & Medicaid Services 
Fall 2008   
Indiana Medicaid Disproportionate Share Hospital Eligibility  
In our review of Indianas compliance with Medicaid disproportionate share hospital 
(DSH) payment requirements, we found that from July 2000 through June 2003, the State 
paid $142.3 million ($88.2 million Federal share) to three State-owned psychiatric 
hospitals that were not eligible to receive DSH payments.  States are required to make 
additional Medicaid payments to hospitals that serve disproportionate numbers of 
low-income patients.  For psychiatric hospitals to qualify for such DSH payments, they 
are required to meet special Medicare CoP related to staffing and medical records.  
Although the State believed that the three hospitals met the special requirements by virtue 
of being accredited by the Joint Commission on Accreditation of Healthcare 
Organizations, we found that the hospitals had not complied with the more stringent 
requirements for psychiatric hospitals.  
We recommended that the State refund $88.2 million and ensure that Medicaid DSH 
payments are made only to eligible hospitals.  The State disagreed with our finding and 
recommendations but did not provide additional information to demonstrate compliance 
with the special requirements for psychiatric hospitals.  (A-05-06-00045) 
States Medicaid Claims for Hurricane Katrina Evacuees 
During this semiannual period, we issued three audit reports on the allowability of States 
claims for services provided to Hurricane Katrina evacuees from Alabama, Louisiana, 
and Mississippi.  To ensure the continuity of health care services for victims following 
Hurricane Katrina, States could apply to CMS for demonstration projects authorized by 
section 1115 of the Social Security Act and, with an approved demonstration, be eligible 
under section 6201(a)(1)(A)(i) of the DRA to receive Federal payment of the non-Federal 
share of medical assistance costs for evacuees.  The results of our audits, which covered 
costs claimed as of March 31, 2007, follow: 
 Maryland  The State claimed a total of $1.3 million for medical assistance services 
provided to 929 evacuees; of this amount, $412,000 was not allowable.  Under 
section 1115, CMS approved Marylands request for Medicaid demonstration authority to 
provide benefits to eligible hurricane evacuees for a maximum of 5 months, ending 
June 30, 2006, and limited eligibility to individuals from specified counties or parishes.  
The claims that we identified as unallowable were not supported by actual recorded 
expenditures, were for services provided to individuals whose eligibility had expired, or 
were for services provided to individuals who may not have met eligibility requirements.  
We recommended that the State refund $412,000 and revise its waiver reports for 
Alabama, Louisiana, and Mississippi by our audit adjustment amounts.  The State agreed 
with our recommendation.  (A-03-07-00200) 
 Pennsylvania  The State claimed a total of $1.4 million for medical assistance 
services provided to 747 evacuees; of this amount, $552,000 was not allowable.  Under 
its approved section 1115 demonstration project, Pennsylvania was allowed to provide 
benefits to eligible evacuees for a maximum of 5 months.  Most of the claims that we 
HHS OIG Semiannual Report to Congress  22  Centers for Medicare & Medicaid Services 
Fall 2008   
identified as unallowable included costs for services provided to individuals after their 
eligibility periods had expired or costs that were not supported by actual recorded 
expenditures.  We recommended that the State refund $552,000 in unallowable 
reimbursement and revise its waiver reports for Alabama, Louisiana, and Mississippi by 
our audit adjustment amounts.  The State agreed with our recommendations.  
(A-03-07-00210) 
 Virginia  The State claimed nearly $523,000 for medical assistance services provided 
to 641 evacuees and associated administrative costs; of this amount, we determined that 
$73,000 was not allowable.  Under the terms of the approved section 1115 demonstration 
project and section 6201 of the DRA, the State could claim reimbursement for reasonable 
administrative costs related to providing services to evacuees.  The claims that we 
identified as unallowable were for administrative costs that did not pertain to the 
demonstration project, were for medical assistance costs that were erroneously reported, 
or were related to services provided to ineligible individuals.  We recommended that the 
State refund $73,000 in unallowable reimbursement and revise its waiver reports for 
Alabama, Louisiana, and Mississippi by our audit adjustment amounts.  The State agreed 
with our recommendation.  (A-03-07-00211) 
Substance Abuse Treatment Facilities  
In our reviews of two States claims for Federal Medicaid reimbursement for services 
provided in inpatient substance abuse treatment facilities, we found that both States had 
made improper claims.  Federal Medicaid funding generally does not cover substance 
abuse treatment when it is provided to residents of institutions for mental diseases (IMD) 
who are between the ages of 22 and 64.  The specific findings follow: 
 New Jersey  From January 2002 through December 2006, the State improperly 
claimed $1.7 million in Federal Medicaid reimbursement for substance abuse services 
that were provided to beneficiaries between the ages of 22 to 64 residing in facilities that 
were IMDs or to beneficiaries residing in nonparticipating institutional Medicaid 
facilities or nonaccredited psychiatric facilities.  This overpayment occurred because the 
State had not established controls to designate the claims in question as federally 
nonparticipating.  The State informed us that, following the period of our review, it had 
modified its controls to designate these facilities as federally nonparticipating. 
We recommended that the State refund $1.7 million, ensure that its new controls are 
working properly, determine the amount of improper Federal Medicaid reimbursement 
claimed subsequent to our audit period, and refund the overpayments.  The State 
concurred with our finding and recommendations.  (A-02-07-01005)   
 New York  From April 2001 through March 2006, New York improperly claimed 
$21.5 million in Federal Medicaid reimbursement for services provided to beneficiaries 
between the ages of 22 and 64 who resided in IMDs.  The State had improperly 
designated certain detoxification claims as eligible for Federal Medicaid reimbursement; 
one provider had billed Medicaid for inpatient rehabilitation services using an outpatient 
HHS OIG Semiannual Report to Congress  23  Centers for Medicare & Medicaid Services 
Fall 2008   
category-of-service code; and the State had continued to claim Federal Medicaid 
reimbursement after another provider increased its number of beds and, as a result, met 
the Medicaid definition of an IMD.  After our audit period, the State refunded a portion 
of the overpayment. 
We recommended that the State refund the $6.6 million balance of the overpayment, 
ensure that its controls to designate certain detoxification claims as federally 
nonparticipating are working properly, designate two providers as federally 
nonparticipating for beneficiaries under age 65, determine the amount of improper 
Federal Medicaid reimbursement claimed subsequent to our audit period, and refund the 
overpayments.  The State concurred with the recommendations.  (A-02-06-01021) 
Kansass Medicaid Claims for the Child Welfare Services and Family 
Preservation Programs  
In our reviews of Kansass Medicaid claims for child welfare services during State 
FYs 20012003, we found that the States documentation did not provide assurance that 
its $61.4 million ($37 million Federal share) claim for the Child Welfare Services 
program or its $3.4 million ($2 million Federal share) claim for the Family Preservation 
Program were, respectively, equal to or less than the limit specified in the States 
Medicaid plan.  Without auditable documentation, we were unable to express an opinion 
on the reasonableness of the States claims for these programs on its quarterly Medicaid 
reports to CMS. 
CMS requested these reviews subsequent to its 2004 review of Kansass Child Welfare 
Services program, which found that the State had submitted claims for Federal 
reimbursement that did not reflect actual payments to providers.  CMS deferred 
reimbursement of expenditures that did not meet Federal and State requirements and 
requested these reviews. 
For both programs, we recommended that the State work with CMS to determine the 
allowability of claims for the audit period and all subsequent periods and ensure that 
State plan requirements are followed in submitting future claims.  In response to both 
reports, the State concurred with our first recommendation but did not directly address 
our second recommendation.  (A-07-06-03079, A-07-06-03076) 
CMSs Medicaid Information Technology Audit Resolution Process 
In our review of CMSs resolution of 197 information technology (IT) recommendations 
that we made regarding the Medicaid Management Information System in 16 reports 
between 2002 and 2005, we found that CMS: 
 Resolved 17 recommendations within the required 6-month period following report 
issuance, 
 Resolved 124 recommendations after the 6-month period had expired, and  
HHS OIG Semiannual Report to Congress  24  Centers for Medicare & Medicaid Services 
Fall 2008   
 Had not resolved 56 recommendations as of June 30, 2007.   
CMS is responsible for resolving Federal and non-Federal audit report recommendations 
related to its activities, grantees, and contractors within 6 months after formal issuance of 
reports.  
We recommended that CMS establish procedures to ensure that all IT audit 
recommendations are resolved within 6 months of receiving an audit report.  In 
commenting on our draft report, CMS concurred with our recommendation and described 
steps that it had taken to improve the audit resolution process.  (A-04-06-05039) 
Medicaid Payments for Services Provided to Beneficiaries With Concurrent 
Eligibility in Two States  
In our review of States payments in August 2003 on behalf of individuals who should 
not have been Medicaid-eligible because of their eligibility in another State, we estimated 
that States paid approximately $2 million in that month on behalf of individuals who 
were already eligible in another State.  In each of these States, Medicaid eligibility 
depends in part on residency, and the general definition of residency provides that an 
individual can be a resident in only one State at a time.  Thus, when an individual 
establishes residency in one State, he or she should lose resident status (and Medicaid 
eligibility) in other States.  
We recommended that CMS share the results of our review with all States to emphasize 
the need to identify beneficiary eligibility changes and encourage States to identify 
opportunities to use existing eligibility data to minimize concurrent Medicaid eligibility 
periods.  CMS concurred with the recommendations.  (A-05-06-00057) 
Medicaid Buy-In Payments in North Carolina 
In our review of North Carolinas claims of Medicare Part B premiums that it paid on 
behalf of Medicaid beneficiaries for the quarters ended June 2004 through March 2007, 
we determined that the State had not met Federal requirements in claiming the Federal 
share of Medicare Part B premiums that it paid on behalf of some Medicaid beneficiaries.  
Of the $722 million that the State claimed, approximately $24 million ($16 million 
Federal share) was for beneficiaries in buy-in eligibility categories that were ineligible 
for the Federal share.   
Under the buy-in program, States that have an agreement with CMS may enroll 
individuals who are eligible for benefits under both Medicare and Medicaid (dual 
eligibles) in Medicare Part B and pay the monthly premium on behalf of these recipients.  
Participating States are eligible to receive the Federal Medicaid share of the Part B 
premiums for certain groups of dual eligibles.  
We recommended that the State refund the $16 million, review claims submitted 
following our audit period, refund any unallowable Federal reimbursement, and develop 
HHS OIG Semiannual Report to Congress  25  Centers for Medicare & Medicaid Services 
Fall 2008   
adequate internal controls.  The State concurred with our finding and recommendations.  
(A-04-07-03011) 
Rhode Island Medicaid Transportation Claims  
In our review of Rhode Islands claimed nonemergency transportation costs for the 
period March 2004 through May 2005, we found that the State had not claimed the costs 
in accordance with Federal and State requirements.  States must ensure that Medicaid 
beneficiaries have transportation to and from medical providers and that the 
transportation is cost-effective.  Rhode Island provided nonemergency transportation by 
distributing monthly bus passes.  We determined that the State could have saved at least 
$9.8 million ($4.9 million Federal share) by purchasing 10-ride bus passes instead of 
monthly passes.  We also found that the State had claimed $386,000 ($193,000 Federal 
share) in unallowable costs for beneficiaries of two non-Medicaid State programs.   
We recommended that the State either refund $4.9 million or provide documentation to 
show that monthly bus passes were the most cost-effective means of providing 
nonemergency transportation; refund $193,000 in unallowable costs; recalculate claims 
for bus passes reimbursed after our audit period and refund the excess reimbursement; 
and establish policies and procedures to comply with Federal requirements and the State 
plan.  The State agreed to refund the $193,000 related to our second recommendation but 
disagreed with the other recommendations.  After considering the States comments, we 
maintain that our findings and recommendations are valid.  (A-01-06-00007) 
Separate State Childrens Health Insurance Program Enrollees Eligibility for 
Medicaid in 2006 
In this review, the third in a series of congressionally mandated reviews of SCHIP 
enrollment, we found that 4 percent of the children enrolled in separate SCHIPs 
(16 sample cases and about 105,000 children projected nationwide) were eligible for their 
States Medicaid programs.  Federal regulations require States to screen SCHIP 
applicants for Medicaid eligibility in part to prevent inappropriate enrollment of 
Medicaid-eligible children in SCHIP, whose expenditures have a higher Federal match 
than Medicaid expenditures.  Details of this review included the following: 
 The 4-percent enrollment error rate found in this review was somewhat higher than 
error rates found in our earlier reviews (i.e., 1.8 percent in 2000 and 1 percent in 2003).  
 The 16 cases erroneously enrolled in SCHIP were due to miscalculations of the 
families net income, clerical mistakes, and other unclassified errors. 
 An additional 4.5 percent (18 sample cases) lacked sufficient documentation to 
determine Medicaid eligibility, raising the possibility that the actual number of children 
enrolled in separate SCHIPs who were eligible for Medicaid in 2006 could have been 
higher than our projection.    
HHS OIG Semiannual Report to Congress  26  Centers for Medicare & Medicaid Services 
Fall 2008   
We recommended that CMS take further action to ensure that children are appropriately 
enrolled in their States Medicaid programs.  In responding to our draft report, CMS 
indicated that it supported the spirit of the recommendation and requested additional 
information on the cases that we had identified as enrollment errors.  (OEI-06-07-00310) 
Texas Medicaid Upper Payment Limit for Hospitals  
In our review of Texas June 2005 upper payment limit (UPL) payments to State-owned 
and -operated hospitals for inpatient services, we were unable to determine whether the 
State had calculated UPL payments totaling $112.3 million in accordance with Federal 
regulations and the State plan because the State did not retain the required supporting 
documentation.  The Medicaid program provides payments to certain hospitals for 
inpatient services insofar as the aggregate payments do not exceed the UPL, which is a 
reasonable estimate of the amount that would be paid for Medicaid services under 
Medicare payment principles.   
We recommended that the State work with CMS to recalculate the UPL, refund the 
Federal share of any overpayments identified, and implement procedures to retain 
supporting documentation for UPL payments.  In commenting on our draft report, the 
State said that it had recalculated the UPL and planned to provide the revised calculation 
and documentation to CMS.  The State also said that it had implemented the 
recommended procedures.  (A-06-07-00025)  
Fee-for-Service Payments for Services Covered by Capitated Medicaid 
Managed Care 
In our review of the extent to which Medicaid programs in five States paid 
noninstitutional fee-for-service claims for services provided to beneficiaries enrolled in 
capitated Medicaid managed care plans during the first quarter of FY 2005, we identified 
approximately $1.8 million (State expenditures and Federal financial participation) in 
total Medicaid claims paid, or potentially paid, in error. 
In capitated managed care arrangementsthrough which 65 percent of the Nations 
Medicaid beneficiaries received all or some of their health or mental health services in 
2006State Medicaid programs pay managed care plans a fixed rate per Medicaid 
beneficiary in exchange for services included in the plan.  Except in limited 
circumstances specified by the State, Medicaid programs should not pay claims for 
services that are included in capitated Medicaid managed care plans on a fee-for-service 
basis.  Otherwise, Medicaid programs pay twice for the same service:  once through the 
fee-for-service claim and once as a portion of the capitated payment. 
Our specific findings included the following: 
 Four of the States reimbursed fee-for-service claims totaling nearly $864,000 
($462,000 Federal share) in error.  Manual overrides of Medicaid automated payment 
system edits and faulty system logic contributed to these errors.  
HHS OIG Semiannual Report to Congress  27  Centers for Medicare & Medicaid Services 
Fall 2008   
 Two States potentially paid an additional $974,000 in error, but Medicaid staff in these 
States were unable to confirm whether these fee-for-service claims were paid in error 
without conducting a detailed, resource-intensive claims-level review.  
We recommended that CMS work with States to prevent erroneous fee-for-service 
payments by issuing guidance to States addressing Medicaid payment systems 
vulnerabilities, identifying erroneous payments, and developing payment systems to 
prevent payment errors.  We also recommended that CMS take appropriate action to 
collect overpayments associated with Medicaid claims paid in error.  In responding to our 
draft report, CMS agreed with our recommendation and listed actions it planned to take 
to eliminate erroneous payments.  The agency also indicated that it would work with the 
four States to voluntarily collect the overpayments associated with erroneous fee-for-
service payments.  (OEI-07-05-00320) 
Other CMS-Related Reports 
Audits of Hospitals in the New Orleans Area  
During this semiannual period, we issued 10 reports related to five hospitals in the New 
Orleans region that had requested additional assistance following Hurricane Katrina.  
Officials of the five hospitals appeared at an August 1, 2007, post-Katrina health care 
hearing held by the Subcommittee on Oversight and Investigations, House Committee on 
Energy and Commerce, and testified that their hospitals had experienced significant 
post-Katrina operating losses, largely due to the increased costs of providing hospital care 
following the August 2005 hurricane.  Using a summary of financial data compiled by 
the Louisiana Hospital Association comparing pre-Katrina (January through May 2005) 
with post-Katrina (January through May 2007) expenses and revenues, the officials 
requested Federal financial assistance for the recovery of the health care delivery system 
in the New Orleans area, including additional grant funds from HHS.  In a September 27, 
2007, letter, the committee requested that OIG review the more significant operating loss 
items cited by these hospitals as a basis for their testimony.  
Our initial audits focused on the hospitals expense and revenue data that were presented 
in the congressional testimony.  We audited various expense categoriesincluding salary 
and contract labor, utilities, insurance, depreciation and amortization, and bad debtto 
determine whether the hospitals data were accurate and supported by their financial 
records.  We also analyzed the hospitals revenue data, which reflected amounts received 
from Medicare, Medicaid, commercial sources, and other sources.   
At the five hospitals, we initiated additional audits of the wage costs included in FY 2005 
Medicare cost reports.  Hospitals must accurately report wage data so that CMS can 
determine the equitable distribution of payments and ensure that there is an appropriate 
level of funding to cover hospital costs.  CMS uses the hospital wage index to adjust 
prospectively set Medicare payment rates for regional variation in labor costs.  Because 
wage indexes for a given year are based on wage data collected from hospitals 4 years 
HHS OIG Semiannual Report to Congress  28  Centers for Medicare & Medicaid Services 
Fall 2008   
earlier, an overstatement in a hospitals FY 2005 cost report could result in Medicare 
overpayments in FY 2009 to hospitals within the same geographic area.  
Findings from the expense and revenue audits and the wage data audits are as follows:   
Hospital A 
 Expenses and revenues  We determined that Hospital As expenses presented in the 
testimony were generally accurate and supported by its financial records.  However, the 
hospitals revenue for the first 5 months of 2007, as described in the testimony, did not 
include $4 million that it received in Medicare Wage Stabilization grants during this 
period.  This was an informational report, and we had no recommendations.   
(A-06-08-00009)  
 Wage data  We found that Hospital A had overstated fringe benefit costs by 
$4.5 million ($4.9 million with overhead factored in) in its FY 2005 Medicare cost report.  
Our correction of the error resulted in a 4-percent decrease in the average hourly wage 
rate from $28.99 to $27.85.  To prevent Medicare overpayments to the hospitals using the 
wage index in the statistical area, we recommended that Hospital A submit a revised 
FY 2005 cost report to CMS and make procedural improvements.  The hospital agreed.   
(A-01-08-00515) 
Hospital B  
 Expenses and revenues  We determined that Hospital Bs expenses presented in the 
testimony were generally accurate and supported by its financial records.  However, its 
revenue for the first 5 months of 2007, as described in the testimony, did not include 
$1.1 million that it received in a Medicare Wage Stabilization grant during this period.  
This was an informational report, and we had no recommendations.  (A-01-07-00521) 
 Wage data  We found that Hospital B reported unsupported and unallowable costs 
totaling $3.2 million and 40,523 hours in its FY 2005 Medicare cost report.  Our 
correction of the error decreased the average hourly wage rate approximately 3 percent 
from $28.83 to $28.11.  To prevent Medicare overpayments to the hospitals using the 
wage index in the statistical area, we recommended that the hospital submit a revised 
FY 2005 Medicare cost report and implement procedural improvements.  The hospital 
agreed with our findings.  (A-01-08-00516)   
Hospital C  
 Expenses and revenues  We determined that Hospital Cs expenses presented in the 
testimony were generally accurate and supported by its financial records.  However, its 
revenue for the first 5 months of 2007, as described in the testimony, did not include 
$3.9 million that it received in Medicare Wage Stabilization grants and funds from other 
sources during this period.  This was an informational report, and we had no 
recommendations.  (A-06-08-00012) 
HHS OIG Semiannual Report to Congress  29  Centers for Medicare & Medicaid Services 
Fall 2008   
 Wage data  We found that Hospital C overstated its salaries by more than $605,000 
and understated its hours by 4,168 in its FY 2005 Medicare cost report.  Our correction of 
the hospitals errors reduced the average hourly wage rate approximately 1.3 percent 
from $25.19 to $24.86.  To prevent Medicare overpayments to the hospitals using the 
wage index in the statistical area, we recommended that the hospital submit a revised 
FY 2005 Medicare cost report and implement procedural improvements.  The hospital 
agreed with our findings.  (A-01-08-00513) 
Hospital D 
 Expenses and revenues  We determined that Hospital Ds expenses presented in the 
testimony were generally accurate and supported by its financial records.  However, the 
hospitals revenue for the first 5 months of 2007, as described in the testimony, did not 
include $6 million that it received in Medicare Wage Stabilization grants and other funds 
during this period.  This was an informational report, and we had no recommendations.  
(A-06-08-00011) 
 Wage data  We found that Hospital D reported unsupported and unallowable costs 
totaling $298,000 in its FY 2005 Medicare cost report.  Our correction of the error 
reduced the average hourly wage rate less than 1 percent from $35.69 to $35.59.  To 
prevent Medicare overpayments to the hospitals using the wage index in the statistical 
area, we recommended that the hospital submit a revised FY 2005 Medicare cost report 
and implement procedural improvements.  In commenting on our draft report, the 
Hospital provided information on actions that it had taken to implement our 
recommendations.  (A-01-08-00518) 
Hospital E  
 Expenses and revenues  We determined that Hospital Es expenses presented in 
congressional testimony were generally accurate and supported by its financial records.  
However, as described in the testimony, the hospitals revenue for the first 5 months of 
2007 did not include $20 million that it had received during this period.  The Louisiana 
Hospital Association had removed this amount when compiling the testimony data and 
referenced the amount in an explanatory note.  This was an informational report, and we 
made no recommendations.  (A-01-08-00507)   
 Wage data  We found that, after factoring in overhead, Hospital E reported 
unsupported costs totaling $6.6 million and 57,539 hours in its FY 2005 Medicare cost 
report.  Our correction of the error decreased the average hourly wage rate approximately 
3.5 percent from $29.49 to $28.47.  To prevent Medicare overpayments to the hospitals 
using the wage index in the statistical area, we recommended that the hospital submit a 
revised FY 2005 Medicare cost report and implement procedural improvements.  The 
hospital agreed with our finding.  (A-01-08-00519)   
HHS OIG Semiannual Report to Congress  30  Centers for Medicare & Medicaid Services 
Fall 2008   
Grant Closeout Procedures  
In our review of 197 CMS grants that had not been closed out by the cutoff date of 
March 31, 2006, we determined that these grants, with unexpended balances of 
$1.3 billion, were not closed out in a timely manner.  CMS is responsible for initiating 
the closeout of its various grants by instructing HHSs Program Support Center (PSC), 
Division of Payment Management (DPM), to close out grants in the Payment 
Management System.  As a general rule, grants must be closed within 180 days after the 
end of the grant period (the cutoff date).  A previous internal controls review by an 
outside auditor found that CMS had not actively reviewed grants eligible for closeout and 
lacked a process for ensuring that grant financial activity recorded on the general ledger 
agreed with activity recorded in the payment system. 
Our specific findings included the following: 
 For 33 grants with unexpended balances totaling nearly $1.2 billion, CMSs program 
offices did not initiate closeout because they were awaiting the results of legislative 
proposals or because they lacked an adequate monitoring system to ensure that grants 
were closed by the cutoff date.   
 For 164 grants with unexpended balances totaling nearly $104.2 million, CMSs 
program offices initiated closeout; however, DPM did not complete closeout primarily 
because of differences (sometimes of $1 or less) among the grant award, expenditure, and 
drawdown amounts in the payment system.   
We recommended that CMS establish an adequate monitoring system to ensure that its 
program offices close grants by the cutoff date, deobligate any unexpended balances on 
grants open past the cutoff date, and work with DPM to establish a dollar threshold for 
differences in payment system balances and procedures for closing grants with 
differences below the threshold.  CMS generally concurred with our recommendations.  
(A-02-06-02001) 
Outreach 
As part of OIGs ongoing efforts to promote the highest level of ethical and lawful 
conduct by the health care industry, we have continued to issue advisory opinions and 
other guidance to educate industry and other stakeholders on how to avoid instances of 
waste, fraud, and abuse. 
Advisory Opinions 
In accordance with section 205 of the HIPAA, OIG, in consultation with the Department 
of Justice (DOJ), 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 
HHS OIG Semiannual Report to Congress  31  Centers for Medicare & Medicaid Services 
Fall 2008   
and abuse sanctions.  For the period April 1 through September 30, 2008, OIG received 
25 advisory opinion requests and issued 10 advisory opinions.  OIG advisory opinions are 
available at http://oig.hhs.gov/fraud/advisoryopinions.asp. 
Provider Self-Disclosure Protocol 
OIG is committed to assisting health care providers and suppliers in detecting and 
preventing fraudulent and abusive practices.  Since 1998, we have made available 
comprehensive guidelines describing the process for providers to voluntarily submit to 
OIG self-disclosures of fraud, waste, or abuse.  The guidelines, entitled Provider 
Self-Disclosure Protocol, give providers an opportunity to minimize the potential costs 
and disruption that a full-scale OIG audit or investigation may entail if fraud is 
uncovered.  In doing so, the self-disclosure also enables the provider to negotiate a fair 
monetary settlement and potentially avoid being excluded from doing business with 
Federal health care programs.  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 health care programs).  OIG evaluates the reported results of each 
internal investigation to determine the appropriate course of action.   
In addition, OIG issued an Open Letter to Health Care Providers in 2006 to promote the 
use of the self-disclosure protocol to resolve civil monetary penalty (CMP) liability under 
the physician self-referral and anti-kickback statutes for financial arrangements between 
hospitals and physicians. 
On April 15, 2008, OIG published another Open Letter to Health Care Providers.  The 
letter sets forth certain refinements to the October 1998 Self-Disclosure Protocol.  To 
improve the self-disclosure process, OIG, among other steps, streamlined its internal 
procedures regarding self-disclosures.  In addition, OIG explained that it will generally 
not require a self-disclosing entity to enter into a corporate integrity agreement (CIA) or 
certification of compliance agreement (CCA) when a resolution has been negotiated 
pursuant to the protocol.   
The self-disclosure guidelines are available on the OIG Web site at 
http://www.oig.hhs.gov/fraud/selfdisclosure.asp.   
During this reporting period, self-disclosure cases resulted in $47.6 million in HHS 
receivables.  The following are examples:  
 California  M.A.C.T. Health Board, Inc. (MACT), an association of Native American 
tribal organizations and provider of direct care services to Native Americans through its 
five primary care clinics and three dental clinics, agreed to pay $447,287 to resolve its 
liability to the United States and California for submitting claims to Medicare and 
HHS OIG Semiannual Report to Congress  32  Centers for Medicare & Medicaid Services 
Fall 2008   
Medi-Cal for clinic visits that did not occur.  MACT reported these violations under the 
OIG Self-Disclosure Protocol following an internal investigation into improper billing 
practices by a physician assistant between January 1998 and March 2005.  Services billed 
by MACT as clinic visits did not, in fact, qualify as clinic visits because patients were not 
seen by physicians, physician assistants, or nurse practitioners.  For most such claims, the 
only services provided were medication refills, telephonic consultations, or blood or urine 
samples taken for laboratory analysis. 
 Pennsylvania  Sharon Regional Health System agreed to pay the Government 
$362,838 and enter into a 3-year CCA with OIG following its disclosure under the OIG 
Self-Disclosure Protocol that it improperly billed Medicare for various services.  The 
reported violations included billing for services provided by certified registered nurse 
practitioners and physician assistants at physicians rates even though the services were 
not provided incident to physicians services.  Sharon allegedly double billed for 
admission visits by billing for the time after the physician was called by an admitting 
midlevel provider or social worker and for the time after the physician saw the patient the 
next morning.  Sharon also allegedly submitted claims for hospital discharges at a rate 
that was not justified by the actual medical records. 
Office of Inspector General Administrative Sanctions 
OIG has the authority to impose administrative sanctions for instances of fraud or abuse 
or other activities that pose a risk to Federal health care programs and their beneficiaries 
(see Appendix E for an explanation of OIGs sanction authorities).  These sanctions 
include the exclusion of individuals and entities from Federal health care programs and 
the imposition of CMPs for submitting false or fraudulent claims to a Federal health care 
program or violating the anti-kickback statute, physician self-referral statute, or the 
patient dumping provision of the Social Security Act.  
During this reporting period, OIG administered 1,866 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.  Details and 
examples of these sanctions follow.  
Program Exclusions 
During this reporting period, OIG excluded 1,838 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: 
 Virginia  Kenneth D. Beverly, the owner of a rehabilitation facility, was excluded for 
a minimum of 25 years based on his scheme to bill Medicaid for psychosocial 
rehabilitation services for Medicaid beneficiaries who were not eligible to receive such 
services.  In addition to the health care fraud scheme, Beverly was convicted of various 
HHS OIG Semiannual Report to Congress  33  Centers for Medicare & Medicaid Services 
Fall 2008   
other charges, including charges related to income tax evasion.  Beverly was ordered to 
pay $2,604,500 in restitution and was sentenced to 151 months of incarceration. 
 New Jersey  Juan C. Fischberg, a medical doctor, was excluded for a minimum of 
25 years based on his health care fraud-related conviction.  From about January 1998 to 
August 2003, Fischberg submitted false claims to various private insurance companies 
indicating that his patients, who had been injured in automobile accidents, needed 
electrodiagnostic testing for him to diagnose and treat them.  In some cases, the testing 
was not necessary or even performed.  Fischberg was ordered to pay $2,126,200 in 
restitution and was sentenced to 3 years of incarceration.  In addition, Fischberg 
surrendered his licenses to practice medicine in the States of New Jersey and New York. 
 Oregon  John Lawrence Shadley, a caregiver at a long term care facility for disabled 
individuals, was excluded for a minimum of 25 years based on his conviction related to 
patient abuse or neglect.  From about January 2004 to July 2006, Shadley unlawfully and 
intentionally attempted to engage in sexual intercourse with a person incapable of consent 
by reason of mental defect; knowingly engaged in deviant sexual intercourse with a 
person incapable of consent by reason of mental defect; and subjected a person who was 
mentally defective to sexual contact.  Shadley was sentenced to 303 months of 
incarceration. 
 Iowa  Ronald Dean Agee, a nurse aide at a health care facility, was excluded for a 
minimum of 13 years based on his conviction of sexual abuse.  Agee admitted that he had 
had inappropriate contact with a female patient during the course of providing her care.  
The patient was physically incapacitated and could not give consent.  Agee was 
sentenced to incarceration for a period not to exceed 10 years. 
 California  Qing Wang, an acupuncturist, was excluded indefinitely based on the 
surrender of her license to the State Acupuncture Board for unprofessional conduct and 
acts involving dishonesty or corruption.  Wang used her acupuncture license as part of a 
scheme to own and operate a massage parlor where employees solicited for prostitution.  
The investigation was prompted by advertisements in adult publications.  On at least 
seven separate occasions, sex for money was offered. 
Civil Monetary Penalties Law 
The Civil Monetary Penalties Law (CMPL) authorizes OIG to impose administrative 
penalties and assessments against a person who, among other things, submits or causes to 
be submitted claims to a Federal health care program that the person knows or should 
know are false or fraudulent.  During this reporting period, OIG concluded cases 
involving more than $5.5 million in CMPs and assessments.  The following are among 
the CMP actions resolved during this reporting period: 
 Arkansas  Sparks Health System, Sparks Medical Foundation, and Sparks Regional 
Medical Center (collectively, Sparks) agreed to pay $1,142,973 for allegedly violating the 
CMPL.  The agreement resolved allegations, self-disclosed by Sparks, that from 
HHS OIG Semiannual Report to Congress  34  Centers for Medicare & Medicaid Services 
Fall 2008   
January 1, 2001, through November 30, 2003, it billed Medicare for medically 
unnecessary hospital services and upcoded physician services generated by an internal 
medicine physician.   
 South Carolina  Spartanburg Regional Healthcare System (Spartanburg) agreed to 
pay $780,000 to settle its liability under OIGs CMPL authorities for physician referral 
and anti-kickback violations.  Spartanburg disclosed that, between August 1, 2005, and 
September 30, 2007, it provided IT resources to nonemployee physician groups without 
written contracts in place.  Specifically, Spartanburg reported that it failed to document 
IT agreements with 10 different physician practices/groups and also failed to bill and 
collect for those IT resources. 
 Massachusetts  Caritas Christi, the parent entity of a health care system comprising 
hospitals, physicians groups, laboratories, and home care agencies in southern New 
England, agreed to pay $250,060 to resolve its liability under the CMPL.  In May 2007, 
Caritas Christi disclosed to OIG that it employed or contracted with five individuals who 
were excluded from participating in Federal health care programs.  Caritas Christi 
discovered this problem during an annual review of the Federal sanctions lists in late 
2006.  After disclosing this matter, Caritas Christi cooperated with OIG in determining 
the damages related to the employment of four of these individuals and a one-time 
contract with the fifth person.  In addition, as part of the settlement agreement, Caritas 
Christi provided a certification of its policy and procedures to prevent hiring or 
contracting with ineligible providers. 
 Florida  Based upon evidence submitted during an administrative hearing held in 
Tampa, FL, ALJ Steven T. Kessel issued a decision on June 24, finding that Cary 
Frounfelter and Kast Orthotics and Prosthetics, Inc., violated the CMPL by submitting 
false claims for Medicare Part B reimbursement.  The ALJ sustained the determination by 
OIG to impose a CMP of $100,000, an assessment of $42,220, and a 7-year exclusion 
against Frounfelter and Kast.  
Frounfelter is the founder and owner of Kast, a DME supplier in Clearwater, Florida, that 
provided custom-made orthotic devices to inpatients at HealthSouth Rehabilitation 
Hospital in Largo, FL.  Frounfelter and Kast falsely claimed that they provided the 
devices after Medicare beneficiaries had been discharged from HealthSouth, or within a 
48-hour window prior to discharge, and illegally billed the devices to Medicare Part B.  
The ALJ found that Frounfelter and Kast struck a corrupt bargain with HealthSouth, 
whereby Frounfelter and Kast systematically, fraudulently, and falsely claim[ed] 
reimbursement under Part B of the Medicare Program for orthotic devices which they 
knew or should have known were not eligible for compensation under Part B. 
Patient Dumping 
Some of the CMP cases that OIG resolved between April 1 and September 30, 2008, 
were pursued under the Emergency Medical Treatment and Labor Act, a statute designed 
HHS OIG Semiannual Report to Congress  35  Centers for Medicare & Medicaid Services 
Fall 2008   
to ensure patient access to appropriate emergency medical services.  The following are 
examples of two settlements under this statute: 
 North Carolina  Cape Fear Valley Medical Center paid $42,500 to resolve 
allegations that it failed to provide an appropriate medical or psychiatric examination for 
a 13-year-old girl who presented to its emergency department.  The girl had reportedly 
taken a knife to school and threatened to harm herself and others.  Without conducting 
either a medical or psychiatric exam, Cape Fear discharged the girl after a 5-minute 
meeting with an emergency department physician and provided no discharge instructions.  
Less than 50 minutes later, the patient returned to Cape Fear after jumping from a car 
moving at approximately 40 miles per hour, sustaining a skull fracture, subdural 
hematoma, possible splenic laceration, and skin abrasions.   
 California  Mark Twain St. Josephs Hospital paid $25,000 to resolve allegations that 
it failed to provide an appropriate medical screening to a pregnant woman who presented 
to its emergency department complaining of severe pain and bleeding.  After the woman 
arrived at the hospital, the emergency department physician failed to place her on a fetal 
baby monitor or conduct a pelvic exam.  Following discharge from Mark Twain, the 
woman delivered her baby in a private vehicle while traveling to another hospital for 
treatment.  However, the baby died before an ambulance arrived.  The $25,000 settlement 
amount is the statutory maximum given the size of the hospital. 
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 Federal and State criminal statutes and, in appropriate 
cases, under the civil False Claims Act (FCA).  A description of these enforcement 
authorities can be found in Appendix E.   
The successful resolution of false claims often involves the combined investigative 
efforts and resources of OIG, the Federal Bureau of Investigation (FBI), Medicaid Fraud 
Control Units (MFCU), and other law enforcement agencies.  OIG is responsible for 
assisting DOJ 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 into 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 conduct. 
During FY 2008, the Governments enforcement efforts resulted in 455 criminal actions 
and 337 civil actions against individuals or entities that engaged in health-care-related 
offenses.  These efforts resulted in $2.35 billion in HHS investigative receivables, 
including civil and administrative settlements or civil judgments related to Medicare, 
Medicaid, and other Federal health care programs.  Some of the notable enforcement 
HHS OIG Semiannual Report to Congress  36  Centers for Medicare & Medicaid Services 
Fall 2008   
actions are described below.  Summaries are organized by the sector of the health care 
industry involved or by the nature of the offense. 
Pharmaceutical Manufacturers and Distributors 
 Pennsylvania  Cephalon, Inc., entered a global criminal, civil, and administrative 
settlement under which the company agreed to pay a total of $425 million plus interest; 
plead guilty to a misdemeanor violation of the Federal Food, Drug and Cosmetic Act; and 
enter into a comprehensive 5-year CIA with OIG.  The civil settlement resolves 
allegations filed in four separate FCA qui tam cases, three of which were filed by former 
Cephalon sales representatives.  The qui tam relators collectively alleged that between 
approximately January 2001 and December 2006, Cephalon promoted the drugs Actiq, 
Gabitril, and Provigil for off-label uses (that is, uses other than those approved by 
FDA).  Cephalons off-label promotional practices involved a variety of techniques, 
including training its sales force to disregard restrictions of the FDA-approved label and 
promote the drugs for off-label uses.  For example, Cephalon allegedly marketed Actiq 
for general pain treatment to internists and general practitioners, despite the fact that 
Actiq is an opioid approved only to treat cancer patients when their usual pain medication 
fails to control breakthrough episodes of extreme pain.  In addition to the $375 million 
civil settlement, Cephalon entered into a criminal plea agreement with the United States 
under which it will pay $50 million. 
The CIA between OIG and Cephalon contains several unique provisions.  Cephalon must 
notify doctors about the settlement and establish a way for them to report questionable 
conduct by sales representatives.  The CIA also requires Cephalon to post on its Web site 
information about payments made to physicians and requires increased accountability by 
Cephalons Board of Directors and management through an annual resolution by the 
Board and annual compliance-related certifications by managers.  The CIA contains 
flexible audit provisions to allow Cephalon to substitute internal audits for certain 
independent review organization reviews. 
 Pennsylvania and Louisiana  Merck and Company (Merck), Inc., agreed to pay 
$399 million plus interest to resolve its FCA liability in connection with certain 
discounting, pricing, and marketing practices associated with some of its drug products.  
Specifically, the United States alleged that Merck had established certain tiered discount 
programs, in effect between 1998 and March 2006, under which it offered hospitals deep 
discounts on Vioxx (no longer marketed), Zocor, and Mevacor.  Under these so-called 
nominal price programs, hospitals that met certain market share requirements could 
purchase the Merck products at discounts of up to 92 percent off the AMP.  The United 
States alleged that Merck failed to properly include the discounts in the best prices that 
are required to be reported to CMS under the Medicaid drug rebate program and, as a 
result, underpaid rebates owed to the States.  The United States further contended that 
through this conduct, Merck overcharged covered entities that purchased Merck products 
under the 340B Drug Pricing Program, which limits the costs of certain outpatient 
prescription drugs to Federal entities and Federally Qualified Health Centers, such as 
community health centers and AIDS drug assistance programs that serve vulnerable 
HHS OIG Semiannual Report to Congress  37  Centers for Medicare & Medicaid Services 
Fall 2008   
populations.  Finally, the United States alleged that between January 1997 and December 
2001, Merck sales representatives used approximately 15 different programs to induce 
physicians to use its drug products.  These programs primarily consisted of excess 
physician payments that were disguised as fees paid to them for training, 
consultation, or market research.  The Government alleged that these fees were, in 
fact, illegal kickbacks intended to induce the purchase of Merck drug products.  
 
