Department  of Health and Human Services 
OFFICE OF 
INSPECTOR  GENERAL 
Carrier  Fraud  Units  OFFICE  OF  INSPECTOR  GENERAL 
The  mission  of the  Office  of Inspector  General  (OIG),  as mandated  by Public  Law 95-452,

is to protect  the  integrity  of the  Department  of Health  and  Human  Services  programs

as well as the  health  and  welfare  of beneficiaries  sewed  by them.  This  statutory

mission  is carried  out  through  a nationwide  program  of audits,  investigations,

inspections,  sanctions,  and  fraud  alerts.  The  Inspector  General  informs  the  Secreta~

of program  and  management  problems  and  recommends  legislative,  regulatory,  and

operational  approaches  to correct  them.

Office  of  Evaluation and Inspections 
The  Office  of Evaluation  and  Inspections  (OEI)  is one  of several  components  of the 
Office  of Inspector  General.  It conducts  short-term  management  and  program 
evaluations  (called  inspections)  that  focus on issues of concern  to the  Department,  the 
Congress,  and  the  public.  The  inspection  reports  provide  findings  and 
recommendations  on the  efficiency,  vulnerability,  and  effectiveness  of departmental 
programs. 
The  OEIS Chicago  Regional  Office  prepared  this report  under  the  direction  of 
William  C. Moran,  Regional  Inspector  General,  and  Natalie  A. Coen,  Deputy 
Regional  Inspector  General.  Principal  OEI  staff included: 
CHICAGO  REGION  HEADQUARTERS 
John  M. Traczyk,  Team Leader  Jennifer  Antico,  Program Specialist 
Suzanne  Johnson,  Program Analyst  Barbara  Tedesco,  Statistician 
To  obtain  a copy of this report,  call the  Chicago  Regional  Office  at  (312)  353-4124.  Department  of Health and Human Services 
OFFICE OF 
INSPECTOR  GENERAL 
Carrier  Fraud  Units  EXECUTIVE  SUMMARY

PURPOSE

To  evaluate  carrier  fraud  units  and  identify  factors  that  contribute  to and  work  against

successful  program  integrity  operations.

BACKGROUND

In  1994, Medicare  carriers  processed  over  615 million  claims.  That  same  year,  carriers

received  about  118,000 complaints  alleging  fraud  or abuse.  The  Health  Care

Financing  Administration  (HCFA)  has  charged  their  contractors  with the  responsibility

of detecting  and  deterring  program  fraud,  waste  and  abuse.  Both  carriers  and

intermediaries  have  set up fraud  and  abuse  units  as one  element  of HCFAS overall

benefit  integrity  program.  To help  defray  the  cost of investigating  complaints,  HCFA

provided  the  carriers  with nearly  $23 million  to fund  their  fraud  units.

We  obtained  information  from  37 carrier  fraud  units.  We  examined  selected  case  files

and  obtained  documentation  relating  to program  integrity  operations.  We  interviewed

292 employees  and  visited  6 carrier  units  to carg  out  in-person  discussions.  Based  on

the  information  we obtained,  we compared  carrier  performance  using  the  following

five criteria:

.  Accuracy  of complaint  disposition  .  Assessing  financial  damage 
.  Case  documentation  .  Internal  proactive  safeguards 
.  External  proactive  safeguards 
FINDINGS 
V&ryfw  caniers weresuccessfulin meeting all of our outcome crhiia. 
Only two carriers  consistently  ranked  high when  we analyzed  fraud  unit  performance 
using  the  five criteria  mentioned  above.  We found  that  few carrier  fraud  units  follow 
case  development  procedures.  Overpayment  information  is often  inaccurate  and 
information  concerning  frequency  and  nature  of past  problems  with providers  is often 
missing.  Despite  claims  of being  proactive  in their  approach  to combating  fraud  and 
abuse,  only  14 carriers  could  provide  evidence  that  they  took  steps  to  correct 
vulnerabilities  they  identified  in their  claims  processing  systems,  policies  and 
procedures. 
The mast @2dive  pmgmm  htegnly flo~  arefd  in coqpomtions that acconi a high 
@only  and adi?quate management  attention to thejiaud  units. 
Resources  and  Organization.  Strategic  organizational  placement  of most,  if not  all, 
postpayment  functions  within  the jurisdiction  of the  fraud  units  appears  to be  key to 
i  better  performance.  Effective  fraud  units  are  part  of a corporate  culture  that  supports 
them  in hiring  and  keeping  highly motivated  and  qualified  persons.  They  invested 
more  in competitive  salaries,  technology  and  ongoing  staff training. 
Staffing.  Successful  fraud  units  integrate  persons  with law enforcement  backgrounds 
with  personnel  who have  knowledge  of claims processes  and  policies.  Analysts, 
auditors  and  statisticians  are  hired  to meet  special  needs.  No one  discipline  dominates 
the  successful  fraud  unit.  Less successful  fraud  units  employed  staff with backgrounds 
primarily  from  a single prepayment  discipline  such as provider  relations  or claims 
processing. 
Training.  Staff  at better  units  receive  ongoing  training  from  internal  and  external 
sources.  In other  fraud  units,  at least  2 out  of every  3 people  have  had  no HCFA, 
Office  of Inspector  General  or other  outside  training  on fraud  and  abuse  since HCFA 
began  funding  fraud  units  in the  fall of 1992. 
RECOMMENDATIONS: 
Concerns  regarding  the  effectiveness  of Medicare  carrier  fraud  units  are  similar  to 
those  discussed  in our  report  entitled  WrveiZZmceand  Ufi.buion  Review  Subsystems 
Case Refivrd  to Medicaid  Fraud Contrvl  Uiub, 0EI-07-95-OO030.  As  a resuh,  we 
believe  that  a concerted  effort  addressing  both  Medicare  and  Medicaid  fraud  units  is 
called  for.  We  are  proposing  a uniform  team  approach.  We  recommend  that  HCFA, 
in consultation  with  the  Office  of Inspector  General  should: 
Convene  a Medicare  and  Medicaid  fraud  and  abuse  task  force  to plan  and  implement 
improvements  in li-aud unit  operations.  This would  include: 
Clarifying  goals  and  objectives  for program  integrity  efforts. 
Establishing  guidelines  for developing  suspected  fraud  cases. 
Developing  a universal  protocol  for appropriately  referring  fraud  and  abuse 
cases. 
Coordinating  data  systems  to ensure  that  data  are  reliable  and  consistent  across 
all entities  in the  fraud  and  abuse  fighting  network. 
Developing  a training  program  designed  to educate  program  integrity  personnel 
on procedures,  case  referrals  and  best  practices. 
ii  Continue  to provide  support  and  technical  assistance  to carriers  so they  can  emulate 
those  carriers  operating  successful  programs.  This can include: 
Encouraging  carrier  commitments  that  result  in increased  resources  to combat 
fraud  and  abuse  such as investments  in technology  and  people. 
Suggesting  ways of organizing  a successful  program  integrity  effort. 
Limiting  the  role  of medical  review units  in program  integrity  to those  cases 
involving  issues  of abuse,  policy, coverage  and  medical  necessity. 
Rewarding  carriers  for identifying  policy, procedure  and  systems  vulnerabilities 
and  implementing  corrective  safeguards. 
Separating  the  budget  for postpayment  activity from  the  budget  for claims 
processing  and  other  front-end  operations  such as provider  enrollment  and 
provider  relations. 
AGENCY  COMMENTS 
We  appreciate  all the  positive  steps  that  HCFA  has taken  thus  far  to safeguard  the 
Medicare  program  and  we recognize  the  accomplishments  of the  Program  Integrity 
Group.  We  are  pleased  that  HCFA  has concurred  with our  recommendations  and we 
look  forward  to working  with HCFA  in their  implementation. 
We believe  that  the  best  approach  would  be  a collaborative  one  involving HCFA  and 
OIG,  with  consultation  from  high performing  State  Surveillance  and  Utilization 
Review  Subsystem  Units  (S/URS)  and  carriers.  We  suggest  that  this  effort  focus  on: 
  Developing  and  implementing  model  practices. 
.	 Revising  current  contractor  performance  measures  that  reward  carriers  for 
overpayment  recovexy but  not  for fraud  and  abuse  referrals  or efforts  to 
improve  claims  processing  safeguards. 
	 Identi&ing  the  most  effective  practices  which carrier  and  State  personnel  use to 
eliminate  claims  processing  vulnerabilities  that  enable  providers  to  defraud 
health  programs. 
We believe  that  achieving  the  goals both  HCFA  and  the  OIG  have  established  for 
improving  program  integrity  functions  at the  carriers  and  in the  States  can best  be 
accomplished  by these  kinds  of collaborative  efforts.  We  look  fon.vard to working  with 
HCFA  to bring  about  further  measurable  change. 
...
111  TABLE  OF  CONTENTS

