20th A Y
   
NNIVERSAR
 
Office of
   
Inspector General
   
Semiannual Report
   
April 1, 1996 - September 30,1996
         
June Gibbs Brown
     
Inspector General
      THE SECRETARY OF HEALTH AND HUMAN SERVICES 
WASHINGTON, D.C. 20201 
 
A MESSAGE FROM THE SECRETARY 
Fiscal Year 1996 was one of the most challenging periods in the history of the Department 
of Health and Human Services (HHS). The uncertainty of resource levels and the 
significant disruptions hampered our ability to meet out obligations to the public. 
Nevertheless, we pulled together and strove to carry out our mission. One of the partners in 
that team effort was the HHS Office of Inspector General (OIG). 
As the Government works to balance the Federal budget, it is critical that every Federal 
dollar spent on HHS programs goes to meet the needs of the beneficiaries we serve. In that 
regard, we are committed to doing all we can to eliminate fraud, waste and abuse in 
departmental programs and operations. I am again gratified at the significant contributions 
made by OIG toward that end, working in cooperation with our Operating Division. 
The OIGs accomplishments and history of facilitating savings to the Federal Government 
underscore its record as a solid investment for the American taxpayer. I am pleased to note 
that passage of the Health Insurance Portability and Accountability Act of 1996 will allow 
OIG to expand its presence and extend its efforts to safeguard the health and welfare of 
HHS program beneficiaries. 
I continue to be impressed by the level of commitment and proficiency exhibited by the 
Inspector General and her staff. Together we are making a positive difference in the lives 
of all Americans. 
Donna E. Shalala  FOREWORD

In presenting this semiannual report on the accomplishments of the Department of Health 
and Human Services (HHS) Office of Inspector General (OIG) for the 6-month perio d 
ending September 30, 1996, I am pleased to note that this date marks our 20-yea r 
anniversary. Created by Public Law 94-505 u nder what was then the Department of Health, 
Education and Welfare, this was the first statutory civilian Inspector General (IG) to b e 
established in the Federal Government. 
Over the years, HHS OIG has come to be regarde d by decision-makers as a valuable source 
of independent, objective, timely and relevant information and products. While it became 
increasingly difficult in recent years to keep pace with our growing responsibilities, many 
mandated by statute, OIG worked to mainta in productivity by streamlining its organization, 
refining its operations and targeting the most significant programs and issues within th e 
Department. 
Since beginning my tenure as the Depar tments third Inspector General in November 1993, 
I have aggressively sought new and innovative ways to maximize our impact. In these few 
years, we have forged new and stronger links amongst ourselves and with others in th e 
Federal  and  State  communities  who  are  working  toward  similar  goals.  These 
multidisciplinary approaches have greatly enhanced our ability to carry out OIGs mission 
of protecting the health and welfare of the Departments benef iciaries and its vital resources. 
Among these initiatives are: the establishment of the Executive Level Health Care Frau d 
Policy Group, through which we and the Department of Jus tice (DOJ) have jointly managed 
development of our investigative cases; our partnership with State auditors and evaluators, 
as well as the Health Care Financing Administration, to identify opportunities for curbing 
Medicaid costs and produce savings at both the Federal and State levels; and Operatio n 
Restore Trust, a highly targeted and proactive campaign against fraud in the health car e 
industry, which is paying handsome dividends for  the Departments beneficiaries and the 
American taxpayer. 
Although the continuing resolutions and furloughs caused serious disruption to OIG s 
operations in Fiscal Year (FY) 1996,  we are very proud of our achievements during thi s 
time.  Some of our most significant accomplishments during the 6-mo nth period are outlined 
in the Highlights section of this semiannual report.  Moreover, we are greatly encouraged that coming years wi ll allow us to extend our reach. 
The recently enacted Health Insurance Portability and Accountability Act of 199 6 
constitutes a major step forward in the effort to eliminate health care fraud and abuse , 
providing a multi-year source of funding for the coordinated antifraud activities of HHS 
OIG and DOJ. 
With the skill and dedication of OIGs staff and the willingness of our partners in th e 
Department and elsewhere to work with us in accomplishing ou r mutual objectives, I look 
confidently to the future. 
June Gibbs Brown 
Inspector General  HIGHLIGHTS

Introduction 
The Office of Inspector General (OIG) at the Department of Health and Human Services 
(HHS) is proud of its achievements during this difficult period.  Moreover, OIG is greatly 
pleased that the more stable funding ensured under the recently enacted Health Insurance 
Portability and Accountability Act of 1996 (Public Law 104-191) recognizes OIGs past 
accomplishments and provides OIG the means to continue to build upon its successes. 
Many of those successes have resulted from the innovative approaches employed by OIG in 
order to extend its reach at a time of fiscal constraint.  To respond most effectively to the 
growing problems of fraud and abuse in the Departments programs, OIG has heightened its 
emphasis  on  interdisciplinary  teamwork  within  its  own  organization  and  on  greater 
collaboration and sharing of resources in its relationships with other Federal and State 
agencies.  The synergistic effect of these partnerships has greatly enhanced OIGs ability to 
protect  the  Federal  dollars  allotted to HHS  programs.   The beneficial effects of these 
innovations are demonstrated in some of OIGs most significant accomplishments for this 
semiannual period. 
Federal/State Partnership:  Medicaid Program 
Continuing its 2 year old partnership with State auditors in reviewing the Medicaid program, 
OIG issued reports on the drug rebate program in Montana and Washington during this 
semiannual period.  To date, active partnerships have been developed with 15 State auditors, 
11  State  Medicaid  agencies  and  2  State  internal  audit  groups.  Twenty  State  auditor 
partnership reports have been issued with financial impact of over $100 million affecting 
both Federal and State Government funds.  (See page 29) 
Operation Restore Trust 
Using the expanded team concept, OIG has been working jointly with the Health Care 
Financing Administration (HCFA) and the Administration on Aging (AoA) on Operation 
Restore Trust, a 2-year project targeting fraud and abuse in three high-growth areas of the 
health care industry:  home health agencies, nursing homes and durable medical equipment 
(DME)  suppliers.   As  the  projects  coordinator,  OIG  assembled  teams  that  include 
investigators from its Office of Investigations and the States Medicaid Fraud Control Units; 
auditors and evaluators from OIG and HCFA; quality assurance specialists from the State 
surveyors and DME regional coordinators; State long-term care ombudsmen through AoA; 
and prosecutors from the Department of Justice and the State Attorneys General. 
Now in its second year, this cooperative venture has yielded remarkable results.  Operation 
Restore Trust is discussed in detail in Chapter I of the semiannual report.  Within the text of 
i  the report, summaries of audits, evaluations and investigations related to Operation Restore 
Trust which were finalized during this 6-month period are labeled with the symbol 
for ready identification. The labeled summaries are listed in Appendix G. 
Nursing Homes 
As  part  of  its  focus  under  Operation  Restore  Trust,  OIG  released  several  reports  that 
highlighted the wide variety of Medicare abuse in the areas of enteral nutrition, durable 
medical  equipment  and  mental  health  services  in  nursing  homes.   In  this  series  of 
evaluations, OIG determined that the Medicare Part B reimbursement program in nursing 
homes is particularly vulnerable to  fraud, waste and abuse because payment rules and 
safeguards largely ignore the special character of the nursing home environment and the 
varied services and supplies which can be provided. 
One study concluded that what Medicare pays for enteral nutrients far exceeds the price 
commonly  available  through  volume  purchasing  and  recommended  reducing  the 
reimbursement rate to stem unnecessary expenses.  Another study found that Medicare paid 
for medically unnecessary psychiatric services in 32 percent of the records reviewed -- a 
projected $17 million in unnecessary expenses.  The Health Care Financing Administration 
initiated action to implement OIGs recommendations in these areas. (See page 20) 
Home Health Care 
Also under the Operation Restore Trust initiative, OIG issued three reports during the period 
identifying $3.7 million in unallowable costs claimed for home health care.  Unallowable 
costs included reimbursements for services that did not meet Medicare guidelines, services 
deemed not reasonable or necessary, and services not authorized by a physician as well as 
reimbursement for services not performed.  These reviews pointed up the need for HCFA to 
monitor  fiscal  intermediaries  and  home  health  agencies  for  compliance  with  Medicare 
regulations and HCFA guidelines. (See page 18) 
Durable Medical Equipment 
As an industry which has suffered waves of fraudulent Medicare and Medicaid schemes, 
DME was selected as one of the focus areas for Operation Restore Trust.  During this 
reporting  period,  the  most  common  DME  fraud  cases  concluded  involved  physicians 
signing certificates of medical necessity for patients not seen, or the forging of physician 
signatures, and overbilling or billing for equipment not provided.  (See page 24) 
Some  durable  medical  equipment  is  used  to  deliver  prescription  drugs,  including  an 
inhalation therapy drug called albuterol sulfate.  The OIG found that Medicare allowances 
for this drug substantially exceeded suppliers actual acquisition costs.  As a result, HCFA is 
exploring  new  strategies  to  improve  drug  reimbursement  and  take  advantage  of  some 
cost-cutting techniques.  (See page 26) 
ii  Head Start Grantees 
At the request of the Administration for Children and Families (ACF), OIG is providing 
contracted audit services under a cost competitive procurement mechanism developed with 
the Assistant Secretary for Management and Budget.  The purpose of the audits is to assist 
ACF  in  its  efforts  to  strengthen  the  financial  management  and  program  compliance 
capabilities of Head Start grantees to ensure the fiscal integrity of the Head Start program 
and proper stewardship over Federal funds. 
Reports on three of the five audits contracted for under this agreement were issued during 
this semiannual period.  These reviews found deficiencies and violations of procurement 
standards, bidding processes, prior approval requirements, budget provisions, grant award 
proposals, and other fiscal and programmatic requirements.  Total questioned costs exceeded 
$1.1  million.  The  ACF  expressed  its  intention  to  act  immediately  on  these  findings, 
including suspending or terminating grantees. (See page 43) 
OIG Work in Performance Measurement 
In order to identify work done in the area of performance measurement, OIG has labeled 
some  items  throughout  this  report  as  performance  measures  with  the  symbol 
. Performance measures are used to evaluate the achievement of a program 
goal, such as the efficiency of an immunization program which is measured by the number 
of inoculations provided per dollar of cost.  In OIGs opinion, the audits, inspections and 
investigations  identified  with  the  performance  measure  symbol  offer  management 
information about whether some aspect or all of the programs or activities reviewed are 
achieving their missions and goals.  These proposals are provided to management for their 
consideration as they develop their performance measures. (See Appendix F) 
Statistical Accomplishments 
Among its accomplishments, OIG takes pride in its role in generating savings for the Federal 
Government through its recommendations to put funds to better use; the disallowance of 
costs questioned because of a violation of law, regulation or grant; and the fines, restitutions, 
settlements and recoveries which accrue from judicial and administrative processes that 
result from OIG investigations. 
However, OIG is but one partner in the process.  It is through the cooperation and support of 
departmental managers and the Congress that OIGs recommendations are translated into 
action. In the 20-year period since OIGs inception, this fruitful collaboration has resulted in 
savings of more than $80 billion to the Federal Government.  Moreover, as detailed in its 
Cost Saver Handbook (the Red Book), OIG has identified billions of dollars in potential 
savings  through  analyses  and  recommendations  which  can  be  considered  for 
implementation. 
Due, in part, to the serious disruptions caused by the many continuing resolutions and 
furloughs of this fiscal year, as well as the separation of the Social Security Administration 
iii  and  the consequent  transfer  of  many  HHS  OIG  employees  to  the new  agency,  OIGs 
statistical accomplishments are well below the Fiscal Year (FY) 1995 levels.  Nevertheless, 
savings are significant.  The OIG reported savings of $4.7 billion for FY 1996, comprised of 
$4,184.9 million in implemented recommendations to put funds to better use, $274.6 million 
in disallowances from questioned costs and $237.4 million in investigative receivables. (See 
Appendix  A,  and  the  sections  entitled  "Resolving  Office  of  Inspector  General 
Recommendations, A. Questioned Costs" and "Investigative Prosecutions and Receivables" 
in the General Oversight chapters of OIGs FY 1996 semiannual reports for details.) 
During this fiscal year, OIG also reported 151 convictions of individuals or entities that 
engaged in crimes against departmental programs and 1,937 administrative sanctions against 
health care providers and suppliers or their employees that engaged in fraud or abuse of the 
Medicare and Medicaid programs and/or their beneficiaries. 
As noted above, OIG is confident that future funding levels will heighten its ability to 
vigorously pursue its mission of protecting the integrity of HHS programs and operations 
and the health and welfare of those programs beneficiaries. 
Internet Address 
This semiannual report and other OIG materials may be accessed 
on the Internet at the following address: 
http://www.sbaonline.sba.gov/ignet/internal/hhs/hhs.html 
iv  Table of Contents

Page 
Chapter I  OPERATION RESTORE TRUST  . . . . . . . . . . . . . . . . . . . . . . . .1

Chapter II  HEALTH CARE FINANCING ADMINISTRATION 
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . . .3

Health Maintenance Organization Customer Satisfaction Surveys . . . . . . . . . . . . . . . . . .4

Health Care Financing Administrations Combined Financial Statements . . . . . . . . . . . .4

MajorHospital Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

A.  Physicians atTeaching Hospitals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

B.  Diagnosis Related Group 72 HourWindow Project . . . . . . . . . . . . . . . . . . . . . .6

C.  Ohio Outpatient Laboratory Unbundling Project  . . . . . . . . . . . . . . . . . . . . . . . .6

RuralHealth Clinics: Growth,Access and Payment  . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Hospice Eligibility  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

A.  Puerto Rico  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

B.  Florida  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Medicare Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

A.  Parts Aand B: Blue Cross and Blue Shield ofMichigan . . . . . . . . . . . . . . . . . .9

B.	 Parts A and B and Railroad Retirement Board Provisions of the

Medicare Program: TravelersInsurance Company  . . . . . . . . . . . . . . . . . . . . . .9

C.  Associated Insurance Companies,Inc.  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Fraud and Abuse Sanctions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

A.  Program Exclusions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

B.  Civil Penalties forFalse Claims  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

C.  Compliance Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
 Medicare Providersand Electronic Claims Processing  . . . . . . . . . . . . . . . . . . . . . . . . .14

Encouraging Physicians to Use Paperless Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Criminal Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Kickbacks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Home Health Care Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

A.  Florida -Miami Lakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

B.  Florida -Miami . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

C.  Florida -Dade County . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Home Health Agency Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Medicare Part BServices in Nursing Homes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

A.  Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

B.  Enteral Nutrient Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

C.  Durable Medical Equipment Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

D.  Mental Health Servicesin Nursing Facilities  . . . . . . . . . . . . . . . . . . . . . . . . . .21

Nursing Home Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Payments for Enteral Nutrition: Medicare and Other Payers  . . . . . . . . . . . . . . . . . . . . .23

Fraud Involving Durable Medical Equipment Suppliers  . . . . . . . . . . . . . . . . . . . . . . . .24

Appropriateness of Medicare Prescription Drug Allowances . . . . . . . . . . . . . . . . . . . . .26

Medicare PaymentsforAlbuterolSulfate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Pharmacy Acquisition Costs for Drugs Reimbursed under Medicaid  . . . . . . . . . . . . . .27

A.  California  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

B.  Montana  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

C.  Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

D.  North Carolina  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Medicaid Reimbursement for Clinical Laboratory Services . . . . . . . . . . . . . . . . . . . . . .28

Federal and State Partnership:Joint AuditsofMedicaid  . . . . . . . . . . . . . . . . . . . . . . . .29

A.  Washington: Medicaid Drug Rebate Program . . . . . . . . . . . . . . . . . . . . . . . . .29
 B.  Montana: Medicaid Drug Rebate Program  . . . . . . . . . . . . . . . . . . . . . . . . . . .29

C.  Montana: Durable Medical Equipment  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Childrens Dental Services under Medicaid: Access and Utilization  . . . . . . . . . . . . . . .30

Medicaid Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Chapter III  PUBLIC HEALTH SERVICE OPERATING DIVISIONS 
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . .33

Postmarketing Studies ofPrescription Drugs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Processes to Review Medical Devices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34

Food and Drug Administrations Urgent Notices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Processing of 17 Error and Accident Reports Involving Blood  . . . . . . . . . . . . . . . . . . .35

Educational Resource Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Administration of Flood Grants for the Midwestern Flood of 1993 . . . . . . . . . . . . . . . .37

Providing Medical Malpractice Coverage to Community and Migrant

Health Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Access toCommunityHealthCenters by HomelessPersons . . . . . . . . . . . . . . . . . . . . .37

Exclusions for Health Education Assistance Loan Defaults . . . . . . . . . . . . . . . . . . . . . .38

Tribal Contracting forIndian Health Services  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Public Health Services Service and Supply Fund: Fiscal Year 1995 . . . . . . . . . . . . . . .39

Chapter IV  ADMINISTRATION FOR CHILDREN AND 
FAMILIES, AND ADMINISTRATION ON AGING 
Overview of Program Areas and Office of Inspector General Activities  . . . . . . . . . . . .41

Fingerprinting Demonstration Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42

Privatization of Floridas Overpayment Recovery Function . . . . . . . . . . . . . . . . . . . . . .42

Facility Purchases by the Head Start Program  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

Head StartGrantees  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

A.  Oakland,California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

B.  Levelland,Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
 C.  Victoria,Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Child SupportEnforcement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

Interstate Compact on Adoption and Medical Assistance . . . . . . . . . . . . . . . . . . . . . . . .45

Title IV-EFosterCareReimbursement Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

Grantee Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

CostSharing underthe OlderAmericansAct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

Chapter V  GENERAL OVERSIGHT 
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

A.  Office ofInspectorGenerals Proactive Role  . . . . . . . . . . . . . . . . . . . . . . . . . .48

B.  Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

Resolving Office of Inspector General Recommendations . . . . . . . . . . . . . . . . . . . . . . .50

A.  Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

B.  Funds Putto BetterUse  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51

Legislative and Regulatory Review and Regulatory Development  . . . . . . . . . . . . . . . .52

A.  Review Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52

B.  Legislative and Regulatory Development Functions  . . . . . . . . . . . . . . . . . . . .52

C.  Congressional Testimony and Hearings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52

StatesAllocationsofTraining Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

Employee Fraud and Misconduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

Investigative Prosecutions and Receivables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

Program Fraud Civil RemediesAct  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

APPENDIX A -Implemented Office of Inspector General 
Recommendations to Put Funds to Better Use 
April1996 throughSeptember1996 . . . . . . . . . . . . . . . . . . . . . . A-1 
APPENDIX B -Unimplemented Office of Inspector General

RecommendationstoPutFunds toBetter Use . . . . . . . . . . . . . . .B-1
 APPENDIX C -Unimplemented Office of Inspector General

Program and Management Improvement

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1

APPENDIX D -Notes to Tables Iand II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1

APPENDIX E -Reporting Requirements of the

InspectorGeneral Actof1978,asAmended . . . . . . . . . . . . . . . . .E-1

APPENDIX F-Performance Measures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1

APPENDIX G -Audits, Inspections and Investigations Related

toOperationRestore Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
 Operation 
Restore 
Trust  Chapter I 
OPERATION RESTORE TRUST 
Operation Restore Trust targets fraud, waste and abuse in home health 
agencies, nursing homes and durable medical equipment suppliers in five 
States:  New York, Florida, Illinois, Texas and California. 
Initiated by the Office of Inspector General (OIG) in March 1995, and publicly announced 
by the President on May 3, 1995, Operation Restore Trust is an ambitious interdisciplinary 
project in which Federal and State agencies join to fight fraud, waste and abuse in home 
health agencies, nursing homes, and the medical equipment and supply industry.  The 2-year 
project is an expansion of the team concept OIG has found fruitful over the years, based on 
collaboration and sharing of resources among multiple law enforcement agencies. It initially 
has targeted five States which account for 40 percent of the Nations Medicare and Medicaid 
beneficiaries:  New York, Florida, Illinois, Texas and California.  Funds available under the 
demonstration authority of Operation Restore Trust support only Operation Restore Trust 
projects during the 2-year demonstration period. 
As the projects coordinator, OIG assembled teams that include investigators from its Office 
of Investigations and the States Medicaid Fraud Control Units; auditors and evaluators from 
both  OIG  and  the  Health  Care  Financing  Administration  (HCFA);  quality  assurance 
specialists from the State surveyors and durable medical equipment regional coordinators; 
State long-term care ombudsmen through the Administration on Aging; and prosecutors 
from the Department of Justice and the State Attorneys General.  These teams have been 
conducting financial audits of providers, criminal investigations and referrals to Federal and 
State prosecutors, civil and administrative sanctions and recovery actions, and surveys and 
inspections of nursing facilities.  The collective experience of these teams also is used to 
recommend to HCFA and the Congress program adjustments to prevent future fraud and to 
reduce waste and abuse. 
The OIG also enlisted the support and participation of the public and the industries that the 
initiative targets.  A hotline (1-800-HHS-TIPS) was established to receive allegations of 
fraud and abuse on a confidential basis.  To further educate the public and health care 
providers, OIG will continue its practice of issuing special fraud alerts to identify and 
describe fraudulent and abusive health care practices.  Moreover, a voluntary disclosure 
1  program was initiated on a pilot basis under the auspices of Operation Restore Trust. 
Through this pilot program, OIG and the Department of Justice established procedures by 
which home health and nursing home suppliers and providers in the five States may come 
forward with full disclosure of potential fraud and abuse.  By doing so, self-disclosing 
providers may minimize the cost and disruption of an investigation, negotiate a monetary 
settlement in lieu of prosecution, and possibly avoid exclusion from Medicare and Medicaid 
program  participation  when  appropriate.   The  disclosure  program  also  benefits  the 
Government by exposing schemes that might otherwise go undetected, and expediting the 
investigation and resolution of program abuses. 
All OIG ongoing and new investigations, audits and inspections related to fraud and abuse 
in the targeted areas of the five States were gathered into the project, that they might benefit 
from its focused attention, expertise and energies. At the present time, there are 270 pending 
cases.  Sixty-four of the 270 cases are joint investigations with other law enforcement 
agencies, including the Federal Bureau of Investigation, the United States Postal Service, the 
Railroad  Retirement  Board  OIG, the Defense Criminal Investigation Service and State 
Attorneys General offices. 
Since the special hotline was established in June 1995, it has received 12,533 complaints 
related to Department programs. Since its inception, resolving these complaints has resulted 
in recovering approximately $1.3 million of overpayments. 
Thus far, 49 criminal convictions, 44 civil actions and 38 indictments have been obtained 
under Operation Restore Trust.  In addition, 132 providers have been excluded.  Also, OIG 
has identified a total of more than $70 million in fines, recoveries, settlements and civil 
monetary penalties owed to the Federal Government. 
To date, 28 audit and inspection reports related to Operation Restore Trust have been issued. 
At the present time, another 56 audits and evaluations are underway. In addition, HCFA and 
OIG are jointly performing reviews at 16 skilled nursing facilities. Further, OIGs Operation 
Restore Trust activities have either resulted in proposals or supported existing proposals to 
change policy in order to correct systemic weaknesses. 
Within the text of the semiannual report, summaries of audits, evaluations and investigations 
related to Operation Restore Trust which were finalized during this 6-month period have 
been labeled with the symbol  for ready identification.  The labeled summaries are 
listed in Appendix G.  Operation Restore Trust is but another example of how OIG is 
working to ensure the integrity and efficiency of the Medicare and Medicaid programs and 
to protect the beneficiaries of those programs. 
2  Health Care 
Financing 
Administration  Chapter II 
HEALTH CARE FINANCING ADMINISTRATION

