Department of Health
and Human Services
Office of Inspector General
Semiannual Report
October 1, 1999 - March 31, 2000
June Gibbs Brown
Inspector General Step One
Call your health care provider for an explanation 
of unusual or questionable Medicare charges. 
Most are honest and want to prevent fraud.
Step Two
If you still have questions, call your Medicare 
insurance company.
Step Three
If you continue to have questions, call the 
Medicare Fraud Hotline at:
 1-800-HHS-TIPS
 (1-800-447-8477) A MESSAGE FROM THE SECRETARY
At the dawn of a new century, we can look back with pride at the achievements of the
Department of Health and Human Services (HHS) over the last several years.  And we can
look forward with confidence to making even greater strides in improving the quality of the
programs and services we provide to the public.  To meet that goal, we have to make the
most effective and efficient use of our resources and work aggressively to eliminate fraud,
waste and abuse in our programs and operations.  As part of the HHS team, our Office of
Inspector General (OIG) is spearheading those efforts.
Program reform initiatives and intensified efforts to prevent and detect health care fraud,
waste and abuse have been hallmarks of this Administration.  Our accomplishments in this
area have been impressive, with notable increases in civil settlements, criminal convictions
and exclusions of dishonest or abusive providers reported by OIG in the last few years.  But
more important, we have seen real changes in industry behavior as a result of our activities.
One clear measure of our effectiveness can be seen in the comparative outcomes of OIGs
annual audits of Medicares fee-for-service payments over the last 4 years.  The OIG has
worked closely with the Health Care Financing Administration (HCFA) to correct systemic
vulnerabilities that accounted for many of the improper payments identified in its initial
review conducted in FY 1997.  And we have witnessed an enormous improvement over this
time, with the estimated rate of improper payments dropping from 14 percent in FY 1996 to
less than 8 percent in FY 1999.  Other indicators of our success are the decrease in
Medicare spending growth and the extension by the Medicare trustees of their estimate of
the financial life of the Trust Fund.  The trustees, the Congressional Budget Office and other
outside commentators have consistently cited increased antifraud and abuse efforts as one
of the primary contributing factors in these trends.
I am also extremely pleased that, for the first time, OIG was able to issue an unqualified, or
clean audit opinion for the Departments FY 1999 financial statements and those of the
major HHS agencies.  This result is a significant milestone, particularly for HCFA, and
reflects the real progress we have made as a Department in providing reliable financial data.
Another of our critical priorities has been child support enforcement.  We have been
working harder than ever to ensure that children get the support they are entitled to from
their parents, and our accomplishments in this area are impressive.  The Administrations
criminal child support enforcement initiative  Project Save Our Children is showing great
success in its pursuit of chronic delinquent parents who owe large sums of child support.
Much of this success is attributable to the efforts of OIG and the Administration for
Children and Families, Office of Child Support Enforcement, who along with the
Department of Justice, State child support agencies and local law enforcement organizations, have joined in forming regional task forces to identify, investigate and
prosecute the most egregious offenders on both the State and Federal levels.
Clearly, we are moving in the right direction on many fronts, but much remains to be done.
I am therefore especially grateful to be working with an Inspector General whose assistance
and support I can count on to help the Department best fulfill its mission of service to the
American people.
Donna E. Shalala FOREWORD
This report covers the full range of the Department of Health and Human Services (HHS)
Office of Inspector General (OIG) activities for the 6-month period October 1, 1999 to
March 31, 2000.  An overview of the most significant issues discussed in the report is
provided in the Highlights section.  
This semiannual period has been a time of substantial progress in our ongoing efforts to
protect the integrity of HHS programs and operations and to help minimize Government
costs.  The successes we have achieved in the area of fraud, waste and abuse are in large
measure due to the efforts of a wide variety of individuals and entities, including the
Department,  the  Congress,  the  Department  of  Justice  (DOJ),  other  law  enforcement
agencies, provider groups and program beneficiaries.  The accomplishments described in
this report are tangible evidence that these partnerships are producing meaningful results. 
We have worked diligently with the Department over the past several years to improve
financial management and accountability.  During this reporting period, for the first time, we
were able to issue an unqualified audit opinion on the Departments financial statements.
This represents real progress in HHSs efforts to achieve full financial discipline.  Our related
analysis of Medicare payment errors shows the Health Care Financing Administrationss
(HCFAs) continued vigilance in monitoring and reducing such errors, although we note that
unsupported and medically unnecessary services continue to be pervasive problems.  We
will continue to work with HCFA in its efforts to reduce improper payments and ensure
provider integrity.
Key to our antifraud efforts has been the Health Care Fraud and Abuse Control Program,
created under the Health Insurance Portability and Accountability Act, which established a
partnership between OIG and DOJ to coordinate Federal, State and local law enforcement
health care fraud and abuse activities.  This reporting period has seen the culmination of
several major joint investigations by OIG and DOJ.  Among them was the biggest health
care settlement in the Nations history, in which the worlds largest provider of dialysis
products and services agreed to pay criminal and civil penalties of $486 million.
In addition to pursuing prosecution and exclusion in cases where violations have occurred,
we have placed a greater emphasis on prevention.  We have continued to engage in outreach
initiatives designed to help the medical care industry avoid waste, fraud and abuse and to
increase its compliance with Medicare rules.  Vital efforts in this area include the issuance of
industry-specific compliance guidance, special fraud alerts and formal advisory opinions to
industry on proposed business practices.  We have made our plans, studies and proposals much more available to interest groups, and have consulted frequently with them to resolve
issues  and  reach  common  ground.    Moreover,  in  cooperation  with  the  Departments
Administration on Aging, we have enlisted the assistance of HHS beneficiaries themselves
in  preventing  and  detecting  fraudulent  and  abusive  practices.    Beyond  informing  and
assisting the health care industry and the public, these prevention activities help reduce the
Governments enforcement costs and program losses.
We are also working on a number of other compelling issues.  For example, we continue to
make significant strides in the area of child support.  Our work has contributed to the
Administrations  efforts  to  increase  the  rate  of  paternity  establishment  in  the  Nation.
Moreover, through the increased scrutiny and cooperation of the Federal, State and local
agencies responsible for child support enforcement, we have made it much more difficult for
noncustodial parents to ignore their financial obligations to their children.  Along with the
HHS Office of Child Support Enforcement and others, we have formed multidisciplinary,
multijurisdictional task forces to identify, investigate and prosecute criminal nonsupport
cases on the Federal and State levels through the coordination of law enforcement, criminal
justice and child support office resources.  Based on the successes of these multiagency
teams  in  identifying  and  catching  those  seriously  delinquent  in  their  payments,  more
children than ever before are getting the help they need and deserve.
Since the beginning of my tenure at HHS, I have pledged to deliver superior performance.  I
am exceedingly proud of all that OIG has done to make that promise a reality.  However, I
recognize that improvement is a never-ending process and that we must continue to build on
past successes.  Therefore, as we embark on the 21st century, I am committed to redoubling
OIGs  efforts  to  assist  the  Department  in  becoming  a  stronger  and  more  efficient
organization.  We will continue to provide our customers with the highest possible level of
professionalism and quality through our audits, investigations and inspections and to be a
flexible, responsive organization that Government decision-makers can rely on for timely
information and advice.  In this manner, we will optimize our effectiveness and assure the
American taxpayers and the Departments beneficiaries that they are receiving maximum
value from HHS programs and operations.
June Gibbs Brown
Inspector General HIGHLIGHTS
INTRODUCTION
This section highlights the most noteworthy recent accomplishments of the Department of
Health and Human Services (HHS) Office of Inspector General (OIG). 
STATISTICAL ACCOMPLISHMENTS
For the first half of Fiscal Year (FY) 2000, OIG reported savings of $9.5 billion, comprised
of $8.4 billion in implemented recommendations and other actions to put funds to better use,
$40.5 million in audit disallowances and $968.1 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 chapter for details.)
In addition, for the first half of FY 2000, OIG reported 1,278 exclusions of individuals and
entities for fraud or abuse of the Federal health care programs and/or their beneficiaries, 205
convictions of individuals or entities that engaged in crimes against departmental programs,
and 198 civil actions.  (See sections entitled "Fraud and Abuse Administrative Sanctions" in
the Health Care Financing Administration [HCFA] chapter and "Investigative Prosecutions
and Receivables" in the General Oversight chapter.)
Included  below are examples  of some  of OIGs  most notable accomplishments for the
6-month period ending March 31, 2000.
FINANCIAL STATEMENT AUDIT
During  FY  1999,  the  Department  achieved  an  important  milestone  in  financial
accountability.  In its fourth annual audit of the HHS financial statements, OIG issued an
unqualified, or "clean," opinion for the first time.  This opinion means that the Department
successfully resolved previously reported opinion issues and that the FY 1999 statements
reliably presented financial information.
However, OIG found that the Departments financial systems and reporting needed further
improvement.  An integrated accounting system was still lacking, and accounts were not
reconciled and analyzed throughout the year to ensure the accuracy of reported amounts or
to identify emerging problems.  This deficiency and continuing problems in controls over
Medicare accounts receivable and Medicare electronic data processing were reported as
material weaknesses.
The OIG also issued its fourth report on the Medicare fee-for-service payment error rate.
Based on a statistically valid sample, improper payments totaled an estimated $13.5 billion,
i or about 7.97 percent of the $169.5 billion in FY 1999 processed fee-for-service payments.
While this years estimate is about $1 billion higher than last years, OIG cannot conclude
that the current estimate is statistically different.  This years estimate is $9.7 billion less
than that for FY 1996, when OIG developed the first national error rate.  (See pages 2, 3 and
66)
SIGNIFICANT INVESTIGATIVE RESULTS
Following are some of the major settlements that were finalized during this reporting period.
Dialysis Services Company
The  Government  reached  a  record-breaking  Medicare  fraud  settlement  with  Fresenius
Medical Care Holdings,  Inc. (FMCH), the Nations  largest provider of kidney dialysis
products  and  services.    As  a result of  a joint investigation  by  OIG  and  multiple law
enforcement agencies and an OIG audit, FMCH agreed to a global resolution under which
three subsidiaries pled guilty, and the company agreed to pay $486 million to resolve the
criminal and civil aspects of the case.  As part of the civil settlement agreement for credit
balances, the company paid directly to HCFA $11 million for overpayments which were
previously reported to the fiscal intermediaries but never recouped.  The alleged misconduct
involved illegal kickback activity, submission of false claims for dialysis-related nutrition
therapy  services,  improper  billing  for  laboratory  services  and  false  reporting  of  credit
balances.  This misconduct was engaged in by National Medical Care, a nationwide dialysis
company, and various of its subsidiaries prior to a 1996 merger with FMCH.  As part of the
settlement,  the  company  also  entered  into  the  most  comprehensive  corporate  integrity
agreement ever imposed by OIG.  (See page 33)
Nursing Home Chain   
In the largest settlement ever reached in a nursing home case investigated by OIG, Beverly
Enterprises, Inc.  (Beverly), the Nations  largest nursing home chain agreed to pay the
Government $175 million to resolve criminal and civil issues and entered into a corporate
integrity  agreement  with  OIG.    This  multimillion  dollar  global  settlement  resolved
allegations  that  the  nursing  home  chain  engaged  in  a  nationwide  scheme  to  defraud
Medicare of approximately $400 million by inflating nursing costs charged to the program.
Under the terms of the settlement, Beverly will pay $170 million in a civil settlement, based
on a limited ability to pay.  A company subsidiary, which also pled guilty to criminal
charges, will pay $5 million in criminal fines and divest itself of 10 nursing homes.  (See
page 20)
Former Medicare Fiscal Intermediary   
Anthem  Blue  Cross  and  Blue  Shield  of  Connecticut  (Anthem),  Connecticuts  former
Medicare  fiscal  intermediary,  agreed  to  pay  the  Government  $74.3  million  to  resolve
allegations of wrongdoing by its predecessor corporation.  The company allegedly falsified
hospital  cost  reports  to  meet  Government  performance  standards  as  a  Medicare  fiscal
intermediary.  The companys misconduct led several Connecticut hospitals to improperly
receive Medicare overpayments and enabled the company to obtain a better performance
evaluation from the Health Care Financing Administration (HCFA) than it would have
ii otherwise received.  This settlement represents the largest civil settlement in a health care
fraud case in the State and the second largest Medicare contractor settlement nationwide.  As
part of the settlement, the company, which is no longer an intermediary, agreed to the
imposition of a corporate integrity agreement for 5 years for its Medicare+Choice health
maintenance organization contract, which it still operates.  (See page 34)
FRAUD PREVENTION
The OIG has also continued to expand activities designed not just to uncover existing fraud
and abuse, but to prevent it.
Safe Harbor Regulations
The OIGs efforts to focus on preventing health care fraud  includes guidance to industry on
the propriety of health care transactions.  In this reporting period, OIG published two
significant  final  regulations  creating  10  new  safe  harbors  to  the  Federal  anti-kickback
statute.  The new safe harbors address a variety of payment arrangements, including certain
joint  venture  and  recruitment  arrangements  in  underserved  urban  and  rural  areas,
investments  in  ambulatory  surgical  centers  and  managed  care  or  "risk  sharing"
arrangements.    The  final  regulations  also  clarified  certain  aspects  of  the  existing  safe
harbors.  (See page 15)
Compliance Guidance
A key element of OIGs prevention efforts has been the development of compliance program
guidance to encourage and assist the health care industry to fight fraud and abuse.  The
guidance, developed in conjunction with the provider community, identifies steps that health
providers may voluntarily take to improve adherence to Medicare and Medicaid rules.
During this reporting period, OIG developed and released final compliance guidance for
Medicare + Choice organizations that offer coordinated care plans and nursing homes.  (See
page 36)
PATIENT PROTECTION
Patient protection continued to be a focus of OIG audit, inspection and investigation activity
this reporting period.
Adverse Drug Reactions
To ensure a prompt and appropriate regulatory response to reports of adverse drug reactions
(ADRs), OIG proposed that, among other actions, FDA more effectively coordinate its
post-market drug risk assessment and review divisions; establish a quality control system
that ensures that potentially serious ADRs are not overlooked; and coordinate with HCFA to
require hospitals to report all serious ADRs as a condition of participating in Medicare and
Medicaid.  (See page 50)
Infusion Therapy Services Provided in Skilled Nursing Facilities
The  OIG  found  that  because  suppliers  provided  skilled  nursing  facilities  (SNFs)  with
unnecessary,  overpriced  and  incorrectly  billed  infusion  therapy  services,  patients  were
iii placed at risk, SNFs were overpaid by Medicare and infusion therapy costs were incorrectly
classified on SNF cost reports.  The OIG recommended that before HCFA refines or updates
the SNF prospective payment system rates, it consider the impact of the overpayments for
infusion therapy services; identify and recover such overpayments to SNFs; and direct its
contractors to perform medical reviews to ensure that patients are receiving the appropriate
levels of infusion therapy.  (See page 9)
External Review of Hospital Quality
The OIG discussed State initiatives aimed at overseeing hospital quality in a follow-up study
to  a  recent  series  of  reports  that  assessed  the  roles  played  by  HCFA  and  the  Joint
Commission  on  Accreditation  of  Healthcare  Organizations  in  overseeing  hospitals  that
participate in Medicare.  (See page 4)
MANAGED CARE
In this semiannual period, the OIG has released a number of studies that have looked at
various aspects of managed care.
Capitation Payments
The OIG  found that the base year rates used to determine Medicare capitation payments to
managed care organizations (MCOs) were overstated by 4.2 percent, and would cause
capitation payment excesses totaling $11.3 billion and $34.3 billion over the next 5 and the
next 10 years, respectively.  (See page 5)
Federal/State Medicaid Partnership
As part of its partnership work with the Florida Auditor Generals Office, OIG found that
beneficiaries dually eligible for Medicare and Medicaid received Medicaid medical services
and drugs paid for by the State Medicaid fee-for-service program that should have been
covered by a Medicare MCO.  The OIG recommended that the State recover $4.7 million in
unallowable payments from one MCO, and identify the liability of each of the other 50
MCOs in the statistical samples reviewed; OIG estimated that these liabilities total $11.2
million.  (See page 44)
Medicaid Mental Health Programs
Three related reports reviewed mental health programs in seven States that were among the
first to convert from fee-for service to mandatory managed care.  This allowed those States
to offer more specialized and creative outpatient services, and it was found that overall use
of  mental  health  services  increased.    However,  the  impact  on  beneficiaries  was  not
quantified  due  to  lack  of  outcome  measurement  systems.    State  respondents  reported
reduced costs, but OIG found that savings from managed care operations were not always
used to improve mental health services.  (See page 45)
HOME HEALTH 
Medicare home health services were revisited by OIG auditors, inspectors and investigators
during this reporting period.
iv Home Health Services in Four States: A Follow-Up
In this follow-up  to  an earlier  review, OIG found that the rate of improper or highly
questionable Medicare home health services fell from 40 percent for the 15-month period
ending March 31, 1996 to 19 percent for the 9-month period ending September 30, 1998.
The OIG recommended that HCFA, among other actions, consider the 19 percent error rate
before adjusting the current home health agency (HHA) payments, and account for any error
payments used in calculating the current HHA prospective payment system rates before
adjusting the rates.  (See page 16)
Home Health Agency Fraud
The OIG continued to address home health agency (HHA) fraud through the sponsorship of
a home health fraud conference and through the investigation of home health fraud itself.  At
the conference held in December 1999, representatives of Government agencies and private
insurers came together to discuss the successful investigation and prosecution of home
health fraud cases.  This information sharing session provided attendees with the opportunity
to compare HHA cases and the strategies used to work them.  In addition to hosting this
conference, OIG also achieved significant results in investigating home health fraud this
period.  One major example of OIGs success in this area was its investigation and audit of
what was once South Floridas highest paid HHA Medicare provider.  Initiated as part of
Operation Restore Trust, OIGs efforts in this case resulted in the indictment of 26 people in
December 1998 and an information filed against an additional individual in October 1999.
Those charged participated in a complex Medicare fraud scheme in connection with the
HHA.  During this reporting period, four of the 26 individuals indicted, and the additional
individual charged in the information, were sentenced for their part in causing the HHA to
allegedly submit over $45 million in false claims to Medicare.  (See page 17)
Beneficiary Access
In  an  OIG  review  of  the  impact  of  the  new  interim  payment  system  on  Medicare
beneficiaries access to home health services, 85 percent of discharge planners reported that
Medicare patients were able to obtain home health care when needed; 83 percent said HHAs
either never or infrequently refused to take Medicare patients; and 75 percent indicated they
needed to contact only one HHA on average to obtain care for their patients.  However, OIG
noted that 50 percent of planners reported that certain subgroups of patients had become
more difficult to place, and 25 percent expressed concern that some Medicare patients might
not be receiving either the length or adequacy of care they need.  (See page 15)
CHILD SUPPORT ENFORCEMENT
In addition to its audit and inspection work in this area, OIG has made the detection and
prosecution of absent parents who fail to pay court-ordered child support a priority.  The
OIG has worked with the Office of Child Support Enforcement (OCSE) and other Federal,
State and local partners to develop programmatic and operational procedures to expedite the
collection  of  child  support  and  to  bring  to  justice  those  who  willfully  disregard  their
obligations.  The OIG has opened 966 investigations of child support cases nationwide since
v 1995, which have resulted in 219 convictions and court-ordered restitution and settlements
of over $13.8 million.
Investigative Task Forces
In 1998, OIG and OCSE initiated Project Save Our Children, a criminal child support
initiative made up of multiagency, multijurisdictional investigative task forces.  The task
forces bring together enforcement units from different States within certain geographical
regions.  Based on the success of the initial task forces in the Midwest and Mid-Atlantic
regions, three additional task forces were opened in the Southwest, the Northeast and the
West Coast in 1999.  The task forces are designed to identify, investigate and prosecute
criminal nonsupport cases both on the Federal and State levels through the coordination of
law enforcement, criminal justice and child support office resources; their goal is to create
streamlined systems of referral, investigation and prosecution that will bring to justice the
most egregious offenders.  (See page 57)
Paternity Establishment
The OIG issued two reports on paternity establishment during this period.  In one, OIG
identified some promising strategies to surmount barriers to genetic testing of putative
parents.  In the second, OIG made recommendations to OCSE designed to promote greater
collaboration between local child support agencies and State vital records agencies.  (See
pages 56)
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)
INTERNET ADDRESS
This semiannual report and other OIG materials may be accessed on the Internet at the
following address: http://www.hhs.gov/oig
vi Table of Contents
Chapter I  HEALTH CARE FINANCING ADMINISTRATION
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . . .1
Improper Fiscal Year 1999 Medicare Fee-for-Service Payments  . . . . . . . . . . . . . . . . . . .2
Financial Statement Audit of the Health Care Financing Administration
for Fiscal Year 1999  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Hospital Ownership of Physician Practices  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Analysis of Readmissions Under Medicare Prospective Payment System . . . . . . . . . . . .4
External Review of Hospital Quality:  State Initiatives  . . . . . . . . . . . . . . . . . . . . . . . . . .4
Medicare+Choice Health Maintenance Organization Extra Benefits:
Beneficiary Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Overpayments to Managed Care Organizations Due to Overstated
Capitation Rates  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Adjusted Community Rate Proposals for Risk-Based Managed Care
Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
A. Administrative Cost Component of Nine Managed Care 
Rate Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
B. Administrative Costs in Rate Proposals Are Inconsistent 
among Managed Care Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Fee-for-Service Payments for Medicare Beneficiaries Enrolled 
in Managed Care Risk Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Payments to Medicare Managed Care Risk Plans for Deceased
Beneficiaries  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Medicare Managed Care:  Goals of National Marketing Guide   . . . . . . . . . . . . . . . . . . .8
Medicare Managed Care:  1998 Marketing Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Early Effects of the Prospective Payment System on Access to Skilled
Nursing Facilities:  Nursing Home Administrators Perspective  . . . . . . . . . . . . . . . . . . .9
Infusion Therapy Services Provided in Skilled Nursing Facilities . . . . . . . . . . . . . . . . . .9
Major Hospital Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 A.  Physicians at Teaching Hospitals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
B.  Diagnosis Related Group Three-Day Window Project  . . . . . . . . . . . . . . . . . . .11
C.  Hospital Outpatient Laboratory Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
D.  PPS Patient Transfer Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
E.  Pneumonia Upcoding Project  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Other Hospital Investigations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Industry Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Medicare Beneficiary Access to Home Health Agencies  . . . . . . . . . . . . . . . . . . . . . . . .15
Medicare Home Health Services in California, Illinois, New York and
Texas:  A Follow-Up Review  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Costs Claimed by Home Health Care Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Home Health Agency Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Fraud Involving Nursing Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Year 2000 Readiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
A.  Managed Care Organizations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
B.  Fee-for-Service Providers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Contractor Costs for Year 2000 Remediation of Medicare Computer
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Medicare Administrative Appeals:  Hearing Process  . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Safeguarding Medicare Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Medicare Administrative Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
A.  AdminaStar Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
B.  Blue Cross Blue Shield of Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Pension Plan Audit  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Medical Billing Software and Processes Used to Prepare Claims  . . . . . . . . . . . . . . . . .24
Criminal Fraud  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Kickbacks  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Fraud and Abuse Sanctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 A.  Program Exclusions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
B.  Civil Penalties for Patient Dumping  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
C.  Civil Penalties for False Claims  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
D.  Compliance Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
Beneficiary and Provider Outreach Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Accuracy of Unique Physician Identification Number Data . . . . . . . . . . . . . . . . . . . . . .38
Utilization Parameters for Chiropractic Treatments  . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Outpatient Psychiatric Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Durable Medical Equipment Regional Carriers:  Meeting HCFAs
Objectives  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
Medicare Payments for Orthotic Body Jackets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Medicare Allowed Charges for Orthotic Body Jackets   . . . . . . . . . . . . . . . . . . . . . . . . .40
Use of Universal Product Numbers for Medical Equipment and Supplies . . . . . . . . . . .41
Fraud Involving Durable Medical Equipment Suppliers  . . . . . . . . . . . . . . . . . . . . . . . .41
Transportation Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Federal and State Partnership:  Joint Audits of Medicaid . . . . . . . . . . . . . . . . . . . . . . . .44
A.  Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
B.  Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Mandatory Managed Care:  Medicaid Mental Health Services  . . . . . . . . . . . . . . . . . . .45
Medicaid Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Chapter II  PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Overview of Program Area and Office of Inspector General Activities  . . . . . . . . . . . . .49
Food and Drug Administrations Handling of Adverse Drug Reaction
Reports  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Impact of State Childrens Health Insurance Program on Changing
Service Delivery of Federal Health Centers:  Six Case Studies  . . . . . . . . . . . . . . . . . . .50
Comprehensive Hemophilia Treatment Centers Utilization of Public
Health Service 340B Drug Pricing Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 Exclusions for Health Education Assistance Loan Defaults . . . . . . . . . . . . . . . . . . . . . .51
National Institutes of Health Small Business Innovation Research
Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
Chapter III  ADMINISTRATION FOR CHILDREN 
AND FAMILIES, AND ADMINISTRATION ON AGING
Overview of Program Areas and Office of Inspector General Activities  . . . . . . . . . . . .55
Paternity Establishment:  State Use of Genetic Testing  . . . . . . . . . . . . . . . . . . . . . . . . .56
Paternity Establishment: Role of Vital Records Agencies  . . . . . . . . . . . . . . . . . . . . . . .56
Child Support Enforcement: Investigations  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
Emergency Assistance Program:  New York Family Assistance Program  . . . . . . . . . . .60
New York State Foster Care Claims for New York City . . . . . . . . . . . . . . . . . . . . . . . . .60
Foster Care Maintenance Payments to For-Profit Child Care Providers
in Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Retroactive Adjustments Filed Under the Title IV-E Foster Care
Program:  Massachusetts   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Adoption and Foster Care Analysis and Reporting System  . . . . . . . . . . . . . . . . . . . . . .61
Head Start, Temporary Assistance to Needy Families and Child Care
Needs Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Technical Assistance for Quality Child Care:  Regional Office
Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
24-Month Performance Data for Administration on Agings  Health
Care Fraud Control Grants  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Chapter IV  GENERAL OVERSIGHT
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Financial Statement Audit of the Department for Fiscal Year 1999  . . . . . . . . . . . . . . . .66
Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
A.  Office of Inspector Generals Proactive Role  . . . . . . . . . . . . . . . . . . . . . . . . . .67
B.  Quality Control  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
Resolving Office of Inspector General Recommendations . . . . . . . . . . . . . . . . . . . . . . .69 A.  Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
B.  Funds Put to Better Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Legislative and Regulatory Review and Regulatory Development  . . . . . . . . . . . . . . . .71
A.  Review Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
B.  Regulatory Development Functions  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
C.  Congressional Testimony and Hearings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Employee Fraud and Misconduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Investigative Prosecutions and Receivables  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
APPENDIX A - Savings Achieved through Policy and Procedural 
Changes Resulting from Office of Inspector General
Audits, Investigations and Inspections October 1999
through March 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B - Unimplemented Office of Inspector General 
Recommendations to Put Funds to Better Use . . . . . . . . . . . . . . .B-1
APPENDIX C - Unimplemented Office of Inspector General 
Program and Management Improvement 
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
APPENDIX D - Notes to Tables I and II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
APPENDIX E - Reporting Requirements of the Inspector General 
Act of 1978, as Amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .E-1
APPENDIX F - Performance Measures  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-1 Health Care 
Financing 
Administration Chapter I
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 certain low-income
people.    Eligibility  for  Medicaid  is,  in  general,  based  on  a  persons  eligibility  for
Supplemental Security Income or the former Aid to Families with Dependent Children
program.  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 State Childrens Health Insurance Program (SCHIP), created under the new
title XXI of the Social Security Act, will expand health coverage to uninsured children
whose families earn too much for Medicaid but too little to afford private coverage.  The
SCHIP program is a partnership between the Federal and State governments in which States
may choose to expand their Medicaid programs, design new child health insurance programs
or create a combination of both.
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; 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.
1 The OIGs documentation of excessive payments led to recent statutory changes in the way
and/or the amount Medicare reimburses rural health clinics, skilled nursing facilities, home
health  agencies  (HHAs),  hospices,  ambulance  services,  oxygen  suppliers,  clinical
laboratories, suppliers of certain Medicare-covered drugs and biologicals, teaching hospitals
for indirect medical education costs and the States for Medicaid disproportionate share
payments.  To ensure quality of patient care, OIG has assessed clinical and physiological
laboratories; evaluated the medical necessity of medical equipment and of services provided
by HHAs; analyzed various 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, which account for more than 84 percent
of Department of Health and Human Services (HHS) outlays.  In addition to issuing an
opinion on the statements, OIG has assessed compliance with Medicare laws and regulations
and the adequacy of internal controls.
Improper Fiscal Year 1999 Medicare 
Fee-for-Service Payments
The OIG reports that improper payments under Medicares fee-for-service (FFS) system
totaled an estimated $13.5 billion during Fiscal Year (FY) 1999.  This years estimate is
about $1 billion more than last years estimate and is $9.7 billion less than that for FY 1996,
when OIG developed the first national error rate.  While this years estimate is higher than
last years, OIG cannot conclude that the current error rate is statistically different.
The OIG developed the estimate of improper payments with the support of medical experts
who  together  reviewed  a  comprehensive,  statistically  valid  sample  of  Medicare
fee-for-service  claims  expenditures  and  supporting  medical  records  to  determine  the
accuracy and legitimacy of the claims.
The OIG believes that since the first error rate of 1996, HCFA has demonstrated continued
vigilance in monitoring the error rate and developing appropriate corrective action plans.  In
addition,  it  clearly  shows  that  the  majority  of  health  care  providers  submit  claims  to
Medicare  for  services  that  are  medically  necessary,  billed  correctly  and  documented
properly.    For  both  FYs  1998  and  1999,  OIG  estimated  that  over  90  percent  of  the
fee-for-service payments met Medicare reimbursement requirements.