Merck agreed to pay $399 million to settle this matter at the same time that it settled a 
separate FCA lawsuit filed in the Eastern District of Louisiana for $250 million plus 
interest.  The Louisiana matter involved similar discounted pricing programs offered to 
hospitals for another Merck drug, Pepcid.  Merck allegedly offered incentives to hospitals 
to obtain the benefit of spillover business when patients continued to purchase Pepcid 
following their hospital stays.  Through both settlements, Merck agreed to pay a total of 
$649 million plus interest.  Merck further agreed to enter into a 5-year CIA with OIG that 
includes corrective measures to address its conduct in both cases. 
 Illinois  Walgreens Co. (Walgreens) agreed to pay the United States, 42 States, and 
Puerto Rico $35,214,026 to settle Medicaid prescription drug fraud claims.  The qui tam 
complaint alleged that Walgreens substituted different forms of generic prescription 
drugs for others (such as tablets for capsules) solely to increase its reimbursement rate 
rather than for any legitimate medical reason.  The drugs at issue were ranitidine (generic 
Zantac), fluoxetine (generic Prozac), and selegiline (generic Eldepryl).  The Government 
alleged that Walgreens systematic substitution of more expensive forms of these drugs 
for less expensive, prescribed forms was motivated by its intent to avoid CMSs Federal 
Upper Limit (FUL) on prices for the drugs and States maximum allowable costs (MAC) 
for the drugs.  In addition to the monetary settlement, Walgreens entered into a 5-year 
CIA that requires an independent review organization to review its Medicaid 
reimbursement for generic drugs for which Government reimbursement is limited by 
FUL and MAC lists.  
Hospitals 
 New York  Staten Island University Hospital (SIUH) agreed to pay $88,916,448 in a 
global settlement resolving allegations that it defrauded Medicare, Medicaid, and 
TRICARE (the militarys health insurance program).  The global settlement resolves two 
separate lawsuits filed in the U.S. District Court for the Eastern District of New York and 
two Government investigations.  As part of the global settlement, SIUH also entered into 
a 5-year CIA with OIG. 
In the first lawsuit, a former director of SIUHs Chemical Dependency Services alleged 
that SIUH fraudulently billed Medicaid and Medicare for inpatient alcohol and substance 
abuse detoxification treatment.  The Governments investigation established that, during 
the period July 1, 1994, through June 30, 2000, SIUH submitted claims for payment for 
treatment provided to patients in beds for which SIUH had received no certificate of 
operation from the New York State Office of Alcoholism and Substance Abuse Services 
HHS OIG Semiannual Report to Congress  38  Centers for Medicare & Medicaid Services 
Fall 2008   
(OASAS) and concealed the existence of those beds from OASAS.  SIUH has agreed to 
pay $11,824,056 to the United States and $14,883,883 to the State of New York. 
In the second lawsuit, a widow of an SIUH cancer patient asserted that SIUH 
fraudulently billed Medicare for stereotactic body radiosurgery treatment (in which 
radiation beams are used to treat cancerous tumors noninvasively) that was provided on 
an outpatient basis to cancer patients.  The investigation established that, from 1996 
through 2004, SIUH knowingly used incorrect billing codes for this cancer treatment 
performed at the hospital, and thus obtained reimbursement for treatment that was not 
covered by Medicare or TRICARE.  SIUH will pay the United States $25,022,766 to 
settle this lawsuit. 
Conduct uncovered by SIUHs self-disclosure was resolved prior to the filing of the 
lawsuits.  Pursuant to OIGs Self-Disclosure Protocol, SIUH disclosed that its medical 
resident count in the 1996 to 2003 cost reports had been inflated.  SIUH has agreed to pay 
the United States $35,706,754 to settle this issue.  The Medicare program uses the 
resident count in determining the share it pays of the cost of graduate medical education 
at teaching hospitals, such as SIUH.   
The global settlement also addresses SIUHs billings to Medicare and Medicaid for 
treatment of psychiatric patients in unlicensed beds during the period July 2003 through 
September 2005.  The hospital has agreed to pay the United States $1,478,989 to settle 
this claim. 
 