Overview of Program Area and Office of 
Inspector General Activities 
The Health Care Financing Administration (HCFA) is responsible for administering the 
Medicare and Medicaid programs.  Medicare Part A provides hospital and other institutional 
insurance for persons age 65 or older and for certain disabled persons, and is financed by the 
Federal Hospital Insurance Trust Fund. Medicare Part B (Supplementary Medical Insurance) 
is an optional program which covers most of the costs of medically necessary physician and 
other services, and is financed by participants and general revenues. 
The Medicaid program provides grants to States for medical care for approximately 37 
million low-income people.  Eligibility for Medicaid is, in general, based on a persons 
eligibility for cash assistance programs, typically Aid to Families with Dependent Children 
or Supplemental Security Income.  State expenditures for medical assistance are matched by 
the Federal Government using a formula that measures per capita income in each State 
relative to the national average. 
The Office of Inspector General (OIG) has devoted significant resources to investigating and 
monitoring the Medicare and Medicaid programs. These activities have often led to criminal, 
civil and/or administrative actions against perpetrators of fraud and abuse.  They also have 
helped ensure the cost-effective delivery of health care, improved the quality of health care 
and reduced the potential for fraud, waste and abuse. 
Over the years, OIG findings and recommendations have contributed to many significant 
reforms in the Medicare program.  Such reforms include implementation of the prospective 
payment system (PPS) for inpatient hospital services and a fee schedule for physician 
services;  the  Clinical  Laboratory  Improvement  Act  Amendments  of  1988;  regional 
consolidation of claims processing for durable medical equipment (DME); establishment of 
fraud  units  at  Medicare  contractors;  prohibition  on  Medicare  payment  for  physician 
self-referrals; and new payment methodologies for graduate medical education. 
The OIG has documented excessive payments which led to statutory changes to reduce 
payments for hospital services, indirect medical education, DME and laboratory services. 
To ensure quality of patient care, OIG has assessed clinical and physiological laboratories; 
evaluated the medical necessity of certain services and medical equipment; analyzed various 
3  State licensure and discipline issues; reviewed several aspects of medical necessity and 
quality of care under PPS, including the risk of early discharge; and evaluated the care 
rendered  by  itinerant  surgeons  and  the  treatment  provided  by  physicians  performing 
in-office surgery. 
The OIG also audits HCFAs financial statements under the Chief Financial Officers Act and 
the Government Management Reform Act.  The HCFA has been designated as a separate 
reporting entity because it represents more than 82 percent of Department of Health and 
Human Services outlays. 
Health Maintenance Organization 
Customer Satisfaction Surveys 
At HCFAs request, OIG conducted a survey to determine how Medicare health maintenance 
organizations (HMOs) measure customer satisfaction and how they utilize the resulting data. 
The OIG found that while virtually all HMOs conduct customer satisfaction surveys, most 
do not target their Medicare members.  As a result of their limited focus, their lack of 
uniformity  and  technical  weaknesses,  the  usefulness  of  these  surveys  to  HCFA  is 
substantially  reduced.   Accordingly,  OIG  proposed  that  HCFA  consider  alternative 
approaches to measuring Medicare client satisfaction with managed care, such as conducting 
its own surveys or requiring HMOs to periodically survey their Medicare members with 
standardized instruments and comparable procedures. 
The HCFA indicated that the OIG study will be a major factor in influencing its decision to 
develop an independent beneficiary satisfaction survey capability. (OEI-02-94-00360) 
Health Care Financing Administrations 
Combined Financial Statements 
The OIG conducted an audit of the HCFAs combined financial statements for Fiscal Year 
(FY) 1995.  Because internal controls were not adequate, OIG was unable to determine 
whether the reported Medicare accounts receivable balance of $3.2 billion at September 30, 
1995 was fairly presented.  Nor was the necessary documentation supporting the actuarial 
determination of the Medicare accounts payable balance of $22 billion made available for 
review.   Further,  because  HCFA  recorded  the  Medicaid  program  on  a  modified  cash 
accounting basis, it did not record the Federal share of Medicaid accounts receivable and 
payable recorded by States.  Because of the significance of these matters, OIG was unable to 
express an opinion on HCFAs combined financial statements for FY 1995. 
In its response to the OIG report, HCFA generally concurred with OIGs recommendations. 
The HCFA believes that the methodology used by its Office of Actuary (OACT), which OIG 
was not able to review in detail with OACT, supports the liability recorded for Medicare 
4  accounts payable.  The OIG will review the methodology in its audit of the FY 1996 
financial statements. (CIN: A-17-95-00051) 
Major Hospital Initiatives 
The OIG has launched two national projects and one State project involving civil actions at 
hospitals that were falsely billing the Medicare program.  All three grew from OIG hospital 
audits that identified irregularities in Medicare billing practices. 
A.  Physicians at Teaching Hospitals 
A nationwide initiative to review compliance with rules governing physicians at teaching 
hospitals (PATH) and other Medicare payment rules grew out of earlier extensive work 
performed by OIG at a major east coast university.  The focus of the review was compliance 
with the Medicare rule affecting payment for physician services provided by residents.  The 
OIG found that not only was the institution not complying with this rule but also teaching 
physicians were improperly upcoding the level of service provided in order to maximize 
Medicare reimbursement.  This review resulted in the Governments recovery of more than 
$30 million, including damages under the Federal Civil False Claims Act.  As part of the 
negotiated settlement, the responsible parties also avoided program exclusion under OIG 
authorities. 
The OIG initiated the PATH project to determine whether, and to what extent, similar 
problems were present at other teaching institutions throughout the country. The nationwide 
PATH reviews focus on compliance with the Medicare rule and the appropriateness of 
service  codes.   In  addition,  OIG  encourages  physician  group  practices  affiliated  with 
teaching hospitals to examine their own practices under these requirements. Group practices 
that choose to participate actively in such a process, under a protocol established by OIG, 
may potentially reduce their legal exposure, if any, under OIG exclusion authorities. 
Active  participation  includes arrangement,  at the hospitals or groups expense,  for an 
independent review conducted by a third party, using OIGs review protocol.  A hospital 
must be an institution that receives graduate medical education payments under Medicare 
Part A, and a group must be affiliated with such an institution.  To receive the benefits of 
active participation in a PATH review, they must adhere to principles set out in the review 
protocol. 
During  this  period,  the  first  hospital/physician  practice  plan  entered  into  a  voluntary 
settlement under PATH, agreeing to pay $11.9 million to settle its civil false claims liability. 
The hospital had received approximately $5.9 million in overpayments related to improper 
billing for services provided by residents and for errors in the level of supervision billed.  In 
addition to the settlement, which represents double damages, the hospital is implementing a 
corporate compliance program. 
5
 B.  Diagnosis Related Group 72 Hour Window Project 
In 1995, OIG and the Department of Justice (DOJ) launched a national project to recover 
overpayments made to hospitals as a result of claims submitted for nonphysician outpatient 
services that were already included in the hospitals inpatient payment under the prospective 
payment system (PPS).  Hospitals that submit claims for the outpatient service in addition to 
the inpatient admission are, in effect, submitting duplicate claims for the outpatient services. 
A prevalent pattern of abuse was identified through repeated OIG audits of hospital claims 
for inpatient services under PPS.  Prior to the inception of this project, OIG had issued four 
reports to HCFA identifying approximately $115.1 million in Medicare overpayments to 
hospitals caused by these improper billings. 
This  national  project  identified  4,660  hospitals  that  submitted  improper  billings  for 
outpatient services. These hospitals will receive notification from the U.S. Attorneys Office 
concerning OIGs identification of erroneous claims and the facilitys potential exposure 
under the Federal Civil False Claims Act.  The hospitals are given the opportunity to enter 
into a settlement with the Government under which the financial exposure of the institution 
is substantially less than if pursued under the Act.  Compliance measures to prevent and 
detect erroneous billing are also required under the terms of the settlement. 
The  project  is  being  coordinated  by  the  U.  S.  Attorneys  Office - Middle  District  of 
Pennsylvania.  As of the end of the reporting period, settlements have been executed with 
over 925 hospitals resulting in recoveries in excess of $22 million.  The total anticipated 
recovery under this nationwide project is approximately $90 million to $110 million over the 
next 2 years from an estimated 4,446 hospitals. 
One  of  the  most  important  parts  of  this  project  is  the  stipulation  in  each  settlement 
agreement  that  each  hospital  will  assure  compliance  with  proper  billing  for 
inpatient/outpatient services.  It is hoped that the deterrent effect of possible civil actions, 
along with promised compliance, will remove this source of improper claims. 
C.  Ohio Outpatient Laboratory Unbundling Project 
The OIG, DOJ and the State of Ohio have joined forces to combat Medicare and Medicaid 
fraud in hospital outpatient laboratory billing practices.  The Ohio Outpatient Laboratory 
Unbundling Project seeks to recover overpayments related to erroneous or excessive claims 
submitted for automated blood chemistry tests by hospital outpatient laboratories.  These 
abusive practices stem from the unbundling of lab tests, which is believed to be a widely 
practiced abuse. 
Laboratory services are particularly vulnerable to this practice because of the number of 
tests ordered at one time, and the capability of equipment to run several tests from one 
sample.  Medicare and Medicaid have implemented billing guidelines and physicians 
6
 current  procedural  terminology  codes  to  accommodate  laboratory  panels,  and  the 
reimbursement for the panel is less than if each test were run separately. 
The  Ohio  Project  targets  hospital  outpatient  labs  through  an  ongoing  computer-based 
evaluation of claims submitted for outpatient laboratory services.  A demand letter is then 
sent to each hospital identifying the scope of the abusive practice at that facility and its 
potential exposure under the Civil False Claims Act.  The hospitals are invited to participate 
in a self-audit program, the results of which are separately verified by the State of Ohio 
Auditors Office.  In recognition of their participation, the hospitals generally receive the 
benefit of double damages for settlement purposes.  The terms of the settlement require 
implementation of compliance measures to correct the identified misconduct, and a separate 
payment to the Ohio State Auditors Office for its independent review and verification of the 
audit reports submitted by the facility. 
To date, settlements with five hospitals have recovered $2.3 million.  It is anticipated that 
approximately  150  hospitals  from  the  Northern  and  Southern  Districts  of  Ohio  will 
participate, representing 90 percent of the hospital population in the State of  Ohio.  The 
projected recovery under this project is approximately  $15 million.  See page 29 for other 
State partnership work. 
Rural Health Clinics:  Growth, Access and Payment 
The Rural Health Clinic (RHC) program, created in 1977, is intended to increase access to 
health  care  for  rural  medically  underserved  areas  and  expand  the  use  of  midlevel 
practitioners (nurse practitioners, physician assistants and certified nurse midwives) in rural 
communities.  The HCFA is responsible for certification and oversight of RHCs. 
The OIG found that the number of rural health clinics has grown seven-fold since 1990, and 
associated  Medicare  and  Medicaid  expenditures  have  more  than  doubled  since  1992. 
However, OIG determined that the centers may not be increasing access to care in some 
areas.   Further,  OIG  identified  vulnerabilities  stemming  from  the  programs  cost 
reimbursement system. 
The  OIG  recommended  that  HCFA,  along  with  the  Health  Resources  and  Services 
Administration, modify the certification process of the clinics; expedite the issuance of 
pending  regulations;  and  improve  the  oversight  and  functioning  of  the  current  cost 
reimbursement system. (OEI-05-94-00040) 
Hospice Eligibility 
The  OIG  is  conducting  reviews  to  assess  the  accuracy  of  beneficiary  eligibility 
determination and resultant reimbursements at selected hospices.  During this semiannual 
period the following hospice reviews were completed: 
7
 A.  Puerto Rico 
In prior audits at two hospices in Puerto Rico, OIG had determined that a significant 
percentage of beneficiaries whose eligibility was questioned were ineligible for hospice 
coverage, resulting in approximately $2.6 million of improper Medicare payments between 
April 1992 and July 1994. 
In an expansion of those audits, OIG obtained listings from 38 hospices in Puerto Rico and 
identified a number of beneficiaries who appeared to be ineligible for the hospice program. 
Of  the  100  suspect  cases  selected  for  a  random  sample,  OIG  found  that  67  of  the 
beneficiaries  were  in  fact  ineligible  for  hospice  benefits  and  that  $1.2  million  was 
improperly paid on their behalf.  Based on those results, OIG estimated that, in the period 
September 1991 through July 1994, approximately $19.7 million was improperly paid to 37 
hospice providers in Puerto Rico on behalf of ineligible beneficiaries. 
The OIG recommended that HCFA instruct the regional home health intermediary for Puerto 
Rico to recover the outstanding balance of $874,000 in improper payments identified in 
OIGs sample; initiate medical record reviews of the balance of identified potential ineligible 
beneficiaries not included in OIGs sample and recover any additional unrecovered improper 
payments; improve its claims processing controls by instituting a front end diagnosis-based 
edit; and conduct medical record reviews of the suspect claims identified through this edit. 
The HCFA concurred with OIGs findings and recommendations. (CIN: A-02-94-01035) 
B. Florida 
The OIG found that Medicare paid a Florida hospice provider $8.9 million for care to 176 
ineligible  beneficiaries  and  another  $5.9  million  for  118  beneficiaries  of  questionable 
eligibility.  The OIG review, which included a medical evaluation of the hospices eligibility 
determinations, covered 364 beneficiaries who had been in hospice care for more than 210 
days.  Of the 364 cases, 237 were active in hospice at the time of the review and represented 
26 percent of the total active Medicare hospice beneficiaries as of April 30, 1995. 
The OIG believes that these problems occurred because hospice physicians inaccurately 
made prognoses of life expectancy based on the medical evidence in the patients files or 
because the evidence was insufficient to determine whether the beneficiaries were terminally 
ill. 
In addition to financial adjustments, OIG recommended that the Medicare intermediary 
coordinate  with  HCFA  in  providing  training  to  hospice  providers  and  physicians  on 
eligibility requirements for beneficiaries, and conduct periodic reviews of hospice claims to 
ensure the hospice is obtaining sufficient medical information to make valid eligibility 
determinations.  The intermediary generally agreed with the recommendations and stated it 
is committed to working closely with HCFA to strengthen program procedures and controls 
to ensure proper payment of hospice claims. (CIN: A-04-95-02111) 
8  Medicare Administrative Costs 
The HCFA contracts with private insurance companies (fiscal intermediaries and carriers) to 
process and pay Medicare claims.  The OIG reviews the allowability of costs claimed for 
reimbursement by these contractors. 
A.  Parts A and B:  Blue Cross and Blue Shield of Michigan 
The  OIG  recommended  a  financial  adjustment  of  $15.6  million  for  unallowable 
administrative costs claimed by Blue Cross and Blue Shield of Michigan (BCBSM) for FYs 
1990 through 1993.  The unallowable costs included:  $8.1 million spent over authorized 
budget; $2.4 million for strategic planning costs that did not directly benefit the Medicare 
program; and $2.1 million in credits due the Medicare program from BCBSMs Medicare 
secondary payer activities.  The BCBSM generally did not concur with the recommended 
adjustment. (CIN: A-05-94-00064) 
B.  Parts A and B and Railroad Retirement Board Provisions of the Medicare 
Program:  Travelers Insurance Company 
The OIG recommended a net financial adjustment of $2.8 million as a result of unallowable 
costs claimed by Travelers Insurance Company for FYs 1990 through 1993.  The findings 
included $1.2 million for unallowable facility and occupancy costs, and $2.5 million for 
unallowable corporate cost centers (including $1.8 million identified in a previous audit). 
The recommended adjustment takes into account underclaimed amounts of approximately 
$900,000.  Travelers disagreed with the bulk of the recommended adjustments for facility 
and occupancy costs and the corporate center costs identified in the prior audit.  Travelers 
agreed with the remaining audit adjustments. (CIN: A-01-96-00508) 
C.  Associated Insurance Companies, Inc. 
The OIG recommended a net financial adjustment of almost $4 million as a result of 
unallowable costs claimed by Associated Insurance Companies, Inc.  The major finding of 
$2.4 million was for unallowable corporate cost centers.  Other significant findings were for 
excessive executive salary increases and unallowable pension costs. The company disagreed 
with only $500,000 of the recommended adjustment. (CIN: A-05-94-00080) 
Fraud and Abuse Sanctions 
During this reporting period, OIG imposed 1,151 sanctions, in the form of exclusions or 
civil recoveries, on individuals and entities for engaging in fraud or abuse of the Medicare 
and Medicaid programs and/or their beneficiaries.  About three-fourths of the exclusions 
were based on conviction of program-related crimes, conviction of controlled substance 
manufacture or distribution, conviction related to patient abuse or loss of license to practice 
health care. Monetary penalties can be assessed under several civil monetary penalty (CMP) 
authorities which have been delegated to OIG. 
9
 A.  Program Exclusions 
Title  XI  of  the  Social  Security  Act  provides  a  wide  range  of  authorities  to  exclude 
individuals and entities from the Medicare, Medicaid, Maternal and Child Health Services 
Block Grant, and Block Grants to States for Social Services programs.  Exclusions can be 
imposed  for  conviction  of  fraud  against  a  private  health  insurer,  obstruction  of  an 
investigation, distribution of a controlled substance, revocation or surrender of a health care 
license,  or  failure  to  repay  health  education  assistance  loans  (HEALs).   Exclusion  is 
mandatory for those convicted of program-related crimes or crimes relating to patient abuse. 
A significant number of OIG exclusions involve failure to repay HEALs, as discussed in 
more detail in the chapter on the Public Health Service.  During this reporting period, OIG 
imposed exclusions on 793 individuals and entities in all. 
The OIG reviews all factors  involved  in  a case to determine  whether an  exclusion is 
appropriate  and,  if  so,  the  proper  length  of  the  exclusion.  Factors  reviewed  include 
information solicited directly from the provider and information obtained from outside 
sources  such  as  courts,  licensing  agencies,  or  other  Federal  or  State  programs.   The 
following exclusions are examples of some imposed during this reporting period: 
  Exclusions ranging from 5 to 20 years were imposed on the two owners of a 
Louisiana  medical  transportation  company  and  seven  others  who  were 
convicted of a scheme in which the Medicaid program was defrauded of 
over $2 million.  In addition, the transportation company was excluded for 
20 years.  The company provided Medicaid recipients with nonemergency 
transportation to medical service providers and defrauded the program by 
preparing fraudulent documentation in support of their billings, billing for 
miles not actually traveled and altering documentation of multiple passenger 
trips.  The length of each individuals exclusion was determined based on 
factors such as the length of time he/she participated in the scheme, program 
damages, and whether his/her sentence included incarceration. 
  Two officers of durable medical equipment companies in Florida were each 
excluded for 20 years after being convicted of participating in a scheme to 
defraud the Medicare program.  The companies provided liquid nutritional 
supplements to Medicare beneficiaries who didnt need them.  In order to 
get  paid by  the  Medicare  program,  the  companies paid fees to several 
doctors to sign the certificates of medical necessity (CMNs) authorizing the 
supplements even though these doctors never examined the beneficiaries. 
Once the companies had the CMNs, they billed Medicare about $400 a 
month for nutritional supplements and $250 a month for tubal feedings. 
Exclusions were previously imposed against others involved in this scheme, 
based on their convictions. 
10    A certified medication aide in a Texas nursing home was excluded for 12 
years after being convicted of theft of a nursing home residents money. 
The aide had set up a credit card in the residents name and used it for her 
own personal needs. 
  After being convicted of submitting bills to Medicare for equipment which 
was not needed, a Texas durable medical equipment company was excluded 
for 10 years. 
  A licensed practical nurse in Maine was excluded for 15 years after being 
convicted of endangering the welfare of an incompetent person.  Over a 
period of 3 days, the practical nurse had increased the morphine drip dosage 
to a patient without legal authorization.  An autopsy proved that the patient 
ultimately died from a morphine overdose. 
  Two nurses aides in Texas were convicted based on their separate assaults 
on nursing home patients.  They were each excluded for a minimum of 5 
years. 
  A systems  analyst  in  New  York  was  excluded  for  5  years  after  being 
convicted of grand larceny involving a municipal health organization. 
  A Pennsylvania pharmacist was excluded for 10 years after being convicted 
of two counts involving the illegal distribution of controlled substances. 
  The Illinois licensing board suspended the license of a physician who failed 
to appropriately diagnose and treat a patient in cardiac distress.  As a result, 
the physician was excluded for an indefinite period of time. 
  A registered nurse in Iowa was excluded after her license was revoked. The 
licensing board acted after its review of complaints involving medication 
errors, one of which was life threatening. 
The actions taken by OIG to exclude individuals and entities have made it a focal point in 
the credentialing of health care providers.  As a means of safeguarding the provision of 
health care in the private sector, a number of hospitals and others in the health care industry 
have established a routine practice of querying OIG to ensure that individuals they are 
considering hiring have not been excluded from Medicare and State health care program 
participation. In fact, the National Committee on Quality Assurance (NCQA) has mandated 
that  any  HMO  seeking  accreditation  by  it  must  credential  all  of  their  health  care 
professionals. The NCQA has included in this credentialing process the requirement that the 
11  Department of Health and Human Services OIG specifically be queried to determine if any 
of the HMOs health professionals have been excluded from program participation. 
As more and more HMOs have sought accreditation and the practice of credentialing has 
grown in the health care arena, the number of queries to OIG for exclusion information has 
increased  substantially.   During  this  6-month  period,  OIG  responded  to  credentialing 
requests from HMOs, hospitals, medical societies, licensing boards, etc., to certify the 
exclusion status of over 10,000 individuals. 
B.  Civil Penalties for False Claims 
Under  the  CMP  authorities  enacted  by  the  Congress,  OIG  may  impose  penalties  and 
assessments against  health care  providers  who submit  false or  improper claims  to the 
Medicare and State health care programs.  The CMP law allows recoupment of monies lost 
through illegitimate claims, and it also protects health care providers by affording them due 
process rights.  The OIG also assists DOJ in bringing cases against wrongdoers under the 
Federal Civil False Claims Act.  Many providers elect to settle their cases prior to litigation. 
As part of resolving these cases, OIG frequently imposes corporate compliance programs on 
entities as a condition for being allowed to remain as a provider in the Medicare program. 
These compliance programs are designed to prevent a recurrence of the fraudulent activities 
which gave rise to the case at issue. The Government, with the assistance of OIG, recouped 
over $94 million through both CMP and False Claims Act civil settlements related to health 
care during this reporting period.  Some examples of these cases include: 
	 In Massachusetts, a laboratory agreed to pay $6.67 million to settle civil 
allegations that it overcharged the Medicare program.  An investigation 
showed  that  between  1989  and  1992  the  laboratory  routinely  billed 
Medicare for a serum iron test whenever a physician requested a standard 
panel of tests.  Physicians did not knowingly request the serum iron tests; 
rather, they assumed they were part of the standard panel.  A computer 
analysis program developed by OIG showed that the laboratory improperly 
collected more than $3.35 million from Medicare for the serum iron tests. 
The computer program is readily adaptable to similar cases throughout the 
country. 
	 Also in Massachusetts, 87 hospitals agreed to pay more than $3.5 million to 
settle allegations that they violated the Federal Civil False Claims Act.  The 
hospitals submitted duplicate claims for outpatient services for Medicare 
patients  performed  within  3  days  of  admission  to  the  hospital.   These 
services had already been reimbursed as part of the hospital stays.  The 
hospitals also agreed to implement procedures to ensure future compliance 
with Medicare billing rules. 
12
 	 A Kansas medical center agreed to pay more than $1.2 million to settle its 
false claims liability resulting from a kickback scheme.  A medical group 
involving five hospitals located in Kansas and Missouri, which provided 
on-site care to nursing home patients through its physicians, paid a "fee" or 
inducement to the medical center for the referral of patients to its "geriatric 
center."  The  resulting  Medicare  overpayment  to  the  medical  center 
amounted  to  $500,000.   The  settlement  represents  greater  than  double 
damages, including a $100,000 penalty.  The center also has agreed to 
cooperate in the investigation of the medical group. 
	 A California urologist pled guilty to defrauding Medicare and agreed to pay 
a  civil  penalty  of  $440,000,  plus  accept  a  10-year  exclusion  from  the 
Medicare program.  The urologist submitted claims for invasive medical 
procedures  which  were  not  medically  necessary  or  which  he  did  not 
perform. He billed between $200,000 and $350,000 over a 23-month period 
for  tests.  They  included  cystourethropscopies,  which  allow  visual 
examination of the urethra and bladder, and cystometrograms, which assess 
the bladders neuromuscular function. He is to be sentenced for the criminal 
part of this global settlement. He also surrendered his medical license. 
	 Three  Pennsylvania  osteopaths,  one  of  their  business  partners  and  a 
pharmacist signed an agreement to pay the Government a total of $175,000 
in settlement of civil charges.  In exchange for payments for space in two 
buildings they owned, they signed certificates of medical necessity for a 
DME company to use in Medicare and private insurer claims. The company 
and its owner were sentenced earlier. 
C.  Compliance Activities 
The question of whether or not an organization has established compliance standards and 
procedures is an important factor in Federal sentencing guidelines.  As a result, there has 
been a growing effort by the private sector to establish methods to reduce violations under 
the Federal Civil False Claims and CMP Acts.  The OIG has begun a significant outreach 
effort with the private sector to discuss these endeavors. 
To provide further assistance to the private sector in this area, OIG is developing model 
compliance plans for the various parts of the health care industry.  It is also monitoring and 
verifying the completion of compliance plan obligations that have been and are being 
established as a result of settlement negotiations following an OIG investigation or audit. 
Currently, OIG is monitoring 40 Government-imposed compliance plans. These plans cover 
the range of providers from small physician offices to large laboratory corporations.  Most 
compliance plans are for 5 years and require a major effort by the provider to ensure that the 
13
 company is operating  within HCFA regulations  and  the  parameters established by the 
compliance plan.  Failure to adhere to the compliance agreement within the agreed time 
limit could result in the exclusion of the provider. 
Medicare Providers and Electronic Claims Processing 
The OIG reported that excellent progress is being made at the provider level in converting 
Medicare claims processing to a total electronic environment.  However, OIG believes that 
additional provider guidance would be beneficial for defining needed internal controls and 
the responsibilities of each provider in the claims process.  Providers still submitting hard 
copy claims need further encouragement to convert to an electronic media claims (EMC) 
processing environment. 
The  OIG  recommended  that  HCFA  consider:  developing  additional  guidance  and 
instruction on internal controls; providing free training and cost-benefit information on 
EMC to providers still submitting hard copy claims; and phasing in requirements that 
Medicare providers with significant paper claims volume convert to EMC.  The HCFA 
concurred with the recommendations and noted several steps already taken to implement 
them. (CIN: A-05-94-00039) 
Encouraging Physicians to Use Paperless Claims 
In an OIG survey of physicians who still submit paper claims for Medicare reimbursement, a 
majority of respondents indicated a high or moderate level of interest in using paperless 
claims. 
PHYSICIAN LEVEL OF INTEREST IN PAPERLESS CLAIMS 
Low 
Interest  35% 
or None 
Low 24%  None 11% 
High or 
Moderate  65% 
Interest 
High 18%  Moderate 47% 
0  10  20  30  40  50  60  70  80 
14  Eighty-three percent of physicians using paper claims cited three or more concerns about the 
use of paperless claims, including:  technical complexity, costs and perceptions about the 
administrative rules and regulations that govern the use of paperless claims for Medicare. 
The OIG recommended that HCFA lead a targeted outreach effort to encourage voluntary 
conversion to paperless Medicare claims filing for those physicians interested in making the 
switch.  As part of that effort, HCFA could:  send informational brochures with cards for 
requesting additional information; establish an 800 number; target mailings to Medicare 
participating physicians; and/or furnish information with every new provider number or 
address change.  Further, OIG urged that HCFA begin to plan now for the policy changes 
that will become necessary to achieve an almost completely paperless environment for 
processing  Medicare  claims.   The  HCFA  concurred  with  the  recommendations. 
(OEI-01-94-00230) 
Criminal Fraud 
The most common fraud investigated by OIG against health care providers is the filing of 
false claims or statements in connection with the Medicare and Medicaid programs, as 
illustrated in the following cases: 
	 The California Medicare Part B carrier was sentenced after pleading guilty 
to conspiracy and obstruction of a Federal audit.  The carrier was fined the 
maximum of $1.5 million and assessed $600.  The OIG investigators found 
that  company  employees  misled  HCFA  auditors  in  their  contract 
performance review.  The carrier relinquished its Medicare carrier contract. 
A civil case is underway. 
	 A Boston area psychiatrist was sentenced to 46 months imprisonment and 
fined $1 million for Medicare and private insurer fraud, obstruction of 
justice and intimidation of a witness.  The psychiatrist filed hundreds of 
claims, some for more sessions than patients attended and others for patients 
he never saw.  When he became aware of the investigation, he called former 
patients and attempted to get them to lie on his behalf.  He also called a 
potential witness and threatened to make public the medical records of a 
family  member  if  she  cooperated  with  the  Government.   The  witness 
refused  to  be  intimidated.   The  psychiatrist  used  an  insanity  defense, 
claiming he suffered from a psychotic delusion that caused him to overbill. 
He is being prosecuted civilly for Medicare fraud and criminally in State 
court for Medicaid fraud. 
	 The former executive vice president and chief financial officer for a medical 
center in New Jersey was sentenced for conspiracy, bribery, embezzlement, 
15
 money laundering and tax evasion.  The scheme cost the hospital well over 
$3.8 million, including monies received from Medicare, of which the former 
officer received nearly $1.17 million.  He also received more than $546,000 
in bribes for steering hospital transactions to a co-conspirators company. 
He laundered much of the illegal money though a Maryland bank account 
with  a  fictitious  company  name.   He  was  sentenced  to  55  months 
incarceration and ordered to pay $21,000 in restitution, which the court 
found was all he was able to repay.  He received a downward departure 
from sentencing guidelines because of past and continued cooperation in the 
investigation.  Several other participants in schemes to defraud the hospital 
are to be sentenced in the near future. 
	 A dermatologist was sentenced in Massachusetts for defrauding Medicare 
and private insurers of more than $500,000. He was sentenced to 30 months 
imprisonment and 3 years probation, fined $32,500 and ordered to pay 
private  insurers  $182,720  in  restitution.   He  billed  and  overcharged 
Medicare for the destruction of numerous skin lesions when patients were 
provided either weight loss or minor dermatological services.  Medicare 
restitution is to be determined through civil proceedings. 
	 A former heart surgeon and his corporation were convicted and sentenced in 
Colorado for Medicare and Medicaid fraud.  They were ordered to pay 
Medicare $30,000 in restitution, fines and damages.  The former surgeon 
billed for more heart bypasses than he performed.  He was sentenced to 30 
days incarceration, 3 years probation and 200 hours of community service. 
Earlier, he agreed to settle a civil lawsuit out of court with 17 former 
patients and their families. 
	 One of Oregons highest Medicare-billing ophthalmologists pled guilty and 
was  sentenced  for  submitting  false  claims  for  medically  unnecessary 
cataract surgeries.  In several instances, the patients had near-perfect vision 
prior to surgery.  The ophthalmologist gave the hospital false information 
about patients true visual acuities, to justify the surgery.  He was sentenced 
to 2 years probation and ordered to pay partial restitution of $10,370.  He 
surrendered his medical license and declared bankruptcy. 
Kickbacks 
Many businesses engage in referrals to meet the needs of customers or clients for expertise, 
services or items which are not part of their own regular operations or products.  The 
medical  profession relies heavily upon referrals  because  of  the myriad  specialties and 
technologies associated with health care.  If referrals of Medicare or Medicaid patients are 
16
 made in exchange for anything of value, however, both the giver and receiver may violate 
the Medicare/Medicaid anti-kickback statute. 
Among  its  provisions,  the  anti-kickback  statute  penalizes  anyone  who  knowingly  and 
willfully solicits, receives, offers or pays remuneration in cash or in kind to induce or in 
return for: 
  referring an individual to a person or entity for the furnishing, or arranging 
for the furnishing, of any item or service payable under the Medicare or 
Medicaid programs; or 
  purchasing,  leasing  or  ordering,  or  arranging  for  or  recommending  the 
purchasing, leasing or ordering of any good, facility, service or item payable 
under the Medicare or Medicaid programs. 
Violators are subject to criminal penalties, or exclusion from participation in the Medicare 
and Medicaid programs, or both.  The following cases are some of the examples of the 
sentencings for this crime: 
  In Pennsylvania, the last of five individuals was sentenced in a scheme in 
which Medicare and Medicaid were defrauded of an estimated $1.7 million. 
A physician was sentenced to 121 months in prison for accepting kickbacks 
from a DME company for signing fictitious certificates of medical necessity. 
The DME company owner and two employees were sentenced earlier for 
fabricating  test  results  and  forging  physician  signatures  as  well.   The 
physicians  pharmacist  brother  was  also  sentenced  for  routinely  billing 