While OIGs 4-year analysis indicates continuing progress in reducing improper payments,
there are indicators that documentation errors and medically unnecessary services have been
and continue to be pervasive problems.  These two error categories accounted for over 70
2 percent of the total improper payments over the 4 years.  The HCFA needs to sustain its
efforts to maintain progress in reducing these improper payments.  (CIN:  A-17-99-01999)
Financial Statement Audit of the Health Care 
Financing Administration for Fiscal Year 1999
In its audit report on HCFAs FY 1999 financial statements, OIG issued an unqualified
opinion of the statements, namely that they present fairly HCFAs financial position, its net
costs,  changes  in  net  position,  budgetary  resources  and  reconciliation  of  net  costs  to
budgetary obligations as of September 30, 1999, in conformance with generally accepted
accounting principles.  However, the audit found that material weaknesses continue in
financial  systems  and  reporting,  Medicare  accounts  receivable  and  electronic  data
processing controls.
The OIG again found that the absence of a fully integrated financial management system
impairs HCFAs ability to accumulate, reconcile, analyze and report financial information in
a  timely  manner.    During  FY  1999,  this  contributed  to  not  promptly  identifying  an
overfunding and underfunding of the trust fund accounts and a net loss of interest earnings.
The HCFA initiated a major effort in FY 1999 to validate and document accounts receivable,
which  resulted  in  HCFA  being  able  to  report  that  the  receivables  balance  was  fairly
presented as of the years end.  However, OIG again found that HCFA and the Medicare
contractors still do not have adequate internal controls to ensure that future receivables will
be properly reflected in their financial reports.
Further, OIG again found that weaknesses continue in EDP general controls at the HCFA
central  office  and  the  Medicare  contractors,  as  well  as  in  application  controls  at  the
contractors shared systems.
The HCFA concurred with OIGs recommendations and is in the process of taking corrective
action.  (CIN:  A-17-00-00500).
Hospital Ownership of Physician Practices
As part of the changing health care market, hospitals, as well as other entities, have been
purchasing physician practices.  While hospitals have historically operated outpatient clinics
located on their campuses, many of the newly acquired practices are not located on the
hospital grounds.  The location and operation of these clinics raise questions regarding the
payment  methods  Medicare  should  use  for  the  service  provided  by  these  purchased
practices.  It is HCFAs policy that a hospital may treat an acquired physician practice as
either provider-based or free-standing.  The hospitals decision on how to treat the practice
will affect the amount of payment received by the hospital for physician services rendered in
the practice.
3 Based on its review, OIG estimated that 62 percent of for-profit and not-for-profit general,
short-term hospitals purchased or owned a physician practice.  The OIG also found that
fiscal intermediaries (FIs) were aware of this ownership only about 50 percent of the time
and that this lack of knowledge resulted in a fiscal vulnerability to the Medicare program.
Moreover, provider-based status increased beneficiary coinsurance costs with questionable
benefit to Medicare and its beneficiaries.
The  OIG  recommended  that  HCFA  change  its  policy  to  eliminate  the  provider-based
designation for hospital owned physician practices; require hospitals to report all purchases
of physician practices or clinics and declare how the costs associated with the operation of
these entities are handled in hospital cost reports; and seek legislation to sanction hospitals
for failure to report the ownership of physician practices.  The HCFA concurred with the
latter two recommendations, but disagreed with the first.  (OEI-05-98-00110)
Analysis of Readmissions Under Medicare Prospective Payment
System
The OIG analyzed Medicare PPS claims for Calendar Years (CYs) 1996 and 1997 involving
the  same-day  discharge  and  readmission  of  beneficiaries  from  and  to  the  same  PPS
hospitals.  The OIG analyzed the distribution of readmissions by provider, State, diagnosis
related group (DRG) discharge code and beneficiary level.  In its analysis, OIG noted that a
number of beneficiaries had been discharged and readmitted repeatedly.  The OIG also noted
that a substantial number of readmitted beneficiaries had the same DRG code during their
first and second stays.
Based on its analysis, OIG expressed concerns about the same-day readmission rate, and
what it intimates about the quality of care delivered and the accuracy of billing statements
related to such care.  The OIG recommended that HCFA make the data in this report
available to its contracted peer review organizations for their use in focusing their reviews
on the medical care provided beneficiaries.  The OIG also recommended that HCFA review
hospitals with higher than average readmission rates as well as the claims of beneficiaries
who  have  been  multiply  discharged  and  readmitted,  or  been  multiply  discharged  and
readmitted under the same DRG code.  In response to the draft report, HCFA concurred with
OIGs recommendations.  (CIN:  A-14-99-00401)
External Review of Hospital Quality:  
State Initiatives
This inspection discusses State initiatives aimed at overseeing hospital quality.  It is a
follow-up to a  recent  series  of reports  that assessed  the  roles of HCFA and the Joint
Commission on Accreditation of Healthcare Organizations in overseeing hospitals that
participate in Medicare.  In this report, OIG provides snapshots of six such initiatives in
three categories:  standardized performance measures, on-site surveys and public disclosure
4 of hospital performance on the Internet.  The State initiatives presented show that States can
draw on their own authorities and resources to add a measure of public protection not
provided by either HCFA or the Joint Commission.  States contribute a valuable complement
to the existing, national approaches to external review.  In addition, States can serve as
important catalysts for continued national efforts aimed at improving hospital oversight.  In
fact, these States initiatives and others that are underway can be instructive to HCFA and
the Joint Commission, as well as to other States. (OEI-01-97-00054)
Medicare+Choice Health Maintenance Organization Extra
Benefits:  Beneficiary Perspectives
In this inspection, OIG looked at the influence of extra benefits on beneficiaries decisions to
join Medicare+Choice health maintenance organizations (HMOs).  The OIG determined that
lower costs, more so than extra benefits, are the main reason for joining an HMO.  Once
enrolled in an HMO, Medicare beneficiaries value prescription drugs, regular physicals and
vision  benefits  the  most.    The  prescription  drug  benefit  is  least  likely  to  meet  their
expectations.  While, enrollees have a good understanding of their  coverage for regular
physicals, their understanding of other benefits is not as high.  The OIG also found that the
HMO marketing material descriptions of extra benefits coverage were generally easy to
understand, but varied greatly.  Also, there was potential for confusion in some of the
materials.
The  OIG  recommended  that  HCFA  develop  mechanisms  to  assure  comparability  of
Medicare+Choice HMO plan costs and benefits.  The HCFA has developed a standard
format for plan benefit summaries which were used by plans in the November 1999 open
enrollment period, and OIG encourages the completion of this task.  (OEI-02-99-00030)
Overpayments to Managed Care Organizations Due to
Overstated Capitation Rates
The Balanced Budget Act (BBA) of 1997 established the Medicare+Choice program and
directed HCFA to use 1997 standardized county rates as the basis for all future capitation
payments to managed care organizations (MCOs).  Information from HCFA showed that
these rates were based on actuarial estimates and, when compared with actual costs incurred,
were overstated by 4.2 percent.  Applying this percent to Congressional Budget Office
projections  of  further  Medicare  payments  to  MCOs,  OIG  concluded  that  the  inflated
payment rates will result in Medicare overpayments totaling $11.3 billion over the next 5
years and $34.3 billion over the next 10 years.
The OIG recommended that HCFA seek legislation to correct the overstated base year rates.
The HCFA replied that the Presidents Medicare reform package included a proposal to
change  the  methodology used to  set  payment  rates  for  MCOs,  eliminating  use  of the
overstated base year rates.  However, this reform package has not been passed, and current
5 legislation continues the payment methodology with an increase in payments as well as a
delay in any competitive bidding demonstration projects.  Therefore, OIG continues to
recommend that HCFA seek a legislative correction.  (CIN:  A-05-99-00025)
Adjusted Community Rate Proposals for Risk-Based Managed
Care Organizations
The adjusted community rate (ACR) process is designed for MCOs to present to HCFA their
estimates of the funds needed to cover the costs (both medical and administrative)  of
providing the Medicare package of services to enrolled beneficiaries.  In previous audits,
OIG concluded that the methodology allowing MCOs to apportion administrative costs to
Medicare was flawed and that Medicare covered a disproportionate amount of these costs.
As part of its continuing reviews of these areas, OIG reported on the administrative costs
included in the ACR proposals of numerous MCOs during this period.
A. Administrative Cost Component of Nine Managed Care Rate Proposals
The OIG determined that the HCFA methodology used to develop adjusted community rate
proposals  results  in  Medicare  paying  a  disproportionate  share  of  managed  care
administrative  costs.    Of  the  nine  MCOs  reviewed,  five  exceeded  the  estimated
administrative costs included in their rate proposals by an average of 100 percent; the total
estimated and actual administrative costs of the five MCOs -- $231.9 million and $115.7
million, respectively -- were at variance by $116.2 million.  Further, $66.3 million in costs
claimed by all nine MCOs would have been recommended for disallowance had the MCOs
been required to follow Medicares general principle of paying only reasonable costs.
The OIG recommended that HCFA pursue legislation to extend this Medicare general
principle to MCO administrative costs.  Also, OIG recommended that HCFA consider
publishing the administrative cost rates of all MCOs participating in the Medicare program
as a means of helping Medicare beneficiaries become better educated consumers of health
care services.  (CIN:  A-03-98-00046).
B. Administrative Costs in Rate Proposals Are Inconsistent among Managed Care
Organizations
The OIG found that the administrative costs included in the adjusted community rate
proposals  submitted  by  232  risk-based  MCOs  for  each  year  from  1996  through  1999
contained significant disparities among plans.  In 1999, for example, the amounts allocated
by MCOs for administrative costs ranged from a high of  32 percent to a low of 3 percent;
this disparity was noted in each year of OIGs review regardless of plan model or tax status
(such as group, individual practice association or staff, or profit or nonprofit).  In contrast to
other  areas  of  Medicare,  HCFA  has  not  established  a  ceiling  on  what  an  MCO  can
reasonably allocate for administrative costs on its rate proposals.
6 The  OIG recommended  that  HCFA  establish such a ceiling, noting  that  $1  billion in
additional benefits or reduced payments (such as  deductibles and/or coinsurance) might
have flowed to Medicare beneficiaries had a 15 percent ceiling been in effect in 1998.
While HCFA agreed that rate proposals should be more thoroughly analyzed, it disagreed
with OIGs recommendation for a ceiling on administrative costs, claiming that it might
discourage MCOs from developing cost efficient plans.  (CIN:  A-14-98-00210)
Fee-for-Service Payments for Medicare Beneficiaries Enrolled 
in Managed Care Risk Plans
In a review involving beneficiaries in Colorado, Florida, Missouri and Pennsylvania who
were enrolled in a risk plan for at least one month during CYs 1995 through 1997, OIG
found that the Medicare FIs improperly paid $2.3 million for FFS Part A services.  Because
Medicare paid capitation payments to MCOs to provide all medically necessary services for
these beneficiaries, payments under FFS were duplicate payments.  The $2.3 million in
duplicate payments consisted of 733 claims in the four States.  Further, OIG believes that
improper payments are being made nationally since procedures to detect and prevent these
duplicate payments have not been implemented.  The amount of duplicate payments could
be significant when considering the MCO risk plan enrollees in the States not reviewed and
the fact that Medicare FFS Part B services were not reviewed.  Compounding the problem is
the impact these duplicate payments have on future MCO payments.  The BBA of 1997
links the 1998 and future MCO capitation rates to the 1997 Medicare FFS expenditures.
The OIG recommended that HCFA strengthen procedures to prevent and detect duplicate
payments where the MCO has payment responsibility; identify and recoup all duplicate FFS
payments made under Medicare Parts A and B for MCO enrollees, including the $2.3
million identified in this study; and consider developing a legislative proposal to adjust the
MCO capitation rates for the duplicate payments that were included in the managed care rate
calculation methodology.  The HCFA agreed with the first two recommendations, but did not
believe that it was advisable at this time to undertake the third recommendation.   (CIN:
A-07-97-01247)
Payments to Medicare Managed Care Risk Plans for Deceased
Beneficiaries
This final report points out that HCFA paid $3.1 million to MCOs for beneficiaries who
were deceased.  Although HCFA had recouped $1.2 million of the improper payments, $1.9
million remained outstanding due to HCFA being unaware of all the deaths and its lack of
action to collect some identified overpayments.
The OIG recommended that HCFA recover the $1.9 million erroneously paid and make
immediate system corrections to prevent continuing annual overpayments of $250,000 to
MCOs for the identified deceased beneficiaries.  After issuance of the draft report to HCFA,
7 OIG continued work in this area and identified an additional $1.1 million in payments for
beneficiaries who died subsequent to the cut-off date of the initial review.  The OIG
proposed that HCFA also take action to recover these additional overpayments.  The HCFA
has agreed to recoup all the monies derived from the disenrollment date to the time of the
corrected record, even if that payment adjustment exceeds 36 months.  The managed care
system was modified in 1998 and again in November 1999 to permanently correct the
problem.  (CIN:  A-07-99-01283)
Medicare Managed Care:  Goals of 
National Marketing Guide 
This first of two related inspections looked at whether Medicares National Marketing Guide
for managed care met its established goals in 1998.  The OIG found that the goals -- which
were to expedite the marketing material review process; reduce resubmissions of material;
ensure uniform review across the Nation; and, most important, provide beneficiaries with
accurate and consumer-friendly marketing materials to help them make informed health care
choices -- were not completely met.  However, marketing guidelines were clearer than they
had been, and creating and reviewing marketing materials was easier.  Two operational
elements of the National Marketing Guide were not well understood or applied uniformly:
the Use and File system (which allows managed care plans that meet certain criteria to
distribute sales materials without prior approval from HCFA) and checklists (which help
ensure that all plan enrollees receive important information).  The OIG also found that
marketing material reviews were not tracked consistently across HCFA regions.
The OIG made a number of recommendations to address the issues identified.  The HCFA
concurred with the recommendations and is already beginning to implement some of them.
(OEI-03-98-00270)
Medicare Managed Care:  1998 Marketing Materials
This second report looked at whether marketing materials of managed care plans met
Federal guidelines in the first year after implementation of Medicares National Marketing
Guide (1998).  The OIG found that few marketing materials, which had been approved by
reviewers in HCFA, were in full compliance with the National Marketing Guide.  Also,
nearly half the materials were not consumer friendly.
The  OIG  recommended  that  HCFA  update  the  National  Marketing  Guide  to  include
clarification of requirements; ensure that model materials are accurate and easy to read;
mandate use of standard member materials; develop standard review instruments; establish a
quality  control  system;  track  marketing  materials  reviews  consistently  and  uniformly;
conduct meetings with noncomplying health plans; and provide training for HCFA reviewers
and managed care plans.  The HCFA concurred with OIGs recommendations and is already
beginning to implement some of them. (OEI-03-98-00271)
8 Early Effects of the Prospective Payment System 
on Access to Skilled Nursing Facilities:  
Nursing Home Administrators Perspective
The BBA of 1997 changed skilled nursing facility (SNF) reimbursement to a prospective
payment system (PPS).  As a result of concerns about the effect of the new system, HCFA
requested  that  OIG  assess  whether  the  PPS  is  causing  access  problems  for  Medicare
beneficiaries.  In an inspection report issued in August 1999, OIG concluded that no serious
problems in placing Medicare patients in nursing homes were apparent.
As a supplement to that study, OIG interviewed a random sample of 57 nursing home
administrators  and  personnel  responsible  for  assessing  residents  needs.    The  OIG
determined that few nursing home administrators believed that access to nursing home care
had become a problem because of the PPS.  However, most administrators stated that they
scrutinized patients medical status to a greater extent than prior to implementation of the
PPS.   While administrators said that they preferred to admit certain types of patients,
Medicare  data  showed  no  change  in  nursing  home  placements.    Over  80  percent  of
administrators supported the overall concept of the PPS, though they stressed the need to
revise some of the current reimbursement rates.
The findings in OIGs two reports indicated that while nursing homes had changed their
admission practices in response to the PPS, access to skilled nursing care had not become a
problem in many areas, most likely because beds were available.  However, since these
practice changes may affect beneficiaries with certain medical conditions and may also
affect nursing homes reimbursement, the Department must remain vigilant to potential
problems.    The  HCFA  generally  agreed  with  OIGs  findings  and  conclusion.
(OEI-02-99-00401)
Infusion Therapy Services Provided in Skilled Nursing Facilities
In a review of three infusion suppliers for the period 1995 through 1998, OIG determined
that they provided Medicare-reimbursed SNFs with infusion therapy services that were
excessively priced and unnecessary.  In addition, the three infusion suppliers billed certain
infusion services incorrectly, causing those costs to be misclassified on the SNFs cost
reports.  This occurred because the reimbursement system was vulnerable to abusive billing
schemes.  As a result, patients were placed at undue risk, Medicare overpaid the SNFs and
the overpayments may have been included in the base year costs used to establish the PPS
rates.
The OIG recommended that HCFA consider the impact of improper payments for infusion
therapy services before making any refinements or updates to the SNF PPS rates; identify
and recover overpayments made to SNFs for unnecessary and overpriced infusion services
prior to the adoption of PPS; and direct its contractors to perform medical reviews of
9 selected SNF patients to ensure that patients are receiving appropriate levels of infusion
therapy.  The HCFA generally agreed with OIGs recommendations.  (CIN:  A-06-99-00058)
Major Hospital Initiatives
The OIG has launched five national projects involving civil actions at hospitals that were
falsely billing the Medicare program.  Three of the five grew from OIG hospital audits that
identified irregularities in Medicare billing practices.
A.  Physicians at Teaching Hospitals
The  OIG  has  undertaken  a  nationwide  initiative  to  review  compliance  with  the  rules
governing reimbursement to physicians at teaching hospitals (also known as the PATH
initiative).  The specific objectives of the PATH audit initiative are to verify compliance with
the Medicare rules governing payment for physician services provided by residents and
teaching physicians, and to ensure that all claims for physician services accurately reflect the
level of service provided to the patient.
Medicare pays the costs of training residents through the graduate medical education (GME)
program.  Medicare also pays an additional amount in recognition of the additional costs
associated with training residents (also known as indirect medical education or IME).  These
payments can total over $100,000 per resident per year.  Medicare paid approximately $8
billion to teaching hospitals in 1998 for the costs of training residents.  The Medicare
payments  described  above  include  payments  to  teaching  physicians  for  their  role  in
supervising residents.
The fundamental tenet of the PATH initiative is that in order to receive reimbursement from
Medicare Part B for a service rendered to a patient, the teaching physician must have
personally provided that service or have been present when the resident furnished the care.
Physicians claiming reimbursement for services performed by the resident alone are making
a duplicate claim -- one that has already been paid for under Part A through the GME and
IME payments.
The PATH audits also include a review of Part B claims information and medical records to
determine if the teaching physician claimed the appropriate reimbursement for the level of
service provided.  The Medicare billing systems vulnerability to upcoding is a longstanding
concern at OIG.  The PATH reviews are designed to detect patterns or practices of upcoding,
resulting in unwarranted loss to the Medicare Trust Fund.
In sum, the PATH initiative has been undertaken as a result of OIGs extensive audit and
investigative work in this area.  To date, six institutions have entered into settlements with
the Federal Government to resolve potential False Claims Act liability related to improper
claims for Part B physician services submitted in the teaching setting.  These settlements
10 have  resulted  in  the  Governments  recovery  of  over  $75  million.    As  a  condition  of
settlement, these institutions have also implemented compliance programs to prevent and
detect future improper claims.  Reviews completed at four other institutions disclosed no
major problems with either billings in the teaching setting or upcoding, demonstrating that
providers can and do bill the Medicare program correctly, and reviews at two institutions
resulted in  administrative overpayment settlements with the carriers.
Separately, four investigations not part of the PATH initiative, but which included billings
for  teaching  physicians,  concluded  in  False  Claims  Act  settlements  totaling  over  $31
million.  In all of these cases, the providers also entered into corporate integrity agreements
with OIG.
To determine whether, and to what extent, problems similar to those noted above were
present  at  other  teaching  institutions  throughout  the  Country,  the  PATH  project  was
expanded into a national initiative, but limited to those institutions that received clear
guidance before December 30, 1992 from the Medicare Part B carriers communicating the
applicable HCFA reimbursement standards.  As an alternative to OIG auditors conducting
the audits, these providers are given the opportunity to conduct self-audits by contracting
with an independent third party for a review of their Medicare billing practices, with
Government oversight, and to report the audit results to OIG.
B.  Diagnosis Related Group Three-Day 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 PPS.
Hospitals that submit claims for the outpatient service in addition to the inpatient admission
are, in effect, double billing for the outpatient services.  In addition, the project seeks to
recover for those services rendered to beneficiaries during the inpatient admission that
should be included in the DRG, but are separately charged.  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.  The project is primarily coordinated by the U.S.  Attorneys Office -
Middle District of Pennsylvania.  As of the end of the reporting period, settlements had been
executed with 2,672 hospitals and over $71.3 million had been recovered.
One of the most important aspects of this project is the stipulation in each settlement
agreement that each hospital will assure compliance with proper billing for inpatient and
outpatient services.  Such compliance measures are designed to prevent and detect erroneous
11 billing.  It is hoped that the deterrent effect of possible civil actions, along with promised
compliance, will remove this source of improper claims.
C.  Hospital Outpatient Laboratory Project
The OIG, DOJ and multiple States have joined forces to target false or fraudulent Medicare
and Medicaid claims in hospital outpatient laboratories.  A project begun in Ohio by OIG,
DOJ, the State of Ohio and the Medicare FI proved so successful, United States Attorneys
Offices in other States began their own investigations as part of an expanded effort.  This
project involves the recovery of multiple damages, when appropriate, for improper and
excessive claims submitted for hematology and automated blood chemistry tests by hospital
outpatient laboratories.  These abuses stem from the improper unbundling and double billing
of laboratory tests, and, in certain cases, the billing for certain tests that are not medically
necessary.    The  investigations  have  also  shown  numerous  instances  of  billing  for
hematology  complete  blood  count  (CBC)  additional  indices  that  were  not  ordered  by
physicians and were not medically necessary.
Clinical laboratory services were particularly vulnerable to these abuses because of the
multiple number of tests ordered at one time and the capability of automated equipment to
run numerous tests from one sample of blood at a low cost.  Under Medicare guidelines, the
hospitals were required to bill certain groupings of blood chemistry tests using a bundled
code.  The Medicare payment for blood chemistry panels is significantly less than the
payments for each test billed separately.
The OIG and DOJ, and in some districts, authorities from other Federal programs such as
TRICARE (the health care benefits program for current and former military employees) and
Federal Employees Health Benefits Program (FEHBP), are working together on the national
project to provide targeting data to the United States Attorneys offices interested in pursuing
this recovery initiative in their districts.  The OIG also collaborated with DOJ to produce a
model  settlement  agreement  that  includes  compliance  measures,  which  has  been
disseminated to all participating districts throughout the United States.
Thus far, 249 hospitals have entered settlements in the Hospital Outpatient Laboratory
Project, with settlements totaling more than $56 million.  More hospitals are expected to
settle in the near future.
D.  PPS Patient Transfer Project
Another OIG/DOJ nationwide initiative is focused on improper payments to hospitals for
patient transfers between two PPS hospitals.  Under Medicare reimbursement rules, the
hospital transferring a patient is to receive a per diem payment based on the length of stay
and the DRG for the case, but no more than the full DRG payment amount, and the hospital
receiving the transferred patient is to be paid a diagnosis-related payment based on the DRG
for the case.
12 Since 1986, however, OIG has found that many transferring hospitals inappropriately claim
full diagnosis-related payment rather than the per diem payment.  The HCFA has already
acted on OIGs first report, which identified $227 million in recoveries and savings.  The
OIGs second report, issued in November 1996, and a more recent computer analysis of
claims disclosed additional overpayments of approximately $202 million.  Currently, OIG is
working  with  U.S.  Attorneys  offices  nationwide,  along  with  HCFA,  to  address  this
continuing problem.
E.  Pneumonia Upcoding Project
Medicare inpatient hospital stays are reimbursed based on the DRG that is assigned to the
patients stay.  The determination of the appropriate DRG for a particular case depends upon
the hospitals assignment of diagnosis code(s) and procedure codes from the International
th
Classification of Diseases, 9  Revision, Clinical Modification (ICD-9-CM) to the inpatient
stay.  Most pneumonia cases are grouped into one of four DRGs, one of which results in
significantly higher payment to the hospital than do the others.  Most pneumonia cases are
grouped into the lower-paying DRGs.  The OIG has found that a small percentage of
hospitals across the country have assigned a disproportionate number of pneumonia cases
diagnosis codes that result in an admission being assigned the higher paying DRG.  Review
of the medical records has demonstrated that most of the cases assigned these specific
diagnosis codes at these hospitals should have been assigned a diagnosis code that would
result in assignment of a lower-paying DRG.
The OIG is currently investigating the coding for pneumonia upcoding at over 100 hospitals.
To date, 16 hospitals have settled their liability for such coding by paying over $19.7 million
and agreeing to corporate integrity requirements.
Other Hospital Investigations
The following cases are significant examples of other hospital-related cases resolved during
this period which were not part of the special projects described above:
(cid:127) A New Jersey hospital agreed to pay the Government $2.1 million to resolve
its civil liability for submitting improper Medicare claims during the period
1992 through 1997.  The hospital wrongfully submitted claims for inpatient
hospital stays for patients who received outpatient services.  The hospital
received greater reimbursement for the inpatient claims than it would have
received if it had billed for the outpatient services actually provided.  As
part  of  the  settlement,  the  hospital  also  agreed  to  enter  into  a  5-year
corporate  integrity agreement with  OIG  to ensure  compliance  with  the
requirements of Federal health care programs.  The corporate integrity
agreement includes auditing and training provisions designed to specifically
address the submission of claims for outpatient services.
13 (cid:127) Four Ohio hospitals agreed to pay the Government a total of $530,000  to
settle allegations of submitting improper claims to Medicare.  The hospitals
improperly billed Medicare for self-administered drugs (SADs) provided in
an outpatient setting.  According to program laws and regulations, Medicare
generally does not pay for SADs provided to outpatients.  Rather, Medicare
Part  B  pays  for  hospital  services  and  supplies  provided  incident  to  a
physicians  services  to  outpatients,  including  drugs  and  biologicals  that
cannot be self-administered, with certain exceptions.  These settlements are
part of a mini-project pursued by the United States Attorneys Office for the
Northern District of Ohio involving district hospitals and this billing issue.
In  these four cases, the providers voluntarily self-disclosed the issue to the
United States Attorneys Office and entered into comprehensive corporate
integrity agreements with OIG.
(cid:127) The chief financial officer of a health care corporations Florida division,
and later the chief executive officer of the corporations Florida group, was
sentenced to 2 years and 9 months imprisonment, 3 years supervised release
and payment of a $10,000 fine.  A stay of restitution of up to $1.68 million
was also granted until a related civil case is resolved.  The corporate officer
was  convicted  of  conspiracy  and  fraud  involving  Federal  health  care
programs.  He and three others were indicted for causing the filing of
various cost reports in a manner which would reimburse a Florida hospital
substantially more than it was entitled to under the program.  The claims
involved capital versus noncapital interest expenses for loans obtained in the
1980s when the hospital was under different ownership.  Based upon the
filings of the cost reports, with interest expense categorized as capital rather
than  administrative  and  general,  the  Medicare,  Medicaid  and  Civilian
Health  and  Medical  Plan  of  the  Uniformed  Services  (now  TRICARE)
programs paid false claims of over $3 million.
(cid:127) A New York hospital agreed to pay the Government $137,000 to resolve its
civil liability under the False Claims Act.  The alleged misconduct involved
claims submitted by the hospital to Medicare Part B for reimbursement for
unallowable  ancillary  pharmaceutical  supplies  provided.    When  a
beneficiary has exhausted the 90-day inpatient hospital service coverage per
benefit period and the 60 lifetime reserve days coverage, the beneficiary
may,  under  certain  circumstances,  be  eligible  for  payment  of  ancillary
services under Part B; the Part B pharmacy ancillary benefit is limited to a
few drugs, primarily immunological drugs.   Between 1990 and 1995, the
hospital billed Medicare Part B for certain ancillary pharmacy supplies not
covered under the Part B ancillary benefit.
14 Industry Guidance
The OIG has continued to issue advisory opinions, special fraud alerts, special advisory
bulletins and other guidance as part of its ongoing effort to promote the highest level of
ethical and lawful conduct by the health care industry.  For the period from October 1, 1999
through March 31, 2000, OIG accepted 21 advisory opinion requests and issued 6 advisory
opinions.  In accordance with the Health Insurance Portability and Accountability Act of
1996 (HIPAA), OIG has enlisted the help of the provider and beneficiary communities to
prevent impropriety by soliciting proposals (via Federal Register notice) for modifying
existing  safe  harbors  to  the  anti-kickback  statute.    The  OIG  received  17  timely-filed
responses to the 1999 notice.  
Where  appropriate,  OIG  issues  general  guidance  in  the  form  of  special  fraud  alerts
describing practices that  OIG has investigated and believes are  fraudulent and special
advisory bulletins articulating OIGs views on emerging practices or arrangements that
potentially implicate OIGs fraud and abuse authorities.  On November 10, 1999, OIG
published in the Federal Register a special advisory bulletin on the Patient Anti-Dumping
Statute  (EMTALA)  addressing  the  requirements  of  the  statute  and  the  obligations  of
hospitals to provide medical screenings for all patients seeking emergency services and to
provide  stabilizing  medical  treatment  to  all  patients  whose  conditions  warrant  it.   On
February 23, 2000,  OIG issued a special fraud alert entitled "Rental of Space in Physician
Offices by Persons or Entities to Which Physicians Refer."  The special fraud alert describes
various space rental arrangements between physicians and entities to which they refer
patients (such as suppliers of DME or mobile diagnostic equipment) that may raise concerns
under the anti-kickback statute.
