Department of Health and Human Services
OFFICE OF 
   
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
Q B
UESTIONABLE  ILLING FOR 
 
B   -N I
RAND AME  NHALATION 
 
D S F  
RUG  S IN  OUTH  LORIDA
 
 
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
December 2010 
OEI-03-09-00530    
   
 E X E C U T I V E   S U M M A R Y  
OBJECTIVES
 
1.  To identify changes in billing among South Florida durable medical 
equipment (DME) suppliers for budesonide and arformoterol after 
payment controls were put in place to detect and deny excessive 
budesonide claims.  
2.  To determine whether the amount of arformoterol billed by        
South Florida DME suppliers and paid under Medicare Part B exceeded 
the amount of the drug distributed for sale in the area between   
January 2008 and June 2009.  
BACKGROUND 
Medicare Part B covers inhalation drugs when they are used in 
conjunction with DME.  Beneficiaries typically obtain DME items, 
including inhalation drugs, through suppliers, which then submit 
claims to Medicare on behalf of the beneficiaries.  The Centers for 
Medicare & Medicaid Services (CMS) contracts with four geographically 
defined DME Medicare Administrative Contractors to process and pay  
DME claims.  CMS also contracts with Program Safeguard Contractors 
to administer benefit integrity functions and conduct medical reviews.   
CMS may establish national coverage determinations for DME items.  
National coverage determinations specify whether certain medical 
items, services, treatment procedures, or technologies are eligible for 
Medicare payment.  When a national coverage determination does not 
exist or when there is need for further definition, a local coverage 
determination (LCD) may be established by a CMS contractor.  An LCD 
for nebulizers and related inhalation drugs (L5007), originally effective 
on April 1, 1997, establishes coverage limitations, such as the maximum 
milligrams per month of a drug that may reasonably be billed for a 
beneficiary.  Through this LCD, a utilization edit to detect and deny 
claims that exceed utilization guidelines was implemented for the 
inhalation drug budesonide in September 2008. 
In 2008, Medicare was billed $426 million for the inhalation drug 
budesonide (brand name Pulmicort Respules) and $75 million for the 
inhalation drug arformoterol (brand name Brovana).  During that year, 
Medicare spent $297 million for budesonide and $47 million for 
arformoterol.  Both brand-name-only drugs have relatively high 
Medicare payment amounts when compared to the payment amounts 
for inhalation drugs with generic versions.  Billing and spending on 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  i    
   
E X E C U T I V E   S U M M A R Y  
budesonide and arformoterol for beneficiaries in South Florida     
(Miami-Dade, Broward, and Palm Beach Counties) were much greater 
when compared to billing and spending for beneficiaries in the rest of 
the country. 
We used the Medicare National Claims History File to identify all 
budesonide and arformoterol claims in 2008 and the first half of 2009.  
We also obtained sales data from arformoterols manufacturer, 
Sepracor, for the same period.  Sepracor provided sales data for any 
direct sales and sales by the three largest wholesalers (approximately 
70 percent to 75 percent of sales).   
For budesonide and arformoterol, we analyzed the claim files to identify 
billing differences by South Florida suppliers before and after the 
utilization edit was implemented on September 19, 2008.  We calculated 
the number of South Florida suppliers that (1) billed Medicare for units 
provided before the edit but did not bill after the edit, (2) did not bill for 
units before the edit but began billing after the edit, and (3) billed for 
units provided both before and after the edit.  Using the arformoterol 
sales data provided by Sepracor, we compared the total number of 
arformoterol units sold to South Florida suppliers by the manufacturer 
and the three largest wholesalers to the number of units paid based on 
the Medicare claims files.  We also compared the dollar amount 
submitted by South Florida suppliers to the amount distributed for sale 
in the region.  
FINDINGS 
After a utilization edit was implemented for budesonide, Medicare 
payments for the drug to South Florida suppliers were reduced by 
almost half.  In the 6 months after the edit was implemented, there was a 
46-percent decrease in Medicare payments for budesonide to South Florida 
suppliers ($13 million less than in the 6 months before the edit).  In fact, 
39 high-dollar South Florida suppliers either completely stopped or 
reduced billing for budesonide after the edit was put in place.     
Medicare payments for arformoterol to South Florida suppliers more 
than doubled after a utilization edit for budesonide was implemented.  
In the 6 months after the budesonide edit was put in place, arformoterol 
billings by South Florida suppliers increased by 53 percent and Medicare 
payments for the drug to South Florida suppliers increased by 138 percent 
compared to billings and payments from 6 months prior.  After the 
September 2008 budesonide edit, decreases in Medicare expenditures for 
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E X E C U T I V E   S U M M A R Y  
budesonide were offset by increases in expenditures for arformoterol.  In 
fact, 169 South Florida suppliers either started billing or had billing 
increases for arformoterol within the 6 months after the edit was 
implemented.  
We estimate that in 2008 and the first half of 2009, Medicare paid 
South Florida suppliers for up to 10 times more units of 
arformoterol than were distributed for sale in the area.  In 2008 and 
the first half of 2009, Medicare paid for 7 million units of arformoterol, 
but the manufacturer and the 3 largest wholesalers sold only       
750,000 units to suppliers in the area.  As a result, Medicare paid South 
Florida suppliers for nearly 10 times more units of arformoterol than 
the drugs manufacturer and the 3 largest wholesalers sold to South 
Florida suppliers.  Even when factoring in the 25 percent to 30 percent 
of missing sales data (i.e., sales from sources other than the 
manufacturer and the three largest wholesalers), it is highly unlikely 
that South Florida suppliers provided beneficiaries with this volume of 
arformoterol.   
Based on data for the manufacturer and the 3 largest wholesalers,    
Florida suppliers billed Medicare for up to 17 times more than the 
amount that could have legitimately been billed.  Had all South Florida 
sales reported by Sepracor and the three largest wholesalers gone to 
beneficiaries, the program would have spent $3.7 million on 
arformoterol in the area in 2008 and the first half of 2009.  Instead, 
South Florida suppliers billed Medicare for $62 million, of which the 
program paid $34 million.   
The majority (65 percent) of the Miami-Dade County suppliers billing 
for arformoterol in 2008 and the first half of 2009 never purchased 
arformoterol from the drugs manufacturer or the three largest 
wholesalers in this period.  In fact, three-fourths of the suppliers with 
the most arformoterol billings in Miami-Dade County did not purchase 
a unit of the drug from arformoterols manufacturer and the three 
largest wholesalers.  
RECOMMENDATIONS 
South Florida is known for its susceptibility to Medicare fraud, 
particularly by DME suppliers.  A previous Office of Inspector General 
(OIG) report identified potential fraud related to billings for budesonide 
by South Florida suppliers.  In September 2008, a CMS contractor 
implemented an automated edit to detect and deny claims that exceed 
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E X E C U T I V E   S U M M A R Y  
the maximum milligrams that a physician can safely prescribe to a 
beneficiary for budesonide.  Our findings indicate that this edit did in 
fact decrease budesonide billings by and Medicare payments to       
South Florida DME suppliers.  However, South Florida suppliers 
instead began billing for another brand-name inhalation drug, 
arformoterol.  The substantial difference between the sales data 
provided by arformoterols manufacturer and the claims data for    
South Florida suppliers suggests that these suppliers were billing for 
drugs that may not have been actually purchased.  Therefore, we 
recommend that CMS: 
Require DME contractors to implement utilization edits in high-fraud 
areas as soon as Medicare begins paying for a brand-name drug. 
Monitor utilization changes among brand-name inhalation drugs. 
Strengthen initial claim review processes to focus on prevention of        
improper payments. 
Perform site visits and request documentation from South Florida      
suppliers to support budesonide and arformoterol billings.   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE  
CMS concurred with all four of our recommendations (one of the 
concurrences included a caveat) and described steps that the agency has 
taken to resolve problematic billings for brand-name inhalation drugs 
by DME suppliers in South Florida and in certain other areas of the 
country.  CMS generally concurred with our recommendation about 
utilization edits for brand-name inhalation drugs, but included the 
caveat that certain procedures, such as developing and issuing an LCD, 
would need to be followed before implementing these edits.  OIG 
acknowledges the importance of CMSs requirements; however, 
budesonide and arformoterol had utilization guidelines in an LCD years 
before prepayment edits were implemented.  CMS agreed with our 
recommendations to monitor utilization changes and strengthen initial 
claim review processes.  CMS stated that to address the latter it would 
recommend that its contractors include late-billing suppliers as an 
additional risk indicator.  Finally, CMS concurred with our 
recommendation to review problematic suppliers and provided details 
about its planned actions.   
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  iv   
 T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
 
 
I N T RO DUC T IO N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 
 
 
F I N D IN G S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 
After a utilization edit was implemented for budesonide,        
Medicare payments for the drug to South Florida suppliers            
were reduced by almost half. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 
Medicare payments for arformoterol to South Florida suppliers      
more than doubled after a utilization edit for budesonide was 
implemented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 
We estimate that in 2008 and the first half of 2009, Medicare         
paid South Florida suppliers for up to 10 times more units of     
arformoterol than were distributed for sale in the area . . . . . . . . 19 
   
R E C O MMEN D A T ION S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 
Agency Comments and Office of Inspector General Response . . . 25 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 
A:  Medicare Process for Enrolling Durable Medical Equipment            
Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 
B:  Related Office of Inspector General Work . . . . . . . . . . . . . . . . 28 
C:  Criteria Used To Identify and Refer Potentially Fraudulent  
South Florida Durable Medical Equipment Suppliers . . . . . . 31 
D:  Monthly Claims Submitted by South Florida Suppliers for 
Arformoterol Services Provided in 2008. . . . . . . . . . . . . . . . . . 32 
E:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 
     
   
A C K NO WL E D G M E N T S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37    
   
 I N T R O D U C T I O N  
OBJECTIVES 
1.  To identify changes in billing among South Florida durable medical 
equipment (DME) suppliers for budesonide and arformoterol after 
payment controls were put in place to detect and deny excessive 
budesonide claims. 
2.  To determine whether the amount of arformoterol billed by        
South Florida DME suppliers and paid under Medicare Part B exceeded 
the amount of the drug distributed for sale in the area between   
January 2008 and June 2009.  
BACKGROUND 
Medicare payments for DME have consistently been vulnerable to fraud 
and abuse.  In particular, the South Florida region has been identified 
by the Office of Inspector General (OIG), the Centers for Medicare & 
Medicaid Services (CMS), and other agencies as a high-risk area for 
fraudulent billings to Medicare by DME suppliers.   
A 2009 OIG report found that brand-name inhalation drugs appear to 
be especially prone to aberrant billings by South Florida DME 
suppliers, which could lead to improper Medicare payments.1  For 
example, in the second half of 2007, 75 percent of South Florida 
beneficiaries who received the brand-name drug budesonide had paid 
claims that exceeded the drugs utilization guideline for a 90-day period.  
A CMS contractor implemented an edit in September 2008 to detect and 
deny budesonide claims that exceed the utilization guideline.   
Another previous OIG report2 has shown that pricing and payment 
concerns may affect which inhalation drug a supplier will provide.  This 
current report will determine how the edit affected billing and payment 
for budesonide and whether utilization shifted to the newer brand-name 
inhalation drug arformoterol.  Although both drugs are prescribed to 
treat conditions affecting the lungs, large shifts from budesonide to 
arformoterol should not be expected because the drugs are not 
interchangeable in terms of approved use or classification.     
  