Medicaid for brand name drugs while supplying generic brands. 
  The  faculty  practice  plan  of  a  Massachusetts  hospital  agreed  to  pay 
$177,000  in  settlement  of  civil  monetary  liabilities  for  kickback 
arrangements by two of the hospitals divisions.  Since cardiologists could 
not  bill  Medicare  for  interpretations  of  coronary  angiograms  and 
ventriculograms, but radiologists could, arrangements were made for the 
radiologists to bill for these interpretations.  In return, the radiology group 
paid kickbacks to the cardiology group.  This case is the first civil monetary 
penalties case to have been based solely on violations of the anti-kickback 
law. 
  The president of a Florida DME company and one of her employees were 
sentenced for conspiracy to violate the anti-kickback law and for fraudulent 
billing  of  Medicare.   The  company  president  was  ordered  to  make 
restitution of $98,750.  The employee, an unlicensed doctor who recruited 
17  licensed doctors to sign orders for DME, was ordered to repay $42,350. 
Both were sentenced to 3 months confinement and 3 years probation. 
  Two  Maryland  doctors  each  agreed  to  pay  $24,000  in  settlement  of 
allegations that they accepted kickbacks for referring patients to an area 
cardiologist.   The  cardiologist  and  another  doctor  were  convicted  and 
sentenced to prison earlier. 
Home Health Care Costs 
In the following reviews of home health care costs, OIG recommended that HCFA require 
the fiscal intermediary (FI) to instruct the home health agencies on their responsibility to 
properly monitor their subcontractors for compliance with the Medicare regulations and 
HCFA guidelines, monitor the FIs and the home health agencies to ensure that corrective 
actions  are  effectively  implemented,  and  recover  all  overpayments.  Further,  OIG 
recommended that HCFA direct the FIs to investigate all cases of possible fraud and refer 
them as necessary to OIG. The HCFA agreed with the recommendations. 
A. Florida - Miami Lakes 
The OIG reviewed 100 claims (representing 1,445 home health services) for Medicare 
reimbursement by a home health agency during the fiscal year ended December 31, 1993. 
In 24 percent of the claims, services did not meet Medicare guidelines:  11 percent were for 
145 services that were not reasonable or necessary, 4 percent were for 24 services not 
provided, and 9 percent were for 177 services which physicians either denied authorizing or 
authorized improperly.  During this fiscal year period, the agency claimed $8.5 million in 
9,391 claims representing 126,386 services. The OIG estimates that at least $1.2 million did 
not meet the reimbursement guidelines. (CIN: A-04-95-01104) 
B. Florida - Miami 
In a review of 100 claims (representing 2,068 home health services) submitted for Medicare 
reimbursement during the fiscal year ending December 31, 1993, OIG found that 40 claims 
contained 846 services that did not meet Medicare guidelines.  These included 25 percent of 
the claims for 466 services made to individuals who were not homebound; 8 percent of the 
claims for 200 services which were not reasonable or necessary; 5 percent of the claims for 
127 services not provided; and 2 percent of the claims for 53 services which physicians 
denied authorizing. 
During the fiscal year ending December 31, 1993, the home health agency claimed $3.6 
million on 2,922 claims representing 54,545 services.  Based on its review, OIG estimates 
that $1.2 million did not meet the reimbursement guidelines. (CIN: A-04-95-01106) 
18  C. Florida - Dade County 
The OIG reviewed 100 claims (representing 1,856 home health services) submitted by a 
home health agency for the fiscal year ended December 31, 1993.  Of these, OIG found that 
32 claims contained 403 services that did not meet Medicare guidelines:  9 percent of the 
claims for 129 services were provided to beneficiaries who were not homebound; 16 percent 
were for 208 services which were not reasonable or necessary; 4 percent were for 18 
services not provided; and 3 percent were for 48 services which physicians either denied 
authorizing or authorized improperly.  The OIG estimated that 1.3 million did not meet the 
reimbursement guidelines. (CIN: A-04-95-01103) 
Home Health Agency Fraud 
The owner of a home health agency (HHA) was sentenced in Georgia to 7 1/2 years in 
prison and fined $10 million for defrauding Medicare.  The sentence was 18 months less 
than the maximum under Federal sentencing guidelines for 28 counts of conspiracy, witness 
tampering and making false statements, but the fine was far beyond the guidelines maximum 
of $150,000.  The owners wife and business partner was sentenced to 2 years and 8 months 
in  Federal  prison  for  conviction  on  two  counts  of  making  false  statements  to  the 
Government.  The corporations transportation director, who pled guilty and cooperated in 
the case, was sentenced to 6 months incarceration and fined $20,000.  The corporation itself 
was ordered to pay $9.9 million in restitution and fines, making the case one of the richest 
Medicare fraud prosecutions on record. 
The owners and the company were given 120 days to pay all penalties.  They had been 
charged with falsely billing at least $1.1 million.  Among other charges, they were accused 
of  seeking  Medicare  reimbursement  for  employee  campaign  contributions,  recreational 
plane flights for the owners, secret buy-out agreements with rival providers and billing 
Medicare for payments to lobbyists.  After the convictions, OIG used its administrative 
authority and excluded the owner of the company from participation in Medicare and any 
State health care program  for a  minimum of 15 years.  His wife was excluded for  a 
minimum of 10 years. At its height, the corporation employed more than 15,000 people and 
made 30,000 visits per day to homebound, elderly patients.  It was the largest privately 
owned home health care provider in the Nation, billing Medicare more than $440 million in 
1994. 
In a related case, the former owner of a Michigan HHA was sentenced to 5 months house 
arrest and ordered to pay $18,000 for his participating in a Medicare fraud scheme.  He sold 
his HHA on December 1, 1994 to the Georgia HHA corporation, but all documents relating 
to the sale and employees were backdated to November 12, 1994.  The backdating allowed 
the corporation to bill Medicare for all care provided by the former owners HHA, thereby 
covering nearly all the corporations acquisition costs.  In addition, the former owner 
received a salary from the corporation of $5,000 a month from December 1994 to June 
1995, although he performed no service to justify it, and the salary was billed to Medicare. 
19  His light sentence was the result of his cooperation in the investigation of the corporation 
and its Michigan satellite office. 
Medicare Part B Services in Nursing Homes 
Medicare Part B covers a wide range of medical services and supplies for the programs 
beneficiaries, including those in nursing homes.  These include physician services and 
outpatient hospital services, diagnostic laboratory services, imaging, ambulance services, 
and a host of medical equipment and supplies. 
In the following reviews of Part B services in nursing homes, OIG used information on 
expenditures from a 1992 nationally projectable sample of nursing home residents in 10 
States and 150 nursing homes. 
A. Overview 
In 1992, Medicare payments of $2.7 billion were made for Part B services provided to 
nursing home residents.  The most money was spent on physician evaluation services ($894 
million), followed by medical equipment, supplies, prosthetics and orthotics ($772 million). 
The Part B average daily charge varied significantly among States and among nursing 
homes.  Differences in nursing home average daily charges were sometimes, but not always, 
explained by differences in the acuity level of the residents treated in the facility. 
The OIG determined that the Part B program in nursing homes is particularly vulnerable to 
fraud, waste and abuse because payment rules and safeguards largely ignore the special 
character of the nursing home environment and the varied services and supplies which can 
be  provided.   Program  vulnerabilities  identified  included  the  potential  for  duplicate 
payments  by  Medicare  and  Medicaid,  lack  of  oversight  by  Medicare  contractors,  and 
questionable supplier or physician practices already documented in earlier studies. 
This review suggested the need for further work in many areas.  In addition, to support the 
development of fraud detection methods, OIG is gathering further information on the nature 
and magnitude of abusive provider practices or program vulnerabilities involving nursing 
home residents. (OEI-06-92-00865) 
B. Enteral Nutrient Payments 
Based on its medical records review, as well as survey information obtained from nursing 
homes and hospitals, OIG determined that Medicare Part B payments for enteral nutrition 
substantially exceeded purchase prices commonly available through volume purchasing and 
other contractual relationships.  In addition, approximately 75 percent of charges are for 
Category I nutrients, the simplest and most readily available type considered by the Food 
and Drug Administration to be food. 
20  The OIG concluded that Medicare reimbursement policies fail to recognize the ability of 
nursing homes to purchase nutrients and supplies at reduced costs and to provide incentives 
for nursing homes to exert their buying power to save the taxpayer money.  Further, OIG 
noted that, if enteral nutrients were recognized as food, payment could be made as a part of 
the facility payment rather than separately billed to Medicare Part B. 
The OIG recommended that enteral nutrients be excluded from Part B reimbursement when 
patients reside in nursing homes or that Part B reimbursement be continued at lower levels 
when provided to nursing home residents.  The HCFA concurred with OIGs findings and 
supported the first option.  (OEI-06-92-00861) 
C. Durable Medical Equipment Payments 
In 1992, Medicare carriers allowed as much as $35 million for DME during nursing home 
stays.  Of this, $27 million was paid by Medicare and $8 million by beneficiaries. 
Based on its review, OIG determined that no effective mechanism currently exists to ensure 
the appropriate payment of DME under Medicare Part B for beneficiaries in nursing homes. 
To be covered by Medicare Part B, DME must be furnished for use in the beneficiarys 
home.  A hospital or skilled nursing facility (SNF) is specifically excluded as a residents 
home.  A SNF is defined as a facility primarily engaged in providing skilled nursing care. 
To ensure correct payments, clarification is needed to determine which nursing homes are 
primarily engaged in providing skilled care. 
The OIG recommended that HCFA develop and implement a workable and fair definition of 
what constitutes a SNF for the purposes of payment of DME under Medicare Part B. Such a 
definition should reflect the principle that SNFs are responsible for the provision of a basic 
range of services to the residents under their care, and a SNF cannot be considered a home 
for  the  purposes  of  DME  coverage  under  Medicare  Part  B.  The  HCFA  concurred. 
(OEI-06-92-00862) 
D. Mental Health Services in Nursing Facilities 
This OIG  study draws an overall picture of  the  kinds of mental health services being 
provided  in  nursing  facilities  and  identifies  potential  vulnerabilities  for  the  Medicare 
program.  In a review of nursing home records for the five Medicare codes most commonly 
reimbursed to psychiatrists, clinical psychologists and clinical social workers in 1993, OIG 
found that Medicare paid for medically unnecessary services in 32 percent of the records 
reviewed.  This projects to $17 million, or 24 percent of all 1993 Medicare payments for 
mental health services for nursing home residents.  In 16 percent of the records, OIG found 
that  Medicare  paid  for  highly  questionable  services.   This  projects  to  $10  million in 
Medicare payments.  At the same time, OIG concluded that some beneficiaries are not 
getting the care they need. 
21  The OIG recommended several approaches that HCFA, together with the carriers, might take 
to ensure the integrity of Medicare payments while promoting the delivery of needed care. 
The HCFA concurred with OIGs recommendation and detailed the actions underway to 
carry it out. (OEI-02-91-00860) 
In a companion report covering the five Operation Restore Trust States, OIG noted that, as a 
whole, these States were as likely as others to have unnecessary or questionable services. 
However, New York and Florida did appear to have a greater than average percentage of 
unnecessary services.  This report offers detailed information on the five States for HCFA, 
the carriers and relevant State agencies to consider in targeting the problems peculiar to 
each.  (OEI-02-91-00861) 
Nursing Home Fraud 
Nursing facilities and their residents have become common targets for fraudulent schemes. 
The OIG has become aware of a number of fraudulent arrangements by which health care 
providers, medical professionals, and nursing facility management and staff inappropriately 
bill Medicare and Medicaid for the provision of unnecessary services and services which are 
not provided to residents.  The following cases are some of the examples of fraudulent 
schemes related to health care services to residents of nursing facilities: 
  In California, a former nursing home owner was ordered to pay more than 
$10.5  million  for  submitting  over  7,000  false  claims  relating  to  a 
multimillion  dollar  Medicare  fraud  scheme.   He  billed  Medicare  for 
nonexistent medical supplies for his nursing homes and filed cost reports 
with false expenses.  He attempted to conceal the scheme by supporting the 
cost reports with falsified medical records and fabricated invoices.  He was 
sentenced earlier on the criminal aspect of the case to 11 years and 3 months 
imprisonment and ordered to pay $3.5 million in restitution. The amount of 
damages ordered to settle civil liabilities was treble the amount of restitution 
ordered. Medicare payments to the nursing homes were suspended. 
  Also in California, a former psychiatrist was sentenced to 18 months in 
prison for defrauding Medicare.  He billed Medicare more than $100,000 
for fictitious psychotherapy services to nursing home patients.  Earlier he 
confessed to OIG agents that he made the false claims in order to purchase 
drugs.  On the basis of the confession, the State prosecuted him separately 
on drug charges and his license was revoked. The psychiatrist is to perform 
community service in lieu of restitution following his incarceration. 
  In Ohio, a for-profit hospital agreed to pay the Federal Government $1.45 
million in settlement of charges of defrauding the Medicare and Medicaid 
22  programs.  While operating an outpatient clinic for nursing home patients, 
the hospital submitted false claims for geriatric psychiatric services that 
were nontherapeutic or unnecessary.  Many of the patients suffered organic 
brain disorders and would not have benefitted from psychiatric treatments. 
As a result, the hospital was overpaid more than $600,000 by Medicare and 
Medicaid.  In addition to the settlement, the hospital agreed to initiate an 
approved compliance plan before reinstituting similar programs in the future 
and to continue to cooperate in the investigation. 
  As a result of a joint investigation by OIG and the Federal Bureau of 
Investigation (FBI), a DME corporation agreed to a $3.6 million settlement. 
The  corporation,  a  shell  company  with  a  Pennsylvania  address,  was 
established by a New York DME supplier solely to bill Pennsylvanias 
Medicare carrier for prosthetic and orthotic supplies provided to nursing 
home beneficiaries in New York. As a result of this billing arrangement, the 
corporation was overpaid $1.1 million over a 3-year period.  As part of the 
agreement, the supplier will implement a corporate compliance plan. 
  The former owner of an ambulance company in Illinois agreed to pay the 
Government $367,000 in a global settlement for submitting false claims to 
Medicare and Medicaid.  The company was charged with billing Medicare 
and Medicaid for transporting nursing home patients as bed-confined or for 
other higher levels of service than that performed.  As part of the settlement, 
the owner entered a plea of guilty to criminal charges, was ordered to make 
restitution of $15,800 and was fined $12,750.  He and the company agreed 
to an exclusion of 5 years. 
In view of the magnitude of the schemes uncovered, OIG issued a special fraud alert during 
this reporting period that focused on the provision of medical and other health care services 
to residents of nursing facilities and identified some of the illegal practices. 
Payments for Enteral Nutrition: Medicare and Other Payers 
At  HCFAs  request, OIG reviewed  Medicares  reimbursement methodology for enteral 
nutrition products.  These products are usually liquid formulas that provide nourishment 
directly to the digestive tract of patients who are unable to ingest an appropriate amount of 
calories. For purposes of comparing pricing information, OIG surveyed other payers as well 
as retail pharmacies. 
The OIG found that for three enteral nutrition products -- Ensure, Osmolite, Glucerna --
payers  using  competitive  acquisition  strategies  reimbursed  less  than  Medicare 
fee-for-service.  Three traditional fee-for-service payers fared no better than Medicare in 
obtaining the best prices available. 
23  As illustrated below, almost all of the retail pharmacies surveyed charged less than Medicare 
fee-for-service allowances for Ensure and Ensure Plus. 
MOST PHARMACIES PRICES ARE LESS THAN 
MEDICARE REIMBURSEMENT FOR ENSURE AND ENSURE PLUS 
MEDICARE REIMBURSES AT 61 FOR ENSURE  MEDICARE REIMBURSES AT 51 FOR ENSURE PLUS 
Percent of Pharmacies  Percent of Pharmacies 
6  60 
52% 
5  50  47% 
45% 
4  40 
3  30 
24% 
2  17%  20 
1  7%  10  7% 
2% 
0  0 
Less than 50  50 - 55  56 - 60  61 or more  Less than 42  42 - 46  47 - 50  51 or More 
Price per 100 Calories of Ensure/Ensure Plus 
The OIG recommended that HCFA reduce payments for enteral nutrition, either across the 
board or for certain product categories, or use enteral nutrition as one of the first product 
types to acquire under new competitive acquisition strategies.  The HCFA concurred with 
OIGs recommendation. (OEI-03-94-00021) 
Fraud Involving Durable Medical Equipment Suppliers 
The DME industry has consistently suffered from waves of fraudulent schemes in which 
Medicare or Medicaid is billed for equipment never delivered, higher-cost equipment than 
that actually delivered, totally unnecessary equipment or supplies, or equipment delivered in 
a different State from that billed in order to obtain higher reimbursement.  More than 2 years 
ago,  HCFA  published  new  regulations  addressing  reimbursement  problems  that  have 
recurred over the years, especially those created by telemarketing and carrier shopping. It is 
hoped that consolidation of claims processing into four regional jurisdictions, as specified in 
the regulations, will resolve many of these problems.  In the meantime, OIG continues to 
obtain settlements and convictions of unscrupulous suppliers for other schemes, as shown in 
the following examples: 
  A  New  York  physician  was  sentenced  to  12  months  imprisonment  for 
conspiracy to defraud the Medicare program.  He was one of 19 persons 
who participated in a fraud scheme involving a medical supply company. 
24  The scheme cost Medicare more than $13 million over an 18-month period. 
The physician signed medical necessity forms without seeing the patients, 
then falsified the medical charts to indicate he had treated them.  He was 
also ordered to pay $87,000 in restitution.  The other participants in the 
scheme have already been sentenced or await trial. 
  A Pennsylvania DME company, its two former owners/operators and their 
spouses agreed to pay the Federal Government a total of $4 million in 
settlement of civil charges of Medicare fraud.  They submitted fraudulent 
claims  for  medical  devices  used  to  treat  lymphedema,  altered  signed 
certificates of medical necessity (CMNs), forged physicians signatures on 
CMNs, misrepresented services to beneficiaries and falsely billed Medicare 
for new equipment when they provided used equipment.  They also agreed 
to lifetime exclusions from participating in Medicare and State health care 
programs.  In addition, the company and its parent company agreed to 
institute a 3-year program to assure compliance with all Medicare and 
Medicaid regulations. 
  In New York, one of the three owners of a now-defunct DME company was 
ordered to pay the Government $2 million in settlement of false Medicare 
claims.  The  company  had  submitted  false  billings  for  transcutaneous 
electrical nerve stimulator units and accessory kits.  Settlements with the 
other  two  owners  are  pending.   All  three  were  previously  prosecuted 
criminally, and the other two were given lengthy jail sentences. 
  In Florida, six persons were sentenced for their parts in conspiring to create 
18 separate fictitious companies which they used to defraud Medicare of 
more than $6.2 million. They submitted false claims for parenteral nutrition. 
A total of more than $1.8 million was ordered in restitution and special 
assessments.  One man was sentenced to 25 months in prison, and the 
remainder received 3 years probation. 
  After pleading guilty to Medicaid fraud, the owner of a Colorado DME 
supply  company  was  sentenced  to  3  months  in  jail,  45  days  of  home 
detention and 18 months probation. He was also ordered to repay Medicaid 
$100,000.  For several years, he billed Medicaid and Medicare (in crossover 
claims) for wheelchairs he did not provide.  The State chose to prosecute on 
the Medicaid claims only. 
  A Pennsylvania man was sentenced for his part in a scheme to defraud 
Medicare by violating point of service regulations.  Earlier, his corporation 
25  paid $2.1 million to settle civil damages associated with the fraud.  He was 
sentenced to 2 years probation, and fined $14,740. 
Other DME cases appear in the sections on kickbacks and nursing home fraud. 
Appropriateness of Medicare Prescription Drug Allowances 
While Medicare Part B does not pay for over-the-counter or many prescription drugs that are 
self-administered, the program does pay for some categories of drugs used by Medicare 
beneficiaries. In 1994, Medicare expenditures for prescription drugs totaled at least $1.4 
billion. 
The OIG found that, under a drug rebate program similar to Medicaids, Medicare would 
have saved $122 million for 17 prescription drugs in 1994.  Moreover, Medicare could have 
saved $144 million in 1994 had the program employed a discounted average wholesale price 
drug reimbursement formula as do many Medicaid States.  Because the Medicare program 
pays for drugs billed by HCFAs Common Procedure Coding System codes, it reimburses 
based on a drug category; information on the specific drug supplied would be necessary for 
the implementation of any rebate or discounting program by Medicare. 
The OIGs conclusions in this inspection supported its earlier proposal in a report on drugs 
used with nebulizers (a type of durable medical equipment).  The OIG recommended that 
HCFA reexamine its Medicare drug reimbursement methodologies, with a goal of reducing 
payments as appropriate.  The HCFA agreed with the recommendation and is examining 
available  options  in  an  effort  to  make  appropriate  drug  payment  reductions. 
(OEI-03-95-00420) 
Medicare Payments for Albuterol Sulfate 
Albuterol  sulfate  is  a  prescription  drug  commonly  used  for  inhalation  therapy  with 
nebulizers.  Between January 1994 and February 1995, Medicare allowed $182 million for 
this drug, 68 percent of the $269 million in total Medicare allowances for all nebulizer 
drugs. 
The OIG reported that Medicares allowances for albuterol sulfate substantially exceeded 
suppliers actual acquisition costs for the drug and that many pharmacies, pharmaceutical 
buying groups and mail-order pharmacies charged customers less for generic albuterol 
sulfate than Medicares allowed reimbursement. The HCFA agreed to explore new strategies 
to improve drug reimbursement. (OEI-03-94-00392; OEI-03-94-00393) 
26  Pharmacy Acquisition Costs for Drugs Reimbursed under 
Medicaid 
These reviews were conducted as part of a nationwide audit of pharmacy prescription drug 
acquisition costs undertaken at HCFAs request.  Most States reimburse pharmacies for 
Medicaid prescription drug costs using a formula which generally discounts the average 
wholesale price (AWP) by 10.5 percent.  The OIG reviews focused on developing an 
estimate  of  the  difference  between  AWP  and  the  actual  acquisition  cost  of  drugs  by 
pharmacies for both brand names and generic drugs.  The OIG estimates exclude results 
from nontraditional pharmacies, such as nursing home or hospital pharmacies, which would 
have inappropriately inflated percentages. 
A.  California 
One of 11 States randomly selected as part of the nationwide review, California reported 
drug expenditures of $1.3 billion in Calendar Year (CY) 1994. As shown in the chart below, 
OIG estimated that AWP exceeded invoice prices for brand name drugs by 17.5 percent and 
for generic drugs by 41.4 percent in California. 
ESTIMATED PRICE DIFFERENCES 
70 
60 
56.4% 
52.9%  53.5% 
51.2% 
50 
41.4% 
40 
31.9% 
30 
23.3% 
20  16.5%  17.4%  17.4%  17.6%  17.5% 
10 
0 
Rural Chain  Rural Independent  Urban Chain  Urban Independent  Nontraditional  OvNeroanllt r(aEdxictiloundainlsg) 
Brand Name Drugs  Generic Drugs 
The OIG recommended that the State consider these results as a factor in any future changes 
to pharmacy reimbursement for Medicaid drugs.  The State replied that the audit results 
substantiated their position that current drug ingredient cost reimbursement does not reflect 
actual purchasing activity of California pharmacies.  It intends to use the report data to 
support  a  provision  in  the  Governors  budget  proposal  to  decrease  drug  ingredient 
reimbursement. (CIN: A-06-95-00062) 
27  B.  Montana 
Montana reported drug expenditures of $26 million in CY 1994. The OIG estimated that, in 
Montana, AWP exceeded invoice prices for brand name drugs by 16.2 percent and for 
generic drugs by 48.5 percent.  The OIG recommended that the State consider these results 
as a factor in any future changes to pharmacy reimbursement for Medicaid drugs.  In 
response, the State noted that any evaluation of Medicaid pharmacy pricing should consider 
additional  factors  and  expressed  concern  that  further  discounting  of  AWP  in  pricing 
formulas would result in a corresponding inflation in AWP.  The OIG acknowledges the 
States concerns, but believes that information on prices actually paid by pharmacies is 
useful in setting future reimbursement rates. (CIN: A-06-95-00068) 
C.  Florida 
Florida reported drug expenditures of $486.7 million in CY 1994.  The OIG estimated that 
AWP exceeded invoice prices for brand name drugs by 20.2 percent and for generic drugs 
by 41.5 percent.  The OIG recommended that the State consider the results of this review as 
a factor in any further changes to pharmacy reimbursement for Medicaid drugs.  The State 
responded that it compared the data from OIGs review to its current reimbursement policy 
and believes no change is warranted at this time. (CIN: A-06-95-00065) 
D.  North Carolina 
North Carolina  reported drug expenditures  of $222.5  million  in CY 1994.  The  OIG 
estimated that AWP exceeded invoice prices for brand name drugs by 16.9 percent and for 
generic  drugs  by  45.2  percent.   The  State  agreed  with  OIGs  recommendation  that  it 
consider the results of our review in any future changes to pharmacy reimbursement for 
Medicaid drugs. (CIN: A-06-95-00071) 
Medicaid Reimbursement for Clinical Laboratory Services 
As part of its nationwide review of States procedures and controls over Medicaid payments 
for  clinical  laboratory  services,  OIG  determined  that  Connecticut,  Maryland,  Georgia, 
Wisconsin, Arkansas, Missouri, California and Washington were reimbursing providers for 
services that were not properly grouped together (bundled into a panel) or were duplicated 
for payment purposes.  The OIG determined that resultant overpayments were due to the 
States not having adequate edits in place to ensure that payments for clinical laboratory 
services did not exceed amounts recognized by Medicare for the same services. 
Based on its audits, OIG  estimated  the following recoveries  for  CYs 1993 and 1994: 
Connecticut,  $427,000  (Federal  share  $213,000);  Maryland,  $255,000  (Federal  share 
$127,000); Georgia, $3.4 million (Federal share $2.1 million); Wisconsin, $569,000 (Federal 
share $343,000); Arkansas, $167,000; Missouri, $1.1 million (Federal share $653,000); 
California, $8 million (Federal share $4 million); and Washington, $716,000 (Federal share 
$213,000). 
28
 The  OIG  recommended  that  the  States  install  edits  to  preclude  payments  for  clinical 
laboratory services that exceed amounts recognized by Medicare for the same services; 
recover overpayments for clinical laboratory services identified in the review; and make 
adjustments for the Federal share of the amounts recovered by the States in their quarterly 
reports of expenditures to HCFA. 
Connecticut,  Georgia,  Arkansas  and  Washington  concurred  with  the  recommendations. 
Maryland and Missouri both agreed with the installation of edits but did not agree with the 
recovery of overpayments and adjustment for Federal share recovered.  California generally 
disagreed with the recommendations but did agree to research points raised in the report to 
identify opportunities for future savings.  Wisconsin disagreed with the recommendations. 
(CIN: A-01-95-00006; CIN: A-03-96-00200; CIN: A-04-95-01109; CIN: A-05-95-00035; 
CIN: A-06-96-00002; CIN: A-07-95-01138; CIN: A-09-95-00072; CIN: A-10-95-00002) 
Federal and State Partnership: Joint Audits of Medicaid 
Two  years  ago,  OIG  began  an  initiative  to  work  more  closely  with  State  auditors  in 
reviewing the Medicaid program.  The Partnership Plan was created as an effort to provide 
broader coverage of the Medicaid program by partnering with State auditors to conduct joint 
reviews.  The OIG believed that this partnership approach would be a more effective use of 
scarce audit resources by both the Federal and State audit sectors. 
Active partnerships have been developed with 15 State auditors, 11 State Medicaid agencies 
and 2 State internal audit groups.  Twenty State auditor partnership reports have been issued 
with a financial impact of over $100 million affecting both Federal and State Government 
funds.  The following Partnership reports were issued during this semiannual period and 
several more reports are in process: 
A.  Washington:  Medicaid Drug Rebate Program 
The Washington State Auditor reviewed certain compliance requirements related to the drug 
rebate program as part of the 1995 single audit of the State.  The Auditor found that 
Washington did not have policies or procedures established to ensure that rebate billings 
which have been disputed by manufacturers were resolved within prescribed timeframes. 
Moreover, the State Auditor found that although over half the manufacturers included in the 
audit remitted their rebate payments past the due date, none paid interest as required. 
Appropriate recommendations were made.  This information was included in a letter to 
management dated March 4, 1996. The single audit report was issued on April 5, 1996. (No 
CIN assigned) 
B.  Montana:  Medicaid Drug Rebate Program 
The Montana Legislative Auditor found that the State did not actively pursue the collection 
of outstanding drug rebate amounts.  Only one employee was assigned to collect the rebates 
29
 and resolve the disputes.  As of October 15, 1995, uncollected rebates in dispute status 
totaled $1.2 million. Manufacturers are required to apply interest to late rebate payments on 
amounts not paid by the prescribed due date.  As of October 15, 1995, interest totaling 
approximately $116,000 should have been charged on unpaid amounts. 
Recommendations called for the State to resolve disputed drug rebate amounts in a timely 
manner  and  establish  procedures  to  charge  interest  on  past  due  drug  rebates.   This 
information was included in the single audit report dated January 1996. (No CIN assigned) 
C.  Montana:  Durable Medical Equipment 
The Montana Legislative Auditor reviewed the States Medicaid expenditures for DME and 
identified potential cost savings in the processing of DME claims and the acquisition of 
medical  equipment  and  supplies.   The  report  recommended  that  the  State  evaluate 
competitive bidding for term contracts for oxygen concentrators to reduce costs; require a 
written description and/or prior authorization of all Medicaid items paid from invoices billed 
under miscellaneous equipment codes; determine whether the current State term contract for 
diapers could be modified to achieve savings; and define allowable incontinence supplies 
and document the medical necessity of these supplies. (CIN: 06-96-00042) 
Childrens Dental Services under Medicaid: 
Access and Utilization 
Medicaids  Early  and  Periodic  Screening,  Diagnostic  and  Treatment  (EPSDT)  is  a 
comprehensive health program that provides initial and periodic examinations and medically 
necessary follow-up care.  Federal law requires that States provide EPSDT services to 
eligible children from birth through age 20. States must ensure that health care providers are 
available  and  accessible,  and  teach  Medicaid  families  how  to  use  available  resources 
effectively.  In recent years, State and Federal officials have expressed concern about the 
number of dentists who are willing to see EPSDT enrollees. 
The OIGs inspection confirmed what HCFA data show -- that few children receive EPSDT 
dental services and the extent of the problem varies significantly from State to State.  Data 
from HCFA indicate that only 1 in 5 (4.2 million of 21.2 million) eligible Medicaid children 
received preventive dental services in 1993, a slight decrease from 1992. 
The OIG determined that children do not receive preventive dental services for three basic 
reasons:  few dentists are willing to accept Medicaid patients; Medicaid families give dental 
services  a low priority;  and the youngest  children  are  the  most  difficult to serve and 
frequently are not screened at all.  In the past few years, State, local and private agencies 
have begun initiatives to improve the participation of dentists in Medicaid and to encourage 
children and families to use dental services.  While some States are planning to evaluate 
their projects, most do not yet have data to show whether they are effective. 
30  The OIG recommended that the Department convene a work group to develop an integrated 
approach  to  improving  dental  access  and  utilization  for  EPSDT  eligible  children,  and 
proposed several issues for consideration.  Several departmental agencies concurred and the 
Assistant Secretary for Health and the National Institutes of Health suggested that the 
existing Public Health Service Oral Health Coordinating Committee Work Group, with 
expanded membership, could address OIGs recommendation. (OEI-09-93-00240) 
Medicaid Fraud 
In FY 1995, payments by both the Federal and State Governments to Medicaid health care 
providers were approximately $155 billion.  The Medicaid fraud control units (MFCUs) are 
responsible for investigating fraud in more than 98 percent of all Medicaid health care 
provider payments. Forty-seven States now have units and are receiving funds and technical 
assistance from OIG.  Three States have received waivers from establishing MFCUs as 
required  by  the  Omnibus  Budget  Reconciliation  Act  of  1993.   The  MFCUs  conduct 
investigations, and bring to prosecution persons charged with defrauding the Medicaid 
program or with patient abuse and neglect. 
During FY 1995, OIG administered approximately $110 million in grants to the MFCUs. 
The  MFCUs  reported  291  convictions  and  $19.5  million  in  fines,  restitutions  and 
overpayments collected for the period January 1, 1996 through June 30, 1996. 
Although most Medicaid fraud cases are investigated by the MFCUs,  OIG occasionally 
works with them and/or other law enforcement agencies on such cases.  The following 
instances of successful prosecutions in these cases bear noting: 
	 A North Dakota State social worker signed an agreement to repay $110,500 
she had defrauded in false Medicaid claims in Minnesota and South Dakota 
from 1988 through 1992.  She also agreed to a 5-year exclusion from 
Medicare and Medicaid.  The social worker billed for the services of a 
physician psychiatrist which were actually performed by social workers. 
She conspired with a psychiatrist who signed the claims in exchange for a 
part of the reimbursements, for services he never performed.  Earlier the 
psychiatrist agreed to pay $80,000 for his part in the scheme. 
	 In Tennessee, two men were sentenced to 7 months incarceration, 7 months 
home confinement and 2 years supervised release for defrauding Medicaid. 
The father of one of the men was sentenced to 1 day incarceration and 18 
months supervised release. The three submitted fraudulent crossover claims 
to Medicaid, including false expenses on cost reports and failure to report 
related  parties.   The  father  was  incarcerated  earlier  in  a  related  case 
involving his brother and several nursing homes. 
31
 	 In  1992,  OIG  joined  the  FBI  in  a  Medicaid  fraud  project  in  Illinois 
involving drugs.  During this reporting period, one man was sentenced to 6 
months  in  prison  for  purchasing  and  reselling  illegally  obtained  drug 
samples and prescription drugs from Medicaid recipients.  Investigation 
revealed that the recipients would visit several doctors on the same day and 
obtain prescriptions.  After they filled the prescriptions they sold the drugs 
to a "non-con" (an individual who does not deal in controlled substances 
and is usually not concerned about  refrigeration  or  sanitary  storage of 
drugs).  The non-con resold the drugs to pharmacies, causing Medicaid to 
pay for the same drugs multiple times. Similarly, an Illinois pharmacist was 
sentenced for buying drugs collected from Medicaid patients by a non-con. 
Their convictions made a total of 15 resulting thus far from the project. The 
FBI has expanded the project nationally. 
32
 Public Health Service 
Operating Divisions  Chapter III