On November 19, 1999, OIG published in the Federal Register two significant regulations
creating ten new safe harbors to the anti-kickback statute.  Safe harbors protect from
prosecution  under  the  anti-kickback  statute  certain  arrangements  that  squarely  meet
specified conditions.  The first regulation was a final rule establishing eight new safe harbors
and clarifying six of the original eleven safe harbors published in 1991.  The new safe
harbors address a variety of payment arrangements, including, but not limited to, certain
arrangements in underserved urban and rural areas and investments in ambulatory surgical
center joint ventures.  The second regulation was an interim final rule with comment period
for two new safe harbors in connection with the statutory exception for certain risk sharing
arrangements created by HIPAA.  The two new shared-risk safe harbors were promulgated
pursuant to a negotiated rulemaking process.
Medicare Beneficiary Access to Home 
Health Agencies
The BBA of 1997 changed the way Medicare pays for home health care.  The law requires a
payment change from a cost-based method to a PPS of fixed, predetermined rates for home
15 health services.  Until this PPS is developed, however, HHAs are reimbursed under an
interim payment system (IPS) which imposes payment limits on their services.  The IPS was
implemented on October 1, 1997 and will continue to be in place until the PPS begins on
October 1, 2000.
At HCFAs request, OIG assessed how the IPS for HHAs is affecting Medicare beneficiaries
access to home health care for patients discharged from hospitals.  The OIGs analysis was
based on a survey of a national sample of 181 discharge planners and Medicare home health
data.  Eighty-five percent of discharge planners reported that Medicare patients were able to
obtain home health care when they needed it; three-quarters needed to contact only one
home health care agency on average to obtain care for their patients; and 83 percent said that
home health care agencies either never or infrequently refused to take Medicare patients.
Those discharge planners who indicated that they had problems in placing some home health
care patients attributed it to Medicare eligibility requirements as well as the interim payment
rate.
Planners noted that HHAs have changed their admissions practices over the past 2 years and
over half reported that certain subgroups of patients had become more difficult to place.
More than one quarter expressed concern that some Medicare patients may not be receiving
the length of care or the adequacy of services they need.  The HCFA was glad to note that
the overwhelming majority of Medicare beneficiaries were receiving the home health care
they needed, but requested OIG to continue its work in this area.  (OEI-02-99-00530)
Medicare Home Health Services in California, 
Illinois, New York and Texas:  A Follow-Up Review
The  OIGs  first  review  of  home  health  services  in  four  States  with  large  Medicare
expenditures -- California, Illinois, New York and Texas -- was released in 1997, and
revealed that 40 percent of payments for such services were improper or inappropriate.  The
OIGs follow-up review, which covered the same four States and used FY 1998 home health
data, revealed that the improper payment rate had fallen to 19 percent.  An improper or
inappropriate payment for a home health service is one that lacked a valid physician order,
was provided to a beneficiary who was not homebound, could not be documented, or took
place at a terminated HHA and for which service records could not be found.
The OIG recommended that HCFA revise Medicare regulations to require the certifying
physician to examine the patient before ordering home health services and see the patient at
least once every 60 days; consider the 19 percent rate of improper or highly questionable
services as a factor before making any changes to the current HHA payments; consider
making an equitable adjustment to the proposed HHA PPS rates or update factors to take
into account those payments that were included in the rate calculations; and instruct the FIs
to collect the identified overpayments.
16 The HCFA was pleased with the progress made to reduce the payment errors in home health
claims, concurred with OIGs concerns about inadequate physician involvement and agreed
to collect the overpayments.  However, HCFA did not agree to consider these findings in
determining the prospective HHA payment rates.  (CIN:  A-04-99-01194)
Costs Claimed by Home Health Care Providers
The OIG conducted reviews of costs reported by various home health care providers to
determine whether the services claimed met Medicare reimbursement guidelines.  The
reviews identified services that were unallowable for Medicare reimbursement because they
lacked proper physician authorization, were not properly documented to show that a medical
service was performed, were rendered to beneficiaries who were not homebound, were not
reasonable and necessary or did not meet the intermittent criteria related to skilled nursing.
In separate reviews of three home health care providers, OIG identified a total of at least
$4.1 million in claims that did not meet the Medicare reimbursement guidelines.  In each
case,  OIG  recommended  that  HCFA  have  the  intermediary  recover  the  identified
overpayments  and  ensure  that  corrective  actions  are  effectively  implemented.    (CIN:
A-02-97-01026; CIN:  A-02-97-01034; CIN:  A-04-98-01184)
Home Health Agency Fraud
Home health agencies are one of the fastest growing segments of the health care industry
because they allow many patients to remain in their own homes at less expense than might
be incurred at a hospital or other institution.  The OIG has become aware of a number of
fraudulent arrangements by which home health care providers, medical professionals and
others associated with the operation of HHAs, inappropriately bill Medicare and Medicaid.
The following cases represent some examples of improper activities related to the provision
of home health care services:   
(cid:127) In the ongoing case against what was once South Floridas highest paid
Medicare HHA provider, five individuals connected with the HHA were
sentenced for their roles in the complex Medicare fraud scheme.  Prior to its
closure in 1994, the HHA received approximately $42 million annually
from Medicare.  The HHA allegedly submitted over $45 million in false
claims.  Four of the individuals sentenced this period were among the 26
people  indicted  in  December  1998  on  Medicare  fraud  related  charges.
These  individuals  were  either  directly  involved  with  the  HHA  or  its
unlicensed or unapproved HHA subcontractors.  The indictment charged
racketeering,  racketeering  conspiracy,  money  laundering  conspiracy  and
conspiracy to submit false claims.  With these recent sentences, 24 of the 26
people originally indicted have now been sentenced.  Also this period, a
fifth individual was sentenced based on his guilty plea to an information
17 filed,  charging  him  with  conspiracy.    This  individual  worked  as  the
day-to-day manager of operations at a transcription company that provided
nursing and home health aide progress notes to the Florida HHA and its
subcontractors.    The  individual  submitted  invoices  to  the  HHA  which
included deliberately inflated charges for technical services not provided.
The  HHA  received  Medicare  reimbursement  for  the  inflated  costs  by
submitting them as overhead expenses on quarterly and annual cost reports
filed with Medicare.
(cid:127) A Federal judge in New York handed down life sentences to a woman and
her son for their roles in the 1997 murder of the womans former business
partner and lover.  Mother and son were convicted of murder conspiracy,
murder-obstruction of justice, firearms conspiracy and use of a firearm.  The
son was also convicted of possession of a firearm with an obliterated serial
number.  In addition to murder-related charges, their sentences encompassed
their guilty pleas to health care fraud-related charges and included an order
to pay $1.9 million in restitution to the New York State Medicaid program.
As founder and executive director of an HHA fully funded by Medicaid, the
woman devised and engaged in numerous schemes to defraud the program.
When the womans former business partner and lover became involved in a
financial dispute with her and threatened to report her schemes to the
Government, she and her son conspired his murder, and the son executed
the man.  In addition, a physician was sentenced for his involvement in
these schemes to defraud Medicaid.  The physician was sentenced to 5
months in a community confinement facility, 5 months home detention and
2 years supervised release as a result of his conviction for payment of
Medicaid kickbacks.  He was also ordered to pay $22,000 in restitution to
the New York State Medicaid program for his illegal kickback activity.
From November 1996 through September 1997, he paid the woman, in her
position as HHA executive director, $2,000 a month in return for being
hired to perform the annual medical screening required for each of the 1,500
home attendants employed by the company.  Finally, the womans daughter
and two others were sentenced for their involvement in the Medicaid fraud
schemes to probation and restitution totaling $144,580.
(cid:127) In Tennessee, two individuals were sentenced for fraudulently obtaining
Medicare funds in excess of $630,000.  These individuals joined others in a
scheme to submit false management fees on the cost reports of HHAs in
which they had a controlling or ownership interest.  One of the individuals
was sentenced to 46 months imprisonment, 3 years supervised release and
ordered to pay $150,000 in restitution.  The other was sentenced to 16
18 months  imprisonment,  3  years  supervised  release  and  ordered  to  pay
$145,764 in restitution.
(cid:127) A registered nurse and former owner of a Texas HHA was sentenced to 5
years probation, 6 months home confinement and payment of $241,472 in
restitution for defrauding Medicare.  The woman fraudulently inflated the
HHAs 1995 Medicare cost report by including a variety of inappropriate
expenses.  These expenses included costs for other businesses she owned,
accrued bonuses that were not paid, nonallowable interest expenses and
nonallowable marketing costs.
(cid:127) Four Maryland HHAs agreed to pay the Government a total of $253,639 to
resolve their False Claims Act liability for submitting Medicare claims for
services performed by an unlicensed, untrained physical therapist whose
credentials  the  HHAs  failed  to  check.    The  womans  scheme  involved
posing  as  a  physical therapist and  moving  from  one  HHA to another,
purportedly providing physical therapy services to Medicare beneficiaries.
To  carry  out  her  scheme,  the  woman  used  a  fictitious  Social  Security
number and Maryland physical therapy license.  She also provided fictitious
references and educational information.  Three of the HHAs entered into
3-year corporate integrity agreements with OIG, aimed at their credentialing
and license verification practices.  The fourth HHA agreed to similar types
of 3-year compliance provisions as part of its settlement agreement.  In
addition, the woman and her husband, a co-conspirator in the scheme, were
sentenced  to  10  months  (with  4  months  suspended)  and  24  months
imprisonment, respectively, on charges of health care fraud and income tax
evasion related to this scheme to defraud HHAs, Medicare and private
insurers.  The wife was also ordered to pay restitution of $5,000.  By
portraying themselves as licensed physical therapists, the couple caused
various HHAs to file false Medicare and private health insurance claims for
physical therapy services not provided.
Fraud Involving Nursing Homes
Nursing facilities and their residents have become common targets for fraudulent schemes
by which health care providers, medical professionals,  nursing facility staff and others
associated with the operation of nursing homes, improperly bill Medicare and Medicaid.
Through  such  arrangements,  Federal  health  care  programs  are  billed  for  medically
unnecessary services and for services either not rendered, or not rendered as described.
Examples  of fraudulent schemes involving nursing facilities and their  residents are as
follows:   
19 (cid:127) As noted in the Highlights section (see page ii), a national nursing home
chain agreed to a global settlement for the submission of false cost reports
to Medicare.  Under the settlement, a subsidiary corporation that owns 10
nursing homes pled guilty to wire fraud and false statements associated with
its Medicare cost reports and agreed to a $5 million fine.  In addition, the
parent company agreed to pay a total of $170 million over 8 years.  From
1992 through 1998, the chain operated hundreds of distinct part nursing
facilities.  In order to justify greater reimbursement to the Medicare parts of
these  facilities,  the  company  reported  that  its  nurses  were  spending  a
disproportionate share of their time on Medicare patients.  In fact, the
allocation of nursing time was based on time records that were fabricated
after the fact or otherwise wholly unreliable.  As a result of the conviction of
the subsidiary, the company must divest itself of the 10 nursing homes
owned by the subsidiary.  In addition to the criminal and civil resolution, the
company agreed to a corporate integrity agreement that will remain in effect
for 8 years. 
(cid:127) The United States Attorneys Office for the Eastern District of Pennsylvania
announced  the  settlement  of  a  False  Claims  Act  lawsuit  against  a
Pennsylvania nursing home management company and four of its officers,
for submitting improper Medicare and Medicaid cost reports.  According to
the  agreement,  the  company  and  its  officers  will  pay  the  Federal
Government and the Pennsylvania Department of Public Welfare a total of
$2.1 million to settle claims resulting from a qui tam lawsuit filed and
subsequent investigation into unallowable administrative expenses claimed
for reimbursement by Medicare and Medicaid.  The company manages a
chain of 19 nursing homes throughout Pennsylvania.  During the period
1993  through  1996,  the  management  company  falsely  inflated  the
administrative expenses claimed for reimbursement on their home office
cost reports.  Improper expenses included salaries and benefits for "ghost"
employees, personal automobile expenditures and other unrelated business
ventures, such as a gold mining company operating in Armenia and Russia.
In addition to the $2.1 million payment and a corporate integrity agreement,
two  of  the  officers  agreed  to  5-year  exclusions  and  one  to  permanent
exclusion.
(cid:127) A man in Indiana was sentenced for mail fraud to 12 months and 1 day
imprisonment,  3  years  supervised  release  and  payment  of  $37,584  in
restitution.  In November 1998, he stole a Medicaid check in the amount of
$88,087 and attempted to steal Medicare checks from a nursing home he
once owned.  The man improperly submitted letters to the nursing homes
contractors requesting the contractors to change the remittance address on
20 program checks from the nursing home to a post office box under his
control.  He was also involved in a fraudulent scheme which involved theft
of Social Security checks and resident funds.  These funds should have been
forwarded to residents new facilities after the Indiana State Department of
Health ordered his facility closed due to serious health and safety violations.
Year 2000 Readiness
At the request of the Congress and of HCFA, OIG released follow-up reports assessing the
Year 2000 (Y2K) readiness of Medicare MCOs and Medicare fee-for-service providers.
A.  Managed Care Organizations
The OIG received follow-up surveys from 161 MCOs in July and August 1999.  Also, OIG
reviewed data from HCFAs 59 site visits representing 204 managed care plans.  Over
four-fifths of MCOs respondents claimed that they were Y2K ready and about half indicated
that they were taking steps toward ensuring compliance with external partners.  Further,
about 80 percent reported developing contingency plans and about 30 percent reported
testing their plans.  (OEI-05-98-00591)
B.  Fee-for-Service Providers
The OIG sent anonymous follow-up surveys to 5,000 providers representing five groups:
acute-care hospitals, nursing facilities, home health agencies, DME suppliers and physicians.
In the 6 months between OIGs two surveys, health care providers generally reported
improvements in the status of their billing systems, medical records systems and biomedical
equipment.  Providers were also more likely to report having completed contingency plans
than they were 6 months earlier.   However, some providers were further along than others
and some still reported not taking the necessary steps to ensure Y2K readiness.  In addition,
a large number of providers did not respond to OIGs survey.
The OIG suggested that HCFA and the provider associations continue their outreach and
education  initiatives,  focusing  on  the  need  to  test  data  exchanges  as  well  as  internal
computer  systems,  stressing  the  importance  of  contingency  planning  and  publicizing
websites where Y2K information was available.  The HCFA agreed with OIGs conclusions
and outlined their future plans in this area.  (OEI-03-98-00253)
Contractor Costs for Year 2000 Remediation of Medicare
Computer Systems
The HCFA, its carriers and FIs use several hundred computer systems to carry out their daily
Medicare activities.  Of these systems, 100 are designated "mission critical" because they are
necessary  both  to  establish  the  Medicare  eligibility  of  beneficiaries  and  to  authorize
payments to fee-for-service providers and managed care plans.  The Medicare contractors
operate 75 of these "mission-critical" computer systems.  During FY 1998, HCFA increased
21 the budget allocation of the contractors by over $100 million for the Y2K remediation of
their Medicare computer systems and related Y2K activities.  To monitor the budget process
associated with this additional funding, HCFA implemented a new structure for use by
contractors in submitting their supplemental budget requests for Y2K funding and reporting
Y2K expenditures on their interim expenditure reports.
At  HCFAs  request,  OIG  conducted  a  series  of  audits  of  costs  reported  by  Medicare
contractors for Y2K remediation of their Medicare computer systems and related activities.
The audits sought to reconcile Medicare Y2K expenditures reported on selected interim
reports to the contractors accounting records and determine whether expenditures were:
allowable in accordance with Medicare cost principles; expended for the remediation of
Medicare computer systems or related Y2K activities; and properly allocated when used for
remediation  of  systems  and  other  Y2K  activities  that  benefitted  both  Medicare  and
non-Medicare purposes.  Separate reports were issued on each contractor audited.  (CIN:
A-01-99-00515; CIN:  A-02-99-01015; CIN:  A-02-99-01027; CIN:  A-03-99-00018; CIN:
A-03-99-00036; CIN:  A-04-99-02153; CIN:  A-04-99-02154; CIN:  A-04-99-02155; CIN:
A-04-99-02156; CIN:  A-04-99-02157; CIN:  A-04-99-02158; CIN:  A-05-99-00032; CIN:
A-05-99-00037; CIN:  A-05-99-00058; CIN:  A-05-99-00059; CIN:  A-06-99-00034; CIN:
A-06-99-00046; CIN:  A-06-99-00052; CIN:  A-07-99-02055; CIN:  A-07-99-02059; CIN:
A-07-99-02065; CIN:  A-07-00-02067; CIN:  A-07-99-02063; CIN:  A-09-99-00077; CIN:
A-09-99-00078; CIN:  A-09-99-00088; CIN:  A-10-99-00003; CIN:  A-10-99-00004; CIN:
A-14-99-00401; CIN:  A-17-99-01999)
Medicare Administrative Appeals:  Hearing Process
The OIG examined the administrative law judge (ALJ) appeals process for Medicare Part A
fee-for-service claims and Medicare Part B claims.  A hearing with an ALJ is the second step
in appealing a denied Part A claim and the third step in appealing a denied Part B claim.  If
an ALJ upholds a denied Part A or Part B claim, an appellant may request a review by the
Departmental Appeals Board (DAB), the final level of administrative appeal.
The OIG found that an increasing number of appeals are being heard by ALJs and noted
some  serious  deficiencies  in  the  ALJ  appeals.    To  correct  structural  problems,  OIG
recommended that HCFA separate the administrative appeals process for beneficiaries and
providers; establish adversarial ALJ hearings for provider appeals; develop and require both
Medicare  contractors  and  ALJs  to  apply  the  same  standards;  develop  regulations  for
conducting Medicare ALJ appeals; establish a case precedent system for DAB rulings;
develop thorough, parallel training programs for Medicare contractors and ALJs; and create
formal communication and information networks that span the entire appeals environment.
Further, OIG proposed that a dedicated ALJ corps be established, and submitted three
organizational options for such a corps.  The HCFA concurred with OIGs findings and
recommendations.  (OEI-04-97-00160)
22 Safeguarding Medicare Accounts Receivable
The OIG reviewed the Medicare accounts receivable balance as of October 1, 1998 and
activity from that date through March 31, 1999 at HCFA central and regional offices.
Medicare accounts receivable are amounts owed to the Federal Government, primarily due
to previous overpayments.
The OIG found that regional and central office accounts receivable were misstated by
$184.5 million and that another $376 million should be written off because the receivables
were several years old and there was no evidence of any recent collection effort.  These
problems  arose  because  HCFA  does  not  have  a  functioning,  integrated  financial
management system in accordance with Office of Management and Budget Circular A-127.
In  addition,  overall  responsibility  for  collecting  and  managing  accounts  receivable  is
dispersed among the Medicare contractors, the 10 HCFA regional offices and the central
office; this diffusion of responsibility has contributed to many of the problems noted and has
precluded timely referral of debt for cross-servicing and the Treasury offset program.
Unless HCFA makes appropriate adjustments for erroneous receivables and corrects the
internal control deficiencies identified, its future financial statements will be misstated.  The
OIG made specific recommendations to HCFA to develop controls to ensure that central and
regional  office  accounts  receivable  balances  are  complete,  supported  and  accurately
reported.  The HCFA generally concurred with OIGs findings and recommendations.  (CIN:
A-17-99-11999)
Medicare Administrative Costs
The HCFA contracts with private insurance companies (FIs and carriers) to process and pay
Medicare claims.  The OIG reviewed the allowability of costs claimed for Parts A and B
reimbursement by two contractors.
A.  AdminaStar Federal
This audit covered costs claimed by AdminaStar Federal on its final administrative cost
proposals for FYs 1996 and 1997.  Of the total $169.7 million claimed, OIG recommended a
financial adjustment of $3.1 million.  The unallowable costs included, among other things,
almost  $1.7  million  in  overstated  pension  costs,  about  $447,000  in  overstated
return-on-investment  costs  and  $398,000  in  excessive  executive  salary  increases.    The
contractor concurred in more than $2.4 million of the questioned costs but disagreed with
the remainder.  (CIN:  A-05-98-00042)  
B.  Blue Cross Blue Shield of Texas
Under contract with OIG, a certified public accounting firm audited the costs claimed on
Blue  Cross  Blue  Shield  of  Texass  (BCBSTs)  final  administrative  cost  proposals  for
Medicare Parts A and B for the period October 1, 1994 through September 30, 1998.  While
23 the firm concluded that BCBST had generally established adequate systems of internal
control, accounting and reporting for administrative costs and that most of the costs claimed
for the period were allowable, it did identify $1.6 million in unallowable charges.  The OIG
recommended a financial adjustment in that amount.  (CIN:  A-06-99-00006)
Pension Plan Audit
Blue Cross and Blue Shield of Massachusetts (BCBSM) was a Medicare Parts A and B
contractor until its contract was terminated in 1997 and, as such, was reimbursed for its
Medicare employees pension costs until that time.  Regulations and the Medicare contracts
provide, however, that pension gains attributable to the Medicare segment of a terminated
contractors  pension  plan  be  credited  to  the  Medicare  program.    The  OIG  identified
approximately $5.3 million in excess pension assets at BCBSM which should be remitted to
the Medicare program.  (CIN:  A-07-99-02537)
Medical Billing Software and Processes Used to Prepare Claims
Billing Medicare, and the 2,800 plus other health insurers, has become a complex endeavor,
according to this OIG inspection.  Most providers, or their billing agents, use medical billing
software to prepare claims.  Software can be misused to maximize reimbursement and to
submit false claims. It does little to reduce human error inherent in the claims preparation
processes. (OEI-05-99-00100)
Criminal Fraud
One of the most common types of fraud perpetrated against Medicare, Medicaid and other
Federal health care programs involves the filing of false claims or statements.  Such false
claims may be pursued civilly under the False Claims Act (see, for example, the hospital
initiatives  described  in  pages  10-13).    In  appropriate  cases,  false  claims  may  also  be
prosecuted criminally as Federal offenses such as mail fraud, wire fraud, false statements
and various health care fraud offenses.  Following are descriptions of criminal prosecutions
which resulted from the investigation of both false claims-related offenses and other health
care-related offenses during this period:
(cid:127) Four corporate officers were sentenced for engaging in improper activities
while administering Medicare contracts in New York.  The former chief
operating officer (COO) of the Medicare carrier for upstate New York was
sentenced to 2 years imprisonment and a $15,300 fine; he was found guilty
of committing fraud related to the carriers Medicare contract with HCFA
and of causing false information to be submitted to HCFA on the carriers
1992 Contractor Performance Evaluation Program (CPEP).  The former
COO of a northeastern New York subsidiary of the carrier was sentenced to
8 months home confinement and 3 years probation for aiding and abetting
the carriers COO in 1992, by generating false documentation to show that
24 private  side  employees  with  the  subsidiary  performed  Medicare-related
work.  Further, the carriers former vice-president was sentenced to 1 year
probation; he previously pled guilty to making false statements to HCFA on
the carriers 1992 CPEP by falsely indicating that the carrier processed
reviews  and  hearings  within  acceptable  time  frames.    Another  former
vice-president  of  the  carrier  was  sentenced  to  1  year  probation;  she
previously pled guilty to causing a false statement to be submitted to HCFA
on the carriers 1992 final administrative cost proposal.
(cid:127) In Florida, two individuals were sentenced for conspiracy to defraud the
Medicare program to 2 years imprisonment, 3 years supervised release and
payment of $500,000 in restitution.  The two engaged in a scheme which
utilized patient recruiters to find beneficiaries eligible for Medicare.  These
beneficiaries were brought to a clinic one of the individuals owned and
operated, where they were fraudulently diagnosed with chronic pulmonary
disease.  They were then provided with oxygen nebulizers and inhalation
solutions provided by a DME company owned and operated by the second
individual.  Medicare was billed, in turn, for these medically unnecessary
services and equipment, resulting in an estimated loss to the Medicare
program of $1.2 million.
(cid:127) A  Texas  woman  was  sentenced  for  theft  of  Federal  funds  and  false
statements to 21 months imprisonment, 3 years supervised probation and
payment  of  $1.1  million  in  restitution.    She  and  another  individual,
previously sentenced for her role in the scheme, owned and operated a
billing company through which they submitted fraudulent Medicare and
Medicaid  claims  using  their  clients  provider  numbers.    Through  this
scheme, the two improperly received checks mailed to the company and
embezzled the funds.
(cid:127) A chiropractor and a second individual were sentenced for mail fraud in
Illinois.  The chiropractor was sentenced to 1 year and 1 day incarceration, 3
years probation and $106,132 in restitution.  The second individual was
sentenced to 6 months incarceration, 3 years probation and $106,132 in
restitution.  Previously, a medical doctor, also involved in the scheme, was
sentenced  for  mail  fraud  to  4  months  incarceration  in  a  community
confinement center, 5 years probation and $106,132 in restitution.  The
three  submitted  false  claims  to  Medicare  on  behalf  of  a  noninvasive
cardiovascular diagnostic testing laboratory.  Claims were submitted for
tests which had not been ordered by a physician and for office visits which
never occurred.  The chiropractor and the second individual owned and
operated the laboratory.  The chiropractor interpreted the test results, and the
25 second  individual,  a  former  associate  county  judge,  was  the  office
administrator.    The  medical  doctor  acted  as  the  staff  physician.    The
laboratory  obtained  most  of  their  patients  through  free  health  care
"screenings" at senior citizen centers or through referrals from chiropractors.
After reviewing the noninvasive cardiovascular test data, the chiropractor
would prepare a report with his interpretation of the data.  During the
investigation,  the  Medicare  contractor  reviewed  a  sampling  of  the
laboratorys patient files and criticized the chiropractors interpretation of
the test data and his consistent recommendation of nutritional supplements
marketed by him and his wife.  The Medicare contractor also cited a number
of instances in which the chiropractor overlooked major illnesses such as
leukemia, diabetes, anemia and syphilis.
(cid:127) In  Maryland,  an  individual  was  sentenced  to  12  months  and  1  day
incarceration, 36 months supervised release and payment of $145,589 in
restitution.  The individual pled guilty to bank fraud for his role in a scheme
to assume the identities of unsuspecting HHS employees, as well as other
non-HHS individuals, for the purpose of committing bank fraud.  A joint
investigation with the U.S. Postal Inspection Service and the Social Security
Administration identified this individual as part of a larger conspiracy to
commit bank and credit card fraud.  The group of conspirators secured HHS
personnel information from documents placed in a shred bin for disposal at
an HHS Program Support Center (PSC) facility.  The fraud ring then used
the stolen HHS employee data to obtain identification cards, open bank
accounts  and  secure  credit  cards.    Their  elaborate  scheme  not  only
compromised HHS employee data, but also resulted in an aggregate loss of
over $456,883.  As a result of this incident and in order to prevent future
thefts,  OIG  advised  the  PSC  to  implement  administrative  controls  to
safeguard the accessing, printing and disposal of confidential personnel
information.  The PSC agreed to take the necessary measures to improve
these controls.
(cid:127) As the result of a joint investigation with the Food and Drug Administration,
the Drug Enforcement Administration and the Pennsylvania Medicaid Fraud
Control Unit, a pharmacist was sentenced based on an earlier guilty plea to
knowingly and intentionally distributing controlled substances and to sale or
receipt of stolen goods.  While employed as a pharmacist, the individual
stole controlled substances from the pharmacy where he worked and then
sold these substances to street dealers.  His sentence included 6 months
community confinement, 3 years probation and payment of $13,410 in
restitution.
26 (cid:127) A Missouri chiropractor was sentenced to 5 years probation, 4 months home
confinement and payment of $15,456 in restitution for false statements on
an application for payment under the Medicare program.  The chiropractor
submitted  numerous  Medicare claims for back  manipulation  procedures
without the X-ray required.  The defendant misrepresented on the forms that
patients had an X-ray when he knew they had not.
(cid:127) A New York man was sentenced to 3 years probation and a $275 fine for
possession of a false United States Government document.  He attempted to
use a fraudulent Medicare card to unlawfully obtain city transit discounts
granted to those with Medicare entitlement.  The man, who has an extensive
criminal history including robberies and drug sales, will also be required to
attend weekly drug counseling.
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
made in exchange for anything of value, however, both the giver and receiver may violate
the Medicare and 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:
(cid:127) 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
(cid:127) 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 and to exclusion from participation in Federal
health care programs.  They may also be subject to civil monetary penalties (CMPs).  The
following cases are examples of the sentences for this crime: 
(cid:127) A  licensed  physician  was  sentenced  in  Connecticut  to  4  months
imprisonment, 4 months home confinement, 4 years supervised probation
and  payment  of  $10,200  in  fines.    He  also  forfeited  $60,000  to  the
27 Government.    From  May  1995  through  December  1997,  the  physician
solicited and received kickbacks in exchange for patient referrals for DME.
Through this illegal kickback scheme, he received approximately $78,130 in
payments which he failed to report as income on his 1995 tax return.
(cid:127) In Nebraska, a mental health center agreed to pay the Government $106,574
to resolve allegations of paying kickbacks to a psychiatric clinic in order to
induce  Medicaid,  psychiatric,  inpatient  referrals  to  the  center.    The
Government  alleged that between 1987 and  1993, the center paid over
$2,000 a month as a  charitable contribution to a nonprofit entity, which was
in turn paid over to an outpatient mental health facility.  These payments
were allegedly made to induce the referral of Medicaid patients from this
facility  to the center.  The center  is no longer  enrolled as a Nebraska
Medicaid provider, and the individuals involved are no longer associated
with the center.
(cid:127) In Florida, an individual was sentenced to 2 years probation, a $2,000 fine
and payment of $863 in back taxes to the Internal Revenue Service for
failure to file an individual income tax return for 1994.  He is the fifteenth
individual  sentenced  in  connection  with  an  investigation  involving
numerous impotence clinics in Florida which allegedly billed Medicare and
CHAMPUS (now TRICARE) for medically unnecessary services.  The
investigation  determined  that  numerous  individuals,  owning  numerous
diagnostic  companies,  paid  illegal  kickbacks  to  the  owners  of  these
impotence  clinics  during  1994  and  1995.    At  that  time, the  individual
sentenced worked as a salesman for a diagnostic company owner.  As part of
his duties, the individual paid kickbacks to impotence clinic owners in
exchange for Medicare patient referrals.