 Georgia  Memorial Health, Inc., Memorial Health University Medical Center, Inc., 
Provident Eye Physicians, Inc., and Georgia Eye Institute, Inc. (GEI) (collectively, 
Memorial), agreed to pay $5.08 million to resolve allegations of Medicare fraud.  
Memorial is a nonprofit corporation located in Savannah, Georgia.  This settlement, 
stemming from a 2006 qui tam lawsuit regarding Memorial and its physicians, resolved 
allegations that, from January 1, 2003, through December 31, 2006, Memorial violated 
the Physician Self-Referral law through excessive payments made to its employee 
ophthalmologists.  Memorial characterized such payments using terms such as teaching 
stipends or indigent care when the payments were, in fact, not entirely for such 
purposes. 
 
In 2006, a former employee of GEI and Memorial filed a qui tam lawsuit alleging that 
Memorial engaged in activities with its physicians that violated the Anti-Kickback 
Statute and the Physician Self-Referral law.  The ensuing investigation, however, found 
violations of the Physician Self-Referral law only.  Specifically, the investigation 
determined that, from January 1, 2003, through December 31, 2006, Memorial violated 
the Physician Self-Referral law through excessive payments made to its employed 
ophthalmologists.  Memorial characterized such payments using terms such as teaching 
stipends or indigent care when the payments were, in fact, not entirely for such 
purposes. 
 
HHS OIG Semiannual Report to Congress  39  Centers for Medicare & Medicaid Services 
Fall 2008   
 Pennsylvania  As the 20th hospital to settle under the 3-year-long Operation 
Vampire project, aimed at uncovering hospitals erroneous Medicare claims associated 
with blood transfusions, the University of Pennsylvania Health System (UPHS) agreed to 
pay the Government $3,528,907.  The Government alleged that, from January 2001 
through December 2005, UPHS failed to follow Medicare requirements by submitting 
erroneous, separate, and distinct Medicaid payment claims for blood transfusions on bills 
that had more than one unit per day.  Further, from January 2001 through December 
2004, UPHS allegedly submitted fraudulent claims associated with office visits for new 
patients, as well as fraudulent claims for infusion therapy.  Including this case, Operation 
Vampire recoveries total approximately $12.5 million.   
 