PUBLIC HEALTH SERVICE OPERATING

DIVISIONS

Overview of Program Area and Office of 
Inspector General Activities 
The  activities  conducted  and supported  by the  Public  Health  Service  (PHS)  operating 
divisions represent this countrys primary defense against acute and chronic diseases and 
disabilities.  These programs provide the foundation for the Nations efforts in promoting 
and  enhancing  the  continued  good  health  of  the  American  people.  These  currently 
independent  operating divisions within the Department include:  National Institutes of 
Health (NIH), to advance our knowledge through research; Food and Drug Administration 
(FDA), to assure the safety and efficacy of marketed drugs, biological products and medical 
devices;  Centers for Disease Control and Prevention (CDC), to combat preventable diseases 
and protect the public health; Health Resources and Services Administration (HRSA), to 
support the development, distribution and management of health care personnel, other health 
resources and services; Indian Health Service (IHS), to improve the health status of Native 
Americans; Agency for Toxic Substances and Disease Registry (ATSDR), to address issues 
related to Superfund toxic waste sites; the Agency for Health Care Policy and Research 
(AHCPR), to enhance the quality and appropriateness of health care services and access to 
services through scientific research and the promotion of improvements in clinical practice, 
and in the organization, financing and delivery of services; and the Substance Abuse and 
Mental  Health  Services  Administration  (SAMHSA),  to  assist  States  in  refining  and 
expanding treatment and prevention services. 
In the past 5 years, the Office of Inspector General (OIG) has significantly increased its 
oversight of public health programs and activities. The OIG has concentrated on a variety of 
issues such as biomedical research funding, substance abuse, Indian health services, drug 
approval processes and community health center programs.  The OIG has also looked at the 
regulation of drugs, foods and devices, and explored the potential for improving these 
activities through user fees.  The OIG has conducted audits of colleges and universities 
which  annually  receive  substantial  research  funding  from  the  Department.   The  OIG 
continues to examine policies and procedures throughout the agencies to determine whether 
proper controls are in place to guard against fraud, waste and abuse. These activities include 
preaward  and  recipient  capability  audits.   This  oversight  work  has  provided  valuable 
33
 recommendations to program managers for strengthening the integrity of agency policies 
and procedures. 
Postmarketing Studies of Prescription Drugs 
Postmarketing  studies  -- drug  studies  conducted  after  FDA  marketing approval -- can 
provide  important information on new uses and  dosing information for  special patient 
populations, such as the elderly.  A companys agreement to conduct an FDA-requested 
postmarketing study is called a postmarketing or Phase IV commitment. As illustrated in the 
following chart, FDA is requesting postmarketing studies for an increasing number of drugs. 
ANNUAL PERCENT OF NEW MOLECULAR ENTITIES 
WITH POSTMARKETING COMMITMENTS 
80 
70 
60 
e  50 
g
a
ent 40 
c
er
P
30 
20 
10 
0 
1972  1973  1974  1975  1976  1977  1978  1979  1980  1981  1982  1983  1984  1985  1986  1987  1988  1989  1990  1991  1992  1993 
Year of Approval 
The OIG found that there are no formal standards and procedures for monitoring or for 
establishing whether a postmarketing commitment has been met.  The OIG recommended 
that FDA establish standards, procedures or guidelines for carrying out monitoring and 
tracking  objectives,  and  establish  accountability  for  monitoring,  tracking  and  bringing 
commitments  to  closure.   Included  in  OIGs  report  were  several  ideas  for  FDAs 
consideration in streamlining data management.  The FDA agreed with OIGs findings and 
recommendations and  has drafted a directive  that  establishes  procedures and  provides 
guidance. (OEI-03-94-00760) 
Processes to Review Medical Devices 
The OIG conducted a follow-up review to assess corrective actions taken by FDA to 
improve  its  premarket  approval  (PMA)  and  investigational  device  exemption  (IDE) 
application  review  processes.  The  OIG  found  that  FDAs  Center  for  Device  and 
Radiological Health (CDHR) had taken actions that should enhance the review processes. 
34  However,  OIG  concluded  that  CDHR  could  further  strengthen  the  integrity  of  these 
decision-making processes by fully implementing a program for conducting independent 
internal quality control reviews of the PMAs, similar to reviews conducted of IDEs.  The 
FDA concurred with OIGs recommendation. (CIN: A-15-95-50001) 
Food and Drug Administrations Urgent Notices 
At FDAs request, OIG conducted an inspection to assess the effectiveness of an Urgent 
Notice on recalled blood glucose test strips which was released on October 11, 1995.  The 
OIG  surveyed  pharmacies  nationwide  through  telephone  interviews  and  site  visits. 
Approximately two-thirds of the pharmacists contacted acknowledged receiving the notice. 
About one-half indicated that the notice was the means by which they first learned of the 
problem of the defective test strips.  The majority of pharmacists who acknowledged 
receiving this notice reported that they did, in fact, check and remove stock as recommended 
in the notice.  However, OIG found recalled test strips in one pharmacy.  Further, few 
pharmacists posted the public notice which FDA provided to them. 
The inspection results did not explain why one-third of the pharmacists interviewed were not 
aware of the Urgent Notice.  Clearly more research is needed on this.  The OIG strongly 
encouraged FDA to continue its efforts to improve ways to notify the health care community 
on important safety issues  regarding medical devices.   The FDA  should also consider 
restructuring and rephrasing future Urgent Notices to clearly convey to recipients what 
actions they are expected to take. (OEI-07-94-00631) 
Processing of 17 Error and Accident 
Reports Involving Blood 
When an error or accident occurs that may affect the safety, purity or potency of blood, 
licensed blood  establishments are required to report  the  incident  to FDAs Center for 
Biologics Evaluation and Research (CBER).  In an earlier review, OIG determined that 
CBER generally processed the error and accident reports in accordance with established 
procedures, but noted that it would continue to review 17 of the 163 report sample that had 
been identified by CBER as warranting further evaluation for a recall classification. 
The OIGs current review finds that FDA correctly processed 12 of the 17 error and accident 
reports it had identified as warranting further evaluation.  For the five reports not processed 
in accordance with established procedures, FDA said that the reports should have been 
classified  as  blood  recalls  and  published  as  such  in  the  FDA  Enforcement  Report,  a 
document distributed within FDA and to other Federal Government agencies, the press and 
consumers. 
Although these processing errors are causing delays in publication, OIG does not believe the 
public was placed at additional risk in these cases.  Classification and publication of a blood 
35  recall generally take place long after the error or accident occurs and is reported by the 
blood establishment.  In the five error and accident reports that OIG identified as processed 
incorrectly, the blood establishments acted quickly after detecting the error or accident. 
The OIG recommended that FDA improve its tracking system to ensure that all error and 
accident reports warranting further evaluation for blood recall classification are tracked until 
final resolution.  Further, OIG proposed that FDA complete the recall classification and 
publication  of  the  five  error  and  accident  reports  not  processed  in  accordance  with 
established  procedures.  The  FDA  agreed  with  the  recommendations.   (CIN: 
A-03-95-00350) 
Educational Resource Centers 
The CDC provides grant funds to 14 university-affiliated centers that provide training on 
occupational safety and health. These Educational Resource Centers (ERCs) were instituted 
in response to the Occupational Safety and Health Act of 1970 which mandated that the 
Secretary ensure an adequate supply of trained professionals for the field. 
As illustrated in the following chart, OIG found that most CDC-supported graduates did 
pursue occupational safety and health careers. 
CDC-SUPPORTED GRADUATES PURSUING OCCUPATIONAL SAFETY 
AND HEALTH CAREERS ANNUALLY 
1989- 1990- 1991- 1993- 1993- Total 5-
1990  1991  1992  1994  1994  Years 
Number of graduates  202  220  193  225  222  1,062 
Number of graduates  170  195  176  195  192  928 
pursuing careers in 
occupational safety and 
health 
Percent of graduates  84%  89%  91%  87%  86%  87% 
pursuing careers in 
occupational safety and 
health 
Approximately 52 percent of the CDC-supported graduates pursued occupational safety and 
health careers in private organizations, and approximately 45 percent pursued careers in 
government or academia.  Seventy percent of the responding graduates rated the quality of 
ERC training as excellent.  Ninety-four percent said that ERC training adequately prepared 
36  them for occupational safety and health careers.  The OIG report included a number of 
suggestions from graduates for improving the curriculum.  The CDC concurred with OIGs 
findings.  (OEI-04-92-00900) 
Administration of Flood Grants for the Midwestern Flood of 1993 
The OIG conducted a review to determine whether grants totaling $8.2 million provided 
relief to flood victims in accordance with guidelines established by the Midwest Flood 
Health and Medical Task Force. The OIG determined that awards totaling $4.2 million were 
not granted for purposes consistent with Task Force guidelines.  Two grantees whose clinics 
were undamaged by the flood received funds for new construction and acquisition of clinical 
facilities that would not be operational until years after the disaster.  One grantee received 
funds to provide primary health care services, but no services were provided for nearly 1 
year after the grant award was made. 
The  OIG  recommended  that  HRSA  review  the  justification  used  to  fund  the  three 
questionable awards and replace the emergency funds with other appropriate funding if the 
awards were not consistent with Task Force guidelines or the intent of the law.  In addition, 
OIG proposed that HRSA develop procedures for objectively evaluating applications against 
established criteria.  Subsequent review by HRSA found adequate justification existed for 
awarding emergency flood funds to the three identified grantees consistent with Task Force 
Guidelines. (CIN: A-07-94-00821) 
Providing Medical Malpractice Coverage to Community and 
Migrant Health Centers 
The OIG analyzed the costs to the Federal Government for providing medical malpractice 
liability insurance to community and migrant health centers (C/MHCs).  The Federal Tort 
Claims  Act  (FTCA)  currently  provides  unlimited  dollar  coverage  for  each  medical 
malpractice claim because there are no Federal restrictions on the amount of money that can 
be paid on each claim under FTCA. 
The OIG concluded that unlimited dollar coverage could result in significant additional 
malpractice claims costs under FTCA.  The OIG estimated that the Federal Government 
would incur $30.6 million more over a 3-year period to provide unlimited dollar coverage, 
compared to providing coverage with a $1 million per claim limit.  The OIG recommended 
that  HRSA  consider  seeking  a  legislative  change  to  limit  malpractice  settlement  or 
judgments involving C/MHCs to $1 million. The HRSA concurred. (CIN: A-04-95-05018) 
Access to Community Health Centers by Homeless Persons 
This inspection was conducted at the request of the Assistant Secretary for Planning and 
Evaluation.  The OIG found that nearly two-thirds of community health centers conduct 
37
 outreach by sending staff or contacting homeless shelters to provide information on services 
available,  and that  the centers provide a wide  range  of  treatment  to homeless clients. 
However, the centers also report that homeless persons experience barriers in obtaining 
needed medical services from them, and some shelters do not refer clients to the centers for 
services. 
The  findings  suggest  a  great  potential  for  community  health  centers  (CHCs)  to  help 
homeless people.  The HRSA can build on current initiatives to do this.  Collaboration 
between the health centers and nearby shelters is particularly important. The report contains 
no recommendations but does identify some opportunities for improving the relationship 
between the homeless and CHCs.  (OEI-07-95-00061) 
Exclusions for Health Education Assistance Loan Defaults 
Through the Health Education Assistance Loan (HEAL) program, HRSA provides money to 
students seeking an education in a health-related field of study.  Repayment of these loans is 
deferred  until  they  have  graduated  and  begun  to  earn  some  money.   Although  the 
Departments Program Support Center (PSC) makes every effort to secure repayment, some 
loan recipients ignore their indebtedness. 
The Social Security Act permits and, in some instances, mandates exclusion from Medicare 
and  State  health  care  programs  for  nonpayment  of  these  loans.   During  this  6-month 
semiannual period, 204 individuals were excluded as a result of PSC referral of their cases 
to OIG. 
Individuals who default may enter into settlement agreements whereby the exclusion is 
stayed while they pay specified amounts each month to satisfy their debt.  If they default on 
these settlement agreements, they are then excluded until their entire debt is repaid and they 
have no right to appeal these exclusions.  Some of these health professionals, upon being 
notified of their exclusion, immediately repay their HEAL debt. 
At the conclusion of this reporting period, 583 individuals had taken advantage of the 
opportunity and entered into settlement agreements or completely repaid their HEALs.  The 
amount  of  money  being  repaid,  through  settlement  agreements  or  through  complete 
repayment,  totals  almost  $36  million.   The  following  are  examples  of  some  of  these 
settlements: 
	 After being notified that she was excluded as a result of her failure to repay 
her HEAL, an Illinois physician entered into a settlement agreement to 
repay over $145,000. 
38
   Two Ohio podiatrists signed settlement agreements to repay their HEAL 
debts after being excluded for defaulting on their obligation.  One agreed to 
repay over $130,000 and the other agreed to repay over $113,000. 
  A settlement agreement was signed by a Tennessee dentist to repay his 
HEAL debt of over $211,000. 
  Shortly after being notified of his exclusion for defaulting on his HEAL, a 
California physician entered into a settlement agreement to repay over 
$183,000. 
Tribal Contracting for Indian Health Services 
At IHSs request, OIG evaluated efforts by IHS and Indian tribes to implement the Indian 
Self-Determination and Education Assistance Act, Public Law 93-638.  Through contracts, 
tribes can receive the money that IHS would have used to provide direct health services for 
tribal members.  Tribes can use these funds to provide directly, or through another entity, a 
broad range of health services.  This option is commonly referred to as "638" contracting. 
Tribes contract for nearly 32 percent of the total IHS budget of approximately $1.7 billion. 
The OIG found that, because tribes view 638 contracting as an opportunity to customize and 
improve health care for their communities, almost 75 percent of them want to increase the 
number and scope of their contracts.  However, many of the smaller noncontracting tribes 
face barriers to increasing their level of contracting and many tribes remain poorly informed 
about the 638 contracting process.   Well-informed tribes rely on Indian health boards, 
consulting  firms,  other  tribes  and  attorneys  for  638  contracting  information,  technical 
assistance, training and contract monitoring. 
The OIG recommended that IHS continue and expand its efforts to increase tribal awareness 
and foster self-determination.  Specific suggestions included:  providing 638 contracting 
orientations to tribes that need them; simplifying communications and increasing personal 
contact; distributing individual tribal budget information annually; and informing tribes of 
their  option  to  use  existing  community  health  services.   The  IHS  agreed  with  OIGs 
recommendation. (OEI-09-93-00350) 
Public Health Services Service and Supply Fund: 
Fiscal Year 1995 
The purpose of PHS Service and Supply Fund is to provide consolidated financing and 
accounting for business-type operations involving the provision of common services to 
customers in PHS and other governmental agencies. 
39  The independent accounting firm engaged to audit the Funds statements determined that 
except for the omission of a statement of cash flows and a statement of budget and actual 
expenses (both of which were waived by the Office of Management and Budget as a 
departmental requirement), the Funds financial statements presented fairly, in all material 
respects, the financial position of the Fund as of September 30, 1995 and 1994. 
The auditors also noted internal control weaknesses in certain accounting operations and 
noted the need to improve security over access to computer systems data.  The Funds 
managers made appropriate adjustments in the accounting records and concurred with the 
procedural recommendations. (CIN: A-17-95-00053) 
40
 Administration 
for Children 
and Families, 
and Administration 
on Aging  Chapter IV