Fraud and Abuse Sanctions
During this reporting period, OIG imposed 1,476 administrative sanctions, in the form of
program exclusions or civil actions, on individuals and entities for engaging in fraud or
abuse or other activities deemed to be a risk to Federal health care programs and/or their
beneficiaries.
A.  Program Exclusions
Title XI of the Social Security Act provides for a number of bases for excluding individuals
and  entities  from  participation  in  Medicare,  Medicaid  and  other  Federal  health  care
programs.  Exclusion is mandatory for those convicted of program-related crimes, crimes
related to patient abuse or neglect, felony convictions for defrauding other health care
programs, and felony convictions for the illegal manufacture or distribution of controlled
substances.  Exclusion is discretionary for those who have lost a license to practice or the
28 right  to  participate  in  a  State  health  care  program  for  reasons  related  to  professional
performance, professional competence or financial integrity, or provided substandard or
unnecessary services.  Exclusions may also be imposed on those convicted of private
insurance fraud, or obstruction of an investigation, and on individuals who have failed to
repay health education assistance loans (HEALs).  (See page 51 for further information on
exclusions for HEAL defaults.)
During this reporting period, OIG imposed exclusions on 1,278 individuals and entities.
The following are examples of some of the exclusions that were imposed:
(cid:127) A physician in California was excluded from participating in Medicare,
Medicaid and all Federal health care programs for a period of 10 years,
following  his  conviction  in  district  court  for  sexual  battery,  child
molestation and possession of child pornography.  Abusing his position as
the family physician, he  induced the father of one of his 11-year old
patients  to  allow  him  to  take  partially-nude  photographs  of  the  mans
daughter.  The physician was also ordered to serve 300 days in prison.
(cid:127) In Colorado, the owner/operator of a medical staffing agency was excluded
from program participation for 3 years.  The individual fraudulently created
and altered background check reports to show clear criminal records for
employees contracted out by his agency.  He was also forging Colorado
nursing and certified nursing assistant licenses.  He pled guilty to one count
of second degree forgery, was sentenced to 2 years probation, and ordered to
pay restitution in the amount of $25,000.
(cid:127) A diagnostic services clinic in Florida was excluded for 20 years due to its
ownership by an individual convicted of money laundering.  The entity was
involved in a scheme to create 11 clinics and bill for nonrendered services
for current and former Medicaid recipients, both living and deceased.  The
fraudulent  claims  falsely  identified  names  and  provider  numbers  of
physicians who were not affiliated with the clinics.  This resulted in a
combined  loss  to  the  Medicaid  program  in  excess  of  $900,000.    The
convicted individual was sentenced to 45 months incarceration and ordered
to pay restitution and fines of close to $800,000, and excluded by OIG for
20 years.
(cid:127) In Texas, a physician was excluded indefinitely because her license to
practice medicine or provide health care in that State was suspended for
reasons bearing on her professional competence.  The physician prescribed
drugs to her family and failed to keep any medical records regarding those
treatments.
29 (cid:127) The president of a company providing mobile x-ray services to Medicare
beneficiaries in Kansas was excluded for 15 years after being found guilty
of conspiracy to defraud the Government, submitting false claims, aiding
and abetting and mail fraud.  The individual submitted false claims to
Medicare by claiming full transportation fees for each individual patient
seen by x-ray technicians of the company, when multiple patients were
actually seen during the nursing home trip for which the claim was made.
After  being  convicted,  the  individual  was  sentenced  to  48  months
imprisonment and ordered to pay restitution totaling almost $600,000.
(cid:127) In Oklahoma, an employee at a mental health facility was excluded for 10
years for patient abuse.  While employed at the facility, the individual
pushed a beneficiarys head into a wall and then kicked the beneficiary in
the legs and body.  The individual was sentenced to 5 years incarceration,
all of which was suspended except for 30 days with credit for time served,
and placed on 2 years probation.
(cid:127) A  registered  nurse  in  Missouri  was  excluded  for  10  years  after  being
convicted of a criminal offense related to the delivery of an item or service
under the Medicaid program.  She was also convicted of a felony related to
the  unlawful  manufacture,  distribution,  prescription  or  dispensing  of  a
controlled substance.  She used a Medicaid beneficiarys name to obtain
medication  by  fraud,  which  caused  the  pharmacy  to  bill  the  Medicaid
program  for  prescriptions  provided  to  a  beneficiary  when,  in  fact,  she
diverted the medication for her own use.  She was sentenced to serve 5
years in prison.
(cid:127) A physician in Louisiana was excluded from program participation for a
minimum of 10 years after pleading guilty to two charges of mail fraud.
The physician submitted claims to Medicare and Medicaid for psychiatric
services  that  were  not  provided.    The  court  placed  the  physician  on
supervised probation for 4 years and home confinement for 1 year.  The
individual was also ordered to pay fines and restitution totaling $500,200.
B.  Civil Penalties for Patient Dumping
Section  1867  of  the  Social  Security  Act  (42  U.S.C.  1395dd)  provides  that  when  an
individual presents to the emergency room for examination or treatment, a hospital which
has a Medicare provider agreement is required to provide an appropriate medical screening
examination to determine whether that individual has an emergency medical condition.  If
an individual has such a condition, the hospital must provide, within the capabilities of the
staff and facilities available at the hospital, treatment to stabilize the condition, unless a
physician certifies that the individual should be transferred because the benefits of medical
30 treatment elsewhere outweigh the risks associated with transfer, or if the patient requests to
be  transferred  after  being  advised  of  the  inherent  risks.    If  a  transfer  is  ordered,  the
transferring hospital must arrange for a safe transfer, which includes providing stabilizing
treatment to minimize the risks of transfer, making sure the receiving hospital has agreed to
accept the transfer and effecting the transfer through qualified personnel and transportation
equipment.  A hospital is prohibited from delaying provision of examination or treatment for
an emergency medical condition to inquire about an individuals method of payment or
insurance status.  Further, a participating hospital with specialized capabilities or facilities
may not refuse to accept an appropriate transfer of an individual who needs those services if
the hospital has the capacity to treat the individual.
The OIG is authorized to impose CMPs of up to $25,000 against small hospitals (less than
100 beds) and up to $50,000 against larger hospitals (100 beds or more) for each instance
where the hospital negligently violated any of the section 1867 requirements.  In addition,
OIG may impose a CMP of up to $50,000 against a participating physician, including an
on-call physician, for each negligent violation of any of the section 1867 requirements.
Between October 1,  1999 and March 31, 2000, OIG collected $643,500 in settlement
amounts from 24 hospitals and physicians.  The following is a sampling of the alleged
violations involved in the FY 2000 Patient Anti-Dumping Statute settlements from this
reporting period.
(cid:127) A small Indiana psychiatric hospital paid $30,000 to settle allegations that it
failed  to  provide  appropriate  medical  screenings  and  transfers  for  two
patients.  One of the patients had a clear emergency medical condition, but
was not screened or treated because he was not able to come up with a
$2,000 down payment for medical services.
(cid:127) In Maryland, a small hospital settled allegations that it failed to provide
appropriate medical screening examinations in a number of cases where
only the patients vital signs were taken before they were discharged.  The
patients primary care providers had been called for payment authorization,
and such authorization was denied.  One patient had been kicked in the face
and presented with jaw pain, missing teeth and bleeding; another patient
was having difficulty breathing and sleeping, and had been vomiting.  The
hospital settled for $60,000.
(cid:127) After a hearing, an administrative law judge imposed a $25,000 CMP on an
Oklahoma hospital which refused to accept the appropriate transfer of a
patient  who  had  been  critically  injured  in  an  automobile  accident  and
required emergency vascular surgery.  The transferring hospital did not have
the specialized capabilities or facilities that were required to treat the life
31 threatening injury to the patients abdominal aorta.  After numerous calls to
hospital emergency rooms and physicians, the patient was transferred to a
hospital where surgery was performed in an attempt to save his life.  The
patient,  however,  died  from  his  injuries  and  their  aftereffects.    The
Oklahoma  hospital  has  filed  an  appeal  with  the  Departmental  Appeals
Board.
(cid:127) In order to resolve allegations that it failed to provide appropriate medical
screenings for several individuals, a California hospital paid $67,000 in
penalties.  In one case, a  patient was asked to pay for services prior to being
treated.  In others, managed care companies denied payment authorization
and/or patients were instructed to see their doctors or go to a clinic instead
of  being  seen  at  the  hospital.    Patients  presented  to  the  hospital  with
conditions including multiple dog bites and pneumonia.
(cid:127) A small Arkansas hospital settled an allegation that it failed to provide a
1-year old patient a medical screening examination by paying $15,000.  The
infant  presented  with  a  high  fever  and  earache,  and  exhibited  extreme
discomfort  when  held.    Two  days  later  she  was  diagnosed  at  another
hospital with bacterial meningitis.  She is permanently deaf. 
(cid:127) A California emergency physician agreed to pay $6,000 as he allegedly
inappropriately transferred a patient with a suspected intercranial bleed.
Although the physician provided the patient with a screening examination
after being informed the patients MCO had denied treatment, the patient
was nonetheless inappropriately transferred in an unstable condition.
(cid:127) A hospital in Florida settled, for $35,000, an allegation that it failed to
medically screen a patient with new onset of diabetes mellitus.  The hospital
allegedly refused treatment when the patient indicated he could not make a
requested  deposit  and,  instead,  referred  him  to  a  clinic  or  the  health
department for treatment the next day.  Upon leaving that hospital, however,
the patient immediately presented to another hospital where he was admitted
and discharged 3 days later.
(cid:127) An Oregon hospital paid $125,000 to settle allegations that it failed to
provide several patients with appropriate medical screening examinations.
The patients MCOs denied payment authorization for treatment.  In one
instance, a patient presented to the emergency room complaining that he
could not move the right side of his face.  Another instance concerned a
5-year old who presented with a stomachache of several days duration.  The
next day a pediatrician saw this child and immediately sent him to surgery
32 for a ruptured appendix.  Also, in another instance, a pregnant patient who
had sharp abdominal pain went by car to another facility, without being
medically screened, apparently because of insurance concerns.
C.  Civil Penalties for False Claims
Under  the  CMP  authorities  enacted  by  the  Congress,  OIG  may  impose  penalties  and
assessments against health care providers and others who submit false or improper claims to
Medicare and other Federal health care programs.  The OIG also assists DOJ in bringing
(and settling) cases against wrongdoers under the False Claims Act.  Many providers elect to
settle their cases prior to litigation.  As part of resolving these cases, OIG frequently imposes
corporate integrity agreements on entities as a condition for being allowed to remain a
provider in the Medicare program.  The integrity programs established by these agreements
are designed to prevent a recurrence of the fraudulent activities that gave rise to the case at
issue.  The Government, with the assistance of OIG, recouped more than $800 million
through both CMP and False Claims Act civil settlements related to the Medicare and
Medicaid programs during this reporting period.  Some examples of these cases include:
(cid:127) As noted in the Highlights section (see page ii), the United States entered
into a global settlement with the Nations largest provider of kidney dialysis
services and several of its subsidiaries, in which the provider agreed to pay
approximately  $486  million  to  settle  allegations  from  a  multi  qui  tam
investigation.  As part of the civil settlement agreement for credit balances,
the company paid directly to HCFA $11 million for overpayments which
were previously reported to the FIs but never recouped.  The allegations
included the following:   billing of unnecessary  end stage  renal  disease
(ESRD) laboratory tests and the paying of kickbacks to induce the ordering
of such unnecessary tests; billing for noncovered intradialytic parenteral
nutrition (IDPN) services, falsifying documents to obtain payment, and the
paying  of  kickbacks  in  the  form  of  "hang  fees"  and  other  forms  of
remuneration to induce the ordering of unnecessary IDPN services; failing
to  report  "credit  balances"  and/or  "unreconciled  payments"  and/or
converting such monies to income rather than returning the monies to the
Federal health care programs; and billing for certain unnecessary diagnostic
tests performed under clinical studies.  As part of the settlement agreement,
the provider agreed to adhere to an 8-year corporate integrity agreement.  In
addition, three of its subsidiaries pled guilty to criminal offenses, and agreed
to  permanent  exclusion  from  the  Federal  health  care  programs.    This
settlement represents the largest Medicare fraud settlement ever reached and
is the result of a joint effort by OIG investigators and auditors along with
other law enforcement agencies.  There was also an agreement to resolve a
large volume of IDPN claims through the end of 1999.  In exchange for the
provider surrendering its right to seek payment and pursue appeals for these
33 claims (which the provider asserted were worth about $196 million), HCFA
agreed to pay or "credit" the provider about $59 million.
(cid:127) As noted in the Highlights section (see page ii), a former Medicare FI
agreed to pay nearly $74.3 million to resolve its civil liability under the
False Claims Act and Civil Monetary Penalties Law.  The OIG investigation
determined that, between 1989 and 1991, the intermediary falsified interim
payments on settled hospital cost reports in order to meet HCFAs contractor
performance  evaluation  standards.    As  a  result  of  this  activity,  the
intermediary  improperly  paid  to,  or  made  cost  report  adjustments  for,
several hospitals.  The affected hospitals either received cash payments to
which they were not entitled or had their cost reports adjusted so that they
paid less back to Medicare than they should have paid.  As part of the
settlement, the company, which is no longer an intermediary, agreed to the
imposition  of  a  corporate  integrity  agreement  for  5  years  for  its
Medicare+Choice HMO contract, which it still operates.
(cid:127) A  New  York  school  of  medicine  agreed  to  pay  the  Government
approximately  $2.3  million  to  resolve  allegations  of  improperly  billing
Medicare.  The school obtained excess Medicare funds based on claims for
professional  services  rendered  to  Medicare  beneficiaries  that  were  not
documented  or  not  in  compliance  with  Medicares  coding  and
reimbursement rules.  As part of the settlement, the school entered into a
5-year, institutional compliance agreement requiring the facility to maintain
a compliance committee and to perform an annual review of its billing for
professional services.
(cid:127) In Mississippi, the Government entered into a settlement agreement with a
clinical laboratory, a physician and another individual to resolve allegations
that the laboratory submitted false claims to Medicare.  As part of the
settlement, the laboratory agreed to pay $1.2 million to resolve its civil and
administrative  liabilities  for  the  improper  conduct  and  to  enter  into  a
comprehensive,  5-year  corporate  integrity  agreement  with    OIG.    The
clinical laboratory allegedly submitted false claims by billing for tests to
identify a certain bacteria after a preliminary test showed no bacteria present
and by unbundling certain urinalysis tests.  The physician involved in the
settlement owns the laboratory, and the other individual was the laboratory
manager during the time period at issue.  
(cid:127) In Virginia, a health care corporation and a hospital agreed to pay the
Government  a  total  of  $726,063  to  settle  allegations  of  improprieties
occurring in the hospitals psychiatric programs.  The hospital contracted
34 this  corporation  as  a  health  care  consultant  to  manage  the  hospitals
psychiatric unit.  Investigation showed that from July 1994 through April
1997, the corporation inappropriately admitted patients to the hospital; that
patients at the facility stayed longer than medically necessary; and that the
corporation and the hospital failed to provide adequate treatment plans for
patients enrolled in the facilitys partial hospitalization program.
(cid:127) A  consent  judgment  was  entered  against  a  physician  and  the  largest,
independent physiological laboratory in Colorado, holding them jointly and
severally  liable  for  payment  of  $170,500  to  the  Government.    This
settlement resolved the civil aspect of the case and occurred in conjunction
with a guilty plea to a criminal false claims violation.  Based on this guilty
plea, the physician was sentenced to 4 months imprisonment and 3 years
probation.  Through his laboratory, the physician improperly billed for pulse
oximetry tests not performed, stress tests when pulse oximetry tests were
performed, and home evaluation and management visits not performed.  As
part of the global settlement, the physician agreed to a 7-year exclusion as
well.  Also in connection with this case, a second individual pled guilty to
theft of public monies for billing Medicare for pulse oximetry tests not
performed.   This individual, who previously sold the laboratory to the
physician, was sentenced to 2 years probation.
(cid:127) In Alabama, a kidney clinic and physician agreed to pay the Government
$90,000 to resolve allegations of improper billing for dialysis treatments.
During  the  period  from  1987  through  1992,  the  clinic  and  physician
allegedly billed Medicare for patients who were  no shows and for patients
who  appeared  but  could  not  receive  their  scheduled  treatment  due  to
medical  complications.    The  clinic  also  entered  into  a  comprehensive,
3-year corporate integrity agreement with OIG.
Under the Civil Monetary Penalties Law (CMPL), 42 U.S.C. 1320a-7a,  OIG has authority
to proceed administratively against persons or entities who submit false, fraudulent or
improper claims for payment under Medicare and other Federal health care programs, e.g.,
Medicaid.  Under the CMPL, OIG may impose a CMP of  not more than $10,000 for each
item or service falsely claimed, and  an assessment of not more than three times the amount
claimed for each such item or service in lieu of damages sustained by the United States or a
State  agency  because  of  such  claim.    Persons  or  entities  may  also  be  excluded  from
participation in Federal health care programs under this authority.
(cid:127) The successor entity of a California physician partnership, which primarily
provided medical services to nursing home patients, agreed to pay $1.4
35 million for allegedly submitting false claims to Medicare.  The successor
entity also agreed to comply with a 5-year corporate integrity agreement.
(cid:127) A  Florida  podiatrist,  who  received  kickbacks  from  a  DME  supplier  in
exchange  for  ordering  lymphedema  pumps  for  program  beneficiaries,
agreed to a 3-year exclusion and paid $30,000 in penalties to resolve the
allegations.  The podiatrist prescribed pumps which were expensive and not
medically necessary for treatment of the beneficiaries conditions.
(cid:127) A Pennsylvania physician, who had been excluded for 10 years, settled his
liability under the CMPL, by paying $30,000.  The physician had submitted
claims to the Medicare program while excluded from program participation.
D.  Compliance Activities
The existence of an "effective" compliance program can offer an organization certain credit
under the Federal Sentencing Guidelines.  This and other benefits have served to encourage
the private sector to develop methods to prevent the submission of improper claims and
inappropriate conduct and to detect violations under the False Claims Act and the CMP law.
The OIG has already initiated significant outreach efforts with the private sector to discuss
these compliance endeavors.
The  OIG  continues  in  its  efforts  to  promote  voluntarily  developed  and  implemented
compliance programs by providing guidance for the various sectors of the health care
industry.  To this end, OIG has developed and released compliance program guidance for
clinical laboratories, hospitals, HHAs, third-party billing companies, DME, prosthetics and
orthotics suppliers, hospices, Medicare+Choice organizations that offer coordinated care
plans and nursing homes.  The OIG is currently working on guidance for other sectors of the
industry, including individual physician and small physician group practices, and ambulance
service providers.  As noted in the Federal Sentencing Guidelines, the seven fundamental
elements of an effective compliance program are: implementing written policies, procedures
and standards of conduct; designating a compliance officer and compliance committee;
conducting effective training and education; developing effective lines of communication;
enforcing standards  through  well-publicized  disciplinary guidelines; conducting internal
monitoring and auditing; and responding promptly to detected offenses and developing
corrective action initiatives.  
Copies of OIGs compliance program guidances, as well as other materials developed by
OIG as part of its effort to identify and curb health care waste, fraud and abuse are available
on the Internet at http://www.hhs.gov/oig.
In addition to developing compliance program guidance, OIG monitors compliance and
integrity obligations imposed on health care providers as part of global settlements of OIG
36 investigations and audits.  These obligations are typically imposed through an agreement
commonly referred to as a  corporate integrity agreement.  Presently, OIG is monitoring 440
Government-imposed corporate integrity agreements.  These agreements cover the range of
providers from small physician offices to large hospitals and laboratory corporations.  The
duration of most current corporate integrity agreements is 5 years and these agreements
require a substantial effort by the provider to ensure that the organization is operating within
HCFA  rules  and  regulations  and  the  parameters  established  by  the  corporate  integrity
agreement.  A material failure to adhere to the corporate integrity agreement could result in
financial penalties or exclusion of the provider in addition to other penalties.
As one of its six task orders awarded to program safeguard contractors, in November 1999,
HCFA  contracted  with  TriCenturion,  LLC,  a  new  company  formed  by  three  current
Medicare contractors (Blue Cross Blue Shield of Florida, Blue Cross Blue Shield of South
Carolina and TrailBlazer Health Enterprises) to assist OIG in its monitoring of providers
subject to corporate integrity agreements.  In the next contract year, TriCenturion will
perform 27 onsite reviews of providers subject to corporate integrity agreements to assist
OIG to determine if the providers are meeting the obligations in the agreements.  In addition,
TriCenturion will conduct claims reviews to determine whether the providers are complying
with applicable laws.  The OIG staff will work closely with HCFA and TriCenturion on this
important  project.    This  effort  will  complement  the  site  visits  conducted  by  OIGs
compliance unit staff.
Beneficiary and Provider Outreach Activities
The national initiative against waste, fraud and abuse in the Medicare program was launched
on February 24, 1999 by the Department (including OIG, HCFA and the Administration on
Aging [AoA]), the American Association of Retired Persons (AARP) and DOJ (including
the  Federal  Bureau  of  Investigation  [FBI]).    Since  that  date,  OIG  has  maintained  a
collaborative partnership with each of these agencies to continue the efforts that began over
a year ago.  Monthly meetings are held to update partners on individual activities conducted
by each respective partner and to plan for future collaborative activities.  Since the event, the
OIG hotline has served as an educational and reporting resource to approximately 552,000
callers.  The hotline continues to experience an increase in calls from Puerto Rico and
maintains a monitoring program to ensure that concerns of the Hispanic community are
addressed. 
The OIG continues to distribute hundreds of its Medicare fraud educational materials to
beneficiaries through AoA grantees, the AoA network and Medicare carrier organizations,
and to State libraries nationwide.  Working relationships have been developed with Hispanic
organizations to distribute Medicare fraud materials currently translated and printed in
Spanish to Hispanic Americans; this Spanish-version material has been revised based on
guidance and advice from these national Hispanic representatives.  Working relationships
have also been established with Asian American organizations to distribute Medicare fraud
37 materials that may ultimately be translated and printed in Mandarin Chinese for Chinese
Americans.  
In addition to beneficiary outreach, OIG has made progress in working with provider
groups.  Specifically, as a result of OIGs initial coordination, representatives from the
American Hospital Association regularly attend the monthly outreach partner meetings.
Several  productive  meetings  have  been  held  with  the  American  College  of
Physicians/American Society of Internal Medicine, and the trifold brochure on Medicare
fraud has been revised to incorporate comments from that organization.  The OIG seeks to
promote dialogue with other provider groups as well.
Accuracy of Unique Physician Identification Number Data
The unique physician identification number (UPIN) is a national number that distinguishes
the individual ordering or furnishing the service or supply from the entity requesting or
receiving Medicare reimbursement.  In 1989, HCFA established the UPIN registry and
assigned unique numbers to Medicare physicians.  In 1994, the registry was expanded to
include nonphysician practitioners and group practices.  The registry also maintains data on
each practice location, by provider identification number (PIN).  The HCFA plans to use the
registry information as source data for the national provider identifier, which will replace
UPINs and PINs after the year 2000.
The OIG found that HCFA has taken meaningful actions to enhance the accuracy of UPIN
data,  but  that  problems  continue  to  exist  with  some  physician  registry  data.    Almost
one-fourth of the active UPINs have no recent Medicare claims activity; coding instructions
and formats adversely affect the usefulness of information; some providers have numerous
active  PINs;  and  some  UPIN  data  is  inconsistent.    To  address  these  problems,  OIG
recommended that HCFA deactivate UPINs and PINs for inactive providers and practice
locations; improve data entry for specific data fields, review individuals with numerous
PINs; and reconcile identical fields in UPIN and PIN records before implementing the
national provider identifier.  The HCFA concurred with OIGs findings and has undertaken
action to implement the recommendations.  (OEI-07-98-00410)
Utilization Parameters for Chiropractic Treatments
The HCFA convened the Chiropractic Work Group to assist in developing new chiropractic
policies required by the BBA of 1997.  A utilization review parameter establishes a point at
which a carrier will review each additional claim for medical necessity.  The work group is
considering two options, a utilization review parameter of 18 treatments per year and one of
12 treatments per year.   The work groups director requested that OIG compile 1997
chiropractic utilization data and quantify the potential impacts of implementing the two
options.
38 The OIG determined that implementing either option would ensure that Medicare pays for
all chiropractic services that Medicare beneficiaries are entitled to and would help prevent
payment  for  services  not  authorized  under  the  program.    By  establishing  utilization
parameters at 18 or 12 beginning in 2000, OIG estimates that annual Medicare outlays
would  be  reduced  by  about  $19.4  million  or  $30.2  million,  respectively.    The  OIG
recommends a parameter of 12, the one most commonly used (by 29 of 55 carriers), which
would require the least administrative change for carriers overall.  If some carriers with
lower existing parameters choose to increase their parameters up to the new maximum,
OIGs savings estimate would be reduced.  The HCFA will use this information in its effort
to establish chiropractic utilization guidelines.  (OEI-04-97-00496)
Outpatient Psychiatric Services
These  audits  were  conducted  in  conjunction  with  OIGs  review  of  Medicares  partial
hospitalization programs at community mental health centers, which found significant error
rates regarding provider compliance with Medicare requirements.
In its audit at one Connecticut hospital, OIG identified charges for psychiatric care that were
not properly supported by medical records or were medically unnecessary.  Based on a
statistical sample, OIG estimated that at least $1.9 million in outpatient charges did not meet
Medicare reimbursement criteria.  The OIG also identified $212,372 in costs ineligible for
Medicare  reimbursement  claimed  on  the  hospitals  FY 1997  cost  report for  outpatient
psychiatric services.
Similarly, in an audit at a New Hampshire hospital, OIG estimated that at least $314,359 in
outpatient psychiatric charges did not meet Medicare reimbursement criteria.  In addition,
OIG identified $11,315 in ineligible costs claimed on the hospitals FY 1998 cost report for
outpatient psychiatric services.
The OIG recommended that the hospitals strengthen their procedures to ensure that charges
for psychiatric services are covered and properly documented.  Also, OIG recommended that
the hospitals establish nonreimbursable cost centers or otherwise exclude costs related to
noncovered services from their Medicare cost reports.  The OIG will provide the results of
the reviews to the FI so that it can apply the appropriate adjustments to the hospitals cost
reports.  (CIN:  A-01-99-00501; CIN:  A-01-99-00502)
Durable Medical Equipment Regional Carriers:  
Meeting HCFAs Objectives
In this inspection on durable medical equipment regional carrier (DMERC) efforts to meet
HCFAs implementation objectives, OIG found that the DMERCs reduced claims processing
costs by 15 percent; established medical policies for 87 of the top 100 utilized codes by the
October 1993 deadline; developed education and fraud components; and eliminated carrier
39 shopping.  Overall, they produced positive results and were able to prevent fraud, waste and
abuse  in  such  areas  as  incontinence  supplies,  wound  care  and  lymphedema  pumps.
However, the DMERCs were not able to provide complete information to determine the
quality of their fraud units efforts, specifically information that indicated the source of the
fraud case and whether overpayments were collected.
The OIG recommended that HCFA require the DMERCs to capture such information and
incorporate these elements into its automated management system.  The HCFA concurred
with OIGs recommendation.  (OEI-04-97-00330)
Medicare Payments for Orthotic Body Jackets
Between 1990 and 1992, Medicare allowances for orthotic body jackets coded L0430 rose
sharply from $217 thousand to $18 million.  In 1994, OIG reported that 95 percent of claims
submitted in 1991 were for nonlegitimate orthotic body jackets and should not have been
paid.  The devices supplied were usually nothing more than a seat cushion for a wheelchair
patient.  In 1997, OIG reported that at least 19 percent of orthoses claimed for Medicare
reimbursement were unnecessary.
In the current study, OIG found that, from 1994 to 1998, claims for orthotic body jackets
under Medicare code L0430 had decreased over 50 percent and Medicare allowed charges
decreased nearly 46 percent.   In OIGs 1994 study, the devices allowed for Medicare
payment under code L0430 were typically not orthotic body jackets, but rather seat cushions
for wheelchairs.  In the current inspection, the statistical analysis durable medical equipment
regional carrier (SADMERC) expert determined that all 153 devices in the OIG sample
claimed as body jackets qualified for Medicare reimbursement.  The OIG did note that
suppliers had upcoded 42 percent of 1996 L0430 orthotic body jacket claims; some of this
may have been accounted for by the lack of uniformity and standardization in coding.  The
OIG also found that 3.5 percent of 1996 sample claims may have been for unnecessary
duplicate body jackets.
The OIG recommended that HCFA review and revise the Medicare coding guidelines;
require suppliers to include more information on their Medicare claims for the products they
provide to beneficiaries; and encourage the DMERCs to continue or initiate system edits that
detect multiple billings of orthotic body jackets to the same Medicare beneficiary in a
calendar  year.    The  HCFA  disagreed  with  the  first  two  recommendations.
(OEI-04-97-00390)
Medicare Allowed Charges for Orthotic Body Jackets 
In the States reviewed for this inspection, Medicare paid more for orthotic body jackets than
Medicaid and TRICARE.  Further, Medicare reimbursement rates allowed suppliers to mark
up orthotic body jackets from 54 to 832 percent.