 Maine  Henrietta Goodall Hospital agreed to pay $1.15 million to resolve its FCA 
liability.  The Government alleged that the hospital overbilled Medicare by improperly 
coding for the drugs Herceptin, Tenecteplase, and Paclitaxel. 
Practitioners 
 Florida  Dr. Fred Steinberg and his wholly owned imaging centers and related entities 
located in Palm Beach County, FL, agreed to pay $7 million plus interest to resolve 
several allegations of health care fraud.  Dr. Steinberg and his companies allegedly 
entered into financial relationships or arrangements with certain referring physicians 
which failed to meet the requirements of the Physician Self-Referral Law and/or violated 
the anti-kickback statute; submitted, or caused the submission of, claims of patients of the 
referring physicians to Medicare; billed Medicare for several diagnostic studies that were 
not performed, not ordered, or not medically necessary; and improperly billed Medicare 
for studies that should not have been billed separately while using improper codes for 
these studies.  Dr. Steinberg, individually and on behalf of his imaging centers and 
related entities, entered into a 5-year CIA with OIG that includes an Arrangements 
Review. 
 Illinois  Dr. Ajit Trikha was sentenced to 30 months of imprisonment and was ordered 
to pay restitution in the amount of $1,755,754 following his guilty plea to health care 
fraud.  TRX Health Systems PC (TRX), Dr. Trikhas business practice, was also ordered 
to pay a $400 special assessment for mail fraud.  Dr. Trikha, a psychiatrist, and TRX 
billed Medicare and Medicaid for individual psychotherapy, group psychotherapy, and 
pharmacologic management services that he did not render.  In some cases, Dr. Trikha 
was, in fact, traveling outside of the United States on the claimed dates of service. 
 Missouri  St. Louis Eye Clinic (SLEC), an ophthalmology practice with 11 locations 
in the St. Louis area, and Dr. Krishnarao Rednam, an SLEC employee, agreed to pay 
$251,551 and $304,225, respectively, to settle allegations that Dr. Rednam submitted 
false claims to Federal health care programs.  An investigation revealed that Dr. Rednam 
engaged in two types of fraud when providing eye injections for macular degeneration.  
First, Dr. Rednam injected patients with Macugen while billing Medicare for Avastin, a 
more expensive drug.  Second, he split single-use vials of Lucentis into multiple doses.  
Furthermore, during the Governments execution of a subpoena seeking the medical 
HHS OIG Semiannual Report to Congress  40  Centers for Medicare & Medicaid Services 
Fall 2008   
records of patients receiving eye injections, Dr. Rednam destroyed medical records 
material to the Governments investigation.  He pleaded guilty to obstruction of criminal 
investigations of health care offenses.  Dr. Rednam agreed to be excluded from Federal 
health care programs for 5 years. 
Durable Medical Equipment Suppliers 
 Texas  Dr. Charles Skripka, Jr., one of five defendants convicted in a far-reaching 
Medicare fraud scheme, was sentenced to 78 months in prison and held responsible for 
$6,562,186 in restitution.  Dr. Skripka and three other defendants were convicted after a 
6-week trial, and a fifth defendant pleaded guilty.  The trial showed that Dr. Skripka and 
Dr. Jayshree Patel were paid by DME company owners to authorize motorized 
wheelchairs for beneficiaries who had no medical necessity for them, routinely approving 
wheelchairs for as many as 30 to 80 patients a day without performing a physical 
examination or ordering any medical tests.  The trial also revealed that David Brown, a 
patient recruiter, promised beneficiaries free scooters, paid them $50, and transported 
them to either Dr. Skripka or Dr. Patel.  Brown testified that he paid Dr. Skripka and 
Dr. Patel up to $1,000 for fraudulent certificates of medical necessity and prescriptions 
for motorized wheelchairs and then sold the fraudulent paperwork to DME company 
owners Pius Ekiko and Harold Iyalla.  The DME company owners, who also paid the 
physicians for the fraudulent paperwork, in turn billed Medicare for motorized 
wheelchairs but delivered significantly less expensive scooters to the beneficiaries.  In 
total, the five defendants were sentenced to more than 380 months imprisonment and 
ordered to pay more than $18 million in restitution. 
 Florida and California  The Medicare Fraud Strike Force (Strike Force) was 
launched in March 2007 as part of the South Florida Initiative, a joint investigative and 
prosecutive effort against health care fraud in South Florida.  The Strike Force builds 
upon earlier phases of the multiagency and multidisciplinary initiative to combat 
Medicare fraud and abuse among DME suppliers and infusion providers.  In its initial 
phase, infusion clinics and DME companies suspected of fraud were identified, 
investigated, and pursued for civil violations.  Providers identified through these efforts 
were also investigated and pursued for criminal violations.  The Strike Force is using 
real-time analysis of Medicare billing data, as well as findings from investigations, in its 
ongoing efforts to identify, investigate, and prosecute individuals and companies that 
have committed DME fraud.  Based on the success of these efforts, a second phase of 
Strike Force operations began in Los Angeles in March 2008. 
During this reporting period, the South Florida Initiative, including Strike Force efforts in 
South Florida, have resulted in 50 convictions and $68.9 million in investigative 
receivables.  Strike Force prosecutive efforts in Los Angeles are ongoing. 
Examples of successful OIG efforts as part of the South Florida Initiative and the Strike 
Force during this semiannual period include the following:  
HHS OIG Semiannual Report to Congress  41  Centers for Medicare & Medicaid Services 
Fall 2008   
 Several DME company owners were sentenced for conspiring to defraud the 
Medicare program by submitting false claims for medically unnecessary DME items 
and supplies, including aerosol medications and oxygen concentrators.  The case was 
predicated upon information obtained during an investigation of Dr. Zabdy 
Westerburger, who had been convicted in 2006 of conspiracy to violate the anti-
kickback and False Claims Act by agreeing to sign bogus prescriptions in return for 
kickbacks paid by the DME companies.  The companies also paid kickbacks to 
several Medicare beneficiaries in order to use their Medicare numbers to submit the 
fraudulent claims.  The 13 convicted DME company owners involved in the scheme 
were ordered to pay a total of more than $6.4 million in restitution and $132,000 in 
fines and assessments.  The 13 subjects were also sentenced to various terms of 
imprisonment, probation, and/or home detention, the longest prison sentence for the 
case being 6 years and 6 months. 
 Mitzi Del Toro, owner and operator of DME company Alegria Medical 
Equipment, Inc. (Alegria), was sentenced to 1 year and 6 months in prison and 
ordered to pay $437,118 in restitution for her involvement in a DME fraud scheme.  
Through Alegria, Del Toro used fraudulently obtained names and Medicare 
identification numbers of three physicians and Medicare identification numbers of 
beneficiaries for the purpose of submitting or causing the submission of false claims 
to Medicare for DME and related items or services purportedly provided to the 
beneficiaries.  Alegria did not deliver, supply, or provide any legitimate health care 
items or services to Medicare beneficiaries.  In executing her scheme, Del Toro 
purchased three fake invoices and three fraudulent prescriptions from coconspirators 
Maria E. German and Esteban M. Carabeo, who were sentenced to 18 and 6 months 
in prison, respectively, for their roles in the scheme.  
 The real owner and nominee owners of Miranda Medical Supplies (MMS) were 
sentenced for conspiracy to commit health care fraud.  MMS billed Medicare for 
wound care, enteral nutrition products, and custom mattresses that were neither 
prescribed nor delivered.  Angel Castillo, the real owner of MMS, was sentenced to 
120 months incarceration and ordered to pay $764,714 restitution.  Junior 
Dominguez, a nominee owner of MMS, was sentenced to 9 months incarceration 
and 6 months home detention and ordered to pay $549,391 restitution.  Jorge 
Miranda, also an MMS nominee owner, was sentenced to 5 months incarceration 
and 5 months home detention and ordered to pay $100,437 restitution.  After release 
from incarceration, Dominguez and Miranda are to be surrendered to the custody of 
Immigration and Customs Enforcement for removal proceedings.  In a related FBI 
investigation, Castillo was eventually identified as the real owner of several other 
fraudulent DME companies and was sentenced to 235 months incarceration and 
ordered to pay more than $7 million in restitution.  
Clinics 
 Mississippi  Frank Wiley and Michael Yant owned and operated Canton 
Rehabilitation Services, Inc., which billed Medicare and Medicaid for fraudulently 
HHS OIG Semiannual Report to Congress  42  Centers for Medicare & Medicaid Services 
Fall 2008   
rendered physical therapy services.  The scheme involved the submission of claims 
purporting that the physical therapy services were rendered by a physician or a licensed 
physical therapist under the direct supervision of a physician, as required by Medicare.  
The services were in fact rendered by unlicensed, untrained, and unsupervised 
individuals.  Wiley and Yant also owned and operated Mississippi Central Rehabilitation, 
Inc., which was operated in the same manner.  Wiley and Yant were sentenced to 37 and 
48 months in prison, respectively, and ordered to pay restitution in the amount of 
$4,568,560. 
Health Care Consultants 
 New Jersey  Besler & Company, Inc., a health care consulting firm; its principal, 
Philip Besler; and related entities (collectively, Besler) agreed to pay $2,875,000 to 
resolve allegations arising from two qui tam lawsuits, which alleged that Besler caused 
hospitals to falsely bill Medicare for excessive inpatient and outpatient outlier payments.  
Based on the ensuing investigation, the United States alleged that Besler advised 
hospitals to artificially inflate their cost-to-charge ratios, triggering outlier payments to 
which they were not entitled.  OIG reserved its mandatory and permissive exclusion 
authorities against Besler. 
Transportation Providers 
 Puerto Rico  The Government secured a default judgment for $6,267,313 against 
Flash Ambulance, Inc. (Flash), and Luis N. Romero-Mejias following allegations that the 
defendants violated the FCA by presenting, or causing to be presented, false or fraudulent 
claims to Medicare for nonemergency ambulance services.  The case was predicated on 
an OIG audit of ambulance transport services in Puerto Rico that had identified potential 
false claims by Flash and Romero-Mejias.   
 District of Columbia  Leonard Young, owner of nonemergency transportation 
company Young Star Tours (YST), was sentenced to 1 year and 1 day in prison and 6 
months home detention and ordered to pay $173,491 and forfeit $37,950 previously 
seized from his bank accounts.  YST billed DC Medicaid for 6,660 transportation 
services that he never provided. 
Individuals 
 California  Related to his involvement in a kickback scheme, Terry Hill was 
sentenced to 1 year and 1 week in prison and ordered to pay $1,358,436 in restitution 
following his guilty plea to health care fraud.  Acting as a capper (or recruiter), Hill was 
paid to recruit Medicare beneficiaries who were transported to a fraudulent medical 
clinic.  Hill would pay the beneficiaries following the provision of medically unnecessary 
services, such as diagnostic testing.  Natasha Walker, another capper in the scheme, was 
sentenced to 3 months home detention and ordered to pay $5,571 in restitution for her 
guilty plea to health care fraud.  Additionally, Hills mother, Gertha Green, was 
HHS OIG Semiannual Report to Congress  43  Centers for Medicare & Medicaid Services 
Fall 2008   
sentenced to 6 months home detention and ordered to pay $2,829 in restitution for lying 
to Federal agents during the investigation. 
 Ohio  Joe Winston Langley, who pleaded guilty to aggravated identity theft, was 
sentenced to 2 years imprisonment and ordered to pay $155,485 in restitution, of which 
$93,915 is owed to the Medicaid program.  Langley stole the identity of a Texas resident 
approximately 20 years ago and, beginning in 1998, falsely represented his identity to the 
State of Ohio to receive Medicaid and public assistance benefits.  When the identity theft 
victim became eligible for Medicare in 2004, Langley began using the stolen identity to 
incur charges that were paid by the Medicare program. 
Medicaid Fraud Control Units 
MFCUs are key partners in the fight against fraud, waste, and abuse in State Medicaid 
programs.  State MFCUs operate in 49 States and the District of Columbia pursuant to the 
Medicare-Medicaid Anti-Fraud and Abuse Amendments of 1977 (P.L. No. 95-142) with 
the objective of strengthening the Governments capability to detect, prosecute, and 
punish fraud against Medicaid programs.  MFCUs 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.   
Since 1979, OIG has been responsible for administering the Medicaid fraud control grant 
program and providing oversight and guidance to State MFCUs.  This involves 
administering Federal financial grants to MFCUs, assessing the performance of MFCUs, 
and partnering with MFCUs in conducting joint investigations and other outreach work.  
During FY 2008, OIG provided oversight for and administration of approximately 
$185 million in Federal grants that were distributed to the 50 MFCUs.   
Joint Investigations 
 Indiana  Varnador K. Sutton, the sole owner and operator of Regenerations, Inc. 
(Regenerations), purportedly a mental health counseling agency employing high- and 
mid-level psychologists and counselors, was sentenced to 120 months in prison and 
ordered to pay $3,288,347 in restitution for health care fraud.  An investigation revealed 
that Sutton and Regenerations billed for 84,000 psychotherapy services that were never 
rendered and used 2,500 separate Medicaid recipients identities and benefits to defraud 
the Medicaid program.  The investigation involved OIG, the FBI, and the Indiana MFCU. 
In another case in Indiana, Jennifer Williams was sentenced to 30 months imprisonment 
and ordered to pay $79,000 in restitution following her guilty plea to charges of health 
care fraud and being a felon in possession of a firearm.  Williams, the owner of A New 
Way Transportation, knowingly submitted approximately 5,000 claims to Medicaid as 
nonambulatory transports when, in fact, the majority of the beneficiaries transported were 
ambulatory.  During the investigation, large amounts of marijuana and prescription 
narcotics were found.  Additionally, a semiautomatic handgun was recovered.  This 
HHS OIG Semiannual Report to Congress  44  Centers for Medicare & Medicaid Services 
Fall 2008   
investigation involved OIG; the Bureau of Alcohol, Tobacco, Firearms, and Explosives; 
and the Indiana MFCU. 
 Illinois  Heartland Dental Care, Inc., a provider of management services to dental 
practitioners located throughout the United States, and Richard E. Workman 
(collectively, Heartland) agreed to pay the United States and the State of Illinois a total of 
$1.65 million to resolve allegations that Heartland violated the Federal FCA and the 
Illinois FCA.  Specifically, Heartland allegedly allowed dentists to call in prescriptions 
for Medicaid beneficiaries under other dentists Drug Enforcement Administration 
registration numbers, in violation of the Controlled Substances Act; billed Medicaid for 
nonsurgical tooth extractions as surgical tooth extractions; and billed Medicaid for crown 
buildups, which are noncovered services, as four-surface restorations or amalgams, which 
are covered services.  In addition to the monetary settlement, Heartland entered into a 
5-year CIA with OIG.  The investigation involved OIG and the Illinois MFCU. 
 Oregon  Susan Ilene Pearson was sentenced to 39 months imprisonment and ordered 
to pay $108,225 in restitution and fines after being convicted of making false claims and 
theft.  A 3-day jury trial revealed that Pearson, an in-home caregiver paid with Medicaid 
funds, and her codefendant, Carolyn Elliott, a Medicaid recipient, engaged in a 7-year 
fraud scheme whereby Elliot would pretend to be disabled and Pearson would claim to be 
providing caregiver services to Elliott.  Each month for 7 years, Elliott and Pearson 
would bill the State Medicaid program for phantom services provided by Pearson and 
then split the Medicaid payments.  Elliott died 1 month before trial; charges against her 
were dismissed.  The investigation involved OIG, the Social Security Administration, and 
the Oregon MFCU. 
HHS OIG Semiannual Report to Congress  45  Centers for Medicare & Medicaid Services 
Fall 2008    
Public Health and Human Service Programs 
and Departmentwide Issues 
Based on our available resources each fiscal year (FY), we allocate about 20 percent of 
our appropriations to reviews of the Department of Health and Human Services (HHS) 
approximately 300 public health and human service programs and to departmentwide 
issues that affect more than one program.  However, a portion of these resources is used 
for mandatory reviews, including financial statement audits conducted pursuant to section 
405(b) of the Government Management Reform Act of 1994, the Chief Financial Officers 
Act of 1990, and information systems reviews required by the Federal Information 
Security Management Act. 
This chapter describes the Office of Inspector Generals (OIG) work related to the 
following areas:   
Public health programs  Several HHS agencies perform a wide spectrum of public 
health activities.  Public health activities and programs represent this countrys primary 
defense against acute and chronic diseases and disabilities and provide the foundation for 
the Nations efforts to promote and enhance the health of the American people.  Public 
health agencies within the Department include the following:  
  The Centers for Disease Control and Prevention (CDC) operates a system of 
health surveillance to monitor and prevent disease outbreaks, including those 
that would result from acts of bioterrorism; implements disease-prevention 
strategies; and maintains national health statistics.  
  The Food and Drug Administration (FDA) is responsible for ensuring the 
safety of the Nations food, drugs, medical devices, biologics, cosmetics, and 
animal food and drugs and for ensuring the efficacy of the Nations drug, 
medical device, biologics, and animal drugs. 
  The Health Resources and Services Administration (HRSA) maintains a 
safety net of health services for people who have low incomes, are uninsured, 
or live in rural areas or urban neighborhoods where health care is scarce. 
  The Indian Health Service provides or funds health care services for 
1.6 million Native Americans and Alaska Natives. 
  The National Institutes of Health (NIH) supports medical and scientific 
research examining the causes of and treatments for diseases such as cancer 
and HIV/AIDS. 
HHS OIG Semiannual Report to Congress  47  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues   
  The Substance Abuse and Mental Health Services Administration funds 
services to assist people with or at risk for mental and substance abuse 
disorders.  
Human services programs  Several HHS agencies support human services to assist 
vulnerable individuals of all ages, including the following:  
  The Administration for Children and Families (ACF) operates more than 
60 programs that promote the economic and social well-being of children, 
families, and communities, including Temporary Assistance for Needy 
Families (TANF), the national child support enforcement system, the Head 
Start program for preschool children, and programs relating to foster care and 
adoption services.  
  The Administration on Aging supports programs that provide services such as 
meals, transportation, and caregiver support to older Americans at home and 
in the community through a nationwide network of services for the aging. 
Departmentwide issues  Certain OIG work cuts across HHS programs, including 
financial accounting, information systems management, and oversight of grants and 
contracts.  Such work may relate to functions carried out by HHSs Program Support 
Center (PSC), which provides a wide range of administrative support to operating and 
staff divisions within the Department. 
This chapter summarizes OIGs reports related to public health and human service 
programs and departmentwide issues.  It also provides statistics related to and examples 
of OIG actions and investigations related to public health and human service programs, 
describes actions taken on OIGs recommendations, and offers examples of OIGs review 
and clearance of regulations and guidance related to the Departments programs.   
HHS OIG Semiannual Report to Congress  48  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
Reports Related to Public Health Programs 
The Food and Drug Administrations Generic Drug Review Process 
In our review of generic drug applications reviewed by FDA in 2006, we determined that 
FDA had opportunities to better manage current reviews and to potentially increase the 
number of submissions reviewed and approved within 180 days.  To market a generic 
drug, which is the same as the brand name drug with respect to key qualities such as 
conditions of use and active ingredient(s), a pharmaceutical company must obtain FDAs 
approval of an Abbreviated New Drug Application (ANDA).  FDA is required by Federal 
law to approve or disapprove an original ANDA within 180 days of receipt.  The agency 
had a 74-percent increase in funding for the generic drug program between FYs 2001 and 
2006 and experienced a 158-percent increase in original applications during this period.  
Three divisions within FDAs Office of Generic Drugs (OGD) review ANDAs:  
Chemistry, Bioequivalence, and Labeling.  A fourth division, Microbiology, reviews a 
subset of ANDAs.  Almost all original ANDAs contain deficiencies identified by the 
Division of Chemistry and are disapproved.  Based on our examination of review times 
for 989 original ANDAs under review during 2006, a survey of OGD division reviewers 
assigned to a sample of 105 ANDAs with review times greater than 180 days, and 
structured interviews with OGD officials, our findings included the following:   
 Of the original ANDAs that FDA reviewed in 2006, 96 percent did not meet review 
standards and were disapproved. 
 FDA exceeded the 180-day statutory review requirement for nearly half of the ANDAs 
under review in 2006 because the reviews by the Division of Chemistry exceeded this 
timeframe.   
 Microbiology, Bioequivalence, and Labeling reviews of the original ANDAs usually 
exceeded the 180-day review period.  
 Seventy percent of sampled division reviews that exceeded 180 days did not begin 
before the 180-day review period ended.   
 OGDs divisions did not consistently classify or prioritize amendments, nor did they 
consistently assign high priority to approvable ANDAs.  
We recommended that FDA identify common ANDA deficiencies and offer more 
guidance to industry to decrease the percentage of disapproved original ANDAs, increase 
the percentage of original ANDAs that are reviewed by all divisions within 180 days, and 
implement new prioritization practices.  
In its comments on our draft report, FDA indicated that it was implementing process 
improvements that were in line with our recommendations.  It agreed with our first 
HHS OIG Semiannual Report to Congress  49  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
recommendation but did not indicate concurrence with the other two.  FDA stated that it 
was continuing to alter the review process to reduce queue times and ensure that original 
ANDAs are reviewed within 180 days.  Consistent with our recommendation regarding 
offering more industry guidance, FDA stated that it had provided various forms of 
guidance aimed at making applications easier to review.  Other process improvement 
efforts FDA cited included developing a hiring program to increase staff and decrease 
review times and prioritizing some ANDAs based on potential market entry dates.   
(OEI-04-07-00280) 
National Cancer Institutes Monitoring of Research Project Grants  
In our review of grants funded by the National Cancer Institute (NCI) for at least 1 year 
during FY 2004 through FY 2006, we found that all grant files had the required progress 
reports and evidence of agency review; however, 41 percent of the progress reports were 
not received within the required timeframes.  NCI, which is a part of NIH, funded more 
than 4,500 grants totaling $3 billion during the period of our review to support research 
into the causes, diagnosis, prevention, or treatment of cancer.  NCI is responsible for 
monitoring its grants, and grantees are required to submit progress and financial reports. 
We also found the following:   
 Grantee financial reports were not monitored at the same level as the progress reports. 
 Five of the nine grant closeouts in our sample were not completed within timeframes 
specified in departmental guidelines. 
 Grant files did not always have the required documentation for third-party review of 
grant files.  
We recommended that NIH initiate earlier and more frequent followup with grantees to 
obtain required documents, improve grant monitoring by annually verifying grantees 
self-reported fund balances with external sources, develop an approach for financial 
reviews that is not based solely on exceptions, and consistently document grantee 
correspondence and organize grant files to assist NCI staff and third-party reviewers in 
following grantees actions from inception of the grant to closeout.  In its written 
comments to the report, NIH generally agreed with our recommendations and described 
actions it planned to take to improve its monitoring of research grants. OEI-07-07-00120) 
Superfund Financial Activities at the National Institute of Environmental 
Health Sciences 
In our review of Superfund financial transactions at the National Institute of 
Environmental Health Sciences (NIEHS) for FY 2007, we found that the transactions 
were allowable, allocable, and reasonable in accordance with applicable laws and 
regulations.  NIEHS receives Superfund funding to train people who handle hazardous 
waste and manage hazardous waste facilities and to conduct research on the effects of 
HHS OIG Semiannual Report to Congress  50  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
hazardous substances on human health.  We conducted this audit pursuant to the 
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 
which requires the inspector general of a Federal organization with Superfund 
responsibilities to audit all uses of the Superfund.  Our report contained no 
recommendations.  (A-04-08-01057)   
Actions and Investigations Related to Public Health 
Programs 