 
1 OIG, Aberrant Claim Patterns for Inhalation Drugs in South Florida                       
(OEI-03-08-00290), April 2009. 
2 OIG, Beneficiary Utilization of Albuterol and Levalbuterol Under Medicare Part B 
(OEI-03-07-00440), August 2009.  
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I N T R O D U C T I O N    
Medicare Part B Coverage of Inhalation Drugs  
Although Medicare Part D covers most outpatient prescription drugs, 
CMS continues to cover a limited number of prescription drugs and 
biologicals (hereinafter referred to as drugs) under its Part B benefit.  
These drugs generally fall into three categories:  injectable drugs 
administered by a physician, drugs explicitly covered by statute, and 
drugs administered through DME.3  Inhalation drugs, a class of DME 
drugs requiring a nebulizer, are prescribed to treat and prevent 
symptoms brought on by lung diseases, such as asthma and chronic 
obstructive pulmonary disorder.   
Beneficiaries typically obtain inhalation drugs through DME suppliers, 
which purchase the drugs either directly from the manufacturer or from 
a distributor/wholesaler (hereinafter referred to as wholesalers).4  DME 
suppliers that purchase large quantities of a drug likely receive volume 
discounts from the manufacturer and/or wholesaler.5  Three wholesalers 
account for around 90 percent of the prescription drug market.6   
DME suppliers typically submit claims for DME items to Medicare on 
behalf of the beneficiaries.  In general, DME claims should be submitted 
within 12 months of the service dates.7  For an inhalation drug to be 
eligible for Medicare reimbursement, the DME supplier must have a 
signed prescription from the treating physician and the submitted claim 
form must list the physicians identification number.   
Once Medicare receives the claim, it has up to 30 calendar days to pay 
or deny it.8  Generally, Medicare will pay 80 percent of the authorized 
reimbursement amount to the DME supplier providing the inhalation 
drug; the beneficiary is responsible for the remaining 20 percent in the 
form of coinsurance.  CMS has implemented several initiatives that 
 
3 68 Fed. Reg. 50428, 50429 (Aug. 20, 2003).  
4 See Appendix A for a description of the DME supplier enrollment process. 
5 OIG, Excessive Medicare Reimbursement for Albuterol (OEI-03-01-00410) 
March 2002; Excessive Medicare Reimbursement for Ipratropium Bromide  
(OEI-03-01-00411), March 2002.  
6 Market Watch, Growing Share of Big Three Gets Federal Attention.  Accessed at 
http://www.marketwatch.com on July 23, 2009.  The three wholesalers are Cardinal Health, 
Inc., McKesson, and AmerisourceBergen. 
7 Social Security Act,  1848(g)(4), 42 U.S.C.  1395w-4.  
8 Claims submitted by certain problem suppliers may be placed on a prepayment review 
and are subject to a medical review before the claims are paid.  Payment in these cases may 
exceed the 30 calendar days allotted to pay or deny the claims. 
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I N T R O D U C T I O N    
enable contractors to conduct prepayment or postpayment reviews of 
certain submitted claims.9 
CMS contracts with four geographically defined DME Medicare 
Administrative Contractors (MAC) to process and pay for DME 
claims.10  CMS also contracts with Program Safeguard Contractors 
(PSC)11 and Zone Program Integrity Contractors (ZPIC)12, 13 to perform 
benefit integrity14 and medical review functions for each of the four 
DME MAC jurisdictions.   
DME Coverage Determinations 
CMS may establish national coverage determinations for DME items 
(including inhalation drugs).15  National coverage determinations 
specify whether certain medical items, services, procedures, or 
technologies are eligible for Medicare payment.  DME MACs and PSCs 
are required to follow national coverage determinations when they exist.   
However, when a national coverage determination does not exist or 
when there is need for further definition, DME MACs may establish or 
revise a local coverage determination (LCD).16  The LCD defines 
coverage criteria, coding rules, and documentation requirements that 
will be applied to DME claims processed by DME MACs.  Because many 
DME suppliers operate nationally, CMS requires that LCDs involving 
DME items (including inhalation drugs) be identical among all four 
 
9 For example, the National Correct Coding Initiatives Edits, Medically Unlikely Edits, 
and the Medical Review Program can be used to review claims prior to paying; the 
Comprehensive Error Rate Testing Program, Recovery Audit Contractors, and the Medical 
Review Program can be used for reviewing claims after payment.  
10 The four DME MAC contractors are National Heritage Insurance Company for 
Jurisdiction A; AdminaStar Federal, Inc., for Jurisdiction B; CIGNA Government Services, 
LLC, for Jurisdiction C; and Noridian Administrative Services for Jurisdiction D.  
11 Social Security Act,  1893. 
12 CMS, CMS Enhances Program Integrity Efforts to Fight Fraud, Waste and Abuse in 
Medicare.  Accessed at http://www.cms.hhs.gov on July 23, 2009.   
13 CMS is transitioning PSC work to ZPICs.  There are seven ZPIC jurisdictions.  Two 
ZPICs became operational in February 2009, and CMS expects that by the end of 2010, all 
PSC work will be transitioned to ZPICs.  Until the transition is complete, PSCs and ZPICs 
will both be responsible for the benefit integrity of DME claims (as well as all Parts A and B 
claims).     
14 Benefit integrity refers to functions that prevent, detect, and deter Medicare fraud. 
15 Social Security Act,  1862(a)(1). 
16 Since March 1, 2008, DME MACs have had full responsibility for developing and 
revising LCDs.  However, before that date, PSCs developed the LCDs and submitted them 
to DME MACs (or its predecessors, the DME regional carriers) for approval.   
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  3    
   
I N T R O D U C T I O N    
DME MACs.  Therefore, coverage determinations for DME items are the 
same in all four DME MAC jurisdictions. 
An LCD (L5007) was established for nebulizers and related inhalation 
drugs effective April 1997.17  One function of this LCD was to set 
guidelines for the maximum milligrams per month that may reasonably 
be billed for certain inhalation drugs.18  This LCD states that claims 
exceeding these guidelines will be denied as not medically necessary.  
As required by CMS, the LCD is effective nationally, meaning that it 
applies to inhalation drug claims in all four DME MAC jurisdictions.  To 
enforce the LCD for certain drugs, CMS has implemented computerized 
edits to automatically detect and deny claims that exceed the utilization 
guidelines.   
Brand-Name Inhalation Drugs:  Budesonide and Arformoterol 
Budesonide.  Budesonide (brand name Pulmicort Respules) is an 
inhaled corticosteroid used in conjunction with a nebulizer.  The Food 
and Drug Administration (FDA) approved budesonide on                
August 8, 2000, for the maintenance treatment of asthma and as 
prophylactic therapy in children 12 months to 8 years of age.19  
Physicians may legally prescribe this drug to older patients to treat 
respiratory disorders; however, such prescriptions would be considered 
an off-label use of the drug.20 
Over time, the Medicare payment amount for a unit (i.e., one vial of up 
to 0.5 milligram) of budesonide has gradually increased.21  In the first 
quarter of 2008, Medicare paid $5.09 per unit, but paid $5.39 in the 
fourth quarter of 2008 (and paid $6.42 in the second quarter of 2010). 
In 2008, DME suppliers billed Medicare $426 million for budesonide 
inhalation solution, of which the program paid $297 million.  The 
amount billed and paid for beneficiaries in South Florida was 
 
17 CMS, LCD for Nebulizers.  Accessed at http://www.cms.gov on January 14, 2010.  
18 As of its most recent update on January 1, 2010, the LCD has maximum milligram 
billing guidelines for 14 inhalation drugs and solutions. 
19 FDA, label for Pulmicort Respules (budesonide inhalation solution).  Accessed at 
http://www.accessdata.fda.gov on October 27, 2009.  
20 Off-label use refers to the practice of prescribing medications approved by FDA for a 
purpose outside the scope of the drugs approved label. 
21 The Medicare payment amount for most Part B drugs, including inhalation drugs, is 
equal to 106 percent of the volume-weighted average sales price (ASP).  Section 1847A(c) of 
the Social Security Act defines an ASP as a manufacturers sales of a drug to all purchasers 
in the United States in a calendar quarter divided by the total number of units of the drug 
sold by the manufacturer in that same quarter, net of any price concessions.   
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I N T R O D U C T I O N  
substantially higher than the amount billed and paid for beneficiaries 
in counties not located in South Florida (see Table 1).  
Table 1:  Medicare Amounts Billed and Paid for 
Budesonide in 2008 
       