40 The OIG recommended that HCFA determine the appropriateness of Medicare allowed
charges for orthotic body jackets.  The HCFA should ensure that allowed charges provide
reasonable profits for suppliers, and at the same time assure that charges do not result in
unnecessary costs to the Medicare Trust Fund. (OEI-04-97-00391)
Use of Universal Product Numbers for Medical Equipment and
Supplies
A Universal Product Number (UPN) can be used universally as the key identifier on each
inventory  unit  for  DME  and  supplies.    It  can  also  be  used  as  the  key  identifier  to
communicate product information among all trading partners in the supply chain.  In a study
of the health care industrys use of UPNs, OIG found that they are currently used by some
hospitals, distributors and manufacturers.  Most industry members agree that UPNs might be
of value to Medicare by allowing for specific identification of the product being claimed and
providing more efficient edits.  They would also aid in fraud and abuse detection.
However, OIG concluded that before UPNs can be used by the Medicare program, there are
a number of impediments that must be overcome: a standard national data repository does
not currently exist; in those databases that do exist, there is insufficient detail for full
identification of product equivalencies; and UPNs are not assigned to all medical equipment
and supplies.  Further, some manufacturers have concerns about their responsibility to assign
these numbers, and HCFA currently lacks authority to appropriately control the system.
The OIG concluded that, in order for UPNs to be used by Medicare, it will be necessary to
address the impediments identified; methodically implement steps in utilizing UPNs and
conduct periodic assessment of their viability; involve all major players fully in the process;
and  provide  adequate  funding  for  planning  and  implementing  the  program.
(OEI-07-99-00230)
Fraud Involving Durable Medical Equipment Suppliers
The DME industry has consistently suffered from waves of fraudulent schemes in which
Federal  health  care  programs  are  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.  During this reporting period, OIG obtained settlements and convictions of
unscrupulous DME suppliers for a variety of schemes as demonstrated by the following
examples:
(cid:127) In Ohio, a DME company owner was sentenced for conspiracy to commit
mail  fraud  and  conspiracy  to  commit  money  laundering  to  70  months
imprisonment,  payment  of  $15.1  million  in  restitution  and  3  years
supervised  release.    The  owner  previously  pled  guilty  to  charges  of
41 defrauding Medicare through a multimillion dollar DME fraud scheme in
which he billed the program for urinary incontinence supplies not provided.
In actuality, he provided diapers, bed pads and other supplies not covered by
Medicare.    Additionally,  a  jury  convicted  the  DME  companys  former
vice-president of corporate affiliates, of conspiracy to commit mail fraud,
mail fraud and conspiracy to commit money laundering.  She participated in
this scheme to defraud Medicare by using improper billing codes for diapers
and skin care supplies, in order to receive reimbursement.  To hide the
scheme from Medicare, she altered certificates of medical necessity, billing
codes,  amounts  billed  and  numbers  indicating  the  amount  of  supplies
provided.
(cid:127) Two Illinois DME company owner/operators were sentenced for their roles
in a scheme to defraud Medicare.  The scheme, which mainly targeted
nursing homes, involved billing Medicare for reimbursable female urinary
collection  devices  when  they  actually  provided  beneficiaries  with
noncovered adult diapers.  One was sentenced to 40 months imprisonment,
3 years supervised release, payment of $4.9 million in restitution and an
$8,400 fine.  The other was sentenced to 22 months imprisonment, 3 years
supervised release, payment of $7.7 million in restitution and a $12,600
fine.    A  third  DME  company  owner  previously  agreed  to  pay  the
Government $188,897 and was sentenced for his part in the Medicare fraud
scheme.
(cid:127) As the result of a multidistrict health care investigation conducted jointly
with the FBI, a DME company owner was sentenced in Louisiana to 41
months  imprisonment  and  $7.5  million  in  restitution  for  conspiracy  in
connection  with  filing  false  Medicare  claims.    The  owner  defrauded
Medicare by submitting false claims for medically unnecessary urological
supplies and by falsely representing their point of sale.
(cid:127) A  Texas  dentist  was  sentenced  to  87  months  incarceration,  3  years
supervised release and ordered to pay $1.1 million in restitution and an
assessment of $3,650.  The dentist had been convicted of 73 counts of false
claims, mail fraud and money laundering.  In 1992 and 1993, he owned and
operated a DME company that billed Medicare $1,289 apiece for orthotic
body jackets when the product he actually supplied was a vinyl-covered,
wheelchair cushion manufactured in an automobile upholstery shop at a cost
of $45.
(cid:127) An Illinois man was sentenced for mail fraud to 18 months incarceration, 3
years probation, participation in a mental health treatment program upon his
42 release  from  prison  and  payment  of  $447,271  in  restitution.    The
investigation,  which focused  on both  the man  and his  DME  company,
revealed that he used improper billing codes to submit false claims to
Medicare.  The claims sought reimbursement for expensive, motorized,
power wheelchairs when he actually provided beneficiaries with either less
expensive, power operated scooters or no equipment at all.  From 1995
through  1998,  the  man  improperly  received  $447,271  in  Medicare
reimbursements through the DME fraud scheme.
(cid:127) A  California  man  was  sentenced  to  46  months  imprisonment,  3  years
supervised release and ordered to pay $107,973 in restitution and a $4,700
special assessment.  The sentence resulted from a criminal trial in which he
was convicted on 49 counts of wire fraud and 55 counts of false statements.
He and another individual were co-owners of two DME companies that
billed for medically unnecessary lymphedema pumps and for pumps never
delivered.  A citizen of another country, the other co-owner fled the country
following his indictment in 1997.  Recently arrested when attempting to
reenter  the  United  States,  he  faces  charges  of  conspiracy  and  false
statements contained in the indictment.  A sales representative also involved
in this scheme previously pled guilty and was sentenced for defrauding
Federal health care programs.
(cid:127) The owner of an oxygen testing business in Florida was sentenced for
conspiracy to defraud the Medicare program via mail fraud.  His sentence
included 10 months imprisonment, 3 years supervised release and payment
of $19,083 in restitution.  The owner illegally received cash payments in
return for falsified beneficiary blood oxygenation results.  He represents the
fourth and final individual to be sentenced for his part in this scheme.
Transportation Fraud
Common  Medicare  and  Medicaid  fraud  schemes  associated  with  transportation  and
ambulance  companies  involve  the  submission  of  claims  for  transporting  patients  to  a
hospital  when  the  patients  are  really  taken  to  other  facilities  for  which  claims  are
nonreimbursable.  Other schemes include billing singly for patients who were transported as
a  group  and  falsely  claiming  reimbursement  for  ambulatory  patients.    The  following
examples of cases involving transportation fraud were resolved during this reporting period:
(cid:127) Three related Chicago-area ambulance companies and their owners settled
allegations that they defrauded the Illinois Medicaid program by seeking
reimbursement for transportation that was not medically necessary and/or
not supported by required documentation.  The defendants will pay over
$350,000 under the terms of the settlement.  They will also forego any right
43 to  appeal  an additional  amount  in suspended or withheld  claims.  The
defendants  will  be  permanently  excluded  from  Federal  health  care
programs.  This case was part of a joint investigation by OIG, the FBI and
the Illinois Medicaid Program called  Operation Transport.
(cid:127) In another  Operation Transport case, the owner of a medical transportation
company was convicted in a jury trial for submitting claims to Medicare and
Medicaid for transportation that was not medically necessary, for fabricating
records and for services not rendered.  The owner was sentenced to 41
months imprisonment, 2 years of supervised release, and ordered to pay
over  $500,000  in  criminal  restitution.    She  also  consented  to  a  civil
judgment in excess of $1 million to resolve her liability under the False
Claims Act.  She will be excluded from Federal health care programs.
(cid:127) A California woman was sentenced for her role in the fraudulent Medicare
billing scheme of an ambulance company.  She was sentenced to 18 months
incarceration,  3  years  supervised  release  and  payment  of  $1,262  in
restitution.  In 1998, a Federal jury convicted the woman of three counts of
false claims.  Previously, the defendants mother was also sentenced based
on her conviction in the same 1998 trial.  The mother was sentenced to 1
year and 1 day in custody, 3 years supervised release and payment of $1,262
in restitution.  The women and the company submitted  Medicare claims for
medically unnecessary ambulance trips; the company transported virtually
all Medicare patients by ambulance, regardless of their medical condition.
Federal and State Partnership:  Joint Audits of Medicaid
One of  OIGs major  initiatives has been  to  work  more  closely  with  State  auditors in
reviewing the Medicaid program; the Partnership Plan was developed to foster these joint
review efforts and provide broader coverage of the Medicaid program.  The partnership
approach has been an overwhelming success in ensuring more effective use of scarce audit
resources by both the Federal and the State audit sectors.  To date, partnerships have been
developed in 23 States.  Extensive sharing of audit ideas, approaches and objectives has
taken  place  between  Federal  and  State  auditors.    Completed  reports  have  resulted  in
identifying potential program savings of $173.7 million, of which over $39 million in
Federal and State overpayments has been recovered.
A.  Kentucky
During this reporting period, a partnership report on Medicaid reimbursement for clinical
laboratory tests in Kentucky was issued.  The State auditors found that Kentucky did not
have adequate procedures or controls to ensure that such reimbursement did not exceed
amounts allowed by the Medicare program, as required by the State Medicaid manual.  As a
44 result, the auditors estimated that the State made potential overpayments of about $2.3
million ($1.6 million Federal share) to providers during CYs 1994, 1995 and 1996.
The State auditors recommended that the State review, add and improve the Medicaid
management information systems computer edit controls that identify improperly billed
laboratory tests; update the provider manuals and billing instructions to reflect Medicaid
bundling and duplicate payment requirements; recover the $2.3 million overpayments and
make adjustments for the Federal share of Medicaid funds.  The State generally agreed with
the recommendations.  (CIN:  A-04-98-01185)
B.  Florida
Along with the State Auditor General, OIG reviewed 2 statistical samples of 100 payments
each  from  CY 1996  to  determine  the appropriateness  of  State  Medicaid  payments for
services provided to dually eligible Medicare HMO beneficiaries.  The OIG found that
Medicare beneficiaries who were also eligible for Medicaid received medical services and
drugs that should have been covered by a Medicare HMO but were submitted to and paid for
by the State Medicaid fee-for-service program.  The erroneous payments occurred because
the State did not properly utilize Medicare coverage data to identify beneficiaries who were
enrolled in Medicare HMOs.
The OIG recommended that Florida recover $4.7 million ($2.6 million Federal share) in
unallowable payments from one HMO, and recover the specific overpayments identified and
review the balance of the sampling universe to identify the liability of each of the other 50
HMOs and recover additional overpayments; OIG estimates these overpayments to be $11.2
million ($6.2 million Federal share).  Further, OIG recommended that the State review HMO
data for prior and subsequent years  to determine if Medicare HMOs  had liability for
Medicaid payments.  The State generally agreed with OIGs findings and recommendations.
(CIN:  A-04-97-01168)  
Mandatory Managed Care:  Medicaid Mental Health Services
An OIG review looked at Medicaid mental health programs in seven States that were among
the first to convert from fee-for service to mandatory managed care.  Representatives of
those seven States reported that mandatory managed care allowed them to offer more
specialized and creative outpatient services.  State respondents also said that overall use of
mental health services increased.  However, the impact on beneficiaries was not quantified
due to lack of outcome measurement systems.  Other stakeholders expressed concern that
shorter lengths of  stay and increased readmission rates may indicate that persons with
serious mental illnesses are being released from inpatient care prematurely.
State respondents reported reduced costs.  However, OIG found that savings from managed
care operations were not always used to improve mental health services.  Access to care is
45 more limited for children than it is for adults, and responsibility for childrens mental health
care  is  fragmented  among  multiple  State  agencies.    However,  some  States  have  used
interagency agreements to improve coordination of care and access to services.  To improve
access, States eliminated copayments and encouraged liberal prior authorization policies. 
(OEI-04-97-00340; OEI-04-97-00344; OEI-04-97-00343)       
Medicaid Fraud
At present, 47 States and the District of Columbia have established Medicaid fraud control
units (MFCUs).  The MFCUs conduct investigations and prosecute providers charged with
defrauding the Medicaid program, or persons charged with patient abuse and neglect.  As
required by the Omnibus Budget Reconciliation Act of 1993, three States -- Nebraska, North
Dakota and Idaho -- have sought and received waivers from the requirement that all States
operate MFCUs.
During FY 2000, OIG is providing oversight and administering approximately $95.1 million
in funds granted by HCFA to the MFCUs to facilitate their mission.
Although most Medicaid fraud cases are investigated by the MFCUs, OIG works with the
units and/or other law enforcement agencies on such cases as well.  The following instances
of OIGs successful efforts in Medicaid fraud cases bear noting:
(cid:127) As the result of a joint investigation with the Maryland Medicaid Fraud
Control  Unit,  an  ambulance company  owner  was  sentenced to  5 years
incarceration and payment of $245,000 in restitution for Medicaid fraud.  In
addition, his ambulance company must pay $100,000 in restitution.  The
individual operated four ambulances and four wheelchair vans in Maryland.
During a 2-year period, he routinely provided wheelchair van services to
dialysis patients but billed Medicare and Medicaid for providing ambulance
services.  He also transported ambulatory and wheelchair bound patients to
noncovered, freestanding dialysis centers and billed as though the patients
were stretcher bound; transported multiple patients in a single ambulance
trip; and billed for ambulance transportation not provided.
(cid:127) A Missouri hospital and an entity supplying physicians and billing services
for those physicians services at the hospital, agreed to pay the Government
$330,000  to  settle  a  False  Claims  Act  lawsuit  against  them.    The
Government  alleged  that  the  defendants  improperly  billed  200  specific
Medicaid  claims  for  prenatal  and  newborn  delivery  services  by
misidentifying the provider of the service.  The Government also alleged
that unsupervised residents, interns and/or nurses actually provided these
services.    The  defendants  improperly  billed  these  services  under  the
individual provider number of an attending physician of the month, whether
46 or not he or she actually provided the service.  In addition to the total
settlement  amount,  OIG  also  imposed  comprehensive,  5-year  corporate
integrity agreements on both defendants.
(cid:127) A man with two prior felony convictions was sentenced for Medicaid fraud
to 1 year and 7 days incarceration (with the year suspended) and 1 year
probation.  He and another individual, sentenced earlier for Medicaid fraud,
were  indicted  for  conspiracy  and  theft  from  the  Medicaid  program.
Following  their  indictment,  the  men  attempted  to  avoid  arrest  and
prosecution by frequently moving.  In August 1999, at the request of the
Washington State MFCU, law enforcement agents with OIG, the FBI and
the  county  sheriffs  department  located  and  apprehended  them.    Their
arrests  occurred  in  conjunction  with  an  ongoing,  multiagency  effort,
including both the Washington and Oregon State MFCUs, to apprehend
Medicaid fraud subjects once indicted.
47 Public Health Service
Operating Divisions Chapter II
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 (OPDIVs) 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
independent OPDIVs 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 food, 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, and 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 Healthcare Research and Quality
(AHRQ), 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.
The Office of Inspector General (OIG) has concentrated on a variety of public health
programs and issues such as biomedical research funding, substance abuse, health services
to Indians, drug approval processes and community health center programs.  The OIG has
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, as
well as audits of the financial statements and operations of the PHS OPDIVs.  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
49 recommendations to program managers for strengthening the integrity of agency policies
and procedures.
Food and Drug Administrations Handling 
of Adverse Drug Reaction Reports
A critical part of FDAs mission is to monitor the safety of drugs that have been approved for
marketing.  This effort involves evaluating reports of adverse drug reactions (ADRs) and
then taking appropriate regulatory action.  By congressional request, OIG reviewed FDAs
management of reported ADRs, and identified a number of procedural deficiencies in the
current process and recommended ways to make the postmarketing efforts at FDA more
effective.
To ensure that prompt and appropriate regulatory action is taken by  FDA in response to
reported  ADRs,  OIG  recommended  that  the  agency  more  effectively  coordinate  its
post-market drug risk assessors and review divisions through the development of new
policies and procedures.  The OIG further recommended that FDA develop and implement a
quality control system to ensure that signals of serious, yet unrecognized drug-associated
adverse reactions that might indicate a public health problem are not overlooked; develop
and apply methodologies to quantify the extent and scope of the ADR problem with the goal
of reducing the occurrences of serious, preventable ADRs; encourage greater interactive
reporting of serious ADRs and product problems by health professionals directly to FDA by
telephone or Internet to ensure accuracy and timeliness; coordinate with the Health Care
Financing  Administration  to  require  hospitals  to  report  all  serious,  unexpected  ADRs
directly to FDA as a condition for participation in Medicare and Medicaid; and ensure that
FDA has sufficient resources to effectively monitor the safety of the increasing number of
marketed drugs.  The FDA agreed with OIGs recommendations and stated that it was taking
or planning to take actions to strengthen the ADR reporting and handling process.  (CIN:
A-15-98-50001)
Impact of State Childrens Health Insurance Program on
Changing Service Delivery of Federal Health Centers:  Six Case
Studies
Enacted as part of the BBA of 1997, SCHIP was a response to increasing numbers of
children lacking health coverage.  The legislation gives States flexibility to institute a
separate  health  insurance  program,  expand  Medicaid  eligibility  or  combine  these
approaches.  Federally funded health centers have been major safety-net providers for low
income children since the 1960s.  Such centers were often the primary health care source for
growing numbers of children without health insurance when SCHIP was passed.  The HRSA
and the Assistant Secretary for Planning and Evaluation expressed interest in looking at the
involvement of these centers in the early implementation of SCHIP.
50 In this study, OIG examined the experience of six federally funded health centers during
their States early implementation of SCHIP and/or concurrent Medicaid expansions.  With
their  tradition  of  serving  low  income  children,  OIG  found  that  these  centers  have
considerable potential for supporting the goals of SCHIP.  They possess great aptitude for
outreach and enrollment due to the level of trust and service they have established in their
communities.  Recognizing the need to adapt to managed care environments, most centers
have assertively joined MCOs or undertaken special developmental efforts, ranging from
infrastructure enhancements to creation of entire MCOs.  Not surprisingly, transition from
cost-based reimbursement continues to be a challenge for centers as they seek to better
manage  costs and devise appropriate  reimbursement formulae within their health plan
contracting.   (OEI-06-98-00320)
Comprehensive Hemophilia Treatment Centers 
Utilization of Public Health Service 340B 
Drug Pricing Program
The  OIG  determined that improvements  are needed to ensure  that  all  State Medicaid
agencies benefit from the price advantages available to Public Health Service grantees under
the PHS 340B drug pricing program.  Of the 23 participating hemophilia treatment centers
(HTCs) contacted, officials from 6 stated that their entities purchase outpatient drugs at the
340B discount price, but not for their Medicaid beneficiaries.  For one selected center, OIG
found that the State could achieve annual savings ranging from $18,395 to $27,170 per
person if it reimbursed the HTC at the 340B discount prices instead of the Medicaid rate.
The OIG recommended that HRSA and the Health Care Financing Administration (HCFA)
work  together  to  achieve  a  fair  and  equitable  resolution  of  the  issues  involving  the
economical  purchasing,  and subsequent  Medicaid billing, of covered drugs by  entities
participating in the 340B program.  Officials in HRSA and HCFA concurred with the
recommendation.  (CIN:  A-01-98-01505)
Exclusions for Health Education Assistance Loan Defaults
Through  the  Health  Education  Assistance  Loan  (HEAL)  program,  HRSA  guarantees
commercial loans to students seeking an education in a health-related field of study.  The
students are allowed to defer repayment of these loans until after they have graduated and
begun to earn an income.  Although the Departments Program Support Center (PSC) takes
all steps that it can to ensure repayment, some loan recipients ignore their indebtedness.
After PSC has exhausted all efforts to secure repayment of these debts, it declares the
individual in default.  Once the individual has been declared in default, the Social Security
Act permits, and in some instances mandates, exclusion from Medicare, Medicaid and all
Federal health care programs for nonpayment of these loans.  During this 6-month period,
154 individuals were excluded as a result of PSC referral of their cases to OIG.
51 Individuals who have been excluded as a result of their 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 can then be excluded
until their entire debt is repaid, and they cannot appeal these exclusions.  Some health
professionals, upon being notified of their exclusion, immediately repay their HEAL debt.
After being excluded for nonpayment of their HEAL debts, a total of 1,391 individuals have
taken advantage of the opportunity to enter into settlement agreements or completely repay
their debt.  This figure includes the 83 individuals who have entered into such a settlement
agreement or completely repaid their debt during this reporting period.  The amount of
money being repaid through settlement agreements or through complete repayment totals
over $82 million.  Of that amount, $2.8 million is attributable to this reporting period.  The
following are examples of some of these settlements:
(cid:127) A podiatrist in New York entered into a settlement agreement to repay his
$145,000 HEAL debt.
(cid:127) After being notified that she was excluded as a result of her failure to repay
her HEAL debt, a Washington dentist entered into a settlement agreement to
repay over $90,000 in student loans.
(cid:127) A physician in Idaho entered into an agreement to repay her HEAL debt of
over $156,000.
(cid:127) A settlement agreement was signed by a Connecticut dentist to repay his
HEAL debt of $137,000.
(cid:127) In Kansas, a chiropractor entered into a settlement agreement to repay his
HEAL debt of over $123,000.
National Institutes of Health Small Business 
Innovation Research Program
The Small Business Innovation Research Program, coordinated and administered by the
Small Business Administration, was established to stimulate technological innovation, meet
Federal research and development needs, and increase private sector commercialization of
innovations derived from Federal research and development.  Since the programs inception
in 1983, NIH has awarded $1.7 billion in research grants to small businesses.
The OIG found that NIH did not ensure that grantees comply with the requirements to
disclose their inventions and patents.  As a result, the Government may not be able to claim
its rights to inventions and patents developed with NIH funds, or promote the development
52 and availability of the inventions to the public.  In addition, NIH did not have a system in
place to track the success of the Small Business Innovation Research Program in meeting a
significant objective, the commercialization of research.  In response to the draft report, NIH
generally agreed with OIGs recommendations and has taken several steps to address these
shortcomings.  (CIN:  A-15-98-00031) 
53 Administration 
for Children
and Families,
and Administration 
on Aging Chapter III
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 include: Temporary Assistance for Needy
Families (TANF), Child Support Enforcement (CSE), Foster Care, Family Preservation and
Support, Head Start, and the Child Care and Development Block Grant program.  
With respect to TANF, 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 a
number of 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 among the Federal, State and local governments.  
In 1993, the Congress passed the Government Performance and Results Act mandating
Federal agencies to establish strategic planning and to prepare annual performance plans,
beginning with a plan for FY 1999.  The annual performance plan sets out measurable goals
that define what will be accomplished during a fiscal year.  The OIG has initiated a review
of  selected  data  sources  and  information  collection  systems  supporting  ACFs  1999
performance plan.
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.  Socially and economically disadvantaged elderly and low-income minority elderly
are targeted for assistance, including supportive services, nutrition services, education and
training, low-cost transportation and health promotion.  The OIG has reported opportunities
55 for program improvements to target the neediest for services; expand available financial
resources; upgrade data collection and reporting; and enhance program oversight.
Paternity Establishment:  State Use of Genetic Testing
Widespread use of genetic testing has contributed to increases in the number of paternities
established in recent years.  To obtain information on how States use genetic testing, barriers
to its use and strategies to surmount those barriers, OIG surveyed child support agency
directors in all States.  In addition, in six focus States, OIG surveyed local child support
office managers and interviewed local managers and staff during site visits to 24 offices.
The  OIG  found  that  States  use  genetic  testing  in  a  large  number  of  paternity  cases.
However, many mothers and putative fathers have incentives not to test.  Other barriers,
such as inconvenient testing locations, client fear of needles, and lack of transportation may
inhibit the use of genetic testing.  The OIG identified some promising strategies to surmount
those barriers, but found that they are used only in limited areas of the country.
The OIG recommended that ACF encourage States to give agencies administrative authority
to order genetic testing; to use innovative strategies, such as buccal swab (cheek cell)
sampling, at local child support offices; and to exercise care in allowing genetic testing in
cases in which paternity has already been legally established.   The ACF generally agreed
with OIGs recommendations.  (OEI-06-98-00054)
Paternity Establishment: Role of Vital Records Agencies
In this inspection, OIG found that an overwhelming majority of State vital records agencies
believe that paternity establishment has public health benefits and report that they accept,
process and record paternity information.  Thirty-five States maintain a Statewide database.
Local vital records offices in 42 States offer acknowledgment services to parents, but
implementation is often not Statewide and the level of service varies considerably.  Vital
records agencies were concerned that they might not receive paternity information from
courts and child support offices, so that birth records within the vital records agencies might
be inaccurate and create long-term problems for parents and children.  While child support
agencies in 34 States rated vital records agencies favorably in the transfer of information,
local child support offices in the focus States reported difficulty in retrieving information.
The OIG concluded that many State child support and vital records agencies have still not
made broad efforts to collaborate, or have abandoned initial efforts.
The OIG recommended that the Office of Child Support Enforcement (OCSE) promote
notification of vital records agencies when paternities are established or rescinded, and
encourage automatic amendment of the birth record; promote State training of local child
support staff on methods of retrieving data from vital records agencies and use of vital
records  agency  information;  and  encourage  States  to  make  training  and  materials  on
56 acknowledgment procedures created for hospital staff widely available to local vital records
agency staff.  The ACF concurred with OIGs recommendations.  (OEI-06-98-00055)
Child Support Enforcement: Investigations
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 a felony violation.  A recent amendment to this Act has created two
other felony provisions for the most egregious first time violations.
The OIG has also made the investigation of these matters a high priority.  The OIG and
OCSE are the sponsors of Project Save Our Children:  five multiagency, multijurisdictional
investigative task forces whose missions are to identify, investigate and prosecute the most
egregious violators of the Federal and State child support laws in the regions covered by the
task  forces.    The  task  forces  are  comprised  of  personnel  from  the  OIG  Office  of
Investigations, U.S.  Marshals Service, U.S. Attorneys Offices, DOJ, State and local child
support offices, State and local law enforcement, State and local prosecutors, representatives
from the judiciary (both State and Federal), and representatives from the corrections and
probation offices at both the Federal and State levels.
The task forces are structured to identify, investigate and prosecute criminal nonsupport
cases both on the Federal and State levels through the coordination of law enforcement,
criminal justice and child support office resources.  There are investigative units in each of
the States which conduct the actual investigations.  The units work with the State child
support offices to identify the cases that the States then refer to the task force.  The units also
work with prosecutors at State and Federal levels to ensure that the cases worked are those
that will be prosecuted in a volume consistent with the resources of those offices.
Central to the task forces are the screening units located in each task force region which are
staffed by analysts and auditors from both OIG and OCSE.  These units receive the child
support cases from the States, conduct preinvestigative analyses of these cases through the
use of information databases and then forward the cases to the investigative task force units
where they are assigned and investigated.  This streamlines the process by which the cases
best suited for criminal prosecution are identified, investigated and brought to fruition.  As
the task forces bring in more law enforcement partners on the State level, the number of
cases adjudicated will rise dramatically.  At this point, the task force units have received
over 1,800 cases from the States.  As a result of the work of the task forces, 62 Federal
arrests have been executed and 46 individuals already sentenced.  The total recovered
amount related to Federal investigations is $1.7 million.  There have been 201 arrests on the
State level and 194 convictions or civil adjudications to date, resulting in $7.8 million in
restitution.
57 Two of the five task forces were initiated in 1998 and are headquartered in Columbus, Ohio
and Baltimore, Maryland.  These task forces cover the Midwest and Mid-Atlantic regions --
with special emphasis on the States of Illinois, Michigan, Ohio, Indiana, Maryland, Virginia,
Pennsylvania, Delaware, the District of Columbia and West Virginia.  Based on the success
of these two initial task forces, three more have become operational in other areas of the
country, including the Northeast, Southwest and the West Coast.  In the Northeastern task
force area, investigative efforts are headquartered in New York City, with special emphasis
on the States of New York and New Jersey.  For the Southwestern area, headquartered in
Dallas, Texas, efforts focus especially on the States of Texas, Louisiana and Oklahoma.
Efforts of the West Coast task force area are directed at the States of California, Oregon,
Washington and Arizona, with headquarters located in Sacramento, California.
Examples  of  the  Federal  arrests,  convictions  and  sentencings  resulting  from  OIGs
enforcement work both inside and outside the task force areas during this reporting period
include the following: 
(cid:127) In Virginia, a man was sentenced for willful failure to pay a past due child
support obligation to the maximum penalty allowable under the statute.  The
magistrate judge ordered the defendant to pay $140,405 in restitution, the
amount owed in past due support, and to serve 5 years probation.  As part of
probation, the judge also ordered him to serve 6 months in jail.
(cid:127) In  Texas,  a  man  was  sentenced  to  5  years  probation  and  payment  of
$129,737 in restitution for failure to pay child support.  He was also ordered
to participate in a drug and alcohol abuse treatment program and a family
violence program.  The sentence is to commence upon his release from a
California  prison  where  he  is  currently  incarcerated  for  a  felony  drug
conviction.
(cid:127) Based on an arrest warrant from Arizona, a man entered a guilty plea for
failure to pay child support in New Mexico.  The court accepted his plea
and  sentenced  him  to  5  years  probation  and  payment  of  $98,161  in
restitution.  A successful realtor, the man must pay at least 22 percent of
every real estate commission he earns as stipulated by the plea agreement.
It is expected that he should be able to pay his past due obligations within
the next 5 years.
(cid:127) Following his convictions on both the Federal and State levels, a prominent
New Hampshire physician was ordered to serve 16 months in prison and 3
years probation.  He was also ordered to pay $66,132 in restitution to the
Internal Revenue Service and $5,210 in fines and special assessments.  The
sentences were based on earlier guilty pleas to failure to pay child support
58 and Federal tax fraud.  As a result of OIGs investigation, he also paid the
State $49,615 toward his child support arrearage in July 1999.  In order to
avoid his child support obligation, the physician previously fled the State
and moved to Belize.  Through a joint effort of Federal, State, local and
foreign law enforcement authorities, he was located abroad, arrested and
transported back to New Hampshire.