OIG excludes from participating in Federal health care programs individuals who fail to 
repay HHS-secured educational loans, and investigates specific allegations of fraud, 
waste, and abuse affecting public health and human service programs.  These 
investigations are often complex and can include allegations of misuse or theft of grant 
funds, conflict of interest, and kickbacks. 
The following paragraphs provide descriptions and statistics related to these efforts. 
Health Education Assistance Loan Defaults   
OIG excludes from participating in Federal health care programs individuals who have 
defaulted on loans obtained through the Health Education Assistance Loan (HEAL) 
program.  Through the 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 PSC takes steps to ensure repayment, some loan recipients 
ignore their indebtedness. 
After PSC has exhausted efforts to secure repayment of a debt, it declares an 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, nine 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 their debts.  If they default on these settlement agreements, they may be 
excluded until the entire debts are repaid and they cannot appeal the exclusions.  Some 
health professionals, upon being notified of their exclusion, immediately repay their 
HEAL debts. 
After being excluded for nonpayment of their HEAL debts, 2,153 individuals have taken 
advantage of the opportunity to enter into settlement agreements or completely repay 
their debts.  That figure includes the 25 individuals who have entered into such settlement 
agreements or completely repaid their debts during this reporting period.  The amount of 
HHS OIG Semiannual Report to Congress  51  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
money being repaid through settlement agreements or through complete repayment is 
$156.1 million.  Of that amount, $2.8 million is attributable to this reporting period. 
In the following examples, each individual entered into a settlement agreement to repay 
the amount indicated: 
 Texas  Podiatrist Walter H. Williams:  $432,651  
 Ohio  Dentist Mychael E. Davis:  $136,770  
 Michigan  Medical doctor Carlton E. Little:  $105,910  
 California  Psychologist Susan L. Boulware:  $102,225  
Public Health-Related Investigations   
OIG investigates cases involving the misuse of public health agency funds as well as the 
improper possession, use, and transfer of biological agents and toxins, called select 
agents, that the Department has determined to pose a severe threat to public health.  The 
following is an example of an investigation involving violations of the select agent 
regulations: 
 Select Agents and Toxin  A Texas university agreed to pay $1 million to resolve its 
liability for numerous violations of the select agent regulations.  OIGs allegations 
included the following:  failure of the universitys responsible official (RO) to apply for 
an amendment to the universitys certificate of registration; failure of the RO to receive 
the necessary approval before university researchers conducted aerosolization 
experiments with select agents; failure of the RO to be familiar and ensure compliance 
with the requirements of the select agent regulations; failure of the RO to ensure that 
deficiencies identified during annual inspections were corrected; failure to obtain CDC 
approval to conduct restricted experiments with a select agent; allowing researchers, on 
multiple occasions, to have access to select agents without prior CDC approval and 
without having the appropriate education, training, and/or experience to handle or use 
select agents; failure to investigate whether elevated titers of three laboratory workers 
were caused by occupational exposure to a select agent; failure to ensure that appropriate 
biosafety and security plans were implemented; failure to ensure that laboratory 
personnel were trained in biosafety and security; failure to maintain a current list of 
individuals with access to select agents and toxins; failure to keep records of access to at 
least seven laboratory rooms where select agent work was conducted; failure to 
implement an accurate record-keeping system for its select agent inventory; and failure to 
report occupational exposures to select agents. 
HHS OIG Semiannual Report to Congress  52  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
Reports Related to Human Service Programs  
Philadelphia Countys Title IV-E Claims  
In our review of Pennsylvanias claims for Title IV-E reimbursement on behalf of 
Philadelphia County children for whom the per diem rates were $300 or less, we 
estimated that from October 1997 through September 2002, the State improperly claimed 
at least $56.5 million of the total $562.3 million (Federal share) claimed.  Title IV-E of 
the Social Security Act, as amended, authorizes States to claim Federal funding for foster 
care maintenance costs through ACF.  The funding covers room and board payments to 
licensed foster care providers, administrative costs, and training.   
Our findings included the following: 
 Of the 30 improper claims in our sample, 27 included costs for services provided to 
children whose situations did not meet eligibility requirements or provided by unlicensed 
foster care facilities.  
 For 16 other sampled claims, we were unable to determine the allowability of the costs 
claimed because the contractors per diem rates did not distinguish between services that 
were eligible and ineligible for Title IV-E reimbursement.  
We recommended that the State refund $56.5 million and work with ACF to determine 
the allowability of $100 million related to claims that included both allowable and 
unallowable services; work with ACF to identify and resolve any unallowable claims 
made after the audit period and refund the appropriate amount; discontinue claiming 
Title IV-E reimbursement for ineligible children and services and unlicensed facilities; 
and direct Philadelphia County to develop rate-setting procedures that separately identify 
maintenance and other costs, including related administrative costs, so that claims are 
readily allocable to the appropriate Federal, State, and local funding sources.  The State 
disagreed with our findings and recommendations and provided additional documentation 
on some of the claims.  Based on this documentation, we revised the report. 
(A-03-07-00560)  
Improper Payments for Temporary Assistance for Needy Families Payments 
In our reviews of three States TANF basic assistance payments, we sampled payments 
for the period April 1, 2006, through March 31, 2007, to estimate the payment error rates 
associated with noncompliance with Federal and State eligibility, payment, and 
documentation requirements.  TANF is a block grant program that provides funding to 
States to help families move from welfare to self-sufficiency; TANFs basic assistance 
includes benefits designed to meet a familys ongoing basic needs.  These reviews, part 
of an eight-State series, were requested by ACF and the Office of Management and 
Budget (OMB) to determine the FY 2008 national TANF error rate.  Pursuant to the 
Improper Payments Information Act of 2002 (P.L. No. 107-300), Federal agencies must 
HHS OIG Semiannual Report to Congress  53  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
estimate and report to Congress on the annual amount of improper payments in their 
high-risk programs. 
 California  We estimated that the overall TANF improper payment rate was 
5.7 percent of the Federal dollars expended and 11.3 percent of the number of basic 
assistance payments made for the 1-year audit period.  These improper payments totaled 
an estimated $91.6 million (Federal share).  The payments were improper because they 
were made to families who were ineligible for TANF basic assistance, were calculated 
improperly, or did not have required documentation.   
We recommended that the State use the results of this review to help ensure compliance 
with Federal and State TANF requirements, follow State law and guidance by ensuring 
that recipients are experiencing hardship when extending TANF basic assistance 
payments beyond the 60-month Federal lifetime limit, determine the current eligibility of 
all recipients identified as improperly enrolled in the TANF program and deny further 
assistance to those who remain ineligible, and recalculate assistance budgets for all 
identified recipients who received improperly calculated payments.  The State disagreed 
with the second recommendation but agreed with the others.  (A-09-07-00087)   
 Michigan  We estimated that the overall TANF improper payment rate was 
24.3 percent of the Federal dollars expended and 22.7 percent of the number of basic 
assistance payments made for the 1-year audit period.  These improper payments totaled 
an estimated $24 million (Federal share).  The payments were improper because they 
were made to families who were ineligible for TANF basic assistance, were calculated 
improperly, or did not have required documentation.   
We recommended that the State develop criteria specifying the circumstances that 
warrant a hardship exception for extending TANF basic assistance payments beyond the 
60-month Federal lifetime limit, ensure compliance with Federal and State TANF 
requirements, determine the current eligibility of all recipients identified as improperly 
enrolled in the TANF program and deny further assistance to those who remain 
ineligible, and recalculate assistance budgets for all identified recipients who received 
improperly calculated payments.  In its comments on our draft report, the State provided 
information on steps that it had taken or planned to take to implement the 
recommendations.  (A-05-07-00067) 
 Ohio  We estimated that the overall TANF improper payment rate in Ohio was 
21.1 percent of the Federal dollars expended and 20 percent of the number of basic 
assistance payments made for the 1-year audit period.  These improper payments totaled 
an estimated $44.1 million (Federal share).  The payments were improper because they 
were made to families who were ineligible for TANF basic assistance, were duplicated or 
improperly calculated, or lacked required documentation. 
We recommended that the State use the results of this review to help ensure compliance 
with Federal and State TANF requirements, determine the current eligibility of all 
recipients identified in this review as improperly enrolled in the TANF program and 
HHS OIG Semiannual Report to Congress  54  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
ensure that further assistance is denied for those who remain ineligible, and recalculate 
assistance budgets for all identified recipients who received improperly calculated 
payments.  In its comments on our draft report, the State provided information on steps 
that it had taken or planned to take to implement the recommendations.  (A-04-07-03520) 
Title IV-E Adoption Assistance Costs in Rhode Island 
In our review of Rhode Islands claims for high-dollar adoption assistance payments 
(claims in excess of $3,700) for State fiscal years (SFY) 20032005, we determined that 
the State overclaimed $2.7 million for cases that did not meet applicable requirements. 
Under Title IV-E of the Social Security Act, the Federal Government, through ACFs 
foster care and adoption assistance programs, shares in the States costs of adoption 
assistance payments for children who meet Supplemental Security Income (SSI) 
requirements or other specific requirements.   
During Rhode Islands SFYs 20032005, the State claimed approximately $19.6 million 
(Federal share) in Title IV-E adoption assistance payments on its Federal quarterly 
expenditure reports; in SFY 2003, 996 of these payments were for more than $3,700 
each.  We determined that of these high-dollar adoption assistance payments, the State 
had not met Federal reimbursement requirements for SFY 2003 payments totaling 
$954,000 and continued to claim payments for many of these cases, totaling $1.8 million 
in SFYs 20042005.   
We recommended that the State make a financial adjustment of $470,000 for children 
who did not meet Aid to Families with Dependent Children income eligibility 
requirements, work with ACF to resolve $2.2 million in overpayments for children who 
did not meet requirements for voluntary placement agreements or judicial determinations, 
and review adoption assistance payments claimed after our audit period to ensure 
compliance with Federal requirements.  The State concurred with our findings and 
recommendations.  (A-01-07-02503) 
Child Safety and Financial Management at a Head Start Grantee 
In our review of a Head Start grantees compliance with Federal and State requirements 
regarding the safety of children in its care and the management of and accounting for 
Federal funds, we found that from September 1, 2006, through October 23, 2007, the 
grantee had not fully complied with requirements in these areas.  The grantee provided 
educational and daycare services to more than 1,200 children in Rhode Island.  Based on 
our preliminary findings of this ACF-requested audit, the grantees funding was 
suspended in October 2007a decision that the Departmental Appeals Board upheld in 
January 2008.  Our specific findings were as follows: 
 Safety  The grantee failed to follow fire inspection requirements at four of its eight 
childcare centers and did not always comply with Federal and State requirements for 
preemployment background checks.  These weaknesses jeopardized the safety of children 
in the grantees care. 
HHS OIG Semiannual Report to Congress  55  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
 Financial management systems  The grantees financial management systems did 
not meet Federal requirements for separately tracking the costs incurred for activities 
related to various programs.  As a result, we were unable to verify that the grantee had 
met Head Start funding requirements.  In addition, the grantee did not have written 
policies and procedures, as required, to ensure compliance with fiscal controls related to 
segregation of duties, inventory of assets, and prior ACF approval of obligations not 
included in a construction project.   
Because ACF had suspended the grantees funding indefinitely, we did not make any 
recommendations to the grantee but instead provided this report to assist ACF in its 
oversight role.  (A-01-07-02505) 
Undistributable Child Support Collections  
In our review of three States reporting of program income from undistributable child 
support collections and interest earned on collections, we found that the States had not 
fully complied with Federal requirements.  Within ACF, the Office of Child Support 
Enforcement (OCSE) Oversees the Child Support Enforcement program.  OCSE requires 
States to offset program costs by recognizing and reporting income from undistributable 
child support collections and interest earned on collections.  Undistributable collections 
result when States receive child support payments but cannot identify or locate the 
custodial parents or return the funds to the noncustodial parents.   The results of these 
reviews were as follows: 
 California  From October 1998 through March 2006, California did not recognize or 
report program income totaling $2.2 million ($1.5 million Federal share) for Orange 
Countys undistributable child support collections and interest earned on child support 
collections.  We determined that the State had not sufficiently monitored the countys 
unclaimed collections and that the county had focused its resources on processing current 
child support collections.   
We recommended that the State monitor the countys progress in resolving the status of 
unclaimed child support collections and report as program income those collections 
recognized as abandoned; undistributable collections that the county had already 
recognized as abandoned; and interest earned on child support collections.  In 
commenting on our draft report, the State concurred with the findings and described steps 
that it was taking to address the recommendations.  (A-09-06-00040) 
 Mississippi  From October 1998 through June 2006, the State did not report program 
income totaling $927,000 ($612,000 Federal share) from undistributable child support 
collections; it also did not recognize or report program income totaling $95,000 ($63,000 
Federal share) from interest earned on child support collections.  During that period, the 
State should have reported the undistributable collections because the funds met the 
States definition of abandoned property.  However, the State believed that the funds 
were exempt from its abandoned property laws.  After submitting comments on our draft 
HHS OIG Semiannual Report to Congress  56  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
report, the State provided information to us indicating that it had distributed $526,000 of 
the $927,000 in undistributable collections that we had identified. 
We recommended that the State report as program income the balance of undistributable 
child support collections totaling $927,000 ($612,000 Federal share), or $401,000 
($265,000 Federal share); recognize and report program income totaling $95,000 
($63,000 Federal share) for interest earned on child support collections; ensure 
compliance with State laws regarding abandoned property; and implement procedural 
improvements.  The State did not specifically address our recommendations.  
(A-04-07-03515)  
 Texas  From October 1998 through March 2006, the State did not report program 
income of up to $2.2 million ($1.4 million Federal share) from undistributable child 
support collections and interest earned on collections by the State and nine county child 
support offices.  These deficiencies occurred because the State did not have adequate 
procedures to ensure that it reported program income for all undistributable child support 
collections and interest earned on collections by the State and the counties.   
We recommended that the State work with OCSE and the county child support offices to 
determine the Title IV-D portion of the $2.2 million ($1.4 million Federal share) in 
undistributable collections and interest earned and report the amount as program income, 
and that the State review the county child support offices that we did not review to ensure 
that undistributable child support collections and interest earned on collections were 
reported as program income.  The State generally disagreed with our findings and 
recommendations but did not provide any additional information to substantiate revisions 
to our findings and recommendations.  (A-06-06-00088)   
Iowa Child Care and Development Funds 
In our review of Iowas claims for Child Care and Development Fund (CCDF) targeted 
funds for FYs 19982003, we found that the State had not complied with Federal 
requirements when claiming almost $3.2 million.  The CCDF, which is administered by 
ACF, assists low-income families in obtaining childcare so that family members can 
work or receive training or education.  The program provides targeted discretionary 
funding for certain activities to improve the availability, quality, and affordability of 
childcare and to support the administration of these activities. 
We found that the State had not: 
 refunded to the Federal Government unliquidated targeted funds,  
 returned funds to the Federal Government when it terminated a contract and transferred 
funds to a successor contractor after the obligation period for the funds had expired,  
 limited cash advances to the contractor to the minimum amounts needed, or  
HHS OIG Semiannual Report to Congress  57  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
 remitted $155,000 of interest earned by the contractor on advanced CCDF targeted 
funds, as required.  
We recommended that the State refund $3.2 million of unexpended CCDF targeted 
funds; remit $155,000 of interest earned on the funds; ensure that CCDF targeted funds 
are disbursed in accordance with Federal requirements in the future; and review CCDF 
targeted funds claimed after the audit period and refund any unallowable amounts.  The 
State agreed with all but our first recommendation; it did not provide any additional 
information to substantiate our changing the recommended refund.  (A-07-07-00231)   
Child Support Enforcement  
The detection, investigation, and prosecution of noncustodial parents who fail to pay 
court-ordered child support are priorities for OIG.  OIG works closely with the Office of 
Child Support Enforcement (OCSE); the Department of Justice (DOJ); U.S. Attorneys 
Offices; the U.S. Marshals Service; and other Federal, State, and local partners to 
expedite the collection of child support.   
Task Forces 
In 1998, OIG and OCSE initiated Project Save Our Children, a child support initiative 
that united the efforts 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, where they are 
assigned and investigated.  The task force approach streamlines the process by which the 
cases best suited for criminal prosecution are identified, investigated, and resolved. 
Child Support Investigations 
OIG investigations of child support cases, nationwide, resulted in 41 convictions and 
court-ordered restitution and settlements of $2.3 million during this semiannual period.  
Examples of OIGs enforcement results for failure to pay child support include the 
following: 
 Nevada  Charles Thurman was sentenced to 5 years of probation and ordered to pay 
$66,639 in restitution for failure to pay child support.  As a condition of probation, 
Thurman must serve 10 months of home confinement with electronic monitoring.  
Throughout a 15-year period, Thurman made only two voluntary payments, yet he owned 
and operated a law enforcement/emergency vehicle equipment installation business 
earning more than $4,000 monthly and owned a residential property with more than 
$100,000 in equity.  A lien has been placed on Thurmans residential property.   
HHS OIG Semiannual Report to Congress  58  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
 Indiana  Pursuant to his guilty plea, Michael Stacy was sentenced to 8 years 
incarceration, with 4 years suspended and 4 years of probation, and was ordered to pay 
$58,495 in total restitution for failure to pay child support in two separate cases.  Stacy 
owed child support arrearages in the amounts of $33,617 and $24,878.  
 Michigan  Mark Rocha was sentenced to 5 years of probation and ordered to pay 
$57,275 in restitution for failure to pay child support.  Rocha was arrested in February 
2008 at his New Bedford, Massachusetts, employer; made his initial appearance in Rhode 
Island; and was ordered to appear in Michigan for a hearing.  In March 2008, Rocha 
appeared in court, pleaded guilty, and was sentenced. 
Misuse of Administration for Children and Families 
Grant Funds 
OIG also investigates cases involving the misuse of ACF grant funds as in the following 
examples: 
 Iowa  The State of Iowa Attorney General Office, on behalf of Iowa Workforce 
Development (a State agency), agreed to pay $1.3 million to resolve a civil matter 
pertaining to fraudulent use of HHS and Department of Labor (DOL) funds provided to 
the State agency.  The settlement amount consisted of $341,643 in fraudulent TANF 
expenditures, $925,510 in fraudulent DOL expenditures, and $32,847 in settlement costs 
imposed on the State that will be paid to the general Federal Treasury fund.  This civil 
investigation stemmed from a criminal investigation that had determined that top 
executives at a job training grantee, with the assistance of governing board officials and a 
State employee, fraudulently used TANF and DOL funds to pay excessive bonuses to top 
grantee executives, salaries to employees while the employees spent official worktime at 
casinos, and personal expenses for the top executives. 
 Ohio  Vincent E. Beacon was sentenced to 27 months of imprisonment and ordered to 
pay $557,650 in restitution for the misuse of grant funds awarded to the Beacon Agency 
by ACF to provide foster care services.  The Beacon Agency, a nonprofit agency owned 
by Beacon, was founded in 1989 and had an annual operating budget of $6 million.  
Beacon admitted to fraudulently diverting money from the Beacon Agency into a for-
profit business that he controlled, called Business Solutions of America.  Between 1998 
and 2004, the Beacon Agency paid Business Solutions of America for rent and equipment 
that Beacon claimed were necessary to provide foster care services.  In reality, most of 
these costs were fraudulent, and the money was eventually routed to personal investment 
accounts owned by Beacon.  In addition, he concealed his ownership in the business and 
provided false documents to the State auditor, as well as to his own independent auditor, 
whom he hired to conduct yearly compliance audits as required by the State of Ohio. 
HHS OIG Semiannual Report to Congress  59  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
Reports Related to Departmentwide Issues  
Use of Discounted Airfares by the Office of the Secretary 
In our review of airfares used by Office of the Secretary (OS) travelers during FY 2006, 
we found that discounted airfares were used for only 16 percent of the trips for which 
both standard and discounted fares were potentially available, as compared with a 
50-percent use of discounted fares governmentwide.  Travelers were required to use 
contracted airfaresa discounted fare (referred to as the standard fare) and a highly 
discounted fare (referred to as the discounted fare)established through the General 
Services Administration (GSA); it was not until the end of the audit period, in September 
2006, that GSA revised its Federal Travel Regulation to require travelers to use the 
discounted fare, rather than the standard fare, when available.  We calculated that OS, 
which spent approximately $4 million for employee airfare during FY 2006, could have 
saved $530,000 if OS travelers had used all available discounted fares.  
We recommended that OS educate its travelers and administrative staff on how to 
identify and select discounted fares and work with GSA to clarify the display of flights 
and fares in its automated system.  OS concurred with our recommendations.   
(A-03-07-00500)   
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 that expend $500,000 or more in Federal awards must 
conduct annual organizationwide single audits.  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 FY 2008, OIGs National External Audit Review Center reviewed 1,232 
reports that covered $441 billion in audited costs.  Federal dollars covered by these audits 
totaled $115 billion, about $53.5 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.  We identify entities for high-risk monitoring, alert 
program officials to any trends that could indicate problems in HHS programs, and 
profile non-Federal audit findings of a particular program or activity over time to identify 
systemic problems.  We also provide 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 it receives 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 
on the following page. 
HHS OIG Semiannual Report to Congress  60  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
 