Beneficiary      Total   Total   
Location    Billed  Paid 
Three South Florida Counties 
    Miami-Dade  $93.9 mil  $48.9 mil 
    Broward  $5.1 mil  $2.9 mil 
    Palm Beach  $2.0 mil  $1.4 mil 
Top Three Billing Counties Not in South Florida 
    Cook, IL  $2.7 mil  $1.8 mil 
    Sedgwick, KS  $1.9 mil  $1.4 mil 
    Dallas, TX  $1.8 mil  $1.4 mil 
 Source:  OIG analysis of 2008 DME claims file, August 2009. 
South Florida suppliers billed for 97 percent of the budesonide claims 
associated with area beneficiaries.  These suppliers accounted for a 
quarter of the total amount billed to Medicare nationwide for 
budesonide and 18 percent of total payments for the drug.  Suppliers in 
this region also billed over $900 more per beneficiary for budesonide 
annually, on average, when compared to the amounts billed by 
suppliers in the rest of the country. 
Utilization guidelines that define the maximum monthly dose of 
budesonide were added to the LCD for nebulizers and related 
inhalation drugs on July 1, 2007.  According to staff from a CMS 
contractor, on September 19, 2008, an automated edit was implemented 
by the DME MAC and PSC covering Jurisdiction C (the region 
including South Florida) to detect and deny budesonide claims that 
exceed the guidelines.   
Arformoterol.  Arformoterol (brand name Brovana) functions as a      
long-acting bronchodilator and is approved to treat chronic obstructive 
pulmonary disorder (but not asthma) in adults.  FDA issued a black box 
warning22 for arformoterol and many other long-acting bronchodilators 
 
22 A black box warning is designed to warn of serious adverse reactions that may lead to 
death or serious injury.  See 21 CFR  201.57(a)(4). 
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because data indicated an increased incidence in asthma-related deaths 
in patients receiving salmeterol, the active ingredient in this class of 
drug.23  FDA approved arformoterol in October 2006, and its 
manufacturer, Sepracor, began marketing the drug in April 2007.   
On January 1, 2008, CMS established a payment amount and billing 
code for arformoterol.24  During that quarter, the Medicare payment 
amount for one vial was $4.72.  This amount had increased to $5.23 by 
the second quarter of 2010. 
In 2008, DME suppliers billed Medicare $75 million for arformoterol, of 
which the program paid $47 million.  Even though only 2 percent of 
Medicare beneficiaries lived in South Florida, these beneficiaries 
accounted for 43 percent of the amount billed nationwide and 31 percent 
of the amount paid by Medicare for arformoterol.25  The majority        
(98 percent) of the claims for South Florida beneficiaries were billed by 
suppliers located in South Florida (see Table 2). 
 
Table 2:  Medicare Amounts Billed and Paid for  
Arformoterol in 2008 
     
Beneficiary     Total    Total 
Location   Billed   Paid 
Three South Florida Counties 
     Miami-Dade  $29.1 mil  $13.0 mil 
     Broward  $2.5 mil  $1.0 mil 
     Palm Beach  $554,000  $395,000 
Top Three Billing Counties Not in South Florida  
     Harris, TX  $571,000  $183,000 
     Cook, IL  $371,000  $267,000 
     Los Angeles, CA  $351,000  $238,000 
Source:  OIG analysis of 2008 DME claims file, August 2009. 
 
23 Label for Brovana (arformoterol tartrate) Solution.  Accessed at 
http://www.accessdata.fda.gov on July 17, 2009. 
24 Prior to 2008, suppliers would bill using a Not Otherwise Classified Nebulizer Drug 
Code and indicate on the claim form that the drug was arformoterol.     
25 CMS, Medicare Enrollment Reports.  Accessed at 
http://www4.cms.gov/MedicareEnrpts/ on June 3, 2010.  The most recent enrollment report 
available was last updated on July 1, 2007.   
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Utilization guidelines for arformoterol were added to the LCD on      
July 1, 2007.  As of March 2010, an automated edit for arformoterol had 
not been put in place.      
Medicare Fraud in South Florida 
OIGs numerous reports, criminal indictments, and convictions 
involving providers in South Florida have identified vulnerabilities that 
have put the Medicare program at risk for fraud and/or abuse.  OIG 
studies have involved unannounced site visits to verify that DME 
suppliers meet certain supplier standards and analysis of claim 
patterns related to infusion therapy providers and DME suppliers.   
In March 2007, a Medicare Strike Force of Federal, State, and local 
investigators began operating in high-fraud areas (including           
South Florida) to detect, prosecute, and prevent Medicare fraud by DME 
suppliers.  As of May 31, 2010, the Strike Forces efforts have resulted 
in charges against over 550 defendants; over 300 convictions; the 
sentencing of over 250 defendants; and over $260 million in  
court-ordered restitutions, fines, and penalties.26   
The Medicare Strike Force found that one method used to defraud 
Medicare involved South Florida DME suppliers paying physicians to 
write fraudulent inhalation drug prescriptions and paying Medicare 
beneficiaries to accept the unnecessary medications or to help create the 
appearance that the drugs were delivered.  Beneficiaries could receive 
up to $150 per month or $300 per falsified visit for use of their Medicare 
identification numbers.  In many cases, beneficiaries have testified that 
they threw away the inhalation drugs upon receipt or that the DME 
supplier instructed them to sign fake delivery receipts even though they 
had not received any equipment or medication.27  Physicians have also 
testified that they had falsely diagnosed beneficiaries and prescribed 
unnecessary inhalation drugs for these fictitious diagnoses.28  In 
 
26Hearing on Reducing Fraud, Waste and Abuse in Medicare, Hearing Before the        
U.S. House Committee on Ways and Means, Subcommittees on Health and Oversight,    
111th Cong. (2010) (Testimony of Lewis Morris, Chief Counsel to the Inspector General, 
Department of Health & Human Services). 
27 Department of Justice (DOJ) Press Release, June 28, 2007, Medicare Fraud Strike 
Force Convicts Owner of Miami Durable Medical Equipment Company of Defrauding 
Medicare.  Accessed at http://www.usdoj.gov on December 18, 2007.  DOJ Press Release, 
March 7, 2008, Miami Jury Convicts Physician and Three Business Owners of Medicare 
Fraud.  Accessed at http://miami.fbi.gov on April 15, 2008. 
28 DOJ Press Release, July 11, 2008, Miami Doctor Sentenced to 41 Months in Prison for 
Medicare Fraud.  Accessed at http://www.miami.fbi.gov on January 22, 2010. 
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multiple cases, medical personnel allegedly conspired with a South 
Florida DME supplier to create the appearance that the beneficiary 
qualified for and received services and/or drugs that were not medically 
necessary and/or were not provided.  
However, beneficiaries and physicians are not always aware that    
DME suppliers are using their Medicare identification numbers for 
fraudulent activities.  For example, a Miami DME owner pleaded guilty 
in August 2009 to billing Medicare $123 million in fraudulent DME 
claims that had not been prescribed or ordered by a physician or 
delivered to a beneficiary.  In cases such as this, a DME supplier         
fraudulently obtains beneficiary identification information and uses a         
physicians identification number without the physicians consent or          
knowledge.29, 30   
In May 2009, efforts to fight and reduce Medicare fraud were renewed 
through the Health Care Fraud Prevention and Enforcement Action 
Team (HEAT) initiative.  See Appendix B for a full description of related 
OIG reports and governmental efforts to reduce Medicare fraud in 
South Florida. 
METHODOLOGY 
Data Sources and Collection 
Medicare claims data.  We used the Medicare National Claims History 
(NCH) file to identify all Part B claims for budesonide and 
arformoterol in 2008 and the first half of 2009.31  To identify where 
the supplier submitting each claim was located, we cross-referenced 
the supplier identification number listed in the claims file to the 
supplier identification number listed in the 2008 or the 2009 National 
Supplier Clearinghouse (NSC) file.  We then selected all claims 
submitted by suppliers located in South Florida (i.e., Miami-Dade, 
Broward, or Palm Beach Counties).  In 2008 and the first half of 2009, 
609 South Florida suppliers submitted 204,603 claims for budesonide 
 
29 DOJ Press Release, April 1, 2008, Miami-Dade DME and Clinic Owners Indicted for 
Using Stolen Patient Information in Multi-million Dollar Medicare Fraud Scheme.  
Accessed at http://www.usdoj.gov on October 1, 2008.   
30 DOJ Press Release, August 14, 2009, Miami Man Pleads Guilty to $123 Million 
Medicare Fraud Scheme.  Accessed at http://miami.fbi.gov on August 31, 2009. 
31 For arformoterol, we obtained an updated 2009 claims data file after our initial data 
request.  We used this file to summarize supplier billing and payment information for all 
arformoterol claims in the entire year. 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  8    
   
I N T R O D U C T I O N  
and 305 South Florida suppliers submitted 79,878 claims for 
arformoterol.  See Table 3 for the total number of suppliers billing for 
budesonide and arformoterol in each South Florida county for the 
entire period. 
Table 3:  Number of South Florida DME Suppliers Billing              
for Budesonide and Arformoterol in 2008 and the First               
Half of 2009  
 
Number of Suppliers  Number of Suppliers 
in 2008 and First  in 2008 and First 
County 
Half of 2009 Billing  Half of 2009 Billing  
for Budesonide  for Arformoterol 
Broward  77  27 
Miami-Dade  453  242 
Palm Beach  79  36 
     Total  609  305 
Source:  OIG analysis of DME claims files, 2010. 
Manufacturer sales data.  We contacted arformoterols manufacturer, 
Sepracor, and asked that it provide us with the total number of vials 
of arformoterol sold in 2008 and 2009 to DME suppliers located in 
South Florida (whether directly or through a wholesaler).  We also 
asked for information to identify the suppliers to which arformoterol 
was sold (e.g., suppliers names, any other known business names, 
and addresses).32 
In November 2009, Sepracor provided the requested sales data for all of 
2008 and the first three quarters of 2009.  Sepracor provided sales data 
for any direct sales activity (i.e., the manufacturer sells directly to the 
end user) and sales data for the three largest wholesalers.33  Sepracor 
estimated that these three wholesalers accounted for approximately     
70 percent to 75 percent of all arformoterol sales to wholesalers.  These 
 