ADMINISTRATION FOR CHILDREN 

AND FAMILIES, AND 

ADMINISTRATION ON AGING

Overview of Program Areas and Office of Inspector 
General Activities 
The Administration for Children and Families (ACF) provides direction and funding for 
programs designed to promote stability, economic security, responsibility and self-support 
for the  Nations  families.  The  major programs  have included:  Aid  to Families  with 
Dependent Children (AFDC), Emergency Assistance (EA), Child Support Enforcement 
(CSE), Foster Care, Job Opportunities and Basic Skills (JOBS) training, Family Preservation 
and Support, Head Start, and the Child Care and Development Block Grant program. 
The recently enacted Personal Responsibility and Work Opportunity Act of 1996 eliminates 
the AFDC, EA and JOBS programs as of Fiscal Year (FY) 1997 and creates the Temporary 
Assistance for Needy Families (TANF) block grant, and is designed to reduce dependency 
on welfare  programs.  The block grant eliminates  individual entitlement  to assistance, 
establishes  time  limits  on  benefits  and  sets  strong  work  participation  requirements. 
However, the Act gives States and tribal governments greater flexibility to establish and 
operate programs structured to their needs. While the Federal role in TANF is reduced, OIG 
will continue to ensure program integrity, identify opportunities for program improvement, 
and provide Federal and State management with useful information regarding the goal of 
moving individuals and families from welfare dependency to self-sufficiency. 
In addition, OIG reviews the Departments programs that serve children, and has issued 
several reports in this area.  The OIG reports have focused on ways to increase the efficient 
use of the program dollar, more effective program implementation, and how to better 
coordinate program implementation between the Federal and State and local governments. 
The Administration on Aging (AoA), which reports directly to the Secretary, awards grants 
to  States  for  establishment  of  comprehensive  community-based  systems  that  assist  the 
elderly in maintaining their independence and in remaining in their homes as long as 
possible.   The  assistance  is  targeted  to  the  socially  and  economically  disadvantaged, 
especially  the  low-income  minority  elderly,  and  includes  supportive  services,  nutrition 
services, education and training, low-cost transportation and housing, and health services. 
41  The OIG has reported opportunities for program improvements to target the neediest for 
services; expand available financial resources; upgrade data collection and reporting; and 
enhance program oversight. 
Fingerprinting Demonstration Project 
At ACFs request, OIG reviewed the ongoing Automated Fingerprint Image Reporting and 
Match  System  (AFIRM)  demonstration  project  underway  in  Los  Angeles  County, 
California.  The 3-year project, which addresses problems involving multiple-case fraud in 
the AFDC program, is funded at $20.6 million, half of which is to be provided by the 
Federal Government.  The project defines multiple-case fraud as a situation in which an 
individual receives concurrent benefits for the same child(ren) on two or more AFDC cases. 
The principal purposes of the project are to demonstrate that AFIRM will prevent, detect and 
deter AFDC multiple-case fraud; is cost-effective; and will assist the provision of timely, fair 
and equitable service to eligible families. 
The OIG found that the AFIRM project meets the cost neutrality provision, and has achieved 
savings and positive results in the area of welfare fraud.  Net savings over the project period 
are estimated by Los Angeles County at $66 million.  Although the AFIRM project was 
designed to combat multiple-case fraud, the results also show an impact on other types of 
welfare fraud. The OIG report provides ACF with information which should prove useful in 
making future decisions involving use of automated fingerprinting technology in the TANF 
block grant program. (CIN: A-09-95-00054) 
Privatization of Floridas Overpayment 
Recovery Function 
At ACFs request, OIG conducted a limited review of Floridas proposed privatization of its 
overpaid welfare benefit recovery function.  Specifically ACF asked OIG to review the 
States Request for Proposal (RFP) to determine whether it addressed deficiencies noted in 
past OIG and ACF reports.  As of June 1995, Florida had about $105 million in accounts 
receivable  for  overpaid  welfare  benefits  and  a  backlog  of  about  347,000  referrals  of 
potential overpayment cases. 
The  OIG  found  no  significant  problem  with  the  RFP  but  concluded  that  the  States 
privatization efforts would only partially address problems previously reported by OIG and 
ACF.  Moreover, most would likely remain uncorrected by welfare reform legislation.  The 
OIG recommended that ACF require the State to prepare and implement a corrective action 
plan  based  on  the  deficiencies  previously  reported,  and  follow  closely  the  States 
implementation of privatization and other corrective action.  After a reasonable trial period 
of privatization, ACF should reevaluate the States entire overpayment and recovery process 
to determine the effectiveness of actions taken.  The ACF agreed with OIGs findings and 
recommendations. (CIN: A-04-96-00096) 
42  Facility Purchases by the Head Start Program 
At ACFs request, OIG evaluated the procedures for reviewing, approving and accounting 
for purchases of facilities by Head Start grantees.  During the review period FYs 1993 
through 1994, ACF approved the purchase of 95 facilities valued at $24.1 million with 
renovation costs estimated at an additional $4.4 million. 
The  OIG recommended that ACF: continue efforts to develop expertise for providing 
technical assistance to grantees acquiring or planning to acquire facilities; require that 
property  inspection  reports  submitted  by  grantees  include  the  results  of  tests  for 
environmental hazards; and require grantees to disclose any restrictions on the use of the 
facilities imposed by organizations providing supplemental funding; continue efforts to 
develop and implement a system to account for Head Start funds utilized for each facility 
purchased; and provide guidelines to calculate the Federal interest in properties which are 
acquired with the assistance of funds provided from other programs and when a portion of 
the facility is used for other purposes.  In response to the draft report, ACF concurred with 
the recommendations. (CIN: A-09-94-00085) 
Head Start Grantees 
In  response to the Head Start Bureaus concerns with several grantees, OIG provided 
contracted audit services under a streamlined cost competitive procurement mechanism it 
developed  with  the  Assistant  Secretary  for  Management  and  Budget.  These 
agreed-upon-procedure reviews serve to assist ACFs efforts to strengthen the financial 
management and program compliance capabilities of these grantees, which in turn help 
ensure the fiscal integrity of the Head Start program and proper stewardship over Federal 
funds. 
A.  Oakland, California 
A review was performed concerning the operations of a Head Start grantee, and more 
specifically,  the  grantees  agreement  with  a  construction  company  for  the  leasehold 
improvement renovations for a property it leases.  The review found that for FYs 1995 and 
1996,  the  grantee  violated  not  only  the  Department  of  Health  and  Human  Services 
procurement standards, but also Federal regulations which require changes in the budget and 
construction  to  be  preapproved  by  the  granting  agency.   These  violations  resulted  in 
questioned costs of $352,000 for the renovations at the facility construction site, and the 
auditors questioned an additional $25,000 paid as rent for the facility as a related cost to the 
renovations.  In addition, the auditors found possible unrecorded liabilities in the amount of 
$217,000  relating  to  the  aforementioned  renovation  project  during  a  review  of  the 
construction companys billing records. (CIN: A-12-96-00017) 
43
 B.  Levelland, Texas 
The review disclosed that for FYs 1994 and 1995, a Levelland, Texas Head Start grantee 
violated departmental regulations and Head Start grant conditions and budgets.  These 
violations resulted in questioned costs of $639,400 for lack of compliance with budget 
provisions  and  deviations  from  grant  award  proposals  related  to  the  misuse  of  funds 
designated  for  specific  purposes,  payments  for  unapproved  salaries  and 
less-than-arms-length transactions.  In addition, the grantee had not procured adequate audit 
services from a qualified independent audit firm. (CIN: A-06-96-00062) 
C.  Victoria, Texas 
The review disclosed that for FYs 1994 and 1995, a Texas Head Start grantee did not 
comply with Head Start grant conditions and budgets.  These instances of noncompliance 
resulted in questioned costs of $104,463 for lack of compliance with budget provisions and 
deviations from grant award proposals, including the misuse of $65,000 budgeted to cover 
unfunded employee pension plan contributions.  In addition, the grantee was in violation of 
its policies concerning the organizations management structure and violated proper bidding 
procedures. (CIN: A-06-96-00063) 
Child Support Enforcement 
The United States Attorney General has placed enforcement of the Child Support Recovery 
Act of 1992 as a top Department of Justice (DOJ) priority.  The Act made it a Federal 
misdemeanor crime for a parent in one State to refuse to pay past due support for a child in 
another State, when the support has been owed for more than 1 year or exceeds $5,000. Any 
subsequent offense is considered a felony violation. 
The DOJ has been working since 1993 with the Federal Bureau of Investigation (FBI) and 
the Department of Health and Human Services (HHS) Office of Child Support Enforcement 
to  develop  an  avenue  for  child  support  cases  administered  by  State  offices  (partially 
federally funded) to go directly to the appropriate U.S. Attorneys offices for adjudication. 
The OIG became part of this effort in 1995, initially concentrating only on cases involving 
AFDC payments necessitated by parental failure to provide ordered support. 
In the fall of 1995, a more effective process for investigation and prosecution for all child 
support enforcement cases was developed and adopted.  The DOJ granted deputation to OIG 
agents to work all Federal child support violations, regardless of whether Department funds 
are involved.  The deputation authority is contingent on working jointly with any other 
agency having interests in the case, such as the Internal Revenue Service. 
The FBI fugitive squads continue to place a high priority on child support enforcement 
cases, and OIG works constantly to coordinate efforts.  Since the cases can be pursued in 
44
 either the place where the nonpaying parent or the custodial parent resides, the agencies 
involved have agreed that venue will be decided on a case-by-case basis. 
During this reporting period, the first conviction was handed down in a case in which OIG 
was involved, when a former professional wrestler was sentenced in Virginia for failing to 
pay child support for two children in North Carolina. 
Interstate Compact on Adoption and Medical Assistance 
The  OIG  determined  that  Interstate  Compact  on  Adoption  and  Medical  Assistance 
membership  provides  States  with  significant  administrative  advantages  in  maintaining 
medical assistance for title IV-E adoptive children with  special needs.  Member  States 
benefit from active involvement, an accessible contact person, standard forms, the ability to 
issue timely Medicaid cards, good coordination and an active secretariat.  As a result, 
virtually all 30 member States are satisfied with the compact.  Despite these advantages, 
however, OIG found that more than half the nonmember States saw no need to join. 
The OIG concluded that compact membership is advantageous to the States and families 
with IV-E children, and urged those States that are planning to join to do so expeditiously. 
Further,  OIG  suggested  that  ACF  work  with  the  compacts  secretariat  and  adoption 
advocacy groups to disseminate information on these benefits. The ACF agreed and is doing 
so.  (OEI-02-95-00040) 
Title IV-E Foster Care Reimbursement Rates 
The OIGs review of the reimbursement rates established for a nonprofit child care and 
placement agency in New York found that overpayments of over $945,000 were made 
during the audit period of July 1, 1992 through June 30, 1993.  The nonprofit agency has 
four foster care programs subject to title IV-E reimbursement:  foster family homes, group 
homes, persons-in-need-of-supervision and agency-operated homes. The four programs are 
reimbursed at different rates. 
The OIG found that the maintenance reimbursement rates were overstated and included 
unallowable cost items, including improperly allocated general and administrative costs, 
improperly handled accounts payable write-offs, overstated rent adjustments and charges 
that should have been claimed under other programs.  The OIG recommended financial 
adjustments  to  the  Federal  Government  for  $145,000  from  the  nonprofit  agency  and 
$800,000 from the State. (CIN: A-02-95-02001) 
Grantee Fraud 
A woman and her husband were sentenced in Georgia for defrauding Government grant 
funds.  The woman was a clerk for a community service agency that received funds from 
45
 ACF for providing social, educational and nutritional services to disadvantaged children and 
their parents.  Between 1992 and 1994, she altered payees names, substituting her own 
name on agency checks and depositing them in her savings and various joint checking 
accounts,  including  her  husbands  business  account.   She  pled  guilty  to  conspiracy, 
embezzlement  and  misuse  of  Government  funds.  She  was  sentenced  to  14  months 
imprisonment with 3 years released supervision, and ordered to pay restitution of $164,320. 
Her husband also pled guilty and was sentenced to 120 days home confinement with 5 years 
probation, and ordered to pay $63,960 in restitution. 
Cost Sharing under the Older Americans Act 
Through AoA, the Older Americans Act of 1965 authorizes financial assistance to States for 
services to older persons.  Services provided under title III of the Act include, but are not 
limited to, nutrition, transportation, and in-home personal and medical services.  In the past, 
States, area agencies on aging and service providers have been allowed to ask recipients of 
title III funded services for voluntary contributions to help cover the costs of the services. 
These charges have helped some States maintain or expand services to recipients.  In the 
current reauthorization of the Act, AoA proposed amendments that would allow States, area 
agencies on aging and service providers to charge for some of the title III funded services. 
The AoA requested information on current cost sharing activities within the States. 
The OIG found that all States collect voluntary contributions and 36 States make use of cost 
sharing programs.  Their specific experiences with these practices will affect their readiness 
to implement title III cost sharing.  While many of the States believe that cost sharing will 
enable them to expand the provision of services, some express concern that cost sharing 
might encourage some service providers to reach out to recipients better able to share costs, 
thereby undermining the targeting of efforts to the low-income elderly. 
The OIG concluded that cost sharing with title III funds raises accountability and oversight 
questions for the States, area agencies on aging and service providers.  If the Congress 
enacts legislation to permit cost sharing, AoA will need to carefully consider their direction, 
oversight  and  technical  assistance  to  the  States,  area  agencies  on  aging  and  service 
providers. The AoA stated that the report provided the necessary background information to 
assess cost sharing language in reauthorization bills in both the House and Senate.  Further, 
it provided baseline information to develop program policy and technical assistance for State 
agencies administering programs under the Older Americans Act. (OEI-05-95-00170) 
46
 General Oversight
 Chapter V 
GENERAL OVERSIGHT

Introduction 
This chapter addresses the Office of Inspector Generals (OIGs) departmental management 
and Governmentwide oversight responsibilities.  The Program Support Center, a newly 
created operating division within the Department of Health and Human Services (HHS), 
provides overall direction for departmental administrative activities as well as common 
services such as human resources, financial management, administrative operations and 
information technology.  The Office of the Assistant Secretary for Management and Budget 
is responsible for the development of the HHS budget and its execution, as well as the 
related activities of establishing and monitoring departmental policy for debt collection, cash 
management, and payment of HHS grants and contracts.  The Department also has the 
responsibility, by virtue of the magnitude of its funding, to negotiate the payment rates and 
methods that outside entities, such as State and local governments, charge for administering 
HHS and other Federal programs. 
The OIG has oversight responsibility for these staff division activities at the departmental 
level.  A related major responsibility flows from the Office of Management and Budgets 
(OMBs) designation of HHS as cognizant agency to audit the majority of the Federal funds 
awarded to the major research schools, 104 State and local government cost allocation plans, 
and separate indirect cost plans of about 1,000 State agencies and local governments.  In 
addition, OIG oversees the work of nonfederal auditors of Federal money at some 6,700 
entities, such as community health centers and Head Start grantees, as well as at State and 
local governments, colleges and universities, and other nonprofit organizations. 
The  OIGs  Fiscal  Year  (FY)  1996  work  in  departmental  administrative  activities  and 
Governmentwide  oversight  focuses  principally  on  financial  statement  audits,  financial 
management and managers accountability for resources entrusted, standards of conduct and 
ethics, and Governmentwide audit oversight, including recommending necessary revisions 
to OMB guidance. 
Nonfederal Audits 
The OMB Circulars A-128 and A-133 establish the audit requirements for State and local 
governments,  colleges  and  universities,  and  nonprofit  organizations  receiving  Federal 
47
 awards.   Under  the  two  circulars,  these  entities  are  required  to  have  an  annual 
organizationwide audit which includes all Federal money they receive. 
These annual audits are conducted by nonfederal auditors, such as public accounting firms 
and State auditors.  As cognizant auditor, OIG reviews the quality of these audits and 
assesses the adequacy of the entitys management of Federal funds.  In FY 1996, OIGs 
National External Audit Review Center (located in Kansas City) reviewed over 4,000 reports 
that covered over $1.1 trillion in audited costs.  Federal dollars covered by these audits 
totaled $261 billion, about $126 billion of which was HHS money. 
The OIGs oversight of the nonfederal audit activity not only provides Department managers 
with  assurances  about  the  management  of  Federal  programs,  but  also  identifies  any 
significant areas of internal control weakness, noncompliance and questioned costs that 
require formal resolution by Federal officials. 
The OIG has developed a strategy to interrelate the work performed by nonfederal auditors 
under the Single Audit Act with that required for financial statement audits.  Reliance on 
nonfederal audits wherever possible, such as use of single audits for coverage of Medicaid 
and Aid to Families with Dependent Children program expenditures, has the potential to 
maximize benefit from the audit effort expended by the public and private sectors. 
A.  Office of Inspector Generals Proactive Role 
The OIG has taken the following steps in the nonfederal area to ensure adequate coverage of 
the Departments programs and provide for greater utilization of the data provided: 
	 Through evaluation of reported data, OIG is able to provide basic audit 
coverage and analyze reports to identify entities for high-risk monitoring 
and trends that could indicate problems within HHS programs.  These 
problems  are  brought  to  the  attention  of  departmental  management  to 
improve program administration.  In addition, OIG profiles nonfederal audit 
findings of a particular program or activity over a period of time to identify 
systemic problems. 
	 To ensure audit quality, OIG maintains a quality control program (discussed 
below) and has taken steps to ensure that adequate guidance is available to 
the nonfederal auditor. The OIG actively assists the National Association of 
State Auditors, Controllers and Treasurers in performing peer reviews of 
State auditors. 
	 As a further enhancement of audit quality, OIG provides technical assistance 
to  grantees  and  the  auditing  profession  through  its  toll  free  number 
(800-732-0679)  and  through  training.  During  the  past  6  months,  366 
48
 individuals were provided with technical assistance through OIGs toll free 
number.   In  addition,  formal  training  was  provided  to  certified  public 
accountant societies and State auditor staff on issues related to Circulars 
A-128 and A-133. 
	 The OIG is also very much involved with OMB and the American Institute 
of Certified Public Accountants in developing authoritative guidance for 
nonfederal auditors. 
B.  Quality Control 
In order to rely on the work of the nonfederal auditors, OIG maintains a quality control 
review process which assesses the quality of the nonfederal reports received and the audit 
work that supports selected reports. 
Uniform procedures are used to review nonfederal audit reports to determine compliance 
with Federal audit requirements and Government auditing standards.  During this reporting 
period, OIG reviewed and issued 1,944 nonfederal audit reports.  The following table 
summarizes those results: 
Reports issued without changes or with minor changes  1,640 
Reports issued with major changes  19 
Reports with significant inadequacies  285 
Total audit reports processed  1,944 
The  1,944  audit  reports  discussed  above included  recommendations  for  HHS program 
officials  to  take  action  on  cost  recoveries  totaling  $13.6  million  as  well  as  4,255 
recommendations for improving management operations.  In addition, these audit reports 
provided information for 80 special memoranda which identified concerns for increased 
monitoring by departmental management. 
49
 Resolving Office of Inspector General Recommendations 
The tables and schedules below summarize actions  taken on OIG recommendations to 
recover funds or to put them to better use. 
A.  Questioned Costs 
The following chart summarizes the Departments responses to OIGs recommendations for 
the recovery or redirection of questioned and unsupported costs.  Questioned costs are those 
costs which are challenged because of a violation of law, regulation, grant, etc. Unsupported 
costs are those costs questioned because they are not supported by adequate documentation. 
This information is  provided in accordance with the Supplemental Appropriations and 
Rescissions Act of 1980 (Public Law 96-304) and the Inspector General Act Amendments of 
1988. 
TABLE  I 
OFFICE OF INSPECTOR GENERAL 
REPORTS WITH QUESTIONED COSTS 
Number  Dollar Value 
Questioned  Unsupported 
A. For which no management 
decision had been made by 
the commencement of the 
reporting period1  334  $301,092,000  $25,282,000 
B. Which were issued during 
the reporting period2  127  $53,341,000  $10,398,000 
Subtotals (A + B)  461  $354,433,000  $35,680,000 
Less: 
C. For which a management 
decision was made during 
the reporting period3:  197  $169,262,000  $2,481,000 
(i) dollar value of 
disallowed costs  $164,515,000  $1,134,000 
(ii) dollar value of 
costs not disallowed  $4,747,000  $1,347,000 
D. For which no management 
decision had been made by the 
end of the reporting period  264  $185,171,000  $33,199,000 
E. For which no 
management decision was 
made within 6 months 
of issuance4  152  $76,663,000  $23,491,000 
See Appendix D for footnotes. 
50
 B.  Funds Put to Better Use 
The following chart summarizes reports which include recommendations that funds be put 
to better use through cost avoidances, budget savings, etc. 
TABLE  II 
OFFICE OF INSPECTOR GENERAL REPORTS 
WITH RECOMMENDATIONS THAT FUNDS BE PUT 
TO BETTER USE 
Number  Dollar Value 
A. For which no management 
decision had been made by 
the commencement of the 
reporting period1  37  $3,323,021,000 
B. Which were issued during 
the reporting period  17  $211,793,000 
Subtotals (A + B)  54  $3,534,814,000 
Less: 
C. For which a management 
decision was made during 
the reporting period: 
(i) dollar value of 
recommendations that 
were agreed to by 
management 
(a) based on proposed 
management action  19  $1,817,439,000 
(b) based on proposed 
legislative action2  7  $1,647,300,000 
Subtotals (a+b)  26  $3,464,739,000 
(ii) dollar value of 
recommendations that 
were not agreed to 
by management  4  $415,000 
Subtotals (i + ii)  30  $3,465,154,000 
D. For which no management 
decision had been made by 
the end of the reporting 
period3  24  $69,660,000 
See Appendix D for footnotes. 
51  Legislative and Regulatory Review and Regulatory Development 
A.  Review Functions 
Section 4(a) of the Inspector General Act of 1978 requires the Inspector General to review 
existing and proposed legislation and regulations, and to make recommendations in the 
semiannual  report  concerning  the  impact  on  the  economy  and  efficiency  of  the 
administration of the Departments programs and on the prevention of fraud and abuse. 
During  this  reporting  period,  OIG  reviewed  51  of  the Departments  regulations  under 
development and 12 departmental legislative proposals. 
In reviewing regulations and legislative proposals, OIG uses as the primary basis for its 
comments the audits, inspections, investigations and other activities highlighted in this and 
previous semiannual reports. Recommendations made by OIG for legislative and regulatory 
change can be found throughout this semiannual report. 
B.  Legislative and Regulatory Development Functions 
The  OIG  is  responsible for  developing a  variety of  legislative  proposals  and sanction 
regulations for civil monetary penalty (CMP) and program exclusion authorities that are 
administered by the Inspector General. 
Among the regulatory initiatives promulgated during this year were revised final regulations 
on  safe harbor protection for health plans under the Medicare and State health plans 
anti-kickback statute.  In addition, OIG jointly published with the Health Care Financing 
Administration final regulations setting forth requirements for physician incentive plans in 
prepaid health care organizations.  Under this rulemaking, OIG may impose CMPs on 
Medicare and Medicaid managed care contractors who fail to conduct annual beneficiary 
surveys or otherwise violate the physician incentive rules. 
Both final rules met with OIG goals set forth in accordance with the Presidents National 
Performance  Review  initiative  to  revise  or  eliminate  burdensome  or  unnecessary 
regulations.   The  OIG  is  continuing  work  on  regulatory  initiatives  involving  CMP 
authorities, and safe harbors under the anti-kickback statute. 
C.  Congressional Testimony and Hearings 
The OIG also maintains an active involvement in the congressional hearing process.  For 
example, OIG testified at five hearings during this 6-month period, principally on health 
care  fraud  and  abuse  issues.  On  several  occasions,  the  testimony  concerned  OIG 
recommendations which, if implemented, could produce billions of dollars in annual savings 
to  the  Government.   These  recommendations  are  contained  in  the  OIG  Cost  Saver 
Handbook, also known as the Red Book.  The hearing process offers OIG the opportunity to 
meet its statutory obligation of keeping the Congress informed of its work with regard to the 
52
 effective and efficient operation of Department programs.  The OIG continues to track all 
relevant congressional hearings and pending legislation relative to a wide range of issues. 
States Allocations of Training Costs 
The  OIGs  review  of  States allocation  of  training  costs  charged  to  Federal  programs 
covered procedures and practices used by five States in five regions -- New Jersey, Florida, 
Illinois, Missouri and California.  In each State reviewed, OIG identified problems with the 
allocation of training costs.  As a result of the problems identified, OIG is recommending 
financial adjustments totaling $22 million ($13 million Federal share) and setting aside $1 
million ($577,239 Federal share) to be resolved by the Administration for Children and 
Families (ACF). 
Among its specific findings, OIG determined that: costs were not allocated to all benefitting 
programs in three States, resulting in claims to the Federal Government being overstated by 
$12.7 million ($9.1 million Federal share); four States claimed costs for title IV-E foster 
parent recruitment and administrative costs at the enhanced rate of 75 percent rather than the 
allowable 50 percent rate, resulting in claims being overstated by $5.9 million ($1.5 million 
Federal share); and two States included unallowable and unsupported costs totaling $1.8 
million ($1.4 million Federal share) plus another $1.3 million ($820,000 Federal share) of 
third party in-kind contributions that did not meet the definition of allowable costs under 
State and Federal criteria. 
Separate reports were issued to ACF and each State agency. The ACF generally agreed with 
OIGs findings and recommendations.  A roll-up report on OIG work to date will be issued 
shortly.  (CIN:   A-02-95-02003;  CIN:  A-04-95-00085;  CIN:  A-05-96-00013;  CIN: 
A-07-95-01008; CIN: A-09-95-00056) 
Employee Fraud and Misconduct 
The OIG has oversight responsibility for the investigation of allegations of Department 
employee wrongdoing where it affects internal programs.  Most of the thousands of persons 
employed full time by HHS are dedicated, honest civil servants.  Occasionally, however, 
individuals violate their fiduciary responsibilities as illustrated in the following cases: 
	 A registered nurse with the Indian Health Service (IHS) entered into a 
pretrial  diversion  agreement  in  Arizona.   Reconstruction  of  pharmacy 
issuance and emergency room dispensing records showed that the nurse 
misappropriated  14,795  millimeters  (about  230  syringes)  of  controlled 
substances.  She was given 12 months probation and ordered to continue in 
drug/alcohol counseling and to submit to random drug screening.  The 
hospital did not terminate her employment, choosing instead to reassign her 
53
 to  an  area  where  she  will  not  have  to  handle  controlled  medications. 
Restitution of $96 to IHS was ordered. 
	 A New York woman was sentenced to 3 years of supervised probation for 
pleading guilty to theft of Government funds.  While employed by the Food 
and  Drug  Administration,  the  woman  falsely  underreported  her  annual 
income when she applied to New York City for a Housing and Urban 
Development loan.  She was fined $25 and was ordered by the Court not to 
accrue  any  credit  cards  without  probation  department  clearance.   She 
received a light sentence because of extenuating personal circumstances. 
Investigative Prosecutions and Receivables 
During  this  semiannual  reporting  period,  OIG  investigations  resulted  in 79  successful 
criminal actions.  Also during this period, 125 cases were presented for prosecution to the 
Department of Justice and, in some instances, to State and local prosecutors.  Criminal 
charges were brought by prosecutors against 72 individuals and entities. 
The number of convictions in this period declined because of the departure of the Social 
Security Administration.  In keeping with its commitment to Operation Restore Trust, OIG 
has concentrated on the five States where most of the Departments health care dollars are 
spent. 
In addition to terms of imprisonment and probation imposed in the judicial processes, nearly 
$129.2  million  was  ordered  or  returned  as  a  result  of  OIG  investigations  during  this 
semiannual period.  Civil settlements from investigations resulting from audit findings are 
included in this figure. 
Program Fraud Civil Remedies Act 
The Program Fraud Civil Remedies Act (PFCRA), passed in October 1986, established 
administrative penalties for anyone who makes a false claim or written false statements to a 
Federal agency.  It was modeled after the civil monetary penalty law for the Medicare and 
Medicaid programs, which OIG is responsible for enforcing.  Under PFCRA, any person 
who makes a claim or statement to the Department, knowing, or having reason to know, that 
it is false, fictitious or fraudulent, may be held liable in an administrative proceeding for a 
penalty of up to $5,000 per claim or statement.  In addition, that person may be subject to an 
assessment of up to double the amount of each claim falsely made.  The OIG is responsible 
for investigating allegations of false claims or statements, and for reporting at the end of 
each fiscal year investigations completed under PFCRA and referred for administrative 
action. 
54
 During FY 1996, no settlements were made under PFCRA.  While all cases are routinely 
analyzed for potential action under PFCRA, the availability of OIGs CMP authorities in 
health care matters often renders PFCRA unnecessary.  Also, PFCRA cannot be applied to 
many of the grants administered by HHS, since these grants often exceed the financial limits 
of PFCRA. 
55
 Appendices
 APPENDIX A

Implemented Office of Inspector General Recommendations to

Put Funds to Better Use

April 1996 through September 1996

The following schedule is a quantification of actions taken in response to OIG recommendations to prevent unnecessary 
obligations for expenditures of agency funds or to improve agency systems and operations.  The amounts shown represent 
funds or resources that will be used more efficiently as a result of documented measures taken by the Congress or by 
management  to  implement  OIG  recommendations,  including:   actual  reductions  in  unnecessary  budget  outlays; 
deobligations of funds; reductions in costs incurred or preaward grant reductions from agency programs or operations; and 
reduction and/or withdrawal of the Federal portion of interest subsidy costs on loans or loan guarantees, or insurance or 
bonds. 
Legislative savings are annualized amounts based on Congressional Budget Office estimates for a 5-year budget cycle. 
Administrative savings are calculated by OIG using departmental figures for the year in which the change is effected. Total 
savings from these sources amount to $2,225.6 million for this period. 
OIG Recommendation  Status  Savings 
in Millions 
HEALTH CARE FINANCING ADMINISTRATION 
Medicare Laboratory Reimbursements: 
The Medicare fee schedule allowances for  Section 13551 of the Omnibus Budget  $720 
clinical laboratory tests should be brought in  Reconciliation Act (OBRA) of 1993 
line with the prices physicians are paying for  reduced the national cap to 76 percent of 
tests purchased from independent laboratories.  the median of all fee schedules, and froze 
(OAI-02-89-01910; CIN: A-09-89-00031)  the annual update for 1994 and 1995. 
Disproportionate Share Hospitals: 
Disproportionate share payments to hospitals  Section 13621 of OBRA 1993 prohibited  500

should be related to costs incurred in treating  designation of a hospital as a 
Medicaid and indigent patients to correct the  disproportionate share hospital (DSH) for 
inequities and abuses in current payment  purposes of Medicaid reimbursement unless 
methodologies. (CIN: A-06-90-00073)  the hospital has a Medicaid inpatient 
utilization rate of at least one percent. It 
also limited DSH payment adjustments to 
no more than the costs of providing 
inpatient and outpatient services to 
Medicaid and uninsured patients, less 
payments received from Medicaid (other 
than DSH payment adjustments) and 
uninsured patients. 
Capital-Related Costs of Inpatient Hospital 
Services: 
Extend congressionally mandated reductions in  Section 13501(a)(3) of OBRA 1993  357 
hospital costs. (CIN: A-09-91-00070)  mandated reduction of 7.4 percent for 
inpatient capital costs. 
Capital-Related Costs of Outpatient 
Hospital Services: 
Extend congressionally mandated reductions in  Section 13521 of OBRA 1993 mandated  128 
hospital costs. (CIN: A-09-91-00070)  reduction of 10 percent for outpatient 
hospital costs. 
A-1
   OIG Recommendation  Status  Savings 
in Millions 
Medicaid Transfer of Assets: 
Strengthen the transfer of asset rules so that  Section 13611 of OBRA 1993 provided for  $125

people cannot give away property to qualify for  a delay in Medicaid eligibility for 
Medicaid. Assets and income from special need  institutionalized individuals or their 
trusts should be counted for Medicaid  spouses who dispose of assets for less than 
qualifying purposes and be subject to third party  fair market value on or after a specified 
liability recovery. (OAI-09-86-000078; CIN:  look-back date; set forth rules under which 
A-09-93-00072)  funds and other assets of an individual 
placed in trust by or on behalf of an 
individual or the spouse are treated, for 
purposes of Medicaid eligibility, as 
resources available to the individual, and 
under which payments from the trust are to 
be considered assets disposed of by the 
individual; and specified that, for purposes 
of applying transfer of asset prohibitions, 
the look-back period with respect to trusts 
is 60 months. 
Medicare Secondary Payer -Blue Cross and 
Blue Shield Association: 
The HCFA should negotiate a reasonable  The Blue Cross and Blue Shield  100

settlement to recover the sums improperly paid  Association agreed to a global settlement 
by HCFA contractors for which Medicare  with the Department of Justice and HCFA 
should have been the secondary payer. (CIN:  to settle disputes over Medicare secondary 
A-02-93-01006)  payer (MSP) claims. As part of the 
settlement, the Association implemented a 
3-year exchange agreement with HCFA 
which is expected to result in annual 
savings of $100 million. 
Ambulance Services for Medicare End Stage 
Renal Disease Beneficiaries: 
The HCFA should ensure fairer payment for  A set of proposed national codes for use by  55.4 
services rendered, and ensure that claims meet  carriers was developed in January 1994, 
Medicare coverage guidelines.  and a program memorandum was finalized 
(OEI-03-90-02130; OEI-03-90-02131)  and distributed a year later for January 
1995 implementation. 
Medicare Secondary Payer -Data Match: 
Extend MSP data match beyond the OBRA  Section 13561(a) of OBRA 1993 extended  45 
1989s sunset date. (OEI-07-90-00760; CIN:  the MSP data match through 1998. 
A-09-89-00100) 
Ultrasound: 
The HCFA should prohibit payment for tests  The HCFA issued an instruction prohibiting  5.8

conducted with pocket dopplers, and advocate  separate payments for tests conducted with

revisions in procedure codes and reimbursement  pocket dopplers and revised the Physicians

rates to reflect the different levels of  Procedural Coding handbook to revise

sophistication and quality of the diagnostic  imaging codes for hand-held ultrasound

information provided.  (OEI-03-88-01401;  devices.