 
Reports issued:   
 
Without changes or with minor changes  1,050
With major changes  157
With significant inadequacies  25
  Total  1,232 
 
The 1,232 reports included 4,731 recommendations for improving management 
operations.  In addition, these audit reports provided information for 93 special 
memorandums that identified concerns for increased monitoring by 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. 
HHS OIG Semiannual Report to Congress  61  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
Table 1:  Reports With Questioned Costs 
 
Number of  Dollar Value  Dollar Value 
Reports 
Reports  Questioned  Unsupported 
Section 1       
For which no management decision  
had been made by the beginning of the 
reporting period1  170 $1,264,946,000  $51,107,000
Issued during the reporting period  93 $268,267,000  $12,085,000
  Total Section 1  263 $1,533,213,000  $63,192,000
Section 2    
For which a management decision was 
made during the reporting period2 3    
  Disallowed costs  111 $274,982,000  $28,505,000
  Costs not disallowed  2 $753,000  $0
  Total Section 2  113 $275,735,000  $28,505,000
Section 3    
For which no management decision had 
been made by the end of the reporting 
period   
  Total Section 1 
  minus Total Section 2  150 $1,257,478,000  $34,687,000
Section 4    
For which no management decision was 
made within 6 months of issuance4  77 $999,529,000  $99,953,000
 
                                                 
Supporting notes and list of reports are in Appendix B. 
HHS OIG Semiannual Report to Congress  62  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
Table 2:  Funds Recommended To Be Put to Better Use 
 
Number of 
Reports  Dollar Value 
Reports 
Section 1     
For which no management decision had been made by the 
beginning of the reporting period1  24  $1,378,519,000
Issued during the reporting period  24  $1,438,961,000
  Total Section 1  48  $2,817,480,000
  
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  12  $60,301,000
  Based on proposed legislative action  0  $0
  Value of recommendations not agreed to by management  1  $65,000
  Total Section 2  13  $60,366,000
  
Section 3   
For which no management decision had been made by the 
end of the reporting period2   
  Total Section 1  
              minus Total Section 2  35  $2,757,114,000
 
                                                 
Supporting notes and list of reports are in Appendix B. 
HHS OIG Semiannual Report to Congress  63  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
Regulatory Development 
OIG is responsible for the development and publication of a variety of sanction 
regulations addressing civil monetary penalties (CMP) 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, we 
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 
CMPs and assessments.  We published a final rulemaking to implement electronic 
payment of fees owed for OIG advisory opinions.   
In addition, OIG periodically publishes Federal Register (FR) notices that, among other 
things, offer guidance to alert program beneficiaries, health care providers, and other 
entities about potential problems or areas of special interest.  We published in the FR a 
draft OIG Supplemental Compliance Program Guidance for Nursing Facilities (74 Fed. 
Reg. 20680 (Apr. 16, 2008)). 
We also published the following FR notices: 
 Privacy Act of 1974, New OIG Privacy Act System of Records:  Administrative Files 
(66 Fed. Reg. 18532 (Apr. 4, 2008)). 
 Privacy Act of 1974, New OIG Privacy Act System of Records:  Litigation Files 
(73 Fed. Reg. 20311 (Apr. 15, 2008)). 
 Medicare and State Health Care Programs:  Fraud and Abuse; Issuance of Advisory 
Opinions by OIG (138 Fed. Reg. 40982 (Jul. 17, 2008)). 
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: 
 District of Columbia  Raymond Jackson, a former commander in the Public Health 
Service, was sentenced to 24 months incarceration and ordered to pay $150,882 in 
restitution for theft or embezzlement in connection with health care.  While working as 
the chief pharmacist at St. Elizabeths Hospital, Jackson stole prescription drugs from the 
hospital, then sold the drugs through a pharmaceutical company he owned with his wife, 
Brenda.  Brenda, who was prosecuted by the State of Maryland, stole more than $150,000 
worth of drugs from her former employer, Kaiser Permanente. 
HHS OIG Semiannual Report to Congress  64  Public Health and Human Service Programs 
Fall 2008    and Departmentwide Issues 
   
Appendixes 
HHS OIG Semiannual Report to Congress  65  Appendixes 
Fall 2008     
Appendix A:  Savings Achieved Through 
Implementation of Recommendations in Audits and 
Evaluations for Fiscal Year 2008 
After laws involving the Department of Health and Human Services (HHS) programs 
have been enacted, the Office of Inspector General (OIG) analyzes them to identify 
provisions that were supported by recommendations arising from OIG work.  A similar 
process occurs with respect to administrative changes recommended by OIG and 
implemented by HHS management through regulations or other directives.  For 
administrative changes, the savings estimates are developed by the relevant HHS 
operating or staff division or by OIG.  For legislative savings, we use estimates prepared 
by the Congressional Budget Office (CBO).  As part of the process of informing 
Congress of the potential impact of legislation under consideration, CBO projects the 
annual Federal costs and savings that are expected to result from enacting the legislation.   
The savings estimates stated in this appendix represent funds that will be available for 
better use as a result of 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.  Savings of this kind often reflect not only OIGs 
recommendations, but also the contributions of others, such as HHS operating divisions 
and the Department of Justice. 
Total savings projected to accrue in fiscal year (FY) 2008 from legislative and 
administrative actions related to OIG recommendations amounted to $16,722.7 million 
($16.7 billion). 
 
Savings 
OIG Recommendation  Implementing Action  (millions) 
 
Centers for Medicare & Medicaid Services (CMS) 
State-Enhanced Payments Under Medicaid  On January 12, 2001, CMS issued   $6,900 
Upper Payment Limit Requirements:  revisions to the UPL regulations that, 
CMS should move as quickly as possible to issue  among other things, created new payment 
regulatory changes to the upper payment limit (UPL)  limits for local government-owned 
rules governing enhanced payments to local  providers.  This final rule significantly 
government providers.  (A-03-00-00216)  affects a States ability to reap windfall 
revenues by reducing the available 
funding pool from which to make 
enhanced payments to local government-
owned providers.  
HHS OIG Semiannual Report to Congress  67  Appendix A 
Fall 2008    
Savings 
OIG Recommendation  Implementing Action  (millions) 
Medicaid Enhanced Payments to Local  CMS issued a final rule that modified the  $2,900 
Providers:  Medicaid UPL provisions to remove the 
CMS should reconsider capping the aggregate UPL  150-percent UPL for services furnished 
at 100 percent for all facilities, rather than the   by non-State-owned or -operated 
150-percent allowance for non-State-owned  hospitals.  The rule became effective in 
Government hospitals.  (A-03-00-00216)  spring 2002. 
Medicare Outlier Payments:  CMS issued new regulations in  $1,800  
To prevent future inappropriate outlier payments,  summer 2003.  The new regulations 
CMS should focus its attention on the following:    restricted the use of the statewide rate, 
(1) determining how to limit, if not eliminate, the  reduced the time lag between the 
policy that allows for the use of the statewide rate in  payment of outliers and the closing of a 
place of a hospital-specific rate; (2) dramatically  hospitals cost report, and established a 
reducing the time lag between the payment of  reconciliation process for outlier 
outliers and the actual closing of a specific hospitals  calculations that prevented hospitals from 
cost report, particularly with regard to the hospitals  benefiting from manipulating their 
identified by the fiscal intermediary as having  charges.  As a result of these regulations, 
significantly increased their charges; and   it is estimated that the Medicare program 
(3) eliminating the hospitals ability to construct and  will save at least $9 billion from 2004 
manipulate charges to determine whether an outlier  to 2008. 
payment is warranted in a specific medical case 
without regard to the actual costs involved in that 
case.  (A-07-02-04007) 
Payment Reform for Part B Drugs and  Sections 303 through 305 of the  $1,300 
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 
(AWP) with the goal of reducing payments in both  payment methodology for Part B-covered 
Medicare and Medicaid.  (Multiple reports and  drugs and biologicals that were not paid 
congressional testimony, including   on a cost or prospective payment basis.  
OEI-03-96-00420; OEI-03-97-00290;   Under the MMA, most drugs were to be 
OEI-03-00-00310; OEI-03-97-00293;   paid at 85 percent of the April 1, 2003, 
A-06-00-00023; A-06-01-00053;   AWP effective January 1, 2004, through 
A-06-02-00041)  December 31, 2004, unless they meet 
certain exceptions.  CBO specifically 
attributed the FY 2004 savings to 
sections 304 and 305.  Since January 1, 
2005, most drug prices have been based 
on the average sales price or competitive 
acquisition instead of AWP. 
Medicare Secondary Payer:  Section 301 of the MMA clarifies the  $900 
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 Medicare Secondary 
A-02-98-01036; A-04-92-02057; A-09-89-00162;   Payer (MSP) provisions.  This section 
A-10-86-62005)  builds on other program improvements 
related to OIGs work that were 
implemented by the Balanced Budget 
Act (BBA), Omnibus Budget 
Reconciliation Act (OBRA) 1993, 
OBRA 1990, and OBRA 1989.   
HHS OIG Semiannual Report to Congress  68  Appendix A 
Fall 2008    
Savings 
OIG Recommendation  Implementing Action  (millions) 
Clinical Diagnostic Laboratory Tests:  Section 628 of the MMA froze annual  $800 
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  actions in the BBA, OBRA 1993, OBRA 
laboratories charge physicians in a competitive  1990, and legislation in 1984 that were 
marketplace, and periodically evaluate the national  also responsive to OIGs 
fee schedule levels.  (A-09-89-00031;   recommendations to curb excessive 
A-09-93-00056)  clinical laboratory test reimbursements 
by Medicare. 
Payments for Durable Medical Equipment:  Section 302 of the MMA froze payments  $700 
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) 
Medicare Home Health Payments:  Section 701 of the MMA changed the  $600 
The Home Health Agency (HHA) update factor  updates of home health rates from fiscal 
should be reduced to account for the high error rate  year to calendar year beginning in 2004, 
found in OIGs review.  The annual update was  with the update for the last three quarters 
defined as the home health market basket percentage  of 2004 equal to the market basket 
increase.  (A-04-99-01194)  increase minus 0.8 percent.   
Payment for Services Furnished in Ambulatory  Section 626 of the MMA limited the  $300 
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, effectively 
delivery of health services and establish parity among  reducing the payment advantage to ASCs 
ambulatory surgical centers (ASC) and outpatient  for those procedure codes that are more 
departments.  (OEI-05-00-00340; OEI-09-88-01003;  highly paid in the surgical center 
A-14-98-00400; A-14-89-00221)  compared to outpatient departments.  
Section 626 also mandated that CMS 
implement a new payment system that 
takes into account disparities in the costs 
of procedures performed in ASCs and the 
costs of procedures performed in hospital 
outpatient departments, which CMS 
implemented by regulation effective 
January 1, 2008.   
Capped Rental Durable Medical Equipment:  Section 5101 of the Deficit Reduction  $200 
CMS should eliminate the semiannual maintenance  Act of 2005 (DRA) revised the payment 
payment allowed for capped rental DME, pay only  rules for capped rental DME to require 
for repairs when needed, eliminate the 15-month  that ownership of the item transfer to the 
rental option, and convert rentals to purchases after  beneficiary after the 13th month and that 
the 13th month. (OEI-03-00-00410)  Medicare pay for maintenance services 
on a cost-reimbursement basis. 
Medicaid Third Party Liability:  Section 6035 of the DRA made several  $120 
CMS should determine whether legislation is needed  changes to strengthen Medicaids 
to explicitly include pharmacy benefit management  third-party liability provisions, including 
companies in the Medicaid definition of a third party,  clarification regarding pharmacy benefit 
require third parties to match their eligibility files  managers.  The section also includes 
HHS OIG Semiannual Report to Congress  69  Appendix A 
Fall 2008    
Savings 
OIG Recommendation  Implementing Action  (millions) 
with Medicaids eligibility files, and allow Medicaid  requiring States to ensure that health 
up to 3 years to recover payments from liable third  insurers, as a condition of doing business 
parties. (OEI-03-00-00030)  in the State, provide requested coverage 
data, accept the States right of recovery, 
and agree, conditionally, not to deny a 
claim solely on the basis of date of 
submission of the claim when the claim 
is submitted by the State within a 3-year 
period beginning on the date on which 
the item or service was furnished.    
Part B Drugs Average Sales Price:  Section 112 of the Medicare, Medicaid,  $100 
CMS should adopt an alternate calculation of  and State Childrens Health Insurance 
volume-weighted average sales price that is  Program (SCHIP) Extension Act of 2007 
consistent with the results set forth in section  establishes a revised calculation method 
1847A(b)(3) of the Social Security Act.  for calculating volume weighted average 
(OEI-03-05-00310)  sales price for Medicare Part B drugs that 
comports with OIGs recommendation. 
Medicaid Drug RebatesSales to Repackagers  CMS issued Medicaid Drug Rebate  $81  
Excluded From Best Price Determinations:  Program Release #47 in July 2000, 
Medicaid rebates were lost because sales to health  reiterating that section 1927(c) of the 
maintenance organizations (HMO) were improperly  Social Security Act requires that 
excluded from drug manufacturers best price  manufacturers include in the best price 
determinations in FYs 1998 and 1999.    the lowest price available to, among 
  other entities, any wholesaler, retailer, 
CMS should require drug manufacturers that  provider, and health maintenance 
excluded sales to HMOs from their best price  organization.  The release specifically 
calculations to repay the rebates and evaluate the  stated that this includes sales to 
policy guidance relating to exclusion of sales to other  organized health care settings such as 
(non-HMO) repackagers from best price  HMOs. 
determinations.  (A-06-00-00056) 
Rebates for Physician-Administered Drugs:  Section 6002 of the DRA requires  $15 
CMS should encourage States to take actions to  States to provide for the collection and 
collect rebates on physician-administered drugs,  submission of utilization data needed to 
especially single-source drugs.  States should either  secure rebates for physician- 
use National Drug Codes (NDC) instead of  administered drugs and provide that the 
procedure codes or link procedure codes to NDC for  utilization data for single source and 
single source drugs. (OEI-03-02-00660)  specified multiple source physician- 
administered drugs be submitted using 
NDC numbers (unless the Secretary 
specifies an alternative coding system). 
Administration for Children and Families 
Availability of Health Insurance for Title IV-D  The BBA established SCHIP to  $5.7 
Children:  enhance Medicaid coverage provided 
Connecticut should either implement policies and  to children and to allow States to create 
procedures to require noncustodial parents to pay all  insurance options for families that 
or part of the Medicaid costs for their dependent  exceed Medicaid resource and income 
children or establish a Statewide health insurance  limits.  Under Connecticut law, 
plan that provides reasonably priced, comprehensive  applicants include noncustodial parents 
coverage for children, with costs paid by  ordered to provide health insurance. 
noncustodial parents.  (A-01-97-02506) 
 