PAGE 
EXKUTWE  SUMMARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..i

INTRODUCTION.  . . . . . . . . . . . .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1

FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5

.  Meeting  outcome  criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...5

.  Resources  and  strategic  organizational
 placement  . . . . . . . . . . . . . . . . . . . . . .  10 
.  Staffkg  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13 
.  Adequate  and  ongoing  training  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14 
RECOMMENDATIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16 
Agenq  Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18 
Appendix  A  Tables  Comparing  Carriers
 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  A-1 
Appendix  B:  HCFA  Response  . . . . . . . .
 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  B-1  INTRODUCTION

PURPOSE 
To  evaluate  carrier  fraud  units  and  identi~  factors  that  contribute  to and  work  against 
successful  program  integrity  operations. 
SCOPE 
The  Health  Care  Financing  Administration  (HCFA)  contracts  with insurance 
companies  to process  medical  claims  incurred  by Medicare  beneficiaries.  Fiscal 
intermediaries  process  hospital  insurance  (Part  A) claims which  cover  hospital 
inpatient,  skilled  nursing  facility and  home  health  agency  services.  Supplemental 
Medical  Insurance  (Part  B) claims  are  processed  by carriers.  Part  B covered  services 
encompass:  doctors  services,  diagnostic  laborato~  tests,  outpatient  hospital  services, 
outpatient  physical  therapy,  outpatient  speech  therapy,  outpatient  speech  pathology, 
home  health  care  and  many  other  health  services  and  supplies  not  covered  by hospital 
insurance. 
The  HCFA  has  charged  their  contractors  with the  responsibility  of detecting  and 
deterring  program  fraud,  waste  and  abuse.  Both  carriers  and  intermediaries  have  set 
up fraud  and  abuse  units  as one  element  of HCFAS overall  benefit  integrity  program. 
During  this study, we contacted  37 of HCFAS 42 carriers  responsible  for processing 
Medicare  Part  B claims.  This number  includes  the  four  Durable  Medical  Equipment 
Regional  Carriers  that  process  providers  claims  for medical  supplies  and  durable 
medical  equipment. 
BACKGROUND 
Medicare  losses  due  to fraud  and  abuse  concern  Congress,  HCF~  the  Office  of 
Inspector  General  (OIG)  and  others.  The  HCFA  and  their  carriers  work  together  to 
detect  and  deter  fraud  and  abuse  through  various  means.  Carriers  refer  their  fraud 
and  abuse  cases  to the  OIG  for development  and  evaluation  and  possible  referral  to 
the  Department  of Justice.  The  OIG,  in turn,  works with the  Department  of Justice 
to prosecute  these  cases. 
Medicare  carriers  process  about  615 million  claims  each  year.  In  1994, approximately 
118,000 complaints  alleging  fraud  or abuse  were  received.  These  complaints  were 
assigned  to about  400 carrier  employees  for screening  and  investigation.  According  to 
OIG  records  for  1994, carrier  investigations  produced  approximately  400 cases 
involving  1,300 subjects  that  were  subsequently  referred  to OIG  for in depth 
investigation.  Since  the  inception  of the  Medicare  program,  HCFA  has supported  carrier  efforts  at

safeguarding  Medicare  payments.  Despite  these  efforts,  the  General  Accounting

Office  (GAO)  in  1992 reported  that  the  Medicare  program  was vulnerable  to fraud,

waste,  abuse  and  mismanagement.  The  GAO  estimates  that  nearly  $2 million  is lost

to fraud  and  abuse  each  hour.  The  GAO  report  and  other  recent  events  have

encouraged  HCFA  to pursue  regulato~  and  administrative  changes  aimed  at

correcting  flawed  payment  policies,  weak  controls  and  deficient  program  management.

Most  visible  of HCFAS efforts  was its financial  commitment  to supporting  carrier

fraud  and  abuse  units.  In fiscal year  1994, HCFA  provided  approximately  $23 million

to carriers  in benefit  integrity  funding.

In addition  to financial  support,  HCFA,has  undertaken  a number  of other  initiatives  in

recent  years  to correct  flawed  payment  policies  and  improve  program  management.

For  the  first  time  since  the  Medicare  program  began,  HCFA  established  national  and

regional  positions  to focus the  Agencys fraud  and  abuse  efforts  and  to provide

guidance  to the  carriers.

One  element  of HCFAS revitalized  effort  to guide  carriers  to improve  their

performance  was a change  in the  way HCFA  evaluated  carrier  performance.  Prior  to

1994, HCFA  evaluated  carrier  performance  by comparing  carriers  and  providing  a

numerical  score  intended  to represent  how a particular  carrier  fared  against  its peers.

In  1994, HCFA  took  steps  to change  and  improve  the  process  for  evaluating  carrier

performance.  Numerical  scores  for comparing  carrier  performance  were  abandoned

in favor  of a new system  emphasizing  continuous  improvement.

The  OIG  issued  a report  in 1995 that  reviewed  HCFAS new system  for monitoring

carrier  fraud  and  abuse  unit  performance.  The  report  concluded  that  HCFAS  ability

to assess  carrier  performance  had  improved  but  that  HCFA  had  failed  to make  full

use  of the  information  gathered  during  the  review  process  to improve  carrier  ability to

safeguard  Medicare  payments.1  This  current  study was undertaken  to further

contribute  to the  improvement  of carrier  program  integrity  efforts.

METHODOLOGY

Data  and  information  presented  in this report  was derived  from:  (1) a sumey  of

carrier  fraud  and  abuse  staff,  (2) carrier  data  and  other  documents,  and  (3) actual

cases  developed  by carrier  staff involving  allegations  of fraud  and  abuse.