(cid:127) A Colorado missionary pled guilty and was sentenced for failure to pay
child support in two separate cases in Virginia.  In the first case, the man
was sentenced to pay his arrearage of $44,794 in restitution; he failed to pay
any support for two of his children who reside in Virginia since June 1994.
In the second case, he was sentenced to pay his arrearage of $33,715 in
restitution for failing to pay any support for his daughter in Virginia over the
past 5 years.  In accordance with his plea agreements in these cases, he will
also serve a probation period of 5 years.
(cid:127) A chief of police in Wyoming was sentenced to 5 years supervised probation
and payment of $48,934 in restitution for failure to pay child support.  As
part of a 1987 divorce decree, a Colorado district court ordered him to pay
$900, and later $1,000, a month in support of his four children.  In 1992, he
moved from Colorado to Florida to avoid paying his obligation and found
employment as a deputy sheriff.  In 1993, the State of Florida began child
support enforcement proceedings against him, and when the court ordered
his wages garnished in 1995, he quit his job and moved to Utah.  He
frequently moved among several States including Colorado, Tennessee and
Wyoming.
(cid:127) A man pled nolo contendere to failure to pay child support for his children
in Louisiana.  At the time of his arrest, he owed $48,900 in support.  Since
then, he has paid $20,000 toward his arrearage.  Additionally, the judge
ordered him to pay $239 per month to be applied against the remaining
child support balance and to make his current child support payments of
$1,600 per month.  He was also placed on 5 years supervised probation.  In
response, he created a web page describing the negative impact of the
Governments child support enforcement efforts on his family.
(cid:127) Following her trial, a magistrate judge found an Ohio woman guilty of
failing to pay $26,231 in child support for her two daughters.  She was
subsequently placed on 5 years probation and ordered to pay her arrearage
in  restitution.    The  court  also  ordered  that  she  gain  and  maintain
employment and that she attend mental health counseling.  In addition, the
monies owed in child support will be deducted from her earnings according
59 to State of Ohio withholding calculations.  While working at a university in
Mississippi from July 1997 to August 1998, the woman paid no child
support.  During this period, she resided with her daughter from a previous
marriage and paid no rent.  Despite her extensive employment history as a
paralegal, she has  a history of quitting gainful employment after wage
withholdings are issued.
During this period, OIG investigations of child support cases nationwide resulted in 72
convictions and court-ordered restitution of over $3.7 million.  Prosecutions in this area are
unique in that sentences ordered by a judge take into account the need for the defendant to
continue to be able to pay.  Therefore, alternative sentencing options -- such as work release,
home detention and probation where nonpayment is a violation -- are often ordered.
Emergency Assistance Program:  New York Family Assistance
Program
New  York  retroactively  claimed  $13.2  million  ($6.6  million  Federal  share)  in  Federal
nonparticipating  foster  care  costs  for  reimbursement  under  the  title  IV-A  Emergency
Assistance (EA) program.  The OIGs statistical sample of 100 such claims disclosed that 74
were  not  allowable  for  EA  reimbursement.    Specifically,  72  claims  were  unallowable
because  they  included  services  provided  outside  the  12-month  statutory  limit  for
reimbursement, one claim was missing authorization and one claim was for services which
were provided after the emergency had ended.
Based on its sample, OIG estimated that at least $3.6 million (Federal share) of New Yorks
retroactive claim is unallowable.  The OIG is recommending a financial adjustment for the
$3.6 million.  (CIN:  A-02-98-02002)
New York State Foster Care Claims for New York City
This  final  report  estimated,  based  on  a  statistical  sample,  that  New  York  claimed
approximately  $40.7  million  (Federal  share)  for  foster  care  claims  that  did  not  meet
requirements for Federal financial participation.  In 9 cases, the claims did not meet physical
removal requirements (that the child be physically removed from his prior home within 6
months of court proceedings), and in 108 cases, the State was unable to establish that the
children were living in approved, licensed foster care homes.
The OIG referred its projected overpayments to ACF for its review and determination of an
appropriate resolution.  The OIG also recommended that the State and City develop and
implement a comprehensive corrective action plan which ensures compliance with the
physical removal eligibility requirement, and more important, takes immediate and effective
corrective action to ensure that foster care children are only placed in approved homes.
(CIN:  A-02-97-02002)
60 Foster Care Maintenance Payments to For-Profit Child Care
Providers in Illinois
The OIG found that the Illinois claims processing system was not effective in excluding
payments to for-profit child care providers ineligible for Federal financial participation
(FFP).  Section 472 of the Social Security Act requires that foster care payments be made on
behalf of eligible children to nonprofit child placement agencies and child care institutions.
During the period July 1992 through March 1999, the State improperly claimed nearly $11.3
million (Federal share) for child care payments to for-profit child placement agencies and
institutions.
The OIG recommended that ACF work with the State to resolve these improperly claimed
payments and that the State implement controls to preclude the claiming of FFP for foster
care payments made to for-profit child care providers.  (CIN:  A-05-99-00004).
Retroactive Adjustments Filed Under the Title IV-E Foster Care
Program:  Massachusetts  
The objective of this review was to determine whether retroactive adjustments to foster care
maintenance  claims  were  adequately  supported  and  complied  with  Federal  eligibility
requirements.  Based on a statistical sample, OIG estimated that documentation in the case
files for 17,229 retroactive adjustments for FYs 1994 to 1997 did not support all Federal
reimbursement requirements.  Massachusetts did not have adequate controls in place to
ensure that procedures were followed in obtaining judicial determinations that remaining at
home was not in the childs best interest and  reasonable efforts had been made to prevent
the childs placement with the State.  Controls over maintaining and locating case files and
pertinent court documents were also insufficient.  As a result of these problems, OIG
projected overpayments of nearly $21.8 million ($10.9 million Federal share).  The OIG
referred  the  projected  overpayments  to  ACF  for  its  review  and  determination  of  an
appropriate resolution.  
In addition, the OIGs reconciliation of supporting documents to quarterly expenditure
reports identified $3.7 million ($1.85 million Federal share) in overpayments.  As OIG
recommended, the State refunded the $1.85 million.  (CIN:  A-01-98-02505)
Adoption and Foster Care Analysis and Reporting System
The Government Performance and Results Act of 1993 mandated that Federal agencies
prepare performance plans, including measures used to assess performance.  The ACF
performance measures pertaining to children in foster care and children adopted under the
auspices of a State welfare agency are based on data from the Adoption and Foster Care
Analysis and Reporting System (AFCARS).  States collect and transmit case management
information to ACF through this system.
61 The OIG assessed the reliability of the AFCARS data submitted by Missouri and Texas for
the first half of FY 1999.  While OIG found some errors in the information from both States,
these errors did not affect the data used to develop ACFs performance measures or were not
pervasive enough to affect reported measures.  However, as a result of a problem in the data
transfer  process  in  Missouri,  ACF  received  incorrect  information  on  children  with
disabilities -- information that ACF uses for other program management purposes.  Both
Missouri and Texas concurred with OIGs findings and recommendations, and are making
system adjustments to prevent future errors.  (CIN:  A-07-99-01040; CIN:  A-06-99-00053)
Head Start, Temporary Assistance to Needy 
Families and Child Care Needs Assessments
Federal legislation requires that both TANF and Head Start agencies assess participants
needs to help them address barriers to employment and self-sufficiency.  There is no formal
requirement that Child Care and Development Fund (CCDF) child care programs or Child
Care Resource and Referral (CCRR) agencies who administer subsidies assess family needs
or offer support services.
In an inspection conducted in six communities,  OIG found that all Head Start grantees used
needs assessment to help low-income facilities move toward self-sufficiency.  The TANF
offices  visited  focused  almost  exclusively  on  vocational  needs.    Individual  child  care
programs did not assess family needs, though some may have made informal assessments
and referred families to needed services.  The OIG found a lack of coordination among the
Head Start grantees, TANF agencies, CCRR agencies and child care providers visited.
In order to maximize efforts to help families reach and maintain self-sufficiency, OIG
recommended  that  ACF  explore  strategies  that  encourage  and  facilitate  coordination
between  agencies  around  needs,  referral  and  provision  of  services  for  families;  and
encourage Head Start grantees, TANF offices and child care programs to increase parent
awareness  about  the  resources  they  and  other  community  agencies  provide.
(OEI-05-98-00540)
Technical Assistance for Quality Child Care:  Regional Office
Perspectives
The Personal Responsibility and Work Opportunity Act of 1996 repealed a number of child
care programs and created a single, integrated Child Care and Development Block Grant for
low-income  families.    The  ACF  contracts  with  outside  entities  to  provide  technical
assistance funded through this grant.  This includes the coordination and support of regional
and national conferences, national workgroups, leadership forums, activities to improve
health and safety, audio conference calls and creation of the National Child Care Information
Center.  In 1997, ACF augmented its technical assistance capabilities by creating the Child
Care Technical Assistance Network.  The ACF Child Care Bureau and regional offices play
62 important  roles  in  the  provision  of  technical  assistance  to  State,  Territory  and  Tribal
grantees.  The regional offices are in a pivotal position to observe technical assistance and
have knowledge of regional needs which serve as a bridge between national and local policy.
The OIG found that regional office staff value the resources available through the Child
Care Technical Assistance Network.  However, based on their responses, OIG recommended
that ACF enhance their program by:  providing regional offices with additional information
about technical assistance involving network project expectations, contractor responsibilities
and ongoing work; maintaining and improving effective technical assistance formats; and
focusing technical assistance on issues suggested by regional office staff as critical.  The
ACF agreed with OIGs recommendations and described various improvements in their
technical assistance initiatives.  (OEI-07-97-00422)
24-Month Performance Data for Administration 
on Agings Health Care Fraud Control Grants
The OIG has developed performance measures for, and continues to monitor, AoAs two
health care fraud control grants.  For the 12 senior Medicare patrol projects, OIG noted a
number of substantial increases in the performance data since the last 6-month reporting
period.  The total number of trainers almost doubled, from 3,700 to 6,300, due primarily to
efforts  in  Minnesota  and  New  York.    Further,  OIG  noted  that  the  total  number  of
beneficiaries educated  almost doubled, from 61,000 to 116,000, due to increases in virtually
all States.  Also, while the total of funds recouped  remained relatively constant, the number
of complaints referred for follow-up and resulting in action both increased 50 percent to 601
and 138, respectively. 
Regarding the 18 projects funded by the Health Insurance Portability and Accountability Act
of 1996, a comparison to data collected from the previous reporting period revealed the
following:    trainers  increased,  from  8,511  to  9,781;  beneficiaries  educated  more  than
doubled, from 10,727 to 25,556; complaints received increased by half, from 6,318 to 9,852;
and  Medicare  funds  identified  for  recoupment  were  $1,400.    (OEI-02-97-00523;
OEI-02-97-00524)
63 General Oversight Chapter IV
GENERAL OVERSIGHT
Introduction
This chapter addresses the Office of Inspector Generals (OIGs) departmental management
and Governmentwide oversight responsibilities.
The Program Support Center (PSC), a separate operating division (OPDIV) 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  (ASMB)  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 activities at the departmental level.  A related
major responsibility flows from Office of Management and Budget (OMB) Circular A-133,
under which HHS is cognizant agency to audit the majority of the Federal funds awarded to
major research schools, State and local government cost allocation plans, and separate
indirect cost plans of State agencies and local governments.  Also, 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.  In addition, OIG became responsible for
auditing the Departments financial statements beginning with the FY 1996 statements.
The OIGs 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.
65 Financial Statement Audit of the Department 
for Fiscal Year 1999 
As  required  by  the  Government  Management  Reform  Act  of  1994,  OIG  audited  the
departmentwide consolidated and combined financial statements for FY 1999, which include
the consolidated balance sheet of the Department, the related statements of net cost and
changes in net position, and the combined statements of budgetary resource and financing.
This audit encompassed individual audits of nine OPDIVs financial statements.
The audit report, which appears in the Departments Accountability Report for FY 1999,
gives an unqualified opinion on the FY 1999 statements.  This means that the Department
successfully resolved previously reported opinion issues and that the FY 1999 statements
reliably  presented  departmental  financial  information.    The  Department  has  worked
diligently to achieve this important milestone.  
While a clean audit opinion assures financial statement users that the information is reliable
and fairly presented, it does not provide an assurance on the effectiveness and efficiency of
the financial systems used to prepare the statements.  The OIG continues to cite as a material
internal  control  weakness  the  deficiencies  in  the  Departments  financial  systems  and
reporting.  The lack of a unified, integrated financial management system and the OPDIVs
failure  to  routinely  reconcile  and  analyze  accounts  throughout  the  year  led  to  major
adjustments to OPDIV financial statements as late as February 2000, nearly 5 months after
the close of the fiscal year.  Continuing problems in controls over Medicare accounts
receivable  and  Medicare  electronic  data  processing  were  also  reported  as  material
weaknesses.  
The Department generally agreed with OIGs recommendations for improvements.  (CIN:
A-17-99-00002)
Nonfederal Audits
The  OMB  Circular  A-133  establishes  the  audit  requirements  for  State  and  local
governments,  colleges  and  universities,  and  nonprofit  organizations  receiving  Federal
awards.    Under  this  circular,  covered  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 the first half of FY
2000, OIGs National External Audit Review Center (located in Kansas City) reviewed
about 1,900 reports that covered over $800.2 billion in audited costs.  Federal dollars
covered by these audits totaled $229.1 billion, about $103.7 billion of which was HHS
money.
66 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.
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 obtained: 
(cid:127) 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 who can
take steps 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.
(cid:127) 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 audit organizations.
(cid:127) 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).  In addition, OIG offers various training; for example,
formal training was provided to certified public accountant societies and
State auditor staffs on issues related to Circular A-133.
(cid:127) The OIG is also very much involved with OMB and the American Institute
of Certified Public Accountants in developing authoritative guidance for
nonfederal auditors.
(cid:127) The OIG led the revision of the Initial Review Guide and Quality Control
Review Guide issued by the Presidents Council on Integrity and Efficiency
and used for quality assurance.
B.  Quality Control
To rely on the work of 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
67 determine compliance with Federal audit requirements and Government auditing standards.
During this reporting period, OIG reviewed and issued 1,948 nonfederal audit reports.  The
following table summarizes those results:
Reports issued without changes or with minor changes 1,860
Reports issued with major changes 31
Reports with significant inadequacies   57 
Total audit reports processed 1,948
The  1,948  audit  reports  discussed  above included  recommendations  for  HHS program
officials  to  take  action  on  cost  recoveries  totaling  $9  million  as  well  as  5,234
recommendations for improving management operations.  In addition, these audit reports
provided information for 87 special memoranda which identified concerns for increased
monitoring by departmental management.
68 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 violation of law, regulation, grant conditions, 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 section 5 of the
Inspector General Act.  These costs are separate from the amount ordered or returned as a
result of OIG investigations (see page 73).
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 411 $292,274,000 $22,039,000
B.Which were issued during
the reporting period 165 $150,424,000 $73,796,000
Subtotals (A + B) 576 $442,698,000 $95,835,000
Less:
C.For which a management
decision was made during 
the reporting period2: 130 $46,086,000 $823,000
(i) dollar value of
disallowed costs3,4 $40,471,000 $246,000
(ii)dollar value of
costs not disallowed $5,615,000 $577,000
D.For which no management 
decision had been made by the 
end of the reporting period 446 $396,612,000 $95,012,000
E. For which no
management decision was
made within 6 months
of issuance5 284 $238,795,000 $21,268,000
See Appendix D for footnotes.
69 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 29 $1,466,248,000
B.Which were issued during
the reporting period 10 $3,192,711,000
Subtotals (A + B) 39 $4,658,959,000
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 action2 7 $937,462,000
(b) based on proposed
    legislative action  0                     0 
 Subtotals (a+b) 7 $937,462,000
  (ii)dollar value of
recommendations that
were not agreed to
by management  2 $3,186,540,000
Subtotals (i + ii) 9 $4,124,002,000
D.For which no management 
decision had been made by
the end of the reporting 
period3 30 $534,957,000
See Appendix D for footnotes.
70 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.  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.  Regulatory Development Functions
The OIG is responsible for the development and promulgation of a variety of sanction
regulations  addressing  civil  money  penalty  (CMP)  and  program  exclusion  authorities
administered by the Inspector General, as well as safe harbor regulations related to the
anti-kickback statute.  Among the regulatory initiatives promulgated during this reporting
period were:  
Final regulations establishing the new Healthcare Integrity and Protection Data Bank
(HIPDB)(64 FR 57740; October 26, 1999). 
Final regulations that clarified the initial OIG safe harbor provisions and established
additional  safe  harbor  provisions  under  the  anti-kickback  statute  (64  FR  63518;
November 19, 1999).
Interim final regulations that set forth a statutory exception to the anti-kickback statute
for shared risk arrangements (64 FR 63504; November 19, 1999).
Proposed regulations designed to exempt the new HIPDB system of records from certain
provisions of the Privacy Act (64 FR 57619; October 26, 1999).
In addition, during this period, the Inspector General signed and the Secretary approved the
following rules that are awaiting final clearance by the Office of Management and Budget:
Final regulations addressing revised OIG CMP authorities resulting from Public Law
104-191, the Health Insurance Portability and Accountability Act.
Proposed regulations that would set forth a new safe harbor to protect arrangements
involving  hospitals  that  replenish  drugs  and  medical  supplies  used  by  ambulance
providers when transporting emergency patients to hospitals.
71 Proposed regulations that would establish a CMP safe harbor to protect payment of
Medicare supplemental insurance and Medigap premiums for end-stage renal disease
dialysis patients.
Also, during this period, OIG prepared and published a variety of Federal Register notices
that addressed the ongoing development of compliance program guidances, special advisory
bulletins and other related OIG initiatives.  These included:
An OIG special advisory bulletin on the effect of exclusion from participation in Federal
health care programs (64 FR 52791; October 7, 1999).
An OIG special advisory bulletin addressing requirements of the patient anti-dumping
statute (64 FR 61353; November 10, 1999).
Publication of final OIG compliance program guidance for hospices (64 FR 54031;
October 5, 1999) and for Medicare+Choice organizations offering coordinated care plans
(64 FR 61893; November 15, 1999).
Publication of final OIG compliance program guidance for nursing facilities (65 FR
14289; March 16, 2000).
A solicitation notice for developing new, and modifying existing, safe harbors under the
anti-kickback statute, and for developing new OIG special fraud alerts (64 FR 69217;
December 10, 1999).
C.  Congressional Testimony and Hearings
The OIG also maintains an active involvement in the congressional hearing process.  For
example, OIG testified at seven 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 significant 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
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.
Employee Fraud and Misconduct
The OIG has oversight responsibility for the investigation of allegations of wrongdoing by
Department employees when it affects internal programs.  Most of the persons employed full
time by HHS are dedicated, honest civil servants.  Occasionally, however, individuals
violate their fiduciary responsibilities, as illustrated by the following example:
72 (cid:127) In the District of Columbia, a former National Institutes of Health (NIH)
employee was sentenced to 6 months home detention, 5 years supervised
probation, mandatory participation in a drug aftercare program and payment
of  $40,000  in  restitution  for  making  false  statements  to  obtain
compensation.    In  October  1995,  the  employee  allegedly  suffered  a
job-related injury after which he filed multiple claims with the Department
of Labor, Office of Workers Compensation, stating that he was unable to
perform his duties as an NIH technician.  Investigation revealed, however,
that he worked for at least three different employers while claiming benefits
under the Federal Employees Compensation Act.
Investigative Prosecutions and Receivables
During this semiannual reporting period, OIG investigations resulted in 205 successful
criminal actions.  Also during this period, 575 cases were presented for criminal prosecution
to DOJ and, in some instances, to State and local prosecutors.  Criminal charges were
brought by prosecutors against 241 individuals and entities.
In addition to terms of imprisonment and probation imposed in the judicial processes, over
$968  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.
73 Appendices APPENDIX A
Savings Achieved through Policy and Procedural Changes Resulting from
Office of Inspector General
Audits, Investigations and Inspections
October 1999 through March 2000
The following schedule highlights savings resulting from Office of Inspector General (OIG) efforts to prevent unnecessary
obligations for expenditures of agency funds or to improve agency systems and operations.  These achievements depend
greatly on the contributions of others, such as OIGs partners within the Department and elsewhere.  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 in response to OIG audits, investigations and inspections, 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 (CBO) estimates for a 5-year budget
cycle.  Consistent with OIG policy, savings from the Medicare provisions of the Balanced Budget Act (BBA) of 1997 were
adjusted  downward  to  reflect  CBO  estimates  for  related  provisions  of  the  Omnibus  Consolidated  and  Emergency
Supplemental  Appropriation  Act  (OCESAA)  of  1998  and  the  Balanced  Budget  Refinement  Act  (BBRA)  of  1999.
Administrative savings are calculated by OIG using departmental figures, where available, for the year in which the change
is effected or for multiple years, if applicable.  Total savings from these sources amount to $8,447.8 million for this period.
      OIG Recommendation Implementing Action Savings
in Millions
HEALTH CARE FINANCING ADMINISTRATION
Reforming Medicaid Disproportionate
Share Payments:
Disproportionate share payments to hospitals Section 4721 of the BBA of 1997 reformed $2,090
should be related to costs incurred in treating disproportionate share payments under
Medicaid and indigent patients to correct the State Medicaid programs by placing
inequities and abuses in current payment limitations on Federal financial
methodologies.  (CIN:  A-06-90-00073; CIN: participation.
A-04-92-01025)
Medicare Part A Payments for Skilled
Nursing Facilities:
Services should be bundled into Medicare and Section 4432 of the BBA of 1997 (as 1,850
Medicaids payments to nursing homes; Part B amended by the Balanced Budget
payments for services normally included in the Refinement Act of 1999) required a PPS for
extended care benefit should continue to be SNF care.  Covered services include Part A
examined for appropriateness; and a legislative SNF benefits and all services for which
recommendation should be developed to payment may be made under Part B (except
prohibit entities other than the skilled nursing physician and certain other professional
facility (SNF) from seeking coverage on behalf services) during the period when the
of persons in Part A covered SNF stays for beneficiary is provided covered SNF care. 
enteral nutrition, incontinence care, and surgical
dressings, and limit Medicare coverage of these
services to Part A. In 1997 congressional
testimony, OIG supported establishing a
prospective payment system (PPS) and
consolidated billing.  (OEI-03-94-00790;
OEI-06-92-00863; OEI-06-92-00864; CIN:
A-17-95-00096; CIN:  A-14-98-00350)
A-1       OIG Recommendation Implementing Action Savings
in Millions 
Medicare Secondary Payer Extensions:
Establish a centralized database of information The database capacity was achieved $1,790
about private insurance coverage of Medicare through the authorization of a data
beneficiaries.   Extend the Medicare secondary exchange between the Social Security
payer (MSP) provision to include end stage Administration (SSA) and the Health Care
renal disease (ESRD) beneficiaries as long as Financing Administration (HCFA) and
the individual has employer based coverage between the Internal Revenue Service (IRS)
available. (OEI-07-90-00760; and HCFA.  Section 4631 of the BBA of
OEI-03-90-00763; CIN:  A-10-86-62016; CIN: 1997  permanently extended current MSP
A-09-89-00100; CIN:  A-09-91-00103; CIN: policies for beneficiaries who are disabled
A-14-94-00391; CIN:  A-14-94-00392)  and have ESRD.  For ESRD beneficiaries,
the statute also increased the time period
Medicare is secondary payer from 18 to 30
months.
Capital-Related Costs of Hospital Services:
Extend congressionally mandated reductions in Section 4402 of the BBA of 1997 provided 1,140
hospital costs.  The HCFA should seek for rebasing of capital payment rates for an
legislative authority to continue mandated additional reduction in the rate of 2.1
reductions in capital payments; excess capacity percent.
was not considered in the capital cost policy.
(CIN:  A-09-91-00070; CIN:  A-07-95-01127)
Medicare Payments for Oxygen:
The HCFA should reduce Medicare payments Section 4552(a) of the BBA of 1997 400
for oxygen concentrators and ensure that reduced Medicare reimbursement for
beneficiaries receive necessary care and support oxygen 25 percent until 1999 and by 30
in connection with their oxygen therapy. percent for each subsequent year; section
(OEI-03-91-00711, OEI-03-91-001710) 4552(c) mandated that the Secretary
develop service standards for oxygen
provided in the home.
Medicare Laboratory Reimbursements:
In July 1989, OIG recommended that HCFA Section 4553 of the BBA of 1997 provided 400
take advantage of economies of scale present in for reducing fee schedule payments by
the laboratory industry by considering lowering the cap to 74 percent of the
competitive bidding or making reductions to the median for payment amounts, with no
fee schedule amounts.  In January 1990, OIG inflation update for 1998 through 2002.
recommended that HCFA seek legislation to
allow across the board adjustments in Medicare
laboratory fee schedules, bringing them in line
with the prices which laboratories charge
physicians in a competitive marketplace.  In a
January 1996 follow-up, OIG found that
Medicare continued to pay more to clinical
laboratories than physicians for the same tests.
Although the Omnibus Budget Reconciliation
Act (OBRA) of 1993 reduced the fee schedule
to 76 percent of the average in 1996, OIG
recommended that HCFA periodically evaluate
the national fee schedule to ensure that it is in
line with the prices physicians pay for the same
clinical laboratory services. (OAI-02-89-01910;
CIN:  A-09-89-00031; CIN:  A-09-93-00056)
A-2       OIG Recommendation Implementing Action Savings
in Millions 
Payments for Durable Medical Equipment:
Excessive Medicare Part B payments for enteral Section 4551 of the BBA of 1997 froze $200
and parenteral nutrition, equipment and supplies Medicare payments for enteral and
should be reduced, or competitive acquisition parenteral nutrition and supplies for 1998
strategies should be employed. through 2002, and simplified the process
(OEI-03-94-00021; OEI-06-92-00866; used to reduce inherently unreasonable
OEI-03-96-00230; OEI-06-92-00861) prices by 15 percent.
Medicare Home Health Care Services:
The HCFA should revise Medicare regulations Effective February 1995, Medicare 199.2
to require that the treating physician establish regulations require that a beneficiary be
the plan of care and specifically prescribe the under the care of a physician who
type and frequency of home health services establishes the plan of care and that the
needed. (CIN:  A-04-94-02087) physicians orders for services in the plan
of care specify the medical treatments to be
furnished, the discipline to furnish the
services and their frequency.
Medicare Payments to Hospitals for Bad
Debt:
The HCFA should seek legislative authority to Section 4451 of the BBA of 1997 reduced 120
modify the bad debt payment policy.  (CIN: bad debt payment to providers to 75 percent
A-14-90-00039) during FY 1998, 60 percent during FY 1999
and 55 percent in later years.
Medicare Payments for Prescription Drugs:
The HCFA should reexamine its Medicare drug Section 4556 of the BBA of 1997 reduced 110
reimbursement methodologies, with a goal of Medicare payments for drugs, which are
reducing payments as appropriate. paid based on the average wholesale price,
(OEI-03-95-00420; OEI-03-94-00390; by 5 percent.
OEI-03-97-00290)
ADMINISTRATION FOR CHILDREN AND FAMILIES
$50 Child Support Disregard in the Child
Support Enforcement Program:
The $50 disregard provision, which allowed the Section 302 of the Personal Responsibility 139 
first $50 collected from absent parents to be and Work Opportunity Reconciliation Act
turned over to the family and not counted of 1996 eliminated the authority which
against Aid to Families with Dependent allowed the recipient to keep the first $50
Children (AFDC) benefits, did not provide the of child support collected in a month.
AFDC family with any incentive to cooperate
more fully with child support officials in
locating the absent parent and should be
eliminated.  (CIN:  A-02-86-72606)
A-3       Other Implementing Action Savings
in Millions
VARIOUS OPERATING DIVISIONS
Results of Investigations:
In addition to any restitution, fines, settlements The operating division takes action based $9.6
or judgments, or other monetary amounts on the results of the OIG investigation to
resulting from successful investigations, suspend or terminate payments to the
additional monetary losses are avoided through offending individual or entity.
timely communication of the investigative
results to the operating division.
A-4 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 The HCFA did not agree with the $4,100
(HCFA) should consult with the Congress on recommendation, and no legislative
modification of the Federal medical assistance proposal was included in the Presidents
percentage formula used to determine the current budget.
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)
Laboratory Roll-In:
Fees for laboratory services should be included The HCFA disagreed with the 2,040
in Medicare recognized charges for physician recommendation.  The OIG continues to
office visits.  (OEI-05-89-89150; believe that this approach has merit and
OEI-05-89-89151) could be pursued on an experimental basis
at this time. 
Medicare Coverage of State and Local
Government Employees:
Require Medicare coverage and hospital Although HCFA included a proposal to 1,559
insurance contributions for all State and local mandate Medicare coverage for all State
employees, including those hired prior to April and local government employees in the FY
1, 1986.  If this proposal is not enacted, seek 1990 budget submission, no legislative
legislation making Medicare the secondary proposal was included in the Presidents FY
payer for retirees of exempt State and local 2001 budget.  Also, HCFA did not agree
government agencies.  (CIN:  A-09-88-00072) with the recommendation to make Medicare
the secondary payer.
B-1       OIG Recommendation Status  Savings
in Millions
Clinical Laboratory Tests:
Develop a methodology and legislative proposal The HCFA agreed with the first $1,130*
to pay for tests ordered as custom panels at recommendation but not the second.  The
substantially less than the full price for Balanced Budget Act (BBA) of 1997
individual tests, and study reinstating the reduces Medicare fee schedule payments by
beneficiary coinsurance and deductible lowering the cap to 74 percent of the
provisions for laboratory services as a means of median for payment amounts beginning in
controlling utilization.  (CIN:  A-09-89-00031; 1998.  Also, there will be no inflation
CIN:  A-09-93-00056) update between 1998 and 2002; the budget
would increase payments at Consumer
Price Index-Urban minus 1 percentage
point for 2003 through 2005.  The FY 2001
budget includes a proposal to restore 20
percent coinsurance for clinical diagnostic
laboratory tests.  Payments would be
reduced for four high-volume laboratory
tests in another FY 2001 legislative
proposal.