HHS OIG Semiannual Report to Congress  70  Appendix A 
Fall 2008    
Savings 
OIG Recommendation  Implementing Action  (millions) 
Triennial Reviews of Child Support Orders and  Section 7307 of the DRA requires, for  $1 
Medical Support by Parents.  court orders that are issued or amended 
OIG reviewed the effects of 1996 legislation that no  after enactment, that all States to look 
longer required States to conduct periodic reviews  to the ability of either or both parents to 
and adjustments of child support orders (unless  provide medical support for their 
requested by a State agency or parent) and found that  children.  CBO estimated savings from 
many States had, in effect, discontinued the reviews.   section 7307 would accrue beginning 
We recommended actions to ensure that more  in FY 2007.  Additionally, the DRA, in 
periodic reviews would be initiated.   In the context  section 7302, implemented our 
of this review, we also recommended taking action to  recommendation to increase periodic 
increase medical support by parents.   reviews by requiring States to adjust 
(OEI-05-98-00100)  child support orders of families on the 
  Temporary Assistance for Needy 
Families program every 3 years.  CBO 
estimated net savings resulting from 
section 7302 to begin in FY 2009.   
HHS OIG Semiannual Report to Congress  71  Appendix A 
Fall 2008     
Appendix B:  Notes to Tables 1 and 2 
Table 1 
1 The opening balance was adjusted upward $22.9 million.  
2 During the reporting period, revisions to previously reported management decisions 
included: 
CIN:  A-02-03-01020 NATIONAL GOVERNMENT SERVICES/EMPIRECMS 
subsequently determined that some previously disallowed costs were allowable 
reducing the disallowance by $4,665,946. 
CIN:  A-02-01-00225 STATE OF VIRGINA DEPARTEMT OF MEDICAL 
ASSISTANCE SERVICESCMS disallowed additional costs totaling 
$1,700,092. 
CIN:  A-04-97-01168 STATE OF FLORIDABased on the States analysis of actual 
claims data, CMS reduced the disallowance by $8,051,359. 
CIN:  A-04-02-68936 STATE OF TENNESSEECMS subsequently determined that 
the State was not liable for eligibility determination errors, reducing the 
disallowance by $9,347,100. 
CIN:  A-05-05-00040 STATE OF MINNESOTAAs a result of negotiations with the 
State during the appeals process, CMS reduced the original disallowance by 
$1,353,542. 
Not detailed are net reductions to previously disallowed management decisions totaling 
$1.2 million. 
3 Included are management decisions to disallow $29.1 million that was identified in 
non-Federal audit reports. 
4 Due to administrative delays, many of which are beyond management control, 
resolution of the following 77 audits was not completed within 6 months of issuance; 
however, based upon discussions with management, resolution is expected before the 
end of the next semiannual reporting period:  
 
CIN:  A-06-07-00041  REVIEW OF AMP CALCULATION - MFR A, MAR 
2008, $268,000,000 
CIN:  A-02-03-01029  REVIEW OF RETROACTIVE SCHOOL HEALTH 
CLAIMS - NEW YORK CITY DEPT. OF EDUCATION, 
OCT 2006, $259,433,325 
CIN:  A-06-07-00039  REVIEW OF AMP CALCULATION - MFR C, MAR 
2008, $101,000,000 
HHS OIG Semiannual Report to Congress  73  Appendix B  
Fall 2008    
CIN:  A-04-03-02027  REVIEW OF MEDICIAD UPPER PAYMENT LIMIT 
CALCULATIONS IN ALABAMA, DEC 2005, 
$73,432,381 
CIN:  A-02-04-01021  REVIEW OF RETROACTIVE SCHOOL HEALTH 
CLAIMS - REST OF NEW YORK STATE, OCT 2006, 
$60,188,395 
CIN:  A-05-01-00058  OHIO MEDICAID HOSPITAL-SPECIFIC DSH 
PAYMENT LIMITS, JUN 2004, $47,000,000 
CIN:  A-09-02-00054  AUDIT OF STATE OF CALIFORNIA DSH PROGRAM 
FOR FY 1998, MAY 2003, $33,318,976 
CIN:  A-01-02-00006  REVIEW OF RATE SETTING METHODOLOGY FOR 
MEDICAID SCHOOL BASED HEALTH SERVICES - 
CT, MAY 2003, $32,780,146 
CIN:  A-06-07-00040  REVIEW OF AMP CALCULATION - MFR B, MAR 
2008, $27,700,000 
CIN:  A-06-99-00070  HIGHLAND COMMUNITY BANK PROCESSING OF 
MEDICARE DEP, MAY 2000, $18,839,909 
CIN:  A-09-01-00098  AUDIT OF KERN MEDICAL CENTER 
DISPROPORTIONATE SHARE HOSPITAL 
PAYMENTS FOR FY 1998, SEP 2002, $14,165,950 
CIN:  A-03-06-00564  PA FOSTER CARE MAINTENANCE PAYMENT 
PHILADELPHIA OVER $300/DAY, DEC 2007, 
$11,693,989 
CIN:  A-03-05-00550  AUDIT OF PA FOSTER CARE MAINTENANCE 
PAYMENTS - CASTILLE SAMPLE, SEP 2007, 
$11,611,822 
CIN:  A-06-02-00034  REV OF COST REPORTS & MEDICARE FEE-FOR-
SERVICE PYMTS - SCOTT & WHITE, MAY 2003, 
$8,229,574 
CIN:  A-01-06-00007  REVIEW OF RHODE ISLANDS MEDICAID 
ADMINISTRATIVE COST CLAIMS - FY 2004 - FY 
2005, MAR 2008, $5,092,735 
CIN:  A-04-04-02003  MEDICARE OUTLIER PAYMENTS TO COMMUNITY 
MENTAL HEALTH CENTERS, APR 2006, $4,762,036 
CIN:  A-09-01-00085  AUDIT OF UCSDMC DISPROPORTIONATE SHARE 
HOSPITAL PAYMENTS FOR SFYE 1998, SEP 2002, 
$3,776,054 
CIN:  A-06-04-00076  MEDICAL REVIEW OF SYNERGYS PHP CLAIMS, 
MAR 2006, $3,098,296 
CIN:  A-10-96-00001  REVIEW OF GROUP HEALTHS GHCPS REPORTING 
OF ESRD, APR 1997, $2,763,498 
CIN:  A-03-06-00565  MD UNDISTRIBUTABLE CHILD SUPPORT 
COLLECTIONS, JAN 2008, $2,162,248 
CIN:  A-02-06-02011  FOLLOW-UP REVIEW OF AFDC OVERPAYMENTS - 
NEW YORK CITY, OCT 2007, $896,711 
HHS OIG Semiannual Report to Congress  74  Appendix B  
Fall 2008    
CIN:  A-04-01-05004  REVIEW MEDICARE CLAIMS FOR DEPORTED 
BENEFICIARIES, MAR 2002, $836,711 
CIN:  A-06-05-00062  MEDICARE PRESCRIPTION DRUG DISCOUNT 
CARD PROGRAM, JUL 2006, $652,135 
CIN:  A-06-06-00112  MEDICARE PRESCRIPTION DRUG CARD 
PROGRAM: COMPUTER SCIENCES CORPORATION, 
DEC 2006, $606,824 
CIN:  A-05-02-72811  COMMUNITY ACTION OF GREATER 
INDIANAPOLIS INC., AUG 2002, $547,899 
CIN:  A-05-06-00038  REVIEW OF UNDISTRIBUTABLE CHILD SUPPORT 
COLLECTIONS IN INDIANA, MAR 2007, $461,430 
CIN:  A-07-05-03069  MISSOURI UNDISTRIBUTABLE CHILD SUPPORT 
PAYMENTS, JUL 2006, $457,128 
CIN:  A-04-04-02010  REVIEW OF COMPREHENSIVE OUTPATIENT 
REHABILITATION THERAPY SERVICES PROVIDED 
BY ABSOLUTE THERAPY INC., NOV 2006, $414,712 
CIN:  A-02-07-02003  REVIEW OF ACCOUNTING SYSTEM AT SANTA 
ISABEL HEAD START, JUL 2007, $396,078 
CIN:  A-02-07-02004  FOLLOW-UP REVIEW OF AFDC OVERPAYMENTS - 
UPSTATE NEW YORK, OCT 2007, $347,375 
CIN:  A-05-01-00096  PAYMENTS TO INTER VALLEY FOR 
INSTITUTIONAL BENEFICIARIES, MAY 2002, 
$319,355 
CIN:  A-06-06-00022  MEDICARE PRESCRIPTION DRUG CARD 
PROGRAM, SEP 2006, $311,526 
CIN:  A-07-06-03085  NEBRASKA UNDISTRIBUTABLE CHILD SUPPORT 
PAYMENTS, MAR 2007, $308,841 
CIN:  A-07-05-01013  PAYMENTS FOR M+C ORGANIZATION FOR 
INSTITUTIONAL BENEFICIARIES, OCT 2005, 
$293,885 
CIN:  A-04-06-03509  REVIEW OF REFUGEE RESETTLEMENT MEDICAL 
ASSISTANCE PAYMENTS IN FLORIDA, OCT 2007, 
$285,402 
CIN:  A-05-05-00033  MI - UNDISTRIBUTED CHILD SUPPORT 
COLLECTIONS, AUG 2006, $257,859 
CIN:  A-05-01-00094  PAYMENTS TO KAISER OF OAKLAND FOR 
INSTITUTIONAL BENEFICIARIES, OCT 2002, 
$229,656 
CIN:  A-07-06-01035  AUDIT OF QUALITY IMPROVEMENT 
ORGANIZATION - IOWA, OCT 2007, $208,974 
CIN:  A-01-04-01501  NORTHEASTERN UNIVERSITY DHHS GRANT 
COSTS GRANT NOS. 9274, 4000 AND 4111, JAN 
2005, $194,890 
CIN:  A-02-06-02005  UNDISTRIBUTABLE CHILD SUPPORT PAYMENTS -
 NEW JERSEY, FEB 2008, $186,113 
HHS OIG Semiannual Report to Congress  75  Appendix B  
Fall 2008    
CIN:  A-06-05-00066  MEDICARE PRESCRIPTION DRUG CARD 
PROGRAM, SEP 2006, $168,782 
CIN:  A-09-05-00077  REVIEW OF PACIFICARES USE OF ADDITIONAL 
CAPITATION UNDER THE MMA OF 2003, MAR 
2006, $135,000 
CIN:  A-05-06-00029  AUDIT OF COST-BASED HMOS FOR 
OVERPAYMENTS MADE TO CAPITATED 
PROVIDERS, SEP 2006, $132,075 
CIN:  A-05-06-00031  AUDIT OF COST-BASED HMOS FOR 
OVERPAYMENTS MADE TO CAPITATED 
PROVIDERS, SEP 2006, $122,130 
CIN:  A-05-01-00091  PAYMENTS TO UNITED HC OF FLA FOR 
INSTITUTIONAL BENEFICIARIES, SEP 2002, 
$121,023 
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-05-97-00017  FHP, INC. - HMO INSTITUTIONAL STATUS 
PROJECT, JUN 1998, $109,114 
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-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-05-01-00090  PAYMENTS TO AETNA FOR INSTITUTIONAL 
BENEFICIARIES, JUL 2002, $87,516 
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-02-06-01023  AUDIT OF QUALITY IMPROVEMENT 
ORGANIZATION - NEW YORK, MAR 2008, $77,358 
CIN:  A-05-01-00089  ADDITIONAL BENEFITS REVIEW ON MANAGED 
CARE ORGANIZATION, OCT 2002, $77,000 
CIN:  A-09-06-00039  MEDICARE INTEGRITY - AUDIT OF QUALITY 
IMPROVEMENT ORGANIZATION - WASHINGTON 
STATE, FEB 2008, $73,636 
HHS OIG Semiannual Report to Congress  76  Appendix B  
Fall 2008    
CIN:  A-06-07-00009  REVIEW OF CAREFLITE CONTRACT, JUN 2007, 
$68,841 
CIN:  A-04-06-03510  REVIEW OF REFUGEE RESETTLEMENT CASH 
ASSISTANCE PAYMENTS IN FLORIDA, OCT 2007, 
$65,450 
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-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-08-03-73541  SOUTH DAKOTA FOUNDATION FOR MEDICAL 
CARE, JAN 2003, $28,573 
CIN:  A-07-02-00150  PAYMENTS TO COVENTRY-PITTSBURG FOR 
INSTITUTIONAL BENEFICIARIES, JUN 2003, 
$26,000 
CIN:  A-05-01-00078  PAYMENTS TO HEALTH NET-TUCSON, AZ.- FOR 
INSTITUTIONAL BENEFICIARIES, APR 2002, 
$21,233 
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 
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-01-02-01504  REVIEW OF CDCS HIV PROGRAMS AT FENWAY 
COMMUNITY HEALTH CENTER, JUN 2003, $18,028 
CIN:  A-07-04-01011  PAYMENTS FOR UNITED HEALTHCARE FOR 
INSTITUTIONAL BENEFICIARIES, MAR 2005, 
$13,128 
CIN:  A-01-07-00603  REVIEW OF RETIREE DRUG SUBSIDY PLAN 
SPONSOR BLUE CROSS BLUE SHIELD OF 
MASSACHUSETTS, INC., FOR PLAN YEAR ENDED 
DECEMBER 31, 2006, JAN 2008, $12,798 
CIN:  A-05-06-00043  REVIEW OF OHIO KEPRO, FEB 2008, $11,874 
CIN:  A-05-01-00070  PAYMENTS TO GHP MCO/ST LOUIS FOR 
INSTITUTIONAL BENEFICIARIES, JAN 2002, 
$11,089 
HHS OIG Semiannual Report to Congress  77  Appendix B  
Fall 2008    
CIN:  A-06-06-00014  MEDICARE PRESCRIPTION DRUG CARD 
PROGRAM:  ACCLAIM, SEP 2006, $8,800 
CIN:  A-07-07-04106  COLORADO UNDISTRIBUTABLE CHILD SUPPORT 
PAYMENTS, NOV 2007, $8,336 
CIN:  A-03-03-00393  AUDIT OF CDC HIV/AIDS GRANT TO SEXUAL 
MINORITY YOUTH ASSISTANCE LEAGUE, OCT 
2003, $1,155 
TOTAL CINS: 77 
TOTAL AMOUNT: $999,528,707  
HHS OIG Semiannual Report to Congress  78  Appendix B  
Fall 2008    
Table 2 
1 The opening balance was adjusted downward by $65.5 million. 
2 Management decision has not been made within 6 months on 12 reports. 
Discussions with management are ongoing and it is expected that the following audits 
will be resolved by the next semiannual reporting period: 
 
CIN:  A-06-07-00042  INDEXING THE REBATE FOR GENERIC DRUGS, 
OCT 2007, $966,000,000 
CIN:  A-09-04-00038  WEDGE:  LA COUNTY 1115 WAIVER, OCT 2006, 
$285,200,000 
CIN:  A-04-01-02006  MEDICAID DISPROPORTIONATE SHARE 
PAYMENTS IN ALABAMA, JUN 2004, $45,763,327 
CIN:  A-04-06-03508  UNDISTRIBUTABLE CHILD SUPPORT 
COLLECTIONS - FLORIDA, JAN 2008, $7,881,447 
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-05-05-00033  MI - UNDISTRIBUTED CHILD SUPPORT 
COLLECTIONS, AUG 2006, $4,397,133 
CIN:  A-06-00-00073  REV OF MGR CARE ADDTL BENEFITS FOR CY 00 
OF NYLCAR, MAR 2002, $4,000,000 
CIN:  A-05-02-00075  INDIANA MEDICAID/SCHIP REVIEW, NOV 2003, 
$1,885,708 
CIN:  A-05-06-00038  IN - UNDISTRIBUTABLE CHILD SUPPORT 
COLLECTIONS, MAR 2007, $871,677 
CIN:  A-05-01-00070  PAYMENTS TO GHP MCO/ST LOUIS FOR 
INSTITUTIONAL BENEFICIARIES, JAN 2002, 
$98,689 
CIN:  A-05-06-00023  MN - UNDISTRIBUTABLE CHILD SUPPORT 
COLLECTIONS, SEP 2006, $28,240 
TOTAL CINS:  12 
TOTAL AMOUNT:  $1,327,437,062
HHS OIG Semiannual Report to Congress  79  Appendix B  
Fall 2008     
Appendix C:  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 
in the following table along with the location of the required information.  Page numbers 
in the table indicate pages in this report.  The word None appears where there are no 
data to report under a particular requirement.   
A complete listing of audit and evaluation reports is furnished to Congress under separate 
cover.  Hard copies are available upon request. 
 