Thirty-one  carriers  were  contacted  by telephone  or mail.  We visited  six carriers  and

talked  to fraud  and  abuse  management  and  staff.  Overall,  we identified  351

employees  whose  duties  involved  the  screening  of complaints  and/or  the  development

of potential  fraud  and  abuse  cases.  Of the  351 employees,  292 (83.2%)  completed  our

written  survey,  The  survey was designed  to obtain  information  about  employee  work

1  Office of Inspector  General,  Monitoring Medicare  Confracfor fe~onnunce:  A New Approach,  DHHS/OIG  Office 
of Evaluation  and Inspections,  OEI-01-93-00160,  August  1995. 
2  experience,  the  organization  of the  carrier,  its program  integrity  operations  and 
procedures.  In addition  to the  written  survey responses,  we held  discussions  about 
carrier  operations  and  procedures  with more  than  80 carrier  employees. 
Survey  responses  were  supplemented  with information  obtained  from  managers  during 
the  initial  telephone  contact  and,  in some  cases,  during  subsequent  telephone  contacts. 
In addition  to our  employee  surveys, we requested  each  carrier  to provide  data  and 
documentation.  We  asked  for documentation  of fraud  and  abuse  unit  procedures  and 
information  on the  units workload  and  accomplishments.  Other  information  was 
obtained  from  HCFA  and  the  OIG,  Office  of Investigations  headquarters  and  regional 
staff.  In addition  to interviews  with HCFA  personnel,  we also obtained  and  analyzed 
HCFA  carrier  performance  evaluations. 
We  asked  our  survey  respondents  what  criteria  they felt  should  be  used  to evaluate 
their  fraud  units performance.  Of the  19 criteria  suggested  by respondents,  we 
selected  the  following  5 criteria  to judge  each  carriers  performance: 
(1)  Accuracy  of complaint  disposition.

(2)  Adherence  to procedures  for developing  and  projecting  overpayments.

(3)  Adherence  to procedures  for documenting  frequency  of complaints  in

referrals  to OIG. 
(4)  Number  of internal  proactive  measures  initiated  by the  fraud  unit  that 
result  in carrier  payment  safeguards. 
(5)  Number  of external  proactive  measures  initiated  by the  fraud  unit  that 
increase  awareness  of schemes  to defraud  government  programs. 
We  considered  two additional  performance  measures:  return  on investment  and 
overpayment  recoveries.  Although  final  action  to obtain  convictions,  assess  fines  and 
return  overpayments  rests with  entities  other  than  the  fraud  units,  we thought  these 
measures  were  important  as a reflection  of the  units contributions  to final  disposition 
of cases  and  outcomes.  We  collected  data  on these  measures  from  the  units. 
However,  after  consultation  with HCF~  we determined  that  the  data  reported  might 
be unreliable  and  invalid.  Since  no uniform  reporting  requirements  for these  data 
exist, it is reasonable  to assume  that  carrier  units  might  not  have  the  systems  in place 
to veri~  and  validate  the  data.  As a result,  we have  included  no information  on these 
measures  or the  data  reported  to us in this report. 
We  used  the  above  criteria  and  ranked  each  carriers  performance  using information 
each  carrier  provided.  When  all of the  information  had  been  analyzed,  we combined 
the  results  in a single table  to determine  if any carrier(s)  had  consistently  scored  better 
in each  of our  five criteria. 
We focused  on outcomes  that  had  resulted  from  each  carriers  program  integrity 
efforts.  For  example,  when  carriers  claimed  to be  aggressive  in preventing  fraud 
through  systems safeguards,  we looked  for identifiable  accomplishments  they  had 
initiated  that  would  decrease  Medicare  vulnerabilities  to fraud  and  abuse.  Whenever  possible,  we validated  carrier  responses  by examining  other  information  and  data 
available  to us from  the  carrier,  OIG  and  HCFA. 
We looked  for attributes  that  may have  contributed  to good  performance  and  then 
ascertained  the  presence  or absence  of these  traits  at all the  carriers.  We  looked  for 
consistency  in what  carriers  told  us they  did and what  they  actually  did in the  more 
than  120 case  files we reviewed.  Whenever  possible  we have  used  examples  to 
illustrate  the  types  of problems  we repeatedly  obsemed  in our  review  of carrier  case 
development.  Given  limited  space,  we are  unable  to provide  extensive  examples  of 
problems.  The  examples  used  in this report  were  those  that  we felt best  illustrate  the 
problems. 
4
 FINDINGS

OUTCOME  CRITERIA  Few carriers were  successful in meeting all of 
our outcome  criteria. 
Cri&ria1: Accuracy  of Cbm@int  Dhpudik 
The  cases  we reviewed  show that  carriers  differ  significantly  in their  ability  to properly

identi~  potential  fraudulent  activity.  Of the  cases-we  reviewed,  we found- that-2  out  of

3 cases  referred  to the  OIG  were  inadequately  developed  or did not  involve  a

violation  of criminal  or civil statute.  We  also found  that  58 percent  of the  reviewed

cases  resolved  by carriers  administratively  were  incorrectly  handled.  Cases  handled

administratively  were  frequently  inadequately  developed.  Cases  that  we felt  showed

strong  evidence  of fraud  or abuse  were  not  referred  or discussed  with  the  OIG.

Carriers  routinely  sought  to resolve  complaints  by contacting  providers.

Our  case  reviews  show that  carrier  procedures  for noti&ing  providers  of a potential

overpayment  need  to be  examined  so as to avoid  the  loss of millions  of dollars  in

potential  overpayments.  Particularly  troublesome  were  significant  overpayment

recove~  cases  that  were  not  discussed  with OIG  before  the  carrier  init;ated  recovery

action  and  which  appeared  to involve fraud.  For  example,  consider  the  following  case:

The case file showed extensive documentation  of contacts with beneficiaries, thew 
relatives, the vast majority of whom claimed not to have received the service billed and not 
to have any of the conditions indicated on claims submitted to Medicare.  Contact  with 
the benejiciatis  attending physicians also indicated that the beneficiaries had none of the 
conditions stated on the claims.  Further development  by the cam-er revealed that none of 
the physicians  whose names appeared on the cerhjicates of medical necessity had heard of 
the patieng  or the provider.  All denied having signed the cernjicates of medical necessi~. 
The carrkrs development  also dkclosed  unverifiable- tiformation  on the provklerb 
applicanonfor a billing number. 
i%e case was never dkussed  with the OIG, instead the carrier sent a letter 
requesting the provkkr  rejimd the calculated overpayment.  The letter was sent to the 
providerk  out-of%tate post  o~e  box articulating the information mentioned above as the 
bases for the camersovequayment decision.  A second notice regarding the overpayment 
was sent several weeks later.  When the second notice was returned indicating the 
addressee had moved and lejl no forwarding address, the case was then referred to the 
OIG.  The premature  alert of the provider makes it extremeiy dificult  for the OIG, or any 
law enforcement agenq,  to pursue thk case. 
The  above  case  illustrates  a problem  we encountered  repeatedly  during  our  case  file 
reviews.  The  case  development  clearly  shows false  statements,  billing for  sewices  not 
rendered  and  other  criminal  statute  violations.  Carriers  are  to refer  cases  involving 
potential  fraud  to the  OIG  for possible  criminal  action  if the  case  meets  OIG  referral 
criteria.  Carriers  should  contact  the  OIG  and  discuss all cases  involving fraud  issues 
before  initiating  recovery  action. 
J  Critaia2  Asse&tg  Fiiumcia1Damages. 
Carriers  didnotconsistently  develop  payment  information.  One  fourth  of the  cases

we reviewed  contained  no information  about  the  total  payments  made  to the  provider.

In nearly  half  of the  cases,  carrier  staff did not  accurately  determine  the  amount

overpaid.  The  data  suggests  that  carriers  may not  be  doing  expanded  reviews  and

projecting  overpayments  accurately  when  an allegation  is substantiated.  The  cases we

reviewed  provided  further  evidence  that  expanded  sampling  was not  always done  when

an  allegation  of fraud  or abuse  was substantiated.

Of the  cases  we reviewed,  only 1 out  of every 3 cases  referred  to the  OIG  contained

accurate  overpayment  information.  One  out  of every  5 cases  either  over  or under

stated  the  actual  overpayment,  and  1 of 5 cases  did not  provide  any information  about

the  potential  dollars  lost by the  program  or dollars  paid  to a provider  in a specified

time  period.  In one  case  the  carrier  reported  total  dollars  paid  to a provider  as the

potential  overpayment.  At issue in the  case were  specific  procedure  codes,  not  the

entire  practice.  If the  carrier  had  properly  determined  the  potential  overpayment  for

the  procedure  codes  in dispute,  the  amount  reported  would  have  been  considerably

less than  stated  on the  referral  to the  OIG  and  the  case would  not  have  met  OIG

regional  office  criteria  for referral.