Excessive Medicare Payments for
Prescription Drugs:
The HCFA should examine its Medicare drug The BBA of 1997 reduced Medicare 1,000
reimbursement methodologies. payments by limiting them to 95 percent of
(OEI-03-97-00290; OEI-03-97-00292; the average wholesale price.  Additional
OEI-03-97-00293; OEI-03-97-00390; corrective action is warranted and called for
OEI-03-95-00420; OEI-03-94-00390) in the Presidents 1999 and 2000 budget
and legislative programs.  The FY 2001
budget proposes paying for
Medicare-covered drugs at 83 percent of
the average wholesale price (AWP).
Reduce Hospital Capital Costs:
Determine the extent that capital reductions are The HCFA did not agree with the 820
needed to fully account for hospitals excess recommendation.  Although the BBA of
bed capacity and report the percentage to the 1997 reduces capital payments, it does not
Congress.  (CIN:  A-09-91-00070; CIN: include the effect of excess bed capacity
A-14-93-00380) and other elements included in the base
year historical costs.
*This savings estimate would result from the copayment; the savings estimate for panels has yet to be determined.
B-2       OIG Recommendation Status  Savings
in Millions
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/or seek comprehensive legislation to However, pursuant to section 4711 of the
restructure Medicaid reimbursement for both BBA of 1997, the Secretary shall conduct a
ICF/MR and home and community-based study on the effect on access to, and the
waiver service for developmentally disabled quality of services provided to beneficiaries
people via global budgeting, block grants or of the rate-setting methods used by States.
financial incentive programs.
(OEI-04-91-01010)
Modify Payment Policy for Medicare Bad
Debts:
The OIG presented an analysis of four options The HCFA agreed with the recommendation 340
for HCFA to consider, including the elimination to include a bad debt factor in the DRG
of a separate payment for bad debts, the offset rates.  The BBA of 1997 provides for some
of Medicare bad debts against beneficiary reduction of bad debt payments to
Social Security payments, the limitation of bad providers.  The Presidents FY 2001 budget
debt payments to prospective payment system proposes to reduce the percentage (from 55
hospitals that are profitable, and the inclusion of percent to 45 percent) that Medicare pays
a bad debt factor in the diagnosis-related group for bad debts and to extend this policy to
(DRG) rates.  The HCFA should seek legislative providers beyond hospitals.  However,
authority to further modify bad debt policies. additional legislative changes are needed to
(CIN:  A-14-90-00339) implement the modifications that OIG
recommended.
Flexible Benefit Plans:
The value of flexible benefit plans should be While HCFA agreed with the 291
included in the definition of wages for the recommendation and has submitted a
hospital insurance portion of the Federal legislative proposal to subject flexible
Insurance Contributions Act.  (CIN: benefit plans to the hospital insurance tax,
A-05-93-00066) the proposal was not included in the
Presidents FY 2001 budget.
Hospital Admissions:
Seek legislation to pay for covered services The HCFA proposed to implement OIGs 210
related to 1-day admissions without an recommendation through administrative
overnight stay as outpatient services which are remedies that would designate whether
paid on the basis of the lower of the actual costs specific services are to be covered and paid
or the customary charges in a locality.  (CIN: for as inpatient or outpatient services.  No
A-05-89-00055; CIN:  A-05-92-00006) proposal was included in the Presidents FY
2001 budget.
B-3       OIG Recommendation Status  Savings
in Millions
Graduate Medical Education:
Revise the regulations to remove from a The HCFA did not concur with the $157.3
hospitals allowable graduate medical education recommendations.  Although the BBA of
(GME) base year costs any cost center with 1997 contains provisions to slow the
little or no Medicare utilization.  Submit a growth in Medicare spending on GME,
legislative proposal to compute Medicares OIG believes that its recommendations
percentage of participation under the former should be implemented and that further
more comprehensive system.  (CIN: savings can be achieved.
A-06-92-00020)
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 and
tests to include 10 tests identified by the OIG added 6 of these tests to its carrier manual.
audit.  (CIN:  A-01-93-00521) The HCFA will periodically review
applicable tests and related equipment.  The
Congress decided (through the BBA of
1997) to achieve savings through other
means, including freezing laboratory
payments through 2002 and reducing the
national payment cap to 74 percent of the
median of all fee schedules.  The
Presidents FY 2001 budget would reduce
payments for four high-volume laboratory
tests.
Paperless Claims:
The HCFA should lead a target outreach to The HCFA concurred with OIGs 126
encourage voluntary conversion to paperless recommendations.  The Presidents FY
Medicare claim filing by physicians who submit 2001 budget proposes to allow an
claims on paper and who have a moderate to assessment of a $1 fee on claims not
high level of interest in making the switch. submitted electronically.
This effort should be coordinated with efforts to
promote further use of electronic data
interchange by providers under the
administrative simplification provisions of the
Health Insurance Portability and Accountability
Act of 1996.  The HCFA should also begin to
plan now for the policy changes that will be
necessary to achieve an almost completely
paperless environment for processing Medicare
claims.  These policy changes can include
targeting a date when all physicians will be
mandated to submit paperless claims, targeting
a date when paperless claims submission will
become a condition for Medicare participation,
or continuing to accept paper claims but
imposing a filing fee to cover the incremental
cost of doing so.  (CIN:  A-05-94-00039;
OEI-01-94-00230)
Medicaid Drug Rebate Program:
The best price calculation in the Medicaid drug The FY 2001 budget proposes applying the 123
rebate program should be indexed to the consumer price index-urban adjustment to
consumer price index-urban.  (CIN: generic as well as brand name drugs.  The
A-06-94-00039) OIG is continuing to monitor the Medicaid
drug rebate program.
B-4       OIG Recommendation Status  Savings
in Millions
Recover Overpayments and Expand the
Diagnosis Related Group Payment Window:
The HCFA should propose legislation to expand The HCFA agreed to recover the improper $83.5
the DRG payment window to at least 7 days Medicare billings and to refund the
immediately prior to the day of admission. beneficiaries coinsurance and deductible.
(CIN:  A-01-92-00521) Collection of the overpayment is being
handled by settlement agreements with the
hospitals through the Department of Justice
working with HCFA and OIG.  The HCFA
did not concur with the recommendation to
further expand the payment window.
Therefore, no legislative proposal was
included in the Presidents current budget.
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 Medicare 190-day
psychiatric services.  Apply a 60-day annual and lifetime limit for psychiatric admissions be
a 190-day lifetime limit to all psychiatric care extended to general hospitals; however,
regardless of the place of service.  (CIN: such a proposal was not included as part of
A-06-86-62045) the Presidents FY 2001 budget.
Nonemergency Advanced Life Support
Ambulance Services:
The HCFA should modify its Medicare policy to The HCFA issued a final regulation which 47
allow payment for nonemergency advanced life addresses the coverage of ambulance
support ambulance service only when that level services and vehicle and staff requirements.
of service is medically necessary; instruct The agency intends to address advanced
carriers to institute controls to ensure that and basic life support services as part of the
payment is based on the medical need of the negotiated rulemaking process on the
beneficiary; and closely monitor carrier ambulance fee schedule which began in
compliance.  (CIN:  A-01-91-00513; CIN: early 1999.
A-01-94-00528)
Limit Reimbursement for Hospital Beds:
The HCFA should take immediate steps to The HCFA concurred with the 40
reduce Medicare payments for hospital beds recommendations and is considering
used in the home.  This should include the options to determine the best approach to
elimination of the higher reimbursement rate achieve a fair price for hospital beds.  The
currently paid during the first 3 months of agency has included hospital beds and
rental.  (CIN:  A-06-91-00080; supplies as part of its ongoing competitive
OEI-07-96-00221; OEI-07-96-00222) bidding demonstration project for durable
medical equipment.
B-5       OIG Recommendation Status  Savings
in Millions
Reduce End Stage Renal Disease Payment
Rates:
The HCFA should reduce the payment rates for The HCFA agreed that the composite $22*
outpatient dialysis treatments to reflect current payment rates should reflect the costs of
efficiencies and economies in the marketplace. outpatient dialysis treatment in efficiently
(CIN:  A-14-90-00215) operated facilities.  While the Omnibus
Budget Reconciliation Act of 1990
prohibited HCFA from changing these
rates, it mandated a study to determine the
costs, services and profits associated with
various modalities of dialysis treatment.  A
March 1996 study by ProPAC
recommended an increase to the current
rates, but HCFA did not believe an
across-the-board increase was warranted
and intended to monitor facilities costs and
other factors to determine if a rate increase
would be appropriate.  Toward this end, the
BBA of 1997 requires the Secretary to audit
the cost reports of each renal dialysis
provider at least once every 3 years.  The
HCFA began these audits in the fourth
quarter of FY 1999.
Preclude Improper Medicaid
Reimbursement for Clinical Laboratory
Services:
State agencies should install edits to detect and The HCFA wrote to all State Medicaid 17.8
prevent payments for clinical laboratory directors on January 15, 1997, alerting
services that exceed the Medicare limits and them to the OIG review, encouraging them
billings that contain duplicate tests, recover to use Medicares bundling policies and
overpayments and make adjustments for the urging them to install appropriate payment
Federal share of the amounts recovered.  (CIN: edits in their claim processing systems.
A-01-95-00005; CIN:  A-05-95-00035; CIN:
A-01-96-00001; CIN:  A-06-95-00078; CIN:
A-06-95-00031; CIN:  A-04-95-01108; CIN:
A-04-95-01109; 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; CIN:
A-01-95-00006; CIN:  A-02-95-01009; CIN:
A-03-96-00200; CIN:  A-03-96-00202; CIN:
A-03-96-00203; CIN:  A-05-95-00062; CIN:
A-06-96-00002; CIN:  A-06-95-00100; CIN:
A-04-98-01185)
*This savings estimate represents program savings of $22 million for each dollar reduction in the composite rate.
B-6       OIG Recommendation Status  Savings
in Millions
Medicare Orthotics:
Develop guidelines that better define orthotic The HCFA concurred with the $10
devices; develop policies for orthotic codes; recommendations and has revised its
develop screens for billing many orthotic national codes to distinguish among
devices on the same day or within a short time categories of devices.  The OIG is currently
frame; pay special attention to billing for conducting a follow-up to this study.
orthotics in nursing facilities; work with the
American Orthotic and Prosthetic Association to
develop a table of devices that should not be
used together, and consider stricter standards to
determine who is allowed to bill for orthotics.
(OEI-02-95-00380)
Medicare Claims for Railroad Retirement
Beneficiaries:
Discontinue use of a separate carrier to process The FY 2001 budget does not include this 9.1
Medicare claims for railroad retirement type of legislative proposal.
beneficiaries.  (CIN:  A-14-90-02528)
Indirect Medical Education:
Reduce the indirect medical education (IME) The HCFA agreed with the to be determined
adjustment factor to the level supported by recommendation, and the BBA of 1997, as
HCFAs empirical data.  Initiate further studies amended by the Balanced Budget
to determine whether different adjustment Refinement Act of 1999, reduces the IME
factors are warranted for different types of adjustment to 5.5 percent in 2002 and
teaching hospitals.  (CIN:  A-07-88-00111) thereafter.  The OIG believes the factor
should be further reduced to eliminate any
overlap with the disproportionate share
adjustment.
Medicare Secondary Payer - End Stage
Renal Disease Time Limit:
Extend the Medicare secondary payer (MSP) The HCFA was concerned that an indefinite to be determined
provisions to include end stage renal disease MSP provision might encourage insurers to
(ESRD) beneficiaries without a time limitation. drop uneconomical services, namely
(CIN:  A-10-86-62016) facility dialysis and transplantation.  The
HCFA favored indefinitely extending the
MSP provision for all other services and
included this proposal in an earlier budget
submission.  Although the BBA of 1997
extends MSP policies for individuals with
ESRD to 30 months, OIG continues to
advocate that when Medicare eligibility is
due solely to ESRD, the group health plan
should remain primary until the beneficiary
becomes entitled to Medicare for old age or
disability.  At that point, Medicare would
become the primary payer.  
B-7       OIG Recommendation Status  Savings
in Millions
Home Health Agencies:
The HCFA should revise Medicare regulations Although the Congress and the to be determined
to require the physician to examine the patient Administration included provisions to
before ordering home health services.  (CIN: restructure home health benefits in the BBA
A-04-95-01103; CIN:  A-04-95-01104; of 1997, HCFA still needs to revise
OEI-04-93-00262; OEI-04-93-00260; Medicare regulations to require that
OEI-12-94-00180; OEI-02-94-00170; CIN: physicians examine Medicare patients
A-04-94-02087; CIN:  A-04-94-02078; CIN: before ordering home health services.
A-04-96-02121; CIN:  A-04-97-01169; CIN: While agreeing in principle, HCFA said it
A-04-97-01166; CIN:  A-04-97-01170; CIN: would continue to examine both coverage
A-04-99-01194) rules and conditions of participation to
develop the discipline necessary for
ensuring proper certification.  The OIG will
continue to do work in this area.
Establish Connection Between the
Calculation of Medicaid Drug Rebates and
Drug Reimbursement:
The HCFA should seek legislation that would The HCFA disagreed with the to be determined
require participating drug manufacturers to pay recommendation to seek a legislative
Medicaid drug rebates based on AWP or study change, believing that such legislation was
other viable alternatives to the current program not feasible at the time.  However, HCFA
of using average manufacturer price (AMP) to stated that changing AMP to AWP would
calculate the rebates.  This legislation would reduce the administrative burden involved
have resulted in about $1.15 billion in in the AMP calculations and planned a
additional rebates for 100 brand name drugs comprehensive study of AWP.
with the highest total Medicaid reimbursements
in Calendar Years 1994-96.  (CIN:
A-06-97-00052)
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 $75.9
processors and establishments. legislation, the Food and Drug
(OEI-05-90-01070) Administration (FDA) is precluded by
statute from imposing user fees to cover
additional functions.  The FY 2000
Presidents budget request for FDA
proposes that FDA be given new user fee
authority to enhance premarket review
activities for medical devices and food
additive petitions.
Medicare Rates for Indian Health Service
Contracted Health Services:
The Indian Health Service (IHS) should revise The IHS concurred with OIGs 8.2
its legislative proposal to incorporate OIGs recommendations and is continuing its
updated savings figures and should identify legislative, regulatory and administrative
elements to be included in the implementing efforts to obtain discount rates throughout
regulations.  Also, IHS should continue to its service area.  However, no legislative
pursue the most favorable rates at hospitals that proposal is included in the FY 2001 budget.
have previously offered less than Medicare rates
and should strategically identify and pursue
other opportunities where lower rates may be
negotiated.  (CIN:  A-15-97-50001)
B-8       OIG Recommendation Status  Savings
in Millions
Recharge Center Costs:
The Assistant Secretary for Management and The Deputy Assistant Secretary for Grants $1.9
Budget should propose changes to OMB and Acquisition Management concurred
Circular A-21 to improve guidance on the with the recommendations.  In addition, the
financial management of recharge centers.  The Council on Government Relations generally
revision should include criteria for establishing, agreed and stated that the proposed criteria
monitoring and adjusting billing rates to should be included in the Compliance
eliminate accumulated surpluses and deficits; Supplement to OMB Circular A-133, which
preventing the use of recharge funds for provides guidance to independent auditors
unrelated purposes and excluding unallowable in conducting compliance audits of
costs from the calculation of recharge rates; educational institutions.
ensuring that Federal projects are billed
equitably; and excluding recharge costs from
the recalculation of facilities and administrative
cost rates.  (CIN:  A-09-96-04003)
ADMINISTRATION FOR CHILDREN AND FAMILIES
Medical Child Support:
Increase the number of noncustodial parents The Administration for Children and 11.4
providing medical support for their children and Families and HCFA agreed with OIGs
reduce Medicaid costs by either requiring findings and recommendations.  State
noncustodial parents to pay for all or part of the officials will move to consider a legislative
Medicaid premiums or establishing a new change and budget option to address the
comprehensive health insurance plan for recommendation.
children with premiums paid by noncustodial
parents.  (CIN:  A-01-97-02506)
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 a predetermined address the bulk of administrative/indirect
number of years.  (CIN:  A-12-92-00014) costs charged to the Federal Government.
B-9 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 Implementation of the
Federal Managers Financial Integrity Act
Program:
The Health Care Financing Administration (HCFA) The HCFA still does not agree with the need to expand
should reevaluate its review of the Common Working File financial management reviews to other systems, such as the
to ensure that all functional responsibilities of the system Common Working File.
are included in Federal Managers Financial Integrity Act
reviews.  (CIN:  A-14-93-03026)
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 also
current and complete disclosure of drug rebate has a task force to help with rebate resolution.
transactions and provide HCFA with the financial
information it needs to effectively monitor and manage
the Medicaid drug rebate program.  (CIN:
A-06-92-00029)
Ensure that the Medicare Accounts Receivable
Balance Is Fairly Presented:
The HCFA should require contractors to implement or The HCFA has contracted with a consulting service to
improve internal controls and systems to provide assist in validating the FY 1998 accounts receivable
sufficient documentation to support reported accounts activity and balance, as well as the activity for the first 6
receivable.  Because of insufficient documentation, OIG months of FY 1999, and to recommend any accounting
again was not able to satisfy itself as to the fair changes or adjustments.
presentation of the Medicare accounts receivable balance
($3.6 billion in FY 1998). (CIN:  A-17-95-00096; CIN:
A-17-97-00097; CIN:  A-17-98-00098)
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-1       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) 
Physician Office Surgery:
The peer review organizations (PROs) should extend The HCFA has issued policy guidance and manual
their review to surgery performed in physicians offices. instructions to explicitly state that PROs have the
(OEI-07-91-00680) responsibility to review all care in physician offices when a
beneficiary complains.
Properly Account for Medicare Secondary
Payer Overpayments:
Although agreement was reached to relieve Blue Cross The HCFA is currently pursuing the recommended
and Blue Shield plans of past due Medicare secondary administrative action through improved information
payer (MSP) overpayments, HCFA should continue to systems to guard against making improper Medicare
implement financial management systems to ensure that payments to the Blue Cross and Blue Shield plans.
all overpayments (receivables) are accurately recorded.
(CIN:  A-09-89-00100)
Investigate Patient Dumping Complaints:
The HCFA should improve its processes for investigating The HCFA concurred with OIGs recommendations.
and resolving complaints involving potential violations of
the Examination and Treatment for Emergency Medical
Conditions and Workmen in Labor Act, commonly
referred to as patient dumping.  (CIN:  A-06-93-00087)
Medicare Beneficiary Satisfaction with
Durable Medical Equipment Regional Carrier
Services:
The HCFA should evaluate ways to increase beneficiary The HCFA concurred.  The HCFA conducts annual
satisfaction with the one durable medical equipment evaluations to identify ways to improve performance.  The
regional carrier with a low rating, and review effective HCFA is also working to develop new outreach techniques
ways to educate beneficiaries on what constitutes fraud to increase beneficiaries knowledge on detecting fraud and
and abuse.  (OEI-02-96-00200) abuse.
Pressure Reducing Support Services:
The HCFA should establish the requirement for periodic The HCFA did not concur.
review and renewal of the medical necessity for
beneficiaries use of group 2 support surface equipment.
(OEI-02-95-00370)
Medicaid Accounts Receivable and Accounts
Payable:
The HCFA should continue its annual survey process or The HCFA sent the FY 1998 survey to the States well in
find a suitable alternative to estimate net accounts advance of the due date. 
payable.  Trend data on receivables and payables over
time should be developed for each State and used to
improve the estimation model. (CIN:  A-17-95-00096;
CIN:  A-17-97-00097; CIN:  A-17-98-00098)
C-2       OIG Recommendation Status
PUBLIC HEALTH SERVICE OPERATING DIVISIONS
Require Participation in the 340B Drug Pricing
Program:
To ensure that grantees are accessing lower priced drugs, The HRSA published a Federal Register notice that would
which enables them to provide additional services, the require all eligible entities to participate in the 340B
Health Resources and Services Administration (HRSA) program.  Because all responses to the notice were
should require all eligible entities to participate in the negative, HRSA instead decided to address the issue
340B drug pricing program.  (CIN:  A-01-98-01500) administratively by issuing a policy statement and
guidance to grantees.
ADMINISTRATION FOR CHILDREN AND FAMILIES AND ADMINISTRATION ON AGING
Improve the Federal Foster Care Program:
The OIG provided options for the Administration for The ACF concurred and is piloting redesigned titles IV-B
Children and Families (ACF) to consider in its efforts to and IV-E child welfare reviews.  A notice of proposed
improve its partnership with State and local governments rulemaking was published in September 1998, and the final
in administering the Federal Foster Care program.  The rule is in clearance.  In addition, the child welfare waiver
options included streamlining the process; determining demonstrations are allowing several States to test
whether legislative change is needed; and determining if alternative approaches to the title IV-E requirements.
certain program requirements could be changed to
facilitate compliance.  (CIN:  A-12-93-00022)
GENERAL OVERSIGHT
Update Cost Principles for Federally
Sponsored Research Activities:
The Department should act to modernize and strengthen The Department is revising hospital cost principles to be
cost principles applicable to hospitals by either revising consistent with OMB circulars.
existing guidelines to conform with Office of
Management and Budget (OMB) Circular A-21 or
working with OMB to extend Circular A-21 coverage to
all hospitals.  (CIN:  A-01-92-01528)
C-3 APPENDIX D
Notes to Tables I and II
Table I
1 The opening balance was adjusted downward by $46.9 million.
2 During the period, revisions to previously reported management decisions included:
CIN:  A-04-99-55653 State of Tennessee:  The Federal share of funds to be returned to the program was
revised by $451,000.
CIN:  A-06-97-45889 Eight Northern Indian Pueblos Council:  The grantee supplied supporting
documentation for $61,295.
Not detailed are revisions to previously disallowed management decisions totaling $117,880.
3 Included are management decisions to disallow $328,593 in audits performed by the Defense Contract Audit Agency.
4 Included are management decisions to disallow $33.6 million that was identified in nonfederal audit reports.
5 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 are beyond managements control, resolution of the following
audits was not completed within 6 months of issuance; however, based upon discussions with management,
resolution is expected before the end of the next semiannual reporting period:
CIN:  A-05-94-00064 MI Blue Cross/Blue Shield, Audit of Admin. Costs, June 1996, $15,609,718
CIN:  A-07-96-01176 Medicare Excess Pension Assets - BC Mich., Nov. 1996, $11,904,263
CIN:  A-03-97-00013 BCBSM FY 89-92 Incremental Claim, Sept. 1998, $11,723,785
CIN:  A-07-98-02522 Pension Segmentation Blue Shield of California Termination, April 1999,
$7,623,524
CIN:  A-09-97-44262 State of California, April 1997, $7,419,900
CIN:  A-03-91-00052 Independent Living Program - National, March 1993, $6,529,545
CIN:  A-07-92-00578 BC/BS of Texas Inc. - Unfunded Pension Costs, Oct. 1992, $6,244,637
CIN:  A-07-97-01213 Pension - Travelers Termination, Feb. 1998, $5,624,747 
CIN:  A-05-96-00058 Close-Out Audit of Medicare Contract - BCBS - MI, Dec. 1997, $5,226,443
CIN:  A-09-99-57988 State of Arizona, June 1999, $4,950,000
CIN:  A-01-97-00516 Admin. Costs Parts A&B, Railroad Retirement Board, June 1999, $4,939,184
CIN:  A-07-96-02001 Medicare Part B Admin. Costs at BC/BS Colorado, Dec. 1996, $4,483,104
CIN:  A-07-98-01224 BC/BS KY Unfunded Pension Costs, Oct. 1998, $4,286,294
CIN:  A-07-97-01234 Rocky Mountain Pension - Termination, May 1998, $4,079,171
CIN:  A-05-94-00080 Associated Ins. Medicare Administrative Costs, July 1996, $3,954,632
D-1 CIN:  A-09-95-00056 Review of Training Activities - CA Dept. of Social Services, Aug. 1996, $3,934,717
CIN: 06-97-00029 Retention of Fees Child Placing Agencies Louisiana, Sept. 1998, $3,450,173
CIN:  A-02-95-01019 Staff Builders Home Office Medicare Cost Rev. ORT, Aug. 1998, $3,434,274
CIN:  A-05-93-00054 Il. Associated Insurance Group Contract Audit, Oct. 1993, $3,355,560
CIN:  A-03-94-00029 Veritus Inc. - Admin Cost, Feb. 1998, $3,140,363
CIN:  A-04-98-01188 Review Administrative Costs at Medicare Managed Risk Plan, August 1999,
$3,032,637
CIN:  A-07-93-00633 Pension Segmentation Aetna Life Insurance Co., October 1993, $3,011,376
CIN:  A-05-93-00013 MI - Blue Cross/Blue Shield - Contract Medicare Audit, April 1993, $3,010,916
CIN:  A-09-98-50183 State of California, Mar. 1998, $3,000,000
CIN:  A-07-92-00585 Pension Segmentation BC/BS of California, Jan. 1994, $2,973,503
CIN:  A-01-95-00504 Medicare Parts A&B Admin Costs - AETNA, Jan. 1996, $2,938,223
CIN:  A-01-96-00508 Medicare - Admin. Costs Parts A&B and RRB - Travelers, Mar. 1996, $2,803,260
CIN:  A-07-96-01185 BCBS Rocky Mountain Pension Segmentation, June 1997, $2,743,438
CIN:  A-05-97-00005  Administrative Costs Claimed under Medicare A & B, Feb. 1998, $2,569,067
CIN:  A-07-92-00579 BC/BS of Michigan Inc. - Unfunded Pension Costs, Oct. 1992, $2,535,698
CIN:  A-05-92-00026 Associated Insurance Co. - Medicare Admin., Feb. 1992, $2,530,409
CIN:  A-07-98-02523 Blue Cross of California, FACP, April 1999, $2,408,019
CIN:  A-02-91-01006 Blue Shield of Western NY Medicare Adm. CTS. Porter, Sept. 1991, $2,379,239.