Section of 
the Act  Requirement  Location 
Section 4(a)(2)  Review of legislation and regulations  p. 64
 
Section 5     
  (a)(1)  Significant problems, abuses, and  Throughout this report 
deficiencies 
  (a)(2)  Recommendations with respect to  Throughout this report 
significant problems, abuses, and 
deficiencies 
  (a)(3)  Prior significant recommendations on  See the Compendium of Unimplemented 
which corrective action has not been  Office of Inspector General 
completed   Recommendations at 
http://www.oig.hhs.gov/publications.html
 
  (a)(4)  Matters referred to prosecutive authorities  p. 36
 
  (a)(5)  Summary of instances in which  None  
information was refused  
  (a)(6)  List of audit reports  Under separate cover 
  (a)(7)  Summary of significant reports  Throughout this report 
  (a)(8)  Statistical Table 1  Reports With  p. 62
 
Questioned Costs 
  (a)(9)  Statistical Table 2  Funds Recommended  p. 63
 
To Be Put to Better Use 
  (a)(10)  Summary of previous audit reports  Appendix B 
without management decisions 
  (a)(11)  Description and explanation of revised  Appendix B 
management decisions 
  (a)(12)  Management decisions with which the  None  
Inspector General is in disagreement 
 
HHS OIG Semiannual Report to Congress  81  Appendix C  
Fall 2008     
Appendix D:  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, the 
Inspector General (IG) is required to solicit proposals annually via Fed. Reg. notice for 
developing new and modifying existing safe harbors to the anti-kickback statute, section 
1128B(b) of the Social Security Act, and for developing special fraud alerts.  The IG also 
is required to report annually to Congress on the status of the proposals received related 
to new or modified safe harbors. 
In crafting safe harbors for a criminal statute, it is incumbent upon the Office of Inspector 
General (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 not only to foster beneficial or 
innocuous arrangements, but also to protect the Federal health care programs and their 
beneficiaries from abusive practices. 
In response to the 2007 annual solicitation, OIG received the following proposals related 
to safe harbors: 
 
Proposal   OIG Response 
New safe harbor for any arrangement that satisfies a  OIG is not adopting this suggestion at this time.  The 
physician self-referral statute exception.  physician self-referral and anti-kickback statutes are 
different in nature and scope, and it may not be 
appropriate to adopt a safe harbor that effectively 
conforms the safe harbors to self-referral exceptions. 
New safe harbor for compensation paid to physicians  OIG is not adopting this suggestion.  On-call 
providing on-call coverage services in hospital  arrangements vary greatly and should be addressed 
emergency departments.  on a case-by-case basis, such as under the advisory 
opinion procedures.  OIG has addressed this topic in 
a recent advisory opinion (Ad. Op. No. 07-10). 
Revocation of the group purchasing organization  OIG is not adopting this suggestion.  The GPO safe 
(GPO) safe harbor.  harbor is statutory. 
New safe harbor to protect discounts, rebates, and  OIG is not adopting this suggestion at this time.  This 
other price concessions on prescription drugs given to  suggestion addresses a wide variety of arrangements 
Medicare Part D drug plan sponsors, retiree  and requires further study as OIG gains additional 
prescription drug plans, or their pharmacy benefit  experience with the Part D program. 
managers (PBM) by pharmaceutical manufacturers, 
subject to certain safeguards. 
New safe harbor for compensation arrangements  OIG is not adopting this suggestion at this time.  
between members of the same corporate family.  Arrangements within a corporate family can vary 
greatly and should be evaluated on a case-by-case 
basis, such as under the advisory opinion procedures. 
Clarification of the specialty referral safe harbor for  OIG is not adopting this suggestion.  The need for 
certain collaborative relationships between advance  changes to the specialty referral safe harbor is not 
practice nurses and physicians.  clear; the fact-specific circumstances described 
HHS OIG Semiannual Report to Congress  83  Appendix D  
Fall 2008    
Proposal   OIG Response 
should be evaluated on a case-by-case basis, such as 
under the advisory opinion procedures. 
New safe harbor for gainsharing arrangements  OIG is not adopting this suggestion at this time.  The 
between hospitals and medical staff physicians.  Centers for Medicare & Medicaid Services has 
developed a similar proposal under the physician 
self-referral statute.  OIG may develop an anti-
kickback statute safe harbor for similar arrangements 
in the future. 
 
In addition to the proposals in the preceding table (some of which are similar to proposals from 
past years), OIG has had under consideration a number of suggestions reported in past years.  
The following table updates the status of those suggestions: 
 
Proposal   OIG Response 
New safe harbors for various types of patient  OIG is not adopting this suggestion at this time 
assistance programs for financially needy  because it may be impracticable to develop an 
beneficiaries, including charity models, pharmaceutical  appropriate safe harbor given the variety of 
company models, Part B wraparound assistance,  arrangements and the need for adequate safeguards 
medication therapy management programs, and others.  and flexibility.  OIG has issued guidance on this topic 
through a Special Advisory Bulletin (70 Fed. Reg. 
70623) and numerous advisory opinions. 
Modification of the safe harbor for electronic health  OIG is not adopting these suggestions at this time, as 
records (EHR) arrangements to (1) exclude  they require further study and experience with EHR 
commercial laboratories and laboratory operators from  arrangements.  With respect to the first suggestion, in 
the category of protected EHR software donors, and  the preamble to the final rule, OIG expressed concern 
(2) provide that donors cannot tie the donation of  about potential abuses by laboratories and indicated 
qualifying software to the acceptance and use of  that OIG would revisit protection for laboratory 
donor-specific interfaces, upgrades, or modifications.  donors if abuses occurred.  With respect to the 
second suggestion, OIG notes that the regulations 
already require interoperability and restrict donors 
from inhibiting the use, compatibility, or 
interoperability of donated items and services with 
other EHR systems. 
Modification of the GPO safe harbor to clarify (1) the  OIG is not adopting these suggestions at this time.  
scope and nature of protected payments, (2) the  The suggestions require further study and some of 
application of the safe harbor to PBMs, (3) the  them may be impracticable given the statutory 
application of the wholly owned standard, and (4)  language of the GPO safe harbor. 
the treatment of administrative fees distributed by a 
GPO to its members. 
A new safe harbor protecting certain programs under  OIG is not adopting these suggestions.  Manufacturer 
which beneficiaries may receive a coupon for a limited  coupon arrangements are potentially subject to abuse 
quantity of a manufacturers product for free, as well  and should be evaluated on a case-by-case basis, such 
as clarification of the treatment of patient coupons  as under the advisory opinion procedures. 
under the existing discount safe harbor. 
Modification of the discount safe harbor with respect  OIG is not adopting this suggestion at this time.  This 
to Medicare Part D plans to (1) incorporate  suggestion addresses a wide variety of arrangements 
documentation and disclosure standards for  and requires further study as OIG gains experience 
manufacturers, Part D plans, and certain other business  with the Part D Program. 
relationships; and (2) clarify its application to the 
additional entities with which manufacturers may 
contract under the Medicare Prescription Drug 
Improvement, and Modernization Act of 2003 (e.g., 
pharmacy benefits managers, retail pharmacies, and 
HHS OIG Semiannual Report to Congress  84  Appendix D  
Fall 2008    
Proposal   OIG Response 
Part D drug plan sponsors). 
New safe harbor for implementation of a  OIG is not adopting this suggestion at this time, as it 
communitywide health information network.  requires further study and experience with EHR 
arrangements.    
Modification of the existing safe harbor for obstetrical  OIG is not adopting this suggestion at this time, as it 
malpractice insurance subsidies to include  requires further study.  OIG has addressed some of 
(1) additional types of malpractice insurance and  the issues raised in other guidance (e.g., Ad. Op. 04-
(2) subsidies for which there is documented need and  19).   
the amounts are limited in scope and duration. 
A new safe harbor to cover (1) coinsurance waivers for  OIG is not adopting this suggestion.  The need for a 
inpatient services negotiated between a hospital and an  new safe harbor is not clear and the arrangements 
Employee Retirement Income Security Act employee  described are best addressed on a case-by-case basis, 
welfare benefit plan that covers retirees, and (2) Part B  such as under the advisory opinion procedures.  OIG 
waivers for employer group plans.  has addressed a similar topic in a recent advisory 
opinion (Ad. Op. No. 07-15). 
New safe harbor for inducements offered to  OIG is not adopting this suggestion at this time.  The 
beneficiaries that fit in an exception to the beneficiary  need generally for such a safe harbor is unclear, and 
inducements civil monetary penalties statute at 42  the advisory opinion process is available for specific 
U.S.C.  1320a-7a(a)(5).  situations. 
Modification of the existing shared risk exception to  OIG is not adopting this suggestion.  OIG previously 
cover (1) second-tier contractors of federally qualified  adopted a safe harbor for FQHC arrangements (72 
health centers (FQHC), and (2) the TRICARE  Fed Reg. 56632).  The suggestion as it relates to 
program.  TRICARE would require further study. 
Modification of the discount safe harbor to (1) include  OIG is not adopting these suggestions.  The 
a discount that is both obtained by a commercial health  suggestions relate to a wide variety of arrangements 
plan that does not file claims with the Federal health  that are potentially subject to abuse, and some of the 
care programs and otherwise meets the safe harbor  modifications may be impracticable.  Some of the 
conditions, (2) clarify its application to discounts  suggestions require further study. 
applied to a manufacturers full product line, 
(3) modify the reporting and disclosure requirements, 
and (4) standardize the requirements for offerors and 
sellers. 
Modification of existing safe harbors to conform them  OIG is not adopting these suggestions at this time.  
to the final regulations under the physician self-referral  The self-referral and anti-kickback statutes are 
statute published by CMS and new safe harbors  different in nature and scope, and it may not be 
analogous to new self-referral exceptions created by  appropriate to conform the safe harbors to the 
the CMS regulations.  self-referral exceptions. 
Modification of the ambulatory surgical centers (ASC)  OIG is not adopting these suggestions at this time.  
safe harbor to (1) address protection of startup  ASC arrangements vary greatly, and the suggestions 
multispecialty ASCs that otherwise comply with the  require further study in light of the many variations.  
current safe harbor conditions, (2) add conditions  OIG has issued a number of advisory opinions 
under which hospitals would not be in positions to  addressing ASC arrangements and issues raised by 
make or influence referrals to jointly owned ASCs,  the suggestions (e.g., Ad. Op. Nos. 07-05 and 08-08). 
(3) specify whether an ASC can require investors to 
comply with safe harbor conditions, and (4) clarify (a) 
the use of pass-through entities to hold ownership 
interests and (b) the treatment of physician investors 
who invest at different times. 
HHS OIG Semiannual Report to Congress  85  Appendix D  
Fall 2008    
Proposal   OIG Response 
New safe harbor for rural health networks operating  OIG is not adopting this suggestion.  The variety of 
pursuant to the Medicare Rural Hospital Flexibility  arrangements potentially encompassed is not 
Program.  amenable to a single safe harbor and should be 
addressed on a case-by-case basis, such as under the 
advisory opinion procedures. 
New safe harbor for arrangements that comply with  OIG is not adopting this suggestion.  The 
section 513 of the Internal Revenue Service Code  arrangements described vary and should be addressed 
pertaining to the provision of certain supporting goods  on a case-by-case basis, such as under the advisory 
and services by tax-exempt hospitals to other  opinion procedures. 
tax-exempt hospitals. 
HHS OIG Semiannual Report to Congress  86  Appendix D  
Fall 2008    
Appendix E:  Summary of Sanction Authorities  
The Inspector General Act of 1978 (P.L. No. 95452), 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.  1320a7) 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.  
The Office of Inspector General (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 administrative law judge and appeals to the Department of Health and Human 
Services 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 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. 
HHS OIG Semiannual Report to Congress  87  Appendix E 
Fall 2008  
   
OIG is authorized to collect civil monetary penalties (CMP) 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 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.  1320a7a), 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 or causes to be submitted 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.  1320a7b(b)). 
Anti-Kickback Statute and Civil False Claims Act Enforcement Authorities 
 The Anti-Kickback Statute  The 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.  1320a7b(b)). 
Individuals and entities that engage in unlawful referral or kickback schemes may be 
subject to criminal penalties under the general criminal anti-kickback statute, a CMP 
under OIGs CMPL authority (section 1128A(a)(7) of the Social Security Act, 42 U.S.C. 
 1320a7a) and/or program exclusion under OIGs permissive exclusion authority 
(section 1128(b)(7) of the Social Security Act, 42 U.S.C.  1320a7(b)(7)). 
 False Claims Amendments Act of 1986  Under the Federal civil False Claims 
Amendments Act of 1986 (FCA) (31 U.S.C.  37293733), a person or entity is liable 
for up to treble damages and a penalty between $5,500 and $11,000 for each false claim  
HHS OIG Semiannual Report to Congress  88  Appendix E 
Fall 2008  
   
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. 
The FCA defines knowing to include not only the traditional definition but also 
instances in which the person acted in deliberate ignorance or 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 a lawsuit on behalf of the United States and entitles that 
whistleblower to a percentage of any fraud recoveries.
HHS OIG Semiannual Report to Congress  89  Appendix E 
Fall 2008  
    
Appendix F:  Acronyms and Abbreviations  
The following is a list of acronyms and abbreviations used in this publication.  
 
ACF  Administration for Children and Families 
ALJ  Administrative Law Judge 
AMP  average manufacturer price 
ANDA  Abbreviated New Drug Application 
ASC  ambulatory surgical center 
ASP  average sales price 
AWP  average wholesale price 
BBA  Balanced Budget Act of 1997 
BBRA  Balanced Budget Refinement Act of 1999 
CBO  Congressional Budget Office 
CCA  certification of compliance agreement 
CCDF  Child Care and Development Fund 
CDC  Centers for Disease Control and Prevention 
CERT  Comprehensive Error Rate Testing 
CIA   corporate integrity agreement 
CIN  Central Identification Number 
CMP  civil monetary penalty 
CMPL  Civil Monetary Penalties Law 
CMS  Centers for Medicare & Medicaid Services 
CoP  conditions of participation 
CPG  compliance program guidance 
CY  calendar year 
DME  durable medical equipment 
DOJ  Department of Justice 
DOL  Department of Labor 
DPM  Division of Payment Management 
DPNA  denial of payment for new admissions 
DRA  Deficit Reduction Act of 2005 
DSH  disproportionate share hospital 
EHR  electronic health record 
EQRO  external quality review organization 
ERC  Ethics Resource Center 
ESRD  end stage renal disease 
FBI  Federal Bureau of Investigation 
FCA  False Claims Act 
FDA  Food and Drug Administration 
FI  fiscal intermediary 
FQHC  federally qualified health center 
FR  Federal Register 
FUL  Federal upper limit 
FY  fiscal year 
HHS OIG Semiannual Report to Congress  91  Appendix F 
Fall 2008  
   
GPO  group purchasing organization 
GSA  General Services Administration 
HCFAC  Health Care Fraud and Abuse Control Program 
HCPCS  Healthcare Common Procedure Coding System 
HEAL  Health Education Assistance Loan 
HHA  home health agency 
HHS  Department of Health and Human Services 
HIPAA  Health Insurance Portability and Accountability Act  
HMO  health maintenance organization 
HRSA  Health Resources and Services Administration 
IG  Inspector General 
IMD  institution for mental disease 
IPF  inpatient psychiatric facility 
IT  information technology 
LTC-DRG  long term care diagnosis-related group 
LTCH  long term care hospital 
LTCP  long term care pharmacy 
MA  Medicare Advantage 
MAC  maximum allowable costs 
MCO  managed care organizations 
MFCU   Medicaid Fraud Control Unit 
MFUOD  Medicaid Fraud Unit Oversight Division 
MIP  Medicaid Integrity Program 
MMA  Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 
MSP  Medicare secondary payer 
NCI  National Cancer Institute 
NIEHS  National Institute of Environmental Health Sciences 
NIH   National Institutes of Health 
OBRA  Omnibus Budget Reconciliation Act of 1990, 1993 
OCSE   Office of Child Support Enforcement  
OGD  Office of Generic Drugs 
OIG   Office of Inspector General 
OMB  Office of Management and Budget 
OMHA  Office of Medicare Hearings and Appeals 
OS  Office of the Secretary 
PBM  pharmacy benefit manager 
PCIE  Presidents Council on Integrity and Efficiency 
PCS  personal care service 
PDIG  Principal Deputy Inspector General 
PDP  prescription drug plan 
P.L.  Public Law 
PPS  prospective payment system 
PSAO  pharmacy services administrative organization 
PSC  Program Support Center 
QIC  qualified independent contractor 
HHS OIG Semiannual Report to Congress  92  Appendix F 
Fall 2008  
   
QIO  Quality Improvement Organization 
RO  responsible official 
SAUSA   Special Assistant United States Attorney 
SCHIP  State Childrens Health Insurance Program 
SFY  State fiscal year 
SNF  skilled nursing facility 
SSA  Social Security Administration 
SSI  Supplemental Security Income 
TANF  Temporary Assistance for Needy Families 
UPIN  unique physician identification number 
UPL  upper payment limit 
U.S.C.  United States Code 
WAMP  widely available market price 
HHS OIG Semiannual Report to Congress  93  Appendix F 
Fall 2008  
  Department of Health and Human Services 
OIG HOTLINE: 800-HHS-TIPS 
To report matters involving fraud, waste, abuse, and mismanagement in any departmental program(s) 
Phone: 1-800-HHS-TIPS  TTY: 1-800-377-4950 
1-800-447-8477  Fax:  1-800-223-8164 
E-Mail:  HHSTips@oig.hhs.gov 
Mail:  Office of Inspector General 
Department of Health and Human Services 
Attn: Hotline 
PO BOX 23489 
Washington, DC 20026