Two  out  of 5 reviewed  cases  developed  for overpayment  recovery  and  not  referred  to

the  OIG  were  incorrectly  handled.  During  our  review  we noted  that  the  overpayment

on these  cases was frequently  understated  because  the  carrier  did not  conduct  a

sample  upon  which  to project  additional  payments,  or did not  develop  for additional

overpayments  when  the  provider  was the  member  of a group  or had  multiple  provider

numbers.

Failure  to provide  accurate  payment  and  overpayment  information  can waste  limited

carrier  and  law enforcement  resources.  With  current  emphasis  on presenting  cases  to

the  Justice  Department  early  to determine  interest  in a case,  one  can  readily  see  the

consequences  of inaccurate  payment  and  overpayment  information  on resources.

Likewise  carrier  failure  to adequately  audit  all related  billing numbers  and  failure  to

utilize  adequate  sampling  methodologies  results  in inappropriate  overpayment

recovery  actions  that  should  have  been  referred  to law enforcement  agencies.

During  our  discussions  with OIG  special  agents,  we were  told  of carriers  pursuing

overpayments  on cases  that  had  not been  discussed  with the  OIG  and  that  they

believed  had  significant  prosecutive  merit.  The  cases we reviewed  support  what  we

heard  from  OIG  special  agents.  In many  of the  cases,  the  OIG  was not  consulted

before  overpayment  actions  were  initiated.

Cri@ia  3:  Case DoamemZtim

Of the  37 carriers  participating  in this study, only 5 consistently  indicated  information

about  frequency  of problems  with a specific  provider.  Documentation  on the  number