32 We had also contacted budesonides manufacturer, AstraZeneca, and requested similar 
sales data for budesonide.  AstraZeneca provided data in May 2010; however, the data 
provided were not at the level of detail necessary for an analysis of sales to South Florida 
suppliers.  
33 Sepracors only direct sales were to two Broward County suppliers.  The exact number 
of suppliers with purchases from the three largest wholesalers could not be determined for 
confidentiality reasons.  At a minimum, data pertaining to the 3 largest wholesalers 
included 123 Miami-Dade County suppliers, 55 Broward County suppliers, and 29 Palm 
Beach County suppliers.   
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  9    
   
I N T R O D U C T I O N  
data included, in addition to the number of arformoterol units sold, the 
transaction date, business name, and address for each sale to every 
South Florida supplier that purchased the drug either directly or 
through one of the three largest wholesalers.   
Because of contractual commitments between the three largest 
wholesalers and certain suppliers, Sepracor was unable to provide 
identification information for all suppliers.  Sepracor commented that 
the unidentified suppliers were typically large, retail, chain pharmacies.  
Sepracor provided only the suppliers ZIP Codes and counties associated 
with these transactions.   
In addition, we accessed CMSs ASP background files to obtain the total 
arformoterol units sold nationwide from the first quarter of 2008 
through the second quarter of 2009.34  The ASP background files 
contain manufacturer-reported sales of the drug to all purchasers in the 
United States (not just to Medicare beneficiaries).  
Supplier data.  We spoke with our Office of Investigations (OI) about 
certain suppliers that we identified as having questionable billing 
patterns.  OI provided us with information regarding indictments and 
investigations related to the suppliers in question.  In addition, staff 
from DOJ provided us with details of a recent NSC site visit to a    
South Florida supplier.  
Data Analysis 
Billing shifts in budesonide and arformoterol.  To identify billing changes 
after the budesonide edit was implemented on September 19, 2008, we 
analyzed claims by both the dates of service and the dates the claims 
were received for processing. 
We subset the drugs claims for services occurring up to 180 days before 
the edits implementation (March 23 to September 18, 2008) and up to 
180 days after the edits implementation (September 19, 2008, to              
March 17, 2009).  We calculated the percentage difference in billing and 
payments for budesonide before and after the edit.  We performed this 
same calculation for arformoterol.   
For both drugs, we used the subset files described in the above 
paragraph to determine the number of Florida suppliers that (1) billed 
Medicare for units provided before the edit but did not bill after the edit, 
 
34 Each quarter, certain manufacturers must report to CMS the ASPs of their Part-B 
covered drugs as well as the number of units sold in the quarter. 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  10    
   
I N T R O D U C T I O N  
(2) did not bill for units before the edit but began billing after the edit, 
and (3) billed for units provided both before and after the edit.  For 
suppliers in each group, we determined the extent of changes in billing 
and payment amounts for budesonide and arformoterol.   
For arformoterol, we also used the date that the supplier actually 
submitted the claim for processing to analyze billing shifts.  To do so, we 
determined the amount billed in each month in 2008 and the percentage 
of total 2008 dollars that were submitted after the edit using the receipt 
date listed on the claim (i.e., the date the DME MAC receives the claim 
from the supplier).   
Arformoterol sales data and Medicare claims data.  We first compared the 
number of units and total dollars paid for by Medicare in South Florida 
to the number of units sold in the area by the manufacturer and the 
three largest wholesalers.  Using claims data in the NCH file for 2008 
and the first half of 2009, we determined the number of arformoterol 
units paid per South Florida supplier by dividing the amount paid on 
each claim by the Medicare payment amount for the quarter when the 
service was provided (the Medicare payment amount represents one 
unit of the drug).35  We summed the total number of arformoterol units 
paid by Medicare to suppliers in South Florida.  Using the sales data 
Sepracor provided, we then calculated the total number of arformoterol 
units sold by Sepracor and the three largest wholesalers to              
South Florida suppliers in 2008 and the first half of 2009 (one vial is 
equal to one unit).  We compared the total number of units sold to   
South Florida suppliers to the total number of units that were paid by 
Medicare.   
We then compared the amount billed (i.e., submitted charges) to 
Medicare by South Florida suppliers to the amount sold by the 
manufacturer and the three largest wholesalers.  Because Medicare 
claims data do not have a variable for units billed, we could do this 
comparison only by the total dollar amount billed.  To estimate the 
dollar amount of arformoterol that could have been billed by area 
suppliers, we multiplied the number of units sold to South Florida 
suppliers (according to Sepracors data) by the Medicare payment 
amount for each quarter.  We summed the quarterly figures and 
 
35 These claims data contained a total service variable; although our estimate is similar 
to the total services in the claims file, our method used to calculate units paid was a more 
conservative estimate. 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  11    
   
I N T R O D U C T I O N    
compared this total figure to the total amount actually billed by     
South Florida suppliers and paid by Medicare during this time.   
Accounting for arformoterol units not sold by the manufacturer or the three 
largest wholesalers.  We used CMSs quarterly ASP background files to 
obtain the total number of arformoterol units Sepracor sold in 2008 and 
the first half of 2009.  This figure represents total sales in the entire 
country and includes non-Medicare beneficiaries.  To account for the    
25 percent to 30 percent of sales data we were unable to obtain from 
Sepracor, we multiplied the total number of units sold during each 
quarter by 30 percent.  This provided us with an estimate of the 
maximum number of total possible units South Florida suppliers could 
have purchased from an entity other than the manufacturer or the three 
largest wholesalers.  We added this figure to the number of units sold to 
South Florida suppliers from Sepracors data to get the total possible 
units that could have been sold to South Florida suppliers.  We 
compared the total possible units figure to the number of units paid by 
Medicare.  
Arformoterol sales data for individual DME suppliers in Miami-Dade County.  
We focused a portion of our sales analysis on individual suppliers in 
Miami-Dade County.  As shown in Table 3, the 242 Miami-Dade County 
suppliers represented the majority (79 percent) of South Florida 
suppliers billing for arformoterol between January 2008 and June 2009.  
We linked the arformoterol units in the claims data to the units in 
Sepracors sales data using the name and address for each Miami-Dade 
County supplier.  We determined the number of suppliers billing 
Medicare for arformoterol that were not listed in the South Florida sales 
data provided by Sepracor.  As previously mentioned, Sepracor was 
unable to provide us with the specific sales data for certain large retail 
pharmacies.  We identified 42 large retail pharmacies with claims data 
that did not have sales data.  The large retail pharmacies accounted for 
less than 1 percent of Medicare billings by all Miami-Dade suppliers 
and we removed them from this analysis.  By doing so, we were left with 
200 Miami-Dade County suppliers for which we calculated unit 
differences between paid Medicare claims and the total sales data for 
Sepracor and the three largest wholesalers.  We summed the total dollar 
amount billed to and paid by Medicare for Miami-Dade suppliers that 
did not appear in Sepracors sales data (again, excluding large retail 
pharmacies).   
We also identified the top 20 billing suppliers in South Florida by 
arraying the claims data for 2008 and the first half of 2009 by the total 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  12    
   
I N T R O D U C T I O N  
amount each South Florida supplier billed for arformoterol.  All of the 
top 20 billing suppliers were located in Miami-Dade County.  We 
compared the total number of units paid in the claims data to the 
number of units sold to the suppliers by Sepracor and the three largest 
wholesalers.   
Limitations 
Sepracor was able to provide information pertaining to direct sales and 
sales by the three largest wholesalers.  Because direct sales were to two 
suppliers, the sales most likely accounted for a small percentage of total 
sales.  However, Sepracor did not estimate the direct sales percentage 
of total sales.  Sepracor noted that the three largest wholesalers account 
for approximately 70 percent to 75 percent of arformoterol sales.  
Sepracor was unable to provide sales information for wholesalers other 
than the three largest wholesalers, meaning that we may be missing as 
much as 30 percent of the sales data for arformoterol.  In addition, 
Sepracors data account for all sales of the drug (e.g., Medicare, 
Medicaid, private payers).  In other words, the data provided by 
Sepracor are not limited to the product that was used by Medicare 
beneficiaries.    
Our comparisons between the sales data provided by Sepracor and the 
Medicare claims data do not account for units of arformoterol that were 
sold to a South Florida DME supplier in 2007 and then provided by the 
DME supplier to Medicare beneficiaries in 2008.  Conversely, our 
comparisons also do not account for the likelihood that some of the units 
included in Sepracors data that were sold to a South Florida DME 
supplier in the first half of 2009 would not have been provided to a 
Medicare beneficiary until later that year (i.e., after the period covered 
by our analysis).    
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections approved by the Council of the Inspectors General on 
Integrity and Efficiency. 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  13    
   
 F I N D I N G S  
After a utilization edit was implemented for  In September 2008, a     
budesonide, Medicare payments for the drug to  CMS contractor covering 
South Florida implemented 
South Florida suppliers were reduced by  
an automated edit to detect 
almost half 
and deny budesonide claims 
that exceeded the drugs utilization guideline listed in the LCD for 
nebulizers and related inhalation drugs.36  In the 6 months after the 
edits implementation, Medicare paid $13 million less to South Florida 
suppliers for budesonide (for a 46-percent decrease) and these suppliers 
billed $24 million less for budesonide (for a 44-percent decrease) when 
compared to the 6 months before the edit.37  Figure 1 illustrates the 
changes in payment and billing behavior of South Florida suppliers 
before and after the edit was implemented.   
Figure 1:  Before and After the Budesonide EditAmount Billed and            
Paid to South Florida Suppliers for Budesonide  
$60,000,000 
$54,039,588
$50,000,000  Amount 
Billed 
$40,000,000 
$30,056,515 
$28,934,163
$30,000,000 
Amount 
Amount 
Billed 
$20,000,000  Paid 
$15,577,307
  Amount    
$10,000,000      Paid 
$0 
Total in 6 Months  Total in 6 Months 
Before  After 
Budesonide Edit Budesonide Edit
 
Source:  OIG analysis of 2008 and 2009 DME claims data, 2010. 
 