OEI-03-91-00460; OEI-03-9-00461)

A-2
   OIG Recommendation  Status  Savings 
in Millions 
Medicare Payments for Home Blood 
Glucose Monitors: 
The HCFA should ensure that Medicare  The HCFA issued final regulations on the  $5 
payments for monitors are net of any available  fee schedule for home blood glucose 
rebates. (CIN:  A-09-92-00034)  monitors.  These regulations refer to the 
OIG report for support of fee schedule 
changes. 
Emergency Room X-Rays: 
The HCFA should pay for reinterpretation of  In December 1995, HCFA issued final rules  4.4

x-rays only when attending physicians  in the 1996 Medicare Physician Fee 
specifically request a second physicians  Schedule implementing the change. 
interpretation in order to render appropriate 
medical care before the patient is discharged. 
(OEI-02-89-01490) 
ADMINISTRATION FOR CHILDREN AND FAMILIES 
Rising Costs in the Emergency Assistance 
Program: 
The Administration for Children and Families  In September 1995, ACF issued Action  180 

(ACF) should revise or rescind current policy  Transmittal ACF-AT-95-9 which

allowing shifting of costs to Emergency  discontinued Federal financial participation

Assistance (EA) programs, especially where  under the EA program for costs providing

such costs have been traditionally borne by the  benefits and services to children involved

States. (CIN: A-01-95-02503)  in the juvenile justice system.

A-3
 APPENDIX B 
Unimplemented Office of Inspector General Recommendations to 
Put Funds to Better Use 
This schedule represents potential annual savings or one-time recoveries which could be realized if Office of Inspector 
General (OIG) recommendations were enacted by the Congress and the Administration through legislative or regulatory 
action, or policy determinations by management. (In many cases, these recommendations are beyond the direct authority of 
the departmental operating division.)  It should be noted, however, that the Congress normally develops savings over a 
budget cycle which results in far greater dollar impact statements.  Savings are based on preliminary OIG estimates and 
reflect economic assumptions which are subject to change.  The magnitude of the savings may also increase or decrease as 
some of the proposals could have interactive effects if enacted together. 
OIG Recommendation  Status  Savings 
in Millions 
HEALTH CARE FINANCING ADMINISTRATION 
Modify Formula for Costs Charged to the 
Medicaid Program: 
The Health Care Financing Administration  No legislative proposal was included in the  $4,100 
(HCFA) should consult with the Congress on  Presidents current budget. 
modification of the Federal Medical Assistance 
Percentage formula used to determine the 
Federal share of costs for the Medicaid and 
other programs which would result in 
distributions of Federal funds that more closely 
reflect per-capita income relationships. (CIN: 
A-06-89-00041) 
Medicare Coverage of State and Local 
Government Employees: 
Require Medicare coverage and hospital  Although a past budget of the President  1,559 
insurance contributions for all State and local  contained a proposal to include under 
employees, including those hired prior to April  Medicare all State and local government 
1, 1986.  If this proposal is not enacted, seek  employees hired before April 1, 1986, no 
legislation making Medicare the secondary  legislative proposal was included in the 
payer for retirees of exempt State and local  Presidents current budget. 
government agencies. (CIN: A-09-88-00072) 
Clinical Laboratory Tests: 
Require laboratories to identify and bill profiles  Although the Presidents past budget  1,130

(groups of related tests) at reduced rates  included a proposal to reinstitute 
whenever they are ordered, and study  coinsurance for clinical laboratory services, 
reinstating the beneficiary coinsurance and  no legislative proposal was included in the 
deductible provisions for laboratory services as  Presidents current budget. The Omnibus 
a means of controlling utilization. (CIN:  Budget Reconciliation Act of 1993, 
A-09-89-00031; CIN:  A-09-39-00056)  however, will reduce Medicare fees for 
clinical laboratory tests to 76 percent of the 
national average in 1996. The HCFA is 
profiling physicians ordering and referring 
patterns as part of focused medical review 
efforts. 
Laboratory Roll-In: 
Fees for laboratory services should be included  The HCFA disagreed with the  1,100

in Medicare recognized charges for physician  recommendation. The OIG continues to

office visits. (OEI-05-89-89150;  believe that it should be implemented.

OEI-05-89-89151)

B-1
   OIG Recommendation  Status  Savings 
in Millions 
Indirect Medical Education: 
Reduce the indirect medical education (IME)  The Presidents Fiscal Year (FY) 1997  $900 
adjustment factor to the level supported by  budget reduces the IME adjustment factor 
HCFAs empirical data. Initiate further studies  to 6 percent in FY 1999 and thereafter. 
to determine whether any adjustment factor is 
warranted for all teaching hospitals. (CIN: 
A-07-88-00111) 
Reduce Hospital Capital Costs: 
Seek legislative authority to continue mandated  The HCFA is seeking public comment on  820 
reductions in capital payments beyond FY 1995.  reducing prospective capital rates. 
The HCFA should determine the extent of the 
capital reductions that are needed to fully 
account for hospitals excess bed capacity and 
report the percentage to the Congress. (CIN: 
A-09-91-00070; CIN:  A-14-93-00380) 
Medicaid Payments to Institutions for 
Mentally Retarded: 
The HCFA should take action to reduce  The HCFA nonconcurred with OIGs  683

excessive spending of Medicaid funds for  recommendation. The HCFA believes 
intermediate care facilities for the mentally  Medicaid statutory provisions allow States 
retarded (ICF/MRs) by one or more of the  to establish their own payment systems. 
following: take administrative action to control  This flexibility allows for the variations 
ICF/MR reimbursement by encouraging States  found among States in their payment rates 
to adopt controls; seek legislation to control  and the methods and standards used in 
ICF/MR reimbursement, such as mandatory cost  determining these rates. The HCFA and 
controls, Federal per capita limits, flat per  OIG negotiated an agreement for HCFA to 
capita payment, case-mix reimbursement or  send the report to all State Medicaid 
national ceiling for ICF/MR reimbursements;  directors.  This action has been taken. 
and seek comprehensive legislation to 
restructure Medicaid reimbursement for both 
ICF/MR and home and community-based 
waiver service for developmentally disabled 
people via global budgeting, block grants or 
financial incentive programs. 
(OEI-04-91-01010) 
Medicare Secondary Payer -End Stage 
Renal Disease Time Limit: 
Extend the Medicare secondary payer (MSP)  The Presidents past budget contained a  503

provisions to include end stage renal disease  proposal to extend the MSP provision for 
(ESRD) beneficiaries without a time limitation.  individuals with ESRD to 24 months. 
(CIN: A-10-86-62016)  Notwithstanding this proposal, OIG 
continues to advocate that when Medicare 
eligibility is due solely to ESRD, the group 
health plan should remain primary until 
such time as the beneficiary becomes 
entitled to Medicare for old age or 
disability. At that point, Medicare would 
become the primary payer. 
B-2
   OIG Recommendation  Status  Savings 
in Millions 
Home Health Agencies: 
The HCFA should intensify efforts to scrutinize  The HCFA concurred with the  $500 
claims submitted by high cost home health  recommendations, and among other actions, 
agencies, explore ways to prevent unscrupulous  has advanced a legislative proposal as part 
agencies from engaging in abusive practices and  of the Presidents 1997 budget. 
consider legislation to restructure the benefits to 
prevent fraud, waste and abuse. (CIN: 
A-04-95-01103; CIN:  A-04-95-01104; CIN: 
A-04-95-01103; OEI-04-93-00262; 
OEI-04-93-00260; OEI-12-94-00180; 
OEI-02-94-00170, CIN: A-04-94-02087; CIN: 
A-04-94-02078) 
Modify Payment Policy for Medicare Bad 
Debts: 
Seek legislative authority to modify bad debt  This proposal was not included in the  487.7 
policy. The OIG presented an analysis of four  Presidents current budget. 
options for HCFA to consider including the 
elimination of a separate payment for bad debts, 
the offset of Medicare bad debts against 
beneficiary Social Security payments, the 
limitation of bad debt payments to prospective 
payment system (PPS) hospitals which are 
profitable, and the inclusion of a bad debt factor 
in the diagnosis related group (DRG) rates. 
(CIN: A-14-90-00339) 
Terminate Medicare Disproportionate Share 
Adjustments: 
Terminate disproportionate share adjustment  Although the Presidents past budgets  410 
payments without redistribution of the funds to  contained a proposal to phase down 
PPS hospitals. Payments under PPS adequately  Medicare disproportionate share payments, 
compensate hospitals for services provided to  no legislative proposal was included in the 
Medicare patients, including low-income  Presidents current budget. 
patients. (CIN: A-04-87-00111) 
Flexible Benefit Plans: 
The value of flexible benefit plans, as defined  While HCFA agreed with the report  420 
by section 125 of the Internal Revenue Code,  findings related to revenue to the Hospital 
should be included in the hospital insurance  Insurance Trust Fund, a legislative proposal 
portion of the Federal Insurance Contributions  was not included in the Presidents FY 1996 
Act taxable wage base. (CIN: A-05-93-00066)  budget. 
B-3
   OIG Recommendation  Status  Savings 
in Millions 
Prospective Payment Systems Capital Cost 
Rates: 
The HCFA should consider reducing payment  The HCFA agreed with OIGs analysis that  $249

rates by 7.5 percent to more accurately reflect  the Federal capital rate reflects a known 
costs of the base year used for the capital cost  over-estimation of base year costs. The 
component of PPS, and continue to monitor the  HCFA also stated that comments from 
most current data and make any necessary  individual hospitals and hospital 
further adjustments to the base rate. (CIN:  associations were uniformly opposed to 
A-07-95-01127)  making any of the possible rate reductions 
that were discussed in HCFAs proposed 
rule. The Prospective Payment Assessment 
Commission (ProPAC) acknowledged that 
there are legitimate issues regarding the 
appropriate level of the rates in light of the 
current data. The HCFA does not intend to 
adopt any of the possible approaches at this 
time, in anticipation of congressional action 
to realize savings in this area. 
Hospital Admissions: 
Seek legislation to pay for covered services  The OIGs follow-up report (CIN:  210

related to 1-day admissions without an  A-05-92-00006) indicated that problems 
overnight stay as outpatient services which are  still exist with inappropriate admissions 
paid on the basis of the lower of the actual costs  and that the volume of 1-day admissions on 
or the customary charges in a locality. (CIN:  a national basis have increased 
A-05-89-00055; CIN:  A-05-92-00006)  approximately 150 percent over 1985 
levels. The HCFA proposed to implement 
OIGs recommendation through 
administrative remedies that would 
designate whether specific services are to 
be covered and paid for as inpatient or 
outpatient services.  No proposal was 
included in the Presidents current budget. 
Eliminate Separate Enteral Nutrient 
Payments in Nursing Homes 
The HCFA should eliminate separate payments  The HCFA concurred with the  174 
for enteral nutrients for beneficiaries in nursing  recommendation and is considering 
homes. (OEI-06-92-00861)  alternative payment mechanisms and 
enhanced control of utilization to contain 
costs while it examines a legislative remedy. 
Graduate Medical Education: 
Revise the regulations to remove from a  The Presidents FY 1997 budget contains  157.3 
hospitals allowable graduate medical education  proposals to slow the growth in Medicare 
(GME) base year costs any cost center with  spending in GME. 
little or no Medicare utilization. Submit a 
legislative proposal to compute Medicares 
percentage of participation under the former 
more comprehensive system. (CIN: 
A-06-92-00020) 
B-4
   OIG Recommendation  Status  Savings 
in Millions 
Chemistry Panel Tests: 
The HCFA should update its guidelines by  The HCFA agreed with 8 of the 10 tests  $130

expanding the national list of chemistry panel  recommended for addition to the list. In 
tests to include 10 chemistry tests identified by  November 1995, HCFA updated its carrier 
the OIG audit.  (CIN: A-01-93-00521)  manual adding three of the tests 
recommended in the OIG report. A 
legislative proposal to add tests (including 
those identified in OIGs review) was 
included in the Presidents December 7, 
1995 Medicare savings package. 
Paperless Claims: 
The HCFA should lead a target outreach to  The HCFA concurred with OIGs  126 
encourage voluntary conversion to paperless  recommendations. However, with respect 
Medicare claim filing and begin to plan now for  to the policy options suggested, HCFA 
the policy changes that will become necessary  believes that mandating paperless claims is 
to achieve an almost completely paperless  impractical. 
environment for processing Medicare claims. 
(CIN:  A-05-94-00039; OEI-01-94-00230) 
Medicaid Drug Rebate Program: 
Best price calculation in the Medicaid drug  The OIG is continuing its review of the  123 
rebate program should be indexed in a manner  Medicaid drug rebate program. 
similar to the average wholesale price, which is 
indexed to the consumer price index-urban. 
(CIN: A-06-94-00039) 
Reduce Medicare Payments for Hospital 
Outpatient Department Services: 
Establish a legislative initiative to reduce the  The HCFA sent a report to the Congress on  90

current payments for services in outpatient  developing a PPS for outpatient 
departments to bring them more in line with  departments. In addition, the Presidents 
ambulatory service center (ASC) approval  FY 1997 budget contains a proposal to 
payments. Pay outpatient departments the  eliminate a formula-driven overpayment 
ASC-approved rate or adjust hospital payments  which allows Medicare to fully deduct 
by a uniform percentage.  (CIN:  beneficiary coinsurance payments received 
A-14-89-00221; OEI-09-88-01003)  by the hospital before the program makes 
its payments, and establish a budget-neutral 
PPS for outpatient department services 
starting in 2002. 
Recover Overpayments and Expand the 
Diagnosis Related Group Payment Window: 
The fiscal intermediaries should recover  The HCFA agreed to recover the improper  83.5

improper payments made to hospitals for  billings and to refund the beneficiaries 
nonphysician outpatient services (such as  coinsurance and deductible. Collection of 
diagnostic tests and laboratory tests) rendered  the overpayment is being handled by 
within 72 hours of the day of an inpatient  settlement agreements with the hospitals 
admission, and refund the beneficiaries  through the Department of Justice working 
coinsurance and deductible related to these  with HCFA and OIG.  The HCFA did not 
payments. The HCFA should propose  concur with the recommendation to further 
legislation to expand the DRG payment window  expand the payment window. No 
to at least 7 days immediately prior to the day  legislative proposal was included in the 
of admission. (CIN: A-01-92-00521)  Presidents current budget. 
B-5
   OIG Recommendation  Status  Savings 
in Millions 
Preclude Improper End Stage Renal Disease 
Payments to Health Maintenance 
Organizations: 
The HCFA should advise all risk-based health  The HCFA agreed with OIGs findings and  $50.7

maintenance organizations (HMOs) and  recommendations. The systems changes

comprehensive medical plans that ESRD  are scheduled to be implemented in August

capitation rates are only effective for  1996 along with the recoupment of

beneficiaries who currently are diagnosed as  improper payments.

having ESRD; identify and recover all 
payments to HMOs and comprehensive medical 
plans for beneficiaries misclassified as having 
ESRD; and make systemic and procedural 
changes to prevent future overpayments. (CIN: 
A-04-94-01090) 
Generic Drugs: 
The HCFA should identify and alert States to  The HCFA has provided a copy of the OIG  49

methods which would encourage the use of  report to States and encouraged them to use 
lower priced generic drug products in the  lower priced generic products.  On 
Medicaid program.  The HCFA should also take  February 2, 1996, States were requested to 
a more active role to encourage States to use  provide a description of any policies 
generic drugs; provide stronger incentives for  adopted that encourage use of equivalent 
States to adopt policies that encourage use of  generic drugs. This information will be 
generic drugs; monitor the States efforts to  included in the 1995 State Drug Utilization 
encourage the use of lower priced drugs; and  Review Annual Report due to regional 
formally assess those activities. (CIN:  offices by June 30, 1996. 
A-06-93-00008) 
Inpatient Psychiatric Care Limits: 
Develop new limits to deal with the high cost  The HCFA considered a proposal  47.6 
and changing utilization patterns of inpatient  recommending that the 190-day lifetime 
psychiatric services. Apply a 60-day annual  limit for psychiatric hospitals be extended 
and a 190-day lifetime limit to all psychiatric  to general hospitals; however, such a 
care regardless of the place of service. (CIN:  proposal was not included as part of the 
A-06-86-62045)  Presidents current budget. 
Nonemergency Advanced Life Support 
Ambulance Services: 
The HCFA should modify its Medicare policy to  The HCFA prepared a draft regulation in  47 
allow payment for nonemergency advanced life  late 1995 that would shift the policy focus 
support ambulance service only when that level  away from the type of vehicle used and 
of service is medically necessary; instruct  towards the medical condition of the 
carriers to institute controls to ensure that  beneficiary. No final regulation has been 
payment is based on the medical need of the  issued to date. 
beneficiary; and closely monitor carrier 
compliance. (CIN: A-01-91-00513; CIN: 
A-01-94-00528) 
Medicaid Payments for Employer Group 
Health Insurance: 
The HCFA should continue to strongly support  The HCFA concurred with the first  32

States implementing Section 1906 of the Social  recommendation and has been working in

Security Act, and should propose legislation  partnership with regional offices and States

that allows States to pay employer group health  to promote full implementation.  The HCFA

plan (EGHP) deductibles and coinsurance using  deferred comment on the second

Medicaid fee schedules rather than EGHP fee  recommendation.

schedules. (OEI-04-91-01050)

B-6
   OIG Recommendation  Status  Savings 
in Millions 
Reduce End Stage Renal Disease Rates: 
The HCFA should reduce the payment rates for  The HCFA agreed that ESRD facilities have  $22*

outpatient dialysis treatments to reflect current  become more efficient in their operations 
efficiencies and economies in the marketplace.  and that the composite payment rate should 
(CIN: A-14-90-00215)  reflect the costs of outpatient maintenance 
dialysis treatment in an efficiently operated 
facility. While the Omnibus Budget 
Reconciliation Act of 1990 prohibited 
HCFA from changing the ESRD composite 
rates, it mandated a study to determine the 
costs, services and profits associated with 
various modalities of dialysis treatments. 
The study undertaken by ProPAC was 
presented to the Congress in March 1996 
and recommended an increase to the current 
rates. 
Medicaid Cost Sharing: 
The HCFA should promote the development of  The HCFA provided States with program  19.8

effective cost sharing programs by: allowing  and administrative flexibility through 
States to experiment with cost sharing programs  waivers for Medicaid programs. It plans to 
that target new populations and reflect more  solicit information from States 
substantial cost sharing amounts; and/or  implementing cost sharing and distribute it 
recommending changes to Federal requirements  to States that do not impose it. Several 
allowing for greater State flexibility in  States have submitted waiver applications 
determining exempted populations and services;  to HCFA to develop demonstration projects 
and allowing for higher beneficiary cost sharing  which include experimental cost sharing 
amounts; and promoting the use of cost sharing  provisions. 
in States that do not currently have programs. 
(OEI-03-91-01800) 
Minimize Incorrect Payments for Durable 
Medical Equipment Billed During Skilled 
Nursing Facility Stays 
The HCFA should minimize the opportunity for  HCFA concurred with the recommendations  19

incorrect durable medical equipment (DME)  and is currently developing a corrective

payments by: improving the place of service  action plan.

coding system; improving the supplier 
knowledge of beneficiary location; reviewing 
the DME regional carriers processes; and 
improving processes for identifying skilled 
nursing facilities for DME reimbursement 
purposes. (OEI-06-92-00860; 
OEI-06-92-00862; OEI-06-92-00865) 
Reduce Medicare Part B Payment for 
Enteral Nutrition at Home 
Reduce payments through competitive  A plan for a DME competitive bid  15

acquisition strategies for patients receiving  demonstration that includes enteral

enteral nutrition at home.  (OEI-03-94-00021)  nutrition is underway. Payment changes

are likely to be implemented at the same 
time changes are made in Part B coverage 
for enteral nutrients for nursing home 
patients. 
*This savings estimate represents program savings of $22 million for each dollar reduction in the composite rate. 
B-7    OIG Recommendation  Status  Savings 
in Millions 
Preclude Improper Medicaid 
Reimbursement for Clinical Laboratory 
Services: 
State agencies should install edits to detect and  The HCFA is evaluating the OIG results.  $14 
prevent payments for clinical laboratory 
services that exceed the Medicare limits and 
billings which contain duplicate tests, recover 
overpayments and make adjustments for the 
Federal share of the amounts recovered. (CIN: 
A-01-95-00005; CIN:  A-05-96-00031; CIN: 
A-01-96-00001; CIN:  A-06-95-00078; CIN: 
A-04-95-01108; CIN:  A-07-95-01139; CIN: 
A-07-95-01147; CIN:  A-04-95-01113; CIN: 
A-07-95-01138; CIN:  A-09-95-00072; CIN: 
A-05-96-00019; CIN:  A-10-95-00002) 
Medicare Payments for Orthotic Body 
Jackets: 
The HCFA should require the DME regional  The HCFA concurred and has instituted  10.4 
carriers (DMERCs) to closely monitor claims  several methods to detect payment trends 
for body jackets, including: analysis of  and identify suppliers who have exhibited 
payment trends, provision of an early warning  abusive practices. However, payments 
of abusive practices and monitoring of suppliers  continue at high levels. The OIG plans to 
who have engaged in abusive practices.  revisit this issue as part of an ongoing study 
(OEI-04-92-01080)  on orthotics. 
Medicare Claims for Railroad Retirement 
Beneficiaries: 
Discontinue use of a separate carrier to process  While HCFA has supported legislation in  9.1 
Medicare claims for railroad retirement  the past, there is currently no legislative 
beneficiaries. (CIN:  A-14-90-02528)  proposal before the Congress. 
Limit Reimbursement for Hospital Beds: 
The HCFA should develop a new approach for  Although a past budget of the President  6.2

reimbursing suppliers for hospital beds used by  contained a proposal that authorized 
Medicare beneficiaries at home. A new  competitive bidding for DME, no 
reimbursement methodology should reflect a  legislative proposal was included in the 
hospital beds useful life and the number of  Presidents current budget. The HCFA 
times a bed can customarily be rented over that  awarded a demonstration project on this 
period. (CIN: A-06-91-00080)  subject in 1996. The project is expected to 
run in at least 3 sites for 2 cycles of 2 years 
each beginning in January 1997. 
Third Party Liability Settlements and 
Awards: 
The HCFA should develop legislative proposals  The HCFA agreed that the exception in the  3

to close the loopholes in the Omnibus Budget  law contains loopholes.  It indicated that 
Reconciliation Act of 1993 that allow Medicaid  recommendations could be made to the 
beneficiaries, who receive settlements and  Congress to amend the exception limiting 
awards from third parties as a result of  the use of trust funds to certain 
accidents, to shelter the assets in irrevocable  well-defined necessities (e.g. health care 
trusts and retain their eligibility for Medicaid.  that is not covered by Medicaid). The 
The HCFA should also develop guidelines to  HCFA also agreed to take appropriate 
assist States in strengthening Medicaids right  action to strengthen Medicaids right to 
to recover when trusts are established by third  recover from trusts established from third 
parties. (CIN:  A-09-93-00033)  party settlements. 
B-8
   OIG Recommendation  Status  Savings 
in Millions 
Hospital General Administrative and Fringe 
Benefit Costs: 
Revise the Provider Reimbursement Manual  The HCFA has published changes to the  to be determined

(PRM) to provide explicit guidelines on the  PRM to clarify the allowability of several

allowability of certain general administrative  of the cost categories identified in OIGs

and fringe benefit costs. (CIN:  report. The HCFA has not yet clarified the

A-03-92-00017)  remaining cost categories noted in OIGs

report.