6  of complaints  alleging  fraud  or abuse  is required  by HCFA.  Furthermore,  9 out  of 10 
sumey  respondents  indicated  that  this information  was readily  apparent  when  a case 
was assigned  to them. 
Despite  written  procedures  and  claims  that  documentation  on the  number  of 
complaints  against  a provider  is readily  available,  such information  is not  surfacing  in 
cases  being  developed  by carriers.  The  absence  of this information  may affect  law 
enforcement  agency  decisions  on whether  to pursue  a full scale  investigation  of a 
provider.  Furthermore,  failure  to mention  previous  problems  may prove  detrimental 
to an investigation  or prosecution  if the  existence  of other  carrier  files surface  at a 
later  date  and  are  found  to contain  information  that  compromises  the  case.  We were 
told  by OIG,  Office  of Investigations  respondents  that  this has  happened  on more  than 
one  occasion.  Not  only is this embarrassing  to law enforcement  agencies,  it damages 
relations  with Assistant  United  States  Attorneys  and  the  relationship  between  the 
carrier  and  law enforcement  agencies. 
We frequently  found  contradictory  statements  in the  files we reviewed  concerning 
frequency  of complaints.  To  illustrate,  consider  the  following  statements  found  in one 
carriers  case  development  file:  This is our  first problem  with Doctor  X.  Among  the 
other  information  in the  file we came  across  this statement:  Doctor  X and  problems 
with his patterns  of practice  are  well known  to us.  On  the  other  end  of the  spectrum 
are  cases where  the  frequency  is stated  but  no information  is provided  about  the  issues 
involved  and  their  resolution. 
Ctieria  4:  In&mal  Reactive  Safkgmwrls 
Our  fourth  criteria  compared  carriers  by the  number  of internal  proactive  measures 
initiated  by their  fraud  units.  We  considered  an action  by the  fraud  unit  to be 
proactive  if 
	 it identified  a specific  policy, system function  or procedure  vulnerable  to fraud 
or abuse,  and 
	 made  specific  recommendations  on how to eliminate  or reduce  the  identified 
vulnerability. 
Our  analysis  of internal  proactive  measures  indicates  that  less than  half  of the  37 
carriers  (4296) that  participated  in this study had  identified  vulnerabilities  and  initiated 
changes  in their  claims  processing  and  other  operations.  Since  October  1992, there 
have  been  less than  100 such  changes  recommended  by 14 of the  37 carrier  fraud  units 
in this study.  As Table  A shows, the  majority  of the  recommendations  designed  to 
make  it harder  to defraud  government  programs  were  initiated  by one  carrier.  While 
many  carriers  claim  to have  initiated  steps  designed  to reduce  the  likelihood  that  their 
systems  will be  defrauded,  only 14 could  provide  evidence  of an identifiable  action 
designed  to curb  a specific  vulnerability  in their  system.  Of the  37 carriers  in this study, only 3 had  initiated  more  Table A 
than  3 corrective  actions.  Five  fraud  units  mentioned 
strengthening  the  process  for assigning  provider  numbers 
to independent  physiological  laboratories.  Four  reported 
implementing  prepayment  edits  upon  discovering  how a 
provider,  or providers,  were  circumventing  their  system 
safeguards. 
Our  case  review  indicates  that  procedure,  policy and 
system  shortcomings  are  often  identified  by fraud  unit 
staff  during  case  development.  We  documented  19 such 
vulnerabilities,  including  payments  to nop  certified 
laboratories  and  duplicate  payments  that  were  not 
addressed.  We  are  unsure  as to why these  vulnerabilities 
are  not  being  addressed. 
Oiteria  5:  lhlemal  hnzctive  Safeguanis 
Our  final  criteria  measured  the  number  of fraud  alerts  that  Table B 
had  been  generated  by each  carrier.  We  chose  to measure 
fraud  alerts  because  they were  a quantifiable,  proactive 
product  containing  information  helpful  to other  carriers  in 
safeguarding  program  funds.2 
Of the  37 carriers  in this study,  19 reported  to us that  they 
II  FF  11211 
had  submitted  at least  one  fraud  alert  to their  HCFA 
regional  office  for consideration.  Our  review  of carrier 
files and  other  information  collected  during  this inspection 
found  that  many  of the  cases  involved  issues and  problems 
that  we felt  should  have  been,  but  were  not,  brought  to the 
4 
attention  of the  regional  HCFA  office  and  other  carriers. 
As with  other  criteria  we evaluated,  more  successful  fraud 
units  also  are  more  prolific  producers  of fraud  alerts.  These  units not  only identify 
internal  weaknesses  but als;  actively  seek  to disseminate  information  about  their 
findings  to HCFA  and  other  carriers. 
We were  told  by a number  of respondents  that  the  current  process  for submitting  and 
getting  a fraud  alert  issued  is so cumbersome  and  lengthy  that  it discouraged  them 
from  initiating  such efforts.  Respondents  indicated  that  a less formal  vehicle  is needed 
so that  carriers  can  communicate  information  quicker  about  problems  they  are 
experiencing. 
2  Our evaluation  of proactive  measures  did not take into consideration  beneficiary, provider  and employee  education 
programs  being conducted  by all carriers.  The HCFA  requires  carriers  to conduct  education  prograrny  therefore,  we 
considered  them  to be the baseline on which proactive  measures  designed  to prevent  fraud  and abuse should  be built. 
8  Surnnuuy  of the Five CMeria Used to iUeasiue Pe&mancc 
The  five outcome  criteria  we used  to compare  carrier  performance  are  summarized  in 
Table  C.  The  table  shows that  some  carrier  program  integrity  efforts  are  consistently 
better  than  their  peers.  More  importantly,  the  table  shows that  only a few carriers 
have  well rounded  and  successful  program  integrity  efforts.  We  compared 
these  carriers  with  others  and  analyzed  information  available  to us in an effort  to 
determine  why their  performance  is better.  Tables  showing  how all of the  carriers  in 
this study  ranked  can be  found  in Appendix  A. 
Table C 
II 
OIG SELECTED  OUKOME  ~  II 
9
 RESOURCES  & ORGANIZATION.  The most effective  program 
integrity efforts  are found  in corporations  that provide  adequate  resources 
and strategic organizational placement. 
Increused Resoumes 
Successful  fraud  units  have  access  to corporate  resources.  These  resources  include  the 
support  of the  highest  levels of management  from  all sectors  of the  carriers  business. 
Corporate  support  enables  successful  units  to obtain  adequate  financial  support  which 
appears  essential  to establishing  a stable  and  effective  program  integrity  effort. 
Adequate  program  integrity  budgets  enable  fraud  and  abuse  managers  to create 
higher  paid  positions  that  help  attract  and  keep  highly motivated  and  qualified  staff in 
the  unit.  As one  of our  survey respondents  commented:  Well-trained  analysts  will be 
less likely to leave  this position  for a better  paying job  if more  attention  is given  to 
maintaining  salaries  at a level equal  to the  importance  of this job.  More  successful 
fraud  and  abuse  units  operate  in an environment  where  each  person  working  in 
program  integrity  can  advance  their  careers  and  salary  potential  without  leaving  the 
unit. 
Effective  fraud  units  occupy  a distinct  and  secure  space  within  carrier  operations  that 
serves,  not  only as a constant  reminder  to all employees  of the  carriers  corporate 
commitment  to fraud  and  abuse,  but  also protects  the  confidentiality  of sensitive  work. 
Clearly  defined,  distinct  and  secure  space  also seines  to differentiate 
postpayrnent/program  integrity  activities  from  front-end,  customer  oriented  claims 
processing  areas. 
Among  the  resources  available  to successful  fraud  units  is state-of-the-art  technology 
that  enables  them  to do their  job  efficiently  and  effectively.  They  have  access  to on-
line  semices,  beepers  and  cellular  telephones.  They  have  their  own facsimile  machines 
and  reproduction  equipment.  Each  fraud  unit  and  program  integrity  employee  has 
their  own personal  computer.  In addition  to personal  computers,  successful  fraud 
units  have  invested  in mainframe  hardware  and  powerful  user-friendly  software  that 
enables  them  to analyze  large  data  sets quickly and  easily.  Coupled  with  on-line 
access  to claims  processing  information  and  their  own historical  claims  processing  data 
on storage  media,  successful  fraud  units  have  the  capacity  to run  their  own data  for 
analysis. 
At some  less successful  carriers,  fraud  unit  staff share  telephones  and/or  personal 
computers.  Some  fraud  units  send  and  receive  sensitive  facsimile  information  and 
reproduce  documents  at a central  mail  room.  Sharing  these  resources  with  other 
carrier  operations  may result  in the  loss of essential  information  or compromise 
evidence  chain  of custody.  Furthermore,  the  ability  to analyze  data  at many  carriers  is 
limited  not  only by the  lack of hardware  and  user-friendly  software,  but  also by the 
lack  of access  to the  raw data. 
10
 Slwt?gikOlganhltbnal  Rlcenlent 
Carrier  operations  can be viewed  as falling into  two distinct  groups:  prepayment  and 
postpayment  operations.  Prepayment  operations  have  a customer  service  orientation 
with functions  geared  to assist patients  and  providers.  Postpayment  operations,  on the 
other  hand,  consist  of investigations,  audits  and  other  program  integrity  initiatives 
designed  to protect  the  Medicare  trust  funds.  Inquiries  and  audits  designed  to ensure 
that  proper  payments  are  made  generally  are  not well received  by providers. 
The  most  successful  fraud  units  operate  in an environment  where  most,  if not  all, 
postpayment  functions  have  been  consolidated  into  the  carriers  overall  program 
integrity  efforts.  The  fraud  unit,  through  the  fraud  unit  manager,  has  the  primary 
responsibility  for overseeing  and  directing  all carrier  postpayment  and  program 
integrity  efforts,  including  all staff responsible  for: 
conducting  routine  or mandated  audits  of providers; 
identifying,  analyzing  and  resolving  systems vulnerabilities  that  enable  providers 
to circumvent  payment  safeguards; 
the  analysis  of claims  data  aimed  at detecting  potentially  aberrant  providers; 
and, 
receiving,  controlling  and  resolving  allegations  of fraud  and  abuse. 
Successful  fraud  units  report  directly  to the  highest  levels  of corporate  management. 
Recognized  experts  in health  care  fraud,  and  many  of the  people  we spoke  to during 
this inspection,  believe  that  this arrangement  provides  for a more  objective  assessment 
of the  needs  and  recommendations  of postpayment/program  integrity.  It recognizes 
the  dichotomy  that  exists between  program  integrity  goals  and  front-end  claims 
processing  goals.  It provides  the  highest  levels of management  with information  that 
can be  used  to improve  day-to-day  operations  from  the  divergently  different 
perspectives  of front-end  operations  and  postpayment  operations. 
More  effective  fraud  units  have  established  a clearinghouse  or other  specialized  unit 
responsible  for controlling  and  for triaging  all postpayment  activity.  Clearinghouses, 
under  the  control  and  guidance  of the  fraud  unit,  determine  whether  referrals  to the 
program  integrity  unit  are  appropriate.  Inappropriate  referrals  are  returned  to the 
originators  for resolution  (i.e., beneficiary/customer  service).  Case  controls  and  files 
are  established  for appropriate  referrals  and  an initial  analysis  is conducted  to 
determine  whether  the  issues involved  are  fraud,  abuse  or both.  Allegations  involving 
only medical  necessity  are  referred  to medical  review  for development.  Allegations 
involving  fraud  and  abuse  are  developed  to determine  whether  or not  the  allegation 
can be  substantiated.  Substantiated  allegations  involving providers  with whom  the 
carrier  has  had  previous  problems  are  referred  to investigators  if they  meet  frequency, 
monetary  and  other  guidelines. 
11  Effective  program  integrity  programs  use  their  fraud  unit  investigators  to develop  or 
direct  the  development  of cases  involving issues  of fraud  or abuse.  Case  development 
conducted  outside  the  fraud  unit  is done  at the  discretion  and  under  the  direction  of 
the  fraud  unit.  Control  over  the  sensitive  information  developed  during  carrier 
investigations,  and  the  proper  conduct  of all carrier  employees  involved  in developing 
such information,  is critical  to prosecution  and  overpayment  recovery.  At  one 
successful  carrier,  employees  outside  the  fraud  unit who  are  asked  to assist in 
evaluating  or developing  a case with potential  for referral  to the  OIG  must  sign a 
statement  that  the  information  they gain will not  be  discussed  or otherwise  divulged  to 
anyone. 
Fraud  units  that  do not  control  case  development  and  the  role  played  by other  carrier 
operating  components  in developing  potential  fraud  and  abuse  cases,  run  a high risk of 
having  these  cases  compromised.  During  our  case  review,  inappropriate  development 
of cases  with potential  prosecutive  merit  occurred  frequently  when  prepayment  and 
claims  processing  components  became  involved  in the  development  of complaints 
alleging  fraud.  Medical  review  units  in particular  appeared  to routinely  make  contact 
with potential  subjects  and  readily  accept  provider  explanations.  Medical  review  units 
often  initiated  recoupment  action  before  the  case was discussed  with,  or declined  by, 
the  OIG.  The  following  case  summary  illustrates  a common  problem: 
This case was assigned to the fraud unit and involved an ophthalmologist 
misrepresenting services and billing for services not rendered  7%ej?aud unit developed 
information on 37 claims and determined a potential  overpayment of $1 ~ 000.00. 
Following internal procedures, the case was sent to medical review for medical necessiq 
development. 
The medical review unit report states that thti ophthalmologzkt has a histo~  of 
miwepresenting services and undocumented services dating back to 1988.  The eract 
number of prior problems  is not stated in the file nor k there any information about any 
prior educational  contacts. 
The medical review unit informed the fraud unit that they should not pursue the 
fraud ikues  because they know the ophthalmologist  and when problems  have suflaced in 
the past  they have always been clerical errorsfor which the provider has always willing~ 
made restitution.  The medical review unit undertook no additional development.  l%e 
OIG was not consulted about potential j?aud issues.  The case was resolved with a request 
for repayment of the overpayment determined by the j?aud unit. 
The  involvement  of medical  review  staff sometimes  changed  the  complexion  of the 
case  from  the  initial  allegations  of fraud  to issues involving medical  necessity. 
Fraudulent  activity was not  addressed,  inadequately  addressed  or subverted  by raising 
immaterial  abuse,  medical  necessity  or overutilization  issues  that  overshadowed  or 
obscured  the  more  serious  fraudulent  activity.  Effective  fraud  units  prevent  this from 
happening  by controlling  and  directing  development  of all cases  alleging  fraud  or 
abuse.  STAFFING.  Successful fraud units have an effeetive  mix of  investigators, 
auditors, statisticians and analysts. 
Successful  fraud  unit  staff bring  diverse  backgrounds  and  skills to the job.  They  have