36 See OEI-03-08-00290 for more detail on budesonide claim patterns in South Florida.  
This report found that during a 90-day period in 2007, approximately 75 percent of South 
Florida beneficiaries with budesonide claims exceeded this utilization guideline before the 
edit was implemented. 
37 Six months refers to the 180 days before the edit was implemented on                
September 19, 2008, and the 180 days after the edit was implemented.  For the remainder 
of this finding, comparisons before the edit to after the edit refer to this period.  
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  14    
   
F I N D I N G S  
After the budesonide edit took effect, 39 of 41 high-dollar South Florida 
suppliers either completely stopped or reduced billing for the drug 
Thirteen high-dollar suppliers stopped billing after the edit.  Nearly           
30 percent (119 of 414) of the South Florida suppliers that had billed 
Medicare for budesonide in the 6 months before the edit completely 
stopped billing for budesonide in the 6 months after the edit.  Most of 
these suppliers had billed only small amounts before the edit.  However,         
13 high-dollar suppliers that submitted $12 million in budesonide 
claims to Medicare in the 6 months before the edit stopped billing 
completely.38  If the nearly 12,000 claims submitted by the                    
13 high-dollar suppliers during the prior 6 months were accurate, this 
would mean that these suppliers stopped providing budesonide to all 
3,628 beneficiaries that had received the drug before the edit.    
In the 6-month period before the edit took effect, 2 of the 13 suppliers 
were indicted for alleged Medicare fraud.  These suppliers were believed 
to be billing for services not rendered.  In each case, the physicians did 
not know and did not prescribe the medications for the beneficiary listed 
on the claim.39  
Twenty-six high-dollar suppliers significantly reduced billing after the edit.  
Seventy-one percent of South Florida suppliers (295 of 414) that billed 
for budesonide in the 6 months before the edit continued to bill for the 
drug in the 6 months after the edit.  Slightly more than half of these 
had decreases in their amounts billed.  The decreases were greatest 
among suppliers that were the top billing suppliers in the 6 months 
before the edit.  All but 2 of 28 high-dollar suppliers that continued 
billing for budesonide had billing decreases, some significant, in the      
6 months after the edit.40  For example, one supplier billed over 
$800,000 in the 6 months before the edit, but less than $1,000 in the      
6 months after the edit.  Combined, the 28 high-dollar suppliers billed 
$13 million less in the 6 months after the edit (53-percent decrease).  
 
38 High-dollar suppliers were identified as suppliers that billed more than $500,000 each 
for budesonide in the 6 months before the edit.  Forty-one South Florida suppliers met this 
criterion. 
39 We referred the 11 remaining suppliers to OI for further investigation.  See  
Appendix C for the criteria we used when referring all suppliers identified as potentially 
fraudulent in this report, and for further information from OI about the status of these 
referrals.  
40 We referred the 26 high-dollar suppliers with decreases in budesonide billings in the   
6 months after the edit to OI for further investigation.  See Appendix C for the criteria we 
used when referring all suppliers identified as potentially fraudulent in this report, and for 
further information from OI about the status of these referrals.  
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F I N D I N G S  
                                                                  Although a utilization edit 
Medicare payments for arformoterol to South 
reduced Medicare 
Florida suppliers more than doubled after a 
payments for budesonide 
utilization edit for budesonide was implemented 
in the 6 months following 
its implementation,   
South Florida suppliers instead began billing in substantial amounts for 
the similarly expensive brand-name inhalation drug arformoterol 
(which was not subject to an edit).41  In the 6 months after the 
budesonide edit took effect, arformoterol billings by South Florida 
suppliers increased by 53 percent and Medicare payments for the drug 
to South Florida suppliers rose 138 percent compared to 6 months prior 
(see Figure 2).42 
Figure 2:  Before and After the Budesonide EditAmount Billed and   
Paid to South Florida Suppliers for Arformoterol  
 
$30,000,000 
 
  $27,071,544 
 
$25,000,000 
  Amount      
Billed 
 
$20, 000,000 
 $17,744,239
  $16,404,441
$15, 000,000  Amount  Amount 
Billed  Paid
 
                           
$10,000,000 
      
  $6,879,485
 
 
$5,000,000   Amount 
 
Paid
 
 
 
$0 
                                      
Total in 6 Months  Total in 6 Months  
                               
  Before  After 
  Budesonide Edit  Budesonide Edit 
 
          Source:  OIG analysis of 2008 and 2009 DME claims data, 2010. 
 
 
41 Although both drugs treat lung diseases, large shifts from budesonide to arformoterol 
would not be expected.  These drugs are not interchangeable in terms of approved use or 
classification.   
42 Six months refers to the 180 days before the edit was implemented on                
September 19, 2008, and the 180 days after the edit was implemented.  In the remainder of 
this finding, comparisons before the edit to after the edit refer to this period.  
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F I N D I N G S  
In 2008, South Florida suppliers accounted for 44 percent of the total 
amount billed to Medicare for arformoterol ($33 million of the             
$75 million billed nationally).  Furthermore, Medicare was billed more 
for beneficiaries in South Florida than for beneficiaries in the rest of 
Florida and the 18 next-highest-billing States combined.  In 2009,  
South Florida suppliers accounted for 40 percent of arformoterol billings 
to Medicare ($39 million of the $97 million billed nationally).   
In 2008, Medicare paid over $14 million to South Florida suppliers for 
arformoterol; 45 percent of these payments were for services provided in 
the last quarter of 2008 (i.e., the quarter after the budesonide edit was 
implemented).  Medicare payments for arformoterol increased in 2009.  
In fact, within the first 4 months of that year, Medicare payments to 
South Florida suppliers had already exceeded the 2008 total.  By the 
end of 2009, Medicare payments to South Florida suppliers for 
arformoterol were more than double payments in the previous year.   
One hundred sixty-nine suppliers increased or began billing for arformoterol 
after the edit.  Nearly half of the South Florida suppliers that submitted 
arformoterol claims in the 6 months before the budesonide edit had 
billing increases in the 6 months after the edit (85 of 177 suppliers).43  
These 85 suppliers billed an average of nearly 5 times more for a total 
billing increase of $13 million ($3 million billed before the edit;           
$16 million billed after).44  Overall, 67 of the 85 South Florida suppliers 
billed amounts that were at least double the amounts billed before the 
budesonide edit.  In an extreme case, a supplier billed nearly  
3,000 times more for arformoterol than the amount billed before the 
edit.  In total, Medicare payments to these 85 suppliers increased by  
$8 million (341 percent increase).   
In addition, in the 6 months after the edit, 84 South Florida suppliers 
began billing for arformoterol.  For example, one supplier never billed 
for arformoterol in the 6 months before the edit, but billed $1.6 million  
 
43 Among the 177 South Florida suppliers that billed for arformoterol before the edit,    
53 suppliers did not bill for the drug in the 6 months after the edit and 39 suppliers billed 
the same amounts or had billing decreases. 
44 Thirteen of these suppliers billed more than $500,000 each in the 6 months after the 
edit.  We referred these 13 suppliers to OI for further investigation.  See Appendix C for the 
criteria we used when referring all suppliers identified as potentially fraudulent in this 
report, and for further information from OI about the status of these referrals.  
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  17    
   
F I N D I N G S  
for the drug in the 6 months after the edit (Medicare paid 90 percent).45  
In total, these 84 suppliers billed Medicare $5 million for arformoterol 
after the edit and were paid $4 million.  
South Florida suppliers submitted two-thirds of their arformoterol billings 
for 2008 to Medicare after the budesonide edit was put in place in 
September 2008 
In the month after the budesonide edit was implemented                   
(i.e., October 2008), South Florida suppliers billed Medicare for a 
quarter of the $33 million submitted for arformoterol in 2008.  This was 
more than double the amount South Florida suppliers billed in any 
other month before the edit (and significantly more than the total 
amount billed in any month for suppliers in the rest of the country).  In 
total, 66 percent of arformoterol billings for 2008 services were 
submitted by South Florida suppliers after the edit was implemented.  
See Appendix D for a monthly breakdown of when South Florida 
suppliers submitted arformoterol claims. 
In 2008, the top-billing South Florida supplier submitted $8.4 million to 
Medicare for arformoterol.  Based on claims data, the drug was 
supposedly provided to beneficiaries throughout the year, starting on 
January 31.  However, this supplier submitted all but 1 of its more than 
2,300 arformoterol claims beginning 2 days after the September 2008 
edit was implemented.  In other words, after claims for budesonide were 
subject to an edit, this supplier began submitting a large volume of 
claims for arformoterol that had supposedly been provided during the 
previous 8 months.  
After the September 2008 budesonide edit, decreases to Medicare 
expenditures for budesonide were offset by increases in expenditures for 
arformoterol 
Although the edit reduced Medicare expenditures for budesonide, 
because South Florida suppliers increased billing for arformoterol, 
Medicare actually paid more per month for both drugs combined soon 
after the edit took effect.  For example, Medicare paid $6.5 million for 
both drugs in August 2008 ($1.7 million for arformoterol and             
$4.8 million for budesonide).  However, Medicare paid $7 million for 
both drugs in March 2009 ($4 million for arformoterol and $3 million for 
 
45 We referred this supplier and an additional high-dollar supplier that began billing for 
arformoterol after the edit to OI for further investigation.  See Appendix C for the criteria 
we used when referring all suppliers identified as potentially fraudulent in this report, and 
for further information from OI about the status of these referrals.  
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  18    
   
F I N D I N G S  
budesonide).  See Figure 3 for a monthly breakdown of combined 
Medicare payments for budesonide and arformoterol.  
For example, budesonide billings for one Miami-Dade supplier 
decreased by more than 50 percent after the edit ($654,000 billed in the 
6 months before the edit; $306,000 billed in the 6 months after the edit).  
Medicare denied the majority of the budesonide claims submitted by 
this supplier both before and after the edit.  However, this suppliers 
billing for arformoterol increased from just $300 before the edit to 
$856,000 after the edit.  Even though Medicare had been denying the 
majority of this suppliers budesonide claims, Medicare paid for            
55 percent of the amount submitted for arformoterol after the edit, or 
$474,000. 
 