PUBLIC HEALTH SERVICE OPERATING DIVISIONS 
Institute and Collect User Fees for Food and 
Drug Administration Regulations: 
Extend user fees to inspections of food  In the absence of specific authorizing  $44.4 
processors and establishments.  legislation, the Food and Drug 
(OEI-05-90-01070)  Administration is precluded by statute from 
imposing user fees to cover additional 
functions. 
Billings and Collections to Private Health 
Companies: 
The Indian Health Service (IHS) should  The IHS fully concurred with OIGs  28

establish the necessary internal controls, assign  recommendations. The IHS is in the 
adequate resources to its business offices, and  process of, or has plans for: implementing 
provide additional training to business offices to  an automated system to achieve the 
ensure that underbillings to private insurance  necessary internal controls; allocating 
companies are properly filed and collected.  resources to improve methods for billings 
(CIN: A-06-93-00080)  and collections; meeting the training needs 
of business office staff; implementing fee 
schedules on a timely basis; ensuring 
adequate accounting and medical records 
are maintained for each patient; providing 
adequate resources to carry out claims 
follow-up; and improving policies and 
procedures for follow-up of unpaid claims. 
Medical Malpractice Coverage: 
The Health Resources and Services  The HRSA agreed to consider a legislative  10

Administration (HRSA) should consider  proposal to amend the Federal Tort Claims

seeking a legislative proposal to limit  Act to include the $1 million limitation.

malpractice settlements or judgments involving

Community and Migrant Health Centers to $1

million. (CIN: A-04-95-05018)

B-9
   OIG Recommendation  Status  Savings 
in Millions 
Limit Graduate Student Compensation: 
The Assistant Secretary for Management and  The ASMB endorsed the OIG  $5.7

Budget (ASMB) should work with the Office of  recommendation, concluding that a prudent 
Management and Budget (OMB) to revise  person would not provide greater 
Circular A-21 to stipulate a reasonableness  compensation to individuals who are less 
standard for graduate student compensation  qualified by education and practical 
charged to federally sponsored research based  experience than others performing similar 
on assigned responsibilities and not to exceed  work. The National Institutes of Health 
compensation paid to other individuals of  (NIH) issued a notice in its Guide for 
similar experience for similar work. (CIN:  Grants and Contracts on compensation of 
A-01-94-04002)  graduate students (NIH Guide, volume 25, 
number 8, March 15, 1996). The guidelines 
reiterate the requirements of OMB Circular 
A-21 that costs applicable to Federal 
agreements be allowable, allocable, 
reasonable, necessary and treated 
consistently, and provide guidance for 
assessing reasonableness. 
Recharge Center Costs: 
Universities should: improve their oversight of  The ASMB concurred with the  3.2

recharge centers; develop and implement  recommendations and has recommended to

policies and procedures for the operation of  OMB that Circular A-21 be revised to

recharge centers that are consistent with OMB  provide more definitive guidance on the

Circular A-21; establish and maintain adequate  financial operations of recharge centers.

accounting and recordkeeping procedures for 
recharge centers; and analyze and adjust billing 
rates to eliminate deficit and surplus funds. 
(CIN: A-09-92-04020) 
ADMINISTRATION FOR CHILDREN AND FAMILIES 
Reduce Incentive Payments and Base Them 
on States Performance: 
Base incentive payments on the States  This proposal was not included in the  277 
demonstrated ability to meet Federal child  Presidents current budget. 
support enforcement (CSE) requirements and 
performance objectives. Also, consider OIG 
recommended options to reduce financial 
incentives realized by States that would result 
in a more equitable cost sharing with the 
Federal Government.  These options are: 
limiting incentives to a break-even point where 
a States share of Aid to Families with 
Dependent Children collections, plus incentive, 
equal the States share of CSE costs; 
eliminating incentives to poor performing 
States; and reducing the Federal share of 
administrative costs. (CIN: A-09-91-00147; 
CIN: A-09-91-00034) 
B-10
   OIG Recommendation  Status  Savings 
in Millions 
Limit Federal Participation in States Costs 
for Administering the Foster Care Program: 
Limit Federal participation in foster care  This proposal was not included in the  $247 
administrative costs through one of the  Presidents current budget. 
following actions: limit future increases in 
administrative costs to no more than 10 percent 
per year; fund administrative activities via a 
single block grant with future increases based 
on the consumer price index; limit 
administrative costs to a percentage of 
maintenance payments; or restrict, through 
legislation, the filing period for retroactive 
claims, namely require States to file claims for 
Federal participation within 1 year after the 
calendar quarter in which the expenditure was 
made. (CIN: A-07-90-00274; 
OEI-05-91-01080) 
GENERAL OVERSIGHT 
Simplify Administrative/Indirect Cost 
Allocation Systems: 
The OMB should simplify the process for  Some of OIGs recommendations are cited  660

charging administrative/indirect costs to Federal  in the National Performance Review report

programs through reform of the cost allocation  that calls for reform of the cost allocation

plans. Options for reform include: use of block  process. The OMBs revision of Circular

grant awards, a flat percentage rate for  A-87 addressed those recommendations.

administrative/indirect costs, and negotiation of  However, further reform is needed to

a nonadjustable rate for predetermined numbers  address the bulk of administrative/indirect

of years. (CIN: A-12-92-00014)  costs charged to the Federal Government.

B-11
 APPENDIX C 
Unimplemented Office of Inspector General Program and Management 
Improvement Recommendations 
This schedule represents Office of Inspector General (OIG) findings and recommendations which, if implemented, would result 
in substantial benefits.  The benefits relate primarily to effectiveness rather than cost-efficiency. More detailed information may 
be found in OIGs Program and Management Improvement Recommendations (the Orange Book). 
OIG Recommendation  Status 
HEALTH CARE FINANCING ADMINISTRATION 
Improve the Health Care Financing 
Administrations Federal Managers Financial 
Integrity Act Program: 
The HCFA should enhance the testing used to evaluate  The HCFA agreed and has established a work group 
the contractors claims processing internal controls.  comprised of OIG and HCFA staff members to address 
(CIN: A-14-93-03026)  Medicare contractors controls. The work group is 
developing an internal control review protocol to review 
contractors controls. 
Implement Proper Accountability over Billing 
and Collection of Medicaid Drug Rebates: 
The HCFA should ensure that States implement  The HCFA concurred with the recommendation. States 
accounting and internal control systems in accordance  will now be required to maintain detailed supporting 
with applicable Federal regulations for the Medicaid drug  records of all rebate amounts invoiced to drug companies 
rebate program. Such systems must provide for accurate,  using a formal accounts receivable system. The HCFA 
current and complete disclosure of drug rebate  hopes to have final regulations during Fiscal Year (FY) 
transactions and provide HCFA with the financial  1996. 
information it needs to effectively monitor and manage 
the Medicaid drug rebate program. (CIN: 
A-06-92-00029) 
Physical Therapy in Physicians Offices: 
The HCFA should take appropriate steps to prevent  The HCFA concurred with options one and two, and have 
inappropriate payments for physical therapy in  distributed copies of the report to the carriers to determine 
physicians offices. Some options are: conduct focused  if the issues identified are problems in their service areas. 
medical review; provide physician education activities;  The HCFA formed a work group that represents physicians 
apply existing physical therapy coverage guidelines for  who provide physical therapy services in their offices to 
other settings to physicians offices. (OEI-02-90-00590)  focus on the clinical appropriateness of services provided, 
including monitoring of these services. The HCFA is 
currently drafting model guidelines for reviewing claims 
for patient and related services billed by the physicians 
under the physician "incident to" benefit. 
C-1
 OIG Recommendation  Status 
Medicare Trust Funds Accounts Receivable 
Balances: 
The HCFA needs to improve its internal controls and the  The HCFA concurred with the intent of most of the 
controls of its fiscal intermediaries and carriers related to  recommendations and is taking corrective actions. 
the recording and reporting of accounts receivables.  However, HCFA has still been unable to resolve all the 
Additionally, HCFA needs to properly estimate the  critical problems. The HCFA and OIG will continue to 
allowance for uncollectible receivables and determine the  work together to develop corrective action plans to resolve 
amounts to be written off as uncollectible. In a review  these deficiencies. The HCFA has established a work 
conducted in accordance with the Chief Financial  group to review Medicare contractor operations and 
Officers Act, OIG continued to find weaknesses in  systems, analyze contractor controls and identify internal 
contractors controls. (CIN: A-01-92-00516; CIN:  control weaknesses. The work group has contracted with a 
A-14-93-03027)  Medicare contractor and a certified public accounting firm 
to develop an approach to evaluate internal controls at 
Medicare contractors. The HCFA has also requested a 
clarification of the reporting of Medicaid financial 
information from the Federal Accounting Standards 
Advisory Board. 
Medicare Trust Funds Accounts Payable 
Balances: 
The HCFA should improve its internal controls and the  The HCFA concurred with the recommendations. 
controls of its fiscal intermediaries and carriers related to  Regarding recommendations to perform FMFIA section 2 
the recording and reporting of accounts payable. The  and 4 reviews at contractors, a work group is developing an 
HCFA should also perform Federal Managers Financial  internal control review protocol to review contractors 
Integrity Act (FMFIA) sections 2 and 4 reviews on all  controls. 
carrier accounts payable internal controls and financial 
management systems. (CIN: A-04-92-02054; CIN: 
A-05-92-00106) 
Improve Financial Management Systems to 
Enhance Financial Reporting: 
The HCFA should develop and implement financial  The HCFA agreed that reasonable data should be included 
management systems and related accounting and  in the reporting of Medicare liabilities. However, HCFA 
administrative internal controls to ensure that all  asserts that the process for developing a reasonable 
Medicare liabilities are reported to the HCFA general  estimate of a liability for provider reports would be too 
ledger at fiscal year end. (CIN: A-14-92-03015)  cumbersome. The HCFA is currently developing the 
Medicare Transaction System that will include an 
integrated accounting subsystem to estimate the amount of 
appealed cost reports. 
Clarify the Allowability of General and 
Administrative Costs at Medicare Hospitals: 
The HCFA should revise the Provider Review Manual  The HCFA has published changes to the PRM to clarify the 
(PRM) to further clarify the allowability of specific types  allowability of several of the cost categories identified in 
of general and administrative and fringe benefit costs.  OIGs report. The HCFA has not yet clarified the 
(CIN: A-03-92-00017)  remaining cost categories noted in OIGs report. 
Consider Recommended Safeguards over 
Medicaid Managed Care Programs: 
The HCFA should consider safeguards available to reduce  The HCFA generally concurred with OIGs 
the risk of insolvency, and to ensure consistent and  recommendations, but felt that a broader analysis of 
uniform State oversight. (CIN: A-03-93-00200)  managed care plans was needed to support broad program 
recommendations. The OIG notes that the same concerns 
raised in its report have been expressed by the Congress 
and the General Accounting Office. The OIG is continuing 
reviews of Medicaid managed care plans. 
C-2
 OIG Recommendation  Status 
Provide Additional Guidance to Drug 
Manufacturers to Better Implement the 
Medicaid Drug Rebate Program: 
The HCFA should survey manufacturers to identify the  The HCFA did not concur stating that the drug law and the 
various calculation methods used to determine average  rebate agreements already established a methodology for 
manufacturer price (AMP). The HCFA should also  computing AMP. The OIG disagreed because the rebate 
develop a more specific policy for calculating AMP  law and agreement defined AMP but did not provide 
which would protect the interests of the Government and  specific written methodology for computing AMP. 
which would be equitable to the manufacturers. (CIN: 
A-06-91-00092) 
Avoid Future Medicare Secondary Payer 
Overpayments: 
To identify Medicare secondary payer (MSP) situations,  The HCFA is continuing implementation of the corrective 
HCFA should continue to implement its corrective action  action plan. The HCFA did not agree with the 
plan to eliminate the designation of MSP as a high risk  recommendation on use of the W-2, indicating that it 
area, and seek legislation which would require employers  preferred to evaluate the outcome of recent legislation 
to report other health insurance coverage on the W-2 and  which mandated a data exchange between the Internal 
tax statement. (CIN: A-09-89-00100; OEI-07-90-00760;  Revenue Service, the Social Security Administration (SSA) 
OEI-07-90-00763)  and HCFA. 
Recover Past Medicare Secondary Payer 
Overpayments: 
The HCFA should ensure that there is adequate funding  The HCFA is in the process of establishing funding needs

available to contractors to pursue collection of MSP  for recoveries and agreed to make recovery of backlog

overpayments, and instruct contractors to recover the  cases a top priority.

MSP overpayment backlog and notify insurance

companies of improper payments within recovery

regulation time frames. (CIN: A-09-91-00103; CIN:

A-04-92-02037)

Review Social Security Administration 
Procedures that Impact Medicare Trust Funds: 
The HCFA should review SSAs wage certification  The SSA is pursuing a legislative solution to this problem.

procedures to ensure that the transfer of Medicare

Hospital Insurance trust funds is consistent and performed

in accordance with the Social Security Act. (CIN:

A-14-92-03013)

Physician Office Surgery: 
The PROs should extend their review to surgery  The HCFA continues to work with the PROs to refine a 
performed in physicians offices. (OEI-07-91-00680)	 methodology for review of quality of care for ambulatory 
services. The implementation plan is to expand the review 
of ambulatory services to additional States, first on a pilot 
basis, then on an implementation basis in other States. 
Patient Advance Directives -Early 
Implementation Experience: 
The HCFA should develop and issue specific regulatory  The HCFA did not concur with the recommendation, but is 
guidelines clarifying acceptable documentation methods  willing to provide assistance to States by issuing 
to assist providers in meeting the requirements of the  interpretive guidelines for survey and certification 
Federal statute. The statute requires providers to inform  containing examples of what would constitute acceptable 
individuals of any rights they have under State law  documentation of whether a patient has an advance 
regarding self-determination. (OEI-06-91-01130)  directive. 
C-3
 OIG Recommendation  Status 
PUBLIC HEALTH SERVICE OPERATING DIVISIONS 
Fully Implement Internal Controls in the Food 
and Drug Administrations Medical Device 
510(k) Review Process: 
The Food and Drug Administration (FDA) should modify  The FDA has made significant progress in rectifying 
its exception report for use on a quarterly basis to detect  deficiencies in this program area, and OIG will continue to 
possible manipulation of the 510(k) process; periodically  monitor FDAs efforts until all corrective actions are 
sample reviewer workload to ensure compliance with the  implemented. 
first-in, first-reviewed policy; require reviewers to 
document responses to all items on the review checklist; 
conduct bioresearch monitoring inspections on devices 
likely to result in 510(k) submissions; complete 
postmarket testing of the four devices it selected for 
review and increase the number sampled for future tests; 
include in its quality control reviews an independent 
scientific evaluation of reviewers 510(k) decisions; and 
periodically monitor employee compliance with 
procedures for employee/industry contacts. (CIN: 
A-03-92-00605) 
Federal Involvement in Patents: 
The National Institutes of Health (NIH) should develop  The NIH generally concurred with OIGs 
procedures to obtain information on patents issued to NIH  recommendations. The NIH has completed its review of 
grantees and determine if these patents were developed  patents issued to one grantee and found additional patents 
with Federal funds. (CIN: A-15-93-00029)  that were made with NIH support. The NIH has 
implemented a pilot project to assess the accuracy of 
reporting compliance for selected research institutions and 
has contacted the U.S. Patent Office to develop procedures 
which will lead to better monitoring of all federally 
supported patents. 
Ensure that All Superfund Grantees Are 
Audited: 
The Public Health Service (PHS) should direct its  The PHS directed the Superfund grant offices to take steps

Superfund agencies to establish procedures to ensure that  to ensure that all Superfund grantees provide the required

all Superfund grantees submit audit reports and that  audit reports.

grantees that are unwilling to have a proper audit

conducted are sanctioned. (CIN: A-04-93-04506; CIN:

A-04-93-04518)

Improve Financial Reporting and Monitoring 
of Research Funds at Universities: 
The Department should require grantees to submit a  The Assistant Secretary for Management and Budget and 
revised budget for the use of unspent grant funds when a  PHS concurred with OIGs recommendations. In April 
substantial carryover of funds occurs from one budget  1992, the Office of Management and Budget (OMB) gave 
period to another. Additionally, the Department should  the Department approval to conduct a pilot project with 
expedite the pilot project for obtaining detailed  selected universities to obtain detailed expenditure data by 
expenditure data from universities. (CIN:  electronic transfer. This project is still under development. 
A-06-91-00073)  In addition, PHS added language to its grant policy 
statement that defines significant rebudgeting. 
C-4
 OIG Recommendation  Status 
Improve Accountability Over National 
Institutes of Healths Management and Service 
and Supply Funds Activities: 
The NIH should improve accountability over personal  A Board of Survey was initiated and presented a series of 
property and inventory by performing monthly  recommendations to improve property management. 
reconciliations and perform adequate follow-up 
procedures on discrepancies noted by physical counts. 
The NIH should also develop policies and procedures for 
retaining supporting accounting documentation. (CIN: 
A-15-93-00008) 
Improve Controls Over Advisory Committee 
Conflict of Interest: 
The NIH should: review advisory committee members  The NIH concurred with OIGs recommendations and has 
financial disclosure forms to identify perceived or actual  taken actions which, when fully implemented, will 
conflicts of interest; require ongoing reviews to identify  significantly strengthen internal controls. 
changes in financial interest that could result in conflicts 
of interest; revise required financial disclosures to include 
involvement in nonfederal grants and contracts; and 
provide guidance to determine when a waiver should be 
sought to obtain essential services of a committee 
member. (CIN: A-15-93-00020) 
Implement a Charging System for Centers for 
Disease Control and Prevention Data 
Processing Costs: 
The PHS should require the Centers for Disease Control  The PHS did not concur with OIGs recommendations. 
and Prevention (CDC) to implement a system for  However, it agreed to analyze its charging systems and 
charging data processing costs to its component centers  correct any major inequities. The CDC reported that it 
consistent with the provisions of the Federal Information  analyzed its computer charges and found them not to be 
Processing Standards Publication 96. (CIN:  based on actual utilization. However, it stated that the 
A-04-92-03503)  charges included other costs incurred and that it will 
analyze these costs to ascertain whether there are any 
actual inequities. 
Improve Monitoring of Community Health 
Center Grantee Financial Controls: 
The PHS should strengthen its monitoring procedures to  The PHS concurred with OIGs recommendations and 
improve community health centers accountability over  indicated that onsite peer reviews began in FY 1994 to 
grant funds. (CIN: A-07-92-00518)  strengthen monitoring of community health centers. 
ADMINISTRATION FOR CHILDREN AND FAMILIES AND ADMINISTRATION ON AGING 
Undistributed Child Support Payments: 
The Administration for Children and Families (ACF)  The ACF agreed to participate in a joint effort with OIG to 
should remind States to: monitor and expedite the  determine the extent of these problems, but disagreed with 
distribution of collected child support payments; place  the need to remind States of ACFs policies and procedures 
undistributed payments in interest bearing accounts; and  for undistributed collections. The ACF expected 
report escheated payments and interest as State income.  considerable alleviation of the undistributed collections as 
(CIN: A-09-93-00030)  States complete their automated systems. The ACF is in 
the process of reviewing 12 selected States undistributed 
collections balances in order to address the wide disparity 
in the level of balances reported by the States, as well as 
problems cited in the OIG report. When all 12 reviews are 
complete, a national report will be issued to outline 
problems encountered and suggested solutions for the 
handling and reporting of undistributed collections. 
C-5
 OIG Recommendation  Status 
Strengthen Head Start Grantees Financial 
Management Systems: 
The ACF should intensify efforts to assure that Head Start  The ACF generally agreed with OIGs recommendations. 
grantees have adequate systems of internal controls; 
maintain proper accounting records; have systems for 
assuring program requirements are met; and obtain 
acceptable independent audits and submit reports in 
accordance with Federal requirements. The ACF should 
also take appropriate action when grantees do not meet 
these requirements. (CIN: A-17-93-00001) 
Measure Head Start Grantees Performance: 
The ACF should establish and implement performance  The ACF agreed with the importance of strengthening 
measures and procedures for determining Head Start  performance measurement criteria but disagreed with 
grantees compliance with program requirements, and as  OIGs conclusions relative to high-risk conditions. The 
a basis for establishing uniform ratings and identifying  ACF is now completing a major initiative to develop Head 
management practices that create high-risk conditions.  Start performance measures designed to assess the quality 
(CIN: A-04-90-00009)  and effectiveness of the program nationally through stating 
outcomes for children and families and through program 
indicators. 
Ensure that Head Start Program Attendance 
Goals and Matching Requirements are Met: 
The ACF should establish and implement procedures to  The ACF noted that it is obtaining information from its 
ensure that center-based Head Start grantees attain the  grantees to improve internal reporting procedures. As far 
expected attendance goal of 85 percent of funded  as average daily attendance, ACF states that an average 
enrollment. The ACF should also seek a legislative  daily attendance of 85 percent is a service goal, not a 
change to require that funding levels be based on current  program requirement of Head Start grantees. The ACF is 
conditions (not historic funding levels) and require  also reviewing Head Start procedures to grant waivers. 
current information to support requests for waivers of 
nonfederal matching requirements. (CIN: 
A-04-90-00010) 
Health and Safety Standards at Child Care 
Facilities: 
The ACF should work with States to improve the health  The ACF generally concurred with OIGs findings and

and safety practices of child care facilities. In addition to  recommendations, and is taking actions to enhance the

actions ACF is already taking, OIG recommended that  health and safety standards of child care facilities.

ACF provide State agencies with identified best practices

including: parental involvement, provider self-appraisals

and private/public partnerships. (CIN: A-04-94-00071;

CIN: A-07-93-00718; CIN: A-12-92-00044)

Improve the Federal Foster Care Program: 
The OIG provided options for ACF to consider in its  The ACF concurred on the issues raised in OIGs report. 
efforts to improve its partnership with State and local  The ACF convened two teams whose task was to redesign 
governments in administering the Federal Foster Care  the titles IV-B and IV-E child welfare reviews. The 
program. The options included streamlining the process;  objectives of the teams are consistent with issues and 
determining whether legislative change is needed; and  options described in OIGs report. A draft Notice of 
determining if certain program requirements could be  Proposed Rulemaking is currently in preliminary clearance. 
changed to facilitate compliance. (CIN: A-12-93-00022) 
C-6
 OIG Recommendation  Status 
Improvements Needed in Monitoring Child 
Placing Agencies in the Texas Foster Care 
Program: 
The State should ensure that: foster children receive  The State concurred with all recommendations, but on a 
treatment in accordance with their treatment plan; State  limited scale with the recommendation requiring the use of 
caseworkers make required visitations; foster homes are  the nationwide system to conduct background checks. 
inspected for compliance with fire and health standards; 
and the National Crime Information Center system is 
used to conduct nationwide background checks. (CIN: 
A-06-94-00041) 
Maintenance Payments Retained by Child 
Placing Agencies in the Texas Foster Care 
Program: 
The State should review periods subsequent to OIGs  The State did not concur with the recommendation to 
audit and make necessary adjustments for improper  review subsequent periods and make necessary adjustments 
retention of title IV-E maintenance payments by child  for the retention of title IV-E maintenance payments. The 
placing agencies. To ensure that children are receiving  State did concur with the recommendations to perform 
the full benefits of the maintenance payment, the State  periodic reviews and to build requirements into the 
should perform periodic reviews of the child placing  contracts. The State only partially concurred with the 
agencies and build into their contracts the requirement  recommendation to develop edits in the payment system. 
that these agencies pay the full maintenance payment to 
the foster home. Also, the State should develop edits in 
the payment system to preclude duplicate claims and 
claims for services not provided, review payments 
previously made and make appropriate adjustments. 
(CIN: A-06-95-00035) 
Improve Oversight of Audits of Office of 
Community Service Grantees: 
The ACF should track Office of Community Services  The ACF agreed and will take steps to implement the

grantees implementation of recommendations made as a  recommendations within the limitation of current staffing

result of single audits, and follow up with grantees to  resources.

ensure actions taken were effective. (CIN:

A-12-92-00043)

Colocating Intergenerational Programs: 
The Administration on Aging (AoA) and ACF should  The AoA and ACF generally agreed with OIGs

examine whether demonstrated successes in colocating  recommendations.

programs and facilities in the private and public sector

can be more broadly applied to departmental programs on

a voluntary basis. (CIN: A-05-94-00009)

Improving Administration on Agings Nutrition 
Program for the Elderly: 
The AoA and the Department of Agriculture (USDA)  The AoA and USDA generally agreed to address these 
should remove barriers to increase States use of  issues through joint efforts. 
commodities by fostering better communications and 
working relationships with State distribution agencies 
which handle USDA commodities; assuring a better 
variety of commodities; and improving dependability, 
quality and packaging of commodities. (CIN: 
A-01-93-02510) 
C-7
 OIG Recommendation  Status 
Coordination of Specialized Transportation 
Services: 
The AoA needs to actively promote transportation  The AoA concurred with the OIG recommended actions to 
consortiums, and provide the assistance needed by State  increase implementation of coordinated transportation 
agencies and local providers to promote improvements in  services nationwide. The AoA will work with the Joint 
coordinated transit systems. It should continue its work  Department of Transportation/HHS Coordinating Council 
with other Department of Health and Human Services  to develop strategic plan for improving transportation 
(HHS) agencies and Federal Departments to promote  services. 
further development of coordinated transportation 
systems for the elderly, persons with disabilities and 
others in need of services. (CIN: A-05-95-00023) 
GENERAL OVERSIGHT 
Coping With Twin Disasters -Department of 
Health and Human Services Response to 
Hurricane Hugo and the Loma Prieta 
Earthquake: 
The Office of the Secretary (OS) and the Office of the  The OS and OASH have consolidated into one unit. The 
Assistant Secretary for Health (OASH) should clarify  OASH had taken the lead in this area and has met with 
HHSs disaster recovery roles and responsibilities by  headquarters operating division emergency preparedness 
defining precisely how they will implement the January  officials. It is in the process of clarifying roles and 
1990 transfer of primary disaster authority from OS to  responsibilities and plans to publish this information in the 
PHS, and clarifying the disaster relief and recovery  Federal Register once it is approved. 
responsibilities of all operating divisions and the regions. 
(OEI-09-90-01040) 
Coping With Twin Disasters -Department of 
Health and Human Services Response to 
Hurricane Hugo and the Loma Prieta 
Earthquake: 
The OASH should issue guidelines to improve disaster  The OASH has undertaken the revision, updating and 
planning. The plans of each operating and staff division  simplification of emergency planning and response 
should spell out lines of communication with each other,  guidance. The OASH will also coordinate the 
and should specify headquarters and regional lines of  development of HHS Disaster Response Guides which will 
communication with the Federal Emergency Management  outline the types of emergency assistance provided by the 
Agency. (OEI-09-90-01040)  Department. The OASH and OS have consolidated. 
Ensure that New York Allocates Training Costs 
to Federal Programs for Actual Number of 
Attendees: 
The Department should be more aggressive when  The Departments Division of Cost Allocation (charged 
approving State plans to ensure that the State (among  with approval of State cost allocation plans) expressed 
other actions): allocates future training contracts to  agreement with the findings and recommendations. 
programs based on the actual number of participants; 
maintains documentation which clearly details which 
programs benefit from future training and, where 
applicable, allocates training costs to all benefitting 
programs; and discontinues using third party 
contributions provided by private contractors to meet its 
share of training costs. (CIN: A-02-91-02002) 
C-8
 OIG Recommendation  Status 
Reform the Systems for Determining State and 
Local Government Administrative/Indirect 
Costs: 
The OIG identified a number of options, some of which  The National Performance Review Report included OIGs 
require legislative action, to facilitate the allocation of  recommendations. The OMB is working on the 
administrative/indirect costs to Federal grants and  development of guidelines to assist States in the charging 
contracts. These include: establishing a block grant to  of administrative/indirect costs to Federal programs. 
pay administrative/indirect costs, negotiating 
nonadjustable rates for a predetermined number of years, 
and assigning the responsibility for negotiating rates for 
all entities within a State to one Federal agency. (CIN: 
A-12-92-00014) 
Revise Hospital Cost Principles for Federally 
Sponsored Research Activities: 
The Department should act to modernize and strengthen  The Department intends to begin work on revising hospital 
cost principles applicable to hospitals by either revising  cost principles when the revisions of the Governmentwide 
existing guidelines to conform with OMB Circular A-21  cost principles for universities and State and local 
or working with OMB to extend Circular A-21 coverage  governments (OMB Circulars A-21 and A-87, respectively) 
to all hospitals. (CIN: A-01-92-01528)  are finalized by OMB. 
Guidelines to Reimburse Educational 
Institutions and Nonprofit Organizations: 
The Department should work with OMB to revise  The OMB has revised Circular A-87 to limit post 
applicable cost principles to reflect the change in  retirement benefit costs to the amount funded, and agreed 
accounting for post retirement benefit costs arising from  that similar provisions should be incorporated in future 
implementation of Financial Accounting Standards Board  modifications of circulars applicable to educational 
Opinion 106. It should also advise negotiators for the  institutions and nonprofit organizations (OMB Circulars 
Departments Division of Cost Allocation to pay special  A-21 and A-122, respectively). In the interim, the 
attention to such costs when reviewing fringe benefit  Department has issued instructions to negotiators. 
rates for schools and nonprofit organizations. (CIN: 
A-01-93-04000) 
Implement Random Moment Sampling 
Systems and Other Time Studies: 
The Department, in conjunction with OMB, should issue  The Department agreed with OIGs conclusion and is 
definitive, authoritative guidelines for States adopting  working with OMB in the development of guidelines 
random moment time studies. (CIN: A-07-93-00645)  related to the determination of administrative costs, 
including standards for the use of random moment time 
studies. 
C-9
 APPENDIX D