a good  mix of disciplines.  Successful  fraud  units  and  program  integrity  efforts

integrate  persons  with law enforcement  backgrounds  with personnel  who have

knowledge  of claims  processes  and  policies.  They  also add  analysts,  accountants  and

statisticians  to compliment  their  staff.  No one  discipline  dominates  the  program

integrity  or fraud  unit.  Personnel  recruited  from  carrier  front-end  operations  such  as

claims  processing  are  selected  not  only for their  knowledge  of front-end  operations

and  polices,  but  for their  commitment  to aggressively  combat  fraud  and  abuse.

Program  integrity  units  that  can keep  employees  perform  better  than  units  with

constant  turnover.  Turnovers,  according  to people  we interviewed,  have  severely

hampered  fraud  and  abuse  efforts.  We heard  complaints  about  the  replacement  of

persons  considered  to have  a grasp  of the job  and with good  working  relationships

with OIG  and  other  law enforcement  agencies.  It is alleged  that  some  carriers

perpetually  reorganize  staff, thereby,  never  developing  a cadre  of individuals  proficient

at the job.  At  one  carrier,  five different  people  have  headed  up the  fraud  unit  in the

past  12 months.

Fraud  unit  staffing  turnovers  adversely  affect  the  quality  of case  development.

Carriers  have  been  required  to dedicate  some  staff to combat  fraud  and  abuse

virtually  from  the  inception  of the  Medicare  program  nearly  30 years  ago.  Given  how

long  carriers  have  played  a program  integrity  role  in the  Medicare  program,  the

current  fraud  unit  staff  at many  carriers  appears  to lack investigative  experience.

Our  analysis  indicates  that  half  of the  fraud  unit  staff have  less than  2 years  experience

in the  unit.  A third  of the  staff have  less than  1 years experience  and  nearly  1 in 5

employees  has  less than  6 months  experience.  The  average  fraud  unit  employee  has

been  employed  by the  carrier  for about  9 years.

The  number  of people  working  in the  fraud  units varies  by carrier,  ranging  from  1

employee  to over  50 employees.  Nine  units  have  two or less employees  and  a third  of

the  units  have  five or less employees.  We found  little  or no relationship  between  the

size of the  fraud  unit  and  claims  processed,  dollars  paid  or operating  budget.

The  variance  in fraud  unit  size reflects  a number  of factors  including  the  carriers

organizational  structure  and  the  number  of program  integrity  related  functions  being

carried  out by, or under  the  direction  of, the  fraud  unit.  The  number  of employees

and  the  placement  of postpayment  activities  in the  carriers  organizational  structure

appears  to have  an  effect  on the  quality  of a carriers  program  integrity  efforts.

Successful  prevention,  detection,  deterrence  and  prosecution  efforts  clearly  require

adequate  staff.

13
 Nine  out  of 10 people  working  in the  fraud  units  came  to the  unit  from  the  carriers 
front-end  operations.  At some  less successful  fraud  units,  all of the  employees  come 
from  front-end  operations.  Sixty percent  came  to the  fraud  unit  with  only beneficiary 
service  and/or  provider  relations  experience.  Less  than  a third  of the  fraud  unit 
employees  have  experience  in the  fraud  and  abuse  units predecessor  called  program 
integrity  or in Federal,  State  or local  law enforcement. 
The  inability  of fraud  units  to attract  and  keep  staff may affect  the  quality  of their 
referrals.  We  have  heard  that  positions  in the  fraud  unit  and  other  postpayrnent 
areas  are  among  some  of the  lowest  paying jobs  at some  carriers.  One  carrier 
employee  told  us that  a position  in the  fraud  unit  is a dead  end job.  Another 
remarked  that  you get what  you pay fqr.  And  still another  commented  that  Well-
trained  analysts  will be  less likely to leave  this position  for a better  paying job  if more 
attention  is given  to maintaining  salaries  at a level  equal  to the  importance  of this job. 
More  successful  fraud  units  have  stable  management  and  have  policies  designed  to 
keep  staff long  enough  to become  proficient  at their  job.  One  carrier  requires  new 
fraud  unit  employees  to sign an agreement  that  they will remain  with the  unit  for at 
least  3 years. 
Constant  staff  and  management  turnover  also appears  to hamper  training  initiatives. 
Some  people  responsible  for training  carrier  fraud  unit  managers  and  staff expressed 
frustration  at the  frequency  of staff turnovers.  They  felt  that  the  time  and  effort  they 
had  spent  in preparing  for training  was lost when  staff were  re-assigned  shortly  after 
attending  the  training  course. 
TRAINING.  Successful fraud units provide  their staff with adequate  and 
ongoing  training. 
Our  survey respondents  had,  on average,  9 years  of experience  working  for the  carrier, 
however,  half have  less than  2 years  experience  working  in the  fraud  unit  and  a third 
have  less than  1 years  experience.  Though  knowledgeable  about  Medicare  coverage, 
billing  and  reimbursement  criteria,  and  carrier  operations,  they may lack  training  and 
experience  in investigative  techniques.  Their  short  time  on the job  deprives  them  of 
the  experiences  and  the  insights  investigators  develop  through  years  of working  myriad 
fraud  and  abuse  situations. 
Better  fraud  and  abuse  units  not  only have  more  stable  staff but  better  trained  staff. 
Staff  at better  units  receive  more  training  each  year  than  their  peers  at other  carriers. 
They  often  have  formal  training  plans  that  document  past  training  and  identi@ 
individual  training  needs.  Forty  percent  of our  survey respondents  have  had  less than 
8 hours  of training  since  January  1, 1994.  That  equates  to less than  1 hour  of training 
a month.  Only  1 out  of every  4 persons  working  in the  carrier  fraud  units  has had 
more  than  40 hours  of training  since  Janua~  1994. 
14
 More  than  half  of the  employees  who responded  to our  survey believe  that  their 
training  needs  have  not been  adequately  met.  Two out  of every  3 people  working  in 
the  carrier  fraud  and  abuse  units  have  had  no HCF~  OIG  or other  outside  training 
on fraud  and  abuse  since  HCFA  began  funding  fraud  units  in October  of 1992.  This is 
a marked  difference  from  responses  we received  from  employees  of more  successful 
fraud  units. 
Staff turnover  may  explain  why 25 percent  of the  fraud  unit  employees  have  had  no 
training.  Staff  at better  units  receive  training  from  internal  and  external  sources  while, 
at least  2 out  of 3 employees  at other  units  have  no training  from  outside  sources. 
Our  sumey  responses  indicate  that  75 percent  did receive  in-house  training.  At  some 
carriers  this training  is conducted  by medical  review,  provider  relations  and  other 
operating  component  staff. 
Better  performing  fraud  units  ensure  that  all of their  employees  receive  direct  training 
from  inside  and  outside  sources.  Staff  are  required  to participate  in a fixed number  of 
hours  of training  each  year.  Whenever  possible  staff are  sent  to outside  training  and 
conferences  designed  to provide  information  on how others  have:  prevented  abuse  of 
their  systems,  educated  providers,  detected  fraudulent  and  abusive  providers  within 
their  system,  and  successfully  prosecuted  providers.  Better  fraud  units  encourage 
hands  on experience,  conference  attendance,  peer  training  and  participation  in 
meetings  with  OIG  investigators  and  other  law enforcement  personnel. 
Analysis  of survey  responses  shows that  half of the  people  currently  working  in the 
fraud  units  expressed  no interest  in training  related  to skills needed  to combat  fraud 
and  abuse.  Of the  half who  did express  an interest  in training  related  to fraud  and 
abuse  skills, they  indicated  a desire  for training  in the  following  areas:  (1) 
investigative  knowledge  and  techniques  (i.e., rules  of criminal  evidence,  analysis 
techniques),  (2) interviewing  techniques,  and,  (3) State  and  Federal  laws and 
regulations  (i.e., the  Stark  bills and  Safe Harbor  regulations  involving joint  ventures). 
About  10 percent  of our  survey respondents  indicated  they had  not  received  training 
and  that  they  had  no desire  to take  such training. 
15
 RECOMMENDATIONS