CIN:  A-04-97-01166 Rev. of Home Health Services by Staff Builders Home Health, April 1999,
$2,300,000
CIN:  A-04-97-01170 Rev. of Home Health Services by Medicare Home Health Services, April 1999,
$2,200,000
CIN:  A-02-93-02001 Manpower Demonstration Res. Corp., Oct. 1994, $2,024,444
CIN:  A-04-97-01169 Review of Home Health Services by Medtech Homes Health Services, April 1999,
$1,900,000
CIN:  A-06-96-00009 New Mexico BCBS Admin Cost - Contracted, Nov. 1997, $1,879,366
CIN:  A-05-97-00014 Group Health Plan Inc. (Healthpartners) Inst. Benes, June 1998, $1,808,308
CIN:  A-05-95-00059 Audit of Administrative Costs - BCBS Michigan, Jan. 1997, $1,787,345
CIN:  A-15-98-00038 Contract Closeout Audit for CTS, Inc., July 1999, $1,590,692
CIN:  A-03-96-00012 BCBSM PT-B Non-Renewal Costs, Aug. 1998, $1,557,459
CIN:  A-06-96-00008 Arkansas BCBS Admin. Cost - Contracted, Sept. 1996, $1,442,193
CIN:  A-02-96-42454 City of New York HRA Agency for Child Development, May 1996, $1,410,441
CIN:  A-05-93-00057 Michigan Blue Cross and Blue Shield of Michigan Contract Audit, July 1993,
$1,409,954
D-2 CIN:  A-07-98-02506 AETNA Unfunded Pension Costs, Aug. 1998, $1,407,689
CIN:  A-09-96-00064 ORT - Hospice - California, Mar. 1997, $1,350,000
CIN:  A-10-91-00011 WPS - Keystone Computer Acquisition, Oct. 1992, $1,346,681
CIN:  A-05-95-00042 BCBSA Administrative Costs - Contracted Audit, Dec. 1995, $1,333,598
CIN:  A-02-96-01016 Empire Admin.  Costs Part A - Gardiner, Kamya & Assoc., April 1997, $1,296,098
CIN:  A-07-93-00700 BC/BS of Mass - Unfunded Pension Cost Audit, May 1994, $1,290,740
CIN:  A-07-96-01194 Pension - Community Mutual Segmentation, July 1997, $1,263,188 
CIN:  A-07-97-01223 Pensions - Kentucky Blues/Segmentation, Oct. 1998, $1,236,890
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 AUD, Oct. 1993, $1,218,963
CIN:  A-05-98-00050 Follow-up Medicaid Clinical Laboratories, July 1999, $1,097,036 
CIN:  A-02-94-01029 Hospice Eligibility RVW IN PR - SAN German - ORT, June 1995, $1,070,814
CIN:  A-09-98-00052 California Medical Review Inc., Jan. 1999, $1,067,991
CIN:  A-07-94-00763 Health Care Serv. Corp. - Pension Segmentation, Aug. 1994, $1,055,458 
CIN:  A-05-94-00047 Nationwide Ins., Medicare Part B Admin. Costs, Sept. 1995, $1,049,309
CIN:  A-07-93-00634 Pension Segmentation - Travelers  Insurance Co, Oct. 1993, $1,026,460
CIN:  A-01-98-00500 Payment Edits for Psychiatric at MA Part B Carrier, Sept. 1998, $1,000,000
CIN:  A-07-97-01208 Pension - Community Mutual FACP, July 1997, $991,972
CIN:  A-06-95-00035 Fees Retained by Child Placing Agencies, Feb. 1996, $988,680
CIN:  A-09-94-01010 Closeout Audit " Cont. No. N01-ES-75196 (Stratagene), Mar. 1994, $983,208
CIN:  A-08-99-55285 NA - South Dakota Urban Indian Health Inc., June 1999, $902,377
CIN:  A-08-99-55284 NA - South Dakota Urban Indian Health Inc., June 1999, $902,046
CIN:  A-05-92-00060 Contractor Audit of BCBS, Feb. 1993, $879,609
CIN:  A-02-94-01022 Blue Cross Blue Shield NJ - Admin. Cost Medicare, Sept. 1997, $864,851
CIN:  A-07-98-02533 Travelers FACP, Dec. 1998, $854,214
CIN:  A-07-93-00701 BC/BS of Mass - Pension Cost - Charge Audit, July 1994, $839,740 
CIN:  A-06-99-00008 Oklahoma Foster Care Program Maintenance Payments, Mar. 1999, $737,239
CIN:  A-07-98-01225 BC/BS KY Pension Costs Claimed, Oct. 1998, $736,134
CIN:  A-05-91-00136 Community Mutual Ins. Co. Admin. Costs, Aug. 1992, $720,668
CIN:  A-07-96-01195 Pension - New Mexico Segmentation, Feb. 1997, $700,952
CIN:  A-09-97-00078 Physician Billings - Dr. Spencer, Jan. 1999, $683,264
CIN:  A-04-99-54416   State of Florida, Nov. 1998, $668,791
CIN:  A-07-93-00699 BC/BS of Mass - Pension Segmentation Audit, April 1994, $658,471
D-3 CIN:  A-02-96-01015 Empire Admin. Costs Part A - Gardiner, Kamya & Assoc., April 1997, $652,492
CIN:  A-01-98-00503 Psychiatric Outpt. Services at The Franklin Med. Ctr., Nov. 1998, $646,517
CIN:  A-07-97-02503 Pension Kansas City BC/BS Termination, July 1998, $635,984
CIN:  A-07-96-01178 Medicare Pension Costs Claimed BC Mich., Nov. 1996, $631,248
CIN:  A-04-94-01078 Monitoring Admin. Cost - Audit Medicare Pt. B BCBSSC, July 1994, $594,092
CIN:  A-10-99-57240 State of Idaho, Jan. 1999, $594,000 
CIN:  A-04-93-01069 Monitoring Admin. Cost Audit Medicare Part A BCBSSC, July 1994, $590,844
CIN:  A-07-93-00679 AETNA - Unfunded Pension Cost Audit, May 1994, $590,207
CIN:  A-02-97-47130 Middlesex County Economic Opportunities Corp., June 1997, $578,550
CIN:  A-07-97-01207 Pension - Community Mutual Unfunded Pension, July 1997, $571,413
CIN:  A-03-97-00009 Peer Review Systems INC/CCAS/Ohio, Mar. 1997, $545,405
CIN:  A-07-96-01198 Pension - Rocky Mountain Unfunded, Feb. 1997, $543,421
CIN:  A-02-91-03508 Audit of NJ Child Care and Supportive Services, June 1993, $506,710
CIN:  A-09-99-56858 Hawaii Dept. of Human Services, Feb. 1999, $502,000
CIN:  A-03-92-16229 State of Pennsylvania, March 1992, $496,896
CIN:  A-07-96-01188 Pro Closeout - DOSHI CPA, Aug. 1996, $432,698
CIN:  A-07-97-01235 DOSHI - Texas, June 1997, $424,255
CIN:  A-06-99-56489 State of Louisiana, Jan. 1999, $421,206
CIN:  A-09-98-49239 NA - Hermandad, Mexicana National Legal Center Inc., Nov. 1997, $419,364
CIN:  A-05-97-00013  Pacificare of CA - HMO Institutional Status Project, April 1998, $407,784
CIN:  A-06-99-58928 Arkansas Office of Child Support Enforcement, April 1999, $367,273
CIN:  A-01-99-57863 State of Connecticut, May 1999, $361,315
CIN:  A-04-96-01134 Partic. Part of HCFA Surv. Team - Colonnade MCAL - ORT, Feb. 1997, $358,338
CIN:  A-04-96-01136 Partic. Part of HCFA Surv. Team - Survey Savanah -ORT, Dec. 1996, $354,537
CIN:  A-05-92-00126 Wisconsin Westcap Head Start, March 1993, $347,576
CIN:  A-08-99-59907 NA - Crow Creek Sioux Tribe, July 1999, $344,504
CIN:  A-05-93-25697 West Central Wisconsin Community Action Agency, Inc., Aug. 1993, $324,759 
CIN:  A-04-97-01175 Keystone Pro, June 1998, $310,787
CIN:  A-07-98-02501  CT. BC/BS Unfunded Pension Costs, Mar. 1998, $292,152
CIN:  A-08-99-59826 NA - Crow Creek Sioux Tribe, July 1999, $291,718
CIN:  A-04-96-01129 Parti. Part HCFA Surv. Team - Ameri. Trans. Care (ORT), Feb. 1997, $284,378
CIN:  A-05-96-00069 CPA Audit of Hooper Holmes HHA G&A - OT Case Open, Feb. 1998, $280,515
CIN:  A-09-04-30178 State of Arizona, June 1994, $267,021
D-4 CIN:  A-09-99-57442 Morongo Band of Mission Indians, July 1999, $265,002 
CIN:  A-05-98-53935 Montgomery County Community Action Agency Inc., June 1998, $257,702 
CIN:  A-04-99-54767 Anderson - Oconee Head Start Project Inc., Oct. 1998, $254,673
CIN:  A-07-93-00710  BC/BS of Connecticut - Unfunded Pension Cost Audit, Mar. 1994, $237,392
CIN:  A-04-97-01152 Closeout Audit - Michigan Pro, June 1997, $228,630
CIN:  A-04-96-01135 Partic. Part of HCFA Surv. Wash. Manor Nursing - ORT, Feb 1997, $220,483
CIN:  A-09-96-00094 ORT - Monitor CPA Audit of  Dynasty HHA Cost Report, July 1997, $217,720
CIN:  A-06-99-56489 State of Louisiana, Jan. 1999, $213,709
CIN:  A-09-05-34788 State of Arizona, Aug. 1995, $209,462
CIN:  A-05-96-00052 ORT Assist - Ancillary Costs - NW Com. Hosp., June 1997, $206,508
CIN:  A-03-98-00014 Connecticut Pro Inc/CCAS/HHS-100-95-0033, Feb. 1998, $202,662
CIN:  A-06-96-00064 ORT SNF Research at Methodist Hospital, Jan 1997, $200,000
CIN:  A-01-97-00531 Medicare Administrative Costs - MABCBS, June 1998, $198,950
CIN:  A-05-97-00006 MI - Wayne State U/NIH Request/Romero Grant, June 1997, $195,809
CIN:  A-10-96-00007 Idaho Migrant Council Head Start, March 1997, $192,981
CIN:  A-04-98-01181 Massachusetts Peer Review Organization (MPRO), June 1998, $183,074
CIN:  A-03-99-00007 Forest Ambulance Service - External, Dec. 1998, $173,189
CIN:  A-05-94-29229 West Central Wisconsin Community Action Agency, March 1994, $167,977
CIN:  A-05-96-00031 WIPRO/Equipment Depreciation, Aug. 1996, $167,033 
CIN:  A-04-98-49312 NA - State of North Carolina, Nov. 1997, $164,792
CIN:  A-03-97-00016 Quality Improvement Pro INC/CCAS/Puerto Rico, Feb. 1998, $158,925
CIN:  A-03-98-00034 Freestate HP/Institutional Status/Medicare, March 1999, $156,987 
CIN:  A-07-98-02526 Unfunded Pension Liability - BCBS of Arkansas, Sept. 1998, $153,269
CIN:  A-07-99-01039 Task Order Review of Human Dev. Corp. SLMO, Aug. 1999, $146,999
CIN:  A-08-99-60402 State of South Dakota, July 1999, $142,748
CIN:  A-07-99-54163 Ponca Tribe of Nebraska, May 1999, $141,475 
CIN:  A-04-96-01147 ORT Rev. Parker Jewish Geriatric Ctr., New Hyde, NY, April 1997, $140,188
CIN:  A-03-98-00025  Abingdon Ambulance Company, Abingdon, VA, Jan. 1999, $139,325
CIN:  A-06-99-58786 Arkansas Dept. of Human Services, Mar. 1999, $137,218
CIN:  A-09-99-52846 Inter-Tribal Council of California Inc., Feb. 1999, $136,360
CIN:  A-02-98-01002 IPRO Closeout Audit - CPA Contract Monitoring, Dec. 1998, $135,492
CIN:  A-02-99-59294 City of New York, New York, Aug. 1999, $134,835
CIN:  A-07-97-02500 Pension Segmentation BC/BS Connecticut, Mar. 1998, $122,548 
D-5 CIN:  A-07-93-00709 BC/BS of Connecticut - Pension Segmentation Audit, April 1994, $119,472
CIN:  A-05-97-00023 Kaiser Foundation - HMO Institutional Status Project, April 1998, $116,096
CIN:  A-03-99-00003 AETNA Healthcare , July 1999, $113,993
CIN:  A-03-95-03329 Henderson Associates/CACS/ASC/282-91-0012, Mar. 1997, $111,289
CIN:  A-02-96-01001 WNS of NY Home Care - ORT/HHA Target, Sept. 1997, $110,841
CIN:  A-02-96-02001 International Rescue Committee - Refugee Program, Jan 1998, $108,604
CIN:  A-06-99-56908 Pueblo of ACOMA, July 1999, $104,186
CIN:  A-09-99-59788 Palau, Community Action Agency, June 1999, $102,653
CIN:  A-03-98-03300 Raymond Maria Group - Contract Closeout, March 1998, $102,476
CIN:  A-09-00-59834 Government of Guam, June 1999, $99,978
CIN:  A-07-95-01159  ME BCBS Pension Segmentation, Jan. 1996, $96,955
CIN:  A-09-97-00066 Walter McDonald - Indirect Cost Rate Audit, Mar. 1998, $95,733
CIN:  A-03-98-00007 Delmarva Pro/CCAS/Maryland, DC/HHS-100-95-0029, Dec. 1998, $95,709
CIN:  A-09-98-00065 CSBG Disc. Grant #90EE004901 - Latino Resources, Jan. 1999, $95,102
CIN:  A-10-97-00003 BCWAAK-ADM Costs Remote Network Activities FY 93 & 94, Feb. 1998,
$94,643
CIN:  A-01-99-60258 State of Connecticut, July 1999, $94,029 
CIN:  A-06-96-43195 Pueblo of Isleta, June 1996, $92,969
CIN:  A-07-95-01164 Medicare Admin. Costs - General American, Dec. 1995, $89,929
CIN:  A-01-99-57358 Organix Inc., Feb. 1999, $89,395
CIN:  A-08-99-56914 Rural America Initiatives, July 1999, $87,468
CIN:  A-02-95-34277 Puerto Rico Dept. of Health, June 1995, $86,064
CIN:  A-02-95-34278 Puerto Rico Dept. of Health, June 1995, $85,266
CIN:  A-04-96-38655 State of North Carolina, April 1996, $83,237
CIN:  A-09-99-56382 Metropolitan Area Advisory Committee, Jan. 1999, $82,600
CIN:  A-01-96-00505 CFO Audit of HCFAs Financial Statements, July 1997, $80,236
CIN:  A-03-98-00008 VA Health Quality Center Review ORG/Pro/CCAS/VA, Dec 1998, $78,207
CIN:  A-04-96-01137 Partic. Part of HCFA Surv. Team - Daytona Nursing - ORT, Dec. 1996, $76,130
CIN:  A-02-97-47130 Jackson-Vinton Community Action Inc., July 1997, $75,392
CIN:  A-02-99-58263 Puerto Rico Office of The Governor Office of Child, July 1999, $73,819 
CIN:  A-07-95-01166 Unfunded Pension Costs Nebraska BC/BS, Jan. 1996, $73,509
CIN:  A-01-97-00520 CFO Audit of HCFAs Financial Statements, July 1998, $69,031
CIN:  A-02-95-34275 Puerto Rico Dept. of Health, June 1995, $64,841
D-6 CIN:  A-06-99-56886 NA - Cheyenne - Arapaho Tribes of Oklahoma, July 1999, $64,635
CIN:  A-10-99-57105 Nez Perce Tribe, April 1999, $63,066
CIN:  A-06-99-59854 State of Louisiana, August 1999, $61,288
CIN:  A-05-96-00072 MI Dept. Of Community Health/Medicaid Lab Services, August 1997, $59,956
CIN:  A-05-96-00051 ORT Assist-Ancillary Costs - St. Joseph, June 1997, $58,008
CIN:  A-09-97-00059 Health Services Advisory Group, Inc. PRO-AZ, May 1997, $57,925
CIN:  A-08-99-54138 Rosebud Sioux Tribe, Nov. 1998, $56,223
CIN:  A-04-96-01125 Partic. - Part of HCFA Survey Team - Rosemont - ORT, Feb. 1997, $55,306
CIN:  A-05-98-51855 Stark County Community Action Agency, Mar. 1998, $54,933
CIN:  A-07-99-59813 State of Iowa, Aug. 1999, $54,662
CIN:  A-07-97-01206 Pension - Washington/Alaska-Unfunded, Mar. 1997, $54,000
CIN:  A-07-98-50741 Citizen Housing Information Council Inc., Mar. 1998, $52,758
CIN:  A-05-98-51302 Kootasca Community Action Inc., Feb. 1998, $52,000
CIN:  A-09-95-00095 Health Services Advisory Group, Inc., (HSAG), Dec. 1995, $49,585
CIN:  A-03-93-03306 Survey Research Assoc. CACS N01-ES-45067, Dec. 1993, $48,779
CIN:  A-02-95-34276 Puerto Rico Dept. of Health, June 1995, $46,842
CIN:  A-10-99-58040 State of Washington, Aug. 1999, $44,350
CIN: A-09-99-56858 Hawaii Dept. of Human Services, Feb. 1999, $44,144
CIN:  A-09-99-52845 Inter-Tribal Council of California Inc., Feb. 1999, $43,315
CIN:  A-09-99-59787 Palau Community Action Agency, June 1999, $40,212  
CIN:  A-03-97-44742 Association of Teachers of Preventive Medicine Inc., Feb. 1998, $37,260
CIN:  A-07-98-53295 Winnebago Tribe of Nebraska, Sept. 1998, $36,808
CIN:  A-03-99-57965 NA - District of Columbia Dept. of Human Services, Feb. 1999, $35,975
CIN:  A-05-99-59494  Sheboygan Human Rights Association Inc., May 1999, $35,786
CIN:  A-07-98-02030 DOSHI - CPA Report, Nov. 1997, $35,703
CIN:  A-07-97-01218 DOSHI - Utah/Nevada FMC, Mar. 1997, $33,752
CIN:  A-03-99-56842 National Association for Equal Opportunity in High, Feb. 1999, $33,585
CIN:  A-01-99-57863 State of Connecticut, May 1999, $33,346
CIN:  A-06-97-47794 Gulf Coast Community Action Inc., May 1997, $32,619 
CIN:  A-07-97-01199 BCBS New Mexico Unfunded Pension Cost, Feb. 1997, $31,372
CIN:  A-09-96-42547 Maricopa County Arizona, April 1996, $30,766
CIN:  A-09-98-49616 State of Arizona, Nov. 1997, $29,746
CIN:  A-05-97-48015 Hoosier Valley Economic Corp., May 1997, $29,004
D-7 CIN:  A-03-98-03301 AAUAP - Incurred Cost Review - HHS 105-95-7011, April 1998, $28,289
CIN:  A-02-99-58263 Puerto Rico Office of The Governor Office of Child, July 1999, $27,980
CIN:  A-10-98-00008 Review of EVRGRN Comm. Dev. Corp. OCSBG #90EE001301, Dec. 1998,
$27,316
CIN:  A-10-96-41391 Klamath Family Head Start, April 1996, $26,530
CIN:  A-03-92-00033 Blue Cross of West Virginia Termination, Nov. 1992, $25,200
CIN:  A-04-99-54416 State of Florida, Nov. 1998, $24,165
CIN:  A-09-04-27868 Inyo Mono Advocates for Community Action, Nov. 1993, $22,875
CIN:  A-10-97-43797 State of Washington, Jan. 1997, $21,241
CIN:  A-05-96-39685 Michigan Family Resources, Dec. 1995, $20,799
CIN:  A-05-96-43041 Hoosier Valley Economic Opportunity Corp., June 1996, $20,438
CIN:  A-01-99-59104 Planned Parenthood of Connecticut Inc. & Subsidiar., Aug. 1999, $18,791
CIN:  A-04-97-01163 VIMI Medicare Pro Contract Audit, Sept. 1997, $18,758
CIN:  A-05-93-21928 Wright State Univ. July 1993, $18,308
CIN:  A-05-99-58280 Rock Island School District No. 41, Aug. 1999, $17,742
CIN:  A-03-97-00007 NE Health Care Quality Foundation/CCAS/N Hampshire, Mar. 1997, $17,045
CIN:  A-01-99-55594 State of Vermont, Nov. 1998, $16,623
CIN:  A-01-97-44143 Brandeis Univ., Jan. 1997, $16,602
CIN:  A-05-95-34584 Wood County Head Start Inc., Dec. 1994, $14,896
CIN:  A-03-97-00008 NE Health Care Quality Foundation/CCAS/N. Hampshire, Mar. 1997, $14,596
CIN:  A-07-99-60332 State of Nebraska, July 1999, $14,209
CIN:  A-06-98-54189 City of Houston, Texas, July 1998, $14,146
CIN:  A-09-96-00050 CFO - HCFA 1996, Nov. 1997, $13,924
CIN:  A-07-95-01175 Mutual of OMAHA - Admin. Costs, August 1996, $13,564
CIN:  A-07-99-57985 State of Kansas, Feb. 1999, $13,550
CIN:  A-05-95-36498 Hoosier Valley Economic Opportunity Corp., April 1995, $13,116
CIN:  A-03-98-50338 National Medical Association, Feb. 1998, $12,968
CIN:  A-06-99-56886 NA - Cheyenne-Arapaho Tribes of Oklahoma, July 1999, $11,768
CIN:  A-04-99-59501 Chape Hill - Carroro City Board of Education, June 1999, $11,256
CIN:  A-10-97-00002 Group Health Institutionalized, Nov. 1997, $9,769
CIN:  A-10-97-48639 NA - Nooksack Indian Tribe, Aug. 1997, $9,440
CIN:  A-04-97-01153 MS Found. - MCAL Care, Medicare Pro Contract Audit, Sept. 1997, $9,070 
CIN:  A-08-99-56446 Sisseton-Wahpeton Sioux Tribe, May 1999, $9,000
D-8 CIN:  A-04-98-49581 Mid-South Foundation for Medical Care Inc., Jan. 1998, $8,938
CIN:  A-02-95-34277 Puerto Rico Dept. of Health, June 1995, $8,486
CIN:  A-05-99-59468 Community Care in Union County Inc., July 1999, $8,464 
CIN:  A-10-98-53162 People of Color Against AIDS Network, April 1998, $8,289
CIN:  A-07-97-01231 Prowest - DOSHI Washington, June 1997, $8,027 
CIN:  A-05-97-48015 State of Connecticut, May 1999, $7,686
CIN:  A-03-91-02004 W VA Termination Cost Audit, Nov. 1992, $7,556
CIN:  A-03-96-38803 Skyline Government Services Corp., Nov. 1995, $7,285
CIN:  A-03-98-00045 Temple Univ/Physician Credit Balances Medicare, July 1999, $7,280 
CIN:  A-07-97-01227 MT-WY Foundation for Medical Care, June 1997, $7,168
CIN:  A-03-99-58532 Advocates for Youth, May 1999, $7,138
CIN:  A-01-97-49174 Brandeis Univ., Aug. 1997, $7,068
CIN:  A-06-96-40858 CADDO Community Action Agency Inc., Feb. 1996, $6,557 
CIN:  A-05-99-60704 Head Start Operation for Preschool Education, Aug. 1999, $6,275
CIN:  A-04-99-56945 Ouitman County Development Organization Inc., Mar. 1999, $6,142
CIN:  A-07-95-01167 Pension Costs Claimed Nebraska BC/BS, Jan. 1996, $6,075
CIN:  A-02-96-02001 International Rescue Committee - Refugee Program, Jan. 1998, $6,027 
CIN:  A-06-97-48062 Jobs for Progress National, July 1997, $5,924
CIN:  A-08-99-56446 Sisseton-Wahpeton Sioux Tribe, May 1999, $5,843
CIN:  A-10-98-50308 Coastal Community Action Program, Dec. 1977, $5,274
CIN:  A-05-98-51316 Community Action Program Inc. of Western Indiana, Feb. 1998, $5,202
CIN:  A-02-99-56463 Virgin Islands Advocacy Agency Inc., Nov. 1998, $5,089
CIN:  A-06-91-00034 Audit of Collection and Credit Activities at TDHS, Jan. 1992, $5,081
CIN:  A-09-97-48829 Community Action Commission of Santa Barbara Count., Aug. 1997, $4,809
CIN:  A-09-97-44435  Commonwealth of the Northern Mariana Islands, Oct. 1996, $4,767
CIN:  A-07-95-01123 Review of CPA Adm. Cost - BCBS of Kansas City, May 1995, $4,045
CIN:  A-04-97-01162 HMSA Medicare Pro Contract Audit, Sept. 1997, $3,871
CIN:  A-09-95-39056 Hawaii Dept. of Health, Sept. 1995, $3,601
CIN:  A-01-98-00512  CFO of HCFAs FY 1997 Medicare Benefit Payments, June 1998, $3,264
CIN:  A-03-95-03318 Trans Management Systems, May 1996, $3,016
CIN:  A-05-99-56827 Fond Du Lac Reservation, Mar. 1999, $2,926
CIN:  A-07-98-02502 CT. BC/BS Pension Costs Claimed, Mar. 1998, $2,725
CIN:  A-03-98-51505 Allied Signal Technical Services Corp., April 1998, $2,722 
D-9 CIN:  A-03-95-34716 West Virginia Medical Institute Inc., Mar. 1995 $2,688
CIN:  A-02-97-49366 Seneca Nation of Indians, Sept. 1997, $2,655
CIN:  A-05-95-35315 Lake County Economic Opportunity Corp., Jan. 1995, $2,650
CIN:  A-01-97-45487 ABT Associates Inc., Jan. 1997, $2,596
CIN:  A-03-97-43996 Actuarial Research Corp., Oct. 1996, $2,561 
CIN:  A-07-97-01221 Pro Closeout - DOSHI CPA - ARK FDN for Med. Care, Mar. 1997, $2,096
CIN:  A-09-98-53899 Stanford Univ., June 1998, $2,058
CIN:  A-03-96-44076 St. Pauls College, Aug. 1996, $2,029 
CIN:  A-07-97-01232 Prowest - DOSHI ALASKA, June 1997, $1,473
CIN:  A-05-99-60620 Red Cliff Band of Lake Superior Chippewa Indians, July 1999, $1,459
CIN:  A-09-94-01022 Intelligenetics #N01-GM-72110, Oct. 1994, ($12,400)
B. The following audit is in litigation:
CIN:  A-10-98-51043 Nooksack Indian Tribe, May 1998, $433,539
Table II
 1  The opening balance was adjusted to reflect an upward revaluation of $214.4 million.
2  Included in the total recommendations agreed to by management is $724,893 resulting from Defense Contact Audit Agency
recommendations.
3  Management decision has not been made within 6 months of issuance on 21 reports:  
A.  Discussions with management are ongoing and it is expected that the following audits will be resolved by the
next semiannual reporting period:
CIN:  A-04-97-00109 Emergency Assistance Claims - NC, July 1998, $13,000,000
CIN:  A-03-91-00552 Independent Living Program " National, Mar. 1993, $10,161,742
CIN:  A-15-97-50001 Audit of IHS Contract Health Services Program, Jan. 1999, $8,000,000
CIN:  A-01-97-02506 Review of the Avail. of Medical Coverage/CSE Support, June 1998, $5,704,585
CIN:  A-04-98-01188 Review Admin. Costs at Medicare Managed Risk Plan, Aug. 1999, $2,559,357
CIN:  A-09-95-00095 Health Services Advisory Group, Inc. (HSAG), Dec. 1995, $1,389,723
CIN:  A-07-97-01230 OFMQ - Doshi Oklahoma, June 1997, $203,510
CIN:  A-07-97-01231 Prowest - Doshi Washington, June 1997, $163,552
CIN:  A-05-96-43154 Muskegon-Oceana Community Action against Poverty I., June 1996, $130,993
CIN:  A-02-96-02001 International Rescue Committee - Refugee Program, Jan. 1998, $90,528
CIN:  A-01-98-02503 Survey of Garnishment of Income Other than Wages, May 1999, $68,500
CIN:  A-07-97-01235 Doshi - Texas, June 1997, $51,334
D-10 CIN:  A-07-97-01232 Prowest - Doshi Alaska, June 1997, $21,218 
CIN:  A-05-96-00069 CPA Audit of Hooper Holmes HHA G&A - OI Case Open, Feb. 1998, $17,555
CIN:  A-07-95-01164 Medicare Admin. Costs - General American, Dec. 1995, $16,632 
CIN:  A-07-97-01227 MT-WY Foundation for Medical Care, June 1997, $13,461 
CIN:  A-06-97-45023 CADDO Community Action Agency Inc., Nov. 1996, $8,880 
CIN:  A-01-97-00526 Psychiatric Outpatient Services, Mar. 1998, $7,245
CIN:  A-07-96-01188 Pro Closeout - Doshi CPA, Aug. 1996, $5,667
CIN:  A-05-95-37812 Northeast Michigan Community Service Agency Inc., Aug. 1995, $2,191
CIN:  A-01-98-00506 Psychiatric Outpatient at Newton-Wellesley Hospital, Mar. 1998, $1,120
D-11 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 71
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 73
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 69
costs
Section 5(a)(9) Statistical table II - reports with 70
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, the Office of Inspector General (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
Improper Fiscal Year 1999 Medicare Fee-for-Service Payments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2
Financial Statement Audit of the Health Care Financing Administration for Fiscal Year
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  3
External Review of Hospital Quality: State Initiatives  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
Medicare Managed Care: Goals of National Marketing Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
Medicare Managed Care: 1998 Marketing Materials  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8
Early Effects of the Prospective Payment System on Access to Skilled Nursing Facilities:
Nursing Home Administrators Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
Medicare Beneficiary Access to Home Health Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Medicare Home Health Services in California, Illinois, New York and Texas:  A
Follow-Up Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Year 2000 Readiness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Safeguarding Medicare Accounts Receivable  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Durable Medical Equipment Regional Carriers:  Meeting HCFAs Objectives  . . . . . . . . . . . . . . . . . . . .39
Food and Drug Administrations Handling of Adverse Drug Reaction Reports . . . . . . . . . . . . . . . . . . . .50
Comprehensive Hemophilia Treatment Centers Utilization of Public Health Service
340B Drug Pricing Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
National Institutes of Health Small Business Innovation Research Program . . . . . . . . . . . . . . . . . . . . . .52
24-Month Performance Data for Administration on Agings Health Care Fraud Control
Grants  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Financial Statement Audit of the Department for Fiscal Year 1999  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
F-1 ACRONYMS
AARP American Association of Retired Persons
ACF Administration for Children and Families
ACR adjusted community rate
ADR adverse drug reaction
AHRQ Agency for Healthcare Research and Quality
ALJ administrative law judge
AoA Administration on Aging
ASMB Assistant Secretary for Management and Budget
ATSDR Agency for Toxic Substances and Disease Registry
AWP average wholesale price
BBA Balanced Budget Act of 1997
CBO Congressional Budget Office
CDC Centers for Disease Control and Prevention
CHIP Childrens Health Insurance Program
CMP civil monetary penalty
CSE child support enforcement
CY calendar year
DME durable medical equipment
DOJ Department of Justice
DRG diagnosis-related group
ESRD end stage renal disease
FDA Food and Drug Administration
FEHBP Federal Employees Health Benefits Program
FFP Federal financial participation
FI fiscal intermediary
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
HIPAA Health Insurance Portability and Accountability Act of 1996
HIPDB Healthcare Integrity and Protection Data Bank
HMO health maintenance organization
HRSA Health Resources and Services Administration
IDPN intradialytic parenteral nutrition
IHS Indian Health Service
IME indirect medical education
MCO managed care organization
MFCU Medicaid fraud control unit
MSP Medicare secondary payer
NIH National Institutes of Health
OBRA Omnibus Budget Reconciliation Act
OCSE Office of Child Support Enforcement
OMB Office of Management and Budget
OPDIV operating division
PATH physicians at teaching hospitals
PHS Public Health Service
PIN provider identification number
PPS prospective payment system
PRO peer review organization
PSC Program Support Center
SAMHSA Substance Abuse and Mental Health Services Administration
SNF skilled nursing facility
TANF Temporary Assistance for Needy Families
UPIN unique physician identification number
UPN universal product number 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.   99-499  Superfund Amendments and Reauthorization Act of 1986
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
P.L. 104-156 Single Audit Act Amendments of 1996
P.L. 104-191  Health Insurance Portability and Accountability Act of 1996
P.L. 104-193  Personal Responsibility and Work Opportunity Act of 1996
P.L. 104-208  Federal Financial Management Improvement Act of 1996
Office of Management and Budget Circulars:
A-  21 Cost Principles for Educational Institutions
A-  25 User Charges
A-  50 Audit Follow-up  
A-  76 Performance of Commercial Activities
A-  87 Cost Principles for State, Local and Indian Tribal Governments
A-102 Grants and Cooperative Agreements with 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 Management Accountability and Control
A-127 Financial Management Systems
A-129 Policies for Federal Credit Programs and Non-Tax Receivables
A-133 Audits of States, Local Governments and Non-Profit Organizations
  A-134 Financial Accounting Principles and Standards
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, 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, sections 3729-3733, (the False Claims Act) and 3801-3812 (the Program Fraud Civil
Remedies Act)
Title 42, United States Code, sections 1320a-7, 1320a-7a, 1320b-10, 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.hhs.gov/oig