Notes to Tables I and II

Table I 
1 The opening balance was adjusted to reflect an upward revaluation of recommendations in the amount of $50.1 million. 
2 Included in the reports issued during the period are management decisions to disallow $80,112 costs attributable to audits 
performed by the Defense Contract Audit Agency under a reimbursement agreement. 
3 During the period, revisions to previously reported management decisions included: 
CIN: A-09-92-00116 	 State of California: Federal programs continued to be assessed by the State for 
PERS contributions, after DCAs notification that the Federal Government should 
be reimbursed for its share. The Departmental Appeals Board upheld the DCA 
determination. $29,880,675 
CIN: A-06-95-37037  State of Louisiana: HCFA recalculated the Federal share. $286,285 
CIN: A-03-93-21786 	 District of Columbia Dept of Human Services: Grantee provided documentation to 
support expenditures. $141,898 
Not detailed are revisions to previously disallowed management decisions totaling $665,000. 
4 Audits on which a management decision had not been made within 6 months of issuance of the report: 
A.	 Due to administrative delays, many of which were beyond managements control, resolution of the following 
audits was not completed within 6 months of issuance; however, based upon discussions with management 
officials responsible for those audits, resolution of these outstanding recommendations is expected before the 
end of the next semiannual reporting period: 
CIN: A-07-95-01009 	 Review of AFDC Emergency Assistance-Selected State, February 1996, 
$10,114,980 
CIN: A-03-91-00552 	 Independent Living Program-National, March 1993, $6,529,545 (Related 
recommendation of $10,161,742 outstanding on Table II) 
CIN: A-07-92-00578  BC/BS of Texas Inc-Unfunded Pension Costs, October 1992, $6,244,637 
CIN: A-03-89-00046  Maryland BC/BS Administrative Cost-FY85-88, Part B, $5,996,278 
CIN: A-07-95-01010  Review of MO Title IV-E Retro Claim, February 1996, $4,246,295 
CIN: A-05-93-00054  IL-Associated Insurance Group-Contract Audit, October 1993, $3,355,560 
CIN: A-07-93-00633  Pension Segmentation-AETNA Life Insurance Co., October 1993, $3,011,376 
CIN: A-05-93-00013  MI-BC/BS Contract-Medicare, April 1993, $3,010,916 
CIN: A-07-92-00585  Pension Segmentation BC/BS of California, January 1994, $2,973,504 
CIN: A-01-95-00504  Medicare Parts A&B Admin Costs-AETNA, January 1996, $2,938,223 
CIN: A-03-93-03308  GSX Services, Inc., February 1994, $2,806,577 
CIN: A-06-95-00035  Fees Retained by Child Placing Agencies, February 1996, $2,796,650 
CIN: A-07-92-00579  BC/BS of Michigan Inc.-Unfunded Pension Costs, October 1992, $2,535,698 
D-1  CIN: A-05-92-00026  Associated Insurance Co.,-Medicare Admin, February 1992, $2,530,409 
CIN: A-02-91-01006  Blue Shield of Western NY Medicare Administrative, September 1991, $2,379,239 
CIN: A-03-90-02003  BC of Western PA Administrative Costs FY86-89, August 1993, $2,218,528 
CIN: A-02-93-02001  Manpower Demonstration Res Corp, October 1994, $2,024,444 
CIN: A-02-94-01030  Hospice Eligibility Review in Puerto Rico-Manati, June 1995, $1,598,837 
CIN: A-03-92-19733  State of Maryland, August 1992, $1,505,462 
CIN: A-03-90-00051  Maryland BC/BS Administrative Cost-Part A-FY85-88, August 1991, $1,438,414 
CIN: A-09-93-00083 	 Child Support Intercept Programs - California, August 1995, $1,429,837 (Related 
recommendation of $2,900,000 outstanding on Table II) 
CIN: A-05-93-00057  MI-BC/BS Contract Audit, July 1993, $1,409,954 
CIN: A-10-91-00011  WPS-Keystone Computer Acquisition, October 1992, $1,346,681 
CIN: A-05-95-00042  BCBS Administrative Costs-Contracted Audit, December 1995, $1,333,598 
CIN: A-07-93-00070  BC/BS of Mass-Unfunded Pension Cost Audit, May 1994, $1,290,740 
CIN: A-07-94-00762  Health Care Service Corp - Unfunded Pension Costs, July 1994, $1,233,337 
CIN: A-07-93-00665  Travelers Insurance Co-Unfunded Pension Cost Audit, October 1993, $1,218,963 
CIN: A-02-94-01029  Hospice Eligibility RVW in PR, June 1995, $1,070,814 
CIN: A-03-93-03313  Biocon Inc., February 1994, $1,061,376 
CIN: A-07-94-00763  Health Care Serv. Corp. - Pension Segmentation, August 1994, $1,055,458 
CIN: A-05-94-00047  Nationwide Ins., Medicare Part B Admin. Costs, September 1995, $1,049,309 
CIN: A-07-93-00634  Pension Segmentation-Travelers Insurance Co., October 1993, $1,026,460 
CIN: A-09-94-01010  Closeout Audit-Stratagene, March 1994, $983,208 
CIN: A-05-92-00060  Contractor Audit-BC/BS-Administrative, February 1993, $879,609, 
CIN: A-04-95-02096  Review of FY92 Unsupported G&A Costs-ACB, July 1995, $857,684 
CIN: A-07-93-00701  BC/BS of Massachusetts-Pension Costs, July 1994, $839,740 
CIN: A-03-94-03304  Biocon Inc., February 1994, $747,865 
CIN: A-05-91-00136  Community Mutual Ins. Co. Admin Costs, August 1992, $720,668 
CIN: A-07-93-00699  BC/BS of Mass - Pension Segmentation Audit, April 1994, $658,471 
CIN: A-06-94-00028  Review of Premium Payments for Risk-Based HMO, June 1995, $615,064 
CIN: A-03-93-00353  D.C. Dept of Human Resources-Block Grants Drugs, April 1995, $657,048 
CIN: A-06-96-39974  Albuquerque-Bernalillo County Economic Opportunity, February 1996, $648,700 
CIN: A-05-95-00034  BCBS of LA-Pensions-Contract Termination, February 1996, $647,127 
CIN: A-04-94-01078 	 Monitoring Admin-Cost-Audit Medicare Part B BC/BS of South Carolina, July 
1994, $594,092 
D-2
 CIN: A-04-93-01069 	 Monitoring Administrative Cost Audit Medicare Part A, BC/BS South Carolina, 
July 1994, $590,844 
CIN: A-07-93-00679  AETNA-Unfunded Pension Cost Audit, May 1994, $590,207 
CIN: A-02-91-03508  Audit of New Jersey Child Care and Supportive Services, June 1993, $506,710 
CIN: A-09-94-00058  Transamerica Occidental Medicare Admin Costs, March 1995, $491,479 
CIN: A-06-92-00017  IHS Creek Contract Closeout Report, May 1992, $468,217 
CIN: A-06-93-00042 	 BC/BS of Texas Administrative Costs-Medicare Parts A&B, January 1993, 
$434,134 
CIN: A-03-95-00451  Escheated Warrants-District Columbia, August 1995, $420,607 
CIN: A-05-92-00126  Wisconsin Westcap Head Start, March 1993, $347,576 
CIN: A-05-93-25697  West Central Wisconsin Community Action Agency Inc., August 1993, $324,759 
CIN: A-09-94-30178  State of Arizona, June 1994, $267,021 
CIN: A-07-95-01151  Oregon BCBS Unfunded Pension Costs, October 1995, $260,335 
CIN: A-03-92-20033  State of Delaware, August 1992, $247,609 
CIN: A-02-95-02005  Middlesex City EOC Review of Financial Management, September 1995, $237,963 
CIN: A-07-93-00710  BC/BS of Connecticut-Unfunded Pension Cost Audit, March 1994, $237,392 
CIN: A-09-95-34788  State Arizona, August 1995, $209,462 
CIN: A-05-91-00064  Nationwide Administrative Costs Contract Audit, October,1991, $211,422 
CIN: A-07-95-01141  BCBS of LA Pensions Contract Termination Part B, February 1996, $194,177 
CIN: A-07-95-01150  Oregon BCBS Pension Segmentation, October 1995, $191,312 
CIN: A-05-94-29229  West Central Wisconsin Community Action Agency Inc., March 1994, $167,977 
CIN: A-03-94-26611  State of Delaware, December 1993, $163,100 
CIN: A-09-92-06850  Santa Ysabel Band of Mission Indians, September 1992, $151,081 
CIN: A-05-92-00048 	 Wisconsin Physicians Svcs., Pension-Medicare vs. ERISA, October 1992, 
$130,577 (Related recommendation of $2,068,964 outstanding on Table II) 
CIN: A-09-96-40410  Community Services Agency, February 1996, $121,809 
CIN: A-07-93-00709  BC/BS of Connecticut - Pension Segmentation Audit, April 1994, $119,472 
CIN: A-04-93-20785  State of Florida, June 1993, $103,486 
CIN: A-05-94-31408  Tri County Community Action Commission Inc., July 1994, $98,110 
CIN: A-07-95-01159  Nebraska BCBS Pension Segmentation, January 1996, $96,955 
CIN: A-07-95-01164 	 Medicare Admin Costs -General American, December 1995, $89,929 (Related 
recommendation of $16,632 outstanding on Table II) 
CIN: A-03-94-27083  Pennsylvania State Univ., March 1994, $86,479 
CIN: A-02-95-34278  Puerto Rico Dept. of Health, June 1995, $86,064 
CIN: A-02-95-34279  Puerto Rico Dept. of Health, June 1995, $85,266 
D-3  CIN: A-04-93-00059  Refugee Social Services and Targeted Assistance-Florida, September 1994, $84,676 
CIN: A-07-95-01166  Unfunded Pension Costs Nebraska BC/BS, January 1996, $73,509 
CIN: A-02-93-02518  Biederman Kelly & Shafer Contract, February 1994, $72,883 
CIN: A-09-93-00091  Walter McDonald-Indirect Cost Rate Audit, June 1994, $68,663 
CIN: A-03-91-02002  Delaware Blue Cross Administrative Costs, October 1991, $66,858 
CIN: A-01-94-00521  Audit of Non PPS A/G and Capital Costs N.E. Rehab., January 1995, $69,161 
CIN: A-06-96-38417  Northwest Arkansas Head Start Human Services Inc., January 1996, $67,110 
CIN: A-03-96-39611  City of Philadelphia, October 1995, $66,100 
CIN: A-02-95-34275  Puerto Rico Dept. of Health, June 1995, $64,841 
CIN: A-05-95-37615  Illinois Dept. of Children & Family, July 1995, $64,000 
CIN: A-09-95-33441  State of California, April 1995, $63,666 
CIN: A-06-92-19887  Central Tribes of the Shawnee Area, Inc., July 1992, $57,944 
CIN: A-09-96-41388  Fresno County Economic Opportunities Commission, February 1996, $50,040 
CIN: A-09-95-00095 	 Health Services Advisory Group, Inc (HSAG), December 1995, $49,585 (Related 
recommendation of $1,389,723 outstanding on Table II) 
CIN: A-09-96-39877  Amity Inc., November 1995, $49,358 
CIN: A-03-93-03306  Survey Research Assoc., December 1993, $48,779 
CIN: A-02-95-34276  Puerto Rico Dept. of Health, June 1995, $46,842 
CIN: A-09-94-01022  Intelligenetics, October 1994, $44,590 
CIN: A-05-96-40815  Two Rivers Head Start, February 1996, $44,349 
CIN: A-09-96-39877  Amity Inc., November 1995, $42,725 
CIN: A-01-93-20875  State of Maine, May 1993, $40,540 
CIN: A-09-96-38647  University of California, October 1995, $12,159 
CIN: A-03-95-35319  Porter/Novelli, February 1995, $31,331 
CIN: A-03-93-24682  Medlantic Research Institute, June 1993, $31,038 
CIN: A-09-93-00106  Review of RSS and TAP Grants-CDSS, February 1995, $31,001 
CIN: A-05-95-36811  Independent School District No 709-Duluth, Minn., April 1995, $63,666 
CIN: A-01-94-27881  State of Maine, June 1994, $32,460 
CIN: A-05-95-36811  Independent School District-Duluth, Minn., April 1995, $30,000 
CIN: A-03-95-03313  Quality Resource Systems Inc, March 1995, $28,387 
CIN: A-03-92-00033  Blue Cross of West Virginia Termination, November 1992, $25,200 
CIN: A-09-94-27868  Inyo Mono Advocates for Community Action, November 1993, $22,875 
CIN: A-04-96-38361  Mid-South Foundation for Medical Care Inc., November 1995, $22,208 
D-4  CIN: A-05-96-39685  Michigan Family Resources, December 1995, $20,799

CIN: A-06-92-20334  Pueblo of Jemez, September 1992, $20,156

CIN: A-03-93-22091  Pennsylvania State Univ., September 1993, $19,878

CIN: A-05-93-21928  Wright State University, July 1993, $18,308

CIN: A-01-95-37861  South County Community Action Inc., July 1995, $15,137

CIN: A-05-95-34584  Wood County Head Start Inc., December 1994, $14,896

CIN: A-10-92-20781  Tulalip Tribes of Washington, September 1992, $14,525

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

CIN: A-09-95-00091  Walter R. McDonald and Associates-Direct Cost, September 1995, $11,812

CIN: A-03-93-21579  State of West Virginia, April 1993, $11,380

CIN: A-01-95-36087  State of Maine, June 1995, $10,250

CIN: A-09-92-06864  San Juan Southern Paiute Tribe, September 1992, $10,433

CIN: A-09-96-40115  Marianas Association for Retarded Citizens, November 1995, $8,870

CIN: A-02-95-34277  Puerto Rico Dept. of Health, June 1995, $8,486

CIN: A-09-95-33652  Hawaii Dept. of Health, December 1994, $7,613

CIN: A-10-93-22136  Confederated Tribes of the Grand Ronde Community, December 1992, $7,384

CIN: A-03-95-32768  Pennsylvania State Univ., October 1994, $7,310

CIN: A-03-96-38803  Skyline Government Services Corp., November 1995, $7,285

CIN: A-09-96-41444  Immigrant Center, February 1996, $6,632

CIN: A-06-96-40858  Caddo Community Action Agency Inc., February 1996, $6,557

CIN: A-08-94-32795  Northern Cheyenne Tribe, September 1994, $6,548

CIN: A-04-95-38272  State of Florida, August 1995, $6,101

CIN: A-07-95-01167  Pension Costs Claimed Nebraska BC/BS, January 1996, $6,075

CIN: A-09-96-38371  Education Training and Research Associates and Subsidies, February 1996, $5,673

CIN: A-01-96-38016  University of Maine System, January 1996, $5,500

CIN: A-06-91-00034  Audit of Collection & Credit Activities at TDHS, January 1992, $5,081

CIN: A-09-96-40114  Marianas Association for Retarded Citizens, November 1995, $5,040

CIN: A-05-96-40217  NA-Washington Association of Black Social Workers, February 1996, $4,934

CIN: A-01-95-32620  State of Connecticut, January 1995, $4,070

CIN: A-07-95-01123  Review of CPA Adm. Cost - BCBS of Kansas City, May 1995, $4,045

CIN: A-02-93-26106  Second Street Youth Center Foundations Inc., July 1993, $3,989

CIN: A-05-96-38947  American Association of Cardiovascular & Pulmonary, December 1995, $3,827

CIN: A-09-95-39056  Hawaii Dept. of Health, September 1995, $3,601

D-5  CIN: A-10-93-26035  State of Washington, September 1993, $3,198 
CIN: A-07-94-25955  State of Kansas, December 1993, $2,783 
CIN: A-03-95-34716  West Virginia Medical Institute Inc., March 1995, $2,688 
CIN: A-05-95-35315  Lake County Economic Opportunity Council, January 1995, $2,650 
CIN: A-05-96-38861  Menominee Indian Tribe of Wisconsin, February 1996, $2,636 
CIN: A-03-94-30398  Medlantic Research Institute, June 1994, $2,306 
CIN: A-10-96-37604  Copper River Native Association, November 1995, $2,000 
B.  Reports in litigation: 
CIN: A-03-92-16229  State of Pennsylvania, March 1992, $496,876 
CIN: A-09-91-00155 	 Blackburn Care Home, November 1992, $1,772,944 (Related recommendation of 
$662,370 outstanding on Table II) 
CIN: A-03-91-02004  West VA B/C Administrative Cost and Termination Costs, November 1992, $7,556 
C.	 Reports that have subsequently been resolved: 
CIN: A-05-95-37806  Lake Geagua United Head Start Inc., July 1995, $12,357 
CIN: A-05-95-36138  Community Action Agency of Columbia County Inc., March 1995, $8,870 
Table II 
1 The opening balance was adjusted to reflect a downward adjustment of $1.779 billion. 
2 The OIG has reported as "management decisions during the period" those line items in the Presidents Fiscal Year 1997 budget 
that relate directly to OIG recommendations contained in issued reports. Management does not report these decisions in its table. 
3 Management decisions have not been made within 6 months of issuance on 4 reports. Discussions with management are 
ongoing and it is expected that the following reports will be resolved during the next semiannual reporting period: 
CIN: A-04-93-00062  Refugee Social Services/Targeted Assistance Program, May 1995, $9,091,909 
CIN: A-06-91-00089  Audit of CN B Accounts to Determine Cash on Hand, April 1992, $445,890 
CIN: A-02-95 34946  City of Caguas Puerto Rico, March 1995, $9,976 
CIN: A-05-95-37812  Northeast Michigan Community Service Agency, August 1995, $2,191 
D-6
 APPENDIX E

Reporting Requirements of the

Inspector General Act of 1978, as Amended

The specific reporting requirements of the Inspector General Act of 1978, as amended, are listed below with reference to 
the page in the semiannual report on which each of them is addressed.  Where there is no data to report under a particular 
requirement, this is indicated as none.  A complete listing of Office of Inspector General audit and inspection reports is 
being furnished to the Congress under separate cover. Copies are available upon request. 
Section of the Act  Requirement  Page 
Section 4(a)(2)  Review of legislation and regulations  52 
Section 5(a)(1)  Significant problems, abuses and  throughout 
deficiencies 
Section 5(a)(2)  Recommendations with respect to  throughout 
significant problems, abuses and 
deficiencies 
Section 5(a)(3)  Prior significant recommendations on  appendices B and C 
which corrective action has not been 
completed 
Section 5(a)(4)  Matters referred to prosecutive authorities  54 
Section 5(a)(5)  Summary of instances where information  none 
was refused 
Section 5(a)(6)  List of audit reports  under separate cover 
Section 5(a)(7)  Summary of significant reports  throughout 
Section 5(a)(8)  Statistical table I -reports with questioned  50 
costs 
Section 5(a)(9)  Statistical table II -reports with  51 
recommendations that funds be put to 
better use 
Section 5(a)(10)  Summary of previous audit reports  appendix D 
without management decisions 
Section 5(a)(11)  Description and explanation of revised  appendix D 
management decisions 
Section 5(a)(12)  Management decisions with which the  none 
Inspector General is in disagreement 
E-1
 APPENDIX F

Performance Measures

In order to identify work done in the area of performance measurement, OIG has labeled some items throughout the semiannual 
report as performance measures with the symbol   .  Performance measures are used to evaluate the 
achievement of a program goal, such as the efficiency of an immunization program which is measured by the number of 
inoculations provided per dollar of cost.  In OIGs opinion, the following audits, inspections and investigations finalized during 
this semiannual period offer management information about whether some aspect or all of the programs or activities reviewed are 
achieving their missions and goals. 
Page 
Health Maintenance Organization Customer Satisfaction Surveys . . . . . . . . . . . . . . . . 4

Health Care Financing Administrations Combined Financial Statements . . . . . . . . . . 4

Medicare Providersand Electronic Claims Processing . . . . . . . . . . . . . . . . . . . . . . . . 14

Encouraging Physicians to Use Paperless Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Childrens Dental Services under Medicaid: Access and Utilization . . . . . . . . . . . . . 30

Postmarketing Studies ofPrescription Drugs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Processes to Review Medical Devices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Food and Drug Administrations Urgent Notices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Processing of 17 Error and Accident Reports Involving Blood  . . . . . . . . . . . . . . . . . 35

Educational Resource Centers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Public Health Services Service and Supply Fund: Fiscal Year 1995  . . . . . . . . . . . . 39

Fingerprinting Demonstration Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Privatization of Floridas Overpayment Recovery Function . . . . . . . . . . . . . . . . . . . . 42

F-1
 APPENDIX G

Audits, Inspections and Investigations Related to Operation Restore Trust

The following audits, inspections and investigations finalized during this semiannual period relate to Operation Restore Trust, 
discussed in Chapter I.  These report and case summaries are labeled with the symbolin the text.  A multidisciplinary 
Federal and State approach to preventing and detecting fraud in home health agencies, nursing homes and durable medical 
equipment suppliers, Operation Restore Trust has targeted the five States with the greatest proportion of Medicare and 
Medicaid beneficiaries: New York, Florida, Illinois, Texas and California. 
Page 
Hospice Eligibility 
B.Florida  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 
Fraud and Abuse Sanctions 
A. Program Exclusions, second, third, fourth and sixth examples  . . . . . . . . . . . . 10,11 
Kickbacks,third example  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 
Home Health Care Costs 
A.Florida -Miami Lakes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 
B.Florida -Miami . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 
C.Florida -Dade County  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 
Medicare Part B Services in Nursing Homes 
A.Overview  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 
B.Enteral Nutrient Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 
C.Durable Medical Equipment Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 
D.Mental Health Services in Nursing Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 
Nursing Home Fraud, first, second, fourth and fifth examples . . . . . . . . . . . . . . . . 22,23 
Payments for Enteral Nutrition: Medicare and Other Payers . . . . . . . . . . . . . . . . . . . 23 
Fraud Involving Durable Medical Equipment Suppliers, first and fourth 
examples  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24,25 
Medicare PaymentsforAlbuterolSulfate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 
G-1
 ACRONYMS

ACF  Administration for Children and Families 
AFDC  Aid to Families with Dependent Children 
AHCPR  Agency for Health Care Policy and Research 
AoA  Administration on Aging 
ASC  ambulatory surgical center 
ASMB  Assistant Secretary for Management and Budget 
ATSDR  Agency for Toxic Substances and Disease Registry 
AWP  average wholesale price 
CDC  Centers for Disease Control and Prevention 
CMN  certificate of medical necessity 
CMP  civil monetary penalty 
CSE  child support enforcement 
CY  Calendar Year 
DME  durable medical equipment 
DOJ  Department of Justice 
DRG  diagnosis-related group 
EA  Emergency Assistance 
EGHP  employer group health policy 
EMC  electronic media claim 
ESRD  end stage renal disease 
FDA  Food and Drug Administration 
FI  fiscal intermediary 
FMFIA  Federal Managers Financial Integrity Act 
FY  fiscal year 
GME  graduate medical education 
HCFA  Health Care Financing Administration 
HEAL  health education assistance loan 
HHA  home health agency 
HHS  Department of Health and Human Services 
HMO  health maintenance organization 
HRSA  Health Resources and Services Administration 
IHS  Indian Health Service 
IME  indirect medical education 
JOBS  Job Opportunity and Basic Skills 
MFCU  Medicaid fraud control unit 
MSP  Medicare secondary payer 
NIH  National Institutes of Health 
OMB  Office of Management and Budget 
PFCRA  Program Fraud Civil Remedies Act 
PHS  Public Health Service 
PPS  prospective payment system 
PRM  provider review manual 
PSC  Program Support Center 
SAMHSA  Substance Abuse and Mental Health Services Administration 
SNF  skilled nursing facility 
SSA  Social Security Administration 
TANF  Temporary Assistance to Needy Families  STATUTORY AND ADMINISTRATIVE RESPONSIBILITIES 
The Inspector General Act of 1978 (Public Law 95-452), as amended, sets forth specific requirements for semiannual 
reports to be made to the Secretary for transmittal to the Congress.  A selection of other statutory and administrative 
reporting and enforcement responsibilities and authorities are listed below: 
AUDIT AND MANAGEMENT REVIEW RESPONSIBILITIES AND OFFICE OF 
MANAGEMENT AND BUDGET CIRCULARS 
P.L.  96-304  Supplemental Appropriations and Rescissions Act of 1980 
P.L.  96-510  Comprehensive Environmental Response, Compensation and Liability Act 
P.L.  97-255  Federal Managers Financial Integrity Act 
P.L.  97-365  Debt Collection Act of 1982 
P.L.  98-502  Single Audit Act of 1984 
P.L.  99-499  Superfund Amendments and Reauthorization Act of 1986 
P.L. 100-504  Inspector General Act Amendments of 1988 
P.L. 101-576  Chief Financial Officers Act of 1990 
P.L. 102-486  Energy Policy Act of 1992 
P.L. 103-62  Government Performance and Results Act of 1993 
P.L. 103-355  Federal Acquisition Streamlining Act of 1994 
P.L. 103-356  Government Management Reform Act of 1994 
Office of Management and Budget Circulars: 
A- 21  Cost Principles for Educational Institutions 
A- 25  User Charges 
A- 50  Audit Follow-up 
A- 70  Policies and Guidelines for Federal Credit Programs 
A- 73  Audit of Federal Operations and Programs 
A- 76  Performance of Commercial Activities 
A- 87  Cost Principles for State and Local Governments 
A-102  Uniform Administrative Requirements for Assistance to State and Local Governments 
A-110	 Uniform Administrative Requirements for Grants and Other Agreements with 
Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations 
A-122  Cost Principles for Nonprofit Organizations 
A-123  Internal Controls 
A-127  Financial Management Systems 
A-128  Audits of State and Local Governments 
A-129  Managing Federal Credit Programs 
A-133  Audits of Institutions of Higher Education and Other Nonprofit Institutions 
General Accounting Office Government Auditing Standards 
CRIMINAL AND CIVIL INVESTIGATIVE AUTHORITIES 
Criminal investigative authorities include: 
Title  5,  United States Code, section 552a(i) 
Title 18,	 United States Code, sections on crime and criminal procedures as they pertain to 
OIGs oversight of departmental programs and employee misconduct 
Title 42,	 United States Code, sections 263a(l), 274e, 290dd-2, 300w-8, 300x-8, 707, 
1320a-7b and 1320b-10, the Social Security and Public Health Service Acts 
Civil and administrative investigative authorities include civil monetary penalty and exclusion authorities such as 
those at: 
Title 31,	 United States Code, section 3729 et seq., the Civil False Claims Act and 3801 et seq., the Program Fraud 
Civil Remedies Act 
Title 42,  United States Code, sections 1320a-7, 1320a-7a, 1320c-5, 1395l, 1395m, 1395u, 1395dd and 1396b  DEPARTMENT OF HEALTH 
AND HUMAN SERVICES 
Office of Inspector General 
330 Independence Avenue, S.W. 
Washington, D.C. 20201 
Internet Address 
http://www.sbaonline.sba.gov/ignet/internal/hhs/hhs.html