Figure 3:  Medicare Payments to South Florida Suppliers for Budesonide and 
Arformoterol in the 6 Months Before and After the Budesonide Edit 
Edit 
$8,000,000 
Implemented 
$7,000,000 
$6,000,000 
$5,000,000 
$4,000,000 
$3,000,000 
$2,000,000 
$1,000,000 
 
$0
Apr-08  May-08 Jun-08  Jul-08  Aug-08 Sep-08 Oct-08  Nov-08 Dec-08 Jan-09 Feb-09 Mar-09
Arformoterol Paid Amount  Budesonide Paid Amount 
        Source:  OIG analysis of the 2008 and 2009 DME claims data, 2010. 
Although Medicare paid     
We estimate that in 2008 and the first half of 
South Florida suppliers          
2009, Medicare paid South Florida suppliers for 
$34 million for arformoterol 
up to 10 times more units of arformoterol than 
between January 2008 and   
were distributed for sale in the area 
June 2009, it does not appear 
that these suppliers purchased enough of the drug to justify these 
payments.  During this time, Medicare paid for 7 million units of 
arformoterol, whereas the manufacturer and the 3 largest wholesalers 
sold only 750,000 units to suppliers in the area (approximately               
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  19    
   
F I N D I N G S  
3 percent of total Sepracor sales of the drug).  As a result, Medicare paid 
South Florida suppliers for nearly 10 times more units of arformoterol 
(6.2 million units) than the drugs manufacturer and the 3 largest 
wholesalers sold to South Florida suppliers.  See Figure 4 for a 
quarterly comparison of the number of units sold by the manufacturer 
and the three largest wholesalers to the number of units paid for by 
Medicare. 
 Figure 4:  Comparison of Manufacturers Units Sold to Claims Data in South        
 Florida (2008 and first half of 2009)  
2,500,000
2,000,000
Claims Data -
Units Paid
s
nit
U 1,500,000
ol 
er
ot
m
1,000,000
or
Arf
Manufacturer
500,000
Data - Units
Sold
-
Qtr 1 2008 Qtr 2 2008 Qtr 3 2008 Qtr 4 2008 Qtr 1 2009 Qtr 2 2009
 
 Source:  OIG analysis of the 2008 and 2009 DME claims data and manufacturer data, 2010. 
 
Even when factoring in the 25 percent to 30 percent of missing sales 
data, it is highly unlikely that South Florida suppliers purchased this 
quantity of the drug.  According to our analysis of CMSs ASP data, 
other wholesalers would have sold approximately 6.6 million units of 
arformoterol for all Medicare and non-Medicare arformoterol use in the 
entire country.  To account for the amount paid by Medicare,          
South Florida suppliers would have needed to purchase nearly all of 
those 6.6 million units (94 percent) and provided them to Medicare 
beneficiaries only.  Aside from the rampant fraud in South Florida, as 
well as the aberrant billing patterns for the drug, the fact that only       
3 percent of the manufacturers and the three largest wholesalers sales 
went to South Florida suppliers makes this possibility seem highly 
unlikely.  In addition, this addresses only the number of units paid and 
not the amount South Florida suppliers billed to Medicare.   
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  20    
   
F I N D I N G S  
Records from a February 2009 NSC site visit provide evidence that 
South Florida suppliers are billing and receiving payments for 
inhalation drugs that were not actually purchased and provided to 
Medicare beneficiaries.  Staff from NSC visited a Miami-Dade supplier 
that had billed Medicare $600,000 and was paid $33,000 for 
arformoterol in 2008 and the first half of 2009.  During the site visit, 
NSC staff noted a limited inventory of DME items, including nebulizers 
and inhalation drugs.  In addition, this supplier could not fulfill NSCs 
request to provide invoices or credit agreements showing that it actually 
purchased the inhalation drugs and DME items.  It was recommended 
that this suppliers billing privileges be revoked.  
Based on data from the manufacturer and the 3 largest wholesalers,     
South Florida suppliers billed Medicare for up to 17 times more than the 
amount that was distributed for sale in the region 
Had all South Florida sales reported by Sepracor and the three largest 
wholesalers gone to beneficiaries, the program would have spent       
$3.7 million on arformoterol in the area in 2008 and the first half of 
2009.  Instead, South Florida suppliers billed Medicare for $62 million, 
or 17 times more than the amount the manufacturer and the 3 largest 
wholesalers could have sold in the region.  Medicare actually paid      
$34 million to South Florida suppliers for arformoterol.  
Furthermore, South Florida suppliers billed Medicare for such an 
exceedingly large volume of arformoterol that this amount could not be 
accounted for in the 25 percent to 30 percent of sales by other 
wholesalers.  Based on our analysis of CMSs ASP data, had every unit 
sold by an entity other than the manufacturer and the three largest 
wholesalers been purchased by a South Florida supplier for Medicare 
beneficiaries, Medicare would have spent $36 million in this region.  
Therefore, the $62 million billed by South Florida suppliers far exceeds 
total possible sales by the manufacturer, the three largest wholesalers, 
and any other wholesaler that could have provided arformoterol.     
The majority of Miami-Dade County suppliers never purchased 
arformoterol from the drugs manufacturer or the three largest 
wholesalers in 2008 and the first half of 2009 
Among South Florida suppliers, the majority billing for arformoterol in 
2008 and the first half of 2009 were located in Miami-Dade County     
(79 percent).  Sixty-five percent of Miami-Dade County suppliers that 
billed Medicare for arformoterol between January 2008 and June 2009 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  21    
   
F I N D I N G S  
did not purchase a unit of the drug from the drugs manufacturer or the 
three largest wholesalers during this period.46  These suppliers billed 
Medicare for $44 million, of which Medicare paid $23 million               
(these figures represent 71 percent of total billings and 68 percent of 
total payments to Miami-Dade County suppliers).   
Arformoterols manufacturer and 3 largest wholesalers sold the drug to 
only 5 of the 20 Miami-Dade suppliers with the most arformoterol 
billings in South Florida.  This means that 15 of these top-billing 
suppliers would have had to purchase arformoterol from another source.  
The 15 suppliers billed Medicare for $29 million in 2008 and the first 
half of 2009; Medicare paid $13 million of this.47  Medicare paid these   
15 suppliers for 2.6 million units of arformoterol that could not be 
accounted for in the sales data of the manufacturer and the 3 largest 
wholesalers.  Because these suppliers were among the biggest providers 
of arformoterol in the country, they most likely would have had 
purchasing contracts with the drugs manufacturer or the largest 
wholesalers to obtain purchasing discounts.   
Even the suppliers that did buy arformoterol from the manufacturer or 
the three largest wholesalers did not purchase enough to account for 
their high level of billings.  For the five suppliers with sales data, 
Medicare paid an average of nine times more units than what was 
actually sold by the manufacturer and the three largest wholesalers.  
 
 
 
 
 
 
 
 
46 Again, these suppliers may have purchased arformoterol from another source.  
However, given the substantial purchasing and distribution of the drug from certain 
suppliers, these suppliers would have most likely purchased the drug directly from the 
manufacturer or one of the three largest wholesalers. 
47 Among the 15 suppliers, we referred to OI the 13 suppliers that billed Medicare over 
$1 million for arformoterol during 2008 and the first half of 2009.  See Appendix C for the 
criteria we used when referring all suppliers identified as potentially fraudulent in this 
report, and for further information from OI about the status of these referrals.  
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  22    
   
 R E C O M M E N D A T I O N S  
 
 
South Florida is known for its susceptibility to Medicare fraud, 
particularly by DME suppliers.  Fraudulent billings jeopardize the 
financial integrity of Medicare and may endanger a beneficiarys      
well-being when drugs are overprescribed.  Recent efforts, such as the 
HEAT initiative, have focused on reducing Medicare fraud, waste, and 
abuse in areas such as South Florida. 
A previous OIG report identified potential fraud related to billings for 
budesonide by South Florida suppliers.  In September 2008, a CMS 
contractor implemented an automated edit to detect and deny claims 
that exceed the maximum milligrams that a physician can safely 
prescribe to a beneficiary for budesonide.  Our findings indicate that 
this edit did in fact decrease budesonide billings by and Medicare 
payments to South Florida DME suppliers.  However, South Florida 
suppliers instead began billing for another brand-name inhalation drug, 
arformoterol.  The substantial difference between the sales data 
provided by arformoterols manufacturer and the claims data for    
South Florida suppliers suggest that these suppliers were billing for 
drugs that may not have been actually purchased.  Therefore, we 
recommend that CMS: 
Require DME contractors to implement utilization edits in  
high-fraud areas as soon as Medicare begins paying for a      
brand-name drug 
The substantial drop in beneficiary utilization of budesonide after the 
edit brings into question the validity of many of the budesonide claims 
submitted by South Florida suppliers prior to the edit.  The fact that 
such a large number of suppliers stopped providing this drug further 
illustrates this point.   
Even though the edit resulted in lowering budesonide payments, 
Medicare could not realize the savings because South Florida suppliers 
instead began to bill for a new high-dollar, brand-name inhalation drug.  
Within a few months after the edit, Medicare decreases in expenditures 
for budesonide were offset by increases in expenditures for arformoterol.  
Medicare should require DME MACs and PSCs (or their successor, the 
ZPICs) to implement payment edits as soon as the drug is issued a 
payment code, particularly in areas known for Medicare fraud, such as 
South Florida.  Medicare had been paying for budesonide for at least     
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  23    
   