Efforts  by the  OIG  and  HCFA  to identi&  and  combat  Medicare  and  Medicaid  fraud 
and  abuse  have  intensified  over  the  past  several  years.  As part  of these  efforts,  the 
Department  is piloting  a demonstration  program  entitled  Operation  Restore  Trust 
(ORT).  Under  ORT  the  OIG,  in partnership  with HCF&  emphasizes  interdisciplinary 
teamwork  with  other  State  and  Federal  agencies  as an important  component  for 
enhancing  fraud  and  abuse  activities. 
Concerns  regarding  the  effectiveness  of Medicare  carrier  fraud  units  are  similar  to 
those  discussed  in our  report  entitled  Szuveillance und  ZX&ation  Review Suhystemr 
Case Refemdh w iUidicakl  Freud Control Uni@ OEI-07-954XW30.  As a result,  we 
believe  that  a concerted  effort  addressing  both  Medicare  and  Medicaid  fraud  units  is 
called  for.  We  are  proposing  a uniform  team  approach.  We recommend  that  HCF~ 
in consultation  with the  Office  of Inspector  General  should: 
Convene  a Medicare  and  Medicaid  fraud  and  abuse  task  force  to plan  and  implement 
improvements  in fraud  unit  operations.  This would  include: 
Clari&ing  goals  and  objectives  for program  integrity  efforts. 
Establishing  guidelines  for developing  suspected  fraud  cases. 
Developing  a universal  protocol  for appropriately  referring  fraud  and  abuse 
cases. 
Coordinating  data  systems  to ensure  that  data  are  reliable  and  consistent  across 
all entities  in the  fraud  and  abuse  fighting  network. 
Developing  a training  program  designed  to educate  program  integrity  personnel 
on procedures,  case  referrals  and  best  practices. 
Continue  to provide  support  and  technical  assistance  to carriers  so they  can  emdate 
those  carriers  operating  successful  programs.  This  can  include: 
 Encouraging  carrier  commitments  that  result  in increased  resources  to combat 
fraud  and  abuse  such as investments  in technology  and  people. 
Provide  sufficient  resources  to support  program  integrity  efforts  including 
secured  space,  facsimile  and  photocopy  equipment,  computer  hardware 
and  software  and  other  technologies. 
Pay persons  working  in program  integrity  salaries  comparable  to those  in 
other  areas  of carrier  operations. 
16
 Suggesting  ways of organizing  a successful  program  integrity  effort. 
Develop  an independent  program  integrity  organization  within  their 
operations  that  reports  directly  to a sufficiently  high level  of corporate 
management. 
Consolidate  all postpayment  functions  under  the  control  of the  fraud 
unit  manager. 
Triage  all allegations  of fraud  and  abuse  through  a centralized 
clearinghouse,  properly  trained  to identi~  fraud  and  abuse  and  under 
the  control  of the  fraud  unit. 
Limiting  the  role  of medical  review  units  in program  integrity  to those  cases 
involving  issues  of abuse,  policy, coverage  and  medical  necessity. 
Medical  review  units  should  not  be involved  in cases  alleging  fraud 
unless  they  are  requested  to assist in the  development  of a fraud  case by 
the  fraud  unit.  In no fraud  case  should  the  medical  review  unit  be 
responsible  for settling  or determining  the  closing action. 
Rewarding  carriers  for identi&ing  policy, procedure  and  systems vulnerabilities 
and  implementing  corrective  safeguards. 
Separating  the  budget  for postpayment  activity from  the  budget  for claims 
processing  and  other  front-end  operations  such  as provider  enrollment  and 
provider  relations. 
17
 AGENCY COMMENTS

We  appreciate  all the  positive  steps  that  HCFA  has taken  thus  far to safeguard  the 
Medicare  program  and  we recognize  the  accomplishments  of the  Program  Integrity 
Group.  We  are  pleased  that  HCFA  has  concurred  with our  recommendations  and we 
look  forward  to working  with HCFA  in their  implementation. 
We believe  that  the  best  approach  would be  a collaborative  one  involving HCFA  and 
OIG,  with  consultation  from  high performing  State  Surveillance  and  Utilization  Review 
Subsystem  Units  (S/URS)  and  carriers,  to improve  program  integrity  activities  at the 
carrier  and  State  level.  We  suggest  that  this effort  focus  on: 
.	 Developing  and  implementing  model  practices  to help  carriers  and  S/URS 
decide  which  cases  should  be  developed  for medical  review  and  overpayment 
recovery  or for referral  for fraud.  In addition,  existing protocols  should  be 
implemented  for referral  of fraud  cases  to appropriate  investigative  entities  (the 
OIG  for Medicare  cases  and  Medicaid  Fraud  Control  Units  for Medicaid 
cases).  We believe  that  together  we can increase  overpayment  recovery 
amounts  and  increase  the  number  of successful  prosecutions  by law 
enforcement  agencies. 
.	 Revising  current  contractor  performance  measures  that  reward  carriers  for 
overpayment  recovery  but  not  for fraud  and  abuse  referrals  or efforts  to 
improve  claims  processing  safeguards. 
	 Identifying  the  most  effective  practices  which carrier  and  State  personnel  use to 
eliminate  claims  processing  vulnerabilities  that  enable  providers  to defraud 
health  programs. 
We believe  that  achieving  the  goals both  HCFA  and  the  OIG  have  established  for 
improving  program  integrity  functions  at the  carriers  and  in the  States  can best  be 
accomplished  by these  kinds  of collaborative  efforts.  We look  forward  to working  with 
HCFA  to bring  about  further  measurable  change. 
The  full text  of HCFAS comments  is contained  in Appendix  B. 
18
 APPENDIX  A 
Tables 
COmparing  Carriers 
A-1  A-2  I  I 
Ilcarrierl  somdilnes  Never 
A-3  A-4  A-5  L  I  4 
A  I  2 
D  I  2 
G  I  1 
v  I  1 
Q  I  1 
Wrierfmldunitsinitiatedl mextemal  Umacbv e siikmlardlL 
A-6  APPENDIX  B 
Health  Care  Financing  Administration 
Response  to Report 
B-1  ,
.
> 
,*5E*.mr,,, 
/+~
DEPARTMENT  OF  HEALTH  & HUMAN  SERVICES Health  Care  Flnancrng  Admlnlstratlon 
+>\
-%.,,a~% 
The  Admln@rator 
Washington,  D.C.  2(J20] 
DATE: 
SEP 26 1996

TO;  June  Gibbs  Brown 
Inspector  General 
FROM:  Bruce  C. Vladec 
Administrator 
e 
SUBJECT:  OffIce  of  Inspector  General  (OIG)  Drafi Report:  Carrier  Fraud  Units 
(OEI-05-94-O0470) 
We reviewed  the above-referenced  repo~  concerning  Medicare/Medicaid  losses  due to 
fraud  and abuse.  The report  identifies  specific  factors  which  contribute  to and work 
against  successfid  program  integrity  operations. 
Our detailed  comments  are attached  for your  consideration.  Thank  you for the

opportunity  to review  and cornrnent  on this report.  Please  contact  us if you would  like to

discuss  our comments.

Attachment

B-2
 A) Ccm.un@s  on 
. cc  >> 
e of Qector  G4  (01  cd. d Uni@_
---
f?~l  0594  00470) 
HCFA  should  convene  a Medicare  and Medicaid  fraud  and abuse  task force  to pkm  and 
implement  improvements  in fi-aud unit  operations.  This would  include:  -
0  Clar@-ing  goals  and objectives  for program  integrity  efforts. 
o  Establishing  guidelines  for developing  suspected  fraud  cases. 
o  Developing  a universal  protocol  for appropriately  referring  fraud  and abuse  cases. 
o	 Coordinating  data  systems  to ens&e  that data are reliable  and consistent  across  all 
entities  in the fraud  and abuse  fighting  network. 
o	 Developing  a training  program  designed  to educate  program  integrity  personnel  on 
procedures,  case referrals  and best practices. 
We concur.  HCFA  established  the Program  Integrity  Group  (PIG) to address  fraud  and

abuse  issues  within  the Medicaid/Medicare  programs.  The goals  of this group  are

consistent  with  the report  recommendations.  The groups  overall  responsibilities  include

completing  and monitoring  the activities  of short and long term projects,  such as,

changing  the conditions  of participation  for home health  agencies,  developing  a strategic

plan with  our law enforcement  partners,  clari&i.ng  program  integrity  language  contracts,

and determiningg how to better  use data to reduce  waste,  iiau~  and abuse.  In additioq

HCFA  is working  to address  issues  common  to both programs.  For example,  Medicaid

Surveillance  and Utilization  Review  Subsystems  Units  are (or are planned  to be) users  of

the recently  developed  Fraud  Investigation  database.  The  database  ensures  that

information  on cases  developed  by Medicare  carriers  is shared  across  a number  of

program  and law enforcement  organizations.  Inputting  fraud  cases  developed  by the

Medicaid  program  would  allow  tracking  both  Medicare/Medicaid  fraud  cases  on the  same

system.  The  OIG  suggests  that there  is a need  to develop  standard  guidelines  for the

development  and refemal  of fraud  cases;  however,  the OIG has already  developed  such

guidelines.  HCFA  has provided  these  guidelines  for case development  and referral  to the

B-3
 Page  2 
carrier  fraud  units  and contractors.  We encourage  the use of these  OIG guidelines  by the 
states. 
OIG  Recommendation 
HCFA  should  continue  to provide  support  and technical  assistance  to carri-ers so they  can 
emulate  those  carriers  operating  successful  programs.  This  can include: 
o	 Encouraging  carrier  commitments  that result  in increased  resources  to combat 
fraud  and abuse  such  as investments  in technology  and people. 
o  Suggesting  ways  of organizing  a successful  program  integrity  effort. 
o	 Limiting  the role  of medical  revidw  units  in program  integrity  to those  cases 
involving  issues  of abuse,  policy,  coverage,  and medical  necessity. 
o	 Rewarding  carriers  for identi&ing  policy,  procedure  and systems  Vulnerabilities 
and implementing  corrective  safeguards. 
o	 Separating  the budget  for postpayment  activity  from the budget  for claims 
processing  and other  front-end  operations  such as provider  enrollment  and 
provider  relations. 
HCFA  Response

We  concur.  HCFA  actively  encourages  carriers  with  effective  fraud  units  to operate  and

share  best  practices  with  other  carrier  fraud  units  and will  continue  to do so.

Additionally,  each region  has a Medicare  Fraud  Information  Coordinator  to coordinate

information  about  fraud  cases,  alerts,  etc.,  to ensure  the sharing  of information  between

regional  office,  central  office,  and other  interested  parties.  Further,  the OIG suggests  that

the budgets  for program  safeguard  activities  be separated  fkom that  of other  contractor

activities.  This modification  is a feature  of pending  legislation  and HCFA  supports  it.

This  legislatio~  if enacte~  woul~  over the next  several  years,  signiilcantly  increase  the

resources  devoted  to these  activities.

B-4
 Page  3 
Technical  Comments 
o	 On page  8, the report  states  that  a number  of respondents  complained  that the  current 
process  for submitting  and getting  a fraud  alert issued  is so cumbersome  and lengthy 
that  it discourages  them  from initiating  such efforts.  The report  indicated  that  a less 
formal  vehicle  is needed  to allow  them  to communicate  information  quicker  about 
problems  they  are experiencing.  Formal  procedures  are also important  to ensure  that 
alerts  are not disseminated  to inappropriate  parties  or that inaccurate  or misleading 
information  is not distribute~  making  later prosecution  efforts  difficult  or impossible. 
HCFA  already  has a less formal  procedure  in place  to allow  carriers  and 
intermediaries  to quickly  communicate  information  about  potentkd  fraud  and abuse 
situations.  In April  of  1995, we implemented  a process  which  allows  carriers  and 
intermediaries  to prepare  Significant  Investigation  Reports  which  are forwarded  to 
HCFA  Regional  Offices  for immediate  distribution  to all carriers  and intermediaries 
and other  appropriate  parties. 
o	 On page  10, the report  states  that effective  fraud units  occupy  a distinct  and  secure 
space  within  carrier  operations  and notes  the importance  of protecting  the 
confidentiality  of sensitive  work.  This is a ve~  important  element  of fraud  unit 
operations  an~  for this reaso~  we included  specific  security  procedures  in the most 
recent  revisions  to the fraud  sections  of the carrier  and intermed.ky  manuals.  These 
are identified  in section  14032 of the Medicare  Carriers  Manual  (MCM)  and include 
sections  related  to the privacy  of fraud  operations,  appropriate  handling  of sensitive 
informatio~  and other  security  guidelines  that carriers  are expected  to follow  to the 
greatest  degree  possible. 
o	 On page  12, the report  points  out the importance  of maintaining  control  over sensitive 
information.  It notes  that  one successfi.d carrier  utilizes  employees  outside  the fraud 
unit to assist  in fraud  development  and requires  these  employees  to sign a statement 
that the information  they  gain will not be discussed  or otherwise  divulged  to anyone. 
Ag@  we fhlly  support  this type  of requirement  and have  included  instructions  to 
address  this  in our contractor  manuals.  Specifically,  section  14032 E of the MCM 
states  that  persons  hired  to work in the fraud unit  should  be required  to fill out a 
conflict  of interest  declaration  as well as a conildentiality  statement. 
B-5