R E C O M ME N D A T I O N S  
3 years and the LCDs coverage guideline had been in place for over        
1 year before the edit was implemented.  As of March 2010, contractors 
had yet to place an edit (despite an LCD that has utilization guidelines) 
on arformoterol claims, and CMS should enforce its implementation as 
soon as possible.  In the case of arformoterol and budesonide, 
implementing an edit as soon as the drug was issued a payment code 
could have saved the program hundreds of millions of dollars  
Monitor utilization changes among brand-name inhalation drugs 
CMS and its contractors should vigilantly monitor utilization changes to 
detect instances in which utilization of a drug is disproportionate to 
utilization in the rest of the country and/or suppliers exhibit billing 
spikes for a new drug or a drug for which it had never previously billed.  
This is especially important following implementation of a utilization 
edit, such as that for budesonide.  Because of payment restrictions for 
budesonide, many South Florida suppliers sought a new drug to bill for 
in its place and did so in extraordinary amounts.  Sales data for 
arformoterol indicate that many South Florida suppliers were most 
likely billing for drugs that were never even provided to the 
beneficiaries.  If CMS and its contractors had detected aberrations in 
arformoterol billings, South Florida suppliers with questionable billings 
could have been investigated and potentially had their billing privileges 
revoked.  
Strengthen initial claim review processes to focus on prevention of 
improper payments 
Medicare generally has 30 days to pay a supplier for the claim and is able 
to review only approximately 3 percent of all Medicare claims prior to 
payment.  DME suppliers have a much longer time to bill Medicare and 
can submit claims up to a year after the services are provided.  Because 
the majority of the claims billed by South Florida suppliers for 
arformoterol were submitted soon after the budesonide edit, CMS would 
have received an influx of claims for this drug in a short timespan.  If 
these claims had been reviewed, the time constraints to pay the claim 
would most likely have made a thorough review difficult.  However, 
increasing the number of arformoterol claims reviewed would probably 
have resulted in more denials, thereby significantly reducing payments.  
For that reason, to strengthen the initial claim review process, we 
recommend: 
  working with Congress (if necessary) to increase the time 
Medicare has to review claims in areas known for fraudulent 
activities, such as South Florida; and 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  24    
   
RR EE CC OO MM MM EE NN DD AA TT II OO NN SS   
  performing prepayment reviews on suppliers in high-fraud areas 
that submit the majority of their claims well after the dates of 
service. 
Perform site visits and request documentation from South Florida 
suppliers to support budesonide and arformoterol billings   
As discussed in the findings, we have provided a list to OI of high-dollar 
suppliers we believed warranted investigation for criminal wrongdoing.  
After consulting with OI, we also forwarded information on certain of 
these suppliers to CMS.  See Appendix C for a summary of the criteria 
used to identify these suppliers.  CMS should perform unannounced site 
visits to the problematic high-dollar suppliers we refer to the agency.  
These visits would determine whether these suppliers are stocked with 
the drugs; have appropriate storage facilities for the drugs; have stored 
the drugs properly (e.g., refrigeration for arformoterol); and meet 
Medicare supplier standards.  CMS should also request that the 
suppliers provide documentation to justify the amounts billed for 
budesonide and arformoterol.  Documentation should include items such 
as purchasing receipts, invoices, credit agreements, and proof of 
delivery to the beneficiary.  Where appropriate, CMS should take steps 
to revoke billing privileges for any suppliers with fraudulent claims. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE  
CMS concurred with all four of our recommendations (one of the 
concurrences included a caveat).  CMS also described a number of steps 
that the agency has taken to resolve problematic billings for          
brand-name inhalation drugs by DME suppliers in South Florida and in 
certain other areas of the country.  Effective July 16, 2010, a CMS 
contractor implemented three new edits covering multiple States 
(including Florida) for budesonide; arformoterol; and a third inhalation 
drug, formoterol.  To prevent suppliers from switching to related 
products to evade these new edits, this contractor is also developing 
utilization edits for an additional nine inhalation drugs.  CMS also 
described its efforts to closely track shifts in utilization from budesonide 
to arformoterol and formoterol under its DME Stop Gap Initiative, as 
well as supplier-specific measures under the ZPICs. 
In response to our first recommendation about utilization edits, CMS 
generally concurred, but included the caveat that the requirements 
listed in the Medicare manual be met first.  CMS stated that before 
implementing automated prepayment edits for brand-name inhalation 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  25    
   
R E C O M M E N D A T I O N S  
drugs, a clear policy, such as developing and issuing an LCD, would 
need to be finalized so that unintended adverse consequences would be 
avoided.  OIG acknowledges the importance of CMSs requirements and 
agrees with the agency about the need to avoid adverse consequences.  
However, in the case of budesonide and arformoterol, utilization 
guidelines were listed in the LCD years before the edits took effect.  
Once utilization guidelines for brand-name inhalation drugs are 
established and listed in an LCD, CMS should ensure that edits to 
enforce them are put in place, particularly in high-fraud areas. 
CMS agreed with our recommendation to monitor utilization changes 
among brand-name inhalation drugs, as well as with our 
recommendation to strengthen initial claim review processes.  The 
agency stated that to strengthen these processes, it would recommend 
to DME PSCs and ZPICs that the identification of late-billing suppliers 
be used as an additional risk indicator for initiating prepayment 
reviews and that it would request the Pricing and Data Analysis 
Contractor to add this parameter to its DME Stop Gap Supplier 
Reporting Templates.  CMS also stated that it would forward our 
suggestion that the agency work with Congress to increase the time 
Medicare has to review claims to its Office of Legislation.  Finally, CMS 
concurred with our recommendation to review specific problematic 
suppliers and provided details regarding its planned actions. 
We did not make any changes to the report based on CMSs comments. 
For the full text of CMSs comments, see Appendix E.   
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  26    
   
 A P P E N D I X   ~   A  
Medicare Process for Enrolling Durable Medical Equipment Suppliers 
Before a durable medical equipment (DME) supplier may bill Medicare, 
it must obtain a National Provider Identifier (NPI), which is a unique 
identifier for health care providers that is assigned by the National Plan 
and Provider Enumeration System.  Recently, the Centers for Medicare 
& Medicaid Services (CMS) added two additional requirements that 
suppliers must meet to obtain Medicare billing privileges.  First, as of 
May 2009, DME suppliers seeking to enroll or change their ownership 
must also submit a $50,000 surety bond for each NPI with Medicare 
billing privileges (suppliers enrolled prior to this date were required to 
submit the surety bond by October 2, 2009).  Second, all DME suppliers 
must meet quality standards and submit evidence of accreditation as of 
October 1, 2009.48, 49   
After meeting these requirements, the DME applicant must submit a 
completed application form (Form CMS-855S) and supporting 
documents to CMS.  By signing and submitting the application form, 
the applicant agrees to follow all Medicare laws, regulations, and 
program instructions.  The applicant must also meet certain Medicare 
supplier standards.50   
CMS contracts with the National Supplier Clearinghouse (NSC) to 
manage the enrollment of suppliers.  To ensure that an applicant is 
meeting the Medicare supplier standards, NSC must conduct an 
unannounced site visit while the application is being processed.  
Generally, if the supplier is not in compliance, NSC will deny the 
application.  Suppliers are required to reenroll in Medicare every           
3 years to continue receiving payment.51  The reenrollment process 
requires a resubmission of the CMS-855S application form and the 
required documentation.  NSC will conduct an unannounced 
reenrollment site visit to ensure that the supplier continues to meet 
Medicare standards.   
 
48 Medicare Improvements for Patients and Providers Act of 2008, P.L. 110-275 
 154(b)(1) (July 15, 2008).  Certain professionals and persons did not have to meet this 
deadline.  Pharmacies supplying DME did not have to meet the accreditation requirements 
until December 31, 2009. 
49 The new health care reform statute recently enhanced CMSs authority related to 
supplier enrollment by implementing measures to improve the oversight and screening of 
suppliers.  For example, as part of these changes, enrolling suppliers will now be required to 
have a compliance program and disclose certain affiliations with excluded entities.  Patient 
Protection and Affordable Care Act of 2010, P.L. 111-148  6401 (Mar. 23, 2010).  
50 42 CFR  424.57(c).    
51 42 CFR  424.57(e). 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  27    
   
 A P P E N D I X   ~   B  
 
Related Office of Inspector General Work 
Unannounced site visits.  In March 2007, the Office of Inspector General 
(OIG) issued a report entitled South Florida Suppliers Compliance With 
Medicare Standards:  Results From Unannounced Visits                   
(OEI-03-07-00150).  In that study, OIG made 1,581 unannounced site 
visits in late 2006 to durable medical equipment (DME) suppliers in 
South Florida.  We found that 491 suppliers (31 percent) visited did not 
maintain a physical facility or were not open and staffed during 
business hours.  At the time that we conducted the visits, these  
491 suppliers had billed Medicare for almost $237 million in 2006.  We 
referred these suppliers to the Centers for Medicare & Medicaid 
Services (CMS) so that the agency could consider revocation.  We 
recommended that CMS strengthen the supplier enrollment process and 
ensure that suppliers meet Medicare supplier standards.  CMS stated 
that it would take several steps to strengthen supplier standards and 
revoked the billing privileges for the 491 suppliers OIG referred.   
OIG issued a followup report in October 2008 entitled South Florida 
Durable Medical Equipment Suppliers:  Results of Appeals              
(OEI-03-07-00540), that determined the number of revoked suppliers 
identified in the aforementioned study that appealed their revocations 
and were reinstated into the Medicare program.  Nearly half of the       
491 revoked South Florida suppliers appealed their revocations and 
received hearings; among these, 91 percent were reinstated by the 
hearing officers based on a variety of evidence.  After being reinstated, 
two-thirds of these suppliers had their billing privileges revoked again 
or inactivated.  We recommended that CMS strengthen the supplier 
appeal process by developing criteria for reinstatements.  In response, 
CMS stated that it had been taking aggressive steps to prevent 
Medicare fraud and agreed that reinstatement guidelines should be 
developed.   
Aberrant billing patterns.  In September 2007, OIG issued a report 
entitled Aberrant Billing in South Florida for Beneficiaries With 
HIV/AIDS (OEI-09-07-00030).  This study analyzed claim patterns 
associated with HIV/AIDS infusion therapy providers in South Florida 
and the oversight mechanisms CMS had in place to control 
inappropriate payments to these providers.  In the last half of 2006, 
South Florida accounted for 79 percent of the amount of drug products 
billed nationally for Medicare beneficiaries with HIV/AIDS, even though 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  28    
   
A P P E N D I X   ~   B  
only about 10 percent of Medicare beneficiaries with HIV/AIDS lived 
there.  Based on our review of CMS materials and claims data, we found 
that CMS and its contractors had used multiple approaches in        
South Florida to control aberrant billing for beneficiaries with 
HIV/AIDS, but none had proven effective as of the time we conducted 
our review.  We recommended that CMS implement a number of 
controls that could reduce aberrant billing by infusion clinics.  CMS 
generally concurred with our recommendations. 
The April 2009 OIG report entitled Aberrant Claim Patterns for 
Inhalation Drugs in South Florida (OEI-03-08-00290), found that 
South Florida accounted for 17 percent of Medicare spending on 
inhalation drugs in 2007, even though only 2 percent of all Medicare 
beneficiaries lived there.  In particular, per-beneficiary spending on 
budesonide was much greater in South Florida than in the rest of the 
country ($4,429 per beneficiary compared to $1,567 per beneficiary      
in the rest of the country).  We also found that 75 percent of             
South Florida beneficiaries who received budesonide had       
Medicare-reimbursed budesonide claims that exceeded the utilization 
guidelines for this drug, compared to 14 percent in the rest of the 
country.  We recommended that CMS ensure that all Program 
Safeguard Contractors are enforcing the guidelines (especially for 
budesonide), eliminate Medicares vulnerability to potentially 
fraudulent claims, and review the cases in which the supplier appears 
to be fraudulently billing Medicare.  CMS concurred with all of our 
recommendations and described its recent efforts to address the 
issues cited in our report, including the implementation of an 
automated edit for budesonide in September 2008.   
Medicare Fraud Strike Force and the Health Care Fraud Prevention and 
Enforcement Action Team 
On March 1, 2007, a strike force of Federal, State, and local 
investigators began operating in South Florida to detect, prosecute, and 
prevent Medicare fraud by area DME suppliers.  The Strike Forces 
efforts have resulted in more than $220 million in court-ordered 
restitutions to the Medicare program in cases involving 159 defendants 
charged with criminal health care fraud offenses.  In March 2008, a 
second phase of the strike force began operating in Los Angeles. 
In May 2009, the Health Care Fraud Prevention and Enforcement 
Action Team (HEAT) initiative was launched to renew efforts to reduce 
Medicare fraud.  This initiative is a collaboration of officials from the 
Department of Health & Human Services and the Department of 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  29    
   
A P P E N D I X   ~   B 
Justice that builds upon existing programs that combat fraud and 
identifies new methods to prevent fraud.  HEAT is intended to increase 
Medicare compliance training for providers, improve data sharing 
between CMS and law enforcement, and strengthen program integrity 
monitoring.  The HEAT initiative also strengthened and expanded the 
Medicare Strike Force to Detroit, Houston, Brooklyn, Tampa, and Baton 
Rouge.   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  30    
   
 A P P E N D I X   ~   C  
 
Criteria Used To Identify and Refer Potentially Fraudulent          
South Florida Durable Medical Equipment Suppliers 
In total, we identified 49 high-dollar durable medical equipment 
suppliers in South Florida as especially problematic and worthy of 
further review.52  Suppliers were identified using the three criteria 
below.  Because suppliers may meet more than 1 of the criteria, the 
number of suppliers listed does not add up to the 49 unique suppliers 
we believed warranted investigation.  
Our criteria used to identify the potentially fraudulent suppliers 
include: 
  billing over $500,000 for budesonide before the utilization edit was 
implemented, but then having a significant drop or completely 
stopping billing in the 6 months after the edit (37 suppliers);  
  beginning to bill or significantly increasing billing for arformoterol 
in the 6 months after the edit and billing for over $500,000 during 
this period (15 suppliers); and 
  billing over $1 million in 2008 and the first half of 2009 for 
arformoterol, but not purchasing a unit of the drug from the 
manufacturer or the 3 largest wholesalers (13 suppliers). 
We have referred these 49 suppliers to OI.  Of the 49, OI and the 
Federal Bureau of Investigation had more than half under 
investigation.  Some of the providers have already had prosecutorial 
actions taken against them.  After consulting with OI, we have 
forwarded information for certain of the 49 suppliers, as deemed 
appropriate, to the Centers for Medicare & Medicaid Services for 
possible revocation.   
 
 
 
 
 
 
52 We initially identified 51 suppliers as being especially problematic; however, at the 
time of our data analysis, 2 of those suppliers had already been indicted for alleged 
Medicare fraud and we therefore did not refer them to the Office of Investigations (OI).   
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  31    
   
 A P P E N D I X   ~   D  
 
Table D-1:  Monthly Claims Submitted by South Florida Suppliers                      
for Arformoterol Services Provided in 2008 
 
  Monthly 
  Amount  Percentage of  Cumulative 
Month Claim Was  Submitted per  Total  Amount  Cumulative 
Submitted  Month  Submitted  Submitted  Percentage 
Jan08  $4,687  0%  $4,687  0% 
Feb08  $127,056  0%  $131,743  0% 
Mar08  $261,453  1%  $393,196  1% 
Apr08  $469,923  1%  $863,119  3% 
May08  $786,074  2%  $1,649,193  5% 
Jun08  $1,786,228  5%  $3,435,421  10% 
Jul08  $3,769,246  11%  $7,204,667  22% 
Aug08  $1,572,232  5%  $8,776,900  27% 
Sep08  $2,540,261  8%  $11,317,161  34% 
Budesonide edit implemented at the end of the September 
Oct08  $8,161,763  25%  $19,478,924  59% 
Nov08  $4,580,203  14%  $24,059,127  73% 
Dec08  $6,187,195  19%  $30,246,323  92% 
Jan09  $2,124,999  6%  $32,371,322  98% 
Feb09  $361,259  1%  $32,732,581  99% 
Mar09  $323,095  1%  $33,055,676  100% 
Source:  Office of Inspector General analysis of the 2008 claims data, 2010. 
Note:  Amounts submitted per month are based on the dates that the suppliers actually submitted the claims for processing.  
 
 
 
 
 
 
 
 
 
 
 
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  32  x 
A  P  PEN  0  E 
Agency Comments 
/"fPYfcw.., 
~	
\.S  z'- DEPARJ'MENT OF REALrn & HUMAN SERVICES  Centers lor Medicare & Medicaid Services
Administra tor 
Washington, DC 20201 
DATE: 	 OCT  1 2 2010 
TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Donald M. Berwick, M.D. 

Administrator 

SUBJECT: 	 Office ofInspector General (OIG) Draft Report: "Questionable Billing for 
Brand-Name Inhalation Drugs in South Florida" (OEI-03-09-00530) 
Thank you for the opportunity to review and comment on the subject OIG draft report. The 
Centers for Medicare & Medicaid Services (CMS) has been aware ofa problem with billings for 
brand-name inhalation drugs by durable medical equipment (DME) suppliers in South Florida, 
and in certain other areas of the country. Therefore, cMs has already taken a number of steps to 
address this problem. 
Although, as OIG reports, edits were not in place for arformeterol as of March 2010, Clinically 
Unlikely Edits (CUEs) have since been placed by CMS' Zone 7 Zone Program Integrity 
Contractor (ZPIC), SafeGuard Services (SGS), on arformeterol. CUEs have also been developed 
and placed on an additional inhalation drug, formeterol. 
In addition, although the budesonide edit savings for the South Florida tri-county area for the 
period September 9,2008, through March 31, 2010, exceeded $9 million, SGS modified the edit 
to expand its scope and geographic location to increase its effectiveness. Specifically, SGS has 
tightened the utilization parameters for the budesonide edit and has expanded the geographic 
area from the original three South Florida counties. On July 16,2010, these three new edits for 
budesonide, arformeterol, and formeterol were input into the system by SGS. 
In order to maximize (he impact of these edits and in recognition of the fact that billing shifts 
within and beyond high-fraud areas, at the request of the Zone 7 ZPIC, these three edits have 
been placed jurisdiction-wide for Durable Medical Equipment Medicare Administrative 
Contractor (DME MAC) Jurisdiction C. Following are the 14 states and 2 territories, by ZPIC 
jurisdiction, in which these edits are in effect: 
 	 ZPIC Zone 4, Health Integrity: Texas, Oklahoma, Colorado, and New Mexico; 
 	 ZPIC Zone 5, AdvanceMed: West Virginia, Virginia, North Carolina, Georgia, 
Alabama. Mississippi, Tennessee. Arkansas, and Louisiana; 
 	 ZPIC Zone 7, SGS:  Florida, Puerto Rico, and the U.S. Virgin Islands. 
OEI030900530  QUESTIONABLE BILLING FOR BRAND NAME INHALATION DRUGS IN SOUTH FLORIDA  33    
   
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  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  36    
   
 A C K N O W L E D G M E N T S  
 
This report was prepared under the direction of Robert A. Vito, Regional  
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and David E. Tawes, Director of the Medicare and 
Medicaid Prescription Drug Unit.   
Stephanie Yeager served as the team leader for this study.  Central 
office staff who contributed include Natasha Franklin and Scott Manley.  
  
  OEI-03-09-00530  QUESTIONABLE BILLING FOR BRAND-NAME INHALATION DRUGS IN SOUTH FLORIDA  37   
Office of Inspector General 
http://oig.hhs.gov 
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs.  This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 
audits with its own audit resources or by overseeing audit work done by others.  Audits 
examine the performance of HHS programs and/or its grantees and contractors in carrying 
out their respective responsibilities and are intended to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and 
mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 
of fraud and misconduct related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI utilizes its resources 
by actively coordinating with the Department of Justice and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to criminal 
convictions, administrative sanctions, and/or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support for OIGs internal operations.  OCIG represents OIG in all civil and 
administrative fraud and abuse cases involving HHS programs, including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program guidance, publishes fraud alerts, and provides other 
guidance to the health care industry concerning the anti-kickback statute and other OIG 
enforcement authorities.